ANG YU ASUNCION, ARTHUR GO AND thereafter asked the defendants to put their their property for sale for

their property for sale for a purchase price of

KEH TIONG, petitioners, offer in writing to which request defendants Eleven Million Pesos or lower, then the
vs. acceded; that in reply to defendant's letter, plaintiffs has the option to purchase the
THE HON. COURT OF APPEALS and BUEN plaintiffs wrote them on October 24, 1986 property or of first refusal, otherwise,
REALTY DEVELOPMENT asking that they specify the terms and defendants need not offer the property to the
CORPORATION, respondents. conditions of the offer to sell; that when plaintiffs if the purchase price is higher than
plaintiffs did not receive any reply, they sent Eleven Million Pesos.
VITUG, J.: another letter dated January 28, 1987 with the
same request; that since defendants failed to SO ORDERED.
Assailed, in this petition for review, is the specify the terms and conditions of the offer to
decision of the Court of Appeals, dated 04 sell and because of information received that Aggrieved by the decision, plaintiffs appealed
December 1991, in CA-G.R. SP No. 26345 defendants were about to sell the property, to this Court in
setting aside and declaring without force and plaintiffs were compelled to file the complaint CA-G.R. CV No. 21123. In a decision
effect the orders of execution of the trial court, to compel defendants to sell the property to promulgated on September 21, 1990 (penned
dated 30 August 1991 and 27 September them. by Justice Segundino G. Chua and concurred
1991, in Civil Case No. 87-41058. in by Justices Vicente V. Mendoza and
Defendants filed their answer denying the Fernando A. Santiago), this Court affirmed
The antecedents are recited in good detail by material allegations of the complaint and with modification the lower court's judgment,
the appellate court thusly: interposing a special defense of lack of cause holding:
of action.
On July 29, 1987 a Second Amended In resume, there was no meeting of the minds
Complaint for Specific Performance was filed After the issues were joined, defendants filed between the parties concerning the sale of the
by Ang Yu Asuncion and Keh Tiong, et al., a motion for summary judgment which was property. Absent such requirement, the claim
against Bobby Cu Unjieng, Rose Cu Unjieng granted by the lower court. The trial court for specific performance will not lie.
and Jose Tan before the Regional Trial Court, found that defendants' offer to sell was never Appellants' demand for actual, moral and
Branch 31, Manila in Civil Case No. 87-41058, accepted by the plaintiffs for the reason that exemplary damages will likewise fail as there
alleging, among others, that plaintiffs are the parties did not agree upon the terms and exists no justifiable ground for its award.
tenants or lessees of residential and conditions of the proposed sale, hence, there Summary judgment for defendants was
commercial spaces owned by defendants was no contract of sale at all. Nonetheless, properly granted. Courts may render summary
described as Nos. 630-638 Ongpin Street, the lower court ruled that should the judgment when there is no genuine issue as
Binondo, Manila; that they have occupied said defendants subsequently offer their property to any material fact and the moving party is
spaces since 1935 and have been religiously for sale at a price of P11-million or below, entitled to a judgment as a matter of law
paying the rental and complying with all the plaintiffs will have the right of first refusal. (Garcia vs. Court of Appeals, 176 SCRA 815).
conditions of the lease contract; that on Thus the dispositive portion of the decision All requisites obtaining, the decision of the
several occasions before October 9, 1986, states: court a quo is legally justifiable.
defendants informed plaintiffs that they are
offering to sell the premises and are giving WHEREFORE, judgment is hereby rendered WHEREFORE, finding the appeal
them priority to acquire the same; that during in favor of the defendants and against the unmeritorious, the judgment appealed from is
the negotiations, Bobby Cu Unjieng offered a plaintiffs summarily dismissing the complaint hereby AFFIRMED, but subject to the
price of P6-million while plaintiffs made a subject to the aforementioned condition that if following modification: The court a quo in the
counter offer of P5-million; that plaintiffs the defendants subsequently decide to offer aforestated decision gave the plaintiffs-

1
appellants the right of first refusal only if the the transfer of title in his favor and other The gist of the motion is that the Decision of
property is sold for a purchase price of Eleven expenses incidental to the sale of above- the Court dated September 21, 1990 as
Million pesos or lower; however, considering described property including capital gains tax modified by the Court of Appeals in its
the mercurial and uncertain forces in our and accrued real estate taxes. decision in CA G.R. CV-21123, and elevated
market economy today. We find no reason not to the Supreme Court upon the petition for
to grant the same right of first refusal to herein As a consequence of the sale, TCT No. review and that the same was denied by the
appellants in the event that the subject 105254/T-881 in the name of the Cu Unjieng highest tribunal in its resolution dated May 6,
property is sold for a price in excess of Eleven spouses was cancelled and, in lieu thereof, 1991 in G.R. No.
Million pesos. No pronouncement as to costs. TCT No. 195816 was issued in the name of L-97276, had now become final and
petitioner on December 3, 1990. executory. As a consequence, there was an
SO ORDERED. Entry of Judgment by the Supreme Court as
On July 1, 1991, petitioner as the new owner of June 6, 1991, stating that the aforesaid
The decision of this Court was brought to the of the subject property wrote a letter to the modified decision had already become final
Supreme Court by petition for review lessees demanding that the latter vacate the and executory.
on certiorari. The Supreme Court denied the premises.
appeal on May 6, 1991 "for insufficiency in It is the observation of the Court that this
form and substances" (Annex H, Petition). On July 16, 1991, the lessees wrote a reply to property in dispute was the subject of
petitioner stating that petitioner brought the the Notice of Lis Pendens and that the
On November 15, 1990, while CA-G.R. CV property subject to the notice of lis modified decision of this Court promulgated by
No. 21123 was pending consideration by this pendens regarding Civil Case No. 87-41058 the Court of Appeals which had become final
Court, the Cu Unjieng spouses executed a annotated on TCT No. 105254/T-881 in the to the effect that should the defendants decide
Deed of Sale (Annex D, Petition) transferring name of the Cu Unjiengs. to offer the property for sale for a price of P11
the property in question to herein petitioner Million or lower, and considering the mercurial
Buen Realty and Development Corporation, and uncertain forces in our market economy
The lessees filed a Motion for Execution dated
subject to the following terms and conditions: today, the same right of first refusal to herein
August 27, 1991 of the Decision in Civil Case
plaintiffs/appellants in the event that the
No. 87-41058 as modified by the Court of
subject property is sold for a price in excess of
1. That for and in consideration of the sum of Appeals in CA-G.R. CV No. 21123.
Eleven Million pesos or more.
FIFTEEN MILLION PESOS (P15,000,000.00),
receipt of which in full is hereby On August 30, 1991, respondent Judge
acknowledged, the VENDORS hereby sells, WHEREFORE, defendants are hereby
issued an order (Annex A, Petition) quoted as
transfers and conveys for and in favor of the ordered to execute the necessary Deed of
follows:
VENDEE, his heirs, executors, administrators Sale of the property in litigation in favor of
or assigns, the above-described property with plaintiffs Ang Yu Asuncion, Keh Tiong and
Presented before the Court is a Motion for Arthur Go for the consideration of P15 Million
all the improvements found therein including Execution filed by plaintiff represented by Atty.
all the rights and interest in the said property pesos in recognition of plaintiffs' right of first
Antonio Albano. Both defendants Bobby Cu refusal and that a new Transfer Certificate of
free from all liens and encumbrances of Unjieng and Rose Cu Unjieng represented by
whatever nature, except the pending Title be issued in favor of the buyer.
Atty. Vicente Sison and Atty. Anacleto Magno
ejectment proceeding; respectively were duly notified in today's
All previous transactions involving the same
consideration of the motion as evidenced by
2. That the VENDEE shall pay the property notwithstanding the issuance of
the rubber stamp and signatures upon the
Documentary Stamp Tax, registration fees for another title to Buen Realty Corporation, is
copy of the Motion for Execution.
2
hereby set aside as having been executed in In this petition for review on certiorari, negotiation or preparation, its perfection and,
bad faith. petitioners contend that Buen Realty can be finally, its consummation. Negotiation covers
held bound by the writ of execution by virtue the period from the time the prospective
SO ORDERED. of the notice of lis pendens, carried over on contracting parties indicate interest in the
TCT No. 195816 issued in the name of Buen contract to the time the contract is concluded
On September 22, 1991 respondent Judge Realty, at the time of the latter's purchase of (perfected). The perfection of the contract
issued another order, the dispositive portion of the property on 15 November 1991 from the takes place upon the concurrence of the
which reads: Cu Unjiengs. essential elements thereof. A contract which
is consensual as to perfection is so
We affirm the decision of the appellate court. established upon a mere meeting of minds,
WHEREFORE, let there be Writ of Execution
i.e., the concurrence of offer and acceptance,
issue in the above-entitled case directing the
A not too recent development in real estate on the object and on the cause thereof. A
Deputy Sheriff Ramon Enriquez of this Court
transactions is the adoption of such contract which requires, in addition to the
to implement said Writ of Execution ordering
arrangements as the right of first refusal, a above, the delivery of the object of the
the defendants among others to comply with
purchase option and a contract to sell. For agreement, as in a pledge or commodatum, is
the aforesaid Order of this Court within a
ready reference, we might point out some commonly referred to as a real contract. In
period of one (1) week from receipt of this
fundamental precepts that may find some a solemn contract, compliance with certain
Order and for defendants to execute the
relevance to this discussion. formalities prescribed by law, such as in a
necessary Deed of Sale of the property in
donation of real property, is essential in order
litigation in favor of the plaintiffs Ang Yu
to make the act valid, the prescribed form
Asuncion, Keh Tiong and Arthur Go for the An obligation is a juridical necessity to give, to
being thereby an essential element thereof.
consideration of P15,000,000.00 and ordering do or not to do (Art. 1156, Civil Code). The
The stage of consummation begins when the
the Register of Deeds of the City of Manila, to obligation is constituted upon the concurrence
parties perform their respective undertakings
cancel and set aside the title already issued in of the essential elements thereof, viz: (a)
under the contract culminating in the
favor of Buen Realty Corporation which was The vinculum juris or juridical tie which is the
extinguishment thereof.
previously executed between the latter and efficient cause established by the various
defendants and to register the new title in sources of obligations (law, contracts, quasi-
favor of the aforesaid plaintiffs Ang Yu contracts, delicts and quasi-delicts); (b) Until the contract is perfected, it cannot, as an
Asuncion, Keh Tiong and Arthur Go. the object which is the prestation or conduct; independent source of obligation, serve as a
required to be observed (to give, to do or not binding juridical relation. In sales, particularly,
to do); and (c) the subject-persons who, to which the topic for discussion about the
SO ORDERED.
viewed from the demandability of the case at bench belongs, the contract is
obligation, are the active (obligee) and the perfected when a person, called the seller,
On the same day, September 27, 1991 the obligates himself, for a price certain, to deliver
corresponding writ of execution (Annex C, passive (obligor) subjects.
and to transfer ownership of a thing or right to
Petition) was issued.1 another, called the buyer, over which the latter
Among the sources of an obligation is a
agrees. Article 1458 of the Civil Code
On 04 December 1991, the appellate court, on contract (Art. 1157, Civil Code), which is a
provides:
appeal to it by private respondent, set aside meeting of minds between two persons
and declared without force and effect the whereby one binds himself, with respect to the
other, to give something or to render some Art. 1458. By the contract of sale one of the
above questioned orders of the court a quo. contracting parties obligates himself to
service (Art. 1305, Civil Code). A contract
undergoes various stages that include its transfer the ownership of and to deliver a

3
determinate thing, and the other to pay An accepted unilateral to the offeree within which to accept the offer,
therefor a price certain in money or its promise which specifies the thing to be sold the following rules generally govern:
equivalent. and the price to be paid, when coupled with a
valuable consideration distinct and separate (1) If the period is not itself founded upon or
A contract of sale may be absolute or from the price, is what may properly be supported by a consideration, the offeror is
conditional. termed a perfected contract of option. This still free and has the right to withdraw the offer
contract is legally binding, and in sales, it before its acceptance, or, if an acceptance
When the sale is not absolute but conditional, conforms with the second paragraph of Article has been made, before the offeror's coming to
such as in a "Contract to Sell" where 1479 of the Civil Code, viz: know of such fact, by communicating that
invariably the ownership of the thing sold is withdrawal to the offeree (see Art. 1324, Civil
retained until the fulfillment of a positive Art. 1479. . . .An accepted unilateral promise Code; see also Atkins, Kroll & Co. vs. Cua,
suspensive condition (normally, the full to buy or to sell a determinate thing for a price 102 Phil. 948, holding that this rule is
payment of the purchase price), the breach of certain is binding upon the promissor if the applicable to a unilateral promise to sell under
the condition will prevent the obligation to promise is supported by a consideration Art. 1479, modifying the previous decision
convey title from acquiring an obligatory distinct from the price. (1451a)6 in South Western Sugar vs. Atlantic Gulf, 97
force.2 In Dignos vs. Court of Appeals (158 Phil. 249; see also Art. 1319, Civil Code;
SCRA 375), we have said that, although Observe, however, that the option is not the Rural Bank of Parañaque, Inc., vs. Remolado,
denominated a "Deed of Conditional Sale," a contract of sale itself.7 The optionee has the 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA
sale is still absolute where the contract is right, but not the obligation, to buy. Once the 368). The right to withdraw, however, must not
devoid of any proviso that title is reserved or option is exercised timely, i.e., the offer is be exercised whimsically or arbitrarily;
the right to unilaterally rescind is stipulated, accepted before a breach of the option, a otherwise, it could give rise to a damage claim
e.g., until or unless the price is paid. bilateral promise to sell and to buy ensues under Article 19 of the Civil Code which
Ownership will then be transferred to the and both parties are then reciprocally bound ordains that "every person must, in the
buyer upon actual or constructive delivery to comply with their respective undertakings.8 exercise of his rights and in the performance
(e.g., by the execution of a public document) of his duties, act with justice, give everyone
of the property sold. Where the condition is Let us elucidate a little. A negotiation is his due, and observe honesty and good faith."
imposed upon the perfection of the contract formally initiated by an offer. An imperfect
itself, the failure of the condition would prevent promise (policitacion) is merely an offer. (2) If the period has a separate consideration,
such perfection.3 If the condition is imposed Public advertisements or solicitations and the a contract of "option" is deemed perfected,
on the obligation of a party which is not like are ordinarily construed as mere and it would be a breach of that contract to
fulfilled, the other party may either waive the invitations to make offers or only as proposals. withdraw the offer during the agreed period.
condition or refuse to proceed with the sale These relations, until a contract is perfected, The option, however, is an independent
(Art. 1545, Civil Code).4 are not considered binding commitments. contract by itself, and it is to be distinguished
Thus, at any time prior to the perfection of the from the projected main agreement (subject
An unconditional mutual promise to buy and contract, either negotiating party may stop the matter of the option) which is obviously yet to
sell, as long as the object is made determinate negotiation. The offer, at this stage, may be be concluded. If, in fact, the optioner-
and the price is fixed, can be obligatory on the withdrawn; the withdrawal is effective offeror withdraws the offer before its
parties, and compliance therewith may immediately after its manifestation, such as by acceptance (exercise of the option) by the
accordingly be exacted.5 its mailing and not necessarily when the optionee-offeree, the latter may not sue
offeree learns of the withdrawal (Laudico vs. for specific performance on the proposed
Arias, 43 Phil. 270). Where a period is given contract ("object" of the option) since it has

4
failed to reach its own stage of perfection. The Even on the premise that such right of first by respondent Judge, let alone ousted from
optioner-offeror, however, renders himself refusal has been decreed under a final the ownership and possession of the property,
liable for damages for breach of the option. In judgment, like here, its breach cannot justify without first being duly afforded its day in
these cases, care should be taken of the real correspondingly an issuance of a writ of court.
nature of the consideration given, for if, in execution under a judgment that merely
fact, it has been intended to be part of the recognizes its existence, nor would it sanction We are also unable to agree with petitioners
consideration for the main contract with a right an action for specific performance without that the Court of Appeals has erred in holding
of withdrawal on the part of the optionee, the thereby negating the indispensable element of that the writ of execution varies the terms of
main contract could be deemed perfected; a consensuality in the perfection of the judgment in Civil Case No. 87-41058, later
similar instance would be an "earnest money" contracts.11 It is not to say, however, that the affirmed in CA-G.R. CV-21123. The Court of
in a contract of sale that can evidence its right of first refusal would be inconsequential Appeals, in this regard, has observed:
perfection (Art. 1482, Civil Code). for, such as already intimated above, an
unjustified disregard thereof, given, for Finally, the questioned writ of execution is in
In the law on sales, the so-called "right of first instance, the circumstances expressed in variance with the decision of the trial court as
refusal" is an innovative juridical relation. Article 1912 of the Civil Code, can warrant a modified by this Court. As already stated,
Needless to point out, it cannot be deemed a recovery for damages. there was nothing in said decision 13 that
perfected contract of sale under Article 1458 decreed the execution of a deed of sale
of the Civil Code. Neither can the right of first The final judgment in Civil Case No. 87- between the Cu Unjiengs and respondent
refusal, understood in its normal concept, per 41058, it must be stressed, has merely lessees, or the fixing of the price of the sale,
se be brought within the purview of an option accorded a "right of first refusal" in favor of or the cancellation of title in the name of
under the second paragraph of Article 1479, petitioners. The consequence of such a petitioner (Limpin vs. IAC, 147 SCRA 516;
aforequoted, or possibly of an offer under declaration entails no more than what has Pamantasan ng Lungsod ng Maynila vs. IAC,
Article 13199 of the same Code. An option or heretofore been said. In fine, if, as it is here so 143 SCRA 311; De Guzman vs. CA, 137
an offer would require, among other things,10 a conveyed to us, petitioners are aggrieved by SCRA 730; Pastor vs. CA, 122 SCRA 885).
clear certainty on both the object and the the failure of private respondents to honor the
cause or consideration of the envisioned right of first refusal, the remedy is not a writ of It is likewise quite obvious to us that the
contract. In a right of first refusal, while the execution on the judgment, since there is decision in Civil Case No. 87-41058 could not
object might be made determinate, the none to execute, but an action for damages in have decreed at the time the execution of any
exercise of the right, however, would be a proper forum for the purpose. deed of sale between the Cu Unjiengs and
dependent not only on the grantor's eventual petitioners.
intention to enter into a binding juridical Furthermore, whether private respondent
relation with another but also on terms, Buen Realty Development Corporation, the WHEREFORE, we UPHOLD the Court of
including the price, that obviously are yet to be alleged purchaser of the property, has acted Appeals in ultimately setting aside the
later firmed up. Prior thereto, it can at best be in good faith or bad faith and whether or not it questioned Orders, dated 30 August 1991 and
so described as merely belonging to a class of should, in any case, be considered bound to 27 September 1991, of the court a quo. Costs
preparatory juridical relations governed not by respect the registration of the lis pendens in against petitioners.
contracts (since the essential elements to Civil Case No. 87-41058 are matters that must
establish the vinculum juris would still be be independently addressed in appropriate
indefinite and inconclusive) but by, among SO ORDERED.
proceedings. Buen Realty, not having been
other laws of general application, the pertinent impleaded in Civil Case No. 87-41058, cannot
scattered provisions of the Civil Code on be held subject to the writ of execution issued
human conduct.
5
G.R. No. L-48006 July 8, 1942 1939, the Court of First Instance of Manila Pedro Fontanilla to prevent damages suffered
awarded damages in favor of the plaintiffs for by the respondents. In other words, The Court
FAUSTO BARREDO, petitioner, P2,000 plus legal interest from the date of the of Appeals insists on applying in the case
vs. complaint. This decision was modified by the article 1903 of the Civil Code. Article 1903 of
SEVERINO GARCIA and TIMOTEA Court of Appeals by reducing the damages to the Civil Code is found in Chapter II, Title 16,
ALMARIO, respondents. P1,000 with legal interest from the time the Book IV of the Civil Code. This fact makes
action was instituted. It is undisputed that said article to a civil liability arising from a
BOCOBO, J.: Fontanilla 's negligence was the cause of the crime as in the case at bar simply because
mishap, as he was driving on the wrong side Chapter II of Title 16 of Book IV of the Civil
of the road, and at high speed. As to Code, in the precise words of article 1903 of
This case comes up from the Court of Appeals
Barredo's responsibility, the Court of Appeals the Civil Code itself, is applicable only to
which held the petitioner herein, Fausto
found: "those (obligations) arising from wrongful or
Barredo, liable in damages for the death of
negligent acts or commission not punishable
Faustino Garcia caused by the negligence of
... It is admitted that defendant is Fontanilla's by law.
Pedro Fontanilla, a taxi driver employed by
said Fausto Barredo. employer. There is proof that he exercised the
diligence of a good father of a family to The gist of the decision of the Court of
prevent damage. (See p. 22, appellant's brief.) Appeals is expressed thus:
At about half past one in the morning of May
In fact it is shown he was careless in
3, 1936, on the road between Malabon and
employing Fontanilla who had been caught ... We cannot agree to the defendant's
Navotas, Province of Rizal, there was a head-
several times for violation of the Automobile contention. The liability sought to be imposed
on collision between a taxi of the Malate
Law and speeding (Exhibit A) — violation upon him in this action is not a civil obligation
Taxicab driven by Pedro Fontanilla and a
which appeared in the records of the Bureau arising from a felony or a misdemeanor (the
carretela guided by Pedro Dimapalis. The
of Public Works available to be public and to crime of Pedro Fontanilla,), but an obligation
carretela was overturned, and one of its
himself. Therefore, he must indemnify imposed in article 1903 of the Civil Code by
passengers, 16-year-old boy Faustino Garcia,
plaintiffs under the provisions of article 1903 reason of his negligence in the selection or
suffered injuries from which he died two days
of the Civil Code. supervision of his servant or employee.
later. A criminal action was filed against
Fontanilla in the Court of First Instance of
Rizal, and he was convicted and sentenced to The main theory of the defense is that the The pivotal question in this case is whether
an indeterminate sentence of one year and liability of Fausto Barredo is governed by the the plaintiffs may bring this separate civil
one day to two years of prision correccional. Revised Penal Code; hence, his liability is action against Fausto Barredo, thus making
The court in the criminal case granted the only subsidiary, and as there has been no civil him primarily and directly, responsible under
petition that the right to bring a separate civil action against Pedro Fontanilla, the person article 1903 of the Civil Code as an employer
action be reserved. The Court of Appeals criminally liable, Barredo cannot be held of Pedro Fontanilla. The defendant maintains
affirmed the sentence of the lower court in the responsible in the case. The petitioner's brief that Fontanilla's negligence being punishable
criminal case. Severino Garcia and Timotea states on page 10: by the Penal Code, his (defendant's) liability
Almario, parents of the deceased on March 7, as an employer is only subsidiary, according
1939, brought an action in the Court of First ... The Court of Appeals holds that the to said Penal code, but Fontanilla has not
Instance of Manila against Fausto Barredo as petitioner is being sued for his failure to been sued in a civil action and his property
the sole proprietor of the Malate Taxicab and exercise all the diligence of a good father of a has not been exhausted. To decide the main
employer of Pedro Fontanilla. On July 8, family in the selection and supervision of issue, we must cut through the tangle that

6
has, in the minds of many confused and ART. 1093. Those which are derived from Finally, teachers or directors of arts trades are
jumbled together delitos and cuasi delitos, or acts or omissions in which fault or negligence, liable for any damages caused by their pupils
crimes under the Penal Code and fault or not punishable by law, intervenes shall be or apprentices while they are under their
negligence under articles 1902-1910 of the subject to the provisions of Chapter II, Title custody.
Civil Code. This should be done, because XVI of this book.
justice may be lost in a labyrinth, unless The liability imposed by this article shall cease
principles and remedies are distinctly ART 1902. Any person who by an act or in case the persons mentioned therein prove
envisaged. Fortunately, we are aided in our omission causes damage to another by his that they are exercised all the diligence of a
inquiry by the luminous presentation of the fault or negligence shall be liable for the good father of a family to prevent the damage.
perplexing subject by renown jurists and we damage so done.
are likewise guided by the decisions of this ART. 1904. Any person who pays for damage
Court in previous cases as well as by the ART. 1903. The obligation imposed by the caused by his employees may recover from
solemn clarity of the consideration in several next preceding article is enforcible, not only the latter what he may have paid.
sentences of the Supreme Tribunal of Spain. for personal acts and omissions, but also for
those of persons for whom another is REVISED PENAL CODE
Authorities support the proposition that responsible.
a quasi-delict or "culpa aquiliana " is a
ART. 100. Civil liability of a person guilty of
separate legal institution under the Civil Code The father and in, case of his death or felony. — Every person criminally liable for a
with a substantivity all its own, and incapacity, the mother, are liable for any felony is also civilly liable.
individuality that is entirely apart and damages caused by the minor children who
independent from delict or crime. Upon this live with them.
principle and on the wording and spirit article ART. 101. Rules regarding civil liability in
1903 of the Civil Code, the primary and direct certain cases. — The exemption from criminal
Guardians are liable for damages done by liability established in subdivisions 1, 2, 3, 5,
responsibility of employers may be safely
minors or incapacitated persons subject to and 6 of article 12 and in subdivision 4 of
anchored.
their authority and living with them. article 11 of this Code does not include
exemption from civil liability, which shall be
The pertinent provisions of the Civil Code and
Owners or directors of an establishment or enforced to the following rules:
Revised Penal Code are as follows:
business are equally liable for any damages
caused by their employees while engaged in First. In cases of subdivision, 1, 2 and 3 of
CIVIL CODE the branch of the service in which employed, article 12 the civil liability for acts committed
or on occasion of the performance of their by any imbecile or insane person, and by a
ART. 1089 Obligations arise from law, from duties. person under nine years of age, or by one
contracts and quasi-contracts, and from acts over nine but under fifteen years of age, who
and omissions which are unlawful or in which The State is subject to the same liability when has acted without discernment shall devolve
any kind of fault or negligence intervenes. it acts through a special agent, but not if the upon those having such person under their
damage shall have been caused by the official legal
ART. 1092. Civil obligations arising from upon whom properly devolved the duty of
felonies or misdemeanors shall be governed doing the act performed, in which case the authority or control, unless it appears that
by the provisions of the Penal Code. provisions of the next preceding article shall there was no fault or negligence on their part.
be applicable.

7
Should there be no person having such civilly liable for crimes committed in their in its minimum and medium periods shall be
insane, imbecile or minor under his authority, establishments, in all cases where a violation imposed.
legal guardianship, or control, or if such of municipal ordinances or some general or
person be insolvent, said insane, imbecile, or special police regulation shall have been Any person who, by simple imprudence or
minor shall respond with their own property, committed by them or their employees. negligence, shall commit an act which would
excepting property exempt from execution, in otherwise constitute a grave felony, shall
accordance with the civil law. Innkeepers are also subsidiarily liable for the suffer the penalty of arresto mayor in its
restitution of goods taken by robbery or theft medium and maximum periods; if it would
Second. In cases falling within subdivision 4 of within their houses lodging therein, or the have constituted a less serious felony, the
article 11, the person for whose benefit the person, or for the payment of the value penalty of arresto mayor in its minimum period
harm has been prevented shall be civilly liable thereof, provided that such guests shall have shall be imposed."
in proportion to the benefit which they may notified in advance the innkeeper himself, or
have received. the person representing him, of the deposit of It will thus be seen that while the terms of
such goods within the inn; and shall articles 1902 of the Civil Code seem to be
The courts shall determine, in their sound furthermore have followed the directions broad enough to cover the driver's negligence
discretion, the proportionate amount for which which such innkeeper or his representative in the instant case, nevertheless article 1093
each one shall be liable. may have given them with respect to the care limits cuasi-delitos to acts or omissions "not
of and vigilance over such goods. No liability punishable by law." But inasmuch as article
When the respective shares can not be shall attach in case of robbery with violence 365 of the Revised Penal Code punishes not
equitably determined, even approximately, or against or intimidation against or intimidation only reckless but even simple imprudence or
when the liability also attaches to the of persons unless committed by the negligence, the fault or negligence under
Government, or to the majority of the innkeeper's employees. article 1902 of the Civil Code has apparently
inhabitants of the town, and, in all events, been crowded out. It is this overlapping that
whenever the damage has been caused with ART. 103. Subsidiary civil liability of other makes the "confusion worse confounded."
the consent of the authorities or their agents, persons. — The subsidiary liability established However, a closer study shows that such a
indemnification shall be made in the manner in the next preceding article shall also apply to concurrence of scope in regard to negligent
prescribed by special laws or regulations. employers, teachers, persons, and acts does not destroy the distinction between
corporations engaged in any kind of industry the civil liability arising from a crime and the
Third. In cases falling within subdivisions 5 for felonies committed by their servants, responsibility for cuasi-delitos or culpa extra-
and 6 of article 12, the persons using violence pupils, workmen, apprentices, or employees in contractual. The same negligent act causing
or causing the fear shall be primarily liable the discharge of their duties. damages may produce civil liability arising
and secondarily, or, if there be no such from a crime under article 100 of the Revised
persons, those doing the act shall be liable, ART. 365. Imprudence and negligence. — Penal Code, or create an action for cuasi-
saving always to the latter that part of their Any person who, by reckless imprudence, delito or culpa extra-contractual under articles
property exempt from execution. shall commit any act which, had it been 1902-1910 of the Civil Code.
intentional, would constitute a grave felony,
ART. 102. Subsidiary civil liability of shall suffer the penalty of arresto mayor in its The individuality of cuasi-delito or culpa extra-
innkeepers, tavern keepers and proprietors of maximum period to prision correccional in its contractual looms clear and unmistakable.
establishment. — In default of persons minimum period; if it would have constituted a This legal institution is of ancient lineage, one
criminally liable, innkeepers, tavern keepers, less grave felony, the penalty of arresto mayor of its early ancestors being the Lex Aquilia in
and any other persons or corporation shall be the Roman Law. In fact, in Spanish legal

8
terminology, this responsibility is often intervenes." However, it should be noted that the Ferrocarril del Norte. An employee of the
referred to as culpa aquiliana. The Partidas not all violations of the penal law produce civil latter had been prosecuted in a criminal case,
also contributed to the genealogy of the responsibility, such as begging in in which the company had been made a party
present fault or negligence under the Civil contravention of ordinances, violation of the as subsidiarily responsible in civil damages.
Code; for instance, Law 6, Title 15, of Partida game laws, infraction of the rules of traffic The employee had been acquitted in the
7, says: "Tenudo es de fazer emienda, when nobody is hurt. (See Colin and Capitant, criminal case, and the employer, the
porque, como quier que el non fizo a "Curso Elemental de Derecho Civil," Vol. 3, p. Ferrocarril del Norte, had also been
sabiendas en daño al otro, pero acaescio por 728.) exonerated. The question asked was whether
su culpa." the Ferrocarril Cantabrico could still bring a
Let us now ascertain what some jurists say on civil action for damages against the Ferrocarril
The distinctive nature of cuasi-delitos survives the separate existence of quasi-delicts and del Norte. Maura's opinion was in the
in the Civil Code. According to article 1089, the employer's primary and direct liability affirmative, stating in part
one of the five sources of obligations is this under article 1903 of the Civil Code. (Maura, Dictamenes, Vol. 6, pp. 511-513):
legal institution of cuasi-delito or culpa extra-
contractual: "los actos . . . en que intervenga Dorado Montero in his essay on Quedando las cosas asi, a proposito de la
cualquier genero de culpa o negligencia." "Responsibilidad" in the "Enciclopedia Juridica realidad pura y neta de los hechos, todavia
Then article 1093 provides that this kind of Española" (Vol. XXVII, p. 414) says: menos parece sostenible que exista cosa
obligation shall be governed by Chapter II of juzgada acerca de la obligacion civil de
Title XVI of Book IV, meaning articles 1902- El concepto juridico de la responsabilidad indemnizar los quebrantos y menoscabos
0910. This portion of the Civil Code is civil abarca diversos aspectos y comprende a inferidos por el choque de los trenes. El titulo
exclusively devoted to the legal institution diferentes personas. Asi, existe una en que se funda la accion para demandar el
of culpa aquiliana. resarcimiento, no puede confundirse con las
responsabilidades civiles nacidas de delito,
responsabilidad civil propiamente dicha, que
Some of the differences between crimes siquiera exista en este, sea el cual sea,
en ningun casl lleva aparejada
under the Penal Code and the culpa una culpa rodeada de notas agravatorias que
responsabilidad criminal alguna, y otra que es
aquiliana or cuasi-delito under the Civil Code motivan sanciones penales, mas o menos
consecuencia indeclinable de la penal que
are: severas. La lesion causada por delito o falta
nace de todo delito o falta."
en los derechos civiles, requiere restituciones,
1. That crimes affect the public interest, reparaciones o indemnizaciones, que cual la
The juridical concept of civil responsibility has pena misma atañen al orden publico; por tal
while cuasi-delitos are only of private concern. various aspects and comprises different motivo vienen encomendadas, de ordinario, al
persons. Thus, there is a civil responsibility, Ministerio Fiscal; y claro es que si por esta via
2. That, consequently, the Penal Code properly speaking, which in no case carries se enmiendan los quebrantos y menoscabos,
punishes or corrects the criminal act, while the with it any criminal responsibility, and another el agraviado excusa procurar el ya
Civil Code, by means of indemnification, which is a necessary consequence of the conseguido desagravio; pero esta eventual
merely repairs the damage. penal liability as a result of every felony or coincidencia de los efectos, no borra la
misdemeanor." diversidad originaria de las acciones civiles
3. That delicts are not as broad as quasi- para pedir indemnizacion.
delicts, because the former are punished only Maura, an outstanding authority, was
if there is a penal law clearly covering them, consulted on the following case: There had Estas, para el caso actual (prescindiendo de
while the latter, cuasi-delitos, include all acts been a collision between two trains belonging culpas contractuales, que no vendrian a
in which "any king of fault or negligence respectively to the Ferrocarril Cantabrico and
9
cuento y que tiene otro regimen), dimanan, ocasion de sus funciones. Por esto acontece, losses caused by the collision of the trains.
segun el articulo 1902 del Codigo Civil, de y se observa en la jurisprudencia, que las The title upon which the action for reparation
toda accion u omision, causante de daños o empresas, despues de intervenir en las is based cannot be confused with the civil
perjuicios, en que intervenga culpa o causas criminales con el caracter subsidiario responsibilities born of a crime, because there
negligencia. Es trivial que acciones de su responsabilidad civil por razon del exists in the latter, whatever each nature,
semejantes son ejercitadas ante los delito, son demandadas y condenadas directa a culpa surrounded with aggravating aspects
Tribunales de lo civil cotidianamente, sin que y aisladamente, cuando se trata de la which give rise to penal measures that are
la Justicia punitiva tenga que mezclarse en obligacion, ante los tribunales civiles. more or less severe. The injury caused by a
los asuntos. Los articulos 18 al 21 y 121 al felony or misdemeanor upon civil rights
128 del Codigo Penal, atentos al espiritu y a Siendo como se ve, diverso el titulo de esta requires restitutions, reparations, or
los fines sociales y politicos del mismo, obligacion, y formando verdadero postulado indemnifications which, like the penalty itself,
desenvuelven y ordenan la materia de de nuestro regimen judicial la separacion affect public order; for this reason, they are
responsabilidades civiles nacidas de delito, en entre justicia punitiva y tribunales de lo civil, ordinarily entrusted to the office of the
terminos separados del regimen por ley de suerte que tienen unos y otros normas de prosecuting attorney; and it is clear that if by
comun de la culpa que se denomina fondo en distintos cuerpos legales, y this means the losses and damages are
aquiliana, por alusion a precedentes diferentes modos de proceder, habiendose, repaired, the injured party no longer desires to
legislativos del Corpus Juris. Seria por añadidura, abstenido de asistir al juicio seek another relief; but this coincidence of
intempestivo un paralelo entre aquellas criminal la Compañia del Ferrocarril effects does not eliminate the peculiar nature
ordenaciones, y la de la obligacion de Cantabrico, que se reservo ejercitar sus of civil actions to ask for indemnity.
indemnizar a titulo de culpa civil; pero viene al acciones, parece innegable que la de
caso y es necesaria una de las indemnizacion por los daños y perjuicios que Such civil actions in the present case (without
diferenciaciones que en el tal paralelo se le irrogo el choque, no estuvo sub judice ante referring to contractual faults which are not
notarian. el Tribunal del Jurado, ni fue sentenciada, pertinent and belong to another scope) are
sino que permanecio intacta, al pronunciarse derived, according to article 1902 of the Civil
Los articulos 20 y 21 del Codigo Penal, el fallo de 21 de marzo. Aun cuando el Code, from every act or omission causing
despues de distribuir a su modo las veredicto no hubiese sido de inculpabilidad, losses and damages in which culpa or
responsabilidades civiles, entre los que sean mostrose mas arriba, que tal accion quedaba negligence intervenes. It is unimportant that
por diversos conceptos culpables del delito o legitimamente reservada para despues del such actions are every day filed before the
falta, las hacen extensivas a las empresas y proceso; pero al declararse que no existio civil courts without the criminal courts
los establecimientos al servicio de los cuales delito, ni responsabilidad dimanada de delito, interfering therewith. Articles 18 to 21 and 121
estan los delincuentes; pero con caracter materia unica sobre que tenian jurisdiccion to 128 of the Penal Code, bearing in mind the
subsidiario, o sea, segun el texto literal, en aquellos juzgadores, se redobla el motivo spirit and the social and political purposes of
defecto de los que sean responsables para la obligacion civil ex lege, y se patentiza that Code, develop and regulate the matter of
criminalmente. No coincide en ello el Codigo mas y mas que la accion para pedir su civil responsibilities arising from a crime,
Civil, cuyo articulo 1903, dice; La obligacion cumplimiento permanece incolume, extraña a separately from the regime under common
que impone el articulo anterior es exigible, no la cosa juzgada. law, of culpa which is known as aquiliana, in
solo por los actos y omisiones propios, sino accordance with legislative precedent of
por los de aquellas personas de quienes se As things are, apropos of the reality pure and the Corpus Juris. It would be unwarranted to
debe responder; personas en la enumeracion simple of the facts, it seems less tenable that make a detailed comparison between the
de las cuales figuran los dependientes y there should be res judicata with regard to the former provisions and that regarding the
empleados de los establecimientos o civil obligation for damages on account of the obligation to indemnify on account of
empresas, sea por actos del servicio, sea con
10
civil culpa; but it is pertinent and necessary to taking part in the criminal case and has subsidiary to the principal action; the action for
point out to one of such differences. reserved the right to exercise its actions, it responsibility (of the employer) is in itself a
seems undeniable that the action for principal action. (Laurent, Principles of French
Articles 20 and 21 of the Penal Code, after indemnification for the losses and damages Civil Law, Spanish translation, Vol. 20, pp.
distriburing in their own way the civil caused to it by the collision was not sub 734-735.)
responsibilities among those who, for different judice before the Tribunal del Jurado, nor was
reasons, are guilty of felony or misdemeanor, it the subject of a sentence, but it remained Amandi, in his "Cuestionario del Codigo Civil
make such civil responsibilities applicable to intact when the decision of March 21 was Reformado" (Vol. 4, pp. 429, 430), declares
enterprises and establishments for which the rendered. Even if the verdict had not been that that the responsibility of the employer is
guilty parties render service, but with of acquittal, it has already been shown that principal and not subsidiary. He writes:
subsidiary character, that is to say, according such action had been legitimately reserved till
to the wording of the Penal Code, in default of after the criminal prosecution; but because of Cuestion 1. La responsabilidad declarada en
those who are criminally responsible. In this the declaration of the non-existence of the el articulo 1903 por las acciones u omisiones
regard, the Civil Code does not coincide felony and the non-existence of the de aquellas personas por las que se debe
because article 1903 says: "The obligation responsibility arising from the crime, which responder, es subsidiaria? es principal? Para
imposed by the next preceding article is was the sole subject matter upon which contestar a esta pregunta es necesario saber,
demandable, not only for personal acts and the Tribunal del Jurado had jurisdiction, there en primer lugar, en que se funda el precepto
omissions, but also is greater reason for the civil obligation ex legal. Es que realmente se impone una
lege, and it becomes clearer that the action for responsabilidad por una falta ajena? Asi
for those of persons for whom another is its enforcement remain intact and is not res parece a primera vista; pero semejante
responsible." Among the persons enumerated judicata. afirmacion seria contraria a la justicia y a la
are the subordinates and employees of maxima universal, segun la que las faltas son
establishments or enterprises, either for acts Laurent, a jurist who has written a personales, y cada uno responde de aquellas
during their service or on the occasion of their monumental work on the French Civil Code, que le son imputables. La responsabilidad de
functions. It is for this reason that it happens, on which the Spanish Civil Code is largely que tratamos se impone con ocasion de un
and it is so observed in judicial decisions, that based and whose provisions on cuasi- delito o culpa, pero no por causa de ellos,
the companies or enterprises, after taking part delito or culpa extra-contractual are similar to sino por causa del causi delito, esto es, de la
in the criminal cases because of their those of the Spanish Civil Code, says, imprudencia o de la negligencia del padre, del
subsidiary civil responsibility by reason of the referring to article 1384 of the French Civil tutor, del dueño o director del establecimiento,
crime, are sued and Code which corresponds to article 1903, del maestro, etc. Cuando cualquiera de las
sentenced directly and separately with regard Spanish Civil Code: personas que enumera el articulo citado
to the obligation, before the civil courts. (menores de edad, incapacitados,
The action can be brought directly against the dependientes, aprendices) causan un daño, la
Seeing that the title of this obligation is person responsible (for another), without ley presume que el padre, el tutor, el maestro,
different, and the separation between punitive including the author of the act. The action etc., han cometido una falta de negligencia
justice and the civil courts being a true against the principal is accessory in the sense para prevenir o evitar el daño. Esta falta es la
postulate of our judicial system, so that they that it implies the existence of a prejudicial act que la ley castiga. No hay, pues,
have different fundamental norms in different committed by the employee, but it is not responsabilidad por un hecho ajeno, sino en
codes, as well as different modes of subsidiary in the sense that it can not be la apariencia; en realidad la responsabilidad
procedure, and inasmuch as the Compaña del instituted till after the judgment against the se exige por un hecho propio. La idea de que
Ferrocarril Cantabrico has abstained from author of the act or at least, that it is

11
esa responsabilidad sea subsidiaria es, por lo Es decir, no responde de hechos ajenos, delict or culpa extra-contractual is a separate
tanto, completamente inadmisible. porque se responde solo de su propia culpa, and distinct legal institution, independent from
doctrina del articulo 1902; mas por excepcion, the civil responsibility arising from criminal
Question No. 1. Is the responsibility declared se responde de la ajena respecto de aquellas liability, and that an employer is, under article
in article 1903 for the acts or omissions of personas con las que media algun nexo o 1903 of the Civil Code, primarily and directly
those persons for who one is responsible, vinculo, que motiva o razona la responsible for the negligent acts of his
subsidiary or principal? In order to answer this responsabilidad. Esta responsabilidad, es employee.
question it is necessary to know, in the first directa o es subsidiaria? En el orden penal, el
place, on what the legal provision is based. Is Codigo de esta clase distingue entre menores One of the most important of those Spanish
it true that there is a responsibility for the fault e incapacitados y los demas, declarando decisions is that of October 21, 1910. In that
of another person? It seems so at first sight; directa la primera (articulo 19) y subsidiaria la case, Ramon Lafuente died as the result of
but such assertion would be contrary to justice segunda (articulos 20 y 21); pero en el orden having been run over by a street car owned by
and to the universal maxim that all faults are civil, en el caso del articulo 1903, ha de the "compañia Electric Madrileña de
personal, and that everyone is liable for those entenderse directa, por el tenor del articulo Traccion." The conductor was prosecuted in a
faults that can be imputed to him. The que impone la responsabilidad precisamente criminal case but he was acquitted.
responsibility in question is imposed on the "por los actos de aquellas personas de Thereupon, the widow filed a civil action
occasion of a crime or fault, but not because quienes se deba responder." against the street car company, paying for
of the same, but because of the cuasi-delito, damages in the amount of 15,000 pesetas.
that is to say, the imprudence or negligence of That is to say, one is not responsible for the The lower court awarded damages; so the
the father, guardian, proprietor or manager of acts of others, because one is liable only for company appealed to the Supreme Tribunal,
the establishment, of the teacher, etc. his own faults, this being the doctrine of article alleging violation of articles 1902 and 1903 of
Whenever anyone of the persons enumerated 1902; but, by exception, one is liable for the the Civil Code because by final judgment the
in the article referred to (minors, incapacitated acts of those persons with whom there is a non-existence of fault or negligence had been
persons, employees, apprentices) causes any bond or tie which gives rise to the declared. The Supreme Court of Spain
damage, the law presumes that the father, responsibility. Is this responsibility direct or dismissed the appeal, saying:
guardian, teacher, etc. have committed an act subsidiary? In the order of the penal law, the
of negligence in not preventing or Penal Code distinguishes between minors and Considerando que el primer motivo del
incapacitated persons on the one hand, and recurso se funda en el equivocado supuesto
avoiding the damage. It is this fault that is other persons on the other, declaring that the de que el Tribunal a quo, al condonar a la
condemned by the law. It is, therefore, only responsibility for the former is direct (article compañia Electrica Madrileña al pago del
apparent that there is a responsibility for the 19), and for the latter, subsidiary (articles 20 daño causado con la muerte de Ramon La
act of another; in reality the responsibility and 21); but in the scheme of the civil law, in fuente Izquierdo, desconoce el valor y efectos
exacted is for one's own act. The idea that the case of article 1903, the responsibility juridicos de la sentencia absolutoria deictada
such responsibility is subsidiary is, therefore, should be understood as direct, according to en la causa criminal que se siguio por el
completely inadmissible. the tenor of that articles, for precisely it mismo hecho, cuando es lo cierto que de este
imposes responsibility "for the acts of those han conocido las dos jurisdicciones bajo
Oyuelos, in his "Digesto: Principios, Doctrina y persons for whom one should be responsible." diferentes as pectos, y como la de lo criminal
Jurisprudencia, Referentes al Codigo Civil declrao dentro de los limites de su
Español," says in Vol. VII, p. 743: Coming now to the sentences of the Supreme competencia que el hecho de que se trata no
Tribunal of Spain, that court has upheld the era constitutivo de delito por no haber
principles above set forth: that a quasi- mediado descuido o negligencia graves, lo

12
que no excluye, siendo este el unico reason of the damages caused by employees subsidiary one because of the civil liability of
fundamento del fallo absolutorio, el concurso under certain conditions, it is manifest that the the taxi driver arising from the latter's criminal
de la culpa o negligencia no califacadas, civil jurisdiccion in taking cognizance of the negligence; and, second, Barredo's primary
fuente de obligaciones civiles segun el articulo same act in this latter aspect and in ordering liability as an employer under article 1903.
1902 del Codigo, y que alcanzan, segun el the company, appellant herein, to pay an The plaintiffs were free to choose which
1903, netre otras perosnas, a los Directores indemnity for the damage caused by one of its course to take, and they preferred the second
de establecimientos o empresas por los employees, far from violating said legal remedy. In so doing, they were acting within
daños causados por sus dependientes en provisions, in relation with article 116 of the their rights. It might be observed in passing,
determinadas condiciones, es manifesto que Law of Criminal Procedure, strictly followed that the plaintiff choose the more expeditious
la de lo civil, al conocer del mismo hehco the same, without invading attributes which and effective method of relief, because
baho este ultimo aspecto y al condenar a la are beyond its own jurisdiction, and without in Fontanilla was either in prison, or had just
compañia recurrente a la indemnizacion del any way contradicting the decision in that been released, and besides, he was probably
daño causado por uno de sus empleados, cause. (Emphasis supplied.) without property which might be seized in
lejos de infringer los mencionados textos, en enforcing any judgment against him for
relacion con el articulo 116 de la Ley de It will be noted, as to the case just cited: damages.
Enjuciamiento Criminal, se ha atenido
estrictamente a ellos, sin invadir atribuciones First. That the conductor was not sued in a Third. That inasmuch as in the above
ajenas a su jurisdiccion propia, ni contrariar civil case, either separately or with the street sentence of October 21, 1910, the employer
en lo mas minimo el fallo recaido en la causa. car company. This is precisely what happens was held liable civilly, notwithstanding the
in the present case: the driver, Fontanilla, has acquittal of the employee (the conductor) in a
Considering that the first ground of the appeal not been sued in a civil action, either alone or previous criminal case, with greater reason
is based on the mistaken supposition that the with his employer. should Barredo, the employer in the case at
trial court, in sentencing the Compañia bar, be held liable for damages in a civil suit
Madrileña to the payment of the damage Second. That the conductor had been filed against him because his taxi driver had
caused by the death of Ramon Lafuente acquitted of grave criminal negligence, but the been convicted. The degree of negligence of
Izquierdo, disregards the value and juridical Supreme Tribunal of Spain said that this did the conductor in the Spanish case cited was
effects of the sentence of acquittal rendered in not exclude the co-existence of fault or less than that of the taxi driver, Fontanilla,
the criminal case instituted on account of the negligence, which is not qualified, on the part because the former was acquitted in the
same act, when it is a fact that the two of the conductor, under article 1902 of the previous criminal case while the latter was
jurisdictions had taken cognizance of the Civil Code. In the present case, the taxi driver found guilty of criminal negligence and was
same act in its different aspects, and as the was found guilty of criminal negligence, so sentenced to an indeterminate sentence of
criminal jurisdiction declared within the limits that if he had even sued for his civil one year and one day to two years of prision
of its authority that the act in question did not responsibility arising from the crime, he would correccional.
constitute a felony because there was no have been held primarily liable for civil
grave carelessness or negligence, and this damages, and Barredo would have been held (See also Sentence of February 19, 1902,
being the only basis of acquittal, it does no subsidiarily liable for the same. But the which is similar to the one above quoted.)
exclude the co-existence of fault or negligence plaintiffs are directly suing Barredo, on his
which is not qualified, and is a source of civil primary responsibility because of his own In the Sentence of the Supreme Court of
obligations according to article 1902 of the presumed negligence — which he did not Spain, dated February 14, 1919, an action
Civil Code, affecting, in accordance with overcome — under article 1903. Thus, there was brought against a railroad company for
article 1903, among other persons, the were two liabilities of Barredo: first, the damages because the station agent,
managers of establishments or enterprises by
13
employed by the company, had unjustly sino que se limita a pedir la reparaction de los the parties litigant and, therefore, article 371
and fraudulently, refused to deliver certain daños y perjuicios producidos en el patrimonio of the Code of Commerce, on which the
articles consigned to the plaintiff. The del actor por la injustificada y dolosa negativa decision appealed from is based, is not
Supreme Court of Spain held that this action del porteador a la entrega de las mercancias applicable; but it limits to asking for reparation
was properly under article 1902 of the Civil a su nombre consignadas, segun lo reconoce for losses and damages produced on the
Code, the court saying: la sentencia, y cuya responsabilidad esta patrimony of the plaintiff on account of the
claramente sancionada en el articulo 1902 del unjustified and fraudulent refusal of the carrier
Considerando que la sentencia discutida Codigo Civil, que obliga por el siguiente a la to deliver the goods consigned to the plaintiff
reconoce, en virtud de los hechos que Compañia demandada como ligada con el as stated by the sentence, and the carrier's
consigna con relacion a las pruebas del pleito: causante de aquellos por relaciones de responsibility is clearly laid down in article
1.º, que las expediciones facturadas por la caracter economico y de jurarquia 1902 of the Civil Code which binds, in virtue of
compañia ferroviaria a la consignacion del administrativa. the next article, the defendant company,
actor de las vasijas vacias que en su because the latter is connected with the
demanda relacionan tenian como fin el que Considering that the sentence, in question person who caused the damage by relations
este las devolviera a sus remitentes con vinos recognizes, in virtue of the facts which it of economic character and by administrative
y alcoholes; 2.º, que llegadas a su destino declares, in relation to the evidence in the hierarchy. (Emphasis supplied.)
tales mercanias no se quisieron entregar a case: (1) that the invoice issued by the
dicho consignatario por el jefe de la estacion railroad company in favor of the plaintiff The above case is pertinent because it shows
sin motivo justificado y con intencion dolosa, y contemplated that the empty receptacles that the same act may come under both the
3.º, que la falta de entrega de estas referred to in the complaint should be returned Penal Code and the Civil Code. In that case,
expediciones al tiempo de reclamarlas el to the consignors with wines and liquors; (2) the action of the agent was unjustified
demandante le originaron daños y perjuicios that when the said merchandise reached their and fraudulent and therefore could have been
en cantidad de bastante importancia como destination, their delivery to the consignee the subject of a criminal action. And yet, it was
expendedor al por mayor que era de vinos y was refused by the station agent without held to be also a proper subject of a civil
alcoholes por las ganancias que dejo de justification and with fraudulent intent, and (3) action under article 1902 of the Civil Code. It
obtener al verse privado de servir los pedidos that the lack of delivery of these goods when is also to be noted that it was the employer
que se le habian hecho por los remitentes en they were demanded by the plaintiff caused and not the employee who was being sued.
los envases: him losses and damages of considerable
importance, as he was a wholesale vendor of Let us now examine the cases previously
Considerando que sobre esta base hay wines and liquors and he failed to realize the decided by this Court.
necesidad de estimar los cuatro motivos que profits when he was unable to fill the orders
integran este recurso, porque la demanda sent to him by the consignors of the In the leading case of Rakes vs. Atlantic Gulf
inicial del pleito a que se contrae no contiene receptacles: and Pacific Co. (7 Phil., 359, 362-365 [year
accion que nazca del incumplimiento del 1907]), the trial court awarded damages to the
contrato de transporte, toda vez que no se Considering that upon this basis there is need plaintiff, a laborer of the defendant, because
funda en el retraso de la llegada de las of upholding the four assignments of error, as the latter had negligently failed to repair a
mercancias ni de ningun otro vinculo the original complaint did not contain any tramway in consequence of which the rails slid
contractual entre las partes contendientes, cause of action arising from non-fulfillment of off while iron was being transported, and
careciendo, por tanto, de aplicacion el articulo a contract of transportation, because the caught the plaintiff whose leg was broken.
371 del Codigo de Comercio, en que action was not based on the delay of the This Court held:
principalmente descansa el fallo recurrido, goods nor on any contractual relation between

14
It is contended by the defendant, as its first employed or in the performance of their should be sought therewith, unless it had
defense to the action that the necessary duties. been waived by the party injured or been
conclusion from these collated laws is that the expressly reserved by him for civil
remedy for injuries through negligence lies "The liability referred to in this article shall proceedings for the future. If the civil action
only in a criminal action in which the official cease when the persons mentioned therein alone was prosecuted, arising out of a crime
criminally responsible must be made primarily prove that they employed all the diligence of a that could be enforced only on private
liable and his employer held only subsidiarily good father of a family to avoid the damage." complaint, the penal action thereunder should
to him. According to this theory the plaintiff be extinguished. These provisions are in
should have procured the arrest of the As an answer to the argument urged in this harmony with those of articles 23 and 133 of
representative of the company accountable for particular action it may be sufficient to point our Penal Code on the same subject.
not repairing the track, and on his prosecution out that nowhere in our general statutes
a suitable fine should have been imposed, An examination of this topic might be carried
payable primarily by him and secondarily by much further, but the citation of these articles
is the employer penalized for failure to provide
his employer. suffices to show that the civil liability was not
or maintain safe appliances for his workmen.
His obligation therefore is one 'not punished intended to be merged in the criminal nor
This reasoning misconceived the plan of the by the laws' and falls under civil rather than even to be suspended thereby, except as
Spanish codes upon this subject. Article 1093 criminal jurisprudence. But the answer may be expressly provided in the law. Where an
of the Civil Code makes obligations arising a broader one. We should be reluctant, under individual is civilly liable for a negligent act or
from faults or negligence not punished by the any conditions, to adopt a forced construction omission, it is not required that the injured
law, subject to the provisions of Chapter II of of these scientific codes, such as is proposed party should seek out a third person criminally
Title XVI. Section 1902 of that chapter reads: by the defendant, that would rob some of liable whose prosecution must be a condition
these articles of effect, would shut out litigants precedent to the enforcement of the civil right.
"A person who by an act or omission causes against their will from the civil courts, would
damage to another when there is fault or make the assertion of their rights dependent Under article 20 of the Penal Code the
negligence shall be obliged to repair the upon the selection for prosecution of the responsibility of an employer may be regarded
damage so done. proper criminal offender, and render recovery as subsidiary in respect of criminal actions
doubtful by reason of the strict rules of proof against his employees only while they are in
"SEC. 1903. The obligation imposed by the prevailing in criminal actions. Even if these process of prosecution, or in so far as they
preceeding article is demandable, not only for articles had always stood alone, such a determine the existence of the criminal act
personal acts and omissions, but also for construction would be unnecessary, but clear from which liability arises, and his obligation
those of the persons for whom they should be light is thrown upon their meaning by the under the civil law and its enforcement in the
responsible. provisions of the Law of Criminal Procedure of civil courts is not barred thereby unless by the
Spain (Ley de Enjuiciamiento Criminal), election of the injured person. Inasmuch as no
"The father, and on his death or incapacity, which, though never in actual force in these criminal proceeding had been instituted,
the mother, is liable for the damages caused Islands, was formerly given a suppletory or growing our of the accident in question, the
by the minors who live with them. explanatory effect. Under article 111 of this provisions of the Penal Code can not affect
law, both classes of action, civil and criminal, this action. This construction renders it
might be prosecuted jointly or separately, but unnecessary to finally determine here whether
"Owners or directors of an establishment or
while the penal action was pending the civil this subsidiary civil liability in penal actions
enterprise are equally liable for the damages
was suspended. According to article 112, the has survived the laws that fully regulated it or
caused by their employees in the service of
penal action once started, the civil remedy has been abrogated by the American civil and
the branches in which the latter may be
15
criminal procedure now in force in the death of the child, who had been run over by It will be noticed that the defendant in the
Philippines. an automobile driven and managed by the above case could have been prosecuted in a
defendant. The trial court rendered judgment criminal case because his negligence causing
The difficulty in construing the articles of the requiring the defendant to pay the plaintiff the the death of the child was punishable by the
code above cited in this case appears from sum of P1,000 as indemnity: This Court in Penal Code. Here is therefore a clear instance
the briefs before us to have arisen from the affirming the judgment, said in part: of the same act of negligence being a proper
interpretation of the words of article 1093, subject-matter either of a criminal action with
"fault or negligence not punished by law," as If it were true that the defendant, in coming its consequent civil liability arising from a
applied to the comprehensive definition of from the southern part of Solana Street, had crime or of an entirely separate and
offenses in articles 568 and 590 of the Penal to stop his auto before crossing Real Street, independent civil action for fault or negligence
Code. It has been shown that the liability of an because he had met vehicles which were under article 1902 of the Civil Code. Thus, in
employer arising out of his relation to his going along the latter street or were coming this jurisdiction, the separate individually of
employee who is the offender is not to be from the opposite direction along Solana a cuasi-delito or culpa aquiliana under the
regarded as derived from negligence Street, it is to be believed that, when he again Civil Code has been fully and clearly
punished by the law, within the meaning of started to run his auto across said Real Street recognized, even with regard to a negligent
articles 1902 and 1093. More than this, and to continue its way along Solana Street act for which the wrongdoer could have been
however, it cannot be said to fall within the northward, he should have adjusted the speed prosecuted and convicted in a criminal case
class of acts unpunished by the law, the of the auto which he was operating until he and for which, after such a conviction, he
consequence of which are regulated by had fully crossed Real Street and had could have been sued for this civil liability
articles 1902 and 1903 of the Civil Code. The completely reached a clear way on Solana arising from his crime.
acts to which these articles are applicable are Street. But, as the child was run over by the
understood to be those not growing out of pre- auto precisely at the entrance of Solana Years later (in 1930) this Court had another
existing duties of the parties to one another. Street, this accident could not have occurred if occasion to apply the same doctrine.
But where relations already formed give rise the auto had been running at a slow speed, In Bernal and Enverso vs. House and
to duties, whether springing from contract or aside from the fact that the defendant, at the Tacloban Electric & Ice Plant, Ltd., 54 Phil.,
quasi contract, then breaches of those duties moment of crossing Real Street and entering 327, the parents of the five-year-old child,
are subject to articles 1101, 1103, and 1104 of Solana Street, in a northward direction, could Purificacion Bernal, brought a civil action to
the same code. A typical application of this have seen the child in the act of crossing the recover damages for the child's death as a
distinction may be found in the consequences latter street from the sidewalk on the right to result of burns caused by the fault and
of a railway accident due to defective that on the left, and if the accident had negligence of the defendants. On the evening
machinery supplied by the employer. His occurred in such a way that after the of April 10, 1925, the Good Friday procession
liability to his employee would arise out of the automobile had run over the body of the child, was held in Tacloban, Leyte. Fortunata
contract of employment, that to the and the child's body had already been Enverso with her daughter Purificacion Bernal
passengers out of the contract for passage, stretched out on the ground, the automobile had come from another municipality to attend
while that to the injured bystander would still moved along a distance of about 2 the same. After the procession the mother and
originate in the negligent act itself. meters, this circumstance shows the fact that the daughter with two others were passing
the automobile entered Solana Street from along Gran Capitan Street in front of the
In Manzanares vs. Moreta, 38 Phil., 821 (year Real Street, at a high speed without the offices of the Tacloban Electric & Ice Plant,
1918), the mother of the 8 of 9-year-old child defendant having blown the horn. If these Ltd., owned by defendants J. V. House, when
Salvador Bona brought a civil action against precautions had been taken by the defendant, an automobile appeared from the opposite
Moreta to recover damages resulting from the the deplorable accident which caused the direction. The little girl, who was slightly ahead
death of the child would not have occurred. of the rest, was so frightened by the
16
automobile that she turned to run, but for reckless or simple negligence and not only The legal aspect of the case was discussed
unfortunately she fell into the street gutter punished but also made civilly liable because by this Court thus:
where hot water from the electric plant was of his criminal negligence, nevertheless this
flowing. The child died that same night from Court awarded damages in an independent Article 1903 of the Civil Code not only
the burns. The trial courts dismissed the civil action for fault or negligence under article establishes liability in cases of negligence, but
action because of the contributory negligence 1902 of the Civil Code. also provides when the liability shall cease. It
of the plaintiffs. But this Court held, on appeal, says:
that there was no contributory negligence, and In Bahia vs. Litonjua and Leynes (30 Phil.,
allowed the parents P1,000 in damages from 624 [year 1915), the action was for damages "The liability referred to in this article shall
J. V. House who at the time of the tragic for the death of the plaintiff's daughter alleged cease when the persons mentioned therein
occurrence was the holder of the franchise for to have been caused by the negligence of the prove that they employed all the diligence of a
the electric plant. This Court said in part: servant in driving an automobile over the good father of a family to avoid the damage."
child. It appeared that the cause of the mishap
Although the trial judge made the findings of was a defect in the steering gear. The From this article two things are apparent: (1)
fact hereinbefore outlined, he nevertheless defendant Leynes had rented the automobile That when an injury is caused by the
was led to order the dismissal of the action from the International Garage of Manila, to be negligence of a servant or employee there
because of the contributory negligence of the used by him in carrying passengers during the instantly arises a presumption of law that
plaintiffs. It is from this point that a majority of fiesta of Tuy, Batangas. Leynes was ordered there was negligence on the part of the matter
the court depart from the stand taken by the by the lower court to pay P1,000 as damages or employer either in the selection of the
trial judge. The mother and her child had a to the plaintiff. On appeal this Court reversed servant or employee, or in supervision over
perfect right to be on the principal street of the judgment as to Leynes on the ground that him after the selection, or both; and (2) that
Tacloban, Leyte, on the evening when the he had shown that the exercised the care of a presumption is juris tantum and not juris et de
religious procession was held. There was good father of a family, thus overcoming the jure, and consequently, may be rebutted. It
nothing abnormal in allowing the child to run presumption of negligence under article 1903. follows necessarily that if the employer shows
along a few paces in advance of the mother. This Court said: to the satisfaction of the court that in selection
No one could foresee the coincidence of an and supervision he has exercised the care
automobile appearing and of a frightened child As to selection, the defendant has clearly and diligence of a good father of a family, the
running and falling into a ditch filled with hot shown that he exercised the care and presumption is overcome and he is relieve
water. The doctrine announced in the much diligence of a good father of a family. He from liability.
debated case of Rakes vs. Atlantic Gulf and obtained the machine from a reputable garage
Pacific Co. ([1907]), 7 Phil., 359), still rule. and it was, so far as appeared, in good This theory bases the responsibility of the
Article 1902 of the Civil Code must again be condition. The workmen were likewise master ultimately on his own negligence and
enforced. The contributory negligence of the selected from a standard garage, were duly not on that of his servant.
child and her mother, if any, does not operate licensed by the Government in their particular
as a bar to recovery, but in its strictest sense calling, and apparently thoroughly competent.
could only result in reduction of the damages. The doctrine of the case just cited was
The machine had been used but a few hours
followed by this Court in Cerf vs. Medel (33
when the accident occurred and it is clear
Phil., 37 [year 1915]). In the latter case, the
It is most significant that in the case just cited, from the evidence that the defendant had no
complaint alleged that the defendant's servant
this Court specifically applied article 1902 of notice, either actual or constructive, of the
had so negligently driven an automobile,
the Civil Code. It is thus that although J. V. defective condition of the steering gear.
which was operated by defendant as a public
House could have been criminally prosecuted
vehicle, that said automobile struck and
17
damaged the plaintiff's motorcycle. This Court, struck by the steamer Helen C belonging to Unable to collect the indemnity from
applying article 1903 and following the rule the defendant. This Court held (p. 526): Eustaquio, the City of Manila filed an action
in Bahia vs. Litonjua and Leynes, said in part against the Manila Electric Company to obtain
(p. 41) that: The evidence shows that Captain Lasa at the payment, claiming that the defendant was
time the plaintiff's wharf collapsed was a duly subsidiarily liable. The main defense was that
The master is liable for the negligent acts of licensed captain, authorized to navigate and the defendant had exercised the diligence of a
his servant where he is the owner or director direct a vessel of any tonnage, and that the good father of a family to prevent the damage.
of a business or enterprise and the negligent appellee contracted his services because of The lower court rendered judgment in favor of
acts are committed while the servant is his reputation as a captain, according to F. C. the plaintiff. This Court held, in part, that this
engaged in his master's employment as such Cadwallader. This being so, we are of the case was governed by the Penal Code,
owner. opinion that the presumption of liability against saying:
the defendant has been overcome by the
Another case which followed the decision exercise of the care and diligence of a good With this preliminary point out of the way,
in Bahia vs. Litonjua and Leynes was Cuison father of a family in selecting Captain Lasa, in there is no escaping the conclusion that the
vs. Norton & Harrison Co., 55 Phil., 18 (year accordance with the doctrines laid down by provisions of the Penal Code govern. The
1930). The latter case was an action for this court in the cases cited above, and the Penal Code in easily understandable
damages brought by Cuison for the death of defendant is therefore absolved from all language authorizes the determination of
his seven-year-old son Moises. The little boy liability. subsidiary liability. The Civil Code negatives
was on his way to school with his sister its application by providing that civil
Marciana. Some large pieces of lumber fell It is, therefore, seen that the defendant's obligations arising from crimes or
from a truck and pinned the boy underneath, theory about his secondary liability is misdemeanors shall be governed by the
instantly killing him. Two youths, Telesforo negatived by the six cases above set forth. He provisions of the Penal Code. The conviction
Binoya and Francisco Bautista, who were is, on the authority of these cases, primarily of the motorman was a misdemeanor falling
working for Ora, an employee of defendant and directly responsible in damages under under article 604 of the Penal Code. The act
Norton & Harrison Co., pleaded guilty to the article 1903, in relation to article 1902, of the of the motorman was not a wrongful or
crime of homicide through reckless negligence Civil Code. negligent act or omission not punishable by
and were sentenced accordingly. This Court, law. Accordingly, the civil obligation connected
applying articles 1902 and 1903, held: Let us now take up the Philippine decisions up with the Penal Code and not with article
relied upon by the defendant. We study 1903 of the Civil Code. In other words, the
The basis of civil law liability is not respondent first, City of Manila vs. Manila Electric Co., 52 Penal Code affirms its jurisdiction while the
superior but the relationship of pater familias. Phil., 586 (year 1928). A collision between a Civil Code negatives its jurisdiction. This is a
This theory bases the liability of the master truck of the City of Manila and a street car of case of criminal negligence out of which civil
ultimately on his own negligence and not on the Manila Electric Co. took place on June 8, liability arises and not a case of civil
that of his servant. (Bahia vs. Litonjua and 1925. The truck was damaged in the amount negligence.
Leynes [1915], 30 Phil., 624; Cangco vs. of P1,788.27. Sixto Eustaquio, the motorman,
Manila Railroad Co. [1918], 38 Phil., 768.) was prosecuted for the crime of damage to xxx xxx xxx
property and slight injuries through reckless
In Walter A. Smith & Co. vs. Cadwallader imprudence. He was found guilty and Our deduction, therefore, is that the case
Gibson Lumber Co., 55 Phil., 517 (year 1930) sentenced to pay a fine of P900, to indemnify relates to the Penal Code and not to the Civil
the plaintiff brought an action for damages for the City of Manila for P1,788.27, with Code. Indeed, as pointed out by the trial
the demolition of its wharf, which had been subsidiary imprisonment in case of insolvency. judge, any different ruling would permit the

18
master to escape scot-free by simply alleging subsidiary liability of the defendant as The defendant-petitioner also cites Francisco
and proving that the master had exercised all employer under the Penal Code. The vs. Onrubia (46 Phil., 327). That case need
diligence in the selection and training of its defendant attempted to show that it had not be set forth. Suffice it to say that the
servants to prevent the damage. That would exercised the diligence of a good father of a question involved was also civil liability arising
be a good defense to a strictly civil action, but family in selecting the motorman, and from a crime. Hence, it is as inapplicable as
might or might not be to a civil action either as therefore claimed exemption from civil liability. the two cases above discussed.
a part of or predicated on conviction for a But this Court held:
crime or misdemeanor. (By way of The foregoing authorities clearly demonstrate
parenthesis, it may be said further that the In view of the foregoing considerations, we the separate individuality of cuasi-
statements here made are offered to meet the are of opinion and so hold, (1) that the delitos or culpa aquiliana under the Civil
argument advanced during our deliberations exemption from civil liability established in Code. Specifically they show that there is a
to the effect that article 0902 of the Civil Code article 1903 of the Civil Code for all who have distinction between civil liability arising from
should be disregarded and codal articles 1093 acted with the diligence of a good father of a criminal negligence (governed by the Penal
and 1903 applied.) family, is not applicable to the subsidiary civil Code) and responsibility for fault or
liability provided in article 20 of the Penal negligence under articles 1902 to 1910 of the
It is not clear how the above case could Code. Civil Code, and that the same negligent act
support the defendant's proposition, because may produce either a civil liability arising from
the Court of Appeals based its decision in the The above case is also extraneous to the a crime under the Penal Code, or a separate
present case on the defendant's primary theory of the defendant in the instant case, responsibility for fault or negligence under
responsibility under article 1903 of the Civil because the action there had for its purpose articles 1902 to 1910 of the Civil Code. Still
Code and not on his subsidiary liability arising the enforcement of the defendant's subsidiary more concretely, the authorities above cited
from Fontanilla's criminal negligence. In other liability under the Penal Code, while in the render it inescapable to conclude that the
words, the case of City of Manila vs. Manila case at bar, the plaintiff's cause of action is employer — in this case the defendant-
Electric Co., supra, is predicated on an based on the defendant's primary and direct petitioner — is primarily and directly liable
entirely different theory, which is the responsibility under article 1903 of the Civil under article 1903 of the Civil Code.
subsidiary liability of an employer arising from Code. In fact, the above case destroys the
a criminal act of his employee, whereas the defendant's contention because that decision The legal provisions, authors, and cases
foundation of the decision of the Court of illustrates the principle that the employer's already invoked should ordinarily be sufficient
Appeals in the present case is the employer's primary responsibility under article 1903 of the to dispose of this case. But inasmuch as we
primary liability under article 1903 of the Civil Civil Code is different in character from his are announcing doctrines that have been little
Code. We have already seen that this is a subsidiary liability under the Penal Code. understood in the past, it might not be
proper and independent remedy. inappropriate to indicate their foundations.
In trying to apply the two cases just referred
Arambulo vs. Manila Electric Co. (55 Phil., to, counsel for the defendant has failed to Firstly, the Revised Penal Code in article 365
75), is another case invoked by the defendant. recognize the distinction between civil liability punishes not only reckless but also simple
A motorman in the employ of the Manila arising from a crime, which is governed by the negligence. If we were to hold that articles
Electric Company had been convicted o Penal Code, and the responsibility for cuasi- 1902 to 1910 of the Civil Code refer only to
homicide by simple negligence and delito or culpa aquiliana under the Civil Code, fault or negligence not punished by law,
sentenced, among other things, to pay the and has likewise failed to give the importance according to the literal import of article 1093 of
heirs of the deceased the sum of P1,000. An to the latter type of civil action. the Civil Code, the legal institution of culpa
action was then brought to enforce the aquiliana would have very little scope and

19
application in actual life. Death or injury to there is such a remedy under our laws, but 12, p. 622, 2nd Ed.) Many jurists also base
persons and damage to property through any there is also a more expeditious way, which is this primary responsibility of the employer on
degree of negligence — even the slightest — based on the primary and direct responsibility the principle of representation of the principal
would have to be indemnified only through the of the defendant under article 1903 of the Civil by the agent. Thus, Oyuelos says in the work
principle of civil liability arising from a crime. In Code. Our view of the law is more likely to already cited (Vol. 7, p. 747) that before third
such a state of affairs, what sphere would facilitate remedy for civil wrongs, because the persons the employer and employee "vienen a
remain for cuasi-delito or culpa aquiliana? We procedure indicated by the defendant is ser como una sola personalidad, por
are loath to impute to the lawmaker any wasteful and productive of delay, it being a refundicion de la del dependiente en la de
intention to bring about a situation so absurd matter of common knowledge that quien le emplea y utiliza." ("become as one
and anomalous. Nor are we, in the professional drivers of taxis and similar public personality by the merging of the person of
interpretation of the laws, disposed to uphold conveyance usually do not have sufficient the employee in that of him who employs and
the letter that killeth rather than the spirit that means with which to pay damages. Why, utilizes him.") All these observations acquire a
giveth life. We will not use the literal meaning then, should the plaintiff be required in all peculiar force and significance when it comes
of the law to smother and render almost cases to go through this roundabout, to motor accidents, and there is need of
lifeless a principle of such ancient origin and unnecessary, and probably useless stressing and accentuating the responsibility
such full-grown development as culpa procedure? In construing the laws, courts of owners of motor vehicles.
aquiliana or cuasi-delito, which is conserved have endeavored to shorten and facilitate the
and made enduring in articles 1902 to 1910 of pathways of right and justice. Fourthly, because of the broad sweep of the
the Spanish Civil Code. provisions of both the Penal Code and the
At this juncture, it should be said that the Civil Code on this subject, which has given
Secondly, to find the accused guilty in a primary and direct responsibility of employers rise to the overlapping or concurrence of
criminal case, proof of guilt beyond and their presumed negligence are principles spheres already discussed, and for lack of
reasonable doubt is required, while in a civil calculated to protect society. Workmen and understanding of the character and efficacy of
case, preponderance of evidence is sufficient employees should be carefully chosen and the action for culpa aquiliana, there has grown
to make the defendant pay in damages. There supervised in order to avoid injury to the up a common practice to seek damages only
are numerous cases of criminal negligence public. It is the masters or employers who by virtue of the civil responsibility arising from
which can not be shown beyond reasonable principally reap the profits resulting from the a crime, forgetting that there is another
doubt, but can be proved by a preponderance services of these servants and employees. It remedy, which is by invoking articles 1902-
of evidence. In such cases, the defendant can is but right that they should guarantee the 1910 of the Civil Code. Although this habitual
and should be made responsible in a civil latter's careful conduct for the personnel and method is allowed by our laws, it has
action under articles 1902 to 1910 of the Civil patrimonial safety of others. As Theilhard has nevertheless rendered practically useless and
Code. Otherwise, there would be many said, "they should reproach themselves, at nugatory the more expeditious and effective
instances of unvindicated civil wrongs. Ubi jus least, some for their weakness, others for their remedy based on culpa aquiliana or culpa
ibi remedium. poor selection and all for their negligence." extra-contractual. In the present case, we are
And according to Manresa, "It is much more asked to help perpetuate this usual course.
Thirdly, to hold that there is only one way to equitable and just that such responsibility But we believe it is high time we pointed out to
make defendant's liability effective, and that is, should fall upon the principal or director who the harm done by such practice and to restore
to sue the driver and exhaust his (the latter's) could have chosen a careful and prudent the principle of responsibility for fault or
property first, would be tantamount to employee, and not upon the injured person negligence under articles 1902 et seq. of the
compelling the plaintiff to follow a devious and who could not exercise such selection and Civil Code to its full rigor. It is high time we
cumbersome method of obtaining relief. True, who used such employee because of his caused the stream of quasi-delict or culpa
confidence in the principal or director." (Vol. aquiliana to flow on its own natural channel,
20
so that its waters may no longer be diverted
into that of a crime under the Penal Code.
This will, it is believed, make for the better
safeguarding of private rights because it re-
establishes an ancient and additional remedy,
and for the further reason that an independent
civil action, not depending on the issues,
limitations and results of a criminal
prosecution, and entirely directed by the party
wronged or his counsel, is more likely to
secure adequate and efficacious redress.

In view of the foregoing, the judgment of the

Court of Appeals should be and is hereby
affirmed, with costs against the defendant-
petitioner.

21
G.R. No. L-32599 June 29, 1979 oncoming car, which happened to be in Crime. Case No. SM-227, and hereby
petitioner's Mercedes Benz. The case against sentences him to pay a fine of P972.50 and to
EDGARDO E. MENDOZA, petitioner jeep-owner-driver Salazar, docketed as indemnify Rodolfo Salazar in the same
vs. Criminal Case No. SM 228, was for causing amount of P972.50 as actual damages, with
HON. ABUNDIO Z. ARRIETA, Presiding damage to the Mercedes Benz of petitioner in subsidiary imprisonment in case of insolvency,
Judge of Branch VIII, Court of First the amount of P8,890.00 both as to fine and indemnity, with costs.
Instance of Manila, FELINO TIMBOL, and
RODOLFO SALAZAR, respondents. At the joint trial of the above cases, petitioner Accused Rodolfo Salazar is hereby
testified that jeep-owner- driver Salazar ACQUITTED from the offense charged in
MELENCIO-HERRERA, J: overtook the truck driven by Montoya, Crime. Case No. SM-228, with costs de oficio,
swerved to the left going towards the and his bond is ordered canceled
Petitioner, Edgardo Mendoza, seeks a review poblacion of Marilao, and hit his car which
on certiorari of the Orders of respondent was bound for Manila. Petitioner further SO ORDERED. 1
Judge in Civil Case No. 80803 dismissing his testified that before the impact, Salazar had
Complaint for Damages based on quasi- jumped from the jeep and that he was not Thus, the trial Court absolved jeep-owner-
delict against respondents Felino Timbol and aware that Salazar's jeep was bumped from driver Salazar of any liability, civil and
Rodolfo Salazar. behind by the truck driven by Montoya. criminal, in view of its findings that the
Petitioner's version of the accident was collision between Salazar's jeep and
adopted by truck driver Montoya. Jeep-owner- petitioner's car was the result of the former
The facts which spawned the present
driver Salazar, on the other hand, tried to having been bumped from behind by the truck
controversy may be summarized as follows:
show that, after overtaking the truck driven by driven by Montoya. Neither was petitioner
Montoya, he flashed a signal indicating his awarded damages as he was not a
On October 22, 1969, at about 4:00 o'clock in intention to turn left towards the poblacion of
the afternoon, a three- way vehicular accident complainant against truck-driver Montoya but
Marilao but was stopped at the intersection by only against jeep-owner-driver Salazar.
occurred along Mac-Arthur Highway, Marilao, a policeman who was directing traffic; that
Bulacan, involving a Mercedes Benz owned while he was at a stop position, his jeep was
and driven by petitioner; a private jeep owned On August 22, 1970, or after the termination
bumped at the rear by the truck driven by
and driven by respondent Rodolfo Salazar; of the criminal cases, petitioner filed Civil
Montova causing him to be thrown out of the
and a gravel and sand truck owned by Case No. 80803 with the Court of First
jeep, which then swerved to the left and hit
respondent Felipino Timbol and driven by Instance of Manila against respondents jeep-
petitioner's car, which was coming from the
Freddie Montoya. As a consequence of said owner-driver Salazar and Felino Timbol, the
opposite direction.
mishap, two separate Informations for latter being the owner of the gravel and sand
Reckless Imprudence Causing Damage to truck driven by Montoya, for indentification for
On July 31, 1970, the Court of First Instance the damages sustained by his car as a result
Property were filed against Rodolfo Salazar
of Bulacan, Branch V, Sta. Maria, rendered of the collision involving their vehicles. Jeep-
and Freddie Montoya with the Court of First
judgment, stating in its decretal portion: owner-driver Salazar and truck-owner Timbol
Instance of Bulacan. The race against truck-
driver Montoya, docketed as Criminal Case were joined as defendants, either in the
No. SM-227, was for causing damage to the IN VIEW OF THE FOREGOING, this Court alternative or in solidum allegedly for the
jeep owned by Salazar, in the amount of finds the accused Freddie Montoya GUILTY reason that petitioner was uncertain as to
Pl,604.00, by hitting it at the right rear portion beyond reasonable doubt of the crime of whether he was entitled to relief against both
thereby causing said jeep to hit and bump an damage to property thru reckless imprudence on only one of them.
22
On September 9, 1970, truck-owner Timbol The Complaint against the fact that in said criminal case truck-driver
filed a Motion to Dismiss Civil Case No. 80803 Montoya was not prosecuted for damage to
on the grounds that the Complaint is barred by truck-owner Timbol petitioner's car but for damage to the jeep.
a prior judgment in the criminal cases and that Neither was truck-owner Timbol a party in said
it fails to state a cause of action. An We shall first discuss the validity of the Order, case. In fact as the trial Court had put it "the
Opposition thereto was filed by petitioner. dated September 12, 1970, dismissing owner of the Mercedes Benz cannot recover
petitioner's Complaint against truck-owner any damages from the accused Freddie
In an Order dated September 12, 1970, Timbol. Montoya, he (Mendoza) being a complainant
respondent Judge dismissed the Complaint only against Rodolfo Salazar in Criminal Case
against truck-owner Timbol for reasons stated No. SM-228. 4 And more importantly, in the
In dismissing the Complaint against the truck-
in the afore- mentioned Motion to Dismiss On criminal cases, the cause of action was the
owner, respondent Judge sustained Timbol's
September 30, 1970, petitioner sought before enforcement of the civil liability arising from
allegations that the civil suit is barred by the
this Court the review of that dismissal, to criminal negligence under Article l of the
prior joint judgment in Criminal Cases Nos.
which petition we gave due course. Revised Penal Code, whereas Civil Case No.
SM-227 and SM-228, wherein no reservation
80803 is based on quasi-delict under Article
to file a separate civil case was made by
On January 30, 1971, upon motion of jeep- 2180, in relation to Article 2176 of the Civil
petitioner and where the latter actively
owner-driver Salazar, respondent Judge also Code As held in Barredo vs. Garcia, et al. 5
participated in the trial and tried to prove
dismissed the case as against the former. damages against jeep-driver-Salazar only;
Respondent Judge reasoned out that "while it and that the Complaint does not state a cause The foregoing authorities clearly demonstrate
is true that an independent civil action for of action against truck-owner Timbol the separate in. individuality of cuasi-
liability under Article 2177 of the Civil Code inasmuch as petitioner prosecuted jeep- delitos or culpa aquiliana under the Civil
could be prosecuted independently of the owner-driver Salazar as the one solely Code. Specifically they show that there is a
criminal action for the offense from which it responsible for the damage suffered by his distinction between civil liability arising from
arose, the New Rules of Court, which took car. criminal negligence (governed by the Penal
effect on January 1, 1964, requires an Code) and responsibility for fault or
express reservation of the civil action to be negligence under articles 1902 to 1910 of the
Well-settled is the rule that for a prior
made in the criminal action; otherwise, the Civil Code, and that the same negligent act
judgment to constitute a bar to a subsequent
same would be barred pursuant to Section 2, may produce either a civil liability arising from
case, the following requisites must concur: (1)
Rule 111 ... 2 Petitioner's Motion for a crime under the Penal Code, or a separate
it must be a final judgment; (2) it must have
Reconsideration thereof was denied in the responsibility for fault or negligence under
been rendered by a Court having jurisdiction
order dated February 23, 1971, with articles 1902 to 1910 of the Civil Code. Still
over the subject matter and over the parties;
respondent Judge suggesting that the issue more concretely, the authorities above cited
(3) it must be a judgment on the merits; and
be raised to a higher Court "for a more render it inescapable to conclude that the
(4) there must be, between the first and
decisive interpretation of the rule. 3 employer in this case the defendant- petitioner
second actions, Identity of parties, Identity of
is primarily and directly liable under article
subject matter and Identity of cause of action.
On March 25, 1971, petitioner then filed a 1903 of the Civil Code.
Supplemental Petition before us, also to It is conceded that the first three requisites
review the last two mentioned Orders, to That petitioner's cause of action against
of res judicata are present. However, we
which we required jeep-owner-driver Salazar Timbol in the civil case is based on quasi-
agree with petitioner that there is no Identity of
to file an Answer. delict is evident from the recitals in the
cause of action between Criminal Case No.
complaint to wit: that while petitioner was
SM-227 and Civil Case No. 80803. Obvious is
23
driving his car along MacArthur Highway at But it is truck-owner Timbol's submission (as were drafted ... and are intended to constitute
Marilao, Bulacan, a jeep owned and driven by well as that of jeep-owner-driver Salazar) that as exceptions to the general rule stated in
Salazar suddenly swerved to his (petitioner's) petitioner's failure to make a reservation in the what is now Section 1 of Rule 111. The
lane and collided with his car That the sudden criminal action of his right to file an proviso, which is procedural, may also be
swerving of Salazar's jeep was caused either independent civil action bars the institution of regarded as an unauthorized amendment of
by the negligence and lack of skill of Freddie such separate civil action, invoking section 2, substantive law, Articles 32, 33 and 34 of the
Montoya, Timbol's employee, who was then Rule 111, Rules of Court, which says: Civil Code, which do not provide for the
driving a gravel and sand truck iii the same reservation required in the proviso ... .
direction as Salazar's jeep; and that as a Section 2. — Independent civil action. — In
consequence of the collision, petitioner's car the cases provided for in Articles 31, 32, 33, In his concurring opinion in the above case,
suffered extensive damage amounting to 34 and 2177 of the Civil Code of the Mr. Justice Antonio Barredo further observed
P12,248.20 and that he likewise incurred Philippines, an independent civil action that inasmuch as Articles 2176 and 2177 of
actual and moral damages, litigation expenses entirely separate and distinct from the criminal the Civil Code create a civil liability distinct
and attorney's fees. Clearly, therefore, the two action may be brought by the injured party and different from the civil action arising from
factors that a cause of action must consist of, during the pendency of the criminal case, the offense of negligence under the Revised
namely: (1) plaintiff's primary right, i.e., that he provided the right is reserved as required in Penal Code, no reservation, therefore, need
is the owner of a Mercedes Benz, and (2) the preceding section. Such civil action shau be made in the criminal case; that Section 2 of
defendant's delict or wrongful act or omission proceed independently of the criminal Rule 111 is inoperative, "it being substantive
which violated plaintiff's primary right, i.e., the prosecution, and shall require only a in character and is not within the power of the
negligence or lack of skill either of jeep-owner preponderance of evidence. Supreme Court to promulgate; and even if it
Salazar or of Timbol's employee, Montoya, in were not substantive but adjective, it cannot
driving the truck, causing Salazar's jeep to Interpreting the above provision, this Court, stand because of its inconsistency with Article
swerve and collide with petitioner's car, were in Garcia vs. Florida 7 said: 2177, an enactment of the legislature
alleged in the Complaint. 6 superseding the Rules of 1940."
As we have stated at the outset, the same
Consequently, petitioner's cause of action negligent act causing damages may produce We declare, therefore, that in so far as truck-
being based on quasi-delict, respondent a civil liability arising from crime or create an owner Timbol is concerned, Civil Case No.
Judge committed reversible error when he action for quasi-delict or culpa extra- 80803 is not barred by the fact that petitioner
dismissed the civil suit against the truck- contractual. The former is a violation of the failed to reserve, in the criminal action, his
owner, as said case may proceed criminal law, while the latter is a distinct and right to file an independent civil action based
independently of the criminal proceedings and independent negligence, having always had on quasi-delict.
regardless of the result of the latter. its own foundation and individuality. Some
legal writers are of the view that in accordance The suit against
Art. 31. When the civil action is based on an with Article 31, the civil action based upon
obligation not arising from the act or omission quasi-delict may proceed independently of the jeep-owner-driver Salazar
complained of as a felony, such civil action criminal proceeding for criminal negligence
may proceed independently of the criminal and regardless of the result of the latter. The case as against jeep-owner-driver
proceedings and regardless of the result of Hence, 'the proviso in Section 2 of Rule 111 Salazar, who was acquitted in Criminal Case
the latter. with reference to ... Articles 32, 33 and 34 of No. SM-228, presents a different picture
the Civil Code is contrary to the letter and altogether.
spirit of the said articles, for these articles

24
At the outset it should be clarified that bumped and hit the rear portion of the jeep not ex-delictu, the end result would be the
inasmuch as civil liability co-exists with driven by the accused Rodolfo Salazar, same, it being clear from the judgment in the
criminal responsibility in negligence cases, the criminal case that Salazar's acquittal was not
offended party has the option between an Considering that the collision between the based upon reasonable doubt, consequently,
action for enforcement of civil liability based jeep driven by Rodolfo Salazar and the car a civil action for damages can no longer be
on culpa criminal under Article 100 of the owned and driven by Edgardo Mendoza was instituted. This is explicitly provided for in
Revised Penal Code, and an action for the result of the hitting on the rear of the jeep Article 29 of the Civil Code quoted here under:
recovery of damages based on culpa by the truck driven by Freddie Montoya, this
aquiliana under Article 2177 of the Civil Code. Court behaves that accused Rodolfo Salazar Art. 29. When the accused in a criminal
The action for enforcement of civil liability cannot be held able for the damages prosecution is acquitted on the ground that his
based on culpa criminal under section 1 of sustained by Edgardo Mendoza's car. 9 guilt has not been proved beyond reasonable
Rule 111 of the Rules of Court is deemed doubt, a civil action for damages for the same
simultaneously instituted with the criminal Crystal clear is the trial Court's act or omission may be instituted. Such action
action, unless expressly waived or reserved pronouncement that under the facts of the requires only a preponderance of evidence ...
for separate application by the offended case, jeep-owner-driver Salazar cannot be
party. 8 held liable for the damages sustained by If in a criminal case the judgment of acquittal
petitioner's car. In other words, "the fact from is based upon reasonable doubt, the court
The circumstances attendant to the criminal which the civil might arise did not exist. " shall so declare. In the absence of any
case yields the conclusion that petitioner had Accordingly, inasmuch as petitioner's cause of declaration to that effect, it may be inferred
opted to base his cause of action against action as against jeep-owner-driver Salazar from the text of the decision whether or not
jeep-owner-driver Salazar on culpa is ex- delictu, founded on Article 100 of the the acquittal is due to that ground.
criminal and not on culpa aquiliana as Revised Penal Code, the civil action must be
evidenced by his active participation and held to have been extinguished in consonance In so far as the suit against jeep-owner-driver
intervention in the prosecution of the criminal with Section 3(c), Rule 111 of the Rules of Salazar is concerned, therefore, we sustain
suit against said Salazar. The latter's civil Court 10 which provides: respondent Judge's Order dated January 30,
liability continued to be involved in the criminal 1971 dismissing the complaint, albeit on
action until its termination. Such being the Sec. 3. Other civil actions arising from different grounds.
case, there was no need for petitioner to have offenses. — In all cases not included in the
reserved his right to file a separate civil action preceding section the following rules shall be WHEREFORE, 1) the Order dated September
as his action for civil liability was deemed observed: 12, 1970 dismissing Civil Case No. 80803
impliedly instituted in Criminal Case No. SM-
against private respondent Felino Timbol is
228.
xxx xxx xxx set aside, and respondent Judge, or his
successor, hereby ordered to proceed with the
Neither would an independent civil action he. hearing on the merits; 2) but the Orders dated
c) Extinction of the penal action does not carry
Noteworthy is the basis of the acquittal of January 30, 1971 and February 23, 1971
with it extinction of the civil, unless the
jeep-owner-driver Salazar in the criminal case, dismissing the Complaint in Civil Case No.
extinction proceeds from a declaration in a
expounded by the trial Court in this wise: 80803 against respondent Rodolfo Salazar
final judgment that the fact from which the civil
night arise did not exist. ... are hereby upheld.
In view of what has been proven and
established during the trial, accused Freddie No costs.
And even if petitioner's cause of action as
Montoya would be held able for having
against jeep-owner-driver Salazar were
25
SO ORDERED.

26
G.R. No. 84698 February 4, 1992 (now private respondents) sought to adjudge Article 2180 (formerly Article 1903) of the Civil
them liable for the victim's untimely demise Code is an adoption from the old Spanish Civil
PHILIPPINE SCHOOL OF BUSINESS due to their alleged negligence, recklessness Code. The comments of Manresa and learned
ADMINISTRATION, JUAN D. LIM, and lack of security precautions, means and authorities on its meaning should give way to
BENJAMIN P. PAULINO, ANTONIO M. methods before, during and after the attack on present day changes. The law is not fixed and
MAGTALAS, COL. PEDRO SACRO and LT. the victim. During the proceedings a quo, Lt. flexible (sic); it must be dynamic. In fact, the
M. SORIANO, petitioners, M. Soriano terminated his relationship with the greatest value and significance of law as a
vs. other petitioners by resigning from his position rule of conduct in (sic) its flexibility to adopt to
COURT OF APPEALS, HON. REGINA in the school. changing social conditions and its capacity to
ORDOÑEZ-BENITEZ, in her capacity as meet the new challenges of progress.
Presiding Judge of Branch 47, Regional Defendants a quo (now petitioners) sought to
Trial Court, Manila, SEGUNDA R. have the suit dismissed, alleging that since Construed in the light of modern day
BAUTISTA and ARSENIA D. they are presumably sued under Article 2180 educational system, Article 2180 cannot be
BAUTISTA, respondents. of the Civil Code, the complaint states no construed in its narrow concept as held in the
cause of action against them, as old case of Exconde
PADILLA, J.: jurisprudence on the subject is to the effect vs. Capuno 2 and Mercado vs. Court of
that academic institutions, such as the PSBA, Appeals; 3 hence, the ruling in
A stabbing incident on 30 August 1985 which are beyond the ambit of the rule in the afore- the Palisoc 4 case that it should apply to all
caused the death of Carlitos Bautista while on stated article. kinds of educational institutions, academic or
the second-floor premises of the Philippine vocational.
School of Business Administration (PSBA) The respondent trial court, however, overruled
prompted the parents of the deceased to file petitioners' contention and thru an order dated At any rate, the law holds the teachers and
suit in the Regional Trial Court of Manila 8 December 1987, denied their motion to heads of the school staff liable unless they
(Branch 47) presided over by Judge (now dismiss. A subsequent motion for relieve themselves of such liability pursuant to
Court of Appeals justice) Regina Ordoñez- reconsideration was similarly dealt with by an the last paragraph of Article 2180 by "proving
Benitez, for damages against the said PSBA order dated 25 January 1988. Petitioners then that they observed all the diligence to prevent
and its corporate officers. At the time of his assailed the trial court's disposition before the damage." This can only be done at a trial on
death, Carlitos was enrolled in the third year respondent appellate court which, in a the merits of the case. 5
commerce course at the PSBA. It was decision * promulgated on 10 June 1988,
established that his assailants were not affirmed the trial court's orders. On 22 August While we agree with the respondent appellate
members of the school's academic community 1988, the respondent appellate court resolved court that the motion to dismiss the complaint
but were elements from outside the school. to deny the petitioners' motion for was correctly denied and the complaint should
reconsideration. Hence, this petition. be tried on the merits, we do not however
Specifically, the suit impleaded the PSBA and agree with the premises of the appellate
the following school authorities: Juan D. Lim At the outset, it is to be observed that the court's ruling.
(President), Benjamin P. Paulino (Vice- respondent appellate court primarily anchored
President), Antonio M. Magtalas its decision on the law of quasi-delicts, as Article 2180, in conjunction with Article 2176
(Treasurer/Cashier), Col. Pedro Sacro (Chief enunciated in Articles 2176 and 2180 of the of the Civil Code, establishes the rule
of Security) and a Lt. M. Soriano (Assistant Civil Code. 1 Pertinent portions of the of in loco parentis. This Court discussed this
Chief of Security). Substantially, the plaintiffs appellate court's now assailed ruling state: doctrine in the afore-cited cases of Exconde,
27
Mendoza, Palisoc and, more recently, looms around the school premises a constant juridical human relations. These two fields,
in Amadora vs. Court of Appeals. 6 In all such threat to life and limb. Necessarily, the school figuratively speaking, concentric; that is to
cases, it had been stressed that the law must ensure that adequate steps are taken to say, the mere fact that a person is bound to
(Article 2180) plainly provides that the maintain peace and order within the campus another by contract does not relieve him from
damage should have been caused or inflicted premises and to prevent the breakdown extra-contractual liability to such person.
by pupils or students of he educational thereof. When such a contractual relation exists the
institution sought to be held liable for the acts obligor may break the contract under such
of its pupils or students while in its custody. Because the circumstances of the present conditions that the same act which constitutes
However, this material situation does not exist case evince a contractual relation between the a breach of the contract would have
in the present case for, as earlier indicated, PSBA and Carlitos Bautista, the rules on constituted the source of an extra-contractual
the assailants of Carlitos were not students of quasi-delict do not really govern. 8 A perusal obligation had no contract existed between
the PSBA, for whose acts the school could be of Article 2176 shows that obligations arising the parties.
made liable. from quasi-delicts or tort, also known as extra-
contractual obligations, arise only between Immediately what comes to mind is the
However, does the appellate court's failure to parties not otherwise bound by contract, chapter of the Civil Code on Human Relations,
consider such material facts mean the whether express or implied. However, this particularly Article 21, which provides:
exculpation of the petitioners from liability? It impression has not prevented this Court from
does not necessarily follow. determining the existence of a tort even when Any person who wilfully causes loss or injury
there obtains a contract. In Air France to another in a manner that is contrary to
When an academic institution accepts vs. Carrascoso (124 Phil. 722), the private morals, good custom or public policy shall
students for enrollment, there is established respondent was awarded damages for his compensate the latter for the damage.
a contract between them, resulting in bilateral unwarranted expulsion from a first-class seat (emphasis supplied).
obligations which both parties are bound to aboard the petitioner airline. It is noted,
comply with. 7 For its part, the school however, that the Court referred to the Air France penalized the racist policy of the
undertakes to provide the student with an petitioner-airline's liability as one arising from airline which emboldened the petitioner's
education that would presumably suffice to tort, not one arising from a contract of employee to forcibly oust the private
equip him with the necessary tools and skills carriage. In effect, Air France is authority for respondent to cater to the comfort of a white
to pursue higher education or a profession. the view that liability from tort may exist even man who allegedly "had a better right to the
On the other hand, the student covenants to if there is a contract, for the act that breaks seat." In Austro-American, supra, the public
abide by the school's academic requirements the contract may be also a tort. (Austro- embarrassment caused to the passenger was
and observe its rules and regulations. America S.S. Co. vs. Thomas, 248 Fed. 231). the justification for the Circuit Court of
Appeals, (Second Circuit), to award damages
Institutions of learning must also meet the This view was not all that revolutionary, for to the latter. From the foregoing, it can be
implicit or "built-in" obligation of providing their even as early as 1918, this Court was already concluded that should the act which breaches
students with an atmosphere that promotes or of a similar mind. In Cangco vs. Manila a contract be done in bad faith and be
assists in attaining its primary undertaking of Railroad (38 Phil. 780), Mr. Justice Fisher violative of Article 21, then there is a cause to
imparting knowledge. Certainly, no student elucidated thus: view the act as constituting a quasi-delict.
can absorb the intricacies of physics or higher
mathematics or explore the realm of the arts The field of non-contractual obligation is much In the circumstances obtaining in the case at
and other sciences when bullets are flying or broader than that of contractual obligation, bar, however, there is, as yet, no finding that
grenades exploding in the air or where there comprising, as it does, the whole extent of the contract between the school and Bautista

28
had been breached thru the former's the circumstances of persons, time and
negligence in providing proper security place. 9
measures. This would be for the trial court to
determine. And, even if there be a finding of As the proceedings a quo have yet to
negligence, the same could give rise generally commence on the substance of the private
to a breach of contractual obligation only. respondents' complaint, the record is bereft of
Using the test of Cangco, supra, the all the material facts. Obviously, at this stage,
negligence of the school would not be relevant only the trial court can make such a
absent a contract. In fact, that negligence determination from the evidence still to unfold.
becomes material only because of the
contractual relation between PSBA and WHEREFORE, the foregoing premises
Bautista. In other words, a contractual relation considered, the petition is DENIED. The court
is a condition sine qua non to the school's of origin (RTC, Manila, Br. 47) is hereby
liability. The negligence of the school cannot ordered to continue proceedings consistent
exist independently of the contract, unless the with this ruling of the Court. Costs against the
negligence occurs under the circumstances petitioners.
set out in Article 21 of the Civil Code.
SO ORDERED.
This Court is not unmindful of the attendant
difficulties posed by the obligation of schools,
above-mentioned, for conceptually a school,
like a common carrier, cannot be an insurer of
its students against all risks. This is specially
true in the populous student communities of
the so-called "university belt" in Manila where
there have been reported several incidents
ranging from gang wars to other forms of
hooliganism. It would not be equitable to
expect of schools to anticipate all types of
violent trespass upon their premises, for
notwithstanding the security measures
installed, the same may still fail against an
individual or group determined to carry out a
nefarious deed inside school premises and
environs. Should this be the case, the school
may still avoid liability by proving that the
breach of its contractual obligation to the
students was not due to its negligence, here
statutorily defined to be the omission of that
degree of diligence which is required by the
nature of the obligation and corresponding to

29
G.R. No. L-47745 April 15, 1988 Daffon was convicted of homicide thru On the implications and consequences of
reckless imprudence . 2 Additionally, the these facts, the parties sharply disagree.
JOSE S. AMADORA, LORETA A. herein petitioners, as the victim's parents, filed
AMADORA, JOSE A. AMADORA JR., a civil action for damages under Article 2180 The petitioners contend that their son was in
NORMA A. YLAYA PANTALEON A. of the Civil Code against the Colegio de San the school to show his physics experiment as
AMADORA, JOSE A. AMADORA III, LUCY Jose-Recoletos, its rector the high school a prerequisite to his graduation; hence, he
A. AMADORA, ROSALINDA A. AMADORA, principal, the dean of boys, and the physics was then under the custody of the private
PERFECTO A. AMADORA, SERREC A. teacher, together with Daffon and two other respondents. The private respondents submit
AMADORA, VICENTE A. AMADORA and students, through their respective parents. that Alfredo Amadora had gone to the school
MARIA TISCALINA A. The complaint against the students was later only for the purpose of submitting his physics
AMADORA, petitioners dropped. After trial, the Court of First Instance report and that he was no longer in their
vs. of Cebu held the remaining defendants liable custody because the semester had already
HONORABLE COURT OF APPEALS, to the plaintiffs in the sum of P294,984.00, ended.
COLEGIO DE SAN JOSE-RECOLETOS, representing death compensation, loss of
VICTOR LLUCH SERGIO P. DLMASO JR., earning capacity, costs of litigation, funeral There is also the question of the identity of the
CELESTINO DICON, ANIANO ABELLANA, expenses, moral damages, exemplary gun used which the petitioners consider
PABLITO DAFFON thru his parents and damages, and attorney's fees .3 On appeal to important because of an earlier incident which
natural guardians, MR. and MRS. NICANOR the respondent court, however, the decision they claim underscores the negligence of the
GUMBAN, and ROLANDO VALENCIA, thru was reversed and all the defendants were school and at least one of the private
his guardian, A. FRANCISCO completely absolved .4 respondents. It is not denied by the
ALONSO, respondents. respondents that on April 7, 1972, Sergio
In its decision, which is now the subject of this Damaso, Jr., the dean of boys, confiscated
CRUZ, J.: petition for certiorari under Rule 45 of the from Jose Gumban an unlicensed pistol but
Rules of Court, the respondent court found later returned it to him without making a report
Like any prospective graduate, Alfredo that Article 2180 was not applicable as the to the principal or taking any further
Amadora was looking forward to the Colegio de San Jose-Recoletos was not a action .6 As Gumban was one of the
commencement exercises where he would school of arts and trades but an academic companions of Daffon when the latter fired the
ascend the stage and in the presence of his institution of learning. It also held that the gun that killed Alfredo, the petitioners contend
relatives and friends receive his high school students were not in the custody of the school that this was the same pistol that had been
diploma. These ceremonies were scheduled at the time of the incident as the semester had confiscated from Gumban and that their son
on April 16, 1972. As it turned out, though, already ended, that there was no clear would not have been killed if it had not been
fate would intervene and deny him that identification of the fatal gun and that in any returned by Damaso. The respondents say,
awaited experience. On April 13, 1972, while event the defendant, had exercised the however, that there is no proof that the gun
they were in the auditorium of their school, the necessary diligence in preventing the injury. 5 was the same firearm that killed Alfredo.
Colegio de San Jose-Recoletos, a classmate,
Pablito Damon, fired a gun that mortally hit The basic undisputed facts are that Alfredo Resolution of all these disagreements will
Alfredo, ending all his expectations and his life Amadora went to the San Jose-Recoletos on depend on the interpretation of Article 2180
as well. The victim was only seventeen years April 13, 1972, and while in its auditorium was which, as it happens, is invoked by both
old. 1 shot to death by Pablito Daffon, a classmate. parties in support of their conflicting positions.

30
The pertinent part of this article reads as was imposed on (1) teachers in general; and teachers exercise over the pupils and
follows: (2) heads of schools of arts and trades in students for as long
particular. The modifying clause "of
Lastly, teachers or heads of establishments of establishments of arts and trades" should as they are at attendance in the school,
arts and trades shall be liable for damages apply only to "heads" and not "teachers." including recess time. There is nothing in the
caused by their pupils and students or law that requires that for such liability to
apprentices so long as they remain in their Exconde was reiterated in the Mercado Case, attach, the pupil or student who commits the
custody. and with an elaboration. A student cut a tortious act must live and board in the school,
classmate with a razor blade during recess as erroneously held by the lower court, and
Three cases have so far been decided by the time at the Lourdes Catholic School in the dicta in Mercado (as well as in Exconde)
Court in connection with the above-quoted Quezon City, and the parents of the victim on which it relied, must now be deemed to
provision, to wit: Exconde v. sued the culprits parents for damages. have been set aside by the present decision.
Capuno 7 Mercado v. Court of Appeals, 8 and Through Justice Labrador, the Court declared
Palisoc v. Brillantes. 9 These will be briefly in another obiter (as the school itself had also This decision was concurred in by five other
reviewed in this opinion for a better resolution not been sued that the school was not liable members, 10 including Justice J.B.L. Reyes,
of the case at bar. because it was not an establishment of arts who stressed, in answer to the dissenting
and trades. Moreover, the custody opinion, that even students already of age
In the Exconde Case, Dante Capuno, a requirement had not been proved as this were covered by the provision since they were
student of the Balintawak Elementary School "contemplates a situation where the student equally in the custody of the school and
and a Boy Scout, attended a Rizal Day parade lives and boards with the teacher, such that subject to its discipline. Dissenting with three
on instructions of the city school supervisor. the control, direction and influences on the others,11 Justice Makalintal was for retaining
After the parade, the boy boarded a jeep, took pupil supersede those of the parents." Justice the custody interpretation in Mercado and
over its wheel and drove it so recklessly that it J.B.L. Reyes did not take part but the other submitted that the rule should apply only to
turned turtle, resulting in the death of two of its members of the court concurred in this torts committed by students not yet of age as
passengers. Dante was found guilty of double decision promulgated on May 30, 1960. the school would be acting only in loco
homicide with reckless imprudence. In the parentis.
separate civil action flied against them, his In Palisoc vs. Brillantes, decided on October
father was held solidarily liable with him in 4, 1971, a 16-year old student was killed by a In a footnote, Justice Teehankee said he
damages under Article 1903 (now Article classmate with fist blows in the laboratory of agreed with Justice Reyes' dissent in the
2180) of the Civil Code for the tort committed the Manila Technical Institute. Although the Exconde Case but added that "since the
by the 15-year old boy. wrongdoer — who was already of age — was school involved at bar is a non-academic
not boarding in the school, the head thereof school, the question as to the applicability of
This decision, which was penned by Justice and the teacher in charge were held solidarily the cited codal provision to academic
Bautista Angelo on June 29,1957, exculpated liable with him. The Court declared through institutions will have to await another case
the school in an obiter dictum (as it was not a Justice Teehankee: wherein it may properly be raised."
party to the case) on the ground that it was
riot a school of arts and trades. Justice J.B.L. The phrase used in the cited article — "so This is the case.
Reyes, with whom Justices Sabino Padilla long as (the students) remain in their custody"
and Alex Reyes concurred, dissented, arguing — means the protective and supervisory Unlike in Exconde and Mercado, the Colegio
that it was the school authorities who should custody that the school and its heads and de San Jose-Recoletos has been directly
be held liable Liability under this rule, he said, impleaded and is sought to be held liable
31
under Article 2180; and unlike in Palisoc, it is insofar as concerns the proper supervision teacher or even the head of the school of arts
not a school of arts and trades but an and vice over their pupils? It cannot be and trades liable for an injury caused by any
academic institution of learning. The parties seriously contended that an academic teacher student in its custody but if that same tort
herein have also directly raised the question is exempt from the duty of watching that his were committed in an academic school, no
of whether or not Article 2180 covers even pupils do not commit a tort to the detriment of liability would attach to the teacher or the
establishments which are technically not third Persons, so long as they are in a position school head. All other circumstances being
schools of arts and trades, and, if so, when to exercise authority and Supervision over the the same, the teacher or the head of the
the offending student is supposed to be "in its pupil. In my opinion, in the phrase "teachers or academic school would be absolved whereas
custody." heads of establishments of arts and trades" the teacher and the head of the non-academic
used in Art. 1903 of the old Civil Code, the school would be held liable, and simply
After an exhaustive examination of the words "arts and trades" does not qualify because the latter is a school of arts and
problem, the Court has come to the "teachers" but only "heads of establishments." trades.
conclusion that the provision in question The phrase is only an updated version of the
should apply to all schools, academic as well equivalent terms "preceptores y artesanos" The Court cannot see why different degrees of
as non-academic. Where the school is used in the Italian and French Civil Codes. vigilance should be exercised by the school
academic rather than technical or vocational authorities on the basis only of the nature of
in nature, responsibility for the tort committed If, as conceded by all commentators, the basis their respective schools. There does not seem
by the student will attach to the teacher in of the presumption of negligence of Art. 1903 to be any plausible reason for relaxing that
charge of such student, following the first part in some culpa in vigilando that the parents, vigilance simply because the school is
of the provision. This is the general rule. In the teachers, etc. are supposed to have incurred academic in nature and for increasing such
case of establishments of arts and trades, it is in the exercise of their authority, it would seem vigilance where the school is non-academic.
the head thereof, and only he, who shall be clear that where the parent places the child Notably, the injury subject of liability is caused
held liable as an exception to the general rule. under the effective authority of the teacher, by the student and not by the school itself nor
In other words, teachers in general shall be the latter, and not the parent, should be the is it a result of the operations of the school or
liable for the acts of their students except one answerable for the torts committed while its equipment. The injury contemplated may
where the school is technical in nature, in under his custody, for the very reason/that the be caused by any student regardless of the
which case it is the head thereof who shall be parent is not supposed to interfere with the school where he is registered. The teacher
answerable. Following the canon of reddendo discipline of the school nor with the authority certainly should not be able to excuse himself
singula singulis "teachers" should apply to the and supervision of the teacher while the child by simply showing that he is teaching in an
words "pupils and students" and "heads of is under instruction. And if there is no academic school where, on the other hand,
establishments of arts and trades" to the word authority, there can be no responsibility. the head would be held liable if the school
"apprentices." were non-academic.
There is really no substantial distinction
The Court thus conforms to the dissenting between the academic and the non-academic These questions, though, may be asked: If the
opinion expressed by Justice J.B.L. Reyes in schools insofar as torts committed by their teacher of the academic school is to be held
Exconde where he said in part: students are concerned. The same vigilance answerable for the torts committed by his
is expected from the teacher over the students students, why is it the head of the school only
I can see no sound reason for limiting Art. under his control and supervision, whatever who is held liable where the injury is caused in
1903 of the Old Civil Code to teachers of arts the nature of the school where he is teaching. a school of arts and trades? And in the case
and trades and not to academic ones. What The suggestion in the Exconde and Mercado of the academic or non- technical school, why
substantial difference is there between them Cases is that the provision would make the not apply the rule also to the head thereof

32
instead of imposing the liability only on the the situation subject to be regulated, sees fit there may still be certain requisites to be
teacher? to enact the necessary amendment. satisfied for completion of the course, such as
submission of reports, term papers,
The reason for the disparity can be traced to The other matter to be resolved is the duration clearances and the like. During such periods,
the fact that historically the head of the school of the responsibility of the teacher or the head the student is still subject to the disciplinary
of arts and trades exercised a closer tutelage of the school of arts and trades over the authority of the school and cannot consider
over his pupils than the head of the academic students. Is such responsibility co-extensive himself released altogether from observance
school. The old schools of arts and trades with the period when the student is actually of its rules.
were engaged in the training of undergoing studies during the school term, as
artisans apprenticed to their master who contended by the respondents and impliedly As long as it can be shown that the student is
personally and directly instructed them on the admitted by the petitioners themselves? in the school premises in pursuance of a
technique and secrets of their craft. The head legitimate student objective, in the exercise of
of the school of arts and trades was such a From a reading of the provision under a legitimate student right, and even in the
master and so was personally involved in the examination, it is clear that while the custody enjoyment of a legitimate student right, and
task of teaching his students, who usually requirement, to repeat Palisoc v. Brillantes, even in the enjoyment of a legitimate student
even boarded with him and so came under his does not mean that the student must be privilege, the responsibility of the school
constant control, supervision and influence. boarding with the school authorities, it does authorities over the student continues. Indeed,
By contrast, the head of the academic school signify that the student should be within the even if the student should be doing nothing
was not as involved with his students and control and under the influence of the school more than relaxing in the campus in the
exercised only administrative duties over the authorities at the time of the occurrence of the company of his classmates and friends and
teachers who were the persons directly injury. This does not necessarily mean that enjoying the ambience and atmosphere of the
dealing with the students. The head of the such, custody be co-terminous with the school, he is still within the custody and
academic school had then (as now) only a semester, beginning with the start of classes subject to the discipline of the school
vicarious relationship with the students. and ending upon the close thereof, and authorities under the provisions of Article
Consequently, while he could not be directly excluding the time before or after such period, 2180.
faulted for the acts of the students, the head such as the period of registration, and in the
of the school of arts and trades, because of case of graduating students, the period before During all these occasions, it is obviously the
his closer ties with them, could be so blamed. the commencement exercises. In the view of teacher-in-charge who must answer for his
the Court, the student is in the custody of the students' torts, in practically the same way
It is conceded that the distinction no longer school authorities as long as he is under the that the parents are responsible for the child
obtains at present in view of the expansion of control and influence of the school and within when he is in their custody. The teacher-in-
the schools of arts and trades, the consequent its premises, whether the semester has not charge is the one designated by the dean,
increase in their enrollment, and the yet begun or has already ended. principal, or other administrative superior to
corresponding diminution of the direct and exercise supervision over the pupils in the
personal contract of their heads with the It is too tenuous to argue that the student specific classes or sections to which they are
students. Article 2180, however, remains comes under the discipline of the school only assigned. It is not necessary that at the time
unchanged. In its present state, the provision upon the start of classes notwithstanding that of the injury, the teacher be physically present
must be interpreted by the Court according to before that day he has already registered and and in a position to prevent it. Custody does
its clear and original mandate until the thus placed himself under its rules. Neither not connote immediate and actual physical
legislature, taking into account the charges in should such discipline be deemed ended upon control but refers more to the influence
the last day of classes notwithstanding that exerted on the child and the discipline instilled

33
in him as a result of such influence. Thus, for act of the student under him regardless of the A fortiori, the teacher himself may invoke this
the injuries caused by the student, the teacher student's age. Thus, in the Palisoc Case, defense as it would otherwise be unfair to hold
and not the parent shag be held responsible if liability attached to the teacher and the head him directly answerable for the damage
the tort was committed within the premises of of the technical school although the caused by his students as long as they are in
the school at any time when its authority could wrongdoer was already of age. In this sense, the school premises and presumably under
be validly exercised over him. Article 2180 treats the parent more favorably his influence. In this respect, the Court is
than the teacher. disposed not to expect from the teacher the
In any event, it should be noted that the same measure of responsibility imposed on
liability imposed by this article is supposed to The Court is not unmindful of the the parent for their influence over the child is
fall directly on the teacher or the head of the apprehensions expressed by Justice not equal in degree. Obviously, the parent can
school of arts and trades and not on the Makalintal in his dissenting opinion in Palisoc expect more obedience from the child
school itself. If at all, the school, whatever its that the school may be unduly exposed to because the latter's dependence on him is
nature, may be held to answer for the acts of liability under this article in view of the greater than on the teacher. It need not be
its teachers or even of the head thereof under increasing activism among the students that is stressed that such dependence includes the
the general principle of respondeat superior, likely to cause violence and resulting injuries child's support and sustenance whereas
but then it may exculpate itself from liability by in the school premises. That is a valid fear, to submission to the teacher's influence, besides
proof that it had exercised the diligence of be sure. Nevertheless, it should be repeated being coterminous with the period of custody
a bonus paterfamilias. that, under the present ruling, it is not the is usually enforced only because of the
school that will be held directly liable. students' desire to pass the course. The
Such defense is, of course, also available to Moreover, the defense of due diligence is parent can instill more las discipline on the
the teacher or the head of the school of arts available to it in case it is sought to be held child than the teacher and so should be held
and trades directly held to answer for the tort answerable as principal for the acts or to a greater accountability than the teacher for
committed by the student. As long as the omission of its head or the teacher in its the tort committed by the child.
defendant can show that he had taken the employ.
necessary precautions to prevent the injury And if it is also considered that under the
complained of, he can exonerate himself from The school can show that it exercised proper article in question, the teacher or the head of
the liability imposed by Article 2180, which measures in selecting the head or its teachers the school of arts and trades is responsible for
also states that: and the appropriate supervision over them in the damage caused by the student or
the custody and instruction of the pupils apprentice even if he is already of age — and
The responsibility treated of in this article shall pursuant to its rules and regulations for the therefore less tractable than the minor — then
cease when the Persons herein mentioned maintenance of discipline among them. In there should all the more be justification to
prove that they observed all the diligence of a almost all cases now, in fact, these measures require from the school authorities less
good father of a family to prevent damages. are effected through the assistance of an accountability as long as they can prove
adequate security force to help the teacher reasonable diligence in preventing the injury.
physically enforce those rules upon the After all, if the parent himself is no longer
In this connection, it should be observed that
students. Ms should bolster the claim of the liable for the student's acts because he has
the teacher will be held liable not only when
school that it has taken adequate steps to reached majority age and so is no longer
he is acting in loco parentis for the law does
prevent any injury that may be committed by under the former's control, there is then all the
not require that the offending student be of
its students. more reason for leniency in assessing the
minority age. Unlike the parent, who wig be
teacher's responsibility for the acts of the
liable only if his child is still a minor, the
student.
teacher is held answerable by the law for the

34
Applying the foregoing considerations, the absence when the tragedy happened cannot discharge of his duties in connection with such
Court has arrived at the following conclusions: be considered against him because he was custody.
not supposed or required to report to school
1. At the time Alfredo Amadora was fatally on that day. And while it is true that the In sum, the Court finds under the facts as
shot, he was still in the custody of the offending student was still in the custody of disclosed by the record and in the light of the
authorities of Colegio de San Jose-Recoletos the teacher-in-charge even if the latter was principles herein announced that none of the
notwithstanding that the fourth year classes physically absent when the tort was respondents is liable for the injury inflicted by
had formally ended. It was immaterial if he committed, it has not been established that it Pablito Damon on Alfredo Amadora that
was in the school auditorium to finish his was caused by his laxness in enforcing resulted in the latter's death at the auditorium
physics experiment or merely to submit his discipline upon the student. On the contrary, of the Colegio de San Jose-Recoletos on April
physics report for what is important is that he the private respondents have proved that they 13, 1972. While we deeply sympathize with
was there for a legitimate purpose. As had exercised due diligence, through the the petitioners over the loss of their son under
previously observed, even the mere savoring enforcement of the school regulations, in the tragic circumstances here related, we
of the company of his friends in the premises maintaining that discipline. nevertheless are unable to extend them the
of the school is a legitimate purpose that material relief they seek, as a balm to their
would have also brought him in the custody of 4. In the absence of a teacher-in-charge, it is grief, under the law they have invoked.
the school authorities. probably the dean of boys who should be held
liable especially in view of the unrefuted WHEREFORE, the petition is DENIED,
2. The rector, the high school principal and the evidence that he had earlier confiscated an without any pronouncement as to costs. It is
dean of boys cannot be held liable because unlicensed gun from one of the students and so ordered.
none of them was the teacher-in-charge as returned the same later to him without taking
previously defined. Each of them was disciplinary action or reporting the matter to Yap, Narvasa, Paras, Feliciano, Gancayco,
exercising only a general authority over the higher authorities. While this was clearly Bidin, Sarmiento, Cortes and Griño-Aquino,
student body and not the direct control and negligence on his part, for which he deserves JJ., concur.
influence exerted by the teacher placed in sanctions from the school, it does not
charge of particular classes or sections and necessarily link him to the shooting of Amador
Fernan, Padilla and Teehankee, C.J., JJ, took
thus immediately involved in its discipline. The as it has not been shown that he confiscated
no part.
evidence of the parties does not disclose who and returned pistol was the gun that killed the
the teacher-in-charge of the offending student petitioners' son.
Separate Opinions
was. The mere fact that Alfredo Amadora had
gone to school that day in connection with his 5. Finally, as previously observed, the Colegio
physics report did not necessarily make the de San Jose-Recoletos cannot be held MELENCIO-HERRERA, J., concurring and
physics teacher, respondent Celestino Dicon, directly liable under the article because only dissenting:
the teacher-in-charge of Alfredo's killer. the teacher or the head of the school of arts
and trades is made responsible for the I concur, except with respect to the restricted
3. At any rate, assuming that he was the damage caused by the student or apprentice. meaning given the term "teacher" in Article
teacher-in-charge, there is no showing that Neither can it be held to answer for the tort 2180 of the Civil Code as "teacher-in-charge."
Dicon was negligent in enforcing discipline committed by any of the other private This would limit liability to occasions where
upon Daffon or that he had waived respondents for none of them has been found there are classes under the immediate charge
observance of the rules and regulations of the to have been charged with the custody of the of a teacher, which does not seem to be the
school or condoned their non-observance. His offending student or has been remiss in the intendment of the law.

35
As I understand it, the philosophy of the law is their obligation as well as that of the school Parenthetically, from the enumeration in
that whoever stands in loco parentis will have itself to provide proper supervision of the Article 349 of the Civil Code, supra, it is
the same duties and obligations as parents apparent that the Code Commission had
whenever in such a standing. Those persons students' activities during the whole time that already segregated the classification of
are mandatorily held liable for the tortious acts they are at attendance in the school, including "teachers and professors" vis-a-vis their
of pupils and students so long as the latter recess time, as well as to take the necessary pupils, from "directors of trade establishments,
remain in their custody, meaning their precautions to protect the students in their with regard to their apprentices."
protective and supervisory custody. custody from dangers and hazards that would
reasonably be anticipated, including injuries GUTIERREZ, JR., J., concurring:
Thus Article 349 of the Civil Code enumerates that some students themselves may inflict
the persons who stand in loco parentis and wilfully or through negligence on their fellow I concur in the Court's opinion so carefully
thereby exercise substitute parental authority: students. (Emphasis supplied) analyzed and crafted by Justice Isagani A.
Cruz. However, I would like to stress the need
Art. 349 The following persons shall exercise Of course, as provided for in the same Article for a major amendment to, if not a complete
substitute parental authority: 2180, the responsibility treated of shall cease scrapping of, Article 2180 of the Civil Code
when the persons mentioned prove that they insofar as it refers to teachers or heads of
2) Teachers and professors observed all the diligence of a good father of a establishments of arts and trades in relation to
family to prevent damage. pupils and students or apprentices. The
4) Directors of trade establishments, with seventh paragraph of Art. 2180 is a relic of the
regard to apprentices;' And while a school is, admittedly, not directly past and contemplates a situation long gone
liable since Article 2180 speaks only of and out of date. In a Palisoc v. Brillantes (41
teachers and schools heads, yet, by virtue of SCRA 548) situation, it is bound to result in
Article 352 of the Civil Code further provides:
the same provision, the school, as their mischief and injustice.
employer, may be held liable for the failure of
Art. 362. The relations between teacher and
its teachers or school heads to perform their First, we no longer have masters and
pupil, professor and student, are fixed by
mandatory legal duties as substitute parents apprentices toiling in schools of arts and
government regulations and those of each
(Sangco, Philippine Law on Torts & Damages, trades. Students in "technological" colleges
school or institution....
1978 ed., p. 201). Again, the school may and universities are no different from students
exculpate itself from liability by proving that it in liberal arts or professional schools.
But even such rules and regulations as may had exercised the diligence of a good father of Apprentices now work in regular shops and
be fixed can not contravene the concept of the family. factories and their relationship to the employer
substitute parental authority. is covered by laws governing the employment
Art. 2180. x x x relationship and not by laws governing the
The rationale of liability of school heads and teacher—student relationship.
teachers for the tortious acts of their pupils
Employers shall be liable for the damages
was explained in Palisoc vs. Brillantes (41 Second, except for kindergarten, elementary,
caused by their employees and household
SCRA 548), thus: and perhaps early high school students,
helpers acting within the scope of their
assigned tasks, even though the former are teachers are often no longer objects of
The protective custody of the school heads not engaged in any business or industry. veneration who are given the respect due to
and teachers is mandatorily substituted for substitute parents. Many students in their late
that of the parents, and hence, it becomes teens or early adult years view some teachers
xxx xxx xxx
36
as part of a bourgeois or reactionary group whenever in such a standing. Those persons The protective custody of the school heads
whose advice on behaviour, deportment, and are mandatorily held liable for the tortious acts and teachers is mandatorily substituted for
other non-academic matters is not only of pupils and students so long as the latter that of the parents, and hence, it becomes
resented but actively rejected. It ,seems most remain in their custody, meaning their their obligation as well as that of the school
unfair to hold teachers liable on a protective and supervisory custody. itself to provide proper supervision of the
presumption juris tantum of negligence for students' activities during the whole time that
acts of students even under circumstances Thus Article 349 of the Civil Code enumerates they are at attendance in the school, including
where strictly speaking there could be no in the persons who stand in loco parentis and recess time, as well as to take the necessary
loco parentis relationship. Why do teachers thereby exercise substitute parental authority: precautions to protect the students in their
have to prove the contrary of negligence to be custody from dangers and hazards that would
freed from solidary liability for the acts f bomb- Art. 349 The following persons shall exercise reasonably be anticipated, including injuries
throwing or pistol packing students who would substitute parental authority: that some students themselves may inflict
just as soon hurt them as they would other wilfully or through negligence on their fellow
members of the so-called-establishment. students. (Emphasis supplied)
xxx xxx xxx
The ordinary rules on quasi-delicta should Of course, as provided for in the same Article
2) Teachers and professors
apply to teachers and schools of whatever 2180, the responsibility treated of shall cease
nature insofar as grown up students are when the persons mentioned prove that they
concerned. The provision of Art. 2180 of the xxx xxx xxx observed all the diligence of a good father of a
Civil Code involved in this case has outlived family to prevent damage.
its purpose. The Court cannot make law. It 4) Directors of trade establishments, with
can only apply the law with its imperfections. regard to apprentices;' And while a school is, admittedly, not directly
However, the Court can suggest that such a liable since Article 2180 speaks only of
law should be amended or repealed. Article 352 of the Civil Code further provides: teachers and schools heads, yet, by virtue of
the same provision, the school, as their
Separate Opinions Art. 362. The relations employer, may be held liable for the failure of
between teacher and pupil, its teachers or school heads to perform their
MELENCIO-HERRERA, J., concurring and professor and student, are mandatory legal duties as substitute parents
dissenting: fixed by government (Sangco, Philippine Law on Torts & Damages,
regulations and those of each 1978 ed., p. 201). Again, the school may
I concur, except with respect to the restricted school or institution.... exculpate itself from liability by proving that it
meaning given the term "teacher" in Article had exercised the diligence of a good father of
2180 of the Civil Code as "teacher-in-charge." But even such rules and regulations as may the family.
This would limit liability to occasions where be fixed can not contravene the concept of
there are classes under the immediate charge substitute parental authority. Art. 2180. x x x
of a teacher, which does not seem to be the
intendment of the law. The rationale of liability of school heads and Employers shall be liable for the damages
teachers for the tortious acts of their pupils caused by their employees and household
As I understand it, the philosophy of the law is was explained in Palisoc vs. Brillantes (41 helpers acting within the scope of their
that whoever stands in loco parentis will have SCRA 548), thus: assigned tasks, even though the former are
the same duties and obligations as parents not engaged in any business or industry.

37
 xxx xxx xxx substitute parents. Many students in their late
teens or early adult years view some teachers
Parenthetically, from the enumeration in as part of a bourgeois or reactionary group
Article 349 of the Civil Code, supra, it is whose advice on behaviour, deportment, and
apparent that the Code Commission had other non-academic matters is not only
already segregated the classification of resented but actively rejected. It ,seems most
"teachers and professors" vis-a-vis their unfair to hold teachers liable on a
pupils, from "directors of trade establishments, presumption juris tantum of negligence for
with regard to their apprentices." acts of students even under circumstances
where strictly speaking there could be no in
GUTIERREZ, JR., J., concurring: loco parentis relationship. Why do teachers
have to prove the contrary of negligence to be
freed from solidary liability for the acts f bomb-
I concur in the Court's opinion so carefully
throwing or pistol packing students who would
analyzed and crafted by Justice Isagani A.
just as soon hurt them as they would other
Cruz. However, I would like to stress the need
members of the so-called-establishment.
for a major amendment to, if not a complete
scrapping of, Article 2180 of the Civil Code
insofar as it refers to teachers or heads of The ordinary rules on quasi-delicta should
establishments of arts and trades in relation to apply to teachers and schools of whatever
pupils and students or apprentices. The nature insofar as grown up students are
seventh paragraph of Art. 2180 is a relic of the concerned. The provision of Art. 2180 of the
past and contemplates a situation long gone Civil Code involved in this case has outlived
and out of date. In a Palisoc v. Brillantes (41 its purpose. The Court cannot make law. It
SCRA 548) situation, it is bound to result in can only apply the law with its imperfections.
mischief and injustice. However, the Court can suggest that such a
law should be amended or repealed.
First, we no longer have masters and
apprentices toiling in schools of arts and
trades. Students in "technological" colleges
and universities are no different from students
in liberal arts or professional schools.
Apprentices now work in regular shops and
factories and their relationship to the employer
is covered by laws governing the employment
relationship and not by laws governing the
teacher—student relationship.

Second, except for kindergarten, elementary,

and perhaps early high school students,
teachers are often no longer objects of
veneration who are given the respect due to
38
G.R. No. L-3756 June 30, 1952 On March 31, 1947, the defendant was the Philippine Alien Property Administration be
authorized to repair the warehouse on the free from responsibility or liability for any act of
SAGRADA ORDEN DE PREDICADORES land, and actually spent thereon the repairs the National Coconut Corporation, etc.
DEL SANTISMO ROSARIO DE the sum of P26,898.27. In 1948, defendant Pursuant to the agreement the court rendered
FILIPINAS, plaintiff-appellee, leased one-third of the warehouse to one judgment releasing the defendant and the
vs. Dioscoro Sarile at a monthly rental of P500, intervenor from liability, but reversing to the
NATIONAL COCONUT which was later raised to P1,000 a month. plaintiff the right to recover from the National
CORPORATION, defendant-appellant. Sarile did not pay the rents, so action was Coconut Corporation reasonable rentals for
brought against him. It is not shown, however, the use and occupation of the premises.
LABRADOR, J.: if the judgment was ever executed. (Exhibit A-1.)

This is an action to recover the possession of Plaintiff made claim to the property before the The present action is to recover the
a piece of real property (land and Alien Property Custodian of the United States, reasonable rentals from August, 1946, the
warehouses) situated in Pandacan Manila, but as this was denied, it brought an action in date when the defendant began to occupy the
and the rentals for its occupation and use. The court (Court of First Instance of Manila, civil premises, to the date it vacated it. The
land belongs to the plaintiff, in whose name case No. 5007, entitled "La Sagrada Orden defendant does not contest its liability for the
the title was registered before the war. On Predicadores de la Provinicia del Santisimo rentals at the rate of P3,000 per month from
January 4, 1943, during the Japanese military Rosario de Filipinas," vs. Philippine Alien February 28, 1949 (the date specified in the
occupation, the land was acquired by a Property Administrator, defendant, Republic of judgment in civil case No. 5007), but resists
Japanese corporation by the name of Taiwan the Philippines, intervenor) to annul the sale of the claim therefor prior to this date. It
Tekkosho for the sum of P140,00, and property of Taiwan Tekkosho, and recover its interposes the defense that it occupied the
thereupon title thereto issued in its name possession. The Republic of the Philippines property in good faith, under no obligation
(transfer certificate of title No. 64330, Register was allowed to intervene in the action. The whatsoever to pay rentals for the use and
of Deeds, Manila). After liberation, more case did not come for trial because the parties occupation of the warehouse. Judgment was
specifically on April 4, 1946, the Alien presented a joint petition in which it is claimed rendered for the plaintiff to recover from the
Property Custodian of the United States of by plaintiff that the sale in favor of the Taiwan defendant the sum of P3,000 a month, as
America took possession, control, and Tekkosho was null and void because it was reasonable rentals, from August, 1946, to the
custody thereof under section 12 of the executed under threats, duress, and date the defendant vacates the premises. The
Trading with the Enemy Act, 40 Stat., 411, for intimidation, and it was agreed that the title judgment declares that plaintiff has always
the reason that it belonged to an enemy issued in the name of the Taiwan Tekkosho been the owner, as the sale of Japanese
national. During the year 1946 the property be cancelled and the original title of plaintiff purchaser was void ab initio; that the Alien
was occupied by the Copra Export re-issued; that the claims, rights, title, and Property Administration never acquired any
Management Company under a custodianship interest of the Alien Property Custodian be right to the property, but that it held the same
agreement with United States Alien Property cancelled and held for naught; that the in trust until the determination as to whether or
Custodian (Exhibit G), and when it vacated occupant National Coconut Corporation has not the owner is an enemy citizen. The trial
the property it was occupied by the defendant until February 28, 1949, to recover its court further declares that defendant can not
herein. The Philippine Government made equipment from the property and vacate the claim any better rights than its predecessor,
representations with the Office Alien Property premises; that plaintiff, upon entry of the Alien Property Administration, and that as
Custodian for the use of property by the judgment, pay to the Philippine Alien Property defendant has used the property and had
Government (see Exhibits 2, 2-A, 2-B, and 1). Administration the sum of P140,000; and that

39
subleased portion thereof, it must pay In reply, plaintiff-appellee's counsel contends successor to the interests of the enemy holder
reasonable rentals for its occupation. that the Philippine Allien Property of the title, the Taiwan Tekkosho, but by
Administration (PAPA) was a mere express provision of law (Trading with the
Against this judgment this appeal has been administrator of the owner (who ultimately was Enemy Act of the United States, 40 Stat., 411;
interposed, the following assignment of error decided to be plaintiff), and that as defendant 50 U.S.C.A., 189). Neither is it a trustee of the
having been made on defendant-appellant's has used it for commercial purposes and has former owner, the plaintiff-appellee herein, but
behalf: leased portion of it, it should be responsible a trustee of then Government of the United
therefore to the owner, who had been States (32 Op. Atty. Gen. 249; 50 U.S.C.A.
The trial court erred in holding the defendant deprived of the possession for so many years. 283), in its own right, to the exclusion of, and
liable for rentals or compensation for the use (Appellee's brief, pp. 20, 23.) against the claim or title of, the enemy owner.
and occupation of the property from the (Youghioheny & Ohio Coal Co. vs. Lasevich
middle of August, 1946, to December 14, We can not understand how the trial court, [1920], 179 N.W., 355; 171 Wis., 347;
1948. from the mere fact that plaintiff-appellee was U.S.C.A., 282-283.) From August, 1946, when
the owner of the property and the defendant- defendant-appellant took possession, to the
appellant the occupant, which used for its own late of judgment on February 28, 1948, Allien
1. Want to "ownership rights" of the Philippine
benefit but by the express permission of the Property Administration had the absolute
Alien Property Administration did not render
Alien Property Custodian of the United States, control of the property as trustee of the
illegal or invalidate its grant to the defendant
so easily jumped to the conclusion that the Government of the United States, with power
of the free use of property.
occupant is liable for the value of such use to dispose of it by sale or otherwise, as though
and occupation. If defendant-appellant is it were the absolute owner. (U.S vs. Chemical
2. the decision of the Court of First Instance of Foundation [C.C.A. Del. 1925], 5 F. [2d], 191;
liable at all, its obligations, must arise from
Manila declaring the sale by the plaintiff to the 50 U.S.C.A., 283.) Therefore, even if
any of the four sources of obligations, namley,
Japanese purchaser null and void ab initio defendant-appellant were liable to the Allien
law, contract or quasi-contract, crime, or
and that the plaintiff was and has remained as Property Administration for rentals, these
negligence. (Article 1089, Spanish Civil
the legal owner of the property, without legal would not accrue to the benefit of the plaintiff-
Code.) Defendant-appellant is not guilty of any
interruption, is not conclusive. appellee, the owner, but to the United States
offense at all, because it entered the premises
and occupied it with the permission of the Government.
3. Reservation to the plaintiff of the right to entity which had the legal control and
recover from the defendant corporation not administration thereof, the Allien Property But there is another ground why the claim or
binding on the later; Administration. Neither was there any rentals can not be made against defendant-
negligence on its part. There was also no appellant. There was no agreement between
4. Use of the property for commercial privity (of contract or obligation) between the the Alien Property Custodian and the
purposes in itself alone does not justify Alien Property Custodian and the Taiwan defendant-appellant for the latter to pay
payment of rentals. Tekkosho, which had secured the possession rentals on the property. The existence of an
of the property from the plaintiff-appellee by implied agreement to that effect is contrary to
5. Defendant's possession was in good faith. the use of duress, such that the Alien Property the circumstances. The copra Export
Custodian or its permittee (defendant- Management Company, which preceded the
6. Defendant's possession in the nature of appellant) may be held responsible for the defendant-appellant, in the possession and
usufruct. supposed illegality of the occupation of the use of the property, does not appear to have
property by the said Taiwan Tekkosho. The paid rentals therefor, as it occupied it by what
Allien Property Administration had the control the parties denominated a "custodianship
and administration of the property not as agreement," and there is no provision therein
40
for the payment of rentals or of any (Resolution, National Coconut Corporation vs.
compensation for its custody and or Geronimo, 83 Phil. 467.)
occupation and the use. The Trading with the
Enemy Act, as originally enacted, was purely Lastly, the reservation of this action may not
a measure of conversation, hence, it is very be considered as vesting a new right; if no
unlikely that rentals were demanded for the right to claim for rentals existed at the time of
use of the property. When the National the reservation, no rights can arise or accrue
coconut Corporation succeeded the Copra from such reservation alone.
Export Management Company in the
possession and use of the property, it must Wherefore, the part of the judgment appealed
have been also free from payment of rentals, from, which sentences defendant-appellant to
especially as it was Government corporation, pay rentals from August, 1946, to February
and steps where then being taken by the 28, 1949, is hereby reversed. In all other
Philippine Government to secure the property respects the judgment is affirmed. Costs of
for the National Coconut Corporation. So that this appeal shall be against the plaintiff-
the circumstances do not justify the finding appellee.
that there was an implied agreement that the
defendant-appellant was to pay for the use
and occupation of the premises at all.

The above considerations show that plaintiff-

appellee's claim for rentals before it obtained
the judgment annulling the sale of the Taiwan
Tekkosho may not be predicated on any
negligence or offense of the defendant-
appellant, or any contract, express or implied,
because the Allien Property Administration
was neither a trustee of plaintiff-appellee, nor
a privy to the obligations of the Taiwan
Tekkosho, its title being based by legal
provision of the seizure of enemy property.
We have also tried in vain to find a law or
provision thereof, or any principle in quasi
contracts or equity, upon which the claim can
be supported. On the contrary, as defendant-
appellant entered into possession without any
expectation of liability for such use and
occupation, it is only fair and just that it may
not be held liable therefor. And as to the rents
it collected from its lessee, the same should
accrue to it as a possessor in good faith, as
this Court has already expressly held.
41
G.R. No. 177056 September 18, and leases out commercial buildings and SM Prime ₱10.00 to ₱20.00 (depe
2009 other structures, among which, are SM City, the parking space is outd
Manila; SM Centerpoint, Sta. Mesa, Manila; the first three hours and
THE OFFICE OF THE SOLICITOR SM City, North Avenue, Quezon City; and SM ₱10.00 for every succeed
GENERAL, Petitioner, Southmall, Las Piñas. thereof
vs.
AYALA LAND INCORPORATED, The shopping malls operated or leased out by
ROBINSON'S LAND CORPORATION, respondents have parking facilities for all The parking tickets or cards issued by
SHANGRI-LA PLAZA CORPORATION and kinds of motor vehicles, either by way of respondents to vehicle owners contain the
SM PRIME HOLDINGS, INC., Respondents. parking spaces inside the mall buildings or in stipulation that respondents shall not be
separate buildings and/or adjacent lots that responsible for any loss or damage to the
DECISION are solely devoted for use as parking spaces. vehicles parked in respondents’ parking
Respondents Ayala Land, Robinsons, and SM facilities.
CHICO-NAZARIO, J.: Prime spent for the construction of their own
parking facilities. Respondent Shangri-la is In 1999, the Senate Committees on Trade and
renting its parking facilities, consisting of land Commerce and on Justice and Human Rights
Before this Court is a Petition for Review on
and building specifically used as parking conducted a joint investigation for the
Certiorari,1 under Rule 45 of the Revised
spaces, which were constructed for the following purposes: (1) to inquire into the
Rules of Court, filed by petitioner Office of the
lessor’s account. legality of the prevalent practice of shopping
Solicitor General (OSG), seeking the reversal
malls of charging parking fees; (2) assuming
and setting aside of the Decision2 dated 25
Respondents expend for the maintenance and arguendo that the collection of parking fees
January 2007 of the Court of Appeals in CA-
administration of their respective parking was legally authorized, to find out the basis
G.R. CV No. 76298, which affirmed in toto the
facilities. They provide security personnel to and reasonableness of the parking rates
Joint Decision3 dated 29 May 2002 of the
protect the vehicles parked in their parking charged by shopping malls; and (3) to
Regional Trial Court (RTC) of Makati City,
facilities and maintain order within the area. In determine the legality of the policy of shopping
Branch 138, in Civil Cases No. 00-1208 and
turn, they collect the following parking fees malls of denying liability in cases of theft,
No. 00-1210; and (2) the Resolution 4 dated 14
from the persons making use of their parking robbery, or carnapping, by invoking the waiver
March 2007 of the appellate court in the same
facilities, regardless of whether said persons clause at the back of the parking tickets. Said
case which denied the Motion for
are mall patrons or not: Senate Committees invited the top executives
Reconsideration of the OSG. The RTC
of respondents, who operate the major malls
adjudged that respondents Ayala Land
in the country; the officials from the
Incorporated (Ayala Land), Robinsons Land Respondent Parking Fees Department of Trade and Industry (DTI),
Corporation (Robinsons), Shangri-la Plaza
Department of Public Works and Highways
Corporation (Shangri-la), and SM Prime Ayala Land On weekdays, ₱25.00 for(DPWH),
the first four hours
Metro Manila Development Authority
Holdings, Inc. (SM Prime) could not be and ₱10.00 for every succeeding hour; on local government officials;
(MMDA), and other
obliged to provide free parking spaces in their weekends, flat rate of ₱25.00 per day
and the Philippine Motorists Association
malls to their patrons and the general public.
Robinsons ₱20.00 for the first three(PMA)
hours asandrepresentative
₱10.00 of the consumers’
for every succeeding hour group.
Respondents Ayala Land, Robinsons, and
Shangri-la maintain and operate shopping
Shangri-la After three public hearings held on 30
Flat rate of ₱30.00 per day
malls in various locations in Metro Manila.
September, 3 November, and 1 December
Respondent SM Prime constructs, operates,
42
1999, the afore-mentioned Senate Secretary of Public Works. This set up, 2. The Department of Trade and Industry
Committees jointly issued Senate Committee however, is not being carried out in reality. pursuant to the provisions of R.A. No. 7394,
Report No. 2255 on 2 May 2000, in which they otherwise known as the Consumer Act of the
concluded: In the position paper submitted by the Philippines should enforce the provisions of
Metropolitan Manila Development Authority the Code relative to parking. Towards this
In view of the foregoing, the Committees find (MMDA), its chairman, Jejomar C. Binay, end, the DTI should formulate the necessary
that the collection of parking fees by shopping accurately pointed out that the Secretary of implementing rules and regulations on parking
malls is contrary to the National Building Code the DPWH is responsible for the in shopping malls, with prior consultations with
and is therefor [sic] illegal. While it is true that implementation/enforcement of the National the local government units where these are
the Code merely requires malls to provide Building Code. After the enactment of the located. Furthermore, the DTI, in coordination
parking spaces, without specifying whether it Local Government Code of 1991, the local with the DPWH, should be empowered to
is free or not, both Committees believe that government units (LGU’s) were tasked to regulate and supervise the construction and
the reasonable and logical interpretation of the discharge the regulatory powers of the maintenance of parking establishments.
Code is that the parking spaces are for free. DPWH. Hence, in the local level, the Building
This interpretation is not only reasonable and Officials enforce all rules/ regulations 3. Finally, Congress should amend and
logical but finds support in the actual practice formulated by the DPWH relative to all update the National Building Code to
in other countries like the United States of building plans, specifications and designs expressly prohibit shopping malls from
America where parking spaces owned and including parking space requirements. There collecting parking fees by at the same time,
operated by mall owners are free of charge. is, however, no single national department or prohibit them from invoking the waiver of
agency directly tasked to supervise the liability.7
Figuratively speaking, the Code has enforcement of the provisions of the Code on
"expropriated" the land for parking – parking, notwithstanding the national Respondent SM Prime thereafter received
something similar to the subdivision law which character of the law.6 information that, pursuant to Senate
require developers to devote so much of the Committee Report No. 225, the DPWH
land area for parks. Senate Committee Report No. 225, thus, Secretary and the local building officials of
contained the following recommendations: Manila, Quezon City, and Las Piñas intended
Moreover, Article II of R.A. No. 9734 to institute, through the OSG, an action to
(Consumer Act of the Philippines) provides In light of the foregoing, the Committees on enjoin respondent SM Prime and similar
that "it is the policy of the State to protect the Trade and Commerce and Justice and Human establishments from collecting parking fees,
interest of the consumers, promote the Rights hereby recommend the following: and to impose upon said establishments penal
general welfare and establish standards of sanctions under Presidential Decree No.
conduct for business and industry." Obviously, 1. The Office of the Solicitor General should 1096, otherwise known as the National
a contrary interpretation (i.e., justifying the institute the necessary action to enjoin the Building Code of the Philippines (National
collection of parking fees) would be going collection of parking fees as well as to enforce Building Code), and its Implementing Rules
against the declared policy of R.A. 7394. the penal sanction provisions of the National and Regulations (IRR). With the threatened
Building Code. The Office of the Solicitor action against it, respondent SM Prime filed,
Section 201 of the National Building Code General should likewise study how refund can on 3 October 2000, a Petition for Declaratory
gives the responsibility for the administration be exacted from mall owners who continue to Relief8 under Rule 63 of the Revised Rules of
and enforcement of the provisions of the collect parking fees. Court, against the DPWH Secretary and local
Code, including the imposition of penalties for building officials of Manila, Quezon City, and
administrative violations thereof to the Las Piñas. Said Petition was docketed as Civil

43
Case No. 00-1208 and assigned to the RTC of injunction be issued restraining respondents 4. Entitlement of the parties of [sic] award of
Makati City, Branch 138, presided over by from collecting parking fees from their damages.13
Judge Sixto Marella, Jr. (Judge Marella). In its customers; and
Petition, respondent SM Prime prayed for On 29 May 2002, the RTC rendered its Joint
judgment: 2. After hearing, judgment be rendered Decision in Civil Cases No. 00-1208 and No.
declaring that the practice of respondents in 00-1210.
a) Declaring Rule XIX of the Implementing charging parking fees is violative of the
Rules and Regulations of the National National Building Code and its Implementing The RTC resolved the first two issues
Building Code as ultra vires, hence, Rules and Regulations and is therefore affirmatively. It ruled that the OSG can initiate
unconstitutional and void; invalid, and making permanent any injunctive Civil Case No. 00-1210 under Presidential
writ issued in this case. Decree No. 478 and the Administrative Code
b) Declaring [herein respondent SM Prime]’s of 1987.14 It also found that all the requisites
clear legal right to lease parking spaces Other reliefs just and equitable under the for an action for declaratory relief were
appurtenant to its department stores, malls, premises are likewise prayed for.11 present, to wit:
shopping centers and other commercial
establishments; and On 23 October 2000, Judge Ibay of the RTC The requisites for an action for declaratory
of Makati City, Branch 135, issued an Order relief are: (a) there is a justiciable controversy;
c) Declaring the National Building Code of the consolidating Civil Case No. 00-1210 with (b) the controversy is between persons whose
Philippines Implementing Rules and Civil Case No. 00-1208 pending before Judge interests are adverse; (c) the party seeking
Regulations as ineffective, not having been Marella of RTC of Makati, Branch 138. the relief has a legal interest in the
published once a week for three (3) controversy; and (d) the issue involved is ripe
consecutive weeks in a newspaper of general As a result of the pre-trial conference held on for judicial determination.
circulation, as prescribed by Section 211 of the morning of 8 August 2001, the RTC issued
Presidential Decree No. 1096. a Pre-Trial Order12 of even date which limited SM, the petitioner in Civil Case No. 001-1208
the issues to be resolved in Civil Cases No. [sic] is a mall operator who stands to be
[Respondent SM Prime] further prays for such 00-1208 and No. 00-1210 to the following: affected directly by the position taken by the
other reliefs as may be deemed just and government officials sued namely the
equitable under the premises.9 1. Capacity of the plaintiff [OSG] in Civil Case Secretary of Public Highways and the Building
No. 00-1210 to institute the present Officials of the local government units where it
The very next day, 4 October 2000, the OSG proceedings and relative thereto whether the operates shopping malls. The OSG on the
filed a Petition for Declaratory Relief and controversy in the collection of parking fees by other hand acts on a matter of public interest
Injunction (with Prayer for Temporary mall owners is a matter of public welfare. and has taken a position adverse to that of the
Restraining Order and Writ of Preliminary mall owners whom it sued. The construction of
Injunction)10 against respondents. This Petition 2. Whether declaratory relief is proper. new and bigger malls has been announced, a
was docketed as Civil Case No. 00-1210 and matter which the Court can take judicial notice
raffled to the RTC of Makati, Branch 135, and the unsettled issue of whether mall
3. Whether respondent Ayala Land,
presided over by Judge Francisco B. Ibay operators should provide parking facilities,
Robinsons, Shangri-La and SM Prime are
(Judge Ibay). Petitioner prayed that the RTC: free of charge needs to be resolved.15
obligated to provide parking spaces in their
malls for the use of their patrons or the public
1. After summary hearing, a temporary in general, free of charge. As to the third and most contentious issue, the
restraining order and a writ of preliminary RTC pronounced that:
44
The Building Code, which is the enabling law compensation. Further, loss of effective sole assignment of error of the OSG in its
and the Implementing Rules and Regulations control over their property will ensue which is Appellant’s Brief was:
do not impose that parking spaces shall be frowned upon by law.
provided by the mall owners free of charge. THE TRIAL COURT ERRED IN HOLDING
Absent such directive[,] Ayala Land, The presence of parking spaces can be THAT THE NATIONAL BUILDING CODE DID
Robinsons, Shangri-la and SM [Prime] are viewed in another light. They can be looked at NOT INTEND MALL PARKING SPACES TO
under no obligation to provide them for free. as necessary facilities to entice the public to BE FREE OF CHARGE[;]20
Article 1158 of the Civil Code is clear: increase patronage of their malls because
without parking spaces, going to their malls while the four errors assigned by respondent
"Obligations derived from law are not will be inconvenient. These are[,] however[,] SM Prime in its Appellant’s Brief were:
presumed. Only those expressly determined business considerations which mall operators
in this Code or in special laws are will have to decide for themselves. They are I
demandable and shall be regulated by the not sufficient to justify a legal conclusion, as
precepts of the law which establishes them; the OSG would like the Court to adopt that it is
THE TRIAL COURT ERRED IN FAILING TO
and as to what has not been foreseen, by the the obligation of the mall owners to provide
DECLARE RULE XIX OF THE
provisions of this Book (1090).["] parking spaces for free.16
IMPLEMENTING RULES AS HAVING BEEN
ENACTED ULTRA VIRES, HENCE,
xxxx The RTC then held that there was no UNCONSTITUTIONAL AND VOID.
sufficient evidence to justify any award for
The provision on ratios of parking slots to damages.
II
several variables, like shopping floor area or
customer area found in Rule XIX of the The RTC finally decreed in its 29 May 2002
THE TRIAL COURT ERRED IN FAILING TO
Implementing Rules and Regulations cannot Joint Decision in Civil Cases No. 00-1208 and
DECLARE THE IMPLEMENTING RULES
be construed as a directive to provide free No. 00-1210 that:
INEFFECTIVE FOR NOT HAVING BEEN
parking spaces, because the enabling law, the
PUBLISHED AS REQUIRED BY LAW.
Building Code does not so provide. x x x. FOR THE REASONS GIVEN, the Court
declares that Ayala Land[,] Inc., Robinsons
III
To compel Ayala Land, Robinsons, Shangri- Land Corporation, Shangri-la Plaza
La and SM [Prime] to provide parking spaces Corporation and SM Prime Holdings[,] Inc. are
for free can be considered as an unlawful not obligated to provide parking spaces in THE TRIAL COURT ERRED IN FAILING TO
taking of property right without just their malls for the use of their patrons or public DISMISS THE OSG’S PETITION FOR
compensation. in general, free of charge. DECLARATORY RELIEF AND INJUNCTION
FOR FAILURE TO EXHAUST
ADMINISTRATIVE REMEDIES.
Parking spaces in shopping malls are privately All counterclaims in Civil Case No. 00-1210
owned and for their use, the mall operators are dismissed.
collect fees. The legal relationship could be IV
either lease or deposit. In either case[,] the No pronouncement as to costs.17
mall owners have the right to collect money
which translates into income. Should parking CA-G.R. CV No. 76298 involved the separate
spaces be made free, this right of mall owners appeals of the OSG18 and respondent SM
shall be gone. This, without just Prime19 filed with the Court of Appeals. The
45
THE TRIAL COURT ERRED IN FAILING TO administrative review is not a condition appealed Decision is hereby AFFIRMED in
DECLARE THAT THE OSG HAS NO LEGAL precedent to judicial relief where the question toto.23
CAPACITY TO SUE AND/OR THAT IT IS in dispute is purely a legal one, and nothing of
NOT A REAL PARTY-IN-INTEREST IN THE an administrative nature is to be or can be In its Resolution issued on 14 March 2007, the
INSTANT CASE.21 done. Court of Appeals denied the Motion for
Reconsideration of the OSG, finding that the
Respondent Robinsons filed a Motion to The Court of Appeals likewise refused to rule grounds relied upon by the latter had already
Dismiss Appeal of the OSG on the ground that on the validity of the IRR of the National been carefully considered, evaluated, and
the lone issue raised therein involved a pure Building Code, as such issue was not among passed upon by the appellate court, and there
question of law, not reviewable by the Court of those the parties had agreed to be resolved was no strong and cogent reason to modify
Appeals. by the RTC during the pre-trial conference for much less reverse the assailed judgment.
Civil Cases No. 00-1208 and No. 00-1210.
The Court of Appeals promulgated its Issues cannot be raised for the first time on The OSG now comes before this Court, via
Decision in CA-G.R. CV No. 76298 on 25 appeal. Furthermore, the appellate court the instant Petition for Review, with a single
January 2007. The appellate court agreed found that the controversy could be settled on assignment of error:
with respondent Robinsons that the appeal of other grounds, without touching on the issue
the OSG should suffer the fate of dismissal, of the validity of the IRR. It referred to the THE COURT OF APPEALS SERIOUSLY
since "the issue on whether or not the settled rule that courts should refrain from ERRED IN AFFIRMING THE RULING OF
National Building Code and its implementing passing upon the constitutionality of a law or THE LOWER COURT THAT RESPONDENTS
rules require shopping mall operators to implementing rules, because of the principle ARE NOT OBLIGED TO PROVIDE FREE
provide parking facilities to the public for free" that bars judicial inquiry into a constitutional PARKING SPACES TO THEIR CUSTOMERS
was evidently a question of law. Even so, question, unless the resolution thereof is OR THE PUBLIC.24
since CA-G.R. CV No. 76298 also included indispensable to the determination of the
the appeal of respondent SM Prime, which case.
The OSG argues that respondents are
raised issues worthy of consideration, and in mandated to provide free parking by Section
order to satisfy the demands of substantial Lastly, the Court of Appeals declared that 803 of the National Building Code and Rule
justice, the Court of Appeals proceeded to rule Section 803 of the National Building Code and XIX of the IRR.
on the merits of the case. Rule XIX of the IRR were clear and needed no
further construction. Said provisions were only
According to Section 803 of the National
In its Decision, the Court of Appeals affirmed intended to control the occupancy or
Building Code:
the capacity of the OSG to initiate Civil Case congestion of areas and structures. In the
No. 00-1210 before the RTC as the legal absence of any express and clear provision of
law, respondents could not be obliged and SECTION 803. Percentage of Site Occupancy
representative of the government,22 and as the
one deputized by the Senate of the Republic expected to provide parking slots free of
of the Philippines through Senate Committee charge. (a) Maximum site occupancy shall be
Report No. 225. governed by the use, type of construction, and
The fallo of the 25 January 2007 Decision of height of the building and the use, area,
the Court of Appeals reads: nature, and location of the site; and subject to
The Court of Appeals rejected the contention
the provisions of the local zoning
of respondent SM Prime that the OSG failed
requirements and in accordance with the rules
to exhaust administrative remedies. The WHEREFORE, premises considered, the
and regulations promulgated by the Secretary.
appellate court explained that an instant appeals are DENIED. Accordingly,

46
In connection therewith, Rule XIX of the old It is hereby declared to be the policy of the by respondents. In fact, the term "parking
IRR,25 provides: State to safeguard life, health, property, and fees" cannot even be found at all in the entire
public welfare, consistent with the principles of National Building Code and its IRR.
RULE XIX – PARKING AND LOADING sound environmental management and
SPACE REQUIREMENTS control; and to this end, make it the purpose of Statutory construction has it that if a statute is
this Code to provide for all buildings and clear and unequivocal, it must be given its
Pursuant to Section 803 of the National structures, a framework of minimum standards literal meaning and applied without any
Building Code (PD 1096) providing for and requirements to regulate and control their attempt at interpretation.26 Since Section 803
maximum site occupancy, the following location, site, design, quality of materials, of the National Building Code and Rule XIX of
provisions on parking and loading space construction, use, occupancy, and its IRR do not mention parking fees, then
requirements shall be observed: maintenance. simply, said provisions do not regulate the
collection of the same. The RTC and the
1. The parking space ratings listed below are The requirement of free-of-charge parking, the Court of Appeals correctly applied Article 1158
minimum off-street requirements for specific OSG argues, greatly contributes to the aim of of the New Civil Code, which states:
uses/occupancies for buildings/structures: safeguarding "life, health, property, and public
welfare, consistent with the principles of Art. 1158. Obligations derived from law are
sound environmental management and not presumed. Only those expressly
1.1 The size of an average automobile parking
control." Adequate parking spaces would determined in this Code or in special laws are
slot shall be computed as 2.4 meters by 5.00
contribute greatly to alleviating traffic demandable, and shall be regulated by the
meters for perpendicular or diagonal parking,
congestion when complemented by quick and precepts of the law which establishes them;
2.00 meters by 6.00 meters for parallel
easy access thereto because of free-charge and as to what has not been foreseen, by the
parking. A truck or bus parking/loading slot
parking. Moreover, the power to regulate and provisions of this Book. (Emphasis ours.)
shall be computed at a minimum of 3.60
control the use, occupancy, and maintenance
meters by 12.00 meters. The parking slot shall
of buildings and structures carries with it the Hence, in order to bring the matter of parking
be drawn to scale and the total number of
power to impose fees and, conversely, to fees within the ambit of the National Building
which shall be indicated on the plans and
control -- partially or, as in this case, Code and its IRR, the OSG had to resort to
specified whether or not parking
absolutely -- the imposition of such fees. specious and feeble argumentation, in which
accommodations, are attendant-managed.
(See Section 2 for computation of parking the Court cannot concur.
requirements). The Court finds no merit in the present
Petition. The OSG cannot rely on Section 102 of the
xxxx National Building Code to expand the
The explicit directive of the afore-quoted coverage of Section 803 of the same Code
statutory and regulatory provisions, garnered and Rule XIX of the IRR, so as to include the
1.7 Neighborhood shopping center – 1
from a plain reading thereof, is that regulation of parking fees. The OSG limits its
slot/100 sq. m. of shopping floor area
respondents, as operators/lessors of citation to the first part of Section 102 of the
neighborhood shopping centers, should National Building Code declaring the policy of
The OSG avers that the aforequoted provide parking and loading spaces, in the State "to safeguard life, health, property,
provisions should be read together with accordance with the minimum ratio of one slot and public welfare, consistent with the
Section 102 of the National Building Code, per 100 square meters of shopping floor area. principles of sound environmental
which declares: There is nothing therein pertaining to the management and control"; but totally ignores
collection (or non-collection) of parking fees the second part of said provision, which reads,
SECTION 102. Declaration of Policy
47
"and to this end, make it the purpose of this From the RTC all the way to this Court, the market, and for the safety and convenience of
Code to provide for all buildings and OSG repeatedly referred to Republic v. the public.
structures, a framework of minimum standards Gonzales28 and City of Ozamis v.
and requirements to regulate and control their Lumapas29 to support its position that the Republic and City of Ozamis involved parking
location, site, design, quality of materials, State has the power to regulate parking in the local streets; in contrast, the present
construction, use, occupancy, and spaces to promote the health, safety, and case deals with privately owned parking
maintenance." While the first part of Section welfare of the public; and it is by virtue of said facilities available for use by the general
102 of the National Building Code lays down power that respondents may be required to public. In Republic and City of Ozamis, the
the State policy, it is the second part thereof provide free parking facilities. The OSG, concerned local governments regulated
that explains how said policy shall be carried though, failed to consider the substantial parking pursuant to their power to control and
out in the Code. Section 102 of the National differences in the factual and legal regulate their streets; in the instant case, the
Building Code is not an all-encompassing backgrounds of these two cases from those of DPWH Secretary and local building officials
grant of regulatory power to the DPWH the Petition at bar. regulate parking pursuant to their authority to
Secretary and local building officials in the ensure compliance with the minimum
name of life, health, property, and public In Republic, the Municipality of Malabon standards and requirements under the
welfare. On the contrary, it limits the sought to eject the occupants of two parcels of National Building Code and its IRR. With the
regulatory power of said officials to ensuring land of the public domain to give way to a difference in subject matters and the bases for
that the minimum standards and requirements road-widening project. It was in this context the regulatory powers being invoked, Republic
for all buildings and structures, as set forth in that the Court pronounced: and City of Ozamis do not constitute
the National Building Code, are complied with. precedents for this case.
Indiscriminate parking along F. Sevilla
Consequently, the OSG cannot claim that in Boulevard and other main thoroughfares was Indeed, Republic and City of Ozamis both
addition to fixing the minimum requirements prevalent; this, of course, caused the build up contain pronouncements that weaken the
for parking spaces for buildings, Rule XIX of of traffic in the surrounding area to the great position of the OSG in the case at bar. In
the IRR also mandates that such parking discomfort and inconvenience of the public Republic, the Court, instead of placing the
spaces be provided by building owners free of who use the streets. Traffic congestion burden on private persons to provide parking
charge. If Rule XIX is not covered by the constitutes a threat to the health, welfare, facilities to the general public, mentioned the
enabling law, then it cannot be added to or safety and convenience of the people and it trend in other jurisdictions wherein the
included in the implementing rules. The rule- can only be substantially relieved by widening municipal governments themselves took the
making power of administrative agencies must streets and providing adequate parking areas. initiative to make more parking spaces
be confined to details for regulating the mode available so as to alleviate the traffic
or proceedings to carry into effect the law as it The Court, in City of Ozamis, declared that the problems, thus:
has been enacted, and it cannot be extended City had been clothed with full power to
to amend or expand the statutory control and regulate its streets for the purpose Under the Land Transportation and Traffic
requirements or to embrace matters not of promoting public health, safety and welfare. Code, parking in designated areas along
covered by the statute. Administrative The City can regulate the time, place, and public streets or highways is allowed which
regulations must always be in harmony with manner of parking in the streets and public clearly indicates that provision for parking
the provisions of the law because any places; and charge minimal fees for the street spaces serves a useful purpose. In other
resulting discrepancy between the two will parking to cover the expenses for supervision, jurisdictions where traffic is at least as
always be resolved in favor of the basic law.27 inspection and control, to ensure the smooth voluminous as here, the provision by
flow of traffic in the environs of the public municipal governments of parking space is not

48
limited to parking along public streets or undeniable power to collect a regulatory fee. It ventilation in every building vis-à-vis
highways. There has been a marked trend to looks to the enactment of specific measures regulating the collection by building owners of
build off-street parking facilities with the view that govern the relations not only as between fees for the use of their parking spaces.
to removing parked cars from the streets. individuals but also as between private parties Contrary to the averment of the OSG, the
While the provision of off-street parking and the political society.31 True, if the former does not necessarily include or imply
facilities or carparks has been commonly regulatory agencies have the power to impose the latter. It totally escapes this Court how
undertaken by private enterprise, municipal regulatory fees, then conversely, they also lighting and ventilation conditions at the malls
governments have been constrained to put up have the power to remove the same. Even so, could be affected by the fact that parking
carparks in response to public necessity it is worthy to note that the present case does facilities thereat are free or paid for.
where private enterprise had failed to keep up not involve the imposition by the DPWH
with the growing public demand. American Secretary and local building officials of The OSG attempts to provide the missing link
courts have upheld the right of municipal regulatory fees upon respondents; but the by arguing that:
governments to construct off-street parking collection by respondents of parking fees from
facilities as clearly redounding to the public persons who use the mall parking facilities. Under Section 803 of the National Building
benefit.30 Secondly, assuming arguendo that the DPWH Code, complimentary parking spaces are
Secretary and local building officials do have required to enhance light and ventilation, that
In City of Ozamis, the Court authorized the regulatory powers over the collection of is, to avoid traffic congestion in areas
collection by the City of minimal fees for the parking fees for the use of privately owned surrounding the building, which certainly
parking of vehicles along the streets: so why parking facilities, they cannot allow or prohibit affects the ventilation within the building itself,
then should the Court now preclude such collection arbitrarily or whimsically. which otherwise, the annexed parking spaces
respondents from collecting from the public a Whether allowing or prohibiting the collection would have served. Free-of-charge parking
fee for the use of the mall parking facilities? of such parking fees, the action of the DPWH avoids traffic congestion by ensuring quick
Undoubtedly, respondents also incur Secretary and local building officials must and easy access of legitimate shoppers to off-
expenses in the maintenance and operation of pass the test of classic reasonableness and street parking spaces annexed to the malls,
the mall parking facilities, such as electric propriety of the measures or means in the and thereby removing the vehicles of these
consumption, compensation for parking promotion of the ends sought to be legitimate shoppers off the busy streets near
attendants and security, and upkeep of the accomplished.32 the commercial establishments.33
physical structures.
Keeping in mind the aforementioned test of The Court is unconvinced. The National
It is not sufficient for the OSG to claim that reasonableness and propriety of measures or Building Code regulates buildings, by setting
"the power to regulate and control the use, means, the Court notes that Section 803 of the minimum specifications and requirements
occupancy, and maintenance of buildings and the National Building Code falls under Chapter for the same. It does not concern itself with
structures carries with it the power to impose 8 on Light and Ventilation. Evidently, the Code traffic congestion in areas surrounding the
fees and, conversely, to control, partially or, deems it necessary to regulate site occupancy building. It is already a stretch to say that the
as in this case, absolutely, the imposition of to ensure that there is proper lighting and National Building Code and its IRR also intend
such fees." Firstly, the fees within the power of ventilation in every building. Pursuant thereto, to solve the problem of traffic congestion
regulatory agencies to impose are regulatory Rule XIX of the IRR requires that a building, around the buildings so as to ensure that the
fees. It has been settled law in this jurisdiction depending on its specific use and/or floor said buildings shall have adequate lighting
that this broad and all-compassing area, should provide a minimum number of and ventilation. Moreover, the Court cannot
governmental competence to restrict rights of parking spaces. The Court, however, fails to simply assume, as the OSG has apparently
liberty and property carries with it the see the connection between regulating site done, that the traffic congestion in areas
occupancy to ensure proper light and
49
around the malls is due to the fact that include the power to prohibit. A fortiori, the unreasonably restricts the right to use
respondents charge for their parking facilities, power to regulate does not include the power business property for business purposes
thus, forcing vehicle owners to just park in the to confiscate. Police power does not involve amounts to a taking of private property, and
streets. The Court notes that despite the fees the taking or confiscation of property, with the the owner may recover therefor.371avvphi1
charged by respondents, vehicle owners still exception of a few cases where there is a
use the mall parking facilities, which are even necessity to confiscate private property in Although in the present case, title to and/or
fully occupied on some days. Vehicle owners order to destroy it for the purpose of protecting possession of the parking facilities remain/s
may be parking in the streets only because peace and order and of promoting the general with respondents, the prohibition against their
there are not enough parking spaces in the welfare; for instance, the confiscation of an collection of parking fees from the public, for
malls, and not because they are deterred by illegally possessed article, such as opium and the use of said facilities, is already tantamount
the parking fees charged by respondents. firearms. 34 to a taking or confiscation of their properties.
Free parking spaces at the malls may even The State is not only requiring that
have the opposite effect from what the OSG When there is a taking or confiscation of respondents devote a portion of the latter’s
envisioned: more people may be encouraged private property for public use, the State is no properties for use as parking spaces, but is
by the free parking to bring their own vehicles, longer exercising police power, but another of also mandating that they give the public
instead of taking public transport, to the malls; its inherent powers, namely, eminent domain. access to said parking spaces for free. Such
as a result, the parking facilities would Eminent domain enables the State to forcibly is already an excessive intrusion into the
become full sooner, leaving more vehicles acquire private lands intended for public use property rights of respondents. Not only are
without parking spaces in the malls and upon payment of just compensation to the they being deprived of the right to use a
parked in the streets instead, causing even owner.35 portion of their properties as they wish, they
more traffic congestion. are further prohibited from profiting from its
Normally, of course, the power of eminent use or even just recovering therefrom the
Without using the term outright, the OSG is domain results in the taking or appropriation of expenses for the maintenance and operation
actually invoking police power to justify the title to, and possession of, the expropriated of the required parking facilities.
regulation by the State, through the DPWH property; but no cogent reason appears why
Secretary and local building officials, of the said power may not be availed of only to The ruling of this Court in City Government of
privately owned parking facilities, including the impose a burden upon the owner of Quezon City v. Judge Ericta38 is edifying.
collection by the owners/operators of such condemned property, without loss of title and Therein, the City Government of Quezon City
facilities of parking fees from the public for the possession.36 It is a settled rule that neither passed an ordinance obliging private
use thereof. The Court finds, however, that in acquisition of title nor total destruction of value cemeteries within its jurisdiction to set aside at
totally prohibiting respondents from collecting is essential to taking. It is usually in cases least six percent of their total area for charity,
parking fees from the public for the use of the where title remains with the private owner that that is, for burial grounds of deceased
mall parking facilities, the State would be inquiry should be made to determine whether paupers. According to the Court, the
acting beyond the bounds of police power. the impairment of a property is merely ordinance in question was null and void, for it
regulated or amounts to a compensable authorized the taking of private property
Police power is the power of promoting the taking. A regulation that deprives any person without just compensation:
public welfare by restraining and regulating of the profitable use of his property constitutes
the use of liberty and property. It is usually a taking and entitles him to compensation, There is no reasonable relation between the
exerted in order to merely regulate the use unless the invasion of rights is so slight as to setting aside of at least six (6) percent of the
and enjoyment of the property of the owner. permit the regulation to be justified under the total area of all private cemeteries for charity
The power to regulate, however, does not police power. Similarly, a police regulation that burial grounds of deceased paupers and the

50
promotion of' health, morals, good order, made to pay by the subdivision developer
safety, or the general welfare of the people. when individual lots are sold to homeowners.
The ordinance is actually a taking without
compensation of a certain area from a private In conclusion, the total prohibition against the
cemetery to benefit paupers who are charges collection by respondents of parking fees from
of the municipal corporation. Instead of' persons who use the mall parking facilities
building or maintaining a public cemetery for has no basis in the National Building Code or
this purpose, the city passes the burden to its IRR. The State also cannot impose the
private cemeteries. same prohibition by generally invoking police
power, since said prohibition amounts to a
'The expropriation without compensation of a taking of respondents’ property without
portion of private cemeteries is not covered by payment of just compensation.
Section 12(t) of Republic Act 537, the Revised
Charter of Quezon City which empowers the Given the foregoing, the Court finds no more
city council to prohibit the burial of the dead need to address the issue persistently raised
within the center of population of the city and by respondent SM Prime concerning the
to provide for their burial in a proper place unconstitutionality of Rule XIX of the IRR. In
subject to the provisions of general law addition, the said issue was not among those
regulating burial grounds and cemeteries. that the parties, during the pre-trial conference
When the Local Government Code, Batas for Civil Cases No. 12-08 and No. 00-1210,
Pambansa Blg. 337 provides in Section agreed to submit for resolution of the RTC. It
177(q) that a sangguniang panlungsod may is likewise axiomatic that the constitutionality
"provide for the burial of the dead in such of a law, a regulation, an ordinance or an act
place and in such manner as prescribed by will not be resolved by courts if the
law or ordinance" it simply authorizes the city controversy can be, as in this case it has
to provide its own city owned land or to buy or been, settled on other grounds.39
expropriate private properties to construct
public cemeteries. This has been the law, and WHEREFORE, the instant Petition for Review
practise in the past. It continues to the on Certiorari is hereby DENIED. The Decision
present. Expropriation, however, requires dated 25 January 2007 and Resolution dated
payment of just compensation. The 14 March 2007 of the Court of Appeals in CA-
questioned ordinance is different from laws G.R. CV No. 76298, affirming in toto the Joint
and regulations requiring owners of Decision dated 29 May 2002 of the Regional
subdivisions to set aside certain areas for Trial Court of Makati City, Branch 138, in Civil
streets, parks, playgrounds, and other public Cases No. 00-1208 and No. 00-1210 are
facilities from the land they sell to buyers of hereby AFFIRMED. No costs.
subdivision lots. The necessities of public
safety, health, and convenience are very clear
SO ORDERED.
from said requirements which are intended to
insure the development of communities with
salubrious and wholesome environments. The
beneficiaries of the regulation, in turn, are
51
G.R. No. 200602 December 11, said proposal further provides for the following who has agreed to pull out the said [products]
2013 terms, viz.:9 but had failed to do so up to now."

ACE FOODS, INC., Petitioner, TERMS : Thirty (30) days upon delivery Eventually, or on October 16, 2002, ACE
vs. Foods lodged a Complaint15 against MTCL
MICRO PACIFIC TECHNOLOGIES CO., VALIDITY : Prices are based on current dollar before the RTC, praying that the latter pull out
LTD.1, Respondent. rate and subject to changes without prior from its premises the subject products since
notice. MTCL breached its "after delivery services"
DECISION obligations to it, particularly, to: (a) install and
DELIVERY : Immediate delivery for items on configure the subject products; (b) submit a
PERLAS-BERNABE, J.: stock, otherwise thirty (30) to forty-five days cost benefit study to justify the purchase of the
upon receipt of [Purchase Order] subject products; and (c) train ACE Foods’s
technicians on how to use and maintain the
Assailed in this petition for review
subject products. 16 ACE Foods likewise
on certiorari2are the Decision3 dated October WARRANTY : One (1) year on parts and
claimed that the subject products MTCL
21, 2011 and Resolution4 dated February 8, services. Accessories not included in
delivered are defective and not working.17
2012 of the Court of Appeals (CA) in CA-G.R. warranty.
CV No. 89426 which reversed and set aside
the Decision5 dated February 28, 2007 of the For its part, MTCL, in its Answer with
On October 29, 2001, ACE Foods accepted
Regional Trial Court of Makati, Branch 148 Counterclaim,18 maintained that it had duly
MTCL’s proposal and accordingly issued
(RTC) in Civil Case No. 02-1248, holding complied with its obligations to ACE Foods
Purchase Order No. 10002310 (Purchase
petitioner ACE Foods, Inc. (ACE Foods) liable and that the subject products were in good
Order) for the subject products amounting to
to respondent Micro Pacific Technologies Co., working condition when they were delivered,
₱646,464.00 (purchase price). Thereafter, or
Ltd. (MTCL) for the payment of Cisco Routers installed and configured in ACE Foods’s
on March 4, 2002, MTCL delivered the said
and Frame Relay Products (subject products) premises. Thereafter, MTCL even conducted
products to ACE Foods as reflected in Invoice
amounting to ₱646,464.00 pursuant to a a training course for ACE Foods’s
No. 7733 11 (Invoice Receipt). The fine print of
perfected contract of sale. representatives/employees; MTCL, however,
the invoice states, inter alia, that "[t]itle to sold
alleged that there was actually no agreement
property is reserved in MICROPACIFIC
as to the purported "after delivery services."
The Facts TECHNOLOGIES CO., LTD. until full
Further, MTCL posited that ACE Foods
compliance of the terms and conditions of
refused and failed to pay the purchase price
ACE Foods is a domestic corporation above and payment of the price"12 (title
for the subject products despite the latter’s
engaged in the trading and distribution of reservation stipulation). After delivery, the
use of the same for a period of nine (9)
consumer goods in wholesale and retail subject products were then installed and
months. As such, MTCL prayed that ACE
bases,6 while MTCL is one engaged in the configured in ACE Foods’s premises. MTCL’s
Foods be compelled to pay the purchase
supply of computer hardware and equipment.7 demands against ACE Foods to pay the
price, as well as damages related to the
purchase price, however, remained
transaction.19
On September 26, 2001, MTCL sent a letter- unheeded.13 Instead of paying the purchase
proposal8 for the delivery and sale of the price, ACE Foods sent MTCL a Letter14 dated
September 19, 2002, stating that it "ha[s] been The RTC Ruling
subject products to be installed at various
offices of ACE Foods. Aside from the returning the [subject products] to [MTCL] thru
[its] sales representative Mr. Mark Anteola On February 28, 2007, the RTC rendered a
itemization of the products offered for sale, the
Decision, 20 directing MTCL to remove the

52
subject products from ACE Foods’s premises Dissatisfied, MTCL elevated the matter on in a Resolution 32 dated February 8, 2012,
and pay actual damages and attorney fees in appeal.25 hence, this petition.
the amounts of ₱200,000.00 and
₱100,000.00, respectively.21 The CA Ruling The Issue Before the Court

At the outset, it observed that the agreement In a Decision26 dated October 21, 2011, the The essential issue in this case is whether
between ACE Foods and MTCL is in the CA reversed and set aside the RTC’s ruling, ACE Foods should pay MTCL the purchase
nature of a contract to sell. Its conclusion was ordering ACE Foods to pay MTCL the amount price for the subject products.
based on the fine print of the Invoice Receipt of ₱646,464.00, plus legal interest at the rate
which expressly indicated that "title to sold of 6% per annum to be computed from April 4, The Court’s Ruling
property is reserved in MICROPACIFIC 2002, and attorney’s fees amounting to
TECHNOLOGIES CO., LTD. until full ₱50,000.00.27 The petition lacks merit.
compliance of the terms and conditions of
above and payment of the price," noting It found that the agreement between the
further that in a contract to sell, the A contract is what the law defines it to be,
parties is in the nature of a contract of sale, taking into consideration its essential
prospective seller explicitly reserves the observing that the said contract had been
transfer of title to the prospective buyer, and elements, and not what the contracting parties
perfected from the time ACE Foods sent the call it.33 The real nature of a contract may be
said transfer is conditioned upon the full Purchase Order to MTCL which, in turn,
payment of the purchase price. 22 Thus, determined from the express terms of the
delivered the subject products covered by the written agreement and from the
notwithstanding the execution of the Purchase Invoice Receipt and subsequently installed
Order and the delivery and installation of the contemporaneous and subsequent acts of the
and configured them in ACE Foods’s contracting parties. However, in the
subject products at the offices of ACE Foods, premises.28 Thus, considering that MTCL had
by express stipulation stated in the Invoice construction or interpretation of an
already complied with its obligation, ACE instrument, the intention of the parties is
Receipt issued by MTCL and signed by ACE Foods’s corresponding obligation arose and
Foods, i.e., the title reservation stipulation, it is primordial and is to be pursued. The
was then duty bound to pay the agreed denomination or title given by the parties in
still the former who holds title to the products purchase price within thirty (30) days from
until full payment of the purchase price their contract is not conclusive of the nature of
March 5, 2002.29 In this light, the CA its contents.34
therefor. In this relation, it noted that the full concluded that it was erroneous for ACE
payment of the price is a positive suspensive Foods not to pay the purchase price therefor,
condition, the non-payment of which prevents The very essence of a contract of sale is the
despite its receipt of the subject products,
the obligation to sell on the part of the transfer of ownership in exchange for a
because its refusal to pay disregards the very
seller/vendor from materializing at all.23 Since price paid or promised. 35 This may be
essence of reciprocity in a contract of
title remained with MTCL, the RTC therefore gleaned from Article 1458 of the Civil Code
sale.30 The CA also dismissed ACE Foods’s
directed it to withdraw the subject products which defines a contract of sale as follows:
claim regarding MTCL’s failure to perform its
from ACE Foods’s premises. Also, in view of "after delivery services" obligations since the
the foregoing, the RTC found it unnecessary letter-proposal, Purchase Order and Invoice Art. 1458. By the contract of sale one of the
to delve into the allegations of breach since Receipt do not reflect any agreement to that contracting parties obligates himself to
the non-happening of the aforesaid effect.31 transfer the ownership and to deliver a
suspensive condition ipso jure prevented the determinate thing, and the other to pay
obligation to sell from arising.24 therefor a price certain in money or its
Aggrieved, ACE Foods moved for
equivalent.
reconsideration which was, however, denied

53
A contract of sale may be absolute or proposal to sell the subject products in either case, however, novation is never
conditional. (Emphasis supplied) consideration of the purchase price of presumed, and the animus novandi, whether
₱646,464.00. From that point in time, the totally or partially, must appear by express
Corollary thereto, a contract of sale is reciprocal obligations of the parties – i.e., on agreement of the parties, or by their acts that
classified as a consensual contract, which the one hand, of MTCL to deliver the said are too clear and unequivocal to be
means that the sale is perfected by mere products to ACE Foods, and, on the other mistaken.38
consent. No particular form is required for its hand, of ACE Foods to pay the purchase price
validity. Upon perfection of the contract, the therefor within thirty (30) days from delivery – In the present case, it has not been shown
parties may reciprocally demand already arose and consequently may be that the title reservation stipulation appearing
performance, i.e., the vendee may compel demanded. Article 1475 of the Civil Code in the Invoice Receipt had been included or
transfer of ownership of the object of the sale, makes this clear: had subsequently modified or superseded the
and the vendor may require the vendee to pay original agreement of the parties. The fact that
the thing sold.36 Art. 1475. The contract of sale is perfected at the Invoice Receipt was signed by a
the moment there is a meeting of minds upon representative of ACE Foods does not, by and
In contrast, a contract to sell is defined as a the thing which is the object of the contract of itself, prove animus novandi since: (a) it
bilateral contract whereby the prospective and upon the price. was not shown that the signatory was
seller, while expressly reserving the authorized by ACE Foods (the actual party to
ownership of the property despite delivery From that moment, the parties may the transaction) to novate the original
thereof to the prospective buyer, binds himself reciprocally demand performance, subject to agreement; (b) the signature only proves that
to sell the property exclusively to the the provisions of the law governing the form of the Invoice Receipt was received by a
prospective buyer upon fulfillment of the contracts. representative of ACE Foods to show the fact
condition agreed upon, i.e., the full payment of delivery; and (c) as matter of judicial notice,
of the purchase price. A contract to sell may At this juncture, the Court must dispel the invoices are generally issued at the
not even be considered as a conditional notion that the stipulation anent MTCL’s consummation stage of the contract and not
contract of sale where the seller may reservation of ownership of the subject its perfection, and have been even treated as
likewise reserve title to the property subject of products as reflected in the Invoice documents which are not actionable per se,
the sale until the fulfillment of a suspensive Receipt, i.e., the title reservation stipulation, although they may prove sufficient
condition, because in a conditional contract of changed the complexion of the transaction delivery. 39 Thus, absent any clear indication
sale, the first element of consent is present, from a contract of sale into a contract to sell. that the title reservation stipulation was
although it is conditioned upon the happening Records are bereft of any showing that the actually agreed upon, the Court must deem
of a contingent event which may or may not said stipulation novated the contract of sale the same to be a mere unilateral imposition on
occur.37 between the parties which, to repeat, already the part of MTCL which has no effect on the
existed at the precise moment ACE Foods nature of the parties’ original agreement as a
In this case, the Court concurs with the CA accepted MTCL’s proposal. To be sure, contract of sale. Perforce, the obligations
that the parties have agreed to a contract of novation, in its broad concept, may either be arising thereto, among others, ACE Foods’s
sale and not to a contract to sell as adjudged extinctive or modificatory. It is extinctive when obligation to pay the purchase price as well
by the RTC. Bearing in mind its consensual an old obligation is terminated by the creation as to accept the delivery of the
nature, a contract of sale had been perfected of a new obligation that takes the place of the goods,40 remain enforceable and
at the precise moment ACE Foods, as former; it is merely modificatory when the old subsisting.1âwphi1
evinced by its act of sending MTCL the obligation subsists to the extent it remains
Purchase Order, accepted the latter’s compatible with the amendatory agreement. In

54
As a final point, it may not be amiss to state
that the return of the subject products
pursuant to a rescissory action41 is neither
warranted by ACE Foods’s claims of breach –
either with respect to MTCL’s breach of its
purported "after delivery services" obligations
or the defective condition of the products -
since such claims were not adequately proven
in this case. The rule is clear: each party must
prove his own affirmative allegation; one who
asserts the affirmative of the issue has the
burden of presenting at the trial such amount
of evidence required by law to obtain a
favorable judgment, which in civil cases, is by
preponderance of evidence. 42 This, however,
ACE Foods failed to observe as regards its
allegations of breach. Hence, the same
cannot be sustained.

WHEREFORE, the petition

is DENIED. Accordingly, the Decision dated
October 21, 2011 and Resolution dated
February 8, 2012 of the Court of Appeals in
CA-G.R. CV No. 89426 are
hereby AFFIRMED.

SO ORDERED.

55
G.R. No. 192105, December 09, 2013 addition to a compensation and benefit the same.
package, Mekeni offered petitioner a car plan,
ANTONIO LOCSIN II, Petitioners, v. MEKENI under which one-half of the cost of the vehicle On May 3, 2007, petitioner filed against
FOOD CORPORATION, Respondent. is to be paid by the company and the other Mekeni and/or its President, Prudencio S.
half to be deducted from petitioner�s Garcia, a Complaint6 for the recovery of
DECISION salary. Mekeni�s offer was contained in an monetary claims consisting of unpaid salaries,
Offer Sheet5 which was presented to commissions, sick/vacation leave benefits,
petitioner. and recovery of monthly salary deductions
DEL CASTILLO, J.:
which were earmarked for his cost-sharing in
Petitioner began his stint as Mekeni Regional the car plan. The case was docketed in the
In the absence of specific terms and Sales Manager on March 17, 2004. To be National Labor Relations Commission
conditions governing a car plan agreement able to effectively cover his appointed sales (NLRC), National Capital Region (NCR),
between the employer and employee, the territory, Mekeni furnished petitioner with a Quezon City as NLRC NCR CASE NO. 00-05-
former may not retain the installment used Honda Civic car valued at P280,000.00, 04139-07.
payments made by the latter on the car plan which used to be the service vehicle of
and treat them as rents for the use of the petitioner�s immediate supervisor. On October 30, 2007, Labor Arbiter Cresencio
service vehicle, in the event that the employee Petitioner paid for his 50% share through G. Ramos rendered a Decision, 7 decreeing as
ceases his employment and is unable to salary deductions of P5,000.00 each month. follows:
complete the installment payments on the WHEREFORE, in the light of the foregoing
vehicle. The underlying reason is that the Subsequently, Locsin resigned effective premises, judgment is hereby rendered
service vehicle was precisely used in the February 25, 2006. By then, a total of directing respondents to turn-over to
former�s business; any personal benefit P112,500.00 had been deducted from his complainant x x x the subject vehicle upon the
obtained by the employee from its use is monthly salary and applied as part of the said complainant�s payment to them of the
merely incidental. employee�s share in the car plan. Mekeni sum of P100,435.84.
supposedly put in an equivalent amount as its
This Petition for Review on Certiorari1 assails share under the car plan. In his resignation SO ORDERED.8
the January 27, 2010 Decision2 of the Court of letter, petitioner made an offer to purchase his Ruling of the National Labor Relations
Appeals (CA) in CA-G.R. SP No. 109550, as service vehicle by paying the outstanding Commission
well as its April 23, 2010 Resolution3 denying balance thereon. The parties negotiated, but
petitioner�s Motion for Partial could not agree on the terms of the proposed On appeal,9 the Labor Arbiter�s Decision
Reconsideration.4ChanRoblesVirtualawlibrary purchase. Petitioner thus returned the vehicle was reversed in a February 27, 2009
to Mekeni on May 2, 2006. Decision10 of the NLRC, thus:
Factual Antecedents WHEREFORE, premises considered, the
Petitioner made personal and written follow- appeal is hereby Granted. The assailed
In February 2004, respondent Mekeni Food ups regarding his unpaid salaries, Decision dated October 30, 2007 is hereby
Corporation (Mekeni) � a Philippine commissions, benefits, and offer to purchase REVERSED and SET ASIDE and a new one
company engaged in food manufacturing and his service vehicle. Mekeni replied that the entered ordering respondent-appellee Mekeni
meat processing � offered petitioner company car plan benefit applied only to Food Corporation to pay complainant-appellee
Antonio Locsin II the position of Regional employees who have been with the company the following:
Sales Manager to oversee Mekeni�s for five years; for this reason, the balance that
National Capital Region Supermarket/Food petitioner should pay on his service vehicle 1. Unpaid Salary in the amount of P12,511.45;
Service and South Luzon operations. In stood at P116,380.00 if he opts to purchase
56
2. Unpaid sick leave/vacation leave pay in the First. Petitioner does not deny that private
amount of P14,789.15; Mekeni moved to reconsider, but in an April respondent Rolando Lantan acquired the
30, 2009 Resolution,12 the NLRC sustained its vehicle in question under a car plan for
3. Unpaid commission in the amount of original findings. executives of the Elizalde group of
P9,780.00; and companies. Under a typical car plan, the
Ruling of the Court of Appeals company advances the purchase price of a
4. Reimbursement of complainant�s car to be paid back by the employee through
payment under the car plan agreement in the Mekeni filed a Petition for Certiorari13 with the monthly deductions from his salary. The
amount of P112,500.00; and CA assailing the NLRC�s February 27, company retains ownership of the motor
2009 Decision, saying that the NLRC vehicle until it shall have been fully paid for.
5. The equivalent share of the company as committed grave abuse of discretion in However, retention of registration of the car in
part of the complainant�s benefit under the holding it liable to petitioner as it had no the company�s name is only a form of a
car plan 50/50 sharing amounting to jurisdiction to resolve petitioner�s claims, lien on the vehicle in the event that the
P112,500.00. which are civil in nature. employee would abscond before he has fully
paid for it. There are also stipulations in car
Respondent-Appellee Mekeni Food On January 27, 2010, the CA issued the plan agreements to the effect that should the
Corporation is hereby authorized to deduct the assailed Decision, decreeing as follows: employment of the employee concerned be
sum of P4,736.50 representing complainant- WHEREFORE, the petition terminated before all installments are fully
appellant�s cash advance from his total for certiorari is GRANTED. The Decision of paid, the vehicle will be taken by the employer
monetary award. the National Labor Relations Commission and all installments paid shall be considered
dated 27 February 2009, in NLRC NCR Case rentals per agreement.16
All other claims are dismissed for lack of No. 00-05-04139-07, and its Resolution dated In the absence of evidence as to the
merit. 30 April 2009 denying reconsideration thereof, stipulations of the car plan arrangement
are MODIFIED in that the reimbursement of between Mekeni and petitioner, the CA
SO ORDERED.11 Locsin�s payment under the car plan in the treated petitioner�s monthly contributions in
The NLRC held that petitioner�s amount of P112,500.00, and the payment to the total amount of P112,500.00 as rentals for
amortization payments on his service vehicle him of Mekeni�s 50% share in the amount the use of his service vehicle for the duration
amounting to P112,500.00 should be of P112,500.00 are DELETED. The rest of the of his employment with Mekeni. The appellate
reimbursed; if not, unjust enrichment would decision is AFFIRMED. court applied Articles 1484-1486 of the Civil
result, as the vehicle remained in the Code,17 and added that the installments paid
possession and ownership of Mekeni. In SO ORDERED.14 by petitioner should not be returned to him
addition, the employer�s share in the In arriving at the above conclusion, the CA inasmuch as the amounts are not
monthly car plan payments should likewise be held that the NLRC possessed jurisdiction unconscionable. It made the following
awarded to petitioner because it forms part of over petitioner�s claims, including the pronouncement:
the latter�s benefits under the car plan. It amounts he paid under the car plan, since his Having used the car in question for the
held further that Mekeni�s claim that the Complaint against Mekeni is one for the duration of his employment, it is but fair that
company car plan benefit applied only to payment of salaries and employee benefits. all of Locsin�s payments be considered as
employees who have been with the company With regard to the car plan arrangement, the rentals therefor which may be forfeited by
for five years has not been substantiated by CA applied the ruling in Elisco Tool Mekeni. Therefore, Mekeni has no obligation
its evidence, in which case the car plan Manufacturing Corporation v. Court of to return these payments to Locsin.
agreement should be construed in Appeals,15 where it was held that � Conversely, Mekeni has no right to demand
petitioner�s favor. the payment of the balance of the purchase
57
price from Locsin since the latter has already was shown to him and which became the to review anew issues already passed upon
surrendered possession of the vehicle.18 basis for his decision to accept the offer and by the CA � an unauthorized exercise given
Moreover, the CA held that petitioner cannot work for Mekeni. that the Supreme Court is not a trier of facts,
recover Mekeni�s corresponding share in nor is it its function to analyze or weigh the
the purchase price of the service vehicle, as Petitioner adds that the absence of evidence of the parties all over again. 23 It adds
this would constitute unjust enrichment on the documentary or other evidence showing the that the issue regarding the car plan and the
part of petitioner at Mekeni�s expense. terms and conditions of the Mekeni company conclusions of the CA drawn from the
car plan cannot justify a reliance on evidence on record are questions of fact.
The CA affirmed the NLRC judgment in all Mekeni�s self-serving claims that the full
other respects. Petitioner filed his Motion for terms thereof applied only to employees who Mekeni asserts further that the service vehicle
Partial Reconsideration,19 but the CA denied have been with the company for at least five was merely a loan which had to be paid
the same in its April 23, 2010 Resolution. years; in the absence of evidence, doubts through the monthly salary deductions. If it is
should be resolved in his favor pursuant to the not allowed to recover on the loan, this would
Thus, petitioner filed the instant Petition; policy of the law that affords protection to constitute unjust enrichment on the part of
Mekeni, on the other hand, took no further labor, as well as the principle that all doubts petitioner.
action. should be construed to its benefit.
Our Ruling
Issue Finally, petitioner submits that the ruling in
the Elisco Tool case cannot apply to his case The Petition is partially granted.
Petitioner raises the following solitary issue: because the car plan subject of the said case
WITH ALL DUE RESPECT, THE involved a car loan, which his car plan benefit To begin with, the Court notes that Mekeni did
HONORABLE COURT OF APPEALS was not; it was part of his compensation not file a similar petition questioning the CA
ERRED IN NOT CONSIDERING THE CAR package, and the vehicle was an important Decision; thus, it is deemed to have accepted
PLAN PRIVILEGE AS PART OF THE component of his work which required what was decreed. The only issue that must
COMPENSATION PACKAGE OFFERED TO constant and uninterrupted mobility. Petitioner be resolved in this Petition, then, is whether
PETITIONER AT THE INCEPTION OF HIS claims that the car plan was in fact more petitioner is entitled to a refund of all the
EMPLOYMENT AND INSTEAD LIKENED IT beneficial to Mekeni than to him; besides, he amounts applied to the cost of the service
TO A CAR LOAN ON INSTALLMENT, IN did not choose to avail of it, as it was simply vehicle under the car plan.
SPITE OF THE ABSENCE OF EVIDENCE imposed upon him. He concludes that it is
ON RECORD.20 only just that his payments should be When the conclusions of the CA are grounded
Petitioner�s Arguments refunded and returned to him. entirely on speculation, surmises and
conjectures, or when the inferences made by
In his Petition and Reply,21 petitioner mainly Petitioner thus prays for the reversal of the it are manifestly mistaken or absurd, its
argues that the CA erred in treating his assailed CA Decision and Resolution, and that findings are subject to review by this Court.24
monthly contributions to the car plan, totaling the Court reinstate the NLRC�s February
P112,500.00, as rentals for the use of his 27, 2009 Decision. From the evidence on record, it is seen that
service vehicle during his employment; the car the Mekeni car plan offered to petitioner was
plan which he availed of was a benefit and it Respondent�s Arguments subject to no other term or condition than that
formed part of the package of economic Mekeni shall cover one-half of its value, and
benefits granted to him when he was hired as In its Comment,22 Mekeni argues that the petitioner shall in turn pay the other half
Regional Sales Manager. Petitioner submits Petition does not raise questions of law, but through deductions from his monthly salary.
that this is shown by the Offer Sheet which merely of fact, which thus requires the Court Mekeni has not shown, by documentary
58
evidence or otherwise, that there are other agreement to such effect. It was therefore Court expressed just such a view in the past.
terms and conditions governing its car plan patent error for the appellate court to assume Thus �
agreement with petitioner. There is no that, even in the absence of express In the case at bar, the disallowance of the
evidence to suggest that if petitioner failed to stipulation, petitioner�s payments on the subject car plan benefits would hamper the
completely cover one-half of the cost of the car plan may be considered as rentals which officials in the performance of their
vehicle, then all the deductions from his salary need not be returned. functions to promote and develop
going to the cost of the vehicle will be treated trade which requires mobility in the
as rentals for his use thereof while working Indeed, the Court cannot allow that payments performance of official business.
with Mekeni, and shall not be refunded. made on the car plan should be forfeited by Indeed, the car plan benefits are supportive
Indeed, there is no such stipulation or Mekeni and treated simply as rentals for of the implementation of the objectives
arrangement between them. Thus, the petitioner�s use of the company service and mission of the agency relative to the
CA�s reliance on Elisco Tool is without vehicle. Nor may they be retained by it as nature of its operation and responsive to the
basis, and its conclusions arrived at in the purported loan payments, as it would have exigencies of the service.26 (Emphasis
questioned decision are manifestly mistaken. this Court believe. In the first place, there is supplied)
To repeat what was said in Elisco Tool � precisely no stipulation to such effect in their Any benefit or privilege enjoyed by petitioner
First. Petitioner does not deny that private agreement. Secondly, it may not be said that from using the service vehicle was merely
respondent Rolando Lantan acquired the the car plan arrangement between the parties incidental and insignificant, because for the
vehicle in question under a car plan for was a benefit that the petitioner enjoyed; on most part the vehicle was under Mekeni�s
executives of the Elizalde group of the contrary, it was an absolute necessity in control and supervision. Free and complete
companies. Under a typical car plan, the Mekeni�s business operations, which disposal is given to the petitioner only after the
company advances the purchase price of a benefited it to the fullest extent: without the vehicle�s cost is covered or paid in full.
car to be paid back by the employee through service vehicle, petitioner would have been Until then, the vehicle remains at the beck and
monthly deductions from his salary. The unable to rapidly cover the vast sales territory call of Mekeni. Given the vast territory
company retains ownership of the motor assigned to him, and sales or marketing of petitioner had to cover to be able to perform
vehicle until it shall have been fully paid for. Mekeni�s products could not have been his work effectively and generate business for
However, retention of registration of the car in booked or made fast enough to move his employer, the service vehicle was an
the company�s name is only a form of a Mekeni�s inventory. Poor sales, inability to absolute necessity, or else Mekeni�s
lien on the vehicle in the event that the market Mekeni�s products, a high rate of business would suffer adversely. Thus, it is
employee would abscond before he has fully product spoilage resulting from stagnant clear that while petitioner was paying for half
paid for it. There are also stipulations in car inventory, and poor monitoring of the sales of the vehicle�s value, Mekeni was reaping
plan agreements to the effect that should territory are the necessary consequences of the full benefits from the use thereof.
the employment of the employee lack of mobility. Without a service vehicle,
concerned be terminated before all petitioner would have been placed at the In light of the foregoing, it is unfair to deny
installments are fully paid, the vehicle will mercy of inefficient and unreliable public petitioner a refund of all his contributions to
be taken by the employer and all transportation; his official schedule would the car plan. Under Article 22 of the Civil
installments paid shall be considered have been dependent on the arrival and Code, �[e]very person who through an act
rentals per agreement.25 (Emphasis departure times of buses or jeeps, not to of performance by another, or any other
supplied) mention the availability of seats in them. means, acquires or comes into possession of
It was made clear in the above Clearly, without a service vehicle, Mekeni�s something at the expense of the latter without
pronouncement that installments made on the business could only prosper at a snail�s just or legal ground, shall return the same to
car plan may be treated as rentals only when pace, if not completely paralyzed. Its cost of him.� Article 214227 of the same Code
there is an express stipulation in the car plan doing business would be higher as well. The likewise clarifies that there are certain lawful,
59
voluntary and unilateral acts which give rise to another, or when a person retains money or
the juridical relation of quasi-contract, to the property of another against the fundamental
end that no one shall be unjustly enriched or principles of justice, equity and good
benefited at the expense of another. In the conscience.� The principle of unjust
absence of specific terms and conditions enrichment requires two conditions: (1) that a
governing the car plan arrangement between person is benefited without a valid basis or
the petitioner and Mekeni, a quasi-contractual justification, and (2) that such benefit is
relation was created between them. derived at the expense of another.
Consequently, Mekeni may not enrich itself by
charging petitioner for the use of its vehicle The main objective of the principle against
which is otherwise absolutely necessary to the unjust enrichment is to prevent one from
full and effective promotion of its business. It enriching himself at the expense of another
may not, under the claim that petitioner�s without just cause or consideration. x x x28
payments constitute rents for the use of the WHEREFORE, the Petition is GRANTED IN
company vehicle, refuse to refund what PART. The assailed January 27, 2010
petitioner had paid, for the reasons that the Decision and April 23, 2010 Resolution of the
car plan did not carry such a condition; the Court of Appeals in CA-G.R. SP No. 109550
subject vehicle is an old car that is are MODIFIED, in that respondent Mekeni
substantially, if not fully, depreciated; the car Food Corporation is hereby ordered
plan arrangement benefited Mekeni for the to REFUND petitioner Antonio Locsin II�s
most part; and any personal benefit obtained payments under the car plan agreement in the
by petitioner from using the vehicle was total amount of P112,500.00.
merely incidental.
Thus, except for the counterpart or equivalent
Conversely, petitioner cannot recover the share of Mekeni Food Corporation in the car
monetary value of Mekeni�s counterpart plan agreement amounting to P112,500.00,
contribution to the cost of the vehicle; that is which is DELETED, the February 27, 2009
not property or money that belongs to him, nor Decision of the National Labor Relations
was it intended to be given to him in lieu of the Commission is affirmed in all
car plan. In other words, Mekeni�s share of respects.chanRoblesvirtualLawlibrary
the vehicle�s cost was not part of
petitioner�s compensation package. To SO ORDERED.
start with, the vehicle is an asset that
belonged to Mekeni. Just as Mekeni is
unjustly enriched by failing to refund
petitioner�s payments, so should petitioner
not be awarded the value of Mekeni�s
counterpart contribution to the car plan, as this
would unjustly enrich him at Mekeni�s
expense.
There is unjust enrichment �when a person
unjustly retains a benefit to the loss of
60
G.R. No. 147561 June 22, 2006 entered into a contract with x x x Jose D. within the stipulated 240-day period. However,
Santos, Jr., the proprietor of JDS Construction said reminders went unheeded by x x x JDS.
STRONGHOLD INSURANCE COMPANY, (JDS), for the construction of roadways and a
INC., Petitioner, drainage system in Republic-Asahi’s "On November 24, 1989, dissatisfied with the
vs. compound in Barrio Pinagbuhatan, Pasig City, progress of the work undertaken by x x x JDS,
REPUBLIC-ASAHI GLASS where [respondent] was to pay x x x JDS five [respondent] Republic-Asahi extrajudicially
CORPORATION, Respondent. million three hundred thousand pesos rescinded the contract pursuant to Article XIII
(P5,300,000.00) inclusive of value added tax of said contract, and wrote a letter to x x x
DECISION for said construction, which was supposed to JDS informing the latter of such rescission.
be completed within a period of two hundred Such rescission, according to Article XV of the
forty (240) days beginning May 8, 1989. In contract shall not be construed as a waiver of
PANGANIBAN, CJ:
order ‘to guarantee the faithful and [respondent’s] right to recover damages from
satisfactory performance of its undertakings’ x x x x JDS and the latter’s sureties.
Asurety company’s liability under the x x JDS, shall post a performance bond of
performance bond it issues is solidary. The seven hundred ninety five thousand pesos
death of the principal obligor does not, as a "[Respondent] alleged that, as a result of x x x
(P795,000.00). x x x JDS executed, jointly and JDS’s failure to comply with the provisions of
rule, extinguish the obligation and the solidary severally with [petitioner] Stronghold
nature of that liability. the contract, which resulted in the said
Insurance Co., Inc. (SICI) Performance Bond contract’s rescission, it had to hire another
No. SICI-25849/g(13)9769. contractor to finish the project, for which it
The Case
incurred an additional expense of three million
"On May 23, 1989, [respondent] paid to x x x two hundred fifty six thousand, eight hundred
Before us is a Petition for Review 1 under Rule JDS seven hundred ninety five thousand seventy four pesos (P3,256,874.00).
45 of the Rules of Court, seeking to reverse pesos (P795,000.00) by way of downpayment.
the March 13, 2001 Decision2 of the Court of
"On January 6, 1990, [respondent] sent a
Appeals (CA) in CA-GR CV No. 41630. The "Two progress billings dated August 14, 1989 letter to [petitioner] SICI filing its claim under
assailed Decision disposed as follows: and September 15, 1989, for the total amount the bond for not less than P795,000.00. On
of two hundred seventy four thousand six March 22, 1991, [respondent] again sent
"WHEREFORE, the Order dated January 28, hundred twenty one pesos and one centavo another letter reiterating its demand for
1993 issued by the lower court is REVERSED (P274,621.01) were submitted by x x x JDS to payment under the aforementioned bond.
and SET ASIDE. Let the records of the instant [respondent], which the latter paid. According Both letters allegedly went unheeded.
case be REMANDED to the lower court for the to [respondent], these two progress billings
reception of evidence of all parties."3 accounted for only 7.301% of the work "[Respondent] then filed [a] complaint against
supposed to be undertaken by x x x JDS x x x JDS and SICI. It sought from x x x JDS
The Facts under the terms of the contract. payment of P3,256,874.00 representing the
additional expenses incurred by [respondent]
The facts of the case are narrated by the CA "Several times prior to November of 1989, for the completion of the project using another
in this wise: [respondent’s] engineers called the attention contractor, and from x x x JDS and SICI,
of x x x JDS to the alleged alarmingly slow jointly and severally, payment of P750,000.00
"On May 24, 1989, [respondent] Republic- pace of the construction, which resulted in the as damages in accordance with the
Asahi Glass Corporation (Republic-Asahi) fear that the construction will not be finished performance bond; exemplary damages in the
61
amount of P100,000.00 and attorney’s fees in can no longer prove its claim for damages in "On September 4, 1991, [respondent] filed a
the amount of at least P100,000.00. view of the death of Santos. SICI was not Motion for Reconsideration seeking
informed by [respondent] of the death of reconsideration of the lower court’s August 16,
"According to the Sheriff’s Return dated June Santos. SICI was not informed by 1991 order dismissing its complaint.
14, 1991, submitted to the lower court by [respondent] of the unilateral rescission of its [Petitioner] SICI field its ‘Comment and/or
Deputy Sheriff Rene R. Salvador, summons contract with JDS, thus SICI was deprived of Opposition to the Motion for Reconsideration.’
were duly served on defendant-appellee SICI. its right to protect its interests as surety under On October 15, 1991, the lower court issued
However, x x x Jose D. Santos, Jr. died the the performance bond, and therefore it was an Order, the dispositive portion of which
previous year (1990), and x x x JDS released from all liability. SICI was likewise reads as follows:
Construction was no longer at its address at denied due process when it was not notified of
2nd Floor, Room 208-A, San Buena Bldg. plaintiff-appellant’s process of determining ‘WHEREFORE, premises considered, the
Cor. Pioneer St., Pasig, Metro Manila, and its and fixing the amount to be spent in the Motion for Reconsideration is hereby given
whereabouts were unknown. completion of the unfinished project. The due course. The Order dated 16 August 1991
procedure contained in Article XV of the for the dismissal of the case against
"On July 10, 1991, [petitioner] SICI filed its contract is against public policy in that it Stronghold Insurance Company, Inc., is
answer, alleging that the [respondent’s] denies SICI the right to procedural due reconsidered and hereby reinstated (sic).
money claims against [petitioner and JDS] process. Finally, SICI alleged that However, the case against defendant Jose D.
have been extinguished by the death of Jose [respondent] deviated from the terms and Santos, Jr. (deceased) remains undisturbed.
D. Santos, Jr. Even if this were not the case, conditions of the contract without the written
[petitioner] SICI had been released from its consent of SICI, thus the latter was released ‘Motion for Preliminary hearing and
liability under the performance bond because from all liability. SICI also prayed for the Manifestation with Motion filed by [Stronghold]
there was no liquidation, with the active award of P59,750.00 as attorney’s fees, Insurance Company Inc., are set for hearing
participation and/or involvement, pursuant to and P5,000.00 as litigation expenses. on November 7, 1991 at 2:00 o’clock in the
procedural due process, of herein surety and afternoon.
contractor Jose D. Santos, Jr., hence, there "On August 16, 1991, the lower court issued
was no ascertainment of the corresponding an order dismissing the complaint of ‘SO ORDERED.’
liabilities of Santos and SICI under the [respondent] against x x x JDS and SICI, on
performance bond. At this point in time, said the ground that the claim against JDS did not
"On June 4, 1992, [petitioner] SICI filed its
liquidation was impossible because of the survive the death of its sole proprietor, Jose
‘Memorandum for Bondsman/Defendant SICI
death of Santos, who as such can no longer D. Santos, Jr. The dispositive portion of the
(Re: Effect of Death of defendant Jose D.
participate in any liquidation. The unilateral [O]rder reads as follows:
Santos, Jr.)’ reiterating its prayer for the
liquidation on the party (sic) of [respondent] of dismissal of [respondent’s] complaint.
the work accomplishments did not bind SICI ‘ACCORDINGLY, the complaint against the
for being violative of procedural due process. defendants Jose D. Santos, Jr., doing
"On January 28, 1993, the lower court issued
The claim of [respondent] for the forfeiture of business under trade and style, ‘JDS
the assailed Order reconsidering its Order
the performance bond in the amount Construction’ and Stronghold Insurance
dated October 15, 1991, and ordered the
of P795,000.00 had no factual and legal basis, Company, Inc. is ordered DISMISSED.
case, insofar as SICI is concerned, dismissed.
as payment of said bond was conditioned on
[Respondent] filed its motion for
the payment of damages which [respondent] ‘SO ORDERED.’ reconsideration which was opposed by
may sustain in the event x x x JDS failed to
[petitioner] SICI. On April 16, 1993, the lower
complete the contracted works. [Respondent]

62
court denied [respondent’s] motion for More precisely, the issue is whether intransmissible by their nature, by stipulation,
reconsideration. x x x."4 petitioner’s liability under the performance or by provision of law. Hence, his death did
bond was automatically extinguished by the not result in the extinguishment of those
Ruling of the Court of Appeals death of Santos, the principal. obligations or liabilities, which merely passed
on to his estate.15 Death is not a defense that
The CA ruled that SICI’s obligation under the The Court’s Ruling he or his estate can set up to wipe out the
surety agreement was not extinguished by the obligations under the performance bond.
death of Jose D. Santos, Jr. Consequently, The Petition has no merit. Consequently, petitioner as surety cannot use
Republic-Asahi could still go after SICI for the his death to escape its monetary obligation
bond. under its performance bond.
Sole Issue:

The appellate court also found that the lower The liability of petitioner is contractual in
Effect of Death on the Surety’s Liability
court had erred in pronouncing that the nature, because it executed a performance
performance of the Contract in question had bond worded as follows:
Petitioner contends that the death of Santos,
become impossible by respondent’s act of the bond principal, extinguished his liability
rescission. The Contract was rescinded "KNOW ALL MEN BY THESE PRESENTS:
under the surety bond. Consequently, it says,
because of the dissatisfaction of respondent it is automatically released from any liability
with the slow pace of work and pursuant to under the bond. "That we, JDS CONSTRUCTION of 208-A
Article XIII of its Contract with JDS. San Buena Building, contractor, of Shaw
Blvd., Pasig, MM Philippines, as principal and
As a general rule, the death of either the
The CA ruled that "[p]erformance of the the STRONGHOLD INSURANCE COMPANY,
creditor or the debtor does not extinguish the
[C]ontract was impossible, not because of INC. a corporation duly organized and existing
obligation.8 Obligations are transmissible to
[respondent’s] fault, but because of the fault of under and by virtue of the laws of the
the heirs, except when the transmission is
JDS Construction and Jose D. Santos, Jr. for Philippines with head office at Makati, as
prevented by the law, the stipulations of the
failure on their part to make satisfactory Surety, are held and firmly bound unto the
parties, or the nature of the obligation.9 Only
progress on the project, which amounted to REPUBLIC ASAHI GLASS CORPORATION
obligations that are personal10 or are identified
non-performance of the same. x x x [P]ursuant and to any individual, firm, partnership,
with the persons themselves are extinguished
to the [S]urety [C]ontract, SICI is liable for the corporation or association supplying the
by death.11
non-performance of said [C]ontract on the part principal with labor or materials in the penal
of JDS Construction."5 sum of SEVEN HUNDRED NINETY FIVE
Section 5 of Rule 8612 of the Rules of Court THOUSAND (P795,000.00), Philippine
expressly allows the prosecution of money Currency, for the payment of which sum, well
Hence, this Petition.6 claims arising from a contract against the and truly to be made, we bind ourselves, our
estate of a deceased debtor. Evidently, those heirs, executors, administrators, successors
Issue claims are not actually extinguished.13 What is and assigns, jointly and severally, firmly by
extinguished is only the obligee’s action or suit these presents.
Petitioner states the issue for the Court’s filed before the court, which is not then acting
consideration in the following manner: as a probate court.14
"The CONDITIONS OF THIS OBLIGATION
are as follows;
"Death is a defense of Santos’ heirs which In the present case, whatever monetary
Stronghold could also adopt as its defense liabilities or obligations Santos had under his
against obligee’s claim."7 contracts with respondent were not
63
"WHEREAS the above bounden principal on such principal contractor or his or its sub- against one of them shall not be an obstacle
the ___ day of __________, 19__ entered into contractors shall promptly make payment to to those which may subsequently be directed
a contract with the REPUBLIC ASAHI GLASS any individual, firm, partnership, corporation or against the others, so long as the debt has not
CORPORATION represented by association supplying the principal of its sub- been fully collected."
_________________, to fully and faithfully. contractors with labor and materials in the
Comply with the site preparation works road prosecution of the work provided for in the Elucidating on these provisions, the Court in
and drainage system of Philippine Float Plant said contract, then, this obligation shall be null Garcia v. Court of Appeals18 stated thus:
at Pinagbuhatan, Pasig, Metro Manila. and void; otherwise it shall remain in full force
and effect. Any extension of the period of time "x x x. The surety’s obligation is not an original
"WHEREAS, the liability of the Surety which may be granted by the obligee to the and direct one for the performance of his own
Company under this bond shall in no case contractor shall be considered as given, and act, but merely accessory or collateral to the
exceed the sum of PESOS SEVEN any modifications of said contract shall be obligation contracted by the principal.
HUNDRED NINETY FIVE THOUSAND considered as authorized, with the express Nevertheless, although the contract of a
(P795,000.00) Philippine Currency, inclusive consent of the Surety. surety is in essence secondary only to a valid
of interest, attorney’s fee, and other damages, principal obligation, his liability to the creditor
and shall not be liable for any advances of the "The right of any individual, firm, partnership, or promisee of the principal is said to be
obligee to the principal. corporation or association supplying the direct, primary and absolute; in other words,
contractor with labor or materials for the he is directly and equally bound with the
"WHEREAS, said contract requires the said prosecution of the work hereinbefore stated, principal. x x x."19
principal to give a good and sufficient bond in to institute action on the penal bond, pursuant
the above-stated sum to secure the full and to the provision of Act No. 3688, is hereby Under the law and jurisprudence, respondent
faithfull performance on its part of said acknowledge and confirmed."16 may sue, separately or together, the principal
contract, and the satisfaction of obligations for debtor and the petitioner herein, in view of the
materials used and labor employed upon the As a surety, petitioner is solidarily liable with solidary nature of their liability. The death of
work; Santos in accordance with the Civil Code, the principal debtor will not work to convert,
which provides as follows: decrease or nullify the substantive right of the
"NOW THEREFORE, if the principal shall solidary creditor. Evidently, despite the death
perform well and truly and fulfill all the "Art. 2047. By guaranty a person, called the of the principal debtor, respondent may still
undertakings, covenants, terms, conditions, guarantor, binds himself to the creditor to fulfill sue petitioner alone, in accordance with the
and agreements of said contract during the the obligation of the principal debtor in case solidary nature of the latter’s liability under the
original term of said contract and any the latter should fail to do so. performance bond.
extension thereof that may be granted by the
obligee, with notice to the surety and during "If a person binds himself solidarily with the WHEREFORE, the Petition is DENIED and
the life of any guaranty required under the principal debtor, the provisions of Section the Decision of the Court of Appeals
contract, and shall also perform well and truly 4,17 Chapter 3, Title I of this Book shall be AFFIRMED. Costs against petitioner.
and fulfill all the undertakings, covenants, observed. In such case the contract is called a
terms, conditions, and agreements of any and suretyship." SO ORDERED.
all duly authorized modifications of said
contract that may hereinafter be made, "Art. 1216. The creditor may proceed against
without notice to the surety except when such any one of the solidary debtors or some or all
modifications increase the contract price; and of them simultaneously. The demand made
64
[

65
GR No. 47362. December 19, 1940.]
Although the action to recover the original
JUAN F. VILLAROEL, appellant-appellant, DECISION debt has already prescribed when the lawsuit
against BERNARDINO ESTRADA, was filed in this case, the question that arises
respondent-appellee. in this appeal is mainly whether,
AVANCEÑA, Pres p: chanrob1es virtual 1aw notwithstanding such prescription, the action
Mr. Felipe Agoncillo on behalf of the library filed is admissible. However, this action is not
appellant-appellant. based on the original obligation contracted by
On May 9, 1912, Alejandra F. Callao, mother the defendant's mother, which has already
Mr. Crispin Oben representing the of the defendant Juan F. Villarroel, obtained prescribed, but on the one contracted by the
respondent-appellee. from the spouses Mariano Estrada and defendant on August 9, 1930 (Exhibit B) when
Severina a loan of P1,000 payable after seven assuming compliance with that obligation. ,
SYLLABUS years ( Exhibit A). Alejandra died, leaving the already prescribed. Since the defendant is the
defendant as the sole heir. The spouses only heir of the original debtor, with the right to
1. CONTRACTS; NEW PROMISE TO PAY A Mariano Estrada and Severina also died, succeed her in her inheritance, that debt
PRESCRIBED DEBT; MORAL OBLIGATION leaving the plaintiff Bernardino Estrada as the legally contracted by his mother, although it
AS A CONSIDERATION OF A CONTRACT. only heir. On August 9, 1930, the defendant lost its effectiveness by prescription, is now,
— This action is not based on the original signed a document (Exhibit B) by which he however, for him a moral obligation, which is
obligation incurred by the defendant's mother, declared that he owed the plaintiff the amount sufficient consideration. to create and make
which has already been established, but on of P1,000, with an interest of 12 percent per effective and enforceable his obligation
the one contracted by the defendant on year. This action deals with the collection of voluntarily contracted on August 9, 1930 in
August 9, 1930 (Exhibit B) when assuming this amount. Exhibit B.
compliance with that obligation, already
prescribed. . Since the defendant is the only The Court of First Instance of Laguna, in The rule that a new promise to pay a
heir of the original debtor, with the right to which this action was filed, ordered the prescribed debt must be made by the same
succeed her in her inheritance, that debt defendant to pay to the plaintiff the claimed obligated person or by another legally
legally contracted by his mother, although it amount of P1,000 with its legal interest of 12 authorized by him, It is not applicable to the
lost its effectiveness by prescription, is now, percent per year from August 9, 1930 until its present case in which compliance with the
however, for him a moral obligation, which is complete pay. This sentence was appealed. obligation of the originally obliged person is
sufficient consideration. to create and make not required, but rather of the person who
effective and enforceable his obligation It will be noted that the parties in this case are, later voluntarily wanted to assume this
voluntarily contracted on August 9, 1930 in respectively, the sole heirs of the original obligation.
Exhibit B. creditors and the debtor. This action is
exercised by virtue of the obligation that the The appealed sentence is confirmed, with
2. ID.; ID; ID. — The rule that a new promise defendant, as the only son of the original costs to the appellant. This is how it is
to pay a prescribed debt must be made by the debtor, contracted in favor of the plaintiff, the ordered.
same obligated person or by another legally sole heir of the original creditors. It is admitted
authorized by him, is not applicable to the that the amount of P1,000 for which this Imperial, Diaz, Laurel and Horrilleno, MM.,
present case in which compliance with the obligation is incurred is the same debt owed agree.
obligation of the originally obligated person is by the defendant's mother to the plaintiff's
not required, but of the one who later wanted parents.
to voluntarily assume this obligation.
66
67
G.R. No. 46274 November 2, 1939 appellant's trip, the plaintiff-appellee showed explaining in detail the critical condition of the
great interest and invited him to his Philippine Greyhound Club, Inc., and outlining
A.O. FISHER, Plaintiff-Appellee, vs. JOHN C. establishment and for several days gave him his plans to save the properties and assets of
ROBB, Defendant-Appellant. information about the business. It seems that the plaintiff-appellee that he felt morally
the plaintiff became interested in the responsible to the stockholders who had paid
Marcial P. Lichauco and Manuel M. Mejia for Philippine Greyhound Club, Inc., and asked their second installment (Exh. C). In answer to
appellant. the defendant if he could have a part therein said letter, the plaintiff-appellee wrote the
Wolfson, Barrion and Baradi and Ignacio as a stockholder. As the defendant-appellant defendant-appellant requiring him to return the
Ycaza for appellee. answered in the affirmative, the plaintiff- entire amount paid by him to the Philippine
appellee thereupon filled a subscription blank Greyhound Club, Inc., (exhibit E). Upon
and, through his bank in Shanghai, sent to the receiving this letter, the defendant-appellant
VILLA-REAL, J.: chanrobles virtual law library
Philippine Greyhound Club, Inc., in Manila answered the plaintiff-appellee for any loss
telegraphic transfer for P3,000 in payment of which he might have suffered in connection
The defendant John C. Robb appeals to this the first installment of his subscription. Later with the Philippine Greyhound Club, Inc., in
Court from the judgment of the Court of First on the defendant-appellant returned to Manila the same way that he could not expect
Instance of Manila, the dispositive part of from anyone to reimburse him for his own losses
which reads: Shanghai.chanroblesvirtualawlibrary chanrobl which were much more than those of the
es virtual law library plaintiff-appellee (Exh.
Judgment is hereby rendered in favor of the B).chanroblesvirtualawlibrary chanrobles
plaintiff and against the defendant, who is Some months thereafter, when the board of virtual law library
ordered to pay to the former the sum of directors of the Philippine Greyhound Club,
P2,000, with interest at the legal rate from Inc., issued a call for the payment of the The principal question to be decided in this
March 11, 1938, until paid, plus costs. second installment of the subscriptions, the appeal is whether or not the trial court erred in
defendant-appellant sent a radiogram to the holding that there was sufficient consideration
The facts established at the trial without plaintiff-appellee did so and sent P2,000 to justify the promise made by the defendant-
discussion are the following:chanrobles virtual directly to the Philippine Greyhound Club, Inc., appellant in his letters Exhibits B and
law library in payment of the said installment. Due to the C.chanroblesvirtualawlibrary chanrobles
manipulations of those who controlled the virtual law library
In September, 1935, the board of directors of Philippine Greyhound Club, Inc., during the
the Philippine Greyhound Club, Inc., told the absence of the defendant-appellant undertook In the fifth paragraph of the letter Exhibit B,
herein defendant-appellant John C. Robb, to the organization of a company called The dated March 16, 1936, addressed by the
make a business trip to Shanghai to study the Philippine Racing Club, which now manages defendant-appellant to the plaintiff-appellee,
operation of a dog racing course. In Shanghai, the race track of the Santa Ana park. The the former said: "I feel a moral responsibility
the defendant-appellant stayed at the defendant immediately endeavored to save for these second payments, which were made
American Club where be became acquainted the investment of those who had subscribed in order to carry out my plan (not the first
with the plaintiff-appellee, A. O. Fisher, to the Philippine Greyhound Club, Inc., by payments, as you have it in your letter), and
through their mutual friends. In the course of a having the Philippine Racing Club acquire the Mr. Hilscher and I will see to it that
conversation, the defendant-appellant came to remaining assets of the Philippine Greyhound stockholders who made second payments
know that the plaintiff-appellee was the Club, Inc. The defendant-appellant wrote a receive these amounts back as soon as
manager of a dog racing course. Upon letter to the plaintiff-appellee in Shanghai possible, out of our own personal funds. "As it
knowing the purpose of the defendant-
68
is, I have had to take my loss along with A contract exists from the moment one or Code for the existence of a contract, does not
everyone else here, and so far as I can see more persons consent to be bound with exists
that is what all of us must do. The corporation respect to another or others to deliver
is finally flat, so it is out of the question to something or to render some services. As to the third essential requisite, namely, "A
receive back any of your investment from that consideration for the obligation established,"
source; the only salvage will be the second And article 1261 of the same Civil Code article 1274 of the same Code provides:
payment that you made, and that will come provides the following:
from Hilscher and me personally, as I say, not In onerous contracts the consideration as to
because of any obligation, but simply because ART. 1261. There is no contract unless the each of the parties is the delivery or
we have taken it on ourselves to do that. (And following requisites exists: performance or the promise of delivery or
I wish I could find someone who would performance of a thing or service by the other
undertake to repay a part of my own losses in party; in remuneratory contracts the
1. The consent of the contracting parties;
the enterprise!)" And in the seventh paragraph consideration is the service or benefit for
of the letter Exhibit C, dated February 21, which the remuneration is given, and in
1936, addressed by the same defendant- 2. A definite object which is the subject-matter
of the contract; contracts of pure beneficence the
appellant to the same plaintiff-appellee the consideration is the liberality of the
former said the following:chanrobles virtual benefactors.
law library 3. A consideration for the obligation
established.
And article 1275 of the same Code provides:
However, Mr. Fischer and I feel a personal
responsibility to those few stockholders who In the present case, while the defendant-
appellant told the plaintiff-appellee that he felt ART. 1275. Contracts without consideration or
made their second payments, including
morally responsible for the second payments with an illicit consideration produce no effect
yourself, and it is our intention to personally
which had been made to carry out his plan, whatsoever. A consideration is illicit when it is
repay the amounts of the second payments
and that Mr. Hilscher and he would do contrary to law or morality.
made by those few.
everything possible so that the stockholders
who had made second payments may receive Manresa, in volume 8, 4rth edition, pages
. . . And, finally, paragraph 8 of the same letter
the amount paid by them from their personal 618-619 of his Commentaries on the Civil
Exhibit C states: "We are to receive a certain
funds because they voluntarily assumed the Code, has this to say:
share of the new Philippine Racing Club for
our services as promoters of that organization, responsibility to make such payment as soon
and as soon as this is received by us, we will as they receive from the Philippine racing Considering the concept of the consideration
be in a position to compensate you and the Club certain shares for their services as as the explanation and motive of the contract,
few others who made the second payments. promoters of said organization, it does not it is related to the latter's object and even
That, as T have said, will come from us appear that the plaintiff-appellee had more to its motives with which it is often
personally, in an effort to make things easier consented to said form of reimbursement of confused. It is differentiated from them,
for those who were sportsmen enough to try the P2,000 which he had directly paid to the however, in that the former is the essential
to save the Greyhound organization by Philippine Greyhound Club, Inc., in reason for the contract, while the latter are the
making second payments. satisfaction of the second particular reasons of a contracting party which
installment.chanroblesvirtualawlibrary do not affect the other party and which do not
preclude the existence of a different
Article 1254 of the Civil Code provides as
The first essential requisite, therefore, consideration. To clarify by an example: A
follows:
required by the cited article 1261 of the Civil thing purchased constitutes the consideration
69
for the purchaser and not the motives which The defendant-appellant is required to give a benefit by the promisor prior to the
have influenced his mind, like its usefulness, thing, namely, the payment of the sum of subsequent promise; (2) cases in which the
its perfection, its relation to another, the use P2,000, but the plaintiff-appellee has not given moral obligation arose from a legal liability
thereof which he may have in mind, etc., a or promised anything or service to the former already performed or still enforceable; (3)
very important distinction, which precludes the which may compel him to make such cases in which the moral obligation arose out
annulment of the contract by the sole payment. The promise which said defendant- of, or was connected with, a previous request
influence of the motives, unless the efficacy of appellant has made to the plaintiff-appellee to or promise creating originally an enforceable
the former had been subordinated to return to him P2,000 which he had paid to the legal liability, which, however, at the time of
compliance with the latter as conditions. Philippine Greyhound Club, Inc., as second the subsequent express promise had become
installment of the payment of the amount of discharged or barred by operation of a
The jurisprudence shows some cases wherein the shares for which he has subscribed, was positive rule of law, so that at that time there
this important distinction is established. The prompted by a feeling of pity which said was no enforceable legal liability; (4) cases in
consideration of contracts, states the decision defendant-appellant had for the plaintiff- which the moral obligation arose from, or was
of February 24, 1904, is distinct from the appellee as a result of the loss which the latter connected with, a previous request or promise
motive which may prompt the parties in had suffered because of the failure of the which, however, never created any
executing them. The inaccuracies committed enterprise. The obligation which the said enforceable legal liability, because of a rule of
in expressing its accidental or secondary defendant-appellant had contracted with the law which rendered the original agreement
details do not imply lack of consideration or plaintiff-appellee is, therefore, purely moral void, or at least unenforceable; and (5) cases
false consideration, wherefore, they do not and, as such, is not demandable in law but in which the moral obligation arose out of, or
affect the essence and validity of the contract. only in conscience, over which human judges was connected with, the receipt of actual
In a loan the consideration in its essence is, have no jurisdiction. material or pecuniary benefit by the promisor,
for the borrower the acquisition of the amount, without, however, any previous request or
and for the lender the power to demand its As to whether a moral obligation is a sufficient promise on his part, express or implied, and
return, whether the money be for the former or consideration, read in volume 12 of the therefore, of course, without any original legal
for another person and whether it be invested American Jurisprudence, pages 589-590, liability, perfect or imperfect.c
as stated or otherwise. paragraphs 96, 67, the following:
SEC. 97. Moral obligation unconnected with
The same distinction between the SEC. 96. Moral obligation. - Although there is legal liability or legal benefit. - Although, as
consideration and the motive is found in the authority in support of the board proposition subsequently shown was formerly some doubt
decisions of November 23, 1920 and March 5, that a moral obligation is sufficient as to the point, it is now well established that a
1924. consideration, such proposition is usually mere moral obligation or conscience duty
denied. . . . . arising wholly from ethical motives or a mere
The contract sought to be judicially enforced conscientious duty unconnected with any legal
by the plaintiff-appellee against the defendant- The case presenting the question whether a obligation, perfect or imperfect, or with the
appellant is onerous in character, because it moral obligation will sustain an express receipt of benefit by the promisor of a material
supposes the deprivation of the latter of an executory promise may be divided into five or pecuniary nature will not furnish a
amount of money which impairs his property, classes: (1) Cases in which the moral consideration for an executory promise. . . . .
which is a burden, and for it to be legally valid obligation arose wholly from ethical
it is necessary that it should have a considerations, unconnected with any legal In view of the foregoing considerations, we
consideration consisting in the lending or or obligations, perfect or imperfect, and without are of the opinion and so hold, that the
promise of a thing or service by such party. the receipt of actual pecuniary or material promise made by an organizer of a dog racing

70
course to a stockholder to return to him
certain amounts paid by the latter in
satisfaction of his subscription upon the belief
of said organizer that he was morally
responsible because of the failure of the
enterprise, is not the consideration rquired by
article 1261 of the Civil Code as an essential
element for the legal existence of an onerous
contract which would bind the promisor to
comply with his promise.

Wherefore, the appealed judgment is reversed

and the costs to the plaintiff.

Avanceña, C.J., Imperial, Diaz, Laurel,

Concepcion, and Moran, JJ., concur.

71
[G.R. No. L-27454. April 30, 1970.] is liable for the cost of the labor or service with the decision rendered by the Court of
expended in the repair of the typewriter, which First Instance of Manila, in its Civil Case No.
ROSENDO O. CHAVES, Plaintiff-Appellant, is in the amount of P58.75, because the 65138, because it awarded him only P31.10
v. FRUCTUOSO GONZALES, Defendant- obligation or contract was to repair it. In out of his total claim of P690 00 for actual,
Appellee. addition, he is likewise liable under Art. 1170 temperate and moral damages and attorney’s
of the Code, for the cost of the missing parts, fees.
Chaves, Elio, Chaves & Associates, in the amount of P31.10, for in his obligation
for Plaintiff-Appellant. to repair the typewriter he was bound, but The appealed judgment, which is brief, is
failed or neglected, to return it in the same hereunder quoted in full:j
Sulpicio E. Platon, for Defendant-Appellee. condition it was when he received it.
"In the early part of July, 1963, the plaintiff
4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR delivered to the defendant, who is a typewriter
SYLLABUS ATTORNEY’S FEES NOT RECOVERABLE; repairer, a portable typewriter for routine
NOT ALLEGED OR PROVED IN INSTANT cleaning and servicing. The defendant was
1. CIVIL LAW; CONTRACTS; BREACH OF CASE.— Claims for damages and attorney’s not able to finish the job after some time
CONTRACT FOR NON-PERFORMANCE; fees must be pleaded, and the existence of despite repeated reminders made by the
FIXING OF PERIOD BEFORE FILING OF the actual basis thereof must be proved. As plaintiff. The defendant merely gave
COMPLAINT FOR NON-PERFORMANCE, no findings of fact were made on the claims assurances, but failed to comply with the
ACADEMIC.— Where the time for compliance for damages and attorney’s fees, there is no same. In October, 1963, the defendant asked
had expired and there was breach of contract factual basis upon which to make an award from the plaintiff the sum of P6.00 for the
by non-performance, it was academic for the therefor. purchase of spare parts, which amount the
plaintiff to have first petitioned the court to fix plaintiff gave to the defendant. On October 26,
a period for the performance of the contract 5. REMEDIAL LAW; APPEALS; APPEAL 1963, after getting exasperated with the delay
before filing his complaint. FROM COURT OF FIRST INSTANCE TO of the repair of the typewriter, the plaintiff went
SUPREME COURT; ONLY QUESTIONS OF to the house of the defendant and asked for
2. ID.; ID.; ID.; DEFENDANT CANNOT LAW REVIEWABLE.— Where the appellant the return of the typewriter. The defendant
INVOKE ARTICLE 1197 OF THE CIVIL directly appeals from the decision of the trial delivered the typewriter in a wrapped
CODE OF THE PHILIPPINES.— Where the court to the Supreme Court on questions of package. On reaching home, the plaintiff
defendant virtually admitted non-performance law, he is bound by the judgment of the court examined the typewriter returned to him by
of the contract by returning the typewriter that a quo on its findings of fact. the defendant and found out that the same
he was obliged to repair in a non-working was in shambles, with the interior cover and
condition, with essential parts missing, Article some parts and screws missing. On October
1197 of the Civil Code of the Philippines DECISION 29, 1963. the plaintiff sent a letter to the
cannot be invoked. The fixing of a period defendant formally demanding the return of
would thus be a mere formality and would the missing parts, the interior cover and the
serve no purpose than to delay. REYES, J.B.L., J.: sum of P6.00 (Exhibit D). The following day,
the defendant returned to the plaintiff some of
3. ID.; ID.; ID.; DAMAGES RECOVERABLE; the missing parts, the interior cover and the
CASE AT BAR.— Where the defendant- This is a direct appeal by the party who P6.00.
appellee contravened the tenor of his prevailed in a suit for breach of oral contract
obligation because he not only did not repair and recovery of damages but was unsatisfied "On August 29, 1964, the plaintiff had his
the typewriter but returned it "in shambles,’’ he typewriter repaired by Freixas Business
72
Machines, and the repair job cost him a total "ART. 1167. If a person obliged to do perfected contract for cleaning and servicing a
of P89.85, including labor and materials something fails to do it, the same shall be typewriter; that they intended that the
(Exhibit C). executed at his cost. defendant was to finish it at some future time
although such time was not specified; and that
"On August 23, 1965, the plaintiff commenced This same rule shall be observed if he does it such time had passed without the work having
this action before the City Court of Manila, in contravention of the tenor of the obligation. been accomplished, far the defendant
demanding from the defendant the payment of Furthermore it may be decreed that what has returned the typewriter cannibalized and
P90.00 as actual and compensatory been poorly done he undone."cralaw unrepaired, which in itself is a breach of his
damages, P100.00 for temperate damages, virtua1aw library obligation, without demanding that he should
P500.00 for moral damages, and P500.00 as be given more time to finish the job, or
attorney’s fees. On the other hand, the position of the compensation for the work he had already
defendant-appellee, Fructuoso Gonzales, is done. The time for compliance having
"In his answer as well as in his testimony that he is not liable at all, not even for the sum evidently expired, and there being a breach of
given before this court, the defendant made of P31.10, because his contract with plaintiff- contract by non-performance, it was academic
no denials of the facts narrated above, except appellant did not contain a period, so that for the plaintiff to have first petitioned the court
the claim of the plaintiff that the typewriter was plaintiff-appellant should have first filed a to fix a period for the performance of the
delivered to the defendant through a certain petition for the court to fix the period, under contract before filing his complaint in this
Julio Bocalin, which the defendant denied Article 1197 of the Civil Code, within which the case. Defendant cannot invoke Article 1197 of
allegedly because the typewriter was defendant appellee was to comply with the the Civil Code for he virtually admitted non-
delivered to him personally by the plaintiff. contract before said defendant-appellee could performance by returning the typewriter that
be held liable for breach of contract. he was obliged to repair in a non-working
"The repair done on the typewriter by Freixas condition, with essential parts missing. The
Business Machines with the total cost of Because the plaintiff appealed directly to the fixing of a period would thus be a mere
P89.85 should not, however, be fully Supreme Court and the appellee did not formality and would serve no purpose than to
chargeable against the defendant. The repair interpose any appeal, the facts, as found by delay (cf. Tiglao. Et. Al. V. Manila Railroad Co.
invoice, Exhibit C, shows that the missing the trial court, are now conclusive and non- 98 Phil. 18l).
parts had a total value of only P31.10. reviewable. 1
It is clear that the defendant-appellee
"WHEREFORE, judgment is hereby rendered The appealed judgment states that the contravened the tenor of his obligation
ordering the defendant to pay the plaintiff the "plaintiff delivered to the defendant . . . a because he not only did not repair the
sum of P31.10, and the costs of suit. portable typewriter for routine cleaning and typewriter but returned it "in shambles",
servicing" ; that the defendant was not able to according to the appealed decision. For such
"SO ORDERED."cralaw virtua1aw library finish the job after some time despite repeated contravention, as appellant contends, he is
reminders made by the plaintiff" ; that the liable under Article 1167 of the Civil Code. jam
The error of the court a quo, according to the "defendant merely gave assurances, but failed quot, for the cost of executing the obligation in
plaintiff-appellant, Rosendo O. Chaves, is that to comply with the same" ; and that "after a proper manner. The cost of the execution of
it awarded only the value of the missing parts getting exasperated with the delay of the the obligation in this case should be the cost
of the typewriter, instead of the whole cost of repair of the typewriter", the plaintiff went to of the labor or service expended in the repair
labor and materials that went into the repair of the house of the defendant and asked for its of the typewriter, which is in the amount of
the machine, as provided for in Article 1167 of return, which was done. The inferences P58.75. because the obligation or contract
the Civil Code, reading as follows: derivable from these findings of fact are that was to repair it.
the appellant and the appellee had a
73
In addition, the defendant-appellee is likewise
liable, under Article 1170 of the Code, for the
cost of the missing parts, in the amount of
P31.10, for in his obligation to repair the
typewriter he was bound, but failed or
neglected, to return it in the same condition it
was when he received it.

Appellant’s claims for moral and temperate

damages and attorney’s fees were, however,
correctly rejected by the trial court, for these
were not alleged in his complaint (Record on
Appeal, pages 1-5). Claims for damages and
attorney’s fees must be pleaded, and the
existence of the actual basis thereof must be
proved. 2 The appealed judgment thus made
no findings on these claims, nor on the fraud
or malice charged to the appellee. As no
findings of fact were made on the claims for
damages and attorney’s fees, there is no
factual basis upon which to make an award
therefor. Appellant is bound by such judgment
of the court, a quo, by reason of his having
resorted directly to the Supreme Court on
questions of law.

IN VIEW OF THE FOREGOING REASONS,

the appealed judgment is hereby modified, by
ordering the defendant-appellee to pay, as he
is hereby ordered to pay, the plaintiff-appellant
the sum of P89.85, with interest at the legal
rate from the filing of the complaint. Costs in
all instances against appellee Fructuoso
Gonzales.

Concepcion, C.J., Dizon, Makalintal, Zaldivar,

Castro, Fernando, Teehankee and
Villamor, JJ., concur.

Barredo, J., did not take part.

74
G.R. No. 183872, November 17, 2014 Cooperative (Zameco II), thru its sub-office Improper use of materials for pole top pin
manager, Engr. Victor Pulangco (Engr.
OWEN PROSPER A. Pulangco), how much its service for the Lack of pole top pin
MACKAY, Petitioner, v. SPOUSES DANA installation would be. Engr. Pulangco quoted
CASWELL AND CERELINA an estimate of P456,000.00. No guying
CASWELL, Respondents.
However, the Caswells hired Owen who
Improper use of materials for neutral line
DECISION offered to do the job for only P250,000.00.
With the help of Cesar Badua (Badua) and
Albert Galeng, Owen claimed that the Wrong phasing of pole top pin
DEL CASTILLO, J.:
installation was completed and ready for
power service connection as of August 1998. Lack of armor rod (single & double support)
This Petition for Review on Certiorari1 assails By then, the Caswells had paid him
the April 30, 2008 Decision2 of the Court of P227,000.00.
Appeals (CA) in CA-G.R. SP No. 97146 which
granted the Petition for Review 3 filed At Cerelina Caswell�s (Cerelina) request, For Grounding:
therewith, reversed and set aside the October Zameco II inspected the installation work and
31, 2006 Decision4 of the Regional Trial Court tested the distribution transformers.8 The
(RTC), Branch 70, Iba, Zambales in Civil Case [Substandard] grounding wire
inspection showed the following defects as
No. RTC-2426-I, and reinstated the June 29, specified in Engr. Pulangco�s letter dated
2006 Decision5 of the Municipal Trial Court Wrong installation of pole grounding wire
August 11, 1998:9chanrobleslaw
(MTC), San Narciso, Zambales in Civil Case
No. 538. The MTC Decision dismissed Lack of grounding rods
For A-5 Construction
petitioner Owen Prosper A. Mackay�s
(Owen) claims against respondents spouses
Dana Caswell and Cerelina Caswell (the No guying
Caswells) and ordered him to pay the latter Tapping Point:
P46,205.00 representing the expenses they Improper use of deadend materials for neutral Lack of fuse cut-out with lightning arrester
incurred for the rectification of the defective line combination at the tapping point.
work he did for them.� The Petition also
assails the July 24, 2008 Resolution6 of the Lack of armor tape For Transformer Installation:
CA denying Owen�s Motion for Wrong distance of the transformer from the
Reconsideration7 thereto. Lack of clamp loop deadend materials neutral line.10
Factual Antecedents No locknuts on all bolts.
In their search for someone who could provide Because of the deficiencies and other
electrical installation service in their newly incomplete requirements, Zameco II refused
built home in San Narciso, Zambales, the to provide energization to the Caswell home.
Caswells asked the sole distributor of For A-2 construction The Caswells thus looked for Owen but he
electricity in the area, Zambales II Electric could not be found. Hence, they were

75
constrained to ask Zameco II to correct all the The Caswells, on the other hand, maintained and has no defects which destroy or lessen its
problems it found. After the single phase that Owen is not entitled to any money. They value or fitness for its ordinary or stipulated
distribution system was completed in pointed out that Owen failed to finish the job use. Should the work be not of such quality,
accordance with the standard specifications of and walked out of the contract. Hence, they the employer may require that the contractor
Zameco II in January 1999,11 only then did the are the ones entitled to reimbursement of remove the defect or execute another work. If
Caswells finally have electricity. expenses incurred to correct Owen�s the contractor fails or refuses to comply with
defective work. As proof of their expenses, the this obligation, the employer may have the
On September 4, 1998, the Caswells Caswells submitted as evidence a) Engr. defect removed or another work executed, at
executed a Joint Affidavit12 to charge Owen Pulangco�s handwritten receipt of the contractor�s cost.
and his group of swindling them of P15,400.00 as partial payment for the
P227,000.00. The Caswells alleged that Owen materials needed to correct the deficiencies in The MTC held that since it was proven that
and his group misrepresented themselves to Owen�s installation work;17 b) an undated the work of Owen suffers from deficiencies,
be people from the National Power Sales Invoice No. 2029 issued by Peter A. the Caswells, pursuant to the above-quoted
Corporation (NAPOCOR). By reason of the Eduria Enterprises itemizing nine electrical provision, have the right to require him to
misrepresentation, the Caswells suffered materials Dana Caswell (Dana) bought, their remove the defect or execute another work. It
damage as the electrical installation made quantities, and the total price of did not give credence to Owen�s claim that
were replete with deficiencies such that no P53,805.00.0018 and; c) a list of all the he corrected the deficiencies for lack of
electricity can properly flow to their house. materials obtained for Zameco�s corrective evidence to substantiate the same. The MTC
This led to the filing of an Estafa case under work with the corresponding unit prices, labor likewise held that the Caswells had no chance
Article 315 paragraph 2(a) of the Revised cost and the total price to demand from Owen the removal of the
Penal Code13 against Owen, docketed as charged.19chanrobleslaw defect or the execution of another work as he
Criminal Case No. RTC-2533-I.14 However, on was then nowhere to be found. On the other
ground of reasonable doubt, Owen was Owen and Badua testified that they rectified hand, the Caswells� evidence clearly
acquitted on May 15, 2003.15chanrobleslaw all the discrepancies that Zameco II found. showed that they caused the Zameco II
After the corrections, Owen informed Engr. people to rectify the defects for which they
Still unpaid for the remaining P23,000.00 for Pulangco that the Caswell home was ready spent P69,205.00.
his installation work, Owen in turn filed a for electrical connection. He did not know
Complaint16 for Collection of Sum of Money what Engr. Pulangco did next. Owen likewise By virtue of Article 116721of the Civil Code, the
with Damages against the Caswells before the asserted that he even reminded Cerelina to MTC ruled that the said P69,205.00 should be
MTC, docketed as Civil Case No. 538. submit to Zameco II all the documentary borne by Owen. From the P69,205.00, the
requirements for power said court then deducted the P23,000.00
Owen alleged that out of the P250,000.00 connection.20chanrobleslaw Owen was seeking to collect from the
contract price for the installation of an Caswells. The dispositive portion of the
electrical line, the Caswells have only paid Ruling of the Municipal Trial Court MTC�s June 29, 2006
him P227,000.00. He thus wanted to recover Decision22 reads:chanRoblesvirtualLawlibrary
from the Caswells the remaining balance of Finding the contract entered into by the
P23,000.00, as well as damages on account parties to be a contract for a piece of work, the WHEREFORE, viewed from all the foregoing,
of sleepless nights, serious anxiety and social MTC relied upon Article 1715 of the Civil judgment is hereby rendered in favor of the
humiliation he suffered due to the Code, viz:chanRoblesvirtualLawlibrary [Caswells] and against [Owen] as follows:
Caswells� malicious filing of estafa case
against him. The contractor shall execute the work in such Dismissing [Owen�s] claims for lack of
a manner that it has the qualities agreed upon merit, and
76
Ordering [Owen] to pay the [Caswells] the WHEREFORE, the decision of the Municipal Ruling of the Court of Appeals
amount of P46,205.00 representing the Trial Court of San Narciso is reversed and set
rectification cost. aside and judgment is hereby rendered as In its Decision29 of April 30, 2008, the CA
follows:chanroblesvirtuallawlibrary reinstated the MTC Decision. It reasoned:
SO ORDERED.23 The RTC opined that [the Caswells] should
1. Ordering the defendants to pay unto the have given the contractor the chance to rectify
Owen appealed to the RTC. plaintiff the amount of Twenty Three the flaw in his work. To Our mind, however,
Thousand Pesos (P23,000.00) representing the effort to communicate with [Owen]
Ruling of the Regional Trial Court the balance of the price or consideration for effectively served as [the Caswells�]
his services in the installation of electrical request for the former to rectify the flaws in
In a Decision24 dated October 31, 2006, the lines in the defendants� home, with legal the contracted work. In fact, [the Caswells�]
RTC reversed and set aside the MTC interest at the rate of six (6%) [per annum] act of demanding that [Owen] secure the
Decision. The RTC opined that the Caswells from the time of the filing of the complaint until permit and to subject the transformer to
should have first filed a judicial action for it is fully paid; testing can already be construed as a
specific performance where there could have substantial compliance with Article 1715. It
been an exhaustive determination of the 2. Ordering the defendants to pay to the must be emphasized that it was [Owen�s]
quality and acceptability of Owen�s plaintiff moral damages in the amount of refusal to secure the necessary permits and to
installation work. By immediately resorting to TWENTY FIVE THOUSAND PESOS comply with the requirements of Zameco [II]
the service of Zameco II, the Caswells never (P25,000.00) for their willful non-compliance as well as his refusal to communicate with [the
afforded Owen the opportunity to correct the with their contractual obligation to the plaintiff, Caswells] that impelled the latter to file a case
deficiencies in accordance with Article 1715 of and exemplary damages in the amount of for estafa against him. Had he been willing to
the Civil Code. It noted Cerelina�s TWENTY THOUSAND PESOS (P20,000.00) make good his obligation, then it would not
testimony during the trial before the MTC by way of example or correction for the public have been necessary for [the Caswells] to file
where she was asked if she confronted Owen good; the said criminal case. Instead of complying
about the unfinished work. She answered that with his end of the bargain, [Owen] opted to
Owen did not come to her so she went to 3. Ordering the defendants[,] spouses DANA file a case for collection of sum of money with
Zameco II when she could no longer wait for and CERELINA CASWELL[,] to pay damages. Thus, any effort to require [Owen]
electricity.25chanrobleslaw attorney�s fees to the plaintiff in the amount either to rectify his flawed work or to remove
of THIRTY THOUSAND PESOS the same would have been futile since
Furthermore, the RTC was convinced that (P30,000.00), the latter having been haled to [Owen�s] act of demanding payment
Owen kept up his end of the bargain as shown court to enforce his contractual rights; through the said complaint showed his belief
by Engr. Pulangco�s testimony on cross- that his work in the house was done.
examination that even without replacing the [4.] Ordering the defendants to pay the costs
fuse cut-out connection, electricity will still flow of this suit. Clearly, the RTC erred in stating that [the
smoothly and will function in the Caswell Caswells�] failure to file an action for
home.26chanrobleslaw SO ORDERED.27 specific performance led to the presumption
that [Owen] performed his obligations in
Opining that Owen must be given what is Refusing to accept the RTC judgment and accordance with their agreement. Said
actually due him, the RTC disposed of the heavily relying on the MTC Decision, the presumption could not have prevailed in view
case as follows:chanRoblesvirtualLawlibrary Caswells elevated the case to the CA by way of the nature of the contracted work, the
of a Petition for Review.28chanrobleslaw ultimate goal of which was to have electricity
flowing into [the Caswell] house. Thus, the
77
thing speaks for itself. Res ipsa loquitur. This, 5. That we think they were done in three days, that Owen�s overall work is not
the RTC failed to consider. Therefore, this that same week. The contact man, Owen satisfactory.
Court finds the decision of the MTC more in Mackay, had told us that he would take care
accord with law and jurisprudence.30 of all permits. He asked us to get a paper Moreover, Owen, in contending that his
done for the permission on one piece of land. acquittal in the estafa case should have been
His Motion for Reconsideration31 having been No permits were shown to us. No ZAMECO a factor for a favorable decision in this civil
denied by the CA,32 Owen argues in this authorization [was] ever shown to us. He went case, relied on a remark by the RTC that
Petition for Review on Certiorari that: 1) he to ZAMECO, to tell them it was ready [for referred to an opinion mentioned in the
has done the installation job and that it was connection]. ZAMECO did not connect judgment in the estafa case, i.e., that the
not his duty but that of the Caswells to secure because: (1) no permits [were] requested or delay in supplying power to the Caswell home
the necessary permits from Zameco II; 2) his [were] given by ZAMECO; (2) transformer could possibly be due to the resentment
acquittal in the criminal case should have allegedly brand new [and] had to run through harbored by certain employees of Zameco II
been considered; 3) there is no basis for the testing laboratory. Owen[�s] group [neither] as they were not chosen to do the work. 34 A
award of the rectification costs as the sales did the testing nor caused a testing; (3) perusal, however, of the judgment in Criminal
receipt for the alleged materials used is complete inspection of installation was [yet] to Case No. RTC-2533-I35 would show that this
inadmissible and; 4) the Caswells never be done x x x; (4) no installation layout was statement is only a mere obiter. The RTC
demanded that he remove the defects or provided or presented to ZAMECO; (5) cannot hinge on this opinion as this is mere
execute another work in accordance with nobody [from Owen�s group was] around conjecture. Notably, the Zameco II people
Article 1715 of the Civil Code.chanrobleslaw for 4-5 days to x x x talk about our problems. were not even parties or witnesses in the
Owen called, sent word to [us] and we have estafa case.
Our Ruling gone down (3) occasions at night to try to find
him. The three did [a] vanishing act. Finally, Suffice it to say that Owen�s job was not
We deny the Petition. [they came] to take the transformer for testing. only to finish the electrical installation work. It
[The] one day testing told us by Pulangco was likewise his obligation to do quality work
Owen failed to execute his work in such turned into 1 � weeks x x x. I had to go pick and to provide quality materials to ensure that
a manner that it has no defects which destroy it up myself at test complex. Brought the electricity would flow in the Caswell home. For
or lessen its value or fitness for its ordinary transformer home from Castillejos, August the Caswells to avail of this utility, it is
or stipulated use. [10,] 1998 with the test results. No response definitely expected that the electrical materials
from the people who called themselves used should meet the technical requirements
Owen insists that as far as he is concerned, NAPOCOR. After [chasing after] Owen for a service entrance as imposed by the only
he had done what was required of him. i.e., Mackay x x x and [after] empty promises we distributor of the electricity in the area,
the installation of electrical materials in the were referred to Atty. Pacis, [and] the rest is Zameco II, so that the latter can supply
Caswell home. Anent the permits, he avers still unsettled;33 residential electric service efficiently and
that securing the same is not part of his work safely to the Caswells. However, as shown
but is the responsibility of the Caswells. These circumstances, together with the above, Owen failed to execute his work in
deficiencies enumerated in Engr. such a manner that it has no defects which
Considering all the undisputed facts, the Pulangco�s August 10, 1998 letter, destroy or lessen its value or fitness for its
Court, however, finds that the Caswells were sufficiently explain the delay in the ordinary or stipulated use.
not only after securing permits. They suffered energization of the Caswell home. Engr.
other major problems as shown by their Pulangco�s testimony that electricity will The CA correctly ruled that Caswells�
narration in their Joint still work without replacing the fuse cut-out effort to communicate with Owen effectively
Affidavit, viz:chanRoblesvirtualLawlibrary connection is not enough to negate the fact served as a demand to rectify the latter�s
78
work. Article 1715. It must be emphasized that it
was [Owen�s] refusal to secure the One is entitled to an adequate compensation
Under Article 1715 of the Civil Code, if the necessary permits and to comply with the only for such pecuniary loss suffered by him
work of a contractor has defects which destroy requirements of Zameco [II] as well as his as he has duly proved.37 �To justify an
or lessen its value or fitness for its ordinary or refusal to communicate with [the Caswells] award of actual damages, there must be
stipulated use, he may be required to remove that impelled the latter to file a case for estafa competent proof of the actual amount of loss,
the defect or execute another work. If he fails against him. Had he been willing to make credence can be given only to claims which
to do so, he shall be liable for the expenses by good his obligation, then it would not have are duly supported by receipts.�38 The
the employer for the correction of the work. been necessary for [the Caswells] to file the claimant must prove the actual amount of loss
The demand required of the employer under said criminal case. Instead of complying with with a reasonable degree of certainty
the subject provision need not be in a his end of the bargain, [Owen] opted to file a premised upon competent proof and on the
particular form. In the case at bar, we agree case for collection of sum of money with best evidence obtainable.39 In the case at bar,
with the CA that Owen was given the damages. Thus, any effort to require [Owen] we give credence to the documents relied
opportunity to rectify his work. Subsequent to either to rectify his flawed work or to remove upon by the CA and the MTC in arriving at the
Zameco II�s disapproval to supply the the same would have been futile since rectification cost, i.e., a) Engr. Pulangco�s
Caswells electricity for several reasons, the [Owen�s] act of demanding payment handwritten receipt of P15,400.00, to which he
Court gives credence to the latter�s claim through the said complaint showed his belief had testified before the court that he had
that they looked for Owen to demand a that his work in the house was done.36 indeed received such amount and b) the
rectification of the work, but Owen and his Sales Invoice No. 2029 issued by Peter A.
group were nowhere to be found. Had Owen Furthermore, to require the Caswells to file an Eduria Enterprises reflecting the total cost of
really been readily available to the Caswells to action for specific performance, as opined by P53,805.00.00.
correct any deficiency in the work, the latter the RTC, not only deprives them of hiring
would not have entertained the thought that someone else to rectify the work, but also Notably, Owen assails the admissibility of the
they were deceived and would not have been defeats the very purpose of the contracted Sales Invoice, contending that said document
constrained to undergo the rigors of filing a work, i.e., to immediately have electricity in is insufficient to be a basis for computation of
criminal complaint and testifying therein. their home. In this situation, time is of the damages as the respective unit price for each
Without doubt, the Caswells exercised due essence. item enumerated therein are lacking.
diligence when they demanded from Owen Furthermore, he attempts to highlight that
the proper rectification of his work. As For Owen�s failure to provide quality Peter A. Eduria Enterprises is a non-existing
correctly held by the CA, the Caswells work, he is to reimburse the rectification business establishment by submitting the
substantially complied with the requirement of costs the Caswells had shouldered as the negative certification of a business name
Article 1715 of the Civil latter�s actual damages; the unpaid issued by the Department of Trade and
Code, viz:chanRoblesvirtualLawlibrary compensation Industry,40 the certification of no record issued
Owen is claiming shall be set-off from the by Business Permit and License Office of
To Our mind, however, the effort to Caswells� monetary claims supported by Valenzuela City,41 and the certification of non-
communicate with [Owen] effectively served receipts. registration of corporation/partnership by the
as [the Caswells�] request for the former to Securities and Exchange
rectify the flaws in the contracted work. In fact, The Court recognizes that in view of the Commission.42chanrobleslaw
[the Caswells�] act of demanding that substandard work done, the Caswells
[Owen] secure the permit and to subject the necessarily incurred expenses by purchasing The failure to indicate the unit price of each
transformer to testing can already be materials to finally get a supply of electricity in item in the sales invoice does not defeat the
construed as a substantial compliance with their home. claim of the Caswells for reimbursement. In
79
most cases in the ordinary course of business, for. In effect, under the circumstances, we
sellers issue handwritten receipts that are deem this fair and just to measure the actual
perfunctorily filled out without completely damages due the Caswells by reducing the
stating all the details of the purchase. This cost they shouldered to repair the defects with
�flaw� should not be taken against the the unpaid amount of the contract price due
Caswells. Besides, if the unit price per item is Owen.
an issue, a perusal of Dana�s separate
list43 will show the unit prices of the items in WHEREFORE, the instant petition is DENIED.
the sales invoice. The April 30, 2008 Decision and July 24, 2008
Resolution of the Court of Appeals in CA-G.R.
With regard to the documentary evidence SP No. 97146, which reinstated the June 29,
Owen adduced in his attempt to show the 2006 Decision of the Municipal Trial Court,
alleged non-existence of Peter A. Eduria San Narciso, Zambales, in Civil Case No. 538,
Enterprises, the negative certifications are AFFIRMED in toto. No costs.
presented however only highlight the probable
liability of the store with the government for SO ORDERED.cralawlawlibrary\
non-compliance with business registration.
Regardless of whether the latter had
registered itself as a business entity with the
proper authorities, the documents Owen relies
upon fail to overcome the point of the receipt:
that a sale of electrical items for installation
had transpired between the Caswells and the
seller. With the relevant facts established that
Zameco II rejected the quality of Owen�s
work and that rectifications were made by
installing the necessary materials to meet the
electric distributor�s specifications, the said
invoice cannot be considered as bereft of
evidentiary value.

It must be noted en passant that Cerelina

herself admitted that the contract price agreed
upon was the lump sum of P250,000.00, and
that she only paid Owen P227,000.00,44 while
the dispositive portion of the MTC Decision
stated that Owen�s claims are dismissed,
the lower court implies that the P23,000.00
unpaid compensation he sought to recover
from the Caswells shall not be given directly to
him, offsetting the said amount from the
rectification cost that the Caswells had prayed
80
G.R. No. 117190 January 2, 1997 formed part of the system the payment he The Court of Appeals reversed the trial court.
tendered to SPGMI should be credited to his It ruled that the construction of the deep well
JACINTO TANGUILIG doing business account by petitioner. Moreover, assuming was included in the agreement of the parties
under the name and style J.M.T. that he owed petitioner a balance of because the term "deep well" was mentioned
ENGINEERING AND GENERAL P15,000.00, this should be offset by the in both proposals. It also gave credence to the
MERCHANDISING, petitioner, defects in the windmill system which caused testimony of respondent's witness Guillermo
vs. the structure to collapse after a strong wind hit Pili, the proprietor of SPGMI which installed
COURT OF APPEALS and VICENTE their place.1 the deep well, that petitioner Tanguilig told
HERCE JR., respondents. him that the cost of constructing the deep well
Petitioner denied that the construction of a would be deducted from the contract price of
BELLOSILLO, J.: deep well was included in the agreement to P60,000.00. Upon these premises the
build the windmill system, for the contract appellate court concluded that respondent's
price of P60,000.00 was solely for the windmill payment of P15,000.00 to SPGMI should be
This case involves the proper interpretation of
assembly and its installation, exclusive of applied to his remaining balance with
the contract entered into between the parties.
other incidental materials needed for the petitioner thus effectively extinguishing his
project. He also disowned any obligation to contractual obligation. However, it rejected
Sometime in April 1987 petitioner Jacinto M. petitioner's claim of force majeure and
repair or reconstruct the system and insisted
Tanguilig doing business under the name and ordered the latter to reconstruct the windmill in
that he delivered it in good and working
style J.M.T. Engineering and General accordance with the stipulated one-year
condition to respondent who accepted the
Merchandising proposed to respondent guaranty.
same without protest. Besides, its collapse
Vicente Herce Jr. to construct a windmill
was attributable to a typhoon, a force
system for him. After some negotiations they
majeure, which relieved him of any liability. His motion for reconsideration having been
agreed on the construction of the windmill for
denied by the Court of Appeals, petitioner now
a consideration of P60,000.00 with a one-year
In finding for plaintiff, the trial court held that seeks relief from this Court. He raises two
guaranty from the date of completion and
the construction of the deep well was not part issues: firstly, whether the agreement to
acceptance by respondent Herce Jr. of the
of the windmill project as evidenced clearly by construct the windmill system included the
project. Pursuant to the agreement
the letter proposals submitted by petitioner to installation of a deep well and, secondly,
respondent paid petitioner a down payment of
respondent.2 It noted that "[i]f the intention of whether petitioner is under obligation to
P30,000.00 and an installment payment of
the parties is to include the construction of the reconstruct the windmill after it collapsed.
P15,000.00, leaving a balance of P15,000.00.
deep well in the project, the same should be
stated in the proposals. In the absence of We reverse the appellate court on the first
On 14 March 1988, due to the refusal and
such an agreement, it could be safely issue but sustain it on the second.
failure of respondent to pay the balance,
concluded that the construction of the deep
petitioner filed a complaint to collect the
well is not a part of the project undertaken by The preponderance of evidence supports the
amount. In his Answer before the trial court
the plaintiff."3 With respect to the repair of the finding of the trial court that the installation of
respondent denied the claim saying that he
windmill, the trial court found that "there is no a deep well was not included in the proposals
had already paid this amount to the San
clear and convincing proof that the windmill of petitioner to construct a windmill system for
Pedro General Merchandising Inc. (SPGMI)
system fell down due to the defect of the respondent. There were in fact two (2)
which constructed the deep well to which the
construction."4 proposals: one dated 19 May 1987 which
windmill system was to be connected.
According to respondent, since the deep well pegged the contract price at P87,000.00 (Exh.

81
"1"). This was rejected by respondent. The One (1) lot — Angle bar, G.I. pipe, Reducer Moreover, it is a cardinal rule in the
other was submitted three days later, i.e., on Coupling, Elbow Gate valve, cross Tee interpretation of contracts that the intention of
22 May 1987 which contained more coupling. the parties shall be accorded primordial
specifications but proposed a lower contract consideration5 and, in case
price of P60,000.00 (Exh. "A"). The latter One (1) lot — Float valve. of doubt, their contemporaneous and
proposal was accepted by respondent and the subsequent acts shall be principally
construction immediately followed. The One (1) lot — Concreting materials considered.6 An examination of such
pertinent portions of the first letter-proposal foundation. contemporaneous and subsequent acts of
(Exh. "1") are reproduced hereunder — respondent as well as the attendant
circumstances does not persuade us to
F. O. B. Laguna
In connection with your Windmill System and uphold him.
Contract Price P60,000.00
Installation, we would like to quote to you as
follows: Respondent insists that petitioner verbally
Notably, nowhere in either proposal is the
agreed that the contract price of P60,000.00
installation of a deep well mentioned, even
One (1) Set — Windmill suitable for 2 inches covered the installation of a deep well pump.
remotely. Neither is there an itemization or
diameter deepwell, 2 HP, capacity, 14 feet in He contends that since petitioner did not have
description of the materials to be used in
diameter, with 20 pieces blade, Tower 40 feet the capacity to install the pump the latter
constructing the deep well. There is absolutely
high, including mechanism which is not agreed to have a third party do the work the
no mention in the two (2) documents that a
advisable to operate during extra-intensity cost of which was to be deducted from the
deep well pump is a component of the
wind. Excluding cylinder pump. contract price. To prove his point, he
proposed windmill system. The contract prices
presented Guillermo Pili of SPGMI who
fixed in both proposals cover only the features
UNIT CONTRACT PRICE P87,000.00 declared that petitioner Tanguilig approached
specifically described therein and no other.
him with a letter from respondent Herce Jr.
While the words "deep well" and "deep well
asking him to build a deep well pump as "part
The second letter-proposal (Exh. "A") provides pump" are mentioned in both, these do not
of the price/contract which Engineer (Herce)
as follows: indicate that a deep well is part of the windmill
had with Mr. Tanguilig."7
system. They merely describe the type of
In connection with your Windmill system, deep well pump for which the proposed
windmill would be suitable. As correctly We are disinclined to accept the version of
Supply of Labor Materials and Installation,
pointed out by petitioner, the words "deep respondent. The claim of Pili that Herce Jr.
operated water pump, we would like to quote
well" preceded by the prepositions "for" and wrote him a letter is unsubstantiated. The
to you as
"suitable for" were meant only to convey the alleged letter was never presented in court by
follows —
idea that the proposed windmill would be private respondent for reasons known only to
appropriate for a deep well pump with a him. But granting that this written
One (1) set — Windmill assembly for 2 inches communication existed, it could not have
or 3 inches deep-well pump, 6 Stroke, 14 feet diameter of 2 to 3 inches. For if the real intent
of petitioner was to include a deep well in the simply contained a request for Pili to install a
diameter, 1-lot blade materials, 40 feet Tower deep well; it would have also mentioned the
complete with standard appurtenances up to agreement to construct a windmill, he would
have used instead the conjunctions "and" or party who would pay for the undertaking. It
Cylinder pump, shafting U.S. adjustable strains credulity that respondent would keep
International Metal. "with." Since the terms of the instruments are
clear and leave no doubt as to their meaning silent on this matter and leave it all to
they should not be disturbed. petitioner Tanguilig to verbally convey to Pili
that the deep well was part of the windmill

82
construction and that its payment would come Respondent cannot claim the benefit of the render it impossible for the debtor to fulfill his
from the contract price of P60,000.00. law concerning "payments made by a third obligation in a normal manner; and, (d) the
person."10 The Civil Code provisions do not debtor must be free from any participation in
We find it also unusual that Pili would readily apply in the instant case because no creditor- or aggravation of the injury to the creditor.
consent to build a deep well the payment for debtor relationship between petitioner and
which would come supposedly from the Guillermo Pili and/or SPGMI has been Petitioner failed to show that the
windmill contract price on the mere established regarding the construction of the collapse of the windmill was due solely
representation of petitioner, whom he had deep well. Specifically, witness Pili did not to a fortuitous event. Interestingly, the
never met before, without a written testify that he entered into a contract with evidence does not disclose that there
commitment at least from the former. For if petitioner for the construction of respondent's was actually a typhoon on the day the
indeed the deep well were part of the windmill deep well. If SPGMI was really commissioned windmill collapsed. Petitioner merely
project, the contract for its installation would by petitioner to construct the deep well, an stated that there was a "strong wind."
have been strictly a matter between petitioner agreement particularly to this effect should But a strong wind in this case cannot
and Pili himself with the former assuming the have been entered into. be fortuitous — unforeseeable nor
obligation to pay the price. That it was unavoidable. On the contrary, a strong
respondent Herce Jr. himself who paid for the The contemporaneous and subsequent acts wind should be present in places
deep well by handing over to Pili the amount of the parties concerned effectively belie where windmills are constructed,
of P15,000.00 clearly indicates that the respondent's assertions. These circumstances otherwise the windmills will not turn.
contract for the deep well was not part of the only show that the construction of the well by
windmill project but a separate agreement SPGMI was for the sole account of The appellate court correctly observed
between respondent and Pili. Besides, if the respondent and that petitioner merely that "given the newly-constructed
price of P60,000.00 included the deep well, supervised the installation of the well because windmill system, the same would not
the obligation of respondent was to pay the the windmill was to be connected to it. There have collapsed had there been no
entire amount to petitioner without prejudice to is no legal nor factual basis by which this inherent defect in it which could only
any action that Guillermo Pili or SPGMI may Court can impose upon petitioner an be attributable to the appellee."13 It
take, if any, against the latter. Significantly, obligation he did not expressly assume nor emphasized that respondent had in
when asked why he tendered payment directly ratify. his favor the presumption that "things
to Pili and not to petitioner, respondent have happened according to the
explained, rather lamely, that he did it The second issue is not a novel one. In a long ordinary course of nature and the
"because he has (sic) the money, so (he) just line of cases 11 this Court has consistently held ordinary habits of life."14 This
paid the money in his possession."8 that in order for a party to claim exemption presumption has not been rebutted by
from liability by reason of fortuitous event petitioner.
Can respondent claim that Pili accepted his under Art. 1174 of the Civil Code the event
payment on behalf of petitioner? No. While the should be the sole and proximate cause of the Finally, petitioner's argument that
law is clear that "payment shall be made to loss or destruction of the object of the private respondent was already in
the person in whose favor the obligation has contract. In Nakpil vs. Court of Appeals,12 four default in the payment of his
been constituted, or his successor in interest, (4) requisites must concur: (a) the cause of outstanding balance of P15,000.00
or any person authorized to receive it,"9 it the breach of the obligation must be and hence should bear his own loss, is
does not appear from the record that Pili independent of the will of the debtor; (b) the untenable. In reciprocal obligations,
and/or SPGMI was so authorized. event must be either unforeseeable or neither party incurs in delay if the
unavoidable; (c) the event must be such as to other does not comply or is not ready

83
 to comply in a proper manner with
what is incumbent upon him.15 When
the windmill failed to function properly
it became incumbent upon petitioner
to institute the proper repairs in
accordance with the guaranty stated in
the contract. Thus, respondent cannot
be said to have incurred in delay;
instead, it is petitioner who should
bear the expenses for the
reconstruction of the windmill. Article
1167 of the Civil Code is explicit on
this point that if a person obliged to do
something fails to do it, the same shall
be executed at his cost.

WHEREFORE, the appealed decision

is MODIFIED. Respondent VICENTE
HERCE JR. is directed to pay
petitioner JACINTO M. TANGUILIG
the balance of P15,000.00 with
interest at the legal rate from the date
of the filing of the complaint. In return,
petitioner is ordered to "reconstruct
subject defective windmill system, in
accordance with the one-year
guaranty"16 and to

complete the same within three (3)

months from the finality of this
decision.

SO ORDERED.

84
G.R. No. L-29900 June 28, 1974 Gonzales Vda. de Carlos Palanca promised to claiming on his right under the promissory
pay George Pay the amount of P26,900.00, note ."3 After which, came the ruling that the
IN THE MATTER OF THE INTESTATE with interest thereon at the rate of 12% per wording of the promissory note being "upon
ESTATE OF JUSTO PALANCA, Deceased, annum. George Pay is now before this Court, demand," the obligation was immediately due.
GEORGE PAY, petitioner-appellant, asking that Segundina Chua vda. de Palanca, Since it was dated January 30, 1952, it was
vs. surviving spouse of the late Justo Palanca, he clear that more "than ten (10) years has
SEGUNDINA CHUA VDA. DE appointed as administratrix of a certain piece already transpired from that time until to date.
PALANCA, oppositor-appellee. of property which is a residential dwelling The action, therefore, of the creditor has
located at 2656 Taft Avenue, Manila, covered definitely prescribed."4 The result, as above
FERNANDO, J.:p by Tax Declaration No. 3114 in the name of noted, was the dismissal of the petition.
Justo Palanca, assessed at P41,800.00. The
idea is that once said property is brought In an exhaustive brief prepared by Attorney
There is no difficulty attending the disposition
under administration, George Pay, as creditor, Florentino B. del Rosario, petitioner did assail
of this appeal by petitioner on questions of
can file his claim against the administratrix." 1 It the correctness of the rulings of the lower
law. While several points were raised, the
then stated that the petition could not prosper court as to the effect of the refusal of the
decisive issue is whether a creditor is barred
as there was a refusal on the part of surviving spouse of the late Justo Palanca to
by prescription in his attempt to collect on a
Segundina Chua Vda. de Palanca to be be appointed as administratrix, as to the
promissory note executed more than fifteen
appointed as administratrix; that the property property sought to be administered no longer
years earlier with the debtor sued promising to
sought to be administered no longer belonged belonging to the debtor, the late Justo
pay either upon receipt by him of his share
to the debtor, the late Justo Palanca; and that Palanca, and as to the rights of petitioner-
from a certain estate or upon demand, the
the rights of petitioner-creditor had already creditor having already prescribed. As noted
basis for the action being the latter alternative.
prescribed. The promissory note, dated at the outset, only the question of prescription
The lower court held that the ten-year period
January 30, 1962, is worded thus: " `For value need detain us in the disposition of this
of limitation of actions did apply, the note
received from time to time since 1947, we appeal. Likewise, as intimated, the decision
being immediately due and demandable, the
[jointly and severally promise to] pay to Mr. must be affirmed, considering the clear tenor
creditor admitting expressly that he was
[George Pay] at his office at the China of the promissory note.
relying on the wording "upon demand." On the
Banking Corporation the sum of [Twenty Six
above facts as found, and with the law being
Thousand Nine Hundred Pesos] (P26,900.00), From the manner in which the promissory
as it is, it cannot be said that its decision is
with interest thereon at the rate of 12% per note was executed, it would appear that
infected with error. We affirm.
annum upon receipt by either of the petitioner was hopeful that the satisfaction of
undersigned of cash payment from the Estate his credit could he realized either through the
From the appealed decision, the following of the late Don Carlos Palanca or upon
appears: "The parties in this case agreed to debtor sued receiving cash payment from the
demand'. . . . As stated, this promissory note estate of the late Carlos Palanca
submit the matter for resolution on the basis of is signed by Rosa Gonzales Vda. de Carlos
their pleadings and annexes and their presumptively as one of the heirs, or, as
Palanca and Justo Palanca."2 Then came this expressed therein, "upon demand." There is
respective memoranda submitted. Petitioner paragraph: "The Court has inquired whether
George Pay is a creditor of the Late Justo nothing in the record that would indicate
any cash payment has been received by whether or not the first alternative was fulfilled.
Palanca who died in Manila on July 3, 1963. either of the signers of this promissory note
The claim of the petitioner is based on a What is undeniable is that on August 26,
from the Estate of the late Carlos Palanca. 1967, more than fifteen years after the
promissory note dated January 30, 1952, Petitioner informed that he does not insist on
whereby the late Justo Palanca and Rosa execution of the promissory note on January
this provision but that petitioner is only
85
30, 1952, this petition was filed. The defense Zaldivar (Chairman), Barredo, Antonio,
interposed was prescription. Its merit is rather Fernandez and Aquino, JJ., concur.
obvious. Article 1179 of the Civil Code
provides: "Every obligation whose
performance does not depend upon a future
or uncertain event, or upon a past event
unknown to the parties, is demandable at
once." This used to be Article 1113 of the
Spanish Civil Code of 1889. As far back
as Floriano v. Delgado,5 a 1908 decision, it
has been applied according to its express
language. The well-known Spanish
commentator, Manresa, on this point, states:
"Dejando con acierto, el caracter mas teorico
y grafico del acto, o sea la perfeccion de este,
se fija, para determinar el concepto de la
obligacion pura, en el distinctive de esta, y
que es consecuencia de aquel: la exigibilidad
immediata."6

The obligation being due and demandable, it

would appear that the filing of the suit after
fifteen years was much too late. For again,
according to the Civil Code, which is based on
Section 43 of Act No. 190, the prescriptive
period for a written contract is that of ten
years.7 This is another instance where this
Court has consistently adhered to the express
language of the applicable norm.8 There is no
necessity therefore of passing upon the other
legal questions as to whether or not it did
suffice for the petition to fail just because the
surviving spouse refuses to be made
administratrix, or just because the estate was
left with no other property. The decision of the
lower court cannot be overturned.

WHEREFORE, the lower court decision of

July 24, 1968 is affirmed. Costs against
George Pay.

86
G.R. No. 178610 November 17, Petitioners Gerong and [Editha] Broqueza respective obligations were made upon
2010 (defendants below) are employees of petitioners, but they failed to pay.6
Hongkong and Shanghai Banking Corporation
HONGKONG AND SHANGHAI BANKING (HSBC). They are also members of HSBCL-SRP, acting through its Board of
CORP., LTD. STAFF RETIREMENT PLAN, respondent Hongkong Shanghai Banking Trustees and represented by Alejandro L.
Retirement Trust Fund, Inc.) Petitioner, Corporation, Ltd. Staff Retirement Plan Custodio, filed Civil Case No. 52400 against
vs. (HSBCL-SRP, plaintiff below). The HSBCL- the spouses Broqueza on 31 July 1996. On 19
SPOUSES BIENVENIDO AND EDITHA SRP is a retirement plan established by HSBC September 1996, HSBCL-SRP filed Civil Case
BROQUEZA, Respondents. through its Board of Trustees for the benefit of No. 52911 against Gerong. Both suits were
the employees. civil actions for recovery and collection of
DECISION sums of money.
On October 1, 1990, petitioner [Editha]
CARPIO, J.: Broqueza obtained a car loan in the amount of The Metropolitan Trial Court’s Ruling
Php175,000.00. On December 12, 1991, she
again applied and was granted an appliance On 28 December 1999, the MeTC
G.R. No. 178610 is a petition for
loan in the amount of Php24,000.00. On the promulgated its Decision7 in favor of HSBCL-
review1 assailing the Decision2 promulgated
other hand, petitioner Gerong applied and was SRP. The MeTC ruled that the nature of
on 30 March 2006 by the Court of Appeals
granted an emergency loan in the amount of HSBCL-SRP’s demands for payment is civil
(CA) in CA-G.R. SP No. 62685. The appellate
Php35,780.00 on June 2, 1993. These loans and has no connection to the ongoing labor
court granted the petition filed by Fe Gerong
are paid through automatic salary deduction. dispute. Gerong and Editha Broqueza’s
(Gerong) and Spouses Bienvenido and Editha
Broqueza (spouses Broqueza) and dismissed termination from employment resulted in the
the consolidated complaints filed by Meanwhile [in 1993], a labor dispute arose loss of continued benefits under their
Hongkong and Shanghai Banking between HSBC and its employees. Majority of retirement plans. Thus, the loans secured by
Corporation, Ltd. - Staff Retirement Plan HSBC’s employees were terminated, among their future retirement benefits to which they
(HSBCL-SRP) for recovery of sum of money. whom are petitioners Editha Broqueza and Fe are no longer entitled are reduced to
The appellate court reversed and set aside Gerong. The employees then filed an illegal unsecured and pure civil obligations. As
the Decision3 of Branch 139 of the Regional dismissal case before the National Labor unsecured and pure obligations, the loans are
Trial Court of Makati City (RTC) in Civil Case Relations Commission (NLRC) against HSBC. immediately demandable.
No. 00-787 dated 11 December 2000, as well The legality or illegality of such termination is
as its Order4 dated 5 September 2000. The now pending before this appellate Court in CA The dispositive portion of the MeTC’s decision
RTC’s decision affirmed the Decision5 dated G.R. CV No. 56797, entitled Hongkong reads:
28 December 1999 of Branch 61 of the Shanghai Banking Corp. Employees Union, et
Metropolitan Trial Court (MeTC) of Makati City al. vs. National Labor Relations Commission,
WHEREFORE, premises considered and in
in Civil Case No. 52400 for Recovery of a et al.
view of the foregoing, the Court finds that the
Sum of Money. plaintiff was able to prove by a preponderance
Because of their dismissal, petitioners were of evidence the existence and immediate
The Facts not able to pay the monthly amortizations of demandability of the defendants’ loan
their respective loans. Thus, respondent obligations as judgment is hereby rendered in
HSBCL-SRP considered the accounts of favor of the plaintiff and against the
The appellate court narrated the facts as
petitioners delinquent. Demands to pay the defendants in both cases, ordering the latter:
follows:
87
1. In Civil Case No. 52400, to pay the amount Broqueza’s continued default in payment and obligations. In a Resolution13 of this Court
of Php116,740.00 at six percent interest per their failure to provide new security for their dated 10 September 2007, this Court treated
annum from the time of demand and in Civil loans. Moreover, the absence of a period the manifestation as a motion to withdraw the
Case No. 52911, to pay the amount of within which to pay the loan allows HSBCL- petition against Gerong, granted the motion,
Php25,344.12 at six percent per annum from SRP to demand immediate payment. The loan and considered the case against Gerong
the time of the filing of these cases, until the obligations are considered pure obligations, closed and terminated.
amount is fully paid; the fulfillment of which are demandable at
once. Issues
2. To pay the amount of Php20,000.00 each
as reasonable attorney’s fees; Gerong and the spouses Broqueza then filed HSBCL-SRP enumerated the following
a Petition for Review under Rule 42 before the grounds to support its Petition:
3. Cost of suit. CA.
I. The Court of Appeals has decided a
SO ORDERED.8 The Ruling of the Court of Appeals question of substance in a way not in accord
with law and applicable decisions of this
Gerong and the spouses Broqueza filed a joint On 30 March 2006, the CA rendered its Honorable Court; and
appeal of the MeTC’s decision before the Decision10 which reversed the 11 December
RTC. Gerong’s case was docketed Civil Case 2000 Decision of the RTC. The CA ruled that II. The Court of Appeals has departed from
No. 00-786, while the spouses Broqueza’s the HSBCL-SRP’s complaints for recovery of the accepted and usual course of judicial
case was docketed as Civil Case No. 00-787. sum of money against Gerong and the proceedings in reversing the decision of the
spouses Broqueza are premature as the loan Regional Trial Court and the Metropolitan Trial
The Regional Trial Court’s Ruling obligations have not yet matured. Thus, no Court.14
cause of action accrued in favor of HSBCL-
SRP. The dispositive portion of the appellate The Court’s Ruling
The RTC initially denied the joint appeal
court’s Decision reads as follows:
because of the belated filing of Gerong and
the spouses Broqueza’s memorandum. The The petition is meritorious. We agree with the
RTC later reconsidered the order of denial WHEREFORE, the assailed Decision of the rulings of the MeTC and the RTC.
and resolved the issues in the interest of RTC is REVERSED and SET ASIDE. A new
justice. one is hereby rendered DISMISSING the
The Promissory Notes uniformly provide:
consolidated complaints for recovery of sum
of money.
On 11 December 2000, the RTC affirmed the PROMISSORY NOTE
MeTC’s decision in toto.9 11
SO ORDERED.
P_____ Makati, M.M. ____ 19__
The RTC ruled that Gerong and Editha
Broqueza’s termination from employment HSBCL-SRP filed a motion for reconsideration
which the CA denied for lack of merit in its FOR VALUE RECEIVED, I/WE _____ jointly
disqualified them from availing of benefits and severally promise to pay to THE HSBC
under their retirement plans. As a Resolution12 promulgated on 19 June 2007.
RETIREMENT PLAN (hereinafter called the
consequence, there is no longer any security "PLAN") at its office in the Municipality of
for the loans. HSBCL-SRP has a legal right to On 6 August 2007, HSBCL-SRP filed a
Makati, Metro Manila, on or before until fully
demand immediate settlement of the unpaid manifestation withdrawing the petition against
paid the sum of PESOS ___ (P___) Philippine
balance because of Gerong and Editha Gerong because she already settled her
88
Currency without discount, with interest from correct in ruling that since the Promissory contract and does not in any way concern
date hereof at the rate of Six per cent (6%) Notes do not contain a period, HSBCL-SRP employee relations. As such it should be
per annum, payable monthly. has the right to demand immediate payment. enforced through a separate civil action in the
Article 1179 of the Civil Code applies. The regular courts and not before the Labor
I/WE agree that the PLAN may, upon written spouses Broqueza’s obligation to pay HSBCL- Arbiter."17
notice, increase the interest rate stipulated in SRP is a pure obligation. The fact that
this note at any time depending on prevailing HSBCL-SRP was content with the prior WHEREFORE, we GRANT the petition. The
conditions. monthly check-off from Editha Broqueza’s Decision of the Court of Appeals in CA-G.R.
salary is of no moment. Once Editha SP No. 62685 promulgated on 30 March 2006
I/WE hereby expressly consent to any Broqueza defaulted in her monthly payment, is REVERSED and SET ASIDE. The decision
extensions or renewals hereof for a portion or HSBCL-SRP made a demand to enforce a of Branch 139 of the Regional Trial Court of
whole of the principal without notice to the pure obligation. Makati City in Civil Case No. 00-787, as well
other(s), and in such a case our liability shall as the decision of Branch 61 of the
remain joint and several.1avvphi1 In their Answer, the spouses Broqueza Metropolitan Trial Court of Makati City in Civil
admitted that prior to Editha Broqueza’s Case No. 52400 against the spouses
In case collection is made by or through an dismissal from HSBC in December 1993, she Bienvenido and Editha Broqueza,
attorney, I/WE jointly and severally agree to "religiously paid the loan amortizations, which are AFFIRMED. Costs against respondents.
pay ten percent (10%) of the amount due on HSBC collected through payroll check-off." 16 A
this note (but in no case less than P200.00) as definite amount is paid to HSBCL-SRP on a SO ORDERED.
and for attorney’s fees in addition to expenses specific date. Editha Broqueza authorized
and costs of suit. HSBCL-SRP to make deductions from her
payroll until her loans are fully paid. Editha
Broqueza, however, defaulted in her monthly
In case of judicial execution, I/WE hereby
loan payment due to her dismissal. Despite
jointly and severally waive our rights under the
the spouses Broqueza’s protestations, the
provisions of Rule 39, Section 12 of the Rules
payroll deduction is merely a convenient mode
of Court.15
of payment and not the sole source of
payment for the loans. HSBCL-SRP never
In ruling for HSBCL-SRP, we apply the first agreed that the loans will be paid only through
paragraph of Article 1179 of the Civil Code: salary deductions. Neither did HSBCL-SRP
agree that if Editha Broqueza ceases to be an
Art. 1179. Every obligation whose employee of HSBC, her obligation to pay the
performance does not depend upon a future loans will be suspended. HSBCL-SRP can
or uncertain event, or upon a past event immediately demand payment of the loans at
unknown to the parties, is demandable at anytime because the obligation to pay has no
once. period. Moreover, the spouses Broqueza have
already incurred in default in paying the
x x x. (Emphasis supplied.) monthly installments.

We affirm the findings of the MeTC and the Finally, the enforcement of a loan agreement
RTC that there is no date of payment involves "debtor-creditor relations founded on
indicated in the Promissory Notes. The RTC is
89
GERARDO VILLANUEVA, against Villanueva pertinently alleging as 7. THAT of said amount of
petitioner,vs.ST. MARTIN OF TOURS follows: indebtedness, defendant have (sic)
KILUSANG BAYAN SA remitted nothing thereby still indebted
3. THAT on November 28, 1994,
PAGPAPAUTANG, INC., respondent. in its full amount of ONE HUNDRED
defendant executed Deed of Chattel
THIRTY FIVE THOUSAND PESOS
Mortgage on one (1) motor vehicle,
(P135,000.00) exclusive of interest
description of the said motor vehicle is
and other charges, which amount
NOTICE hereto described as follows:
defendant failed to pay despite
Make & Type Isuzu Dropside demand made both oral and written,
the last of which was through its
Sirs/Mesdames: Motor No. 4BAI-552710 undersigned counsel by registered
mail, copy of which is hereto attached
Please take notice that the Court, First Chassis No. TLD54-9851865 as Annex "D" the registry receipt as
Division, issued a Resolution dated July Annex "D-1" and the return card as
23, 2014 which reads as follows: Plate No. PJJ-142 Annex "D-2"; DITEAc
"G.R. No. 156746 — GERARDO Reg. Cert. No. 25873571 8. THAT payment of said obligation is
VILLANUEVA, Petitioner, v. ST. long now overdue but defendant have
MARTIN OF TOURS KILUSANG BAYAN xxx xxx xxx failed and refused and still fail and
SA PAGPAPAUTANG, 4. THAT the amount of ONE refuse to pay the same or any part
INC.,Respondent. HUNDRED THIRTY FIVE thereof, notwithstanding repeated
This appeal is taken from the THOUSAND PESOS (P135,000.00) demands from plaintiff;
decision promulgated on March 25, 2002, was loaned and evidenced in the said 9. THAT by reason of defendant's
1 whereby the Court of Appeals (CA) Deed of Chattel Mortgage; unjustified refusal to satisfy plaintiff's
affirmed the judgment rendered on 5. THAT the condition of the said plainly valid, just and demandable
October 1, 1998 by the Regional Trial Chattel Mortgage is such that if within claim, the latter was compelled to
Court (RTC),Branch 77, in Malolos, the period stated from and after the engage the services of counsel and
Bulacan 2 finding merit in the complaint execution of the same, defendant shall was obliged to pay the sum equivalent
for judicial foreclosure filed by the pay to the plaintiff the amount stated to 20% of the total amount due,
respondent against the petitioner. therein plus the stipulated interest of litigation and incidental expenses
Antecedents SIXTEEN (16%) per annum and the which defendant have (sic) expressly
same mortgage shall be discharge, agreed to pay under the terms of the
Petitioner Gerardo Villanueva (Villanueva) otherwise it shall remain in full force promissory note, interests due thereon
was a member of respondent St. Martin of and effect; and fines; 3
Tours Kilusang Bayan sa Pagpapautang,
Inc.,a corporation engaged in cooperative 6. THAT in case of non-payment of Villanueva filed his answer with
banking activities (like accepting savings such indebtedness of the defendant or counterclaim,
deposit and lending financial assistance). a part thereof remains unpaid the 4 in which he admitted the existence of the
Chattel Mortgage contract shall be loan as well as his execution of the deed of
On December 9, 1996, the respondent enforceable in the manner prescribed
filed a complaint for judicial foreclosure chattel mortgage, but raised the defenses of
by law or for foreclosure;
90
lack of cause of action and prematurity of 2) Interest at 16% per annum based and its capacity to sue, the absence of
the filing of the complaint. He claimed on the principal from April 30, 1996 proof of the existence from the deed of
therein that he did not refuse to pay his until full payment is made; chattel mortgage.
obligation, for, in fact, he had tendered
3) Fines at 2% per month based on On February 26, 1999, 9 the RTC denied
payment to the respondent, but the latter's
the principal from April 30, 1996 until Villanueva's motion for reconsideration or
counsel made unreasonable demands for
full payment is made; new trial.
attorney's fees; that the respondent and its
former manager had verbally agreed on an 4) The sum equivalent to 10% of the Judgment of the CA
out-of-court settlement of the case; and that total amount due as attorney's fees;
Villanueva appealed, but on March 25,
the dispute was not first brought to a and
2002, the CA promulgated its assailed
barangay mediation, in violation of Republic
5) The costs of suit. decision, 10 viz.:
Act No. 7160 (RA No. 7160), or the Local
Government Code of 1991. UPON THE VIEW WE TAKE OF THIS
b) In case of default of such payment, CASE, THUS,the judgment appealed from
In its reply, 5 the respondent reiterated the plaintiff as mortgagee, may cause must be, as it hereby is AFFIRMED,and
that Villanueva did not settle his the motor vehicle subject matter of the the present appeal ordered
obligation; that the parties did not enter Deed of Chattel Mortgage dated DISMISSED.Costs against appellant.
into any compromise agreement; and that November 28, 1994, particularly
the provisions of RA No. 7160 did not described as follows: SO ORDERED.11
apply to the respondent by virtue of its
Villanueva sought reconsideration, but the
being a corporation.
Make & Type Isuzu Dropside CA denied his motion for reconsideration
Villanueva did not appear at the on January 14, 2003. 12
scheduled pre-trial conference despite Motor No. 4BAI-552710
Issues
notice. Hence, upon the motion of its
Chassis No. TLD54-[0]851865 (sic)
counsel, the respondent was allowed to Hence, this appeal by petition for review
present its evidence ex parte.6 Plate No. PJJ-142 on certiorari,with Villanueva positing as
grounds the following:
Decision of the RTC Reg. Cert. No. 2587357[1]
On October 1, 1998, the RTC rendered its A. THE COURT OF APPEALS
decision, disposing: COMMITTED ERROR OF LAW IN
WHEREFORE, premises considered, EQUATING JURIDICAL EXISTENCE
judgment is hereby rendered as to be sold at public auction by the TO AUTHORITY OF THE BOARD TO
follows: Deputy Sheriff of this Branch in the FILE THE ACTION IN COURT OR IN
manner prescribed in Section 14 of EQUATING PETITIONER'S
Act No. 1508, as amended, otherwise ADMISSION OF JURIDICAL
a) Defendant is ordered to pay the
known as The Chattel Mortgage Law. EXISTENCE OF THE RESPONDENT
plaintiff the following:
TO ADMISSION OF AUTHORITY OF
SO ORDERED. 7 THE BOARD OF DIRECTORS TO
1) The sum of One Hundred Thirty FILE THE ACTION IN COURT;
Five Thousand Pesos (P135,000.00) Villanueva moved for reconsideration or HCSAIa
representing the total amount of new trial, 8 assailing for the first time the
indebtedness; respondent's lack of juridical personality
91
B. THE COURT OF APPEALS first time the defense of lack of cause of corporation without authority from the board
ERRED IN NOT HOLDING, THAT action premised on the respondent's lack of of directors. Thus, the physical acts of the
WITHOUT THE PROMISSORY NOTE capacity to sue and the prematurity of the corporation, like the signing of documents,
HAVING BEEN MARKED AND complaint based on the absence of a can be performed only by natural persons
PRESENTED IN EVIDENCE, THE provision in the deed of chattel mortgage duly authorized for the purpose by corporate
CHATTEL MORTGAGE, HAS NO indicating the maturity of the obligation. by-laws or by a specific act of the Board of
BINDING EFFECT, AND THE Directors. 18
Villanueva's failure to raise in his answer the
AUCTION SALE OF THE
respondent's alleged lack of capacity to sue, Worth reiterating, to begin with, is the CA's
MORTGAGED VEHICLE CANNOT
absence of the promissory note, and observation that Villanueva's admission of
BE ALTERNATIVE TO BE HELD TO
prematurity of the filing of the complaint for the respondent's capacity to sue could not
SATISFY THE JUDGMENT AMOUNT;
lack of a definite maturity date, was fatal to be negated by his belated attempt to assail
his cause as he is already deemed to have such fact in his motion for reconsideration,
C. THE COURT OF APPEALS waived such defenses. 14 Indeed, Rule 9, viz.:
ERRED IN NOT HOLDING THAT Section 1 of the Rules of Court provides that
WITHOUT VALID AND SUFFICIENT The first issue raised by herein appellant is
defenses and objections not pleaded either
DEMAND, FIRST MADE ON THE clearly a desperate attempt by him to shore
in a motion to dismiss or in the answer are
PETITIONER, THE ACTION IS up his tottering posture. After acknowledging
deemed waived.
PREMATURE. 13 that herein plaintiff-appellee is a juridical
Nonetheless, the records indicate that the person existing under the laws of the
The legal issues for resolution by the Court grounds claimed by Villanueva were Philippines, appellant now makes a 180-
are, therefore: (a) whether or not the unfounded. degree turn-around and impugns the
respondent had the capacity to sue; and (b) appellee's juridical personality and capacity
Villanueva contends that there was no board
whether or not the cause of action was to sue. It must be stressed here that the
resolution that authorized Minerva R.
premature. complaint of herein plaintiff-appellee
Tamayo, then Acting General Manager of
specifically avers the following, to wit —
Ruling the respondent and a signatory to the
SEAHID
verification, to file the complaint. 15 What
The appeal lacks merit. was offered in evidence was the letter dated "1. THAT plaintiff is a domestic
1.Respondent had capacity to sue April 3, 1995 signed by Rustico U. Galang, corporation duly organized and
Jr. authorizing Elvira M. Nieto to appear and existing under and by virtue of the
In his answer with counterclaim, Villanueva testify in all pending cases involving the laws of the Philippines,with principal
raised only the following as defenses, respondent. 16 Villanueva maintains that office address at Poblacion, Bocaue,
namely: (a) that the respondent had no without the board resolution the complaint Bulacan, represented herein by its
cause of action because he had not refused should be dismissed considering that the Acting General Manager Minerva R.
to pay his obligation; (b) that there had been respondent had not established its capacity Tamayo, by virtue of a Board
a compromise agreement between the to sue. 17 Resolution, copy of which is hereto
parties; and (c) that the complaint was attached as Annex 'A' while defendant
premature for failure to comply with the The power of a corporation to sue and be
(Maker) GERARDO VILLANUEVA of
requirement of prior barangay conciliation. It sued is lodged in the Board of Directors, a
Villson's Comp.,Bunlo, Bocaue,
was only by his motion for reconsideration body that exercises the corporate powers. It
Bulacan, Filipino citizen, of legal age,
vis-à-vis the decision of the RTC rendered necessarily follows that an individual
where he may be served with
on October 1, 1998 that he raised for the corporate officer cannot solely exercise any
summons and other Court processes;
corporate power pertaining to the
92
"2. THAT plaintiff is engaged in In a slew of cases, however, we have (5) an Employment Specialist in a
cooperative banking activities such recognized the authority of some labor case.
as accepting savings deposit and corporate officers to sign the
While the above cases do not provide
lending financial assistance." verification and certification against
a complete listing of authorized
forum shopping. In Mactan-Cebu
The aforementioned fact was admitted signatories to the verification and
International Airport Authority v.
by appellant himself in his answer with certification required by the rules, the
CA,we recognized the authority of a
counterclaim, and was reiterated in his determination of the sufficiency of the
general manager or acting general
pre-trial Brief. Furthermore, the deed authority was done on a case to case
manager to sign the verification and
of chattel mortgage itself explicitly basis. The rationale applied in the
certificate against forum shopping; in
stipulates that St. Martin of Tours foregoing cases is to justify the
Pfizer v. Galan,we upheld the validity
Kilusang Bayan sa Pagpapautang, authority of corporate officers or
of a verification signed by an
Inc. (SMTKBPI) is a credit cooperative representatives of the corporation to
"employment specialist" who had not
duly organized and existing under and sign the verification or certificate
even presented any proof of her
by virtue of the laws of the Philippines, against forum shopping, being "in a
authority to represent the company; in
with principal place of business at position to verify the truthfulness and
Novelty Philippines, Inc.,v. CA,we
Bocaue, Bulacan. Notably, appellant correctness of the allegations in the
ruled that a personnel officer who
himself did not dispute or challenge petition." (Emphasis supplied) SIcEHC
signed the petition but did not attach
the existence of the said chattel
the authority from the company is Even if no board resolution showing the
mortgage. Suffice it to state here that
authorized to sign the verification and authority of Tamayo to sign the verification
a corporation, duly existing and
non-forum shopping certificate; and in and the certification in behalf of the
organized under and by virtue of the
Lepanto Consolidated Mining respondent, a copy of the excerpts of the
laws of the Philippines has a juridical
Company v. WMC Resources minutes of the regular meeting of the Board
or legal personality of its own, and as
International Pty. Ltd. (Lepanto),we of Directors attached to the complaint
a consequence, it can sue and be
ruled that the Chairperson of the showed that she was then the Acting
sued. Thus, the Board Resolution of
Board and President of the Company General Manager and had then been
appellee, appointing its Collection
can sign the verification and certificate designated by the Board of Directors as the
Officer and/or Credit Officer and/or
against non-forum shopping even respondent's duly authorized representative.
Accountant, Elvira Nieto, as its duly
without the submission of the board's The excerpts read:
authorized representative in the
authorization.
instant case, was presented and Inasmuch as the Acting General
remained uncontested by appellant. In sum, we have held that the Manager, Minerva R. Tamayo, has
19 following officials or employees of appointed the Collection Officer and/or
the company can sign the the Credit Officer and/or the
Moreover, in Cagayan Valley Drug
verification and certification without Accountant as the duly authorized
Corporation v. Commissioner of Internal
need of a board resolution: (1) the representatives of the Cooperative in
Revenue,20 the Court has clarified who
Chairperson of the Board of all collection cases filed before the
were the officers of the corporation who
Directors, (2) the President of a Municipal and Regional Trial Courts,
could execute and sign the verification and
corporation, (3) the General this Board passed a new resolution to
the certification on non-forum shopping
Manager or Acting General formally delegate the authority given
without a board resolution, to wit:
Manager, (4) Personnel Officer, and her, to wit:

93
B.O.D. RESOLUTION (Unnumbered) payable on the dates mentioned in the the query invites the calibration of the whole
Series of 1996 corresponding promissory note, the evidence, considering mainly the credibility
MORTGAGOR/S hereby transfer and of witnesses, existence and relevancy of
On a motion presented and duly convey by way of chattel mortgage, specific surrounding circumstances, their
seconded: unto the MORTGAGEE, its relation to each other and to the whole, and
successors or assigns the following the probabilities of the situation. 26
RESOLVED, AS IT IS HEREBY personal property or properties free
RESOLVED to appoint the Acting Moreover, the Court reiterates that it is
from all liens and/or
General Manager as the duly bound by the factual findings by the trial
encumbrances: ...22
authorized representative of the court. Such findings are final when affirmed
SMTKBPI in all pending collection Given that the deed of chattel mortgage by the CA. 27 Hence, the Court cannot re-
cases of the Cooperative filed before made reference to a promissory note, evaluate evidence that the RTC and the CA
the Regional Trial Courts in Malolos, Villanueva argues that the presentation and had already passed upon. 28
Bulacan and Municipal Trial Court in marking of the promissory note as evidence
At any rate, a promissory note, albeit proof
Bocaue, Bulacan except in cases were indispensable to the determination of
of the obligation, is not the only means of
where she may authorize the the maturity of his obligation; 23 that the
proof, for, like now, Villanueva himself
Collection Officer and/or the Credit deed of chattel mortgage could not be
admitted his obligation. 29 That was enough
Officer and/or the Accountant to considered as an accessory contract
to establish his personal liability, for, as the
represent, appear and testify before without the promissory note being
CA fittingly stressed:
said courts at her discretion; presented and admitted in evidence due
to its being the best evidence of the There is no doubt or question that
RESOLVED FINALLY THAT this principal obligation; 24 that because his appellant received the sum of
resolution cancels and supersedes all obligation had not been proved to have P135,000.00 as the principal amount
previous resolutions on the matured, the filing of the complaint against of loan. He even acknowledged the
appointment of SMTKBPI's authorized him was premature, or, at least, the existence of the loan, which was
representative in collection cases filed complaint did not state a cause of action; secured by a mortgage, and further
in court. 21 and that the proper and sufficient demand claimed that he offered and tried to
2. Although the promissory note was was not made by the respondent because settle his obligations to appellee. He
not offered the demand letter sent to him indicated the cannot now disavow this obligation
in evidence, Villanueva admitted that amount of his obligation as P900,000.00, and question its validity, claiming that
his obligation already but such amount was not mentioned in the the same cannot exist by itself in the
matured when the complaint was filed deed of chattel mortgage. 25 ESCDHA absence of a promissory note. The
absence of such promissory note (if
The deed of chattel mortgage provides: Villanueva's arguments are unworthy of
indeed there is no such promissory
consideration.
That as security for the payment of the note) does not nullify or invalidate the
loan or advance in the principal sum of The issue on the existence of the contract, as a promissory note is only
ONE HUNDRED THIRTY FIVE promissory note and the maturity of the an evidence of indebtedness and does
THOUSAND PESOS ONLY obligation, being a question of fact, is not not indicate lack of consideration of
(P135,000.00),and such other loans or the proper subject of an appeal by petition the mortgage. A contract of loan,
advances already obtained, or still to for review on certiorari.An issue is factual being a consensual contract, is
be obtained by the MORTGAGOR/S when the doubt or difference arises as to the perfected at the time of its execution;
as MAKER/S from the MORTGAGEE, truth or falsehood of alleged facts, or when thus, appellant herein, having freely

94
and voluntarily executed the said A: The Chattel Mortgage is good for We note that this is a case for a sum
contract, duly secured by a chattel one (1) year and renewable each of money, and petitioners have
mortgage, bound himself not only to year. admitted that they obtained the loan.
the fulfillment of what has been They also admitted the due execution
expressly stipulated but also to all the Q: Was this renewed? of the loan documents and their
consequences which, according to receipt of the final demand letter made
their nature, may be in keeping with A: Yes, sir. by the respondent. These documents
good faith, usage and law. 30 EHaCID were all attached to the Complaint.
Petitioners merely claimed that the
Villanueva's indebtedness was further Q: When this was renewed, when is
obligation has not matured. Notably,
sufficiently established by the the latest maturity date of the
based on the promissory note, the
testimony of Nieto, who was the document. ..of the indebtedness?
RTC and the Court of Appeals found
respondent's account officer.
this defense not a factual issue for
Contrary to Villanueva's insistence, his loan A: The last maturity date of this trial, the loan being payable on
obligation matured at a definite period, as document is on 1996 April. demand. We are bound by this factual
confirmed by Nieto, to wit: finding. This Court is not a trier of
Q: On April 1996, you said that the facts.
Q: Now, will you please tell the Court whole amount of P135,000.00 should
be paid in lump sum. Was there When respondent made its demand, in
how is the system or mode of payment our view, the obligation matured. We
of this P135,000.00 secured as a payment made on a lump sum basis
on April of 1996? agree with both the trial and the
chattel mortgage by Gerardo appellate courts that this matter
Villanueva? proferred as a defense could be
A None, sir. 31
resolved judiciously by plain resort to
A: The system or mode of payment is the stipulations in the promissory note
on a lump sum basis, sir. Even where no date of payment was which was already before the trial
indicated either in the promissory note or in court. A full-blown trial to determine
Q: What do you mean by lump sum the deed of chattel mortgage, Villanueva's the date of maturity of the loan is not
basis? How many payments will be obligation under the law should be necessary. ...
made? immediately demandable. This is in
accordance with the first paragraph of The relevance of the respondent's demand
Article 1179 of the Civil Code: letter cannot be affected by the discrepancy
A: One payment. between the total amount stated in the letter
Article 1179. Every obligation whose and the amount subject of the complaint. It
Q: One payment? performance does not depend upon a is to be noted that the demand letter dated
future or uncertain event, or upon a July 25, 1996 was offered in evidence to
A: If it is due and demandable. past event unknown to the parties, is prove that Villanueva had owed the total
demandable at once. amount of P900,000.00, inclusive of the
Q: Now, in this document, it states that Under the circumstances, Villanueva's P135,000.00 that is now the subject matter
the payment should be made obligation matured upon the demand for of this case, and of other loans. 33 CAaDTH
on ....When will this mature, by the payment by the respondent. As held in WHEREFORE,the Court
way, the P135,000.00? Wood Technology Corporation v. AFFIRMS the decision promulgated on
Equitable Banking Corporation: 32
95
 March 25, 2002; and ORDERS the
petitioner to pay the costs of suit.
SO ORDERED."

96
G.R. No. L-11827 July 31, 1961 in Exhibit "3". Thereafter, Gaite embarked the Larap Mines & Smelting Co. Inc., its
upon the development and exploitation of the assigns, administrators, or successors in
FERNANDO A. GAITE, plaintiff-appellee, mining claims in question, opening and paving interests.
vs. roads within and outside their boundaries,
ISABELO FONACIER, GEORGE making other improvements and installing To secure the payment of the said balance of
KRAKOWER, LARAP MINES & SMELTING facilities therein for use in the development of P65,000.00, Fonacier promised to execute in
CO., INC., SEGUNDINA VIVAS, the mines, and in time extracted therefrom favor of Gaite a surety bond, and pursuant to
FRNACISCO DANTE, PACIFICO what he claim and estimated to be the promise, Fonacier delivered to Gaite a
ESCANDOR and FERNANDO approximately 24,000 metric tons of iron ore. surety bond dated December 8, 1954 with
TY, defendants-appellants. himself (Fonacier) as principal and the Larap
For some reason or another, Isabelo Fonacier Mines and Smelting Co. and its stockholders
REYES, J.B.L., J.: decided to revoke the authority granted by him George Krakower, Segundina Vivas, Pacifico
to Gaite to exploit and develop the mining Escandor, Francisco Dante, and Fernando Ty
This appeal comes to us directly from the claims in question, and Gaite assented thereto as sureties (Exhibit "A-1"). Gaite testified,
Court of First Instance because the claims subject to certain conditions. As a result, a however, that when this bond was presented
involved aggregate more than P200,000.00. document entitled "Revocation of Power of to him by Fonacier together with the
Attorney and Contract" was executed on "Revocation of Power of Attorney and
December 8, 1954 (Exhibit "A"),wherein Gaite Contract", Exhibit "A", on December 8, 1954,
Defendant-appellant Isabelo Fonacier was the
transferred to Fonacier, for the consideration he refused to sign said Exhibit "A" unless
owner and/or holder, either by himself or in a
of P20,000.00, plus 10% of the royalties that another bond under written by a bonding
representative capacity, of 11 iron lode
Fonacier would receive from the mining company was put up by defendants to secure
mineral claims, known as the Dawahan
claims, all his rights and interests on all the the payment of the P65,000.00 balance of
Group, situated in the municipality of Jose
roads, improvements, and facilities in or their price of the iron ore in the stockpiles in
Panganiban, province of Camarines Norte.
outside said claims, the right to use the the mining claims. Hence, a second bond,
business name "Larap Iron Mines" and its also dated December 8, 1954 (Exhibit
By a "Deed of Assignment" dated September goodwill, and all the records and documents "B"),was executed by the same parties to the
29, 1952(Exhibit "3"), Fonacier constituted relative to the mines. In the same document, first bond Exhibit "A-1", with the Far Eastern
and appointed plaintiff-appellee Fernando A. Gaite transferred to Fonacier all his rights and Surety and Insurance Co. as additional surety,
Gaite as his true and lawful attorney-in-fact to interests over the "24,000 tons of iron ore, but it provided that the liability of the surety
enter into a contract with any individual or more or less" that the former had already company would attach only when there had
juridical person for the exploration and extracted from the mineral claims, in been an actual sale of iron ore by the Larap
development of the mining claims consideration of the sum of P75,000.00, Mines & Smelting Co. for an amount of not
aforementioned on a royalty basis of not less P10,000.00 of which was paid upon the less then P65,000.00, and that, furthermore,
than P0.50 per ton of ore that might be signing of the agreement, and the liability of said surety company would
extracted therefrom. On March 19, 1954, automatically expire on December 8, 1955.
Gaite in turn executed a general assignment Both bonds were attached to the "Revocation
b. The balance of SIXTY-FIVE THOUSAND
(Record on Appeal, pp. 17-19) conveying the of Power of Attorney and Contract", Exhibit
PESOS (P65,000.00) will be paid from and
development and exploitation of said mining "A", and made integral parts thereof.
out of the first letter of credit covering the first
claims into the Larap Iron Mines, a single
shipment of iron ores and of the first amount
proprietorship owned solely by and belonging
derived from the local sale of iron ore made by
to him, on the same royalty basis provided for
97
On the same day that Fonacier revoked the All the defendants except Francisco Dante set approximately 24,000 tons of iron ore was one
power of attorney he gave to Gaite and the up the uniform defense that the obligation with a term: i.e., that it would be paid upon the
two executed and signed the "Revocation of sued upon by Gaite was subject to a condition sale of sufficient iron ore by defendants, such
Power of Attorney and Contract", Exhibit "A", that the amount of P65,000.00 would be sale to be effected within one year or before
Fonacier entered into a "Contract of Mining payable out of the first letter of credit covering December 8, 1955; that the giving of security
Operation", ceding, transferring, and the first shipment of iron ore and/or the first was a condition precedent to Gait's giving of
conveying unto the Larap Mines and Smelting amount derived from the local sale of the iron credit to defendants; and that as the latter
Co., Inc. the right to develop, exploit, and ore by the Larap Mines & Smelting Co., Inc.; failed to put up a good and sufficient security
explore the mining claims in question, that up to the time of the filing of the in lieu of the Far Eastern Surety bond (Exhibit
together with the improvements therein and complaint, no sale of the iron ore had been "B") which expired on December 8, 1955, the
the use of the name "Larap Iron Mines" and its made, hence the condition had not yet been obligation became due and demandable
good will, in consideration of certain royalties. fulfilled; and that consequently, the obligation under Article 1198 of the New Civil Code.
Fonacier likewise transferred, in the same was not yet due and demandable. Defendant
document, the complete title to the Fonacier also contended that only 7,573 tons As to the second question, the lower court
approximately 24,000 tons of iron ore which of the estimated 24,000 tons of iron ore sold found that plaintiff Gaite did have
he acquired from Gaite, to the Larap & to him by Gaite was actually delivered, and approximately 24,000 tons of iron ore at the
Smelting Co., in consideration for the signing counterclaimed for more than P200,000.00 mining claims in question at the time of the
by the company and its stockholders of the damages. execution of the contract Exhibit "A."
surety bonds delivered by Fonacier to Gaite
(Record on Appeal, pp. 82-94). At the trial of the case, the parties agreed to Judgment was, accordingly, rendered in favor
limit the presentation of evidence to two of plaintiff Gaite ordering defendants to pay
Up to December 8, 1955, when the bond issues: him, jointly and severally, P65,000.00 with
Exhibit "B" expired with respect to the Far interest at 6% per annum from December 9,
Eastern Surety and Insurance Company, no (1) Whether or not the obligation of Fonacier 1955 until payment, plus costs. From this
sale of the approximately 24,000 tons of iron and his sureties to pay Gaite P65,000.00 judgment, defendants jointly appealed to this
ore had been made by the Larap Mines & become due and demandable when the Court.
Smelting Co., Inc., nor had the P65,000.00 defendants failed to renew the surety bond
balance of the price of said ore been paid to underwritten by the Far Eastern Surety and During the pendency of this appeal, several
Gaite by Fonacier and his sureties payment of Insurance Co., Inc. (Exhibit "B"), which incidental motions were presented for
said amount, on the theory that they had lost expired on December 8, 1955; and resolution: a motion to declare the appellants
right to make use of the period given them Larap Mines & Smelting Co., Inc. and George
when their bond, Exhibit "B" automatically (2) Whether the estimated 24,000 tons of iron Krakower in contempt, filed by appellant
expired (Exhibits "C" to "C-24"). And when ore sold by plaintiff Gaite to defendant Fonacier, and two motions to dismiss the
Fonacier and his sureties failed to pay as Fonacier were actually in existence in the appeal as having become academic and a
demanded by Gaite, the latter filed the present mining claims when these parties executed motion for new trial and/or to take judicial
complaint against them in the Court of First the "Revocation of Power of Attorney and notice of certain documents, filed by appellee
Instance of Manila (Civil Case No. 29310) for Contract", Exhibit "A." Gaite. The motion for contempt is
the payment of the P65,000.00 balance of the unmeritorious because the main allegation
price of the ore, consequential damages, and therein that the appellants Larap Mines &
On the first question, the lower court held that
attorney's fees. Smelting Co., Inc. and Krakower had sold the
the obligation of the defendants to pay plaintiff
the P65,000.00 balance of the price of the iron ore here in question, which allegedly is

98
"property in litigation", has not been a. TEN THOUSAND PESOS (P10,000.00) will 2) A contract of sale is normally commutative
substantiated; and even if true, does not make be paid upon the signing of this agreement. and onerous: not only does each one of the
these appellants guilty of contempt, because parties assume a correlative obligation (the
what is under litigation in this appeal is b. The balance of SIXTY-FIVE THOUSAND seller to deliver and transfer ownership of the
appellee Gaite's right to the payment of the PESOS (P65,000.00)will be paid from and out thing sold and the buyer to pay the price),but
balance of the price of the ore, and not the of the first letter of credit covering the first each party anticipates performance by the
iron ore itself. As for the several motions shipment of iron ore made by the Larap Mines other from the very start. While in a sale the
presented by appellee Gaite, it is unnecessary & Smelting Co., Inc., its assigns, obligation of one party can be lawfully
to resolve these motions in view of the results administrators, or successors in interest. subordinated to an uncertain event, so that
that we have reached in this case, which we the other understands that he assumes the
shall hereafter discuss. We find the court below to be legally correct in risk of receiving nothing for what he gives (as
holding that the shipment or local sale of the in the case of a sale of hopes or
The main issues presented by appellants in iron ore is not a condition precedent (or expectations, emptio spei), it is not in the
this appeal are: suspensive) to the payment of the balance of usual course of business to do so; hence, the
P65,000.00, but was only a suspensive period contingent character of the obligation must
(1) that the lower court erred in holding that or term. What characterizes a conditional clearly appear. Nothing is found in the record
the obligation of appellant Fonacier to pay obligation is the fact that its efficacy or to evidence that Gaite desired or assumed to
appellee Gaite the P65,000.00 (balance of the obligatory force (as distinguished from its run the risk of losing his right over the ore
price of the iron ore in question)is one with a demandability) is subordinated to the without getting paid for it, or that Fonacier
period or term and not one with a suspensive happening of a future and uncertain event; so understood that Gaite assumed any such risk.
condition, and that the term expired on that if the suspensive condition does not take This is proved by the fact that Gaite insisted
December 8, 1955; and place, the parties would stand as if the on a bond a to guarantee payment of the
conditional obligation had never existed. That P65,000.00, an not only upon a bond by
the parties to the contract Exhibit "A" did not Fonacier, the Larap Mines & Smelting Co.,
(2) that the lower court erred in not holding
intend any such state of things to prevail is and the company's stockholders, but also on
that there were only 10,954.5 tons in the
supported by several circumstances: one by a surety company; and the fact that
stockpiles of iron ore sold by appellee Gaite to
appellants did put up such bonds indicates
appellant Fonacier.
that they admitted the definite existence of
1) The words of the contract express no
their obligation to pay the balance of
The first issue involves an interpretation of the contingency in the buyer's obligation to pay:
P65,000.00.
following provision in the contract Exhibit "A": "The balance of Sixty-Five Thousand Pesos
(P65,000.00) will be paid out of the first letter
of credit covering the first shipment of iron 3) To subordinate the obligation to pay the
7. That Fernando Gaite or Larap Iron Mines remaining P65,000.00 to the sale or shipment
hereby transfers to Isabelo F. Fonacier all his ores . . ." etc. There is no uncertainty that the
payment will have to be made sooner or later; of the ore as a condition precedent, would be
rights and interests over the 24,000 tons of tantamount to leaving the payment at the
iron ore, more or less, above-referred to what is undetermined is merely the exact
date at which it will be made. By the very discretion of the debtor, for the sale or
together with all his rights and interests to shipment could not be made unless the
operate the mine in consideration of the sum terms of the contract, therefore, the existence
of the obligation to pay is recognized; only appellants took steps to sell the ore.
of SEVENTY-FIVE THOUSAND PESOS Appellants would thus be able to postpone
(P75,000.00) which the latter binds to pay as its maturity or demandability is deferred.
payment indefinitely. The desireability of
follows: avoiding such a construction of the contract
Exhibit "A" needs no stressing.
99
4) Assuming that there could be doubt We agree with the court below that the There is no merit in appellants' argument that
whether by the wording of the contract the appellant have forfeited the right court below Gaite's acceptance of the surety company's
parties indented a suspensive condition or a that the appellants have forfeited the right to bond with full knowledge that on its face it
suspensive period (dies ad quem) for the compel Gaite to wait for the sale of the ore would automatically expire within one year
payment of the P65,000.00, the rules of before receiving payment of the balance of was a waiver of its renewal after the expiration
interpretation would incline the scales in favor P65,000.00, because of their failure to renew date. No such waiver could have been
of "the greater reciprocity of interests", since the bond of the Far Eastern Surety Company intended, for Gaite stood to lose and had
sale is essentially onerous. The Civil Code of or else replace it with an equivalent nothing to gain barely; and if there was any, it
the Philippines, Article 1378, paragraph 1, in guarantee. The expiration of the bonding could be rationally explained only if the
fine, provides: company's undertaking on December 8, 1955 appellants had agreed to sell the ore and pay
substantially reduced the security of the Gaite before the surety company's bond
If the contract is onerous, the doubt shall be vendor's rights as creditor for the unpaid expired on December 8, 1955. But in the latter
settled in favor of the greatest reciprocity of P65,000.00, a security that Gaite considered case the defendants-appellants' obligation to
interests. essential and upon which he had insisted pay became absolute after one year from the
when he executed the deed of sale of the ore transfer of the ore to Fonacier by virtue of the
and there can be no question that greater to Fonacier (Exhibit "A"). The case squarely deed Exhibit "A.".
reciprocity obtains if the buyer' obligation is comes under paragraphs 2 and 3 of Article
deemed to be actually existing, with only its 1198 of the Civil Code of the Philippines: All the alternatives, therefore, lead to the
maturity (due date) postponed or deferred, same result: that Gaite acted within his rights
that if such obligation were viewed as non- "ART. 1198. The debtor shall lose every right in demanding payment and instituting this
existent or not binding until the ore was sold. to make use of the period: action one year from and after the contract
(Exhibit "A") was executed, either because the
The only rational view that can be taken is that (1) . . . appellant debtors had impaired the securities
the sale of the ore to Fonacier was a sale on originally given and thereby forfeited any
credit, and not an aleatory contract where the (2) When he does not furnish to the creditor further time within which to pay; or because
transferor, Gaite, would assume the risk of not the guaranties or securities which he has the term of payment was originally of no more
being paid at all; and that the previous sale or promised. than one year, and the balance of P65,000.00
shipment of the ore was not a suspensive became due and payable thereafter.
condition for the payment of the balance of the (3) When by his own acts he has impaired
agreed price, but was intended merely to fix said guaranties or securities after their Coming now to the second issue in this
the future date of the payment. establishment, and when through fortuitous appeal, which is whether there were really
event they disappear, unless he immediately 24,000 tons of iron ore in the stockpiles sold
This issue settled, the next point of inquiry is gives new ones equally satisfactory. by appellee Gaite to appellant Fonacier, and
whether appellants, Fonacier and his sureties, whether, if there had been a short-delivery as
still have the right to insist that Gaite should claimed by appellants, they are entitled to the
Appellants' failure to renew or extend the
wait for the sale or shipment of the ore before payment of damages, we must, at the outset,
surety company's bond upon its expiration
receiving payment; or, in other words, whether stress two things: first, that this is a case of a
plainly impaired the securities given to the
or not they are entitled to take full advantage sale of a specific mass of fungible goods for a
creditor (appellee Gaite), unless immediately
of the period granted them for making the single price or a lump sum, the quantity of
renewed or replaced.
payment. "24,000 tons of iron ore, more or less," stated
in the contract Exhibit "A," being a mere

100
estimate by the parties of the total tonnage to recover damages for the short-delivery, was Bureau of Mines to the mining claims involved
weight of the mass; and second, that the there really a short-delivery in this case? at the request of appellant Krakower, precisely
evidence shows that neither of the parties had to make an official estimate of the amount of
actually measured of weighed the mass, so We think not. As already stated, neither of the iron ore in Gaite's stockpiles after the dispute
that they both tried to arrive at the total parties had actually measured or weighed the arose.
quantity by making an estimate of the volume whole mass of ore cubic meter by cubic
thereof in cubic meters and then multiplying it meter, or ton by ton. Both parties predicate Even granting, then, that the estimate of 6,609
by the estimated weight per ton of each cubic their respective claims only upon an estimated cubic meters of ore in the stockpiles made by
meter. number of cubic meters of ore multiplied by appellant's witness Cipriano Manlañgit is
the average tonnage factor per cubic meter. correct, if we multiply it by the average
The sale between the parties is a sale of a tonnage factor of 3.3 tons to a cubic meter,
specific mass or iron ore because no provision Now, appellee Gaite asserts that there was a the product is 21,809.7 tons, which is not very
was made in their contract for the measuring total of 7,375 cubic meters in the stockpiles of far from the estimate of 24,000 tons made by
or weighing of the ore sold in order to ore that he sold to Fonacier, while appellants appellee Gaite, considering that actual
complete or perfect the sale, nor was the price contend that by actual measurement, their weighing of each unit of the mass was
of P75,000,00 agreed upon by the parties witness Cirpriano Manlañgit found the total practically impossible, so that a reasonable
based upon any such measurement.(see Art. volume of ore in the stockpiles to be only percentage of error should be allowed anyone
1480, second par., New Civil Code). The 6.609 cubic meters. As to the average weight making an estimate of the exact quantity in
subject matter of the sale is, therefore, a in tons per cubic meter, the parties are again tons found in the mass. It must not be
determinate object, the mass, and not the in disagreement, with appellants claiming the forgotten that the contract Exhibit "A"
actual number of units or tons contained correct tonnage factor to be 2.18 tons to a expressly stated the amount to be 24,000
therein, so that all that was required of the cubic meter, while appellee Gaite claims that tons, more or less. (ch. Pine River Logging &
seller Gaite was to deliver in good faith to his the correct tonnage factor is about 3.7. Improvement Co. vs U.S., 279, 46 L. Ed.
buyer all of the ore found in the mass, 1164).
notwithstanding that the quantity delivered is In the face of the conflict of evidence, we take
less than the amount estimated by them as the most reliable estimate of the tonnage There was, consequently, no short-delivery in
(Mobile Machinery & Supply Co., Inc. vs. York factor of iron ore in this case to be that made this case as would entitle appellants to the
Oilfield Salvage Co., Inc. 171 So. 872, by Leopoldo F. Abad, chief of the Mines and payment of damages, nor could Gaite have
applying art. 2459 of the Louisiana Civil Metallurgical Division of the Bureau of Mines, been guilty of any fraud in making any
Code). There is no charge in this case that a government pensionado to the States and a misrepresentation to appellants as to the total
Gaite did not deliver to appellants all the ore mining engineering graduate of the quantity of ore in the stockpiles of the mining
found in the stockpiles in the mining claims in Universities of Nevada and California, with claims in question, as charged by appellants,
questions; Gaite had, therefore, complied with almost 22 years of experience in the Bureau since Gaite's estimate appears to be
his promise to deliver, and appellants in turn of Mines. This witness placed the tonnage substantially correct.
are bound to pay the lump price. factor of every cubic meter of iron ore at
between 3 metric tons as minimum to 5 metric WHEREFORE, finding no error in the decision
But assuming that plaintiff Gaite undertook to tons as maximum. This estimate, in turn, appealed from, we hereby affirm the same,
sell and appellants undertook to buy, not a closely corresponds to the average tonnage with costs against appellants.
definite mass, but approximately 24,000 tons factor of 3.3 adopted in his corrected report
of ore, so that any substantial difference in (Exhibits "FF" and FF-1") by engineer
this quantity delivered would entitle the buyers Nemesio Gamatero, who was sent by the

101
G.R. No. 131784 September 16, 1999 property subject of the Contract of Felgon Farms, of a half-portion of a "parcel of
Lease/Purchase; land containing an area 12 hectares, more or
FELIX I. GONZALES, petitioner, less, and an accretion of 2 hectares, more or
vs. 2. P5,000.00 as attorney's fees; and less, situated in Rodriguez Town, Province of
THE HEIRS OF THOMAS and PAULA Rizal" and covered by Transfer Certificate of
CRUZ, herein represented by ELENA C. 3. Costs of suit. 3 Title No. 12111 (Exhibit A, p. 157, Records).
TALENS, respondents. The contract of Lease/Purchase contains the
following provisions:
On the other hand, the trial
PANGANIBAN, J.: court 4 Decision, 5 which was by the CA, ruled
as follows: 1. The terms of this Contract is for a period of
If a stipulation in a contract admits of several one year upon the signing thereof. After the
meanings, it shall be understood as bearing period of this Contract, the LESSEE shall
WHEREFORE, premises considered, this
that import most adequate to render it purchase the property on the agreeable price
Court hereby renders judgment in favor of the
effectual. An obligation cannot be enforced of One Million Pesos (P1,000,000.00) payable
defendant, Felix Gonzales, and against the
unless the plaintiff has fulfilled the condition within Two (2) years period with an interest of
plaintiffs, as follows:
upon which it is premised. Hence, an 12% per annum subject to the devalued
obligation to purchase cannot be implemented amount of the Philippine Peso, according to
(1) Ordering the dismissal of the case; the following schedule of payment:
unless and until the sellers have shown their
title to the specific portion of the property
(2) Sentencing the plaintiffs, jointly and Upon the execution of the Deed of Sale 50%
being sold.
severally, the sum of P20,000.00 as moral — and thereafter 25% every six (6) months
damages and the other sum of P10,000.00 as thereafter, payable within the first ten (10)
The Case and for attorney's fees; and days of the beginning of each period of six (6)
months.
Before us is a Petition for Review (3) To pay the costs. 6
on Certiorari assailing the August 13, 1997
Decision 1 of the Court of Appeals 2 in CA-GR 2. The LESSEE shall pay by way of annual
The Facts rental an amount equivalent to Two Thousand
CV No. 303754, which disposed as follows:
Five Hundred (P2,500.00) Pesos per hectare,
We hereby reproduce, unedited, the Court of upon the signing of this contract on Dec. 1,
WHEREFORE, the decision of the trial court
Appeals' summary of the facts of this case as 1983.
dated November 16, 1990 is hereby
follows:
REVERSED. The appellee FELIX
GONZALES is hereby ordered to surrender 9. The LESSORS hereby commit themselves
possession of the property covered by the On December 1, 1983, Paula Año Cruz and shall undertake to obtain a separate and
Contract of Lease/Purchase to the appellants, together with the plaintiffs heirs of Thomas distinct T.C.T. over the herein leased portion
Heirs of Thomas and Paula Cruz, and to pay and Paula Cruz, namely Ricardo A. Cruz, to the LESSEE within a reasonable period of
to the appellants the following amounts: Carmelita M. Cruz, Salome A Cruz, Irenea C. time which shall not in any case exceed four
Victoria, Leticia C. Salvador and Elena C. (4) years, after which a new Contract shall be
Talens, entered into a Contract of executed by the herein parties which shall be
1. P15,000.00 per annum as rentals counted
Lease/Purchase with the defendant, Felix L. the same in all respects with this Contract of
from December 1, 1984 until the appellants
Gonzales, the sole proprietor and manager of
shall have recovered possession of the
102
Lease/Purchase insofar as the terms and before the barangay, a certification allowing damages, as well as litigation expenses (pp.
conditions are concerned. the case to be brought to Court was issued on 19-22, Records).
March 18, 1987 (Exhibit E; p. 165, Records).
(Exhibits A, A-1; pp. 157-158. Records) The defendant Sambrano was, upon motion,
The lessor, Paula Año Cruz died the following declared in default for failure to file an answer
The defendant Gonzales paid the P2,500.00 day, March 19, 1987 (p. 9, TSN, September despite valid service of summons (p. 30,
per hectare of P15,000.00 annual rental on 14, 1989). Records).
the half-portion of the property covered by
Transfer Certificate of Title No. 12111 in A final demand letter to vacate the premises The parties limited the issues to be resolved
accordance with the second provision of the was sent by the remaining lessors who are to:
Contract of Lease/Purchase (p. 12, TSN, also the heirs of the deceased lessor Paula
September 14, 1989) and thereafter took Año Cruz, through their counsel on August 24, (1) Whether or not paragraph 9 of the contract
possession of the property, installing thereon 1987 which the defendant Gonzales received is a condition precedent before the defendant
the defendant Jesus Sambrano as his but did not heed (Exhibits D and D-1; pp. 163- is to pay the down payment;
caretaker (pp. 16-17, 27 TSN, December 12, 164, Records).
1989). The defendant Gonzales did not, (2) Whether or not plaintiffs can rescind the
however, exercise his option to purchase the The property subject of the Contract of Contract of Lease/Purchase; and
property immediately after the expiration of Lease/Purchase is currently the subject of an
the one-year lease on November 30, 1984 Extra-Judicial Partition (Exhibits G and G-1; (3) Whether or not plaintiffs can terminate the
(pp. 19-20, TSN, September 14, 1989). He pp. 168-169, Records). Title to the property Contract of Lease. (p. 4, Decision; p. 262,
remained in possession of the property remains in the name of the plaintiffs' Records).
without paying the purchase price provided for predecessors-in-interest, Bernardina Calixto
in the Contract of Lease/Purchase (Ibid.) and and Severo Cruz (Exhibit B; p. 160, Records).
without paying any further rentals thereon (p. After the termination of the pre-trial
36, TSN, November 7, 1989). conference, the trial court proceeded to hear
Alleging breach of the provisions of the the case on the merits and arrived at its
Contract of Lease/Purchase, the plaintiffs filed appealed decision based on the following
A letter was sent by one of the plaintiffs-heirs a complaint for recovery of possession of the findings and conclusions:
Ricardo Cruz to the defendant Gonzales property — subject of the contract with
informing him of the lessors' decision to damages, both moral and compensatory and
rescind the Contract of Lease/Purchase due Paragraph 9 of the contract clearly indicates
attorney's fees and litigation expenses (p. 3,
to a breach thereof committed by the that the lessors-plaintiffs shall obtain a
Records).
defendant (Exhibit C; p. 162, Records) The Transfer Certificate of Title in the name of the
letter also served as a demand on the lessee within 4 years before a new contract is
Alleging breach of paragraph nine of the to be entered into under the same terms and
defendant to vacate the premises within 10 Contract of Lease/Purchase, and payment of
days from receipt of said letter (Ibid.). conditions as the original Contract of
only P50,000.00 of the P500,000.00 agreed Lease/Purchase. Thus, before a deed of Sale
down payment on the purchase price of can be entered into between the plaintiffs and
The defendant Gonzales refused to vacate the P1,000,000.00, the defendant Gonzales filed the defendant, the plaintiffs have to obtain the
property and continued possession thereof (p. his answer on November 23, 1987 praying for Transfer Certificate of Title in favor of the
2, Record). The matter was therefore brought a dismissal of the complaint filed against him defendant. Article 1181 of the New Civil Code
before the barangay captain of San Isidro, but and an award of moral, exemplary and actual states that: "In conditional obligations, the
owing to the defendant's refusal to appear
acquisition of rights, as well as the
103
extinguishment or loss of those already encumbrances, as the Extra-Judicial Partition for the second year of the lease. If one has to
acquired, shall depend upon the happening of dated July 17, 1989 was being processed, consider the fact that the defendant was given
the event which constitutes the condition." and continues to be in process to this date. the option to purchase the property after two
When the obligation assumed by a party to a The failure to secure the Transfer Certificate years, then, the lease would presumably run
contract is expressly subjected to a condition, of Title in favor of the defendant entitles not for at least two years. If that is so, then, the
the obligation cannot be enforced against him the plaintiffs but, rather, the defendant to demand was made seven months after the
unless the condition is complied with (Wise & either rescind or to ask for specific expiration of the two-year lease. Still, this
Co. vs. Kelly, 37 Phil. 695; PNB vs. Philippine performances. demand by the plaintiffs will come under the
Trust Co., 68. Phil. 48). implied new lease of Articles 1682 and 1670
Are the plaintiffs entitled to terminate the so that the plaintiffs are not entitled to
The failure of the plaintiffs to secure the Contract of Lease? Article 1670 of the New terminate the Contract of Lease.
Transfer Certificate of Title, as provided for in Civil Code states that:
the contract, does not entitle them to rescind In sum, the plaintiffs cannot terminate the
the contract[.] Article 1191 of the New Civil If at the end of the contract the lessee should Contract of Lease due to their failure to notify
Code states that: "The power to rescind continue enjoying the thing leased for fifteen the defendant in due time of their intention to
obligations is implied in reciprocal ones, in days with the acquies[c]ence of the lessor and that effect. Nor can they rescind the Contract
case one of the obligers should not comply unless a notice to the contrary by either party of Purchase in view of the fact that there is a
with what is incumbent upon him. The injured has previously been given, it is understood condition precedent which the plaintiffs have
party may choose between the fulfillment of that there is an implied new lease, not for the not fulfilled. It is the defendant now who has
the obligation, with the payment of damages period of the original contract, but for the time the option to either rescind or demand the
in either case. He may seek rescission, even established in Articles 1682 and 1687. The performance of the contract. Moreover,
after he has chosen fulfillment, if the latter other terms of the original contract shall be according to Article 1654 of the New Civil
should become impossible. . . ." The power to revived. Code, the lessor is obliged to deliver the thing
rescind is given to the injured party. Where which is the object of the contract in such
the plaintiff is the party who did not perform, Article 1682 of the New Civil Code states that: condition as to render it fit for the use
he is not entitled to insist upon the intended. Considering that the lessors-
performance of the contract by the defendant plaintiffs have not delivered the property in
The lease of a piece of rural land, when its
or recover damages by reason of his own whole over the protest of the defendant, the
duration has not been fixed, is understood to
breach (Mateos vs. Lopez, 6 Phil. 206; Borque latter suffered damages therefor. (p. 4-6,
have been made for all the time necessary for
vs. Yu Chipco, 14 Phil. 95). An action for Decision; pp. 262-264, Records)
the gathering of the fruits which the whole
specific performance of a contract is an
estate leased may yield in one year, or which
equitable proceeding, and he who seeks to Their complaint thus dismissed, the plaintiffs,
it may yield once, although two or more years
enforce it must himself be fair and reasonable, now appellants, assign the trial court of having
may have to elapse for the purpose.
and do equity (Seva vs. Berwin, 48 Phil. 581). committed the following errors:
In this case, plaintiffs failed to comply with the
conditions precedent after 2-1/2 years from The plaintiffs filed the complaint on October
12, 1987 after making an extra-judicial I
the execution of the contract so as to entitle
them to rescind the contract. Although the demand on July 2, 1986. The contract was
entered into on December 1, 1983. The THE TRIAL COURT GRAVELY ERRED IN
contract stated that the same be done within 4
demand was thus made more than a year and HOLDING THAT PLAINTIFFS-APPELLANTS
years from execution, still, the defendant has
a half from the expiry date of the original lease COULD NOT VALIDLY RESCIND AND
to be assured that the land subject of the case
considering that there was no payment made TERMINATE THE LEASE/PURCHASE
will be transferred in his name without any
104
CONTRACT (EXHIBIT "A") AND Upon the expiration of the lease, the lessee Attributing reversible errors to the appellate
THEREAFTER TO TAKE POSSESSION OF shall purchase the property. Besides, the court, petitioner elevated the case to this
THE LAND IN QUESTION AND EJECT normal course of things anent the sale of real Court. 7
THEREFROM DEFENDANTS-APPELLEES. properties dictates that there must first be
payment of the agreed purchase The Issues
II price before transfer of title to the vendee's
name can be made. In his Memorandum, 8 petitioner submits the
THE TRIAL COURT EQUALLY ERRED IN "following main issues":
NOT GRANTING THE RELIEFS PLEADED This was precisely what the appellants and
AND PRAYED FOR BY PLAINTIFFS- Paula Año Cruz had in mind when they had I. Whether or not the Court of Appeals has
APPELLANTS IN THEIR COMPLAINT. (p. the ninth provision incorporated in the gravely erred and committed grave abuse of
42, Rollo) Contract of Lease/Purchase. They had asked discretion in the interpretation of [the] law
for a period of 4 years from the time they between the parties.
The case was submitted for decision without receive the downpayment of 50% within which
the appellee's brief as per the Court's to have [the] title to the property transferred in
II. Whether or not the Court of Appeals
resolution dated July 8, 1992 (p. 71, Rollo). the name of the appellee The reason for this
committed serious mistakes in the finding of
four (4) year period is [that] title to the property
facts which resulted [in] departing from the
still remains in the name of the original
Ruling of the Court of Appeals usual course of judicial proceedings.
owners, the predecessors-in-interest of the
herein appellants and [transferring] the title to
The Court of Appeals reversed the trial court their names and eventually to the lessee- For these issues to be resolved, petitioner
in this wise: purchaser, appellee herein, would take quite asks this Court to answer the following
some time. questions:
The trial court, in its decision interpreted the
ninth provision of the Contract of The appellee wanted to have the title to the 1. Is there a conflict between the statement in
Lease/Purchase to mean that before the property transferred in his name first before paragraph 1 of the Lease/Purchase Contract
appellee exercises his option to purchase the he exercises his option to purchase allegedly and that [in] paragraph No. 9 thereof?
property by paying the 50% plus interest on in accordance with the ninth provision of the
the P1,000,000.00 purchase price, the contract. But the ninth provision does not give 2. Is paragraph 9 of the Lease/Purchase
appellants must first transfer the title to the him this right. A reading of the contract in its Contract a condition precedent before
property in the appellee's name. The Court entirety shows that the 4 year period asked for petitioner could exercise his option to buy the
finds this interpretation of the provision by the appellants within which to have title to property?
strained if not altogether absurd. The transfer the property transferred in the appellee's
of title to the property in the appellee's name name will only start to run when the appellee 3. Can plaintiff rescind or terminate the
cannot be interpreted as a condition exercises his option to purchase. Since the Contract of Lease after the one-year period?
precedent to the payment of the agreed appellee never exercised his option to
purchase price because such interpretation purchase, then appellee is not entitled to have In fine, the resolution of this case depends
not only runs counter [to] the explicit the title to the property transferred in his upon the proper interpretation of paragraph
provisions of the contract but also is contrary name. nine of the Contract.
to the normal course of things anent the sale
of real properties. The terms of the contract
[are] explicit and require no interpretation. The Court's Ruling

105
The Petition is meritorious. invitation to a litigation, as in fact the parties registered in the name of Bernardina Calixto
had to go all to way up to this Court to plead and Severo Cruz, respondents' predecessors-
Main Issue: for a resolution of their conflict which is rooted in-interest. There is no showing whether
in their failure to express themselves clearly. respondents were the only heirs of Severo
Interpretation of Paragraph Nine Small wonder, even the two lower courts gave Cruz or whether the other half of the land in
contradictory understanding of this provision, the name of Bernardina Calixto was
thereby necessitating the intervention of the adjudicated to them by any means. In fact,
In its first paragraph, the disputed agreement
highest court of the land. they admit that extrajudicial proceedings were
provides that petitioner shall lease the
still ongoing. Hence, when the Contract of
property for one year, after which he "shall
Both the trial court: and the Court of Appeals Lease/Purchase was executed, there was no
purchase" it. Paragraph nine, on the other
(CA) interpreted this provision to mean that assurance that the respondents were indeed
hand, requires herein respondents to obtain a
the respondents had obliged themselves to the owners of the specific portion of the lot
separate and distinct Transfer Certificate of
obtain a TCT in the name of petitioner-lessee. that petitioner wanted to buy, and if so, in
Title (TCT) over the property, viz.:
The trial court held that this obligation was a what concept and to what extent.
condition precedent to petitioner's purchase of
9. The LESSORS hereby commit themselves
the property. Since respondents had not Thus, the clear intent of the ninth paragraph
and shall undertake to obtain a separate and
performed their obligation, they could not was for respondents to obtain a separate and
distinct T.C.T. over the lease portion to the
compel petitioner to buy the parcel of land. distinct TCT in their names. This was
LESSEE within a reasonable period of time
The CA took the opposite view, holding that necessary to enable them to show their
which shall not in any case exceed four (4)
the property should be purchased first before ownership of the stipulated portion of the land
years, after which a new Contract shall be
respondents may be obliged to obtain a TCT and their concomitant right to dispose of it.
executed by the herein parties which shall be
in the name of petitioner-lessee-buyer. Absent any title in their names, they could not
the same in all respects with this Contract of
have sold the disputed parcel of land.
Lease/Purchase insofar as the terms and
conditions are concerned. As earlier noted, petitioner disagrees with the
interpretation of the two courts and maintains It is well-settled principle in law that no one
that respondents were obligated to procure a can five what one does not have — nemo dat
Alleging that petitioner has not purchased the
TCT in their names before he could be obliged quod non habet. Accordingly, one can sell
property after the lapse of one year,
to purchase the property in question. only what one owns or is authorized to sell,
respondents seek to rescind the Contract and
and the buyer can acquire no more than what
to recover the property. Petitioner, on the
Basic is the rule in the interpretation of the seller can transfer legally. 10
other hand, argues that he could not be
compelled to purchase the property, because contracts that if some stipulation therein
respondents have not complied with should admit of several meanings, it shall be Because the property remained registered in
paragraph nine, which obligates them to understood as bearing that import most the names of their predecessors-in-interest,
obtain a separate and distinct title adequate to render it effectual. 9 Considering private respondents could validly sell only
in their names. He contends that paragraph the antecedents of the ownership of the their undivided interest in the estate of Severo
nine was a condition precedent to the disputed lot, it appears that petitioner's Cruz, the extent of which was however not
purchase of the property. interpretation renders clause nine most shown in the records. There being no partition
effectual. of the estate thus, far, there was no guarantee
as to how much and which portion would be
To be sure, this paragraph — and the entire
The record shows that at the time the contract adjudicated to respondents.
agreement, for that matter — is not a model of
how a contract should be worded. It is an was executed, the land in question was still

106
In a contract of sale, the title to the property nine, which should purportedly read as petitioner is given time to purchase and pay
passes to the vendee upon the delivery of the follows: "The lessors . . . shall undertake to for the property.
thing sold. 11 In this case, the respondent obtain a separate and distinct TCT . . . to the
could not deliver ownership or title to LESSEE within a reasonable period of time Respondents insist that "the obligation of
a specific portion of the yet undivided which shall not in any case exceed four (4) petitioner to buy the disputed land
property. True, they could have intended to years . . .. " Read in its entirety, however, immediately after the termination of the one
sell their hereditary interest, but in the context paragraph nine does not say that the TCT year lease period is
of the Contract of Lease/Purchase, the parties should be obtain in the name of the lessee. In explicit." 12 However, it is more reasonable to
under paragraph nine wanted the specific fact, paragraph nine requires respondents to state that the first paragraph was effectively
portion of the land to be segregated, identified obtain a "TCT over the herein leased portion modified by the ninth. To repeat, petitioner
and specifically titled. Hence, by the said to the LESSEE," thereby showing that the can be compelled to perform his obligation
Contract, the respondents as sellers were crucial phrase "to the LESSEE" adverts to "the under the first paragraph, only after
given a maximum of four years within which to leased portion" and not to the name which respondents have complied with the ninth.
acquire a separate TCT in their names, should appear in the new TCT. Unless and until respondents have done so,
preparatory to the execution of the deed of the first paragraph cannot be enforced against
sale and the payment of the agreed price in Furthermore, the CA interpretation ignores the the petitioner.
the manner described in paragraph nine. other part of paragraph nine, stating that after
a separate TCT had been obtained, "a new In sum, we hold that the ninth provision was
This interpretation is bolstered by the P50,000 contract shall be executed by the herein intended to ensure that respondents would
petitioner advanced to respondents in order to parties which shall be the same in all respects have a valid title over the specific portion they
help them expedite the transfer of the TCT to with this Contract of Lease/Purchase insofar were selling to petitioner. Only after the title is
their names. Ineluctably, the intention of the as the terms and conditions are concerned." assured may the obligation to buy the land
parties was to have the title transferred first to and to pay the sums stated in the Contract be
respondents' names as a condition for the If, as the CA held, petitioner should purchase enforced within the period stipulated. Verily,
completion of the purchase. the property first before the title can be the petitioner's obligation to purchase has not
transferred to his name, why should there be yet ripened and cannot be enforced until and
In holding that clause nine was not a condition a waiting period of four years before the unless respondents can prove their title to the
precedent to the purchase of the property, the parties can execute the new contract property subject of the Contract.
CA relied on a literal interpretation to the evidencing the sale? Why should the
effect that the TCT should be obtained in the petitioner still be required to pay rentals after it Secondary Issues
name of the petitioner-vendee. It reasoned purchases and pays for the property? The
that the title could be transferred to the name Contract could not have envisioned this Ninth Clause Was
of the buyer only after the completion of the absurd scenario.
purchase. Thus, petitioner should first
a Condition Precedent
purchase the property before respondents Clearly, the appellate court's literal
could be obliged to transfer the TCT to his interpretation of the first portion of paragraph
name. Because the ninth clause required
nine renders the latter portion thereof
respondents to obtain a separate and distinct
ineffectual. In other words, that portion can
TCT in their names and not in the name of
We disagree. The literal interpretation not only only mean that the respondents should first
petitioner, it logically follows that such
ignores the factual backdrop of the case; it obtain a TCT in their names, after which
undertaking was a condition precedent to the
also utilizes a faulty parsing of paragraph
latter's obligation to purchase and pay for the
107
land. Put differently, petitioner's obligation to Rescind the Contract
purchase the land is a conditional one and is
governed by Article 1181 of the Civil In the same vein, respondents cannot rescind
Code. 13 the contract, they have not caused the
transfer of the TCT to their names, which is a
Condition has been defined as "every future condition precedent to petitioner's obligation.
and uncertain event upon which an obligation This Court has held that "there can be no
or provision is made to depend. It is a future rescission (or more properly, resolution) of an
and uncertain event upon which the obligation as yet non-existent, because the
acquisition or resolution of rights is made to suspensive condition has not happened." 18
depend by those who execute the juridical
act." 14 Without it, the sale of the property Since the reversal of the CA Decision is
under the Contract cannot be perfected, and inevitable, the trial court's judgment should be
petitioner cannot be obliged to purchase the reinstated. However, we find no sufficient
property. "When the consent of a party to a factual or legal justifications for the award of
contract is given subject to the fulfillment of a moral damages and attorney's fees.
suspensive condition, the contract is not
perfected unless that condition is first WHEREFORE, the petition is GRANTED and
complied with." 15 the appealed Decision is REVERSED and
SET ASIDE. The Decision of the trial court is
The Court has held that "[w]hen the obligation REINSTATED, but the award of moral
assumed by a party to a contract is expressly damages and attorney's fees is DELETED for
subjected to a condition, the obligation cannot lack of basis. No costs.
be enforced against him unless the condition
is complied with." 16 Furthermore, "[t]he SO ORDERED.
obligatory force of a conditional obligation is
subordinated to the happening of a future and
uncertain event, so that if that event does not
take place, the parties would stand as if the
conditional obligation had never existed." 17

In this case, the obligation of the petitioner to

buy the land cannot be enforced unless
respondents comply with the suspensive
condition that they acquire first a separate and
distinct TCT in their names. The suspensive
condition not having been fulfilled, then the
obligation of the petitioner to purchase the
land has not arisen.

Respondents Cannot

108
G.R. No. 103577 October 7, 1996 P1,240,000.00 — Total 3. Upon the transfer in their names of the
amount subject property, the Coronels will execute the
ROMULO A. CORONEL, ALARICO A. deed of absolute sale in favor of Ramona and
CORONEL, ANNETTE A. CORONEL, 50,000 — Down payment the latter will pay the former the whole
ANNABELLE C. GONZALES (for herself ——————————— balance of One Million One Hundred Ninety
and on behalf of Florida C. Tupper, as P1,190,000.00 — Balance Thousand (P1,190,000.00) Pesos.
attorney-in-fact), CIELITO A. CORONEL,
FLORAIDA A. ALMONTE, and CATALINA Received from Miss Ramona Patricia Alcaraz On the same date (January 15, 1985),
BALAIS MABANAG, petitioners, of 146 Timog, Quezon City, the sum of Fifty plaintiff-appellee Concepcion D. Alcaraz
vs. Thousand Pesos purchase price of our (hereinafter referred to as Concepcion),
THE COURT OF APPEALS, CONCEPCION inherited house and lot, covered by TCT No. mother of Ramona, paid the down payment of
D. ALCARAZ, and RAMONA PATRICIA 119627 of the Registry of Deeds of Quezon Fifty Thousand (P50,000.00) Pesos (Exh. "B",
ALCARAZ, assisted by GLORIA F. NOEL City, in the total amount of P1,240,000.00. Exh. "2").
as attorney-in-fact, respondents.
We bind ourselves to effect the transfer in our On February 6, 1985, the property originally
MELO, J.:p names from our deceased father, Constancio registered in the name of the Coronels' father
P. Coronel, the transfer certificate of title was transferred in their names under TCT
The petition before us has its roots in a immediately upon receipt of the down No. 327043 (Exh. "D"; Exh. "4")
complaint for specific performance to compel payment above-stated.
herein petitioners (except the last named, On February 18, 1985, the Coronels sold the
Catalina Balais Mabanag) to consummate the On our presentation of the TCT already in or property covered by TCT No. 327043 to
sale of a parcel of land with its improvements name, We will immediately execute the deed intervenor-appellant Catalina B. Mabanag
located along Roosevelt Avenue in Quezon of absolute sale of said property and Miss (hereinafter referred to as Catalina) for One
City entered into by the parties sometime in Ramona Patricia Alcaraz shall immediately Million Five Hundred Eighty Thousand
January 1985 for the price of P1,240,000.00. pay the balance of the P1,190,000.00. (P1,580,000.00) Pesos after the latter has
paid Three Hundred Thousand (P300,000.00)
The undisputed facts of the case were Clearly, the conditions appurtenant to the sale Pesos (Exhs. "F-3"; Exh. "6-C")
summarized by respondent court in this wise: are the following:
For this reason, Coronels canceled and
On January 19, 1985, defendants-appellants 1. Ramona will make a down payment of Fifty rescinded the contract (Exh. "A") with Ramona
Romulo Coronel, et al. (hereinafter referred to Thousand (P50,000.00) Pesos upon by depositing the down payment paid by
as Coronels) executed a document entitled execution of the document aforestated; Concepcion in the bank in trust for Ramona
"Receipt of Down Payment" (Exh. "A") in favor Patricia Alcaraz.
of plaintiff Ramona Patricia Alcaraz 2. The Coronels will cause the transfer in their
(hereinafter referred to as Ramona) which is names of the title of the property registered in On February 22, 1985, Concepcion, et al.,
reproduced hereunder: the name of their deceased father upon filed a complaint for specific performance
receipt of the Fifty Thousand (P50,000.00) against the Coronels and caused the
RECEIPT OF DOWN Pesos down payment; annotation of a notice of lis pendens at the
PAYMENT back of TCT No. 327403 (Exh. "E"; Exh. "5").

109
On April 2, 1985, Catalina caused the March 1, 1989, judgment was handed down (Rollo, p. 106)
annotation of a notice of adverse claim by Judge Roura from his regular bench at
covering the same property with the Registry Macabebe, Pampanga for the Quezon City A motion for reconsideration was filed by
of Deeds of Quezon City (Exh. "F"; Exh. "6"). branch, disposing as follows: petitioner before the new presiding judge of
the Quezon City RTC but the same was
On April 25, 1985, the Coronels executed a WHEREFORE, judgment for specific denied by Judge Estrella T. Estrada, thusly:
Deed of Absolute Sale over the subject performance is hereby rendered ordering
property in favor of Catalina (Exh. "G"; Exh. defendant to execute in favor of plaintiffs a The prayer contained in the instant
"7"). deed of absolute sale covering that parcel of motion, i.e., to annul the decision and to
land embraced in and covered by Transfer render anew decision by the undersigned
On June 5, 1985, a new title over the subject Certificate of Title No. 327403 (now TCT No. Presiding Judge should be denied for the
property was issued in the name of Catalina 331582) of the Registry of Deeds for Quezon following reasons: (1) The instant case
under TCT No. 351582 (Exh. "H"; Exh. "8"). City, together with all the improvements became submitted for decision as of April 14,
existing thereon free from all liens and 1988 when the parties terminated the
(Rollo, pp. 134-136) encumbrances, and once accomplished, to presentation of their respective documentary
immediately deliver the said document of sale evidence and when the Presiding Judge at
to plaintiffs and upon receipt thereof, the said that time was Judge Reynaldo Roura. The fact
In the course of the proceedings before the
document of sale to plaintiffs and upon receipt that they were allowed to file memoranda at
trial court (Branch 83, RTC, Quezon City) the
thereof, the plaintiffs are ordered to pay some future date did not change the fact that
parties agreed to submit the case for decision
defendants the whole balance of the purchase the hearing of the case was terminated before
solely on the basis of documentary exhibits.
price amounting to P1,190,000.00 in cash. Judge Roura and therefore the same should
Thus, plaintiffs therein (now private
Transfer Certificate of Title No. 331582 of the be submitted to him for decision; (2) When the
respondents) proffered their documentary
Registry of Deeds for Quezon City in the defendants and intervenor did not object to
evidence accordingly marked as Exhibits "A"
name of intervenor is hereby canceled and the authority of Judge Reynaldo Roura to
through "J", inclusive of their corresponding
declared to be without force and effect. decide the case prior to the rendition of the
submarkings. Adopting these same exhibits
Defendants and intervenor and all other decision, when they met for the first time
as their own, then defendants (now
persons claiming under them are hereby before the undersigned Presiding Judge at the
petitioners) accordingly offered and marked
ordered to vacate the subject property and hearing of a pending incident in Civil Case No.
them as Exhibits "1" through "10", likewise
deliver possession thereof to plaintiffs. Q-46145 on November 11, 1988, they were
inclusive of their corresponding submarkings.
Plaintiffs' claim for damages and attorney's deemed to have acquiesced thereto and they
Upon motion of the parties, the trial court gave
fees, as well as the counterclaims of are now estopped from questioning said
them thirty (30) days within which to
defendants and intervenors are hereby authority of Judge Roura after they received
simultaneously submit their respective
dismissed. the decision in question which happens to be
memoranda, and an additional 15 days within
which to submit their corresponding comment adverse to them; (3) While it is true that Judge
or reply thereof, after which, the case would No pronouncement as to costs. Reynaldo Roura was merely a Judge-on-detail
be deemed submitted for resolution. at this Branch of the Court, he was in all
So Ordered. respects the Presiding Judge with full
authority to act on any pending incident
On April 14, 1988, the case was submitted for
Macabebe, Pampanga for Quezon City, submitted before this Court during his
resolution before Judge Reynaldo Roura, who
March 1, 1989. incumbency. When he returned to his Official
was then temporarily detailed to preside over
Station at Macabebe, Pampanga, he did not
Branch 82 of the RTC of Quezon City. On
110
lose his authority to decide or resolve such Hence, the instant petition which was filed on mere executory contract to sell, subject to
cases submitted to him for decision or March 5, 1992. The last pleading, private certain suspensive conditions, and because of
resolution because he continued as Judge of respondents' Reply Memorandum, was filed the absence of Ramona P. Alcaraz, who left
the Regional Trial Court and is of co-equal on September 15, 1993. The case was, for the United States of America, said contract
rank with the undersigned Presiding Judge. however, re-raffled to could not possibly ripen into a contract
The standing rule and supported by undersigned ponente only on August 28, absolute sale.
jurisprudence is that a Judge to whom a case 1996, due to the voluntary inhibition of the
is submitted for decision has the authority to Justice to whom the case was last assigned. Plainly, such variance in the contending
decide the case notwithstanding his transfer to parties' contentions is brought about by the
another branch or region of the same court While we deem it necessary to introduce way each interprets the terms and/or
(Sec. 9, Rule 135, Rule of Court). certain refinements in the disquisition of conditions set forth in said private instrument.
respondent court in the affirmance of the trial Withal, based on whatever relevant and
Coming now to the twin prayer for court's decision, we definitely find the instant admissible evidence may be available on
reconsideration of the Decision dated March petition bereft of merit. record, this, Court, as were the courts below,
1, 1989 rendered in the instant case, is now called upon to adjudge what the real
resolution of which now pertains to the The heart of the controversy which is the intent of the parties was at the time the said
undersigned Presiding Judge, after a ultimate key in the resolution of the other document was executed.
meticulous examination of the documentary issues in the case at bar is the precise
evidence presented by the parties, she is determination of the legal significance of the The Civil Code defines a contract of sale,
convinced that the Decision of March 1, 1989 document entitled "Receipt of Down Payment" thus:
is supported by evidence and, therefore, which was offered in evidence by both parties.
should not be disturbed. There is no dispute as to the fact that said Art. 1458. By the contract of sale one of the
document embodied the binding contract contracting parties obligates himself to
IN VIEW OF THE FOREGOING, the "Motion between Ramona Patricia Alcaraz on the one transfer the ownership of and to deliver a
for Reconsideration and/or to Annul Decision hand, and the heirs of Constancio P. Coronel determinate thing, and the other to pay
and Render Anew Decision by the Incumbent on the other, pertaining to a particular house therefor a price certain in money or its
Presiding Judge" dated March 20, 1989 is and lot covered by TCT No. 119627, as equivalent.
hereby DENIED. defined in Article 1305 of the Civil Code of the
Philippines which reads as follows: Sale, by its very nature, is a consensual
SO ORDERED. contract because it is perfected by mere
Art. 1305. A contract is a meeting of minds consent. The essential elements of a contract
Quezon City, Philippines, July 12, 1989. between two persons whereby one binds of sale are the following:
himself, with respect to the other, to give
(Rollo, pp. 108-109) something or to render some service. a) Consent or meeting of the minds, that is,
consent to transfer ownership in exchange for
Petitioners thereupon interposed an appeal, While, it is the position of private respondents the price;
but on December 16, 1991, the Court of that the "Receipt of Down Payment" embodied
Appeals (Buena, Gonzaga-Reyes, Abad a perfected contract of sale, which perforce, b) Determinate subject matter; and
Santos (P), JJ.) rendered its decision fully they seek to enforce by means of an action for
agreeing with the trial court. specific performance, petitioners on their part
c) Price certain in money or its equivalent.
insist that what the document signified was a

111
Under this definition, a Contract to Sell may provided in Article 1479 of the Civil Code automatically transfers to the buyer by
not be considered as a Contract of Sale which states: operation of law without any further act having
because the first essential element is lacking. to be performed by the seller.
In a contract to sell, the prospective seller Art. 1479. A promise to buy and sell a
explicity reserves the transfer of title to the determinate thing for a price certain is In a contract to sell, upon the fulfillment of the
prospective buyer, meaning, the prospective reciprocally demandable. suspensive condition which is the full payment
seller does not as yet agree or consent to of the purchase price, ownership will not
transfer ownership of the property subject of An accepted unilateral promise to buy or to automatically transfer to the buyer although
the contract to sell until the happening of an sell a determinate thing for a price certain is the property may have been previously
event, which for present purposes we shall binding upon the promissor if the promise is delivered to him. The prospective seller still
take as the full payment of the purchase price. supported by a consideration distinct from the has to convey title to the prospective buyer by
What the seller agrees or obliges himself to do price. entering into a contract of absolute sale.
is to fulfill is promise to sell the subject
property when the entire amount of the It is essential to distinguish between a
A contract to sell may thus be defined as a
purchase price is delivered to him. In other contract to sell and a conditional contract of
bilateral contract whereby the prospective
words the full payment of the purchase price sale specially in cases where the subject
seller, while expressly reserving the
partakes of a suspensive condition, the non- property is sold by the owner not to the party
ownership of the subject property despite
fulfillment of which prevents the obligation to the seller contracted with, but to a third
delivery thereof to the prospective buyer,
sell from arising and thus, ownership is person, as in the case at bench. In a contract
binds himself to sell the said property
retained by the prospective seller without to sell, there being no previous sale of the
exclusively to the prospective buyer upon
further remedies by the prospective buyer. property, a third person buying such property
fulfillment of the condition agreed upon, that
In Roque vs. Lapuz (96 SCRA 741 [1980]), despite the fulfillment of the suspensive
is, full payment of the purchase price.
this Court had occasion to rule: condition such as the full payment of the
A contract to sell as defined hereinabove, may purchase price, for instance, cannot be
Hence, We hold that the contract between the deemed a buyer in bad faith and the
not even be considered as a conditional
petitioner and the respondent was a contract prospective buyer cannot seek the relief of
contract of sale where the seller may likewise
to sell where the ownership or title is retained reconveyance of the property. There is no
reserve title to the property subject of the sale
by the seller and is not to pass until the full double sale in such case. Title to the property
until the fulfillment of a suspensive condition,
payment of the price, such payment being a will transfer to the buyer after registration
because in a conditional contract of sale, the
positive suspensive condition and failure of because there is no defect in the owner-
first element of consent is present, although it
which is not a breach, casual or serious, but seller's title per se, but the latter, of course,
is conditioned upon the happening of a
simply an event that prevented the obligation may be used for damages by the intending
contingent event which may or may not occur.
of the vendor to convey title from acquiring buyer.
If the suspensive condition is not fulfilled, the
binding force.
perfection of the contract of sale is completely
abated (cf. Homesite and housing Corp. vs. In a conditional contract of sale, however,
Stated positively, upon the fulfillment of the Court of Appeals, 133 SCRA 777 [1984]). upon the fulfillment of the suspensive
suspensive condition which is the full payment However, if the suspensive condition is condition, the sale becomes absolute and this
of the purchase price, the prospective seller's fulfilled, the contract of sale is thereby will definitely affect the seller's title thereto. In
obligation to sell the subject property by perfected, such that if there had already been fact, if there had been previous delivery of the
entering into a contract of sale with the previous delivery of the property subject of the subject property, the seller's ownership or title
prospective buyer becomes demandable as sale to the buyer, ownership thereto to the property is automatically transferred to

112
the buyer such that, the seller will no longer manifest that there was a clear intent on the already agreed to sell the subject property,
have any title to transfer to any third person. part of petitioners to transfer title to the buyer, they undertook to have the certificate of title
Applying Article 1544 of the Civil Code, such but since the transfer certificate of title was changed to their names and immediately
second buyer of the property who may have still in the name of petitioner's father, they thereafter, to execute the written deed of
had actual or constructive knowledge of such could not fully effect such transfer although absolute sale.
defect in the seller's title, or at least was the buyer was then willing and able to
charged with the obligation to discover such immediately pay the purchase price. Thus, the parties did not merely enter into a
defect, cannot be a registrant in good faith. Therefore, petitioners-sellers undertook upon contract to sell where the sellers, after
Such second buyer cannot defeat the first receipt of the down payment from private compliance by the buyer with certain terms
buyer's title. In case a title is issued to the respondent Ramona P. Alcaraz, to cause the and conditions, promised to sell the property
second buyer, the first buyer may seek issuance of a new certificate of title in their to the latter. What may be perceived from the
reconveyance of the property subject of the names from that of their father, after which, respective undertakings of the parties to the
sale. they promised to present said title, now in contract is that petitioners had already agreed
their names, to the latter and to execute the to sell the house and lot they inherited from
With the above postulates as guidelines, we deed of absolute sale whereupon, the latter their father, completely willing to transfer full
now proceed to the task of deciphering the shall, in turn, pay the entire balance of the ownership of the subject house and lot to the
real nature of the contract entered into by purchase price. buyer if the documents were then in order. It
petitioners and private respondents. just happened, however, that the transfer
The agreement could not have been a certificate of title was then still in the name of
It is a canon in the interpretation of contracts contract to sell because the sellers herein their father. It was more expedient to first
that the words used therein should be given made no express reservation of ownership or effect the change in the certificate of title so as
their natural and ordinary meaning unless a title to the subject parcel of land. Furthermore, to bear their names. That is why they
technical meaning was intended (Tan vs. the circumstance which prevented the parties undertook to cause the issuance of a new
Court of Appeals, 212 SCRA 586 [1992]). from entering into an absolute contract of sale transfer of the certificate of title in their names
Thus, when petitioners declared in the said pertained to the sellers themselves (the upon receipt of the down payment in the
"Receipt of Down Payment" that they — certificate of title was not in their names) and amount of P50,000.00. As soon as the new
not the full payment of the purchase price. certificate of title is issued in their names,
Received from Miss Ramona Patricia Alcaraz Under the established facts and petitioners were committed to immediately
of 146 Timog, Quezon City, the sum of Fifty circumstances of the case, the Court may execute the deed of absolute sale. Only then
Thousand Pesos purchase price of our safely presume that, had the certificate of title will the obligation of the buyer to pay the
inherited house and lot, covered by TCT No. been in the names of petitioners-sellers at that remainder of the purchase price arise.
1199627 of the Registry of Deeds of Quezon time, there would have been no reason why
City, in the total amount of P1,240,000.00. an absolute contract of sale could not have There is no doubt that unlike in a contract to
been executed and consummated right there sell which is most commonly entered into so
and then. as to protect the seller against a buyer who
without any reservation of title until full
payment of the entire purchase price, the intends to buy the property in installment by
natural and ordinary idea conveyed is that Moreover, unlike in a contract to sell, withholding ownership over the property until
they sold their property. petitioners in the case at bar did not merely the buyer effects full payment therefor, in the
promise to sell the properly to private contract entered into in the case at bar, the
respondent upon the fulfillment of the sellers were the one who were unable to enter
When the "Receipt of Down Payment" is
suspensive condition. On the contrary, having into a contract of absolute sale by reason of
considered in its entirety, it becomes more
113
the fact that the certificate of title to the From the moment, the parties may Petitioners themselves recognized that they
property was still in the name of their father. It reciprocally demand performance, subject to entered into a contract of sale subject to a
was the sellers in this case who, as it were, the provisions of the law governing the form of suspensive condition. Only, they contend,
had the impediment which prevented, so to contracts. continuing in the same paragraph, that:
speak, the execution of an contract of
absolute sale. Art. 1181. In conditional obligations, the . . . Had petitioners-sellers not complied with
acquisition of rights, as well as the this condition of first transferring the title to the
What is clearly established by the plain extinguishment or loss of those already property under their names, there could be no
language of the subject document is that acquired, shall depend upon the happening of perfected contract of sale. (Emphasis
when the said "Receipt of Down Payment" the event which constitutes the condition. supplied.)
was prepared and signed by petitioners
Romeo A. Coronel, et al., the parties had Since the condition contemplated by the (Ibid.)
agreed to a conditional contract of sale, parties which is the issuance of a certificate of
consummation of which is subject only to the title in petitioners' names was fulfilled on not aware that they set their own trap for
successful transfer of the certificate of title February 6, 1985, the respective obligations of themselves, for Article 1186 of the Civil Code
from the name of petitioners' father, the parties under the contract of sale became expressly provides that:
Constancio P. Coronel, to their names. mutually demandable, that is, petitioners, as
sellers, were obliged to present the transfer Art. 1186. The condition shall be deemed
The Court significantly notes this suspensive certificate of title already in their names to fulfilled when the obligor voluntarily prevents
condition was, in fact, fulfilled on February 6, private respondent Ramona P. Alcaraz, the its fulfillment.
1985 (Exh. "D"; Exh. "4"). Thus, on said date, buyer, and to immediately execute the deed of
the conditional contract of sale between absolute sale, while the buyer on her part,
Besides, it should be stressed and
petitioners and private respondent Ramona P. was obliged to forthwith pay the balance of the
emphasized that what is more controlling than
Alcaraz became obligatory, the only act purchase price amounting to P1,190,000.00.
these mere hypothetical arguments is the fact
required for the consummation thereof being
that the condition herein referred to was
the delivery of the property by means of the It is also significant to note that in the first actually and indisputably fulfilled on February
execution of the deed of absolute sale in a paragraph in page 9 of their petition, 6, 1985, when a new title was issued in the
public instrument, which petitioners petitioners conclusively admitted that: names of petitioners as evidenced by TCT No.
unequivocally committed themselves to do as
327403 (Exh. "D"; Exh. "4").
evidenced by the "Receipt of Down Payment." 3. The petitioners-sellers Coronel bound
themselves "to effect the transfer in our The inevitable conclusion is that on January
Article 1475, in correlation with Article 1181, names from our deceased father Constancio 19, 1985, as evidenced by the document
both of the Civil Code, plainly applies to the P. Coronel, the transfer certificate of title denominated as "Receipt of Down Payment"
case at bench. Thus, immediately upon receipt of the downpayment (Exh. "A"; Exh. "1"), the parties entered into a
above-stated". The sale was still subject to contract of sale subject only to the suspensive
Art. 1475. The contract of sale is perfected at this suspensive condition. (Emphasis condition that the sellers shall effect the
the moment there is a meeting of minds upon supplied.) issuance of new certificate title from that of
the thing which is the object of the contract their father's name to their names and that, on
and upon the price. (Rollo, p. 16) February 6, 1985, this condition was fulfilled
(Exh. "D"; Exh. "4").

114
We, therefore, hold that, in accordance with who were called to succession by operation of Petitioners also contend that although there
Article 1187 which pertinently provides — law. Thus, at the point their father drew his was in fact a perfected contract of sale
last breath, petitioners stepped into his shoes between them and Ramona P. Alcaraz, the
Art. 1187. The effects of conditional obligation insofar as the subject property is concerned, latter breached her reciprocal obligation when
to give, once the condition has been fulfilled, such that any rights or obligations pertaining she rendered impossible the consummation
shall retroact to the day of the constitution of thereto became binding and enforceable upon thereof by going to the United States of
the obligation . . . them. It is expressly provided that rights to the America, without leaving her address,
succession are transmitted from the moment telephone number, and Special Power of
In obligation to do or not to do, the courts shall of death of the decedent (Article 777, Civil Attorney (Paragraphs 14 and 15, Answer with
determine, in each case, the retroactive effect Code; Cuison vs. Villanueva, 90 Phil. 850 Compulsory Counterclaim to the Amended
of the condition that has been complied with. [1952]). Complaint, p. 2; Rollo, p. 43), for which
reason, so petitioners conclude, they were
Be it also noted that petitioners' claim that correct in unilaterally rescinding rescinding the
the rights and obligations of the parties with
succession may not be declared unless the contract of sale.
respect to the perfected contract of sale
became mutually due and demandable as of creditors have been paid is rendered moot by
the time of fulfillment or occurrence of the the fact that they were able to effect the We do not agree with petitioners that there
suspensive condition on February 6, 1985. As transfer of the title to the property from the was a valid rescission of the contract of sale in
of that point in time, reciprocal obligations of decedent's name to their names on February the instant case. We note that these supposed
both seller and buyer arose. 6, 1985. grounds for petitioners' rescission, are mere
allegations found only in their responsive
Aside from this, petitioners are precluded from pleadings, which by express provision of the
Petitioners also argue there could been no
raising their supposed lack of capacity to enter rules, are deemed controverted even if no
perfected contract on January 19, 1985
into an agreement at that time and they reply is filed by the plaintiffs (Sec. 11, Rule 6,
because they were then not yet the absolute
cannot be allowed to now take a posture Revised Rules of Court). The records are
owners of the inherited property.
contrary to that which they took when they absolutely bereft of any supporting evidence
entered into the agreement with private to substantiate petitioners' allegations. We
We cannot sustain this argument. have stressed time and again that allegations
respondent Ramona P. Alcaraz. The Civil
Code expressly states that: must be proven by sufficient evidence (Ng
Article 774 of the Civil Code defines Cho Cio vs. Ng Diong, 110 Phil. 882 [1961];
Succession as a mode of transferring Recaro vs. Embisan, 2 SCRA 598 [1961].
Art. 1431. Through estoppel an admission or
ownership as follows: Mere allegation is not an evidence (Lagasca
representation is rendered conclusive upon
the person making it, and cannot be denied or vs. De Vera, 79 Phil. 376 [1947]).
Art. 774. Succession is a mode of acquisition disproved as against the person relying
by virtue of which the property, rights and thereon. Even assuming arguendo that Ramona P.
obligations to be extent and value of the Alcaraz was in the United States of America
inheritance of a person are transmitted on February 6, 1985, we cannot justify
Having represented themselves as the true
through his death to another or others by his petitioner-sellers' act of unilaterally and
owners of the subject property at the time of
will or by operation of law. extradicially rescinding the contract of sale,
sale, petitioners cannot claim now that they
were not yet the absolute owners thereof at there being no express stipulation authorizing
Petitioners-sellers in the case at bar being the that time. the sellers to extarjudicially rescind the
sons and daughters of the decedent contract of sale. (cf. Dignos vs. CA, 158
Constancio P. Coronel are compulsory heirs
115
SCRA 375 [1988]; Taguba vs. Vda. de Leon, and demandable and, therefore, she cannot Should there be no inscription, the ownership
132 SCRA 722 [1984]) be deemed to have been in default. shall pertain to the person who in good faith
was first in the possession; and, in the
Moreover, petitioners are estopped from Article 1169 of the Civil Code defines when a absence thereof to the person who presents
raising the alleged absence of Ramona P. party in a contract involving reciprocal the oldest title, provided there is good faith.
Alcaraz because although the evidence on obligations may be considered in default, to
record shows that the sale was in the name of wit: The record of the case shows that the Deed of
Ramona P. Alcaraz as the buyer, the sellers Absolute Sale dated April 25, 1985 as proof of
had been dealing with Concepcion D. Alcaraz, Art. 1169. Those obliged to deliver or to do the second contract of sale was registered
Ramona's mother, who had acted for and in something, incur in delay from the time the with the Registry of Deeds of Quezon City
behalf of her daughter, if not also in her own obligee judicially or extrajudicially demands giving rise to the issuance of a new certificate
behalf. Indeed, the down payment was made from them the fulfillment of their obligation. of title in the name of Catalina B. Mabanag on
by Concepcion D. Alcaraz with her own June 5, 1985. Thus, the second paragraph of
personal check (Exh. "B"; Exh. "2") for and in xxx xxx xxx Article 1544 shall apply.
behalf of Ramona P. Alcaraz. There is no
evidence showing that petitioners ever The above-cited provision on double sale
In reciprocal obligations, neither party incurs
questioned Concepcion's authority to presumes title or ownership to pass to the first
in delay if the other does not comply or is not
represent Ramona P. Alcaraz when they buyer, the exceptions being: (a) when the
ready to comply in a proper manner with what
accepted her personal check. Neither did they second buyer, in good faith, registers the sale
is incumbent upon him. From the moment one
raise any objection as regards payment being ahead of the first buyer, and (b) should there
of the parties fulfill his obligation, delay by the
effected by a third person. Accordingly, as far be no inscription by either of the two buyers,
other begins. (Emphasis supplied.)
as petitioners are concerned, the physical when the second buyer, in good faith,
absence of Ramona P. Alcaraz is not a acquires possession of the property ahead of
ground to rescind the contract of sale. There is thus neither factual nor legal basis to
the first buyer. Unless, the second buyer
rescind the contract of sale between
satisfies these requirements, title or ownership
petitioners and respondents.
Corollarily, Ramona P. Alcaraz cannot even will not transfer to him to the prejudice of the
be deemed to be in default, insofar as her first buyer.
obligation to pay the full purchase price is With the foregoing conclusions, the sale to the
concerned. Petitioners who are precluded other petitioner, Catalina B. Mabanag, gave
In his commentaries on the Civil Code, an
from setting up the defense of the physical rise to a case of double sale where Article
accepted authority on the subject, now a
absence of Ramona P. Alcaraz as above- 1544 of the Civil Code will apply, to wit:
distinguished member of the Court, Justice
explained offered no proof whatsoever to Jose C. Vitug, explains:
show that they actually presented the new Art. 1544. If the same thing should have been
transfer certificate of title in their names and sold to different vendees, the ownership shall
The governing principle is prius
signified their willingness and readiness to be transferred to the person who may have
tempore, potior jure (first in time, stronger in
execute the deed of absolute sale in first taken possession thereof in good faith, if it
right). Knowledge by the first buyer of the
accordance with their agreement. Ramona's should be movable property.
second sale cannot defeat the first buyer's
corresponding obligation to pay the balance of rights except when the second buyer first
the purchase price in the amount of Should if be immovable property, the registers in good faith the second sale
P1,190,000.00 (as buyer) never became due ownership shall belong to the person (Olivares vs. Gonzales, 159 SCRA 33).
acquiring it who in good faith first recorded it Conversely, knowledge gained by the second
in Registry of Property.
116
buyer of the first sale defeats his rights even if good faith, registered the sale entered into on agent insofar as the subject contract of sale is
he is first to register, since knowledge taints February 18, 1985 because as early as concerned, the issue of whether or not
his registration with bad faith (see also February 22, 1985, a notice of lis Concepcion was also acting in her own behalf
Astorga vs. Court of Appeals, G.R. No. 58530, pendens had been annotated on the transfer as a co-buyer is not squarely raised in the
26 December 1984). In Cruz certificate of title in the names of petitioners, instant petition, nor in such assumption
vs. Cabana (G.R. No. 56232, 22 June 1984, whereas petitioner Mabanag registered the disputed between mother and daughter. Thus,
129 SCRA 656), it has held that it is essential, said sale sometime in April, 1985. At the time We will not touch this issue and no longer
to merit the protection of Art. 1544, second of registration, therefore, petitioner Mabanag disturb the lower courts' ruling on this point.
paragraph, that the second realty buyer must knew that the same property had already
act in good faith in registering his deed of sale been previously sold to private respondents, WHEREFORE, premises considered, the
(citing Carbonell vs. Court of Appeals, 69 or, at least, she was charged with knowledge instant petition is hereby DISMISSED and the
SCRA 99, Crisostomo vs. CA, G.R. No. that a previous buyer is claiming title to the appealed judgment AFFIRMED.
95843, 02 September 1992). same property. Petitioner Mabanag cannot
(J. Vitug Compendium of Civil Law and close her eyes to the defect in petitioners' title SO ORDERED.
Jurisprudence, 1993 Edition, p. 604). to the property at the time of the registration of
the property.
Petitioner point out that the notice of lis
pendens in the case at bar was annoted on This Court had occasions to rule that:
the title of the subject property only on
February 22, 1985, whereas, the second sale If a vendee in a double sale registers that sale
between petitioners Coronels and petitioner after he has acquired knowledge that there
Mabanag was supposedly perfected prior was a previous sale of the same property to a
thereto or on February 18, 1985. The idea third party or that another person claims said
conveyed is that at the time petitioner property in a pervious sale, the registration will
Mabanag, the second buyer, bought the constitute a registration in bad faith and will
property under a clean title, she was unaware not confer upon him any right. (Salvoro vs.
of any adverse claim or previous sale, for Tanega, 87 SCRA 349 [1978]; citing Palarca
which reason she is buyer in good faith. vs. Director of Land, 43 Phil. 146; Cagaoan
vs. Cagaoan, 43 Phil. 554; Fernandez vs.
We are not persuaded by such argument. Mercader, 43 Phil. 581.)

In a case of double sale, what finds relevance Thus, the sale of the subject parcel of land
and materiality is not whether or not the between petitioners and Ramona P. Alcaraz,
second buyer was a buyer in good faith but perfected on February 6, 1985, prior to that
whether or not said second buyer registers between petitioners and Catalina B. Mabanag
such second sale in good faith, that is, without on February 18, 1985, was correctly upheld by
knowledge of any defect in the title of the both the courts below.
property sold.
Although there may be ample indications that
As clearly borne out by the evidence in this there was in fact an agency between Ramona
case, petitioner Mabanag could not have in as principal and Concepcion, her mother, as

117
G.R. No. L-24190 July 13, 1926 complied with and invoking the sale of this and could not have sold it to the plaintiff, nor
parcel of land made by Concepcion Cirer and could the latter have acquired it from them.
GEORGE L. PARKS, plaintiff-appellant, James Hill in his favor, brought this action
vs. against the Province of Tarlac, the But the appellant contends that a condition
PROVINCE OF TARLAC, MUNICIPALITY municipality of Tarlac, Concepcion Cirer and precedent having been imposed in the
OF TARLAC, CONCEPCION CIRER, and James Hill and prayed that he be declared the donation and the same not having been
JAMES HILL, her husband, defendants- absolute owner entitled to the possession of complied with, the donation never became
appellees. this parcel, that the transfer of the same by effective. We find no merit in this contention.
the municipality of Tarlac to the Province of The appellant refers to the condition imposed
Jos. N. Wolfson for appellant. Tarlac be annulled, and the transfer certificate that one of the parcels donated was to be
Provincial Fiscal Lopez de Jesus for the issued to the Province of Tarlac cancelled. used absolutely and exclusively for the
Province and Municipality of Tarlac. erection of a central school and the other for a
No appearance for the other appellees. The lower court dismissed the complaint. public park, the work to commence in both
cases within the period of six months from the
AVANCEÑA, C. J.: The plaintiff has no right of action. If he has date of the ratification by the partes of the
any, it is only by virtue of the sale of this document evidencing the donation. It is true
parcel made by Concepcion Cirer and James that this condition has not been complied with.
On October 18, 1910, Concepcion Cirer and
Hill in his favor on January 15, 1921, but that The allegation, however, that it is a condition
James Hill, the owners of parcel of land No. 2
sale cannot have any effect. This parcel precedent is erroneous. The characteristic of
referred to in the complaint, donated it
having been donated by Concepcion Cirer a condition precedent is that the acquisition of
perpetually to the municipality of Tarlac,
and James Hill to the municipality of Tarlac, the right is not effected while said condition is
Province of Tarlac, under certain conditions
which donation was accepted by the latter, the not complied with or is not deemed complied
specified in the public document in which they
title to the property was transferred to the with. Meanwhile nothing is acquired and there
made this donation. The donation was
municipality of Tarlac. It is true that the is only an expectancy of right. Consequently,
accepted by Mr. Santiago de Jesus in the
donation might have been revoked for the when a condition is imposed, the compliance
same document on behalf of the municipal
causes, if any, provided by the law, but the of which cannot be effected except when the
council of Tarlac of which he was the
fact is that it was not revoked when right is deemed acquired, such condition
municipal president. The parcel thus donated
Concepcion Cirer and James Hill made the cannot be a condition precedent. In the
was later registered in the name of the donee,
sale of this parcel to the plaintiff. Even present case the condition that a public school
the municipality of Tarlac. On January 15,
supposing that causes existed for the be erected and a public park made of the
1921, Concepcion Cirer and James Hill sold
revocation of this donation, still, it was donated land, work on the same to commence
this parcel to the herein plaintiff George L.
necessary, in order to consider it revoked, within six months from the date of the
Parks. On August 24, 1923, the municipality of
either that the revocation had been consented ratification of the donation by the parties,
Tarlac transferred the parcel to the Province
to by the donee, the municipality of Tarlac, or could not be complied with except after giving
of Tarlac which, by reason of this transfer,
that it had been judicially decreed. None of effect to the donation. The donee could not do
applied for and obtained the registration
these circumstances existed when any work on the donated land if the donation
thereof in its name, the corresponding
Concepcion Cirer and James Hill sold this had not really been effected, because it would
certificate of title having been issued to it.
parcel to the plaintiff. Consequently, when the be an invasion of another's title, for the land
sale was made Concepcion Cirer and James would have continued to belong to the donor
The plaintiff, George L. Parks, alleging that
Hill were no longer the owners of this parcel
the conditions of the donation had not been
118
so long as the condition imposed was not
complied with.

The appellant also contends that, in any

event, the condition not having been complied
with, even supposing that it was not a
condition precedent but subsequent, the non-
compliance thereof is sufficient cause for the
revocation of the donation. This is correct. But
the period for bringing an action for the
revocation of the donation has prescribed.
That this action is prescriptible, there is no
doubt. There is no legal provision which
excludes this class of action from the statute
of limitations. And not only this, — the law
itself recognizes the prescriptibility of the
action for the revocation of a donation,
providing a special period of five years for the
revocation by the subsequent birth of children
(art. 646, Civil Code), and one year for the
revocation by reason of ingratitude. If no
special period is provided for the prescription
of the action for revocation for noncompliance
of the conditions of the donation (art. 647,
Civil Code), it is because in this respect the
donation is considered onerous and is
governed by the law of contracts and the
general rules of prescription. Under the law in
force (sec. 43, Code of Civ. Proc.) the period
of prescription of this class of action is ten
years. The action for the revocation of the
donation for this cause arose on April 19,
1911, that is six months after the ratification of
the instrument of donation of October 18,
1910. The complaint in this action was
presented July 5, 1924, more than ten years
after this cause accrued.

By virtue of the foregoing, the judgment

appealed from is affirmed, with the costs
against the appellant. So ordered.

119
G.R. No. 112127 July 17, 1995 2. The said college shall not sell, transfer or property in favor of the heirs of the donor,
convey to any third party nor in any way namely, private respondents herein.
CENTRAL PHILIPPINE encumber said land;
UNIVERSITY, petitioner, Petitioner appealed to the Court of Appeals
vs. 3. The said land shall be called "RAMON which on 18 June 1993 ruled that the
COURT OF APPEALS, REMEDIOS LOPEZ CAMPUS", and the said college shall annotations at the back of petitioner's
FRANCO, FRANCISCO N. LOPEZ, CECILIA be under obligation to erect a cornerstone certificate of title were resolutory conditions
P. VDA. DE LOPEZ, REDAN LOPEZ AND bearing that name. Any net income from the breach of which should terminate the rights of
REMARENE LOPEZ, respondents. land or any of its parks shall be put in a fund the donee thus making the donation
to be known as the "RAMON LOPEZ revocable.
BELLOSILLO, J.: CAMPUS FUND" to be used for
improvements of said campus and erection of The appellate court also found that while the
CENTRAL PHILIPPINE UNIVERSITY filed a building thereon.1 first condition mandated petitioner to utilize
this petition for review on certiorari of the the donated property for the establishment of
decision of the Court of Appeals which On 31 May 1989, private respondents, who a medical school, the donor did not fix a
reversed that of the Regional Trial Court of are the heirs of Don Ramon Lopez, Sr., filed period within which the condition must be
Iloilo City directing petitioner to reconvey to an action for annulment of donation, fulfilled, hence, until a period was fixed for the
private respondents the property donated to it reconveyance and damages against CPU fulfillment of the condition, petitioner could not
by their predecessor-in-interest. alleging that since 1939 up to the time the be considered as having failed to comply with
action was filed the latter had not complied its part of the bargain. Thus, the appellate
Sometime in 1939, the late Don Ramon with the conditions of the donation. Private court rendered its decision reversing the
Lopez, Sr., who was then a member of the respondents also argued that petitioner had in appealed decision and remanding the case to
Board of Trustees of the Central Philippine fact negotiated with the National Housing the court of origin for the determination of the
College (now Central Philippine University Authority (NHA) to exchange the donated time within which petitioner should comply
[CPU]), executed a deed of donation in favor property with another land owned by the latter. with the first condition annotated in the
of the latter of a parcel of land identified as Lot certificate of title.
No. 3174-B-1 of the subdivision plan Psd- In its answer petitioner alleged that the right of
1144, then a portion of Lot No. 3174-B, for private respondents to file the action had Petitioner now alleges that the Court of
which Transfer Certificate of Title No. T-3910- prescribed; that it did not violate any of the Appeals erred: (a) in holding that the quoted
A was issued in the name of the donee CPU conditions in the deed of donation because it annotations in the certificate of title of
with the following annotations copied from the never used the donated property for any other petitioner are onerous obligations and
deed of donation — purpose than that for which it was intended; resolutory conditions of the donation which
and, that it did not sell, transfer or convey it to must be fulfilled non-compliance of which
1. The land described shall be utilized by the any third party. would render the donation revocable; (b) in
CPU exclusively for the establishment and holding that the issue of prescription does not
use of a medical college with all its buildings On 31 May 1991, the trial court held that deserve "disquisition;" and, (c) in remanding
as part of the curriculum; petitioner failed to comply with the conditions the case to the trial court for the fixing of the
of the donation and declared it null and void. period within which petitioner would establish
The court a quo further directed petitioner to a medical college.2
execute a deed of the reconveyance of the
120
We find it difficult to sustain the petition. A The claim of petitioner that prescription bars The period of time for the establishment of a
clear perusal of the conditions set forth in the the instant action of private respondents is medical college and the necessary buildings
deed of donation executed by Don Ramon unavailing. and improvements on the property cannot be
Lopez, Sr., gives us no alternative but to quantified in a specific number of years
conclude that his donation was onerous, one The condition imposed by the donor, i.e., the because of the presence of several factors
executed for a valuable consideration which is building of a medical school upon the land and circumstances involved in the erection of
considered the equivalent of the donation donated, depended upon the exclusive will of an educational institution, such as government
itself, e.g., when a donation imposes a burden the donee as to when this condition shall be laws and regulations pertaining to education,
equivalent to the value of the donation. A gift fulfilled. When petitioner accepted the building requirements and property restrictions
of land to the City of Manila requiring the latter donation, it bound itself to comply with the which are beyond the control of the donee.
to erect schools, construct a children's condition thereof. Since the time within which
playground and open streets on the land was the condition should be fulfilled depended Thus, when the obligation does not fix a
considered an onerous donation.3 Similarly, upon the exclusive will of the petitioner, it has period but from its nature and circumstances it
where Don Ramon Lopez donated the subject been held that its absolute acceptance and can be inferred that a period was intended,
parcel of land to petitioner but imposed an the acknowledgment of its obligation provided the general rule provided in Art. 1197 of the
obligation upon the latter to establish a in the deed of donation were sufficient to Civil Code applies, which provides that the
medical college thereon, the donation must be prevent the statute of limitations from barring courts may fix the duration thereof because
for an onerous consideration. the action of private respondents upon the the fulfillment of the obligation itself cannot be
original contract which was the deed of demanded until after the court has fixed the
Under Art. 1181 of the Civil Code, on donation.6 period for compliance therewith and such
conditional obligations, the acquisition of period has arrived.8
rights, as well as the extinguishment or loss of Moreover, the time from which the cause of
those already acquired, shall depend upon the action accrued for the revocation of the This general rule however cannot be applied
happening of the event which constitutes the donation and recovery of the property donated considering the different set of circumstances
condition. Thus, when a person donates land cannot be specifically determined in the existing in the instant case. More than a
to another on the condition that the latter instant case. A cause of action arises when reasonable period of fifty (50) years has
would build upon the land a school, the that which should have been done is not already been allowed petitioner to avail of the
condition imposed was not a condition done, or that which should not have been opportunity to comply with the condition even
precedent or a suspensive condition but a done is done.7 In cases where there is no if it be burdensome, to make the donation in
resolutory one.4 It is not correct to say that the special provision for such computation, its favor forever valid. But, unfortunately, it
schoolhouse had to be constructed before the recourse must be had to the rule that the failed to do so. Hence, there is no more need
donation became effective, that is, before the period must be counted from the day on which to fix the duration of a term of the obligation
donee could become the owner of the land, the corresponding action could have been when such procedure would be a mere
otherwise, it would be invading the property instituted. It is the legal possibility of bringing technicality and formality and would serve no
rights of the donor. The donation had to be the action which determines the starting point purpose than to delay or lead to an
valid before the fulfillment of the condition. 5 If for the computation of the period. In this case, unnecessary and expensive multiplication of
there was no fulfillment or compliance with the the starting point begins with the expiration of suits. 9 Moreover, under Art. 1191 of the Civil
condition, such as what obtains in the instant a reasonable period and opportunity for Code, when one of the obligors cannot comply
case, the donation may now be revoked and petitioner to fulfill what has been charged with what is incumbent upon him, the obligee
all rights which the donee may have acquired upon it by the donor. may seek rescission and the court shall
under it shall be deemed lost and decree the same unless there is just cause
extinguished.
121
authorizing the fixing of a period. In the Separate Opinions conditional obligation to speak of in this case.
absence of any just cause for the court to It seems that the "conditions" imposed by the
determine the period of the compliance, there DAVIDE, JR., J., dissenting: donor and as the word is used in the law of
is no more obstacle for the court to decree the donations is confused with "conditions" as
rescission claimed. I agree with the view in the majority opinion used in the law of obligations. In his
that the donation in question is onerous annotation of Article 764 of the Civil Code on
Finally, since the questioned deed of donation considering the conditions imposed by the Donations, Arturo M. Tolentino, citing the well-
herein is basically a gratuitous one, doubts donor on the donee which created reciprocal known civilists such as Castan, Perez
referring to incidental circumstances of a obligations upon both parties. Beyond that, I Gonzalez and Alguer, and Colin & Capitant,
gratuitous contract should be resolved in favor beg to disagree. states clearly the context within which the
of the least transmission of rights and term "conditions" is used in the law of
interests. 10 Records are clear and facts are donations, to wit:
First of all, may I point out an inconsistency in
undisputed that since the execution of the the majority opinion's description of the
deed of donation up to the time of filing of the donation in question. In one part, it says that The word "conditions" in this article does not
instant action, petitioner has failed to comply the donation in question is onerous. Thus, on refer to uncertain events on which the birth or
with its obligation as donee. Petitioner has page 4 it states: extinguishment of a juridical relation depends,
slept on its obligation for an unreasonable but is used in the vulgar sense of obligations
length of time. Hence, it is only just and or charges imposed by the donor on the
We find it difficult to sustain the petition. A
equitable now to declare the subject donation donee. It is used, not in its technical or strict
clear perusal of the conditions set forth in the
already ineffective and, for all purposes, legal sense, but in its broadest
deed of donation executed by Don Ramon
revoked so that petitioner as donee should sense.1 (emphasis supplied)
Lopez, Sr., give us no alternative but to
now return the donated property to the heirs of
conclude that his donation was onerous, one
the donor, private respondents herein, by Clearly then, when the law and the deed of
executed for a valuable consideration which is
means of reconveyance. donation speaks of "conditions" of a donation,
considered the equivalent of the donation
itself, e.g., when a donation imposes a burden what are referred to are actually the
WHEREFORE, the decision of the Regional equivalent to the value of the donation . . . . obligations, charges or burdens imposed by
Trial Court of Iloilo, Br. 34, of 31 May 1991 is (emphasis supplied) the donor upon the donee and which would
REINSTATED and AFFIRMED, and the characterize the donation as onerous. In the
decision of the Court of Appeals of 18 June present case, the donation is, quite obviously,
Yet, in the last paragraph of page 8 it states
1993 is accordingly MODIFIED. onerous, but it is more properly called a
that the donation is basically a gratuitous one.
Consequently, petitioner is directed to "modal donation." A modal donation is one in
The pertinent portion thereof reads:
reconvey to private respondents Lot No. 3174- which the donor imposes a prestation upon
B-1 of the subdivision plan Psd-1144 covered the donee. The establishment of the medical
by Transfer Certificate of Title No. T-3910-A Finally, since the questioned deed of donation college as the condition of the donation in the
within thirty (30) days from the finality of this herein is basically a gratuitous one, doubts present case is one such prestation.
judgment. referring to incidental circumstances of
a gratuitous contract should be resolved in
The conditions imposed by the donor Don
favor of the least transmission of rights and
Costs against petitioner. Ramon Lopez determines neither the
interest . . . (emphasis supplied)
existence nor the extinguishment of the
SO ORDERED. obligations of the donor and the donee with
Second, the discussion on conditional respect to the donation. In fact, the conditions
obligations is unnecessary. There is no
122
imposed by Don Ramon Lopez upon the stated above, are the obligations imposed by donation as erroneously quoted and cited by
donee are the very obligations of the donation the donor. the majority opinion. It speaks of a contract for
— to build the medical college and use the a sum of money where the debtor herself
property for the purposes specified in the Third, I cannot subscribe to the view that the imposed a condition which will determine
deed of donation. It is very clear that those provisions of Article 1197 cannot be applied when she will fulfill her obligation to pay the
obligations are unconditional, the fulfillment, here. The conditions/obligations imposed by creditor, thus, making the fulfillment of her
performance, existence or extinguishment of the donor herein are subject to a period. I obligation dependent upon her will. What we
which is not dependent on any future or draw this conclusion based on our previous have here, however, is not a contract for a
uncertain event or past and unknown event, ruling which, although made almost 90 years sum of money but a donation where the
as the Civil Code would define a conditional ago, still finds application in the present case. donee has not imposed any conditions on the
obligation.2 In Barretto vs. City of Manila,5 we said that fulfillment of its obligations. Although it is
when the contract of donation, as the one admitted that the fulfillment of the
Reliance on the case of Parks vs. Province of involved therein, has no fixed period in which conditions/obligations of the present donation
Tarlac3 as cited on page 5 of the majority the condition should be fulfilled, the provisions may be dependent on the will of the donee as
opinion is erroneous in so far as the latter of what is now Article 1197 (then Article 1128) to when it will comply therewith, this did not
stated that the condition in Parks is a are applicable and it is the duty of the court to arise out of a condition which the donee itself
resolutory one and applied this to the present fix a suitable time for its fulfillment. Indeed, imposed. It is believed that the donee was not
case. A more careful reading of this Court's from the nature and circumstances of the meant to and does not have absolute control
decision would reveal that nowhere did we conditions/obligations of the present donation, over the time within which it will perform its
say, whether explicitly or impliedly, that the it can be inferred that a period was obligations. It must still do so within a
donation in that case, which also has a contemplated by the donor. Don Ramon reasonable time. What that reasonable time
condition imposed to build a school and a Lopez could not have intended his property to is, under the circumstances, for the courts to
public park upon the property donated, is a remain idle for a long period of time when in determine. Thus, the mere fact that there is no
resolutory condition.4 It is incorrect to say that fact, he specifically burdened the donee with time fixed as to when the conditions of the
the "conditions" of the donation there or in the the obligation to set up a medical college donation are to be fulfilled does not ipso
present case are resolutory conditions therein and thus put his property to good use. facto mean that the statute of limitations will
because, applying Article 1181 of the Civil There is a need to fix the duration of the time not apply anymore and the action to revoke
Code, that would mean that upon fulfillment of within which the conditions imposed are to be the donation becomes imprescriptible.
the conditions, the rights already acquired will fulfilled.
be extinguished. Obviously, that could not Admittedly, the donation now in question is an
have been the intention of the parties. It is also important to fix the duration or period onerous donation and is governed by the law
for the performance of the on contracts (Article 733) and the case of
What the majority opinion probably had in conditions/obligations in the donation in Osmeña, being one involving a contract, may
mind was that the conditions are resolutory resolving the petitioner's claim that apply. But we must not lose sight of the fact
because if they are not complied with, the prescription has already barred the present that it is still a donation for which this Court
rights of the donee as such will be action. I disagree once more with the ruling of itself applied the pertinent law to resolve
extinguished and the donation will be revoked. the majority that the action of the petitioners is situations such as this. That the action to
To my mind, though, it is more accurate to not barred by the statute of limitations. There revoke the donation can still prescribe has
state that the conditions here are not is misplaced reliance again on a previous been the pronouncement of this Court as early
resolutory conditions but, for the reasons decision of this Court in Osmeña vs. as 1926 in the case of Parks which, on this
Rama.6 That case does not speak of a deed of point, finds relevance in this case. There, this
Court said,
123
[that] this action [for the revocation of the prescriptive period is ten years from the time itself, e.g., when a donation imposes a burden
donation] is prescriptible, there is no doubt. the cause of action accrues, and that is, from equivalent to the value of the donation . . . .
There is no legal provision which excludes this the expiration of the time within which the (emphasis supplied)
class of action from the statute of limitations. donee must comply with the
And not only this, the law itself recognizes the conditions/obligations of the donation. As to Yet, in the last paragraph of page 8 it states
prescriptibility of the action for the revocation when this exactly is remains to be determined, that the donation is basically a gratuitous one.
of a donation, providing a special period of and that is for the courts to do as reposed The pertinent portion thereof reads:
[four] years for the revocation by the upon them by Article 1197.
subsequent birth of children [Art. 646, now Art. Finally, since the questioned deed of donation
763], and . . . by reason of ingratitude. If no For the reasons expressed above, I register herein is basically a gratuitous one, doubts
special period is provided for the prescription my dissent. Accordingly, the decision of the referring to incidental circumstances of
of the action for revocation for noncompliance Court of Appeals must be upheld, except its a gratuitous contract should be resolved in
of the conditions of the donation [Art. 647, ruling that the conditions of the donation are favor of the least transmission of rights and
now Art. 764], it is because in this respect the resolutory. interest . . . (emphasis supplied)
donation is considered onerous and is
governed by the law of contracts and the Padilla, J., dissents Second, the discussion on conditional
general rules of prescription.7
obligations is unnecessary. There is no
Separate Opinions conditional obligation to speak of in this case.
More recently, in De Luna v. Abrigo,8 this It seems that the "conditions" imposed by the
Court reiterated the ruling in Parks and said donor and as the word is used in the law of
DAVIDE, JR., J., dissenting:
that: donations is confused with "conditions" as
I agree with the view in the majority opinion used in the law of obligations. In his
It is true that under Article 764 of the New Civil annotation of Article 764 of the Civil Code on
that the donation in question is onerous
Code, actions for the revocation of a donation Donations, Arturo M. Tolentino, citing the well-
considering the conditions imposed by the
must be brought within four (4) years from the known civilists such as Castan, Perez
donor on the donee which created reciprocal
non-compliance of the conditions of the Gonzalez and Alguer, and Colin & Capitant,
obligations upon both parties. Beyond that, I
donation. However, it is Our opinion that said states clearly the context within which the
beg to disagree.
article does not apply to onerous donations in term "conditions" is used in the law of
view of the specific provision of Article 733 donations, to wit:
providing that onerous donations are First of all, may I point out an inconsistency in
governed by the rules on contracts. the majority opinion's description of the
donation in question. In one part, it says that The word "conditions" in this article does not
the donation in question is onerous. Thus, on refer to uncertain events on which the birth or
In the light of the above, the rules on contracts extinguishment of a juridical relation depends,
page 4 it states:
and the general rules on prescription and not but is used in the vulgar sense of obligations
the rules on donations are applicable in the or charges imposed by the donor on the
case at bar. We find it difficult to sustain the petition. A
donee. It is used, not in its technical or strict
clear perusal of the conditions set forth in the
legal sense, but in its broadest
deed of donation executed by Don Ramon
The law applied in both cases is Article sense.1 (emphasis supplied)
Lopez, Sr., give us no alternative but to
1144(1). It refers to the prescription of an
conclude that his donation was onerous, one
action upon a written contract, which is what Clearly then, when the law and the deed of
executed for a valuable consideration which is
the deed of an onerous donation is. The donation speaks of "conditions" of a donation,
considered the equivalent of the donation
124
what are referred to are actually the the "conditions" of the donation there or in the therein and thus put his property to good use.
obligations, charges or burdens imposed by present case are resolutory conditions There is a need to fix the duration of the time
the donor upon the donee and which would because, applying Article 1181 of the Civil within which the conditions imposed are to be
characterize the donation as onerous. In the Code, that would mean that upon fulfillment of fulfilled.
present case, the donation is, quite obviously, the conditions, the rights already acquired will
onerous, but it is more properly called a be extinguished. Obviously, that could not It is also important to fix the duration or period
"modal donation." A modal donation is one in have been the intention of the parties. for the performance of the
which the donor imposes a prestation upon conditions/obligations in the donation in
the donee. The establishment of the medical What the majority opinion probably had in resolving the petitioner's claim that
college as the condition of the donation in the mind was that the conditions are resolutory prescription has already barred the present
present case is one such prestation. because if they are not complied with, the action. I disagree once more with the ruling of
rights of the donee as such will be the majority that the action of the petitioners is
The conditions imposed by the donor Don extinguished and the donation will be revoked. not barred by the statute of limitations. There
Ramon Lopez determines neither the To my mind, though, it is more accurate to is misplaced reliance again on a previous
existence nor the extinguishment of the state that the conditions here are not decision of this Court in Osmeña vs.
obligations of the donor and the donee with resolutory conditions but, for the reasons Rama.6 That case does not speak of a deed of
respect to the donation. In fact, the conditions stated above, are the obligations imposed by donation as erroneously quoted and cited by
imposed by Don Ramon Lopez upon the the donor. the majority opinion. It speaks of a contract for
donee are the very obligations of the donation a sum of money where the debtor herself
— to build the medical college and use the Third, I cannot subscribe to the view that the imposed a condition which will determine
property for the purposes specified in the provisions of Article 1197 cannot be applied when she will fulfill her obligation to pay the
deed of donation. It is very clear that those here. The conditions/obligations imposed by creditor, thus, making the fulfillment of her
obligations are unconditional, the fulfillment, the donor herein are subject to a period. I obligation dependent upon her will. What we
performance, existence or extinguishment of draw this conclusion based on our previous have here, however, is not a contract for a
which is not dependent on any future or ruling which, although made almost 90 years sum of money but a donation where the
uncertain event or past and unknown event, ago, still finds application in the present case. donee has not imposed any conditions on the
as the Civil Code would define a conditional In Barretto vs. City of Manila,5 we said that fulfillment of its obligations. Although it is
obligation.2 when the contract of donation, as the one admitted that the fulfillment of the
involved therein, has no fixed period in which conditions/obligations of the present donation
Reliance on the case of Parks vs. Province of the condition should be fulfilled, the provisions may be dependent on the will of the donee as
Tarlac3 as cited on page 5 of the majority of what is now Article 1197 (then Article 1128) to when it will comply therewith, this did not
opinion is erroneous in so far as the latter are applicable and it is the duty of the court to arise out of a condition which the donee itself
stated that the condition in Parks is a fix a suitable time for its fulfillment. Indeed, imposed. It is believed that the donee was not
resolutory one and applied this to the present from the nature and circumstances of the meant to and does not have absolute control
case. A more careful reading of this Court's conditions/obligations of the present donation, over the time within which it will perform its
decision would reveal that nowhere did we it can be inferred that a period was obligations. It must still do so within a
say, whether explicitly or impliedly, that the contemplated by the donor. Don Ramon reasonable time. What that reasonable time
donation in that case, which also has a Lopez could not have intended his property to is, under the circumstances, for the courts to
condition imposed to build a school and a remain idle for a long period of time when in determine. Thus, the mere fact that there is no
public park upon the property donated, is a fact, he specifically burdened the donee with time fixed as to when the conditions of the
resolutory condition.4 It is incorrect to say that the obligation to set up a medical college donation are to be fulfilled does not ipso
facto mean that the statute of limitations will
125
not apply anymore and the action to revoke must be brought within four (4) years from the
the donation becomes imprescriptible. non-compliance of the conditions of the
donation. However, it is Our opinion that said
Admittedly, the donation now in question is an article does not apply to onerous donations in
onerous donation and is governed by the law view of the specific provision of Article 733
on contracts (Article 733) and the case of providing that onerous donations are
Osmeña, being one involving a contract, may governed by the rules on contracts.
apply. But we must not lose sight of the fact
that it is still a donation for which this Court In the light of the above, the rules on contracts
itself applied the pertinent law to resolve and the general rules on prescription and not
situations such as this. That the action to the rules on donations are applicable in the
revoke the donation can still prescribe has case at bar.
been the pronouncement of this Court as early
as 1926 in the case of Parks which, on this The law applied in both cases is Article
point, finds relevance in this case. There, this 1144(1). It refers to the prescription of an
Court said, action upon a written contract, which is what
the deed of an onerous donation is. The
[that] this action [for the revocation of the prescriptive period is ten years from the time
donation] is prescriptible, there is no doubt. the cause of action accrues, and that is, from
There is no legal provision which excludes this the expiration of the time within which the
class of action from the statute of limitations. donee must comply with the
And not only this, the law itself recognizes the conditions/obligations of the donation. As to
prescriptibility of the action for the revocation when this exactly is remains to be determined,
of a donation, providing a special period of and that is for the courts to do as reposed
[four] years for the revocation by the upon them by Article 1197.
subsequent birth of children [Art. 646, now Art.
763], and . . . by reason of ingratitude. If no For the reasons expressed above, I register
special period is provided for the prescription my dissent. Accordingly, the decision of the
of the action for revocation for noncompliance Court of Appeals must be upheld, except its
of the conditions of the donation [Art. 647, ruling that the conditions of the donation are
now Art. 764], it is because in this respect the resolutory.
donation is considered onerous and is
governed by the law of contracts and the Padilla, J., dissents
general rules of prescription.7

More recently, in De Luna v. Abrigo,8 this

Court reiterated the ruling in Parks and said
that:

It is true that under Article 764 of the New Civil

Code, actions for the revocation of a donation

126
G.R. No. 126444 December 4, 1998 land subject of the case in favor of the much less to Regalado Mondejar save the
Municipality of Talacogon, the condition being donation made to the Municipality of
ALFONSO QUIJADA, CRESENTE that the parcel of land shall be used solely and Talacogon in 1956; that at the time of the
QUIJADA, REYNELDA QUIJADA, exclusively as part of the campus of the alleged sale to Regalado Mondejar by
DEMETRIO QUIJADA, ELIUTERIA proposed provincial high school in Talacogon. Trinidad Quijada, the land still belongs to the
QUIJADA, EULALIO QUIJADA, and Apparently, Trinidad remained in possession Municipality of Talacogon, hence, the
WARLITO QUIJADA, petitioners, of the parcel of land despite the donation. On supposed sale is null and void.
vs. July 29, 1962, Trinidad sold one (1) hectare of
COURT OF APPEALS, REGALADO the subject parcel of land to defendant- Defendants-appellants (respondents), on the
MONDEJAR, RODULFO GOLORAN, appellant Regalado Mondejar (Exh. 1). other hand, in their answer claimed that the
ALBERTO ASIS, SEGUNDINO RAS, Subsequently, Trinidad verbally sold the land in dispute was sold to Regalado
ERNESTO GOLORAN, CELSO ABISO, remaining one (1) hectare to defendant- Mondejar, the one (1) hectare on July 29,
FERNANDO BAUTISTA, ANTONIO appellant (respondent) Regalado Mondejar 1962, and the remaining one (1) hectare on
MACASERO, and NESTOR without the benefit of a written deed of sale installment basis until fully paid. As affirmative
MAGUINSAY, respondents. and evidenced solely by receipts of payment. and/or special defense, defendants-appellants
In 1980, the heirs of Trinidad, who at that time (respondents) alleged that plaintiffs action is
MARTINEZ, J.: was already dead, filed a complaint for forcible barred by laches or has prescribed.
entry (Exh. E) against defendant-appellant
(respondent) Regalado Mondejar, which The court a quo rendered judgment in favor of
Petitioners, as heirs of the late Trinidad
complaint was, however, dismissed for failure plaintiffs-appellees (petitioners): firstly
Quijada, filed a complaint against private
to prosecute (Exh. F). In 1987, the proposed because "Trinidad Quijada had no legal title or
respondents for quieting of title, recovery of
provincial high school having failed to right to sell the land to defendant Mondejar in
possession and ownership of parcels of land
materialize, the Sangguniang Bayan of the 1962, 1966, 1967 and 1968, the same not
with claim for attorney's fees and damages.
municipality of Talacogon enacted a resolution being hers to dispose of because ownership
The suit was premised on the following facts
reverting the two (2) hectares of land donated belongs to the Municipality of Talacogon
found by the court of Appeals which is
back to the donors (Exh. D). In the meantime, (Decision, p. 4; Rollo, p. 39) and, secondly,
materially the same as that found by the trial
defendant-appellant (respondent) Regalado that the deed of sale executed by Trinidad
court:
Mondejar sold portions of the land to Quijada in favor of Mondejar did not carry with
defendants-appellants (respondents) it the conformity and acquiescence of her
Plaintiffs-appellees (petitioners) are the Fernando Bautista (Exh. 5), Rodolfo Goloran
children of the late Trinidad Corvera Vda, de children, more so that she was already 63
(Exh. 6), Efren Guden (Exh. 7) and Ernesto years old at the time, and a widow (Decision,
Quijada. Trinidad was one of the heirs of the Goloran (Exh. 8).
late Pedro Corvera and inherited from the p. 6; Rollo, p. 41)."1
latter the two-hectare parcel of land subject of
On July 5, 1988, plaintiffs-appellees The dispositive portion of the trial court's
the case, situated in the barrio of San Agustin,
(petitioners) filed this action against decision reads:
Talacogon, Agusan del Sur. On April 5, 1956,
defendants-appellants (respondents). In the
Trinidad Quijada together with her sisters
complaint, plaintiffs-appellees (petitioners)
Leonila Corvera Vda. de Sequeña and Paz WHEREFORE, viewed from the above
alleged that their deceased mother never sold,
Corvera Cabiltes and brother Epapiadito perceptions, the scale of justice having tilted
conveyed, transferred or disposed of the
Corvera executed a conditional deed of in favor of the plaintiffs, judgment is, as it is
property in question to any person or entity
donation (Exh. C) of the two-hectare parcel of hereby rendered:
127
1) ordering the Defendants to return and petition for review to this Court arguing ownership will only revert to the donor if the
vacate the two (2) hectares of land to Plaintiffs principally that the sale of the subject property resolutory condition is not fulfilled.
as described in Tax Declaration No. 1209 in made by Trinidad Quijada to respondent
the name of Trinidad Quijada; Mondejar is void, considering that at that time, In this case, that resolutory condition is the
ownership was already transferred to the construction of the school. It has been ruled
2) ordering any person acting in Defendants' Municipality of Talacogon. On the contrary, that when a person donates land to another
behalf to vacate and restore the peaceful private respondents contend that the sale was on the condition that the latter would build
possession of the land in question to Plaintiffs; valid, that they are buyers in good faith, and upon the land a school, the condition imposed
that petitioners' case is barred by laches. 6 is not a condition precedent or a suspensive
3) ordering the cancellation of the Deed of condition but a resolutory one. 13 Thus, at the
Sale executed by the late Trinidad Quijada in We affirm the decision of the respondent time of the sales made in 1962 towards 1968,
favor of Defendant Regalado Mondejar as well court. the alleged seller (Trinidad) could not have
as the Deeds of Sale/Relinquishments sold the lots since she had earlier transferred
executed by Mondejar in favor of the other The donation made on April 5, 1956 by ownership thereof by virtue of the deed of
Defendants; Trinidad Quijada and her brother and donation. So long as the resolutory condition
sisters7 was subject to the condition that the subsists and is capable of fulfillment, the
4) ordering Defendants to remove their donated property shall be "used solely and donation remains effective and the donee
improvements constructed on the questioned exclusively as a part of the campus of the continues to be the owner subject only to the
lot; proposed Provincial High School in rights of the donor or his successors-in-
Talacogon."8 The donation further provides interest under the deed of donation. Since no
that should "the proposed Provincial High period was imposed by the donor on when
5) ordering the Defendants to pay Plaintiffs,
School be discontinued or if the same shall be must the donee comply with the condition, the
jointly and severally, the amount of
opened but for some reason or another, the latter remains the owner so long as he has
P10,000.00 representing attorney's fees;
same may in the future be closed" the tried to comply with the condition within a
donated property shall automatically revert to reasonable period. Such period, however,
6) ordering Defendants to pays the amount of became irrelevant herein when the donee-
the donor.9 Such condition, not being contrary
P8,000.00 as expenses of litigation; and Municipality manifested through a resolution
to law, morals, good customs, public order or
public policy was validly imposed in the that it cannot comply with the condition of
7) ordering Defendants to pay the sum of donation. 10 building a school and the same was made
P30,000.00 representing moral damages. known to the donor. Only then — when the
When the Municipality's acceptance of the non-fulfillment of the resolutory condition was
SO ORDERED.2 donation was made known to the donor, the brought to the donor's knowledge — that
former became the new owner of the donated ownership of the donated property reverted to
On appeal, the Court of Appeals reversed and property — donation being a mode of the donor as provided in the automatic
set aside the judgment a quo3 ruling that the acquiring and transmitting ownership 11 — reversion clause of the deed of donation.
sale made by Trinidad Quijada to respondent notwithstanding the condition imposed by the
Mondejar was valid as the former retained an donee. The donation is perfected once the The donor may have an inchoate interest in
inchoate interest on the lots by virtue of the acceptance by the donee is made known to the donated property during the time that
automatic reversion clause in the deed of the donor.12 According, ownership is ownership of the land has not reverted to her.
donation.4 Thereafter, petitioners filed a immediately transferred to the latter and that Such inchoate interest may be the subject of
motion for reconsideration. When the CA contracts including a contract of sale. In this
denied their motion,5 petitioners instituted a
128
case, however, what the donor sold was the it cannot be said that petioners had slept on successors-in-interest — became the owners
land itself which she no longer owns. It would their rights for a long time. The 1960's sales of the subject property upon the reversion of
have been different if the donor-seller sold her made by Trinidad Quijada cannot be the the ownership of the land to them.
interests over the property under the deed of reckoning point as to when petitioners' cause Consequently, ownership is transferred to
donation which is subject to the possibility of of action arose. They had no interest over the respondent Mondejar and those who claim
reversion of ownership arising from the non- property at that time except under the deed of their right from him. Article 1434 of the New
fulfillment of the resolutory condition. donation to which private respondents were Civil Code supports the ruling that the seller's
not privy. Moreover, petitioners had previously "title passes by operation of law to the
As to laches, petitioners' action is not yet filed an ejectment suit against private buyer." 21 This rule applies not only when the
barred thereby. Laches presupposes failure or respondents only that it did not prosper on a subject matter of the contract of sale is
neglect for an unreasonable and unexplained technicality. goods,22 but also to other kinds of property,
length of time, to do that which, by exercising including real property. 23
due diligence, could or should have been Be that at it may, there is one thing which
done earlier; 14 "it is negligence or omission to militates against the claim of petitioners. Sale, There is also no merit in petitioners'
assert a right within a reasonable time, thus, being a consensual contract, is perfected by contention that since the lots were owned by
giving rise to a presumption that the party mere consent, which is manifested the the municipality at the time of the sale, they
entitled to assert it either has abandoned or moment there is a meeting of the minds17 as were outside the commerce of men under
declined to assert it." 15 Its essential elements to the offer and acceptance thereof on three Article 1409 (4) of the NCC;24 thus, the
of: (3) elements: subject matter, price and terms contract involving the same is inexistent and
of payment of the price. 18 Ownership by the void from the beginning. However, nowhere in
a) Conduct on the part of the defendant, or of seller on the thing sold at the time of the Article 1409 (4) is it provided that the
one under whom he claims, giving rise to the perfection of the contract of sale is not an properties of a municipality, whether it be
situation complained of; element for its perfection. What the law those for public use or its patrimonial
requires is that the seller has the right to property 25 are outside the commerce of men.
b) Delay in asserting complainant's right after transfer ownership at the time the thing sold is Besides, the lots in this case were
he had knowledge of the defendant's conduct delivered. 19 Perfection per se does not conditionally owned by the municipality. To
and after he has an opportunity to sue; transfer ownership which occurs upon the rule that the donated properties are outside
actual or constructive delivery of the thing the commerce of men would render nugatory
sold. 20 A perfected contract of sale cannot be the unchallenged reasonableness and
c) Lack of knowledge or notice on the part of
challenged on the ground of non-ownership justness of the condition which the donor has
the defendant that the complainant would
on the part of the seller at the time of its the right to impose as owner thereof.
assert the right on which he bases his suit;
perfection; hence, the sale is still valid. Moreover, the objects referred to as outsides
and,
the commerce of man are those which cannot
The consummation, however, of the perfected be appropriated, such as the open seas and
d) Injury or prejudice to the defendant in the the heavenly bodies.
contract is another matter. It occurs upon the
event relief is accorded to the complainant. 16
constructive or actual delivery of the subject
matter to the buyer when the seller or her With respect to the trial court's award of
are absent in this case. Petioners' cause of successors-in-interest subsequently acquires attorney's fees, litigation expenses and moral
action to quiet title commenced only when the ownership thereof. Such circumstance damages, there is neither factual nor legal
property reverted to the donor and/or his happened in this case when petitioners — basis thereof. Attorney's fees and expenses of
successors-in-interest in 1987. Certainly, who are Trinidad Quijada's heirs and litigation cannot, following the general rule in
when the suit was initiated the following year,
129
Article 2208 of the New Civil Code, be rendered declaring the defendants-appellants 13 Central Philippine University v. CA, 246
recovered in this case, there being no as the rightful and lawful owners and SCRA 511.
stipulation to that effect and the case does not possessors of the subject land. There is no
fall under any of the pronouncement as to costs." 14 Reyes v. CA, 264 SCRA 35; Republic v.
exceptions. 26 It cannot be said that private Sandiganbayan, 255 SCRA 438; PAL
respondents had compelled petitioners to 4 CA Decision, pp. 6-7; Rollo, pp. 45-16. Employees Savings & Loan Association, Inc.
litigate with third persons. Neither can it be v. NLRC, 260 SCRA 758.
ruled that the former acted in "gross and 5 CA Resolution promulgated August 26,
evident bad faith" in refusing to satisfy the 1996; Rollo, p. 55. 15 Catholic Bishop of Balanga v. CA, 264
latter's claims considering that private SCRA 181; Chavez v. Bonto-Perez, 242
respondents were under an honest belief that SCRA 73; Rivera v. CA, 244 SCRA 218;
6 Comment of Private Respondents, pp. 7-
they have a legal right over the property by Cormero v. CA, 317 Phil. 348.
8: Rollo, pp. 67-68.
virtue of the deed of sale. Moral damages
cannot likewise be justified as none of the
7 Her sisters were Leonila Corvera Vda. de 16 Santiago v. CA, 278 SCRA 98 (1997);
circumstances enumerated under Articles
Sequeña and Paz Corvera Cabiltes and the Catholic Bishop of Balanga v. CA, 264 SCRA
2219. 27 and 2220 28 of the New Civil Code
brother was Epapiadito Corvera. 181; Claveria v. Quinco, 207 SCRA 66 (1992);
concur in this case
Perez v. Ong Cho, 116 SCRA 732 (1982);
8 RTC Decision, p. 1; Rollo, p. 16. Yusingco v. Ong Hing Lian, 42 SCRA 589
WHEREFORE, by virtue of the foregoing, the (1971); LE Lotho, Inc. v. Ice and cold Storage
assailed decision of the Court of Appeals is Industries, Inc., 3 SCRA 744; Go Chi
AFFIRMED. 9 CA Decision. pp. 5-6; Rollo, pp. 44-45.
Gun, et. al. v. Co Cho, et. al., 96 Phil. 622.

SO ORDERED. 10 City of Angeles v. CA, 261 SCRA 90.

17 Art. 1475, New Civil Code (NCC). "The
contact of sale is perfected at the moment
Melo, Puno and Mendoza, JJ., concur. 11 Art. 712, New Civil Code provides: there is a meeting of the minds upon the thing
"Ownership is acquired by occupation and by which is the object of the contract and upon
Footnotes intellectual creation. the price. . . ."

1 Decision of Court of Appeals in CA-G.R. CV "Ownership and other real rights over 18 Leabres v. CA, 146 SCRA 158 (1986); See
No. 44016 promulgated on May 31, 1996. pp. property are acquired and transmitted by law, also Navarro v. Sugar Producer's Corporation,
2-5; Rollo, pp. 41-44. by donation, by testate and instate 1. SCRA 1180.
succession, and in consequence of certain
contracts, by tradition.
2 Regional Trial Court (Bayugan, Agusan del 19 Art. 1459, NCC — "The thing must be licit
Sur) Decision dated July 16, 1993 penned by and the vendor must have a right to transfer
Judge Zenaida Placer, p. 6; Annex "A" of "They may also be acquired by means of the ownership thereof at the time it is
Petition; Rollo, p. 21. prescription." (Emphasis supplied). delivered."

3 The decretal portion of the CA's decision 12 Art. 734, New Civil Code (NCC) reads: 20 Art. 712, NCC. ". . . . Ownership and other
states: "WHEREFORE, premises considered, "The donation is perfected from the moment real rights over property are acquired and
the decision appealed from is hereby the donor knows of the acceptance by the transmitted . . . in consequence of certain
REVERSE and SET ASIDE, and judgment donee." contracts, by tradition."
130
21 Art. 1431, NCC provides: "When a person into properties for public use and patrimonial (4) adultery or concubinage;
who is not the owner of a thing sells or properties."
alienates and delivers it, and later the seller or (5) illegal or arbitrary detention or arrests;
grantor acquires title thereto, such title passes Art. 424 provides: "Property for public use, in
by operation of law to the buyer or grantee". the provinces, cities and municipalities, (6) illegal search;
consist of the provincial roads, city streets,
22 Art. 1505 of the NCC provides: "Subject to municipal streets, the squares, fountains, (7) libel, slander or any other form or
the provisions of this Title, where goods are public waters, promenades, and public works defamation;
sold by a person who is not the owner thereof, for public service paid for by said provinces,
and who does not sell them under authority or cities, or municipalities.
(8) malicious prosecution;
with the consent of the owner, the buyer
acquires no better title to the goods than the "All other property possessed by any of them
seller had, unless the owner of the goods is by (9) acts mentioned in Article 309;
is patrimonial and shall be governed by this
his conduct precluded from denying the Code, without prejudice to the provisions of
seller's authority to sell. special laws." (10) acts and actions referred to in Articles 21,
26, 27, 28, 29, 30, 32, 34 and 35.
xxx xxx xxx (Emphasis 26 In the absence of stipulation, attorney's
supplied) fees and expenses of litigation, other than The parents of the female seduced, abducted,
judicial costs, cannot be recovered except: raped or abused referred to in no. 3 of this
Other exceptions to the foregoing includes: (a) Article, may also recover moral damages.
when the contrary is provided in recording (2) when the defendant's act or omission has
laws, (b) sales made under statutory power of compelled the plaintiff to litigate with third The spouse, ascendants, descendants and
sale or pursuant to a valid order from a court persons or to incur expenses to protect his brothers and sisters may bring the action
of competent jurisdiction, and (c) sales made interest. mentioned in no. 9 of this Article, in the order
in a merchant's store in accordance with the named.
Code of commerce and special laws. (5) where the defendant acted in gross and
evident bad faith in refusing to satisfy the 29 Art. 2220. Willful injury to property may be
23 See Articles 1434, NCC, supra.; Estoque plaintiff's plainly valid, just and demandable a legal ground for awarding moral damages if
v. Pajimula, 133 Phil. 55; 24 SCRA 59 (1968); claim. the court should find that, under the
Bucton v. Gabar, 55 SCRA 499. circumstances, such damages are justly due.
The same rule applies to breaches of
27 Moral damages may be recovered in the
24 Art. 1409 (4), NCC: "The following contracts where the defendant acted
following and analogous cases:
contracts are inexistent and void from the fraudulently or in bad faith.
beginning: (1) a criminal offense resulting in physical
injuries;
(4) Those whose object is outside the
commerce of men; (2) quasi-delicts causing physical injuries;

25 Art. 423, NCC: "The properties of (3) seduction, abduction, rape or other
provinces, cities and municipalities, is divided lascivious acts;

131
G.R. No. 87047 October 31, 1990 long as defendant needed the premises and As stated at the outset, respondent Court of
can meet and pay the said increases, the Appeals affirmed in full said decision of the
FRANCISCO LAO LIM, petitioner, defendant to give notice of his intent to renew Regional Trial Court and held that (1) the
vs. sixty (60) days before the expiration of the stipulation in the compromise agreement
COURT OF APPEALS and BENITO term; 2 which, in its formulation, allows the lessee to
VILLAVICENCIO DY, respondents. stay on the premises as long as he needs it
By reason of said compromise agreement the and can pay rents is valid, being a resolutory
Gener E. Asuncion for petitioner. lease continued from 1979 to 1982, then from condition and, therefore, beyond the ambit of
1982 to 1985. On April 17, 1985, petitioner Article 1308 of the Civil Code; and (2) that a
advised private respondent that he would no compromise has the effect of res judicata. 8
Natividad T. Perez for private respondent.
longer renew the contract effective October,
1985.3 However, on August 5, 1985, private Petitioner's motion for reconsideration having
REGALADO, J.:
respondent informed petitioner in writing of his been denied by respondent Court of Appeals,
intention to renew the contract of lease for this present petition is now before us. We find
Respondent Court of Appeals having another term, commencing November, 1985 the same to be meritorious.
affirmed in toto on June 30, 1988 in CA-G.R. to October, 1988. 4 In reply to said letter,
SP No. 13925, 1 the decision of the Regional petitioner advised private respondent that he Contrary to the ruling of respondent court, the
Trial Court of Manila, Branch XLVI in Civil did not agree to a renewal of the lease disputed stipulation "for as long as the
Case No. 87-42719, entitled "Francisco Lao contract upon its expiration in October, 1985. 5 defendant needed the premises and can meet
Lim vs. Benito Villavicencio Dy," petitioner
and pay said increases" is a purely potestative
seeks the reversal of such affirmance in the
On January 15, 1986, because of private condition because it leaves the effectivity and
instant petition.
respondent's refusal to vacate the premises, enjoyment of leasehold rights to the sole and
petitioner filed another ejectment suit, this exclusive will of the lessee. It is likewise a
The records show that private respondent time with the Metropolitan Trial Court of suspensive condition because the renewal of
entered into a contract of lease with petitioner Manila in Civil Case No. 114659-CV. In its the lease, which gives rise to a new lease,
for a period of three (3) years, that is, from decision of September 24, 1987, said court depends upon said condition. It should be
1976 to 1979. After the stipulated term dismissed the complaint on the grounds that noted that a renewal constitutes a new
expired, private respondent refused to vacate (1) the lease contract has not expired, being a contract of lease although with the same
the premises, hence, petitioner filed an continuous one the period whereof depended terms and conditions as those in the expired
ejectment suit against the former in the City upon the lessee's need for the premises and lease. It should also not be overlooked that
Court of Manila, docketed therein as Civil his ability to pay the rents; and (2) the said condition is not resolutory in nature
Case No. 051063-CV. The case was compromise agreement entered into in the because it is not a condition that terminates
terminated by a judicially approved aforesaid Civil Case No. 051063-CV the lease contract. The lease contract is for a
compromise agreement of the parties constitutes res judicata to the case before it. 6 definite period of three (3) years upon the
providing in part: expiration of which the lease automatically
Petitioner appealed to the Regional Trial Court terminates.
3. That the term of the lease shall be renewed of Manila which, in its decision of January 28,
every three years retroacting from October 1988 in Civil Case No. 87-42719, affirmed the The invalidity of a condition in a lease contract
1979 to October 1982; after which the decision of the lower court. 7 similar to the one at bar has been resolved
abovenamed rental shall be raised in Encarnacion vs. Baldomar, et al. 9 where we
automatically by 20% every three years for as
132
ruled that in an action for ejectment, the the lease shall be renewed every three (3) language employed indicates dearly and
defense interposed by the lessees that the years," thereby requiring the mutual unambiguously that it was the intention and
contract of lease authorized them to continue agreement of the parties. The use of the word purpose of the parties to do so. 13 A portion in
occupying the premises as long as they paid "renew" and the designation of the period of a lease giving the lessee and his assignee the
the rents is untenable, because it would leave three (3) years clearly confirm that the right to perpetual renewals is not favored by
to the lessees the sole power to determine contract of lease is limited to a specific period the courts, and a lease will be construed as
whether the lease should continue or not. As and that it is not a continuing lease. The not making such a provision unless it does so
stated therein, "(i)f this defense were to be stipulation provides for a renewal of the lease clearly. 14
allowed, so long as defendants elected to every three (3) years; there could not be a
continue the lease by continuing the payment renewal if said lease did not expire, otherwise As we have further emphasized:
of the rentals, the owner would never be able there is nothing to renew.
to discontinue it; conversely, although the It is also important to bear in mind that in a
owner should desire the lease to continue, the Resultantly, the contract of lease should be reciprocal contract like a lease, the period of
lessees could effectively thwart his purpose if and is hereby construed as providing for a the lease must be deemed to have been
they should prefer to terminate the contract by definite period of three (3) years and that the agreed upon for the benefit of both parties,
the simple expedient of stopping payment of automatic increase of the rentals by twenty absent language showing that the term was
the rentals. This, of course, is prohibited by percent (20%) will take effect only if the deliberately set for the benefit of the lessee or
the aforesaid article of the Civil Code. (8 parties decide to renew the lease. A contrary lessor alone. We are not aware of any
Manresa, 3rd ed., pp. 626, 627; Cuyugan vs. interpretation will result in a situation where presumption in law that the term of a lease is
Santos, 34 Phil. 100.) the continuation and effectivity of the contract designed for the benefit of the lessee
will depend only upon the will of the lessee, in alone. Koh and Cruz in effect rested upon
The continuance, effectivity and fulfillment of a violation of Article 1308 of the Civil Code and such a presumption. But that presumption
contract of lease cannot be made to depend the aforesaid doctrine in Encarnacion. The cannot reasonably be indulged in casually in
exclusively upon the free and uncontrolled compromise agreement should be understood an era of rapid economic change, marked by,
choice of the lessee between continuing the as bearing that import which is most adequate among other things, volatile costs of living and
payment of the rentals or not, completely to render it effectual. 10 Where the instrument fluctuations in the value of the domestic
depriving the owner of any say in the matter. is susceptible of two interpretations, one currency. The longer the period the more
Mutuality does not obtain in such a contract of which will make it invalid and illegal and clearly unreasonable such a presumption
lease and no equality exists between the another which will make it valid and legal, the would be. In an age like that we live in, very
lessor and the lessee since the life of the latter interpretation should be adopted. 11 specific language is necessary to show an
contract is dictated solely by the lessee. intent to grant a unilateral faculty to extend or
Moreover, perpetual leases are not favored in renew a contract of lease to the lessee alone,
The interpretation made by respondent court law, nor are covenants for continued renewals or to the lessor alone for that matter. We hold
cannot, therefore, be upheld. Paragraph 3 of tending to create a perpetuity, and the rule of that the above-quoted rulings in Koh v.
the compromise agreement, read and construction is well settled that a covenant for Ongsiaco and Cruz v. Alberto should be and
interpreted in its entirety, is actually to the renewal or for an additional term should not are overruled. 15
effect that the last portion thereof, which gives be held to create a right to repeated grants in
the private respondent sixty (60) days before perpetuity, unless by plain and unambiguous In addition, even assuming that the clause "for
the expiration of the term the right to give terms the parties have expressed such as long as the defendant needed the premises
notice of his intent to renew, is subject to the intention. 12 A lease will not be construed to and can meet and pay, said increases" gives
first portion of said paragraph that "the term of create a right to perpetual renewals unless the private respondent an option to renew the

133
lease, the same will be construed as providing judicata. While it is true that a compromise cause of action is a similar refusal but with
for but one renewal or extension and, agreement has the effect of res judicata this respect to the lease which expired in October,
therefore, was satisfied when the lease was doctrine does not apply in the present case. It 1985 under the compromise agreement. While
renewed in 1982 for another three (3) years. A is elementary that for a judgment to be a bar the compromise agreement may be res
general covenant to renew is satisfied by one to a subsequent case, (1) it must be a final judicata as far as the cause of action and
renewal and will not be construed to confer judgment, (2) the court which rendered it had issues in the first ejectment case is
the right to more than one renewal unless jurisdiction over the subject matter and the concerned, any cause of action that arises
provision is clearly and expressly made for parties, (3) it must be a judgment on the from the application or violation of the
further renewals.16 Leases which may have merits, and (4) there must be identity between compromise agreement cannot be said to
been intended to be renewable in perpetuity the two cases as to parties, subject matter have been settled in said first case. The
will nevertheless be construed as importing and cause of action. 19 compromise agreement was meant to settle,
but one renewal if there is any uncertainty in as it did only settle, the first case. It did not, as
that regard. 17 In the case at bar, the fourth requisite is it could not, cover any cause of action that
lacking. Although there is identity of parties, might arise thereafter, like the present case
The case of Buccat vs. Dispo et al., 18 relied there is no identity of subject matter and which was founded on the expiration of the
upon by responddent court, to support its cause of action. The subject matter in the first lease in 1985, which necessarily requires a
holding that respondent lessee can legally ejectment case is the original lease contract different set of evidence. The fact that the
stay on the premises for as long as he needs while the subject matter in the case at bar is compromise agreement was judicially
it and can pay the rents, is not in point. In said the lease created under the terms provided in approved does not foreclose any cause of
case, the lease contract provides for an the subsequent compromise agreement. The action arising from a violation of the terms
indefinite period since it merely stipulates lease executed in 1978 is one thing; the lease thereof.
"(t)hat the lease contract shall remain in full constituted in 1982 by the compromise
force and effect as long as the land will serve agreement is another. WHEREFORE, the decision of respondent
the purpose for which it is intended as a Court of Appeals is REVERSED and SET
school site of the National Business Institute, There is also no identity, in the causes of ASIDE. Private respondent is hereby ordered
but the rentals now stipulated shall be subject action. The test generally applied to determine to immediately vacate and return the
to review every after ten (10) years by mutual the identity of causes of action is to consider possession of the leased premises subject of
agreement of the parties." This is in clear the identity of facts essential to their the present action to petitioner and to pay the
contrast to the case at bar wherein, to repeat, maintenance, or whether the same evidence monthly rentals due thereon in accordance
the lease is fixed at a period of three (3) years would sustain both causes of action. 20 In the with the compromise agreement until he shall
although subject to renewal upon agreement case at bar, the delict or the wrong in the first have actually vacated the same. This
of the parties, and the clause "for as long as case is different from that in the second, and judgment is immediately executory.
defendant needs the premises and can meet the evidence that will support and establish
and pay the rents" is not an independent the cause of action in the former will not SO ORDERED.
stipulation but is controlled by said fixed term suffice to support and establish that in the
and the option for renewal upon agreement of latter.
both parties.
In the first ejectment case, the cause of action
On the second issue, we agree with petitioner was private respondent's refusal to comply
that respondent court erred in holding that the with the lease contract which expired on
action for ejectment is barred by res December 31, 1978. In the present case, the

134
135
G.R. No. 70789 October 19, 1992 A. . . . IN HOLDING PERSONALLY LIABLE holder of appropriate government authority or
UNDER THE CONTRACT OF SALE license to sell and dispose pulp wood.
RUSTAN PULP & PAPER MILLS, INC., PETITIONER TANTOCO WHO SIGNED
BIENVENIDO R. TANTOCO, SR., and MERELY AS REPRESENTATIVE OF These prefatory business proposals
ROMEO S. VERGARA, petitioners, PETITIONER RUSTAN, AND PETITIONER culminated in the execution, during the month
vs. VERGARA WHO DID NOT SIGN AT ALL; of April, 1968, of a contract of sale whereby
THE INTERMEDIATE APPELLATE COURT Romeo A. Lluch agreed to sell, and Rustan
and ILIGAN DIVERSIFIED PROJECTS, INC., B. . . . IN HOLDING THAT PETITIONER Pulp and Paper Mill, Inc. undertook to pay the
ROMEO A. LLUCH and ROBERTO G. RUSTAN'S DECISION TO SUSPEND price of P30.00 per cubic meter of pulp wood
BORROMEO, respondents. TAKING DELIVERY OF PULP WOOD FROM raw materials to be delivered at the buyer's
RESPONDENT LLUCH, WHICH WAS plant in Baloi, Lanao del Norte. Of pertinent
MELO, J.: PROMPTED BY SERIOUS AND significance to the issue at hand are the
UNFORESEEN DEFECTS IN THE MILL, following stipulations in the bilateral
When petitioners informed herein private WAS NOT IN THE LAWFUL EXERCISE OF undertaking:
respondents to stop the delivery of pulp wood ITS RIGHTS UNDER THE CONTRACT OF
supplied by the latter pursuant to a contract of SALE; and 3. That BUYER shall have the option to buy
sale between them, private respondents sued from other SELLERS who are equally
for breach of their covenant. The court of C. . . . IN AWARDING MORAL DAMAGES qualified and holders of appropriate
origin dismissed the complaint but at the same AND ATTORNEY'S FEES IN THE ABSENCE government authority or license to sell or
time enjoined petitioners to respect the OF FRAUD OR BAD FAITH. dispose, that BUYER shall not buy from any
contract of sale if circumstances warrant the other seller whose pulp woods being sold
full operation in a commercial scale of (page 18, Petition; page 24, Rollo) shall have been established to have
petitioners' Baloi plant and to continue emanated from the SELLER'S lumber and/or
accepting and paying for deliveries of pulp The generative facts of the controversy, as firewood concession. . . .
wood products from Romeo Lluch (page 14, gathered from the pleadings, are fairly simple.
Petition; page 20, Rollo). On appeal to the And that SELLER has the priority to supply
then Intermediate Appellate Court, Presiding Sometime in 1966, petitioner Rustan the pulp wood materials requirement of the
Justice Ramon G. Gaviola, Jr., who spoke for established a pulp and paper mill in Baloi, BUYER;
the First Civil Cases Division, with Justices Lano del Norte. On March 20, 1967,
Caguioa, Quetulio-Losa, and Luciano, respondent Lluch, who is a holder of a forest 7. That the BUYER shall have the right to stop
concurring, modified the judgment by directing products license, transmitted a letter to delivery of the said raw materials by the seller
herein petitioners to pay private respondents, petitioner Rustan for the supply of raw covered by this contract when supply of the
jointly and severally, the sum of P30,000.00 materials by the former to the latter. In same shall become sufficient until such time
as moral damages and P15,000.00 as response thereto, petitioner Rustan proposed, when need for said raw materials shall have
attorney's fees (pages 48-58, Rollo). among other things, in the letter-reply: become necessarily provided, however, that
the SELLER is given sufficient notice.
In the petition at bar, it is argued that the 2. That the contract to supply is not exclusive
Appellate Court erred; because Rustan shall have the option to buy (pages 8-9, Petition; pages 14-15, Rollo)
from other suppliers who are qualified and

136
In the installation of the plant facilities, the like the appellee to accumulate stockpiles of . . . The letter of September 30, 1968, Exh.
technical staff of Rustan Pulp and Paper Mills, cut wood even after its letter to appellants "D" shows that defendants were terminating
Inc. recommended the acceptance of dated September 30, 1968 stopping the the contract of sale (Exh. "A"), and refusing
deliveries from other suppliers of the pulp deliveries because the supply of raw materials any future or further delivery — whether on
wood materials for which the corresponding has become sufficient. The fact that appellees the ground that they had sufficient supply of
deliveries were made. But during the test run were buying and accepting pulp wood pulp wood materials or that appellants cannot
of the pulp mill, the machinery line thereat had materials from other sources other than the meet the standard of quality of pulp wood
major defects while deliveries of the raw appellants even after September 30, 1968 materials that Rustan needs or that there were
materials piled up, which prompted the belies that they have more than sufficient defects in appellees' machineries resulting in
Japanese supplier of the machinery to supply of pulp wood materials, or that they are an inability to continue full commercial
recommend the stoppage of the deliveries. unable to go into full commercial operation or operations.
The suppliers were informed to stop deliveries that their machineries are defective or even
and the letter of similar advice sent by that the pulp wood materials coming from Furthermore, there is evidence on record that
petitioners to private respondents reads: appellants are sub-standard. Second, We appellees have been accepting deliveries of
likewise find the court a quo's finding that pulp wood materials from other sources, i.e.
Iligan Diversified Projects, Inc. "even with one predicament in which Salem Usman, Fermin Villanueva and
Iligan City defendant Rustan found itself wherein Pacasum even after September 30, 1968.
commercial operation was delayed, it
Attention: Mr. Romeo A. Lluch accommodated all its suppliers of raw Lastly, it would be unjust for the court a quo to
materials, including plaintiff, Romeo Lluch, by rule that the contract of sale be temporarily
allowing them to deliver all its stockpiles of cut suspended until Rustan, et al., are ready to
wood" (Decision, page 202, Record on accept deliveries from appellants. This would
Appeal) to be both illogical and inconsistent. make the resumption of the contract purely
Dear Mr. Lluch: Illogical, because as appellee Rustan itself dependent on the will of one party — the
claimed "if the plant could not be operated on appellees, and they could always claim, as
This is to inform you that the supply of raw a commercial scale, it would then be illogical they did in the instant case, that they have
materials to us has become sufficient and we for defendant Rustan to continue accepting more than sufficient supply of pulp wood when
will not be needing further delivery from you. deliveries of raw materials." Inconsistent in fact they have been accepting the same
As per the terms of our contract, please stop because this kind of "concern" or from other sources. Added to this, the court a
delivery thirty (30) days from today. the "accommodation" is not usual or consistent quo was imposing a new condition in the
prerogative regarding the stoppage of with ordinary business practice considering contract, one that was not agreed upon by the
deliveries via the letter addressed to Iligan that this would mean adequate losses to the parties.
Diversified Project, Inc. on September 30, company. More so, if We consider that
1968 because petitioners never really stopped appellee is a new company and could not
accepting deliveries from private respondents (Pages B-10, Decision; Pages 55-57, Rollo)
therefore afford to absorb more losses than it
until December 23, 1968. Petitioner's already allegedly incurred by the consequent
paradoxial stance portrayed in this manner: defects in the machineries. The matter of Tantoco's and Vergara's joint
and several liability as a result of the alleged
. . . We cannot accept the reasons given by breach of the contract is dependent, first of all,
Clearly therefore, this is a breach of the
appellees as to why they were stopping on whether Rustan Pulp and Paper Mills may
contract entered into by and between
deliveries of pulp wood materials. First, We legally exercise the right of stoppage should
appellees and appellants which warrants the
find it preposterous for a business company there be a glut of raw materials at its plant.
intervention of this Court.
137
And insofar as the express discretion on the In support of the second ground for allowance profit" (Page 34, Petition; Page 40, Rollo).
part of petitioners is concerned regarding the of the petition, petitioners are of the Altruism may be a noble gesture but
right of stoppage, We feel that there is cogent impression that the letter dated September 30, petitioners' stance in this respect hardly
basis for private respondent's apprehension 1968 sent to private respondents is well within inspires belief for such an excuse is
on the illusory resumption of deliveries the right of stoppage guaranteed to them by inconsistent with a normal business enterprise
inasmuch as the prerogative suggests a paragraph 7 of the contract of sale which was which takes ordinary care of its concern in
condition solely dependent upon the will of construed by petitioners to be a temporary cutting down on expenses (Section 3, (d),
petitioners. Petitioners can stop delivery of suspension of deliveries. There is no doubt Rule 131, Revised Rules of Court). Knowing
pulp wood from private respondents if the that the contract speaks loudly about fully well that they will encounter difficulty in
supply at the plant is sufficient as ascertained petitioners' prerogative but what diminishes producing output because of the defective
by petitioners, subject to re-delivery when the the legal efficacy of such right is the condition machinery line, petitioners opted to open the
need arises as determined likewise by attached to it which, as aforesaid, is plant to greater loss, thus compounding the
petitioners. This is Our simple understanding dependent exclusively on their will for which costs by accepting additional supply to the
of the literal import of paragraph 7 of the reason, We have no alternative but to treat the stockpile. Verily, the petitioner's action when
obligation in question. A purely potestative controversial stipulation as inoperative (Article they acknowledged that "if the plant could not
imposition of this character must be 1306, New Civil Code). It is for this same be operated on a commercial scale, it would
obliterated from the face of the contract reason that We are not inclined to follow the then be illogical for defendant Rustan to
without affecting the rest of the stipulations interpretation of petitioners that the continue accepting deliveries of raw
considering that the condition relates to the suspension of delivery was merely temporary materials." (Page 202, Record on Appeal;
fulfillment of an already existing obligation and since the nature of the suspension itself is Page 8, Decision; Page 55, Rollo).
not to its inception (Civil Code Annotated, by again conditioned upon petitioner's
Padilla, 1987 Edition, Volume 4, Page 160). It determination of the sufficiency of supplies at Petitioners argue next that Tantoco and
is, of course, a truism in legal jurisprudence the plant. Vergara should not have been adjudged to
that a condition which is both potestative (or pay moral damages and attorney's fees
facultative) and resolutory may be valid, even Neither are We prepared to accept petitioners' because Tantoco merely represented the
though the saving clause is left to the will of exculpation grounded on frustration of the interest of Rustan Pulp and Paper Mills, Inc.
the obligor like what this Court, through commercial object under Article 1267 of the while Romeo S. Vergara was not privy to the
Justice Street, said in Taylor vs. Uy Tieng New Civil Code, because petitioners contract of sale. On this score, We have to
Piao and Tan Liuan (43 Phil. 873; 879; cited in continued accepting deliveries from the agree with petitioners' citation of authority to
Commentaries and Jurisprudence on the Civil suppliers. This conduct will estop petitioners the effect that the President and Manager of a
Code, by Tolentino, Volume 4, 1991 edition, from claiming that the breakdown of the corporation who entered into and signed a
page 152). But the conclusion drawn from the machinery line was an extraordinary obstacle contract in his official capacity, cannot be
Taylor case, which allowed a condition for to their compliance to the prestation. It was made liable thereunder in his individual
unilateral cancellation of the contract when the indeed incongruous for petitioners to have capacity in the absence of stipulation to that
machinery to be installed on the factory did sent the letters calling for suspension and yet, effect due to the personality of the corporation
not arrive in Manila, is certainly inappropriate they in effect disregarded their own advice by being separate and distinct from the person
for application to the case at hand because accepting the deliveries from the suppliers. composing it (Bangued Generale Belge vs.
the factual milieu in the legal tussle dissected The demeanor of petitioners along this line Walter Bull and Co., Inc., 84 Phil. 164). And
by Justice Street conveys that the proviso was sought to be justified as an act of because of this precept, Vergara's supposed
relates to the birth of the undertaking and not generous accommodation, which entailed non-participation in the contract of sale
to the fulfillment of an existing obligation. greater loss to them and "was not motivated although he signed the letter dated September
by the usual businessman's obsession with 30, 1968 is completely immaterial. The two
138
exceptions contemplated by Article 1897 of
the New Civil Code where agents are directly
responsible are absent and wanting.

WHEREFORE, the decision appealed from is

hereby MODIFIED in the sense that only
petitioner Rustan Pulp and Paper Mills is
ordered to pay moral damages and attorney's
fees as awarded by respondent Court.

SO ORDERED.

139
G.R. No. 181045 July 2, 2014 of operating a department store and buying Where the Bank has imposed on the Loan
and selling of ready-to-wear apparel. interest at a rate per annum, which is equal to
SPOUSES EDUARDO and LYDIA Respondent Philippine National Bank (PNB) is the Bank’s spread over the current floating
SILOS, Petitioners, a banking corporation organized and existing interest rate, the Borrower hereby agrees that
vs. under Philippine laws. the Bank may, without need of notice to the
PHILIPPINE NATIONAL BANK, Respondent. Borrower, increase or decrease its spread
To secure a one-year revolving credit line of over the floating interest rate at any time
DECISION ₱150,000.00 obtained from PNB, petitioners depending on whatever policy it may adopt in
constituted in August 1987 a Real Estate the future.10 (Emphases supplied)
DEL CASTILLO, J.: Mortgage5 over a 370-square meter lot in
Kalibo, Aklan covered by Transfer Certificate The eight Promissory Notes, on the other
of Title No. (TCT) T-14250. In July 1988,the hand, contained a stipulation granting PNB
In loan agreements, it cannot be denied that
credit line was increased to ₱1.8 million and the right to increase or reduce interest rates
the rate of interest is a principal condition, if
the mortgage was correspondingly increased "within the limits allowed by law or by the
not the most important component. Thus, any
to ₱1.8 million.6 Monetary Board."11
modification thereof must be mutually agreed
upon; otherwise, it has no binding effect.
Moreover, the Court cannot consider a And in July 1989, a Supplement to the The Real Estate Mortgage agreement
stipulation granting a party the option to Existing Real Estate Mortgage7 was executed provided the same right to increase or reduce
prepay the loan if said party is not agreeable to cover the same credit line, which was interest rates "at any time depending on
to the arbitrary interest rates imposed. increased to ₱2.5 million, and additional whatever policy PNB may adopt in the
Premium may not be placed upon a stipulation security was given in the form of a 134-square future."12
in a contract which grants one party the right meter lot covered by TCT T-16208. In
to choose whether to continue with or addition, petitioners issued eight Promissory Petitioners religiously paid interest on the
withdraw from the agreement if it discovers Notes8 and signed a Credit Agreement.9 This notes at the following rates:
that what the other party has been doing all July 1989 Credit Agreement contained a
along is improper or illegal. stipulation on interest which provides as 1. 1st Promissory Note dated July 24, 1989 –
follows: 19.5%;
This Petition for Review on
Certiorari1 questions the May 8, 2007 1.03. Interest. (a) The Loan shall be subject to 2. 2nd Promissory Note dated November 22,
Decision2 of the Court of Appeals (CA) in CA- interest at the rate of 19.5% per annum. 1989 – 23%;
G.R. CV No. 79650, which affirmed with Interest shall be payable in advance every
modifications the February 28, 2003 one hundred twenty days at the rate prevailing
3. 3rd Promissory Note dated March 21, 1990
Decision3 and the June 4, 2003 Order 4 of the at the time of the renewal.
– 22%;
Regional Trial Court (RTC), Branch 6 of
Kalibo, Aklan in Civil Case No. 5975. (b) The Borrower agrees that the Bank may
4. 4th Promissory Note dated July 19, 1990 –
modify the interest rate in the Loan depending
24%;
Factual Antecedents on whatever policy the Bank may adopt in the
future, including without limitation, the shifting
from the floating interest rate system to the 5. 5th Promissory Note dated December 17,
Spouses Eduardo and Lydia Silos (petitioners) 1990 – 28%;
fixed interest rate system, or vice versa.
have been in business for about two decades
140
6. 6th Promissory Note dated February 14, 5. 13th Promissory Note dated March 15, 18. 26th Promissory Note (PN 9707237) dated
1991 – 32%; 1993 – 21%; July 30, 1997 – 25%.16

7. 7th Promissory Note dated March 1, 1991 – 6. 14th Promissory Note dated July 12, 1993 – The 9th up to the 17th promissory notes
30%; and 17.5%; provide for the payment of interest at the "rate
the Bank may at any time without notice, raise
8. 8th Promissory Note dated July 11, 1991 – 7. 15th Promissory Note dated November 17, within the limits allowed by law x x x."17
24%.13 1993 – 21%;
On the other hand, the 18th up to the 26th
In August 1991, an Amendment to Credit 8. 16th Promissory Note dated March 28, promissory notes – including PN 9707237,
Agreement14 was executed by the parties, with 1994 – 21%; which is the 26th promissory note – carried
the following stipulation regarding interest: the following provision:
9. 17th Promissory Note dated July 13, 1994 –
1.03. Interest on Line Availments. (a) The 21%; x x x For this purpose, I/We agree that the
Borrowers agree to pay interest on each rate of interest herein stipulated may be
Availment from date of each Availment up to 10. 18th Promissory Note dated November increased or decreased for the subsequent
but not including the date of full payment 16, 1994 – 16%; Interest Periods, with prior notice to the
thereof at the rate per annum which is Borrower in the event of changes in interest
determined by the Bank to be prime rate plus rate prescribed by law or the Monetary Board
11. 19th Promissory Note dated April 10, 1995
applicable spread in effect as of the date of of the Central Bank of the Philippines, or in
– 21%;
each Availment.15 (Emphases supplied) the Bank’s overall cost of funds. I/We hereby
agree that in the event I/we are not agreeable
12. 20th Promissory Note dated July 19, 1995 to the interest rate fixed for any Interest
Under this Amendment to Credit Agreement, – 18.5%;
petitioners issued in favor of PNB the Period, I/we shall have the option top repay
following 18 Promissory Notes, which the loan or credit facility without penalty within
13. 21st Promissory Note dated December 18, ten (10) calendar days from the Interest
petitioners settled – except the last (the note
1995 – 18.75%; Setting Date.18 (Emphasis supplied)
covering the principal) – at the following
interest rates:
14. 22nd Promissory Note dated April 22, Respondent regularly renewed the line from
1996 – 18.5%; 1990 up to 1997, and petitioners made good
1. 9th Promissory Note dated November 8,
1991 – 26%; on the promissory notes, religiously paying the
15. 23rd Promissory Note dated July 22, 1996 interests without objection or fail. But in 1997,
– 18.5%; petitioners faltered when the interest rates
2. 10th Promissory Note dated March 19,
soared due to the Asian financial crisis.
1992 – 25%;
16. 24th Promissory Note dated November Petitioners’ sole outstanding promissory note
25, 1996 – 18%; for ₱2.5 million – PN 9707237 executed in
3. 11th Promissory Note dated July 11, 1992 – July 1997 and due 120 days later or on
23%; October 28, 1997 – became past due, and
17. 25th Promissory Note dated May 30, 1997
– 17.5%; and despite repeated demands, petitioners failed
4. 12th Promissory Note dated November 10, to make good on the note.
1992 – 21%;

141
Incidentally, PN 9707237 provided for the More than a year later, or on March 24, 2000, In its Answer,24 PNB denied that it unilaterally
penalty equivalent to 24% per annum in case petitioners filed Civil Case No. 5975, seeking imposed or fixed interest rates; that petitioners
of default, as follows: annulment of the foreclosure sale and an agreed that without prior notice, PNB may
accounting of the PNB credit. Petitioners modify interest rates depending on future
Without need for notice or demand, failure to theorized that after the first promissory note policy adopted by it; and that the imposition of
pay this note or any installment thereon, when where they agreed to pay 19.5% interest, the penalties was agreed upon in the Credit
due, shall constitute default and in such cases succeeding stipulations for the payment of Agreement. It added that the imposition of
or in case of garnishment, receivership or interest in their loan agreements with PNB – penalties is supported by the all-inclusive
bankruptcy or suit of any kind filed against which allegedly left to the latter the sole will to clause in the Real Estate Mortgage
me/us by the Bank, the outstanding principal determine the interest rate – became null and agreement which provides that the mortgage
of this note, at the option of the Bank and void. Petitioners added that because the shall stand as security for any and all other
without prior notice of demand, shall interest rates were fixed by respondent obligations of whatever kind and nature owing
immediately become due and payable and without their prior consent or agreement, to respondent, which thus includes penalties
shall be subject to a penalty charge of twenty these rates are void, and as a result, imposed upon default or non-payment of the
four percent (24%) per annum based on the petitioners should only be made liable for principal and interest on due date.
defaulted principal amount. x x x19 (Emphasis interest at the legal rate of 12%. They claimed
supplied) further that they overpaid interests on the On pre-trial, the parties mutually agreed to the
credit, and concluded that due to this following material facts, among others:
PNB prepared a Statement of Account20 as of overpayment of steep interest charges, their
October 12, 1998, detailing the amount due debt should now be deemed paid, and the a) That since 1991 up to 1998, petitioners had
and demandable from petitioners in the total foreclosure and sale of TCTs T-14250 and T- paid PNB the total amount of
amount of ₱3,620,541.60, broken down as 16208 became unnecessary and wrongful. As ₱3,484,287.00;25 and
follows: for the imposed penalty of ₱581,666.66,
petitioners alleged that since the Real Estate
b) That PNB sent, and petitioners received, a
Mortgage and the Supplement thereto did not
Principal P 2,500,000.00 March 10, 2000 demand letter.26
include penalties as part of the secured
amount, the same should be excluded from
Interest 538,874.94 the foreclosure amount or bid price, even if During trial, petitioner Lydia Silos (Lydia)
such penalties are provided for in the final testified that the Credit Agreement, the
Penalties 581,666.66 Amendment to Credit Agreement, Real Estate
Promissory Note, or PN 9707237.22
Mortgage and the Supplement thereto were all
prepared by respondent PNB and were
Total P 3,620,541.60 In addition, petitioners sought to be
presented to her and her husband Eduardo
reimbursed an alleged overpayment of
only for signature; that she was told by PNB
₱848,285.00 made during the period August
that the latter alone would determine the
Despite demand, petitioners failed to pay the 21, 1991 to March 5, 1998,resulting from
interest rate; that as to the Amendment to
foregoing amount. Thus, PNB foreclosed on respondent’s imposition of the alleged illegal
Credit Agreement, she was told that PNB
the mortgage, and on January 14, 1999, TCTs and steep interest rates. They also prayed to
would fill up the interest rate portion thereof;
T-14250 and T-16208 were sold to it at be awarded ₱200,000.00 by way of attorney’s
that at the time the parties executed the said
auction for the amount of fees.23
Credit Agreement, she was not informed
₱4,324,172.96.21 The sheriff’s certificate of
about the applicable spread that PNB would
sale was registered on March 11, 1999.
impose on her account; that the interest rate

142
portion of all Promissory Notes she and currency values, PNB’s spread, bank Note prevail over those mentioned in the
Eduardo issued were always left in blank administrative costs, profitability, and the Credit Agreement and the Real Estate
when they executed them, with respondent’s practice in the banking industry; that in every Mortgage agreements;34
mere assurance that it would be the one to repricing of each loan availment, the borrower
enter or indicate thereon the prevailing has the right to question the rates, but that this 4. Roughly, PNB’s computation of the total
interest rate at the time of availment; and that was not done by the petitioners; and that amount of petitioners’ obligation is correct;35
they agreed to such arrangement. She further anything that is not found in the Promissory
testified that the two Real Estate Mortgage Note may be supplemented by the Credit 5. Because the loan was admittedly due and
agreements she signed did not stipulate the Agreement.29 demandable, the foreclosure was regularly
payment of penalties; that she and Eduardo made;36
consulted with a lawyer, and were told that Ruling of the Regional Trial Court
PNB’s actions were improper, and so on
6. By the admission of petitioners during pre-
March 20, 2000, they wrote to the latter On February 28, 2003, the trial court rendered trial, all payments made to PNB were properly
seeking a recomputation of their outstanding judgment dismissing Civil Case No. 5975.30 applied to the principal, interest and
obligation; and when PNB did not oblige, they
penalties.37
instituted Civil Case No. 5975.27
It ruled that:
The dispositive portion of the trial court’s
On cross-examination, Lydia testified that she
1. While the Credit Agreement allows PNB to Decision reads:
has been in business for 20 years; that she
unilaterally increase its spread over the
also borrowed from other individuals and
floating interest rate at any time depending on IN VIEW OF THE FOREGOING, judgment is
another bank; that it was only with banks that
whatever policy it may adopt in the future, it hereby rendered in favor of the respondent
she was asked to sign loan documents with
likewise allows for the decrease at any time of and against the petitioners by DISMISSING
no indicated interest rate; that she did not
the same. Thus, such stipulation authorizing the latter’s petition.
bother to read the terms of the loan
both the increase and decrease of interest
documents which she signed; and that she
rates as may be applicable is valid,31 as was Costs against the petitioners.
received several PNB statements of account
held in Consolidated Bank and Trust
detailing their outstanding obligations, but she
Corporation (SOLIDBANK) v. Court of
did not complain; that she assumed instead SO ORDERED.38
Appeals;32
that what was written therein is correct.28
Petitioners moved for reconsideration. In an
2. Banks are allowed to stipulate that interest
For his part, PNB Kalibo Branch Manager Order39 dated June 4, 2003, the trial court
rates on loans need not be fixed and instead
Diosdado Aspa, Jr. (Aspa), the sole witness granted only a modification in the award of
be made dependent on prevailing rates upon
for respondent, stated on cross-examination attorney’s fees, reducing the same from 10%
which to peg such variable interest rates;33
that as a practice, the determination of the to 1%. Thus, PNB was ordered to refund to
prime rates of interest was the responsibility petitioner the excess in attorney’s fees in the
solely of PNB’s Treasury Department which is 3. The Promissory Note, as the principal amount of ₱356,589.90, viz:
based in Manila; that these prime rates were contract evidencing petitioners’ loan, prevails
simply communicated to all PNB branches for over the Credit Agreement and the Real
WHEREFORE, judgment is hereby rendered
implementation; that there are a multitude of Estate Mortgage.
upholding the validity of the interest rate
considerations which determine the interest charged by the respondent as well as the
rate, such as the cost of money, foreign As such, the rate of interest, penalties and extra-judicial foreclosure proceedings and the
attorney’s fees stipulated in the Promissory
143
Certificate of Sale. However, respondent is raised the issue in its appellee’s brief in the agreements contemplated the inclusion of the
directed to refund to the petitioner the amount CA, and included a prayer for the reversal of PN 9707237-stipulated 24% penalty in the
of ₱356,589.90 representing the excess said Order. amount to be secured by the mortgaged
interest charged against the latter. property, thus –
In effect, the CA limited petitioners’ appeal to
No pronouncement as to costs. the following issues: For and in consideration of certain loans,
overdrafts and other credit accommodations
SO ORDERED.40 1) Whether x x x the interest rates on obtained from the MORTGAGEE and to
petitioners’ outstanding obligation were secure the payment of the same and those
Ruling of the Court of Appeals unilaterally and arbitrarily imposed by PNB; others that the MORTGAGEE may extend to
the MORTGAGOR, including interest and
2) Whether x x x the penalty charges were expenses, and other obligations owing by the
Petitioners appealed to the CA, which issued
secured by the real estate mortgage; and MORTGAGOR to the MORTGAGEE, whether
the questioned Decision with the following
direct or indirect, principal or secondary, as
decretal portion:
appearing in the accounts, books and records
3) Whether x x x the extrajudicial foreclosure
of the MORTGAGEE, the MORTGAGOR
WHEREFORE, in view of the foregoing, the and sale are valid.42
does hereby transfer and convey by way of
instant appeal is PARTLY GRANTED. The mortgage unto the MORTGAGEE x x
modified Decision of the Regional Trial Court The CA noted that, based on receipts x43 (Emphasis supplied)
per Order dated June 4, 2003 is hereby presented by petitioners during trial, the latter
AFFIRMED with MODIFICATIONS, to wit: dutifully paid a total of ₱3,027,324.60 in
The CA believes that the 24% penalty is
interest for the period August 7, 1991 to
covered by the phrase "and other obligations
1. [T]hat the interest rate to be applied after August 6, 1997, over and above the ₱2.5
owing by the mortgagor to the mortgagee" and
the expiration of the first 30-day interest million principal obligation. And this is
should thus be added to the amount secured
period for PN. No. 9707237 should be 12% exclusive of payments for insurance
by the mortgages.44
per annum; premiums, documentary stamp taxes, and
penalty. All the while, petitioners did not
complain nor object to the imposition of The CA then proceeded to declare valid the
2. [T]hat the attorney’s fees of10% is valid and foreclosure and sale of properties covered by
binding; and interest; they in fact paid the same religiously
and without fail for seven years. The appellate TCTs T-14250 and T-16208, which came as a
court ruled that petitioners are thus estopped necessary result of petitioners’ failure to pay
3. [T]hat [PNB] is hereby ordered to reimburse the outstanding obligation upon
from questioning the same.
[petitioners] the excess in the bid price of demand.45 The CA saw fit to increase the trial
₱377,505.99 which is the difference between court’s award of 1% to 10%, finding the latter
the total amount due [PNB] and the amount of The CA nevertheless noted that for the period
rate to be reasonable and citing the Real
its bid price. July 30, 1997 to August 14, 1997, PNB
Estate Mortgage agreement which authorized
wrongly applied an interest rate of 25.72%
the collection of the higher rate.46
instead of the agreed 25%; thus it
SO ORDERED.41
overcharged petitioners, and the latter paid,
an excess of ₱736.56 in interest. Finally, the CA ruled that petitioners are
On the other hand, respondent did not appeal entitled to ₱377,505.09 surplus, which is the
the June 4,2003 Order of the trial court which difference between PNB’s bid price of
On the issue of penalties, the CA ruled that
reduced its award of attorney’s fees. It simply ₱4,324,172.96 and petitioners’ total computed
the express tenor of the Real Estate Mortgage
144
obligation as of January 14, 1999, or the date ₱3,484,287.00, TO PAYMENT OF THE their consent or agreement to the interest
of the auction sale, in the amount of PRINCIPAL OF ₱2,500,000.[00] LEAVING AN rates imposed thereafter was not obtained;
₱3,946,667.87.47 Hence, the present Petition. OVERPAYMENT OF₱984,287.00 the interest rate, which consists of the prime
REFUNDABLE BY RESPONDENT TO rate plus the bank spread, is determined not
Issues PETITIONER[S] WITH INTEREST OF 12% by agreement of the parties but by PNB’s
PER ANNUM. Treasury Department in Manila. Petitioners
The following issues are raised in this Petition: conclude that by this method of fixing the
II THE COURT OF APPEALS AND THE interest rates, the principle of mutuality of
LOWER COURT ERRED IN HOLDING THAT contracts is violated, and public policy as well
I A. THE COURT OF APPEALS AS WELL AS
PENALTIES ARE INCLUDEDIN THE as Circular 90549 of the then Central Bank had
THE LOWER COURT ERRED IN NOT
SECURED AMOUNT, SUBJECT TO been breached.
NULLIFYING THE INTEREST RATE
PROVISION IN THE CREDIT AGREEMENT FORECLOSURE, WHEN NO PENALTIES
DATED JULY 24, 1989 X X X AND IN THE ARE MENTIONED [NOR] PROVIDED FOR IN Petitioners question the CA’s application of
AMENDMENT TO CREDIT AGREEMENT THE REAL ESTATE MORTGAGE AS A the principle of estoppel, saying that no
DATEDAUGUST 21, 1991 X X X WHICH SECURED AMOUNT AND THEREFORE estoppel can proceed from an illegal act.
LEFT TO THE SOLE UNILATERAL THE AMOUNT OF PENALTIES Though they failed to timely question the
DETERMINATION OF THE RESPONDENT SHOULDHAVE BEEN EXCLUDED FROM imposition of the alleged illegal interest rates
PNB THE ORIGINAL FIXING OF INTEREST [THE] FORECLOSURE AMOUNT. and continued to pay the loan on the basis of
RATE AND ITS INCREASE, WHICH these rates, they cannot be deemed to have
AGREEMENT IS CONTRARY TO LAW, ART. III THE COURT OF APPEALS ERRED IN acquiesced, and hence could recover what
1308 OF THE [NEW CIVIL CODE], AS REVERSING THE RULING OF THE LOWER they erroneously paid.50
ENUNCIATED IN PONCIANO ALMEIDA V. COURT, WHICH REDUCED THE
COURT OF APPEALS,G.R. [NO.] 113412, ATTORNEY’S FEES OF 10% OF THE Petitioners argue that if the interest rates were
APRIL 17, 1996, AND CONTRARY TO TOTAL INDEBTEDNESS CHARGED IN THE nullified, then their obligation to PNB is
PUBLIC POLICY AND PUBLIC INTEREST, X X X EXTRAJUDICIAL FORECLOSURE deemed extinguished as of July 1997;
AND IN APPLYING THE PRINCIPLE OF TOONLY 1%, AND [AWARDING] 10% moreover, it would appear that they even
ESTOPPEL ARISING FROM THE ALLEGED ATTORNEY’S FEES.48 made an over payment to the bank in the
DELAYED COMPLAINT OF PETITIONER[S], amount of ₱984,287.00.
AND [THEIR] PAYMENT OF THE INTEREST Petitioners’ Arguments
CHARGED. Next, petitioners suggest that since the Real
Petitioners insist that the interest rate Estate Mortgage agreements did not include
B. CONSEQUENTLY, THE COURT OF provision in the Credit Agreement and the nor specify, as part of the secured amount,
APPEALS AND THE LOWER COURT Amendment to Credit Agreement should be the penalty of 24% authorized in PN 9707237,
ERRED IN NOT DECLARING THAT PNB IS declared null and void, for they relegated to such amount of ₱581,666.66 could not be
NOT AT ALL ENTITLED TO ANY INTEREST PNB the sole power to fix interest rates based made answerable by or collected from the
EXCEPT THE LEGAL RATE FROM DATE OF on arbitrary criteria or factors such as bank mortgages covering TCTs T-14250 and T-
DEMAND, AND IN NOT APPLYING THE policy, profitability, cost of money, foreign 16208. Claiming support from Philippine Bank
EXCESS OVER THE LEGAL RATE OF THE currency values, and bank administrative of Communications [PBCom] v. Court of
ADMITTED PAYMENTS MADE BY costs; spaces for interest rates in the two Appeals,51 petitioners insist that the phrase
PETITIONER[S] FROM 1991-1998 IN THE Credit Agreements and the promissory notes "and other obligations owing by the mortgagor
ADMITTED TOTAL AMOUNT OF were left blank for PNB to unilaterally fill, and to the mortgagee"52 in the mortgage

145
agreements cannot embrace the ₱581,666.66 escalation clause and a de-escalation clause, and yet she continued to pay the interests
penalty, because, as held in the PBCom case, it may not be said that the bank violated the without protest for a number of years.56
"[a] penalty charge does not belong to the principle of mutuality. Besides, the increase or
species of obligations enumerated in the decrease in interest rates have been mutually b. That interest rates were at short periods –
mortgage, hence, the said contract cannot be agreed upon by the parties, as shown by Respondent argues that the law which
understood to secure the penalty";53 while the petitioners’ continuous payment without governs and prohibits changes in interest
mortgages are the accessory contracts, what protest. Respondent adds that the alleged rates made more than once every twelve
items are secured may only be determined unilateral imposition of interest rates is not a months has been removed57 with the issuance
from the provisions of the mortgage contracts, proper subject for review by the Court of Presidential Decree No. 858.58
and not from the Credit Agreement or the because the issue was never raised in the
promissory notes. lower court. c. That no interest rates could be charged
where no agreement on interest rates was
Finally, petitioners submit that the trial court’s As for petitioners’ claim that interest rates made in writing in violation of Article 1956 of
award of 1% attorney’s fees should be imposed by it are null and void for the reasons the Civil Code, which provides that no interest
maintained, given that in foreclosures, a that 1) the Credit Agreements and the shall be due unless it has been expressly
lawyer’s work consists merely in the promissory notes were signed in blank; 2) stipulated in writing – Respondent insists that
preparation and filing of the petition, and interest rates were at short periods; 3) no the stipulated 25% per annum as embodied in
involves minimal study.54 To allow the interest rates could be charged where no PN 9707237 should be imposed during the
imposition of a staggering ₱396,211.00 for agreement on interest rates was made in interim, or the period after the loan became
such work would be contrary to equity. writing; 4) PNB fixed interest rates on the due and while it remains unpaid, and not the
Petitioners state that the purpose of attorney’s basis of arbitrary policies and standards left to legal interest of 12% as claimed by
fees in cases of this nature "is not to give its choosing; and 5) interest rates based on petitioners.59
respondent a larger compensation for the loan prime rate plus applicable spread are
than the law already allows, but to protect it indeterminate and arbitrary – PNB counters: d. That PNB fixed interest rates on the basis
against any future loss or damage by being of arbitrary policies and standards left to its
compelled to retain counsel x x x to institute a. That Credit Agreements and promissory choosing – According to respondent, interest
judicial proceedings for the collection of its notes were signed by petitioner[s] in blank – rates were fixed taking into consideration
credit."55 And because the instant case Respondent claims that this issue was never increases or decreases as provided by law or
involves a simple extrajudicial foreclosure, raised in the lower court. Besides, by the Monetary Board, the bank’s overall
attorney’s fees may be equitably tempered. documentary evidence prevails over costs of funds, and upon agreement of the
testimonial evidence; Lydia Silos’ testimony in parties.60
Respondent’s Arguments this regard is self-serving, unsupported and
uncorroborated, and for being the lone e. That interest rates based on prime rate plus
For its part, respondent disputes petitioners’ evidence on this issue. The fact remains that applicable spread are indeterminate and
claim that interest rates were unilaterally fixed these documents are in proper form, arbitrary – On this score, respondent submits
by it, taking relief in the CA pronouncement presumed regular, and endure, against there are various factors that influence interest
that petitioners are deemed estopped by their arbitrary claims by Silos – who is an rates, from political events to economic
failure to question the imposed rates and their experienced business person – that she developments, etc.; the cost of money,
continued payment thereof without opposition. signed questionable loan documents whose profitability and foreign currency transactions
It adds that because the Credit Agreement provisions for interest rates were left blank, may not be discounted.61
and promissory notes contained both an

146
On the issue of penalties, respondent 1. That the interest rate to be applied after the interest rate – or 12% per annum– that applies
reiterates the trial court’s finding that during expiration of the first 30-day interest period for upon expiration of the first 30 days interest
pre-trial, petitioners admitted that the PN 9707237 should be 12% per annum; and period provided under PN 9707237, and b)the
Statement of Account as of October 12, 1998 CA’s decree that PNB should reimburse
– which detailed and included penalty charges 2. That PNB should reimburse petitioners the petitioner the excess in the bid price of
as part of the total outstanding obligation excess in the bid price of ₱377,505.99 which ₱377,505.09.
owing to the bank – was correct. Respondent is the difference between the total amount due
justifies the imposition and collection of a to PNB and the amount of its bid price. It appears that respondent’s practice, more
penalty as a normal banking practice, and the than once proscribed by the Court, has been
standard rate per annum for all commercial Our Ruling carried over once more to the petitioners. In a
banks, at the time, was 24%. number of decided cases, the Court struck
The Court grants the Petition. down provisions in credit documents issued
Respondent adds that the purpose of the by PNB to, or required of, its borrowers which
penalty or a penal clause for that matter is to allow the bank to increase or decrease
Before anything else, it must be said that it is
ensure the performance of the obligation and interest rates "within the limits allowed by law
not the function of the Court to re-examine or
substitute for damages and the payment of at any time depending on whatever policy it
re-evaluate evidence adduced by the parties
interest in the event of non-compliance.62 And may adopt in the future." Thus, in Philippine
in the proceedings below. The rule admits of
the promissory note – being the principal National Bank v. Court of Appeals,64 such
certain well-recognized exceptions, though, as
agreement as opposed to the mortgage, stipulation and similar ones were declared in
when the lower courts’ findings are not
which is a mere accessory – should prevail. violation of Article 130865 of the Civil Code. In
supported by the evidence on record or are
This being the case, its inclusion as part of the a second case, Philippine National Bank v.
based on a misapprehension of facts, or when
secured amount in the mortgage agreements Court of Appeals,66 the very same stipulations
certain relevant and undisputed facts were
is valid and necessary. found in the credit agreement and the
manifestly overlooked that, if properly
promissory notes prepared and issued by the
considered, would justify a different
Regarding the foreclosure of the mortgages, respondent were again invalidated. The Court
conclusion. This case falls within such
respondent accuses petitioners of pre-empting therein said:
exceptions.
consolidation of its ownership over TCTs T-
14250 and T-16208; that petitioners filed Civil The Credit Agreement provided inter alia, that
The Court notes that on March 5, 2008, a
Case No. 5975 ostensibly to question the —
Resolution was issued by the Court’s First
foreclosure and sale of properties covered by
Division denying respondent’s petition in G.R.
TCTs T-14250 and T-16208 in a desperate (a) The BANK reserves the right to increase
No. 181046, due to late filing, failure to attach
move to retain ownership over these the interest rate within the limits allowed by
the required affidavit of service of the petition
properties, because they failed to timely law at any time depending on whatever policy
on the trial court and the petitioners, and
redeem them. it may adopt in the future; Provided, that the
submission of a defective verification and
certification of non-forum shopping. On June interest rate on this accommodation shall be
Respondent directs the attention of the Court 25, 2008, the Court issued another Resolution correspondingly decreased in the event that
to its petition in G.R. No. 181046,63 where the denying with finality respondent’s motion for the applicable maximum interest is reduced by
propriety of the CA’s ruling on the following reconsideration of the March 5, 2008 law or by the Monetary Board. In either case,
issues is squarely raised: Resolution. And on August 15, 2008, entry of the adjustment in the interest rate agreed
judgment was made. This thus settles the upon shall take effect on the effectivity date of
issues, as above-stated, covering a) the
147
the increase or decrease in the maximum This clause is authorized by Section 2 of — The rate of interest, including commissions,
interest rate. Presidential Decree (P.D.) No. 1684 which premiums, fees and other charges, on any
further amended Act No. 2655 ("The Usury loan, or forbearance of any money, goods or
The Promissory Note, in turn, authorized the Law"), as amended, thus: credits, regardless of maturity and whether
PNB to raise the rate of interest, at any time secured or unsecured, shall not be subject to
without notice, beyond the stipulated rate of Section 2. The same Act is hereby amended any ceiling prescribed under or pursuant to
12% but only "within the limits allowed by by adding a new section after Section 7, to the Usury Law, as amended.
law." read as follows:
P.D. No. 1684 and C.B. Circular No. 905 no
The Real Estate Mortgage contract likewise Sec. 7-a. Parties to an agreement pertaining more than allow contracting parties to
provided that — to a loan or forbearance of money, goods or stipulate freely regarding any subsequent
credits may stipulate that the rate of interest adjustment in the interest rate that shall
(k) INCREASE OF INTEREST RATE: The agreed upon may be increased in the event accrue on a loan or forbearance of money,
rate of interest charged on the obligation that the applicable maximum rate of interest is goods or credits. In fine, they can agree to
secured by this mortgage as well as the increased bylaw or by the Monetary Board; adjust, upward or downward, the interest
interest on the amount which may have been Provided, That such stipulation shall be valid previously stipulated. However, contrary to the
advanced by the MORTGAGEE, in only if there is also a stipulation in the stubborn insistence of petitioner bank, the
accordance with the provision hereof, shall be agreement that the rate of interest agreed said law and circular did not authorize either
subject during the life of this contract to such upon shall be reduced in the event that the party to unilaterally raise the interest rate
an increase within the rate allowed by law, as applicable maximum rate of interest is without the other’s consent.
the Board of Directors of the MORTGAGEE reduced by law or by the Monetary Board;
may prescribe for its debtors. Provided further, That the adjustment in the It is basic that there can be no contract in the
rate of interest agreed upon shall take effect true sense in the absence of the element of
In making the unilateral increases in interest on or after the effectivity of the increase or agreement, or of mutual assent of the parties.
rates, petitioner bank relied on the escalation decrease in the maximum rate of interest. If this assent is wanting on the part of the one
clause contained in their credit agreement who contracts, his act has no more efficacy
which provides, as follows: Section 1 of P.D. No. 1684 also empowered than if it had been done under duress or by a
the Central Bank’s Monetary Board to person of unsound mind.
The Bank reserves the right to increase the prescribe the maximum rates of interest for
interest rate within the limits allowed by law at loans and certain forbearances. Pursuant to Similarly, contract changes must be made
any time depending on whatever policy it may such authority, the Monetary Board issued with the consent of the contracting parties.
adopt in the future and provided, that, the Central Bank (C.B.) Circular No. 905, series of The minds of all the parties must meet as to
interest rate on this accommodation shall be 1982, Section 5 of which provides: the proposed modification, especially when it
correspondingly decreased in the event that affects an important aspect of the agreement.
the applicable maximum interest rate is Sec. 5. Section 1303 of the Manual of In the case of loan contracts, it cannot be
reduced by law or by the Monetary Board. In Regulations (for Banks and Other Financial gainsaid that the rate of interest is always a
either case, the adjustment in the interest rate Intermediaries) is hereby amended to read as vital component, for it can make or break a
agreed upon shall take effect on the effectivity follows: capital venture. Thus, any change must be
date of the increase or decrease in maximum mutually agreed upon, otherwise, it is bereft of
interest rate. Sec. 1303. Interest and Other Charges. any binding effect.

148
We cannot countenance petitioner bank’s reduced to the alternative "to take it or leave such escalation or de-escalation; 2) within the
posturing that the escalation clause at bench it" . . . . Such a contract is a veritable trap for limits allowed by law; and 3) upon agreement.
gives it unbridled right to unilaterally upwardly the weaker party whom the courts of justice
adjust the interest on private respondents’ must protect against abuse and Indeed, the interest rate which appears to
loan. That would completely take away from imposition.67 (Emphases supplied) have been agreed upon by the parties to the
private respondents the right to assent to an contract in this case was the 21% rate
important modification in their agreement, and Then again, in a third case, Spouses Almeda stipulated in the interest provision. Any doubt
would negate the element of mutuality in v. Court of Appeals,68 the Court invalidated the about this is in fact readily resolved by a
contracts. In Philippine National Bank v. Court very same provisions in the respondent’s careful reading of the credit agreement
of Appeals, et al., 196 SCRA 536, 544-545 prepared Credit Agreement, declaring thus: because the same plainly uses the phrase
(1991) we held — "interest rate agreed upon," in reference to the
The binding effect of any agreement between original 21% interest rate. x x x
x x x The unilateral action of the PNB in parties to a contract is premised on two
increasing the interest rate on the private settled principles: (1) that any obligation Petitioners never agreed in writing to pay the
respondent’s loan violated the mutuality of arising from contract has the force of law increased interest rates demanded by
contracts ordained in Article 1308 of the Civil between the parties; and (2) that there must respondent bank in contravention to the tenor
Code: be mutuality between the parties based on of their credit agreement. That an increase in
their essential equality. Any contract which interest rates from 18% to as much as 68% is
Art. 1308. The contract must bind both appears to be heavily weighed in favor of one excessive and unconscionable is indisputable.
contracting parties; its validity or compliance of the parties so as to lead to an Between 1981 and 1984, petitioners had paid
cannot be left to the will of one of them. unconscionable result is void. Any stipulation an amount equivalent to virtually half of the
regarding the validity or compliance of the entire principal (₱7,735,004.66) which was
In order that obligations arising from contracts contract which is left solely to the will of one of applied to interest alone. By the time the
may have the force of law between the the parties, is likewise, invalid. spouses tendered the amount of
parties, there must be mutuality between the ₱40,142,518.00 in settlement of their
parties based on their essential equality. A It is plainly obvious, therefore, from the obligations; respondent bank was demanding
contract containing a condition which makes undisputed facts of the case that respondent ₱58,377,487.00 over and above those
its fulfillment dependent exclusively upon the bank unilaterally altered the terms of its amounts already previously paid by the
uncontrolled will of one of the contracting contract with petitioners by increasing the spouses.
parties, is void . . . . Hence, even assuming interest rates on the loan without the prior
that the . . . loan agreement between the PNB assent of the latter. In fact, the manner of Escalation clauses are not basically wrong or
and the private respondent gave the PNB a agreement is itself explicitly stipulated by the legally objectionable so long as they are not
license (although in fact there was none) to Civil Code when it provides, in Article 1956 solely potestative but based on reasonable
increase the interest rate at will during the that "No interest shall be due unless it has and valid grounds. Here, as clearly
term of the loan, that license would have been been expressly stipulated in writing." What demonstrated above, not only [are] the
null and void for being violative of the principle has been "stipulated in writing" from a perusal increases of the interest rates on the basis of
of mutuality essential in contracts. It would of interest rate provision of the credit the escalation clause patently unreasonable
have invested the loan agreement with the agreement signed between the parties is that and unconscionable, but also there are no
character of a contract of adhesion, where the petitioners were bound merely to pay 21% valid and reasonable standards upon which
parties do not bargain on equal footing, the interest, subject to a possible escalation or de- the increases are anchored.
weaker party’s (the debtor) participation being escalation, when 1) the circumstances warrant

149
In the face of the unequivocal interest rate *THREE HUNDRED SIXTY FIVE DAYS* the clause so one-sided as to make it
provisions in the credit agreement and in the AFTER DATE unreasonable.
law requiring the parties to agree to changes
in the interest rate in writing, we hold that the On the reverse side of the note the following That ruling is correct. It is in line with our
unilateral and progressive increases imposed condition was stamped: decision in Banco Filipino Savings & Mortgage
by respondent PNB were null and void. Their Bank v. Navarro that although P.D. No. 1684
effect was to increase the total obligation on All short-term loans to be granted starting is not to be retroactively applied to loans
an eighteen million peso loan to an amount January 1, 1978 shall be made subject to the granted before its effectivity, there must
way over three times that which was originally condition that any and/or all extensions hereof nevertheless be a de-escalation clause to
granted to the borrowers. That these that will leave any portion of the amount still mitigate the one-sidedness of the escalation
increases, occasioned by crafty manipulations unpaid after 730 days shall automatically clause. Indeed because of concern for the
in the interest rates is unconscionable and convert the outstanding balance into a unequal status of borrowers vis-à-vis the
neutralizes the salutary policies of extending medium or long-term obligation as the case banks, our cases after Banco Filipino have
loans to spur business cannot be may be and give the Bank the right to charge fashioned the rule that any increase in the rate
disputed.69 (Emphases supplied) the interest rates prescribed under its policies of interest made pursuant to an escalation
from the date the account was originally clause must be the result of agreement
Still, in a fourth case, Philippine National Bank granted. between the parties.
v. Court of Appeals,70 the above doctrine was
reiterated: To secure payment of the loan the parties Thus in Philippine National Bank v. Court of
executed a real estate mortgage contract Appeals, two promissory notes authorized
The promissory note contained the following which provided: PNB to increase the stipulated interest per
stipulation: annum" within the limits allowed by law at any
(k) INCREASE OF INTEREST RATE: time depending on whatever policy [PNB] may
For value received, I/we, [private respondents] adopt in the future; Provided, that the interest
jointly and severally promise to pay to the rate on this note shall be correspondingly
The rate of interest charged on the obligation
ORDER of the PHILIPPINE NATIONAL decreased in the event that the applicable
secured by this mortgage as well as the
BANK, at its office in San Jose City, maximum interest rate is reduced by law or by
interest on the amount which may have been
Philippines, the sum of FIFTEEN THOUSAND the Monetary Board." The real estate
advanced by the MORTGAGEE, in
ONLY (₱15,000.00), Philippine Currency, mortgage likewise provided:
accordance with the provision hereof, shall be
together with interest thereon at the rate of subject during the life of this contract to such
12% per annum until paid, which interest rate an increase within the rate allowed by law, as The rate of interest charged on the obligation
the Bank may at any time without notice, raise the Board of Directors of the MORTGAGEE secured by this mortgage as well as the
within the limits allowed by law, and I/we also may prescribe for its debtors. interest on the amount which may have been
agree to pay jointly and severally ____% per advanced by the MORTGAGEE, in
annum penalty charge, by way of liquidated accordance with the provisions hereof, shall
To begin with, PNB’s argument rests on a
damages should this note be unpaid or is not be subject during the life of this contract to
misapprehension of the import of the appellate
renewed on due dated. such an increase within the rate allowed by
court’s ruling. The Court of Appeals nullified
law, as the Board of Directors of the
the interest rate increases not because the
Payment of this note shall be as follows: MORTGAGEE may prescribe for its debtors.
promissory note did not comply with P.D. No.
1684 by providing for a de-escalation, but
because the absence of such provision made
150
Pursuant to these clauses, PNB successively The BANK reserves the right to increase the rate. Private respondents’ assent to the
increased the interest from 18% to 32%, then interest rate within the limits allowed by law at increases can not be implied from their lack of
to 41% and then to 48%. This Court declared any time depending on whatever policy it may response to the letters sent by PNB, informing
the increases unilaterally imposed by [PNB] to adopt in the future: Provided, that the interest them of the increases. For as stated in one
be in violation of the principle of mutuality as rate on this accommodation shall be case, no one receiving a proposal to change a
embodied in Art.1308 of the Civil Code, which correspondingly decreased in the event that contract is obliged to answer the
provides that "[t]he contract must bind both the applicable maximum interest is reduced by proposal.71 (Emphasis supplied)
contracting parties; its validity or compliance law or by the Monetary Board. . . .
cannot be left to the will of one of them." As We made the same pronouncement in a fifth
the Court explained: As in the first case, PNB successively case, New Sampaguita Builders Construction,
increased the stipulated interest so that what Inc. v. Philippine National Bank,72 thus –
In order that obligations arising from contracts was originally 12% per annum became, after
may have the force of law between the only two years, 42%. In declaring the Courts have the authority to strike down or to
parties, there must be mutuality between the increases invalid, we held: modify provisions in promissory notes that
parties based on their essential equality. A grant the lenders unrestrained power to
contract containing a condition which makes We cannot countenance petitioner bank’s increase interest rates, penalties and other
its fulfillment dependent exclusively upon the posturing that the escalation clause at bench charges at the latter’s sole discretion and
uncontrolled will of one of the contracting gives it unbridled right to unilaterally upwardly without giving prior notice to and securing the
parties, is void (Garcia vs. Rita Legarda, Inc., adjust the interest on private respondents’ consent of the borrowers. This unilateral
21 SCRA 555). Hence, even assuming that loan. That would completely take away from authority is anathema to the mutuality of
the ₱1.8 million loan agreement between the private respondents the right to assent to an contracts and enable lenders to take undue
PNB and the private respondent gave the important modification in their agreement, and advantage of borrowers. Although the Usury
PNB a license (although in fact there was would negate the element of mutuality in Law has been effectively repealed, courts may
none) to increase the interest rate at will contracts. still reduce iniquitous or unconscionable rates
during the term of the loan, that license would charged for the use of money. Furthermore,
have been null and void for being violative of Only recently we invalidated another round of excessive interests, penalties and other
the principle of mutuality essential in interest increases decreed by PNB pursuant charges not revealed in disclosure statements
contracts. It would have invested the loan to a similar agreement it had with other issued by banks, even if stipulated in the
agreement with the character of a contract of borrowers: promissory notes, cannot be given effect
adhesion, where the parties do not bargain on under the Truth in Lending Act.73 (Emphasis
equal footing, the weaker party’s (the debtor) supplied)
[W]hile the Usury Law ceiling on interest rates
participation being reduced to the alternative
was lifted by C.B. Circular 905, nothing in the
"to take it or leave it" (Qua vs. Law Union & Yet again, in a sixth disposition, Philippine
said circular could possibly be read as
Rock Insurance Co., 95 Phil. 85). Such a National Bank v. Spouses Rocamora,74 the
granting respondent bank carte blanche
contract is a veritable trap for the weaker party above pronouncements were reiterated to
authority to raise interest rates to levels which
whom the courts of justice must protect debunk PNB’s repeated reliance on its
would either enslave its borrowers or lead to a
against abuse and imposition. invalidated contract stipulations:
hemorrhaging of their assets.
A similar ruling was made in Philippine We repeated this rule in the 1994 case of PNB
In this case no attempt was made by PNB to
National Bank v. Court of Appeals. The credit v. CA and Jayme Fernandez and the 1996
secure the conformity of private respondents
agreement in that case provided: case of PNB v. CA and Spouses Basco.
to the successive increases in the interest
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Taking no heed of these rulings, the Verily, all these cases, including the present On the basis of the Credit Agreement,
escalation clause PNB used in the present one, involve identical or similar provisions petitioners issued promissory notes which
case to justify the increased interest rates is found in respondent’s credit agreements and they signed in blank, and respondent later on
no different from the escalation clause promissory notes. Thus, the July 1989 Credit entered their corresponding interest rates, as
assailed in the 1996 PNB case; in both, the Agreement executed by petitioners and follows:
interest rates were increased from the agreed respondent contained the following stipulation
12% per annum rate to 42%. x x x on interest: 1st Promissory Note dated July 24, 1989 –
19.5%;
On the strength of this ruling, PNB’s argument 1.03. Interest. (a) The Loan shall be subject to
– that the spouses Rocamora’s failure to interest at the rate of 19.5% [per annum]. 2nd Promissory Note dated November 22,
contest the increased interest rates that were Interest shall be payable in advance every 1989 – 23%;
purportedly reflected in the statements of one hundred twenty days at the rate prevailing
account and the demand letters sent by the at the time of the renewal. 3rd Promissory Note dated March 21, 1990 –
bank amounted to their implied acceptance of 22%;
the increase – should likewise fail. (b) The Borrower agrees that the Bank may
modify the interest rate in the Loan depending 4th Promissory Note dated July 19, 1990 –
Evidently, PNB’s failure to secure the spouses on whatever policy the Bank may adopt in the 24%;
Rocamora’s consent to the increased interest future, including without limitation, the shifting
rates prompted the lower courts to declare from the floating interest rate system to the
5th Promissory Note dated December 17,
excessive and illegal the interest rates fixed interest rate system, or vice versa.
1990 – 28%;
imposed. Togo around this lower court finding, Where the Bank has imposed on the Loan
PNB alleges that the ₱206,297.47 deficiency interest at a rate per annum which is equal to
claim was computed using only the original the Bank’s spread over the current floating 6th Promissory Note dated February 14, 1991
12% per annum interest rate. We find this interest rate, the Borrower hereby agrees that – 32%;
unlikely. Our examination of PNB’s own the Bank may, without need of notice to the
ledgers, included in the records of the case, Borrower, increase or decrease its spread 7th Promissory Note dated March 1, 1991 –
clearly indicates that PNB imposed interest over the floating interest rate at any time 30%; and
rates higher than the agreed 12% per annum depending on whatever policy it may adopt in
rate. This confirmatory finding, albeit based the future.76 (Emphases supplied) 8th Promissory Note dated July 11, 1991 –
solely on ledgers found in the records, 24%.79
reinforces the application in this case of the while the eight promissory notes issued
rule that findings of the RTC, when affirmed pursuant thereto granted PNB the right to On the other hand, the August 1991
by the CA, are binding upon this increase or reduce interest rates "within the Amendment to Credit Agreement contains the
Court.75 (Emphases supplied) limits allowed by law or the Monetary following stipulation regarding interest:
Board"77 and the Real Estate Mortgage
agreement included the same right to increase 1.03. Interest on Line Availments. (a) The
or reduce interest rates "at any time Borrowers agree to pay interest on each
depending on whatever policy PNB may adopt Availment from date of each Availment up to
in the future."78 but not including the date of full payment
thereof at the rate per annum which is
determined by the Bank to be prime rate plus

152
applicable spread in effect as of the date of 19th Promissory Note dated April 10, 1995 – agree that in the event I/we are not agreeable
each Availment.80 (Emphases supplied) 21%; to the interest rate fixed for any Interest
Period, I/we shall have the option to prepay
and under this Amendment to Credit 20th Promissory Note dated July 19, 1995 – the loan or credit facility without penalty within
Agreement, petitioners again executed and 18.5%; ten (10) calendar days from the Interest
signed the following promissory notes in Setting Date.83 (Emphasis supplied)
blank, for the respondent to later on enter the 21st Promissory Note dated December 18,
corresponding interest rates, which it did, as 1995 – 18.75%; These stipulations must be once more
follows: invalidated, as was done in previous cases.
22nd Promissory Note dated April 22, 1996 – The common denominator in these cases is
9th Promissory Note dated November 8, 1991 18.5%; the lack of agreement of the parties to the
– 26%; imposed interest rates. For this case, this lack
of consent by the petitioners has been made
23rd Promissory Note dated July 22, 1996 –
10th Promissory Note dated March 19, 1992 – obvious by the fact that they signed the
18.5%;
25%; promissory notes in blank for the respondent
to fill. We find credible the testimony of Lydia
24th Promissory Note dated November 25, in this respect. Respondent failed to discredit
11th Promissory Note dated July 11, 1992 – 1996 – 18%; her; in fact, its witness PNB Kalibo Branch
23%;
Manager Aspa admitted that interest rates
25th Promissory Note dated May 30, 1997 – were fixed solely by its Treasury Department
12th Promissory Note dated November 10, 17.5%; and in Manila, which were then simply
1992 – 21%; communicated to all PNB branches for
26th Promissory Note (PN 9707237) dated implementation. If this were the case, then this
13th Promissory Note dated March 15, 1993 – July 30, 1997 – 25%.81 would explain why petitioners had to sign the
21%; promissory notes in blank, since the
The 9th up to the 17th promissory notes imposable interest rates have yet to be
14th Promissory Note dated July 12, 1993 – provide for the payment of interest at the "rate determined and fixed by respondent’s
17.5%; the Bank may at any time without notice, raise Treasury Department in Manila.
within the limits allowed by law x x x." 82 On the
15th Promissory Note dated November 17, other hand, the 18th up to the 26th promissory Moreover, in Aspa’s enumeration of the
1993 – 21%; notes – which includes PN 9707237 – carried factors that determine the interest rates PNB
the following provision: fixes – such as cost of money, foreign
16th Promissory Note dated March 28, 1994 – currency values, bank administrative costs,
21%; x x x For this purpose, I/We agree that the profitability, and considerations which affect
rate of interest herein stipulated may be the banking industry – it can be seen that
17th Promissory Note dated July 13, 1994 – increased or decreased for the subsequent considerations which affect PNB’s borrowers
21%; Interest Periods, with prior notice to the are ignored. A borrower’s current financial
Borrower in the event of changes in interest state, his feedback or opinions, the nature and
18th Promissory Note dated November 16, rate prescribed by law or the Monetary Board purpose of his borrowings, the effect of foreign
1994 – 16%; of the Central Bank of the Philippines, or in currency values or fluctuations on his
the Bank’s overall cost of funds. I/We hereby business or borrowing, etc. – these are not

153
factors which influence the fixing of interest in the case of the interest rate provision, there either case, the adjustment in the interest rate
rates to be imposed on him. Clearly, is no fixed margin above or below these agreed upon shall take effect on the effectivity
respondent’s method of fixing interest rates considerations. date of the increase or decrease in maximum
based on one-sided, indeterminate, and interest rate.85 (Emphasis supplied)
subjective criteria such as profitability, cost of In view of the foregoing, the Separability
money, bank costs, etc. is arbitrary for there is Clause cannot save either of the two options Whereas, in the present credit agreements
no fixed standard or margin above or below of UCPB as to the interest to be imposed, as under scrutiny, it is stated that:
these considerations. both options violate the principle of mutuality
of contracts.84 (Emphases supplied) IN THE JULY 1989 CREDIT AGREEMENT
The stipulation in the promissory notes
subjecting the interest rate to review does not To repeat what has been said in the above- (b) The Borrower agrees that the Bank may
render the imposition by UCPB of interest cited cases, any modification in the contract, modify the interest rate on the Loan
rates on the obligations of the spouses Beluso such as the interest rates, must be made with depending on whatever policy the Bank may
valid. According to said stipulation: the consent of the contracting adopt in the future, including without limitation,
parties.1âwphi1 The minds of all the parties the shifting from the floating interest rate
The interest rate shall be subject to review must meet as to the proposed modification, system to the fixed interest rate system, or
and may be increased or decreased by the especially when it affects an important aspect vice versa. Where the Bank has imposed on
LENDER considering among others the of the agreement. In the case of loan the Loan interest at a rate per annum, which is
prevailing financial and monetary conditions; agreements, the rate of interest is a principal equal to the Bank’s spread over the current
or the rate of interest and charges which other condition, if not the most important floating interest rate, the Borrower hereby
banks or financial institutions charge or offer component. Thus, any modification thereof agrees that the Bank may, without need of
to charge for similar accommodations; and/or must be mutually agreed upon; otherwise, it notice to the Borrower, increase or decrease
the resulting profitability to the LENDER after has no binding effect. its spread over the floating interest rate at any
due consideration of all dealings with the time depending on whatever policy it may
BORROWER. What is even more glaring in the present case adopt in the future.86 (Emphases supplied)
is that, the stipulations in question no longer
It should be pointed out that the authority to provide that the parties shall agree upon the IN THE AUGUST 1991 AMENDMENT TO
review the interest rate was given [to] UCPB interest rate to be fixed; -instead, they are CREDIT AGREEMENT
alone as the lender. Moreover, UCPB may worded in such a way that the borrower shall
apply the considerations enumerated in this agree to whatever interest rate respondent 1.03. Interest on Line Availments. (a) The
provision as it wishes. As worded in the above fixes. In credit agreements covered by the Borrowers agree to pay interest on each
provision, UCPB may give as much weight as above-cited cases, it is provided that: Availment from date of each Availment up to
it desires to each of the following but not including the date of full payment
considerations: (1) the prevailing financial and The Bank reserves the right to increase the thereof at the rate per annum which is
monetary condition;(2) the rate of interest and interest rate within the limits allowed by law at determined by the Bank to be prime rate plus
charges which other banks or financial any time depending on whatever policy it may applicable spread in effect as of the date of
institutions charge or offer to charge for similar adopt in the future: Provided, that, the interest each Availment.87 (Emphasis supplied)
accommodations; and/or(3) the resulting rate on this accommodation shall be
profitability to the LENDER (UCPB) after due correspondingly decreased in the event that Plainly, with the present credit agreement, the
consideration of all dealings with the the applicable maximum interest rate is element of consent or agreement by the
BORROWER (the spouses Beluso). Again, as reduced by law or by the Monetary Board. In borrower is now completely lacking, which
154
makes respondent’s unlawful act all the more (3) the difference between the amounts set they were duly notified of the terms thereof, in
reprehensible. forth under clauses (1) and (2); substantial compliance with the Truth in
Lending Act.
Accordingly, petitioners are correct in arguing (4) the charges, individually itemized, which
that estoppel should not apply to them, for are paid or to be paid by such person in Once more, we disagree. Section 4 of the
"[e]stoppel cannot be predicated on an illegal connection with the transaction but which are Truth in Lending Act clearly provides that the
act. As between the parties to a contract, not incident to the extension of credit; disclosure statement must be furnished prior
validity cannot be given to it by estoppel if it is to the consummation of the transaction:
prohibited by law or is against public policy."88 (5) the total amount to be financed;
SEC. 4. Any creditor shall furnish to each
It appears that by its acts, respondent violated (6) the finance charge expressed in terms of person to whom credit is extended, prior to the
the Truth in Lending Act, or Republic Act No. pesos and centavos; and consummation of the transaction, a clear
3765, which was enacted "to protect x x x statement in writing setting forth, to the extent
citizens from a lack of awareness of the true (7) the percentage that the finance bears to applicable and in accordance with rules and
cost of credit to the user by using a full the total amount to be financed expressed as regulations prescribed by the Board, the
disclosure of such cost with a view of a simple annual rate on the outstanding following information:
preventing the uninformed use of credit to the unpaid balance of the obligation.
detriment of the national economy."89 The law (1) the cash price or delivered price of the
"gives a detailed enumeration of the specific property or service to be acquired;
Under Section 4(6), "finance charge"
information required to be disclosed, among
represents the amount to be paid by the
which are the interest and other charges (2) the amounts, if any, to be credited as down
debtor incident to the extension of credit such
incident to the extension of credit."90 Section 4 payment and/or trade-in;
as interest or discounts, collection fees, credit
thereof provides that a disclosure statement
investigation fees, attorney’s fees, and other
must be furnished prior to the consummation
service charges. The total finance charge (3) the difference between the amounts set
of the transaction, thus:
represents the difference between (1) the forth under clauses (1) and (2);
aggregate consideration (down payment plus
SEC. 4. Any creditor shall furnish to each installments) on the part of the debtor, and (2) (4) the charges, individually itemized, which
person to whom credit is extended, prior to the the sum of the cash price and non-finance are paid or to be paid by such person in
consummation of the transaction, a clear charges.91 connection with the transaction but which are
statement in writing setting forth, to the extent
not incident to the extension of credit;
applicable and in accordance with rules and
By requiring the petitioners to sign the credit
regulations prescribed by the Board, the
documents and the promissory notes in blank, (5) the total amount to be financed;
following information:
and then unilaterally filling them up later on,
respondent violated the Truth in Lending Act, (6) the finance charge expressed in terms of
(1) the cash price or delivered price of the and was remiss in its disclosure obligations. In
property or service to be acquired; pesos and centavos; and
one case, which the Court finds applicable
here, it was held:
(2) the amounts, if any, to be credited as down (7) the percentage that the finance bears to
payment and/or trade-in; the total amount to be financed expressed as
UCPB further argues that since the spouses a simple annual rate on the outstanding
Beluso were duly given copies of the subject unpaid balance of the obligation.
promissory notes after their execution, then
155
The rationale of this provision is to protect effects of an already consummated business of reasoning cannot be other than that if one
users of credit from a lack of awareness of the decision.93 out of every hundred borrowers questions
true cost thereof, proceeding from the respondent’s practice of unilaterally fixing
experience that banks are able to conceal Neither may the statements be considered interest rates, then only the loan arrangement
such true cost by hidden charges, uncertainty proposals sent to secure the petitioners’ with that lone complaining borrower will enjoy
of interest rates, deduction of interests from conformity; they were sent after the imposition the benefit of review or re-negotiation; as to
the loaned amount, and the like. The law and application of the interest rate, and not the 99 others, the questionable practice will
thereby seeks to protect debtors by permitting before. And even if it were to be presumed continue unchecked, and respondent will
them to fully appreciate the true cost of their that these are proposals or offers, there was continue to reap the profits from such
loan, to enable them to give full consent to the no acceptance by petitioners. "No one unscrupulous practice. The Court can no more
contract, and to properly evaluate their options receiving a proposal to modify a loan contract, condone a view so perverse. This is exactly
in arriving at business decisions. Upholding especially regarding interest, is obliged to what the Court meant in the immediately
UCPB’s claim of substantial compliance would answer the proposal."94 preceding cited case when it said that "the
defeat these purposes of the Truth in Lending belated discovery of the true cost of credit
Act. The belated discovery of the true cost of Loan and credit arrangements may be made does not reverse the ill effects of an already
credit will too often not be able to reverse the enticing by, or "sweetened" with, offers of low consummated business decision;"95 as to the
ill effects of an already consummated initial interest rates, but actually accompanied 99 borrowers who did not or could not
business decision. by provisions written in fine print that allow complain, the illegal act shall have become a
lenders to later on increase or decrease fait accompli– to their detriment, they have
In addition, the promissory notes, the copies interest rates unilaterally, without the consent already suffered the oppressive rates.
of which were presented to the spouses of the borrower, and depending on complex
Beluso after execution, are not sufficient and subjective factors. Because they have Besides, that petitioners are given the right to
notification from UCPB. As earlier discussed, been lured into these contracts by initially low question the interest rates imposed is, under
the interest rate provision therein does not interest rates, borrowers get caught and stuck the circumstances, irrelevant; we have a
sufficiently indicate with particularity the in the web of subsequent steep rates and situation where the petitioners do not stand on
interest rate to be applied to the loan covered penalties, surcharges and the like. Being equal footing with the respondent. It is
by said promissory notes.92 (Emphases ordinary individuals or entities, they naturally doubtful that any borrower who finds himself
supplied) dread legal complications and cannot afford in petitioners’ position would dare question
court litigation; they succumb to whatever respondent’s power to arbitrarily modify
However, the one-year period within which an charges the lenders impose. At the very least, interest rates at any time. In the second place,
action for violation of the Truth in Lending Act borrowers should be charged rightly; but then on what basis could any borrower question
may be filed evidently prescribed long ago, or again this is not possible in a one-sided credit such power, when the criteria or standards –
sometime in 2001, one year after petitioners system where the temptation to abuse is which are really one-sided, arbitrary and
received the March 2000 demand letter which strong and the willingness to rectify is made subjective – for the exercise of such power
contained the illegal charges. weak by the eternal desire for profit. are precisely lost on him?

The fact that petitioners later received several Given the above supposition, the Court cannot For the same reasons, the Court cannot
statements of account detailing its outstanding subscribe to respondent’s argument that in validly consider that, as stipulated in the 18th
obligations does not cure respondent’s every repricing of petitioners’ loan availment, up to the 26th promissory notes, petitioners
breach. To repeat, the belated discovery of they are given the right to question the interest are granted the option to prepay the loan or
the true cost of credit does not reverse the ill rates imposed. The import of respondent’s line credit facility without penalty within 10

156
calendar days from the Interest Setting Date if later, to the capital or principal. 97 Respondent normal banking practice, and the standard
they are not agreeable to the interest rate should then refund the excess amount of rate per annum for all commercial banks, at
fixed. It has been shown that the promissory interest that it has illegally imposed upon the time, was 24%. Its inclusion as part of the
notes are executed and signed in blank, petitioners; "[t]he amount to be refunded secured amount in the mortgage agreements
meaning that by the time petitioners learn of refers to that paid by petitioners when they is thus valid and necessary.
the interest rate, they are already bound to had no obligation to do so."98 Thus, the
pay it because they have already pre-signed parties’ original agreement stipulated the The Court sustains petitioners’ view that the
the note where the rate is subsequently payment of 19.5% interest; however, this rate penalty may not be included as part of the
entered. was intended to apply only to the first secured amount. Having found the credit
promissory note which expired on November agreements and promissory notes to be
Besides, premium may not be placed upon a 21, 1989 and was paid by petitioners; it was tainted, we must accord the same treatment to
stipulation in a contract which grants one party not intended to apply to the whole duration of the mortgages. After all, "[a] mortgage and a
the right to choose whether to continue with or the loan. Subsequent higher interest rates note secured by it are deemed parts of one
withdraw from the agreement if it discovers have been declared illegal; but because only transaction and are construed
that what the other party has been doing all the rates are found to be improper, the together."101 Being so tainted and having the
along is improper or illegal. obligation to pay interest subsists, the same to attributes of a contract of adhesion as the
be fixed at the legal rate of 12% per annum. principal credit documents, we must construe
Thus said, respondent’s arguments relative to However, the 12% interest shall apply only the mortgage contracts strictly, and against
the credit documents – that documentary until June 30, 2013. Starting July1, 2013, the the party who drafted it. An examination of the
evidence prevails over testimonial evidence; prevailing rate of interest shall be 6% per mortgage agreements reveals that nowhere is
that the credit documents are in proper form, annum pursuant to our ruling in Nacar v. it stated that penalties are to be included in
presumed regular, and endure, against Gallery Frames99 and Bangko Sentral ng the secured amount. Construing this silence
arbitrary claims by petitioners, experienced Pilipinas-Monetary Board Circular No. 799. strictly against the respondent, the Court can
business persons that they are, they signed only conclude that the parties did not intend to
questionable loan documents whose Now to the issue of penalty. PN 9707237 include the penalty allowed under PN
provisions for interest rates were left blank, provides that failure to pay it or any 9707237 as part of the secured amount.
and yet they continued to pay the interests installment thereon, when due, shall constitute Given its resources, respondent could have –
without protest for a number of years – default, and a penalty charge of 24% per if it truly wanted to – conveniently prepared
deserve no consideration. annum based on the defaulted principal and executed an amended mortgage
amount shall be imposed. Petitioners claim agreement with the petitioners, thereby
With regard to interest, the Court finds that that this penalty should be excluded from the including penalties in the amount to be
since the escalation clause is annulled, the foreclosure amount or bid price because the secured by the encumbered properties. Yet it
principal amount of the loan is subject to the Real Estate Mortgage and the Supplement did not.
original or stipulated rate of interest, and upon thereto did not specifically include it as part of
maturity, the amount due shall be subject to the secured amount. Respondent justifies its With regard to attorney’s fees, it was plain
legal interest at the rate of 12% per annum. inclusion in the secured amount, saying that error for the CA to have passed upon the
This is the uniform ruling adopted in previous the purpose of the penalty or a penal clause is issue since it was not raised by the petitioners
cases, including those cited here.96 The to ensure the performance of the obligation in their appeal; it was the respondent that
interests paid by petitioners should be applied and substitute for damages and the payment improperly brought it up in its appellee’s brief,
first to the payment of the stipulated or legal of interest in the event of non- when it should have interposed an appeal,
and unpaid interest, as the case may be, and compliance.100 Respondent adds that the since the trial court’s Decision on this issue is
imposition and collection of a penalty is a
157
adverse to it. It is an elementary principle in 2. All subsequent promissory notes (from the 6. To this outstanding balance (3.), the
the subject of appeals that an appellee who 2nd to the 26th promissory notes) shall carry interest (4.), penalties (5.), and the final and
does not himself appeal cannot obtain from an interest rate of only 12% per executory award of 1% attorney’s fees shall
the appellate court any affirmative relief other annum.104 Thus, interest payment made in be ADDED;
than those granted in the decision of the court excess of 12% on the 2nd promissory note
below. shall immediately be applied to the principal, 7. The sum total of the outstanding balance
and the principal shall be accordingly reduced. (3.), interest (4.) and 1% attorney’s fees (6.)
x x x [A]n appellee, who is at the same time The reduced principal shall then be subjected shall be DEDUCTED from the bid price of
not an appellant, may on appeal be permitted to the 12%105 interest on the 3rd promissory ₱4,324,172.96. The penalties (5.) are not
to make counter assignments of error in note, and the excess over 12% interest included because they are not included in the
ordinary actions, when the purpose is merely payment on the 3rd promissory note shall secured amount;
to defend himself against an appeal in which again be applied to the principal, which shall
errors are alleged to have been committed by again be reduced accordingly. The reduced 8. The difference in (7.) [₱4,324,172.96 LESS
the trial court both in the appreciation of facts principal shall then be subjected to the 12% sum total of the outstanding balance (3.),
and in the interpretation of the law, in order to interest on the 4th promissory note, and the interest (4.), and 1% attorney’s fees (6.)] shall
sustain the judgment in his favor but not when excess over12% interest payment on the 4th be DELIVERED TO THE PETITIONERS;
his purpose is to seek modification or reversal promissory note shall again be applied to the
of the judgment, in which case it is necessary principal, which shall again be reduced
9. Respondent may then proceed to
for him to have excepted to and appealed accordingly. And so on and so forth;
consolidate its title to TCTs T-14250 and T-
from the judgment.102 16208;
3. After the above procedure is carried out,
Since petitioners did not raise the issue of the trial court shall be able to conclude if
10. ON THE OTHER HAND, if after
reduction of attorney’s fees, the CA petitioners a) still have an OUTSTANDING
performing the procedure in (2.), it turns out
possessed no authority to pass upon it at the BALANCE/OBLIGATION or b) MADE
that petitioners made an OVERPAYMENT,
instance of respondent. The ruling of the trial PAYMENTS OVER AND ABOVE THEIR
the interest (4.), penalties (5.), and the award
court in this respect should remain TOTAL OBLIGATION (principal and interest);
of 1% attorney’s fees (6.) shall be
undisturbed. DEDUCTED from the overpayment. There is
4. Such outstanding balance/obligation, if no outstanding balance/obligation precisely
For the fixing of the proper amounts due and there be any, shall then be subjected to a 12% because petitioners have paid beyond the
owing to the parties – to the respondent as per annum interest from October 28, 1997 amount of the principal and interest;
creditor and to the petitioners who are entitled until January 14, 1999, which is the date of
to a refund as a consequence of overpayment the auction sale;
11. If the overpayment exceeds the sum total
considering that they paid more by way of of the interest (4.), penalties (5.), and award of
interest charges than the 12% per 5. Such outstanding balance/obligation shall 1% attorney’s fees (6.), the excess shall be
annum103 herein allowed – the case should be also be charged a 24% per annum penalty RETURNED to the petitioners, with legal
remanded to the lower court for proper from August 14, 1997 until January 14, 1999. interest, under the principle of solutio
accounting and computation, applying the But from this total penalty, the petitioners’ indebiti;107
following procedure: previous payment of penalties in the amount
of ₱202,000.00made on January 27,
12. Likewise, if the overpayment exceeds the
1. The 1st Promissory Note with the 19.5% 1998106 shall be DEDUCTED;
total amount of interest (4.) and award of 1%
interest rate is deemed proper and paid; attorney’s fees (6.), the trial court shall
158
INVALIDATE THE EXTRAJUDICIAL From the above, it will be seen that if, after the amounts secured by the real estate
FORECLOSURE AND SALE; proper accounting, it turns out that the mortgages;
petitioners made payments exceeding what
13. HOWEVER, if the total amount of interest they actually owe by way of principal, interest, 3. The trial court’s award of one per cent (1%)
(4.) and award of 1% attorney’s fees (6.) and attorney’s fees, then the mortgaged attorney’s fees is REINSTATED;
exceed petitioners’ overpayment, then the properties need not answer for any
excess shall be DEDUCTED from the bid outstanding secured amount, because there is 4. The case is ordered REMANDED to the
price of ₱4,324,172.96; not any; quite the contrary, respondent must Regional Trial Court, Branch 6 of Kalibo,
refund the excess to petitioners.1âwphi1 In Aklan for the computation of overpayments
14. The difference in (13.) [₱4,324,172.96 such case, the extrajudicial foreclosure and made by petitioners spouses Eduardo and
LESS sum total of the interest (4.) and 1% sale of the properties shall be declared null Lydia Silos to respondent Philippine National
attorney’s fees (6.)] shall be DELIVERED TO and void for obvious lack of basis, the case Bank, taking into consideration the foregoing
THE PETITIONERS; being one of solutio indebiti instead. If, on the dispositions, and applying the procedure
other hand, it turns out that petitioners’ hereinabove set forth;
overpayments in interests do not exceed their
15. Respondent may then proceed to
total obligation, then the respondent may
consolidate its title to TCTs T-14250 and T- 5. Thereafter, the trial court is ORDERED to
consolidate its ownership over the properties,
16208. The outstanding penalties, if any, shall make a determination as to the validity of the
since the period for redemption has expired.
be collected by other means. extrajudicial foreclosure and sale, declaring
Its only obligation will be to return the
the same null and void in case of
difference between its bid price
overpayment and ordering the release and
(₱4,324,172.96) and petitioners’ total
return of Transfer Certificates of Title Nos. T-
obligation outstanding – except penalties –
14250 and TCT T-16208 to petitioners, or
after applying the latter’s overpayments.
ordering the delivery to the petitioners of the
difference between the bid price and the total
WHEREFORE, premises considered, the remaining obligation of petitioners, if any;
Petition is GRANTED. The May 8, 2007
Decision of the Court of Appeals in CA-G.R.
6. In the meantime, the respondent Philippine
CV No. 79650 is ANNULLED and SET
National Bank is ENJOINED from
ASIDE. Judgment is hereby rendered as
consolidating title to Transfer Certificates of
follows:
Title Nos. T-14250 and T-16208 until all the
steps in the procedure above set forth have
1. The interest rates imposed and indicated in been taken and applied;
the 2nd up to the 26th Promissory Notes are
DECLARED NULL AND VOID, and such
7. The reimbursement of the excess in the bid
notes shall instead be subject to interest at the
price of ₱377,505.99, which respondent
rate of twelve percent (12%) per annum up to
Philippine National Bank is ordered to
June 30, 2013, and starting July 1, 2013, six
reimburse petitioners, should be HELD IN
percent (6%) per annum until full satisfaction;
ABEYANCE until the true amount owing to or
owed by the parties as against each other is
2. The penalty charge imposed in Promissory determined;
Note No. 9707237 shall be EXCLUDED from

159
8. Considering that this case has been
pending for such a long time and that further
proceedings, albeit uncomplicated, are
required, the trial court is ORDERED to
proceed with dispatch.

SO ORDERED.

160
G.R. No. 107112 February 24, 1994 become so difficult as to be manifestly beyond respondent in Naga City. In consideration
the contemplation of the parties, the court therefor, petitioners agreed to install, free of
NAGA TELEPHONE CO., INC. (NATELCO) should be authorized to release the obligor in charge, ten (10) telephone connections for the
AND LUCIANO M. MAGGAY, petitioners, whole or in part. The intention of the parties use by private respondent in the following
vs. should govern and if it appears that the places:
THE COURT OF APPEALS AND service turns out to be so difficult as to have
CAMARINES SUR II ELECTRIC been beyond their contemplation, it would be (a) 3 units — The Main Office of (private
COOPERATIVE, INC. (CASURECO doing violence to that intention to hold their respondent);
II), respondents. contemplation, it would be doing violence to
that intention to hold the obligor still (b) 2 Units — The Warehouse of (private
NOCON, J.: responsible.2 respondent);

The case of Reyes v. Caltex (Philippines), In other words, fair and square consideration (c) 1 Unit — The Sub-Station of (private
Inc.1 enunciated the doctrine that where a underscores the legal precept therein. respondent) at Concepcion Pequeña;
person by his contract charges himself with an
obligation possible to be performed, he must Naga Telephone Co., Inc. remonstrates (d) 1 Unit — The Residence of (private
perform it, unless its performance is rendered mainly against the application by the Court of respondent's) President;
impossible by the act of God, by the law, or by Appeals of Article 1267 in favor of Camarines
the other party, it being the rule that in case Sur II Electric Cooperative, Inc. in the case
(e) 1 Unit — The Residence of (private
the party desires to be excused from before us. Stated differently, the former insists
respondent's) Acting General Manager; &
performance in the event of contingencies that the complaint should have been
arising thereto, it is his duty to provide the dismissed for failure to state a cause of action.
(f) 2 Units — To be determined by the General
basis therefor in his contract.
Manager.3
The antecedent facts, as narrated by
With the enactment of the New Civil Code, a respondent Court of Appeals are, as follows:
Said contract also provided:
new provision was included therein, namely,
Article 1267 which provides: Petitioner Naga Telephone Co., Inc.
(NATELCO) is a telephone company (a) That the term or period of this contract
rendering local as well as long distance shall be as long as the party of the first part
When the service has become so difficult as
telephone service in Naga City while private has need for the electric light posts of the
to be manifestly beyond the contemplation of
respondent Camarines Sur II Electric party of the second part it being understood
the parties, the obligor may also be released
Cooperative, Inc. (CASURECO II) is a private that this contract shall terminate when for any
therefrom, in whole or in part.
corporation established for the purpose of reason whatsoever, the party of the second
operating an electric power service in the part is forced to stop, abandoned [sic] its
In the report of the Code Commission, the operation as a public service and it becomes
rationale behind this innovation was same city.
necessary to remove the electric lightpost;
explained, thus: (sic)4
On November 1, 1977, the parties entered
The general rule is that impossibility of into a contract (Exh. "A") for the use by
petitioners in the operation of its telephone It was prepared by or with the assistance of
performance releases the obligor. However, it the other petitioner, Atty. Luciano M. Maggay,
is submitted that when the service has service the electric light posts of private
161
then a member of the Board of Directors of And as third cause of action, private telephone service had been categorized by
private respondent and at the same time the respondent complained about the poor the National Telecommunication Corporation
legal counsel of petitioner. servicing by petitioners of the ten (10) (NTC) as "very high" and of "superior quality."
telephone units which had caused it great
After the contract had been enforced for over inconvenience and damages to the tune of not During the trial, private respondent presented
ten (10) years, private respondent filed on less than P100,000.00 the following witnesses:
January 2, 1989 with the Regional Trial Court
of Naga City (Br. 28) C.C. No. 89-1642 In petitioners' answer to the first cause of (1) Dioscoro Ragragio, one of the two officials
against petitioners for reformation of the action, they averred that it should be who signed the contract in its behalf, declared
contract with damages, on the ground that it is dismissed because (1) it does not sufficiently that it was petitioner Maggay who prepared
too one-sided in favor of petitioners; that it is state a cause of action for reformation of the contract; that the understanding between
not in conformity with the guidelines of the contract; (2) it is barred by prescription, the private respondent and petitioners was that
National Electrification Administration (NEA) same having been filed more than ten (10) the latter would only use the posts in Naga
which direct that the reasonable years after the execution of the contract; and City because at that time, petitioners'
compensation for the use of the posts is (3) it is barred by estoppel, since private capability was very limited and they had no
P10.00 per post, per month; that after eleven respondent seeks to enforce the contract in expectation of expansion because of legal
(11) years of petitioners' use of the posts, the the same action. Petitioners further alleged squabbles within the company; that private
telephone cables strung by them thereon have that their utilization of private respondent's respondent agreed to allow petitioners to use
become much heavier with the increase in the posts could not have caused their its posts in Naga City because there were
volume of their subscribers, worsened by the deterioration because they have already been many subscribers therein who could not be
fact that their linemen bore holes through the in use for eleven (11) years; and that the served by them because of lack of facilities;
posts at which points those posts were broken value of their expenses for the ten (10) and that while the telephone lines strung to
during typhoons; that a post now costs as telephone lines long enjoyed by private the posts were very light in 1977, said posts
much as P2,630.00; so that justice and equity respondent free of charge are far in excess of have become heavily loaded in 1989.
demand that the contract be reformed to the amounts claimed by the latter for the use
abolish the inequities thereon. of the posts, so that if there was any inequity, (2) Engr. Antonio Borja, Chief of private
it was suffered by them. respondent's Line Operation and Maintenance
As second cause of action, private respondent Department, declared that the posts being
alleged that starting with the year 1981, Regarding the second cause of action, used by petitioners totalled 1,403 as of April
petitioners have used 319 posts in the towns petitioners claimed that private respondent 17, 1989, 192 of which were in the towns of
of Pili, Canaman, Magarao and Milaor, had asked for telephone lines in areas outside Pili, Canaman, and Magarao, all outside Naga
Camarines Sur, all outside Naga City, without Naga City for which its posts were used by City (Exhs. "B" and "B-1"); that petitioners'
any contract with it; that at the rate of P10.00 them; and that if petitioners had refused to cables strung to the posts in 1989 are much
per post, petitioners should pay private comply with private respondent's demands for bigger than those in November, 1977; that in
respondent for the use thereof the total payment for the use of the posts outside Naga 1987, almost 100 posts were destroyed by
amount of P267,960.00 from 1981 up to the City, it was probably because what is due to typhoon Sisang: around 20 posts were located
filing of its complaint; and that petitioners had them from private respondent is more than its between Naga City and the town of Pili while
refused to pay private respondent said claim against them. the posts in barangay Concepcion, Naga City
amount despite demands. were broken at the middle which had been
And with respect to the third cause of action, bored by petitioner's linemen to enable them
petitioners claimed, inter alia, that their to string bigger telephone lines; that while the

162
cost per post in 1977 was only from P700.00 of Directors asked him to study the contract (c) Petitioner's linemen have strung only small
to P1,000.00, their costs in 1989 went up from sometime during the latter part of 1982 or in messenger wires to many of the posts and
P1,500.00 to P2,000.00, depending on the 1983, as it had appeared very they need only small holes to pass through;
size; that some lines that were strung to the disadvantageous to private respondent. and
posts did not follow the minimum vertical Notwithstanding his recommendation for the
clearance required by the National Building filing of a court action to reform the contract, (d) Documents existing in the NTC show that
Code, so that there were cases in 1988 the former general managers of private the stringing of petitioners' cables in Naga City
where, because of the low clearance of the respondent wanted to adopt a soft approach are according to standard and comparable to
cables, passing trucks would accidentally with petitioners about the matter until the term those of PLDT. The accidents mentioned by
touch said cables causing the posts to fall and of General Manager Henry Pascual who, after private respondent involved trucks that were
resulting in brown-outs until the electric lines failing to settle the matter amicably with either overloaded or had loads that protruded
were repaired. petitioners, finally agreed for him to file the upwards, causing them to hit the cables.
present action for reformation of contract.
(3) Dario Bernardez, Project Supervisor and (3) Concerning the second cause of action,
Acting General Manager of private respondent On the other hand, petitioner Maggay testified the intention of the parties when they entered
and Manager of Region V of NEA, declared to the following effect: into the contract was that the coverage thereof
that according to NEA guidelines in 1985 would include the whole area serviced by
(Exh. "C"), for the use by private telephone (1) It is true that he was a member of the petitioners because at that time, they already
systems of electric cooperatives' posts, they Board of Directors of private respondent and had subscribers outside Naga City. Private
should pay a minimum monthly rental of P4.00 at the same time the lawyer of petitioner when respondent, in fact, had asked for telephone
per post, and considering the escalation of the contract was executed, but Atty. Gaudioso connections outside Naga City for its officers
prices since 1985, electric cooperatives have Tena, who was also a member of the Board of and employees residing there in addition to
been charging from P10.00 to P15.00 per Directors of private respondent, was the one the ten (10) telephone units mentioned in the
post, which is what petitioners should pay for who saw to it that the contract was fair to both contract. Petitioners have not been charging
the use of the posts. parties. private respondent for the installation,
transfers and re-connections of said
(4) Engineer Antonio Macandog, Department (2) With regard to the first cause of action: telephones so that naturally, they use the
Head of the Office of Services of private posts for those telephone lines.
respondent, testified on the poor service (a) Private respondent has the right under the
rendered by petitioner's telephone lines, like contract to use ten (10) telephone units of (4) With respect to the third cause of action,
the telephone in their Complaints Section petitioners for as long as it wishes without the NTC has found petitioners' cable
which was usually out of order such that they paying anything therefor except for long installations to be in accordance with
could not respond to the calls of their distance calls through PLDT out of which the engineering standards and practice and
customers. In case of disruption of their latter get only 10% of the charges. comparable to the best in the country.
telephone lines, it would take two to three
hours for petitioners to reactivate them On the basis of the foregoing countervailing
(b) In most cases, only drop wires and not
notwithstanding their calls on the emergency evidence of the parties, the trial court found,
telephone cables have been strung to the
line. as regards private respondent's first cause of
posts, which posts have remained erect up to
the present; action, that while the contract appeared to be
(5) Finally, Atty. Luis General, Jr., private fair to both parties when it was entered into by
respondent's counsel, testified that the Board them during the first year of private

163
respondent's operation and when its Board of should be reformed by including therein the Disagreeing with the foregoing judgment,
Directors did not yet have any experience in provision that for the use of private petitioners appealed to respondent Court of
that business, it had become disadvantageous respondent's posts outside Naga City, Appeals. In the decision dated May 28, 1992,
and unfair to private respondent because of petitioners should pay a monthly rental of respondent court affirmed the decision of the
subsequent events and conditions, particularly P10.00 per post, the payment to start on the trial court,5 but based on different grounds to
the increase in the volume of the subscribers date this case was filed, or on January 2, wit: (1) that Article 1267 of the New Civil Code
of petitioners for more than ten (10) years 1989, and private respondent should also pay is applicable and (2) that the contract was
without the corresponding increase in the petitioners the monthly dues on its telephone subject to a potestative condition which
number of telephone connections to private connections located outside Naga City rendered said condition void. The motion for
respondent free of charge. The trial court beginning January, 1989. reconsideration was denied in the resolution
concluded that while in an action for dated September 10, 1992.6 Hence, the
reformation of contract, it cannot make And with respect to private respondent's third present petition.
another contract for the parties, it can, cause of action, the trial court found the claim
however, for reasons of justice and equity, not sufficiently proved. Petitioners assign the following pertinent
order that the contract be reformed to abolish errors committed by respondent court:
the inequities therein. Thus, said court ruled Thus, the following decretal portion of the trial
that the contract should be reformed by court's decision dated July 20, 1990: 1) in making a contract for the parties by
ordering petitioners to pay private respondent invoking Article 1267 of the New Civil Code;
compensation for the use of their posts in
WHEREFORE, in view of all the foregoing,
Naga City, while private respondent should
decision is hereby rendered ordering the 2) in ruling that prescription of the action for
also be ordered to pay the monthly bills for the
reformation of the agreement (Exh. A); reformation of the contract in this case
use of the telephones also in Naga City. And
ordering the defendants to pay plaintiff's commenced from the time it became
taking into consideration the guidelines of the
electric poles in Naga City and in the towns of disadvantageous to private respondent; and
NEA on the rental of posts by telephone
Milaor, Canaman, Magarao and Pili,
companies and the increase in the costs of
Camarines Sur and in other places where 3) in ruling that the contract was subject to a
such posts, the trial court opined that a
defendant NATELCO uses plaintiff's electric potestative condition in favor of petitioners.
monthly rental of P10.00 for each post of
poles, the sum of TEN (P10.00) PESOS per
private respondent used by petitioners is
plaintiff's pole, per month beginning January, Petitioners assert earnestly that Article 1267
reasonable, which rental it should pay from
1989 and ordering also the plaintiff to pay of the New Civil Code is not applicable
the filing of the complaint in this case on
defendant NATELCO the monthly dues of all primarily because the contract does not
January 2, 1989. And in like manner, private
its telephones including those installed at the involve the rendition of service or a personal
respondent should pay petitioners from the
residence of its officers, namely; Engr. prestation and it is not for future service with
same date its monthly bills for the use and
Joventino Cruz, Engr. Antonio Borja, Engr. future unusual change. Instead, the ruling in
transfers of its telephones in Naga City at the
Antonio Macandog, Mr. Jesus Opiana and the case of Occeña, et al. v. Jabson, etc., et
same rate that the public are paying.
Atty. Luis General, Jr. beginning January, al.,7 which interpreted the article, should be
1989. Plaintiff's claim for attorney's fees and followed in resolving this case. Besides, said
On private respondent's second cause of expenses of litigation and defendants'
action, the trial court found that the contract article was never raised by the parties in their
counterclaim are both hereby ordered pleadings and was never the subject of trial
does not mention anything about the use by dismissed. Without pronouncement as to
petitioners of private respondent's posts and evidence.
costs.
outside Naga City. Therefore, the trial court
held that for reason of equity, the contract
164
In applying Article 1267, respondent court be reformed at the instance of either party if stringing of more and bigger telephone cable
rationalized: there was mutual mistake on their part, or by wires by appellant to plaintiff's electric posts
the injured party if only he was mistaken. without a corresponding increase in the ten
We agree with appellant that in order that an (10) telephone connections given by appellant
action for reformation of contract would lie and Here, plaintiff-appellee did not allege in its to plaintiff free of charge in the agreement
may prosper, there must be sufficient complaint, nor does its evidence prove, that Exh. "A" as consideration for its use of the
allegations as well as proof that the contract in there was a mistake on its part or mutual latter's electric posts in Naga City, appear,
question failed to express the true intention of mistake on the part of both parties when they however, undisputed from the totality of the
the parties due to error or mistake, accident, entered into the agreement Exh. "A", and that evidence on record and the lower court so
or fraud. Indeed, in embodying the equitable because of this mistake, said agreement failed found. And it was for this reason that in the
remedy of reformation of instruments in the to express their true intention. Rather, later (sic) part of 1982 or 1983 (or five or six
New Civil Code, the Code Commission gave plaintiff's evidence shows that said agreement years after the subject agreement was
its reasons as follows: was prepared by Atty. Luciano Maggay, then entered into by the parties), plaintiff's Board of
a member of plaintiff's Board of Directors and Directors already asked Atty. Luis General
Equity dictates the reformation of an its legal counsel at that time, who was also the who had become their legal counsel in 1982,
instrument in order that the true intention of legal counsel for defendant-appellant, so that to study said agreement which they believed
the contracting parties may be expressed. The as legal counsel for both companies and had become disadvantageous to their
courts by the reformation do not attempt to presumably with the interests of both company and to make the proper
make a new contract for the parties, but to companies in mind when he prepared the recommendation, which study Atty. General
make the instrument express their real aforesaid agreement, Atty. Maggay must have did, and thereafter, he already recommended
agreement. The rationale of the doctrine is considered the same fair and equitable to both to the Board the filing of a court action to
that it would be unjust and inequitable to allow sides, and this was affirmed by the lower court reform said contract, but no action was taken
the enforcement of a written instrument which when it found said contract to have been fair on Atty. General's recommendation because
does not reflect or disclose the real meeting of to both parties at the time of its execution. In the former general managers of plaintiff
the minds of the parties. The rigor of the fact, there were no complaints on the part of wanted to adopt a soft approach in discussing
legalistic rule that a written instrument should both sides at the time of and after the the matter with appellant, until, during the term
be the final and inflexible criterion and execution of said contract, and according to of General Manager Henry Pascual, the latter,
measure of the rights and obligations of the 73-year old Justino de Jesus, Vice President after failing to settle the problem with Atty.
contracting parties is thus tempered to and General manager of appellant at the time Luciano Maggay who had become the
forestall the effects of mistake, fraud, who signed the agreement Exh. "A" in its president and general manager of appellant,
inequitable conduct, or accident. (pp. 55-56, behalf and who was one of the witnesses for already agreed for Atty. General's filing of the
Report of Code Commission) the plaintiff (sic), both parties complied with present action. The fact that said contract has
said contract "from the very beginning" (p. 5, become inequitous or disadvantageous to
tsn, April 17, 1989). plaintiff as the years went by did not, however,
Thus, Articles 1359, 1361, 1362, 1363 and
give plaintiff a cause of action for reformation
1364 of the New Civil Code provide in
That the aforesaid contract has become of said contract, for the reasons already
essence that where through mistake or
inequitous or unfavorable or disadvantageous pointed out earlier. But this does not mean
accident on the part of either or both of the
to the plaintiff with the expansion of the that plaintiff is completely without a remedy,
parties or mistake or fraud on the part of the
business of appellant and the increase in the for we believe that the allegations of its
clerk or typist who prepared the instrument,
volume of its subscribers in Naga City and complaint herein and the evidence it has
the true intention of the parties is not
environs through the years, necessitating the presented sufficiently make out a cause of
expressed therein, then the instrument may

165
action under Art. 1267 of the New Civil Code the ten (10) telephone units connected by Civil Code of the Philippines, 1986 ed.,
for its release from the agreement in question. appellant free of charge to plaintiff's offices pp. 247-248).
and other places chosen by plaintiff's general
The understanding of the parties when they manager which was the only consideration We therefore, find nothing wrong with the
entered into the Agreement Exh. "A" on provided for in said agreement for appellant's ruling of the trial court, although based on a
November 1, 1977 and the prevailing use of plaintiffs electric posts. Not only that, different and wrong premise (i.e., reformation
circumstances and conditions at the time, appellant even started using plaintiff's electric of contract), that from the date of the filing of
were described by Dioscoro Ragragio, the posts outside Naga City although this was not this case, appellant must pay for the use of
President of plaintiff in 1977 and one of its two provided for in the agreement Exh. "A" as it plaintiff's electric posts in Naga City at the
officials who signed said agreement in its extended and expanded its telephone reasonable monthly rental of P10.00 per post,
behalf, as follows: services to towns outside said city. Hence, while plaintiff should pay appellant for the
while very few of plaintiff's electric posts were telephones in the same City that it was
Our understanding at that time is that we will being used by appellant in 1977 and they formerly using free of charge under the terms
allow NATELCO to utilize the posts of were all in the City of Naga, the number of of the agreement Exh. "A" at the same rate
CASURECO II only in the City of Naga plaintiff's electric posts that appellant was being paid by the general public. In affirming
because at that time the capability of using in 1989 had jumped to 1,403,192 of said ruling, we are not making a new contract
NATELCO was very limited, as a matter of which are outside Naga City (Exh. "B"). Add to for the parties herein, but we find it necessary
fact we do [sic] not expect to be able to this the destruction of some of plaintiff's poles to do so in order not to disrupt the basic and
expand because of the legal squabbles going during typhoons like the strong typhoon essential services being rendered by both
on in the NATELCO. So, even at that time Sisang in 1987 because of the heavy parties herein to the public and to avoid unjust
there were so many subscribers in Naga City telephone cables attached thereto, and the enrichment by appellant at the expense of
that cannot be served by the NATELCO, so as escalation of the costs of electric poles from plaintiff, said arrangement to continue only
a mater of public service we allowed them to 1977 to 1989, and the conclusion is indeed until such time as said parties can re-
sue (sic) our posts within the Naga City. (p. 8, ineluctable that the agreement Exh. "A" has negotiate another agreement over the same
tsn April 3, 1989) already become too one-sided in favor of subject-matter covered by the agreement Exh.
appellant to the great disadvantage of plaintiff, "A". Once said agreement is reached and
in short, the continued enforcement of said executed by the parties, the aforesaid ruling of
Ragragio also declared that while the
contract has manifestly gone far beyond the the lower court and affirmed by us shall cease
telephone wires strung to the electric posts of
contemplation of plaintiff, so much so that it to exist and shall be substituted and
plaintiff were very light and that very few
should now be released therefrom under Art. superseded by their new agreement. . . ..8
telephone lines were attached to the posts of
1267 of the New Civil Code to avoid
CASURECO II in 1977, said posts have
appellant's unjust enrichment at its (plaintiff's) Article 1267 speaks of "service" which has
become "heavily loaded" in 1989 (tsn, id.).
expense. As stated by Tolentino in his become so difficult. Taking into consideration
commentaries on the Civil Code citing foreign the rationale behind this provision,9 the term
In truth, as also correctly found by the lower civilist Ruggiero, "equity demands a certain
court, despite the increase in the volume of "service" should be understood as referring to
economic equilibrium between the prestation the "performance" of the obligation. In the
appellant's subscribers and the corresponding and the counter-prestation, and does not
increase in the telephone cables and wires present case, the obligation of private
permit the unlimited impoverishment of one respondent consists in allowing petitioners to
strung by it to plaintiff's electric posts in Naga party for the benefit of the other by the
City for the more 10 years that the agreement use its posts in Naga City, which is the service
excessive rigidity of the principle of the contemplated in said article. Furthermore, a
Exh. "A" of the parties has been in effect, obligatory force of contracts (IV Tolentino,
there has been no corresponding increase in bare reading of this article reveals that it is not

166
a requirement thereunder that the contract be stipulated with the force of law between the the present case, as distinguished further from
for future service with future unusual change. parties, so as to substitute its own terms for the Occeña case, necessitates exercise of our
According to Senator Arturo M. those covenanted by the parties themselves. equity jurisdiction.13 By way of emphasis, we
Tolentino,10 Article 1267 states in our law the Respondent's complaint for modification of reiterate the rationalization of respondent
doctrine of unforseen events. This is said to contract manifestly has no basis in law and court that:
be based on the discredited theory of rebus therefore states no cause of action. Under the
sic stantibus in public international law; under particular allegations of respondent's . . . In affirming said ruling, we are not making
this theory, the parties stipulate in the light of complaint and the circumstances therein a new contract for the parties herein, but we
certain prevailing conditions, and once these averred, the courts cannot even in equity find it necessary to do so in order not to
conditions cease to exist the contract also grant the relief sought.11 disrupt the basic and essential services being
ceases to exist. Considering practical needs rendered by both parties herein to the public
and the demands of equity and good faith, the The ruling in the Occeña case is not and to avoid unjust enrichment by appellant at
disappearance of the basis of a contract gives applicable because we agree with respondent the expense of plaintiff . . . .14
rise to a right to relief in favor of the party court that the allegations in private
prejudiced. respondent's complaint and the evidence it Petitioners' assertion that Article 1267 was
has presented sufficiently made out a cause never raised by the parties in their pleadings
In a nutshell, private respondent in the of action under Article 1267. We, therefore, and was never the subject of trial and
Occeña case filed a complaint against release the parties from their correlative evidence has been passed upon by
petitioner before the trial court praying obligations under the contract. However, our respondent court in its well reasoned
for modification of the terms and conditions of disposition of the present controversy does resolution, which we hereunder quote as our
the contract that they entered into by fixing the not end here. We have to take into account own:
proper shares that should pertain to them out the possible consequences of merely
of the gross proceeds from the sales of releasing the parties therefrom: petitioners will First, we do not agree with defendant-
subdivided lots. We ordered the dismissal of remove the telephone wires/cables in the appellant that in applying Art. 1267 of the New
the complaint therein for failure to state a posts of private respondent, resulting in Civil Code to this case, we have changed its
sufficient cause of action. We rationalized that disruption of their service to the public; while theory and decided the same on an issue not
the Court of Appeals misapplied Article 1267 private respondent, in consonance with the invoked by plaintiff in the lower court. For
because: contract12 will return all the telephone units to basically, the main and pivotal issue in this
petitioners, causing prejudice to its business. case is whether the continued enforcement of
. . . respondent's complaint seeks not release We shall not allow such eventuality. Rather, the contract Exh. "A" between the parties has,
from the subdivision contract but that the court we require, as ordered by the trial court: 1) through the years (since 1977), become too
"render judgment modifying the terms and petitioners to pay private respondent for the inequitous or disadvantageous to the plaintiff
conditions of the contract . . . use of its posts in Naga City and in the towns and too one-sided in favor of defendant-
by fixing the proper shares that of Milaor, Canaman, Magarao and Pili, appellant, so that a solution must be found to
should pertain to the herein parties out of Camarines Sur and in other places where relieve plaintiff from the continued operation of
the gross proceeds from the sales of petitioners use private respondent's posts, the said agreement and to prevent defendant-
subdivided lots of subject subdivision". The sum of ten (P10.00) pesos per post, per appellant from further unjustly enriching itself
cited article (Article 1267) does not grant the month, beginning January, 1989; and 2) at plaintiff's expense. It is indeed unfortunate
courts (the) authority to remake, modify or private respondent to pay petitioner the that defendant had turned deaf ears to
revise the contract or to fix the division of monthly dues of all its telephones at the same plaintiffs requests for renegotiation,
shares between the parties as contractually rate being paid by the public beginning constraining the latter to go to court. But
January, 1989. The peculiar circumstances of
167
although plaintiff cannot, as we have held, therein or the prayer, that determines the relief We believe that the above authorities suffice
correctly invoke reformation of contract as a to which the plaintiff is entitled, and the to show that this Court did not err in applying
proper remedy (there having been no showing plaintiff is entitled to as much relief as the Art. 1267 of the New Civil Code to this case.
of a mistake or error in said contract on the facts warrant although that relief is not Defendant-appellant stresses that the
part of any of the parties so as to result in its specifically prayed for in the complaint applicability of said provision is a question of
failure to express their true intent), this does (Rosales v. Reyes and Ordoveza, 25 Phil. fact, and that it should have been given the
not mean that plaintiff is absolutely without a 495; Cabigao v. Lim, 50 Phil. 844; Baguioro v. opportunity to present evidence on said
remedy in order to relieve itself from a Barrios, 77 Phil. 120). To quote an old but question. But defendant-appellant cannot
contract that has gone far beyond its very illuminating decision of our Supreme honestly and truthfully claim that it (did) not
contemplation and has become so highly Court through the pen of American jurist (have) the opportunity to present evidence on
inequitous and disadvantageous to it through Adam C. Carson: the issue of whether the continued operation
the years because of the expansion of of the contract Exh. "A" has now become too
defendant-appellant's business and the "Under our system of pleading it is the duty of one-sided in its favor and too inequitous,
increase in the volume of its subscribers. And the courts to grant the relief to which the unfair, and disadvantageous to plaintiff. As
as it is the duty of the Court to administer parties are shown to be entitled by the held in our decision, the abundant and
justice, it must do so in this case in the best allegations in their pleadings and the facts copious evidence presented by both parties in
way and manner it can in the light of the proven at the trial, and the mere fact that they this case and summarized in said decision
proven facts and the law or laws applicable themselves misconstrue the legal effect of the established the following essential and vital
thereto. facts thus alleged and proven will not prevent facts which led us to apply Art. 1267 of the
the court from placing the just construction New Civil Code to this case:
It is settled that when the trial court decides a thereon and adjudicating the issues
case in favor of a party on a certain ground, accordingly." (Alzua v. Johnson, 21 Phil. 308) On the issue of prescription of private
the appellant court may uphold the decision respondent's action for reformation of
below upon some other point which was And in the fairly recent case of Caltex Phil., contract, petitioners allege that respondent
ignored or erroneously decided by the trial Inc. v IAC, 176 SCRA 741, the Honorable court's ruling that the right of action "arose
court (Garcia Valdez v. Tuazon, 40 Phil. 943; Supreme Court also held: only after said contract had already become
Relativo v. Castro, 76 Phil. 563; Carillo v. disadvantageous and unfair to it due to
Salak de Paz, 18 SCRA 467). Furthermore, We rule that the respondent court did not subsequent events and conditions, which
the appellate court has the discretion to commit any error in taking cognizance of the must be sometime during the latter part of
consider an unassigned error that is closely aforesaid issues, although not raised before 1982 or in 1983 . . ." 16 is erroneous. In
related to an error properly assigned (Paterno the trial court. The presence of strong reformation of contracts, what is reformed is
v. Jao Yan, 1 SCRA 631; Hernandez v. Andal, consideration of substantial justice has led this not the contract itself, but the instrument
78 Phil. 196). It has also been held that the Court to relax the well-entrenched rule that, embodying the contract. It follows that
Supreme Court (and this Court as well) has except questions on jurisdiction, no question whether the contract is disadvantageous or
the authority to review matters, even if they will be entertained on appeal unless it has not is irrelevant to reformation and therefore,
are not assigned as errors in the appeal, if it is been raised in the court below and it is within cannot be an element in the determination of
found that their consideration is necessary in the issues made by the parties in their the period for prescription of the action to
arriving at a just decision of the case (Saura pleadings (Cordero v. Cabral, L-36789, July reform.
Import & Export Co., Inc. v. Phil. International 25, 1983, 123 SCRA 532). . . .
Surety Co. and PNB, 8 SCRA 143). For it is Article 1144 of the New Civil Code
the material allegations of fact in the provides, inter alia, that an action upon a
complaint, not the legal conclusion made
168
written contract must be brought within ten part [herein appellant] has need for the The above can also be said of the agreement
(10) years from the time the right of action electric light posts of the party of the second Exh. "A" between the parties in this case.
accrues. Clearly, the ten (10) year period is to part [herein plaintiff] it being understood that There is no mutuality and equality between
be reckoned from the time the right of action this contract shall terminate when for any them under the afore-quoted provision thereof
accrues which is not necessarily the date of reason whatsoever, the party of the second since the life and continuity of said agreement
execution of the contract. As correctly ruled by part is forced to stop, abandoned [sic] its is made to depend as long as appellant needs
respondent court, private respondent's right of operation as a public service and it becomes plaintiff's electric posts. And this is precisely
action arose "sometime during the latter part necessary to remove the electric light post why, since 1977 when said agreement was
of 1982 or in 1983 when according to Atty. [sic]"; (Emphasis supplied) executed and up to 1989 when this case was
Luis General, Jr. . . ., he was asked by finally filed by plaintiff, it could do nothing to
(private respondent's) Board of Directors to is invalid for being purely potestative on the be released from or terminate said agreement
study said contract as it already appeared part of appellant as it leaves the continued notwithstanding that its continued effectivity
disadvantageous to (private respondent) (p. effectivity of the aforesaid agreement to the has become very disadvantageous and
31, tsn, May 8, 1989). (Private respondent's) latter's sole and exclusive will as long as inequitous to it due to the expansion and
cause of action to ask for reformation of said plaintiff is in operation. A similar provision in a increase of appellant's telephone services
contract should thus be considered to have contract of lease wherein the parties agreed within Naga City and even outside the same,
arisen only in 1982 or 1983, and from 1982 to that the lessee could stay on the leased without a corresponding increase in the ten
January 2, 1989 when the complaint in this premises "for as long as the defendant (10) telephone units being used by plaintiff
case was filed, ten (10) years had not yet needed the premises and can meet and pay free of charge, as well as the bad and
elapsed." 17 said increases" was recently held by the inefficient service of said telephones to the
Supreme Court in Lim v. C.A., 191 SCRA 150, prejudice and inconvenience of plaintiff and its
Regarding the last issue, petitioners allege citing the much earlier case of Encarnacion v. customers. . . . 18
that there is nothing purely potestative about Baldomar, 77 Phil. 470, as invalid for being "a
the prestations of either party because purely potestative condition because it leaves Petitioners' allegations must be upheld in this
petitioner's permission for free use of the effectivity and enjoyment of leasehold regard. A potestative condition is a condition,
telephones is not made to depend purely on rights to the sole and exclusive will of the the fulfillment of which depends upon the sole
their will, neither is private respondent's lessee." Further held the High Court in the Lim will of the debtor, in which case, the
permission for free use of its posts dependent case: conditional obligation is void. 19 Based on this
purely on its will. definition, respondent court's finding that the
The continuance, effectivity and fulfillment of a provision in the contract, to wit:
Apart from applying Article 1267, respondent contract of lease cannot be made to depend
court cited another legal remedy available to exclusively upon the free and uncontrolled (a) That the term or period of this contract
private respondent under the allegations of its choice of the lessee between continuing the shall be as long as the party of the first part
complaint and the preponderant evidence payment of the rentals or not, completely (petitioner) has need for the electric light posts
presented by it: depriving the owner of any say in the matter. of the party of the second part (private
Mutuality does not obtain in such a contract of respondent) . . ..
. . . we believe that the provision in said lease of no equality exists between the lessor
agreement — and the lessee since the life of the contract is is a potestative condition, is correct. However,
dictated solely by the lessee. it must have overlooked the other conditions
(a) That the term or period of this contract in the same provision, to wit:
shall be as long as the party of the first

169
. . . it being understood that this contract shall
terminate when for any reason whatsoever,
the party of the second part (private
respondent) is forced to stop, abandoned (sic)
its operation as a public service and it
becomes necessary to remove the electric
light post (sic);

which are casual conditions since they

depend on chance, hazard, or the will of a
third person. 20 In sum, the contract is subject
to mixed conditions, that is, they depend partly
on the will of the debtor and partly on chance,
hazard or the will of a third person, which do
not invalidate the aforementioned
provision. 21 Nevertheless, in view of our
discussions under the first and second issues
raised by petitioners, there is no reason to set
aside the questioned decision and resolution
of respondent court.

WHEREFORE, the petition is hereby

DENIED. The decision of the Court of Appeals
dated May 28, 1992 and its resolution dated
September 10, 1992 are AFFIRMED.

SO ORDERED.

170
G.R. No. 4437 September 9, 1909 and ground floor of stone in which I live in Some time after the execution and delivery of
Pagina; in proof whereof, I sign this document, the above contracts, the said Victoriano
TOMAS OSMEÑA, plaintiff-appellee, and he shall be entitled to make claim against Osmeña died. In the settlement and division of
vs. me at the expiration of the term stated in this the property of his estate the above contracts
CENONA RAMA, defendant-appellant. document. became the property of one of his estate the
above contracts became the property of one
JOHNSON, J.: (Signed) CENON RAMA. of his heirs, Agustina Rafols. Later, the date
does not appear, the said Agustina Rafols
Witnesses: ceded to the present plaintiff all of her right
It appears from the record that upon the 15th
and interest in said contracts.
day of November, 1890, the defendant herein
executed and delivered to Victoriano Osmeña FAUSTO PEÑALOSA.
the following contract: FRANCISCO MEDALLE. On the 15th day of March, 1902 the plaintiff
presented the contracts to the defendant for
payment and she acknowledged her
EXHIBIT A. On the 27th day of October, 1891, the
responsibility upon said contracts by an
defendant executed and delivered to the said
indorsement upon them in the following
P200.00. Victoriano Osmeña the following contract:
language:

CEBU, November 15, 1890. EXHIBIT B.

EXHIBIT C.

I, Doña Cenona Rama, a resident of this city, CEBU, October 27, 1891.
CEBU, March 15, 1902.
and of legal age, have received from Don
Victoriano Osmeña the sum of two hundred On this date I have asked for further loan and
On this date I hereby promise, in the presence
pesos in cash which I will pay in sugar in the have received from Don Victoriano Osmeña
of two witness, that if the house of strong
month of January or February of the coming the sum of seventy pesos in cash, fifty pesos
materials in which I live in Pagina is sold, I will
year, at the price ruling on the day of of which I have loaned to Don Evaristo
pay my indebtedness to Don Tomas Osmeña
delivering the sugar into his warehouse, and I Peñares, which we will pay in sugar in the
as set forth in this document.
will pay him interest at the rate of half month of January of the coming year
a cuartillo per month on each peso, beginning according to the former conditions.
on this date until the day of the settlement; (Signed) CENONA RAMA.
and if I can not pay in full, a balance shall be (Signed) CENONA RAMA.
struck, showing the amount outstanding at the The defendant not having paid the amount
end of each June, including interest, and such due on said contracts; the plaintiff, upon the
as may be outstanding against me shall be From Don Evaristo Peñares P5026th day of June, 1906, commenced the
considered as capital which I will always pay present action in the Court of First Instance of
in sugar, together with the interest mentioned Doña Cenona Rama 20 the Province of Cebu. The complaint filed in
above. I further promise that I will sell to the said cause alleged the execution and delivery
said Señor Osmeña all the sugar that I may P70of the above contracts, the demand for
harvest, and as a guarantee, pledge as payment, and the failure to pay on the part of
security all of my present and future property, the defendant, and the prayer for a judgment
and as special security the house with tile roof Received — Evaristo Peñares. for the amount due on the said contracts. The
171
defendant answered by filing a general denial (Art. 1115, Civil Code.) The acknowledgment,
and setting up the special defense of therefore, was an absolute acknowledgment
prescription. of the obligation and was sufficient to prevent
the statute of limitation from barring the action
The case was finally brought on to trial in the upon the original contract.
Court of First Instance, and the only witness
produced during the trial was the plaintiff We are satisfied, from all of the evidence
himself. The defendant did not offer any proof adduced during the trial, that the judgment of
whatever in the lower court. the lower court should be affirmed. So
ordered.
After hearing the evidence adduced during the
trial, the lower court rendered a judgment in
favor of the plaintiff and against the defendant
for the sum of P200 with interest at the rate of
18 3/4 per cent per annum, from the 15th day
of November, 1890, and for the sum of P20
with interest at the rate of 18 3/4 per cent per
annum, from the 27th day of October, 1891,
until the said sums were paid. From this
judgment the defendant appealed.

The lower court found that P50 of the P70

mentioned in Exhibit B had been borrowed by
the defendant, but by one Evaristo Peñares;
therefore the defendant had no responsibility
for the payment of the said P50.

The only questions raised by the appellant

were questions of fact. The appellant alleges
that the proof adduced during the trial of the
cause was not sufficient to support the
findings of the lower court. It was suggested
during the discussion of the case in this court
that, in the acknowledgment above quoted of
the indebtedness made by the defendant, she
imposed the condition that she would pay the
obligation if she sold her house. If that
statement found in her acknowledgment of the
indebtedness should be regarded as a
condition, it was a condition which depended
upon her exclusive will, and is therefore, void.

172
G.R. No. L-5267 October 27, 1953 administratrix received the sum of P20,000 form that the condition was found by the Court
from the buyer of the property. Upon of Appeals however the condition implies that
LUZ HERMOSA, as administratrix of the authorization of the probate court in October, the intestate had already decided to sell his
Intestate Estate of Fernando Hermosa, Sr., 1947, and the same was paid for house, or at least that he had made his
and FERNANDO HERMOSA, JR., petitioners, subsequently. The Claim was filed on October creditors believe that he had done so, and that
vs. 2, 1948. all that we needed to make his obligation (to
EPIFANIO M. LONGARA, respondent. pay his indebtedness) demandable is that the
It is contended on this appeal that the sale be consummated and the price thereof
Manuel O. Chan for petitioners. obligation contracted by the intestate was remitted to the islands. Note that if the
Jacinto R. Bohol for respondent. subject to a condition exclusively dependent intestate would prevent or would have
upon the will of the debtor (a condicion prevented the consummation of the sale
potestativa) and therefore null and void, in voluntarily, the condition would be or would
LABRADOR, J.:
accordance with article 1115 of the old Civil have been deemed or considered complied
Code. The case of Osmeña vs. Rama, (14 with (article 1119, old Civil Code).The will to
This is an appeal by way of certiorari against a sell on the part of the intestate was, therefore,
Phil. 99) is cited to support appellants
decision of the Court of Appeals, fourth present in fact, or presumed legally to exist,
contention. In this case, this court seems to
division, approving certain claims presented although the price and other conditions
have filed that a promise to pay an
by Epifanio M. Longara against the testate thereof were still within his discretion and final
indebtedness "if a house of strong materials is
estate of Fernando Hermosa, Sr. The claims approval. But in addition of the sale to him
sold" is an obligation the performance of
are of three kinds, namely, P2,341.41 (the intestate-vendor), there were still other
which depended on the will of the debtor. We
representing credit advances made to the conditions that had no concur to effect the
have examined this case and we find that the
intestate from 1932 to 1944, P12,924.12 sale, mainly that of the presence of a buyer,
supposed ruling was merely an assumption
made to his son Francisco Hermosa, and ready, able and willing to purchase the
and the same was not the actual ruling of the
P3,772 made to his grandson, Fernando property under the conditions demanded by
case.
Hermosa, Jr. from 1945 to 1947, after the the intestate. Without such a buyer the sale
death of the intestate, which occurred in could not be carried out or the proceeds
December, 1944. The claimant presented A careful consideration of the condition upon
which payment of the sums advanced was thereof sent to the islands. It is evident,
evidence and the Court of Appeals found, in therefore sent to the islands. It is evident,
accordance therewith, that the intestate had made to depend, "as soon as he (intestate)
receive funds derived from the sale of his therefore, that the condition of the obligation
asked for the said credit advances for himself was not a purely protestative one, depending
and for the members of his family "on property in Spain," discloses the fact that the
condition in question does not depend exclusively upon the will of the intestate, but a
condition that their payment should be made mixed one, depending partly upon the will of
by Fernando Hermosa, Sr. as soon as he exclusively upon the will of the debtor, but
also upon other circumstances beyond his intestate and partly upon chance, i.e., the
receive funds derived from the sale of his presence of a buyer of the property for the
property in Spain." Claimant had testified power or control. If the condition were "if he
decides to sell his house." or "if he likes to pay price and under the conditions desired by the
without opposition that the credit advances intestate. The obligation is clearly governed by
were to be "payable as soon as Fernando the sums advanced," or any other condition of
similar import implying that upon him (the the second sentence of article 1115 of the old
Hermosa, Sr.'s property in Spain was sold and Civil Code (8 Manresa, 126). The condition is,
he receive money derived from the sale." The debtor) alone payment would depend, the
condition would be protestativa, dependent besides, a suspensive condition, upon the
Court of Appeals held that payment of the happening of which the obligation to pay is
advances did not become due until the exclusively upon his will or discretion. In the
made dependent. And upon the happening of
173
the condition, the debt became immediately 3 a La referida retroaccion, no solo tiene lugar One last contention of the appellant is that the
due and demandable. (Article 1114, old Civil cuando el cumplimiento de la condicion se claims are barred by the statute of non-claims.
Code; 8 Manresa, 119). verifica en vida de los contrayentes, que It does not appear from the record that this
tambien se produce cuando aquel se realiza question was ever raised in any of the courts
One other point needs to be considered, and despues de la muerte de estos. (4 Sanchez below. We are, therefore, without authority
this is the fact that the sale was not effected in Roman, p. 122) (Emphasis supplied.) under our rules to consider this issue at this
the lifetime of the debtor (the intestate), but stage of the proceedings.
after his death and by his administrator, the As the obligation retroacts to the date when
very wife of the claimant. On this last the contract was entered into, all amounts The judgment appealed from is hereby
circumstance we must bear in mind that the advanced from the time of the agreement affirmed in so far as it approves the claims of
Court of Appeals found no evidence to show became due, upon the happening of the appellee in the amounts of P2,341 and
that the claim was the product of a collusion or suspensive condition. As the obligation to pay P12,942.12, and reversed as to that of
connivance between the administratrix and became due and demandable only when the P3,772. Without costs.
the claimant. That there was really a promise house was sold and the proceeds received in
made by the intestate to pay for the credit the islands, the action to recover the same Bengzon, Padilla, Tuason, Montemayor,
advances maybe implied from the fact that the only accrued, within the meaning of the Reyes, Jugo, and Bautista Angelo,
receipts thereof had been preserved. Had the statute of limitations, on date the money JJ., concur.
advances been made without intention of became available here hence the action to
demanding their payment later, said receipts recover the advances has not yet prescribed. Separate Opinions
would not have been preserved. Regularity of
the advances and the close relationship The above considerations dispose of the most PARAS, C. J., concurring and dissenting:
between the intestate and the claimant also important questions raised on this appeal. It is
support this conclusion. also contended that the third group of claims,
I concur in the majority decision insofar as it
i.e., credits furnished the intestate's grandson
reverses the appealed judgment allowing the
As to the fact that the suspensive condition after his (intestate's) death in 1944, should
claim for P3,772, but dissent therefrom insofar
took place after the death of the debtor, and have been allowed. We find merit in this
as it affirms the appealed judgment approving
that advances were made more than ten contention. Even if authorization to furnish
appellee's other claims.
years before the sale, we supported in our necessaries to his grandson may have been
conclusion that the same is immaterial by given, this authorization could not be made to
Sanchez Roman, who says, among other extend after his death, for two obvious The principal question is whether the
things, as to conditional obligations: reasons. First because the obligation to stipulation to pay the advances "on condition
furnish support is personal and is extinguished that their payment should be made by
upon the death of the person obliged to give Fernando Hermosa, Sr. as soon as he
1a La obligacion contractual afectada por
support(article 150, old Civil Code), and receives funds derived from the sale of his
condicion suspensiva. no es exigible hasta
second because upon the death of a principal property in Spain, and making said advances
que se cumpla la condicion, . . .
(the intestate in this case), his agent's "payable as soon as Fernando Hermosa, Sr.'s
authority or authorization is deemed property in Spain was sold and he received
2 a El cumplimiento de la condicion money derived from the sale," condicion
suspensiva retrotae los efectos del acto terminated (article 1732, old Civil Code). That
part of the decision allowing this group of potestativa and therefore null and void in
juridico originario de la obligacion a que accordance with article 1115 of the old Civil
aquella afecta, al tiempo de lacelebracion de claims, amounting to P3,772 should be
reversed. Code. My answer is in the affirmative,
este; because it is very obvious that the matter of
174
the sale of the house rested on the sole will of ten years, which has already elapsed from the
the debtor, unaffected by any outside execution of the promissory notes until the
consideration or influence. The majority admit filing of the action on June 1, 1934. The action
that if the condition were "if he decides to sell which should be brought in accordance with
his house" or "if he likes to pay the sums articles 1128 is different from the action for the
advanced, the same would be potestative. I recovery of the amount of the notes, although
think a mere play or words is invoked, as I the effects of both are the same, being, like
cannot see any substantial difference. Under other civil actions, subject to the rules of
the condition imposed by Fernando Hermosa, prescription.
Sr., it is immaterial whether or not he had
already decided to sell his house, since there The majority also contend that the condition in
is no pretence that acceptable conditions of question depended on other factors than the
the sale had been made the subject of an sole will of the debtor, and cite the presence
agreement, such that if such conditions of a buyer, ready, able and willing to purchase
presented themselves the debtor would be the property. This is of no moment, because,
bound to proceed with the sale. In the case at as already stated, in the absence of any
bar, the terms are still subject to the sale contract setting forth the minimum or
judgment — if not whims and caprice — of maximum terms which would be acceptable to
Fernando Hermosa, Sr. In fact no sale was the debtor, nobody could legally compel
effected during his lifetime. Fernando Hermosa, Sr. to make any sale.

As the condition above referred to is null and

void, the debt resulting from the advances
made to Fernando Hermosa, Sr. became
either immediately demandable or payable
within a term to be fixed by the court. In both
cases the action has prescribed after the
lapse of ten years. In the case of Gonzales vs.
De Jose (66 Phil., 369, 371), this court already
held as follows:

We hold that the two promissory notes are

governed by article 1128 because under the
terms thereof the plaintiff intended to grant the
defendant a period within which to pay his
debts. As the promissory notes do not affix
this period, it is for the court to fix the same.
(Citing cases.) The action to ask the court to
fix the period has already prescribed in
accordance with section 43 (1) of the Code of
Civil Procedure. This period of prescription is

175
G.R. No. L-16109 October 2, 1922 the salary was to be at the rate of P600 per defendants communicated in writing to the
month during the first year and P700 per plaintiff the fact that they had decided to
M. D. TAYLOR, plaintiff-appellant, month during the second, with electric light rescind the contract, effective June 30th then
vs. and water for domestic consumption, and a current, upon which date he was discharged.
UY TIENG PIAO and TAN LIUAN, doing residence to live in, or in lieu thereof P60 per The plaintiff thereupon instituted this action to
business under the firm name and style of month. recover damages in the amount of P13,000,
Tan Liuan & Company, defendants. covering salary and perquisites due and to
Uy TIENG PIAO, defendant-appellant. At the time this agreement was made the become due under the contract.
machinery for the contemplated factory had
Cohn, Fisher and DeWitt and William C. not been acquired, though ten expellers had The case for the plaintiff proceeds on the idea
Brady for plaintiff-appellant. been ordered from the United States; and that the stipulation above quoted, giving to the
Gabriel La O for defendant-appellant Uy among the stipulations inserted in the contract defendants the right to cancel the contract
Tieng Piao. with the plaintiff was a provision to the upon the contingency of the nonarrival of the
Crossfield and O'Brien for Tan Liuan and Tan following effect: machinery in Manila within six months, must
Liyan and Co. be understood as applicable only in those
It is understood and agreed that should the cases where such nonarrival is due to causes
STREET, J.: machinery to be installed in the said factory not having their origin in the will or act of the
fail, for any reason, to arrive in the city of defendants, as delays caused by strikes or
Manila within a period of six months from date unfavorable conditions of transporting by land
This case comes by appeal from the Court of
hereof, this contract may be cancelled by the or sea; and it is urged that the right to cancel
First Instance of the city of Manila, in a case
party of the second part at its option, such cannot be admitted unless the defendants
where the court awarded to the plaintiff the
cancellation, however, not to occur before the affirmatively show that the failure of the
sum of P300, as damages for breach of
expiration of such six months. machinery to arrive was due to causes of that
contract. The plaintiff appeals on the ground
character, and that it did not have its origin in
that the amount of damages awarded is
The machinery above referred to did not arrive their own act or volition. In this connection the
inadequate; while the defendant Uy Tieng
in the city of Manila within the six months plaintiff relies on article 1256 of the Civil Code,
Piao appeals on the ground that he is not
succeeding the making of the contract; nor which is to the effect that the validity and
liable at all. The judgment having been
was other equipment necessary for the fulfillment of contracts cannot be left to the will
heretofore affirmed by us in a brief opinion, we
establishment of the factory at any time of one of the contracting parties, and to article
now avail ourselves of the occasion of the
provided by the defendants. The reason for 1119, which says that a condition shall be
filing of a motion to rehear by the attorneys for
this does not appear with certainty, but a deemed fulfilled if the obligor intentially
the plaintiff to modify the judgment in a slight
preponderance of the evidence is to the effect impedes its fulfillment.
measure and to state more fully the reasons
underlying our decision. that the defendants, in the first months of
1919, seeing that the oil business no longer It will be noted that the language conferring
promised large returns, either cancelled the the right of cancellation upon the defendants
It appears that on December 12, 1918, the
order for the machinery from choice or were is broad enough to cover any case of the
plaintiff contracted his services to Tan Liuan
unable to supply the capital necessary to nonarrival of the machinery, due to whatever
and Co., as superintendent of an oil factory
finance the project. At any rate on June 28, cause; and the stress in the expression "for
which the latter contemplated establishing in
1919, availing themselves in part of the option any reason" should evidently fall upon the
this city. The period of the contract extended
given in the clause above quoted, the word "any." It must follow of necessity that the
over two years from the date mentioned; and
176
defendants had the right to cancel the contract contracting, since they remain with the same defendants; and the argument to the contrary
in the contingency that occurred, unless some faculties in respect to fulfillment." (Manresa, apparently suffers from the logical defect of
clear and sufficient reason can be adduced for 2d ed., vol. 8, p. 610.) 1awph!l.net assuming the very point at issue.
limiting the operation of the words conferring
the right of cancellation. Upon this point it is Undoubtedly one of the consequences of this But it will be said that the question is not so
our opinion that the language used in the stipulation was that the employers were left in much one concerning the legality of the clause
stipulation should be given effect in its a position where they could dominate the referred to as one concerning the
ordinary sense, without technicality or contingency, and the result was about the interpretation of the resolutory clause as
circumvention; and in this sense it is believed same as if they had been given an unqualified written, the idea being that the court should
that the parties to the contract must have option to dispense with the services of the adjust its interpretation of said clause to the
understood it. plaintiff at the end of six months. But this supposed precepts of article 1256, by
circumstance does not make the stipulation restricting its operation exclusively to cases
Article 1256 of the Civil Code in our opinion illegal. where the nonarrival of the machinery may be
creates no impediment to the insertion in a due to extraneous causes not referable to the
contract for personal service of a resolutory The case of Hall vs. Hardaker (61 Fla., 267) will or act of the defendants. But even when
condition permitting the cancellation of the cited by the appellant Taylor, though the question is viewed in this aspect their
contract by one of the parties. Such a superficially somewhat analogous, is not result is the same, because the argument for
stipulation, as can be readily seen, does not precisely in point. In that case one Hardaker the restrictive interpretation evidently
make either the validity or the fulfillment of the had contracted to render competent and proceeds on the assumption that the clause in
contract dependent upon the will of the party efficient service as manager of a corporation, question is illegal in so far as it purports to
to whom is conceded the privilege of to which position it was understood he was to concede to the defendants the broad right to
cancellation; for where the contracting parties be appointed. In the same contract it was cancel the contract upon nonarrival of the
have agreed that such option shall exist, the stipulated that if "for any reason" Hardaker machinery due to any cause; and the debate
exercise of the option is as much in the should not be given that position, or if he returns again to the point whether in a
fulfillment of the contract as any other act should not be permitted to act in that capacity contract for the prestation of service it is lawful
which may have been the subject of for a stated period, certain things would be for the parties to insert a provision giving to
agreement. Indeed, the cancellation of a done by Hall. Upon being installed in the the employer the power to cancel the contract
contract in accordance with conditions agreed position aforesaid, Hardaker failed to render in a contingency which may be dominated by
upon beforehands is fulfillment. efficient service and was discharged. It was himself. Upon this point what has already
held that Hall was released from the obligation been said must suffice.
In this connection, we note that the to do the things that he had agreed to
commentator Manresa has the following perform. Some of the judges appear to have As we view the case, there is nothing in article
observation with respect to article 1256 of the thought that the case turned on the meaning 1256 which makes it necessary for us to warp
Civil Code. Says he: "It is entirely licit to leave of the phrase "for any reason," and the the language used by the parties from its
fulfillment to the will of either of the parties in familiar maxim was cited that no man shall natural meaning and thereby in legal effect to
the negative form of rescission, a case take advantage of his own wrong. The result restrict the words "for any reason," as used in
frequent in certain contracts (the letting of of the case must have been the same from the contract, to mean "for any reason not
service for hire, the supplying of electrical whatever point of view, as there was an having its origin in the will or acts of the
energy, etc.), for in such supposed case admitted failure on the part of Hardaker to defendants." To impose this interpretation
neither is the article infringed, nor is there any render competent service. In the present case upon those words would in our opinion
lack of equality between the persons there was no breach of contract by the constitute an unjustifiable invasion of the

177
power of the parties to establish the terms 1115. Said article can have no application to and Co. in employing the plaintiff. Upon this
which they deem advisable, a right which is the resolutory condition, the validity of which is we will merely say that the conclusion stated
expressed in article 1255 of the Civil Code recognized in article 1113 of the Civil Code. In by the trial court in the next to the last
and constitutes one of the most fundamental other words, a condition at once facultative paragraph of the decision with respect to the
conceptions of contract right enshrined in the and resolutory may be valid even though the liability of this appellant in our opinion in
Code. condition is made to depend upon the will of conformity with the law and facts.
the obligor.
The view already expressed with regard to the The judgment appealed from will be modified
legality and interpretation of the clause under If it were apparent, or could be demonstrated, by declaring that the defendants shall pay to
consideration disposes in a great measure of that the defendants were under a positive the plaintiff the sum of P360, instead of P300,
the argument of the appellant in so far as the obligation to cause the machinery to arrive in as allowed by the lower court, and as thus
same is based on article 1119 of the Civil Manila, they would of course be liable, in the modified the judgment will be affirmed with
Code. This provision supposes a case where absence of affirmative proof showing that the interest from November 4, 1919, as provided
the obligor intentionally impedes the fulfillment nonarrival of the machinery was due to some in section 510 of the Code of Civil Procedure,
of a condition which would entitle the obligee cause not having its origin in their own act or and with costs. So ordered.
to exact performance from the obligor; and an will. The contract, however, expresses no
assumption underlying the provision is that the such positive obligation, and its existence
obligor prevents the obligee from performing cannot be implied in the fact of stipulation,
some act which the obligee is entitled to defining the conditions under which the
perform as a condition precedent to the defendants can cancel the contract.
exaction of what is due to him. Such an act
must be considered unwarranted and Our conclusion is that the Court of First
unlawful, involving per se a breach of the Instance committed no error in rejecting the
implied terms of the contract. The article can plaintiff's claim in so far as damages are
have no application to an external contingency sought for the period subsequent to the
which, like that involved in this case, is expiration of the first six months, but in
lawfully within the control of the obligor. assessing the damages due for the six-month
period, the trial judge evidently overlooked the
In Spanish jurisprudence a condition like that item of P60, specified in the plaintiff's fourth
here under discussion is designated by assignment of error, which represents
Manresa a facultative condition (vol. 8, p. commutation of house rent for the month of
611), and we gather from his comment on June, 1919. This amount the plaintiff is clearly
articles 1115 and 1119 of the Civil Code that a entitled to recover, in addition to the P300
condition, facultative as to the debtor, is awarded in the court below.
obnoxious to the first sentence contained in
article 1115 and renders the whole obligation We note that Uy Tieng Piao, who is sued as a
void (vol. 8, p. 131). That statement is no partner with Tan Liuan, appealed from the
doubt correct in the sense intended by the judgment holding him liable as a member of
learned author, but it must be remembered the firm of Tan Liuan and Co.; and it is
that he evidently has in mind the suspensive insisted in his behalf that he was not bound by
condition, such as is contemplated in article the act of Tan Liuan as manager of Tan Liuan

178
G.R. No. L-16570 March 9, 1922 goods, but Mr. Sotelo refused to receive them the nondelivery of the tanks, and twenty-one
and to pay the prices stipulated. thousand two hundred and fifty pesos
SMITH, BELL & CO., LTD., plaintiff-appellant, (P21,250) on account of the expellers and the
vs. The plaintiff brought suit against the motors not having arrived in due time.
VICENTE SOTELO MATTI, defendant- defendant, based on four separate causes of
appellant. action, alleging, among other facts, that it The case having been tried, the court below
immediately notified the defendant of the absolved the defendants from the complaint
Ross and Lawrence and Ewald E. Selph for arrival of the goods, and asked instructions insofar as the tanks and the electric motors
plaintiff-appellant. from him as to the delivery thereof, and that were concerned, but rendered judgment
Ramon Sotelo for defendant-appellant. the defendant refused to receive any of them against them, ordering them to "receive the
and to pay their price. The plaintiff, further, aforesaid expellers and pay the plaintiff the
ROMUALDEZ, J.: alleged that the expellers and the motors were sum of fifty thousand pesos (P50,00), the
in good condition. (Amended complaint, pages price of the said goods, with legal interest
16-30, Bill of Exceptions.) thereon from July 26, 1919, and costs."
In August, 1918, the plaintiff corporation and
the defendant, Mr. Vicente Sotelo, entered
into contracts whereby the former obligated In their answer, the defendant, Mr. Sotelo, and Both parties appeal from this judgment, each
itself to sell, and the latter to purchase from it, the intervenor, the Manila Oil Refining and By- assigning several errors in the findings of the
two steel tanks, for the total price of twenty- Products Co., Inc., denied the plaintiff's lower court.
one thousand pesos (P21,000), the same to allegations as to the shipment of these goods
be shipped from New York and delivered at and their arrival at Manila, the notification to The principal point at issue in this case is
Manila "within three or four months;" two the defendant, Mr. Sotelo, the latter's refusal whether or not, under the contracts entered
expellers at the price of twenty five thousand to receive them and pay their price, and the into and the circumstances established in the
pesos (P25,000) each, which were to be good condition of the expellers and the record, the plaintiff has fulfilled, in due time, its
shipped from San Francisco in the month of motors, alleging as special defense that Mr. obligation to bring the goods in question to
September, 1918, or as soon as possible; and Sotelo had made the contracts in question as Manila. If it has, then it is entitled to the relief
two electric motors at the price of two manager of the intervenor, the Manila Oil prayed for; otherwise, it must be held guilty of
thousand pesos (P2,000) each, as to the Refining and By-Products Co., Inc which fact delay and liable for the consequences thereof.
delivery of which stipulation was made, was known to the plaintiff, and that "it was
couched in these words: "Approximate only in May, 1919, that it notified the To solve this question, it is necessary to
delivery within ninety days. — This is not intervenor that said tanks had arrived, the determine what period was fixed for the
guaranteed." motors and the expellers having arrived delivery of the goods.
incomplete and long after the date stipulated."
As a counterclaim or set-off, they also allege
The tanks arrived at Manila on the 27th of As regards the tanks, the contracts A and B
that, as a consequence of the plaintiff's delay
April, 1919: the expellers on the 26th of (pages 61 and 62 of the record) are similar,
in making delivery of the goods, which the
October, 1918; and the motors on the 27th of and in both of them we find this clause:
intervenor intended to use in the manufacture
February, 1919.
of cocoanut oil, the intervenor suffered
damages in the sums of one hundred sixteen To be delivered within 3 or 4 months — The
The plaintiff corporation notified the thousand seven hundred eighty-three pesos promise or indication of shipment carries with
defendant, Mr. Sotelo, of the arrival of these and ninety-one centavos (P116,783.91) for it absolutely no obligation on our part —
Government regulations, railroad embargoes,
179
lack of vessel space, the exigencies of the the goods. As to the tanks, the agreement uncertain that one cannot tell just whether, as
requirement of the United States Government, was that the delivery was to be made "within 3 a matter of fact, those articles could be
or a number of causes may act to entirely or 4 months," but that period was subject to brought to Manila or not. If that is the case, as
vitiate the indication of shipment as stated. In the contingencies referred to in a subsequent we think it is, the obligations must be regarded
other words, the order is accepted on the clause. With regard to the expellers, the as conditional.
basis of shipment at Mill's convenience, time contract says "within the month of September,
of shipment being merely an indication of what 1918," but to this is added "or as soon as Obligations for the performance of which a
we hope to accomplish. possible." And with reference to the motors, day certain has been fixed shall be
the contract contains this expression, demandable only when the day arrives.
In the contract Exhibit C (page 63 of the "Approximate delivery within ninety days," but
record), with reference to the expellers, the right after this, it is noted that "this is not A day certain is understood to be one which
following stipulation appears: guaranteed." must necessarily arrive, even though its date
be unknown.
The following articles, hereinbelow more The oral evidence falls short of fixing such
particularly described, to be shipped at San period. If the uncertainty should consist in the arrival
Francisco within the month of September /18, or non-arrival of the day, the obligation is
or as soon as possible. — Two Anderson oil From the record it appears that these conditional and shall be governed by the rules
expellers . . . . contracts were executed at the time of the of the next preceding section. (referring to
world war when there existed rigid restrictions pure and conditional obligations). (Art. 1125,
And in the contract relative to the motors on the export from the United States of Civ. Code.)
(Exhibit D, page 64, rec.) the following articles like the machinery in question, and
appears: maritime, as well as railroad, transportation And as the export of the machinery in
was difficult, which fact was known to the question was, as stated in the contract,
Approximate delivery within ninety days. — parties; hence clauses were inserted in the contingent upon the sellers obtaining
This is not guaranteed. — This sale is subject contracts, regarding "Government regulations, certificate of priority and permission of the
to our being able to obtain Priority Certificate, railroad embargoes, lack of vessel space, the United States Government, subject to the
subject to the United States Government exigencies of the requirements of the United rules and regulations, as well as to railroad
requirements and also subject to confirmation States Government," in connection with the embargoes, then the delivery was subject to a
of manufactures. tanks and "Priority Certificate, subject to the condition the fulfillment of which depended not
United State Government requirements," with only upon the effort of the herein plaintiff, but
respect to the motors. At the time of the upon the will of third persons who could in no
In all these contracts, there is a final clause as
execution of the contracts, the parties were way be compelled to fulfill the condition. In
follows:
not unmindful of the contingency of the United cases like this, which are not expressly
States Government not allowing the export of provided for, but impliedly covered, by the
The sellers are not responsible for delays the goods, nor of the fact that the other
caused by fires, riots on land or on the sea, Civil Code, the obligor will be deemed to have
foreseen circumstances therein stated might sufficiently performed his part of the
strikes or other causes known as "Force prevent it.
Majeure" entirely beyond the control of the obligation, if he has done all that was in his
sellers or their representatives. power, even if the condition has not been
Considering these contracts in the light of the fulfilled in reality.
civil law, we cannot but conclude that the term
Under these stipulations, it cannot be said that which the parties attempted to fix is so
any definite date was fixed for the delivery of
180
In such cases, the decisions prior to the Civil Second. That when the fulfillment of the The sheriff's sales under the execution
Code have held that the obligee having done condition does not depend on the will of the mentioned are fatally defective for what of
all that was in his power, was entitled to obligor, but on that of a third person, who can sufficient publication of the notice of sale.
enforce performance of the obligation. This in no way be compelled to carry it out, the Section 454 of the Code of civil Procedure
performance, which is fictitious — not real — obligor's part of the contract is complied reads in part as follows:
is not expressly authorized by the Code, withalf Belisario not having exercised his right
which limits itself only to declare valid those of repurchase reserved in the sale of Basilio SEC. 454. Before the sale of property on
conditions and the obligation thereby affected; Borja mentioned in paragraph (13) hereof, the execution, notice thereof must be given, as
but it is neither disallowed, and the Code affidavit of Basilio Borja for the consolidacion follows:
being thus silent, the old view can be de dominio was presented for record in the
maintained as a doctrine. (Manresa's registry of deeds and recorded in the registry 1. In case of perishable property, by posing
commentaries on the Civil Code [1907], vol. 8, on the same date. written notice of the time and place of the sale
page 132.) in three public places of the municipality or
(32) The Maximo Belisario left a widow, the city where the sale is to take place, for such
The decisions referred to by Mr. Manresa are opponent Adelina Ferrer and three minor time as may be reasonable, considering the
those rendered by the supreme court of Spain children, Vitaliana, Eugenio, and Aureno character and condition of the property;
on November 19, 1896, and February 23, Belisario as his only heirs.
1871. 2. * * * * * * *
(33) That in the execution and sales
In the former it is held: thereunder, in which C. H. McClure appears 3. In cases of real property, by posting a
as the judgment creditor, he was represented similar notice particularly describing the
First. That when the fulfillment of the by the opponent Peter W. Addison, who property, for twenty days in three public
conditions does not depend on the will of the prepared and had charge of publication of the places of the municipality or city where the
obligor, but on that of a third person who can notices of the various sales and that in none property is situated, and also where the
in no way be compelled to carry it out, and it is of the sales was the notice published more property is to be sold, and publishing a copy
found by the lower court that the obligor has than twice in a newspaper. thereof once a week, for the same period, in
done all in his power to comply with the some newspaper published or having general
obligation, the judgment of the said court, The claims of the opponent-appellant Addison circulation in the province, if there be one. If
ordering the other party to comply with his part have been very fully and ably argued by his there are newspaper published in the province
of the contract, is not contrary to the law of counsel but may, we think, be disposed of in in both the Spanish and English languages,
contracts, or to Law 1, Tit. I, Book 10, of the comparatively few words. As will be seen from then a like publication for a like period shall be
"Novísima Recopilación," or Law 12, Tit. 11, of the foregoing statement of facts, he rest his made in one newspaper published in the
Partida 5, when in the said finding of the lower title (1) on the sales under the executions Spanish language, and in one published in the
court, no law or precedent is alleged to have issued in cases Nos. 435, 450, 454, and 499 English language: Provided, however, That
been violated. (Jurisprudencia Civil published of the court of the justice of the peace of such publication in a newspaper will not be
by the directors of the Revista General de Dagupan with the priority of inscription of the required when the assessed valuation of the
Legislacion y Jurisprudencia [1866], vol. 14, last two sales in the registry of deeds, and (2) property does not exceed four hundred pesos;
page 656.) on a purchase from the Director of Lands after
the land in question had been forfeited to the 4. * * * * * * *
In the second decision, the following doctrine Government for non-payment of taxes under
is laid down: Act No. 1791.

181
Examining the record, we find that in cases It appears affirmatively from the evidence in Lands to a third party, by paying therefore the
Nos. 435 and 450 the sales took place on the present case that there is a newspaper whole sum due thereon at the time of
October 14, 1916; the notice first published published in the province where the sale in ejectment together with a penalty of ten per
gave the date of the sale as October 15th, but question took place and that the assessed centum . . . .
upon discovering that October 15th was a valuation of the property disposed of at each
Sunday, the date was changed to October sale exceeded P400. Comparing the The appellant Addison repurchased under the
14th. The correct notice was published twice requirements of section 454, supra, with what final proviso of the section quoted and was
in a local newspaper, the first publication was was actually done, it is self-evident that allowed to do so as the successor in interest
made on October 7th and the second and last notices of the sales mentioned were not given of the original owner under the execution sale
on October 14th, the date of the sale itself. as prescribed by the statute and taking into above discussed. As we have seen, he
The newspaper is a weekly periodical consideration that in connection with these acquired no rights under these sales, was
published every Saturday afternoon. sales the appellant Addison was either the therefore not the successor of the original
judgment creditor or else occupied a position owner and could only have obtained a valid
In case No. 454 there were only two analogous to that of a judgment creditor, the conveyance of such titles as the Government
publications of the notice in a newspaper, the sales must be held invalid. might have by following the procedure
first publication being made only fourteen prescribed by the Public Land Act for the sale
days before the date of the sale. In case No. The conveyance or reconveyance of the land of public lands. he is entitled to
499, there were also only two publications, the from the Director of Lands is equally invalid. reimbursement for the money paid for the
first of which was made thirteen days before The provisions of Act No. 1791 pertinent to redemption of the land, with interest, but has
the sale. In the last case the sale was the purchase or repurchase of land acquired no title through the redemption.
advertised for the hours of from 8:30 in the confiscated for non-payment of taxes are
morning until 4:30 in the afternoon, in violation found in section 19 of the Act and read: The question of the priority of the record of the
of section 457 of the Code of Civil Procedure. sheriff's sales over that of the sale from
In cases Nos. 435 and 450 the hours . . . In case such redemption be not made Belisario to Borja is extensively argued in the
advertised were from 9:00 in the morning until within the time above specified the briefs, but from our point of view is of no
4.30 in the afternoon. In all of the cases the Government of the Philippine Islands shall importance; void sheriff's or execution sales
notices of the sale were prepared by the have an absolute, indefeasible title to said real cannot be validated through inscription in the
judgment creditor or his agent, who also took property. Upon the expiration of the said Mortgage Law registry.
charged of the publication of such notices. ninety days, if redemption be not made, the
provincial treasurer shall immediately notify The opposition of Adelina Ferrer must also be
In the case of Campomanes vs. Bartolome the Director of Lands of the forfeiture and overruled. She maintained that the land in
and Germann & Co. (38 Phil., 808), this court furnish him with a description of the property, question was community property of the
held that if a sheriff sells without the notice and said Director of Lands shall have full marriage of Eulalio Belisario and Paula Ira:
prescribe by the Code of Civil Procedure control and custody thereof to lease or sell the that upon the death of Paula Ira inealed from
induced thereto by the judgment creditor and same or any portion thereof in the same is modified, and the defendant Mr. Vicente
the purchaser at the sale is the judgment manner as other public lands are leased or Sotelo Mat