Republic vs.

PLDT
(1969) FACTS: Sometime in 1933, the defendant PLDT entered into an agreement with RCA Communications Inc., an American corporation, whereby telephone messages coming from the US and received by RCAs domestic station, could automatically be transferred to th e lines of PLDT, and vice versa. The plaintiff through the Bureau of Telecommunications, after having set up its own Government Telephone System, by utilizing its own appropriation and equipment and by renting trunk lines of the PLDT, entered into an agreement with RCA for a joint overseas telephone service. Alleging that plaintiff is in competition with them, PLDT notified the former and receiving no reply, disconnected the trunk lines being rented by the same; thus, prompting the plaintiff to file a case before the CFI praying for judgment commanding PLDT to execute a contract with the Bureau for the use of the facilities of PLDTs telephone system, and for a writ of preliminary injunction against the defendant to restrain the severance of the existing trunk lines and restore those severed. ISSUE: Whether or not the defendant PLDT can be compelled to enter into a contract with the plaintiff. HELD: x x x while the Republic may not compel the PLDT to celebrate a contract with it, the Republic may, in the exercise of the sovereign power of eminent domain, require the telephone company to permit interconnection of the government telephone system and that of the PLDT, as the needs of the government service may require, subject to the payment of just compensation to be determined by the court.

G.R. No. L-40424 June 30, 1980 R. MARINO CORPUS, petitioner, vs. COURT OF APPEALS and JUAN T. DAVID, respondents

MAKASIAR, J.: A Having been close friends, aside from being membres Civil Liberties Union, petitioner Corpus intimately calls respondent David by his nickname "Juaning" and the latter addresses the former simply as "Marino". The factual setting of this case is stated in the decision of the lower court, thus: It appears that in March, 1958, the defendant was charged administratively by several employees of the Central Bank Export Department of which the defendant is the director. Then Governor of Central Bank, Miguel Cuaderno, Sr., recommended that the defendant be considered resigned as on the ground that he had lost confidence in him.. On August 18, 1959, the defendant, filed a case against Miguel Cuaderno, Sr., the Central Bank and Mario Marcos who was appointed to the position of the defendant, On March 30, 1962, the Supreme Court promulgated its decision reversing the order of dismissal and remanding the case for further proceedings. On April 18, 1962, after the promulgation of the decision of the Supreme Court reversing the dismissal of the case the defendant wrote the plaintiff the following letter, Exhibit 'Q'. . xxxxxxxxx Dear Juaning Will you please accept the attached check in the amount of TWO THOUSAND P2,000.00) PESOS for legal services in the handling of L-17860 recently decided by the Court? I wish I could give more but as y u know we were banking on a SC decision reinstating me and reimburse my backstage I had been wanting to offer some token of my appreciation of your legal fight for and in my behalf, and it was only last week that I received something on account of a pending claim. Looking forward to a continuation of the case in the lower court, I remain Sincerely yours, Illegible xxxxxxxxx In a reply letter dated April 25, 1962, the plaintiff returned the check, explaining said act as follows:

April 25, 1962 My dear Marino: Yesterday, I received your letter of April 18th with its enclosure. I wished thank you for your kind thoughts, however, please don't take offense if I have to return the check. I will explain. When I decided to render professional services in your case, I was motivated by the value to me of the very intimate relations which you and I have enjoyed during the past many years. It was nor primarily, for a professional fee. Although we were not fortunate to have obtained a decision in your case which should have put an end to it. I feel that we have reason to be jubilant over the outcome, because, the final favorable outcome of the case seems certain irrespective of the length of time required to terminate the same. Your appreciation of the efforts I have invested in your case is enough compensation therefor, however, when you shall have obtained a decision which would have finally resolved the case in your favor, remembering me then will make me happy. In the meantime, you will make me happier by just keeping the check. Sincerely yours, JUANING xxxxxxxxx When the case was remanded for further proceedings before Judge Lantin, the evidence for the defendant was presented by Atty. 'Alvarez with the plaintiff cooperating in the same-'On June 24, 1963, Judge Lantin rendered his decision in favor of the defendant declaring illegal the resolution of the Monetary Board of July 20, 1959, and ordering the defendant's reinstatement and the payment of his back salaries and allowances - The respondents in said Civil Case No. 41226 filed a motion for reconsideration which was opposed by the herein plaintiff. The said decision was appealed by the respondents, as well as by the herein defendant with respect to the award of P5, 000. 00 attorney's feed The plaintiff prepared two briefs for submission to the Court of Appeals one as appellee (Exhibit H) and the other as appellant (Exhibit H-1). The Court of Appeal however, certified the case to the Supreme Court in 1964. On March 31, 1965, the Supreme Court rendered a decision affirming the judgment of the Court of first Instance of Manila. On April 19, 1965 the plaintiffs law office made a formal de command upon the defendant for collection of 50% of the amount recovered by the defendant as back salaries and other emoluments from the Central Bank (Exhibit N). This letter was written after the defendant failed to appear at an appointment with the plaintiff so that they could go together to the Central Bank to claim the possession of the office to which the defendant was reinstated and after a confrontation in the office of the plaintiff wherein the plaintiff was remanding 50% of the back salaries and other

emoluments amounting to P203,000.00 recoverable by the defendant. The defendant demurred to this demand inasmuch as he had plenty of outstanding obligations and that his tax liability for said back salaries was around P90,000.00, and that he expected to net only around P10,000.00 after deducting all expenses and taxes. On the same date, April 19,1965 the plaintiff wrote the Governor for of Central Bank requesting that the amount representing the sack salaries of the defendant be made out in two one in favor of the defendant and the other representing the professional fees equivalent to 50% of the said back salaries being claimed by the plaintiff (Exhibit 8). F to obtain the relief from the Governor of Central Bank, the plaintiff instituted this action before this Court on July 20, 1965 (Emphasis supplied). Hence, the instant petition for review on certiorari, petitioner contending that the respondent Court of Appeals erred in finding that petitioner accepted private respondent's services "with the understanding of both that he (private respondent) was to be compensated" in money; and that the fee of private respondent was contingent (pp. 3 & 5, Petition for Certiorari, pp. 17 & 19, rec.). The main thrust of this petition for review is whether or not private respondent Atty. Juan T. David is entitled to attorney's fees. Petitioner Marino Corpus contends that respondent David is not entitled to attorney's fees because there was no contract to that effect. On the other hand, respondent David contends that the absence of a formal contract for the payment of the attorney's fees will not negate the payment thereof because the contract may be express or implied, and there was an implied understanding between the petitioner and private respondent that the former will pay the latter attorney's fees when a final decision shall have been rendered in favor of the petitioner reinstating him to -his former position in the Central Bank and paying his back salaries. I WE find respondent David's position meritorious. While there was express agreement between petitioner Corpus and respondent David as regards attorney's fees, the facts of the case support the position of respondent David that there was at least an implied agreement for the payment of attorney's fees. Petitioner's act of giving the check for P2,000.00 through his aforestated April 18, 1962 letter to respondent David indicates petitioner's commitment to pay the former attorney's fees, which is stressed by expressing that "I wish I could give more but as you know we were banking on a SC decision reinstating me and reimbursing my back salaries This last sentiment constitutes a promise to pay more upon his reinstatement and payment of his back salaries. Petitioner ended his letter that he was "looking forward to a continuation of the case in the lower court, ... to which the certiorarimandamus-quo warranto case was remanded by the Supreme Court for further proceedings. Moreover, respondent David's letter-reply of April 25, 1962 confirms the promise of petitioner Corpus to pay attorney's fees upon his reinstatement and payment of back salaries. Said reply states that respondent David decided to be his counsel in the case because of the value to him of their intimate relationship over the years and "not, primarily, for a professional fee." It is patent then, that respondent David agreed to render professional services to petitioner Corpus secondarily for a professional fee. This is stressed by the last paragraph of said reply which states that "however, when you shall have obtained a decision which would have finally resolved the case in your favor,

remembering me then will make me happy. In the meantime, you will make me happier by just keeping the check." Thereafter, respondent David continued to render legal services to petitioner Corpus, in collaboration with Atty. Alverez until he and Atty. Alvarez secured the decision directing petitioner's reinstatement with back salaries, which legal services were undisputedly accepted by, and benefited petitioner. It is further shown by the records that in the motion filed on March 5, 1975 by petitioner Corpus before the Court of Appeals for the reconsideration of its decision the order of the lower court granting P30,000.00 attorney's fee's to respondent David, he admitted that he was the first to acknowledge that respondent David was entitled to tion for legal services rendered when he sent the chock for P2,000.00 in his letter of April 18, 1962, and he is still to compensate the respondent but only to the extent of P10,000.00 (p. 44, rec.). This admission serves only to further emphasize the fact that petitioner Corpus was aware all the time that he was liable to pay attorney's fees to respondent David which is therefore inconsistent with his position that the services of respondent David were gratuitous, which did not entitle said respondent to compensation. It may be advanced that respondent David may be faulted for not reducing the agreement for attorney's fees with petitioner Corpus in writing. However, this should be viewed from their special relationship. It appears that both have been friends for several years and were co-members of the Civil Liberties Union. In addition, respondent David and petitioner's father, the late Rafael Corpus, were also close friends. Thus, the absence of an express contract for attorney's fees between respondent David and petitioner Corpus is no argument against the payment of attorney's fees, considering their close relationship which signifies mutual trust and confidence between them. II Moreover, the payment of attorney's fees to respondent David may also be justified by virtue of the innominate contract of facio ut des (I do and you give which is based on the principle that "no one shall unjustly enrich himself at the expense of another." innominate contracts have been elevated to a codal provision in the New Civil Code by providing under Article 1307 that such contracts shall be regulated by the stipulations of the parties, by the general provisions or principles of obligations and contracts, by the rules governing the most analogous nominate contracts, and by the customs of the people. The rationale of this article was stated in the 1903 case of Perez vs. Pomar (2 Phil. 982). In that case, the Court sustained the claim of plaintiff Perez for payment of services rendered against defendant Pomar despite the absence of an express contract to that effect, thus: It does not appear that any written contract was entered into between the parties for the employment of the plaintiff as interpreter, or that any other innominate contract was entered into but whether the plaintiffs services were solicited or whether they wereoffered to the defendant for his assistance, inasmuch as these services were accepted and made use of by the latter, we must consider that there was a tacit and mutual consent as to the rendition of the services. This gives rise to the obligation upon the person benefited by the services to make compensation therefor, since the bilateral obligation to render service as interpreter, on the one hand, and on the other to pay for the service rendered, is thereby incurred. (Arts. 1088, 1089, and 1262 of the Civil Code). xxxxxxxxx WE reiterated this rule in Pacific Merchandising Corp. vs. Consolacion Insurance & Surety Co., Inc. (73 SCRA 564 [1976]) citing the case of Perez v. Pomar, supra thus:

Where one has rendered services to another, and these services are accepted by the latter, in the absence of proof that the service was rendered gratuitously, it is but just that he should pay a reasonable remuneration therefor because 'it is a wellknown principle of law, that no one should be permitted to enrich himself to the damage of another (emphasis supplied).

GEORGE W. BATCHELDER vs. THE CENTRAL BANK OF THE PHILIPPINES G.R. No. L-25071 March 29, 1972 Facts: Monetary Board Resolution No. 857 requires Filipino and American resident contractors for constructions in U.S. military bases in the Philippines to surrender to the Central Bank their dollar earnings under their respective contracts but were entitled to utilize 90% of their surrendered dollars for importation at the preferred rate of commodities for use within or outside said U.S. military bases. Resolution 695 moreover, denies their right to reacquire at the preferred rate ninety per cent (90%) of the foreign exchange the sold or surrendered earnings to Central Bank for the purpose of determining whether the imports against proceeds of contracts entered into prior to April 25, 1960 are classified as dollar-to-dollar transactions or not. George Batchelder, an American Citizen permanently residing in the Philippines who is engaged in the Construction Business, surrendered to the Central Bank his dollar earnings amounting to U.S. $199,966.00. He compels Central Bank of the Philippines to resell to him $170,210.60 at the preferred rate of exchange of two Philippine pesos for one American dollar, more specifically P2.00375 which was denied by the court. He then contended that said decision failed to consider that if there was no contract obligating the bank to resell to him at the preferred rate, the judgment of the lower court can and should nevertheless be sustained on the basis of there being such an obligation arising from law. Issue: Whether or not Central Bank has the obligation arising from law to resell the US$154,094.56 to Batchelder at the preferred rate. Held: Central Bank was intended to attain basic objectives in the field of currency and finance. It shall be the responsibility of the Central Bank of the Philippines to administer the monetary and banking system of the Republic. It shall be the duty of the Central Bank to use the powers granted to it under this Act to achieve the following objectives: (a) to maintain monetary stability in the Philippines; (b) to preserve the international value of the peso and the convertibility of the peso into other freely convertible currencies; and (c) to promote a rising level of production, employment and real income in the Philippines." It is, of course, true that obligations arise from 1) law; 2) contracts; 3) quasi-contracts; 4) acts or omissions punished by law and 5) quasi-delicts. One of the sources an obligation then is a law. A legal norm could so require that a particular party be chargeable with a prestation or undertaking to give or to deliver or to do or to render some service. It is an indispensable requisite though that such a provision, thus in fact exists. There must be a showing to that effect. As early as 1909 in Pelayo v. Lauron, Court through Justice Torres, categorically declared: "Obligation arising from law are not presumed." For in the language of Justice Street in Leung Ben v. O'Brien, a 1918 decision, such an obligation is "a creation of the positive law." They are ordinarily traceable to code or statute. It is true though, as noted in the motion for reconsideration following People v. Que Po Lay, that a Central Bank circular may have the force and effect of law, especially when issued in

pursuance of its quasi-legislative power. That of itself, however, is no justification to conclude that it has thereby assumed an obligation.

Emeterio Cui vs. Arellano University G.R. No. 15172 May 30, 1961

FACTS: Before the school year 1948-1949 Emeterio Cui took up preparatory law course in the Arellano University. After Finishing his preparatory law course plaintiff enrolled in the College of Law of the defendant from school year 1948-1949. Plaintiff finished his law studies in the defendant university up to and including the first semester of the fourt year. During all the school years in which plaintiff was studying law in defendant law college, Francisco R. Capistrano, brother of mother of plaintiff, was the dean of college of law and legal counsel of the defendant university. Plaintiff enrolled for last semester of his law studies in the defendant university but failed to pay tuition fees because his uncle Dean Francisco R. Capistrano, having severed his connection with defendant and having accepted the deanship and chancellorship of the college of law of the Abad Santos University graduating from the college of law of the latter university. Plaintiff, during all the time he has studying law in Defendant University was awarded scholarship grants, for scholastic merit, so that his semestral tuition fees were retured to him after the end of semester and when his scholarship grants were awarded to him. The whole amount of tuition fess paid by the plaintiff to defendant and refunded to him by the latter from the first semester up to and including the first semester of his last year in college of law or the fourth year, is in total P1,003.87. After Graduating in law from Abad Santos University he applied to take the bar examination. To secure permission to take the bar, he needed the transcript of his records in defendant Arellano University. Plaintiff petitioned the latter to issue to him the needed transcripts. The defendant refused until after he paid back the P1,003.87 which defendant refunded him. As he could not take the bar examination without those transcripts, plaintiff paid to defendant the said sum under protest. The issue in this case is whether the above quoted provision of the contract between plaintiff and the defendant, whereby the former waived his right to transfer to another school without refunding to the latter the equivalent of his scholarships in cash, is valid or not. The lower court resolved this question in the affirmative, upon the ground that the aforementioned memorandum of the Director of Private Schools is not a law; that the provisions thereof are advisory, not mandatory in nature; and that, although the contractual provision "may be unethical, yet it was more unethical for plaintiff to quit studying with the defendant without good reasons and simply because he wanted to follow the example of his uncle." Moreover, defendant maintains in its brief that the aforementioned memorandum of the Director of Private Schools is null and void because said officer had no authority to issue it, and because it had been neither approved by the corresponding department head nor published in the official gazette. We do not deem it necessary or advisable to consider as the lower court did, the question whether plaintiff had sufficient reasons or not to transfer from defendant University to the Abad Santos University. The nature of the issue before us, and its far reaching effects, transcend personal equations and demand a determination of the case from a high impersonal plane. Neither do we deem it essential to pass upon the validity of said Memorandum No. 38, for, regardless of the same, we are of the opinion that the stipulation in question is contrary to public policy and, hence, null and void. The aforesaid memorandum merely incorporates a sound principle of public policy. As the Director of Private Schools correctly pointed, out in his letter, Exhibit B, to the defendant, There is one more point that merits refutation and that is whether or not the contract entered into between Cui and Arellano University on September 10, 1951 was void as against public

policy. In the case of Zeigel vs. Illinois Trust and Savings Bank, 245 Ill. 180, 19 Ann. Case 127, the court said: 'In determining a public policy of the state, courts are limited to a consideration of the Constitution, the judicial decisions, the statutes, and the practice of government officers.' It might take more than a government bureau or office to lay down or establish a public policy, as alleged in your communication, but courts consider the practices of government officials as one of the four factors in determining a public policy of the state. It has been consistently held in America that under the principles relating to the doctrine of public policy, as applied to the law of contracts, courts of justice will not recognize or uphold a transaction which its object, operation, or tendency is calculated to be prejudicial to the public welfare, to sound morality or to civic honesty (Ritter vs. Mutual Life Ins. Co., 169 U.S. 139; Heding vs. Gallaghere 64 L.R.A. 811; Veazy vs. Allen, 173 N.Y. 359). If Arellano University understood clearly the real essence of scholarships and the motives which prompted this office to issue Memorandum No. 38, s. 1949, it should have not entered into a contract of waiver with Cui on September 10, 1951, which is a direct violation of our Memorandum and an open challenge to the authority of the Director of Private Schools because the contract was repugnant to sound morality and civic honesty. And finally, in Gabriel vs. Monte de Piedad, Off. Gazette Supp. Dec. 6, 1941, p. 67 we read: 'In order to declare a contract void as against public policy, a court must find that the contract as to consideration or the thing to be done, contravenes some established interest of society, or is inconsistent with sound policy and good morals or tends clearly to undermine the security of individual rights. The policy enunciated in Memorandum No. 38, s. 1949 is sound policy. Scholarship are awarded in recognition of merit not to keep outstanding students in school to bolster its prestige. In the understanding of that university scholarships award is a business scheme designed to increase the business potential of an education institution . Thus conceived it is not only inconsistent with sound policy but also good morals. But what is morals? Manresa has this definition. It is good customs; those generally accepted principles of morality which have received some kind of social and practical confirmation. The practice of awarding scholarships to attract students and keep them in school is not good customs nor has it received some kind of social and practical confirmation except in some private institutions as in Arellano University. The University of the Philippines which implements Section 5 of Article XIV of the Constitution with reference to the giving of free scholarships to gifted children, does not require scholars to reimburse the corresponding value of the scholarships if they transfer to other schools. So also with the leading colleges and universities of the United States after which our educational practices or policies are patterned. In these institutions scholarships are granted not to attract and to keep brilliant students in school for their propaganda mine but to reward merit or help gifted students in whom society has an established interest or a first lien. (Emphasis supplied.) WHEREFORE, the decision appealed from is hereby reversed and another one shall be entered sentencing the defendant to pay to the plaintiff the sum of P1,033.87, with interest thereon at the legal rate from September 1, 1954, date of the institution of this case, as well as the costs, and dismissing defendant's counterclaim. It is so ordered.

G.R. No. L-13403

March 23, 1960

RAMON E. SAURA, plaintiff-appellant, vs. ESTELA P. SINDICO, defendant-appellee. Anacleto Magno for appellant. Espeque and Jalandoni for appellee. REYES, J. B. L., J.: Appeal on issues of law from an order of the Court of First Instance of Pangasinan dismissing plaintiff's complaint for damages. From the records it appears that Ramon E. Saura and Estela P. Sindico were contesting for nomination as the official candidate of the Nacionalista Party in the fourth district of Pangasinan in the congressional elections of November 12, 1957. On August 23, 1957, the parties entered into a written agreement bearing the same date, containing among other matters stated therein, a pledge that Each aspirant shall respect the result of the aforesaid convention, i.e., no one of us shall either run as a rebel or independent candidate after losing in said convention. In the provincial convention held by the Nacionalista Party on August 31, 1957, Saura was elected and proclaimed the Party's official congressional candidate for the aforesaid district of Pangasinan. Nonetheless, Sindico, in disregard of the covenant, filed, on September 6, 1957, her certificate of candidacy for the same office with the Commission on Elections, and she openly and actively campaigned for her election. Wherefore, on October 5, 1957, plaintiff Saura commenced this suit for the recovery of damages. Upon motion of the defendant, the lower court, in its order of November 19, 1957, dismissed the complaint on the basis that the agreement sued upon is null and void, in tat (1) the subject matter of the contract, being a public office, is not within the commerce of man; and (2) the "pledge" was in curtailment of the free exercise of elective franchise and therefore against public policy. Hence, this appeal. We agree with the lower court in adjudging the contract or agreement in question a nullity. Among those that may not be the subject matter (object) of contracts are certain rights of individuals, which the law and public policy have deemed wise to exclude from the commerce of man. Among them are the political rights conferred upon citizens, including, but not limited to, once's right to vote, the right to present one's candidacy to the people and to be voted to public office, provided, however, that all the qualifications prescribed by law obtain. Such rights may not, therefore, be bargained away curtailed with impunity, for they are conferred not for individual or private benefit or advantage but for the public good and interest. Constitutional and statutory provision fix the qualifications of persons who may be eligible for certain elective public offices. Said requirements may neither be enlarged nor reduced by mere agreements between private parties. A voter possessing all the qualifications required to fill an office may, by himself or through a political party or group, present his candidacy without further limitations than those provided by law. Every voter has a right to be a candidate for public office if he possesses the qualifications required to fill the office. It does not necessarily follow that he can be the candidate of a particular political party. The statute provides when and how one may be a candidate of a

political party. If he cannot fill the requirement so as to be the candidates of the political party of his choice, he may still be a candidate at the general election by petition. The right of the voter to vote at the general election for whom he pleases cannot be limited . (Roberts vs. Cleveland, Secretary of State of State of New Mexico, 48 NM 226, 149 P (2d) 120, 153 A.L.R. 635, 637-638) (Emphasis supplied) In common law, certain agreements in consideration of the withdrawal of candidates for office have invariably been condemned by the courts as being against public policy, be it a withdrawal from the race for nomination or, after nomination, from the race for election. (See notes in 37 L. R. A. (N.S.) 289 and cases cited therein; 18 Am. Jur. Sec. 352, pp. 399-400) In the case at hand, plaintiff complains on account of defendant's alleged violation of the "pledge" in question by filing her own certificate o candidacy for a seat in the Congress of the Philippines and in openly and actively campaigning for her election. In the face of the preceding considerations, we certainly cannot entertain plaintiff's action, which would result in limiting the choice of the electors to only those persons selected by a small group or by party boses. The case of Pendleton vs. Pace, 9 S.W. (2nd) 437, cited by the appellant, is clearly inapplicable. The court there only sanctioned the validity of an agreement by the opposing candidates for nomination setting aside and re-submitting the nomination for another primary election on account of the protest or contest filed by the losing candidate in the first primary election. To abandon the contest proceedings, the candidates for nomination agreed to submit again their nomination to the electors in the subsequent primary. Appellant likewise cites and quotes a portion of our ruling in Monsale vs. Nico, 83 Phil., 758; 46 Off. Gaz., 210, to the effect that it is not incompetent or a candidate to withdraw or annul his certificate of candidacy. This is not in point, for while we stated there that he may do so, there being no legal prohibition against such a voluntary withdrawal, it does not follow, nor did we imply anywhere in the decision, that in case there is any agreement or consideration for such a withdrawal, said agreement or consideration should be held valid or given effect. We find it unnecessary to discuss the other points raised by the parties. Wherefore, the order of dismissal appealed from is hereby affirmed. No pronouncement as to costs.

G.R. No. L-65425 November 5, 1987 IRENEO LEAL, JOSE LEAL, CATALINA LEAL, BERNABELA LEAL, VICENTE LEAL EUIOGIA LEAL PATERNO RAMOS, MACARIO DEL ROSARIO, MARGARITA ALBERTO, VICTORIA TORRES, JUSTINA MANUEL, JULIAN MANUEL, MELANIA SANTOS, CLEMENTE SAMARIO, MARIKINA VALLEY, INC., MIGUELA MENDOZA, and REGISTER OF DEEDS OF RIZAL, petitioners, vs. THE HONORABLE INTERMEDIATE APPELLATE COURT (4th Civil Cases Division), and VICENTE SANTIAGO (Substituted by SALUD M. SANTIAGO), respondents. FACTS: -Reversal of IAC in its Resolution dated Sept. 27, 1983 of the earlier decision dated June 28, 1978 penned by Justice Paras of the Court of Appeals, in the same case, affirming the trial courts dismissal of the private respondents complaint. March 21, 1941: Vicente Santiago and Cirilio Leal entered into a contract which was called the Compraventa where V. Santiago sold to the latter three parcels of land. Cited in the contract was: En caso deventa, no podran vender a otrosdichos tres lotes de terrenosino al aqui rendedor Vicente Santiago, o los herederos o sucesores de estepor el niismo precio de P5,600 siempre y cuando estos ultimos pueden hacer la compra. 1960-1965: Parts of the properties were mortgaged or leased to the co-petitioners or to third party 1966-1957: V. Santiago offered re-purchase of the properties but the petitioner refused the offer August 2, 1967: V. Santiago instituted complaint for specific performance. The trial court (Court of First Instance in Q.C.) rendered its decision dismissing the case for it was thought to be a premature case or that there was no sale at all. The respondent was not contented at all that he filed another complaint in the Court of Appeals June 28, 1978: Justice Paras of the Court of Appeals affirmed the trial courts dismissal of respondents complaint. Included in the decision was the order for the cancellation of the annotations at the back of the Transfer Certificates of Title issued which prohibits the petitioner to sell the land to the third party. Respondentsfiled a motion for reconsideration and an opposition to the petitioners(Leal) motion to amend but the incidents were not resolved since the Court of Appeals was abolished and was replaced by the IAC. Sept. 27, 1983: The June 28, 1978 decision of the CA was reversed. The petitioners were to accept P5,600 for re-purchase of Land and they should pay rental of P3,087.50 as rental from 1967-1968 and the same amount every year after. The Transfer Certificate of Title No. 42535 was ordered to be in the names of V. Santiago & Luis Santiago and to issue another TCT to S. Santiago. ISSUE/S:

Whether or not it is quoted in the Compraventa that the private respondent has the right of re purchase. Whether the annotations of the prohibition to sell at the back of the TCTs should be cancelled.

HELD: The Resolution dated Sept. 27, 1983 was SET ASIDE and the Decision promulgated on June 28, 1978 is Reinstated. The annotations of the prohibition to sell at the back of TCT Nos. 138837-138842 were cancelled cost against respondent. For the following reasons: -In IACs resolution : repurchase was given birth by the phrase siempre y cuando ultimos pueden hacer la compra (when the buyer has money to buy). Under Article 1508 (2nd Paragraph) there is agreement as to the time, although it is indefinite, therefore the right should be exercised within ten years, because the law does not favor suspended ownership. -The right to redeem must be expressly stipulated in the contract of sale in order that it may have legal existence. Under Article 1606 of the Civil Code of the Philippines the right to redeem or repurchase, in the absence of an express agreement as to time, shall last four years from the date of contract. -Prohibition to sell the lots to persons other than the vendor (back of TCT) will be cancelled or deleted since the prohibition to alienate should not exceed 20 years otherwise there would be subversion of public policy. -Civil Code of the Phil. Art. 1306 includes that contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Public order signifies the public weal public policy. Essentially, therefore, public order and public policy mean one and the same thing. One such condition which is contrary to public policy is the present prohibition to self to third parties(or perpetual restriction to the right of ownership specifically the owners right to freely dispose of his properties.

G.R. No. L-46591

July 28, 1987

BANCO FILIPINO SAVINGS and MORTGAGE BANK, petitioner, vs. HON. MIGUEL NAVARRO, Presiding Judge, Court of First Instance of Manila, Branch XXXI and FLORANTE DEL VALLE, respondents. MELENCIO-HERRERA, J.: The facts are not in dispute: On May 20, 1975, respondent Florante del Valle (the BORROWER) obtained a loan secured by a real estate mortgage (the LOAN, for short) from petitioner BANCO FILIPINO 1 in the sum of Forty-one Thousand Three Hundred (P41,300.00) Pesos, payable and to be amortized within fifteen (15) years at twelve (12%) per cent interest annually. Hence, the LOAN still had more than 730 days to run by January 2, 1976, the date when CIRCULAR No. 494 was issued by the Central Bank. Stamped on the promissory note evidencing the loan is an Escalation Clause, reading as follows: I/We hereby authorize Banco Filipino to correspondingly increase the interest rate stipulated in this contract without advance notice to me/us in the event law should be enacted increasing the lawful rates of interest that may be charged on this particular kind of loan. The Escalation Clause is based upon Central Bank CIRCULAR No. 494 issued on January 2, 1976, the pertinent portion of which reads: 3. The maximum rate of interest, including commissions, premiums, fees and other charges on loans with maturity of more than seven hundred thirty (730) days, by banking institutions, including thrift banks and rural banks, or by financial intermediaries authorized to engage in quasi-banking functions shall be nineteen percent (19%) per annum. xxx xxx xxx

7. Except as provided in this Circular and Circular No. 493, loans or renewals thereof shall continue to be governed by the Usury Law, as amended." On the strength of CIRCULAR No. 494 BANCO FILIPINO gave notice to the BORROWER on June 30, 1976 of the increase of interest rate on the LOAN from 12% to 17% per annum effective on March 1, 1976. Contending that CIRCULAR No. 494 is not the law contemplated in the Escalation Clause of the promissory note, the BORROWER filed suit against BANCO FILIPINO for "Declaratory Relief" with respondent Court, praying that the Escalation Clause be declared null and void and that BANCO FILIPINO be ordered to desist from enforcing the increased rate of interest on the BORROWER's real estate loan. For its part, BANCO FILIPINO maintained that the Escalation Clause signed by the BORROWER authorized it to increase the interest rate once a law was passed increasing the rate of interest and that its authority to increase was provided for by CIRCULAR No. 494.

In its judgment, respondent Court nullified the Escalation Clause and ordered BANCO FILIPINO to desist from enforcing the increased rate of interest on the BORROWER's loan. It reasoned out that P.D. No. 116 does not expressly grant the Central Bank authority to maximize interest rates with retroactive effect and that BANCO FILIPINO cannot legally impose a higher rate of interest before the expiration of the 15-year period in which the loan is to be paid other than the 12% per annum in force at the time of the execution of the loan. What should be resolved is whether BANCO FILIPINO can increase the interest rate on the LOAN from 12% to 17% per annum under the Escalation Clause. It is our considered opinion that it may not. It is clear from the stipulation between the parties that the interest rate may be increased "in the event a lawshould be enacted increasing the lawful rate of interest that may be charged on this particular kind of loan." " The Escalation Clause was dependent on an increase of rate made by "law" alone. CIRCULAR No. 494, although it has the effect of law, is not a law. "Although a circular duly issued is not strictly a statute or a law , it has, however, the force and effect of law." 6 (Italics supplied). "An administrative regulation adopted pursuant to law has the force and effect of law." 7 "That administrative rules and regulations have the force of law can no longer be questioned. " 8 The distinction between a law and an administrative regulation is recognized in the Monetary Board guidelines quoted in the letter to the BORROWER of Ms. Paderes of September 24, 1976 ( supra). According to the guidelines, for a loan's interest to be subject to the increases provided in CIRCULAR No. 494, there must be an Escalation Clause allowing the increase "in the event that any law or Central Bank regulation is promulgated increasing the maximum interest rate for loans." The guidelines thus presuppose that a Central Bank regulation is not within the term "any law." It is now clear that from March 17, 1980, escalation clauses to be valid should specifically provide: (1) that there can be an increase in interest if increased by law or by the Monetary Board; and (2) in order for such stipulation to be valid, it must include a provision for reduction of the stipulated interest "in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board." While P.D. No. 1684 is not to be given retroactive effect, the absence of a de-escalation clause in the Escalation Clause in question provides another reason why it should not be given effect because of its one-sidedness in favor of the lender.

G.R. No. 101771 December 17, 1996 SPOUSES MARIANO and GILDA FLORENDO, petitioners, vs. COURT OF APPEALS and LAND BANK OF THE PHILIPPINES, respondents.

PANGANIBAN, J.:p May a bank unilaterally raise the interest rate on a housing loan granted an employee, by reason of the voluntary resignation of the borrower? Such is the query raised in the petition for review on certiorari now before us, which assails the Decision promulgated on June 19, 1991 by respondent Court of Appeals 1 in CA-G.R. CV No. 24956, upholding the validity and enforceability of the escalation by private respondent Land Bank of the Philippines of the applicable interest rate on the housing loan taken out by petitioner-spouses. The Antecedent Facts 1. That (Petitioner) Gilda Florendo (was) an employee of (Respondent Bank) from May 17, 1976 until August 16, 1984 when she voluntarily resigned. However, before her resignation, she applied for a housing loan of P148,000.00, payable within 25 years from (respondent bank's) Provident Fund on July 20, 1983; 4. That the loan . . . was actually given to (petitioner) Gilda Florendo, . . ., in her capacity as employee of (respondent bank); 5. That on March 19, 1985, (respondent bank) increased the interest rate on (petitioner's) loan from 9% per annum to 17%, the said increase to take effect on March 19, 1985; 9. That thereafter, (respondent bank) kept on demanding that (petitioner) pay the increased interest or the new monthly installments based on the increased interest rate, but Plaintiff just as vehemently maintained that the said increase is unlawful and unjustifiable. Because of (respondent bank's) repeated demands, (petitioners) were forced to file the instant suit for Injunction and Damages; 10. That, just the same, despite (respondent bank's) demands that (petitioners) pay the increased interest or increased monthly installments, they (petitioners) have faithfully paid and discharged their loan obligations, more particularly the monthly payment of the original stipulated installment of P1,248.72. Disregarding (respondent bank's) repeated demand for increased interest and monthly installment, (petitioners) are presently up-to-date in the payments of their obligations under the original contracts (Housing Loan Agreement, Promissory Note and Real Estate Mortgage) with (respondent bank); xxx xxx xxx Petitioners promptly appealed, arguing that, inter alia, the increased rate of interest is onerous and was imposed unilaterally, without the consent of the borrower-spouses. Respondent bank likewise

appealed and contested the propriety of having the increased interest rate apply only upon the finality of the judgment and not from March 19, 1985. Did the respondent bank have a valid and legal basis to impose an increased interest rate on the petitioners' housing loan? The Court's Ruling Basis for Increased Interest Rate Petitioners argue that the HLA provision covers only administrative and other matters, and does not include interest rates per se, since Article VI of the agreement deals with insurance on and upkeep of the mortgaged property. As for the stipulation in the mortgage deed, they claim that it is vague because it does not state if the "prevailing" CB rules and regulations referred to therein are those prevailing at the time of the execution of these contracts or at the time of the increase or decrease of the interest rate. They insist that the bank's authority to escalate interest rates has not been shown to be "crystal-clear as a matter of fact" and established beyond doubt. The contracts being "contracts of adhesion," any vagueness in their provisions should be interpreted in favor of petitioners. We note that Section 1-F of Article VI of the HLA cannot be read as an escalation clause as it does not make any reference to increases or decreases in the interest rate on loans . However, paragraph (f) of the mortgage contract is clearly and indubitably an escalation provision, and therefore, the parties were and are bound by the said stipulation that "(t)he rate of interest charged on the obligation secured by this mortgage . . ., shall be subject, during the life of this contract, to such an increase/decrease in accordance with prevailing rules, regulations and circulars of the Central Bank of the Philippines as the Provident Fund Board of Trustees of the Mortgagee (respondent bank) may prescribe for its debtors . . . ." 9 Contrary to petitioners' allegation, there is no vagueness in the aforequoted proviso; even their own arguments (below) indicate that this provision is quite clear to them.
.

[G.R. No. 16454. September 29, 1921.] GEORGE A. KAUFFMAN, plaintiff-appellee, vs. THE PHILIPPINE NATIONAL BANK, defendant-appellant. FACTS: Plaintiff George Kauffman was the president and owner of almost all shares of stocks of the Philippine Fiber and Produce Company in the Philippine Islands. On February 5, 1918, the board of directors of said company, declared a dividend of P100,000 from its surplus earnings for the year 1917, of which the plaintiff was entitled to the sum of P98,000. This amount was accordingly placed to his credit on the books of the company, and so remained until in October of the same year when an unsuccessful effort was made to transmit the whole, or a greater part thereof, to the plaintiff in New York City. On October 9, 1918, George B. Wicks, treasurer of the Philippine Fiber and Produce Company, presented himself in the exchange department of the Philippine National Bank in Manila and requested that a telegraphic transfer of $45,000 should be made to the plaintiff in New York City, upon account of the Philippine Fiber and Produce Company. On the same day the Philippine National Bank dispatched to its New York agency a cablegram to the following effect: "Pay George A. Kauffman, New York, account Philip- pine Fiber Produce Co., $45,000. (Sgd.) PHILIPPINE NATIONAL BANK, Manila." However the Philippine National Bank in Manila, upon advise by the banks representative in New York of the plaintiffs reluctance to accept bills from his company and that payment be withheld, sent another telegram message on October 11 to its representative to withhold the payment to plaintiff as suggested. Meanwhile, Wicks cabled the plaintiff in New York advising him that the $45,000 had been placed to his credit in the New York agency of PNB. Thereafter, plaintiff presented himself at the office of PNB in New York City demanding payment. By this time, the message from PNB Manila of October 11 directing the withholding of payment and that payment was therefore refused. In view of these facts, the plaintiff Kauffman instituted the present action in the Court of First Instance of the city of Manila to recover said sum, with interest and costs; and judgment having been there entered favorably to the plaintiff, the defendant appealed. ISSUE: WON THE PLAINTIFF CAN MAINTAIN THE ACTION CONSIDERING HIS LACK OF PRIVITY TO THE CONTRACT BETWEEN PNB AND GEORGE WICKS? HELD YES The only express provision of law as bearing directly on this question is the second paragraph of article 1257 of the Civil Code; This provision states an exception to the general rule expressed in the first paragraph of the same article to the effect that contracts are productive of effects only between the parties who execute them; XXXX

The paragraph introducing the exception which we are now to consider is in these words: "Should the contract contain any stipulation in favor of a third person, he may demand its fulfillment, provided he has given notice of his acceptance to the person bound before the stipulation has been revoked." (Art. 1257, par. 2, Civ. Code.) In the case of Uy Tam and Uy Yet vs. Leonard (30 Phil., 471), XXXXX Justice Trent, speaking for the court in that case, sums up the conditions governing the right of the person for whose benefit a contract is made to maintain an action for the breach thereof in the following words: "So, we believe the fairest test, in this jurisdiction at least, whereby to determine whether the interest of a third person in a contract is a stipulation pour autrui, or merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract. "If a third person claims an enforceable interest in the contract, that question must be settled by determining whether the contracting parties desired to tender him such an interest. Did they deliberately insert terms in their agreement with the avowed purpose of conferring a favor upon such third person? In resolving this question, of course, the ordinary rules of construction and interpretation of writings must be observed." (Uy Tam and Uy Yet vs. Leonard, supra.) In the light of the conclusions thus stated, the right of the plaintiff to maintain the present action is clear enough; for it is undeniable that the bank's promise to cause a definite sum of money to be paid to the plaintiff in New York City is a stipulation in his favor within the meaning of the paragraph above quoted; and the circumstances under which that promise was given disclose an evident intention on the part of the contracting parties that the plaintiff should have that money upon demand in New York City. The recognition of this unqualified right in the plaintiff to receive the money implies in our opinion the right in him to maintain an action to recover it; XXXXX It will be noted that under the paragraph cited a third person seeking to enforce compliance with a stipulation in his favor must signify his acceptance before it has been revoked. In this case the plaintiff clearly signified his acceptance to the bank by demanding payment; and although the Philippine National Bank had already directed its New York agency to withhold payment when this demand was made, the rights of the plaintiff cannot be considered to have been prejudiced by that fact. The word "revoked," as there used, must be understood to imply revocation by the mutual consent of the contracting parties, or at least by direction of the party purchasing the exchange. In Legniti vs. Mechanics, etc. Bank (130 N. E. Rep., 597), decided by the Court of Appeals of the State of New York on March 1, 1921, wherein it is held that, by selling a cable transfer of funds on a foreign country in ordinary course, a bank incurs a simple contractual obligation, and cannot be considered as holding the money which was paid for the transfer in the character of a specific trust. Thus, it was said, "Cable transfers, therefore, mean a method of transmitting money by cable wherein the seller engages that he has the balance at the point on which the payment is ordered and that on receipt of the cable directing the transfer his correspondent at such point will make payment to the beneficiary described in the cable. All these transactions are matters of purchase and sale create no trust relationship."

As we view it there is nothing in the decision referred to decisive of the question now before us, which is merely that of the right of the beneficiary to maintain an action against the bank selling the transfer. Upon the considerations already stated, we are of the opinion that the right of action exists, and the judgment must be affirmed. It is so ordered, with costs against the appellant. Interest will be computed as prescribed in section 510 of the Code of Civil Procedure.

Title: Bonifacio Bros. vs Mora Topic: Insurance Policy

Facts: Enrique Mora mortgaged his car to the H.S. Reyes with the condition that the former would insure it with the latter as beneficiary. He insured it with the State Bonding & Insurance Co., Inc., with pertinent provisions of the policy which read: xxx xxx xxx

4. The Insured may authorize the repair of the Motor Vehicle necessitated by damage for which the Company may be liable under this Policy provided that: (a) The estimated cost of such repair does not exceed the Authorized Repair Limit, (b) A detailed estimate of the cost is forwarded to the Company without delay, subject to the condition that "Loss, if any is payable to H.S. Reyes, Inc.," by virtue of the fact that said Oldsmobile sedan was mortgaged in favor of the said H.S. Reyes, Inc. and that under a clause in said insurance policy, any loss was made payable to the H.S. Reyes, Inc. as Mortgagee; xxx xxx xxx

During the effectivity of the insurance contract, the car met with an accident. The insurance company then assigned the accident to the Bayne Adjustment Co. for appraisal of the damage. Enrique Mora, without the knowledge and consent of the H.S. Reyes, Inc., authorized the Bonifacio Bros. Inc. to furnish the labor and materials, some of which were supplied by the Ayala Auto Parts Co. The insurance company then drew a check as proceeds of the insurance policy, payable to the order of Enrique Mora or H.S. Reyes, Inc., and entrusted the check to the H.H. Bayne Adjustment Co. for disposition and delivery to the proper party. In the meantime, the car was delivered to Enrique Mora without the consent of the H.S. Reyes, Inc., and without payment to the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. of the cost of repairs and materials. Upon the theory that the insurance proceeds should be paid directly to them, the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. filed this complaint. Their arguments are based on paragraph 4 of the insurance contract which provides that "the insured may authorize the repair of the Motor Vehicle necessitated by damage for which the company may be liable under the policy xxx." It is stressed that the H.H. Bayne Adjustment Company's recommendation of payment of the appellants' bill for which the Insurance Company drew a check indicates that Mora and the H.H. Bayne Adjustment Co. acted for and in representation of that insurance company.

Issue: Whether or not there is privity of contract between the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. on the one hand and the insurance company on the other. Who has better right over the insurance proceeds?

Ruling: The appellants are not mentioned in the contract as parties thereto nor is there any clause or provision thereof from which to infer that there is an obligation on the part of the insurance company to pay the cost of repairs directly to them. It is fundamental that contracts take effect only between the parties thereto, except in some specific instances provided by law where the contract contains some stipulation in favor of a third person. Such stipulation is known as stipulation pour autrui or a provision in favor of a third person not a pay to the contract. Under this doctrine, a third person is allowed to avail himself of a benefit granted to him by the terms of the contract, provided that the contracting parties have clearly and deliberately conferred a favor upon such person . Consequently, a third person not a party to the contract has no action against the parties thereto, and cannot generally demand the enforcement of the same. The question of whether a third person has an enforcible interest in a contract, must be settled by determining whether the contracting parties intended to tender him such an interest by deliberately inserting terms in their agreement with the avowed purpose of conferring a favor upon such third person. In this connection, SC has laid down the rule that the fairest test to determine whether the interest of a third person in a contract is a stipulation pour autrui or merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract. In the instant case the insurance contract does not contain any words or clauses to disclose an intent to give any benefit to any repairmen or materialmen in case of repair of the car in question. The parties to the insurance contract omitted such stipulation, which is a circumstance that supports the said conclusion. On the other hand, the "loss payable" clause of the insurance policy stipulates that "Loss, if any, is payable to H.S. Reyes, Inc." indicating that it was only the H.S. Reyes, Inc. which they intended to benefit. Another cogent reason for not recognizing a right of action by the appellants against the insurance company is that "a policy of insurance is a distinct and independent contract between the insured and insurer, and third persons have no right either in a court of equity, or in a court of law, to the proceeds of it, unless there be some contract of trust, expressed or implied between the insured and third person."5 In this case, no contract of trust, expressed or implied exists. This conclusion is deducible not only from the principle governing the operation and effect of insurance contracts in general, but is clearly covered by the express provisions of section 50 of the Insurance Act which read: The insurance shall be applied exclusively to the proper interests of the person in whose name it is made unless otherwise specified in the policy. The policy in question has been so framed that "Loss, if any, is payable to H.S. Reyes, Inc.," which unmistakably shows the intention of the parties.

G.R. No. L-27696 September 30, 1977 MIGUEL FLORENTINO, ROSARIO ENCARNACION de FLORENTINO, MANUEL ARCE, JOSE FLORENTINO, VICTORINO FLORENTINO, ANTONIO FLORENTINO, REMEDION ENCARNACION and SEVERINA ENCARNACION, petitioners-appellants, vs. SALVADOR ENCARNACION, SR., SALVADOR ENCARNACION, JR., and ANGEL ENCARNACION, oppositors to encumbrance-petitioners-appelles.

GUERRERO, J.: Appeal from the decision of the Court of First Instance of Ilocos Sur, acting as a land registration court, in Land Registration case No. N-310. On May 22, 1964, the petitioners-appellants Miguel Florentino, Remedios Encarnacion de Florentino, Manuel Arce, Jose Florentino, Victorino Florentino, Antonio Florentino, Remedior, Encarnacion and Severina Encamacion, and the Petitiners-appellees Salvador Encamacion, Sr., Salvador Encamacion, Jr. and Angel Encarnacion filed with the Court of First Instance of ilocos Sur an application for the registration under Act 496 of a parcel of agricultural land located at Barrio Lubong Dacquel Cabugao Ilocos Sur. The application alleged among other things that the applicants are the common and pro-indiviso owners in fee simple of the said land with the improvements existing thereon; that to the best of their knowledge and belief, there is no mortgage, lien or encumbrance of any kind whatever affecting said land, nor any other person having any estate or interest thereon, legal or equitable, remainder, reservation or in expectancy; that said applicants had acquired the aforesaid land thru and by inheritance from their predecessors in interest, lately from their aunt, Doa Encarnacion Florentino who died in Vigan, Ilocos Sur in 1941, and for which the said land was adjudicated to them by virtue of the deed of extrajudicial partition dated August 24, 1947; that applicants Salvador Encarnacion, Jr. and Angel Encarnacion acquired their respective shares of the land thru purchase from the original heirs, Jesus, Caridad, Lourdes and Dolores surnamed Singson one hand and from Asuncion Florentino on the other. After due notice and publication, the Court set the application for hearing. No Opposition whatsoever was filed except that of the Director of Lands which was later withdrawn, thereby leaving the option unopposed. Thereupon, an order of general default was withdrawn against the whole world. Upon application of the asets the Clerk Of court was commission will and to have the evidence of the agents and or to submit the for the Court's for resolution. The crucial point in controversy in this registration case is centered in the stipulation marked Exhibit O-1 embodied in the deed of extrajudicial partition (Exhibit O) dated August 24, 1947 which states: Los productos de esta parcela de terreno situada en el Barrio Lubong Dacquel Cabugao Ilocos Sur, se destination para costear los tos de procesio de la Tercera Caida celebration y sermon de Siete Palbras Seis Estaciones de Cuaresma, procesion del Nino Jesus, tilaracion y conservacion de los mismos, construction le union camarin en conde se depositan los carros mesas y otras cosas que seven para lot leiracion de Siete Palabras y otras cosas mas Lo que sobra de lihos productos despues de descontados todos los gastos se repartira nosotros los herederos.

In his testimony during the trial, applicant Miguel Florentino asked the court to include the said stipulation (Exhibit O-1) as an encumbrance on the land sought to be registered, and cause the entry of the same on the face of the title that will finally be issued. Opposing its entry on the title as an encumbrance, petitionersappellee Salvador Encamacion, Sr., Salvador Encarnaciori, Jr. and Angel Encarriacion filed on October 3, 1966 a manifestation seeking to withdraw their application on their respective shares of the land sought to be registered. The withdrawal was opposed by the petitioners-appellants. The Court after hearing the motion for withdrawal and the opposition thereto issued on November 17, 1966 an order and for the purpose of ascertaining and implifying the issues therein stated that all the applicants admit the truth of the following; (1) That just after the death of Encarnacion FIorentino in 1941 up to last year and as had always been the case since time immomorial the products of the land made subiect matter of this land has been used in answering for the payment for the religious functions specified in the Deed Extrajudicial Partition belated August 24, 1947: (2) That this arrangement about the products answering for the comment of experisence for religions functions as mentioned above was not registered in the office of the Register of Deeds under Act No 3344, Act 496 or and, other system of registration; (3) That all the herein applicants know of the existence of his arrangement as specified in the Deed of Extra judicial Partition of A adjust 24, 1947; (4) That the Deed of Extrajudicial Partition of August 24, 194-, not signed by Angel Encarnacion or Salvador Encarnacion, Jr,. The court denied the petitioners-appellee motion to withdraw for lack of merit, and rendered a decision under date of November 29, 1966 confirming the title of the property in favor of the f appoints with their respective shares as follows: Spouses Miguel Florentino and Rosario Encarnacion de Florentino, both of legal age, Filipinos, and residents of Vigan, Ilocos Sur, consisting of an undivided 31/297 and 8.25/297 portions, respectively; Manuel Arce, of legal age, Filipino, married to Remedios Pichay and resident of Vigan, Ilocos Sur, consisting of an undivided 66/297 portion; Salvador Encarnacion, Jr., of legal age, Filipino, married to Angelita Nagar and resident of Vigan, Ilocos Sur, consisting of an undivided 66/297; Jose Florentino, of legal age, Filipino, married to Salvacion Florendo and resident of 16 South Ninth Diliman, Quezon City, consisting of an undivided 33/297 portion; Angel Encarnacion, of legal age, Filipino, single and resident of 1514 Milagros St., Sta. Cruz, Manila, consisting of an undivided 33/297 portion; Victorino Florentino, of legal age, Filipino, married to Mercedes L. Encarnacion and resident of Vigan, Ilocos Sur, consisting of an undivided 17.5/297 portion;

Antonio Florentino, of legal age, Filipino, single and resident of Vigan, Ilocos Sur, consisting of an undivided 17.5/297; Salvador Encarnacion, Sr., of legal age, Filipino, married to Dolores Singson, consisting of an undivided 8.25/297; Remedios Encarnacion, of legal age, Filipino, single and resident of Vigan, Ilocos Sur, consisting of an undivided 8.25/297 portion; and Severina Encarnacion, of legal age, Filipino, single and resident of Vigan, Ilocos Sur, consisting of 8.25/297 undivided portion. The court, after ruling "that the contention of the proponents of encumbrance is without merit bemuse, taking the self-imposed arrangement in favor of the Church as a pure and simple donation, the same is void for the that the donee here has riot accepted the donation (Art. 745, Civil Code) and for the further that, in the case of Salvador Encarnacion, Jr. and Angel Encarnacion, they had made no oral or written grant at all (Art. 748) as in fact they are even opposed to it," 1 held in the Positive portion, as follows: In view of all these, therefore, and insofar as the question of encumbrance is concerned, let the religious expenses as herein specified be made and entered on the undivided shares, interests and participations of all the applicants in this case, except that of Salvador Encarnacion, Sr., Salvador Encarnacion, Jr. and Angel Encarnacion. On January 3, 1967, petitioners-appellants filed their Reply to the Opposition reiterating their previous arguments, and also attacking the junction of the registration court to pass upon the validity or invalidity of the agreement Exhibit O-1, alleging that such is specified only in an ordinary action and not proper in a land registration proceeding. The Motion for Reconsideration and of New Trial was denied on January 14, 1967 for lack of merit, but the court modified its earlier decision of November 29, 1966, to wit: This Court believes, and so holds, that the contention of the movants (proponents of the encumbrance) is without merit because the arrangement, stipulation or grant as embodied in Exhibit O (Escritura de Particion Extrajudicial), by whatever name it may be (called, whether donation, usufruct or ellemosynary gift, can be revoked as in fact the oppositors Salvador Encarnacion, Sr., who is the only one of the three oppositors who is a party to said Exhibit O (the two others, Salvador Encarnacion, Jr. and Angel Encarnacion no parties to it) did revoke it as shown by acts accompanying his refusal to have the same appear as an encumbrance on the title to be issued. In fact, legally, the same can also be ignored or discararded by will the three oppositors. The reasons are: First, if the said stipulation is pour bodies in Exhibit O-1 is to be viewed as a stipulation pour autrui the same cannot now be enforced because the Church in whose favor it was made has not communicated its acceptance to the oppositors before the latter revoked it. Says the 2nd par. of Art. 1311 of the New Civil Code: "If a contract should contain some stipulation in favor of a third person he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person." No evide nee has ever been submitted by the Church to

show its clear acceptance of the grant before its revocation by the oppositor Salvador Encarnacion, Sr. (or of the two other oppositors, Salvador Encarnacion, Jr. and Angel Encarnacion, who didn't even make any giant, in the first place), and so not even the movants who have officiously taken into themselves the right to enforce the grant cannot now maintain any action to compel compliance with it. (Bank of the P.I. v. Concepcion y Hijos, Inc., 53 Phil. 806). Second, the Church in whose favor the stipulation or grant had apparently been made ought to be the proper party to compel the herein three oppositors to abide with the stipulation. But it has not made any appearance nor registered its opposition to the application even before Oct. 18, 1965 when an order of general default was issued. Third, the movants are not, in the contemplation of Section 2, Rule 3 of the Rules of Court, the real party in interest to raise the present issue; and Fourth, the movants having once alleged in their application for registration that the land is without encumbrance (par. 3 thereof), cannot now be alloted by the rules of pleading to contradict said allegation of theirs. (McDaniel v. Apacible, 44 Phil. 248) SO ORDERED. 2 After Motions for Reconsideration were denied by the court, the petitioners- appellants appealed directly to this Court pursuant to Rule 4 1, Rules of Court, raising the following assign of error: I. The lower court erred in concluding that the stipulation embodied in Exhibit O on religious expenses is just an arrangement stipulation, or grant revocable at the unilateral option of the coowners. II. The lower court erred in finding and concluding that the encumbrance or religious expenses embodied in Exhibit O, the extrajudicial partition between the co-heirs, is binding only on the appoints Miguel Florentino, Rosario Encarnacion de Florentino, Manuel Arce, Jose Florentino, Antonio Florentino, Victorino Florentino, Remedios Encarnacion and Severina Encarnacion. III. The lower court as a registration court erred in passing upon the merits of the encumbrance (Exhibit O-1) as the sanie was never put to issue and as the question involved is an adjudication of rights of the parties. We find the first and second assignments of error impressed with merit and, therefore, tenable. The stipulation embodied in Exhibit O-1 on religious expenses is not revocable at the unilateral option of the co-owners and neither is it binding only on the petitioners-appellants Miguel Florentino, Rosario Encarnacion de Florentino Manuel Arce, Jose Florentino, Victorino Florentino Antonio Florentino, Remedios Encarnacion and Severina E It is also binding on the oppositors-appellees Angel Encarnacion, The stipulation (Exhibit 411) in pan of an extrajudicial partition (Exh. O) duly agreed and signed by the parties, hence the sanie must bind the contracting parties thereto and its validity or compliance cannot be left to the with of one of them (Art. 1308, N.C.C.). Under Art 1311 of the New Civil Code, this stipulation takes effect between the parties, their assign and heirs. The article provides: Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in cases where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent.

If a contract should contain a stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. The second paragraph of Article 1311 above-quoted states the law on stipulations pour autrui. Consent the nature and purpose of the motion (Exh. O-1), We hold that said stipulation is a station pour autrui. A stipulation pourautrui is a stipulation in favor of a third person conferring a clear and deliberate favor upon him, and which stipulation is merely a part of a contract entered into by the parties, neither of whom acted as agent of the third person, and such third person and demand its fulfillment provoked that he communicates his to the obligor before it is revoked. 3 The requisites are: (1) that the stipulation in favor of a third person should be a part, not the whole, of the contract; (2) that the favorable stipulation should not be conditioned or compensated by any kind of obligation whatever; and (3) neither of the contracting bears the legal represented or authorization of third person. To constitute a valid stipulation pour autrui it must be the purpose and intent of the stipulating parties to benefit the third and it is not sufficient that the third person may be incidentally benefited by the stipulation. The fairest test to determine whether the interest of third person in a contract is a stipulation pour autrui or merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract. In applying this test, it meters not whether the stipulation is in the nature of a gift or whether there is an obligation owing from the promisee to the third person. That no such obsorption exists may in some degree assist in determining whether the parties intended to benefit a third person.4 In the case at bar, the determining point is whether the co-owners intended to benefit the Church when in their extrajudicial partition of several parcels of land inherited by them from Doa Encarnacion Florendo they agreed that with respect to the land situated in Barrio Lubong Dacquel Cabugao Ilocos Sur, the fruits thereof shall serve to defray the religious expenses specified in Exhibit O-1. The evidence on record shows that the true intent of the parties is to confer a direct and material benefit upon the Church. The fruits of the aforesaid land were used thenceforth to defray the expenses of the Church in the preparation and celebration of the Holy Week, an annual Church function. Suffice it to say that were it not for Exhibit O-1, the Church would have necessarily expended for this religious occasion, the annual relisgious procession during the Holy Wock and also for the repair and preservation of all the statutes, for the celebration of the Seven Last Word. We find that the trial court erred in holding that the stipulation, arrangement or grant (Exhibit O-1) is revocable at the option of the co-owners. While a stipulation in favor of a third person has no binding effect in itself before its acceptance by the party favored, the law does not provide when the third person must make his acceptance. As a rule, there is no time at such third person has after the time until the stipulation is revoked. Here, We find that the Church accepted the stipulation in its favor before it is sought to be revoked by some of the co-owners, namely the petitioners-appellants herein. It is not disputed that from the time of the with of Doa Encarnacion Florentino in 1941, as had always been the case since time immemorial up to a year before the firing of their application in May 1964, the Church had been enjoying the benefits of the stipulation. The enjoyment of benefits flowing therefrom for almost seventeen years without question from any quarters can only be construed as an implied acceptance by the Church of the stipulation pour autrui before its revocation. The acceptance does not have to be in any particular form, even when the stipulation is for the third person an act of liberality or generosity on the part of the promisor or promise. 5

It need not be made expressly and formally. Notification of acceptance, other than such as is involved in the making of demand, is unnecessary. 6 A trust constituted between two contracting parties for the benefit of a third person is not subject to the rules governing donation of real property. The beneficiary of a trust may demand performance of the obligation without having formally accepted the benefit of the this in a public document, upon mere acquiescence in the formation of the trust and acceptance under the second paragraph of Art. 1257 of the Civil Code. 7

Hence, the stipulation (Exhibit O-1) cannot now be revoked by any of the stipulators at their own option. This must be so because of Article 1257, Civil Code and the cardinal rule of contracts that it has the force of law between the parties. 8 Thus, this Court ruled in Garcia v. Rita Legarda, Inc., 9 "Article 1309 is a virtual reproduction of Article 1256 of the Civil Code, so phrased to emphasize that the contract must bind both parties, based on the principles (1) that obligation arising from contracts have the force of law between the contracting parties; and (2) that there must be mutuality between the parties based on their principle equality, to which is repugnant to have one party bound by the contract leaving the other free therefrom." Consequently, Salvador Encarnacion, Sr. must bear with Exhibit O-1, being a signatory to the Deed of Extrajudicial Partition embodying such beneficial stipualtion. Likewise, with regards to Salvador, Jr. and Angel Encarnacion, they too are bound to the agreement. Being subsequent purchasers, they are privies or successors in interest; it is axiomatic that contracts are enforceable against the parties and their privies. 10 Furthermore, they are shown to have given their conformity to such agreement when they kept their peace in 1962 and 1963, having already bought their respective shares of the subject land but did not question the enforcement of the agreement as against them. They are also shown to have knowledge of Exhibit O-1 as they had admitted in a Deed of Real Mortgage executed by them on March 8, 1962 involving their shares of the subject land that, "This parcel of land is encumbered as evidenced by the document No. 420, page 94, Book 1, series 1947, executed by the heirs of the late Encarnacion Florentino, on August 26, 1947, before M. Francisco Ante, Notwy Public of Vigan, Ilocos Sur, in its page 10 of the said document of partition, and also by other documents." The annotation of Exhibit O-1 on the face of the title to be issued in this case is merely a guarantee of the continued enforcement and fulfillment of the beneficial stipulation. It is error for the lower court to rule that the petitioners-appellants are not the real parties in interest, but the Church. That one of the parties to a contract pour autrui is entitled to bring an action for its enforcement or to prevent its breach is too clear to need any extensive discussion. Upon the other hand, that the contract involved contained a stipulation pour autrui amplifies this settled rule only in the sense that the third person for whose benefit the contract was entered into may also demand its fulfillment provoked he had communicated his acceptance thereof to the obligor before the stipulation in his favor is revoked. 11 Petitioners-appellants' third assignment of error is not well-taken. Firstly, the otherwise rigid rule that the jurisdiction of the Land Registration Court, being special and limited in character and proceedings thereon summary in nature, does not extend to cases involving issues properly litigable in other independent suits or ordinary civil actions, has time and again been relaxed in special and exceptional circumstances. (See Government of the Phil. Islands v. Serafica, 61 Phil. 93 (1934); Caoibes v. Sison, 102 Phil. 19 (1957); Luna v. Santos, 102 Phil. 588 (1957); Cruz v. Tan, 93 Phil. 348 (1953); Gurbax Singh Pabla & Co. v. Reyes, 92 Phil. 177 (1952). From these cases, it may be gleaned and gathered that the peculiarity of the exceptions is based not only on the fact that Land Registration Courts are likewise the same Courts of First Instance, but also the following premises (1) Mutual consent of the parties or their acquired in submitting the at aforesaid determination by the court in the registration; (2) Full opportunity given to the parties in the presentation of their respective skies of the issues and of the evidence in support thereto; (3) Consideration by the court that the evidence already of record is sufficient and adequate for rendering a decision upon these

issues. 12 In the case at bar, the records clearly show that the second and third premism enumerated abow are fully mt. With regards to first premise, the petioners-appellants cannot claim that the issues anent Exhibit O-1 were not put in issue because this is contrary to their stand before the lower court where they took the initial step in praying for the court's determination of the merits of Exhibit O-1 as an encumbrance to be annotated on the title to be issued by such court. On the other hand, the petitionersappellees who had the right to invoke the limited jurisdiction of the registration court failed to do so but met the issues head-on. Secondly, for this very special reason, We win uphold the actuation of the lower court in determining the conflicting interests of the parties in the registration proceedings before it. This case has been languishing in our courts for thirteen tong years. To require that it be remanded to the lower court for another proceeding under its general jurisdiction is not in consonance with our avowed policy of speedy justice. It would not be amiss to note that if this case be remanded to the lower court, and should appeal again be made, the name issues will once more be raised before us hence, Our decision to resolve at once the issues in the instant petition. IN VIEW OF THE FOREGOING, the decision of the Court of First Instance of Ilocos Sur in Land Registration Case No. N-310 is affirmed but modified to allow the annotation of Exhibit O-1 as an encumbrance on the face of the title to be finally issued in favor of all the applications (herein appellants and herein appellees) in the registration proceedings below. No pronouncement as to cost. SO ORDERED.

G.R. No. 74521 November 11, 1986 BANK OF AMERICA NT & SA, petitioner, vs. THE HON. FIRST CIVIL CASES DIVISION, INTERMEDIATE APPELLATE COURT and AIR CARGO AND TRAVEL CORPORATION, respondents.

MELENCIO-HERRERA, J.: As the Petition and the Comment submitted by private respondent Air Cargo and Travel Corporation (ACTC) have sufficiently argued the legal question involved in this case, the Court has resolved to give due course to the Petition, with private respondent's Comment being its Answer, and to consider this case submitted for decision. The basic relevant facts have been stated by respondent Appellate Court as follows: Shorn of non-essentials, the facts are: Plaintiff Air Cargo and Travel Corporation is the owner of Account Number 19842-01-2 with defendant Bank of America. Defendant Toshiyuki Minami, President of plaintiff corporation in Japan, is the owner of Account Number 24506-01-7 with defendant Bank. On March 10, 1981, the Bank received a tested telex advise from Kyowa Bank of Japan stating, ADVISE PAY USDLS 23,595. TO YOUR A/C NBR 24506-01-7 OF A. C. TRAVEL CORPORATION MR. TOSHIYUKO MINAMI. and the Bank Credited the amount of US$23,595.00 to Account Number 24506-07-1 (should be 24506-01-7) owned, as aforesaid, by Minami. On March 12, 1981, Minami withdrew the sum of P180,000.00 the equivalent in Philippine Pesos of the sum of US$23,595.00 from the Bank on his Account Number 24506-07-1 (should be 24506-01-7) It may be explained that the "tested" telex advice is a message signed in "code". Evidently, there was a previous contractual agreement between Kyowa Bank of Japan (KYOWA) and Petitioner (BANKAMERICA) that, from time to time, KYOWA can ask BANKAMERICA to pay amounts to a third party (beneficiary) with BANKAMERICA afterwards billing KYOWA the indicated amount given to the beneficiary. To assure itself that an Order received from KYOWA really comes from KYOWA, it is usually agreed that KYOWA's signature will be in accordance with a confidential code. According to ACTC in its Comment, in the early part of 1981, it was Tokyo Tourist Corporation in Japan which applied with Kyowa Bank, Ltd. also based in Tokyo, Japan, for telegraphic transfer of the sum of US$23,595.00 payable to ACTC's account with BANKAMERICA, Manila. When the tested telex was received on May 10, 1981, employees of BANKAMERICA noted its patent ambiguity. Notwithstanding, on the following day, BANKAMERICA credited the amount of US$23,595.00 to the account of Minami. ACTC claimed that the amount should have been credited to its account and demanded restitution, but BANKAMERICA refused.

On February 18, 1982, ACTC filed suit for damages against BANKAMERICA and Minami before the Trial Court in Pasig for the failure of BANKAMERICA to restitute. Minami was declared in default. Thereafter, judgment was rendered with the following dispositive part: IN VIEW OF THE FOREGOING CONSIDERATIONS, the Court upon a judicious and fair assessment of the testimonial and documentary evidences submitted by the parties is of the opinion and so holds that defendant Bank and defendant Minami must pay plaintiff, jointly and severally the following. 1. The sum of US$23,595.00 or in Philippine Currency at the current guiding rate of exchange which is P14.00 to the dollar, as and by way of actual damages with interest at the rate of twelve (12%) per cent per annum from the filing of the complaint until fully paid; 2. The sum of P50,000.00 as temperate and exemplary damages; 3. The sum of P10,000.00 as attorney's fees;; 4. The costs of this suit. SO ORDERED. Upon appeal taken by BANKAMERICA, Respondent Court "affirmed in toto, " except that the dollarpeso rate of ex-change would be that "at the time of payment." Said respondent Court: We must say that the Bank personnel were in fact confused or in doubts as to the real payee. The Senior Clerk who initially received the tested telex had called up Mr. Colegado, Mr. Ichiban, Miss Mayagama and Atty. Villanueva, all of plaintiff-appellee, but he received "no answer."(Exh. 3; pp. 9-10, t.s.n., Dec. 2, 1982). Thereupon, the processor checked the alphabetical listings and he saw that the payee, Account Number 24506-01-7, matched the name appearing in the tested telex advise (p. 10, t.s.n., Dec. 2, 1981). The gross negligence then of appellant Bank may be sum (sic) up as follows; The words "A.C. TRAVEL CORPORATION MR. TOSHIYUKO MINAMI" engendered or cast doubt on the part of the Senior Clerk as to the real payee despite the "A.C. NBR 24506-01-7" and should have consulted higher officials of plaintiff before giving the advise to the processor who sent the same to the computer center for ultimate processing (p. 11, Appellant's Brief). The processor verified that Account Number 24506-01-7 belonged to TOSHIYUKO MINAMI' only and not to "A.C. TRAVEL CORPORATION MR. TOSHIYUKO MINAMI" and this circumstance should have moved the processor to be more prudent and to consult higher officials instead of sending the advise to the computer center for

processing or crediting the remittance to the account of Toshiyuko Minami, (Emphasis supplied) We are constrained to reverse. It is our considered opinion that, in the tested telex, considered either as a patent ambiguity or as a latent ambiguity, the beneficiary is Minami. The mention of Account No. 24506-01-7, as well as the name of Minami, has to be given more weight than the mention of the name of ACTC. BANKAMERICA could not have very well disregarded that account number. It could also be that the mention of ACTC's name was a further identification of Minami, to prevent payment to a possible another "Toshiyuko Minami" who may not be connected with ACTC. On the other hand, it should be difficult to concede that, in the tested telex, Account No. 24506-01-7 was erroneously written and should be substituted by Account No. 19842-01-2 in the name of ACTC. In Vargas Plow Factory, Inc. vs. Central Bank, it was held that "the opening of a letter of credit in favor of the exporter becomes ultimately but the result of a stipulation pour autrui" (27 SCRA 84 [1969]). Similarly, when KYOWA asked BANK-AMERICA to pay an amount to a beneficiary (either ACTC or Minami), the contract was between KYOWA and BANK-AMERICA and it had a stipulation pour autrui. It should be recalled that the tested telex originated from KYOWA at the behest of Tokyo Tourist Corporation with whom ACTC had business dealings. Minami, on the other hand, was the liaison officer of ACTC in Japan. As the entity responsible for the tested telex was Tokyo Tourist Corporation, it can reasonably be concluded that if it had intended that the US$23,595.00 should be credited to ACTC, upon learning that the amount was credited to Minami, it should have gone, together with the representatives of ACTC, in protest to KYOWA and lodged a protest. Since that was not done, it could well be that Tokyo Tourist Corporation had really intended its remittance to be credited to Minami. The identity of the beneficiary should be in accordance with the identification made by KYOWA, and ACTC cannot question that identification as it is not a party to the arrangement between KYOWA and BANKAMERICA (see Manila Railroad Co. vs. Compaia Trasatlantica, 38 Phil. 875 [1918]). WHEREFORE, the Decision of Respondent Court, in its case AC-G.R. CV No. 03985, is hereby reversed in so far as Bank of America, NT & SA is concerned.

G.R. No. L-40234 December 14, 1987 MARIMPERIO COMPAIA NAVIERA, S.A., petitioner, vs. COURT OF APPEALS and UNION IMPORT & EXPORT CORPORATION and PHILIPPINES TRADERS CORPORATION, respondents.

PARAS, J.: This is a petition for certiorari under Section 1, Rule 65 of the Rules of Court seeking the annulment and setting aside of the decision of the Court of Appeals * and promulgated on September 2, 1974 in CA-G.R. No.
48521-R entitled "Union Import and Export Corporation, et al., Plaintiffs-Appellees v. Marimperio Compaia Naviera, S.A., DefendantAppellant", ordering petitioner to pay respondent the total sum of US $265,482.72 plus attorney's fees of US$100,000.00 and (b) the resolution of the said Court of Appeals in the same case, dated February 17, 1975 fixing the amount of attorney, s fees to Pl00,000.00 instead of $100,000.00 as erroneously stated in the decision but denying petitioner's motion for reconsideration and/or new t rial.

The dispositive portion of the decision sought to be annulled (Rollo, p. 215) reads as follows: For all the foregoing, and in accordance therewith, let judgment be entered (a) affirming the decision appealed from insofar as it directs the defendant-appellant: (1) to pay plaintiffs the sum of US $22,500.00 representing the remittance of plaintiffs to said defendant for the first 15-day hire of the vessel "SS PAXOI" including overtime and an overpayment of US $254.00; (2) to pay plaintiffs the sum of US $16,000.00, corresponding to the remittance of plaintiffs to defendant for the second 15-day hire of the aforesaid vessel; (3) to pay plaintiffs the sum of US $6,982.72, representing the cost of bunker oil, survey and watering of the said vessel; (4) to pay plaintiffs the sum of US $100,000.00 as and for attorney's fees; and, (b) reversing the portion granting commission to the intervenor-appellee and hereby dismissing the complaintin-intervention. The order of the court a quo denying the plaintiffs' Motion for Partial Reconsideration, is likewise, affirmed, without any special pronouncement as to costs. The facts of the case as gathered from the amended decision of the lower court (Amended Record on Appeal, p. 352), are as follows: In 1964 Philippine Traders Corporation and Union Import and Export Corporation entered into a joint business venture for the purchase of copra from Indonesia for sale in Europe. James Liu President and General Manager of the Union took charge of the European market and the chartering of a vessel to take the copra to Europe. Peter Yap of Philippine on the other hand, found one P.T. Karkam in Dumai Sumatra who had around 4,000 tons of copra for sale. Exequiel Toeg of Interocean was commissioned to look for a vessel and he found the vessel "SS Paxoi" of Marimperio available. Philippine and Union authorized Toeg to negotiate for its charter but with instructions to keep confidential the fact that they are the real charterers. Consequently on March 21, 1965, in London England, a "Uniform Time Charter" for the hire of vessel "Paxoi" was entered into by the owner, Marimperio Compania Naviera, S.A. through its agents N. & J. Vlassopulos Ltd. and Matthews Wrightson, Burbridge, Ltd. to be referred to simply as Matthews, representing Interocean Shipping Corporation, which was made to appear as charterer, although it merely acted in behalf of the real charterers, private respondents herein. The pertinent provisions or clauses of the Charter Party read:

1. The owners let, and the Charterers hire the Vessel for a period of 1 (one) trip via safe port or ports Hong Kong, Philippine Islands and/or INDONESIA from the time the Vessel is delivered and placed at the disposal of the Charterers on sailing HSINKANG ... . 4. The Charterers are to provide and pay for oil-fuel, water for boilers, port charges, pilotages ... . 6. The Charterers to pay as hire s.21 (Twenty-one Shillings per deadweights ton per 30 days or pro rata commencing in accordance with Clause 1 until her redelivery to the owners. Payment of hire to be made in cash as per Clause 40 without discount, every 15 days in advance. In default of payment of the Owners to have the right of withdrawing the vessel from the services of the Charterers, without noting any protest and without interference by any court or any formality whatsoever and without prejudice the Owners may otherwise have on the Charterers under the Charter. 7. The Vessel to be redelivered on the expiration of the Charter in the same good order as when delivered to the Charterers (fair wear and tear expected) in the Charterer's option in ANTWERP HAMBURG RANGE. 20. The Charterers to have the option of subletting the Vessel, giving due notice to the Owners, but the original Charterers always to remain responsible to the Owners for due performance of the Charter. 29. Export and/or import permits for Charterers'cargo to the Charterers'risk and expense. Charterers to obtain and be responsible for all the necessary permits to enter and/or trade in and out of all ports during the currency of the Charter at their risk and expense. ... 33. Charterers to pay as overtime, bonus and premiums to Master, Officers and crew, the sum of 200 (Two Hundred Pounds) per month to be paid together with hire. 37. Bunkers on delivery as on board. Bunkers on redelivery maximum 110 tons. Prices of bunkers at 107' per long ton at both ends. 38. Upon sailing from each loading port, Master to cable SEASHIPS MANILA advising the quantity loaded and the time of completion. 40. The hire shall be payable in external sterling or at Charterers' option in U.S. dollars in London; - Williams Deacon's Vlassopulos Ltd., Account No. 861769. In view of the aforesaid Charter, on March 30, 1965 plaintiff Charterer cabled a firm offer to P.T. Karkam to buy the 4,000 tons of copra for U.S.$180.00 per ton, the same to be loaded either in April or May, 1965. The offer was accepted and plaintiffs opened two irrevocable letters of Credit in favor of P.T. Karkam

On March 29, 1965, the Charterer was notified by letter by Vlassopulos through Matthews that the vessel "PAXOI" had sailed from Hsinkang at noontime on March 27, 196-5 and that it had left on hire at that time and date under the Uniform Time-Charter. The Charterer was however twice in default in its payments which were supposed to have been done in advance. The first 15-day hire comprising the period from March 27 to April 1-1, 1965 was paid despite follow-ups only on April 6, 1965 and the second 15-day hire for the period from April 12 to April 27, 1965 was paid also despite follow-ups only on April 26, 1965. On April 14, 1965 upon representation of Toeg, the Esso Standard Oil (Hongkong) Company supplied the vessel with 400 tons of bunker oil at a cost of US $6,982.73. Although the late payments for the charter of the vessel were received and acknowledged by Vlassopulos without comment or protest, said agent notified Matthews, by telex on April 23, 1965 that the shipowners in accordance with Clause 6 of the Charter Party were withdrawing the vessel from Charterer's service and holding said Charterer responsible for unpaid hirings and all legal claims. On April 29, 1965, the shipowners entered into another charter agreement with another Charterer, the Nederlansche Stoomvart of Amsterdam, the delivery date of which was around May 3, 1965 for a trip via Indonesia to Antwep/Hamburg at an increase charter cost. Meanwhile, the original Charterer again remitted on April 30, 1965, the amount corresponding to the 3rd 15-day hire of the vessel "PAXOI" but this time the remittance was refused. On May 3,1965, respondents Union Import and Export Corporation and Philippine Traders Corporation filed a complaint with the Court of First Instance of Manila, Branch VIII, against the Unknown Owners of the Vessel "SS Paxoi" for specific performance with prayer for preliminary attachment, alleging, among other things, that the defendants (unknown owners) through their duly authorized agent in London, the N & J Vlassopulos Ltd., ship brokers, entered into a contract of Uniform Time-Charter with the Interocean Shipping Company of Manila through the latter's duly authorized broker, the Overseas Steamship Co., Inc., for the Charter of the vessel SS PAXOI' under the terms and conditions appearing therein ...; that, immediately thereafter, the Interocean Shipping Company sublet,the said vessel to the plaintiff Union Import & Export, Corporation which in turn sublet the same to the other plaintiff, the Philippine Traders Corporation (Amended Record on Appeal, p. 17). Respondents as plaintiffs in the complaint obtained a writ of preliminary attachment of vessel PAXOI' " which was anchored at Davao on May 5, 1969, upon the filing of the corresponding bond of P1,663,030.00 (Amended Record on Appeal, p. 27). However, the attachment was lifted on May 15, 1969 upon defendant's motion and filing of a counterbond for P1,663,030 (Amended Record on Appeal, p. 62). On May 11, 1965, the complaint was amended to Identify the defendant as Marimperio Compania Naviera S.A., petitioner herein (Amended Record on Appeal, p. 38). In answer to the amended complaint, by way of special defenses defendant (petitioner herein) alleged among others that the Charter Party covering its vessel "SS PAXOI" was entered into by defendant with Interocean Shipping Co. which is not a party in the complaint; that defendant has no agreement or relationship whatsoever with the plaintiffs; that plaintiffs are unknown to defendant; that the charter party entered into by defendant with the Interocean Shipping Co. over the vessel "SS PAXOI" does not authorize a sub-charter of said vessel to other parties; and that at any rate, any such sub-charter was without the knowledge or consent of defendant or defendant's agent, and therefore, has no effect and/or is not binding upon defendant. By way of counterclaim, defendant prayed that plaintiffs be ordered to pay defendant (1) the sum of 5,085.133d or its equivalent, in Philippine currency of P54,929.60, which the defendant failed to realize under the substitute charter, from May 3, 1965 to May 16, 1965,

while the vessel was under attachment; (2) the sum of E68.7.10 or its equivalent of P7,132.83, Philippine currency, as premium for defendant's counterbond for the first year, and such other additional premiums that will have to be paid by defendant for additional premiums while the case is pending; and (3) a sum of not less than P200,000.00 for and as attomey's fees and expenses of litigations (Amended Record on Appeal, p. 64). On March 16, 1966, respondent Interocean Shipping Corporation filed a complaint-in-intervention to collect what it claims to be its loss of income by way of commission and expenses in the amount of P15,000.00 and the sum of P2,000.00 for attorney's fees (Amended Record on Appeal, p. 87). In its amended answer to the complaint-in-intervention petitioner, by way of special defenses alleged that (1) the plaintiff-in-intervention, being the charterer, did not notify the defendant shipowner, petitioner, herein, about any alleged sub-charter of the vessel "SS PAXOI" to the plaintiffs; consequently, there is no privity of contract between defendant and plaintiffs and it follows that plaintiff-in-intervention, as charterer, is responsible for defendant shipowner for the proper performance of the charter party; (2) that the charter party provides that any dispute arising from the charter party should be referred to arbitration in London; that Charterer plaintiff-in-intervention has not complied with this provision of the charter party; consequently its complaint-in intervention is premature; and (3) that the alleged commission of 2 1/2 and not become due for the reason, among others, that the charterer violated the contract, and the full hiring fee due the shipowner was not paid in accordance with the terms and conditions of the charter party. By way of counterclaim defendant shipowner charged the plaintiff-inintervention attorney's fees and expenses of litigation in the sum of P10,000.00 (Amended Record on Appeal, p. 123). On November 22, 1969 the Court of First Instance of Manila, Branch VIII rendered its decision
** in favor of defendant Marimperio Compania Naviera, S.A., petitioner herein, and against plaintiffs Union Import and Export Corporation and Philippine Traders Corporation, respondents herein, dismissing the amended complaint, and ordering said plaintiff on the counterclaim to pay defendant, jointly and severally, the amount of f 8,011.38 or its equivalent in Philippine currency of P75,303.40, at the exc hange rate of P9.40 to 1 for the unearned charter hire due to the attachment of the vessel "PAXOI" in Davao, plus premiums paid on the counterbond as of April 22, 1968 plus the telex and cable charges and the sum of P10,000.00 as attorney's fees and costs. The trial court dismissed the complaintin-intervention, ordering the intervenor, on the counterclaim, to pay defendant the sum of P10,000.00 as attorney's fees, and th e costs (Amended Record on Appeal, p. 315).

Plaintiffs filed a Motion for Reconsideration and/or new trial of the decision of the trial court on December 23, 1969 (Amended Record on Appeal, p. 286); the intervenor filed its motion for reconsideration and/or new trial on January 7, 1970 (Amended Record on Appeal, p. 315). Acting on the two motions for reconsideration, the trial court reversed its stand in its amended decision dated January 24, 1978. The dispositive portion of the amended decision states: FOR ALL THE FOREGOING CONSIDERATIONS, the Court renders judgment for the plaintiffs Union Import & Export Corporation and Philin Traders Corporation, and plaintiff-in-intervention, Interocean Shipping Corporation, and consequently orders the defendant, Marimperio Compania Naveria S.A.: (1) To pay plaintiffs the sum of US$22,500.00 representing the remittance of plaintiffs to said defendant for the first 15-day hire of the vessel "SS PAXOI" including overtime and an overpayment of US$254.00; (2) To pay plaintiffs the sum of US$16,000.00 corresponding to the remittance of plaintiffs to defendant for the second 15-day hire of the aforesaid vessel;

(3) To pay plaintiffs the sum of US$6,982.72 representing the cost of bunker oil, survey and watering of the said vessel; (4) To pay plaintiffs the sum of US$220,0,00.00 representing the unrealized profits; and (5) To pay plaintiffs the sum of P100,000.00, as and for attorney's fees (Moran, Comments on the Rules of Court, Vol. III, 1957 5d 644, citing Haussermann vs. Rahmayer, 12 Phil. 350; and others)" (Francisco vs. Matias, G.R. No. L-16349, January 31, 1964; Sison vs. Suntay, G.R. No. L-1000 . December 28, 1957). The Court further orders defendant to pay plaintiff-in-intervention the amount of P15,450.44, representing the latter's commission as broker, with interest thereon at 6% per annum from the date of the filing of the complaint-in-intervention, until fully paid, plus the sum of P2,000.00 as attorney's fees. The Court finally orders the defendant to pay the costs. In view of the above conclusion, the Court orders the dismissal of the counterclaims filed by defendant against the plaintiffs and plaintiff-in- intervention, as wen as its motion for the award of damages in connection with the issuance of the writ of preliminary attachment. Defendant (petitioner herein), filed a motion for reconsideration and/or new trial of the amended decision on February 19, 1970 (Amended Record on Appeal, p. 382). Meanwhile a new Judge was assigned to the Trial Court (Amended Record on Appeal, p. 541). On September 10, 1970 the trial court issued its order of September 10, 1970 *** denying defendant's motion for reconsideration (Amended Record on
Appeal, p. 583).

On Appeal, the Court of Appeals affirmed the amended decision of the lower court except the portion granting commission to the intervenor- appellee, which it reversed thereby dismissing the complaintin- intervention. Its two motions (1) for reconsideration and/or new trial and (2) for new trial having been denied by the Court of Appeals in its Resolution of February 17, 1975 which, however, fixed the amount of attorney's fees at P100,000.00 instead of $100,000.00 (Rollo, p. 81), petitioner filed with this Court its petition for review on certiorari on March 19, 197 5 (Rollo, p. 86). After deliberating on the petition, the Court resolved to require the respondents to comment thereon, in its resolution dated April 2, 1975 (rollo, p. 225). The comment on petition for review by certiorari was filed by respondents on April 21, 1975, praying that the petition for review by certiorari dated March 18, 1975 be dismissed for lack of merit Rollo p. 226). The reply to comment was filed on May 8, 1975 (Rollo, p. 259). The rejoinder to reply to comment was filed on May 13, 197 5 (Rollo, p. 264). On October 20, 1975, the Court resolved (a) to give due course to the petition; (b) to treat the petition for review as a special civil action; and (c) to require both parties to submit their respective memoranda within thirty (30) days from notice hereof (Rollo, p. 27).

Respondents filed their memoranda on January 27, 1976 (Rollo, p. 290); petitioner, on February 26, 1976 (Rollo, p. 338). Respondents' reply memorandum was filed on April 14, 1976 (Rollo, p. 413) and Rejoinder to respondents' reply memorandum was filed on May 28, 1976 (Rollo, p. 460). On June 11, 1976, the Court resolved to admit petitioner's rejoinder to respondents' reply memorandum and to declare this case submitted for decision (Rollo, p. 489). The main issues raised by petitioner are: 1. Whether or not respondents have the legal capacity to bring the suit for specific performance against petitioner based on the charter party, and 2. Whether or not the default of Charterer in the payment of the charter hire within the time agreed upon gives petitioner a right to rescind the charter party extra judicially. I. According to Article 1311 of the Civil Code, a contract takes effect between the parties who made it, and also their assigns and heirs, except in cases where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. Since a contract may be violated only by the parties, thereto as against each other, in an action upon that contract, the real parties in interest, either as plaintiff or as defendant, must be parties to said contract. Therefore, a party who has not taken part in it cannot sue or be sued for performance or for cancellation thereof, unless he shows that he has a real interest affected thereby (Macias & Co. v. Warner Barners & Co., 43 Phil. 155 [1922] and Salonga v. Warner Barnes & Co., Ltd., 88 Phil. 125 [1951]; Coquia v. Fieldmen's Insurance Co., Inc., 26 SCRA 178 [1968]). It is undisputed that the charter party, basis of the complaint, was entered into between petitioner Marimperio Compaia Naviera, S.A., through its duly authorized agent in London, the N & J Vlassopulos Ltd., and the Interocean Shipping Company of Manila through the latter's duly authorized broker, the Overseas Steamship Co., Inc., represented by Matthews, Wrightson Burbridge Ltd., for the Charter of the 'SS PAXOI' (Amended Complaint, Amended Record on Appeal, p. 33; Complaint-in-Intervention, Amended Record on Appeal, p. 87). It is also alleged in both the Complaint (Amended Record on Appeal 18) and the Amended Complaint (Amended Record on Appeal, p. 39) that the Interocean Shipping Company sublet the said vessel to respondent Union Import and Export Corporation which in turn sublet the same to respondent Philippine Traders Corporation. It is admitted by respondents that the charterer is the Interocean Shipping Company. Even paragraph 3 of the complaint-in-intervention alleges that respondents were given the use of the vessel "pursuant to paragraph 20 of the Uniform Time Charter ..." which precisely provides for the subletting of the vessel by the charterer (Rollo, p. 24). Furthermore, Article 652 of the Code of Commerce provides that the charter party shall contain, among others, the name, surname, and domicile of the charterer, and if he states that he is acting by commission, that of the person for whose account he makes the contract. It is obvious from the disclosure made in the charter party by the authorized broker, the Overseas Steamship Co., Inc., that the real charterer is the Interocean Shipping Company (which sublet the vessel to Union Import and Export Corporation which in turn sublet it to Philippine Traders Corporation). In a sub-lease, there are two leases and two distinct judicial relations although intimately connected and related to each other, unlike in a case of assignment of lease, where the lessee transmits absolutely his right, and his personality disappears; there only remains in the juridical relation two persons, the lessor and the assignee who is converted into a lessee (Moreno, Philippine Law

Dictionary, 2nd ed., p. 594). In other words, in a contract of sub-lease, the personality of the lessee does not disappear; he does not transmit absolutely his rights and obligations to the sub-lessee; and the sub-lessee generally does not have any direct action against the owner of the premises as lessor, to require the compliance of the obligations contracted with the plaintiff as lessee, or vice versa (10 Manresa, Spanish Civil Code, 438). However, there are at least two instances in the Civil Code which allow the lessor to bring an action directly (accion directa) against the sub-lessee (use and preservation of the premises under Art. 1651, and rentals under Article 1652). Art. 1651 reads: Without prejudice to his obligation toward the sub-lessor, the sub-lessee is bound to the lessor for all acts which refer to the use and preservation of the thing leased in the manner stipulated between the lessor and the lessee. Article 1652 reads: The sub-lessee is subsidiarily liable to the lessor for any rent due from the lessee. However, the sub-lessee shall not be responsible beyond the amount of rent due from him, in accordance with the terms of the sub-lease, at the time of the extrajudicial demand by the lessor. Payments of rent in advance by the sub-lessee shall be deemed not to have been made, so far as the lessor's claim is concerned, unless said payments were effected in virtue of the custom of the place. It will be noted however that in said two Articles it is not the sub-lessee, but the lessor, who can bring the action. In the instant case, it is clear that the sub-lessee as such cannot maintain the suit they filed with the trial court (See A. Maluenda and Co. v. Enriquez, 46 Phil. 916). In the law of agency "with an undisclosed principal, the Civil Code in Article 1883 reads: If an agent acts in his own name, the principal has no right of action against the persons with whom the agent has contracted; neither have such persons against the principal. In such case the agent is the one directly bound in favor of the person with whom he has contracted, as if the transaction were his own, except when the contract involves things belonging to the principal. The provisions of this article shag be understood to be without prejudice to the actions between the principal and agent. While in the instant case, the true charterers of the vessel were the private respondents herein and they chartered the vessel through an intermediary which upon instructions from them did not disclose their names. Article 1883 cannot help the private respondents, because although they were the actual principals in the charter of the vessel, the law does not allow them to bring any action against the adverse party and vice, versa. II.

The answer to the question of whether or not the default of charterer in the payment of the charter hire within the time agreed upon gives petitioner a right to rescind the charter party extrajudicially, is undoubtedly in the affirmative. Clause 6 of the Charter party specifically provides that the petitioner has the right to withdraw the vessel fromthe service of the charterers, without noting any protest and without interference of any court or any formality in the event that the charterer defaults in the payment of hire. The payment of hire was to be made every fifteen (1 5) days in advance. It is undisputed that the vessel "SS PAXOI" came on hire on March 27, 1965. On March 29, Vlassopulos notified by letter the charterer through Matthews of that fact, enclosing therein owner's debit note for a 15-day hire payable in advance. On March 30, 1965 the shipowner again notified Matthews that the payment for the first 15-day hire was overdue. Again on April 2 the shipowner telexed Matthews insisting on the payment, but it was only on April 7 that the amount of US $22,500.00 was remitted to Williams Deacons Bank, Ltd. through the Rizal Commercial Banking Corporation for the account of Vlassopulos, agent of petitioner, corresponding to the first 15-day hire from March 27 to April 11, 1965. On April 8, 1965, Vlassopulos acknowledged receipt of the payment, again with a debit note for the second 15-day hire and overtime which was due on April 11, 1965. On April 23, 1965, Vlassopulos notified Matthews by telex that charterers were in default and in accordance with Clause 6 of the charter party, the vessel was being withdrawn from charterer's service, holding them responsible for unpaid hire and all other legal claims of the owner. Respondents remitted the sum of US$6,000.00 and US$10,000.00 to the bank only on April 26, 1965 representing payment for the second 15-day hire from April 12 to April 27, 1965, received and accepted by the payee, Vlassopulos without any comment or protest. Unquestionably, as of April 23, 1965, when Vlassopulos notified Matthews of the withdrawal of the vessel from the Charterers' service, the latter was already in default. Accordingly, under Clause 6 of the charter party the owners had the right to withdraw " SS PAXO I " from the service of charterers, which withdrawal they did. The question that now arises is whether or not petitioner can rescind the charter party extrajudicially. The answer is also in the affirmative. A contract is the law between the contracting parties, and when there is nothing in it which is contrary to law, morals, good customs, public policy or public order, the validity of the contract must be sustained (Consolidated Textile Mills, Inc. v. Reparations Commission, 22 SCRA 674 [19681; Lazo v. Republic Surety & Insurance Co., Inc., 31 SCRA 329 [1970]; Castro v. Court of Appeals, 99 SCRA 722 [1980]; Escano v. Court of Appeals, 100 SCRA 197 [1980]). A judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions (Enrile v. Court of Appeals, 29 SCRA 504 [1969]; University of the Philippines v. De los Angeles, 35 SCRA 102 [1970]; Palay, Inc. v. Clave, 124 SCRA 638 [1983]). PREMISES CONSIDERED, (1) the decision of the Court of Appeals affirming the amended decision of the Court of First Instance of Manila, Branch VIII, is hereby REVERSED and SET ASIDE except for that portion of the decision dismissing the complaint-in-intervention; and (2) the original decision of the trial court is hereby REINSTATED. SO ORDERED.

G.R. No. L-13505

February 4, 1919

GEO. W. DAYWALT, plaintiff-appellant, vs. LA CORPORACION DE LOS PADRES AGUSTINOS RECOLETOS, ET AL., defendants-appellees. STREET, J.: In the year 1902, Teodorica Endencia, an unmarried woman, resident in the Province of Mindoro, executed a contract whereby she obligated herself to convey to Geo. W. Daywalt, a tract of land situated in the barrio of Mangarin, municipality of Bulalacao, now San Jose, in said province. It was agreed that a deed should be executed as soon as the title to the land should be perfected by proceedings in the Court of Land Registration and a Torrens certificate should be produced therefore in the name of Teodorica Endencia. A decree recognizing the right of Teodorica as owner was entered in said court in August 1906, but the Torrens certificate was not issued until later. The parties, however, met immediately upon the entering of this decree and made a new contract with a view to carrying their original agreement into effect. This new contract was executed in the form of a deed of conveyance and bears date of August 16, 1906. The stipulated price was fixed at P4,000, and the area of the land enclosed in the boundaries defined in the contract was stated to be 452 hectares and a fraction. The second contract was not immediately carried into effect for the reason that the Torrens certificate was not yet obtainable and in fact said certificate was not issued until the period of performance contemplated in the contract had expired. Accordingly, upon October 3, 1908, the parties entered into still another agreement, superseding the old, by which Teodorica Endencia agreed upon receiving the Torrens title to the land in question, to deliver the same to the Hongkong and Shanghai Bank in Manila, to be forwarded to the Crocker National Bank in San Francisco, where it was to be delivered to the plaintiff upon payment of a balance of P3,100. The Torrens certificate was in time issued to Teodorica Endencia, but in the course of the proceedings relative to the registration of the land, it was found by official survey that the area of the tract inclosed in the boundaries stated in the contract was about 1.248 hectares of 452 hectares as stated in the contract. In view of this development Teodorica Endencia became reluctant to transfer the whole tract to the purchaser, asserting that she never intended to sell so large an amount of land and that she had been misinformed as to its area. This attitude of hers led to litigation in which Daywalt finally succeeded, upon appeal to the Supreme Court, in obtaining a decree for specific performance; and Teodorica Endencia was ordered to convey the entire tract of land to Daywalt pursuant to the contract of October 3, 1908, which contract was declared to be in full force and effect. This decree appears to have become finally effective in the early part of the year 1914.1 The defendant, La Corporacion de los Padres Recoletos, is a religious corporation, with its domicile in the city of Manila. Said corporation was formerly the owner of a large tract of land, known as the San Jose Estate, on the island of Mindoro, which was sold to the Government of the Philippine Islands in the year 1909. The same corporation was at this time also the owner of another estate on the same island immediately adjacent to the land which Teodorica Endencia had sold to Geo. W. Daywalt; and for many years the Recoletos Fathers had maintained large herds of cattle on the farms referred to. Their representative, charged with management of these farms, was father Isidoro Sanz, himself a members of the order. Father Sanz had long been well acquainted with Teodorica

Endencia and exerted over her an influence and ascendency due to his religious character as well as to the personal friendship which existed between them. Teodorica appears to be a woman of little personal force, easily subject to influence, and upon all the important matters of business was accustomed to seek, and was given, the advice of father Sanz and other members of his order with whom she came in contact. Father Sanz was fully aware of the existence of the contract of 1902 by which Teodorica Endencia agreed to sell her land to the plaintiff as well as of the later important developments connected with the history of that contract and the contract substituted successively for it; and in particular Father Sanz, as well as other members of the defendant corporation, knew of the existence of the contract of October 3, 1908, which, as we have already seen finally fixed the rights of the parties to the property in question. When the Torrens certificate was finally issued in 1909 in favor of Teodorica Endencia, she delivered it for safekeeping to the defendant corporation, and it was then taken to Manila where it remained in the custody and under the control of P. Juan Labarga the procurador and chief official of the defendant corporation, until the deliver thereof to the plaintiff was made compulsory by reason of the decree of the Supreme Court in 1914. When the defendant corporation sold the San Jose Estate, it was necessary to bring the cattle off of that property; and, in the first half of 1909, some 2,368 head were removed to the estate of the corporation immediately adjacent to the property which the plaintiff had purchased from Teodorica Endencia. As Teodorica still retained possession of said property Father Sanz entered into an arrangement with her whereby large numbers of cattle belonging to the defendant corporation were pastured upon said land during a period extending from June 1, 1909, to May 1, 1914. In the second cause of action stated in the complaint the plaintiff seeks to recover from the defendant corporation the sum of P500,000, as damages, on the ground that said corporation, for its own selfish purposes, unlawfully induced Teodorica Endencia to refrain from the performance of her contract for the sale of the land in question and to withhold delivery to the plaintiff of the Torrens title, and further, maliciously and without reasonable cause, maintained her in her defense to the action of specific performance which was finally decided in favor of the plaintiff in this court. The cause of action here stated is based on liability derived from the wrongful interference of the defendant in the performance of the contract between the plaintiff and Teodorica Endencia; and the large damages laid in the complaint were, according to the proof submitted by the plaintiff, incurred as a result of a combination of circumstances of the following nature: In 1911, it appears, the plaintiff, as the owner of the land which he had bought from Teodorica Endencia entered into a contract (Exhibit C) with S. B. Wakefield, of San Francisco, for the sale and disposal of said lands to a sugar growing and milling enterprise, the successful launching of which depended on the ability of Daywalt to get possession of the land and the Torrens certificate of title. In order to accomplish this end, the plaintiff returned to the Philippine Islands, communicated his arrangement to the defendant,, and made repeated efforts to secure the registered title for delivery in compliance with said agreement with Wakefield. Teodorica Endencia seems to have yielded her consent to the consummation of her contract, but the Torrens title was then in the possession of Padre Juan Labarga in Manila, who refused to deliver the document. Teodorica also was in the end contract with the plaintiff, with the result that the plaintiff was kept out of possession until the Wakefield project for the establishment of a large sugar growing and milling enterprise fell through. In the light of what has happened in recent years in the sugar industry, we feel justified in saying that the project above referred to, if carried into effect, must inevitably have proved a great success. The determination of the issue presented in this second cause of action requires a consideration of two points. The first is whether a person who is not a party to a contract for the sale of land makes himself liable for damages to the vendee, beyond the value of the use and occupation, by colluding with the vendor and maintaining him in the effort to resist an action for specific

performance. The second is whether the damages which the plaintiff seeks to recover under this head are too remote and speculative to be the subject of recovery. As preliminary to a consideration of the first of these questions, we deem it well it dispose of the contention that the members of the defendants corporation, in advising and prompting Teodorica Endencia not to comply with the contract of sale, were actuated by improper and malicious motives. The trial court found that this contention was not sustained, observing that while it was true that the circumstances pointed to an entire sympathy on the part of the defendant corporation with the efforts of Teodorica Endencia to defeat the plaintiff's claim to the land, the fact that its officials may have advised her not to carry the contract into effect would not constitute actionable interference with such contract. It may be added that when one considers the hardship that the ultimate performance of that contract entailed on the vendor, and the doubt in which the issue was involved to the extent that the decision of the Court of the First Instance was unfavorable to the plaintiff and the Supreme Court itself was divided the attitude of the defendant corporation, as exhibited in the conduct of its procurador, Juan Labarga, and other members of the order of the Recollect Fathers, is not difficult to understand. To our mind a fair conclusion on this feature of the case is that father Juan Labarga and his associates believed in good faith that the contract cold not be enforced and that Teodorica would be wronged if it should be carried into effect. Any advice or assistance which they may have given was, therefore, prompted by no mean or improper motive. It is not, in our opinion, to be denied that Teodorica would have surrendered the documents of title and given possession of the land but for the influence and promptings of members of the defendants corporation. But we do not credit the idea that they were in any degree influenced to the giving of such advice by the desire to secure to themselves the paltry privilege of grazing their cattle upon the land in question to the prejudice of the just rights of the plaintiff. The attorney for the plaintiff maintains that, by interfering in the performance of the contract in question and obstructing the plaintiff in his efforts to secure the certificate of tittle to the land, the defendant corporation made itself a co-participant with Teodorica Endencia in the breach of said contract; and inasmuch as father Juan Labarga, at the time of said unlawful intervention between the contracting parties, was fully aware of the existence of the contract (Exhibit C) which the plaintiff had made with S. B. Wakefield, of San Francisco, it is insisted that the defendant corporation is liable for the loss consequent upon the failure of the project outlined in said contract. In this connection reliance is placed by the plaintiff upon certain American and English decisions in which it is held that a person who is a stranger to contract may, by an unjustifiable interference in the performance thereof, render himself liable for the damages consequent upon non-performance. It is said that the doctrine of these cases was recognized by this court in Gilchrist vs. Cuddy (29 Phil. Rep., 542); and we have been earnestly pressed to extend the rule there enunciated to the situation here presente. Somewhat more than half a century ago the English Court of the Queen's Bench saw its way clear to permit an action for damages to be maintained against a stranger to a contract wrongfully interfering in its performance. The leading case on this subject is Lumley vs. Gye ([1853], 2 El. & Bl., 216). It there appeared that the plaintiff, as manager of a theatre, had entered into a contract with Miss Johanna Wagner, an opera singer,, whereby she bound herself for a period to sing in the plaintiff's theatre and nowhere else. The defendant, knowing of the existence of this contract, and, as the declaration alleged, "maliciously intending to injure the plaintiff," enticed and produced Miss Wagner to leave the plaintiff's employment. It was held that the plaintiff was entitled to recover damages. The right which was here recognized had its origin in a rule, long familiar to the courts of the common law, to the effect that any person who entices a servant from his employment is liable in damages to the master. The master's interest in the service rendered by his employee is here considered as a distinct subject of juridical right. It being thus accepted that it is a legal wrong to break up a relation of personal service, the question now arose whether it is illegal for one person to interfere with any

contract relation subsisting between others. Prior to the decision of Lumley vs. Gye [supra] it had been supposed that the liability here under consideration was limited to the cases of the enticement of menial servants, apprentices, and others to whom the English Statutes of Laborers were applicable. But in the case cited the majority of the judges concurred in the opinion that the principle extended to all cases of hiring. This doctrine was followed by the Court of Appeal in Bowen vs. Hall ([1881], 6 Q. B., Div., 333); and in Temperton vs. Russell ([1893], Q. B., 715), it was held that the right of action for maliciously procuring a breach of contract is not confined to contracts for personal services, but extends to contracts in general. In that case the contract which the defendant had procured to be breached was a contract for the supply of building material. Malice in some form is generally supposed to be an essential ingredient in cases of interference with contract relations. But upon the authorities it is enough if the wrong-doer, having knowledge of the existence of the contract relations, in bad faith sets about to break it up. Whether his motive is to benefit himself or gratify his spite by working mischief to the employer is immaterial. Malice in the sense of ill-will or spite is not essential. Upon the question as to what constitutes legal justification, a good illustration was put in the leading case. If a party enters into contract to go for another upon a journey to a remote and unhealthful climate, and a third person, with a bona fide purpose of benefiting the one who is under contract to go, dissuades him from the step, no action will lie. But if the advice is not disinterested and the persuasion is used for "the indirect purpose of benefiting the defendant at the expense of the plaintiff," the intermedler is liable if his advice is taken and the contract broken. The doctrine embodied in the cases just cited has sometimes been found useful, in the complicated relations of modern industry, as a means of restraining the activities of labor unions and industrial societies when improperly engaged in the promotion of strikes. An illustration of the application of the doctrine in question in a case of this kind is found in South Wales Miners Federation vs. Glamorgan Coal Co. ([1905]), A. C., 239). It there appeared that certain miners employed in the plaintiff's collieries, acting under the order of the executive council of the defendant federation, violated their contract with the plaintiff by abstaining from work on certain days. The federation and council acted without any actual malice or ill-will towards the plaintiff, and the only object of the order in question was that the price of coal might thereby be kept up, a factor which affected the miner's wage scale. It was held that no sufficient justification was shown and that the federation was liable. In the United States, the rule established in England by Lumley vs. Gye [supra] and subsequent cases is commonly accepted, though in a few of the States the broad idea that a stranger to a contract can be held liable upon its is rejected, and in these jurisdictions the doctrine, if accepted at all, is limited to the situation where the contract is strictly for personal service. (Boyson vs. Thorn, 98 Cal., 578; Chambers & Marshall vs. Baldwin 91 Ky., 121; Bourlier vs. Macauley, 91 Ky., 135; Glencoe Land & Gravel Co. vs. Hudson Bros. Com. Co., 138 Mo., 439.) It should be observed in this connection that, according to the English and American authorities, no question can be made as to the liability to one who interferes with a contract existing between others by means which, under known legal cannons, can be denominated an unlawful means. Thus, if performance is prevented by force, intimidation, coercion, or threats, or by false or defamatory statements, or by nuisance or riot, the person using such unlawful means is, under all the authorities, liable for the damage which ensues. And in jurisdictions where the doctrine of Lumley vs. Gye [supra] is rejected, no liability can arise from a meddlesome and malicious interference with a contract relation unless some such unlawful means as those just indicated are used. (See cases last above cited.)

Translated into terms applicable to the case at bar, the decision in Gilchrist vs. Cuddy (29 Phil. Rep., 542), indicates that the defendant corporation, having notice of the sale of the land in question to Daywalt, might have been enjoined by the latter from using the property for grazing its cattle thereon. That the defendant corporation is also liable in this action for the damage resulting to the plaintiff from the wrongful use and occupation of the property has also been already determined. But it will be observed that in order to sustain this liability it is not necessary to resort to any subtle exegesis relative to the liability of a stranger to a contract for unlawful interference in the performance thereof. It is enough that defendant use the property with notice that the plaintiff had a prior and better right. Article 1902 of the Civil Code declares that any person who by an act or omission, characterized by fault or negligence, causes damage to another shall be liable for the damage so done. Ignoring so much of this article as relates to liability for negligence, we take the rule to be that a person is liable for damage done to another by any culpable act; and by "culpable act" we mean any act which is blameworthy when judged by accepted legal standards. The idea thus expressed is undoubtedly broad enough to include any rational conception of liability for the tortious acts likely to be developed in any society. Thus considered, it cannot be said that the doctrine of Lumley vs. Gye [supra] and related cases is repugnant to the principles of the civil law. Nevertheless, it must be admitted that the codes and jurisprudence of the civil law furnish a somewhat uncongenial field in which to propagate the idea that a stranger to a contract may sued for the breach thereof. Article 1257 of the Civil Code declares that contracts are binding only between the parties and their privies. In conformity with this it has been held that a stranger to a contract has no right of action for the nonfulfillment of the contract except in the case especially contemplated in the second paragraph of the same article. (Uy Tam and Uy Yet vs. Leonard, 30 Phil. Rep., 471.) As observed by this court in Manila Railroad Co. vs. Compaia Transatlantica, R. G. No. 11318 (38 Phil. Rep., 875), a contract, when effectually entered into between certain parties, determines not only the character and extent of the liability of the contracting parties but also the person or entity by whom the obligation is exigible. The same idea should apparently be applicable with respect to the person against whom the obligation of the contract may be enforced; for it is evident that there must be a certain mutuality in the obligation, and if the stranger to a contract is not permitted to sue to enforce it, he cannot consistently be held liable upon it. If the two antagonistic ideas which we have just brought into juxtaposition are capable of reconciliation, the process must be accomplished by distinguishing clearly between the right of action arising from the improper interference with the contract by a stranger thereto, considered as an independent act generate of civil liability, and the right of action ex contractu against a party to the contract resulting from the breach thereof. However, we do not propose here to pursue the matter further, inasmuch as, for reasons presently to be stated, we are of the opinion that neither the doctrine of Lumley vs. Gye [supra] nor the application made of it by this court in Gilchrist vs. Cuddy (29 Phil. Rep., 542), affords any basis for the recovery of the damages which the plaintiff is supposed to have suffered by reason of his inability to comply with the terms of the Wakefield contract. Whatever may be the character of the liability which a stranger to a contract may incur by advising or assisting one of the parties to evade performance, there is one proposition upon which all must agree. This is, that the stranger cannot become more extensively liable in damages for the nonperformance of the contract than the party in whose behalf he intermeddles. To hold the stranger liable for damages in excess of those that could be recovered against the immediate party to the contract would lead to results at once grotesque and unjust. In the case at bar, as Teodorica Endencia was the party directly bound by the contract, it is obvious that the liability of the defendant corporation, even admitting that it has made itself coparticipant in the breach of the contract, can in no even exceed hers. This leads us to consider at this point the extent of the liability of Teodorica

Endencia to the plaintiff by reason of her failure to surrender the certificate of title and to place the plaintiff in possession. It should in the first place be noted that the liability of Teodorica Endencia for damages resulting from the breach of her contract with Daywalt was a proper subject for adjudication in the action for specific performance which Daywalt instituted against her in 1909 and which was litigated by him to a successful conclusion in this court, but without obtaining any special adjudication with reference to damages. Indemnification for damages resulting from the breach of a contract is a right inseparably annexed to every action for the fulfillment of the obligation (art. 1124, Civil Code); and its is clear that if damages are not sought or recovered in the action to enforce performance they cannot be recovered in an independent action. As to Teodorica Endencia, therefore, it should be considered that the right of action to recover damages for the breach of the contract in question was exhausted in the prior suit. However, her attorneys have not seen fit to interpose the defense of res judicata in her behalf; and as the defendant corporation was not a party to that action, and such defense could not in any event be of any avail to it, we proceed to consider the question of the liability of Teodorica Endencia for damages without refernce to this point.

Gilchrist v Cuddy G.R. No. L-9356 February 18, 1915

FACTS:

Cuddy was the owner of the film Zigomar April 24: He rented it to C. S. Gilchrist for a week for P125 A few days to the date of delivery, Cuddy sent the money back to Gilchrist Cuddy rented the film to Espejo and his partner Zaldarriaga P350 for the week knowing that it was rented to someone else and that Cuddy accepted it because he was paying about three times as much as he had contracted with Gilchrist but they didn't know the identity of the other party

Gilchrist filed for injunction against these parties Trial Court and CA: granted - there is a contract between Gilchrist and Cuddy

ISSUE: W/N Espejo and his partner Zaldarriaga should be liable for damages though they do not know the identity of Gilchrist HELD: YES. judgment is affirmed

That Cuddy was liable in an action for damages for the breach of that contract, there can be no doubt. the mere right to compete could not justify the appellants in intentionally inducing Cuddy to take away the appellee's contractual rights Everyone has a right to enjoy the fruits and advantages of his own enterprise, industry, skill and credit. He has no right to be free from malicious and wanton interference, disturbance or annoyance. If disturbance or loss come as a result of competition, or the exercise of like rights by others, it is damnum absque injuria(loss without injury), unless some superior right by contract or otherwise is interfered with

Cuddy contract on the part of the appellants was a desire to make a profit by exhibiting the film in their theater. There was no malice beyond this desire; but this fact does not relieve them of the legal liability for interfering with that contract and causing its breach.

liability of the appellants arises from unlawful acts and not from contractual obligations, as they were under no such obligations to induce Cuddy to violate his contract with Gilchrist

So that if the action of Gilchrist had been one for damages, it would be governed by chapter 2, title 16, book 4 of the Civil Code.

Article 1902 of that code provides that a person who, by act or omission, causes damagesto another when there is fault or negligence, shall be obliged to repair the damage do done

There is nothing in this article which requires as a condition precedent to the liability of a tort-feasor that he must know the identity of a person to whom he causes damages

An injunction is a "special remedy" which was there issued by the authority and under the seal of a court of equity, and limited, as in order cases where equitable relief is sought, to cases where there is no "plain, adequate, and complete remedy at law," which "will not be granted while the rights between the parties are undetermined, except in extraordinary cases where material and irreparable injury will be done," which cannot be compensated indamages, and where there will be no adequate remedy, and which will not, as a rule, be granted, to take property out of the possession of one party and put it into that of another whose title has not been established by law

irreparable injury not meant such injury as is beyond the possibility of repair, or beyond possible compensation in damages, nor necessarily great injury or great damage, but that species of injury, whether great or small, that ought not to be submitted to on the one hand or inflicted on the other; and, because it is so large on the one hand, or so small on the other, is of such constant and frequent recurrence that no fair or reasonable redress can be had therefor in a court of law

Gilchrist was facing the immediate prospect of diminished profits by reason of the fact that the appellants had induced Cuddy to rent to them the film Gilchrist had counted upon as his feature film

It is quite apparent that to estimate with any decree of accuracy the damages which Gilchrist would likely suffer from such an event would be quite difficult if not impossible

So far as the preliminary injunction issued against the appellants is concerned, which prohibited them from exhibiting the Zigomar during the week which Gilchrist desired to exhibit it, we are of the opinion that the circumstances justified the issuance of that injunction in the discretion of the court

the remedy by injunction cannot be used to restrain a legitimate competition, though such competition would involve the violation of a contract