SECOND DIVISION

ARMANDO BARCELLANO,
Petitioner,




-versus-




DOLORES BAAS, represented by her son and
Attorney-in-fact CRISPINO
BERMILLO,
Respondent.

G.R. No. 165287

Present:

CARPIO,J.,
Chairperson,
BRION,
ABAD,*
PEREZ, and
SERENO,JJ.

Promulgated:

September 14,
2011
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N

PEREZ, J.:

Before the Court is an appeal by certiorari
[1]
from the Decision
[2]
of the Fifteenth Division of the Court
of Appeals in CA-G.R. CV No. 67702 dated 26 February 2004, granting the petition of Dolores Baas,
herein respondent, to reverse and set aside the Decision
[3]
of the lower court.
The dispositive portion of the assailed decision reads:

WHEREFORE, premises considered, the instant appeal is hereby GRANTED. The
decision of the court a quo is hereby REVERSED AND SET ASIDE and in its stead another one
is rendered GRANTING to petitioner-appellants the right to redeem the subject property for the
amount of Php 60,000.00 within thirty (30) days from the finality of this decision.


The facts as gathered by the court follow:

Respondent Baas is an heir of Bartolome Baas who owns in fee simple Lot 4485, PLS-722-D situated
in Hindi, Bacacay, Albay. Adjoining the said lot is the property of Vicente Medina (Medina), covered by
Original Certificate of Title No. VH-9094, with an area of 1,877 square meters. On 17 March 1997, Medina
offered his lot for sale to the adjoining owners of the property, the heirs of Bartolome Baas, including herein
respondent Dolores Baas, Crispino Bermillo (Bermillo) and Isabela Bermillo-Beruela (Beruela)
[4]
Crispino
Bermillo, as the representative of his family, agreed to the offer of Medina, the sale to take place after the
harvest season.
[5]


On 3 April 1997, Medina sold the property to herein petitioner Armando Barcellano forP60,000.00. The
following day, the heirs of Baas learned about the sale and went to the house of Medina to inquire about
it.
[6]
Medina confirmed that the lot was sold to Barcellano. The heirs conveyed their intention to redeem the
property but Medina replied that there was already a deed of sale executed between the parties.
[7]
Also, the
Baas heirs failed to tender the P60,000.00 redemption amount to Medina.
[8]


Aggrieved, the heirs went to the Office of the Barangay Council on 5 April 1997.
[9]
Medina sent only
his tenant to attend the proceeding. On 9 April 1997, the Baas heirs and Barcellano, with neither Medina nor
his tenant in attendance, went to the Office of the Barangay Council to settle the dispute. According to one of
the Baas heirs, Barcellano told them that he would be willing to sell the property but for a higher price
of P90,000.00.
[10]
Because the parties could not agree on the price and for failure to settle the dispute,
the Lupon issued a Certification to File Action.
[11]


On 24 October 1997, Dolores Baas filed an action for Legal Redemption before the Regional Trial
Court. However, on 5 February 1998, the petition was withdrawn on the ground that:

xxx considering the present worse economic situation in the country, petitioner opted that
the amount they are supposed to pay for the redemption be readily available for their immediate
and emergency needs.

On 11 March 1998, Dolores Baas, as represented by Bermillo, filed another action
[12]
for Legal
Redemption. It was opposed by Barcellano insisting that he complied with the provisions of Art. 1623 of the
New Civil Code but Baas failed to exercise her right within the period provided by law.

Trial ensued. On 15 March 2000, the trial court dismissed the complaint of the Baas heirs for their
failure to comply with the condition precedent of making a formal offer to redeem and for failure to file an
action in court together with the consignation of the redemption price within the reglementary period of 30
days.
[13]
The dispositive portion reads:

WHEREFORE, premises considered, the complaint is hereby ordered DISMISSED.

On appeal, the Court of Appeals reversed and set aside the ruling of the lower court and granted the
heirs the right to redeem the subject property. The appellate court ruled that the filing of a complaint before
the Katarungang Pambarangay should be considered as a notice to Barcellano and Medina that the heirs were
exercising their right of redemption over the subject property; and as having set in motion the judicial process of
legal redemption.
[14]
Further, the appellate court ruled that a formal offer to redeem, coupled with a tender of
payment of the redemption price, and consignation are proper only if the redemptioner wishes to avail himself
of his right of redemption in the future. The tender of payment and consignation become inconsequential when
the redemptioner files a case to redeem the property within the 30-day period.
[15]


Hence, this Petition for Review on Certiorari.

In this petition, Barcellano questions the ruling of the appellate court for being contrary to the admitted
facts on record and applicable jurisprudence.



The Courts Ruling

Barcellano maintains that the written notice required under Art. 1623 to be given to adjoining owner was
no longer necessary because there was already actual notice. Further, he asserts that the appellate court erred in
ruling that the tender of payment of the redemption price and consignation are not required in this case,
effectively affirming that the respondents had validly exercised their right of redemption. Lastly, he questions
as erroneous the application of Presidential Decree No. 1508, otherwise known as Establishing a System of
Amicably Settling Disputes at the Barangay Level, thereby ruling that the filing by the heirs of the complaint
before the Barangay was an exercise of right of redemption.

We need only to discuss the requirement of notice under Art. 1623 of the New Civil Code, which
provides that:

The right of legal pre-emption or redemption shall not be exercised except within thirty
daysfrom the notice in writing by the prospective vendor, or by the vendor, as the case may
be. The deed of sale shall not be recorded in the Registry of Property, unless accompanied by an
affidavit of the vendor that he has given written notice thereof to all possible redemptioners.


Nothing in the records and pleadings submitted by the parties shows that there was a written notice sent
to the respondents. Without a written notice, the period of thirty days within which the right of legal pre-
emption may be exercised, does not start.

The indispensability of a written notice had long been discussed in the early case of Conejerov. Court of
Appeals,
[16]
penned by Justice J.B.L. Reyes:

With regard to the written notice, we agree with petitioners that such notice is
indispensable, and that, in view of the terms in which Article of the Philippine Civil Code is
couched, mere knowledge of the sale, acquired in some other manner by the redemptioner, does
not satisfy the statute. The written notice was obviously exacted by the Code to remove all
uncertainty as to the sale, its terms and its validity, and to quiet any doubts that the alienation is
not definitive. The statute not having provided for any alternative, the method of notification
prescribed remains exclusive.

This is the same ruling in Verdad v. Court of Appeals:
[17]


The written notice of sale is mandatory. This Court has long established the rule that
notwithstanding actual knowledge of a co-owner, the latter is still entitled to a written notice
from the selling co-owner in order to remove all uncertainties about the sale, its terms and
conditions, as well as its efficacy and status.

Lately, in Gosiengfiao Guillen v. the Court of Appeals,
[18]
this Court again emphasized the mandatory
character of a written notice in legal redemption:

From these premises, we ruled that [P]etitioner-heirs have not lost their right to
redeem, for in the absence of a written notification of the sale by the vendors, the 30-day period
has not even begun to run. These premises and conclusion leave no doubt about the thrust
of Mariano: The right of the petitioner-heirs to exercise their right of legal redemption
exists, and the running of the period for its exercise has not even been triggered because
they have not been notified in writing of the fact of sale. (Emphasis supplied)


The petitioner argues that the only purpose behind Art. 1623 of the New Civil Code is to ensure that the
owner of the adjoining land is actually notified of the intention of the owner to sell his property. To advance
their argument, they cited Destrito v. Court of Appeals as cited in Alonzo v. Intermediate Appellate
Court,
[19]
where this Court pronounced that written notice is no longer necessary in case of actual notice of the
sale of property.

The Alonzo case does not apply to this case. There, we pronounced that the disregard of the mandatory
written rule was an exception due to the peculiar circumstance of the case. Thus:

In the face of the established facts, we cannot accept the private respondents' pretense
that they were unaware of the sales made by their brother and sister in 1963 and 1964. By
requiring written proof of such notice, we would be closing our eyes to the obvious truth in favor
of their palpably false claim of ignorance, thus exalting the letter of the law over its purpose. The
purpose is clear enough: to make sure that the redemptioners are duly notified. We are satisfied
that in this case the other brothers and sisters were actually informed, although not in writing, of
the sales made in 1963 and 1964, and that such notice was sufficient.

Now, when did the 30-day period of redemption begin?

While we do not here declare that this period started from the dates of such sales in 1963
and 1964, we do say that sometime between those years and 1976, when the first complaint for
redemption was filed, the other co-heirs were actually informed of the sale and that thereafter the
30-day period started running and ultimately expired. This could have happened any time during
the interval of thirteen years, when none of the co-heirs made a move to redeem the properties
sold. By 1977, in other words, when Tecla Padua filed her complaint, the right of redemption had
already been extinguished because the period for its exercise had already expired.

The following doctrine is also worth noting:

While the general rule is, that to charge a party with laches in the assertion of an alleged
right it is essential that he should have knowledge of the facts upon which he bases his claim, yet
if the circumstances were such as should have induced inquiry, and the means of ascertaining the
truth were readily available upon inquiry, but the party neglects to make it, he will be chargeable
with laches, the same as if he had known the facts.
It was the perfectly natural thing for the co-heirs to wonder why the spouses Alonzo, who
were not among them, should enclose a portion of the inherited lot and build thereon a house of
strong materials. This definitely was not the act of a temporary possessor or a mere mortgagee.
This certainly looked like an act of ownership. Yet, given this unseemly situation, none of the
co-heirs saw fit to object or at least inquire, to ascertain the facts, which were readily available. It
took all ofthirteen years before one of them chose to claim the right of redemption, but then it
was already too late.
[20]


x x x x

The co-heirs in this case were undeniably informed of the sales although no notice in
writing was given them. And there is no doubt either that the 30-day period began and ended
during the 14 years between the sales in question and the filing of the complaint for redemption
in 1977, without the co-heirs exercising their right of redemption. These are the justifications for
this exception.

The Court clarified that:

We realize that in arriving at our conclusion today, we are deviating from the strict
letter of the law, which the respondent court understandably applied pursuant to existing
jurisprudence. The said court acted properly as it had no competence to reverse the
doctrines laid down by this Court in the above-cited cases. In fact, and this should be
clearly stressed, we ourselves are not abandoning the De Conejero and Buttle doctrines.
What we are doing simply is adopting an exception to the general rule, in view of the
peculiar circumstances of this case.
[21]
(Emphasis supplied)

Without the peculiar circumstances in the present case, Alonzo cannot find application. The
impossibility in Alonzo of the parties not knowing about the sale of a portion of the property they were actually
occupying is not presented in this case. The strict letter of the law must apply. That a departure from the strict
letter should only be for extraordinary reasons is clear from the second sentence of Art. 1623 that The deed of
sale shall not be recorded in the Registry of Property, unless accompanied by an affidavit of the vendor that he
has given written notice thereof to all possible redemptioners.
Justice Edgardo Paras, referring to the origins of the requirement, would explain in his commentaries on
the New Civil Code that despite actual knowledge, the person having the right to redeem is STILL entitled to
the written notice. Both the letter and the spirit of the New Civil Code argue against any attempt to widen the
scope of the written notice by including therein any other kind of notice such as an oral one, or by
registration. If the intent of the law has been to include verbal notice or any other means of information as
sufficient to give the effect of this notice, there would have been no necessity or reason to specify in the article
that said notice be in writing, for under the old law, a verbal notice or mere information was already deemed
sufficient.
[22]


Time and time again, it has been repeatedly declared by this Court that where the law speaks in clear and
categorical language, there is no room for interpretation. There is only room for application.
[23]
Where the
language of a statute is clear and unambiguous, the law is applied according to its express terms, and
interpretation should be resorted to only where a literal interpretation would be either impossible or absurd or
would lead to an injustice. The law is clear in this case, there must first be a written notice to the family of
Baas.

Absolute Sentencia Expositore Non Indiget, when the language of the law is clear, no explanation of it is
required.
[24]


We find no need to rule on the other issues presented by the petitioner. The respondent Baas has a
perfect right of redemption and was never in danger of losing such right even if there was no redemption
complaint filed with the barangay, no tender of payment or no consignation.

WHEREFORE, the appeal is DENIED. The 26 February 2004 Decision of the Court of Appeals in
CA-G.R. CV No. 67702, granting to petitioner-appellants the right to redeem the subject property for the
amount of Php60,000.00 within thirty (30) days from the finality of this decision is hereby AFFIRMED. No
cost.

SO ORDERED.

G.R. No. 171845 October 10, 2012
SPOUSES GODFREY and GERARDINA SERFINO, Petitioners,
vs.
FAR EAST BANK AND TRUST COMPANY, INC., now BANK OF THE PHILIPPINE
ISLANDS, Respondent.
D E C I S I O N
BRION, J .:
Before the Court is a petition for review on certiorari,
1
filed under Rule 45 of the Rules of Court, assailing the
decision
2
dated February 23, 2006 of the Regional Trial Court (RTC) of Bacolod City, Branch 41, in Civil Case
No. 95-9344.
FACTUAL ANTECEDENTS
The present case traces its roots to the compromise judgment dated October 24, 1995
3
of the RTC of Bacolod
City, Branch 47, in Civil Case No. 95-9880. Civil Case No. 95-9880 was an action for collection of sum of
money instituted by the petitioner spouses Godfrey and Gerardina Serfino (collectively, spouses Serfino) against
the spouses Domingo and Magdalena Cortez (collectively, spouses Cortez). By way of settlement, the spouses
Serfino and the spouses Cortez executed a compromise agreement on October 20, 1995, in which the spouses
Cortez acknowledged their indebtedness to the spouses Serfino in the amount of P 108,245.71. To satisfy the
debt, Magdalena bound herself "to pay in full the judgment debt out of her retirement benefits[.]"
4
Payment
of the debt shall be made one (1) week after Magdalena has received her retirement benefits from the
Government Service Insurance System (GSIS). In case of default, the debt may be executed against any of the
properties of the spouses Cortez that is subject to execution, upon motion of the spouses Serfino.
5
After finding
that the compromise agreement was not contrary to law, morals, good custom, public order or public policy, the
RTC approved the entirety of the parties agreement and issued a compromise judgment based thereon.
6
The
debt was later reduced to P 155,000.00 from P 197,000.00 (including interest), with the promise that the spouses
Cortez would pay in full the judgment debt not later than April 23, 1996.
7

No payment was made as promised. Instead, Godfrey discovered that Magdalena deposited her retirement
benefits in the savings account of her daughter-in-law, Grace Cortez, with the respondent, Far East Bank and
Trust Company, Inc. (FEBTC). As of April 23, 1996, Graces savings account with FEBTC amounted
to P245,830.37, the entire deposit coming from Magdalenas retirement benefits.
8
That same day, the spouses
Serfinos counsel sent two letters to FEBTC informing the bank that the deposit in Graces name was
owned by the spouses Serfino by virtue of an assignment made in their favor by the spouses Cortez. The
letter requested FEBTC to prevent the delivery of the deposit to either Grace or the spouses Cortez until its
actual ownership has been resolved in court.
On April 25, 1996, the spouses Serfino instituted Civil Case No. 95- 9344 against the spouses Cortez, Grace and
her husband, Dante Cortez, and FEBTC for the recovery of money on deposit and the payment of damages,
with a prayer for preliminary attachment.
On April 26, 1996, Grace withdrew P 150,000.00 from her savings account with FEBTC. On the same day,
the spouses Serfino sent another letter to FEBTC informing it of the pending action; attached to the letter was a
copy of the complaint filed as Civil Case No. 95-9344.
During the pendency of Civil Case No. 95-9344, the spouses Cortez manifested that they were turning over the
balance of the deposit in FEBTC (amounting to P 54,534.00) to the spouses Serfino as partial payment of their
obligation under the compromise judgment. The RTC issued an order dated July 30, 1997, authorizing FEBTC
to turn over the balance of the deposit to the spouses Serfino.
On February 23, 2006, the RTC issued the assailed decision (a) finding the spouses Cortez, Grace and Dante
liable for fraudulently diverting the amount due the spouses Serfino, but (b) absolving FEBTC from any
liability for allowing Grace to withdraw the deposit. The RTC declared that FEBTC was not a party to the
compromise judgment; FEBTC was thus not chargeable with notice of the parties agreement, as there was no
valid court order or processes requiring it to withhold payment of the deposit. Given the nature of bank deposits,
FEBTC was primarily bound by its contract of loan with Grace. There was, therefore, no legal justification for
the bank to refuse payment of the account, notwithstanding the claim of the spouses Serfino as stated in their
three letters.
THE PARTIES ARGUMENTS
The spouses Serfino appealed the RTCs ruling absolving FEBTC from liability for allowing the
withdrawal of the deposit. They allege that the RTC cited no legal basis for declaring that only a court order or
process can justify the withholding of the deposit in Graces name. Since FEBTC was informed of their adverse
claim after they sent three letters, they claim that:
Upon receipt of a notice of adverse claim in proper form, it becomes the duty of the bank to: 1. Withhold
payment of the deposit until there is a reasonable opportunity to institute legal proceedings to contest
ownership; and 2) give prompt notice of the adverse claim to the depositor. The bank may be held liable to the
adverse claimant if it disregards the notice of adverse claim and pays the depositor.
When the bank has reasonable notice of a bona fide claim that money deposited with it is the property of
another than the depositor, it should withhold payment until there is reasonable opportunity to institute legal
proceedings to contest the ownership.
9
(emphases and underscoring supplied)
Aside from the three letters, FEBTC should be deemed bound by the compromise judgment, since Article 1625
of the Civil Code states that an assignment of credit binds third persons if it appears in a public
instrument.
10
They conclude that FEBTC, having been notified of their adverse claim, should not have allowed
Grace to withdraw the deposit.
While they acknowledged that bank deposits are governed by the Civil Code provisions on loan, the spouses
Serfino allege that the provisions on voluntary deposits should apply by analogy in this case, particularly Article
1988 of the Civil Code, which states:
Article 1988. The thing deposited must be returned to the depositor upon demand, even though a specified
period or time for such return may have been fixed.
This provision shall not apply when the thing is judicially attached while in the depositarys possession,
or should he have been notified of the opposition of a third person to the return or the removal of the
thing deposited. In these cases, the depositary must immediately inform the depositor of the attachment or
opposition.
Based on Article 1988 of the Civil Code, the depository is not obliged to return the thing to the depositor if
notified of a third partys adverse claim.
By allowing Grace to withdraw the deposit that is due them under the compromise judgment, the spouses
Serfino claim that FEBTC committed an actionable wrong that entitles them to the payment of actual
and moral damages.
FEBTC, on the other hand, insists on the correctness of the RTC ruling. It claims that it is not bound by the
compromise judgment, but only by its contract of loan with its depositor. As a loan, the bank deposit is owned
by the bank; hence, the spouses Serfinos claim of ownership over it is erroneous.
Based on these arguments, the case essentially involves a determination of the obligation of banks to a third
party who claims rights over a bank deposit standing in the name of another.
THE COURTS RULING
We find the petition unmeritorious and see no reason to reverse the RTCs ruling.
Claim for actual damages not
meritorious because there could be
no pecuniary loss that should be
compensated if there was no
assignment of credit
The spouses Serfinos claim for damages against FEBTC is premised on their claim of ownership of the deposit
with FEBTC. The deposit consists of Magdalenas retirement benefits, which the spouses Serfino claim to have
been assigned to them under the compromise judgment. That the retirement benefits were deposited in Graces
savings account with FEBTC supposedly did not divest them of ownership of the amount, as "the money
already belongs to the [spouses Serfino] having been absolutely assigned to them and constructively delivered
by virtue of the x x x public instrument[.]"
11
By virtue of the assignment of credit, the spouses Serfino claim
ownership of the deposit, and they posit that FEBTC was duty bound to protect their right by preventing the
withdrawal of the deposit since the bank had been notified of the assignment and of their claim.
We find no basis to support the spouses Serfinos claim of ownership of the deposit.
"An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a
legal cause, such as sale, dation in payment, exchange or donation, and without the consent of the debtor,
transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it
to the same extent as the assignor could enforce it against the debtor. It may be in the form of sale, but at times
it may constitute a dation in payment, such as when a debtor, in order to obtain a release from his debt,
assigns to his creditor a credit he has against a third person."
12
As a dation in payment, the assignment of
credit operates as a mode of extinguishing the obligation;
13
the delivery and transmission of ownership of a
thing (in this case, the credit due from a third person) by the debtor to the creditor is accepted as the equivalent
of the performance of the obligation.
14

The terms of the compromise judgment, however, did not convey an intent to equate the assignment of
Magdalenas retirement benefits (the credit) as the equivalent of the payment of the debt due the spouses
Serfino (the obligation). There was actually no assignment of credit; if at all, the compromise judgment
merely identified the fund from which payment for the judgment debt would be sourced:
(c) That before the plaintiffs file a motion for execution of the decision or order based [on this] Compromise
Agreement, the defendant, Magdalena Cortez undertake[s] and bind[s] herself to pay in full the judgment
debt out of her retirement benefits as Local [T]reasury Operation Officer in the City of Bacolod, Philippines,
upon which full payment, the plaintiffs waive, abandon and relinquish absolutely any of their claims for
attorneys fees stipulated in the Promissory Note (Annex "A" to the Complaint).
15
[emphasis ours]
Only when Magdalena has received and turned over to the spouses Serfino the portion of her retirement benefits
corresponding to the debt due would the debt be deemed paid.
In Aquitey v. Tibong,
16
the issue raised was whether the obligation to pay the loan was extinguished by the
execution of the deeds of assignment. The Court ruled in the affirmative, given that, in the deeds involved, the
respondent (the debtor) assigned to the petitioner (the creditor) her credits "to make good" the balance of her
obligation; the parties agreed to relieve the respondent of her obligation to pay the balance of her account, and
for the petitioner to collect the same from the respondents debtors.
17
The Court concluded that the respondents
obligation to pay the balance of her accounts with the petitioner was extinguished, pro tanto, by the deeds of
assignment of credit executed by the respondent in favor of the petitioner.
18

In the present case, the judgment debt was not extinguished by the mere designation in the compromise
judgment of Magdalenas retirement benefits as the fund from which payment shall be sourced. That the
compromise agreement authorizes recourse in case of default on other executable properties of the spouses
Cortez, to satisfy the judgment debt, further supports our conclusion that there was no assignment of
Magdalenas credit with the GSIS that would have extinguished the obligation.
The compromise judgment in this case also did not give the supposed assignees, the spouses Serfino, the power
to enforce Magdalenas credit against the GSIS. In fact, the spouses Serfino are prohibited from enforcing their
claim until after the lapse of one (1) week from Magdalenas receipt of her retirement benefits:
(d) That the plaintiffs shall refrain from having the judgment based upon this Compromise Agreement executed
until after one (1) week from receipt by the defendant, Magdalena Cortez of her retirement benefits from the
[GSIS] but fails to pay within the said period the defendants judgment debt in this case, in which case [this]
Compromise Agreement [may be] executed upon any property of the defendants that are subject to execution
upon motion by the plaintiffs.
19

An assignment of credit not only entitles the assignee to the credit itself, but also gives him the power to enforce
it as against the debtor of the assignor.
Since no valid assignment of credit took place, the spouses Serfino cannot validly claim ownership of the
retirement benefits that were deposited with FEBTC. Without ownership rights over the amount, they
suffered no pecuniary loss that has to be compensated by actual damages. The grant of actual damages
presupposes that the claimant suffered a duly proven pecuniary loss.
20

Claim for moral damages not
meritorious because no duty exists
on the part of the bank to protect
interest of third person claiming
deposit in the name of another
Under Article 2219 of the Civil Code, moral damages are recoverable for acts referred to in Article 21 of the
Civil Code.
21
Article 21 of the Civil Code, in conjunction with Article 19 of the Civil Code, is part of the cause
of action known in this jurisdiction as "abuse of rights." The elements of abuse of rights are: (a) there is a legal
right or duty; (b) exercised in bad faith; and (c) for the sole intent of prejudicing or injuring another.1wphi1
The spouses Serfino invoke American common law that imposes a duty upon a bank receiving a notice of
adverse claim to the fund in a depositors account to freeze the account for a reasonable length of time,
sufficient to allow the adverse claimant to institute legal proceedings to enforce his right to the fund.
22
In
other words, the bank has a duty not to release the deposits unreasonably early after a third party makes known
his adverse claim to the bank deposit. Acknowledging that no such duty is imposed by law in this jurisdiction,
the spouses Serfino ask the Court to adopt this foreign rule.
23

To adopt the foreign rule, however, goes beyond the power of this Court to promulgate rules governing
pleading, practice and procedure in all courts.
24
The rule reflects a matter of policy that is better addressed
by the other branches of government, particularly, the Bangko Sentral ng Pilipinas, which is the agency that
supervises the operations and activities of banks, and which has the power to issue "rules of conduct or the
establishment of standards of operation for uniform application to all institutions or functions covered[.]"
25
To
adopt this rule will have significant implications on the banking industry and practices, as the American
experience has shown. Recognizing that the rule imposing duty on banks to freeze the deposit upon notice of
adverse claim adopts a policy adverse to the bank and its functions, and opens it to liability to both the depositor
and the adverse claimant,
26
many American states have since adopted adverse claim statutes that shifted or, at
least, equalized the burden. Essentially, these statutes do not impose a duty on banks to freeze the deposit upon
a mere notice of adverse claim; they first require either a court order or an indemnity bond.
27

In the absence of a law or a rule binding on the Court, it has no option but to uphold the existing policy that
recognizes the fiduciary nature of banking. It likewise rejects the adoption of a judicially-imposed rule giving
third parties with unverified claims against the deposit of another a better right over the deposit. As current laws
provide, the banks contractual relations are with its depositor, not with the third party;
28
"a bank is under
obligation to treat the accounts of its depositors with meticulous care and always to have in mind the fiduciary
nature of its relationship with them."
29
In the absence of any positive duty of the bank to an adverse claimant,
there could be no breach that entitles the latter to moral damages.
WHEREFORE, in view of the foregoing, the petition for review on certiorari is DENIED, and the decision
dated February 23, 2006 of the Regional Trial Court of Bacolod City, Branch 41, in Civil Case No. 95-9344
isAFFIRMED. Costs against the petitioners.
SO ORDERED.
ARTURO D. BRION
Associate Justice
WE CONCUR:

G.R. No. L-21601 December 28, 1968
NIELSON & COMPANY, INC., plaintiff-appellant,
vs.
LEPANTO CONSOLIDATED MINING COMPANY, defendant-appellee.
R E S O L U T I O N
ZALDIVAR, J .:
Lepanto seeks the reconsideration of the decision rendered on December 17, 1966. The motion for reconsideration
is based on two sets of grounds the first set consisting of four principal grounds, and the second set consisting of
five alternative grounds, as follows:
Principal Grounds:
1. The court erred in overlooking and failing to apply the proper law applicable to the agency or management
contract in question, namely, Article 1733 of the Old Civil Code (Article 1920 of the new), by virtue of which
said agency was effectively revoked and terminated in 1945 when, as stated in paragraph 20 of the
complaint, "defendant voluntarily ... prevented plaintiff from resuming management and operation of said
mining properties."
2. The court erred in holding that paragraph II of the management contract (Exhibit C) suspended the period
of said contract.
3. The court erred in reversing the ruling of the trial judge, based on well-settled jurisprudence of this
Supreme Court, that the management agreement was only suspended but not extended on account of the
war.
4. The court erred in reversing the finding of the trial judge that Nielson's action had prescribed, but
considering only the first claim and ignoring the prescriptibility of the other claims.
Alternative Grounds:
5. The court erred in holding that the period of suspension of the contract on account of the war lasted from
February 1942 to June 26, 1948.
6. Assuming arguendo that Nielson is entitled to any relief, the court erred in awarding as damages (a) 10%
of the cash dividends declared and paid in December, 1941; (b) the management fee of P2,500.00 for the
month of January, 1942; and (c) the full contract price for the extended period of sixty months, since these
damages were neither demanded nor proved and, in any case, not allowable under the general law of
damages.
7. Assuming arguendo that appellant is entitled to any relief, the court erred in ordering appellee to issue
and deliver to appellant shares of stock together with fruits thereof.
8. The court erred in awarding to appellant an undetermined amount of shares of stock and/or cash, which
award cannot be ascertained and executed without further litigation.
9. The court erred in rendering judgment for attorney's fees.
We are going to dwell on these grounds in the order they are presented.
1. In its first principal ground Lepanto claims that its own counsel and this Court had overlooked the real nature of
the management contract entered into by and between Lepanto and Nielson, and the law that is applicable on said
contract. Lepanto now asserts for the first time and this is done in a motion for reconsideration - that the
management contract in question is a contract of agency such that it has the right to revoke and terminate the said
contract, as it did terminate the same, under the law of agency, and particularly pursuant to Article 1733 of the Old
Civil Code (Article 1920 of the New Civil Code).
We have taken note that Lepanto is advancing a new theory. We have carefully examined the pleadings filed by
Lepanto in the lower court, its memorandum and its brief on appeal, and never did it assert the theory that it has the
right to terminate the management contract because that contract is one of agency which it could terminate at will.
While it is true that in its ninth and tenth special affirmative defenses, in its answer in the court below, Lepanto
pleaded that it had the right to terminate the management contract in question, that plea of its right to terminate was
not based upon the ground that the relation between Lepanto and Nielson was that of principal and agent but upon
the ground that Nielson had allegedly not complied with certain terms of the management contract. If Lepanto had
thought of considering the management contract as one of agency it could have amended its answer by stating
exactly its position. It could have asserted its theory of agency in its memorandum for the lower court and in its brief
on appeal. This, Lepanto did not do. It is the rule, and the settled doctrine of this Court, that a party cannot change
his theory on appeal that is, that a party cannot raise in the appellate court any question of law or of fact that was
not raised in the court below or which was not within the issue made by the parties in their pleadings (Section 19,
Rule 49 of the old Rules of Court, and also Section 18 of the new Rules of Court; Hautea vs. Magallon, L-20345,
November 28, 1964; Northern Motors, Inc. vs. Prince Line, L-13884, February 29, 1960; American Express Co. vs.
Natividad, 46 Phil. 207; Agoncillo vs. Javier, 38 Phil. 424 and Molina vs. Somes, 24 Phil 49).
At any rate, even if we allow Lepanto to assert its new theory at this very late stage of the proceedings, this Court
cannot sustain the same.
Lepanto contends that the management contract in question (Exhibit C) is one of agency because: (1) Nielson was
to manage and operate the mining properties and mill on behalf, and for the account, of Lepanto; and (2) Nielson
was authorized to represent Lepanto in entering, on Lepanto's behalf, into contracts for the hiring of laborers,
purchase of supplies, and the sale and marketing of the ores mined. All these, Lepanto claims, show that Nielson
was, by the terms of the contract, destined to execute juridical acts not on its own behalf but on behalf of Lepanto
under the control of the Board of Directors of Lepanto "at all times". Hence Lepanto claims that the contract is one of
agency. Lepanto then maintains that an agency is revocable at the will of the principal (Article 1733 of the Old Civil
Code), regardless of any term or period stipulated in the contract, and it was in pursuance of that right that Lepanto
terminated the contract in 1945 when it took over and assumed exclusive management of the work previously
entrusted to Nielson under the contract. Lepanto finally maintains that Nielson as an agent is not entitled to
damages since the law gives to the principal the right to terminate the agency at will.
Because of Lepanto's new theory We consider it necessary to determine the nature of the management contract
whether it is a contract of agency or a contract of lease of services. Incidentally, we have noted that the lower court,
in the decision appealed from, considered the management contract as a contract of lease of services.
Article 1709 of the Old Civil Code, defining contract of agency, provides:
By the contract of agency, one person binds himself to render some service or do something for the account
or at the request of another.
Article 1544, defining contract of lease of service, provides:
In a lease of work or services, one of the parties binds himself to make or construct something or to render a
service to the other for a price certain.
In both agency and lease of services one of the parties binds himself to render some service to the other party.
Agency, however, is distinguished from lease of work or services in that the basis of agency is representation, while
in the lease of work or services the basis is employment. The lessor of services does not represent his employer,
while the agent represents his principal. Manresa, in his "Commentarios al Codigo Civil Espaol" (1931, Tomo IX,
pp. 372-373), points out that the element of representation distinguishes agency from lease of services, as follows:
Nuestro art. 1.709 como el art. 1.984 del Codigo de Napoleon y cuantos textos legales citamos en
lasconcordancias, expresan claramente esta idea de la representacion, "hacer alguna cosa por cuenta o
encargo de otra" dice nuestro Codigo; "poder de hacer alguna cosa para el mandante o en su nombre" dice
el Codigo de Napoleon, y en tales palabras aparece vivo y luminoso el concepto y la teoria de la
representacion, tan fecunda en ensenanzas, que a su sola luz es como se explican las diferencias que
separan el mandato del arrendamiento de servicios, de los contratos inominados, del consejo y de la
gestion de negocios.
En efecto, en el arrendamiento de servicios al obligarse para su ejecucion, se trabaja, en verdad, para el
dueno que remunera la labor, pero ni se le representa ni se obra en su nombre....
On the basis of the interpretation of Article 1709 of the old Civil Code, Article 1868 of the new Civil Code has defined
the contract of agency in more explicit terms, as follows:
By the contract of agency a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter.
There is another obvious distinction between agency and lease of services. Agency is a preparatory contract, as
agency "does not stop with the agency because the purpose is to enter into other contracts." The most characteristic
feature of an agency relationship is the agent's power to bring about business relations between his principal and
third persons. "The agent is destined to execute juridical acts (creation, modification or extinction of relations with
third parties). Lease of services contemplate only material (non-juridical) acts." (Reyes and Puno, "An Outline of
Philippine Civil Law," Vol. V, p. 277).
In the light of the interpretations we have mentioned in the foregoing paragraphs let us now determine the nature of
the management contract in question. Under the contract, Nielson had agreed, for a period of five years, with the
right to renew for a like period, to explore, develop and operate the mining claims of Lepanto, and to mine, or mine
and mill, such pay ore as may be found therein and to market the metallic products recovered therefrom which may
prove to be marketable, as well as to render for Lepanto other services specified in the contract. We gather from the
contract that the work undertaken by Nielson was to take complete charge subject at all times to the general control
of the Board of Directors of Lepanto, of the exploration and development of the mining claims, of the hiring of a
sufficient and competent staff and of sufficient and capable laborers, of the prospecting and development of the
mine, of the erection and operation of the mill, and of the benefication and marketing of the minerals found on the
mining properties; and in carrying out said obligation Nielson should proceed diligently and in accordance with the
best mining practice. In connection with its work Nielson was to submit reports, maps, plans and recommendations
with respect to the operation and development of the mining properties, make recommendations and plans on the
erection or enlargement of any existing mill, dispatch mining engineers and technicians to the mining properties as
from time to time may reasonably be required to investigate and make recommendations without cost or expense to
Lepanto. Nielson was also to "act as purchasing agent of supplies, equipment and other necessary purchases by
Lepanto, provided, however, that no purchase shall be made without the prior approval of Lepanto; and provided
further, that no commission shall be claimed or retained by Nielson on such purchase"; and "to submit all requisition
for supplies, all constricts and arrangement with engineers, and staff and all matters requiring the expenditures of
money, present or future, for prior approval by Lepanto; and also to make contracts subject to the prior approve of
Lepanto for the sale and marketing of the minerals mined from said properties, when said products are in a suitable
condition for marketing."
1

It thus appears that the principal and paramount undertaking of Nielson under the management contract was the
operation and development of the mine and the operation of the mill. All the other undertakings mentioned in the
contract are necessary or incidental to the principal undertaking these other undertakings being dependent upon
the work on the development of the mine and the operation of the mill. In the performance of this principal
undertaking Nielson was not in any way executing juridical acts for Lepanto, destined to create, modify or extinguish
business relations between Lepanto and third persons. In other words, in performing its principal undertaking
Nielson was not acting as an agent of Lepanto, in the sense that the term agent is interpreted under the law of
agency, but as one who was performing material acts for an employer, for a compensation.
It is true that the management contract provides that Nielson would also act as purchasing agent of supplies and
enter into contracts regarding the sale of mineral, but the contract also provides that Nielson could not make any
purchase, or sell the minerals, without the prior approval of Lepanto. It is clear, therefore, that even in these cases
Nielson could not execute juridical acts which would bind Lepanto without first securing the approval of Lepanto.
Nielson, then, was to act only as an intermediary, not as an agent.
Lepanto contends that the management contract in question being one of agency it had the right to terminate the
contract at will pursuant to the provision of Article 1733 of the old Civil Code. We find, however, a proviso in the
management contract which militates against this stand of Lepanto. Paragraph XI of the contract provides:
Both parties to this agreement fully recognize that the terms of this Agreement are made possible only
because of the faith or confidence that the Officials of each company have in the other; therefore, in order to
assure that such confidence and faith shall abide and continue, NIELSON agrees that LEPANTO may
cancel this Agreement at any time upon ninety (90) days written notice, in the event that NIELSON for any
reason whatsoever, except acts of God, strike and other causes beyond its control, shall cease to prosecute
the operation and development of the properties herein described, in good faith and in accordance with
approved mining practice.
It is thus seen, from the above-quoted provision of paragraph XI of the management contract, that Lepanto could not
terminate the agreement at will. Lepanto could terminate or cancel the agreement by giving notice of termination
ninety days in advance only in the event that Nielson should prosecute in bad faith and not in accordance with
approved mining practice the operation and development of the mining properties of Lepanto. Lepanto could not
terminate the agreement if Nielson should cease to prosecute the operation and development of the mining
properties by reason of acts of God, strike and other causes beyond the control of Nielson.
The phrase "Both parties to this agreement fully recognize that the terms of this agreement are made possible only
because of the faith and confidence of the officials of each company have in the other" in paragraph XI of the
management contract does not qualify the relation between Lepanto and Nielson as that of principal and agent
based on trust and confidence, such that the contractual relation may be terminated by the principal at any time that
the principal loses trust and confidence in the agent. Rather, that phrase simply implies the circumstance that
brought about the execution of the management contract. Thus, in the annual report for 1936
2
, submitted by Mr. C.
A. Dewit, President of Lepanto, to its stockholders, under date of March 15, 1937, we read the following:
To the stockholders
xxx xxx xxx
The incorporation of our Company was effected as a result of negotiations with Messrs. Nielson & Co., Inc.,
and an offer by these gentlemen to Messrs. C. I. Cookes and V. L. Lednicky, dated August 11, 1936,
reading as follows:
Messrs. Cookes and Lednicky,
Present
Re: Mankayan Copper Mines
GENTLEMEN:
After an examination of your property by our engineers, we have decided to offer as we hereby offer
to underwrite the entire issue of stock of a corporation to be formed for the purpose of taking over
said properties, said corporation to have an authorized capital of P1,750,000.00, of which
P700,000.00 will be issued in escrow to the claim-owners in exchange for their claims, and the
balance of P1,050,000.00 we will sell to the public at par or take ourselves.
The arrangement will be under the following conditions:
1. The subscriptions for cash shall be payable 50% at time of subscription and the balance subject to
the call of the Board of Directors of the proposed corporation.
2. We shall have an underwriting and brokerage commission of 10% of the P1,050,000.00 to be sold
for cash to the public, said commission to be payable from the first payment of 50% on each
subscription.
3. We will bear the cost of preparing and mailing any prospectus that may be required, but no such
prospectus will be sent out until the text thereof has been first approved by the Board of Directors of
the proposed corporation.
4. That after the organization of the corporation, all operating contract be entered into between
ourselves and said corporation, under the terms which the property will be developed and mined and
a mill erected, under our supervision, our compensation to be P2,000.00 per month until the property
is put on a profitable basis and P2,500.00 per month plus 10% of the net profits for a period of five
years thereafter.
5. That we shall have the option to renew said operating contract for an additional period of five
years, on the same basis as the original contract, upon the expiration thereof.
It is understood that the development and mining operations on said property, and the erection of the
mill thereon, and the expenditures therefor shall be subject to the general control of the Board of
Directors of the proposed corporation, and, in case you accept this proposition, that a detailed
operating contract will be entered into, covering the relationships between the parties.
Yours very truly,
(Sgd.) L. R. Nielson
Pursuant to the provisions of paragraph 2 of this offer, Messrs. Nielson & Co., took subscriptions for One
Million Fifty Thousand Pesos (P1,050,000.00) in shares of our Company and their underwriting and
brokerage commission has been paid. More than fifty per cent of these subscriptions have been paid to the
Company in cash. The claim owners have transferred their claims to the Corporation, but the P700,000.00 in
stock which they are to receive therefor, is as yet held in escrow.
Immediately upon the formation of the Corporation Messrs. Nielson & Co., assumed the Management of the
property under the control of the Board of Directors. A modification in the Management Contract was made
with the consent of all the then stockholders, in virtue of which the compensation of Messrs. Nielson & Co.,
was increased to P2,500.00 per month when mill construction began. The formal Management Contract was
not entered into until January 30, 1937.
xxx xxx xxx
Manila, March 15, 1937
(Sgd.) C. A. DeWitt President
We can gather from the foregoing statements in the annual report for 1936, and from the provision of paragraph XI
of the Management contract, that the employment by Lepanto of Nielson to operate and manage its mines was
principally in consideration of the know-how and technical services that Nielson offered Lepanto. The contract thus
entered into pursuant to the offer made by Nielson and accepted by Lepanto was a "detailed operating contract". It
was not a contract of agency. Nowhere in the record is it shown that Lepanto considered Nielson as its agent and
that Lepanto terminated the management contract because it had lost its trust and confidence in Nielson.
The contention of Lepanto that it had terminated the management contract in 1945, following the liberation of the
mines from Japanese control, because the relation between it and Nielson was one of agency and as such it could
terminate the agency at will, is, therefore, untenable. On the other hand, it can be said that, in asserting that it had
terminated or cancelled the management contract in 1945, Lepanto had thereby violated the express terms of the
management contract. The management contract was renewed to last until January 31, 1947, so that the contract
had yet almost two years to go upon the liberation of the mines in 1945. There is no showing that Nielson had
ceased to prosecute the operation and development of the mines in good faith and in accordance with approved
mining practice which would warrant the termination of the contract upon ninety days written notice. In fact there
was no such written notice of termination. It is an admitted fact that Nielson ceased to operate and develop the
mines because of the war a cause beyond the control of Nielson. Indeed, if the management contract in question
was intended to create a relationship of principal and agent between Lepanto and Nielson, paragraph XI of the
contract should not have been inserted because, as provided in Article 1733 of the old Civil Code, agency is
essentially revocable at the will of the principal that means, with or without cause. But precisely said paragraph XI
was inserted in the management contract to provide for the cause for its revocation. The provision of paragraph XI
must be given effect.
In the construction of an instrument where there are several provisions or particulars, such a construction is, if
possible, to be adopted as will give effect to all,
3
and if some stipulation of any contract should admit of several
meanings, it shall be understood as bearing that import which is most adequate to render it effectual.
4

It is Our considered view that by express stipulation of the parties, the management contract in question is not
revocable at the will of Lepanto. We rule that this management contract is not a contract of agency as defined in
Article 1709 of the old Civil Code, but a contract of lease of services as defined in Article 1544 of the same Code.
This contract can not be unilaterally revoked by Lepanto.
The first ground of the motion for reconsideration should, therefore, be brushed aside.
2. In the second, third and fifth grounds of its motion for reconsideration, Lepanto maintains that this Court erred, in
holding that paragraph 11 of the management contract suspended the period of said contract, in holding that the
agreement was not only suspended but was extended on account of the war, and in holding that the period of
suspension on account of the war lasted from February, 1942 to June 26, 1948. We are going to discuss these three
grounds together because they are interrelated.
In our decision we have dwelt lengthily on the points that the management contract was suspended because of the
war, and that the period of the contract was extended for a period equivalent to the time when Nielson was unable to
perform the work of mining and milling because of the adverse effects of the war on the work of mining and milling.
It is the contention of Lepanto that the happening of those events, and the effects of those events, simply
suspended the performance of the obligations by either party in the contract, but did not suspend the period of the
contract, much less extended the period of the contract.
We have conscientiously considered the arguments of Lepanto in support of these three grounds, but We are not
persuaded to reconsider the rulings that We made in Our decision.
We want to say a little more on these points, however. Paragraph II of the management contract provides as
follows:
In the event of inundation, flooding of the mine, typhoon, earthquake or any other force majeure, war,
insurrection, civil commotion, organized strike, riot, fire, injury to the machinery or other event or cause
reasonably beyond the control of NIELSON and which adversely affects the work of mining and milling;
NIELSON shall report such fact to LEPANTO and without liability or breach of the terms of this
Agreement,the same shall remain in suspense, wholly or partially during the terms of such inability.
(Emphasis supplied)
A reading of the above-quoted paragraph II cannot but convey the idea that upon the happening of any of the events
enumerated therein, which adversely affects the work of mining and milling, the agreement is deemed suspended
for as long as Nielson is unable to perform its work of mining and milling because of the adverse effects of the
happening of the event on the work of mining and milling. During the period when the adverse effects on the work of
mining and milling exist, neither party in the contract would be held liable for non-compliance of its obligation under
the contract. In other words, the operation of the contract is suspended for as long as the adverse effects of the
happening of any of those events had impeded or obstructed the work of mining and milling. An analysis of the
phraseology of the above-quoted paragraph II of the management contract readily supports the conclusion that it is
the agreement, or the contract, that is suspended. The phrase "the same" can refer to no other than the term
"Agreement" which immediately precedes it. The "Agreement" may be wholly or partially suspended, and this
situation will depend on whether the event wholly or partially affected adversely the work of mining and milling. In
the instant case, the war had adversely affected and wholly at that the work of mining and milling. We have
clearly stated in Our decision the circumstances brought about by the war which caused the whole or total
suspension of the agreement or of the management contract.
LEPANTO itself admits that the management contract was suspended. We quote from the brief of LEPANTO:
Probably, what Nielson meant was, it was prevented by Lepanto to assume again the management of the
mine in 1945, at the precise time when defendant was at the feverish phase of rehabilitation and although
the contract had already been suspended. (Lepanto's Brief, p. 9).
... it was impossible, as a result of the destruction of the mine, for the plaintiff to manage and operate the
same and because, as provided in the agreement, the contract was suspended by reason of the war
(Lepanto's Brief, pp. 9-10).
Clause II, by its terms, is clear that the contract is suspended in case fortuitous event or force majeure, such
as war, adversely affects the work of mining and milling. (Lepanto's Brief, p. 49).
Lepanto is correct when it said that the obligations under the contract were suspended upon the happening of any of
the events enumerated in paragraph II of the management contract. Indeed, those obligations were suspended
because the contract itself was suspended. When we talk of a contract that has been suspended we certainly mean
that the contract temporarily ceased to be operative, and the contract becomes operative again upon the happening
of a condition or when a situation obtains which warrants the termination of the suspension of the contract.
In Our decision We pointed out that the agreement in the management contract would be suspended when two
conditions concur, namely: (1) the happening of the event constituting a force majeure that was reasonably beyond
the control of Nielson, and (2) that the event constituting the force majeure adversely affected the work of mining
and milling. The suspension, therefore, would last not only while the event constituting the force majeure continued
to occur but also for as long as the adverse effects of the force majeure on the work of mining and milling had not
been eliminated. Under the management contract the happening alone of the event constituting the force majeure
which did not affect adversely the work of mining and milling would not suspend the period of the contract. It is only
when the two conditions concur that the period of the agreement is suspended.
It is not denied that because of the war, in February 1942, the mine, the original mill, the original power plant, the
supplies and equipment, and all installations at the Mankayan mines of Lepanto, were destroyed upon order of the
United States Army, to prevent their utilization by the enemy. It is not denied that for the duration of the war Nielson
could not undertake the work of mining and milling. When the mines were liberated from the enemy in August, 1945,
the condition of the mines, the mill, the power plant and other installations, was not the same as in February 1942
when they were ordered destroyed by the US army. Certainly, upon the liberation of the mines from the enemy, the
work of mining and milling could not be undertaken by Nielson under the same favorable circumstances that
obtained before February 1942. The work of mining and milling, as undertaken by Nielson in January, 1942, could
not be resumed by Nielson soon after liberation because of the adverse effects of the war, and this situation
continued until June of 1948. Hence, the suspension of the management contract did not end upon the liberation of
the mines in August, 1945. The mines and the mill and the installations, laid waste by the ravages of war, had to be
reconstructed and rehabilitated, and it can be said that it was only on June 26, 1948 that the adverse effects of the
war on the work of mining and milling had ended, because it was on that date that the operation of the mines and
the mill was resumed. The period of suspension should, therefore, be reckoned from February 1942 until June 26,
1948, because it was during this period that the war and the adverse effects of the war on the work of mining and
milling had lasted. The mines and the installations had to be rehabilitated because of the adverse effects of the war.
The work of rehabilitation started soon after the liberation of the mines in August, 1945 and lasted until June 26,
1948 when, as stated in Lepanto's annual report to its stockholders for the year 1948, "June 28, 1948 marked the
official return to operation of this company at its properties at Mankayan, Mountain Province, Philippines" (Exh. F-1).
Lepanto would argue that if the management contract was suspended at all the suspension should cease in August
of 1945, contending that the effects of the war should cease upon the liberation of the mines from the enemy. This
contention cannot be sustained, because the period of rehabilitation was still a period when the physical effects of
the war the destruction of the mines and of all the mining installations adversely affected, and made
impossible, the work of mining and milling. Hence, the period of the reconstruction and rehabilitation of the mines
and the installations must be counted as part of the period of suspension of the contract.
Lepanto claims that it would not be unfair to end the period of suspension upon the liberation of the mines because
soon after the liberation of the mines Nielson insisted to resume the management work, and that Nielson was under
obligation to reconstruct the mill in the same way that it was under obligation to construct the mill in 1937. This
contention is untenable. It is true that Nielson insisted to resume its management work after liberation, but this was
only for the purpose of restoring the mines, the mill, and other installations to their operating and producing condition
as of February 1942 when they were ordered destroyed. It is not shown by any evidence in the record, that Nielson
had agreed, or would have agreed, that the period of suspension of the contract would end upon the liberation of the
mines. This is so because, as found by this Court, the intention of the parties in the management contract, and as
understood by them, the management contract was suspended for as long as the adverse effects of the force
majeure on the work of mining and milling had not been removed, and the contract would be extended for as long as
it was suspended. Under the management contract Nielson had the obligation to erect and operate the mill, but not
to erect or reconstruct the mill in case of its destruction by force majeure.
It is the considered view of this court that it would not be fair to Nielson to consider the suspension of the contract as
terminated upon the liberation of the mines because then Nielson would be placed in a situation whereby it would
have to suffer the adverse effects of the war on the work of mining and milling. The evidence shows that as of
January 1942 the operation of the mines under the management of Nielson was already under beneficial conditions,
so much so that dividends were already declared by Lepanto for the years 1939, 1940 and 1941. To make the
management contract immediately operative after the liberation of the mines from the Japanese, at the time when
the mines and all its installations were laid waste as a result of the war, would be to place Nielson in a situation
whereby it would lose all the benefits of what it had accomplished in placing the Lepanto mines in profitable
operation before the outbreak of the war in December, 1941. The record shows that Nielson started its management
operation way back in 1936, even before the management contract was entered into. As early as August 1936
Nielson negotiated with Messrs. C. I. Cookes and V. L. Lednicky for the operation of the Mankayan mines and it was
the result of those negotiations that Lepanto was incorporated; that it was Nielson that helped to capitalize Lepanto,
and that after the formation of the corporation (Lepanto) Nielson immediately assumed the management of the
mining properties of Lepanto. It was not until January 30, 1937 when the management contract in question was
entered into between Lepanto and Nielson (Exhibit A).
A contract for the management and operation of mines calls for a speculative and risky venture on the part of the
manager-operator. The manager-operator invests its technical know-how, undertakes back-breaking efforts and
tremendous spade-work, so to say, in the first years of its management and operation of the mines, in the
expectation that the investment and the efforts employed might be rewarded later with success. This expected
success may never come. This had happened in the very case of the Mankayan mines where, as recounted by Mr.
Lednicky of Lepanto, various persons and entities of different nationalities, including Lednicky himself, invested all
their money and failed. The manager-operator may not strike sufficient ore in the first, second, third, or fourth year of
the management contract, or he may not strike ore even until the end of the fifth year. Unless the manager-operator
strikes sufficient quantity of ore he cannot expect profits or reward for his investment and efforts. In the case of
Nielson, its corps of competent engineers, geologists, and technicians begun working on the Mankayan mines of
Lepanto since the latter part of 1936, and continued their work without success and profit through 1937, 1938, and
the earlier part of 1939. It was only in December of 1939 when the efforts of Nielson started to be rewarded when
Lepanto realized profits and the first dividends were declared. From that time on Nielson could expect profit to come
to it as in fact Lepanto declared dividends for 1940 and 1941 if the development and operation of the mines
and the mill would continue unhampered. The operation, and the expected profits, however, would still be subject to
hazards due to the occurrence of fortuitous events, fires, earthquakes, strikes, war, etc., constituting force majeure,
which would result in the destruction of the mines and the mill. One of these diverse causes, or one after the other,
may consume the whole period of the contract, and if it should happen that way the manager-operator would reap
no profit to compensate for the first years of spade-work and investment of efforts and know-how. Hence, in fairness
to the manager-operator, so that he may not be deprived of the benefits of the work he had accomplished, the force
majeure clause is incorporated as a standard clause in contracts for the management and operation of mines.
The nature of the contract for the management and operation of mines justifies the interpretation of the force
majeure clause, that a period equal to the period of suspension due to force majeure should be added to the original
term of the contract by way of an extension. We, therefore, reiterate the ruling in Our decision that the management
contract in the instant case was suspended from February, 1942 to June 26, 1948, and that from the latter date the
contract had yet five years to go.
3. In the fourth ground of its motion for reconsideration, Lepanto maintains that this Court erred in reversing the
finding of the trial court that Nielson's action has prescribed, by considering only the first claim and ignoring the
prescriptibility of the other claims.
This ground of the motion for reconsideration has no merit.
In Our decision We stated that the claims of Nielson are based on a written document, and, as such, the cause of
action prescribes in ten years.
5
Inasmuch as there are different claims which accrued on different dates the
prescriptive periods for all the claims are not the same. The claims of Nielson that have been awarded by this Court
are itemized in the dispositive part of the decision.
The first item of the awards in Our decision refers to Nielson's compensation in the sum of P17,500.00, which is
equivalent to 10% of the cash dividends declared by Lepanto in December, 1941. As we have stated in Our
decision, this claim accrued on December 31, 1941, and the right to commence an action thereon started on
January 1, 1942. We declared that the action on this claim did not prescribe although the complaint was filed on
February 6, 1958 or after a lapse of 16 years, 1 month and 5 days because of the operation of the moratorium
law.
We declared that under the applicable decisions of this Court
6
the moratorium period of 8 years, 2 months and 8
days should be deducted from the period that had elapsed since the accrual of the cause of action to the date of the
filing of the complaint, so that there is a period of less than 8 years to be reckoned for the purpose of prescription.
This claim of Nielson is covered by Executive Order No. 32, issued on March 10, 1945, which provides as follows:
Enforcement of payments of all debts and other monetary obligations payable in the Philippines, except
debts and other monetary obligations entered into in any area after declaration by Presidential Proclamation
that such area has been freed from enemy occupation and control, is temporarily suspended pending action
by the Commonwealth Government. (41 O.G. 56-57; Emphasis supplied)
Executive Order No. 32 covered all debts and monetary obligation contracted before the war (or before December 8,
1941) and those contracted subsequent to December 8, 1941 and during the Japanese occupation. Republic Act
No. 342, approved on July 26, 1948, lifted the moratorium provided for in Executive Order No. 32 on pre-war (or pre-
December 8, 1941) debts of debtors who had not filed war damage claims with the United States War Damage
Commission. In other words, after the effectivity of Republic Act No. 342, the debt moratorium was limited: (1) to
debts and other monetary obligations which were contracted after December 8, 1941 and during the Japanese
occupation, and (2) to those pre-war (or pre-December 8, 1941) debts and other monetary obligations where the
debtors filed war damage claims. That was the situation up to May 18, 1953 when this Court declared Republic Act
No. 342 unconstitutional.
7
It has been held by this Court, however, that from March 10, 1945 when Executive Order
No. 32 was issued, to May 18, 1953 when Republic Act No. 342 was declared unconstitutional or a period of 8
years, 2 months and 8 days the debt moratorium was in force, and had the effect of suspending the period of
prescription.
8

Lepanto is wrong when in its motion for reconsideration it claims that the moratorium provided for in Executive Order
No. 32 was continued by Republic Act No. 342 "only with respect to debtors of pre-war obligations or those incurred
prior to December 8, 1941," and that "the moratorium was lifted and terminated with respect to obligations incurred
after December 8, 1941."
9

This Court has held that Republic Act No. 342 does not apply to debts contracted during the war and did not lift the
moratorium in relations thereto.
10
In the case of Abraham, et al. vs. Intestate Estate of Juan C. Ysmael, et al., L-
16741, Jan. 31, 1962, this Court said:
Respondents, however, contend that Republic Act No. 342, which took effect on July 26, 1948, lifted the
moratorium on debts contracted during the Japanese occupation. The court has already held that Republic
Act No. 342 did not lift the moratorium on debts contracted during the war (Uy vs. Kalaw Katigbak, G.R. No.
L-1830, Dec. 31, 1949) but modified Executive Order No. 32 as to pre-war debts, making the protection
available only to debtors who had war damage claims (Sison v. Mirasol, G.R. No. L-4711, Oct. 3, 1952).
We therefore reiterate the ruling in Our decision that the claim involved in the first item awarded to Nielson had not
prescribed.
What we have stated herein regarding the non-prescription of the cause of action of the claim involved in the first
item in the award also holds true with respect to the second item in the award, which refers to Nielson's claim for
management fee of P2,500.00 for January, 1942. Lepanto admits that this second item, like the first, is a monetary
obligation. The right of action of Nielson regarding this claim accrued on January 31, 1942.
As regards items 3, 4, 5, 6 and 7 in the awards in the decision, the moratorium law is not applicable. That is the
reason why in Our decision We did not discuss the question of prescription regarding these items. The claims of
Nielson involved in these items are based on the management contract, and Nielson's cause of action regarding
these claims prescribes in ten years. Corollary to Our ruling that the management contract was suspended from
February, 1942 until June 26, 1948, and that the contract was extended for five years from June 26, 1948, the right
of action of Nielson to claim for what is due to it during that period of extension accrued during the period from June
26, 1948 till the end of the five-year extension period or until June 26, 1953. And so, even if We reckon June 26,
1948 as the starting date of the ten-year period in connection with the prescriptibility of the claims involved in items
3, 4, 5, 6 and 7 of the awards in the decision, it is obvious that when the complaint was filed on February 6, 1958 the
ten-year prescriptive period had not yet lapsed.
In Our decision We have also ruled that the right of action of Nielson against Lepanto had not prescribed because of
the arbitration clause in the Management contract. We are satisfied that there is evidence that Nielson had asked for
arbitration, and an arbitration committee had been constituted. The arbitration committee, however, failed to bring
about any settlement of the differences between Nielson and Lepanto. On June 25, 1957 counsel for Lepanto
definitely advised Nielson that they were not entertaining any claim of Nielson. The complaint in this case was filed
on February 6, 1958.
4. In the sixth ground of its motion for reconsideration, Lepanto maintains that this Court "erred in awarding as
damages (a) 10% of the cash dividends declared and paid in December, 1941; (b) the management fee of
P2,500.00 for the month of January 1942; and (c) the full contract price for the extended period of 60 months, since
the damages were never demanded nor proved and, in any case, not allowable under the general law on damages."
We have stated in Our decision that the original agreement in the management contract regarding the compensation
of Nielson was modified, such that instead of receiving a monthly compensation of P2,500.00 plus 10% of the net
profits from the operation of the properties for the preceding month,
11
Nielson would receive a compensation of
P2,500.00 a month, plus (1) 10% of the dividends declared and paid, when and as paid, during the period of the
contract, and at the end of each year, (2) 10% of any depletion reserve that may be set up, and (3) 10% of any
amount expended during the year out of surplus earnings for capital account.
It is shown that in December, 1941, cash dividends amounting to P175,000.00 was declared by Lepanto.
12
Nielson,
therefore, should receive the equivalent of 10% of this amount, or the sum of P17,500.00. We have found that this
amount was not paid to Nielson.
In its motion for reconsideration, Lepanto inserted a photographic copy of page 127 of its cash disbursement book,
allegedly for 1941, in an effort to show that this amount of P17,500.00 had been paid to Nielson. It appears,
however, in this photographic copy of page 127 of the cash disbursement book that the sum of P17,500.00 was
entered on October 29 as "surplus a/c Nielson & Co. Inc." The entry does not make any reference to dividends or
participation of Nielson in the profits. On the other hand, in the photographic copy of page 89 of the 1941 cash
disbursement book, also attached to the motion for reconsideration, there is an entry for P17,500.00 on April 23,
1941 which states "Accts. Pay. Particip. Nielson & Co. Inc." This entry for April 23, 1941 may really be the
participation of Nielson in the profits based on dividends declared in April 1941 as shown in Exhibit L. But in the
same Exhibit L it is not stated that any dividend was declared in October 1941. On the contrary it is stated in Exhibit
L that dividends were declared in December 1941. We cannot entertain this piece of evidence for several reasons:
(1) because this evidence was not presented during the trial in the court below; (2) there is no showing that this
piece of evidence is newly discovered and that Lepanto was not in possession of said evidence when this case was
being tried in the court below; and (3) according to Exhibit L cash dividends of P175,000.00 were declared in
December, 1941, and so the sum of P17,500.00 which appears to have been paid to Nielson in October 1941 could
not be payment of the equivalent of 10% of the cash dividends that were later declared in December, 1941.
As regards the management fee of Nielson corresponding to January, 1942, in the sum of P2,500.00, We have also
found that Nielson is entitled to be paid this amount, and that this amount was not paid by Lepanto to Nielson.
Whereas, Lepanto was able to prove that it had paid the management fees of Nielson for November and December,
1941,
13
it was not able to present any evidence to show that the management fee of P2,500.00 for January, 1942
had been paid.
It having been declared in Our decision, as well as in this resolution, that the management contract had been
extended for 5 years, or sixty months, from June 27, 1948 to June 26, 1953, and that the cause of action of Nielson
to claim for its compensation during that period of extension had not prescribed, it follows that Nielson should be
awarded the management fees during the whole period of extension, plus the 10% of the value of the dividends
declared during the said period of extension, the 10% of the depletion reserve that was set up, and the 10% of any
amount expended out of surplus earnings for capital account.
5. In the seventh ground of its motion for reconsideration, Lepanto maintains that this Court erred in ordering
Lepanto to issue and deliver to Nielson shares of stock together with fruits thereof.
In Our decision, We declared that pursuant to the modified agreement regarding the compensation of Nielson which
provides, among others, that Nielson would receive 10% of any dividends declared and paid, when and as paid,
Nielson should be paid 10% of the stock dividends declared by Lepanto during the period of extension of the
contract.
It is not denied that on November 28, 1949, Lepanto declared stock dividends worth P1,000,000.00; and on August
22, 1950, it declared stock dividends worth P2,000,000.00). In other words, during the period of extension Lepanto
had declared stock dividends worth P3,000,000.00. We held in Our decision that Nielson is entitled to receive l0% of
the stock dividends declared, or shares of stock worth P300,000.00 at the par value of P0.10 per share. We ordered
Lepanto to issue and deliver to Nielson those shares of stocks as well as all the fruits or dividends that accrued to
said shares.
In its motion for reconsideration, Lepanto contends that the payment to Nielson of stock dividends as compensation
for its services under the management contract is a violation of the Corporation Law, and that it was not, and it could
not be, the intention of Lepanto and Nielson as contracting parties that the services of Nielson should be paid
in shares of stock taken out of stock dividends declared by Lepanto. We have assiduously considered the
arguments adduced by Lepanto in support of its contention, as well as the answer of Nielson in this connection, and
We have arrived at the conclusion that there is merit in the contention of Lepanto.
Section 16 of the Corporation Law, in part, provides as follows:
No corporation organized under this Act shall create or issue bills, notes or other evidence of debt, for
circulation as money, and no corporation shall issue stock or bonds except in exchange for actual cash paid
to the corporation or for: (1) property actually received by it at a fair valuation equal to the par or issued
value of the stock or bonds so issued; and in case of disagreement as to their value, the same shall be
presumed to be the assessed value or the value appearing in invoices or other commercial documents, as
the case may be; and the burden or proof that the real present value of the property is greater than the
assessed value or value appearing in invoices or other commercial documents, as the case may be, shall be
upon the corporation, or for (2) profits earned by it but not distributed among its stockholders or
members; Provided, however, That no stock or bond dividend shall be issued without the approval of
stockholders representing not less than two-thirds of all stock then outstanding and entitled to vote at a
general meeting of the corporation or at a special meeting duly called for the purpose.
xxx xxx xxx
No corporation shall make or declare any dividend except from the surplus profits arising from its business,
or divide or distribute its capital stock or property other than actual profits among its members or
stockholders until after the payment of its debts and the termination of its existence by limitation or lawful
dissolution: Provided, That banking, savings and loan, and trust corporations may receive deposits and
issue certificates of deposit, checks, drafts, and bills of exchange, and the like in the transaction of the
ordinary business of banking, savings and loan, and trust corporations. (As amended by Act No. 2792, and
Act No. 3518; Emphasis supplied.)
From the above-quoted provision of Section 16 of the Corporation Law, the consideration for which shares of stock
may be issued are: (1) cash; (2) property; and (3) undistributed profits. Shares of stock are given the special name
"stock dividends" only if they are issued in lieu of undistributed profits. If shares of stocks are issued in exchange of
cash or property then those shares do not fall under the category of "stock dividends". A corporation may legally
issue shares of stock in consideration of services rendered to it by a person not a stockholder, or in payment of its
indebtedness. A share of stock issued to pay for services rendered is equivalent to a stock issued in exchange of
property, because services is equivalent to property.
14
Likewise a share of stock issued in payment of indebtedness
is equivalent to issuing a stock in exchange for cash. But a share of stock thus issued should be part of the original
capital stock of the corporation upon its organization, or part of the stocks issued when the increase of the
capitalization of a corporation is properly authorized. In other words, it is the shares of stock that are originally
issued by the corporation and forming part of the capital that can be exchanged for cash or services rendered, or
property; that is, if the corporation has original shares of stock unsold or unsubscribed, either coming from the
original capitalization or from the increased capitalization. Those shares of stock may be issued to a person who is
not a stockholder, or to a person already a stockholder in exchange for services rendered or for cash or property.
But a share of stock coming from stock dividends declared cannot be issued to one who is not a stockholder of a
corporation.
A "stock dividend" is any dividend payable in shares of stock of the corporation declaring or authorizing such
dividend. It is, what the term itself implies, a distribution of the shares of stock of the corporation among the
stockholders as dividends. A stock dividend of a corporation is a dividend paid in shares of stock instead of cash,
and is properly payable only out of surplus profits.
15
So, a stock dividend is actually two things: (1) a dividend, and
(2) the enforced use of the dividend money to purchase additional shares of stock at par.
16
When a corporation
issues stock dividends, it shows that the corporation's accumulated profits have been capitalized instead of
distributed to the stockholders or retained as surplus available for distribution, in money or kind, should opportunity
offer. Far from being a realization of profits for the stockholder, it tends rather to postpone said realization, in that the
fund represented by the new stock has been transferred from surplus to assets and no longer available for actual
distribution.
17
Thus, it is apparent that stock dividends are issued only to stockholders. This is so because only
stockholders are entitled to dividends. They are the only ones who have a right to a proportional share in that part of
the surplus which is declared as dividends. A stock dividend really adds nothing to the interest of the stockholder;
the proportional interest of each stockholder remains the same.
18
If a stockholder is deprived of his stock dividends -
and this happens if the shares of stock forming part of the stock dividends are issued to a non-stockholder then
the proportion of the stockholder's interest changes radically. Stock dividends are civil fruits of the original
investment, and to the owners of the shares belong the civil fruits.
19

The term "dividend" both in the technical sense and its ordinary acceptation, is that part or portion of the profits of
the enterprise which the corporation, by its governing agents, sets apart for ratable division among the holders of the
capital stock. It means the fund actually set aside, and declared by the directors of the corporation as dividends and
duly ordered by the director, or by the stockholders at a corporate meeting, to be divided or distributed among the
stockholders according to their respective interests.
20

It is Our considered view, therefore, that under Section 16 of the Corporation Law stock dividends can not be issued
to a person who is not a stockholder in payment of services rendered. And so, in the case at bar Nielson can not be
paid in shares of stock which form part of the stock dividends of Lepanto for services it rendered under the
management contract. We sustain the contention of Lepanto that the understanding between Lepanto and Nielson
was simply to make the cash value of the stock dividends declared as the basis for determining the amount of
compensation that should be paid to Nielson, in the proportion of 10% of the cash value of the stock dividends
declared. And this conclusion of Ours finds support in the record.
We had adverted to in Our decision that in 1940 there was some dispute between Lepanto and Nielson regarding
the application and interpretation of certain provisions of the original contract particularly with regard to the 10%
participation of Nielson in the net profits, so that some adjustments had to be made. In the minutes of the meeting of
the Board of Directors of Lepanto on August 21, 1940, We read the following:
The Chairman stated that he believed that it would be better to tie the computation of the 10% participation
of Nielson & Company, Inc. to the dividend, because Nielson will then be able to definitely compute its net
participation by the amount of the dividends declared. In addition to the dividend, we have been setting up a
depletion reserve and it does not seem fair to burden the 10% participation of Nielson with the depletion
reserve, as the depletion reserve should not be considered as an operating expense. After a prolonged
discussion, upon motion duly made and seconded, it was
RESOLVED, That the President, be, and he hereby is, authorized to enter into an agreement with Nielson &
Company, Inc., modifying Paragraph V of management contract of January 30, 1937, effective January 1,
1940, in such a way that Nielson & Company, Inc. shall receive 10% of any dividends declared and paid,
when and as paid during the period of the contract and at the end of each year, 10% of any depletion
reserve that may be set up and 10% of any amount expended during the year out of surplus earnings for
capital account. (Emphasis supplied.)
From the sentence, "The Chairman stated that he believed that it would be better to tie the computation of the 10%
participation of Nielson & Company, Inc., to the dividend, because Nielson will then be able to definitely compute its
net participation by the amount of the dividends declared" the idea is conveyed that the intention of Lepanto, as
expressed by its Chairman C. A. DeWitt, was to make the value of the dividends declared whether the dividends
were in cash or in stock as the basis for determining the amount of compensation that should be paid to Nielson,
in the proportion of 10% of the cash value of the dividends so declared. It does not mean, however, that the
compensation of Nielson would be taken from the amount actually declared as cash dividend to be distributed to the
stockholder, nor from the shares of stocks to be issued to the stockholders as stock dividends, but from the other
assets or funds of the corporation which are not burdened by the dividends thus declared. In other words, if, for
example, cash dividends of P300,000.00 are declared, Nielson would be entitled to a compensation of P30,000.00,
but this P30,000.00 should not be taken from the P300,000.00 to be distributed as cash dividends to the
stockholders but from some other funds or assets of the corporation which are not included in the amount to answer
for the cash dividends thus declared. This is so because if the P30,000.00 would be taken out from the P300,000.00
declared as cash dividends, then the stockholders would not be getting P300,000.00 as dividends but only
P270,000.00. There would be a dilution of the dividend that corresponds to each share of stock held by the
stockholders. Similarly, if there were stock dividends worth one million pesos that were declared, which means an
issuance of ten million shares at the par value of ten centavos per share, it does not mean that Nielson would be
given 100,000 shares. It only means that Nielson should be given the equivalent of 10% of the aggregate cash value
of those shares issued as stock dividends. That this was the understanding of Nielson itself is borne out by the fact
that in its appeal brief Nielson urged that it should be paid "P300,000.00 being 10% of the P3,000,000.00 stock
dividends declared on November 28, 1949 and August 20, 1950...."
21

We, therefore, reconsider that part of Our decision which declares that Nielson is entitled to shares of stock worth
P300,000.00 based on the stock dividends declared on November 28, 1949 and on August 20, 1950, together with
all the fruits accruing thereto. Instead, We declare that Nielson is entitled to payment by Lepanto of P300,000.00 in
cash, which is equivalent to 10% of the money value of the stock dividends worth P3,000,000.00 which were
declared on November 28, 1949 and on August 20, 1950, with interest thereon at the rate of 6% from February 6,
1958.
6. In the eighth ground of its motion for reconsideration Lepanto maintains that this Court erred in awarding to
Nielson an undetermined amount of shares of stock and/or cash, which award can not be ascertained and executed
without further litigation.
In view of Our ruling in this resolution that Nielson is not entitled to receive shares of stock as stock dividends in
payment of its compensation under the management contract, We do not consider it necessary to discuss this
ground of the motion for reconsideration. The awards in the present case are all reduced to specific sums of money.
7. In the ninth ground of its motion for reconsideration Lepanto maintains that this Court erred in rendering judgment
or attorney's fees.
The matter of the award of attorney's fees is within the sound discretion of this Court. In Our decision We have
stated the reason why the award of P50,000.00 for attorney's fees is considered by this Court as reasonable.
Accordingly, We resolve to modify the decision that We rendered on December 17, 1966, in the sense that instead
of awarding Nielson shares of stock worth P300,000.00 at the par value of ten centavos (P0.10) per share based on
the stock dividends declared by Lepanto on November 28, 1949 and August 20, 1950, together with their fruits,
Nielson should be awarded the sum of P300,000.00 which is an amount equivalent to 10% of the cash value of the
stock dividends thus declared, as part of the compensation due Nielson under the management contract. The
dispositive portion of the decision should, therefore, be amended, to read as follows:
IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby reverse the decision of the court a quo and enter
in lieu thereof another, ordering the appellee Lepanto to pay the appellant Nielson the different amounts as specified
hereinbelow:
(1) Seventeen thousand five hundred pesos (P17,500.00), equivalent to 10% of the cash dividends of December,
1941, with legal interest thereon from the date of the filing of the complaint;
(2) Two thousand five hundred pesos (P2,500.00) as management fee for January 1942, with legal interest thereon
from the date of the filing of the complaint;
(3) One hundred fifty thousand pesos (P150,000.00), representing management fees for the sixty-month period of
extension of the management contract, with legal interest thereon from the date of the filing of the complaint;
(4) One million four hundred thousand pesos (P1,400,000.00), equivalent to 10% of the cash dividends declared
during the period of extension of the management contract, with legal interest thereon from the date of the filing of
the complaint;
(5) Three hundred thousand pesos (P300,000.00), equivalent to 10% of the cash value of the stock dividends
declared on November 28, 1949 and August 20, 1950, with legal interest thereon from the date of the filing of the
complaint;
(6) Fifty three thousand nine hundred twenty eight pesos and eighty eight centavos (P53,928.88), equivalent to 10%
of the depletion reserve set up during the period of extension, with legal interest thereon from the date of the filing of
the complaint;
(7) Six hundred ninety four thousand three hundred sixty four pesos and seventy six centavos (P694,364.76),
equivalent to 10% of the expenses for capital account during the period of extension, with legal interest thereon from
the date of the filing of the complaint;
(8) Fifty thousand pesos (P50,000.00) as attorney's fees; and
(9) The costs.
It is so ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez and Castro, JJ., concur.
Fernando, Capistrano, Teehankee and Barredo, JJ., took no part.

HERNANIA LANI LOPEZ, G.R. No. 171891
Petitioner,

Present:

PUNO, C.J., Chairperson,
CARPIO,
- versus - CORONA,
LEONARDO-DE CASTRO, and
BRION, JJ.


Promulgated:

GLORIA UMALE-COSME,
Respondent. February 24, 2009

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N

PUNO, C.J.:

Before us is a petition for review on certiorari under Rule 45 seeking a review of the
Decision
[1]
and Resolution
[2]
of the Court of Appeals (CA) in CA G.R. SP No. 82808 reversing the
decision
[3]
of the Regional Trial Court (RTC), Branch 218, Quezon City.

Respondent Gloria Umale-Cosme is the owner of an apartment building at 15 Sibuyan
Street, Sta. Mesa Heights, Quezon City, while the petitioner is a lessee of one of the units
therein. She was paying a monthly rent of P1,340.00 as of 1999.

On April 19, 1999, respondent filed a complaint for unlawful detainer against petitioner
before Branch 43 of the Metropolitan Trial Court (MeTC) of Quezon City on the grounds of
expiration of contract of lease and nonpayment of rentals from December 1998. In her
answer, petitioner denied that she defaulted in the payment of her monthly rentals, claiming
that respondent did not collect the rentals as they fell due in order to make it appear that she
was in arrears. Petitioner also alleged that she had been depositing her monthly rentals in a
bank in trust for respondent since February 1999.

On March 19, 2003, the MeTC, Branch 43, rendered judgment in favor of respondent, the
dispositive portion of which reads:

WHEREFORE, premises considered, the Court finds for the plaintiff and the defendant Hernania
Lani B. Lopez and all persons claiming rights under her or instructions are hereby ordered:

1. to vacate the leased premises located at 15-1, Sibuyan Street, Sta. Mesa Heights,
Quezon City Quezon City (sic), Metro Manila;
2. to pay the plaintiff monthly rent in the amount of P1,340.00 starting December,
1998 up to the time that they shall have vacated and surrendered the leased
premises to the plaintiff;
3. to pay the plaintiff the amount of P20,000.00 as and be (sic) way of attorneys fees;
and
4. costs of suit.
[4]


On appeal, the RTC reversed the decision of the MeTC and ruled that the contract of
lease between respondent and petitioner lacked a definite period. According to the RTC, the
lessee may not be ejected on the ground of termination of the period until the judicial
authorities have fixed such period. It ratiocinated:

Under the law, there is a noticeable change on the grounds for judicial ejectment as to expiration
of the period. Paragraph (f) of Section 5, only speaks of expiration of the period of lease contract,
deleting the phrase of a written lease contract. However, under its Sec. 6, it provides:

SECTION 6. Application of the Civil Code and Rules of Court of the Philippines.
Except when the lease is for a definite period, the provisions of paragraph (1) of
Article 1673 of the Civil Code of the Philippines, insofar as they refer to
residential units covered by this Act, shall be suspended during the effectivity of
this Act, but other provisions of the Civil Code and the Rules of Court on lease
contracts, insofar as they are not in conflict with the provisions of this Act shall
apply.

BP Blg. 877 was extended by RA No. 6643, RA No. 6828, RA No. 7644, and RA No. 8437 approved
22 December 1997 extending the law up to 31 December 2001, without changed (sic) in the provision of
the law except as to the period of maximum increase allowable.

The condition about the expiration of the period as provided for under Act 877 was never change
(sic) despite the several extensionary (sic) laws to it.

The law is so perspicuous to allow other (sic) interpretation. It suspends the provisions of the first
paragraph of Article 1673 of the Civil Code, except when the lease is for a definite period. Thus, if the
lease has no period but to be fixed yet by the judicial authorities, the lessee may not be ejected on
ground of termination of the period.

This particular provision compliments the very purpose of the law prohibiting increase in rentals
more than the rates provided therefor.

If they could be ejected with ease just the same by simply interpreting that if a lessee is paying his
rentals monthly, the lease is considered month to month, and month to month lease contract is with a
definite period, then what part of Article 1673 was suspended?

The amendatory provisions of the Rent Control Law, which the lawmakers had deemed proper to
extend everytime (sic) it is about to expire, is nothing but illusory!

In light of the above reasoning, plaintiff-appellees ground based on the expiration of the lease
contract must fail. BP Blg. 877 as amended suspends the ejectment of lessees based on the expiration of
lease contract where there was no agreement as to a definite lease period.

Finally, the plaintiff has, in effect, abandoned her other ground of non-payment of rental having
stipulated on the consignation by defendant of the back rental from December 1998 to September 2002
during the pre-trial.

WHEREFORE, premises considered, the assailed decision is REVERSED and SET ASIDE. The case is
DISMISSED.

SO ORDERED.
[5]


Respondents motion for reconsideration was denied by the RTC in a Resolution dated
February 2, 2004.

Aggrieved, respondent repaired to the CA, which found merit in her appeal, thus:

It is worthy to note that in her answer, respondent admitted the allegations in paragraph 5 of the
complaint that the apartment unit was leased to her by petitioner on a month to month basis.

Article 1673 (1) of the Civil Code provides that the lessor may judicially eject the lessee when the
period agreed upon, or that which is fixed for the duration of leases under articles 1682 and 1687, has
expired. Article 1687 of the same Code provides that if the period for the lease has not been fixed, it is
understood to be from year to year, if the rent agreed upon is annual; from month to month, if it is
monthly; from week to week, if the rent is weekly; and from day to day, if the rent is to be paid daily.

On the other hand, Section 6 of Batas Pambansa Bilang 877 reads:

Sec. 6: Application of the Civil Code and Rules of Court of the Philippines. Except when
the lease is for a definite period, the provisions of paragraph (1) of Article 1673 of the
Civil Code of the Philippines, insofar as they refer to residential units covered by this Act,
shall be suspended during the effectivity of this Act, but other provisions of the Civil
Code and the Rules of Court on lease contracts, insofar as they are not in conflict with
the provisions of the Act shall apply.

In Acab v. Court of Appeals, it was held that Section 6 of B.P. Blg. 877 does not suspend the
effects of Article 1687 of the Civil Code. Lease agreements with no specified period, but in which rentals
are paid monthly, are considered to be on a month-to-month basis. They are for a definite period and
expire after the last day of any given thirty-day period, upon proper demand and notice by the lessor to
vacate. In the case at bench, petitioner had shown that written notices of termination of lease and to
vacate were sent by her to respondent, but the latter refused to acknowledge receipt thereof. In view
thereof, he caused the posting of said notice on the leased premises in the presence of the barangay
security officers on March 1, 1999.
[6]


The CA denied petitioners Motion for Reconsideration in a resolution dated March 13,
2006. As a consequence, petitioner filed the instant petition for review, where she argues that
the CA gravely erred when it ruled that she may be ejected on the ground of termination of
lease contract.

The petition is utterly bereft of merit.

It is well settled that where a contract of lease is verbal and on a monthly basis, the lease
is one with a definite period which expires after the last day of any given thirty-day period.
[7]
In
the recent case of Leo Wee v. De Castro where the lease contract between the parties did not
stipulate a fixed period,
[8]
we ruled:

The rentals being paid monthly, the period of such lease is deemed terminated at the end of each
month. Thus, respondents have every right to demand the ejectment of petitioners at the end of each
month, the contract having expired by operation of law. Without a lease contract, petitioner has no
right of possession to the subject property and must vacate the same. Respondents, thus, should be
allowed to resort to an action for ejectment before the MTC to recover possession of the subject
property from petitioner.

Corollarily, petitioners ejectment, in this case, is only the reasonable consequence of his
unrelenting refusal to comply with the respondents demand for the payment of rental increase agreed
upon by both parties. Verily, the lessors right to rescind the contract of lease for non-payment of the
demanded increased rental was recognized by this Court in Chua v. Victorio:

The right of rescission is statutorily recognized in reciprocal obligations, such as
contracts of lease. x x x under Article 1659 of the Civil Code, the aggrieved party may,
at his option, ask for (1) the rescission of the contract; (2) rescission and indemnification
for damages; or (3) only indemnification for damages, allowing the contract to remain in
force. Payment of the rent is one of a lessees statutory obligations, and, upon non-
payment by petitioners of the increased rental in September 1994, the lessor acquired
the right to avail of any of the three remedies outlined above. (citations omitted)

In the case at bar, it has been sufficiently established that no written contract existed between
the parties and that rent was being paid by petitioner to respondent on a month-to-month
basis. As the CA noted, petitioner admitted the lack of such written contract in her
complaint.
[9]
Moreover, in the instant petition for review, petitioner herself alleged that she
has been occupying the leased premises and paying the monthly rentals without fail since
1975.
[10]
Hence, petitioners argument that the contract of lease between her and respondent
lacked a definite periodand that corollarily, she may not be ejected on the ground of
termination of perioddoes not hold water. Petitioner was merely grasping at straws when
she imputed grave error upon the CAs decision to eject her from the leased premises.

IN VIEW WHEREOF, the instant petition is DENIED. The decision of the Court of Appeals
is AFFIRMED.

SO ORDERED.