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G.R. No.

73867 February 29, 1988


TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS vs. IGNACIO CASTRO
SYLLABUS
1. CIVIL LAW; DAMAGES; PARTY WHO FAILED TO TRANSMIT TELEGRAM LIABLE THEREON. In the case at bar,
petitioner and private respondent Sofia C. Crouch entered into a contract whereby, for a fee, petitioner undertook to
send said private respondents message overseas by telegram. This, petitioner did not do, despite performance by
said private respondent of her obligation by paying the required charges. Petitioner was therefore guilty of
contravening its obligation to said private respondent and is thus liable for damages under Articles 1170 and 2196 of
the Civil Code.
2. ID.; MORAL DAMAGES; PARTY WHO SUFFERED EMOTIONAL SUFFERING ENTITLED THERETO. We find Art. 2217
of the Civil Code applicable to the case at bar. It states: "Moral damages include physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury.
Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate results of the
defendants wrongful act or omission." Here, petitioners act or omission, which amounted to gross negligence, was
precisely the cause of the suffering private respondents had to undergo.
3. ID.; COMPENSATORY DAMAGES; AWARDED TO A PARTY WHO INCURRED TRAVEL EXPENSES TO TESTIFY IN A
COURT CASE. We also sustain the trial courts award of P16,000.00 as compensatory damages to Sofia C. Crouch
representing the expenses she incurred when she came to the Philippines from the United States to testify before the
trial court. Had petitioner not been remiss in performing its obligation, there would have been no need for this suit or
for Mrs. Crouchs testimony.
4. ID.; EXEMPLARY DAMAGES; AWARDED TO A PARTY AS A WARNING TO ALL TELEGRAM COMPANIES. The award
of exemplary damages by the trial court is likewise justified and, therefore, sustained in the amount of P1,000.00 for
each of the private respondents, as a warning to all telegram companies to observe due diligence in transmitting the
messages of their customers.
Petition for review on certiorari of the decision * of the Intermediate Appellate Court, dated 11 February 1986, in ACG.R. No. CV-70245, entitled "Ignacio Castro, Sr., et al., Plaintiffs-Appellees, versus Telefast Communication/Philippine
Wireless, Inc., Defendant-Appellant."
The facts of the case are as follows:
On 2 November 1956, Consolacion Bravo-Castro wife of plaintiff Ignacio Castro, Sr. and mother of the other plaintiffs,
passed away in Lingayen, Pangasinan. On the same day, her daughter Sofia C. Crouch, who was then vacationing in
the Philippines, addressed a telegram to plaintiff Ignacio Castro, Sr. at 685 Wanda, Scottsburg, Indiana, U.S.A.,
47170 announcing Consolacion's death. The telegram was accepted by the defendant in its Dagupan office, for
transmission, after payment of the required fees or charges.
The telegram never reached its addressee. Consolacion was interred with only her daughter Sofia in attendance.
Neither the husband nor any of the other children of the deceased, then all residing in the United States, returned for
the burial.
When Sofia returned to the United States, she discovered that the wire she had caused the defendant to send, had
not been received. She and the other plaintiffs thereupon brought action for damages arising from defendant's breach
of contract. The case was filed in the Court of First Instance of Pangasinan and docketed therein as Civil Case No.
15356. The only defense of the defendant was that it was unable to transmit the telegram because of "technical and
atmospheric factors beyond its control." 1 No evidence appears on record that defendant ever made any attempt to
advise the plaintiff Sofia C. Crouch as to why it could not transmit the telegram.
The Court of First Instance of Pangasinan, after trial, ordered the defendant (now petitioner) to pay the plaintiffs (now
private respondents) damages, as follows, with interest at 6% per annum:
Defendant is also ordered to pay P5,000.00 attorney's fees, exemplary damages in the amount of P1,000.00 to each
of the plaintiffs and costs.
On appeal by petitioner, the Intermediate Appellate Court affirmed the trial court's decision but eliminated the award
of P16,000.00 as compensatory damages to Sofia C. Crouch and the award of P1,000.00 to each of the private

respondents as exemplary damages. The award of P20,000.00 as moral damages to each of Sofia C. Crouch, Ignacio
Castro, Jr. and Esmeralda C. Floro was also reduced to P120,000. 00 for each. 3
Petitioner appeals from the judgment of the appellate court, contending that the award of moral damages should be
eliminated as defendant's negligent act was not motivated by "fraud, malice or recklessness."
In other words, under petitioner's theory, it can only be held liable for P 31.92, the fee or charges paid by Sofia C.
Crouch for the telegram that was never sent to the addressee thereof.
Petitioner's contention is without merit.
Art. 1170 of the Civil Code provides that "those who in the performance of their obligations are guilty of fraud,
negligence or delay, and those who in any manner contravene the tenor thereof, are liable for damages." Art. 2176
also provides that "whoever by act or omission causes damage to another, there being fault or negligence, is obliged
to pay for the damage done."
In the case at bar, petitioner and private respondent Sofia C. Crouch entered into a contract whereby, for a fee,
petitioner undertook to send said private respondent's message overseas by telegram. This, petitioner did not do,
despite performance by said private respondent of her obligation by paying the required charges. Petitioner was
therefore guilty of contravening its obligation to said private respondent and is thus liable for damages.
This liability is not limited to actual or quantified damages. To sustain petitioner's contrary position in this regard
would result in an inequitous situation where petitioner will only be held liable for the actual cost of a telegram fixed
thirty (30) years ago.
We find Art. 2217 of the Civil Code applicable to the case at bar. It states: "Moral damages include physical suffering,
mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and
similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they are the
proximate results of the defendant's wrongful act or omission." (Emphasis supplied).
Here, petitioner's act or omission, which amounted to gross negligence, was precisely the cause of the suffering
private respondents had to undergo.
As the appellate court properly observed:
[Who] can seriously dispute the shock, the mental anguish and the sorrow that the overseas children must have
suffered upon learning of the death of their mother after she had already been interred, without being given the
opportunity to even make a choice on whether they wanted to pay her their last respects? There is no doubt that
these emotional sufferings were proximately caused by appellant's omission and substantive law provides for the
justification for the award of moral damages. 4
We also sustain the trial court's award of P16,000.00 as compensatory damages to Sofia C. Crouch representing the
expenses she incurred when she came to the Philippines from the United States to testify before the trial court. Had
petitioner not been remiss in performing its obligation, there would have been no need for this suit or for Mrs.
Crouch's testimony.
The award of exemplary damages by the trial court is likewise justified and, therefore, sustained in the amount of
P1,000.00 for each of the private respondents, as a warning to all telegram companies to observe due diligence in
transmitting the messages of their customers.
WHEREFORE, the petition is DENIED. The decision appealed from is modified so that petitioner is held liable to private
respondents in the following amounts:
(1)
(2)
(3)
(4)
(5)

P10,000.00 as moral damages, to each of private respondents;


P1,000.00 as exemplary damages, to each of private respondents;
P16,000.00 as compensatory damages, to private respondent Sofia C. Crouch;
P5,000.00 as attorney's fees; and
Costs of suit.

[G.R. No. 117190. January 2, 1997.]


JACINTO TANGUILIG v. COURT OF APPEALS and VICENTE HERCE JR
SYLLABUS
1. CIVIL LAW; CONTRACT; INTERPRETATION; INTENTION OF THE PARTIES SHALL BE ACCORDED PRIMORDIAL
CONSIDERATION. It is a cardinal rule in the interpretation of contracts that the intention of the parties shall be
accorded primordial consideration and, in case of doubt, their contemporaneous and subsequent acts shall be
principally considered.

chanroble s.com.p h : virt ual law l ibrary

2. OBLIGATION; NATURE AND EFFECTS; EXEMPTION FROM LIABILITY BY REASON OF FORTUITOUS EVENTS;
REQUISITES. This Court has consistently held that in order for a party to claim exemption from liability by reason of
fortuitous event under Art. 1174 of the Civil Code the event should be the sole and proximate cause of the loss or
destruction of the object of the contract. In Nakpil v. Court of Appeals, Nos. L-47851 and L- 47896, 3 October 1986,
144 SCRA 596, four (4) requisites must concur: (a) the cause of the breach of the obligation must be independent of
the will of the debtor; (b) the event must be either unforseeable or unavoidable; (c) the event must be such as to
render it impossible for the debtor to fulfill his obligation in a normal manner; and, (d) the debtor must be free from
any participation in or aggravation of the injury to the creditor.
3. ID.; ID.; ID.; APPLICATION OF ART. 1167 OF THE CIVIL CODE; WHEN A PERSON OBLIGED TO DO SOMETHING
FAILS TO DO IT, THE SAME SHALL BE EXECUTED AT HIS COST. In reciprocal obligations, neither party incurs in
delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him.
(Art. 1169, last par., New Civil Code) When the windmill failed to function properly it became incumbent upon
petitioner to institute the proper repairs in accordance with the guaranty stated in the contract Thus, respondent
cannot be said to have incurred in delay; instead, it is petitioner who should bear the expenses for the reconstruction
of the windmill. Article 1167 of the Civil Code is explicit on this point that if a person obliged to do something fails to
do it, the same shall be executed at his cost.
This case involves the proper interpretation of the contract entered into between the parties.
Sometime in April 1987 petitioner Jacinto M. Tanguilig doing business under the name and style J.M.T. Engineering
and General Merchandising proposed to respondent Vicente Herce Jr. to construct a windmill system for him. After
some negotiations they agreed on the construction of the windmill for a consideration of P60,000.00 with a one-year
guaranty from the date of completion and acceptance by respondent Herce Jr. of the project. Pursuant to the
agreement respondent paid petitioner a down payment of P30,000.00 and an installment payment of P15,000.00,
leaving a balance of P15,000.00.
On 14 March 1988, due to the refusal and failure of respondent to pay the balance, petitioner filed a complaint to
collect the amount. In his Answer before the trial court respondent denied the claim saying that he had already paid
this amount to the San Pedro General Merchandising Inc. (SPGMI) which constructed the deep well to which the
windmill system was to be connected. According to respondent, since the deep well formed part of the system the
payment he tendered to SPGMI should be credited to his account by petitioner. Moreover, assuming that he owed
petitioner a balance of P15,000.00, this should be offset by the defects in the windmill system which caused the
structure to collapse after a strong wind hit their place. 1
Petitioner denied that the construction of a deep well was included in the agreement to build the windmill system, for
the contract price of P60,000.00 was solely for the windmill assembly and its installation, exclusive of other incidental
materials needed for the project. He also disowned any obligation to repair or reconstruct the system and insisted that

he delivered it in good and working condition to respondent who accepted the same without protest. Besides, its
collapse was attributable to a typhoon, a force majeure, which relieved him of any liability.
In finding for plaintiff, the trial court held that the construction of the deep well was not part of the windmill project as
evidenced clearly by the letter proposals submitted by petitioner to respondent. 2 It noted that "[i]f the intention of
the parties is to include the construction of the deep well in the project, the same should be stated in the proposals.
In the absence of such an agreement, it could be safely concluded that the construction of the deep well is not a part
of the project undertaken by the plaintiff." 3 With respect to the repair of the windmill, the trial court found that
"there is no clear and convincing proof that the windmill system fell down due to the defect of the construction. " 4
The Court of Appeals reversed the trial court. It ruled that the construction of the deep well was included in the
agreement of the parties because the term "deep well" was mentioned in both proposals. It also gave credence to the
testimony of respondents witness Guillermo Pili, the proprietor of SPGMI which installed the deep well, that petitioner
Tanguilig told him that the cost of constructing the deep well would be deducted from the contract price of
P60,000.00. Upon these premises the appellate court concluded that respondents payment of P15,000.00 to SPGMI
should be applied to his remaining balance with petitioner thus effectively extinguishing his contractual obligation.
However, it rejected petitioners claim of force majeure and ordered the latter to reconstruct the windmill in
accordance with the stipulated one-year guaranty.
His motion for reconsideration having been denied by the Court of Appeals, petitioner now seeks relief from this Court.
He raises two issues: firstly, whether the agreement to construct the windmill system included the installation of a
deep well and, secondly, whether petitioner is under obligation to reconstruct the windmill after it collapsed.
We reverse the appellate court on the first issue but sustain it on the second.
The preponderance of evidence supports the finding of the trial court that the installation of a deep well was not
included in the proposals of petitioner to construct a windmill system for respondent. There were in fact two (2)
proposals: one dated 19 May 1987 which pegged the contract price at P87,000.00 (Exh. "1"). This was rejected by
respondent. The other was submitted three days later, i.e., on 22 May 1987 which contained more specifications but
proposed a lower contract price of P60,000.00 (Exh. "A"). The latter proposal was accepted by respondent and the
construction immediately followed. The pertinent portions of the first letter-proposal (Exh. "1") are reproduced
hereunder
In connection with your Windmill System and Installation, we would like to quote to you as follows:

chanro b1es vi rtua l 1aw lib ra ry

One (1) Set Windmill suitable for 2 inches diameter deepwell, 2 HP, capacity, 14 feet in diameter, with 20 pieces
blade, Tower 40 feet high, including mechanism which is not advisable to operate during extra-intensity wind.
Excluding cylinder pump.
UNIT CONTRACT PRICE P87,000.00
The second letter-proposal (Exh. "A") provides as follows:

chanrob1es vi rt ual 1aw li bra ry

In connection with your Windmill system, Supply of Labor Materials and Installation, operated water pump, we would
like to quote to you as follows
One (1) set Windmill assembly for 2 inches or 3 inches deep-well pump, 6 Stroke, 14 feet diameter, 1-lot blade

materials, 40 feet Tower complete with standard appurtenances up to Cylinder pump, shafting U.S. adjustable
International Metal.
One (1) lot Angle bar, G. I. pipe, Reducer Coupling, Elbow Gate valve, cross Tee coupling.
One (1) lot Float valve.
One (1) lot Concreting materials foundation.
F. O. B. Laguna
Contract Price P60,000.00
Notably, nowhere in either proposal is the installation of a deep well mentioned, even remotely. Neither is there an
itemization or description of the materials to be used in constructing the deep well. There is absolutely no mention in
the two (2) documents that a deep well pump is a component of the proposed windmill system. The contract prices
fixed in both proposals cover only the features specifically described therein and no other. While the words "deep well"
and "deep well pump" are mentioned in both, these do not indicate that a deep well is part of the windmill system.
They merely describe the type of deep well pump for which the proposed windmill would be suitable. As correctly
pointed out by petitioner, the words "deep well" preceded by the prepositions "for" and "suitable for" were meant only
to convey the idea that the proposed windmill would be appropriate for a deep well pump with a diameter of 2 to 3
inches. For if the real intent of petitioner was to include a deep well in the agreement to construct a windmill, he
would have used instead the conjunctions "and" or "with." Since the terms of the instruments are clear and leave no
doubt as to their meaning they should not be disturbed.
Moreover, it is a cardinal rule in the interpretation of contracts that the intention of the parties shall be accorded
primordial consideration 5 and, in case of doubt, their contemporaneous and subsequent acts shall be principally
considered. 6 An examination of such contemporaneous and subsequent acts of respondent as well as the attendant
circumstances does not persuade us to uphold him.
Respondent insists that petitioner verbally agreed that the contract price of P60,000.00 covered the installation of a
deep well pump. He contends that since petitioner did not have the capacity to install the pump the latter agreed to
have a third party do the work the cost of which was to be deducted from the contract price. To prove his point, he
presented Guillermo Pili of SPGMI who declared that petitioner Tanguilig approached him with a letter from
respondent Herce Jr. asking him to build a deep well pump as "part of the price/contract which Engineer (Herce) had
with Mr. Tanguilig." 7
We are disinclined to accept the version of respondent. The claim of Pili that Herce Jr. wrote him a letter is
unsubstantiated. The alleged letter was never presented in court by private respondent for reasons known only to
him. But granting that this written communication existed, it could not have simply contained a request for Pili to
install a deep well; it would have also mentioned the party who would pay for the undertaking. It strains credulity that
respondent would keep silent on this matter and leave it all to petitioner Tanguilig to verbally convey to Pili that the
deep well was part of the windmill construction and that its payment would come from the contract price of
P60,000.00.
We find it also unusual that Pili would readily consent to build a deep well the payment for which would come
supposedly from the windmill contract price on the mere representation of petitioner, whom he had never met before,
without a written commitment at least from the former. For if indeed the deep well were part of the windmill project,
the contract for its installation would have been strictly a matter between petitioner and Pili himself with the former

assuming the obligation to pay the price. That it was respondent Herce Jr. himself who paid for the deep well by
handing over to Pili the amount of P15,000.00 clearly indicates that the contract for the deep well was not part of the
windmill project but a separate agreement between respondent and Pili. Besides, if the price of P60,000.00 included
the deep well, the obligation of respondent was to pay the entire amount to petitioner without prejudice to any action
that Guillermo Pili or SPGMI may take, if any, against the latter. Significantly, when asked why he tendered payment
directly to Pili and not to petitioner, respondent explained, rather lamely, that he did it "because he has (sic) the
money, so (he) just paid the money in his possession. 8
Can respondent claim that Pili accepted his payment on behalf of petitioner? No. While the law is clear that "payment
shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any
person authorized to receive it, " 9 it does not appear from the record that Pili and/or SPGMI was so authorized.
Respondent cannot claim the benefit of the law concerning payments made by a third person." 10 The Civil Code
provisions do not apply in the instant case because no creditor-debtor relationship between petitioner and Guillermo
Pili and/or SPGMI has been established regarding the construction of the deep well. Specifically, witness Pili did not
testify that he entered into a contract with petitioner for the construction of respondents deep well. If SPGMI was
really commissioned by petitioner to construct the deep well, an agreement particularly to this effect should have
been entered into.
The contemporaneous and subsequent acts of the parties concerned effectively belie respondents assertions. These
circumstances only show that the construction of the well by SPGMI was for the sole account of respondent and that
petitioner merely supervised the installation of the well because the windmill was to be connected to it. There is no
legal nor factual basis by which this Court can impose upon petitioner an obligation he did not expressly assume nor
ratify.
The second issue is not a novel one. In a long line of cases 11 this Court has consistently held that in order for a party
to claim exemption from liability by reason of fortuitous event under Art. 1174 of the Civil Code the event should be
the sole and proximate cause of the loss or destruction of the object of the contract. In Nakpil v. Court of Appeals, 12
four (4) requisites must concur: (a) the cause of the breach of the obligation must be independent of the will of the
debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event must be such as to render it
impossible for the debtor to fulfill his obligation in a normal manner; and, (d) the debtor must be free from any
participation in or aggravation of the injury to the creditor.
Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous event. Interestingly, the
evidence does not disclose that there was actually a typhoon on the day the windmill collapsed. Petitioner merely
stated that there was a "strong wind." But a strong wind in this case cannot be fortuitousunforeseeable nor
unavoidable. On the contrary, a strong wind should be present in places where windmills are constructed, otherwise
the windmills will not turn.
The appellate court correctly observed that "given the newly- constructed windmill system, the same would not have
collapsed had there been no inherent defect in it which could only be attributable to the appellee." 13 It emphasized
that respondent had in his favor the presumption that "things have happened according to the ordinary course of
nature and the ordinary habits of life." 14 This presumption has not been rebutted by petitioner.
Finally, petitioners argument that private respondent was already in default in the payment of his outstanding
balance of P15,000.00 and hence should bear his own loss, is untenable. In reciprocal obligations, neither party incurs
in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him.

15 When the windmill failed to function properly it became incumbent upon petitioner to institute the proper repairs in
accordance with the guaranty stated in the contract. Thus, respondent cannot be said to have incurred in delay;
instead, it is petitioner who should bear the expenses for the reconstruction of the windmill. Article 1167 of the Civil
Code is explicit on this point that if a person obliged to do something fails to do it, the same shall be executed at his
cost
WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE HERCE JR. is directed to pay petitioner
JACINTO M. TANGUILIG the balance of P15,000.00 with interest at the legal rate from the date of the filing of the
complaint. In return, petitioner is ordered to "reconstruct subject defective windmill system, in accordance with the
one-year guaranty" 16 and to complete the same within three (3) months from the finality of this decision.

[G.R. No. 190601 : February 07, 2011]


SPOUSES LUIGI M. GUANIO VS. MAKATI SHANGRI-LA HOTEL AND RESORT
For their wedding reception on July 28, 2001, spouses Luigi M. Guanio and Anna Hernandez-Guanio (petitioners)
booked at the Shangri-la Hotel Makati (the hotel).
Prior to the event, Makati Shangri-La Hotel & Resort, Inc. (respondent) scheduled an initial food tasting. Petitioners
claim that they requested the hotel to prepare for seven persons the two of them, their respective parents, and the
wedding coordinator. At the scheduled food tasting, however, respondent prepared for only six.
Petitioners initially chose a set menu which included black cod, king prawns and angel hair pasta with wild mushroom
sauce for the main course which cost P1,000.00 per person. They were, however, given an option in which salmon,
instead of king prawns, would be in the menu at P950.00 per person. They in fact partook of the salmon.
Three days before the event, a final food tasting took place. Petitioners aver that the salmon served was half the size
of what they were served during the initial food tasting; and when queried about it, the hotel quoted a much higher
price (P1,200.00) for the size that was initially served to them. The parties eventually agreed on a final price P1,150
per person.
A day before the event or on July 27, 2001, the parties finalized and forged their contract. 1
Petitioners claim that during the reception, respondent's representatives, Catering Director Bea Marquez and Sales
Manager Tessa Alvarez, did not show up despite their assurance that they would; their guests complained of the
delay in the service of the dinner; certain items listed in the published menu were unavailable; the hotel's waiters
were rude and unapologetic when confronted about the delay; and despite Alvarez's promise that there would be no
charge for the extension of the reception beyond 12:00 midnight, they were billed and paid P8,000 per hour for the
three-hour extension of the event up to 4:00 A.M. the next day.
Petitioners further claim that they brought wine and liquor in accordance with their open bar arrangement, but these
were not served to the guests who were forced to pay for their drinks.
Petitioners thus sent a letter-complaint to the Makati Shangri-la Hotel and Resort, Inc. (respondent) and received an
apologetic reply from Krister Svensson, the hotel's Executive Assistant Manager in charge of Food and
Beverage. They nevertheless filed a complaint for breach of contract and damages before the Regional Trial Court
(RTC) of Makati City.
In its Answer, respondent claimed that petitioners requested a combination of king prawns and salmon, hence, the
price was increased to P1,200.00 per person, but discounted at P1,150.00; that contrary to petitioners' claim,
Marquez and Alvarez were present during the event, albeit they were not permanently stationed thereat as there were
three other hotel functions; that while there was a delay in the service of the meals, the same was occasioned by the
sudden increase of guests to 470 from the guaranteed expected minimum number of guests of 350 to a maximum of
380, as stated in the Banquet Event Order (BEO);2 and that Isaac Albacea, Banquet Service Director, in fact relayed
the delay in the service of the meals to petitioner Luigi's father, Gil Guanio.
Respecting the belated service of meals to some guests, respondent attributed it to the insistence of petitioners'
wedding coordinator that certain guests be served first.

On Svensson's letter, respondent, denying it as an admission of liability, claimed that it was meant to maintain
goodwill to its customers.
By Decision of August 17, 2006, Branch 148 of the Makati RTC rendered judgment in favor of petitioners, disposing as
follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the defendant
ordering the defendants to pay the plaintiff the following:
1) The amount of P350,000.00 by way of actual damages;
2) The amount of P250,000.00 for and as moral damages;
3) The amount of P100,000.00 as exemplary damages;
4) The amount of P100,000.00 for and as attorney's fees.
With costs against the defendant. SO ORDERED.3
In finding for petitioners, the trial court relied heavily on the letter of Svensson which is partly quoted below:
Upon receiving your comments on our service rendered during your reception here with us, we are in fact, very
distressed. Right from minor issues pappadums served in the soup instead of the creutons, lack of valet parkers, hard
rolls being too hard till a major one - slow service, rude and arrogant waiters, we have disappointed you in all means.
Indeed, we feel as strongly as you do that the services you received were unacceptable and definitely not up to our
standards. We understand that it is our job to provide excellent service and in this instance, we have fallen short of
your expectations. We ask you please to accept our profound apologies for causing such discomfort and annoyance.
The trial court observed that from "the tenor of the letter . . . the defendant[-herein respondent] admits that the
services the plaintiff[-herein petitioners] received were unacceptable and definitely not up to their standards."5
On appeal, the Court of Appeals, by Decision of July 27, 2009,6 reversed the trial court's decision, it holding that the
proximate cause of petitioners' injury was an unexpected increase in their guests:
Hence, the alleged damage or injury brought about by the confusion, inconvenience and disarray during the wedding
reception may not be attributed to defendant-appellant Shangri-la.
We find that the said proximate cause, which is entirely attributable to plaintiffs-appellants, set the chain of events
which resulted in the alleged inconveniences, to the plaintiffs-appellants. Given the circumstances that obtained, only
the Sps. Guanio may bear whatever consequential damages that they may have allegedly suffered. 7 (underscoring
supplied)
Petitioners' motion for reconsideration having been denied by Resolution of November 19, 2009, the present petition
for review was filed.
The Court finds that since petitioners' complaint arose from a contract, the doctrine of proximate cause finds no
application to it:
The doctrine of proximate cause is applicable only in actions for quasi-delicts, not in actions involving breach of
contract. x x x The doctrine is a device for imputing liability to a person where there is no relation between him and

another party. In such a case, the obligation is created by law itself. But, where there is a pre-existing contractual
relation between the parties, it is the parties themselves who create the obligation, and the function of the law is
merely to regulate the relation thus created.8 (emphasis and underscoring supplied)
What applies in the present case is Article 1170 of the Civil Code which reads:
Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in
any manner contravene the tenor thereof, are liable for damages.
RCPI v. Verchez, et al.

enlightens:

In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance justify,
prima facie, a corresponding right of relief. The law, recognizing the obligatory force of contracts, will not permit a
party to be set free from liability for any kind of misperformance of the contractual undertaking or a contravention of
the tenor thereof. A breach upon the contract confers upon the injured party a valid cause for recovering that which
may have been lost or suffered. The remedy serves to preserve the interests of the promissee that may include his
"expectation interest," which is his interest in having the benefit of his bargain by being put in as good a position
as he would have been in had the contract been performed, or his "reliance interest," which is his interest in being
reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in
had the contract not been made; or his "restitution interest," which is his interest in having restored to him any
benefit that he has conferred on the other party. Indeed, agreements can accomplish little, either for their makers or
for society, unless they are made the basis for action. The effect of every infraction is to create a new duty, that is, to
make RECOMPENSE to the one who has been injured by the failure of another to observe his contractual obligation
unless he can show extenuating circumstances, like proof of his exercise of due diligence x x x or of the
attendance of fortuitous event, to excuse him from his ensuing liability. (emphasis and underscoring in the
original; capitalization supplied)
The pertinent provisions of the Banquet and Meeting Services Contract between the parties read:
4.3 The ENGAGER shall be billed in accordance with the prescribed rate for the minimum guaranteed number of
persons contracted for, regardless of under attendance or non-appearance of the expected number of guests, except
where the ENGAGER cancels the Function in accordance with its Letter of Confirmation with the HOTEL. Should the
attendance exceed the minimum guaranteed attendance, the ENGAGER shall also be billed at the actual rate per cover
in excess of the minimum guaranteed attendance.
4.5. The ENGAGER must inform the HOTEL at least forty eight (48) hours before the scheduled date and time of the
Function of any change in the minimum guaranteed covers. In the absence of such notice, paragraph 4.3 shall apply
in the event of under attendance. In case the actual number of attendees exceed the minimum guaranteed
numberby ten percent (10%), the HOTEL shall not in any way be held liable for any damage or
inconvenience which may be caused thereby. The ENGAGER shall also undertake to advise the guests of
the situation and take positive steps to remedy the same.
Breach of contract is defined as the failure without legal reason to comply with the terms of a contract. It is also
defined as the [f]ailure, without legal excuse, to perform any promise which forms the whole or part of the contract. 11
The appellate court, and even the trial court, observed that petitioners were remiss in their obligation to inform
respondent of the change in the expected number of guests. The observation is reflected in the records of the
case. Petitioners' failure to discharge such obligation thus excused, as the above-quoted paragraph 4.5 of the parties'

contract provide, respondent from liability for "any damage or inconvenience" occasioned thereby.
As for petitioners' claim that respondent departed from its verbal agreement with petitioners, the same fails, given
that the written contract which the parties entered into the day before the event, being the law between them.
Respecting the letter of Svensson on which the trial court heavily relied as admission of respondent's liability but
which the appellate court brushed aside, the Court finds the appellate court's stance in order. It is not uncommon in
the hotel industry to receive comments, criticisms or feedback on the service it delivers. It is also customary for hotel
management to try to smooth ruffled feathers to preserve goodwill among its clientele.
Kalalo v. Luz holds:12
Statements which are not estoppels nor judicial admissions have no quality of conclusiveness, and an opponent whose
admissions have been offered against him may offer any evidence which serves as an explanation for his former
assertion of what he now denies as a fact.
Respondent's Catering Director, Bea Marquez, explained the hotel's procedure on receiving and processing complaints,
viz:
To the Court, the foregoing explanation of the hotel's Banquet Director overcomes any presumption of admission of
breach which Svensson's letter might have conveyed.
The exculpatory clause notwithstanding, the Court notes that respondent could have managed the "situation" better,
it being held in high esteem in the hotel and service industry. Given respondent's vast experience, it is safe to
presume that this is not its first encounter with booked events exceeding the guaranteed cover. It is not audacious to
expect that certain measures have been placed in case this predicament crops up. That regardless of these measures,
respondent still received complaints as in the present case, does not amuse.
Respondent admitted that three hotel functions coincided with petitioners' reception. To the Court, the delay in service
might have been avoided or minimized if respondent exercised prescience in scheduling events. No less than quality
service should be delivered especially in events which possibility of repetition is close to nil. Petitioners are not
expected to get married twice in their lifetimes.
In the present petition, under considerations of equity, the Court deems it just to award the amount of P50,000.00 by
way of nominal damages to petitioners, for the discomfiture that they were subjected to during to the event. 15 The
Court recognizes that every person is entitled to respect of his dignity, personality, privacy and peace of mind. 16
Respondent's lack of prudence is an affront to this right.
WHEREFORE, the Court of Appeals Decision dated July 28, 2009 is PARTIALLY REVERSED. Respondent is, in light
of the foregoing discussion, ORDERED to pay the amount of P50,000.00 to petitioners by way of nominal damages.

[G.R. No. 144169. March 28, 2001.]


KHE HONG CHENG v. COURT OF APPEALS
Before the Court is a Petition for Review on Certiorari under Rule 45, seeking to set aside the decision of the Court of
Appeals dated April 10, 2000 and its resolution dated July 11, 2000 denying the motion for reconsideration of the
aforesaid decision. The original complaint that is the subject matter of this case is an accion pauliana an action filed
by Philam Insurance Company, Inc. (respondent Philam) to rescind or annul the donations made by petitioner Khe
Hong Cheng allegedly in fraud of creditors. The main issue for resolution is whether or not the action to rescind the
donations has already prescribed. While the first paragraph of Article 1389 of the Civil Code states: "The action to
claim rescission must be commenced within four years . . ." the question is, from which point or event does this
prescriptive period commence to run?
The facts are as follows:

c hanro b1es vi rtua 1 1aw 1i bra ry

chanro b1es vi rt ual 1aw libra ry

Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan Shipping Lines. It appears that on or about
October 4, 1985, the Philippine Agricultural Trading Corporation shipped on board the vessel M/V PRINCE ERIC, owned
by petitioner Khe Hong Cheng, 3,400 bags of copra at Masbate, Masbate, for delivery to Dipolog City, Zamboanga del
Norte. The said shipment of copra was covered by a marine insurance policy issued by American Home Insurance
Company (respondent Philams assured). M/V PRINCE ERIC, however, sank somewhere between Negros Island and
Northeastern Mindanao, resulting in the total loss of the shipment. Because of the loss, the insurer, American Home,
paid the amount of P354,000.00 (the value of the copra) to the consignee.
Having been subrogated into the rights of the consignee, American Home instituted Civil Case No. 13357 in the
Regional Trial Court (RTC) of Makati, Branch 147 to recover the money paid to the consignee, based on breach of
contract of carriage. While the case was still pending, or on December 20, 1989, petitioner Khe Hong Cheng executed
deeds of donations of parcels of land in favor of his children, herein co-petitioners Sandra Joy and Ray Steven. The
parcel of land with an area of 1,000 square meters covered by Transfer Certificate of Title (TCT) No. T-3816 was
donated to Ray Steven. Petitioner Khe Hong Cheng likewise donated in favor of Sandra Joy two (2) parcels of land
located in Butuan City, covered by TCT No. RT-12838. On the basis of said deeds, TCT No. T-3816 was cancelled and
in lieu thereof, TCT No. T-5072 was issued in favor of Ray Steven and TCT No. RT-12838 was cancelled and in lieu
thereof, TCT No. RT-21054 was issued in the name of Sandra Joy.
The trial court rendered judgment against petitioner Khe Hong Cheng in Civil Case No. 13357 on December 29, 1993,
four years after the donations were made and the TCTs were registered in the donees names. The decretal portion of
the aforesaid decision reads:

jgc:chan roble s.com.p h

"Wherefore, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff and against the
defendant, ordering the latter to pay the former:

chanrob1e s virtual 1aw l ibra ry

1) the sum of P354,000.00 representing the amount paid by the plaintiff to the Philippine Agricultural Trading
Corporation with legal interest at 12% from the time of the filing of the complaint in this case;
2) the sum of P50,000.00 as attorneys fees;
3) the costs. 1
After the said decision became final and executory, a writ of execution was forthwith, issued on September 14, 1995.
Said writ of execution, however, was not served. An alias writ of execution was, thereafter, applied for and granted in
October 1996. Despite earnest efforts, the sheriff found no property under the name of Butuan Shipping Lines and/or

petitioner Khe Hong Cheng to levy or garnish for the satisfaction of the trial courts decision. When the sheriff,
accompanied by counsel of respondent Philam, went to Butuan City on January 17, 1997, to enforce the alias writ of
execution, they discovered that petitioner Khe Hong Cheng no longer had any property and that he had conveyed the
subject properties to his children.
On February 25, 1997, respondent Philam filed a complaint with the Regional Trial Court of Makati City, Branch 147,
for the rescission of the deeds of donation executed by petitioner Khe Hong Cheng in favor of his children and for the
nullification of their titles (Civil Case No. 97-415). Respondent Philam alleged, inter alia, that petitioner Khe Hong
Cheng executed the aforesaid deeds in fraud of his creditors, including respondent Philam. 2
Petitioners subsequently filed their answer to the complaint a quo. They moved for its dismissal on the ground that
the action had already prescribed. They posited that the registration of the deeds of donation on December 27, 1989
constituted constructive notice and since the complaint a quo was filed only on February 25, 1997, or more than four
(4) years after said registration, the action was already barred by prescription. 3
Acting thereon, the trial court denied the motion to dismiss. It held that respondent Philams complaint had not yet
prescribed. According to the trial court, the prescriptive period began to run only from December 29, 1993, the date
of the decision of the trial court in Civil Case No. 13357. 4
On appeal by petitioners, the CA affirmed the trial courts decision in favor of respondent Philam. The CA declared that
the action to rescind the donations had not yet prescribed. Citing Articles 1381 and 1383 of the Civil Code, the CA
basically ruled that the four year period to institute the action for rescission began to run only in January 1997, and
not when the decision in the civil case became final and executory on December 29, 1993. The CA reckoned the
accrual of respondent Philams cause of action on January 1997, the time when it first learned that the judgment
award could not be satisfied because the judgment creditor, petitioner Khe Hong Cheng, had no more properties in his
name. Prior thereto, respondent Philam had not yet exhausted all legal means for the satisfaction of the decision in its
favor, as prescribed under Article 1383 of the Civil Code. 5
The Court of Appeals thus denied the petition for certiorari filed before it, and held that the trial court did not commit
any error in denying petitioners motion to dismiss. Their motion for reconsideration was likewise dismissed in the
appellate courts resolution dated July 11, 2000.
Petitioners now assail the aforesaid decision and resolution of the CA alleging that:

chan rob1es v irt ual 1aw l ibra ry

I
PUBLIC RESPONDENT GRAVELY ERRED AND ACTED IN GRAVE ABUSE OF DISCRETION WHEN IT DENIED THE
PETITION TO DISMISS THE CASE BASED ON THE GROUND OF PRESCRIPTION.

chan rob1 es virt ua1 1aw 1i bra ry

II
PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT PRESCRIPTION BEGINS TO RUN WHEN
IN JANUARY 1997 THE SHERIFF WENT TO BUTUAN CITY IN SEARCH OF PROPERTIES OF PETITIONER FELIX KHE
CHENG TO SATISFY THE JUDGMENT IN CIVIL CASE NO. 13357 AND FOUND OUT THAT AS EARLY AS DEC. 20, 1989,
PETITIONERS KHE CHENG EXECUTED THE DEEDS OF DONATIONS IN FAVOR OF HIS CO-PETITIONERS THAT THE
ACTION FOR RESCISSION ACCRUED BECAUSE PRESCRIPTION BEGAN TO RUN WHEN THESE DONATIONS WERE
REGISTERED WITH THE REGISTER OF DEEDS IN DECEMBER 1989, AND WHEN THE COMPLAINT WAS FILED ONLY IN
FEBRUARY 1997, MORE THAN FOUR YEARS HAVE ALREADY LAPSED AND THEREFORE, IT HAS ALREADY PRESCRIBED.

Essentially, the issue for resolution posed by petitioners is this: When did the four (4) year prescriptive period as
provided for in Article 1389 of the Civil Code for respondent Philam to file its action for rescission of the subject deeds
of donation commence to run?
The petition is without merit.
Article 1389 of the Civil Code simply provides that, "The action to claim rescission must be commenced within four
years." Since this provision of law is silent as to when the prescriptive period would commence, the general rule, i.e,
from the moment the cause of action accrues, therefore, applies. Article 1150 of the Civil Code is particularly
instructive:

chanrob 1es vi rtual 1aw lib rary

ARTICLE 1150. The time for prescription for all kinds of actions, when there is no special provision which ordains
otherwise, shall be counted from the day they may be brought.
Indeed, this Court enunciated the principle that it is the legal possibility of bringing the action which determines the
starting point for the computation of the prescriptive period for the action. 7 Article 1383 of the Civil Code provides as
follows:

chanrob1es v irt ual 1aw l ibra ry

ARTICLE 1383. An action for rescission is subsidiary; it cannot be instituted except when the party suffering damage
has no other legal means to obtain reparation for the same.
It is thus apparent that an action to rescind or an accion pauliana must be of last resort, availed of only after all other
legal remedies have been exhausted and have been proven futile. For an accion pauliana to accrue, the following
requisites must concur:

c hanro b1es vi rtua l 1aw li bra ry

1) That the plaintiff asking for rescission, has a credit prior to the alienation, although demandable later; 2) That the
debtor has made a subsequent contract conveying a patrimonial benefit to a third person; 3) That the creditor has no
other legal remedy to satisfy his claim, but would benefit by rescission of the conveyance to the third person; 4) That
the act being impugned is fraudulent; 5) That the third person who received the property conveyed, if by onerous
title, has been an accomplice in the fraud. 8 (Emphasis ours)
We quote with approval the following disquisition of the CA on the matter:

chanro b1es vi rtua l 1aw lib ra ry

An accion pauliana accrues only when the creditor discovers that he has no other legal remedy for the satisfaction of
his claim against the debtor other than an accion pauliana. The accion pauliana is an action of a last resort. For as
long as the creditor still has a remedy at law for the enforcement of his claim against the debtor, the creditor will not
have any cause of action against the creditor for rescission of the contracts entered into by and between the debtor
and another person or persons. Indeed, an accion pauliana presupposes a judgment and the issuance by the trial
court of a writ of execution for the satisfaction of the judgment and the failure of the Sheriff to enforce and satisfy the
judgment of the court. It presupposes that the creditor has exhausted the property of the debtor. The date of the
decision of the trial court against the debtor is immaterial. What is important is that the credit of the plaintiff
antedates that of the fraudulent alienation by the debtor of his property. After all, the decision of the trial court
against the debtor will retroact to the time when the debtor became indebted to the creditor. 9
Petitioners, however, maintain that the cause of action of respondent Philam against them for the rescission of the
deeds of donation accrued as early as December 27, 1989, when petitioner Khe Hong Cheng registered the subject

conveyances with the Register of Deeds. Respondent Philam allegedly had constructive knowledge of the execution of
said deeds under Section 52 of Presidential Decree No. 1529, quoted infra, as follows:

chanrob 1es vi rtua l 1aw lib rary

SECTION 52. Constructive knowledge upon registration. Every conveyance, mortgage, lease, lien, attachment,
order, judgment, instrument or entry affecting registered land shall, if registered, filed or entered in the Office of the
Register of Deeds for the province or city where the land to which it relates lies, be constructive notice to all persons
from the time of such registering, filing, or entering.

chanro b1es vi rtua1 1aw 1ib rary

Petitioners argument that the Civil Code must yield to the Mortgage and Registration Laws is misplaced, for in no way
does this imply that the specific provisions of the former may be all together ignored. To count the four year
prescriptive period to rescind an allegedly fraudulent contract from the date of registration of the conveyance with the
Register of Deeds, as alleged by the petitioners, would run counter to Article 1383 of the Civil Code as well as settled
jurisprudence. It would likewise violate the third requisite to file an action for rescission of an allegedly fraudulent
conveyance of property, i.e., the creditor has no other legal remedy to satisfy his claim.
An accion pauliana thus presupposes the following: 1) A judgment; 2) the issuance by the trial court of a writ of
execution for the satisfaction of the judgment, and 3) the failure of the sheriff to enforce and satisfy the judgment of
the court. It requires that the creditor has exhausted the property of the debtor. The date of the decision of the trial
court is immaterial. What is important is that the credit of the plaintiff antedates that of the fraudulent alienation by
the debtor of his property. After all, the decision of the trial court against the debtor will retroact to the time when the
debtor became indebted to the creditor.
Tolentino, a noted civilist, explained:

jgc:chanrobles. com.ph

". . . [T]herefore, credits with suspensive term or condition are excluded, because the accion pauliana presupposes a
judgment and unsatisfied execution, which cannot exist when the debt is not yet demandable at the time the
rescissory action is brought. Rescission is a subsidiary action, which presupposes that the creditor has exhausted the
property of the debtor which is impossible in credits which cannot be enforced because of a suspensive term or
condition.
While it is necessary that the credit of the plaintiff in the accion pauliana must be prior to the fraudulent alienation,
the date of the judgment enforcing it is immaterial. Even if the judgment be subsequent to the alienation, it is merely
declaratory with retroactive effect to the date when the credit was constituted." 10
These principles were reiterated by the Court when it explained the requisites of an accion pauliana in greater detail,
to wit:

jgc:chanroble s.com.p h

"The following successive measures must be taken by a creditor before he may bring an action for rescission of an
allegedly fraudulent sale: (1) exhaust the properties of the debtor through levying by attachment and execution upon
all the property of the debtor, except such as are exempt from execution; (2) exercise all the rights and actions of the
debtor, save those personal to him (accion subrogatoria); and (3) seek rescission of the contracts executed by the
debtor in fraud of their rights (accion pauliana). Without availing of the first and second remedies, i.e., exhausting the
properties of the debtor or subrogating themselves in Francisco Baregs transmissible rights and actions. petitioners
simply undertook the third measure and filed an action for annulment of sale. This cannot be done." 11 (Emphasis
ours)
In the same case, the Court also quoted the rationale of the CA when it upheld the dismissal of the accion pauliana on

the basis of lack of cause of action:

jgc:chanrob les.co m.ph

"In this case, plaintiffs appellants had not even commenced an action against defendants-appellees Bareng for the
collection of the alleged indebtedness. Plaintiffs-appellants had not even tried to exhaust the property of defendantsappellees Bareng. Plaintiffs-appellants, in seeking the rescission of the contracts of sale entered into between
defendants-appellees, failed to show and prove that defendants-appellees Bareng had no other property, either at the
time of the sale or at the time this action was filed, out of which they could have collected this (sic) debts." (Emphasis
ours)
Even if respondent Philam was aware, as of December 27, 1989, that petitioner Khe Hong Cheng had executed the
deeds of donation in favor of his children, the complaint against Butuan Shipping Lines and/or petitioner Khe Hong
Cheng was still pending before the trial court. Respondent Philam had no inkling, at the time, that the trial courts
judgment would be in its favor and further, that such judgment would not be satisfied due to the deeds of donation
executed by petitioner Khe Hong Cheng during the pendency of the case. Had respondent Philam filed his complaint
on December 27, 1989, such complaint would have been dismissed for being premature. Not only were all other legal
remedies for the enforcement of respondent Philams claims not yet exhausted at the time the deeds of donation were
executed and registered. Respondent Philam would also not have been able to prove then that petitioner Khe Hong
Cheng had no more property other than those covered by the subject deeds to satisfy a favorable judgment by the
trial court.

chanrob1es v irt ua1 1aw 1 ibra ry

It bears stressing that petitioner Khe Hong Cheng even expressly declared and represented that he had reserved to
himself property sufficient to answer for his debts contracted prior to this date:

jgc:chanrob les.c om.ph

"That the DONOR further states, for the same purpose as expressed in the next preceding paragraph, that this
donation is not made with the object of defrauding his creditors having reserved to himself property sufficient to
answer his debts contracted prior to this date." 12
As mentioned earlier, respondent Philam only learned about the unlawful conveyances made by petitioner Khe Hong
Cheng in January 1997 when its counsel accompanied the sheriff to Butuan City to attach the properties of petitioner
Khe Hong Cheng. There they found that he no longer had any properties in his name. It was only then that
respondent Philams action for rescission of the deeds of donation accrued because then it could be said that
respondent Philam had exhausted all legal means to satisfy the trial courts judgment in its favor. Since respondent
Philam filed its complaint for accion pauliana against petitioners on February 25, 1997, barely a month from its
discovery that petitioner Khe Hong Cheng had no other property to satisfy the judgment award against him, its action
for rescission of the subject deeds clearly had not yet prescribed.
A final point. Petitioners now belatedly raise on appeal the defense of improper venue claiming that respondent
Philams complaint is a real action and should have been filed with the RTC of Butuan City since the property subject
matter of the donations are located therein. Suffice it to say that petitioners are already deemed to have waived their
right to question the venue of the instant case. Improper venue should be objected to as follows 1) in a motion to
dismiss filed within the time but before the filing of the answer; 13 or 2) in the answer as an affirmative defense over
which, in the discretion of the court, a preliminary hearing may be held as if a motion to dismiss had been filed. 14
Having failed to either file a motion to dismiss on the ground of improper of venue or include the same as an
affirmative defense in their answer, petitioners are deemed to have their right to object to improper venue.
WHEREFORE, premises considered, the petition is hereby DENIED for lack of merit.

[G.R. NO. 147324 : May 25, 2004]


PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION v. GLOBE TELECOM, INC. [G.R. NO. 147334 :
Before the Court are two Petitions for Review assailing the Decision of the Court of Appeals, dated 27 February 2001,
in CA-G.R. CV No. 63619.1

rll

The facts of the case are undisputed.


For several years prior to 1991, Globe Mckay Cable and Radio Corporation, now Globe Telecom, Inc. (Globe), had
been engaged in the coordination of the provision of various communication facilities for the military bases of the
United States of America (US) in Clark Air Base, Angeles, Pampanga and Subic Naval Base in Cubi Point, Zambales.
The said communication facilities were installed and configured for the exclusive use of the US Defense
Communications Agency (USDCA), and for security reasons, were operated only by its personnel or those of American
companies contracted by it to operate said facilities. The USDCA contracted with said American companies, and the
latter, in turn, contracted with Globe for the use of the communication facilities. Globe, on the other hand, contracted
with local service providers such as the Philippine Communications Satellite Corporation (Philcomsat) for the provision
of the communication facilities.
On 07 May 1991, Philcomsat and Globe entered into an Agreement whereby Philcomsat obligated itself to establish,
operate and provide an IBS Standard B earth station (earth station) within Cubi Point for the exclusive use of the
USDCA.2 The term of the contract was for 60 months, or five (5) years.3 In turn, Globe promised to pay Philcomsat
monthly rentals for each leased circuit involved.4

rll

At the time of the execution of the Agreement, both parties knew that the Military Bases Agreement between the
Republic of the Philippines and the US (RP-US Military Bases Agreement), which was the basis for the occupancy of
the Clark Air Base and Subic Naval Base in Cubi Point, was to expire in 1991. Under Section 25, Article XVIII of the
1987 Constitution, foreign military bases, troops or facilities, which include those located at the US Naval Facility in
Cubi Point, shall not be allowed in the Philippines unless a new treaty is duly concurred in by the Senate and ratified
by a majority of the votes cast by the people in a national referendum when the Congress so requires, and such new
treaty is recognized as such by the US Government.
Subsequently, Philcomsat installed and established the earth station at Cubi Point and the USDCA made use of the
same.
On 16 September 1991, the Senate passed and adopted Senate Resolution No. 141, expressing its decision not to
concur in the ratification of the Treaty of Friendship, Cooperation and Security and its Supplementary Agreements that
was supposed to extend the term of the use by the US of Subic Naval Base, among others.5 The last two paragraphs
of the Resolution state:

rb l r l l l b r r

FINDING that the Treaty constitutes a defective framework for the continuing relationship between the two countries
in the spirit of friendship, cooperation and sovereign equality: Now, therefore, be it
Resolved by the Senate, as it is hereby resolved, To express its decision not to concur in the ratification of the Treaty
of Friendship, Cooperation and Security and its Supplementary Agreements, at the same time reaffirming its desire to
continue friendly relations with the government and people of the United States of America. 6

rl l

On 31 December 1991, the Philippine Government sent a Note Verbale to the US Government through the US
Embassy, notifying it of the Philippines termination of the RP-US Military Bases Agreement. The Note Verbale stated

that since the RP-US Military Bases Agreement, as amended, shall terminate on 31 December 1992, the withdrawal of
all US military forces from Subic Naval Base should be completed by said date.
In a letter dated 06 August 1992, Globe notified Philcomsat of its intention to discontinue the use of the earth station
effective 08 November 1992 in view of the withdrawal of US military personnel from Subic Naval Base after the
termination of the RP-US Military Bases Agreement. Globe invoked as basis for the letter of termination Section 8
(Default) of the Agreement, which provides:

rb l r l l lbrr

Neither party shall be held liable or deemed to be in default for any failure to perform its obligation under this
Agreement if such failure results directly or indirectly from force majeure or fortuitous event. Either party is thus
precluded from performing its obligation until such force majeure or fortuitous event shall terminate. For the purpose
of this paragraph, force majeure shall mean circumstances beyond the control of the party involved including, but not
limited to, any law, order, regulation, direction or request of the Government of the Philippines, strikes or other labor
difficulties, insurrection riots, national emergencies, war, acts of public enemies, fire, floods, typhoons or other
catastrophies or acts of God.
Philcomsat sent a reply letter dated 10 August 1992 to Globe, stating that we expect [Globe] to know its commitment
to pay the stipulated rentals for the remaining terms of the Agreement even after [Globe] shall have discontinue[d]
the use of the earth station after November 08, 1992.7 Philcomsat referred to Section 7 of the Agreement, stating as
follows:

rbl r l l l brr

7.DISCONTINUANCE OF SERVICE
Should [Globe] decide to discontinue with the use of the earth station after it has been put into operation, a written
notice shall be served to PHILCOMSAT at least sixty (60) days prior to the expected date of termination.
Notwithstanding the non-use of the earth station, [Globe] shall continue to pay PHILCOMSAT for the rental of the
actual number of T1 circuits in use, but in no case shall be less than the first two (2) T1 circuits, for the remaining life
of the agreement. However, should PHILCOMSAT make use or sell the earth station subject to this agreement, the
obligation of [Globe] to pay the rental for the remaining life of the agreement shall be at such monthly rate as may be
agreed upon by the parties.8

rll

After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter dated 24 November 1993 demanding
payment of its outstanding obligations under the Agreement amounting to US$4,910,136.00 plus interest and
attorneys fees. However, Globe refused to heed Philcomsats demand.
On 27 January 1995, Philcomsat filed with the Regional Trial Court of Makati a Complaint against Globe, praying that
the latter be ordered to pay liquidated damages under the Agreement, with legal interest, exemplary damages,
attorneys fees and costs of suit. The case was raffled to Branch 59 of said court.
Globe filed an Answer to the Complaint, insisting that it was constrained to end the Agreement due to the termination
of the RP-US Military Bases Agreement and the non-ratification by the Senate of the Treaty of Friendship and
Cooperation, which events constituted force majeureunder the Agreement. Globe explained that the occurrence of
said events exempted it from paying rentals for the remaining period of the Agreement.
On 05 January 1999, the trial court rendered its Decision, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:

rb l r l l l b r r

rbl r l l l brr

1.Ordering the defendant to pay the plaintiff the amount of Ninety Two Thousand Two Hundred Thirty Eight US Dollars
(US$92,238.00) or its equivalent in Philippine Currency (computed at the exchange rate prevailing at the time of
compliance or payment) representing rentals for the month of December 1992 with interest thereon at the legal rate
of twelve percent (12%) per annum starting December 1992 until the amount is fully paid;

chan roble svirtual lawlib rary

2.Ordering the defendant to pay the plaintiff the amount of Three Hundred Thousand (P300,000.00) Pesos as and for
attorneys fees;

chanrob lesvi rtual lawlib rary

3.Ordering the DISMISSAL of defendants counterclaim for lack of merit; and


4.With costs against the defendant. SO ORDERED.

c ralawli bra ry

9
rll

Both parties appealed the trial courts Decision to the Court of Appeals.
Philcomsat claimed that the trial court erred in ruling that: (1) the non-ratification by the Senate of the Treaty of
Friendship, Cooperation and Security and its Supplementary Agreements constitutes force majeurewhich exempts
Globe from complying with its obligations under the Agreement; (2) Globe is not liable to pay the rentals for the
remainder of the term of the Agreement; and (3) Globe is not liable to Philcomsat for exemplary damages.
Globe, on the other hand, contended that the RTC erred in holding it liable for payment of rent of the earth station for
December 1992 and of attorneys fees. It explained that it terminated Philcomsats services on 08 November 1992;
hence, it had no reason to pay for rentals beyond that date.
On 27 February 2001, the Court of Appeals promulgated its Decisiondismissing Philcomsats appeal for lack of merit
and affirming the trial courts finding that certain events constituting force majeure under Section 8 the Agreement
occurred and justified the non-payment by Globe of rentals for the remainder of the term of the Agreement.
The appellate court ruled that the non-ratification by the Senate of the Treaty of Friendship, Cooperation and Security,
and its Supplementary Agreements, and the termination by the Philippine Government of the RP-US Military Bases
Agreement effective 31 December 1991 as stated in the Philippine Governments Note Verbale to the US Government,
are acts, directions, or requests of the Government of the Philippines which constitute force majeure. In addition,
there were circumstances beyond the control of the parties, such as the issuance of a formal order by Cdr. Walter
Corliss of the US Navy, the issuance of the letter notification from ATT and the complete withdrawal of all US military
forces and personnel from Cubi Point, which prevented further use of the earth station under the Agreement.
However, the Court of Appeals ruled that although Globe sought to terminate Philcomsats services by 08 November
1992, it is still liable to pay rentals for the December 1992, amounting to US$92,238.00 plus interest, considering that
the US military forces and personnel completely withdrew from Cubi Point only on 31 December 1992. 10

r ll

Both parties filed their respective Petitions for Reviewassailing the Decision of the Court of Appeals.
In G.R. No. 147324,11 petitioner Philcomsat raises the following assignments of error:
A.THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING A DEFINITION OF FORCE MAJEURE DIFFERENT FROM
WHAT ITS LEGAL DEFINITION FOUND IN ARTICLE 1174 OF THE CIVIL CODE, PROVIDES, SO AS TO EXEMPT GLOBE
TELECOM FROM COMPLYING WITH ITS OBLIGATIONS UNDER THE SUBJECT AGREEMENT.
B.THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE TELECOM IS NOT LIABLE TO PHILCOMSAT
FOR RENTALS FOR THE REMAINING TERM OF THE AGREEMENT, DESPITE THE CLEAR TENOR OF SECTION 7 OF THE
AGREEMENT.

C.THE HONORABLE OCURT OF APPEALS ERRED IN DELETING THE TRIAL COURTS AWARD OF ATTORNEYS FEES IN
FAVOR OF PHILCOMSAT.
D.THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE TELECOM IS NOT LIABLE TO PHILCOMSAT
FOR EXEMPLARY DAMAGES.12

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Philcomsat argues that the termination of the RP-US Military Bases Agreement cannot be considered a fortuitous
event because the happening thereof was foreseeable. Although the Agreement was freely entered into by both
parties, Section 8 should be deemed ineffective because it is contrary to Article 1174 of the Civil Code. Philcomsat
posits the view that the validity of the parties definition of force majeure in Section 8 of the Agreement as
circumstances beyond the control of the party involved including, but not limited to, any law, order, regulation,
direction or request of the Government of the Philippines, strikes or other labor difficulties, insurrection riots, national
emergencies, war, acts of public enemies, fire, floods, typhoons or other catastrophies or acts of God, should be
deemed subject to Article 1174 which defines fortuitous events as events which could not be foreseen, or which,
though foreseen, were inevitable.13

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Philcomsat further claims that the Court of Appeals erred in holding that Globe is not liable to pay for the rental of the
earth station for the entire term of the Agreement because it runs counter to what was plainly stipulated by the
parties in Section 7 thereof.Moreover, said ruling is inconsistent with the appellate courts pronouncement that Globe
is liable to pay rentals for December 1992 even though it terminated Philcomsats services effective 08 November
1992, because the US military and personnel completely withdrew from Cubi Point only in December 1992. Philcomsat
points out that it was Globe which proposed the five-year term of the Agreement, and that the other provisions of the
Agreement, such as Section 4.114 thereof, evince the intent of Globe to be bound to pay rentals for the entire five-year
term.15

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Philcomsat also maintains that contrary to the appellate courts findings, it is entitled to attorneys fees and exemplary
damages.16

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In its Comment to Philcomsats Petition, Globe asserts that Section 8 of the Agreement is not contrary to Article 1174
of the Civil Code because said provision does not prohibit parties to a contract from providing for other instances when
they would be exempt from fulfilling their contractual obligations. Globe also claims that the termination of the RP-US
Military Bases Agreement constitutes force majeure and exempts it from complying with its obligations under the
Agreement.17 On the issue of the propriety of awarding attorneys fees and exemplary damages to Philcomsat, Globe
maintains that Philcomsat is not entitled thereto because in refusing to pay rentals for the remainder of the term of
the Agreement, Globe only acted in accordance with its rights.18

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In G.R. No. 147334,19 Globe, the petitioner therein, contends that the Court of Appeals erred in finding it liable for
the amount of US$92,238.00, representing rentals for December 1992, since Philcomsats services were actually
terminated on 08 November 1992.20

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In its Comment, Philcomsat claims that Globes petition should be dismissed as it raises a factual issue which is not
cognizable by the Court in a Petition for Review on Certiorari .21

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On 15 August 2001, the Court issued a Resolution giving due course to Philcomsats Petition in G.R. No. 147324 and
required the parties to submit their respective memoranda.22

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Similarly, on 20 August 2001, the Court issued a Resolutiongiving due course to the Petition filed by Globe in G.R. No.
147334and required both parties to submit their memoranda.23

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Philcomsat and Globe thereafter filed their respective Consolidated Memoranda in the two cases, reiterating their
arguments in their respective petitions.
The Court is tasked to resolve the following issues: (1) whether the termination of the RP-US Military Bases
Agreement, the non-ratification of the Treaty of Friendship, Cooperation and Security, and the consequent withdrawal
of US military forces and personnel from Cubi Point constitute force majeure which would exempt Globe from
complying with its obligation to pay rentals under its Agreement with Philcomsat; (2) whether Globe is liable to pay
rentals under the Agreement for the month of December 1992; and (3) whether Philcomsat is entitled to attorneys
fees and exemplary damages.
No reversible error was committed by the Court of Appeals in issuing the assailed Decision; hence the petitions are
denied.
There is no merit is Philcomsats argument that Section 8 of the Agreement cannot be given effect because the
enumeration of events constitutingforce majeure therein unduly expands the concept of a fortuitous event under
Article 1174 of the Civil Code and is therefore invalid.
In support of its position, Philcomsat contends that under Article 1174 of the Civil Code, an event must be unforeseen
in order to exempt a party to a contract from complying with its obligations therein. It insists that since the expiration
of the RP-US Military Bases Agreement, the non-ratification of the Treaty of Friendship, Cooperation and Security and
the withdrawal of US military forces and personnel from Cubi Point were not unforeseeable, but were possibilities
known to it and Globe at the time they entered into the Agreement, such events cannot exempt Globe from
performing its obligation of paying rentals for the entire five-year term thereof.
However, Article 1174, which exempts an obligor from liability on account of fortuitous events or force majeure, refers
not only to events that are unforeseeable, but also to those which are foreseeable, but inevitable:
Art. 1174. Except in cases specified by the law, or when it is otherwise declared by stipulation, or when the nature of
the obligation requires the assumption of risk, no person shall be responsible for those events which, could not be
foreseen, or which, though foreseen were inevitable.
A fortuitous event under Article 1174 may either be an act of God, or natural occurrences such as floods or
typhoons,24 or an act of man, such as riots, strikes or wars.25

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Philcomsat and Globe agreed in Section 8 of the Agreement that the following events shall be deemed events
constituting force majeure:

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1.Any law, order, regulation, direction or request of the Philippine Government; 2.Strikes or other labor
difficulties; 3.Insurrection; 4.Riots; 5.National emergencies; 6.War;
7.Acts of public enemies;
8.Fire, floods, typhoons or other catastrophies or acts of God;
9.Other circumstances beyond the control of the
parties.
chanroble svir

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chan roble svirtual lawlib rary

chanroblesvi rtua llawlib ra ry

cha nrob lesvi rtua llawli bra ry

chanroble svirtu allawlib rary

chan roblesv irt uallawl ibra ry

Clearly, the foregoing are either unforeseeable, or foreseeable but beyond the control of the parties. There is nothing
in the enumeration that runs contrary to, or expands, the concept of a fortuitous event under Article 1174.
Furthermore, under Article 130626 of the Civil Code, parties to a contract may establish such stipulations, clauses,
terms and conditions as they may deem fit, as long as the same do not run counter to the law, morals, good customs,
public order or public policy.27

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Article 1159 of the Civil Code also provides that [o]bligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.28 Courts cannot stipulate for the parties nor amend their

agreement where the same does not contravene law, morals, good customs, public order or public policy, for to do so
would be to alter the real intent of the parties, and would run contrary to the function of the courts to give force and
effect thereto.29

rl l

Not being contrary to law, morals, good customs, public order, or public policy, Section 8 of the Agreement which
Philcomsat and Globe freely agreed upon has the force of law between them.30

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In order that Globe may be exempt from non-compliance with its obligation to pay rentals under Section 8, the
concurrence of the following elements must be established: (1) the event must be independent of the human will; (2)
the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; and (3) the obligor
must be free of participation in, or aggravation of, the injury to the creditor. 31

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The Court agrees with the Court of Appeals and the trial court that the abovementioned requisites are present in the
instant case. Philcomsat and Globe had no control over the non-renewal of the term of the RP-US Military Bases
Agreement when the same expired in 1991, because the prerogative to ratify the treaty extending the life thereof
belonged to the Senate. Neither did the parties have control over the subsequent withdrawal of the US military forces
and personnel from Cubi Point in December 1992:

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Obviously the non-ratification by the Senate of the RP-US Military Bases Agreement (and its Supplemental
Agreements) under its Resolution No. 141. (Exhibit 2) on September 16, 1991 is beyond the control of the parties.
This resolution was followed by the sending on December 31, 1991 o[f] a Note Verbale (Exhibit 3) by the Philippine
Government to the US Government notifying the latter of the formers termination of the RP-US Military Bases
Agreement (as amended) on 31 December 1992 and that accordingly, the withdrawal of all U.S. military forces from
Subic Naval Base should be completed by said date. Subsequently, defendant [Globe] received a formal order from
Cdr. Walter F. Corliss II Commander USN dated July 31, 1992 and a notification from ATT dated July 29, 1992 to
terminate the provision of T1s services (via an IBS Standard B Earth Station) effective November 08, 1992. Plaintiff
[Philcomsat] was furnished with copies of the said order and letter by the defendant on August 06, 1992.
Resolution No. 141 of the Philippine Senate and the Note Verbale of the Philippine Government to the US Government
are acts, direction or request of the Government of the Philippines and circumstances beyond the control of the
defendant. The formal order from Cdr. Walter Corliss of the USN, the letter notification from ATT and the complete
withdrawal of all the military forces and personnel from Cubi Point in the year-end 1992 are also acts and
circumstances beyond the control of the defendant.
Considering the foregoing, the Court finds and so holds that the afore-narrated circumstances constitute force
majeure or fortuitous event(s) as defined under paragraph 8 of the Agreement.
From the foregoing, the Court finds that the defendant is exempted from paying the rentals for the facility for the
remaining term of the contract.
As a consequence of the termination of the RP-US Military Bases Agreement (as amended) the continued stay of all
US Military forces and personnel from Subic Naval Base would no longer be allowed, hence, plaintiff would no longer
be in any position to render the service it was obligated under the Agreement. To put it blantly (sic), since the US
military forces and personnel left or withdrew from Cubi Point in the year end December 1992, there was no longer
any necessity for the plaintiff to continue maintaining the IBS facility.32 (Emphasis in the original.)
The aforementioned events made impossible the continuation of the Agreement until the end of its five-year term
without fault on the part of either party. The Court of Appeals was thus correct in ruling that the happening of such
fortuitous events rendered Globe exempt from payment of rentals for the remainder of the term of the Agreement.

Moreover, it would be unjust to require Globe to continue paying rentals even though Philcomsat cannot be compelled
to perform its corresponding obligation under the Agreement. As noted by the appellate court:

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We also point out the sheer inequity of PHILCOMSATs position. PHILCOMSAT would like to charge GLOBE rentals for
the balance of the lease term without there being any corresponding telecommunications service subject of the
lease.It will be grossly unfair and iniquitous to hold GLOBE liable for lease charges for a service that was not and could
not have been rendered due to an act of the government which was clearly beyond GLOBEs control. The binding effect
of a contract on both parties is based on the principle that the obligations arising from contracts have the force of law
between the contracting parties, and there must be mutuality between them based essentially on their equality under
which it is repugnant to have one party bound by the contract while leaving the other party free therefrom (Allied
Banking Corporation v. Court of Appeals, 284 SCRA 357).

33
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With respect to the issue of whether Globe is liable for payment of rentals for the month of December 1992, the Court
likewise affirms the appellate courts ruling that Globe should pay the same.
Although Globe alleged that it terminated the Agreement with Philcomsat effective 08 November 1992 pursuant to the
formal order issued by Cdr. Corliss of the US Navy, the date when they actually ceased using the earth station subject
of the Agreement was not established during the trial.34 However, the trial court found that the US military forces and
personnel completely withdrew from Cubi Point only on 31 December 1992. 35 Thus, until that date, the USDCA had
control over the earth station and had the option of using the same. Furthermore, Philcomsat could not have removed
or rendered ineffective said communication facility until after 31 December 1992 because Cubi Point was accessible
only to US naval personnel up to that time. Hence, the Court of Appeals did not err when it affirmed the trial courts
ruling that Globe is liable for payment of rentals until December 1992.
Neither did the appellate court commit any error in holding that Philcomsat is not entitled to attorneys fees and
exemplary damages.
The award of attorneys fees is the exception rather than the rule, and must be supported by factual, legal and
equitable justifications.36 In previously decided cases, the Court awarded attorneys fees where a party acted in gross
and evident bad faith in refusing to satisfy the other partys claims and compelled the former to litigate to protect his
rights;37 when the action filed is clearly unfounded,38 or where moral or exemplary damages are awarded.39 However,
in cases where both parties have legitimate claims against each other and no party actually prevailed, such as in the
present case where the claims of both parties were sustained in part, an award of attorneys fees would not be
warranted.40

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Exemplary damages may be awarded in cases involving contracts or quasi-contracts, if the erring party acted in a
wanton, fraudulent, reckless, oppressive or malevolent manner.41 In the present case, it was not shown that Globe
acted wantonly or oppressively in not heeding Philcomsats demands for payment of rentals. It was established during
the trial of the case before the trial court that Globe had valid grounds for refusing to comply with its contractual
obligations after 1992.
WHEREFORE, the Petitionsare DENIED for lack of merit. The assailed Decision of the Court of Appeals in CA-G.R. CV
No. 63619 is AFFIRMED.

[G.R. No. 141811. November 15, 2001.]


FIRST METRO INVESTMENT CORPORATION v. ESTE DEL SOL MOUNTAIN RESERVE
Before us is a petition for review on certiorari of the Decision 1 of the Court of Appeals 2 dated November 8, 1999 in
CA-G.R. CV No. 53328 reversing the Decision 3 of the Regional Trial Court of Pasig City, Branch 159 dated June 2,
1994 in Civil Case No. 39224. Essentially, the Court of Appeals found and declared that the fees provided for in the
Underwriting and Consultancy Agreements executed by and between petitioner First Metro Investment Corp. (FMIC)
and respondent Este del Sol Mountain Reserve, Inc. (Este del Sol) simultaneously with the Loan Agreement dated
January 31, 1978 were mere subterfuges to camouflage the usurious interest charged by petitioner FMIC.
The facts of the case are as follows:

chan rob1e s vi rtua1 1aw 1ib rary

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It appears that on January 31, 1978, petitioner FMIC granted respondent Este del Sol a loan of Seven Million Three
Hundred Eighty-Five Thousand Five Hundred Pesos (P7,385,500.00) to finance the construction and development of
the Este del Sol Mountain Reserve, a sports/resort complex project located at Barrio Puray, Montalban, Rizal. 4
Under the terms of the Loan Agreement, the proceeds of the loan were to be released on staggered basis. Interest on
the loan was pegged at sixteen (16%) percent per annum based on the diminishing balance. The loan was payable in
thirty-six (36) equal and consecutive monthly amortizations to commence at the beginning of the thirteenth month
from the date of the first release in accordance with the Schedule of Amortization. 5 In case of default, an acceleration
clause was, among others, provided and the amount due was made subject to a twenty (20%) percent one-time
penalty on the amount due and such amount shall bear interest at the highest rate permitted by law from the date of
default until full payment thereof plus liquidated damages at the rate of two (2%) percent per month compounded
quarterly on the unpaid balance and accrued interests together with all the penalties, fees, expenses or charges
thereon until the unpaid balance is fully paid, plus attorneys fees equivalent to twenty-five (25%) percent of the sum
sought to be recovered, which in no case shall be less than Twenty Thousand Pesos (P20,000.00) if the services of a
lawyer were hired. 6
In accordance with the terms of the Loan Agreement, respondent Este del Sol executed several documents 7 as
security for payment, among them, (a) a Real Estate Mortgage dated January 31, 1978 over two (2) parcels of land
being utilized as the site of its development project with an area of approximately One Million Twenty-Eight Thousand
and Twenty-Nine (1,028,029) square meters and particularly described in TCT Nos. N-24332 and N-24356 of the
Register of Deeds of Rizal, inclusive of all improvements, as well as all the machineries, equipment, furnishings and
furnitures existing thereon; and (b) individual Continuing Suretyship agreements by co-respondents Valentin S. Daez,
Jr., Manuel Q. Salientes, Ma. Rocio A. De Vega, Alexander G. Asuncion, Alberto M. Ladores, Vicente M. De Vera, Jr.
and Felipe B. Sese, all dated February 2, 1978, to guarantee the payment of all the obligations of respondent Este del
Sol up to the aggregate sum of Seven Million Five Hundred Thousand Pesos (P7,500,000.00) each. 8
Respondent Este del Sol also executed, as provided for by the Loan Agreement, an Underwriting Agreement on
January 31, 1978 whereby petitioner FMIC shall underwrite on a best-efforts basis the public offering of One Hundred
Twenty Thousand (120,000) common shares of respondent Este del Sols capital stock for a one-time underwriting fee
of Two Hundred Thousand Pesos (P200,000.00). In addition to the underwriting fee, the Underwriting Agreement
provided that for supervising the public offering of the shares, respondent Este del Sol shall pay petitioner FMIC an
annual supervision fee of Two Hundred Thousand Pesos (P200,000.00) per annum for a period of four (4) consecutive
years. The Underwriting Agreement also stipulated for the payment by respondent Este del Sol to petitioner FMIC a
consultancy fee of Three Hundred Thirty-Two Thousand Five Hundred Pesos (P332,500.00) per annum for a period of
four (4) consecutive years. Simultaneous with the execution of and in accordance with the terms of the Underwriting

Agreement, a Consultancy Agreement was also executed on January 31, 1978 whereby respondent Este del Sol
engaged the services of petitioner FMIC for a fee as consultant to render general consultancy services. 9
In three (3) letters all dated February 22, 1978 petitioner billed respondent Este del Sol for the amounts of [a] Two
Hundred Thousand Pesos (P200,000.00) as the underwriting fee of petitioner FMIC in connection with the public
offering of the common shares of stock of respondent Este del Sol; [b] One Million Three Hundred Thirty Thousand
Pesos (P1,330,000.00) as consultancy fee for a period of four (4) years; and [c] Two Hundred Thousand Pesos
(P200,000.00) as supervision fee for the year beginning February, 1978, in accordance to the Underwriting
Agreement. 10 The said amounts of fees were deemed paid by respondent Este del Sol to petitioner FMIC which
deducted the same from the first release of the loan.

chanrob1es vi rt ua1 1aw 1i bra ry

Since respondent Este del Sol failed to meet the schedule of repayment in accordance with a revised Schedule of
Amortization, it appeared to have incurred a total obligation of Twelve Million Six Hundred Seventy-Nine Thousand Six
Hundred Thirty Pesos and Ninety-Eight Centavos (P12,679,630.98) per the petitioners Statement of Account dated
June 23, 1980, 11 to wit:

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Accordingly, petitioner FMIC caused the extrajudicial foreclosure of the real estate mortgage on June 23, 1980. 12 At
the public auction, petitioner FMIC was the highest bidder of the mortgaged properties for Nine Million Pesos
(P9,000,000.00). The total amount of Three Million One Hundred Eighty-Eight Thousand Six Hundred Thirty Pesos and
Seventy-Five Centavos (P3,188,630.75) was deducted therefrom, that is, for the publication fee for the publication of
the Sheriffs Notice of Sale, Four Thousand Nine Hundred Sixty-Four Pesos (P4,964.00); for Sheriffs fees for
conducting the foreclosure proceedings, Fifteen Thousand Pesos (P15,000.00); and for Attorneys fees, Three Million
One Hundred Sixty-Eight Thousand Six Hundred Sixty-Six Pesos and Seventy-Five Centavos (P3,168,666.75). The
remaining balance of Five Million Eight Hundred Eleven Thousand Three Hundred Sixty-Nine Pesos and Twenty-Five
Centavos (P5,811,369.25) was applied to interests and penalty charges and partly against the principal, due as of
June 23, 1980, thereby leaving a balance of Six Million Eight Hundred Sixty-Three Thousand Two Hundred NinetySeven Pesos and Seventy-Three Centavos (P6,863,297.73) on the principal amount of the loan as of June 23, 1980.
Failing to secure from the individual respondents, as sureties of the loan of respondent Este del Sol by virtue of their
continuing surety agreements, the payment of the alleged deficiency balance, despite individual demands sent to each
of them, 14 petitioner instituted on November 11, 1980 the instant collection suit 15 against the respondents to
collect the alleged deficiency balance of Six Million Eight Hundred Sixty-Three Thousand Two Hundred Ninety-Seven
Pesos and Seventy-Three Centavos (P6,863,297.73) plus interest thereon at twenty-one (21%) percent per annum
from June 24, 1980 until fully paid, and twenty-five (25%) percent thereof as and for attorneys fees and costs.

chanro b1es vi rt ua1 1aw 1i bra ry

In their Answer, the respondents sought the dismissal of the case and set up several special and affirmative defenses,
foremost of which is that the Underwriting and Consultancy Agreements executed simultaneously with and as integral
parts of the Loan Agreement and which provided for the payment of Underwriting, Consultancy and Supervision fees
were in reality subterfuges resorted to by petitioner FMIC and imposed upon respondent Este del Sol to camouflage
the usurious interest being charged by petitioner FMIC. 16
The petitioner FMIC presented as its witnesses during the trial: Cesar Valenzuela, its former Senior Vice-President,
Felipe Neri, its Vice-President for Marketing, and Dennis Aragon, an Account Manager of its Account Management
Group, as well as documentary evidence. On the other hand, co-respondents Vicente M. De Vera, Jr. and Valentin S.
Daez, Jr., and Perfecto Doroja, former Senior Manager and Assistant Vice-President of FMIC, testified for the
respondents.

After the trial, the trial court rendered its decision in favor of petitioner FMIC, the dispositive portion of which reads:

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1aw libra ry

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants, ordering defendants jointly
and severally to pay to plaintiff the amount of P6,863,297.73 plus 21% interest per annum, from June 24, 1980, until
the entire amount is fully paid, plus the amount equivalent to 25% of the total amount due, as attorneys fees, plus
costs of suit.
Defendants counterclaims are dismissed, for lack of merit.
Finding the decision of the trial court unacceptable, respondents interposed an appeal to the Court of Appeals. On
November 8, 1999, the appellate court reversed the challenged decision of the trial court. The appellate court found
and declared that the fees provided for in the Underwriting and Consultancy Agreements were mere subterfuges to
camouflage the excessively usurious interest charged by the petitioner FMIC on the loan of respondent Este del Sol;
and that the stipulated penalties, liquidated damages and attorneys fees were "excessive, iniquitous, unconscionable
and revolting to the conscience," and declared that in lieu thereof, the stipulated one time twenty (20%) percent
penalty on the amount due and ten (10%) percent of the amount due as attorneys fees would be reasonable and
suffice to compensate petitioner FMIC for those items. Thus, the appellate court dismissed the complaint as against
the individual respondents sureties and ordered petitioner FMIC to pay or reimburse respondent Este del Sol the
amount of Nine Hundred Seventy-One Thousand Pesos (P971,000.00) representing the difference between what is
due to the petitioner and what is due to respondent Este del Sol, based on the following computation: 17
The appellee is, therefore, obliged to return to the appellant Este del Sol the difference of P971,000.00 or
(P1,730,000.00 less P759,000.00).
Petitioner moved for reconsideration of the appellate courts adverse decision. However, this was denied in a
Resolution 18 dated February 9, 2000 of the appellate court.

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Hence, the instant petition anchored on the following assigned errors: 19


THE APPELLATE COURT HAS DECIDED QUESTIONS OF SUBSTANCE IN A WAY NOT IN ACCORD WITH LAW AND WITH
APPLICABLE DECISIONS OF THIS HONORABLE COURT WHEN IT:

cha nro b1es vi rtua l 1aw lib ra ry

a] HELD THAT ALLEGEDLY THE UNDERWRITING AND CONSULTANCY AGREEMENTS SHOULD NOT BE CONSIDERED
SEPARATE AND DISTINCT FROM THE LOAN AGREEMENT, AND INSTEAD, THEY SHOULD BE CONSIDERED AS A
SINGLE CONTRACT.
b] HELD THAT THE UNDERWRITING AND CONSULTANCY AGREEMENTS ARE "MERE SUBTERFUGES TO CAMOUFLAGE
THE USURIOUS INTEREST CHARGED" BY THE PETITIONER.
c] REFUSED TO CONSIDER THE TESTIMONIES OF PETITIONERS WITNESSES ON THE SERVICES PERFORMED BY
PETITIONER.
d] REFUSED TO CONSIDER THE FACT [i] THAT RESPONDENTS HAD WAIVED THEIR RIGHT TO SEEK RECOVERY OF
THE AMOUNTS THEY PAID TO PETITIONER, AND [ii] THAT RESPONDENTS HAD ADMITTED THE VALIDITY OF THE
UNDERWRITING AND CONSULTANCY AGREEMENTS.
e] MADE AN ERRONEOUS COMPUTATION ON SUPPOSEDLY "WHAT IS DUE TO EACH PARTY AFTER THE FORECLOSURE
SALE", AS SHOWN IN PP. 34-35 OF THE ASSAILED DECISION, EVEN GRANTING JUST FOR THE SAKE OF ARGUMENT

THAT THE APPELLATE COURT WAS CORRECT IN STIGMATIZING [i] THE PROVISIONS OF THE LOAN AGREEMENT THAT
REFER TO STIPULATED PENALTIES, LIQUIDATED DAMAGES AND ATTORNEYS FEES AS SUPPOSEDLY "EXCESSIVE,
INIQUITOUS AND UNCONSCIONABLE AND REVOLTING TO THE CONSCIENCE" AND [ii] THE UNDERWRITING,
SUPERVISION AND CONSULTANCY SERVICES AGREEMENT AS SUPPOSEDLY "MERE SUBTERFUGES TO CAMOUFLAGE
THE USURIOUS INTEREST CHARGED" UPON THE RESPONDENT ESTE BY PETITIONER.
f] REFUSED TO CONSIDER THE FACT THAT RESPONDENT ESTE, AND THUS THE INDIVIDUAL RESPONDENTS, ARE
STILL OBLIGATED TO THE PETITIONER.
Petitioner essentially assails the factual findings and conclusion of the appellate court that the Underwriting and
Consultancy Agreements were executed to conceal a usurious loan. Inquiry upon the veracity of the appellate courts
factual findings and conclusion is not the function of this Court for the Supreme Court is not a trier of facts. Only when
the factual findings of the trial court and the appellate court are opposed to each other does this Court exercise its
discretion to re-examine the factual findings of both courts and weigh which, after considering the record of the case,
is more in accord with law and justice.

cralaw : re d

After a careful and thorough review of the record including the evidence adduced, we find no reason to depart from
the findings of the appellate court.
First, there is no merit to petitioner FMICs contention that Central Bank Circular No. 905 which took effect on January
1, 1983 and removed the ceiling on interest rates for secured and unsecured loans, regardless of maturity, should be
applied retroactively to a contract executed on January 31, 1978, as in the case at bar, that is, while the Usury Law
was in full force and effect. It is an elementary rule of contracts that the laws, in force at the time the contract was
made and entered into, govern it. 20 More significantly, Central Bank Circular No. 905 did not repeal nor in any way
amend the Usury Law but simply suspended the latters effectivity. 21 The illegality of usury is wholly the creature of
legislation. A Central Bank Circular cannot repeal a law. Only a law can repeal another law. 22 Thus, retroactive
application of a Central Bank Circular cannot, and should not, be presumed. 23
Second, when a contract between two (2) parties is evidenced by a written instrument, such document is ordinarily
the best evidence of the terms of the contract. Courts only need to rely on the face of written contracts to determine
the intention of the parties. However, this rule is not without exception. 24 The form of the contract is not conclusive
for the law will not permit a usurious loan to hide itself behind a legal form. Parol evidence is admissible to show that
a written document though legal in form was in fact a device to cover usury. If from a construction of the whole
transaction it becomes apparent that there exists a corrupt intention to violate the Usury Law, the courts should and
will permit no scheme, however ingenious, to becloud the crime of usury.25

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In the instant case, several facts and circumstances taken altogether show that the Underwriting and Consultancy
Agreements were simply cloaks or devices to cover an illegal scheme employed by petitioner FMIC to conceal and
collect excessively usurious interest, and these are:

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a) The Underwriting and Consultancy Agreements are both dated January 31, 1978 which is the same date of the
Loan Agreement. 26 Furthermore, under the Underwriting Agreement payment of the supervision and consultancy
fees was set for a period of four (4) years 27 to coincide ultimately with the term of the Loan Agreement. 28 This fact
means that all the said agreements which were executed simultaneously were set to mature or shall remain effective
during the same period of time.

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b) The Loan Agreement dated January 31, 1978 stipulated for the execution and delivery of an underwriting

agreement 29 and specifically mentioned that such underwriting agreement is a condition precedent 30 for petitioner
FMIC to extend the loan to respondent Este del Sol, indicating and as admitted by petitioner FMICs employees, 31
that such Underwriting Agreement is "part and parcel of the Loan Agreement." 32
c) Respondent Este del Sol was billed by petitioner on February 28, 1978 One Million Three Hundred Thirty Thousand
Pesos (P1,330,000.00) 33 as consultancy fee despite the clear provision in the Consultancy Agreement that the said
agreement is for Three Hundred Thirty-Two Thousand Five Hundred Pesos (P332,500.00) per annum for four (4) years
and that only the first year consultancy fee shall be due upon signing of the said consultancy agreement. 34
d) The Underwriting, Supervision and Consultancy fees in the amounts of Two Hundred Thousand Pesos
(P200,000.00), and one Million Three Hundred Thirty Thousand Pesos (P1,330,000.00), respectively, were billed by
petitioner to respondent Este del Sol on February 22, 1978, 35 that is, on the same occasion of the first partial release
of the loan in the amount of Two Million Three Hundred Eighty-Two Thousand Five Hundred Pesos (P2,382,500.00).
36 It is from this first partial release of the loan that the said corresponding bills for Underwriting, Supervision and
Constantly fees were conducted and apparently paid, thus, reverting back to petitioner FMIC the total amount of One
Million Seven Hundred Thirty Thousand Pesos (P1,730,000.00) as part of the amount loaned to respondent Este del
Sol. 37
e) Petitioner FMIC was in fact unable to organize an underwriting/selling syndicate to sell any share of stock of
respondent Este del Sol and much less to supervise such a syndicate, thus failing to comply with its obligation under
the Underwriting Agreement. 38 Besides, there was really no need for an Underwriting Agreement since respondent
Este del Sol had its own licensed marketing arm to sell its shares and all its shares have been sold through its
marketing arm. 39
f) Petitioner FMIC failed to comply with its obligation under the Consultancy Agreement, 40 aside from the fact that
there was no need for a Consultancy Agreement, since respondent Este del Sols officers appeared to be more
competent to be consultants in the development of the projected sports/resort complex. 41
All the foregoing established facts and circumstances clearly belie the contention of petitioner FMIC that the Loan,
Underwriting and Consultancy Agreements are separate and independent transactions. The Underwriting and
Consultancy Agreements which were executed and delivered contemporaneously with the Loan Agreement on January
31, 1978 were exacted by petitioner FMIC as essential conditions for the grant of the loan. An apparently lawful loan
is usurious when it is intended that additional compensation for the loan be disguised by an ostensibly unrelated
contract providing for payment by the borrower for the lenders services which are of little value or which are not in
fact to be rendered, such as in the instant case. 42 In this connection, Article 1957 of the New Civil Code clearly
provides that:

chanrob1es vi rtua l 1aw lib ra ry

Art. 1957. Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against
usury shall be void. The borrower may recover in accordance with the laws on usury.

chan rob1e s virtua1 1aw 1 ibra ry

In usurious loans, the entire obligation does not become void because of an agreement for usurious interest; the
unpaid principal debt still stands and remains valid but the stipulation as to the usurious interest is void,
consequently, the debt is to be considered without stipulation as to the interest. 43 The reason for this rule was
adequately explained in the case of Angel Jose Warehousing Co., Inc. v. Chelda Enterprises 44 where this Court
held:

chanrob 1es vi rtual 1aw lib rary

In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal debt, which is the

cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only as to the prestation to pay the
stipulated interest; hence, being separable, the latter only should be deemed void, since it is the only one that is
illegal.
Thus, the nullity of the stipulation on the usurious interest does not affect the lenders right to receive back the
principal amount of the loan. With respect to the debtor, the amount paid as interest under a usurious agreement is
recoverable by him, since the payment is deemed to have been made under restraint, rather than voluntarily. 45
This Court agrees with the factual findings and conclusion of the appellate court, to wit:

chanrob1e s virtual 1aw l ibra ry

We find the stipulated penalties, liquidated damages and attorneys fees, excessive, iniquitous and unconscionable
and revolting to the conscience as they hardly allow the borrower any chance of survival in case of default. And true
enough, ESTE folded up when the appellee extrajudicially foreclosed on its (ESTEs) development project and literally
closed its offices as both the appellee and ESTE were at the time holding office in the same building. Accordingly, we
hold that 20% penalty on the amount due and 10% of the proceeds of the foreclosure sale as attorneys fees would
suffice to compensate the appellee, especially so because there is no clear showing that the appellee hired the
services of counsel to effect the foreclosure, it engaged counsel only when it was seeking the recovery of the alleged
deficiency.
Attorneys fees as provided in penal clauses are in the nature of liquidated damages. So long as such stipulation does
not contravene any law, morals, or public order, it is binding upon the parties. Nonetheless, courts are empowered to
reduce the amount of attorneys fees if the same is "iniquitous or unconscionable." 46 Articles 1229 and 2227 of the
New Civil Code provide that:

chanrob 1es vi rtual 1aw lib rary

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly
complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if
it is iniquitous or unconscionable.
Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are
iniquitous or unconscionable.
In the case at bar, the amount of Three Million One Hundred Eighty-Eight Thousand Six Hundred Thirty Pesos and
Seventy-Five Centavos (93,188,630.75) for the stipulated attorneys fees equivalent to twenty-five (25%) percent of
the alleged amount due, as of the date of the auction sale on June 23, 1980, is manifestly exorbitant and
unconscionable. Accordingly, we agree with the appellate court that a reduction of the attorneys fees to ten (10%)
percent is appropriate and reasonable under the facts and circumstances of this case.
Lastly, there is no merit to petitioner FMICs contention that the appellate court erred in awarding an amount allegedly
not asked nor prayed for by respondents. Whether the exact amount of the relief was not expressly prayed for is of no
moment for the reason that the relief was plainly warranted by the allegations of the respondents as well as by the
facts as found by the appellate court. A party is entitled to as much relief as the facts may warrant. 47
In view of all the foregoing, the Court is convinced that the appellate court committed no reversible error in its
challenged Decision.

chanrob1e s virtua1 1aw 1ib rary

WHEREFORE, the instant petition is hereby DENIED, and the assailed Decision of the Court of Appeals is AFFIRMED.
Costs against petitioner.

[G.R. No. 137552. June 16, 2000.]


ROBERTO Z. LAFORTEZA v. ALONZO MACHUCA, Respondent.
This Petition for Review on Certiorari seeks the reversal of the Decision of the Court of Appeals 1 in CA G.R. CV No.
47457 entitled "ALONZO MACHUCA versus ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, LEA ZULUETALAFORTEZA, MICHAEL Z. LAFORTEZA, and DENNIS Z. LAFORTEZA" .
The following facts as found by the Court of Appeals are undisputed:

chan roble s virtuall awlib rary:re d

jgc:chanro bles. com.ph

"The property involved consists of a house and lot located at No. 7757 Sherwood Street, Marcelo Green Village,
Paraaque, Metro Manila, covered by Transfer Certificate of Title (TCT) No. (220656) 8941 of the Register of Deeds of
Paraaque (Exhibit "D", Plaintiff, record, pp. 331-332). The subject property is registered in the name of the late
Francisco Q. Laforteza, although it is conjugal in nature (Exhibit "8", Defendants, record pp. 331-386).
On August 2, 1988, defendant Lea Zulueta-Laforteza executed a Special Power of Attorney in favor of defendants
Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr., appointing both as her Attorney-in-fact authorizing them jointly to
sell the subject property and sign any document for the settlement of the estate of the late Francisco Q. Laforteza
(Exh. "A" Plaintiff, record, pp. 323-325).
Likewise on the same day, defendant Michael Z. Laforteza executed a Special Power of Attorney in favor of defendants
Roberto Z. Laforteza and Gonzalo Laforteza, Jr., likewise, granting the same authority (Exh. "B", record, pp. 326328). Both agency instruments contained a provision that in any document or paper to exercise authority granted, the
signature of both attorneys-in-fact must be affixed.
On October 27, 1988, defendant Dennis Z. Laforteza executed a Special Power of Attorney in favor of defendant
Roberto Z. Laforteza for the purpose of selling the subject property (Exh. "C", Plaintiff, record, pp. 329-330). A year
later, on October 30, 1989, Dennis Z. Laforteza executed another Special Power of Attorney in favor of defendants
Roberto Z. Laforteza and Gonzalo Laforteza, Jr. naming both attorneys-in-fact for the purpose of selling the subject
property and signing any document for the settlement of the estate of the late Francisco Q. Laforteza. The subsequent
agency instrument (Exh. "2", record, pp. 371-373) contained similar provisions that both attorneys-in-fact should sign
any document or paper executed in the exercise of their authority.

chanro bles. com : virtual law l ibra ry

In the exercise of the above authority, on January 20, 1989, the heirs of the late Francisco Q. Laforteza represented
by Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr. entered into a Memorandum of Agreement (Contract to Sell)
with the plaintiff 2 over the subject property for the sum of SIX HUNDRED THIRTY THOUSAND PESOS (P630,000.00)
payable as follows:

chanrob1es v irt ual 1aw l ibra ry

(a). P30,000.00 as earnest money, to be forfeited in favor of the defendants if the sale is not effected due to the fault
of the plaintiff;
(b). P600,000.00 upon issuance of the new certificate of title in the name of the late Francisco Q. Laforteza and upon
execution of an extra-judicial settlement of the decedents estate with sale in favor of the plaintiff (Par. 2, Exh. "E",
record, pp. 335 336).
Significantly, the fourth paragraph of the Memorandum of Agreement (Contract to Sell) dated January 20, 1989 (Exh.
"E", supra.) contained a provision as follows:

chanrob1es v irt ual 1aw l ibra ry

. . . Upon issuance by the proper Court of the new title, the BUYER- LESSEE shall be notified in writing and said
BUYER-LESSEE shall have thirty (30) days to produce the balance of P600,000.00 which shall be paid to the SELLERLESSORS upon the execution of the Extra-judicial Settlement with sale.
On January 20, 1989, plaintiff paid the earnest money of THIRTY THOUSAND PESOS (P30,000.00), plus rentals for the
subject property (Exh. "F", Plaintiff, record, p. 339).
On September 18, 1998, 3 defendant heirs, through their counsel wrote a letter (Exh. 1, Defendants, record, p. 370)
to the plaintiff furnishing the latter a copy of the reconstituted title to the subject property, advising him that he had
thirty (30) days to produce the balance of SIX HUNDRED PESOS (sic) (P600,000.00) under the Memorandum of
Agreement which plaintiff received on the same date.
On October 18, 1989, plaintiff sent the defendant heirs a letter requesting for an extension of the THIRTY (30) DAYS
deadline up to November 15, 1989 within which to produce the balance of SIX HUNDRED THOUSAND PESOS
(P600,000.00) (Exh. "G", Plaintiff, record, pp. 341-342). Defendant Roberto Z. Laforteza, assisted by his counsel Atty.
Romeo L. Gutierrez, signed his conformity to the plaintiffs letter request (Exh. "G-1 and "G-2", Plaintiff, record, p.
342). The extension, however, does not appear to have been approved by Gonzalo Z. Laforteza, the second attorneyin-fact as his conformity does not appear to have been secured.
On November 15, 1989, plaintiff informed the defendant heirs, through defendant Roberto Z. Laforteza, that he
already had the balance of SIX HUNDRED THOUSAND PESOS (P600,000.00) covered by United Coconut Planters Bank
Managers Check No. 000814 dated November 15, 1989 (TSN, August 25, 1992, p. 11; Exhs. "H", record, pp. 343344; "M", records p. 350; and "N", record, p. 351). However, the defendants, refused to accept the balance (TSN,
August 24, 1992, p. 14; Exhs. "M-1", Plaintiff, record, p. 350; and "N-1", Plaintiff, record, p. 351). Defendant Roberto
Z. Laforteza had told him that the subject property was no longer for sale (TSN, October 20, 1992, p. 19; Exh. "J",
record, p. 347).
On November 20, 19984 , defendants informed the plaintiff that they were canceling the Memorandum of Agreement
(Contract to Sell) in view of the plaintiffs failure to comply with his contractual obligations (Exh. "3").
Thereafter, plaintiff reiterated his request to tender payment of the balance of SIX HUNDRED THOUSAND PESOS
(P600,000.00). Defendants, however, insisted on the rescission of the Memorandum of Agreement. Thereafter,
plaintiff filed the instant action for specific performance. The lower court rendered judgment on July 6, 1994 in favor
of the plaintiff, the dispositive portion of which reads:

c h anrob1e s virtual 1aw lib rary

WHEREFORE, judgment is hereby rendered in favor of plaintiff Alonzo Machuca and against the defendant heirs of the
late Francisco Q. Laforteza, ordering the said defendants.
(a) To accept the balance of P600,000.00 as full payment of the consideration for the purchase of the house and lot
located at No. 7757 Sherwood Street, Marcelo Green Village, Paraaque, Metro Manila, covered by Transfer Certificate
of Title No. (220656) 8941 of the Registry of Deeds of Rizal Paraaque, Branch;
(b) To execute a registrable deed of absolute sale over the subject property in favor of the plaintiff;
(c) Jointly and severally to pay the plaintiff the sum of P20,000.00 as attorneys fees plus cost of suit.
Petitioners appealed to the Court of Appeals, which affirmed with modification the decision of the lower court; the
dispositive portion of the Decision reads:

chanrobles. com.ph : red

"WHEREFORE, the questioned decision of the lower court is hereby AFFIRMED with the MODIFICATION that defendant
heirs Lea Zulueta-Laforteza, Michael Z. Laforteza, Dennis Z. Laforteza and Roberto Z. Laforteza including Gonzalo Z.
Laforteza, Jr. are hereby ordered to pay jointly and severally the sum of FIFTY THOUSAND PESOS (P50,000.00) as
moral damages. SO ORDERED." 6
Motion for Reconsideration was denied but the Decision was modified so as to absolve Gonzalo Z. Laforteza, Jr. from
liability for the payment of moral damages. 7 Hence this petition wherein the petitioners raise the following issues:

jgc:cha nrob les.c om.ph

"I. WHETHER THE TRIAL AND APPELLATE COURTS CORRECTLY CONSTRUED THE MEMORANDUM OF AGREEMENT AS
IMPOSING RECIPROCAL OBLIGATIONS.
II. WHETHER THE COURTS A QUO CORRECTLY RULED THAT RESCISSION WILL NOT LIE IN THE INSTANT CASE.
III. WHETHER THE RESPONDENT IS UNDER ESTOPPEL FROM RAISING THE ALLEGED DEFECT IN THE SPECIAL POWER
OF ATTORNEY DATED 30 OCTOBER 1989 EXECUTED BY DENNIS LAFORTEZA.
IV. SUPPOSING EX GRATIA ARGUMENTI THE MEMORANDUM OF AGREEMENT IMPOSES RECIPROCAL OBLIGATIONS,
WHETHER THE PETITIONERS MAY BE COMPELLED TO SELL THE SUBJECT PROPERTY WHEN THE RESPONDENT FAILED
TO MAKE A JUDICIAL CONSIGNATION OF THE PURCHASE PRICE?
V. WHETHER THE PETITIONERS ARE IN BAD FAITH SO TO AS MAKE THEM LIABLE FOR MORAL DAMAGES?" 8

chan roble s.com : red

The petitioners contend that the Memorandum of Agreement is merely a lease agreement with "option to purchase."
As it was merely an option, it only gave the respondent a right to purchase the subject property within a limited
period without imposing upon them any obligation to purchase it. Since the respondents tender of payment was made
after the lapse of the option agreement, his tender did not give rise to the perfection of a contract of sale.
It is further maintained by the petitioners that the Court of Appeals erred in ruling that rescission of the contract was
already out of the question. Rescission implies that a contract of sale was perfected unlike the Memorandum of
Agreement in question which as previously stated is allegedly only an option contract.
Petitioner adds that at most, the Memorandum of Agreement (Contract to Sell) is a mere contract to sell, as indicated
in its title. The obligation of the petitioners to sell the property to the respondent was conditioned upon the issuance
of a new certificate of title and the execution of the extrajudicial partition with sale and payment of the P600,000.00.
This is why possession of the subject property was not delivered to the respondent as the owner of the property but
only as the lessee thereof. And the failure of the respondent to pay the purchase price in full prevented the
petitioners obligation to convey title from acquiring obligatory force.
Petitioners also allege that assuming for the sake of argument that a contract of sale was indeed perfected, the Court
of Appeals still erred in holding that respondents failure to pay the purchase price of P600,000.00 was only a "slight
or casual breach" .

cha nrob les vi rtua llawlib ra ry

The petitioners also claim that the Court of Appeals erred in ruling that they were not ready to comply with their
obligation to execute the extrajudicial settlement. The Power of Attorney to execute a Deed of Sale made by Dennis Z.
Laforteza was sufficient and necessarily included the power to execute an extrajudicial settlement. At any rate, the
respondent is estopped from claiming that the petitioners were not ready to comply with their obligation for he
acknowledged the petitioners ability to do so when he requested for an extension of time within which to pay the
purchase price. Had he truly believed that the petitioners were not ready, he would not have needed to ask for said
extension.
Finally, the petitioners allege that uncorroborated testimony that third persons the respondents offered a higher price

for the property is hearsay and should not be given any evidentiary weight. Thus, the order of the lower court
awarding moral damages was without any legal basis.
The appeal is bereft of merit.
A perusal of the Memorandum Agreement shows that the transaction between the petitioners and the respondent was
one of sale and lease. The terms of the agreement read:

chanro bles. com : virt uallawl ibra ry

"1. For and in consideration of the sum of PESOS: SIX HUNDRED THIRTY THOUSAND (P630,000.00) payable in a
manner herein below indicated, SELLER-LESSOR hereby agree to sell unto BUYER-LESSEE the property described in
the first WHEREAS of this Agreement within six (6) months from the execution date hereof, or upon issuance by the
Court of a new owners certificate of title and the execution of extrajudicial partition with sale of the estate of
Francisco Laforteza, whichever is earlier;
2. The above-mentioned sum of PESOS: SIX HUNDRED THIRTY THOUSAND (P630,000.00) shall be paid in the
following manner:

chanrob 1es vi rtua l 1aw lib ra ry

P30,000.00 as earnest money and as consideration for this Agreement, which amount shall be forfeited in favor of
SELLER-LESSORS if the sale is not effected because of the fault or option of BUYER-LESSEE;
P600,000.00 upon the issuance of the new certificate of title in the name of the late Francisco Laforteza and upon
the execution of an Extrajudicial Settlement of his estate with sale in favor of BUYER- LESSEE free from lien or any
encumbrances.
3. Parties reasonably estimate that the issuance of a new title in place of the lost one, as well as the execution of
extrajudicial settlement of estate with sale to herein BUYER-LESSEE will be completed within six (6) months from the
execution of this Agreement. It is therefore agreed that during the six months period, BUYER-LESSEE will be leasing
the subject property for six months period at the monthly rate of PESOS: THREE THOUSAND FIVE HUNDRED
(P3,500.00). Provided however, that if the issuance of new title and the execution of Extrajudicial Partition is
completed prior to the expiration of the six months period, BUYER-LESSEE shall only be liable for rentals for the
corresponding period commencing from his occupancy of the premises to the execution and completion of the
Extrajudicial Settlement of the estate, provided further that if after the expiration of six (6) months, the lost title is
not yet replaced and the extra judicial partition is not executed, BUYER-LESSEE shall no longer be required to pay
rentals and shall continue to occupy, and use the premises until subject condition is complied by SELLER-LESSOR;
4. It is hereby agreed that within reasonable time from the execution of this Agreement and the payment by BUYERLESSEE of the amount of P30,000.00 as herein above provided, SELLER-LESSORS shall immediately file the
corresponding petition for the issuance of a new title in lieu of the lost one in the proper Courts. Upon issuance by the
proper Courts of the new title, the BUYER-LESSEE shall have thirty (30) days to produce the balance of P600,000.00
which shall be paid to the SELLER-LESSORS upon the execution of the Extrajudicial Settlement with sale." 9
A contract of sale is a consensual contract and is perfected at the moment there is a meeting of the minds upon the
thing which is the object of the contract and upon the price. 10 From that moment the parties may reciprocally
demand performance subject to the provisions of the law governing the form of contracts. 11 The elements of a valid
contract of sale under Article 1458 of the Civil Code are (1) consent or meeting of the minds; (2) determinate subject
matter and (3) price certain in money or its equivalent. 12

In the case at bench, there was a perfected agreement between the petitioners and the respondent whereby the
petitioners obligated themselves to transfer the ownership of and deliver the house and lot located at 7757 Sherwood
St., Marcelo Green Village, Paraaque and the respondent to pay the price amounting to six hundred thousand pesos
(P600,000.00). All the elements of a contract of sale were thus present. However, the balance of the purchase price
was to be paid only upon the issuance of the new certificate of title in lieu of the one in the name of the late Francisco
Laforteza and upon the execution of an extrajudicial settlement of his estate. Prior to the issuance of the
"reconstituted" title, the respondent was already placed in possession of the house and lot as lessee thereof for six
months at a monthly rate of three thousand five hundred pesos (P3,500.00). It was stipulated that should the
issuance of the new title and the execution of the extrajudicial settlement be completed prior to expiration of the sixmonth period, the respondent would be liable only for the rentals pertaining to the period commencing from the date
of the execution of the agreement up to the execution of the extrajudicial settlement. It was also expressly stipulated
that if after the expiration of the six month period, the lost title was not yet replaced and the extrajudicial partition
was not yet executed, the respondent would no longer be required to pay rentals and would continue to occupy and
use the premises until the subject condition was complied with by the petitioners.

chan roble s virtual lawlib rary:re d

The six-month period during which the respondent would be in possession of the property as lessee, was clearly not a
period within which to exercise an option. An option is a contract granting a privilege to buy or sell within an agreed
time and at a determined price. An option contract is a separate and distinct contract from that which the parties may
enter into upon the consummation of the option. 13 An option must be supported by consideration. 14 An option
contract is governed by the second paragraph of Article 1479 of the Civil Code 15 , which reads:

jgc:chan rob les.com. ph

"Article 1479. . . . An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promissor if the promise is supported by a consideration distinct from the price."

cralaw vi rt ua1aw lib rary

In the present case, the six-month period merely delayed the demandability of the contract of sale and did not
determine its perfection for after the expiration of the six-month period, there was an absolute obligation on the part
of the petitioners and the respondent to comply with the terms of the sale. The parties made a "reasonable estimate"
that the reconstitution of the lost title of the house and lot would take approximately six months and thus presumed
that after six months, both parties would be able to comply with what was reciprocally incumbent upon them. The fact
that after the expiration of the six-month period, the respondent would retain possession of the house and lot without
need of paying rentals for the use therefor, clearly indicated that the parties contemplated that ownership over the
property would already be transferred by that time.
The issuance of the new certificate of title in the name of the late Francisco Laforteza and the execution of an
extrajudicial settlement of his estate was not a condition which determined the perfection of the contract of sale.
Petitioners contention that since the condition was not met, they no longer had an obligation to proceed with the sale
of the house and lot is unconvincing. The petitioners fail to distinguish between a condition imposed upon the
perfection of the contract and a condition imposed on the performance of an obligation. Failure to comply with the first
condition results in the failure of a contract, while the failure to comply with the second condition only gives the other
party the option either to refuse to proceed with the sale or to waive the condition. Thus, Art. 1545 of the Civil Code
states :

jgc:chanrob les.com. ph

"ARTICLE 1545. Where the obligation of either party to a contract of sale is subject to any condition which is not
performed, such party may refuse to proceed with the contract or he may waive performance of the condition. If the
other party has promised that the condition should happen or be performed, such first mentioned party may also treat
the nonperformance of the condition as a breach of warranty.

Where the ownership in the things has not passed, the buyer may treat the fulfillment by the seller of his obligation to
deliver the same as described and as warranted expressly or by implication in the contract of sale as a condition of the
obligation of the buyer to perform his promise to accept and pay for the thing." 16
In the case at bar, there was already a perfected contract. The condition was imposed only on the performance of the
obligations contained therein. Considering however that the title was eventually "reconstituted" and that the
petitioners admit their ability to execute the extrajudicial settlement of their fathers estate, the respondent had a
right to demand fulfillment of the petitioners obligation to deliver and transfer ownership of the house and lot.

chanrobles vi rt ual lawl ibra ry

What further militates against petitioners argument that they did not enter into a contract of sale is the fact that the
respondent paid thirty thousand pesos (P30,000.00) as earnest money. Earnest money is something of value to show
that the buyer was really in earnest, and given to the seller to bind the bargain. 17 Whenever earnest money is given
in a contract of sale, it is considered as part of the purchase price and proof of the perfection of the contract. 18
We do not subscribe to the petitioners view that the Memorandum Agreement was a contract to sell. There is nothing
contained in the Memorandum Agreement from which it can reasonably be deduced that the parties intended to enter
into a contract to sell, i.e. one whereby the prospective seller would explicitly reserve the transfer of title to the
prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the
property subject of the contract to sell until the full payment of the price, such payment being a positive suspensive
condition, the failure of which is not considered a breach, casual or serious, but simply an event which prevented the
obligation from acquiring any obligatory force. 19 There is clearly no express reservation of title made by the
petitioners over the property, or any provision which would impose non-payment of the price as a condition for the
contracts entering into force. Although the memorandum agreement was also denominated as a "Contract to Sell",
we hold that the parties contemplated a contract of sale. A deed of sale is absolute in nature although denominated a
conditional sale in the absence of a stipulation reserving title in the petitioners until full payment of the purchase
price. 20 In such cases, ownership of the thing sold passes to the vendee upon actual or constructive delivery thereof.
21 The mere fact that the obligation of the respondent to pay the balance of the purchase price was made subject to
the condition that the petitioners first deliver the reconstituted title of the house and lot does not make the contract a
contract to sell for such condition is not inconsistent with a contract of sale. 22
The next issue to be addressed is whether the failure of the respondent to pay the balance of the purchase price
within the period allowed is fatal to his right to enforce the agreement.

chanroble s.com : red

We rule in the negative.


Admittedly, the failure of the respondent to pay the balance of the purchase price was a breach of the contract and
was a ground for rescission thereof. The extension of thirty (30) days allegedly granted to the respondent by Roberto
Z. Laforteza (assisted by his counsel Attorney Romeo Gutierrez) was correctly found by the Court of Appeals to be
ineffective inasmuch as the signature of Gonzalo Z. Laforteza did not appear thereon as required by the Special
Powers of Attorney. 23 However, the evidence reveals that after the expiration of the six-month period provided for in
the contract, the petitioners were not ready to comply with what was incumbent upon them, i.e. the delivery of the
reconstituted title of the house and lot. It was only on September 18, 1989 or nearly eight months after the execution
of the Memorandum of Agreement when the petitioners informed the respondent that they already had a copy of the
reconstituted title and demanded the payment of the balance of the purchase price. The respondent could not
therefore be considered in delay for in reciprocal obligations, neither party incurs in delay if the other party does not
comply or is not ready to comply in a proper manner with what was incumbent upon him. 24

Even assuming for the sake of argument that the petitioners were ready to comply with their obligation, we find that
rescission of the contract will still not prosper. The rescission of a sale of an immovable property is specifically
governed by Article 1592 of the New Civil Code, which reads:

jgc:cha nrob les.com. ph

"In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the
time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the
expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially
or by a notarial act. After the demand, the court may not be grant him a new term."25

cralaw:re d

It is not disputed that the petitioners did not make a judicial or notarial demand for rescission. The November 20,
1989 letter of the petitioners informing the respondent of the automatic rescission of the agreement did not amount
to a demand for rescission, as it was not notarized. 26 It was also made five days after the respondents attempt to
make the payment of the purchase price. This offer to pay prior to the demand for rescission is sufficient to defeat the
petitioners right under article 1592 of the Civil Code. 27 Besides, the Memorandum Agreement between the parties
did not contain a clause expressly authorizing the automatic cancellation of the contract without court intervention in
the event that the terms thereof were violated. A seller cannot unilaterally and extrajudicially rescind a contract of
sale where there is no express stipulation authorizing him to extrajudicially rescind. 28 Neither was there a judicial
demand for the rescission thereof. Thus, when the respondent filed his complaint for specific performance, the
agreement was still in force inasmuch as the contract was not yet rescinded. At any rate, considering that the sixmonth period was merely an approximation of the time it would take to reconstitute the lost title and was not a
condition imposed on the perfection of the contract and considering further that the delay in payment was only thirty
days which was caused by the respondents justified but mistaken belief that an extension to pay was granted to him,
we agree with the Court of Appeals that the delay of one month in payment was a mere casual breach that would not
entitle the respondents to rescind the contract. Rescission of a contract will not be permitted for a slight or casual
breach, but only such substantial and fundamental breach as would defeat the very object of the parties in making the
agreement. 29

chanrobles vi rtua| |aw |ibra ry

Petitioners insistence that the respondent should have consignated the amount is not determinative of whether
respondents action for specific performance will lie. Petitioners themselves point out that the effect of consignation is
to extinguish the obligation. It releases the debtor from responsibility therefor. 30 The failure of the respondent to
consignate the P600,000.00 is not tantamount to a breach of the contract for by the fact of tendering payment, he
was willing and able to comply with his obligation.
The Court of Appeals correctly found the petitioners guilty of bad faith and awarded moral damages to the
Respondent. As found by the said Court, the petitioners refused to comply with their obligation for the reason that
they were offered a higher price therefor and the respondent was even offered P100,000.00 by the petitioners
lawyer, Attorney Gutierrez, to relinquish his rights over the property. The award of moral damages is in accordance
with Article 1191 31 of the Civil Code pursuant to Article 2220 which provides that moral damages may be awarded in
case of a breach of contract where the defendant acted in bad faith. The amount awarded depends on the discretion
of the court based on the circumstances of each case. 32 Under the circumstances, the award given by the Court of
Appeals amounting to P50,000.00 appears to us to be fair and reasonable.

chan robles v irt uallawl ibra ry:red

ACCORDINGLY, the decision of the Court of Appeals in CA G.R. CV No. 47457 is AFFIRMED and the instant petition is
hereby DENIED.

[G.R. No. 112127. July 17, 1995.]


CENTRAL PHILIPPINE UNIVERSITY, Petitioner, v. COURT OF APPEALS
SYLLABUS
1. CIVIL LAW; PROPERTY; MODES OF ACQUIRING OWNERSHIP; DONATION; CONSIDERED ONEROUS WHEN
EXECUTED FOR A VALUABLE CONSIDERATION WHICH IS CONSIDERED THE EQUIVALENT OF THE DONATION. A
clear perusal of the condition set forth in the deed of donation executed by Don Ramon Lopez, Sr., gives us no
alternative but to conclude that his donation was onerous, one executed for a valuable consideration which is
considered the equivalent of the donation itself, e.g., when a donation imposes a burden equivalent to the value of the
donation. A gift of land to the City of Manila requiring the latter to erect schools, construct a childrens playground and
open streets on the land was considered an onerous donation. Similarly, where Don Ramon Lopez donated the subject
parcel of land to petitioner but imposed an obligation upon the latter to establish a medical college thereon, the
donation must be for an onerous consideration.
2. ID.; ID.; ID.; ID.; MAY BE REVOKED FOR NON-FULFILLMENT OR NON-COMPLIANCE OF THE CONDITIONS SET
FORTH THEREIN; CASE AT BAR. Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition of
rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event
which constitutes the condition. Thus, when a person donates land to another on the condition that the latter would
build upon the land a school, the condition imposed was not a condition precedent or a suspensive condition but a
resolutory one. It is not correct to say that the schoolhouse had to be constructed before the donation became
effective, that is, before the donee could become the owner of the land, otherwise, it would be invading the property
rights of the donor. The donation had to be valid before the fulfillment of the condition. If there was no fulfillment or
compliance with the condition, such as what obtains in the instant case, the donation may now be revoked and all
rights which the donee may have acquired under it
3. ID.; ID.; ID.; ID.; DONEES ACCEPTANCE AND ACKNOWLEDGMENT OF ITS OBLIGATION PROVIDED IN THE DEED,
SUFFICIENT TO PREVENT THE STATUTE OF LIMITATION FROM BARRING THE ACTION OF DONOR UPON THE
ORIGINAL CONTRACT. The claim of petitioner that prescription bars the instant action of private respondents is
unavailing. The condition imposed by the donor, i.e., the building of a medical school upon the land donated,
depended upon the exclusive will of the donee as to when this condition shall be fulfilled. When petitioner accepted
the donation, it bound itself to comply with the condition thereof. Since the time within which the condition should be
fulfilled depended upon the exclusive will of the petitioner, it has been held that its absolute acceptance and the
acknowledgment of its obligation provided in the deed of donation were sufficient to prevent the statute of limitations
from barring the action of private respondents upon the original contract which was the deed of donation.
4. ID.; ID.; ID.; ID.; IN CASE OF REVOCATION, A CAUSE OF ACTION ARISES WHEN THAT WHICH SHOULD HAVE
BEEN DONE IS NOT DONE, OR THAT WHICH SHOULD NOT HAVE BEEN DONE IS DONE. The time from which the
cause of action accrued for the revocation of the donation and recovery of the property donated cannot be specifically
determined in the instant case. A cause of action arises when that which should have been done is not done, or that
which should not have been done is done. In cases where there is no special provision for such computation, recourse
must be had to the rule that the period must be counted from the day on which the corresponding action could have
been instituted. It is the legal possibility of bringing the action which determines the starting point for the computation
of the period. In this case, the starting point begins with the expiration of a reasonable period and opportunity for
petitioner to fulfill what has been charged upon it by the donor.

5. ID.; ID.; ID.; ID.; GENERALLY, WHEN THE OBLIGATION DOES NOT FIX A PERIOD BUT FROM ITS NATURE AND
CIRCUMSTANCES IT CAN BE INFERRED THAT A PERIOD WAS INTENDED COURT MAY FIX THE PERIOD FOR
COMPLIANCE The period of time for the establishment of a medical college and the necessary buildings and
improvements on the property cannot be quantified in a specific number of years because of the presence of several
factors and circumstances involved in the erection of an educational institution, such as government laws and
regulations pertaining to education, building requirements and property restrictions which are beyond the control of
the donee. Thus, when the obligation does not fix a period but from its nature and circumstances it can be inferred
that a period was intended, the general rule provided in Art. 1197 of the Civil Code applies, which provides that the
courts may fix the duration thereof because the fulfillment of the obligation itself cannot be demanded until after the
court has fixed the period for compliance therewith and such period has arrived.
6. ID.; ID.; ID.; ID.; WHEN OBLIGOR CANNOT COMPLY WITH WHAT IS INCUMBENT UPON HIM, THE OBLIGEE MAY
SEEK RESCISSION; EXCEPTION. This general rule however cannot be applied considering the different set of
circumstances existing in the instant case. More than a reasonable period of fifty (50) years has already been allowed
petitioner to avail of the opportunity to comply with the condition even if it be burdensome, to make the donation in
its favor forever valid. But, unfortunately, it failed to do so. Hence, there is no more need to fix the duration of a term
of the obligation when such procedure would be a mere technicality and formality and would serve no purpose than to
delay or lead to an unnecessary and expensive multiplication of suits. Moreover, under Art. 1191 of the Civil Code,
when one of the obligors cannot comply with what is incumbent upon him, the obligee may seek rescission and the
court shall decree the same unless there is just cause authorizing the fixing of a period. In the absence of any just
cause for the court to determine the period of the compliance, there is no more obstacle for the court to decree the
rescission claimed.
7. ID.; ID.; ID.; ID.; IN CASE OF GRATUITOUS DONATION DOUBTS SHOULD BE RESOLVED IN FAVOR OF THE LEAST
TRANSMISSION OF RIGHTS AND INTERESTS. Finally, since the questioned deed of donation herein is basically a
gratuitous one, doubts referring to incidental circumstances of a gratuitous contract should be resolved in favor of the
least transmission of rights and interests. Records are clear and facts are undisputed that since the execution of the
deed of donation up to the time of filing of the instant action, petitioner has failed to comply with its obligation as
donee. Petitioner has slept on its obligation for an unreasonable length of time. Hence, it is only just and equitable
now to declare the subject donation already ineffective and, for all purposes, revoked so that petitioner as donee
should now return the donated property to the heirs of the donor, private respondents herein, by means of
reconveyance.
CENTRAL PHILIPPINE UNIVERSITY filed this petition for review on certiorari of the decision of the Court of Appeals
which reversed that of the Regional trial Court of Iloilo City directing petitioner to reconvey to private respondents the
property donated to it by their predecessor-in-interest.
Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of the Board of Trustees of the Central
Philippine College (now Central Philippine University [CPU]), executed a deed of donation in favor of the latter of a
parcel of land identified as Lot No. 3174-B-1 of the subdivision plan Psd-1144, then a portion of Lot No. 3174-B, for
which Transfer Certificate of Title No. T-3910-A was issued in the name of the donee CPU with the following
annotations copied from the deed of donation.
1. The land described shall be utilized by the CPU exclusively for the establishment and use of a medical college with
all its buildings as part of the curriculum:

chan rob1e s virtual 1aw l ibra ry

2. The said college shall not sell, transfer or convey to any third party nor in any way encumber said land;

3. The said land shall be called "RAMON LOPEZ CAMPUS", and the said college shall be under obligation to erect a
cornerstones bearing that name. Any net income from the land or any of its parks shall be put in a fund to be known
as the "RAMON LOPEZ CAMPUS FUND" to be used for improvements of said campus and erection of a building
thereon." 1
On 31 May 1989, privates respondents, who are the heirs of Don Ramon Lopez, Sr., filed an action for annulment of
donation, reconveyance and damages against CPU alleging that since 1939 up to the time the action was filed the
latter had not complied with the conditions of the donation. Private respondents also argued that petitioner had in fact
negotiated with the National Housing Authority (NHA) to exchange the donated property with another land owned by
the latter.
In its answer petitioner alleged that the right of private respondents to file the action had prescribe; that it did not
violate any of the conditions in the deed of donation because it never used the donated properly for any other purpose
than that for which it was intended; and, that it did not sell, transfer or convey it to any third party.
On 31 May 11991, the trial court held that petitioner failed to comply with the conditions of the donation and declared
it null and void. The court a qua further directed petitioner to execute a deed of reconveyance of the property in favor
of the heirs of the donor, namely, private respondents herein.
Petitioner appealed to the Court of Appeals which on 18 June 1993 ruled that the ruled that the annotations at the
back of petitioners certificate of title were resolutory conditions breach of which should terminate the rights of the
done thus making the donation revocable.
The appellate court also found that while the first condition mandated petitioner to utilize the donated property for the
establishment of a medical school, the donor did not fix a period within which the condition must be fulfilled, hence,
until a period was fixed for the fulfillment of the condition, petitioner could not be considered as having failed to
comply with its part of the bargain. Thus, the appellate court rendered its decision reversing the appealed decision
and remanding the case to the court of origin for the determination of the time within which petitioner should comply
with the firs t condition annotated in the certificate of title.
Petitioner now alleged that the court of Appeals erred: (a) in holding that the quoted annotations in the certificate of
title of petitioner are onerous obligations and resolutory conditions of the donation which must be fulfilled noncompliance of which would render the donation revocable; (b) in holding that the issue of prescription does not
deserve "disquisition;" and, (c) in remanding the case to the trial court for the fixing of the period within which
petitioner would establish a medical college. 2
We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the deed of donation executed
by Don Ramon Lopez, Sr., gives us no alternative but to conclude that this donation was onerous, one executed for a
valuable consideration which is considered the equivalent of the donation itself, e.g., when a donation imposes a
burden equivalent to the value of the donation. A gift of land to the City of Manila requiring the latter to erect schools,
construct a childrens playground and open streets on the land was considered an onerous donation. 3 Similarly,
where Don Ramon Lopez donated the subject parcel of land to petitioner but imposed an obligation upon the latter to
establish a medical college thereon, the donation must be for an onerous considerations.
Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition of rights, as well as the extinguishment or
loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. Thus,

when a person donates land to another on the condition that the latter would build upon the land a school, the
condition imposed was not a condition precedent or a suspensive condition but a resolutory one. 4 It is not correct to
say that the schoolhouse had to be constructed before the donation became effective, that is, before the donee could
become the owner of the land, otherwise, it would be invading the property rights of the donor. The donation had to
be valid before the fulfillment of the condition. 5 If there was no fulfillment or compliance with the condition, such as
what obtains in the instant case, the donation may now be revoked and all rights which the donee may have acquired
under it shall be deemed lost and extinguished.
The claim of petitioner that prescription bars the instant action of private respondents is unavailing. The condition
imposed by the donor, i.e., the building of a medical school upon the land donated, depended upon the exclusive will
of the donee as to when this condition shall fulfilled. When petitioner accepted the donation, it bound itself to comply
with the condition thereof. Since the time within which the condition should be fulfilled depended upon the exclusive
will of the petitioner, it has been held that its absolute acceptance and the acknowledgement of its obligation provided
in the deed of donation were sufficient to prevent the statute of limitations from barring the action of private
respondents upon the original contract which was the deed of donation. 6
Moreover, the time from which the cause of action accrued for the revocation of the donation and recovery of the
property donated cannot be specifically determined in the instant case. A cause of action arises when that which
should have been done is not done, or that which should not have been done is done. 7 In cases where there is no
special provision for such computation, recourse must be had to the rule that the period must be counted from the
day on which the corresponding action could have been instituted. It is the legal possibility of bringing the action
which determines the starting point for the computation of the period. In this case, the starting point begins with the
expiration of a reasonable period and opportunity for petitioner to fulfill what has been charged upon it by the donor.
The period of time for the establishment of a medical college and the necessary buildings and improvements on the
property cannot be quantified in a specific number of years because of the presence of several factors and
circumstances involved in the erection of an educations institution, such as government laws and regulations
pertaining to government laws and regulations pertaining to education, building requirements and property
restrictions which are beyond the control of the donee.

chanro bles. com:cra law:red

Thus, when the obligation does not fix a period but from its nature and circumstances it can be inferred that a period
was intended, the general rule provided in Art. 1197 of the Civil Code applies, which provides that the courts may fix
the duration thereof because the fulfillment of the obligation itself cannot be demanded until after the court has fixed
the period for compliance therewith and such period has arrived. 8
This general rule however cannot be applied considering the different set of circumstances existing in the instant case.
More than a reasonable period of fifty (50) years has already been allowed petitioner to avail of the opportunity to
comply with the condition even if it be burdensome, to make the donation in its favor forever valid. But,
unfortunately, it failed to do so. Hence, there is no more need to fix the duration of a term of the obligation when such
procedure would be a mere technicality and formality and would serve no purpose that to delay or lead to an
unnecessary and expensive multiplication of suits. 9 Moreover, under Art. 1191 of the Civil Code, when one of the
obligors cannot comply with what is incumbent upon him, the obligee may seek rescission and the court shall decree
the same unless there is just cause authorizing the fixing of a period. In the absence of any just cause for the court to
determine the period of the compliance, there is no more obstacle for the court to decree the rescission claimed.
Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts referring to incidental
circumstances of a gratuitous contract should be resolved in favor of the least transmission of rights and interest. 10
Records are clear and facts are undisputed that since the execution of the deed of donation up to the time of filing of

the instant action, petitioner has failed t comply with its obligation for an unreasonable length of time. Hence, it is
only just and equitable now to declare the subject donation already ineffective and, for all purposes, revoked so that
petitioner as donee should now return the donated property to the heirs of the donor, private respondents herein by
means of reconveyance.
WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of 31 May 1991 is REINSTATED and AFFIRMED,
and the decision of the Court of Appeals of 18 June 1993 is accordingly MODIFIED. Consequently, petitioner is
directed to reconvey to private respondents Lot No. 3174-B-1 of the subdivision plan Psd-1144 covered by Transfer
Certificate of Title No. T-3910-A within thirty (30) days from the finality of this judgment.

FACTS:
In 1939, Don Ramon Lopez Sr. executed a deed of donation in favor of CPU together with the following
conditions:
a) The land should be utilized by CPU exclusively for the establishment & use of medical college;
b) The said college shall not sell transfer or convey to any 3rd party;
c) The said land shall be called Ramon Lopez Campus and any income from that land shall be put in the fund
to be known as Ramon Lopez Campus Fund.
However, on May 31, 1989, PR, who are the heirs of Don Ramon filed an action for annulment of donation,
reconveyance & damages against CPU for not complying with the conditions. The heirs also argued that CPU
had negotiated with the NHA to exchange the donated property with another land owned by the latter.
Petitioner alleged that the right of private respondents to file the action had prescribed.
ISSUE:
1) WON petitioner failed to comply the resolutory conditions annotated at the back of petitioners certificate of
title without a fixed period when to comply with such conditions? YES
2) WON there is a need to fix the period for compliance of the condition? NO
HELD:
1) Under Art. 1181, on conditional obligations, the acquisition of rights as well the extinguishment or loss of
those already acquired shall depend upon the happening of the event which constitutes the condition. Thus,
when a person donates land to another on the condition that the latter would build upon the land a school is such
a resolutory one. The donation had to be valid before the fulfillment of the condition. If there was no fulfillment
with the condition such as what obtains in the instant case, the donation may be revoked & all rights which the
donee may have acquired shall be deemed lost & extinguished.
More than a reasonable period of fifty (50) years has already been allowed petitioner to avail of the opportunity
to comply with the condition even if it be burdensome, to make the donation in its favor forever valid. But,
unfortunately, it failed to do so. Hence, there is no more need to fix the duration of a term of the obligation
when such procedure would be a mere technicality and formality and would serve no purpose than to delay or
lead to an unnecessary and expensive multiplication of suits.
Records are clear and facts are undisputed that since the execution of the deed of donation up to the time of
filing of the instant action, petitioner has failed to comply with its obligation as donee. Petitioner has slept on its
obligation for an unreasonable length of time. Hence, it is only just and equitable now to declare the subject
donation already ineffective and, for all purposes, revoked so that petitioner as donee should now return the
donated property to the heirs of the donor, private respondents herein, by means of reconveyance.

2) Under Art. 1197, when the obligation does not fix a period but from its nature & circumstance it can be
inferred that the period was intended, the court may fix the duration thereof because the fulfillment of the
obligation itself cannot be demanded until after the court has fixed the period for compliance therewith & such
period has arrived. However, this general rule cannot be applied in this case considering the different set of
circumstances existing more than a reasonable period of 50yrs has already been allowed to petitioner to avail of
the opportunity to comply but unfortunately, it failed to do so. Hence, there is no need to fix a period when such
procedure would be a mere technicality & formality & would serve no purpose than to delay or load to
unnecessary and expensive multiplication of suits.
Under Art. 1191, when one of the obligors cannot comply with what is incumbent upon him, the obligee may
seek rescission before the court unless there is just cause authorizing the fixing of a period. In the absence of
any just cause for the court to determine the period of compliance there is no more obstacles for the court to
decree rescission.