Oblicon Cases Finals

Oblicon LLB IA SY 2014-15
Atty. G.G. Bernardo
MAS
Obligations and Contracts cases

Finals Coverage: Payments Natural Obligations (Art. 1232 1430)
Contents
Tibajia vs CA - 1249................................................................................................................................. 2
Phil. Refining Company vs Palomar - Lottery ......................................................................................... 5
EPCIB vs Ngor 1250; Mutuality of Contracts ....................................................................................... 7
Commissioner of Public Highways vs Burgos - 1250 ............................................................................ 27
Sanchez vs Rigos ................................................................................................................................... 32
ABS CBN vs CA ...................................................................................................................................... 40
Spouses Reyes vs BPIFSB ...................................................................................................................... 58
Garcia vs Lim Chiu Sing ......................................................................................................................... 63
Quinto vs CA - Novation ....................................................................................................................... 67
Carrillo vs Jaojoco ................................................................................................................................. 74
Mercado and Mercado vs Espiritu ....................................................................................................... 77
Perez vs Pomar ..................................................................................................................................... 87
Braganza vs Villa Abrille........................................................................................................................ 92
Liguez vs CA .......................................................................................................................................... 95
Papa vs A.U. Valencia ......................................................................................................................... 101
Cinco and Cinco vs CA Purpose of tender of payment .................................................................... 108
Naga Telephone Co. vs CA - 1267 ....................................................................................................... 118
Valmonte vs CA - 1275 ....................................................................................................................... 133
Valenzuela vs Kalayaan Development and Industrial Corp ................................................................ 142
Floirendo vs CA Mutuality of Contracts........................................................................................... 155
Ajax Marketing vs CA - Novation ........................................................................................................ 163
GSIS vs CA Mutuality of Contracts ................................................................................................... 169
Kabiling vs NHA Autonomy of Contracts ......................................................................................... 174

Atty. G.G. Bernardo
MAS
Tibajia vs CA - 1249
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 100290
June 4, 1993
NORBERTO TIBAJIA, JR. and CARMEN TIBAJIA, petitioners,

vs.
THE HONORABLE COURT OF APPEALS and EDEN TAN, respondents.
PADILLA, J.:
Petitioners, spouses Norberto Tibajia, Jr. and Carmen Tibajia, are before this Court assailing the decision
* of respondent appellate court dated 24 April 1991 in CA-G.R. SP No. 24164 denying their petition for
certiorari prohibition, and injunction which sought to annul the order of Judge Eutropio Migrio of the
Regional Trial Court, Branch 151, Pasig, Metro Manila in Civil Case No. 54863 entitled "Eden Tan vs. Sps.
Norberto and Carmen Tibajia."
Stated briefly, the relevant facts are as follows:
Case No. 54863 was a suit for collection of a sum of money filed by Eden Tan against the Tibajia spouses.
A writ of attachment was issued by the trial court on 17 August 1987 and on 17 September 1987, the
Deputy Sheriff filed a return stating that a deposit made by the Tibajia spouses in the Regional Trial
Court of Kalookan City in the amount of Four Hundred Forty Two Thousand Seven Hundred and Fifty
Pesos (P442,750.00) in another case, had been garnished by him. On 10 March 1988, the Regional Trial
Court, Branch 151 of Pasig, Metro Manila rendered its decision in Civil Case No. 54863 in favor of the
plaintiff Eden Tan, ordering the Tibajia spouses to pay her an amount in excess of Three Hundred
Thousand Pesos (P300,000.00). On appeal, the Court of Appeals modified the decision by reducing the
award of moral and exemplary damages. The decision having become final, Eden Tan filed the
corresponding motion for execution and thereafter, the garnished funds which by then were on deposit
with the cashier of the Regional Trial Court of Pasig, Metro Manila, were levied upon.
On 14 December 1990, the Tibajia spouses delivered to Deputy Sheriff Eduardo Bolima the total money
judgment in the following form:
Cashier's Check P262,750.00
Cash 135,733.70
Total P398,483.70
Private respondent, Eden Tan, refused to accept the payment made by the Tibajia spouses and instead
insisted that the garnished funds deposited with the cashier of the Regional Trial Court of Pasig, Metro
2

Atty. G.G. Bernardo
MAS
Manila be withdrawn to satisfy the judgment obligation. On 15 January 1991, defendant spouses
(petitioners) filed a motion to lift the writ of execution on the ground that the judgment debt had
already been paid. On 29 January 1991, the motion was denied by the trial court on the ground that
payment in cashier's check is not payment in legal tender and that payment was made by a third party
other than the defendant. A motion for reconsideration was denied on 8 February 1991. Thereafter, the
spouses Tibajia filed a petition for certiorari, prohibition and injunction in the Court of Appeals. The
appellate court dismissed the petition on 24 April 1991 holding that payment by cashier's check is not
payment in legal tender as required by Republic Act No. 529. The motion for reconsideration was denied
on 27 May 1991.
In this petition for review, the Tibajia spouses raise the following issues:
I
WHETHER OR NOT THE BPI CASHIER'S CHECK NO. 014021 IN THE AMOUNT OF P262,750.00
TENDERED BY PETITIONERS FOR PAYMENT OF THE JUDGMENT DEBT, IS "LEGAL TENDER".
II
WHETHER OR NOT THE PRIVATE RESPONDENT MAY VALIDLY REFUSE THE TENDER OF PAYMENT
PARTLY IN CHECK AND PARTLY IN CASH MADE BY PETITIONERS, THRU AURORA VITO AND COUNSEL, FOR
THE SATISFACTION OF THE MONETARY OBLIGATION OF PETITIONERS-SPOUSES. 1
The only issue to be resolved in this case is whether or not payment by means of check (even by
cashier's check) is considered payment in legal tender as required by the Civil Code, Republic Act No.
529, and the Central Bank Act.
It is contended by the petitioners that the check, which was a cashier's check of the Bank of the
Philippine Islands, undoubtedly a bank of good standing and reputation, and which was a crossed check
marked "For Payee's Account Only" and payable to private respondent Eden Tan, is considered legal
tender, payment with which operates to discharge their monetary obligation. 2 Petitioners, to support
their contention, cite the case of New Pacific Timber and Supply Co., Inc. v. Seeris 3 where this Court
held through Mr. Justice Hermogenes Concepcion, Jr. that "It is a well-known and accepted practice in
the business sector that a cashier's check is deemed as cash".
The provisions of law applicable to the case at bar are the following:
a.
Article 1249 of the Civil Code which provides:
Art. 1249.
The payment of debts in money shall be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents
shall produce the effect of payment only when they have been cashed, or when through the fault of the
creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in abeyance.;
b.
Section 1 of Republic Act No. 529, as amended, which provides:
Sec. 1. Every provision contained in, or made with respect to, any obligation which purports to give the
obligee the right to require payment in gold or in any particular kind of coin or currency other than
3

Atty. G.G. Bernardo
MAS
Philippine currency or in an amount of money of the Philippines measured thereby, shall be as it is

hereby declared against public policy null and void, and of no effect, and no such provision shall be
contained in, or made with respect to, any obligation thereafter incurred. Every obligation heretofore
and hereafter incurred, whether or not any such provision as to payment is contained therein or made
with respect thereto, shall be discharged upon payment in any coin or currency which at the time of
payment is legal tender for public and private debts.
c.
Section 63 of Republic Act No. 265, as amended (Central Bank Act) which provides:
Sec. 63. Legal character Checks representing deposit money do not have legal tender power and their
acceptance in the payment of debts, both public and private, is at the option of the creditor: Provided,
however, that a check which has been cleared and credited to the account of the creditor shall be
equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his
account.
From the aforequoted provisions of law, it is clear that this petition must fail.
In the recent cases of Philippine Airlines, Inc. vs. Court of Appeals 4 and Roman Catholic Bishop of
Malolos, Inc. vs. Intermediate Appellate Court, 5 this Court held that
A check, whether a manager's check or ordinary check, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or
creditor.
The ruling in these two (2) cases merely applies the statutory provisions which lay down the rule that a
check is not legal tender and that a creditor may validly refuse payment by check, whether it be a
manager's, cashier's or personal check.
Petitioners erroneously rely on one of the dissenting opinions in the Philippine Airlines case 6 to support
their cause. The dissenting opinion however does not in any way support the contention that a check is
legal tender but, on the contrary, states that "If the PAL checks in question had not been encashed by
Sheriff Reyes, there would be no payment by PAL and, consequently, no discharge or satisfaction of its
judgment obligation." 7 Moreover, the circumstances in the Philippine Airlines case are quite different
from those in the case at bar for in that case the checks issued by the judgment debtor were made
payable to the sheriff, Emilio Z. Reyes, who encashed the checks but failed to deliver the proceeds of
said encashment to the judgment creditor.
In the more recent case of Fortunado vs. Court of Appeals, 8 this Court stressed that, "We are not, by
this decision, sanctioning the use of a check for the payment of obligations over the objection of the
creditor."
WHEREFORE, the petition is DENIED. The appealed decision is hereby AFFIRMED, with costs against the
petitioners.
SO ORDERED.
Narvasa, C.J., Regalado and Nocon, JJ., concur.

Atty. G.G. Bernardo
MAS
Phil. Refining Company vs Palomar - Lottery

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-29062 March 9, 1987
PHILIPPINE REFINING COMPANY, plaintiff-appellee,
vs.
HON. ENRICO PALOMAR, in his capacity as Postmaster General, defendant-appellant.
Parades, Poblador, Nazareno & Adaza Law Office for plaintiff-appellee.
RESOLUTION
PARAS, J.:
This is an appeal from the decision of the Court of First Instance of Manila in Civil Case No.
72498, 1 entitled "Philippine Refining Company v. Hon. Enrico Palomar," finding that plaintiff-appellee's
promotion schemes ("Breeze Easy Money" and "CAMIA Lucky-Key Hunt") were not in the nature of a
lottery and enjoining appellant from issuing a "fraud order" on the aforementioned schemes of
appellee.
It appears that the Philippine Refining Company, herein appellee, resorted to two schemes to promote
the sale of its products: Breeze Easy Money and CAMIA Lucky-Key Hunt, both of which envisioned the
giving away for free of certain prizes (without additional consideration) for the purchase of Breeze soap
and CAMIA cooking oil. In other words, the participants would get the exact value of the price for the
goods plus the chance of winning in the scheme. No one would be required to pay more than the usual
price of the products.
This Court has consistently ruled that a plan whereby prizes can be obtained without any additional
consideration (when a product is purchased) is not a lottery (Uy v. Palomar L-23248, February 28, 1969;
U.S. v. Baguio, 39 Phil. 862; Caltex (Phil.) Inc. v. Postmaster-General, 18 SCRA 247). It is thus clear that
the schemes in the case at bar are not lotteries.
The allegation that the prohibition by the Postmaster General should have first been appealed to the
Department Secretary concerned in view of the doctrine denominated as "the exhaustion of
administrative remedies" has no application here because one recognized exception to the doctrine is
when the issue raised is purely a legal one.
In view of the foregoing, the Court RESOLVED to DISMISS this appeal and to AFFIRM the assailed
decision of the Court of First Instance.
5

Atty. G.G. Bernardo
MAS
Fernan, Gutierrez, Jr., Padilla, Bidin and Cortes, JJ., concur.

Alampay, J., is on leave.
Footnotes
1 PENNED by Judge de Veyra.

Atty. G.G. Bernardo
MAS
EPCIB vs Ngor 1250; Mutuality of Contracts

FIRST DIVISION
EQUITABLE PCI BANK,*
AIMEE YU and BEJAN
LIONEL APAS,
Petitioners,
-versus-
NG SHEUNG NGOR** doing

business under the name
and style KEN MARKETING,
KEN APPLIANCE DIVISION,
INC. and BENJAMIN E. GO,
Respondents.
G.R. No. 171545
Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA and
LEONARDO-DE CASTRO, JJ.
Promulgated:
December 19, 2007
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - x
DECISION
CORONA, J.:
This petition for review on certiorari[1] seeks to set aside the decision[2] of the Court of Appeals
(CA) in CA-G.R. SP No. 83112 and its resolution[3] denying reconsideration.
On October 7, 2001, respondents Ng Sheung Ngor,[4] Ken Appliance Division, Inc. and Benjamin
E. Go filed an action for annulment and/or reformation of documents and contracts[5] against petitioner
Equitable PCI Bank (Equitable) and its employees, Aimee Yu and Bejan Lionel Apas, in the Regional Trial
Court (RTC), Branch 16 of Cebu City.[6] They claimed that Equitable induced them to avail of its peso and
dollar credit facilities by offering low interest rates[7] so they accepted Equitable's proposal and signed
the bank's pre-printed promissory notes on various dates beginning 1996. They, however, were unaware

Atty. G.G. Bernardo
MAS
that the documents contained identical escalation clauses granting Equitable authority to increase
interest rates without their consent.[8]
Equitable, in its answer, asserted that respondents knowingly accepted all the terms and
conditions contained in the promissory notes.[9] In fact, they continuously availed of and benefited from
Equitable's credit facilities for five years.[10]
After trial, the RTC upheld the validity of the promissory notes. It found that, in 2001 alone,
Equitable restructured respondents' loans amounting to US$228,200 andP1,000,000.[11] The trial court,
however, invalidated the escalation clause contained therein because it violated the principle of
mutuality of contracts.[12] Nevertheless, it took judicial notice of the steep depreciation of the peso
during the intervening period[13] and declared the existence of extraordinary deflation.[14] Consequently,
the RTC ordered the use of the 1996 dollar exchange rate in computing respondents' dollardenominated loans.[15] Lastly, because the business reputation of respondents was (allegedly) severely
damaged when Equitable froze their accounts,[16] the trial court awarded moral and exemplary damages
to them.[17]
The dispositive portion of the February 5, 2004 RTC decision[18] provided:
WHEREFORE, premises considered, judgment is hereby rendered:
A) Ordering [Equitable] to reinstate and return the amount of [respondents']
deposit placed on hold status;
B)
Ordering [Equitable] to pay [respondents] the sum of P12 [m]illion [p]esos as

moral damages;
C) Ordering [Equitable] to pay [respondents] the sum of P10 [m]illion [p]esos as

exemplary damages;
D) Ordering defendants Aimee Yu and Bejan [Lionel] Apas to pay [respondents],
jointly and severally, the sum of [t]wo [m]illion [p]esos as moral and exemplary
damages;
E)
Ordering [Equitable, Aimee Yu and Bejan Lionel Apas], jointly and severally, to
pay [respondents'] attorney's fees in the sum of P300,000; litigation expenses in
the sum of P50,000 and the cost of suit;
8

Atty. G.G. Bernardo
F)
MAS
Directing plaintiffs Ng Sheung Ngor and Ken Marketing to pay [Equitable] the
unpaid principal obligation for the peso loan as well as the unpaid obligation for
the dollar denominated loan;
G) Directing plaintiff Ng Sheung Ngor and Ken Marketing to pay [Equitable]

interest as follows:
1)
2)
12% per annum for the peso loans;

8% per annum for the dollar loans. The basis for the payment of the dollar
obligation is the conversion rate of P26.50 per dollar availed of at the time
of incurring of the obligation in accordance with Article 1250 of the Civil
Code of the Philippines;
H) Dismissing [Equitable's] counterclaim except the payment of the aforestated

unpaid principal loan obligations and interest.
SO ORDERED.[19]
Equitable and respondents filed their respective notices of appeal.[20]

In the March 1, 2004 order of the RTC, both notices were denied due course because Equitable
and respondents failed to submit proof that they paid their respective appeal fees.[21]
WHEREFORE, premises considered, the appeal interposed by defendants from
the Decision in the above-entitled case is DENIED due course. As of February 27, 2004,
the Decision dated February 5, 2004, is considered final and executory in so far
as [Equitable, Aimee Yu and Bejan Lionel Apas] are concerned.[22] (emphasis supplied)
Equitable moved for the reconsideration of the March 1, 2004 order of the RTC [23] on the
ground that it did in fact pay the appeal fees. Respondents, on the other hand, prayed for the issuance
of a writ of execution.[24]
On March 24, 2004, the RTC issued an omnibus order denying Equitable's motion for
reconsideration for lack of merit[25] and ordered the issuance of a writ of execution in favor of
respondents.[26] According to the RTC, because respondents did not move for the reconsideration of the

Atty. G.G. Bernardo
MAS
previous order (denying due course to the parties notices of appeal),[27] the February 5, 2004 decision
became final and executory as to both parties and a writ of execution against Equitable was in order.[28]
A writ of execution was thereafter issued[29] and three real properties of Equitable were levied
upon.[30]
On March 26, 2004, Equitable filed a petition for relief in the RTC from the March 1, 2004
order.[31] It, however, withdrew that petition on March 30, 2004[32] and instead filed a petition for
certiorari with an application for an injunction in the CA to enjoin the implementation and execution of
the March 24, 2004 omnibus order.[33]
On June 16, 2004, the CA granted Equitable's application for injunction. A writ of preliminary
injunction was correspondingly issued.[34]
Notwithstanding the writ of injunction, the properties of Equitable previously levied upon
were sold in a public auction on July 1, 2004. Respondents were the highest bidders and certificates of
sale were issued to them.[35]
On August 10, 2004, Equitable moved to annul the July 1, 2004 auction sale and to cite the
sheriffs who conducted the sale in contempt for proceeding with the auction despite the injunction
order of the CA.[36]
On October 28, 2005, the CA dismissed the petition for certiorari.[37] It found Equitable guilty of
forum shopping because the bank filed its petition for certiorari in the CA several hours before
withdrawing its petition for relief in the RTC.[38] Moreover, Equitable failed to disclose, both in the
statement of material dates and certificate of non-forum shopping (attached to its petition for certiorari
in the CA), that it had a pending petition for relief in the RTC.[39]
Equitable moved for reconsideration[40] but it was denied.[41] Thus, this petition.
10

Atty. G.G. Bernardo
MAS
Equitable asserts that it was not guilty of forum shopping because the petition for relief was
withdrawn on the same day the petition for certiorari was filed.[42] It likewise avers that its petition for
certiorari was meritorious because the RTC committed grave abuse of discretion in issuing the March 24,
2004 omnibus order which was based on an erroneous assumption. The March 1, 2004 order denying its
notice of appeal for non payment of appeal fees was erroneous because it had in fact paid the required
fees.[43] Thus, the RTC, by issuing its March 24, 2004 omnibus order, effectively prevented Equitable
from appealing the patently wrong February 5, 2004 decision.[44]
This petition is meritorious.
EQUITABLE WAS NOT GUILTY OF

FORUM SHOPPING
Forum shopping exists when two or more actions involving the same transactions, essential
facts and circumstances are filed and those actions raise identical issues, subject matter and causes of
action.[45] The test is whether, in two or more pending cases, there is identity of parties, rights or causes
of actions and reliefs.[46]
Equitable's petition for relief in the RTC and its petition for certiorari in the CA did not have
identical causes of action. The petition for relief from the denial of its notice of appeal was based on the
RTCs judgment or final order preventing it from taking an appeal by fraud, accident, mistake or
excusable negligence.[47] On the other hand, its petition for certiorari in the CA, a special civil action,
sought to correct the grave abuse of discretion amounting to lack of jurisdiction committed by the
RTC.[48]
In a petition for relief, the judgment or final order is rendered by a court with competent
jurisdiction. In a petition for certiorari, the order is rendered by a court without or in excess of its
jurisdiction.
11

Atty. G.G. Bernardo
MAS
Moreover, Equitable substantially complied with the rule on non-forum shopping when it
moved to withdraw its petition for relief in the RTC on the same day (in fact just four hours and forty
minutes after) it filed the petition for certiorari in the CA. Even if Equitable failed to disclose that it had a
pending petition for relief in the RTC, it rectified what was doubtlessly a careless oversight by
withdrawing the petition for relief just a few hours after it filed its petition for certiorari in the CA a
clear indication that it had no intention of maintaining the two actions at the same time.
THE TRIAL COURT COMMITTED GRAVE

ABUSE OF DISCRETION IN ISSUING ITS
MARCH 1, 2004 AND MARCH 24, 2004
ORDERS
Section 1, Rule 65 of the Rules of Court provides:

Section 1. Petition for Certiorari. When any tribunal, board or officer exercising
judicial or quasi-judicial function has acted without or in excess of its or his
jurisdiction, or with grave abuse of discretion amounting to lack or excess of
jurisdiction, and there is no appeal, nor any plain, speedy or adequate remedy in the
ordinary course of law, a person aggrieved thereby may file a verified petition in the
proper court, alleging the facts with certainty and praying that judgment be rendered
annulling or modifying the proceedings of such tribunal, board or officer, and granting
such incidental reliefs as law and justice may require.
The petition shall be accompanied by a certified true copy of the judgment,
order or resolution subject thereof, copies of all pleadings and documents relevant and
pertinent thereto, and a sworn certificate of non-forum shopping as provided in the
third paragraph of Section 3, Rule 46.
There are two substantial requirements in a petition for certiorari. These are:
1.
that the tribunal, board or officer exercising judicial or quasi-judicial functions

acted without or in excess of his or its jurisdiction or with grave abuse of
discretion amounting to lack or excess of jurisdiction; and
2.
that there is no appeal or any plain, speedy and adequate remedy in the
ordinary course of law.
12

Atty. G.G. Bernardo
MAS
For a petition for certiorari premised on grave abuse of discretion to prosper, petitioner must
show that the public respondent patently and grossly abused his discretion and that abuse amounted to
an evasion of positive duty or a virtual refusal to perform a duty enjoined by law or to act at all in
contemplation of law, as where the power was exercised in an arbitrary and despotic manner by reason
of passion or hostility.[49]
The March 1, 2004 order denied due course to the notices of appeal of both Equitable and
respondents. However, it declared that the February 5, 2004 decision was final and executory only with
respect to Equitable.[50] As expected, the March 24, 2004 omnibus order denied Equitable's motion for
reconsideration and granted respondents'motion for the issuance of a writ of execution.[51]
The March 1, 2004 and March 24, 2004 orders of the RTC were obviously intended to prevent
Equitable, et al. from appealing the February 5, 2004 decision. Not only that. The execution of the
decision was undertaken with indecent haste, effectively obviating or defeating Equitable's right to avail
of possible legal remedies. No matter how we look at it, the RTC committed grave abuse of discretion in
rendering those orders.
With regard to whether Equitable had a plain, speedy and adequate remedy in the ordinary
course of law, we hold that there was none. The RTC denied due course to its notice of appeal in the
March 1, 2004 order. It affirmed that denial in the March 24, 2004 omnibus order. Hence, there was no
way Equitable could have possibly appealed the February 5, 2004 decision.[52]
Although Equitable filed a petition for relief from the March 24, 2004 order, that petition was
not a plain, speedy and adequate remedy in the ordinary course of law.[53] A petition for relief under
Rule 38 is an equitable remedy allowed only in exceptional circumstances or where there is no other
available or adequate remedy.[54]
Thus, we grant Equitable's petition for certiorari and consequently give due course to its
appeal.
13

Atty. G.G. Bernardo
MAS
EQUITABLE RAISED PURE QUESTIONS

OF
LAW
IN
ITS
PETITION
FOR
REVIEW
The jurisdiction of this Court in Rule 45 petitions is limited to questions of law.[55] There is a
question of law when the doubt or controversy concerns the correct application of law or
jurisprudence to a certain set of facts; or when the issue does not call for the probative value of the
evidence presented, the truth or falsehood of facts being admitted.[56]
Equitable does not assail the factual findings of the trial court. Its arguments essentially focus
on the nullity of the RTCs February 5, 2004 decision. Equitable points out that that decision was
patently erroneous, specially the exorbitant award of damages, as it was inconsistent with existing law
and jurisprudence.[57]
THE PROMISSORY NOTES WERE VALID
The RTC upheld the validity of the promissory notes despite respondents assertion that those
documents were contracts of adhesion.
A contract of adhesion is a contract whereby almost all of its provisions are drafted by one
party.[58] The participation of the other party is limited to affixing his signature or his adhesion to the
contract.[59] For this reason, contracts of adhesion are strictly construed against the party who drafted
it.[60]
It is erroneous, however, to conclude that contracts of adhesion are invalid per se. They are, on
the contrary, as binding as ordinary contracts. A party is in reality free to accept or reject it. A contract of
adhesion becomes void only when the dominant party takes advantage of the weakness of the other
party, completely depriving the latter of the opportunity to bargain on equal footing.[61]
14

Atty. G.G. Bernardo
MAS
That was not the case here. As the trial court noted, if the terms and conditions offered by
Equitable had been truly prejudicial to respondents, they would have walked out and negotiated with
another bank at the first available instance. But they did not. Instead, they continuously availed of
Equitable's credit facilities for five long years.
While the RTC categorically found that respondents had outstanding dollar- and pesodenominated loans with Equitable, it, however, failed to ascertain the total amount due (principal,
interest and penalties, if any) as of July 9, 2001. The trial court did not explain how it arrived at the
amounts of US$228,200 and P1,000,000.[62] In Metro Manila Transit Corporation v. D.M. Consunji,[63] we
reiterated that this Court is not a trier of facts and it shall pass upon them only for compelling reasons
which unfortunately are not present in this case.[64] Hence, we ordered the partial remand of the case
for the sole purpose of determining the amount of actual damages.[65]
ESCALATION CLAUSE VIOLATED THE

PRINCIPLE
OF
MUTUALITY OF CONTRACTS
Escalation clauses are not void per se. However, one which grants the creditor an unbridled
right to adjust the interest independently and upwardly, completely depriving the debtor of the right to
assent to an important modification in the agreement is void. Clauses of that nature violate the
principle of mutuality of contracts.[66] Article 1308[67]of the Civil Code holds that a contract must bind
both contracting parties; its validity or compliance cannot be left to the will of one of them.[68]
For this reason, we have consistently held that a valid escalation clause provides:
1.
that the rate of interest will only be increased if the applicable maximum
rate of interest is increased by law or by the Monetary Board; and
2.
that the stipulated rate of interest will be reduced if the applicable

maximum rate of interest is reduced by law or by the Monetary Board (deescalation clause).[69]
15

Atty. G.G. Bernardo
MAS
The RTC found that Equitable's promissory notes uniformly stated:

If subject promissory note is extended, the interest for subsequent extensions shall
be at such rate as shall be determined by the bank.[70]
Equitable dictated the interest rates if the term (or period for repayment) of the loan was
extended. Respondents had no choice but to accept them. This was a violation of Article 1308 of the
Civil Code. Furthermore, the assailed escalation clause did not contain the necessary provisions for
validity, that is, it neither provided that the rate of interest would be increased only if allowed by law or
the Monetary Board, nor allowed de-escalation. For these reasons, the escalation clause was void.
With regard to the proper rate of interest, in New Sampaguita Builders v. Philippine National
Bank[71] we held that, because the escalation clause was annulled, the principal amount of the loan was
subject to the original or stipulated rate of interest. Upon maturity, the amount due was subject to legal
interest at the rate of 12% per annum.[72]
Consequently, respondents should pay Equitable the interest rates of 12.66% p.a. for their
dollar-denominated loans and 20% p.a. for their peso-denominated loans from January 10, 2001 to July
9, 2001. Thereafter, Equitable was entitled to legal interest of 12% p.a. on all amounts due.
THERE
WAS
EXTRAORDINARY DEFLATION
NO
Extraordinary inflation exists when there is an unusual decrease in the purchasing power of
currency (that is, beyond the common fluctuation in the value of currency) and such decrease could not
be reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the
obligation. Extraordinary deflation, on the other hand, involves an inverse situation.[73]
Article 1250 of the Civil Code provides:
16

Atty. G.G. Bernardo
MAS
Article 1250. In case an extraordinary inflation or deflation of the currency

stipulated should intervene, the value of the currency at the time of the establishment
of the obligation shall be the basis of payment, unless there is an agreement to the
contrary.
For extraordinary inflation (or deflation) to affect an obligation, the following requisites must be
proven:
1.
2.
3.
that there was an official declaration of extraordinary inflation or deflation

from the Bangko Sentral ng Pilipinas (BSP);[74]
that the obligation was contractual in nature;[75] and
that the parties expressly agreed to consider the effects of the extraordinary
inflation or deflation.[76]
Despite the devaluation of the peso, the BSP never declared a situation of extraordinary
inflation. Moreover, although the obligation in this instance arose out of a contract, the parties did not
agree to recognize the effects of extraordinary inflation (or deflation).[77] The RTC never mentioned that
there was a such stipulation either in the promissory note or loan agreement. Therefore, respondents
should pay their dollar-denominated loans at the exchange rate fixed by the BSP on the date of
maturity.[78]
THE
AWARD
OF
EXEMPLARY
LACKED
BASIS
MORAL
AND
DAMAGES
Moral damages are in the category of an award designed to compensate the claimant for
actual injury suffered, not to impose a penalty to the wrongdoer.[79] To be entitled to moral damages, a
claimant must prove:
1.
2.
That he or she suffered besmirched reputation, or physical, mental or

psychological suffering sustained by the claimant;
That the defendant committed a wrongful act or omission;
17

Atty. G.G. Bernardo
3.
That the wrongful act or omission was the proximate cause of the damages
the claimant sustained;
4.
The case is predicated on any of the instances expressed or envisioned by

Article 2219[80] and 2220[81]. [82]
MAS
In culpa contractual or breach of contract, moral damages are recoverable only if the defendant
acted fraudulently or in bad faith or in wanton disregard of his contractual obligations.[83] The breach
must be wanton, reckless, malicious or in bad faith, and oppressive or abusive.[84]
The RTC found that respondents did not pay Equitable the interest due on February 9, 2001 (or
any month thereafter prior to the maturity of the loan)[85] or the amount due (principal plus interest)
due on July 9, 2001.[86] Consequently, Equitable applied respondents' deposits to their loans upon
maturity.
The relationship between a bank and its depositor is that of creditor and debtor.[87] For this
reason, a bank has the right to set-off the deposits in its hands for the payment of a depositor's
indebtedness.[88]
Respondents indeed defaulted on their obligation. For this reason, Equitable had the option to
exercise its legal right to set-off or compensation. However, the RTC mistakenly (or, as it now appears,
deliberately) concluded that Equitable acted fraudulently or in bad faith or in wanton disregard of its
contractual obligations despite the absence of proof. The undeniable fact was that, whatever damage
respondents sustained was purely the consequence of their failure to pay their loans. There was
therefore absolutely no basis for the award of moral damages to them.
Neither was there reason to award exemplary damages. Since respondents were not entitled
to moral damages, neither should they be awarded exemplary damages.[89]And if respondents were not
entitled to moral and exemplary damages, neither could they be awarded attorney's fees and litigation
expenses.[90]
18

Atty. G.G. Bernardo
MAS
ACCORDINGLY, the petition is hereby GRANTED.

The October 28, 2005 decision and February 3, 2006 resolution of the Court of Appeals in CAG.R. SP No. 83112 are hereby REVERSED and SET ASIDE.
The March 24, 2004 omnibus order of the Regional Trial Court, Branch 16, Cebu City in Civil
Case No. CEB-26983 is hereby ANNULLED for being rendered with grave abuse of discretion amounting
to lack or excess of jurisdiction. All proceedings undertaken pursuant thereto are likewise declared null
and void.
The March 1, 2004 order of the Regional Trial Court, Branch 16 of Cebu City in Civil Case No.
CEB-26983 is hereby SET ASIDE. The appeal of petitioners Equitable PCI Bank, Aimee Yu and Bejan Lionel
Apas is therefore given due course.
The February 5, 2004 decision of the Regional Trial Court, Branch 16 of Cebu City in Civil Case
No. CEB-26983 is accordingly SET ASIDE. New judgment is hereby entered:
1.
ordering respondents Ng Sheung Ngor, doing business under the name and style of
Ken Marketing, Ken Appliance Division, Inc. and Benjamin E. Go to pay petitioner
Equitable PCI Bank the principal amount of their dollar- and peso-denominated loans;
2.
ordering respondents Ng Sheung Ngor, doing business under the name and style of
Ken Marketing, Ken Appliance Division, Inc. and Benjamin E. Go to pay petitioner
Equitable PCI Bank interest at:
a)
12.66% p.a. with respect to their dollar-denominated loans from January 10,
2001 to July 9, 2001;
b)
20% p.a. with respect to their peso-denominated loans from January 10,
2001 to July 9, 2001;[91]
c)
pursuant to our ruling in Eastern Shipping Lines v. Court of Appeals,[92] the

total amount due on July 9, 2001 shall earn legal interest at 12% p.a. from the
19

Atty. G.G. Bernardo
MAS
time petitioner Equitable PCI Bank demanded payment, whether judicially or

extra-judicially; and
d)
after this Decision becomes final and executory, the applicable rate shall be
12% p.a. until full satisfaction;
3.
all other claims and counterclaims are dismissed.
As a starting point, the Regional Trial Court, Branch 16 of Cebu City shall compute the exact
amounts due on the respective dollar-denominated and peso-denominated loans, as of July 9, 2001, of
respondents Ng Sheung Ngor, doing business under the name and style of Ken Marketing, Ken
Appliance Division and Benjamin E. Go.
SO ORDERED.
RENATO C. CORONA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
Chairperson
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
ADOLFO S. AZCUNA
Associate Justice
TERESITA J. LEONARDO-DE CASTRO

Associate Justice
20

Atty. G.G. Bernardo
MAS
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the
above decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
*
**
[1]
[2]
[3]
[4]
[5]
[6]
[7]
[8]
[9]
[10]
[11]
Now, Banco De Oro Unibank.

Also referred to as Ng Seung Ngor in the records.
Under Rule 45 of the Rules of Court.
Penned by Associate Justice Mercedes Gozo-Dadole (retired) and concurred in by Associate
Justices Pampio A. Abarintos and Enrico A. Lanzanas of the Eighteenth Division of the Court of
Appeals. Dated October 28, 2005. Rollo, pp. 88-111.
Penned by Associate Justice Enrico A. Lanzanas and concurred in by Associate Justices Isaias P.
Dicdican and Pampio A. Abarintos of the Special Former Eighteenth Division of the Court of
Appeals. Dated February 3, 2006. Id., pp. 112-115.
Doing business in the name and style of Ken Marketing.
Docketed as Civil Case No. CEB-26983. Rollo, pp. 115-143.
Id., pp. 116-117, 177.
The interest rate initially offered by Equitable was 12.75% p.a. for dollar-denominated loans.
Id., p. 187.
Id., p. 118.
Id., pp. 155-175.
Id.
Id., pp. 180, 183. SCHEDULE OF LOANS:
Respondents' submission
Principal
Interest
Date Availed
Date of Maturity Amount Due
US$223,000 12.66%, p.a.
10 January 2001
9 July 2001
(total=)
36,700 12.66%,
p.a.
10
January
2001
9
July
2001
US$232,248.00
P995,000 20%,
p.a.
10
January
2001
9
July
2001
P1,081,703.14
Equitable's submission
Principal
Interest
Date Availed
US$184,000 12.66%,
p.a.
10
2001
US$207,771.78
37,700 12.66%,
p.a.
10
2001
41,441.44
January
January
Date of Maturity Amount due

2001
9
July
2001
July
21

Atty. G.G. Bernardo
P1,050,000 20%,
p.a.
2001
P1,166,193.34
MAS
10
January
2001
July
Note:
1.
Equitable and respondents agreed neither as to the amount of the principal nor as to the
amount due.
2.
The RTC concluded that the rates of interest stated in the promissory notes were only
applicable for 30 days (or from January 10, 2001 to February 9, 2001). Thereafter(or every
30 days until the loan matures), Equitable may change the rates if it so desired without the
prior notice to respondents.
3.
Interest due must be paid every month beginning February 9, 2001 until maturity.
4.
The findings of the trial court, with regard to the amount of respondents' obligation to
Equitable, agreed neither with the submission of Equitable nor with that of respondents.
The RTC made its own finding as to the amount of respondent's obligation to Equitable but
did not explain how it arrived at the figures. It merely stated:
[12]
[13]
[14]
[15]
[16]
[17]
[18]
[19]
[20]
[21]
[22]
[23]
[24]
[25]
[26]
[27]
[28]
[29]
[30]
[31]
The evidence adduced during trial show [respondents] received the

proceeds of peso and dollar loans from defendant bank as follows: (a)
US$228,200 in four (4) different availments and the (b) principal amount
ofP1,000,000. xxx
Id., pp. 185-186.
Id. The RTC took judicial notice of the fact that the exchange rate in 1996 was US$1 = P26.50
while in 2001, it was US$1 = P55. Because the cost of purchasing dollar increased by 200% over
the relatively short period of six years, it concluded that there was extraordinary inflation.
Id.
Id., p. 190.
Id., pp. 188-189.
Id.
Penned by Judge Agapito L. Hontanosas, Jr. (dismissed from the service per resolution in J.
King and Sons Company, Inc. v. Judge Agapito L. Hontanosas, Jr., A.M. No. RTJ-03-1802, 21
September 2004, 438 SCRA 525). Id., pp. 177-190.
Id., pp. 189-190.
Id., pp. 191-193.
Id., p. 194.
Id.
Id., pp. 195-202. Equitable attached proof that it paid the appeal fees.
Id., pp. 203-204.
Id., p. 206.
Id., pp. 205-207.
Id., p. 205.
Id., p. 207.
Id., pp. 208-210.
Id., p. 218. Covered by TCT No. 124096, TCT No. 118031 and tax declarations GR2K-06-03800391 and GRK-06-038-00392.
Id., pp. 272-276.
See RULES OF COURT, Rule 38, Sec. 2. The section provides:
22

Atty. G.G. Bernardo
MAS
Sec. 2. Petition for relief from denial of appeal.-- When a judgment or final order is
rendered by any court in a case, and a party thereto, by fraud, accident, mistake or excusable
negligence, has been prevented from taking an appeal, he may file a petition in such court and
in the same case praying that the appeal be given due course.
[32]
[33]
[34]
[35]
[36]
[37]
[38]
[39]
[40]
[41]
[42]
[43]
[44]
[45]
[46]
[47]
[48]
[49]
[50]
[51]
[52]
Id., pp. 279-281.

Docketed as CA-G.R. SP No. 83112. Id., p. 221.
Penned by Associate Justice Estela M. Perlas-Bernabe and concurred in by Associate Justices
Monina Arevalo-Zenarosa and Vicente I. Yap (retired) of the Special Eighteenth Division of the
Court of Appeals. Dated June 16, 2004. Id., pp. 221-223.
Id., pp. 226-231.
Id., pp. 232-240.
Supra note 2.
Id., pp. 106-110. The petition for certiorari was filed in the CA on March 30, 2004 at 9 a.m.
while the motion to withdraw the petition for relief in the RTC was filed also on March 30,
2004 at 1:40 p.m.
Id.
Id., pp. 248-271.
Supra note 3.
Id., p. 38.
Id., p. 55.
Id., pp. 62-68.
Ligon v. Court of Appeals, G.R. No. 127683, 7 August 1998, 294 SCRA 73, 88.
Id.
Supra note 31.
Florenz B. Regalado, 2 REMEDIAL LAW COMPENDIUM 18th ed., 716 citing Matute v. Macadaeg,
et al., 99 Phil. 340 (1956) and de Gala-Sison v. Maddela, et al., 160-B Phil. 626 (1975).
See Aggabao v. Commission on Elections, G.R. No. 163756, 26 January 2005, 449 SCRA 400. See
also Zarate v. Maybank, G.R. No. 160976, 8 June 2005, 459 SCRA 785. See also Agustin v. Court
of Appeals, G.R. No. 162571, 15 June 2005, 460 SCRA 315.
Rollo, p. 194.
Id., pp. 225-231.
See RULES OF COURT, Rule 41, Sec. 2. The section provides:
Section 2. Modes of appeal.-(a) Ordinary appeal.-- The appeal to the Court of Appeals in cases decided by the
Regional Trial Court in the exercise of its original jurisdiction shall be taken by filing a notice of
appeal with the court which rendered the judgment or final order appealed from and serving
a copy thereof upon the adverse party. No record on appeal shall be required except in special
proceedings and other cases of multiple or separate appeals where the law or these Rules so
require. In such cases, the record on appeal shall be filed and served in the like manner.
(b) Petition for review.-- The appeal to the Court of Appeals in cases decided by the
Regional Trial Court in exercise of its appellate jurisdiction shall be by petition for review in
accordance with Rule 42.
23

Atty. G.G. Bernardo
[53]
[54]
[55]
[56]
[57]
[58]
[59]
[60]
[61]
[62]
[63]
[64]
[65]
[66]
[67]
[68]
[69]
[70]
[71]
[72]
[73]
[74]
[75]
MAS
(c) Appeal by certiorari.-- In all cases where only questions of law are raised or
involved the appeal shall be to the Supreme Court by petition for review on certiorari in
accordance with Rule 45. (emphasis supplied)
Supra note 48 at 400 citing Palmares, et al. v. Jimenez, et al., 90 Phil. 773. (1952).
Tuason v. Court of Appeals, G.R. No. 116607, 10 April 1996, 256 SCRA 158, 167. See also Cerezo
v. Tuazon, G.R. No. 141538, 23 March 2004, 426 SCRA 167, 183. See also Azucena v. Foreign
Manpower Services, G.R. No. 147955, 25 October 2004, 441 SCRA 346, 354-355.
Supra note 52 and Usero v. Court of Appeals, G.R. Nos. 152112 and 155055, 26 January 2005,
449 SCRA 352, 358.
Bukidnon Doctor's Hospital v. Metropolitan Bank and Trust Company, G.R. No. 161882, 8 July
2005, 463 SCRA 222, 233.
Rollo, pp. 46-50.
Citibank, N.A. v. Sabeniano, G.R. No. 156132, 6 February 2007.
Id.
Id.
Perez v. Development Bank of the Philippines, G.R. No. 148541, 11 November 2004, 442 SCRA
238, 249-250 citing Rizal Commercial Banking Corporation v. Court of Appeals, G.R. No. 127139,
19 February 1999, 303 SCRA 449, 454.
Supra note 11.
G.R. No. 147594, 7 March 2007.
Id.
Id.
See New Sampaguita Builders Construction, Inc. v. Philippine National Bank, G.R. No. 148753,
30 July 2004, 435 SCRA 565, 581 citing Philippine National Bank v. Court of Appeals, 328 Phil. 54,
62-63 (1996).
Art. 1308. The contracts must bind both contracting parties; its validity or compliance cannot
be left to the will of one of them.
Jose B.L. Reyes and Ricardo C. Puno, 4 AN OUTLINE OF PHILIPPINE CIVIL LAW 1957 ed., p. 178.
Llorin v. Court of Appeals, G.R. No. 103592, 4 February 1993, 218 SCRA 438, 442.
Rollo, p. 147.
Supra note 66.
Id., pp. 608-609.
Sangrador v. Valderrama, G.R. No. 58122, 29 December 1989, 168 SCRA 215, 228 citing
Filipino Pipe and Foundry Corporation v. National Waterworks and Sewage Authority, G.R. No. L43446, 3 May 1988.
Citibank v. Sabeniano, supra note 58. See also Mobil Oil Philippines v. Court of Appeals, G.R.
No. 58122, 29 December 1989, 180 SCRA 651, 667.
Extraordinary inflation or deflation does not affect obligations which arise from sources other
than contracts. See Velasco v. Manila Electric Company, 149 Phil. 657 (1971).
See CIVIL CODE, Art. 1157. The article provides:
Art. 1157. Obligations arise from:
1.
Law;
2.
Contracts;
3.
Quasi-contracts;
4.
Acts or omission punished by law; and
5.
Quasi-delicts.
24

Atty. G.G. Bernardo
[76]
[77]
[78]
[79]
MAS
Commissioner of Public Highway v. Burgos, G.R. No. L-36706, 31 March 1980, 96 SCRA 831,
837.
The requisites for Article 1250 apply to both extraordinary inflation and deflation. This case
involved extraordinary inflation because, as RTC Judge Hontanosas noted, the peso substantially
depreciated during the intervening period.
For Article 1250 to apply, not only must the obligation be contractual, the parties must more
importantly agree to recognize the effects of extraordinary inflation (or deflation, as the case
may be). Here, despite the fact that the obligation was contractual (i.e., a loan), neither the loan
agreement nor the promissory notes contained a provision stating that the parties agreed to
recognize the effects of extraordinary inflation or deflation. For this reason, Article 1250 was
inapplicable.
Bank of the Philippine Islands v. Leobrera, G.R. Nos. 137147-48, 18 November 2003, 416 SCRA
15, 19 citing C.F. Sharp & Co. v. Northwest Airlines, Inc., G.R. No. 133498, 18 April 2002, 381
SCRA 314. See also Jammang v. Takahashi, G.R. No. 149429, 9 October 2006, 504 SCRA 31, 36.
Note that Equitable did not present proof that respondents agreed to pay their dollardenominated loans in US dollars.
Supercars Management & Development Corporation v. Flores, G.R. No. 148173, 10 December
2004, 446 SCRA 34, 44.
See CIVIL CODE, Art. 2217. The article provides:
[80]
Art. 2217. 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 estimation, moral damages may be recovered if they are
the proximate result of the defendant's wrongful act or omission. (emphasis supplied)
Art. 2219. Moral damages may be recovered in the following and analogous cases:
1.
A criminal offense resulting in physical injury;
2.
Quasi-delict causing physical injuries;
3.
Seduction, abduction, rape or other lascivious acts;
4.
Adultery or concubinage;
5.
Illegal or arbitrary detention or arrest;
6.
Illegal search;
7.
Libel, slander or any other form of defamation;
8.
Malicious prosecution;
9.
Acts mentioned in Art. 309;
10. Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
The parents of the female seduced, abducted, raped or abused, referred to in No. 3 of
this article, may also recover moral damages.
[81]
The spouse, descendants, ascendants, brothers and sisters may bring the action
mentioned in No. 9 of this article, in the order named.
Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted fraudulently or in bad
faith. (emphasis supplied)
25

Atty. G.G. Bernardo
[82]
[83]
[84]
[85]
[86]
[87]
[88]
[89]
[90]
[91]
[92]
MAS
Philippine National Bank v. Pike, G.R. No. 157845, 20 September 2005, 470 SCRA 328, 349350 citing Philippine Telegraph & Telephone Corporation v. Court of Appeals, G.R. No. 139268, 3
September 2002, 388 SCRA 270.
Id.
Id. citing Herbosa v. Court of Appeals, G.R. No. 119086, 25 January 2002, 374 SCRA 578. See
also Salvador v. Court of Appeals, G.R. No. 124899, 30 March 2004, 426 SCRA 433.
Supra note 11.
Id.
Gullas v. National Bank, 62 Phil. 519, 521 (1935) citing Fulton Iron Works Co. v. China Banking
Corporation, 55 Phil. 208 (1930) and San Carlos Milling Co. v. Bank of the Philippine Islands and
China Banking Corporation, 59 Phil. 59 (1933).
Id., pp. 521-522.
Mahinay v. Velasquez, Jr., G.R. No. 152753, 13 January 2004, 419 SCRA 118, 122.
Supercars Management & Development Corporation v. Flores, supra note 79 at 44.
While this case involved extraordinary inflation because of the substantial depreciation of the
peso during the intervening period, Article 1250 of the Civil Code was inapplicable. For Article
1250 to apply, not only must the obligation be contractual, the parties must, more importantly,
agree to recognize the effects of extraordinary inflation (or deflation, as the case may be). Here,
despite the contractual obligation (i.e., a loan), neither the loan agreement nor the promissory
notes contained a provision stating that the parties agreed to recognize the effects of
extraordinary inflation or deflation. (See note 77.)
G.R. No. 97412, 12 July 1994, 234 SCRA 74, 95.
26

Atty. G.G. Bernardo
MAS
Commissioner of Public Highways vs Burgos - 1250

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-36706 March 31, 1980
COMMISSIONER OF PUBLIC HlGHWAYS, petitioner,
vs.
HON. FRANCISCO P. BURGOS, in his capacity as Judge of the Court of First Instance of Cebu City,
Branch 11, and Victoria Amigable, respondents.
Quirico del Mar & Domingo Antiquera for respondent.
Office of the Solicitor General for petitioner.
DE CASTRO, J.:
Victoria Amigable is the owner of parcel of land situated in Cebu City with an area of 6,167 square
meters. Sometime in 1924, the Government took this land for road-right-of-way purpose. The land had
since become streets known as Mango Avenue and Gorordo Avenue in Cebu City.
On February 6, 1959, Victoria Amigable filed in the Court of First Instance of Cebu a complaint, which
was later amended on April 17, 1959 to recover ownership and possession of the land, and for damages
in the sum of P50,000.00 for the alleged illegal occupation of the land by the Government, moral
damages in the sum of P25,000.00, and attorney's fees in the sum of P5,000.00, plus costs of suit. The
complaint was docketed as Civil Case No. R-5977 of the Court of First Instance of Cebu, entitled "Victoria
Amigable vs. Nicolas Cuenca, in his capacity as Commissioner of Public Highway and Republic of the
Philippines. 1
In its answer, 2 the Republic alleged, among others, that the land was either donated or sold by its
owners to the province of Cebu to enhance its value, and that in any case, the right of the owner, if any,
to recover the value of said property was already barred by estoppel and the statute of limitations,
defendants also invoking the non-suability of the Government.
In a decision rendered on July 29, 1959 by Judge Amador E. Gomez, the plaintiff's complaint was
dismissed on the grounds relied upon by the defendants therein. 3 The plaintiff appealed the decision to
the Supreme Court where it was reversed, and the case was remanded to the court of origin for the
determination of the compensation to be paid the plaintiff-appellant as owner of the land, including
attorney's fees. 4 The Supreme Court decision also directed that to determine just compensation for the
land, the basis should be the price or value thereof at the time of the taking. 5
27

Atty. G.G. Bernardo
MAS
In the hearing held pursuant to the decision of the Supreme Court, the Government proved the value of
the property at the time of the taking thereof in 1924 with certified copies, issued by the Bureau of
Records Management, of deeds of conveyance executed in 1924 or thereabouts, of several parcels of
land in the Banilad Friar Lands in which the property in question is located, showing the price to be at
P2.37 per square meter. For her part, Victoria Amigable presented newspaper clippings of the Manila
Times showing the value of the peso to the dollar obtaining about the middle of 1972, which was P6.775
to a dollar.
Upon consideration of the evidence presented by both parties, the court which is now the public
respondent in the instant petition, rendered judgment on January 9, 1973 directing the Republic of the
Philippines to pay Victoria Amigable the sum of P49,459.34 as the value of the property taken, plus
P145,410.44 representing interest at 6% on the principal amount of P49,459.34 from the year 1924 up
to the date of the decision, plus attorney's fees of 10% of the total amount due to Victoria Amigable, or
a grand total of P214,356.75. 6
The aforesaid decision of the respondent court is now the subject of the present petition for review by
certiorari, filed by the Solicitor General as counsel of the petitioner, Republic of the Philippines, against
the landowner, Victoria Amigable, as private respondent. The petition was given due course after
respondents had filed their comment thereto, as required. The Solicitor General, as counsel of
petitioner, was then required to file petitioner's brief and to serve copies thereof to the adverse
parties. 7 Petitioner's brief was duly filed on January 29, 1974, 8 to which respondents filed only a
"comment." 9 instead of a brief, and the case was then considered submitted for decision. 10
1. The issue of whether or not the provision of Article 1250 of the New Civil Code is applicable in
determining the amount of compensation to be paid to respondent Victoria Amigable for the property
taken is raised because the respondent court applied said Article by considering the value of the peso to
the dollar at the time of hearing, in determining due compensation to be paid for the property taken.
The Solicitor General contends that in so doing, the respondent court violated the order of this Court, in
its decision in G.R. No. L-26400, February 29, 1972, to make as basis of the determination of just
compensation the price or value of the land at the time of the taking.
It is to be noted that respondent judge did consider the value of the property at the time of the taking,
which as proven by the petitioner was P2.37 per square meter in 1924. However, applying Article 1250
of the New Civil Code, and considering that the value of the peso to the dollar during the hearing in
1972 was P6.775 to a dollar, as proven by the evidence of the private respondent Victoria Amigable the
Court fixed the value of the property at the deflated value of the peso in relation, to the dollar, and
came up with the sum of P49,459.34 as the just compensation to be paid by the Government. To this
action of the respondent judge, the Solicitor General has taken exception.
Article 1250 of the New Civil Code seems to be the only provision in our statutes which provides for
payment of an obligation in an amount different from what has been agreed upon by the parties
because of the supervention of extra-ordinary inflation or deflation. Thus, the Article provides:
ART. 1250. In case extra-ordinary inflation or deflation of the currency stipulated should
supervene, the value of the currency at the time of the establishment of the obligation
shall be the basis of payment, unless there is an agreement to the contrary.
28

Atty. G.G. Bernardo
MAS
It is clear that the foregoing provision applies only to cases where a contract or agreement is involved. It
does not apply where the obligation to pay arises from law, independent of contract. The taking of
private property by the Government in the exercise of its power of eminent domain does not give rise to
a contractual obligation. We have expressed this view in the case of Velasco vs. Manila Electric Co., et
al., L-19390, December 29, 1971. 11
Moreover, the law as quoted, clearly provides that the value of the currency at the time of the
establishment of the obligation shall be the basis of payment which, in cases of expropriation, would be
the value of the peso at the time of the taking of the property when the obligation of the Government
to pay arises. 12 It is only when there is an "agreement to the contrary" that the extraordinary inflation
will make the value of the currency at the time of payment, not at the time of the establishment of the
obligation, the basis for payment. In other words, an agreement is needed for the effects of an
extraordinary inflation to be taken into account to alter the value of the currency at the time of the
establishment of the obligation which, as a rule, is always the determinative element, to be varied by
agreement that would find reason only in the supervention of extraordinary inflation or deflation.
We hold, therefore, that under the law, in the absence of any agreement to the contrary, even assuming
that there has been an extraordinary inflation within the meaning of Article 1250 of the New Civil Code,
a fact We decline to declare categorically, the value of the peso at the time of the establishment of the
obligation, which in the instant case is when the property was taken possession of by the Government,
must be considered for the purpose of determining just compensation. Obviously, there can be no
"agreement to the contrary" to speak of because the obligation of the Government sought to be
enforced in the present action does not originate from contract, but from law which, generally is not
subject to the will of the parties. And there being no other legal provision cited which would justify a
departure from the rule that just compensation is determined on the basis of the value of the property
at the time of the taking thereof in expropriation by the Government, the value of the property as it is
when the Government took possession of the land in question, not the increased value resulting from
the passage of time which invariably brings unearned increment to landed properties, represents the
true value to be paid as just compensation for the property taken. 13
In the present case, the unusually long delay of private respondent in bringing the present action-period
of almost 25 years which a stricter application of the law on estoppel and the statute of limitations and
prescription may have divested her of the rights she seeks on this action over the property in question,
is an added circumstance militating against payment to her of an amount bigger-may three-fold more
than the value of the property as should have been paid at the time of the taking. For conformably to
the rule that one should take good care of his own concern, private respondent should have
commenced proper action soon after she had been deprived of her right of ownership and possession
over the land, a deprivation she knew was permanent in character, for the land was intended for, and
had become, avenues in the City of Cebu. A penalty is always visited upon one for his inaction, neglect
or laches in the assertion of his rights allegedly withheld from him, or otherwise transgressed upon by
another.
From what has been said, the correct amount of compensation due private respondent for the taking of
her land for a public purpose would be not P49,459.34, as fixed by the respondent court, but only
P14,615.79 at P2.37 per square meter, the actual value of the land of 6,167 square meters when it was
taken in 1924. The interest in the sum of P145,410.44 at the rate of 6% from 1924 up to the time
respondent court rendered its decision, as was awarded by the said court should accordingly be
reduced.
29

Atty. G.G. Bernardo
MAS
In Our decision in G.R. No. L-26400, February 29, 1972, 14 We have said that Victoria Amigable is entitled
to the legal interest on the price of the land from the time of the taking. This holding is however
contested by the Solicitor General, citing the case of Raymunda S. Digsan vs. Auditor General, et
al., 15 alleged to have a similar factual environment and involving the same issues, where this Court
declared that the interest at the legal rate in favor of the landowner accrued not from the taking of the
property in 1924 but from April 20, 1961 when the claim for compensation was filed with the Auditor
General. Whether the ruling in the case cited is still the prevailing doctrine, what was said in the decision
of this Court in the abovecited case involving the same on the instant matter, has become the "law of
the case", no motion for its reconsideration having been filed by the Solicitor General before the
decision became final. Accordingly, the interest to be paid private respondent, Victoria Amigable, shall
commence from 1924, when the taking of the property took place, computed on the basis of
P14,615.79, the value of the land when taken in said year 1924.
2. On the amount of attorney's fees to be paid private respondent, about which the Solicitor General has
next taken issue with the respondent court because the latter fixed the same at P19,486.97, while in her
complaint, respondent Amigable had asked for only P5,000.00, the amount as awarded by the
respondent court, would be too exhorbitant based as it is, on the inflated value of the land. An
attorney's fees of P5,000.00, which is the amount asked for by private respondent herself in her
complaint, would be reasonable.
WHEREFORE, the judgment appealed from is hereby reversed as to the basis in the determination of the
price of the land taken as just compensation for its expropriation, which should be the value of the land
at the time of the taking, in 1924. Accordingly, the same is hereby fixed at P14,615.79 at P2.37 per
square meter, with interest thereon at 6% per annum, from the taking of the property in 1924, to be
also paid by Government to private respondent, Victoria Amigable, until the amount due is fully paid,
plus attorney's fees of P5,000.00.
SO ORDERED.
Makasiar, Fernandez, Guerrero and Melencio-Herrera, JJ., concur.
Separate Opinions
TEEHANKEE, Acting C.J., concuring:
I concur in the result, with the observation that the statements in the main opinion re the applicability
or non-applicability of Article 1250 of the Civil Code should be taken as obiter dicta, since said article
may not be invoked nor applied without a proper declaration of extraordinary inflation or deflation of
currency by the competent authorities. The Court has thus set aside respondent judge's raising of the
amount of compensation for the land taken from P14,615.79 (at P2.37 per square meter) as properly
determined to be its value at the time of its taking in 1924 to P49,459.34 purportedly because of the
deflated value of the peso in relation to the dollar. The ratio decidendi of the Court's judgment is that
respondent is entitled to the value of the land at the time of its taking in 1924 with interest thereon at
the legal rate of six (6%) percent per annum (which for a period of 56 years since 1924 to the present
amount to a total of 336% interest on the principal due) and reasonable attorney's fees of P5,000.00 in
30

Atty. G.G. Bernardo
MAS
consonance with the earlier decision of the Court in Victoria Amigable vs. Cuenca, 43 SCRA 360
(February 29, 1972) which is the law of the case. The judgment at bar is merely an implementation of
the said earlier decision which remanded the case to the Court a quo for determination of the
compensation to be paid by the government, including attorney's fees, with legal interest on the
determined price or value of the land at the time of its taking in 1924 "from the time it was taken up to
the time that payment s made by the government."
Footnotes
1 Annex A to Petition, pp. 22-24, Rollo.
2 Annex B to Petition. pp. 25-26, Rollo.
3 Annex C to Petition. pp. 27-33, Rollo
4 Victoria Amigable vs. Cuenca, et al., 43 SCRA 360.
5 Annex E to Petition, pp 35-38, Rollo.
6 Annex F to Petition, pp. 39-42, Rollo.
7 Page 82, Rollo.
8 Page 102, Rollo.
9 Page 115, Rollo.
10 Page 121, Rollo.
11 42 SCRA 556.
12 Republic vs. Philippine National Bank, 1 SCRA 957; J.M. Tuason vs. Land Tenure
Administration, 31 SCRA 413.
13 Republic vs. Philippine National Bank, supra; J.M. Tuason vs Land Tenure
Administration, supra.
14 43 SCRA 360.
15 G.R. No. L-21593. April 29, 1966, 16 SCRA 762.
31

Atty. G.G. Bernardo
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Sanchez vs Rigos
SUPREME COURT
Manila
EN BANC
G.R. No. L-25494 June 14, 1972

NICOLAS SANCHEZ, plaintiff-appellee,
vs.
SEVERINA RIGOS, defendant-appellant.
Santiago F. Bautista for plaintiff-appellee.
Jesus G. Villamar for defendant-appellant.
CONCEPCION, C.J.:p
Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of Appeals, which
certified the case to Us, upon the ground that it involves a question purely of law.
The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos
executed an instrument entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and
committed ... to sell" to Sanchez the sum of P1,510.00, a parcel of land situated in the barrios of Abar
and Sibot, municipality of San Jose, province of Nueva Ecija, and more particularly described in Transfer
Certificate of Title No. NT-12528 of said province, within two (2) years from said date with the
understanding that said option shall be deemed "terminated and elapsed," if "Sanchez shall fail to
exercise his right to buy the property" within the stipulated period. Inasmuch as several tenders of
payment of the sum of Pl,510.00, made by Sanchez within said period, were rejected by Mrs. Rigos, on
March 12, 1963, the former deposited said amount with the Court of First Instance of Nueva Ecija and
commenced against the latter the present action, for specific performance and damages.
After the filing of defendant's answer admitting some allegations of the complaint, denying other
allegations thereof, and alleging, as special defense, that the contract between the parties "is a
unilateral promise to sell, and the same being unsupported by any valuable consideration, by force of
the New Civil Code, is null and void" on February 11, 1964, both parties, assisted by their respective
counsel, jointly moved for a judgment on the pleadings. Accordingly, on February 28, 1964, the lower
court rendered judgment for Sanchez, ordering Mrs. Rigos to accept the sum judicially consigned by him
and to execute, in his favor, the requisite deed of conveyance. Mrs. Rigos was, likewise, sentenced to
pay P200.00, as attorney's fees, and other costs. Hence, this appeal by Mrs. Rigos.
32

Atty. G.G. Bernardo
MAS
This case admittedly hinges on the proper application of Article 1479 of our Civil Code, which provides:
ART. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
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.
In his complaint, plaintiff alleges that, by virtue of the option under consideration, "defendant agreed
and committed to sell" and "the plaintiff agreed and committed to buy" the land described in the
option, copy of which was annexed to said pleading as Annex A thereof and is quoted on the
margin. 1 Hence, plaintiff maintains that the promise contained in the contract is "reciprocally
demandable," pursuant to the first paragraph of said Article 1479. Although defendant had really
"agreed, promised and committed" herself to sell the land to the plaintiff, it is not true that the latter
had, in turn, "agreed and committed himself " to buy said property. Said Annex A does not bear out
plaintiff's allegation to this effect. What is more, since Annex A has been made "an integral part" of his
complaint, the provisions of said instrument form part "and parcel" 2 of said pleading.
The option did not impose upon plaintiff the obligation to purchase defendant's property. Annex A
is not a "contract to buy and sell." It merely granted plaintiff an "option" to buy. And both parties so
understood it, as indicated by the caption, "Option to Purchase," given by them to said instrument.
Under the provisions thereof, the defendant "agreed, promised and committed" herself to sell the land
therein described to the plaintiff for P1,510.00, but there is nothing in the contract to indicate that her
aforementioned agreement, promise and undertaking is supported by a consideration "distinct from the
price" stipulated for the sale of the land.
Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said
consideration, and this would seem to be the main factor that influenced its decision in plaintiff's favor.
It should be noted, however, that:
(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to
"sales" in particular, and, more specifically, to "an accepted unilateral promise to buy or to sell." In other
words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be "binding upon the promisor, Article 1479 requires the
concurrence of a condition, namely, that the promise be "supported by a consideration distinct from the
price." Accordingly, the promisee can not compel the promisor to comply with the promise, unless the
former establishes the existence of said distinct consideration. In other words, the promisee has the
burden of proving such consideration. Plaintiff herein has not even alleged the existence thereof in his
complaint.
(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a special defense,
the absence of said consideration for her promise to sell and, by joining in the petition for a judgment
on the pleadings, plaintiff has impliedly admitted the truth of said averment in defendant's answer.
Indeed as early as March 14, 1908, it had been held, in Bauermann v. Casas, 3 that:
33

Atty. G.G. Bernardo
MAS
One who prays for judgment on the pleadings without offering proof as to the truth of
his own allegations, and without giving the opposing party an opportunity to introduce
evidence, must be understood to admit the truth of all the material and relevant
allegations of the opposing party, and to rest his motion for judgment on those
allegations taken together with such of his own as are admitted in the pleadings. (La
Yebana Company vs. Sevilla, 9 Phil. 210). (Emphasis supplied.)
This view was reiterated in Evangelista v. De la Rosa 4 and Mercy's Incorporated v. Herminia Verde. 5
Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 6 from which We
quote:
The main contention of appellant is that the option granted to appellee to sell to it
barge No. 10 for the sum of P30,000 under the terms stated above has no legal effect
because it is not supported by any consideration and in support thereof it invokes article
1479 of the new Civil Code. The article provides:
"ART. 1479. A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable.
An accepted unilateral promise to buy or sell a determinate thing for a
price certain is binding upon the promisor if the promise is supported by
a consideration distinct from the price."
On the other hand, Appellee contends that, even granting that the "offer of option" is
not supported by any consideration, that option became binding on appellant when the
appellee gave notice to it of its acceptance, and that having accepted it within the
period of option, the offer can no longer be withdrawn and in any event such
withdrawal is ineffective. In support this contention, appellee invokes article 1324 of the
Civil Code which provides:
"ART. 1324. When the offerer has allowed the offeree a certain period
to accept, the offer may be withdrawn any time before acceptance by
communicating such withdrawal, except when the option is founded
upon consideration as something paid or promised."
There is no question that under article 1479 of the new Civil Code "an option to sell," or
"a promise to buy or to sell," as used in said article, to be valid must be "supported by a
consideration distinct from the price." This is clearly inferred from the context of said
article that a unilateral promise to buy or to sell, even if accepted, is only binding if
supported by consideration. In other words, "an accepted unilateral promise can only
have a binding effect if supported by a consideration which means that the option can
still be withdrawn, even if accepted, if the same is not supported by any consideration. It
is not disputed that the option is without consideration. It can therefore be withdrawn
notwithstanding the acceptance of it by appellee.
34

Atty. G.G. Bernardo
MAS
It is true that under article 1324 of the new Civil Code, the general rule regarding offer
and acceptance is that, when the offerer gives to the offeree a certain period to accept,
"the offer may be withdrawn at any time before acceptance" except when the option is
founded upon consideration, but this general rule must be interpreted as modified by
the provision of article 1479 above referred to, which applies to "a promise to buy and
sell" specifically. As already stated, this rule requires that a promise to sell to be valid
must be supported by a consideration distinct from the price.
We are not oblivious of the existence of American authorities which hold that an offer,
once accepted, cannot be withdrawn, regardless of whether it is supported or not by a
consideration (12 Am. Jur. 528). These authorities, we note, uphold the general
rule applicable to offer and acceptance as contained in our new Civil Code. But we are
prevented from applying them in view of the specific provision embodied in article
1479. While under the "offer of option" in question appellant has assumed a clear
obligation to sell its barge to appellee and the option has been exercised in accordance
with its terms, and there appears to be no valid or justifiable reason for appellant to
withdraw its offer, this Court cannot adopt a different attitude because the law on the
matter is clear. Our imperative duty is to apply it unless modified by Congress.
However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, 8 decided later
thatSouthwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 9 saw no distinction between
Articles 1324 and 1479 of the Civil Code and applied the former where a unilateral promise to sell similar
to the one sued upon here was involved, treating such promise as an option which, although not binding
as a contract in itself for lack of a separate consideration, nevertheless generated a bilateral contract of
purchase and sale upon acceptance. Speaking through Associate Justice, later Chief Justice, Cesar
Bengzon, this Court said:
Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the
offeree should decide to exercise his option within the specified time. After accepting
the promise and before he exercises his option, the holder of the option is not bound to
buy. He is free either to buy or not to buy later. In this case, however, upon accepting
herein petitioner's offer a bilateral promise to sell and to buy ensued, and the
respondent ipso facto assumed the obligation of a purchaser. He did not just get the
right subsequently to buy or not to buy. It was not a mere option then; it was a bilateral
contract of sale.
Lastly, even supposing that Exh. A granted an option which is not binding for lack of
consideration, the authorities hold that:
"If the option is given without a consideration, it is a mere offer of a
contract of sale, which is not binding until accepted. If, however,
acceptance is made before a withdrawal, it constitutes a binding
contract of sale, even though the option was not supported by a
sufficient consideration. ... . (77 Corpus Juris Secundum, p. 652. See also
27 Ruling Case Law 339 and cases cited.)
"It can be taken for granted, as contended by the defendant, that the
option contract was not valid for lack of consideration. But it was, at
35

Atty. G.G. Bernardo
MAS
least, an offer to sell, which was accepted by letter, and of the
acceptance the offerer had knowledge before said offer was withdrawn.
The concurrence of both acts the offer and the acceptance could
at all events have generated a contract, if none there was before (arts.
1254 and 1262 of the Civil Code)." (Zayco vs. Serra, 44 Phil. 331.)
In other words, since there may be no valid contract without a cause or consideration, the promisor is
not bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his
accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results in a
perfected contract of sale.
This view has the advantage of avoiding a conflict between Articles 1324 on the general principles on
contracts and 1479 on sales of the Civil Code, in line with the cardinal rule of statutory
construction that, in construing different provisions of one and the same law or code, such
interpretation should be favored as will reconcile or harmonize said provisions and avoid a conflict
between the same. Indeed, the presumption is that, in the process of drafting the Code, its author has
maintained a consistent philosophy or position. Moreover, the decision in Southwestern Sugar &
Molasses Co. v. Atlantic Gulf & Pacific Co., 10 holding that Art. 1324 is modified by Art. 1479 of the Civil
Code, in effect, considers the latter as an exception to the former, and exceptions are not favored,
unless the intention to the contrary is clear, and it is not so, insofar as said two (2) articles are
concerned. What is more, the reference, in both the second paragraph of Art. 1479 and Art. 1324, to an
option or promise supported by or founded upon a consideration, strongly suggests that the two (2)
provisions intended to enforce or implement the same principle.
Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby reiterates
the doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar as inconsistent therewith, the
view adhered to in theSouthwestern Sugar & Molasses Co. case should be deemed abandoned or
modified.
WHEREFORE, the decision appealed from is hereby affirmed, with costs against defendant-appellant
Severina Rigos. It is so ordered.
Reyes, J.B.L., Makalintal, Zaldivar, Teehankee, Barredo and Makasiar, JJ., concur.
Castro, J., took no part.
Separate Opinions
ANTONIO, J., concurring:

I concur in the opinion of the Chief Justice.
36

Atty. G.G. Bernardo
MAS
I fully agree with the abandonment of the view previously adhered to in Southwestern Sugar & Molasses
Co. vs. Atlantic Gulf and Pacific Co., 1 which holds that an option to sell can still be withdrawn, even if
accepted, if the same is not supported by any consideration, and the reaffirmance of the doctrine
in Atkins, Kroll & Co., Inc. vs. Cua Hian Tek, 2holding that "an option implies ... the legal obligation to
keep the offer (to sell) open for the time specified;" that it could be withdrawn before acceptance, if
there was no consideration for the option, but once the "offer to sell" is accepted, a bilateral promise to
sell and to buy ensues, and the offeree ipso facto assumes the obligations of a purchaser. In other
words, if the option is given without a consideration, it is a mere offer to sell, which is not binding until
accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale.
The concurrence of both acts the offer and the acceptance could in such event generate a
contract.
While the law permits the offeror to withdraw the offer at any time before acceptance even before the
period has expired, some writers hold the view, that the offeror can not exercise this right in an arbitrary
or capricious manner. This is upon the principle that an offer implies an obligation on the part of the
offeror to maintain in such length of time as to permit the offeree to decide whether to accept or not,
and therefore cannot arbitrarily revoke the offer without being liable for damages which the offeree
may suffer. A contrary view would remove the stability and security of business transactions. 3
In the present case the trial court found that the "Plaintiff (Nicolas Sanchez) had offered the sum of
Pl,510.00before any withdrawal from the contract has been made by the Defendant (Severina Rigos)."
Since Rigos' offer sell was accepted by Sanchez, before she could withdraw her offer, a bilateral
reciprocal contract to sell and to buy was generated.
Footnotes
CONCEPCION, C.J.:
1 OPTION TO PURCHASE
KNOW ALL MEN BY THESE PRESENTS:
I, SEVERINA RIGOS, Filipino, of legal age, widow, with residence at San Jose, Nueva Ecija
do by these presents
WITNESSETH:
That I am the owner of that property covered by Transfer Certificate of Title No. NT12528 of the Land Records of Nueva Ecija, my ownership thereof is evidenced by a Deed
of Absolute Sale in my favor known as Doc. No. 47; Page No. 12; Book No. 1; Series of
1961 of Notary Public, A. Tomas;
That I have agreed, promised and committed and do hereby agree, promise and commit
to sell the property concerned by the above numbered certificate of title to NICOLAS
SANCHEZ, Filipino, of legal age, married to Engracia Barrantes, with residence at San
37

Atty. G.G. Bernardo
MAS
Jose, Nueva Ecija, within a period of two (2) years from the execution of this instrument
for the amount of One Thousand Five Hundred Ten Pesos (Pl,510.00) Philippine
Currency;
That if within the period of two (2) years from the execution of this instrument said
Nicolas Sanchez shall fail to exercise his right to buy the property under this option, then
his right is deemed terminated and elapsed and that I shall no longer be compelled to
sell to him the property;
That I, NICOLAS SANCHEZ, whose personal circumstances are mentioned above hereby
agree and conform with all the conditions set forth in this option to purchase executed
in my favor; that I bind myself with all the terms and conditions.
IN WITNESS WHEREOF, the parties have hereunto affixed their signatures below this 3rd
day of April, 1961, at San Jose, Nueva Ecija.
(Sgd.) Nicolas SANCHEZ (Sgd.) SEVERINA RIGOS
Res. Cert. No. A-3914416 Res. Cert. No. A-2977240
Issued at San Jose, N.E. Issued at San Jose, N.E.
on April 3, 1961 on April 1, 1961
SIGNED IN THE PRESENCE OF:
(Sgd.) F. R. Bautista (Sgd.) Hipolito Francisco
2 As alleged in paragraph 5 of the Complaint.
3 10 Phil. 386, 390.
4 76 Phil. 115.
5 L-21571, September 29, 1956.
6 97 Phil. 249, 251-252.
7 Emphasis ours.
8 102 Phil. 948, 951-952.
9 Supra.
10 Supra.
ANTONIO, J., concurring:
38

Atty. G.G. Bernardo
MAS
1 97 Phil., 249.
2 102 Phil. 948.
3 I Gasperi 302, 6 Planiol & Ripert 180.
39

Atty. G.G. Bernardo
MAS
ABS CBN vs CA
FIRST DIVISION
[G.R. No. 128690. January 21, 1999]
ABS-CBN BROADCASTING CORPORATION, petitioners, vs. HONORABLE COURT OF APPEALS, REPUBLIC

BROADCASTING CORP., VIVA PRODUCTIONS, INC., and VICENTE DEL ROSARIO, respondents.
DECISION
DAVIDE, JR., C.J.:
In this petition for review on certiorari, petitioners ABS-CBN Broadcasting Corp. (hereinafter ABSCBN) seeks to reverse and set aside the decision[1] of 31 October 1996 and the resolution[2] of 10 March
1997 of the Court of Appeals in CA-G.R. CV No. 44125. The former affirmed with modification the
decision[3] of 28 April 1993 of the Regional Trial Court (RTC) of Quezon City, Branch 80, in Civil Case No.
Q-12309. The latter denied the motion to reconsider the decision of 31 October 1996.
The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows:
In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement (Exh. A) whereby Viva gave ABSCBN an exclusive right to exhibit some Viva films. Sometime in December 1991, in accordance with
paragraph 2.4 [sic] of said agreement stating that1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films for TV telecast
under such terms as may be agreed upon by the parties hereto, provided, however, that such right shall
be exercised by ABS-CBN from the actual offer in writing.
Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-Concio,
a list of three (3) film packages (36 title) from which ABS-CBN may exercise its right of first refusal under
the afore-said agreement (Exhs. 1 par. 2, 2, 2-A and 2-B Viva). ABS-CBN, however through Mrs.
Concio, can tick off only ten (10) titles (from the list) we can purchase (Exh. 3 Viva) and therefore
did not accept said list (TSN, June 8, 1992, pp. 9-10). The titles ticked off by Mrs. Concio are not the
subject of the case at bar except the film Maging Sino Ka Man.
For further enlightenment, this rejection letter dated January 06, 1992 (Exh 3 Viva) is hereby quoted:
6 January 1992
Dear Vic,
This is not a very formal business letter I am writing to you as I would like to express my difficulty in
recommending the purchase of the three film packages you are offering ABS-CBN.
40

Atty. G.G. Bernardo
MAS
From among the three packages I can only tick off 10 titles we can purchase. Please see attached. I
hope you will understand my position. Most of the action pictures in the list do not have big action stars
in the cast. They are not for primetime. In line with this I wish to mention that I have not scheduled for
telecast several action pictures in our very first contract because of the cheap production value of these
movies as well as the lack of big action stars. As a film producer, I am sure you understand what I am
trying to say as Viva produces only big action pictures.
In fact, I would like to request two (2) additional runs for these movies as I can only schedule them in
out non-primetime slots. We have to cover the amount that was paid for these movies because as you
very well know that non-primetime advertising rates are very low. These are the unaired titles in the
first contract.
1. Kontra Persa [sic]
2. Raider Platoon
3. Underground guerillas
4. Tiger Command
5. Boy de Sabog
6. lady Commando
7. Batang Matadero
8. Rebelyon
I hope you will consider this request of mine.
The other dramatic films have been offered to us before and have been rejected because of the ruling of
MTRCB to have them aired at 9:00 p.m. due to their very adult themes.
As for the 10 titles I have choosen [sic] from the 3 packages please consider including all the other Viva
movies produced last year, I have quite an attractive offer to make.
Thanking you and with my warmest regards.
(Signed)
Charo Santos-Concio
On February 27, 1992, defendant Del Rosario approached ABS-CBNs Ms. Concio, with a list consisting of
52 original movie titles (i.e., not yet aired on television) including the 14 titles subject of the present
case, as well as 104 re-runs (previously aired on television) from which ABS-CBN may choose another 52
titles, as a total of 156 titles, proposing to sell to ABS-CBN airing rights over this package of 52 originals
and 52 re-runs for P60,000,000.00 of which P30,000,000.00 will be in cash and P30,000,000.00 worth of
television spots (Exh. 4 to 4-C Viva; 9 Viva).
On April 2, 1992, defendant Del Rosario and ABS-CBNs general manager, Eugenio Lopez III, met at the
Tamarind Grill Restaurant in Quezon City to discuss the package proposal of VIVA. What transpired in
that lunch meeting is the subject of conflicting versions. Mr. Lopez testified that he and Mr. Del Rosario
allegedly agreed that ABS-CBN was granted exclusive film rights to fourteen (14) films for a total
consideration of P36 million; that he allegedly put this agreement as to the price and number of films in
a napkin and signed it and gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992). On
41

Atty. G.G. Bernardo
MAS
the other hand. Del Rosario denied having made any agreement with Lopez regarding the 14 Viva films;
denied the existence of a napkin in which Lopez wrote something; and insisted that what he and Lopez
discussed at the lunch meeting was Vivas film package offer of 104 films (52 originals and 52 re-runs)
for a total price of P60 million. Mr. Lopez promising [sic]to make a counter proposal which came in the
form of a proposal contract Annex C of the complaint (Exh. 1 Viva; Exh C ABS-CBN).
On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance
discussed the terms and conditions of Vivas offer to sell the 104 films, after the rejection of the same
package by ABS-CBN.
On April 07, 1992, defendant Del Rosario received through his secretary , a handwritten note from Ms.
Concio, (Exh. 5 Viva), which reads: Heres the draft of the contract. I hope you find everything in
order, to which was attached a draft exhibition agreement (Exh. C ABS-CBN; Exh. 9 Viva p. 3) a
counter-proposal covering 53 films, 52 of which came from the list sent by defendant Del Rosario and
one film was added by Ms. Concio, for a consideration of P35 million. Exhibit C provides that ABS-CBN
is granted film rights to 53 films and contains a right of first refusal to 1992 Viva Films. The said counter
proposal was however rejected by Vivas Board of Directors [in the] evening of the same day, April 7,
1992, as Viva would not sell anything less than the package of 104 films for P60 million pesos (Exh. 9
Viva), and such rejection was relayed to Ms. Concio.
On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and meetings
defendant Del Rosario and Vivas President Teresita Cruz, in consideration of P60 million, signed a letter
of agreement dated April 24, 1992, granting RBS the exclusive right to air 104 Viva-produced and/or
acquired films (Exh. 7-A - RBS; Exh. 4 RBS) including the fourteen (14) films subject of the present
case.[4]
On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer
for a writ of preliminary injunction and/or temporary restraining order against private respondents
Republic Broadcasting Corporation[5] (hereafter RBS), Viva Production (hereafter VIVA), and Vicente del
Rosario. The complaint was docketed as Civil Case No. Q-92-12309.
On 28 May 1992, the RTC issued a temporary restraining order[6] enjoining private respondents
from proceeding with the airing, broadcasting, and televising of the fourteen VIVA films subject of the
controversy, starting with the film Maging Sino Ka Man, which was scheduled to be shown on private
respondent RBS channel 7 at seven oclock in the evening of said date.
On 17 June 1992, after appropriate proceedings, the RTC issued an order[7] directing the issuance of
a writ of preliminary injunction upon ABS-CBNs posting of a P35 million bond. ABS-CBN moved for the
reduction of the bond,[8] while private respondents moved for reconsideration of the order and offered
to put up a counterbond.[9]
In the meantime, private respondents filed separate answer with counterclaim.[10] RBS also set up a
cross-claim against VIVA.
On 3 August 1992, the RTC issued an order[11] dissolving the writ of preliminary injunction upon the
posting by RBS of a P30 million counterbond to answer for whatever damages ABS-CBN might suffer by
virtue of such dissolution. However, it reduced petitioners injunction bond to P15 million as a condition
precedent for the reinstatement of the writ of preliminary injunction should private respondents be
unable to post a counterbond.
42

Atty. G.G. Bernardo
MAS
At the pre-trial[12] on 6 August 1992, the parties upon suggestion of the court, agreed to explore the
possibility of an amicable settlement. In the meantime, RBS prayed for and was granted reasonable
time within which to put up a P30 million counterbond in the event that no settlement would be
reached.
As the parties failed to enter into an amicable settlement, RBS posted on 1 October 1992 a
counterbond, which the RTC approved in its Order of 15 October 1992.[13]
On 19 October 1992, ABS-CBN filed a motion for reconsideration[14] of the 3 August and 15 October
1992 Orders, which RBS opposed.[15]
On 29 October, the RTC conducted a pre-trial.[16]
Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a
petition[17] challenging the RTCs Order of 3 August and 15 October 1992 and praying for the issuance of
a writ of preliminary injunction to enjoin the RTC from enforcing said orders. The case was docketed as
CA-G.R. SP No. 29300.
On 3 November 1992, the Court of Appeals issued a temporary restraining order[18] to enjoin the
airing, broadcasting, and televising of any or all of the films involved in the controversy.
On 18 December 1992, the Court of Appeals promulgated a decision[19] dismissing the petition in
CA-G.R. SP No. 29300 for being premature. ABS-CBN challenged the dismissal in a petition for review
filed with this Court on 19 January 1993, which was docketed s G.R. No. 108363.
In the meantime the RTC received the evidence for the parties in Civil Case No. Q-9212309. Thereafter, on 28 April 1993, it rendered a decision[20] in favor of RBS and VIVA and against ABSCBN disposing as follows:
WHEREFORE, under cool reflection and prescinding from the foregoing, judgment is rendered in favor of
defendants and against the plaintiff.
(1) The complaint is hereby dismissed;
(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:
a) P107,727.00 the amount of premium paid by RBS to the surety which issued
defendants RBSs bond to lift the injunction;
b) P191,843.00 for the amount of print advertisement for Maging Sino Ka Man in
various newspapers;
c) Attorneys fees in the amount of P1 million;
d) P5 million as and by way of moral damages;
e) P5 million as and by way of exemplary damages;
(3) For the defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of
reasonable attorneys fees.
(4) The cross-claim of defendant RBS against defendant VIVA is dismissed.
(5) Plaintiff to pay the costs.
43

Atty. G.G. Bernardo
MAS
According to the RTC, there was no meeting of minds on the price and terms of the offer. The
alleged agreement between Lopez III and Del Rosario was subject to the approval of the VIVA Board of
Directors, and said agreement was disapproved during the meeting of the Board on 7 April 1992. Hence,
there was no basis for ABS-CBNs demand that VIVA signed the 1992 Film Exhibition
Agreement. Furthermore, the right of first refusal under the 1990 Film Exhibition Agreement had
previously been exercised per Ms. Concios letter to Del Rosario ticking off ten titles acceptable to them,
which would have made the 1992 agreement an entirely new contract.
On 21 June 1993, this Court denied[21] ABS-CBNs petition for review in G.R. No. 108363, as no
reversible error was committed by the Court of Appeals in its challenged decision and the case had
become moot and academic in view of the dismissal of the main action by the court a quo in its
decision of 28 April 1993.
Aggrieved by the RTCs decision, ABS-CBN appealed to the Court of Appeals claiming that there was
a perfected contract between ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the
subject films. Private respondents VIVA and Del Rosario also appealed seeking moral and exemplary
damages and additional attorneys fees.
In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the contract
between ABS-CBN and VIVA had not been perfected, absent the approval by the VIVA Board of Directors
of whatever Del Rosario, its agent, might have agreed with Lopez III. The appellate court did not even
believe ABS-CBNs evidence that Lopez III actually wrote down such an agreement on a napkin, as the
same was never produced in court. It likewise rejected ABS-CBNs insistence on its right of first refusal
and ratiocinated as follows:
As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement was
entered into between Appellant ABS-CBN and appellant VIVA under Exhibit A in 1990 and that parag.
1.4 thereof provides:
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA films for TV telecast
under such terms as may be agreed upon by the parties hereto, provided, however, that such right shall
be exercised by ABS-CBN within a period of fifteen (15) days from the actual offer in writing (Records, p.
14).
[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be subjected to
such terms as may be agreed upon by the parties thereto, and that the said right shall be exercised by
ABS-CBN within fifteen (15) days from the actual offer in writing.
Said parag. 1.4 of the agreement Exhibit A on the right of first refusal did not fix the price of the film
right to the twenty-four (24) films, nor did it specify the terms thereof. The same are still left to be
agreed upon by the parties.
In the instant case, ABS-CBNs letter of rejection Exhibit 3 (Records, p. 89) stated that it can only tick off
ten (10) films, and the draft contract Exhibit C accepted only fourteen (14) films, while parag. 1.4 of
Exhibit A speaks of the next twenty-four (24) films.
The offer of VIVA was sometime in December 1991, (Exhibits 2, 2-A, 2-B; Records, pp. 86-88; Decision, p.
11, Records, p. 1150), when the first list of VIVA films was sent by Mr. Del Rosario to ABS-CBN. The Vice
President of ABS-CBN, Mrs. Charo Santos-Concio, sent a letter dated January 6, 1992 (Exhibit 3, Records,
44

Atty. G.G. Bernardo
MAS
p. 89) where ABS-CBN exercised its right of refusal by rejecting the offer of VIVA. As aptly observed by
the trial court, with the said letter of Mrs. Concio of January 6, 1992, ABS-CBN had lost its right of first
refusal. And even if We reckon the fifteen (15) day period from February 27, 1992 (Exhibit 4 to 4-C)
when another list was sent to ABS-CBN after the letter of Mrs. Concio, still the fifteen (15) day period
within which ABS-CBN shall exercise its right of first refusal has already expired.[22]
Accordingly, respondent court sustained the award factual damages consisting in the cost of print
advertisements and the premium payments for the counterbond, there being adequate proof of the
pecuniary loss which RBS has suffered as a result of the filing of the complaint by ABS-CBN. As to the
award of moral damages, the Court of Appeals found reasonable basis therefor, holding that RBSs
reputation was debased by the filing of the complaint in Civil Case No. Q-92-12309 and by the nonshowing of the film Maging Sino Ka Man. Respondent court also held that exemplary damages were
correctly imposed by way of example or correction for the public good in view of the filing of the
complaint despite petitioners knowledge that the contract with VIVA had not been perfected. It also
upheld the award of attorneys fees, reasoning that with ABS-CBNs act of instituting Civil Case No. Q-9212309, RBS was unnecessarily forced to litigate. The appellate court, however, reduced the awards of
moral damages to P 2 million, exemplary damages to P2 million, and attorneys fees to P500,000.00.
On the other hand, respondent Court of Appeals denied VIVA and Del Rosarios appeal because it
was RBS and not VIVA which was actually prejudiced when the complaint was filed by ABS-CBN.
Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case,
contending that the Court of Appeals gravely erred in
I
RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND
PRIVATE RESPONDENT VIVA NOTWITHSTANDING PREPONFERANCE OF EVIDENCE
ADDUCED BY PETITIONER TO THE CONTRARY.
II
IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE
RESPONDENT RBS.
III
IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE RESPONDENT
RBS.
IV
IN AWARDING ATORNEYS FEES OF RBS.
ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles under
the 1990 Film Exhibition Agreement, as it had chosen only ten titles from the first list. It insists that we
give credence to Lopezs testimony that he and Del Rosario met at the Tamarind Grill Restaurant,
discussed the terms and conditions of the second list (the 1992 Film Exhibition Agreement) and upon
agreement thereon, wrote the same on a paper napkin. It also asserts that the contract has already
been effective, as the elements thereof, namely, consent, object, and consideration were established. It
then concludes that the Court of Appeals pronouncements were not supported by law and
jurisprudence, as per our decision of 1 December 1995 in Limketkai Sons Milling, Inc. v. Court of
45

Atty. G.G. Bernardo
MAS
Appeals,[23] which cited Toyota Shaw, Inc. v. Court of Appeals;[24] Ang Yu Asuncion v. Court of
Appeals,[25] and Villonco Realty Company v. Bormaheco, Inc.[26]
Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent for the
premium on the counterbond of its own volition in order to negate the injunction issued by the trial
court after the parties had ventilated their respective positions during the hearings for the purpose. The
filing of the counterbond was an option available to RBS, but it can hardly be argued that ABS-CBN
compelled RBS to incur such expense. Besides, RBS had another available option, i.e., move for the
dissolution of the injunction; or if it was determined to put up a counterbond, it could have presented a
cash bond. Furthermore under Article 2203 of the Civil Code, the party suffering loss injury is also
required to exercise the diligence of a good father of a family to minimize the damages resulting from
the act or omission. As regards the cost of print advertisements, RBS had not convincingly established
that this was a loss attributable to the non-showing of Maging Sino Ka Man; on the contrary, it was
brought out during trial that with or without the case or injunction, RBS would have spent such an
amount to generate interest in the film.
ABS-CBN further contends that there was no other clear basis for the awards of moral and
exemplary damages. The controversy involving ABS-CBN and RBS did not in any way originate from
business transaction between them. The claims for such damages did not arise from any contractual
dealings or from specific acts committed by ABS-CBN against RBS that may be characterized as wanton,
fraudulent, or reckless; they arose by virtue only of the filing of the complaint. An award of moral and
exemplary damages is not warranted where the record is bereft of any proof that a party acted
maliciously or in bad faith in filing an action.[27] In any case, free resort to courts for redress of wrongs is
a matter of public policy. The law recognizes the right of every one to sue for that which he honestly
believes to be his right without fear of standing trial for damages where by lack of sufficient evidence,
legal technicalities, or a different interpretation of the laws on the matter, the case would lose
ground.[28] One who, makes use of his own legal right does no injury.[29] If damage results from filing of
the complaint, it is damnum absque injuria.[30] Besides, moral damages are generally not awarded in
favor of a juridical person, unless it enjoys a good reputation that was debased by the offending party
resulting in social humiliation.[31]
As regards the award of attorneys fees, ABS-CBN maintains that the same had no factual, legal, or
equitable justification. In sustaining the trial courts award, the Court of Appeals acted in clear disregard
of the doctrine laid down in Buan v. Camaganacan[32] that the text of the decision should state the
reason why attorneys fees are being awarded; otherwise, the award should be disallowed. Besides, no
bad faith has been imputed on, much less proved as having been committed by, ABS-CBN. It has been
held that where no sufficient showing of bad faith would be reflected in a partys persistence in a case
other than an erroneous conviction of the righteousness of his cause, attorneys fees shall not be
recovered as cost.[33]
On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA
absent meeting of minds between them regarding the object and consideration of the alleged
contract. It affirms that ABS-CBNs claim of a right of first refusal was correctly rejected by the trial
court. RBS insists the premium it had paid for the counterbond constituted a pecuniary loss upon which
it may recover. It was obliged to put up the counterbond due to the injunction procured by ABSCBN. Since the trial court found that ABS-CBN had no cause of action or valid claim against RBS and,
therefore not entitled to the writ of injunction, RBS could recover from ABS-CBN the premium paid on
the counterbond. Contrary to the claim of ABS-CBN, the cash bond would prove to be more expensive,
as the loss would be equivalent to the cost of money RBS would forego in case the P30 million came
from its funds or was borrowed from banks.
46

Atty. G.G. Bernardo
MAS
RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing of
the film Maging Sino Ka Man because the print advertisements were out to announce the showing on
a particular day and hour on Channel 7, i.e., in its entirety at one time, not as series to be shown on a
periodic basis. Hence, the print advertisements were good and relevant for the particular date of
showing, and since the film could not be shown on that particular date and hour because of the
injunction, the expenses for the advertisements had gone to waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured
injunctions purely for the purpose of harassing and prejudicing RBS. Pursuant then to Articles 19 and 21
of the Civil Code, ABS-CBN must be held liable for such damages. Citing Tolentino,[34] damages may be
awarded in cases of abuse of rights even if the done is not illicit, and there is abuse of rights where a
plaintiff institutes an action purely for the purpose of harassing or prejudicing the defendant.
In support of its stand that a juridical entity can recover moral and exemplary damages, private
respondent RBS cited People v. Manero,[35] where it was stated that such entity may recover moral and
exemplary damages if it has a good reputation that is debased resulting in social humiliation. It then
ratiocinates; thus:
There can be no doubt that RBS reputation has been debased by ABS-CBNs acts in this case. When RBS
was not able to fulfill its commitment to the viewing public to show the film Maging Sino Ka Man on
the scheduled dates and times (and on two occasions that RBS advertised), it suffered serious
embarrassment and social humiliation. When the showing was cancelled, irate viewers called up RBS
offices and subjected RBS to verbal abuse (Announce kayo ng announce, hindi ninyo naman ilalabas,
nanloloko yata kayo) (Exh. 3-RBS, par.3). This alone was not something RBS brought upon itself. It was
exactly what ABS-CBN had planted to happen.
The amount of moral and exemplary damages cannot be said to be excessive. Two reasons justify the
amount of the award.
The first is that the humiliation suffered by RBS, is national in extent. RBS operations as a broadcasting
company is [sic] nationwide. Its clientele, like that of ABS-CBN, consists of those who own and watch
television. It is not an exaggeration to state, and it is a matter of judicial notice that almost every other
person in the country watches television. The humiliation suffered by RBS is multiplied by the number
of televiewers who had anticipated the showing of the film, Maging Sino Ka Man on May 28 and
November 3, 1992 but did not see it owing to the cancellation. Added to this are the advertisers who
had placed commercial spots for the telecast and to whom RBS had a commitment in consideration of
the placement to show the film in the dates and times specified.
The second is that it is a competitor that caused RBS suffer the humiliation. The humiliation and injury
are far greater in degree when caused by an entity whose ultimate business objective is to lure
customers (viewers in this case) away from the competition.[36]
For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court and
the Court of Appeals do not support ABS-CBNs claim that there was a perfected contract. Such factual
findings can no longer be disturbed in this petition for review under Rule 45, as only questions of law
can be raised, not questions of fact. On the issue of damages and attorneys fees, they adopted the
arguments of RBS.
47

Atty. G.G. Bernardo
MAS
The key issues for our consideration are (1) whether there was a perfected contract between VIVA
and ABS-CBN, and (2) whether RBS is entitled to damages and attorneys fees. It may be noted that that
award of attorneys fees of P212,000 in favor of VIVA is not assigned as another error.
I
The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between two
persons whereby one binds himself to give something or render some service to another[37] for a
consideration. There is no contract unless the following requisites concur: (1) consent of the contracting
parties; (2) object certain which is the subject of the contract; and (3) cause of the obligation, which is
established.[38] A contract undergoes three stages:
(a) preparation, conception, or generation, which is the period of negotiation and bargaining,
ending at the moment of agreement of the parties;
(b) perfection or birth of the contract, which is the moment when the parties come to agree
on the terms of the contract; and
(c) consummation or death, which is the fulfillment or performance of the terms agreed upon
in the contract.[39]
Contracts that are consensual in nature are perfected upon mere meeting of the minds. Once
there is concurrence between the offer and the acceptance upon the subject matter, consideration, and
terms of payment a contract is produced. The offer must be certain. To convert the offer into a
contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain,
unequivocal, unconditional, and without variance of any sort from the proposal. A qualified acceptance,
or one that involves a new proposal, constitutes a counter-offer and is a rejection of the original
offer. Consequently, when something is desired which is not exactly what is proposed in the offer, such
acceptance is not sufficient to generate consent because any modification or variation from the terms of
the offer annuls the offer.[40]
When Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April 1992 to
discuss the package of films, said package of 104 VIVA films was VIVAs offer to ABS-CBN to enter into a
new Film Exhibition Agreement. But ABS-CBN, sent through Ms. Concio, counter-proposal in the form a
draft contract proposing exhibition of 53 films for a consideration of P35 million. This counter-proposal
could be nothing less than the counter-offer of Mr. Lopez during his conference with Del Rosario at
Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVAs offer, for it was met by a counteroffer which substantially varied the terms of the offer.
ABS-CBNs reliance in Limketkai Sons Milling, Inc. v. Court of Appeals[41] and Villonco Realty
Company v. Bormaheco, Inc.,[42] is misplaced. In these cases, it was held that an acceptance may contain
a request for certain changes in the terms of the offer and yet be a binding acceptance as long as it is
clear that the meaning of the acceptance is positively and unequivocally to accept the offer, whether
such request is granted or not. This ruling was, however, reversed in the resolution of 29 March
1996,[43] which ruled that the acceptance of an offer must be unqualified and absolute, i.e., it must be
identical in all respects with that of the offer so as to produce consent or meetings of the minds.
On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer
were not material but merely clarificatory of what had previously been agreed upon. It cited the
statement in Stuart v. Franklin Life Insurance Co.[44] that a vendors change in a phrase of the offer to
purchase, which change does not essentially change the terms of the offer, does not amount to a
48

Atty. G.G. Bernardo
MAS
rejection of the offer and the tender of a counter-offer.[45] However, when any of the elements of the
contract is modified upon acceptance, such alteration amounts to a counter-offer.
In the case at bar, ABS-CBN made no unqualified acceptance of VIVAs offer hence, they underwent
period of bargaining. ABS-CBN then formalized its counter-proposals or counter-offer in a draft
contract. VIVA through its Board of Directors, rejected such counter-offer. Even if it be
conceded arguendo that Del Rosario had accepted the counter-offer, the acceptance did not bind VIVA,
as there was no proof whatsoever that Del Rosario had the specific authority to do so.
Under the Corporation Code,[46] unless otherwise provided by said Code, corporate powers, such as
the power to enter into contracts, are exercised by the Board of Directors. However, the Board may
delegate such powers to either an executive committee or officials or contracted managers. The
delegation, except for the executive committee, must be for specific purposes.[47] Delegation to officers
makes the latter agents of the corporation; accordingly, the general rules of agency as to the binding
effects of their acts would apply.[48] For such officers to be deemed fully clothed by the corporation to
exercise a power of the Board, the latter must specially authorize them to do so. that Del Rosario did
not have the authority to accept ABS-CBNs counter-offer was best evidenced by his submission of the
draft contract to VIVAs Board of Directors for the latters approval. In any event, there was between
Del Rosario and Lopez III no meeting of minds. The following findings of the trial court are instructive:
A number of considerations militate against ABS-CBNs claim that a contract was perfected at that lunch
meeting on April 02, 1992 at the Tamarind Grill.
FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the price and the
number of films, which he wrote on a napkin. However, Exhibit C contains numerous provisions which
were not discussed at the Tamarind Grill, if Lopez testimony was to be believed nor could they have
been physically written on a napkin. There was even doubt as to whether it was a paper napkin or cloth
napkin. In short what were written in Exhibit C were not discussed, and therefore could not have
been agreed upon, by the parties. How then could this court compel the parties to sign Exhibit C
when the provisions thereof were not previously agreed upon?
SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the contract was 14
films. The complaint in fact prays for delivery of 14 films. But Exhibit C mentions 53 films as its
subject matter. Which is which? If Exhibit C reflected the true intent of the parties, then ABS-CBNs
claim for 14 films in its complaint is false or if what it alleged in the complaint is true, then Exhibit C
did not reflect what was agreed upon by the parties. This underscores the fact that there was no
meeting of the minds as to the subject matter of the contract, so as to preclude perfection thereof. For
settled is the rule that there can be no contract where there is no object certain which is its subject
matter (Art. 1318, NCC).
THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. D) States:
We were able to reach an agreement. VIVA gave us the exclusive license to show these fourteen (14)
films, and we agreed to pay Viva the amount of P16,050,000.00 as well as grant Viva commercial slots
worth P19,950,000.00. We had already earmarked this P16,050,000.00.
which gives a total consideration of P36 million (P19,951,000.00 plus P16,050,000.00
equals P36,000,000.00).
49

Atty. G.G. Bernardo
MAS
On cross-examination Mr. Lopez testified:

Q What was written in this napkin?
A The total price, the breakdown the known Viva movies, the 7 blockbuster movies and the other 7
Viva movies because the price was broken down accordingly. The none [sic] Viva and the seven
other Viva movies and the sharing between the cash portion and the concerned spot portion in
the total amount of P35 million pesos.
Now, which is which? P36 million or P35 million? This weakens ABS-CBNs claim.
FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit C to Mr. Del Rosario
with a handwritten note, describing said Exhibit C as a draft. (Exh. 5 Viva; tsn pp. 23-24, June 08,
1992). The said draft has a well defined meaning.
Since Exhibit C is only a draft, or a tentative, provisional or preparatory writing prepared for
discussion, the terms and conditions thereof could not have been previously agreed upon by ABS-CBN
and Viva. Exhibit C could not therefore legally bind Viva, not having agreed thereto. In fact, Ms.
Concio admitted that the terms and conditions embodied in Exhibit C were prepared by ABS-CBNs
lawyers and there was no discussion on said terms and conditions.
As the parties had not yet discussed the proposed terms and conditions in Exhibit C, and there was no
evidence whatsoever that Viva agreed to the terms and conditions thereof, said document cannot be a
binding contract. The fact that Viva refused to sign Exhibit C reveals only two [sic] well that it did not
agree on its terms and conditions, and this court has no authority to compel Viva to agree thereto.
FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at the Tamarind Grill
was only provisional, in the sense that it was subject to approval by the Board of Directors of Viva. He
testified:
Q Now, Mr. Witness, and after that Tamarinf meeting the second meeting wherein you claimed
that you have the meeting of the minds between you and Mr. Vic del Rosario, what happened?
A Vic Del Rosario was supposed to call us up and tell us specifically the result of the discussion with
the Board of Directors.
Q And you are referring to the so-called agreement which you wrote in [sic] a piece of paper?
A Yes, sir.
Q So, he was going to forward that to the board of Directors for approval?
A Yes, sir (Tsn, pp. 42-43, June 8, 1992)
Q Did Mr. Del Rosario tell you that he will submit it to his Board for approval?
A Yes, sir. (Tsn, p. 69, June 8, 1992).
50

Atty. G.G. Bernardo
MAS
The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no authority
to bind Viva to a contract with ABS-CBN until and unless its Board of Directors approved it. The
complaint, in fact, alleges that Mr. Del Rosario is the Executive Producer of defendant Viva which is a
corporation. (par. 2, complaint). As a mere agent of Viva, Del Rosario could not bind Viva unless what
he did is ratified by its Directors. (Vicente vs.Geraldez, 52 SCRA 210; Arnold vs. Willets and Paterson, 44
Phil. 634). As a mere agent, recognized as such by plaintiff, Del Rosario could not be held liable jointly
and severally with Viva and his inclusion as party defendant has no legal basis. (Salonga vs. Warner
Barnes [sic],COLTA, 88 Phil. 125; Salmon vs. Tan, 36 Phil. 556).
The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was
supposed to have been agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario was not a
binding agreement. It is as it should be because corporate power to enter into a contract is lodged in
the Board of Directors. (Sec. 23, Corporation Code). Without such board approval by the Viva board,
whatever agreement Lopez and Del Rosario arrived at could not ripen into a valid binding upon Viva (Yao
Ka Sin Trading vs. Court of Appeals, 209 SCRA 763). The evidence adduced shows that the Board of
Directors of Viva rejected Exhibit C and insisted that the film package for 104 films be maintained (Exh.
7-1 Cica).[49]
The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-four films
under the 1990 Film Exhibition Agreement and that the meeting between Lopez and Del Rosario was a
continuation of said previous contract is untenable. As observed by the trial court, ABS-CBNs right of
first refusal had already been exercised when Ms. Concio wrote to Viva ticking off ten films. Thus:
[T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent, was for an
entirely different package. Ms. Concio herself admitted on cross-examination to having used or
exercised the right of first refusal. She stated that the list was not acceptable and was indeed not
accepted by ABS-CBN, (Tsn, June 8, 1992, pp. 8-10). Even Mr. Lopez himself admitted that the right
of first refusal may have been already exercised by Ms. Concio (as she had). (TSN, June 8, 1992, pp.
71-75). Del Rosario himself knew and understand [sic] that ABS-CBN has lost its right of first refusal
when his list of 36 titles were rejected (Tsn, June 9, 1992, pp. 10-11).[50]
II
However, we find for ABS-CBN on the issue of damages. We shall first take up actual
damages. Chapter 2, Title XVIII, Book IV of the Civil Code is the specific law on actual or compensatory
damages. Except as provided by law or by stipulation, one is entitled to compensation for actual
damages only for such pecuniary loss suffered by him as he has duly proved.[51] The indemnification shall
comprehend not only the value of the loss suffered, but also that of the profits that the obligee failed to
obtain.[52] In contracts and quasi-contracts the damages which may be awarded are dependent on
whether the obligor acted with good faith or otherwise. In case of good faith, the damages recoverable
are those which are the natural and probable consequences of the breach of the obligation and which
the parties have foreseen or could have reasonably foreseen at the time of the constitution of the
obligation. If the obligor acted with fraud, bad faith, malice, or wanton attitude, he shall be responsible
for all damages which may be reasonably attributed to the non-performance of the obligation.[53] In
crimes and quasi-delicts, the defendants shall be liable for all damages which are the natural and
probable consequences of the act or omission complained of, whether or not such damages have been
foreseen or could have reasonably been foreseen by the defendant.[54]
51

Atty. G.G. Bernardo
MAS
Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of
temporary or permanent personal injury, or for injury to the plaintiffs business standing or commercial
credit.[55]
The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasidelict. It arose from the fact of filing of the complaint despite ABS-CBNs alleged knowledge of lack of
cause of action. Thus paragraph 12 of RBSs Answer with Counterclaim and Cross-claim under the
heading COUNTERCLAIM specifically alleges:
12. ABS-CBN filed the complaint knowing fully well that it has no cause of action against
RBS. As a result thereof, RBS suffered actual damages in the amount of P6,621,195.32.[56]
Needless to state the award of actual damages cannot be comprehended under the above law on actual
damages. RBS could only probably take refuge under Articles 19, 20, and 21 of the Civil Code, which
read as follows:
ART. 19. Every person must, in the exercise of hid rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith.
ART. 20. Every person who, contrary to law, wilfully or negligently causes damage to another shall
indemnify the latter for the same.
ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage.
It may further be observed that in cases where a writ of preliminary injunction is issued, the
damages which the defendant may suffer by reason of the writ are recoverable from the injunctive
bond.[57] In this case, ABS-CBN had not yet filed the required bond; as a matter of fact, it asked for
reduction of the bond and even went to the Court of Appeals to challenge the order on the
matter. Clearly then, it was not necessary for RBS to file a counterbond. Hence, ABS-CBN cannot be
held responsible for the premium RBS paid for the counterbond.
Neither could ABS-CBN be liable for the print advertisements for Maging Sino Ka Man for lack of
sufficient legal basis. The RTC issued a temporary restraining order and later, a writ of preliminary
injunction on the basis of its determination that there existed sufficient ground for the issuance
thereof. Notably, the RTC did not dissolve the injunction on the ground of lack of legal and factual basis,
but because of the plea of RBS that it be allowed to put up a counterbond.
As regards attorneys fees, the law is clear that in the absence of stipulation, attorneys fees may be
recovered as actual or compensatory damages under any of the circumstances provided for in Article
2208 of the Civil Code.[58]
The general rule is that attorneys fees cannot be recovered as part of damages because of the
policy that no premium should be placed on the right to litigate.[59] They are not to be awarded every
time a party wins a suit. The power of the court t award attorneys fees under Article 2208 demands
factual, legal, and equitable justification.[60] Even when a claimant is compelled to litigate with third
persons or to incur expenses to protect his rights, still attorneys fees may not be awarded where no
sufficient showing of bad faith could be reflected in a partys persistence in a case other than an
erroneous conviction of the righteousness of his cause.[61]
52

Atty. G.G. Bernardo
MAS
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article
2217 thereof defines what are included in moral damages, while Article 2219 enumerates the cases
where they may be recovered. Article 2220 provides that moral damages may be recovered in breaches
of contract where the defendant acted fraudulently or in bad faith. RBSs claim for moral damages could
possibly fall only under item (10) of Article 2219, thereof which reads:
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35.
Moral damages are in the category of an award designed to compensate the claimant for actual
injury suffered and not to impose a penalty on the wrongdoer.[62] The award is not meant to enrich the
complainant at the expense of the defendant, but to enable the injured party to obtain means,
diversion, or amusements that will serve to obviate the moral suffering he has undergone. It is aimed at
the restoration, within the limits of the possible, of the spiritual status quo ante, and should be
proportionate to the suffering inflicted.[63] Trial courts must then guard against the award of exorbitant
damages; they should exercise balanced restrained and measured objectivity to avoid suspicion that it
was due to passion, prejudice, or corruption or the part of the trial court.[64]
The award of moral damages cannot be granted in favor of a corporation because, being
an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no
senses. It cannot, therefore, experience physical suffering and mental anguish, which can be
experienced only by one having a nervous system.[65] The statement in People v.
Manero[66] and Mambulao Lumber Co. v. PNB[67] that a corporation may recover moral damages if it has
a good reputation that is debased, resulting in social humiliation is an obiter dictum. On this score
alone the award for damages must be set aside, since RBS is a corporation.
The basic law on exemplary damages is Section 5 Chapter 3, Title XVIII, Book IV of the Civil
Code. These are imposed by way of example or correction for the public good, in addition to moral,
temperate, liquidated, or compensatory damages.[68] They are recoverable in criminal cases as part of
the civil liability when the crime was committed with one or more aggravating circumstances;[69] in
quasi-delicts, if the defendant acted with gross negligence;[70] and in contracts and quasi-contracts, if the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.[71]
It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract,
delict, or quasi-delict. Hence, the claims for moral and exemplary damages can only be based on
Articles 19, 20, and 21 of the Civil Code.
The elements of abuse of right under Article 19 are the following: (1) the existence of a legal right
or duty, (2) which is exercised in bad faith, and (3) for the sole intent of prejudicing or injuring
another. Article 20 speaks of the general sanction for all provisions of law which do not especially
provide for their own sanction; while Article 21 deals with acts contra bonus mores, and has the
following elements: (1) there is an act which is legal, (2) but which is contrary to morals, good custom,
public order, or public policy, and (3) and it is done with intent to injure.[72]
Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a
conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity.[73]Such
must be substantiated by evidence.[74]
There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly
convinced of the merits of its cause after it had undergone serious negotiations culminating in its formal
submission of a draft contract. Settled is the rule that the adverse result of an action does not per
53

Atty. G.G. Bernardo
MAS
se make the action wrongful and subject the actor to damages, for the law could not have meant impose
a penalty on the right to litigate. If damages result from a persons exercise of a right, it is damnum
absque injuria.[75]
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in
CA-G.R. CV No. 44125 is hereby REVERSED except as to unappealed award of attorneys fees in favor of
VIVA Productions, Inc.
No pronouncement as to costs.
SO ORDERED.
Melo, Kapunan, Martinez, and Pardo, JJ., concur.
[1]
Per Adefuin-De la Cruz, J., with Lantin and Tamayo-Jaguros, JJ., concurring; Rollo, 49-60.
[2]
Rollo, 62
[3]
Per Judge Efren N. Ambrosio; Rollo, 134-161.
[4]
RTC Decision, Rollo, 146-149.
[5]
This should be Republic Broadcasting System, now GMA Network Inc., upon approval by the
Securities and Exchange Commission of the change in corporate name on 20 February 1996.
[6]
Vol 1. Original Rrecord (OR), Civil Case No. Q-92-12309, 27-28. Hereafter, OR shall refer to the record
of this case.
[7]
Vol. 1, OR, 170-173.
[8]
Vol. 1, OR, 217-220.
[9]
Id., 184-216.
[10]
Id., 177-183 (VIVA and Del Rosario); 222-228 (RBS).
[11]
Id., 331-332.
[12]
Id., 369.
[13]
Id., 397.
[14]
Id., 398-402, 403-404.
[15]
Id., 406-409.
[16]
Id., 453-454.
[17]
Vol. 2, OR, 465-484.
[18]
Id.,464.
[19]
Id., 913-928.
[20]
Id., 1140-1166; Rollo, 134-161.
54

Atty. G.G. Bernardo
[21]
Vol. 2, OR, 2030-2035.
[22]
Rollo, 55.
[23]
250 SCRA 523 [1995].
[24]
244 SCRA 320 [1995].
[25]
238 SCRA 602 [1994].
[26]
65 SCRA 352 [1975].
[27]
Citing Francel Realty Corp. v. Court of Appeals, 252 SCRA 127, 134 [1996].
[28]
Citing Tan. v. Court of Appeals, 131 SCRA 197, 404 [1984].
[29]
Citing Auyong Hian v. Court of Tax Appeals, 59 SCRA 110, 134[1974].
[30]
Citing Ilocos Norte Electric Company v. Court of Appeals, 179 SCRA 5 [1989].
MAS
[31]
Citing People v. Manero, 218 SCRA 85, 96-97 [1993]; citing Simex International (Manila) Inc. v. Court
of Appeals, 183 SCRA 360 [1990].
[32]
16 SCRA 321 [1966].
[33]
See Gonzales v. National Housing Corp. 94 SCRA 786 [1979]; Servicewide Specialist, Inc. v. Court of
Appeals, 256 SCRA 649 [1996].
[34]
I ARTURO M. TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE

PHILIPPINES 63, 66 (1983 ed.).
[35]
Supra note 31.
[36]
Rollo, 191.
[37]
Art. 1305, Civil Code.
[38]
Art. 1318, Civil Code.
[39]
Toyota Shaw, Inc. v. Court of Appeals, Supra note 24, at 329.
[40]
See IV ARTURO M. TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE
PHILIPPINES 450 (6th ed., 1996).
[41]
Supra note 23.
[42]
Supra note 26.
[43]
255 SCRA 626, 639 [1996].
[44]
165 Fed. 2nd 965, citing Sec. 79 Wilhston on Contracts.
[45]
Villonco Realty Company v. Bormaheco, Inc. Supra note 25, at 365-366.
[46]
B.P. Blg. 68, Sec. 23.
[47]
JOSE C. Vitug, PANDECT OF COMMERCIAL LAW AND JURISPRUDENCE 356 (Revised ed. 1990).
[48]
I JOSE C. CAMPOS, Jr., and MARIA CLARA LOPEZ-CAMPOS, THE CORPORATION CODE 384-385(1990
ed.).
55

Atty. G.G. Bernardo
[49]
RTC Decision, Rollo, 153-156.
[50]
Id., 158.
[51]
Article 2199, Civil Code.
[52]
Article 2200, id.,
[53]
Article 2201, id.
[54]
Article 2202, id.
[55]
Article 2205, id.
[56]
Vol. 1, OR, 225.
[57]
Section 4 in relation to Section 8, Rule 58, 1997 Rules of Civil Procedure.
[58]
It reads as follows:
MAS
ART. 2208. In the absence of stipulation, attorneys fees and expense of litigation, other than judicial
costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendants act or omission has compelled the plaintiff to litigate with third person or to
incur expense to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) in case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy
the plaintiffs plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmens compensation and employers liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorneys fees and expenses of
litigation should be recovered.
In all cases, the attorneys fees and expenses of litigation must be reasonable.
[59]
Firestone Tire & Rubber Company of the Philippines v. Ines Chaves & Co. Ltd., 18 SCRA 356, 358
[1966]; Philippine Air Lines v. Miano, 242 SCRA 235, 240 [1995].
[60]
Scott Consultants & Resource Development Corporation, Inc. v. Court of Appeals, 242 SCRA 393, 406
[1995].
[61]
Gonzales v. National Housing Corp., 94 SCRA 786, 792 [1979]; Servicewide Specialist, Inc. v. Court of
Appeals, supra note 33, at 655.
[62]
Pagsuyuin v. Intermediate Appellate Court, 193 SCRA 547, 555 [1991].
[63]
Visayan Sawmil Company v. Court of Appeals, 219 SCRA 378, 392 [1993]. Citing R & B
Security. Insurance Co., Inc. v. Intermediate Appellate Court, 129 SCRA 736 [1984]; De la Serna v. Court
of Appeals, 233 SCRA 325, 329-330 [1994].
[64]
People v. Wenceslao, 212 SCRA 560, 569 [1992], citing Filinvest Credit Corp. v. Intermediate
Appellate Court, 166 SCRA 155 [1988].
56

Atty. G.G. Bernardo
MAS
[65]
Prime White Cement Corp. v. Intermediate Appellate Court, 220 SCRA 103, 113-114 [1993]; LBC
Express Inc. v. Court of Appeals, 236 SCRA 602 [1994]; Acme Shoe, Rubber and Plastic Corp. v. Court of
Appeals, 260 SCRA 714, 722 [1996].
[66]
Supra note 31.
[67]
130 Phil. 366 [1968].
[68]
Article 2229, Civil Code.
[69]
Article 2230, Id.
[70]
Article 2231, Id.
[71]
Article 2232, Id
[72]
Albenson Enterprises Corp. v. Court of Appeals, 217 SCRA 16, 25 [1993].
[73]
Far East Bank and Trust Company, v. Court of Appeals, 241 SCRA 671, 675 [1995].
[74]
Philippine Air Lines v. Miano, supra note 59.
[75]
Tierra International Construction Corp. v. NLRC, 211 SCRA 73, 81 [1992], citing Saba v. Court of
Appeals, 189 SCRA 50, 55 [1990].
57

Atty. G.G. Bernardo
MAS
Spouses Reyes vs BPIFSB

SUPREME COURT
Manila
SECOND DIVISION
G.R. Nos. 149840-41
March 31, 2006
SPS. FRANCISCO AND RUBY REYES, Petitioners,

vs.
BPI FAMILY SAVINGS BANK, INC., and MAGDALENA L. LOMETILLO, in her capacity as ex-officio Provincial Sheriff
for Iloilo, Respondents.
DECISION
CORONA,J.:
1
Via this petition for review under Rule 45 of the Rules of Court, petitioners assail the decision of the Court of
Appeals (CA) in CA-G.R. SP Nos. 45629 and 45877 and its resolution denying their motion for reconsideration.
The facts are simple.
On March 24, 1995, the Reyes spouses executed a real estate mortgage on their property in Iloilo City in favor
of respondent BPI Family Savings Bank, Inc. (BPI-FSB) to secure a P15,000,000 loan of Transbuilders Resources and
Development Corporation (Transbuilders). The mortgage contract between petitioners and BPI-FSB provided,
among others:
That for and in consideration of the above-mentioned sum received by way of a loan, and other credit
accommodations of whatever nature obtained by the Borrower/Mortgagor, the Borrower/Mortgagor by this
Agreement, hereby constitutes a first mortgage, special and voluntary over the property/ies specifically described
in Annex "A", together with all existing improvements as well as those that may hereafter be made to exist or
2
constructed thereon, inclusive of all fruits and rents, in favor of the Bank, its successors and assigns.
When Transbuilders failed to pay its P15M loan within the stipulated period of one year, the bank restructured
the loan through a promissory note executed by Transbuilders in its favor. The pertinent provisions of the
3
promissory note stated that:
4
1. The proceeds of the Note shall be applied to loan account no. 21108336 ; and
2. The new obligation of Transbuilders to respondent Bank for fifteen million (P15,000,000.00) shall
be paid in twenty (20) quarterly installments commencing on September 28, 1996 and at an interest rate
of eighteen (18%) per annum.
Petitioners aver that they were not informed about the restructuring of Transbuilders loan. In fact, when they
learned of the new loan agreement sometime in December 1996, they wrote BPI-FSB requesting the cancellation
of their mortgage and the return of their certificate of title to the mortgaged property. They claimed that the new
loan novated the loan agreement of March 24, 1995. Because the novation was without their knowledge and
consent, they were allegedly released from their obligation under the mortgage.
58

Atty. G.G. Bernardo
MAS
When BPI-FSB refused to cancel the mortgage, petitioners filed separate petitions for mandamus and
prohibition with the Regional Trial Court (RTC) of Manila to compel the bank to return their certificate of title and
cancel the mortgage. BPI-FSB, on the other hand, instituted extrajudicial foreclosure proceedings against
petitioners in Iloilo City after Transbuilders defaulted in its payments. Consequently, a sheriffs notice of sale of
petitioners property at public auction was issued.
The Manila RTC dismissed petitioners actions for mandamus and prohibition. Their appeal to the Court of
Appeals was likewise dismissed:
The mortgage contract between the petitioners and the respondent BPI does not limit the obligation or loan
for which it may stand to the loan agreement between Transbuilders and BPI, dated March 24, 1995, considering
that under the terms of that contract, the intent of all the parties, including the petitioners, to secure future
indebtedness is apparent. On the whole, the contract of loan/mortgage dated March 24, 1995, appears to
include even the new loan agreement between Transbuilders and BPI, entered into on June 28, 1996.
xxx xxx xxx
There is likewise no merit to the petitioners submission that there was a novation of the March 24, 1995
contract. There is no clear intent of the parties to make the new contract completely supersede and abolish the old
loan/mortgage contract. The established rule is that novation is never presumed. Novation will not be allowed
unless it is clearly shown by express agreement, or by acts of equal import. Thus, to effect an objective novation it
is imperative that the new obligation expressly declares that the old obligation is thereby extinguished or that the
new obligation be on every point incompatible with the new one. (Ajax Marketing & Development Corporation v.
Court of Appeals, 248 SCRA 222 [1995]) Without such clear intent to abolish the old contract, there is no merit to
affirm the existence of a novation.
There is no basis therefore, to the charge that respondent BPI had gravely erred in not surrendering the
petitioners certificate of title, as the mortgage undertaking of the petitioners has not been cancelled. For the
same reason, the respondent BPI acted within its prerogative when it initiated extra-judicial foreclosure
proceedings over the petitioners property.
WHEREFORE, premises considered, the instant appeals from the Decision of the Regional Trial Court of Iloilo
City in CA-G.R. SP No. 45887 and the Order of dismissal of the Regional Trial Court of Manila in CA-G.R. SP No.
45629 are hereby DISMISSED.
5
SO ORDERED. (emphasis ours)

Petitioners moved for a reconsideration of the decision but were unsuccessful. Hence, this appeal.
The only issue for our consideration is whether there was a novation of the mortgage loan contract between
petitioners and BPI-FSB that would result in the extinguishment of petitioners liability to the bank.
We agree with the CA that there was none.
Novation is defined as the extinguishment of an obligation by the substitution or change of the obligation by a
subsequent one which terminates the first, either by changing the object or principal conditions, or by substituting
6
the person of the debtor, or subrogating a third person in the rights of the creditor.
Article 1292 of the Civil Code on novation further provides:
59

Atty. G.G. Bernardo
MAS
Article 1292. In order that an obligation may be extinguished by another which substitute the same, it is
imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point
incompatible with each other.
The cancellation of the old obligation by the new one is a necessary element of novation which may be
effected either expressly or impliedly. While there is really no hard and fast rule to determine what might
constitute sufficient change resulting in novation, the touchstone, however, is irreconcilable incompatibility
7
between the old and the new obligations.
8
In Garcia, Jr. v. Court of Appeals, we held that:

In every novation there are four essential requisites:(1) a previous valid obligation; (2) the agreement of all the
parties to the new contract; (3) the extinguishment of the old contract; and (4) validity of the new one. There must
be consent of all the parties to the substitution, resulting in the extinction of the old obligation and the creation of
a valid new one. The acceptance of the promissory note by the plaintiff is not novation of the contract. The legal
doctrine is that an obligation to pay a sum of money is not novated in a new instrument by changing the term of
payment and adding other obligations not incompatible with the old one. It is not proper to consider an obligation
novated as in the case at bar by the mere granting of extension of payment which did not even alter its essence. To
sustain novation necessitates that the same be declared in unequivocal terms or that there is complete and
substantial incompatibility between the two obligations. An obligation to pay a sum of money is not novated in a
new instrument wherein the old is ratified by changing only the terms of payment and adding other obligations not
incompatible with the old one or wherein the old contract is merely supplementing the old one.
Thus, the well-settled rule is that, with respect to obligations to pay a sum of money, the obligation is not
novated by an instrument that expressly recognizes the old, changes only the terms of payment, adds other
9
obligations not incompatible with the old ones, or the new contract merely supplements the old one.
BPI-FSB and Transbuilders only extended the repayment term of the loan from one year to twenty quarterly
installments at 18% interest per annum. There was absolutely no intention by the parties to supersede or abrogate
the old loan contract secured by the real estate mortgage executed by petitioners in favor of BPI-FSB. In fact, the
intention of the new agreement was precisely to revive the old obligation after the original period expired and the
loan remained unpaid. The novation of a contract cannot be presumed. In the absence of an express agreement,
10
novation takes place only when the old and the new obligations are incompatible on every point.
Moreover, under the real estate mortgage executed by them in favor of BPI-FSB, petitioners undertook to
secure the P15M loan of Transbuilders to BPI-FSB "and other credit accommodations of whatever nature obtained
by the Borrower/Mortgagor." While this stipulation proved to be onerous to petitioners, neither the law nor the
courts will extricate a party from an unwise or undesirable contract entered into with all the required formalities
11
and with full awareness of its consequences. Petitioners voluntarily executed the real estate mortgage on their
property in favor of BPI-FSB to secure the P15M loan of Transbuilders. They cannot now be allowed to repudiate
their obligation to the bank after Transbuilders default. While petitioners liability was written in fine print and in a
contract prepared by BPI-FSB, it has been the consistent holding of this Court that contracts of adhesion are not
12
invalid per se. On numerous occasions, we have upheld the binding effects of such contracts.
WHEREFORE, the petition is hereby DENIED for lack of merit.
SO ORDERED.
RENATO C. CORONA
Associate Justice
60

Atty. G.G. Bernardo
MAS
WE CONCUR :
REYNATO S. PUNO
Associate Justice
Chairperson
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
ADOLFO S. AZCUNA
Asscociate Justice
CANCIO C. GARCIA
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Associate Justice
Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, I certify that
the conclusions in the above decision had been reached in consultation before the case was assigned to the writer
of the opinion of the Courts Division.
ARTEMIO V. PANGANIBAN
Chief Justice
Footnotes
1
Penned by Associate Justice Rodrigo V. Cosico, and concurred in by Associate Justice Ramon A.
Barcelona (retired) and Associate Justice Alicia L. Santos of the Eighth Division of the Court of
Appeals,rollo, pp. 26-32.
2
Mortgage Loan Agreement, Annex "C," rollo, p. 37.
Promissory Note, Id., p. 42.
Referring to the original P15M loan of Transbuilders that remained unpaid.
CA decision, rollo, pp. 30-31.
Idolor v. Court of Appeals, G.R. No. 141853, 7 February 2001, 351 SCRA 399.
61

Atty. G.G. Bernardo
MAS
California Bus Lines, Inc. v. State Investment House, Inc., G.R. No. 147950, 11 December 2003, 418
SCRA 297.
8
G.R. No. L-80201, 20 November 1990, 191 SCRA 493 (citations omitted).
Supra at note 5.
10
Tay v. Court of Appeals, 355 Phil. 381 (1998).
11
Opulencia v. Court of Appeals, 355 Phil. 124 (1998).
12
Palmares v. Court of Appeals, 351 Phil. 664 (1998); see also Ridjo Tape and Chemical Corporation v.
Court of Appeals, 350 Phil. 184 (1998).
62

Atty. G.G. Bernardo
MAS
Garcia vs Lim Chiu Sing

SUPREME COURT
Manila
EN BANC
G.R. No. L-39427
February 24, 1934
TIRSO GARCIA, in his capacity as receiver of the Mercantile Bank of China, plaintiff-appellee,
vs.
LIM CHU SING, defendant-appellant.
Marcelino Lontok for appellant.
Nicolas Santiago for appellee.
VILLA-REAL, J.:
This is an appeal taken by the defendant Lim Chu Sing from the judgment rendered by the Court of First
Instance of Manila, the dispositive part of which reads as follows:
Wherefore, judgment is rendered sentencing the defendant to pay the sum of P9,105.17 with
interest thereon at the rate of six per cent per annum from September 1, 1932, until fully paid,
plus the sum of P910.51, as attorney's fees, with the costs of this suit.
In conformity with the stipulation, this judgment shall be subject to execution after ninety (90)
days. So ordered.
In support of his appeal, the appellant assigns the following alleged errors as committed by the court a
quo in its decision, to wit:
1. In denying the motion dated December 27, 1932, praying for the inclusion of Lim Cuan Sy,
being the principal debtor, as party to this suit.
2. In holding as improper the compensation of the defendant's debt of P9,106.17, claimed in the
complaint, with his credit amounting to P10,000 with the Mercantile Bank of China.
3. In not ordering that after the compensation the plaintiff-appellee, as receiver of the
Mercantile Bank of China, should liquidate the dividends of the defendant-appellant's shares.
4. In sentencing the defendant-appellant to pay to the plaintiff-appellee the sum of P910.51 as
attorney's fees, plus interest at 6 per cent per annum on the sum of P9,105.17, with costs.
5. In denying the motion for a new trial.
63

Atty. G.G. Bernardo
MAS
When the case was called for hearing, the parties submitted the following stipulation of facts for the
consideration of the trial court, to wit:
Come now both parties and to this Honorable Court respectfully submit the following
stipulation:
1. The defendant admits the facts alleged in the complaint.
2. The plaintiff admits the allegations in the answer, particularly with reference to the fact that
the defendant is the owner of two hundred shares at a par value of fifty pesos (P50) each, that is
(Pl0,000).
3. The court may render judgment in accordance with this stipulation, but the same shall be
subject to execution after ninety (90) days.
Wherefore, they respectfully submit this stipulation and pray that judgment be rendered in
accordance therewith.
The facts alleged in the complaint and admitted by both parties under the above quoted stipulation of
facts are as follows:
On June 20, 1930, the defendant-appellant Lim Chu Sing executed and delivered to the Mercantile Bank
of China promissory note for the sum of P19,605.17 with interest thereon at 6 per cent per annum,
payable monthly as follows: P1,000 on July 1, 1930; P500 on August 1, 1930; and P500 on the first of
every month thereafter until the amount of the promissory note together with the interest thereon is
fully paid (Exhibit A). One of the conditions stipulated in said promissory note is that in case of
defendant's default in the payment of any of the monthly installments, as they become due, the entire
amount or the unpaid balance thereof together with interest thereon at 6 per cent per annum, shall
become due and payable on demand. The defendant had been, making several partial payments
thereon, leaving an unpaid balance of P9,105.17. However, he defaulted in the payment of several
installments by reason of which the unpaid balance of P9,105.17 on the promissory note has ipso
factobecome due and demandable.
The facts alleged in the answer and admitted by both parties under the same stipulation of facts are as
follows:
The debt which is the subject matter of the complaint was not really an indebtedness of the defendant
but of Lim Cuan Sy, who had an account with the plaintiff bank in the form of "trust receipts"
guaranteed by the defendant as surety and with chattel mortgage securities. The plaintiff bank, without
the knowledge and consent of the defendant, foreclosed the chattel mortgage and privately sold the
property covered thereby. Inasmuch as Lim Cuan Sy failed to comply with his obligations, the plaintiff
required the defendant, as surety, to sign a promissory note for the sum of P19,105.17 payable in the
manner hereinbefore stated (Exhibit A). The defendant had been paying the corresponding installments
until the debt was reduced to the sum of P9,105.17 claimed in the complaint. The defendant is the
owner of shares of stock of the plaintiff Mercantile Bank of China amounting to P10,000. The plaintiff
bank is now under liquidation.
64

Atty. G.G. Bernardo
MAS
On December 27, 1932, the defendant-appellant Lim Chu Sing filed a motion praying for the inclusion of
the principal debtor Lim Cuan Sy as party defendant so that he could avail himself of the benefit of the
exhaustion of the property of said Lim Cuan Sy. Said motion was denied in open court by the presiding
judge without the defendant-appellant having excepted to such order of denial.
The proceeds of the sale of the mortgaged chattels together with other payments made were applied to
the amount of the promissory note in question, leaving the balance which the plaintiff now seeks to
collect.
The first question to be decided in this appeal is whether or not the court a quo erred in denying the
motion for inclusion of a party a defendant, filed by the defendant-appellant.
According to the provisions of section 141 of the Code of Civil Procedure, ". . . Rulings of the court upon
minor matters, such as adjournments, postponements of trials, the extension of time for filing pleadings
or motions, and other matters addressed to the discretion of the court in the performance of its duty,
shall not be subject to exception. But exception may be taken to any other ruling, order, or judgment of
the court made during the pendency of the action in the Court of First Instance." "An `exception' has
been defined as an objection taken to the decision of the trial court upon a matter of law, and is a notice
that the party taking it preserves for the consideration of the appellate court a ruling deemed
erroneous. (8 Am. Enc. P. and P., 157.)" " `Errors in a judgment or decree will not be noticed on appeal in
the absence of objections and exceptions taken below, and they should be sufficiently specific to direct
the attention of the court to the alleged defects.' (8 Enc. Pl and Pr., 289.)" (Garcia de Lara vs. Gonzales
de Lara, 2 Phil., 297.) Inasmuch as an exception is an objection taken to the decision of the trial court
upon a matter of law and is a notice that the party taking it will submit for the consideration of the
appellate court the ruling deemed erroneous, failure to interpose it deprived the appellant of the right
to raise the question whether or not the court a quo committed the alleged error attributed to it in its
ruling which had not been excepted to by the said appellant. The inclusion in, or exclusion from an
action of a certain party is a question of law. The herein defendant-appellant, not having excepted to
the order of the Court of First Instance of Manila denying his motion for the inclusion of Lim Cuan Sy as
party defendant, is estopped from raising such question upon appeal (Roman Catholic Bishop of Lipa vs.
Municipality of San Jose, 27 Phil., 571; Vergara vs. Laciapag, 28 Phil., 439; Andrews vs. Morente Rosario,
9 Phil., 634).
The second question to be decided is whether or not it is proper to compensate the defendantappellant's indebtedness of P9,105.17, which is claimed in the complaint, with the sum of P10,000
representing the value of his shares of stock with the plaintiff entity, the Mercantile Bank of China.
According to the weight of authority, a share of stock or the certificate thereof is not an indebtedness to
the owner nor evidence of indebtedness and, therefore, it is not a credit (14 Corpus Juris, p. 388, see.
511). Stockholders, as such, are not creditors of the corporation (14 Corpus Juris, p. 848, Sec. 1289). It is
the prevailing doctrine of the American courts, repeatedly asserted in the broadest terms, that the
capital stock of a corporation is a trust fund to be used more particularly for the security of creditors of
the corporation, who presumably deal with it on the credit of its capital stock (14 Corpus Juris, p. 383,
sec. 505). Therefore, the defendant-appellant Lim Chu Sing not being a creditor of the Mercantile Bank
of China, although the latter is a creditor of the former, there is no sufficient ground to justify a
compensation (art. 1195, Civil Code; Acua Co Chongco vs. Dievas, 12 Phil., 250).
65

Atty. G.G. Bernardo
MAS
The third question to be decided in this appeal is whether or not the court a quo erred in sentencing the
said defendant-appellant to pay the sum of P910.51 as attorney's fees in addition to interest at 6 per
cent per annum on the amount sought in the complaint.
The pertinent clause of the promissory note Exhibit A reads as follows: "In case of default of any of the
above installments, the total amount of the balance still unpaid of this note will become due and
payable on demand plus interest thereon at the rate of 6 per cent per annum from date of this note
until payment is made. And I further agree to pay an additional sum equivalent to 10 per cent of the said
note to cover cost and attorney's fees for collection."
The stipulation relative to the payment of interest at the rate of 6 per cent per annum on the unpaid
balance of the promissory note Exhibit A refers to the capital and the 10 per cent stipulated for costs
and attorney's fees cannot be considered as interest but an indemnity for damages occasioned by the
collection of the indebtedness through judicial process. Therefore the two rates in question cannot be
combined and considered usurious interest.
With reference to the costs, the 10 per cent stipulated in the promissory note is for costs and attorney's
fees which may be incurred in the collection of the indebtedness through judicial process. Therefore, the
defendant-appellant should not again be made to pay for them (Bank of the Philippine Islands vs. Yulo,
31 Phil., 476).
In view of the foregoing, this court is of the opinion and so holds: (1) That failure to file an exception to a
ruling rendered in open court denying a motion for the inclusion of a party as defendant deprives the
petitioner, upon appeal of the right to raise the question whether such denial proper or improper; (2)
that the shares of a banking corporation do not constitute an indebtedness of the corporation to the
stockholder and, therefore, the latter is not a creditor of the former for such shares; (3) that the
indebtedness of a shareholder to a banking corporation cannot be compensated with the amount of his
shares therein, there being no relation of creditor and debtor with respect to such shares; and (4) that
the percentage stipulated in a contract, for costs and attorney's fees for the collection of an
indebtedness, includes judicial costs.
Wherefore, with the sole modification that the costs be eliminated from the appealed judgment, the
same is hereby affirmed, without special pronouncement as to costs of this instance. So ordered.
Malcolm, Hull, Imperial, and Goddard, JJ., concur.
66

Atty. G.G. Bernardo
MAS
Quinto vs CA - Novation
THIRD DIVISION
[G.R. No. 126712. April 14, 1999]
LEONIDA C. QUINTO, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent.

DECISION
VITUG, J.:
Assailed in this Petition for Review on Certiorari under Rule 45 of the Rules of Court is the decision
of the Court of Appeals, promulgated on 27 September 1996, in People of the Philippines vs. Leonida
Quinto y Calayan, docketed CA-G.R. CR No. 16567, which has affirmed the decision of Branch 157 of the
Regional Trial Court (RTC), National Capital Judicial Region, Branch 157, Pasig City, finding Leonida
Quinto y Calayan guilty beyond reasonable doubt of the crime of Estafa.
Leonida Quinto y Calayan, herein petitioner, was indicted for the crime of estafa under Article 315,
paragraph 1(b), of the Revised Penal Code, in an information which read:
"That on or about the 23rd day of March 1977, in the Municipality of Makati, Metro Manila, Philippines
and within the jurisdiction of this Honorable Court, the above-named accused, received in trust from
one Aurelia Cariaga the following pieces of jewelry, to wit:
One (1) set of marques with briliantitos
valued at .............................................P17,500.00
One (1) solo ring (2 karats & 30 points)
valued at .............................................P16,000.00
One (1) diamond ring (rosetas)
valued at .............................................P 2,500.00
with a total value of P36,000.00 for the purpose of selling the same on commission basis and with the
express obligation on the part of the accused to turn over the proceeds of sale thereof, or to return the
said jewelries (sic), if not sold, five (5) days after receipt thereof, but the accused once in possession of
the jewelries (sic), far from complying with her obligation, with intent of gain, gave abuse of confidence
and to defraud said Aurelia Cariaga, did then and there wilfully, unlawfully and feloniously
misappropriate, misapply and convert to her own personal use and benefit the said jewelries (sic)
and/or the proceeds of sale or to return the pieces of jewelry, to the damage and prejudice of the said
Aurelia Cariaga in the aforementioned amount of P 36,000.00.
"Contrary to law "[1]
Upon her arraignment on 28 March 1978, petitioner Quinto pleaded not guilty; trial on the merits
thereupon ensued.
67

Atty. G.G. Bernardo
MAS
According to the prosecution, on or about 23 March 1977, Leonida went to see Aurelia Cariaga
(private complainant) at the latter's residence in Makati. Leonida asked Aurelia to allow her have some
pieces of jewelry that she could show to prospective buyers. Aurelia acceded and handed over to
Leonida one (1) set of marques with briliantitos worth P17,500.00, one (1) solo ring of 2.30 karats worth
P16,000.00 and one (1) rosetas ring worth P2,500.00. Leonida signed a receipt (Exhibit "A") therefor,
thus:
"RECEIPT
Pinatutunayan ko na tinanggap ko kay Gng. Aurelia B. Cariaga (ang) mga alahas na nakatala sa ibaba,
upang aking ipagbili sa pamamagitan ng BIGAY PALA o Commission at Kaliwaan lamang. Ako'y hindi
pinahihintulutan (na) ipagbili ang mga ito ng Pautang. Pinananagutan ko na ang mga alahas na ito ay
hindi ko ipagkakaloob o ipagkakatiwala sa kanino pa man upang ilagak o maipagbili nila, at ang mga ito
ay ako ang magbibili sa ilalim ng aking pangangasiwa at pananagutan sa halagang nakatala sa ibaba. At
aking isasauli ang mga hindi na maipagbili sa loob ng 5 days (sic) araw mula sa petsa nito o sa kahilingan,
na nasa mabuti at malinis na kalagayan katulad ng tanggapin ko sa petsang ito.
MGA URI NG ALAHAS
1 set marques with titos
1 solo 2 karats & 30 points
1 ring Rosetas brill
17,500.
16,000.
2,500.
Makati, March 23, 1977
(Sgd.)"[2]
When the 5-day period given to her had lapsed, Leonida requested for and was granted additional time
within which to vend the items. Leonida failed to conclude any sale and, about six (6) months later,
Aurelia asked that the pieces of jewelry be returned. She sent to Leonida a demand letter which the
latter ignored. The inexplicable delay of Leonida in returning the items spurred the filing of the case for
estafa against her.
The defense proffered differently. In its version, the defense sought to prove that Leonida was
engaged in the purchase and sale of jewelry. She was used to buying pieces of jewelry from a certain
Mrs. Antonia Ilagan who later introduced her (Leonida) to Aurelia. Sometime in 1975, the two, Aurelia
and Leonida, started to transact business in pieces of jewelry among which included a solo ring worth
P40,000.00 which was sold to Mrs. Camacho who paid P20,000.00 in check and the balance of
P20,000.00 in installments later paid directly to Aurelia. The last transaction Leonida had-with Mrs.
Camacho involved a "marques" worth P16,000.00 and a ring valued at P4,000.00. Mrs. Camacho was not
able to pay the due amount in full and left a balance of P13,000.00. Leonida brought Mrs. Camacho to
Aurelia who agreed to allow Mrs. Camacho to pay the balance in installments. Leonida was also able to
sell for Aurelia a 2-karat diamond ring worth P17,000.00 to Mrs. Concordia Ramos who, unfortunately,
was unable to pay the whole amount. Leonida brought Mrs. Ramos to Aurelia and they talked about the
terms of payment. As first payment, Mrs. Ramos gave Leonida a ring valued at P3,000.00. The next
payment made by her was P5,000.00. Leonida herself then paid P2,000.00.
The RTC, in its 25th January 1993 decision, found Leonida guilty beyond reasonable doubt of the
crime of estafa and sentenced her to suffer the penalty of imprisonment of seven (7) years and one (1)
68

Atty. G.G. Bernardo
MAS
day of prision mayor as minimum to nine (9) years of prision mayor as maximum and to indemnify
private complainant in the amount of P36,000.00.
Leonida interposed an appeal to the Court of Appeals which affirmed, in its 27th September 1996
decision, the RTC's assailed judgment.
The instant petition before this Court would have it that the agreement between petitioner and
private complainant was effectively novated when the latter consented to receive payment on
installments directly from Mrs. Camacho and Mrs. Ramos.
The petition is bereft of merit.
Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an
old obligation is terminated by the creation of a new obligation that takes the place of the former; it is
merely modificatory when the old obligation subsists to the extent it remains compatible with the
amendatory agreement. An extinctive novation results either by changing the object or principal
conditions (objective or real), or by substituting the person of the debtor or subrogating a third person
in the rights of the creditor (subjective or personal).[3] Under this mode, novation would have dual
functions - one to extinguish an existing obligation, the other to substitute a new one in its place[4] requiring a conflux of four essential requisites: (1) a previous valid obligation; (2) an agreement of all
parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a
valid new obligation.[5]
Novation is never presumed,[6] and the animus novandi, whether totally or partially, must appear
by express agreement of the parties, or by their acts that are too clear and unequivocal to be
mistaken.[7]
The extinguishment of the old obligation by the new one is a necessary element of novation which
may be effected either expressly or impliedly.[8] The term "expressly" means that the contracting parties
incontrovertibly disclose that their object in executing the new contract is to extinguish the old
one.[9] Upon the other hand, no specific form is required for an implied novation,[10] and all that is
prescribed by law would be an incompatibility between the two contracts. While there is really no hard
and fast rule to determine what might constitute to be a sufficient change that can bring about
novation, the touchstone for contrariety, however, would be an irreconcilable incompatibility between
the old and the new obligations.[11]
There are two ways which could indicate, in fine, the presence of novation and thereby produce the
effect of extinguishing an obligation by another which substitutes the same. The firstis when novation
has been explicitly stated and declared in unequivocal terms. The second is when the old and the new
obligations are incompatible on every point. The test of incompatibility is whether or not the two
obligations can stand together, each one having its independent existence. If they cannot, they are
incompatible and the latter obligation novates the first.[12] Corollarily, changes that breed incompatibility
must be essential in nature and not merely accidental. The incompatibility must take place in any of the
essential elements of the obligation, such as its object, cause or principal conditions thereof; otherwise,
the change would be merely modificatory in nature and insufficient to extinguish the original obligation.
The changes alluded to by petitioner consists only in the manner of payment. There was really no
substitution of debtors since private complainant merely acquiesced to the payment but did not give her
consent[13] to enter into a new contract. The appellate court observed:
69

Atty. G.G. Bernardo
MAS
"Appellant, however, insists that their agreement was novated when complainant agreed to be paid
directly by the buyers and on installment basis. She adds that her liability is merely civil in nature.
"We are unimpressed.
"It is to remembered that one of the buyers, Concordia Ramos, was not presented to testify on the
alleged aforesaid manner of payment.
"The acceptance by complainant of partial payment tendered by the buyer, Leonor Camacho, does not
evince the intention of the complainant to have their agreement novated. It was simply necessitated by
the fact that, at that time, Camacho had substantial accounts payable to complainant, and because of
the fact that appellant made herself scarce to complainant. (TSN, April 15, 1981, 31-32) Thus, to obviate
the situation where complainant would end up with nothing, she was forced to receive the tender of
Camacho. Moreover, it is to be noted that the aforesaid payment was for the purchase, not of the
jewelry subject of this case, but of some other jewelry subject of a previous transaction. (Ibid. June 8,
1981, 10-11)"[14]
There are two forms of novation by substituting the person of the debtor, depending on whose
initiative it comes from, to wit: expromision and delegacion. In the former, the initiative for the change
does not come from the debtor and may even be made without his knowledge. Since a third person
would substitute for the original debtor and assume the obligation, his consent and that of the creditor
would be required. In the latter, the debtor offers, and the creditor accepts, a third person who
consents to the substitution and assumes the obligation, thereby releasing the original debtor from the
obligation, here, the intervention and the consent of all parties thereto would perforce be
necessary.[15] In either of these two modes of substitution, the consent of the creditor, such as can be
seen, is an indispensable requirement.[16]
It is thus easy to see why Cariaga's acceptance of Ramos and Camacho's payment on installment
basis cannot be construed as a case of either expromision or delegacion sufficient to justify the
attendance of extinctive novation. Not too uncommon is when a stranger to a contract agrees to
assume an obligation; and while this may have the effect of adding to the number of persons liable, it
does not necessarily imply the extinguishment of the liability of the first debtor.[17] Neither would the
fact alone that the creditor receives guaranty or accepts payments from a third person who has
agreed to assume the obligation, constitute an extinctive novation absent an agreement that the first
debtor shall be released from responsibility.[18]
Petitioner's reliance on Candida Mariano vs. People[19] is misplaced. The factual milieu
in Mariano would indicate a clear intention on the part of the parties to release the accused from her
responsibility as an agent and for her to instead assume the obligation of a guarantor. Unfortunately for
petitioner in the case at bar, the factual findings of both the trial court and the appellate court prove
just the opposite which is that there has never been any animus novandi between or among the parties.
Article 315 of the Revised Penal Code defines estafa and penalizes any person who shall defraud
another by "misappropriating or converting, to the prejudice of another, money, goods, or any other
personal property received by the offender in trust or on commission, or for administration, or under
any other obligation involving the duty to make delivery of or to return the same, even though such
obligation be totally or partially guaranteed by a bond; or by denying having received such money,
goods, or other property." It is axiomatic that the gravamen of the offense is the appropriation or
conversion of money or property received to the prejudice of the owner. The terms "convert" and
70

Atty. G.G. Bernardo
MAS
"misappropriate" have been held to connote "an act of using or disposing of another's property as if it
were one's own or devoting it to a purpose or use different from that agreed upon." The phrase, 'to
misappropriate to one's own use" has been said to include "not only conversion to one's personal
advantage, but also every attempt to dispose of the property of another without right."[20] Verily, the
sale of the pieces of jewelry on installments in contravention of the explicit terms of the authority
granted to her in Exhibit "A" (supra) is deemed to be one of conversion. Thus, neither the theory of
"delay in the fulfillment of commission" nor that of novation posed by petitioner, can avoid the incipient
criminal liability. In People vs. Nery,[21] this Court held:
"It may be observed in this regard that novation is not one of the means recognized by the Penal Code
whereby criminal liability can be extinguished; hence, the role of novation may only be either to prevent
the rise of criminal liability or to cast doubt on the true nature of the original basic transaction, whether
or not it was such that its breach would not give rise to penal responsibility ..."
The criminal liability for estafa already committed is then not affected by the subsequent novation of
contract, for it is a public offense which must be prosecuted and punished by the State in its own
conation.[22]
Finally, this Court fails to see any reversible error, let alone any grave abuse of discretion, in the
appreciation of the evidence by the Court of Appeals which, in fact, hews with those of the trial
court. Indeed, under the circumstances, this Court must be deemed bound by the factual findings of
those courts.
Article 315, 1st paragraph, of the Revised Penal Code, as amended by Presidential Decree No. 818,
provides that the penalty of "prision correccional in its maximum period to prison mayor in its minimum
period, if the amount of the fraud is over 12,000 but does not exceed 22,000 pesos, and if such amount
exceeds the latter sum, the penalty provided in this paragraph shall be imposed in its maximum period,
adding one year for each additional 10,000 pesos; but the total penalty which may be imposed shall not
exceed twenty years. In such case, and in connection with the accessory penalties which may be
imposed and for the purpose of the other provisions of this Code, the penalty shall be termed prision
mayor or reclusion temporal, as the case may be."
In the leading case of People vs. Gabres[23] this Court ruled:
"Under the Indeterminate Sentence Law, the maximum term of the penalty shall be 'that which, in view
of the attending circumstances, could be properly imposed' under the Revised Penal Code, and the
minimum shall be 'within the range of the penalty next lower to that prescribed' for the offense. The
penalty next lower should be based on the penalty prescribed by the Code for the offense, without first
considering any modifying circumstance attendant to the commission of the crime. The determination
of the minimum penalty is left by law to the sound discretion of the court and it can be anywhere within
the range of the penalty next lower without any reference to the periods into which it might be
subdivided. The modifying circumstances are considered only in the imposition of the maximum term of
the indeterminate sentence.
"The fact that the amounts involved in the instant case exceed P22,000.00 should not be considered in
the initial determination of the indeterminate penalty; instead, the matter should be so taken as
analogous to modifying circumstances in the imposition of the maximum term of the full indeterminate
sentence. This interpretation of the law accords with the rule that penal laws should be construed in
favor of the accused. Since the penalty prescribed by law for the estafa charge against accused71

Atty. G.G. Bernardo
MAS
appellant is prision correccional maximum to prision mayorminimum, the penalty next lower would then
be prision correccional minimum to medium. Thus, the minimum term of the indeterminate sentence
should be anywhere within six (6) months and one (1) day to four (4) years and two (2) months while the
maximum term of the indeterminate sentence should at least be six (6) years and one (1) day
because the amounts involved exceeded P22,000.00, plus an additional one (1) year for each additional
P10,000.00."[24]
The penalty imposed by the trial court, affirmed by the appellate court, should accordingly be
modified.
WHEREFORE, the assailed decision of the Court of Appeals is AFFIRMED except that the
imprisonment term is MODIFIED by now sentencing petitioner to an indeterminate penalty of from two
(2) years, eight (8) months and one (1) day of prison correccional to seven (7) years and one (1) day
of prision mayor. The civil liability of appellant for P36,000.00 in favor of private complainant is
maintained. Costs against petitioner.
SO ORDERED.
Romero, (Chairman), Panganiban, Purisima, and Gonzaga-Reyes, JJ., concur.
[1]
Rollo, p. 35.
[2]
Rollo, p. 47.
[3]
8 Manresa 428 cited in IV Tolentino, Commentaries and Jurisprudence, Civil Code of the Philippines,
1991 Edition, p. 381.
[4]
Sandico, Sr., vs. Piguing, 42 SCRA 322; Bert Osmea & Associates vs. Court of Appeals, 120 SCRA 395.
[5]
Reyes vs. Court of Appeals, 264 SCRA 35.
[6]
Rillo vs. Court of Appeals, 274 SCRA 461.
[7]
Fortune Motors (Phils.) Corp. vs. Court of Appeals, 267 SCRA 653.
[8]
Uraca vs. Court of Appeals, 278 SCRA 702, cited in Tolentino, idem.
Art. 1292, New Civil Code. In order that an obligation may be extinguished by another which substitute
the same, it is imperative that it be so declared in unequivocal terms, or that the old and new
obligations be on every point incompatible with each other.
[9]
Philippine National Bank vs. Granada, (C.A.) G.R. No. 13919-R, July 20, 1955, cited in Tolentino, supra,
p. 384.
[10]
Tolentino, supra.
[11]
Gaw vs. Intermediate Appellate Court, 220 SCRA 405, 417.
... "there is complete and substantial incompatibility between the two obligations." Sandico, Sr. vs.
Piguing, supra, p. 334.
[12]
Vda. de Mondragon vs. Intermediate Appellate Court, 184 SCRA 348; Caneda, Jr. vs. Court of Appeals,
181 SCRA 762.
72

Atty. G.G. Bernardo
MAS
[13]
Art. 1293. New Civil Code. Novation which consist in substituting a new debtor in the place of the
original one, may be made even without the knowledge or against the will of the latter, but not without
the consent of the creditor. Payment made by the new debtor gives him the rights mentioned in articles
1236-1237.
[14]
Rollo, p. 32.
[15]
8 Manresa 436-437, cited in Tolentino, p. 390.
[16]
De Cortes vs. Venturanza, 79 SCRA 709; See also E. C. McCullough & Co. vs. Veloso and Serna, 46 Phil.
1; Cochingyan, Jr. vs. R & B Surety and Insurance Co., Inc., 151 SCRA 339; Government Service Insurance
System vs. Court of appeals, 169 SCRA 244; Garcia vs. Khu Yek Chiong, 65 Phil. 466.
[17]
Rios vs. Jacinto, etc., 49 Phil. 7, Garcia vs. Khu Yek Ching, 65 Phil. 466.
[18]
La Campana Food Products, Inc., vs. Philippine Commercial and Industrial Bank, 142 SCRA 394, citing
Dugo vs. Lapea, 6 SCRA 1007; See also Ajax Marketing and Development Corporation vs. Court of
Appeals, 248 SCRA 223; Staight vs. Haskell, 49 Phil. 614; Pacific Commercial Co. vs. Sotto, 34 Phil 237;
Estate of Mota vs. Serra, 47 Phil. 464.
[19]
216 SCRA 541.
[20]
Lim vs. Court of Appeals, 271 SCRA 12, 21.
[21]
10 SCRA 244, 247, citing; Abeto vs. People, 90 Phil. 581; and U.S. vs. Villareal, 27 Phil. 481.
[22]
Tan vs. Court of Appeals, 283 SCRA 18; see also People vs. Benitez, 108 Phil. 920.
[23]
267 SCRA 581.
[24]
At pp. 595-596.
73

Atty. G.G. Bernardo
MAS
Carrillo vs Jaojoco
SUPREME COURT
Manila
EN BANC
G.R. No. L-21015
March 24, 1924
MIGUELA CARRILLO, for herself and as administratrix of the intestate estate of ADRIANA CARRILLO,
deceased, plaintiff-appellant,
vs.
JUSTINIANO JAOJOCO and MARCOS JAOJOCO, defendants-appellees.
Crispin Oben and Gibbs & McDonough for appellant.
Salinas & Salinas for appellees.
AVANCEA, J.:
On the evening of December 9, 1918, Adriana Carrillo executed a document of sale of eleven parcels of
land, with one-half of the improvements thereon, situated in the barrio of Ulong-Tubig, municipality of
Carmona, Province of Cavite, containing an area of 330,409 square meters, in favor of Marcos Jaojoco
for the price of P4,000 which the seller admitted having received. Nine days afterwards Adriana Carrillo
was declared mentally incapacitated by the Court of First Instance and later on died; and proceeding
having been instituted for the administrator and settlement of her estate, her sister Miguela Carrillo was
appointed judicial administratrix of said estate. In her capacity as such administratrix, Miguela Carrillo
now brings this action for the annulment of said contract of sale executed by Adriana Carrillo on
December 9, 1918, against Marcos Jaojoco, the purchaser, and his father Justiniano Jaojoco. The
defendants were absolved from the complaint, and from this judgment the plaintiff appealed.
The plaintiff has attempted to prove that prior to the year 1918 and specially in the year 1917, Adriana
Carrillo performed acts which indicated that she was mentally deranged. We have made a thorough
examination of the character of those acts, and believe that they do not necessarily show that Adriana
Carrillo was mentally insane. The same thing can be said as to her having entered the "Hospital de San
Lazaro" and the "Hospicio de San Jose," in the absence of an affirmative showing to her motive for
entering said institutions, for while it is true that insane persons are confined in those institutions, yet
there also enter persons who are not insane. Against the inference that from said acts the plaintiff
pretends to draw, in order to assert the mental incapacity of Adriana Carrillo in that time, there is in the
record evidence of acts while more clearly and more convincingly show that she must not have been
mentally incapacitated before the execution of the document sought to be annulled in this action. In
January, 1917, her husband having died, she was appointed judicial administratrix of the latter's estate,
and to his end she took the oath of office, gave the proper bond discharged her functions in the same
manner and with the same diligence as any other person of knowingly sound mind would have done.
Documents, were introduced which show complex and numerous acts of administration performed
personally by said Adriana Carrillo, such as the disposition of various and considerable amounts of
money in transactions made with different persons, the correctness of said acts never having been, nor
74

Atty. G.G. Bernardo
MAS
can it be, put in question. We have given special attention to the fact of Adriana Carrillo having executed
contracts of lease, appeared in court in the testate proceeding in which she was administratrix, and in
fact continued acting as such administratrix of the estate of her husband until August, 1917, when for
the purpose of taking vacation, she requested to be relieved from the office. On November 13, 1918,
Adriana Carrillo entered the "Hospital de San Juan de Dios" by reason of having had an access of
cerebral hemorrhage with hemiplegia, and there she was attended by Doctor Ocampo until she left on
the 18th of December of the same year very much better off although not completely cured. Asked
about the mental incapacity of Adriana Carrillo during her treatment, Doctor Ocampo answered that he
did not pay attention to it, but that he could affirm that the answers she gave him were responsive to
the questions put to her, and that the hemiplegia did not affect her head but only one-half of the body.
After leaving the "Hospital de San Juan de Dios" on December 8, 1918, Adriana Carrillo called at the
office of the notary public, Mr. Ramos Salinas, and there executed the contract of sale in question on the
9th of that month. The notary, Mr. Salinas, who authorized the document, testified that on that day he
has been for some time with Adriana Carrillo, waiting for one of the witnesses to the document, and he
did not notice anything abnormal in her countenance, which on the contrary, appeared to him dignified,
answering correctly all the questions he made to her without inconsistencies or failure of memory, for
which reason, says this witness, he was surprised when afterwards he learned that the mental capacity
of Adriana Carrillo was in question.
It must be noted that the principal witness for the plaintiff and the most interested party in the case,
being the plaintiff herself, was the surety of Adriana Carrillo when the latter was appointed judicial
administratrix of the estate of her husband in 1917. It cannot be understood, if Adriana Carrillo was in
that time mentally incapacitated, why Miguela Carrillo, the plaintiff, who knew it, consented to be a
surety for her. It must likewise be noted that the other witnesses of the plaintiff, who testified to the
incapacity of Adriana Carrillo, also made transactions with her precisely at the time, when according to
them, she was mentally incapacitated. In view of all of this, which is proven by documents and the
testimonies of witnesses completely disinterested in the case, it cannot be held that on December 9,
1918, when Adriana Carrillo signed the document, she was mentally incapacitated.
The fact that nine days after the execution of the contract, Adriana Carrillo was declared mentally
incapacitated by the trial court does not prove that she was so when she executed the contract. After
all, this can perfectly be explained by saying that her disease became aggravated subsequently.
Our conclusion is that prior to the execution of the document in question the usual state of Adriana
Carrillo was that of being mentally capable, and consequently the burden of proof that she was mentally
incapacitated at a specified time is upon him who affirms said incapacity. If no sufficient proof to this
effect is presented, her capacity must be presumed.
Attention is also called to the disproportion between the price of the sale and the real value of the land
sold. The evidence, however, rather shows that the price of P4,000 paid for the land, which contained
an area of 33 hectares, represents it real value, for its is little more than P100 per hectare, which is
approximately the value of other lands of the same nature in the vicinity. But even supposing that there
is such a disproportion, it alone is not sufficient to justify the conclusion that Adriana Carrillo was
mentally incapacitated for having made the sale under such conditions. Marcos Jaojoco is a nephew of
Adriana Carrillo, and Justiniano Jaojoco her brother-in-law, and both defendants, who are father and
son, had Adriana Carrillo in charge, took her to the "Hospital de San Juan de Dios," and cared for her
during the time she was there, and for such acts they may have won her gratitude. Under these
circumstances there is nothing illegal, or even reprehensible, and much less strange in Adriana Carrillo's
75

Atty. G.G. Bernardo
MAS
having taken into account those services rendered her by the defendants and reciprocated thereof by a
favorable transaction. Having no ascendants and descendents, she could, in consideration of all the
these circumstances, have even given as a donation, or left by will, these lands to the defendants.
The judgment appealed from is affirmed with costs against the appellant. So ordered.
Araullo, C.J., Street, Malcolm, Ostrand, Johns and Romualdez, JJ., concur.
76

Atty. G.G. Bernardo
MAS
Mercado and Mercado vs Espiritu

SUPREME COURT
Manila
EN BANC
G.R. No. L-11872
December 1, 1917
DOMINGO MERCADO and JOSEFA MERCADO, plaintiffs-appellants,

vs.
JOSE ESPIRITU, administrator of the estate of the deceased Luis Espiritu, defendant-appellee.
Perfecto Salas Rodriguez for appellants.
Vicente Foz for appellee.
TORRES, J.:
This is an appeal by bill of exceptions, filed by the counsel for the plaintiffs from the judgment of
September 22, 1914, in which the judge of the Seventh Judicial District dismissed the complaint filed by
the plaintiffs and ordered them to keep perpetual silence in regard to the litigated land, and to pay the
costs of the suit.
By a complaint dated April 9, 1913, counsel for Domingo and Josefa Mercado brought suit in the Court
of First Instance of Bulacan, against Luis Espiritu, but, as the latter died soon thereafter, the complaint
was amended by being directed against Jose Espiritu in his capacity of his administrator of the estate of
the deceased Luis Espiritu. The plaintiffs alleged that they and their sisters Concepcion and Paz, all
surnamed Mercado, were the children and sole heirs of Margarita Espiritu, a sister of the deceased Luis
Espiritu; that Margarita Espiritu died in 1897, leaving as her paraphernal property a tract of land of 48
hectares in area situated in the barrio of Panducot, municipality of Calumpit, Bulacan, and bounded as
described in paragraph 4 of the amended complaint, which hereditary portion had since then been held
by the plaintiffs and their sisters, through their father Wenceslao Mercado, husband of Margarita
Espiritu; that, about the year 1910, said Luis Espiritu, by means of cajolery, induced, and fraudulently
succeeded in getting the plaintiffs Domingo and Josefa Mercado to sign a deed of sale of the land left by
their mother, for the sum of P400, which amount was divided among the two plaintiffs and their sisters
Concepcion and Paz, notwithstanding the fact that said land, according to its assessment, was valued at
P3,795; that one-half of the land in question belonged to Margarita Espiritu, and one-half of this share,
that is, one-fourth of said land , to the plaintiffs, and the other one-fourth, to their two sisters
Concepcion and Paz; that the part of the land belonging to the two plaintiffs could produce 180 cavanes
of rice per annum, at P2.50 per cavan, was equivalent to P450 per annum; and that Luis Espiritu had
received said products from 1901 until the time of his death. Said counsel therefore asked that
judgment be rendered in plaintiffs' favor by holding to be null and void the sale they made of their
respective shares of their land, to Luis Espiritu, and that the defendant be ordered to deliver and restore
to the plaintiffs the shares of the land that fell to the latter in the partition of the estate of their
77

Atty. G.G. Bernardo
MAS
deceased mother Margarita Espiritu, together with the products thereof, uncollected since 1901, or
their equivalent, to wit, P450 per annum, and to pay the costs of the suit.
In due season the defendant administrator answered the aforementioned complaint, denying each and
all of the allegations therein contained, and in special defense alleged that the land, the subject-matter
of the complaint, had an area of only 21 cavanes of seed rice; that, on May 25, 1894, its owner, the
deceased Margarita Espiritu y Yutoc, the plaintiffs' mother, with the due authorization of her husband
Wenceslao Mercado y Arnedo Cruz sold to Luis Espiritu for the sum of P2,000 a portion of said land, to
wit, an area such as is usually required for fifteen cavanes of seed; that subsequently, on May 14, 1901,
Wenceslao Mercado y Arnedo Cruz, the plaintiffs' father, in his capacity as administrator of the property
of his children sold under pacto de retro to the same Luis Espiritu at the price of P375 the remainder of
the said land, to wit, an area covered by six cavanes of seed to meet the expenses of the maintenance of
his (Wenceslao's) children, and this amount being still insufficient the successively borrowed from said
Luis Espiritu other sums of money aggregating a total of P600; but that later, on May 17,1910, the
plaintiffs, alleging themselves to be of legal age, executed, with their sisters Maria del Consejo and
Maria dela Paz, the notarial instrument inserted integrally in the 5th paragraph of the answer, by which
instrument, ratifying said sale under pacto de retro of the land that had belonged to their mother
Margarita Espiritu, effected by their father Wenceslao Mercado in favor of Luis Espiritu for the sum of
P2,600, they sold absolutely and perpetually to said Luis Espiritu, in consideration of P400, the property
that had belonged to their deceased mother and which they acknowledged having received from the
aforementioned purchaser. In this cross-complaint the defendant alleged that the complaint filed by the
plaintiffs was unfounded and malicious, and that thereby losses and damages in the sum of P1,000 had
been caused to the intestate estate of the said Luis Espiritu. He therefore asked that judgment be
rendered by ordering the plaintiffs to keep perpetual silence with respect to the land in litigation and,
besides, to pay said intestate estate P1,000 for losses and damages, and that the costs of the trial be
charged against them.
In reply to the cross-complaint, the plaintiffs denied each and all of the facts therein set forth, and in
special defense alleged that at the time of the execution of the deed of sale inserted in the crosscomplaint the plaintiffs were still minors, and that since they reached their majority the four years fixed
by law for the annulment of said contract had not yet elapsed. They therefore asked that they be
absolved from the defendant's cross-complaint.
After trial and the introduction of evidence by both parties, the court rendered the judgment
aforementioned, to which the plaintiffs excepted and in writing moved for a reopening of the case and a
new trial. This motion was overruled, exception was taken by the petitioners, and the proper bill of
exceptions having been presented, the same was approved and transmitted to the clerk of this court.
As the plaintiffs assailed the validity of the deed of sale, Exhibit 3, executed by them on May 17, 1910,
on the ground that they were minors when they executed it, the questions submitted to the decision of
this court consist in determining whether it is true that the plaintiffs were then minors and therefore
incapable of selling their property on the date borne by the instrument Exhibit 3; and in case they then
were such, whether a person who is really and truly a minor and, notwithstanding, attests that he is of
legal age, can, after the execution of the deed and within legal period, ask for the annulment of the
instrument executed by him, because of some defect that invalidates the contract, in accordance with
the law (Civ. Code, arts. 1263 and 1300), so that he may obtain the restitution of the land sold.
78

Atty. G.G. Bernardo
MAS
The records shows it to have been fully proven that in 1891 Lucas Espiritu obtained title by composition
with the State, to three parcels of land, adjoining each other, in the sitio of Panducot of the pueblo of
Calumpit, Bulacan, containing altogether an area of 75 hectares, 25 ares, and 59 centares, which facts
appear in the title Exhibit D; that, upon Luis Espiritu's death, his said lands passed by inheritance to his
four children named Victoria, Ines, Margarita, and Luis; and that, in the partition of said decedent's
estate, the parcel of land described in the complaint as containing forty-seven and odd hectares was
allotted to the brother and sister Luis and Margarita, in equal shares. Margarita Espiritu, married to
Wenceslao Mercado y Ardeno Cruz, had by this husband five children, Maria Consejo, Maria de la Paz,
Domingo, Josefa, and Amalia, all surnamed Mercado y Espiritu, who, at the death of their mother in
1896 inherited, by operation of law, one-half of the land described in the complaint.
The plaintiffs' petition for annulment of the sale and the consequent restitution to them of two-fourths
of the land left by their mother, that is, of one-fourth of all the land described in the complaint, and
which, they stated, amounts to 11 hectares, 86 ares and 37 centares. To this claim the defendant
excepted, alleging that the land in question comprised only an area such as is customarily covered by 21
cavanes of seed.
It was also duly proven that, by a notarial instrument of May 25, 1894, the plaintiffs' mother conveyed
by actual and absolute sale for the sum of P2,000, to her brother Luis Espiritu a portion of the land now
on litigation, or an area such as is usually covered by about 15 cavanes of seed; and that, on account of
the loss of the original of said instrument, which was on the possession of the purchaser Luis Espiritu,
and furthermore because, during the revolution, the protocols or registers of public documents of the
Province of Bulacan were burned, Wenceslao Mercado y Arnedo Cruz, the widower of the vendor and
father of the plaintiffs, executed, at the instance of the interested party Luis Espiritu, the notarial
instrument Exhibit 1, of the date of May 20, 1901, in his own name and those of his minor children
Maria Consejo, Maria de la Paz, Domingo, Josefa, and Amalia, and therein set forth that it was true that
the sale of said portion of land had been made by his aforementioned wife, then deceased, to Luis
Espiritu in 1894.
However, even prior to said date, to wit, on May 14th of the same year, 1901, the widower Wenceslao
Mercado, according to the private document Exhibit 2, pledged or mortgaged to the same man, Luis
Espiritu, for P375, a part, or an area covered by six cavanes of seed, of the land that had belonged to this
vendor's deceased wife, to the said Luis Espiritu and which now forms a part of the land in question a
transaction which Mercado was obliged to make in order to obtain funds with which "to cover his
children's needs." Wenceslao Mercado, the plaintiffs' father, having died, about the year 1904, the
plaintiffs Domingo and Josefa Mercado, together with their sisters Consejo and Paz, declaring
themselves to be of legal age and in possession of the required legal status to contract, executed and
subscribed before a notary the document Exhibit 3, on May 17, 1910, in which referring to the previous
sale of the land, effected by their deceased mother for the sum of P2,600 and with her husband's
permission and authorization, they sold absolutely and in perpetuity to Luis Espiritu, for the sum of P400
"as an increase" of the previous purchase price, the land described in said instrument and situated in
Panducot, pueblo of Calumpit, Bulacan, of an area equal to that usually sown with 21 cavanes of seed
bounded on the north by the lands of Flaviano Abreu and the heirs of Pedro Espiritu, on the east by
those of Victoria Espiritu and Ines Espiritu, on the south by those of Luis Espiritu, and on the west by
those of Hermogenes Tan-Toco and by the Sapang-Maitu stream.
In this status of the case the plaintiffs seek the annulment of the deed Exhibit 3, on the ground that on
the date of its execution they were minors without legal capacity to contract, and for the further reason
79

Atty. G.G. Bernardo
MAS
that the deceased purchaser Luis Espiritu availed himself of deceit and fraud in obtaining their consent
for the execution of said deed.
As it was proven by the testimony of the clerk of the parochial church of Apalit (plaintiffs were born in
Apalit) that the baptismal register books of that parish pertaining to the years 1890-1891, were lost or
burned, the witness Maria Consejo Mercado recognized and identified the book Exhibit A, which she
testified had been kept and taken care of by her deceased father Wenceslao Mercado, pages 396 and
397 of which bear the attestation that the plaintiff Domingo Mercado was born on August 4, 1890, and
Josefa Mercado, on July 14, 1891. Furthermore, this witness corroborated the averment of the plaintiffs'
minority, by the personal registration certificate of said Domingo Mercado, of the year 1914, Exhibit C,
by which it appears that in 1910 he was only 23 years old, whereby it would also be appear that Josefa
Mercado was 22 years of age in 1910, and therefore, on May 17,1910, when the instrument of purchase
and sale, Exhibit 3, was executed, the plaintiffs must have been, respectively, 19 and 18 years of age.
The witness Maria Consejo Mercado also testified that after her father's death her brother and sisters
removed to Manila to live there, although her brother Domingo used to reside with his uncle Luis
Espiritu, who took charge of the administration of the property left by his predecessors in interest; that
it was her uncle Luis who got for her brother Domingo the other cedula, Exhibit B, pertaining to the year
1910, where in it appears that the latter was then already 23 years of age; that she did not know why
her uncle did so; that she and her brother and sisters merely signed the deed of May 17, 1910; and that
her father Wenceslao Mercado, prior to his death had pledged the land to her uncle Luis Espiritu.
The witness Ines Espiritu testified that after the death of the plaintiffs' father, it was Luis Espiritu who
directed the cultivation of the land in litigation. This testimony was corroborated by her sister Victoria
Espiritu, who added that her nephew, the plaintiff Domingo, had lived for some time, she did not know
just how long, under the control of Luis Espiritu.
Roque Galang, married to a sister of Luis Espiritu, stated that the land that fell to his wife and to his
sister-in-law Victoria, and which had an area of about 8 hectares less than that of the land allotted to
the aforementioned Luis and Margarita produced for his wife and his sister-in-law Victoria a net and
minimum yield of 507 cavanes in 1907, in spite of its being high land and of inferior quality, as compared
with the land in dispute, and that its yield was still larger in 1914, when the said two sisters' share was
764 cavanes.
Patricio Tanjucto, the notary before whom the deed Exhibit 3 was ratified, was a witness for the
defendant. He testified that this deed was drawn up by him at the request of the plaintiff Josefa
Mercado; that the grantors of the instrument assured him that they were all of legal age; that said
document was signed by the plaintiffs and the other contracting parties, after it had been read to them
and had been translated into the Pampangan dialect for those of them who did not understand Spanish.
On cross-examination, witness added that ever since he was 18 years of age and began to court, he had
known the plaintiff Josefa Mercado, who was then a young maiden, although she had not yet
commenced to attend social gatherings, and that all this took place about the year 1898, for witness said
that he was then [at the time of his testimony, 1914,] 34 years of age.
Antonio Espiritu, 60 years of age, who knew Lucas Espiritu and the properties owned by the latter,
testified that Espiritu's land contained an area of 84 cavanes, and after its owner's death, was under
witness' administration during to harvest two harvest seasons; that the products yielded by a portion of
this land, to wit, an area such as is sown by about 15 cavanes of seed, had been, since 1894, utilized by
80

Atty. G.G. Bernardo
MAS
Luis Espiritu, by reason of his having acquired the land; and that, after Margarita Espiritu's death, her
husband Wenceslao Mercado took possession of another portion of the land, containing an area of six
cavanes of seed and which had been left by this deceased, and that he held same until 1901, when he
conveyed it to Luis Espiritu. lawphi1.net
The defendant-administrator, Jose Espiritu, son of the deceased Luis Espiritu, testified that the plaintiff
Domingo Mercado used to live off and on in the house of his deceased father, about the year 1909 or
1910, and used to go back and forth between his father's house and those of his other relatives. He
denied that his father had at any time administered the property belonging to the Mercado brother and
sisters.
In rebuttal, Antonio Mercado, a cousin of Wenceslao, father of the plaintiffs, testified that he mediate in
several transactions in connection with a piece of land belonging to Margarita Espiritu. When shown the
deed of purchase and sale Exhibit 1, he stated that he was not acquainted with its contents. This same
witness also testified that he mediated in a transaction had between Wenceslao Mercado and Luis
Espiritu (he did not remember the year), in which the former sold to the latter a parcel of land situated
in Panducot. He stated that as he was a witness of the deed of sale he could identify this instrument
were it exhibited to him; but he did not do so, for no instrument whatever was presented to him for
identification. The transaction mentioned must have concerned either the ratification of the sale of the
land of 15 cavanes, in 1901, attested in Exhibit 1, or the mortgage or pledge of the other parcel of 6
cavanes, given on May 14, 1901, by Wenceslao Mercado to Luis Espiritu, as may be seen by the private
document Exhibit 2. In rebuttal, the plaintiff Josefa Mercado denied having gone to the house of the
notary Tanjutco for the purpose of requesting him to draw up any document whatever. She stated that
she saw the document Exhibit 3 for the first time in the house of her uncle Luis Espiritu on the day she
signed it, on which occasion and while said document was being signed said notary was not present, nor
were the witnesses thereto whose names appear therein; and that she went to her said uncle's house,
because he had sent for her, as well as her brother and sisters, sending a carromata to fetch them.
Victoria Espiritu denied ever having been in the house of her brother. Luis Espiritu in company with the
plaintiffs, for the purpose of giving her consent to the execution of any deed in behalf of her brother.
The evidence adduced at the trial does not show, even circumstantially, that the purchaser Luis Espiritu
employed fraud, deceit, violence, or intimidation, in order to effect the sale mentioned in the document
Exhibit 3, executed on May 17, 1910. In this document the vendors, the brother and the sisters
Domingo, Maria del Consejo, Paz and, Josefa surnamed Mercado y Espiritu, attested the certainty of the
previous sale which their mother, during her lifetime, had made in behalf of said purchaser Luis Espiritu,
her brother with the consent of her husband Wenceslao Mercado, father of the vendors of the portion
of land situated in the barrio of Panducot, pueblo of Calumpit, Bulacan; and in consideration of the fact
that the said vendor Luis Espiritu paid them, as an increase, the sum of P400, by virtue of the contract
made with him, they declare having sold to him absolutely and in perpetuity said parcel of the land,
waive and thenceforth any and all rights they may have, inasmuch as said sum constitutes the just price
of the property.
So that said document Exhibit 3 is virtually an acknowledgment of the contract of sale of the parcel or
portion of land that would contain 15 cavanes of seed rice made by the vendors' mother in favor of the
purchaser Luis Espiritu, their uncle, and likewise an acknowledgment of the contract of pledge or
mortgage of the remainder of said land, an area of six cavanes, made with the same purchaser, at an
increase of P400 over the price of P2,600, making an aggregate sum of P3,000, decomposed as follows:
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Atty. G.G. Bernardo
MAS
P2,000, collected during her lifetime, by the vendors' father; and the said increase of P400, collected by
the plaintiffs.
In the aforementioned sale, according to the deed of May 25, 1894, Margarita Espiritu conveyed to her
brother Luis the parcel of 15 cavanes of seed, Exhibit 1, and after her death the plaintiffs' widowed
father mortgaged or pledged the remaining parcel or portion of 6 cavanes of seed to her brother-in-law,
Luis Espiritu, in May, 1901 (Exhibit 2). So it is that the notarial instrument Exhibit 3, which was assailed
by the plaintiffs, recognized the validity of the previous contracts, and the totality of the land, consisting
of an area containing 21 cavanes of seed rice, was sold absolutely and in perpetuity, the vendors
receiving in exchange P400 more; and there is no conclusive proof in the record that this last document
was false and simulated on account of the employment of any violence, intimidation, fraud, or deceit, in
the procuring of the consent of the vendors who executed it.
Considering the relation that exists between the document Exhibit 3 and those of previous dates,
Exhibits 1 and 2, and taking into the account the relationship between the contracting parties, and also
the general custom that prevails in many provinces of these Islands for the vendor or debtor to obtain
an increase in the price of the sale or of the pledge, or an increase in the amount loaned, without proof
to the contrary, it would be improper and illegal to hold, in view of the facts hereinabove set forth, that
the purchaser Luis Espiritu, now deceased, had any need to forge or simulate the document Exhibit 3
inasmuch as, since May, 1894, he has held in the capacity of owner by virtue of a prior acquisition, the
parcel of land of 15 cavanes of seed, and likewise, since May, 1901, according to the contract of
mortgage or pledge, the parcel of 6 cavanes, or the remainder of the total area of 21 cavanes.
So that Luis Espiritu was, during his lifetime, and now, after his death, his testate or intestate estate is in
lawful possession of the parcel of land situated in Panducot that contains 21 cavanes of seed, by virtue
of the title of conveyance of ownership of the land measuring 15 cavanes, and, in consequence of the
contract of pledge or mortgage in security for the sum of P600, is likewise in lawful possession of the
remainder of the land, or an area containing 6 cavanes of seed.
The plaintiffs have absolutely no right whatever to recover said first parcel of land, as its ownership was
conveyed to the purchaser by means of a singular title of purchase and sale; and as to the other portion
of 6 cavanes of seed, they could have redeemed it before May 17, 1910, upon the payment or the return
of the sum which their deceased father Wenceslao Mercado had, during his lifetime, received as a loan
under security of the pledged property; but, after the execution of the document Exhibit 3, the creditor
Luis Espiritu definitely acquired the ownership of said parcel of 6 cavanes. It is therefore a rash venture
to attempt to recover this latter parcel by means of the contract of final and absolute sale, set forth in
the deed Exhibit 3.
Moreover, the notarial document Exhibit 1, are regards the statements made therein, is of the nature of
a public document and is evidence of the fact which gave rise to its execution and of the date of the
latter, even against a third person and his predecessors in interest such as are the plaintiffs. (Civ. Code,
art. 1218.)
The plaintiffs' father, Wenceslao Mercado, recognizing it to be perfectly true that his wife Margarita
Espiritu sold said parcel of land which she inherited from her father, of an area of about "15 cavanes of
seed," to her brother Luis Espiritu, by means of an instrument executed by her on May 25,1894 an
instrument that disappeared or was burned and likewise recognizing that the protocols and register
books belonging to the Province of Bulacan were destroyed as a result of the past revolution, at the
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Atty. G.G. Bernardo
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request of his brother-in-law Luis Espiritu he had no objection to give the testimony recorded in said
notarial instrument, as it was the truth regarding what had occurred, and in so doing he acted as the
plaintiffs' legitimate father in the exercise of his parental authority, inasmuch as he had personal
knowledge of said sale, he himself being the husband who authorized said conveyance, notwithstanding
that his testimony affected his children's interest and prejudiced his own, as the owner of any fruits that
might be produced by said real property.
The signature and handwriting of the document Exhibit 2 were identified as authentic by one of the
plaintiffs, Consejo Mercado, and as the record shows no evidence whatever that this document is false,
and it does not appear to have been assailed as such, and as it was signed by the plaintiffs' father, there
is no legal ground or well-founded reason why it should be rejected. It was therefore properly admitted
as evidence of the certainty of the facts therein set forth.
The principal defect attributed by the plaintiffs to the document Exhibit 3 consists in that, on the date of
May 17, 1910, when it was executed that they signed it, they were minors, that is, they had not yet
attained the age of 21 years fixed by Act No. 1891, though no evidence appears in the record that the
plaintiffs Josefa and Domingo Mercado were in fact minors, for no certified copies were presented of
their baptismal certificates, nor did the plaintiffs adduce any supplemental evidence whatever to prove
that Domingo was actually 19 and Josefa 18 years of age when they signed the document Exhibit 3, on
May 17, 1910, inasmuch as the copybook, Exhibit A, notwithstanding the testimony of the plaintiff
Consejo Mercado, does not constitute sufficient proof of the dates of births of the said Domingo and
Josefa.
However, even in the doubt whether they certainly were of legal age on the date referred to, it cannot
be gainsaid that in the document Exhibit 3 they stated that they were of legal age at the time they
executed and signed it, and on that account the sale mentioned in said notarial deed Exhibit 3 is
perfectly valid a sale that is considered as limited solely to the parcel of land of 6 cavanes of seed,
pledged by the deceased father of the plaintiffs in security for P600 received by him as a loan from his
brother-in-law Luis Espiritu, for the reason that the parcel of 15 cavanes had been lawfully sold by its
original owner, the plaintiffs' mother.
The courts, in their interpretation of the law, have laid down the rule that the sale of real estate, made
by minors who pretend to be of legal age, when in fact they are not, is valid, and they will not be
permitted to excuse themselves from the fulfillment of the obligations contracted by them, or to have
them annulled in pursuance of the provisions of Law 6, title 19, of the 6th Partida; and the judgment
that holds such a sale to be valid and absolves the purchaser from the complaint filed against him does
not violate the laws relative to the sale of minors' property, nor the juridical rules established in
consonance therewith. (Decisions of the supreme court of Spain, of April 27, 1860, July 11, 1868, and
March 1, 1875.) itc@alf
With respect to the true age of the plaintiffs, no proof was adduced of the fact that it was Luis Espiritu
who took out Domingo Mercado's personal registration certificate on April 13, 1910, causing the age of
23 years to be entered therein in order to corroborate the date of the notarial instrument of May 17th
of the same year; and the supposition that he did, would also allow it to be supposed, in order to show
the propriety of the claim, that the cedula Exhibit C was taken out on February 14, 1914, where in it is
recorded that Domingo Mercado was on that date 23 years of age, for both these facts are not proved;
neither was any proof adduced against the statement made by the plaintiffs Domingo and Josefa in the
notarial instrument Exhibit 3, that, on the date when they executed it, they were already of legal age,
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Atty. G.G. Bernardo
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and, besides the annotation contained in the copybook Exhibit A, no supplemental proof of their true
ages was introduced.
Aside from the foregoing, from a careful examination of the record in this case, it cannot be concluded
that the plaintiffs, who claim to have minors when they executed the notarial instrument Exhibit 3, have
suffered positive and actual losses and damages in their rights and interests as a result of the execution
of said document, inasmuch as the sale effected by the plaintiffs' mother, Margarita Espiritu, in May,
1894, of the greater part of the land of 21 cavanes of seed, did not occasion any damage or prejudice to
the plaintiffs, inasmuch as their father stated in the document Exhibit 2 that he was obliged to mortgage
or pledge said remaining portion of the land in order to secure the loan of the P375 furnished by Luis
Espiritu and which was subsequently increased to P600 so as to provide for certain engagements or
perhaps to meet the needs of his children, the plaintiff; and therefore, to judge from the statements
made by their father himself, they received through him, in exchange for the land of 6 cavanes of seed,
which passed into the possession of the creditor Luis Espiritu, the benefit which must have accrued to
them from the sums of money received as loans; and, finally, on the execution of the impugned
document Exhibit 3, the plaintiffs received and divided between themselves the sum of P400, which
sum, added to that P2,000 received by Margarita Espiritu, and to that of the P600 collected by
Wenceslao Mercado, widower of the latter and father of the plaintiffs, makes all together the sum of
P3,000, the amount paid by the purchaser as the price of all the land containing 21 cavanes of seed, and
is the just price of the property, was not impugned, and, consequently, should be considered as
equivalent to, and compensatory for, the true value of said land.
For the foregoing reasons, whereby the errors assigned to the judgment appealed from have been
refuted, and deeming said judgment to be in accordance with law and the evidence of record, we
should, and do hereby, affirm the same, with costs against the appellants. So ordered.
Arellano, C. J., Johnson, Street, and Malcolm, JJ., concur.
Separate Opinions
CARSON, J., concurring:

I concur.
But in order to avoid misunderstanding, I think it well to indicate that the general statement, in the
prevailing opinion to the effect that the making of false representations as to his age by an infant
executing a contract will preclude him from disaffirming the contract or setting up the defense of
infancy, must be understood as limited to cases wherein, on account of the minor's representations as
to his majority, and because of his near approach thereto, the other party had good reason to believe,
and did in fact believe the minor capable of contracting.
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The doctrine set forth in the Partidas, relied upon by the supreme court of Spain in the cases cited in the
prevailing opinion, is substantially similar to the doctrine of estoppel as applied in like instances by many
of the courts in the United States.
For the purposes of convenient comparison, I here insert some citations of authority, Spanish and
American, recognizing the limitations upon the general doctrine to which I am inviting attention at this
time; and in this connection it is worthy of note that the courts of the United States look with rather less
favor than the supreme court of Spain upon the application of the doctrine, doubtless because the cases
wherein it may properly be applied, are much less likely to occur in a jurisdiction where majority is
reached at the age of 21 than a jurisdiction wherein majority is not ordinarily attained until the infant
reaches the age of 25.
Ley 6, tit. 19, Partida 6. is, in part, as follows:
If he who is minor (1) deceitfully says or sets forth in an instrument that he is over twenty-five
years of age, and this assertion is believed by another person who takes him to be of about that
age, (2) in an action at law he should be deemed to be of the age he asserted, and should no (3)
afterwards be released from liability on the plea that he was not of said age when he assumed
the obligation. The reason for this is that the law helps the deceived and not the deceivers.
In the glossary to these provisions of the Partidas by Gregorio Lopez, I find the following:
(1) De tal tiempo. Nota bene hoc verbum, nam si appareret ex aspectu eum esse minorem, tunc
adversarius non potest dicere se deceptum; imo tam ipse, quam minor videntur esse in dolo,
quo casu competit minori restitutio, quia facta doli compensatione, perinde ast ac si nullus
fuiset in dolo, et ideo datur restitutio; et quia scienti dolus non infertur, l. 1. D. de act. empt.
secundum Cyn. Alberic et Salic. in l. 3. C. si minor se major. dixer. adde Albericum tenentem,
quabndo per aspectum a liter constaret, in authent.sacramenta puberum, col. 3. C. si advers
vendit.
(2) Engoosamente. Adde 1. 2. et 3. C. si minor se major. dixer. Et adverte nam per istam legem
Partitarum, que non distinguit, an adultus, vel pupillus talem assertionem faciat, videtur
comprobari dictum Guillielm. de Cun. de quo per Paul. de Castr. in 1. qui jurasse. in princ. D. de
jurejur. quod si pupillus proximus pubertari juret, cum contrahit, se esse puberem, et postea
etiam juret, quod non veniet contra contractum quod habebit locum dispositio authenticae
sacramenta puberum, sicut si esset pubes: et cum isto dicto transit ibi Paul. de Cast. multum
commendans, dicens, se alibi non legisse; si tamen teneamus illam opinionem, quod etiam
pupillus doli capax obligatur ex juramento, non esset ita miranda dicat, decissio; vide per
Alexand. in dict. 1. qui jurasse, in princ. Item lex ista Partitarum expresse sentit de adulto, non
de pupillo, cum superius dixit, que paresciere de tal tiempo: Doctores etiam intelligunt de adulto
11. dict. tit. C. si minor. se major. dixer. et patet ex 11. illius tituli. Quid autem dicemus in dubio,
cum non constat de dolo minoris? Azon. in summa illius tit. in fin. Cynus tamen, et alli, tenent
oppositum, quia dolus non praesumitur, nisi probetur, 1. quotiens, s., qui dolo, D. de probat. Et
hoc etiam vult ista lex Partitarum, cum dicit, si lo faze engoosamente: et ita tenent Alberic. et
Salicet. in dict. 1. 3. ubi etiam Bart. in fin. Si autem minor sui facilitate asserat se mojorem, et ita
juret, tunc distingue, ut habetur dict. 1. 3 quia aut juravit verbo tenus, et tunc non restituitur,
nisi per instrumentum seu scripturam probet se minorem; et si juravit corporaliter, nullo modo
restituitur, ut ibi; et per quae instrumenta probentur, cum verbo tenus juravit, vide per Specul.
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Atty. G.G. Bernardo
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tit. de restit, in integr. s. quis autem, col. 4. vers. sed cujusmodi erit scriptura, ubi etiam vide per
Speculatorem aliquas notabiles quaestiones in ista materia, in col. 5. videlicet, an praejudicet
sibi minor ex tali juramento in aliis contractibus, et tenet, quod non; et tenet glossa finalis in 1.
de aetate, D. de minor. in fin. gloss. vide ibi per Speculat. ubi etiam de aliis in ista materia.
In the decision of the supreme court of Spain dated the 27th of April, 1860, I find an excellent illustration
of the conditions under which that court applied the doctrine, as appears from the following resolution
therein set forth.
Sales of real estate made by minors are valid when the latter pretend to be twenty-five years of
age and, due to the circumstances that they are nearly of that age, are married, or have
administration of their property, or on account of other special circumstances affecting them,
the other parties to the contract believe them to be of legal age.
With these citations compare the general doctrine in the United States as set forth in 22 Cyc. (p. 610),
supported by numerous citations of authority.
Estoppel to disaffirm (I) In General. The doctrine of estoppel not being as a general rule
applicable to infants, the court will not readily hold that his acts during infancy have created an
estoppel against him to disaffirm his contracts. Certainly the infant cannot be estopped by the
acts or admissions of other persons.
(II) False representations as to age. According to some authorities the fact that an infant at
the time of entering into a contract falsely represented to the person with whom he dealt that
he had attained the age of majority does not give any validity to the contract or estop the infant
from disaffirming the same or setting up the defense of infancy against the enforcement of any
rights thereunder; but there is also authority for the view that such false representations will
create an estoppel against the infant, and under the statutes of some states no contract can be
disaffirmed where, on account of the minor's representations as to his majority, the other party
had good reason to believe the minor capable of contracting. Where the infant has made no
representations whatever as to his age, the mere fact that the person with whom he dealt
believed him to be of age, even though his belief was warranted by the infant's appearance and
the surrounding circumstances, and the infant knew of such belief, will not render the contract
valid or estop the infant to disaffirm.
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Perez vs Pomar
SUPREME COURT
Manila
EN BANC
G.R. No. L-1299
November 16, 1903
VICENTE PEREZ, plaintiff-appellee,

vs.
EUGENIO POMAR, Agent of the Compaia General de Tabacos, defendant-appellant.
Francisco Dominguez for appellant.
Ledesma, Sumulong and Quintos for appellee.
TORRES, J.:
In a decision dated February 9, 1903, the judge of the Sixth Judicial District, deciding a case brought by
the plaintiff against the defendant for the recovery of wages due and unpaid, gave judgment against the
latter for the sum of $600 and the costs of suit, less the sum of $50, Mexican.
On August 27, 1902, Don Vicente Perez filed in the Court of First Instance of Laguna a complaint, which
was amended on the 17th of January of this year, asking that the court determine the amount due the
plaintiff, at the customary rate of compensation for interpreting in these Islands, for services rendered
in the Tabacalera Company, and that, in view of the circumstances of the case, judgment be rendered in
his favor for such sum. The complaint also asked that the defendant be condemned to the payment of
damages in the sum of $3,200, gold, together with the costs of suit. In this complaint it was alleged that
Don Eugenio Pomar, as general agent of the Compaia General de Tabacos in the said province, verbally
requested the plaintiff on the 8th of December, 1901, to act as interpreter between himself and the
military authorities; that after the date mentioned the plaintiff continued to render such services up to
and including May 31, 1902; that he had accompanied the defendant, Pomar, during that time at
conferences between the latter and the colonel commanding the local garrison, and with various
officers and doctors residing in the capital, and at conferences with Captain Lemen in the town of Pilar,
and with the major in command at the town of Pagsanjan, concerning the shipment of goods from
Manila, and with respect to Pagsanjan to this city; that the plaintiff during this period held himself in
readiness to render services whenever required; that on this account his private business, and especially
a soap factory established in the capital, was entirely abandoned; that to the end that such services
might be punctually rendered, the agent, Pomar, assured him that the Tabacalera Company always
generously repaid services rendered it, and that he therefore did not trouble himself about his inability
to devote the necessary amount of time to his business, the defendant going so far as to make him
flattering promises of employment with the company, which he did not accept; that these statements
were made in the absence of witnesses and that therefore his only proof as to the same was Mr.
Pomar's word as a gentleman; that the employees of the company did not understand English, and by
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Atty. G.G. Bernardo
MAS
reason of the plaintiff's mediation between the agent, and the military authorities large profits were
obtained, as would appear from the account and letterpress books of the agency corresponding to those
dates. In the amended complaint it was added that the defendant, on behalf of the company, offered to
renumerate the plaintiff for the services rendered in the most advantageous manner in which such
services are compensated, in view of the circumstances under which they were requested; and that the
plaintiff, by rendering the company such services, was obliged to abandon his own business, the
manufacture of soap, and thereby suffered damages in the sum of $3,200, United States currency.
The defendant, on the 25th of September, 1902, filed an answer asking for the dismissal of the
complaint, with costs to the plaintiff. In his answer the defendant denied the allegation in the first
paragraph of the complaint, stating that it was wholly untrue that the company, and the defendant as its
agent, had solicited the services of the plaintiff as interpreter before the military authorities for the
period stated, or for any other period, or that the plaintiff had accompanied Pomar at the conferences
mentioned, concerning shipments from Manila and exports from some of the towns of the province to
this capital. He stated that he especially denied paragraphs 2 of the complaint, as it was absolutely
untrue that the plaintiff had been at the disposal of the defendant for the purpose of rendering such
services; that he therefore had not been obliged to abandon his occupation or his soap factory, and that
the statement that an offer of employment with the company had been made to him was false. The
defendant also denied that through the mediation of the plaintiff the company and himself had
obtained large profits. The statements in paragraphs 6, 7, 8, and 9 of the complaint were also denied.
The defendant stated that, on account of the friendly relations which sprang up between the plaintiff
and himself, the former borrowed from him from time to time money amounting to $175 for the
purposes of his business, and that he had also delivered to the plaintiff 36 arrobas of oil worth $106, and
three packages of resin for use in coloring his soap; that the plaintiff accompanied the defendant to
Pagsanjan, Pilar, and other towns when the latter made business trips to them for the purpose of
extending his business and mercantile relations therein; that on these excursions, as well as on private
and official visits which he had to make, the plaintiff occasionally accompanied him through motives of
friendship, and especially because of the free transportation given him, and not on behalf of the
company of which he was never interpreter and for which he rendered no services; that the plaintiff in
these conferences acted as interpreter of his own free will, without being requested to do so by the
defendant and without any offer of payment or compensation; that therefore there existed no legal
relation whatever between the company and the plaintiff, and that the defendant, when accepting the
spontaneous, voluntary and officious services of the plaintiff, did so in his private capacity and not as
agent of the company, and that it was for this reason that he refused to enter into negotiations with the
plaintiff, he being in no way indebted to the latter. The defendant concluded by saying that he answered
in his individual capacity.
A complaint having been filed against the Compaia General de Tabacos and Don Eugenio Pomar, its
agent in the Province of Laguna, the latter, having been duly summoned, replied to the complaint, which
was subsequently amended, and stated that he made such reply in his individual capacity and not as
agent of the company, with which the plaintiff had had no legal relations. The suit was instituted
between the plaintiff and Pomar, who, as such, accepted the issue and entered into the controversy
without objection, opposed the claim of the plaintiff, and concluded by asking that the complaint be
dismissed, with the costs to the plaintiff. Under these circumstances and construing the statutes
liberally, we think it proper to decide the case pending between both parties in accordance with law and
the strict principles of justice.
88

Atty. G.G. Bernardo
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From the oral testimony introduced at the trial, it appears that the plaintiff, Perez, did on various
occasions render Don Eugenio Pomar services as interpreter of English; and that he obtained passes and
accompanied the defendant upon his journeys to some of the towns in the Province of Laguna. It does
not appear from the evidence, however, that the plaintiff was constantly at the disposal of the
defendant during the period of six months, or that he rendered services as such interpreter continuously
and daily during that period of time.
It does not appear that any written contract was entered into between the parties for the employment
of the plaintiff as interpreter, or that any other innominate contract was entered into; but whether the
plaintiff's services were solicited or whether they were offered to the defendant for his assistance,
inasmuch as these services were accepted and made use of by the latter, we must consider that there
was a tacit and mutual consent as to the rendition of the services. This gives rise to the obligation upon
the person benefited by the services to make compensation therefor, since the bilateral obligation to
render services as interpreter, on the one hand, and on the other to pay for the services rendered, is
thereby incurred. (Arts. 1088, 1089, and 1262 of the Civil Code). The supreme court of Spain in its
decision of February 12, 1889, holds, among other things, "that not only is there an express and tacit
consent which produces real contract but there is also a presumptive consent which is the basis of quasi
contracts, this giving rise to the multiple juridical relations which result in obligations for the delivery of
a thing or the rendition of a service."
Notwithstanding the denial of that defendant, it is unquestionable that it was with his consent that the
plaintiff rendered him services as interpreter, thus aiding him at a time when, owing to the existence of
an insurrection in the province, the most disturbed conditions prevailed. It follows, hence, that there
was consent on the part of both in the rendition of such services as interpreter. Such service not being
contrary to law or to good custom, it was a perfectly licit object of contract, and such a contract must
necessarily have existed between the parties, as alleged by the plaintiff. (Art. 1271, Civil Code.)
The consideration for the contract is also evident, it being clear that a mutual benefit was derived in
consequence of the service rendered. It is to be supposed that the defendant accepted these services
and that the plaintiff in turn rendered them with the expectation that the benefit would be reciprocal.
This shows the concurrence of the three elements necessary under article 1261 of the Civil Code to
constitute a contract of lease of service, or other innominate contract, from which an obligation has
arisen and whose fulfillment is now demanded.
Article 1254 of the Civil Code provides that a contract exists the moment that one or more persons
consent to be bound, with respect to another or others, to deliver some thing or to render some service.
Article 1255 provides that the contracting parties may establish such covenants, terms, and conditions
as they deem convenient, provided they are not contrary to law, morals or public policy. Whether the
service was solicited or offered, the fact remains that Perez rendered to Pomar services as interpreter.
As it does not appear that he did this gratuitously, the duty is imposed upon the defendant, having
accepted the benefit of the service, to pay a just compensation therefor, by virtue of the innominate
contract of facio ut des implicitly established.
The obligations arising from this contract are reciprocal, and, apart from the general provisions with
respect to contracts and obligations, the special provisions concerning contracts for lease of services are
applicable by analogy.
89

Atty. G.G. Bernardo
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In this special contract, as determined by article 1544 of the Civil Code, one of the parties undertakes to
render the other a service for a price certain. The tacit agreement and consent of both parties with
respect to the service rendered by the plaintiff, and the reciprocal benefits accruing to each, are the
best evidence of the fact that there was an implied contract sufficient to create a legal bond, from which
arose enforceable rights and obligations of a bilateral character.lawphi1.net
In contracts the will of the contracting parties is law, this being a legal doctrine based upon the
provisions of articles 1254, 1258, 1262, 1278, 1281, 1282, and 1289 of the Civil Code. If it is a fact
sufficiently proven that the defendant, Pomar, on various occasions consented to accept an interpreter's
services, rendered in his behalf and not gratuitously, it is but just that he should pay a reasonable
remuneration therefor, because it is a well-known principle of law that no one should be permitted to
enrich himself to the damage of another.
With respect to the value of the services rendered on different occasions, the most important of which
was the first, as it does not appear that any salary was fixed upon by the parties at the time the services
were accepted, it devolves upon the court to determine, upon the evidence presented, the value of such
services, taking into consideration the few occasions on which they were rendered. The fact that no
fixed or determined consideration for the rendition of the services was agreed upon does not
necessarily involve a violation of the provisions of article 1544 of the Civil Code, because at the time of
the agreement this consideration was capable of being made certain. The discretionary power of the
court, conferred upon it by the law, is also supported by the decisions of the supreme court of Spain,
among which may be cited that of October 18, 1899, which holds as follows: "That as stated in the
article of the Code cited, which follows the provisions of law 1, title 8, of the fifth partida, the contract
for lease of services is one in which one of the parties undertakes to make some thing or to render some
service to the other for a certain price, the existence of such a price being understood, as this court has
held not only when the price has been expressly agreed upon but also when it may be determined by
the custom and frequent use of the place in which such services were rendered."
No exception was taken to the judgment below by the plaintiff on account of the rejection of his claim
for damages. The decision upon this point is, furthermore, correct.
Upon the supposition that the recovery of the plaintiff should not exceed 200 Mexican pesos, owing to
the inconsiderable number of times he acted as interpreter, it is evident that the contract thus implicitly
entered into was not required to be in writing and that therefore it does not fall within article 1280 of
the Civil Code; nor is it included within the provisions of section 335 of the Code of Civil Procedure, as
this innominate contract is not covered by that section. The contract of lease of services is not included
in any of the cases expressly designated by that section of the procedural law, as affirmed by the
appellant. The interpretation of the other articles of the Code alleged to have been infringed has also
been stated fully in this opinion.
For the reasons stated, we are of the opinion that judgment should be rendered against Don Eugenio
Pomar for the payment to the plaintiff of the sum of 200 Mexican pesos, from which will be deducted
the sum of 50 pesos is made as to the costs of this instance. The judgment below is accordingly affirmed
in so far as it agrees with this opinion, and reversed in so far as it may be in conflict therewith. Judgment
will be entered accordingly twenty days after this decision is filed.
Arellano, C.J., Willard, and Mapa, JJ., concur.
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Atty. G.G. Bernardo
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Separate Opinions
MCDONOUGH, J., dissenting:

I dissent from the opinion of the majority. In my opinion there is no legal evidence in the case from
which the court may conclude that the recovery should be 200 Mexican pesos. I am therefore in favor of
affirming the judgment.
Cooper, J., concurs.
Johnson, J., did not sit in this case.
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Atty. G.G. Bernardo
MAS
Braganza vs Villa Abrille

SUPREME COURT
Manila
EN BANC
G.R. No. L-12471
April 13, 1959
ROSARIO L. DE BRAGANZA, ET AL., petitioners,

vs.
FERNANDO F. DE VILLA ABRILLE, respondent.
Oscar M. Herrera for petitioners.
R. P. Sarandi and F. Valdez Anama for respondents.
BENGZON, J.:
Rosario L. de Braganza and her sons Rodolfo and Guillermo petition for review of the Court of Appeal's
decision whereby they were required solidarily to pay Fernando F. de Villa Abrille the sum of P10,000
plus 2 % interest from October 30, 1944.
The above petitioners, it appears, received from Villa Abrille, as a loan, on October 30, 1944 P70,000 in
Japanese war notes and in consideration thereof, promised in writing (Exhibit A) to pay him P10,000 "in
legal currency of the P. I. two years after the cessation of the present hostilities or as soon as
International Exchange has been established in the Philippines", plus 2 % per annum.
Because payment had not been made, Villa Abrille sued them in March 1949.
In their answer before the Manila court of first Instance, defendants claimed to have received P40,000
only instead of P70,000 as plaintiff asserted. They also averred that Guillermo and Rodolfo were
minors when they signed the promissory note Exhibit A. After hearing the parties and their evidence,
said court rendered judgment, which the appellate court affirmed, in the terms above described.
There can be no question about the responsibility of Mrs. Rosario L. Braganza because the minority of
her consigners note release her from liability; since it is a personal defense of the minors. However, such
defense will benefit her to the extent of the shares for which such minors may be responsible, (Art.
1148, Civil Code). It is not denied that at the time of signing Exhibit A, Guillermo and Rodolfo Braganza
were minors-16 and 18 respectively. However, the Court of Appeals found them liable pursuant to the
following reasoning:
. . . . These two appellants did not make it appears in the promissory note that they were not yet of legal
age. If they were really to their creditor, they should have appraised him on their incapacity, and if the
former, in spite of the information relative to their age, parted with his money, then he should be
contended with the consequence of his act. But, that was not the case. Perhaps defendants in their
desire to acquire much needed money, they readily and willingly signed the promissory note, without
disclosing the legal impediment with respect to Guillermo and Rodolfo. When minor, like in the instant
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Atty. G.G. Bernardo
MAS
case, pretended to be of legal age, in fact they were not, they will not later on be permitted to excuse
themselves from the fulfillment of the obligation contracted by them or to have it annulled. (Mercado,
et al. vs. Espiritu, 37 Phil., 215.) [Emphasis Ours.]
We cannot agree to above conclusion. From the minors' failure to disclose their minority in the same
promissory note they signed, it does not follow as a legal proposition, that they will not be permitted
thereafter to assert it. They had no juridical duty to disclose their inability. In fact, according to Corpuz
Juris Secundum, 43 p. 206;
. . . . Some authorities consider that a false representation as to age including a contract as part of the
contract and accordingly hold that it cannot be the basis of an action in tort. Other authorities hold that
such misrepresentation may be the basis of such an action, on the theory that such misrepresentation is
not a part of, and does not grow out of, the contract, or that the enforcement of liability for such
misrepresentation as tort does not constitute an indirect of enforcing liability on the contract. In order
to hold infant liable, however, the fraud must be actual and not constructure. It has been held that his
mere silence when making a contract as to age does not constitute a fraud which can be made the basis
of an action of decit. (Emphasis Ours.)
The fraud of which an infant may be held liable to one who contracts with him in the belief that he is of
full age must be actual not constructive, and mere failure of the infant to disclose his age is not
sufficient. (27 American Jurisprudence, p. 819.)
The Mecado case1 cited in the decision under review is different because the document signed therein
by the minor specifically stated he was of age; here Exhibit A contained no such statement. In other
words, in the Mercado case, the minor was guilty of active misrepresentation; whereas in this case, if
the minors were guilty at all, which we doubt it is of passive (or constructive) misrepresentation. Indeed,
there is a growing sentiment in favor of limiting the scope of the application of the Mercado ruling, what
with the consideration that the very minority which incapacitated from contracting should likewise
exempt them from the results of misrepresentation.
We hold, on this point, that being minors, Rodolfo and Guillermo Braganza could not be legally bound by
their signatures in Exhibit A.
It is argued, nevertheless, by respondent that inasmuch as this defense was interposed only in 1951, and
inasmuch as Rodolfo reached the age of majority in 1947, it was too late to invoke it because more than
4 years had elapsed after he had become emancipated upon reaching the age of majority. The
provisions of Article 1301 of the Civil Code are quoted to the effect that "an action to annul a contract
by reason of majority must be filed within 4 years" after the minor has reached majority age. The parties
do not specify the exact date of Rodolfo's birth. It is undenied, however, that in October 1944, he was 18
years old. On the basis of such datum, it should be held that in October 1947, he was 21 years old, and
in October 1951, he was 25 years old. So that when this defense was interposed in June 1951, four years
had not yet completely elapsed from October 1947.
Furthermore, there is reason to doubt the pertinency of the 4-years period fixed by Article 1301 of the
Civil Code where minority is set up only as a defense to an action, without the minors asking for any
positive relief from the contract. For one thing, they have not filed in this case an action for annulment.2
They merely interposed an excuse from liability.
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Upon the other hand, these minors may not be entirely absolved from monetary responsibility. In
accordance with the provisions of Civil Code, even if their written contact is unenforceable because of
non-age, they shall make restitution to the extent that they have profited by the money they received.
(Art. 1340) There is testimony that the funds delivered to them by Villa Abrille were used for their
support during the Japanese occupation. Such being the case, it is but fair to hold that they had profited
to the extent of the value of such money, which value has been authoritatively established in the socalled Ballantine Schedule: in October 1944, P40.00 Japanese notes were equivalent to P1 of current
Philippine money.
Wherefore, as the share of these minors was 2/3 of P70,000 of P46,666.66, they should now return
P1,166.67.3 Their promise to pay P10,000 in Philippine currency, (Exhibit A) can not be enforced, as
already stated, since they were minors incapable of binding themselves. Their liability, to repeat, is
presently declared without regard of said Exhibit A, but solely in pursuance of Article 1304 of the Civil
Code.
Accordingly, the appealed decision should be modified in the sense that Rosario Braganza shall pay 1/3
of P10,000 i.e., P3,333.334 plus 2% interest from October 1944; and Rodolfo and Guillermo Braganza
shall pay jointly5 to the same creditor the total amount of P1,166.67 plus 6% interest beginning March
7, 1949, when the complaint was filed. No costs in this instance.
Paras, C.J., Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion and Endencia, JJ.,
concur.
Footnotes
1 Mercado vs. Espiritu, 37 Phil., 215.
2 It would be observed in this connection, that the new Civil Code does not govern the contract
executed in 1944.
3 P46,666.00 divided by 40.
4 She says peso for peso, in view of the terms of Exhibit A. She is, indeed, willing to pay as much.
5 Arts. 1137, 1138, Civil Code. Debtors presumed to be bound jointly not severally. Un Pak Leung vs.
Negora, 9 Phil., 381; Flaviano vs. Delgado, 11 Phil., 154; Compania General vs. Obed, 13 Phil., 391.
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Liguez vs CA
SUPREME COURT
Manila
EN BANC
G.R. No. L-11240
December 18, 1957
CONCHITA LIGUEZ, petitioner,

vs.
THE HONORABLE COURT OF APPEALS, MARIA NGO VDA. DE LOPEZ, ET AL., respondents.
Ruiz, Ruiz and Ruiz for appellant.
Laurel Law Offices for appellees.
REYES, J.B.L., J.:

From a decision of the Court of Appeals, affirming that of the Court of First Instance of Davao dismissing
her complaint for recovery of land, Conchita Liguez has resorted to this Court, praying that the aforesaid
decision be reversed on points of law. We granted certiorari on October 9, 1956.
The case began upon complaint filed by petitioner-appellant against the widow and heirs of the late
Salvador P. Lopez to recover a parcel of 51.84 hectares of land, situated in barrio Bogac-Linot, of the
municipality of Mati, Province of Davao. Plaintiff averred to be its legal owner, pursuant to a deed of
donation of said land, executed in her favor by the late owner, Salvador P. Lopez, on 18 May 1943. The
defense interposed was that the donation was null and void for having an illicit causa or consideration,
which was the plaintiff's entering into marital relations with Salvador P. Lopez, a married man; and that
the property had been adjudicated to the appellees as heirs of Lopez by the court of First Instance, since
1949.
The Court of Appeals found that the deed of donation was prepared by the Justice of the Peace of Mati,
Davao, before whom it was signed and ratified on the date aforesaid. At the time, the appellant Liguez
was a minor, only 16 years of age. While the deed recites
That the DONOR, Salvador P. Lopez, for and in the consideration of his love and affection for the said
DONEE, Conchita Liguez, and also for the good and valuable services rendered to the DONOR by the
DONEE, does by these presents, voluntarily give grant and donate to the said donee, etc. (Paragraph 2,
Exhibit "A")
the Court of Appeals found that when the donation was made, Lopez had been living with the parents of
appellant for barely a month; that the donation was made in view of the desire of Salvador P. Lopez, a
man of mature years, to have sexual relations with appellant Conchita Liguez; that Lopez had confessed
to his love for appellant to the instrumental witnesses, with the remark that her parents would not
allow Lopez to live with her unless he first donated the land in question; that after the donation,
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Conchita Liguez and Salvador P. Lopez lived together in the house that was built upon the latter's orders,
until Lopez was killed on July 1st, 1943, by some guerrillas who believed him to be pro-Japanese.
It was also ascertained by the Court of Appeals that the donated land originally belonged to the conjugal
partnership of Salvador P. Lopez and his wife, Maria Ngo; that the latter had met and berated Conchita
for living maritally with her husband, sometime during June of 1943; that the widow and children of
Lopez were in possession of the land and made improvements thereon; that the land was assessed in
the tax rolls first in the name of Lopez and later in that of his widow.; and that the deed of donation was
never recorded.
Upon these facts, the Court of Appeals held that the deed of donation was inoperative, and null and
void (1) because the husband, Lopez, had no right to donate conjugal property to the plaintiff appellant;
and (2) because the donation was tainted with illegal cause or consideration, of which donor and donee
were participants.
Appellant vigorously contends that the Court of First Instance as well as the Court of Appeals erred in
holding the donation void for having an illicit cause or consideration. It is argued that under Article 1274
of the Civil Code of 1889 (which was the governing law in 1948, when the donation was executed), "in
contracts of pure beneficence the consideration is the liberality of the donor", and that liberality per se
can never be illegal, since it is neither against law or morals or public policy.
The flaw in this argument lies in ignoring that under Article 1274, liberality of the do or is deemed causa
in those contracts that are of "pure" beneficence; that is to say, contracts designed solely and
exclusively to procure the welfare of the beneficiary, without any intent of producing any satisfaction for
the donor; contracts, in other words, in which the idea of self-interest is totally absent on the part of the
transferor. For this very reason, the same Article 1274 provides that in remuneratory contracts, the
consideration is the service or benefit for which the remuneration is given; causa is not liberality in these
cases because the contract or conveyance is not made out of pure beneficence, but "solvendi animo." In
consonance with this view, this Supreme Court in Philippine Long Distance Co. vs. Jeturian * G.R. L-7756,
July 30, 1955, like the Supreme Court of Spain in its decision of 16 Feb. 1899, has ruled that bonuses
granted to employees to excite their zeal and efficiency, with consequent benefit for the employer, do
not constitute donation having liberality for a consideration.
Here the facts as found by the Court of Appeals (and which we can not vary) demonstrate that in making
the donation in question, the late Salvador P. Lopez was not moved exclusively by the desire to benefit
appellant Conchita Liguez, but also to secure her cohabiting with him, so that he could gratify his sexual
impulses. This is clear from the confession of Lopez to the witnesses Rodriguez and Ragay, that he was in
love with appellant, but her parents would not agree unless he donated the land in question to her.
Actually, therefore, the donation was but one part of an onerous transaction (at least with appellant's
parents) that must be viewed in its totality. Thus considered, the conveyance was clearly predicated
upon an illicit causa.
Appellant seeks to differentiate between the alleged liberality of Lopez, as causa for the donation in her
favor, and his desire for cohabiting with appellant, as motives that impelled him to make the donation,
and quotes from Manresa and the jurisprudence of this Court on the distinction that must be
maintained between causa and motives (De Jesus vs. Urrutia and Co., 33 Phil. 171). It is well to note,
however that Manresa himself (Vol. 8, pp. 641-642), while maintaining the distinction and upholding the
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Atty. G.G. Bernardo
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inoperativeness of the motives of the parties to determine the validity of the contract, expressly excepts
from the rule those contracts that are conditioned upon the attainment of the motives of either party.
. . . distincion importantisima, que impide anular el contrato por la sola influencia de los motivos a no
ser que se hubiera subordinando al cumplimiento de estos como condiciones la eficacia de aquel.
The same view is held by the Supreme Court of Spain, in its decisions of February 4, 1941, and December
4, 1946, holding that the motive may be regarded as causa when it predetermines the purpose of the
contract.
In the present case, it is scarcely disputable that Lopez would not have conveyed the property in
question had he known that appellant would refuse to cohabit with him; so that the cohabitation was an
implied condition to the donation, and being unlawful, necessarily tainted the donation itself.
The Court of Appeals rejected the appellant's claim on the basis of the well- known rule "in pari delicto
non oritur actio" as embodied in Article 1306 of 1889 (reproduced in Article 1412 of the new Civil Code):
ART. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed:
(1)
When the fault is on the part of both contracting parties, neither may recover what he has given
by virtue of the contract, or demand the performance of the other's undertaking;
(2)
When only one of the contracting parties is at fault, he cannot recover, what he has given by
reason of the contract, or ask for fulfillment of what has been promised him. The other, who is not at
fault, may demand the return of what he has given without any obligation to comply with his promise.
In our opinion, the Court of Appeals erred in applying to the present case the pari delicto rule. First,
because it can not be said that both parties here had equal guilt when we consider that as against the
deceased Salvador P. Lopez, who was a man advanced in years and mature experience, the appellant
was a mere minor, 16 years of age, when the donation was made; that there is no finding made by the
Court of Appeals that she was fully aware of the terms of the bargain entered into by and Lopez and her
parents; that, her acceptance in the deed of donation (which was authorized by Article 626 of the Old
Civil Code) did not necessarily imply knowledge of conditions and terms not set forth therein; and that
the substance of the testimony of the instrumental witnesses is that it was the appellant's parents who
insisted on the donation before allowing her to live with Lopez. These facts are more suggestive of
seduction than of immoral bargaining on the part of appellant. It must not be forgotten that illegality is
not presumed, but must be duly and adequately proved.
In the second place, the rule that parties to an illegal contract, if equally guilty, will not be aided by the
law but will both be left where it finds them, has been interpreted by this Court as barring the party
from pleading the illegality of the bargain either as a cause of action or as a defense. Memo auditor
propriam turpitudinem allegans. Said this Court in Perez vs. Herranz, 7 Phil. 695-696:
It is unnecessary to determine whether a vessel for which a certificate and license have been
fraudulently obtained incurs forfeiture under these or any other provisions of this act. It is enough for
this case that the statute prohibits such an arrangement as that between the plaintiff and defendant so
as to render illegal both the arrangement itself and all contracts between the parties growing out of it.
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It does not, however, follow that the plaintiff can succeed in this action. There are two answers to his
claim as urged in his brief. It is a familiar principle that the courts will not aid either party to enforce an
illegal contract, but will leave them both where it finds them; but where the plaintiff can establish a
cause of action without exposing its illegality, the vice does not affect his right to recover. The American
authorities cited by the plaintiff fully sustain this doctrine. The principle applies equally to a defense. The
law in those islands applicable to the case is found in article 1305 of the Civil Code, shutting out from
relief either of the two guilty parties to an illegal or vicious contract.
In the case at bar the plaintiff could establish prima facie his sole ownership by the bill of sale from
Smith, Bell and Co. and the official registration. The defendant, on his part, might overthrow this title by
proof through a certain subsequent agreement between him and the plaintiff, dated March 16, 1902,
that they had become owners in common of the vessel, 'the agreement not disclosing the illegal motive
for placing the formal title in the plaintiff. Such an ownership is not in itself prohibited, for the United
States courts recognize the equitable ownership of a vessel as against the holder of a legal title, where
the arrangement is not one in fraud of the law. (Weston vs. Penniman, Federal Case 17455; Scudder vs.
Calais Steamboat Company, Federal Case 12566.).
On this proof, the defendant being a part owner of the vessel, would have defeated the action for its
exclusive possession by the plaintiff. The burden would then be cast upon the plaintiff to show the
illegality of the arrangement, which the cases cited he would not be allowed to do.
The rule was reaffirmed in Lima vs. Lini Chu Kao, 51 Phil. 477.
The situation confronting us is exactly analogous. The appellant seeks recovery of the disputed land on
the strength of a donation regular on its face. To defeat its effect, the appellees must plead and prove
that the same is illegal. But such plea on the part of the Lopez heirs is not receivable, since Lopez,
himself, if living, would be barred from setting up that plea; and his heirs, as his privies and successors in
interest, can have no better rights than Lopez himself.
Appellees, as successors of the late donor, being thus precluded from pleading the defense of
immorality or illegal causa of the donation, the total or partial ineffectiveness of the same must be
decided by different legal principles. In this regard, the Court of Appeals correctly held that Lopez could
not donate the entirety of the property in litigation, to the prejudice of his wife Maria Ngo, because said
property was conjugal in character and the right of the husband to donate community property is
strictly limited by law (Civil Code of 1889, Arts. 1409, 1415, 1413; Baello vs. Villanueva, 54 Phil. 213).
ART. 1409. The conjugal partnership shall also be chargeable with anything which may have been given
or promised by the husband alone to the children born of the marriage in order to obtain employment
for them or give then, a profession or by both spouses by common consent, should they not have
stipulated that such expenditures should be borne in whole or in part by the separate property of one of
them.".
ART. 1415. The husband may dispose of the property of the conjugal partnership for the purposes
mentioned in Article 1409.)
ART. 1413. In addition to his powers as manager the husband may for a valuable consideration alienate
and encumber the property of the conjugal partnership without the consent of the wife.
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Atty. G.G. Bernardo
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The text of the articles makes it plain that the donation made by the husband in contravention of law is
not void in its entirety, but only in so far as it prejudices the interest of the wife. In this regard, as
Manresa points out (Commentaries, 5th Ed., pp. 650-651, 652-653), the law asks no distinction between
gratuitous transfers and conveyances for a consideration.
Puede la mujer como proprietaria hacer anular las donaciones aun durante el matrimonio? Esta es, en
suma, la cuestion, reducida a determinar si la distinta naturaleza entre los actos a titulo oneroso y los
actos a titulo lucrativo, y sus especiales y diversas circunstancias, pueden motivar una solucion diferente
en cuanto a la epoca en que la mujer he de reclamar y obtener la nulidad del acto; cuestion que no deja
de ser interesantisima.lawphi1.net
El Codigo, a pesar de la variacion que ha introducido en el proyecto de 1851, poniendo como segundo
parrafo del articulo 1.413, o como limitacion de las enajenaciones u obligaciones a titulo oneroso, lo que
era una limitacion general de todos los actos del marido, muestra, sin embargo, que no ha variado de
criterio y que para el las donaciones deben en todo equipararse a cualquier otro acto ilegal o
frraudulento de caracter oneroso, al decir en el art. 1.419: "Tambien se traera a colacion en el inventario
de la sociedad el importe de las donaciones y enajenaciones que deban considerarse ilegales o
fraudulentas, con sujecion al art. 1.413.' (Debio tambien citarse el articulo 1.415, que es el que habla de
donaciones.)lawphi1.net
"En resumen: el marido solo puede donar los bienes gananciales dentro de los limites marcados en el
art. 1.415. Sin embargo, solo la mujer o sus herederos pueden reclamar contra la valides de la donacion,
pues solo en su interes establece la prohibicion. La mujer o sus herederos, para poder dejar sin efecto el
acto, han de sufrir verdadero perjuicio, entendiendose que no le hay hasta, tanto que, terminada por
cualquier causa la sociedad de gananciales, y hecha su liquidacion, no pueda imputarse lo donado al
haber por cualquier concepto del marido, ni obtener en su consecuencia la mujer la dibida
indemnizacion. La donacioni reviste por tanto legalmente, una eficacia condicional, y en armonia con
este caracter, deben fijarse los efectos de la misma con relacion a los adquirentes y a los terceros
poseedores, teniendo, en su caso, en cuenta lo dispuesto en la ley Hipotecaria. Para prevenir todo
perjuicio, puede la mujer, durante el matrimonio inmediatamente al acto, hacer constar ante los
Tribunales su existencia y solicitor medidas de precaucion, como ya se ha dicho. Para evitarlo en lo
sucesivo, y cuando las circunstancias lo requieran, puede instar la declaracion de prodigalidad.
To determine the prejudice to the widow, it must be shown that the value of her share in the property
donated can not be paid out of the husband's share of the community profits. The requisite data,
however, are not available to us and necessitate a remand of the records to the court of origin that
settled the estate of the late Salvador P. Lopez.
The situation of the children and forced heirs of Lopez approximates that of the widow. As privies of
their parent, they are barred from invoking the illegality of the donation. But their right to a legitime out
of his estate is not thereby affected, since the legitime is granted them by the law itself, over and above
the wishes of the deceased. Hence, the forced heirs are entitled to have the donation set aside in so far
as in officious: i.e., in excess of the portion of free disposal (Civil Code of 1889, Articles 636, 654)
computed as provided in Articles 818 and 819, and bearing in mind that "collationable gifts" under
Article 818 should include gifts made not only in favor of the forced heirs, but even those made in favor
of strangers, as decided by the Supreme Court of Spain in its decisions of 4 May 1899 and 16 June 1902.
So that in computing the legitimes, the value of the property to herein appellant, Conchita Liguez,
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Atty. G.G. Bernardo
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should be considered part of the donor's estate. Once again, only the court of origin has the requisite
date to determine whether the donation is inofficious or not.
With regard to the improvements in the land in question, the same should be governed by the rules of
accession and possession in good faith, it being undisputed that the widow and heirs of Lopez were
unaware of the donation in favor of the appellant when the improvements were made.
The appellees, relying on Galion vs. Garayes, 53 Phil. 43, contend that by her failure to appear at the
liquidation proceedings of the estate of Salvador P. Lopez in July 1943, the appellant has forfeited her
right to uphold the donation if the prejudice to the widow Maria Ngo resulting from the donation could
be made good out of the husband's share in the conjugal profits. It is also argued that appellant was
guilty of laches in failing to enforce her rights as donee until 1951. This line of argument overlooks the
capital fact that in 1943, appellant was still a minor of sixteen; and she did not reach the age of majority
until 1948. Hence, her action in 1951 was only delayed three years. Nor could she be properly expected
to intervene in the settlement of the estate of Lopez: first, because she was a minor during the great
part of the proceedings; second, because she was not given notice thereof ; and third, because the
donation did not make her a creditor of the estate. As we have ruled in Lopez vs. Olbes, 15 Phil. 547548:
The prima facie donation inter vivos and its acceptance by the donees having been proved by means of a
public instrument, and the donor having been duly notified of said acceptance, the contract is perfect
and obligatory and it is perfectly in order to demand its fulfillment, unless an exception is proved which
is based on some legal reason opportunely alleged by the donor or her heirs.
So long as the donation in question has not been judicially proved and declared to be null, inefficacious,
or irregular, the land donated is of the absolute ownership of the donees and consequently, does not
form a part of the property of the estate of the deceased Martina Lopez; wherefore the action instituted
demanding compliance with the contract, the delivery by the deforciant of the land donated, or that it
be, prohibited to disturb the right of the donees, should not be considered as incidental to the probate
proceedings aforementioned.
The case of Galion vs. Gayares, supra, is not in point. First, because that case involved a stimulated
transfer that case have no effect, while a donation with illegal causa may produce effects under certain
circumstances where the parties are not of equal guilt; and again, because the transferee in the Galion
case took the property subject to lis pendens notice, that in this case does not exist.
In view of the foregoing, the decisions appealed from are reversed and set aside, and the appellant
Conchita Liguez declared entitled to so much of the donated property as may be found, upon proper
liquidation, not to prejudice the share of the widow Maria Ngo in the conjugal partnership with Salvador
P. Lopez or the legitimes of the forced heirs of the latter. The records are ordered remanded to the
court of origin for further proceedings in accordance with this opinion. Costs against appellees. So
ordered.
Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, and
Endencia, JJ., concur.
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Papa vs A.U. Valencia

FIRST DIVISION
[G.R. No. 105188. January 23, 1998]
MYRON C. PAPA, Administrator of the Testate Estate of Angela M. Butte, petitioner, vs. A. U. VALENCIA
and CO. INC., FELIX PEARROYO, SPS. ARSENIO B. REYES & AMANDA SANTOS, and DELFIN JAO,
respondents.
DECISION
KAPUNAN, J.:
In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Myron C. Papa
seeks to reverse and set aside 1) the Decision dated 27 January 1992 of the Court of Appeals which
affirmed with modification the decision of the trial court; and, 2) the Resolution dated 22 April 1992 of
the same court, which denied petitioners motion for reconsideration of the above decision.
The antecedent facts of this case are as follows:
Sometime in June 1982, herein private respondents A.U. Valencia and Co., Inc. (hereinafter referred to
as respondent Valencia, for brevity) and Felix Pearroyo (hereinafter called respondent Pearroyo), filed
with the Regional Trial Court of Pasig, Branch 151, a complaint for specific performance against herein
petitioner Myron C. Papa, in his capacity as administrator of the Testate Estate of one Angela M. Butte.
The complaint alleged that on 15 June 1973, petitioner Myron C. Papa, acting as attorney-in-fact of
Angela M. Butte, sold to respondent Pearroyo, through respondent Valencia, a parcel of land,
consisting of 286.60 square meters, located at corner Retiro and Cadiz Streets, La Loma, Quezon City,
and covered by Transfer Certificate of Title No. 28993 of the Register of Deeds of Quezon City; that prior
to the alleged sale, the said property, together with several other parcels of land likewise owned by
Angela M. Butte, had been mortgaged by her to the Associated Banking Corporation (now Associated
Citizens Bank); that after the alleged sale, but before the title to the subject property had been released,
Angela M. Butte passed away; that despite representations made by herein respondents to the bank to
release the title to the property sold to respondent Pearroyo, the bank refused to release it unless and
until all the mortgaged properties of the late Angela M. Butte were also redeemed; that in order to
protect his rights and interests over the property, respondent Pearroyo caused the annotation on the
title of an adverse claim as evidenced by Entry No. P.E. - 6118/T-28993, inscribed on 18 January 1977.
The complaint further alleged that it was only upon the release of the title to the property, sometime in
April 1977, that respondents Valencia and Pearroyo discovered that the mortgage rights of the bank
had been assigned to one Tomas L. Parpana (now deceased), as special administrator of the Estate of
Ramon Papa, Jr., on 12 April 1977; that since then, herein petitioner had been collecting monthly
rentals in the amount of P800.00 from the tenants of the property, knowing that said property had
already been sold to private respondents on 15 June 1973; that despite repeated demands from said
respondents, petitioner refused and failed to deliver the title to the property. Thereupon, respondents
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Atty. G.G. Bernardo
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Valencia and Pearroyo filed a complaint for specific performance, praying that petitioner be ordered to
deliver to respondent Pearroyo the title to the subject property (TCT 28993); to turn over to the latter
the sum of P72,000.00 as accrued rentals as of April 1982, and the monthly rental of P800.00 until the
property is delivered to respondent Pearroyo; to pay respondents the sum of P20,000.00 as attorneys
fees; and to pay the costs of the suit.
In his Answer, petitioner admitted that the lot had been mortgaged to the Associated Banking
Corporation (now Associated Citizens Bank). He contended, however, that the complaint did not state a
cause of action; that the real property in interest was the Testate Estate of Angela M. Butte, which
should have been joined as a party defendant; that the case amounted to a claim against the Estate of
Angela M. Butte and should have been filed in Special Proceedings No. A-17910 before the Probate
Court in Quezon City; and that, if as alleged in the complaint, the property had been assigned to Tomas
L. Parpana, as special administrator of the Estate of Ramon Papa, Jr., said estate should be impleaded.
Petitioner, likewise, claimed that he could not recall in detail the transaction which allegedly occurred in
1973; that he did not have TCT No. 28993 in his possession; that he could not be held personally liable
as he signed the deed merely as attorney-in-fact of said Angela M. Butte. Finally, petitioner asseverated
that as a result of the filing of the case, he was compelled to hire the services of counsel for a fee of
P20,000.00, for which respondents should be held liable.
Upon his motion, herein private respondent Delfin Jao was allowed to intervene in the case. Making
common cause with respondents Valencia and Pearroyo, respondent Jao alleged that the subject lot
which had been sold to respondent Pearroyo through respondent Valencia was in turn sold to him on
20 August 1973 for the sum of P71,500.00, upon his paying earnest money in the amount of P5,000.00.
He, therefore, prayed that judgment be rendered in favor of respondents Valencia and Pearroyo; and,
that after the delivery of the title to said respondents, the latter in turn be ordered to execute in his
favor the appropriate deed of conveyance covering the property in question and to turn over to him the
rentals which aforesaid respondents sought to collect from petitioner Myron C. Papa.
Respondent Jao, likewise, averred that as a result of petitioners refusal to deliver the title to the
property to respondents Valencia and Pearroyo, who in turn failed to deliver the said title to him, he
suffered mental anguish and serious anxiety for which he sought payment of moral damages; and,
additionally, the payment of attorneys fees and costs.
For his part, petitioner, as administrator of the Testate Estate of Angela M. Butte, filed a third-party
complaint against herein private respondents, spouses Arsenio B. Reyes and Amanda Santos
(respondent Reyes spouses, for short). He averred, among others, that the late Angela M. Butte was the
owner of the subject property; that due to non-payment of real estate tax said property was sold at
public auction by the City Treasurer of Quezon City to the respondent Reyes spouses on 21 January
1980 for the sum of P14,000.00; that the one-year period of redemption had expired; that respondents
Valencia and Pearroyo had sued petitioner Papa as administrator of the estate of Angela M. Butte, for
the delivery of the title to the property; that the same aforenamed respondents had acknowledged that
the price paid by them was insufficient, and that they were willing to add a reasonable amount or a
minimum of P55,000.00 to the price upon delivery of the property, considering that the same was
estimated to be worth P143,000.00; that petitioner was willing to reimburse respondent Reyes spouses
whatever amount they might have paid for taxes and other charges, since the subject property was still
registered in the name of the late Angela M. Butte; that it was inequitable to allow respondent Reyes
spouses to acquire property estimated to be worth P143,000.00, for a measly sum of P14,000.00.
Petitioner prayed that judgment be rendered cancelling the tax sale to respondent Reyes spouses;
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Atty. G.G. Bernardo
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restoring the subject property to him upon payment by him to said respondent Reyes spouses of the
amount of P14,000.00, plus legal interest; and, ordering respondents Valencia and Pearroyo to pay
him at least P55,000.00 plus everything they might have to pay the Reyes spouses in recovering the
property.
Respondent Reyes spouses in their Answer raised the defense of prescription of petitioners right to
redeem the property.
At the trial, only respondent Pearroyo testified. All the other parties only submitted documentary
proof.
On 29 June 1987, the trial court rendered a decision, the dispositive portion of which reads:
WHEREUPON, judgment is hereby rendered as follows:
1) Allowing defendant to redeem from third-party defendants and ordering the latter to allow the
former to redeem the property in question, by paying the sum of P14,000.00 plus legal interest of 12%
thereon from January 21, 1980;
2) Ordering defendant to execute a Deed of Absolute Sale in favor of plaintiff Felix Pearroyo covering
the property in question and to deliver peaceful possession and enjoyment of the said property to the
said plaintiff, free from any liens and encumbrances;
Should this not be possible, for any reason not attributable to defendant, said defendant is ordered to
pay to plaintiff Felix Pearroyo the sum of P45,000.00 plus legal interest of 12% from June 15, 1973;
3) Ordering plaintiff Felix Pearroyo to execute and deliver to intervenor a deed of absolute sale over
the same property, upon the latters payment to the former of the balance of the purchase price of
P71,500.00;
Should this not be possible, plaintiff Felix Pearroyo is ordered to pay intervenor the sum of P5,000.00
plus legal interest of 12% from August 23, 1973; and
4) Ordering defendant to pay plaintiffs the amount of P5,000.00 for and as attorneys fees and litigation
expenses.
SO ORDERED.[1]
Petitioner appealed the aforesaid decision of the trial court to the Court of Appeals, alleging among
others that the sale was never consummated as he did not encash the check (in the amount of
P40,000.00) given by respondents Valencia and Pearroyo in payment of the full purchase price of the
subject lot. He maintained that what said respondents had actually paid was only the amount of
P5,000.00 (in cash) as earnest money.
Respondent Reyes spouses, likewise, appealed the above decision. However, their appeal was
dismissed because of failure to file their appellants brief.
103

Atty. G.G. Bernardo
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On 27 January 1992, the Court of Appeals rendered a decision, affirming with modification the trial
courts decision, thus:
WHEREFORE, the second paragraph of the dispositive portion of the appealed decision is MODIFIED, by
ordering the defendant-appellant to deliver to plaintiff-appellees the owners duplicate of TCT No.
28993 of Angela M. Butte and the peaceful possession and enjoyment of the lot in question or, if the
owners duplicate certificate cannot be produced, to authorize the Register of Deeds to cancel it and
issue a certificate of title in the name of Felix Pearroyo. In all other respects, the decision appealed
from is AFFIRMED. Costs against defendant-appellant Myron C. Papa.
SO ORDERED.[2]
In affirming the trial courts decision, respondent court held that contrary to petitioners claim that he
did not encash the aforesaid check, and therefore, the sale was not consummated, there was no
evidence at all that petitioner did not, in fact, encash said check. On the other hand, respondent
Pearroyo testified in court that petitioner Papa had received the amount of P45,000.00 and issued
receipts therefor. According to respondent court, the presumption is that the check was encashed,
especially since the payment by check was not denied by defendant-appellant (herein petitioner) who,
in his Answer, merely alleged that he can no longer recall the transaction which is supposed to have
happened 10 years ago.[3]
On petitioners claim that he cannot be held personally liable as he had acted merely as attorney-in-fact
of the owner, Angela M. Butte, respondent court held that such contention is without merit. This action
was not brought against him in his personal capacity, but in his capacity as the administrator of the
Testate Estate of Angela M. Butte.[4]
On petitioners contention that the estate of Angela M. Butte should have been joined in the action as
the real party in interest, respondent court held that pursuant to Rule 3, Section 3 of the Rules of Court,
the estate of Angela M. Butte does not have to be joined in the action. Likewise, the estate of Ramon
Papa, Jr., is not an indispensable party under Rule 3, Section 7 of the same Rules. For the fact is that
Ramon Papa, Jr., or his estate, was not a party to the Deed of Absolute Sale, and it is basic law that
contracts bind only those who are parties thereto.[5]
Respondent court observed that the conditions under which the mortgage rights of the bank were
assigned are not clear. In any case, any obligation which the estate of Angela M. Butte might have to the
estate of Ramon Papa, Jr. is strictly between them. Respondents Valencia and Pearroyo are not bound
by any such obligation.
Petitioner filed a motion for reconsideration of the above decision, which motion was denied by
respondent Court of Appeals.
Hence, this petition wherein petitioner raises the following issues:
I. THE CONCLUSION OR FINDING OF THE COURT OF APPEALS THAT THE SALE IN QUESTION WAS
CONSUMMATED IS GROUNDED ON SPECULATION OR CONJECTURE, AND IS CONTRARY TO THE
APPLICABLE LEGAL PRINCIPLE.
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Atty. G.G. Bernardo
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II. THE COURT OF APPEALS, IN MODIFYING THE DECISION OF THE TRIAL COURT, ERRED BECAUSE IT, IN
EFFECT, CANCELLED OR NULLIFIED AN ASSIGNMENT OF THE SUBJECT PROPERTY IN FAVOR OF THE
ESTATE OF RAMON PAPA, JR. WHICH IS NOT A PARTY IN THIS CASE.
III. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ESTATE OF ANGELA M. BUTTE AND THE
ESTATE OF RAMON PAPA, JR. ARE INDISPENSABLE PARTIES IN THIS CASE.[6]
Petitioner argues that respondent Court of Appeals erred in concluding that the alleged sale of the
subject property had been consummated. He contends that such a conclusion is based on the
erroneous presumption that the check (in the amount of P40,000.00) had been cashed, citing Art. 1249
of the Civil Code, which provides, in part, that payment by checks shall produce the effect of payment
only when they have been cashed or when through the fault of the creditor they have been impaired.[7]
Petitioner insists that he never cashed said check; and, such being the case, its delivery never produced
the effect of payment. Petitioner, while admitting that he had issued receipts for the payments, asserts
that said receipts, particularly the receipt of PCIB Check No. 761025 in the amount of P40,000.00, do not
prove payment. He avers that there must be a showing that said check had been encashed. If,
according to petitioner, the check had been encashed, respondent Pearroyo should have presented
PCIB Check No. 761025 duly stamped received by the payee, or at least its microfilm copy.
Petitioner finally avers that, in fact, the consideration for the sale was still in the hands of respondents
Valencia and Pearroyo, as evidenced by a letter addressed to him in which said respondents wrote,
in part:
x x x. Please be informed that I had been authorized by Dr. Ramon Papa, Jr., heir of Mrs. Angela M.
Butte to pay you the aforementioned amount of P75,000.00 for the release and cancellation of subject
propertys mortgage. The money is with me and if it is alright with you, I would like to tender the
payment as soon as possible. x x x.[8]
We find no merit in petitioners arguments.
It is an undisputed fact that respondents Valencia and Pearroyo had given petitioner Myron C. Papa
the amounts of Five Thousand Pesos (P5,000.00) in cash on 24 May 1973, and Forty Thousand Pesos
(P40,000.00) in check on 15 June 1973, in payment of the purchase price of the subject lot. Petitioner
himself admits having received said amounts,[9] and having issued receipts therefor.[10] Petitioners
assertion that he never encashed the aforesaid check is not subtantiated and is at odds with his
statement in his answer that he can no longer recall the transaction which is supposed to have
happened 10 years ago. After more than ten (10) years from the payment in part by cash and in part
by check, the presumption is that the check had been encashed. As already stated, he even waived the
presentation of oral evidence.
Granting that petitioner had never encashed the check, his failure to do so for more than ten (10) years
undoubtedly resulted in the impairment of the check through his unreasonable and unexplained delay.
While it is true that the delivery of a check produces the effect of payment only when it is cashed,
pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the creditors
unreasonable delay in presentment. The acceptance of a check implies an undertaking of due diligence
in presenting it for payment, and if he from whom it is received sustains loss by want of such diligence, it
will be held to operate as actual payment of the debt or obligation for which it was given.[11] It has,
105

Atty. G.G. Bernardo
MAS
likewise, been held that if no presentment is made at all, the drawer cannot be held liable irrespective of
loss or injury[12] unless presentment is otherwise excused. This is in harmony with Article 1249 of the
Civil Code under which payment by way of check or other negotiable instrument is conditioned on its
being cashed, except when through the fault of the creditor, the instrument is impaired. The payee of a
check would be a creditor under this provision and if its non-payment is caused by his negligence,
payment will be deemed effected and the obligation for which the check was given as conditional
payment will be discharged.[13]
Considering that respondents Valencia and Pearroyo had fulfilled their part of the contract of sale by
delivering the payment of the purchase price, said respondents, therefore, had the right to compel
petitioner to deliver to them the owners duplicate of TCT No. 28993 of Angela M. Butte and the
peaceful possession and enjoyment of the lot in question.
With regard to the alleged assignment of mortgage rights, respondent Court of Appeals has found that
the conditions under which said mortgage rights of the bank were assigned are not clear. Indeed, a
perusal of the original records of the case would show that there is nothing there that could shed light
on the transactions leading to the said assignment of rights; nor is there any evidence on record of the
conditions under which said mortgage rights were assigned. What is certain is that despite the said
assignment of mortgage rights, the title to the subject property has remained in the name of the late
Angela M. Butte.[14] This much is admitted by petitioner himself in his answer to respondents
complaint as well as in the third-party complaint that petitioner filed against respondent-spouses
Arsenio B. Reyes and Amanda Santos.[15] Assuming arquendo that the mortgage rights of the
Associated Citizens Bank had been assigned to the estate of Ramon Papa, Jr., and granting that the
assigned mortgage rights validly exist and constitute a lien on the property, the estate may file the
appropriate action to enforce such lien. The cause of action for specific performance which
respondents Valencia and Pearroyo have against petitioner is different from the cause of action which
the estate of Ramon Papa, Jr. may have to enforce whatever rights or liens it has on the property by
reason of its being an alleged assignee of the banks rights of mortgage.
Finally, the estate of Angela M. Butte is not an indispensable party. Under Section 3 of Rule 3 of the
Rules of Court, an executor or administrator may sue or be sued without joining the party for whose
benefit the action is presented or defended, thus:
Sec. 3. Representative parties. - A trustee of an express trust, a guardian, executor or administrator, or a
party authorized by statute, may sue or be sued without joining the party for whose benefit the action is
presented or defended; but the court may, at any stage of the proceedings, order such beneficiary to be
made a party. An agent acting in his own name and for the benefit of an undisclosed principal may sue
or be sued without joining the principal except when the contract involves things belonging to the
principal.[16]
Neither is the estate of Ramon Papa, Jr. an indispensable party without whom, no final determination of
the action can be had. Whatever prior and subsisting mortgage rights the estate of Ramon Papa, Jr. has
over the property may still be enforced regardless of the change in ownership thereof.
WHEREFORE, the petition for review is hereby DENIED and the Decision of the Court of Appeals, dated
27 January 1992 is AFFIRMED.
SO ORDERED.
106

Atty. G.G. Bernardo
MAS
Davide, Jr., Bellosillo, and Vitug, JJ., concur.

[1] Rollo, pp. 70-71.
[2] Rollo, pp. 41-42.
[3] Id., at 40.
[4] Id., at 41.
[5] Id., at 40-41.
[6] Id., at 23-24.
[7] Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other mercantitle documents
shall produce the effect of payment only when they have been cashed, or when through the fault of the
creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in abeyance.
[8] Rollo., p. 26.
[9] Id., at 132.
[10] Id.., at 25.
[11] 60 AM. JUR. 2d, Sec. 59.
[12] Campos and Lopez-Campos, Negotiable Instruments Law, 4th Edition (1990), p. 561 citing
Rodriguez vs. Hardouin, 15 La. App. 112, 131 So. 593.
[13] Id., at 560 citing Gabon vs. Balagot, 53 O.G. No. 11, 3504.
[14] Rollo, p. 41.
[15] Original Records, p. 162.
[16] This section has been amended by the 1997 Rules of Civil Procedure to read as follows:
Sec. 3. Representatives as parties. - Where the action is allowed to be prosecuted or defended by a
representative or someone acting in a fiduciary capacity, the beneficiary shall be included in the title of
the case and shall be deemed to be the real party in interest. A representative may be a trustee of an
express trust, a guardian, an executor or administrator, or a party authorized by law or these Rules. An
agent acting in his own name and for the benefit of an undisclosed principal may sue or be sued without
joining the principal except when the contract involves things belonging to the principal.
107

Atty. G.G. Bernardo
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Cinco and Cinco vs CA Purpose of tender of payment

SECOND DIVISION
MANUEL GO CINCO and ARACELI S. GO
CINCO,
Petitioners,
G.R. No. 151903

Present:
*
CORONA, J.,
CARPIO-MORALES,
Acting Chairperson,
***
NACHURA,
BRION, and
**
versus -
ABAD, JJ.
COURT OF APPEALS, ESTER SERVACIO and
MAASIN TRADERS LENDING CORPORATION,
Respondents.
Promulgated:
October 9, 2009
x ------------------------------------------------------------------------------------------x
DECISION
BRION, J.:
Before the Court is a petition for review on certiorari
[1]
filed by petitioners, spouses Manuel and Araceli

[2]
Go Cinco (collectively, the spouses Go Cinco), assailing the decision

of Appeals (CA) in CA-G.R. CV No. 47578, as well as the resolution
spouses Go Cincos motion for reconsideration.
[3]
dated June 22, 2001 of the Court
dated January 25, 2002 denying the
THE FACTUAL ANTECEDENTS
In December 1987, petitioner Manuel Cinco (Manuel) obtained a commercial loan in the amount
of P700,000.00 from respondent Maasin Traders Lending Corporation (MTLC). The loan was evidenced
by a promissory note dated December 11, 1987,
[4]
and secured by a real estate mortgage executed
on December 15, 1987 over the spouses Go Cincos land and 4-storey building located in
Maasin, Southern Leyte.
Under the terms of the promissory note, the P700,000.00 loan was subject to a monthly interest
rate of 3% or 36% per annum and was payable within a term of 180 days or 6 months, renewable for
108

Atty. G.G. Bernardo
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another 180 days. As of July 16, 1989, Manuels outstanding obligation with MTLC amounted
to P1,071,256.66, which amount included the principal, interest, and penalties.
[5]
To be able to pay the loan in favor of MTLC, the spouses Go Cinco applied for a loan with the
Philippine National Bank, Maasin Branch (PNB or the bank) and offered as collateral the same properties
they previously mortgaged to MTLC. The PNB approved the loan application for P1.3 Million
[6]
through
a letter dated July 8, 1989; the release of the amount, however, was conditioned on the cancellation of
the mortgage in favor of MTLC.
On July 16, 1989, Manuel went to the house of respondent Ester Servacio (Ester), MTLCs
President, to inform her that there was money with the PNB for the payment of his loan with
MTLC. Ester then proceeded to the PNB to verify the information, but she claimed that the banks
officers informed her that Manuel had no pending loan application with them. When she told Manuel
of the banks response, Manuel assured her there was money with the PNB and promised to execute a
document that would allow her to collect the proceeds of the PNB loan.
On July 20, 1989, Manuel executed a Special Power of Attorney
[7]
(SPA) authorizing Ester to collect the
proceeds of his PNB loan. Ester again went to the bank to inquire about the proceeds of the loan. This
time, the banks officers confirmed the existence of the P1.3 Million loan, but they required Ester to first
sign a deed of release/cancellation of mortgage before they could release the proceeds of the loan to
her. Outraged that the spouses Go Cinco used the same properties mortgaged to MTLC as collateral for
the PNB loan, Ester refused to sign the deed and did not collect the P1.3 Million loan proceeds.
As the MTLC loan was already due, Ester instituted foreclosure proceedings against the spouses Go
Cinco on July 24, 1989.
To prevent the foreclosure of their properties, the spouses Go Cinco filed an action for specific
[8]
performance, damages, and preliminary injunction before the Regional Trial Court (RTC), Branch 25,
Maasin, Southern Leyte. The spouses Go Cinco alleged that foreclosure of the mortgage was no longer
proper as there had already been settlement of Manuels obligation in favor of MTLC. They claimed that
the assignment of the proceeds of the PNB loan amounted to the payment of the MTLC loan. Esters
refusal to sign the deed of release/cancellation of mortgage and to collect the proceeds of the PNB loan
were, to the spouses Go Cinco, completely unjustified and entitled them to the payment of damages.
Ester countered these allegations by claiming that she had not been previously informed of the spouses
Go Cincos plan to obtain a loan from the PNB and to use the loan proceeds to settle Manuels loan with
MTLC. She claimed that she had no explicit agreement with Manuel authorizing her to apply the
proceeds of the PNB loan to Manuels loan with MTLC; the SPA merely authorized her to collect the
proceeds of the loan. She thus averred that it was unfair for the spouses Go Cinco to require the release
of the mortgage to MTLC when no actual payment of the loan had been made.
109

Atty. G.G. Bernardo
MAS
[9]
In a decision dated August 16, 1994, the RTC ruled in favor of the spouses Go Cinco. The trial court
found that the evidence sufficiently established the existence of the PNB loan whose proceeds were
available to satisfy Manuels obligation with MTLC, and that Ester unjustifiably refused to collect the
amount. Creditors, it ruled, cannot unreasonably prevent payment or performance of obligation to the
[10]
damage and prejudice of debtors who may stand liable for payment of higher interest rates.
After
finding MTLC and Ester liable for abuse of rights, the RTC ordered the award of the following amounts to
the spouses Go Cinco:
(a) P1,044,475.15 plus 535.63 per day hereafter, representing loss of savings on interest, by way of
actual or compensatory damages, if defendant corporation insists on the original 3% monthly interest
rate;
(b) P100,000.00 as unrealized profit;
(c) P1,000,000.00 as moral damages;
(d) P20,000.00 as exemplary damages;
(e) P22,000.00 as litigation expenses; and
(f) 10% of the total amount as attorneys fees plus costs.[11]
Through an appeal with the CA, MTLC and Ester successfully secured a reversal of the RTCs
decision. Unlike the trial court, the appellate court found it significant that there was no explicit
agreement between Ester and the spouses Go Cinco for the cancellation of the MTLC mortgage in favor
of PNB to facilitate the release and collection by Ester of the proceeds of the PNB loan. The CA read the
SPA as merely authorizing Ester to withdraw the proceeds of the loan. As Manuels loan obligation with
MTLC remained unpaid, the CA ruled that no valid objection could be made to the institution of the
foreclosure proceedings. Accordingly, it dismissed the spouses Go Cinco complaint. From this
dismissal, the spouses Go Cinco filed the present appeal by certiorari.
THE PETITION
The spouses Go Cinco impute error on the part of the CA for its failure to consider their acts as
equivalent to payment that extinguished the MTLC loan; their act of applying for a loan with the PNB
was indicative of their good faith and honest intention to settle the loan with MTLC. They contend that
the creditors have the correlative duty to accept the payment.
The spouses Go Cinco charge MTLC and Ester with bad faith and ill-motive for unjustly refusing to collect
the proceeds of the loan and to execute the deed of release of mortgage. They assert that Esters
justifications for refusing the payment were flimsy excuses so she could proceed with the foreclosure of
the mortgaged properties that were worth more than the amount due to MTLC. Thus, they conclude
that the acts of MTLC and of Ester amount to abuse of rights that warrants the award of damages in
their (spouses Go Cincos) favor.
In refuting the claims of the spouses Go Cinco, MTLC and Ester raise the same arguments they raised
before the RTC and the CA. They claim that they were not aware of the loan and the mortgage to PNB,
and that there was no agreement that the proceeds of the PNB loan were to be used to settle Manuels
110

Atty. G.G. Bernardo
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obligation with MTLC. Since the MTLC loan remained unpaid, they insist that the institution of the
foreclosure proceedings was proper. Additionally, MTLC and Ester contend that the present petition
raised questions of fact that cannot be addressed in a Rule 45 petition.
THE COURTS RULING

The Court finds the petition meritorious.
Preliminary Considerations
Our review of the records shows that there are no factual questions involved in this case; the
ultimate facts necessary for the resolution of the case already appear in the records. The RTC and the
CA decisions differed not so much on the findings of fact, but on the conclusions derived from these
factual findings. The correctness of the conclusions derived from factual findings raises legal questions
when the conclusions are so linked to, or are inextricably intertwined with, the appreciation of the
applicable law that the case requires, as in the present case.
[12]
The petition raises the issue of whether
the loan due the MTLC had been extinguished; this is a question of law that this Court can fully address
and settle in an appeal by certiorari.
Payment as Mode of
Extinguishing Obligations
Obligations are extinguished, among others, by payment or performance,
[13]
the mode most relevant to
the factual situation in the present case. Under Article 1232 of the Civil Code, payment means not only
the delivery of money but also the performance, in any other manner, of an obligation. Article 1233 of
the Civil Code states that a debt shall not be understood to have been paid unless the thing or service
in which the obligation consists has been completely delivered or rendered, as the case may be. In
contracts of loan, the debtor is expected to deliver the sum of money due the creditor. These provisions
[14]
must be read in relation with the other rules on payment under the Civil Code, which rules impliedly
require acceptance by the creditor of the payment in order to extinguish an obligation.
In the present case, Manuel sought to pay Ester by authorizing her, through an SPA, to collect the
proceeds of the PNB loan an act that would have led to payment if Ester had collected the loan
proceeds as authorized. Admittedly, the delivery of the SPA was not, strictly speaking, a delivery of the
sum of money due to MTLC, and Ester could not be compelled to accept it as payment based on Article
1233. Nonetheless, the SPA stood as an authority to collect the proceeds of the already-approved PNB
[15]
loan that, upon receipt by Ester, would have constituted as payment of the MTLC loan.
Had Ester
presented the SPA to the bank and signed the deed of release/cancellation of mortgage, the delivery of
[16]
the sum of money would have been effected and the obligation extinguished.
As the records show,
Ester refused to collect and allow the cancellation of the mortgage.
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Atty. G.G. Bernardo
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Under these facts, Manuel posits two things: first, that Esters refusal was based on completely
unjustifiable grounds; and second, that the refusal was equivalent to payment that led to the
extinguishment of the obligation.
a. Unjust Refusal to Accept Payment
After considering Esters arguments, we agree with Manuel that Esters refusal of the payment was
without basis.
Ester refused to accept the payment because the bank required her to first sign a deed of
release/cancellation of the mortgage before the proceeds of the PNB loan could be released. As a prior
mortgagee, she claimed that the spouses Go Cinco should have obtained her consent before offering the
properties already mortgaged to her as security for the PNB loan. Moreover, Ester alleged that the SPA
merely authorized her to collect the proceeds of the loan; there was no explicit agreement that the
MTLC loan would be paid out of the proceeds of the PNB loan.
There is nothing legally objectionable in a mortgagors act of taking a second or subsequent mortgage
on a property already mortgaged; a subsequent mortgage is recognized as valid by law and by
commercial practice, subject to the prior rights of previous mortgages. Section 4, Rule 68 of the 1997
Rules of Civil Procedure on the disposition of the proceeds of sale after foreclosure actually requires the
payment of the proceeds to, among others, the junior encumbrancers in the order of their
[17]
priority.
Under Article 2130 of the Civil Code, a stipulation forbidding the owner from alienating the
immovable mortgaged is considered void. If the mortgagor-owner is allowed to convey the entirety of
his interests in the mortgaged property, reason dictates that the lesser right to encumber his property
with other liens must also be recognized. Ester, therefore, could not validly require the spouses Go
Cinco to first obtain her consent to the PNB loan and mortgage. Besides, with the payment of the MTLC
loan using the proceeds of the PNB loan, the mortgage in favor of the MTLC would have naturally been
cancelled.
We find it improbable for Ester to claim that there was no agreement to apply the proceeds of the PNB
loan to the MTLC loan. Beginning July 16, 1989, Manuel had already expressed intent to pay his loan
with MTLC and thus requested for an updated statement of account. Given Manuels express intent of
fully settling the MTLC loan and of paying through the PNB loan he would secure (and in fact secured),
we also cannot give credit to the claim that the SPA only allowed Ester to collect the proceeds of the
PNB loan, without giving her the accompanying authority, although verbal, to apply these proceeds to
the MTLC loan. Even Esters actions belie her claim as she in fact even went to the PNB to collect the
proceeds. In sum, the surrounding circumstances of the case simply do not support Esters position.
b. Unjust Refusal Cannot be Equated to Payment
While Esters refusal was unjustified and unreasonable, we cannot agree with Manuels position that
this refusal had the effect of payment that extinguished his obligation to MTLC. Article 1256 is clear and
unequivocal on this point when it provides that
112

Atty. G.G. Bernardo
MAS
ARTICLE 1256. If the creditor to whom tender of payment has been made refuses without just cause to
accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due.
[Emphasis supplied.]
In short, a refusal without just cause is not equivalent to payment; to have the effect of payment and
the consequent extinguishment of the obligation to pay, the law requires the companion acts of tender
of payment and consignation.
[18]
Tender of payment, as defined in Far East Bank and Trust Company v. Diaz Realty, Inc.,
is the
definitive act of offering the creditor what is due him or her, together with the demand that the creditor
accept the same. When a creditor refuses the debtors tender of payment, the law allows
the consignation of the thing or the sum due. Tender and consignation have the effect of payment, as
by consignation, the thing due is deposited and placed at the disposal of the judicial authorities for the
[19]
creditor to collect.
A sad twist in this case for Manuel was that he could not avail of consignation to extinguish his
obligation to MTLC, as PNB would not release the proceeds of the loan unless and until Ester had signed
the deed of release/cancellation of mortgage, which she unjustly refused to do. Hence, to compel Ester
to accept the loan proceeds and to prevent their mortgaged properties from being foreclosed, the
spouses Go Cinco found it necessary to institute the present case for specific performance and damages.
c. Effects of Unjust Refusal
Under these circumstances, we hold that while no completed tender of payment and consignation took
place sufficient to constitute payment, the spouses Go Cinco duly established that they have legitimately
secured a means of paying off their loan with MTLC; they were only prevented from doing so by the
unjust refusal of Ester to accept the proceeds of the PNB loan through her refusal to execute the release
of the mortgage on the properties mortgaged to MTLC. In other words, MTLC and Ester in fact
prevented the spouses Go Cinco from the exercise of their right to secure payment of their loan. No
reason exists under this legal situation why we cannot compel MTLC and Ester: (1) to release the
mortgage to MTLC as a condition to the release of the proceeds of the PNB loan, upon PNBs
acknowledgment that the proceeds of the loan are ready and shall forthwith be released; and (2) to
accept the proceeds, sufficient to cover the total amount of the loan to MTLC, as payment for Manuels
loan with MTLC.
We also find that under the circumstances, the spouses Go Cinco have undertaken, at the very least, the
equivalent of a tender of payment that cannot but have legal effect. Since payment was available and
was unjustifiably refused, justice and equity demand that the spouses Go Cinco be freed from the
obligation to pay interest on the outstanding amount from the time the unjust refusal took
[20]
place;
they would not have been liable for any interest from the time tender of payment was made if
the payment had only been accepted. Under Article 19 of the Civil Code, they should likewise be
113

Atty. G.G. Bernardo
MAS
entitled to damages, as the unjust refusal was effectively an abusive act contrary to the duty to act with
honesty and good faith in the exercise of rights and the fulfillment of duty.
For these reasons, we delete the amounts awarded by the RTC to the spouses Go Cinco (P1,044,475.15,
plus P563.63 per month) representing loss of savings on interestsfor lack of legal basis. These amounts
were computed based on the difference in the interest rates charged by the MTLC (36% per annum) and
the PNB (17% to 18% per annum), from the date of tender of payment up to the time of the
promulgation of the RTC decision. The trial court failed to consider the effects of a tender of payment
and erroneously declared that MTLC can charge interest at the rate of only 18% per annum the same
rate that PNB charged, not the 36% interest rate that MTLC charged; the RTC awarded the difference in
the interest rates as actual damages.
As part of the actual and compensatory damages, the RTC also awarded P100,000.00 to the
spouses Go Cinco representing unrealized profits. Apparently, if the proceeds of the PNB loan
(P1,203,685.17) had been applied to the MTLC loan (P1,071,256.55), there would have been a balance
of P132,428.62 left, which amount the spouses Go Cinco could have invested in their businesses that
would have earned them a profit of at least P100,000.00.
We find no factual basis for this award. The spouses Go Cinco were unable to substantiate the amount
they claimed as unrealized profits; there was only their bare claim that the excess could have been
invested in their other businesses. Without more, this claim of expected profits is at best speculative
and cannot be the basis for a claim for damages. In Lucas v. Spouses Royo,[21] we declared that:
In determining actual damages, the Court cannot rely on speculation, conjecture or guesswork as to the
amount. Actual and compensatory damages are those recoverable because of pecuniaryloss in
business, trade, property, profession, job or occupation and the same must be sufficiently proved,
otherwise, if the proof is flimsy and unsubstantiated, no damages will be given. [Emphasis supplied.]
We agree, however, that there was basis for the award of moral and exemplary damages and
attorneys fees.
Esters act of refusing payment was motivated by bad faith as evidenced by the utter lack of
substantial reasons to support it. Her unjust refusal, in her behalf and for the MTLC which she
represents, amounted to an abuse of rights; they acted in an oppressive manner and, thus, are liable for
[22]
moral and exemplary damages.
We nevertheless reduce the P1,000,000.00 to P100,000.00 as the
originally awarded amount for moral damages is plainly excessive.
We affirm the grant of exemplary damages by way of example or correction for the public good in light
of the same reasons that justified the grant of moral damages.
As the spouses Go Cinco were compelled to litigate to protect their interests, they are entitled to
payment of 10% of the total amount of awarded damages as attorneys fees and expenses of litigation.
114

Atty. G.G. Bernardo
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WHEREFORE, we GRANT the petitioners petition for review on certiorari, and REVERSE the decision
of June 22, 2001 of the Court of Appeals in CA-G.R. CV No. 47578, as well as the resolution of January
25, 2002 that followed. We REINSTATE the decision dated August 16, 1994 of the Regional Trial Court,
Branch 25, Maasin,Southern Leyte, with the following MODIFICATIONS:
(1)
The respondents are hereby directed to accept the proceeds of the spouses Go Cincos
PNB loan, if still available, and to consent to the release of the mortgage on the property given as
security for the loan upon PNBs acknowledgment that the proceeds of the loan, sufficient to cover the
total indebtedness to respondent Maasin Traders Lending Corporation computed as of June 20, 1989,
shall forthwith be released;
(2)
The award for loss of savings and unrealized profit is deleted;
(3)
The award for moral damages is reduced to P100,000.00; and
(4)
The awards for exemplary damages, attorneys fees, and expenses of litigation are
retained.
The awards under (3) and (4) above shall be deducted from the amount of the outstanding loan due the
respondents as of June 20, 1989. Costs against the respondents.
SO ORDERED.
ARTURO D. BRION
Associate Justice
WE CONCUR:
CONCHITA CARPIO MORALES

Associate Justice
Acting Chairperson
RENATO C. CORONA
Associate Justice
ANTONIO EDUARDO B. NACHURA

Associate Justice
ROBERTO A. ABAD
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.
115

Atty. G.G. Bernardo
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CONCHITA CARPIO-MORALES
Associate Justice
Acting Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Acting Division Chairpersons
Attestation, it is hereby certified that the conclusions in the above Decision were reached in
consultation before the case was assigned to the writer of the opinion of the Courts Division.
ANTONIO T. CARPIO*
Acting Chief Justice
Designated additional Member of the Second Division per Special Order No. 718 dated October 2,
2009.
**
Designated Acting Chairperson of the Second Division per Special Order No. 690 dated September 4,
2009.
***
Designated additional Member of the Second Division per Special Order No. 730 dated October 5,
2009.
[1]
Under Rule 45 of the 1997 Rules of Civil Procedure. Rollo, pp. 5-32.
[2]
Penned by Associate Justice Renato Dacudao (retired), with Associate Justice Romeo Callejo, Jr., who
retired as Member of this Court, and Associate Justice Sergio Pestao, concurring; id. at 75-84.
[3]
Id. at 99-100.
[4]
Id. at 46.
[5]
Id. at 49.
[6]
The net proceeds of the PNB loan were P1,203,685.17.
[7]
Rollo, p. 47.
[8]
Docketed as Civil Case No. R-2575.
[9]
Penned by Judge Numeriano Avila, Jr. Rollo, pp. 60-73.
[10]
Id. at 67.
[11]
Id. at 73.
[12]
See Philippine American General Insurance Company v. Pks Shipping Company, 449 Phil. 223 (2003).
[13]
CIVIL CODE, Article 1231 (1).
[14]
The pertinent provisions of the Civil Code on Payment are:
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Atty. G.G. Bernardo
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Art. 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity,
and without expressing any protest or objection, the obligation is deemed fully complied with.
Art. 1236. The creditor is not bound to accept payment or performance by a third person who has
no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except that if he paid
without the knowledge or against the will of the debtor, he can recover only insofar as the payment has
been beneficial to the debtor.
Art. 1238. Payment made by a third person who does not intend to be reimbursed by the debtor is
deemed to be a donation, which requires the debtor's consent. But the payment is in any case valid as
to the creditor who has accepted it.
Art. 1244. The debtor of a thing cannot compel the creditor to receive a different one, although the
latter may be of the same value as, or more valuable than that which is due.
In obligations to do or not to do, an act or forbearance cannot be substituted by another act or
forbearance against the obligee's will.
Art. 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled
partially to receive the prestations in which the obligation consists. Neither may the debtor be required
to make partial payments.
However, when the debt is in part liquidated and in part unliquidated, the creditor may demand
and the debtor may effect the payment of the former without waiting for the liquidation of the latter.
[15]
We apply here, by parity of reasoning, the principle adopted in payment using mercantile
documents. Payment by means of mercantile documents like checks and promissory notes in lieu of the
sum of money due does not extinguish the obligation until they have been accepted and cashed by the
creditor. See Crystal v. Court of Appeals, 159 Phil. 557 (1975).
[16]
The PNBs officers testified that had the required document (deed of release/cancellation of
mortgage) been submitted, the bank could have released the loan proceeds. Rollo, p. 81.
[17]
SEC. 4. Disposition of proceeds of sale. - The amount realized from the foreclosure sale of the
mortgaged property shall, after deducting the costs of the sale, be paid to the person foreclosing the
mortgage, and when there shall be any balance or residue, after paying off the mortgage debt due, the
same shall be paid to junior encumbrancers in the order of their priority, to be ascertained by the court,
or if there be no such encumbrancers or there be a balance or residue after payment to them, then to
the mortgagor or his duly authorized agent, or to the person entitled to it.
[18]
416 Phil. 147 (2001).
[19]
CIVIL CODE, Article 1258.
[20]
Spouses Biesterbos v. Court of Appeals and Bartlome, 458 Phil. 265 (2003), citing Araneta, Inc. v. De
Paterno and Vidal, 91 Phil. 786 (1952).
[21]
398 Phil. 400 (2000).
[22]
CIVIL CODE, Articles 2220 and 2232.
*
Designated Acting Chief Justice from October 6 to 11, 2009 per Special Order No. 721 dated October 5,
2009.
117

Atty. G.G. Bernardo
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Naga Telephone Co. vs CA - 1267

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 107112 February 24, 1994

NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M. MAGGAY, petitioners,
vs.
THE COURT OF APPEALS AND CAMARINES SUR II ELECTRIC COOPERATIVE, INC. (CASURECO
II),respondents.
Ernesto P. Pangalangan for petitioners.
Luis General, Jr. for private respondent.
NOCON, J.:
The case of Reyes v. Caltex (Philippines), Inc. 1 enunciated the doctrine that where a person by his
contract charges himself with an obligation possible to be performed, he must perform it, unless its
performance is rendered impossible by the act of God, by the law, or by the other party, it being the rule
that in case the party desires to be excused from performance in the event of contingencies arising
thereto, it is his duty to provide the basis therefor in his contract.
With the enactment of the New Civil Code, a new provision was included therein, namely, Article
1267 which provides:
When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in
part.
In the report of the Code Commission, the rationale behind this innovation was explained, thus:
The general rule is that impossibility of performance releases the obligor. However,
it is submitted that when the service has become so difficult as to be manifestly beyond
the contemplation of the parties, the court should be authorized to release the obligor
in whole or in part. The intention of the parties should govern and if it appears that the
service turns out to be so difficult as to have been beyond their contemplation, it would
be doing violence to that intention to hold their contemplation, it would be doing
violence to that intention to hold the obligor still responsible. 2
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Atty. G.G. Bernardo
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In other words, fair and square consideration underscores the legal precept therein.
Naga Telephone Co., Inc. remonstrates mainly against the application by the Court of Appeals of
Article 1267 in favor of Camarines Sur II Electric Cooperative, Inc. in the case before us. Stated
differently, the former insists that the complaint should have been dismissed for failure to state a cause
of action.
The antecedent facts, as narrated by respondent Court of Appeals are, as follows:
Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company rendering local as well as
long distance telephone service in Naga City while private respondent Camarines Sur II Electric
Cooperative, Inc. (CASURECO II) is a private corporation established for the purpose of operating an
electric power service in the same city.
On November 1, 1977, the parties entered into a contract (Exh. "A") for the use by petitioners in the
operation of its telephone service the electric light posts of private respondent in Naga City. In
consideration therefor, petitioners agreed to install, free of charge, ten (10) telephone connections for
the use by private respondent in the following places:
(a) 3 units The Main Office of (private respondent);
(b) 2 Units The Warehouse of (private respondent);
(c) 1 Unit The Sub-Station of (private respondent) at Concepcion Pequea;
(d) 1 Unit The Residence of (private respondent's) President;
(e) 1 Unit The Residence of (private respondent's) Acting General Manager; &
(f) 2 Units To be determined by the General Manager. 3
Said contract also provided:
(a) That the term or period of this contract shall be as long as the party of the first
part has need for the electric light posts of the party of the second part it being
understood that this contract shall terminate when for any reason whatsoever, the
party of the second part is forced to stop, abandoned [sic] its operation as a public
service and it becomes necessary to remove the electric lightpost; (sic)4
It was prepared by or with the assistance of the other petitioner, Atty. Luciano M. Maggay, then a
member of the Board of Directors of private respondent and at the same time the legal counsel of
petitioner.
After the contract had been enforced for over ten (10) years, private respondent filed on January 2,
1989 with the Regional Trial Court of Naga City (Br. 28) C.C. No. 89-1642 against petitioners for
reformation of the contract with damages, on the ground that it is too one-sided in favor of petitioners;
that it is not in conformity with the guidelines of the National Electrification Administration (NEA) which
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Atty. G.G. Bernardo
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direct that the reasonable compensation for the use of the posts is P10.00 per post, per month; that
after eleven (11) years of petitioners' use of the posts, the telephone cables strung by them thereon
have become much heavier with the increase in the volume of their subscribers, worsened by the fact
that their linemen bore holes through the posts at which points those posts were broken during
typhoons; that a post now costs as much as P2,630.00; so that justice and equity demand that the
contract be reformed to abolish the inequities thereon.
As second cause of action, private respondent alleged that starting with the year 1981, petitioners
have used 319 posts in the towns of Pili, Canaman, Magarao and Milaor, Camarines Sur, all outside Naga
City, without any contract with it; that at the rate of P10.00 per post, petitioners should pay private
respondent for the use thereof the total amount of P267,960.00 from 1981 up to the filing of its
complaint; and that petitioners had refused to pay private respondent said amount despite demands.
And as third cause of action, private respondent complained about the poor servicing by petitioners
of the ten (10) telephone units which had caused it great inconvenience and damages to the tune of not
less than P100,000.00
In petitioners' answer to the first cause of action, they averred that it should be dismissed because
(1) it does not sufficiently state a cause of action for reformation of contract; (2) it is barred by
prescription, the same having been filed more than ten (10) years after the execution of the contract;
and (3) it is barred by estoppel, since private respondent seeks to enforce the contract in the same
action. Petitioners further alleged that their utilization of private respondent's posts could not have
caused their deterioration because they have already been in use for eleven (11) years; and that the
value of their expenses for the ten (10) telephone lines long enjoyed by private respondent free of
charge are far in excess of the amounts claimed by the latter for the use of the posts, so that if there
was any inequity, it was suffered by them.
Regarding the second cause of action, petitioners claimed that private respondent had asked for
telephone lines in areas outside Naga City for which its posts were used by them; and that if petitioners
had refused to comply with private respondent's demands for payment for the use of the posts outside
Naga City, it was probably because what is due to them from private respondent is more than its claim
against them.
And with respect to the third cause of action, petitioners claimed, inter alia, that their telephone
service had been categorized by the National Telecommunication Corporation (NTC) as "very high" and
of "superior quality."
During the trial, private respondent presented the following witnesses:
(1) Dioscoro Ragragio, one of the two officials who signed the contract in its behalf, declared that it
was petitioner Maggay who prepared the contract; that the understanding between private respondent
and petitioners was that the latter would only use the posts in Naga City because at that time,
petitioners' capability was very limited and they had no expectation of expansion because of legal
squabbles within the company; that private respondent agreed to allow petitioners to use its posts in
Naga City because there were many subscribers therein who could not be served by them because of
lack of facilities; and that while the telephone lines strung to the posts were very light in 1977, said posts
have become heavily loaded in 1989.
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Atty. G.G. Bernardo
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(2) Engr. Antonio Borja, Chief of private respondent's Line Operation and Maintenance Department,
declared that the posts being used by petitioners totalled 1,403 as of April 17, 1989, 192 of which were
in the towns of Pili, Canaman, and Magarao, all outside Naga City (Exhs. "B" and "B-1"); that petitioners'
cables strung to the posts in 1989 are much bigger than those in November, 1977; that in 1987, almost
100 posts were destroyed by typhoon Sisang: around 20 posts were located between Naga City and the
town of Pili while the posts in barangay Concepcion, Naga City were broken at the middle which had
been bored by petitioner's linemen to enable them to string bigger telephone lines; that while the cost
per post in 1977 was only from P700.00 to P1,000.00, their costs in 1989 went up from P1,500.00 to
P2,000.00, depending on the size; that some lines that were strung to the posts did not follow the
minimum vertical clearance required by the National Building Code, so that there were cases in 1988
where, because of the low clearance of the cables, passing trucks would accidentally touch said cables
causing the posts to fall and resulting in brown-outs until the electric lines were repaired.
(3) Dario Bernardez, Project Supervisor and Acting General Manager of private respondent and
Manager of Region V of NEA, declared that according to NEA guidelines in 1985 (Exh. "C"), for the use by
private telephone systems of electric cooperatives' posts, they should pay a minimum monthly rental of
P4.00 per post, and considering the escalation of prices since 1985, electric cooperatives have been
charging from P10.00 to P15.00 per post, which is what petitioners should pay for the use of the posts.
(4) Engineer Antonio Macandog, Department Head of the Office of Services of private respondent,
testified on the poor service rendered by petitioner's telephone lines, like the telephone in their
Complaints Section which was usually out of order such that they could not respond to the calls of their
customers. In case of disruption of their telephone lines, it would take two to three hours for petitioners
to reactivate them notwithstanding their calls on the emergency line.
(5) Finally, Atty. Luis General, Jr., private respondent's counsel, testified that the Board of Directors
asked him to study the contract sometime during the latter part of 1982 or in 1983, as it had appeared
very disadvantageous to private respondent. Notwithstanding his recommendation for the filing of a
court action to reform the contract, the former general managers of private respondent wanted to
adopt a soft approach with petitioners about the matter until the term of General Manager Henry
Pascual who, after failing to settle the matter amicably with petitioners, finally agreed for him to file the
present action for reformation of contract.
On the other hand, petitioner Maggay testified to the following effect:
(1) It is true that he was a member of the Board of Directors of private respondent and at the same
time the lawyer of petitioner when the contract was executed, but Atty. Gaudioso Tena, who was also a
member of the Board of Directors of private respondent, was the one who saw to it that the contract
was fair to both parties.
(2) With regard to the first cause of action:
(a) Private respondent has the right under the contract to use ten (10) telephone units of petitioners
for as long as it wishes without paying anything therefor except for long distance calls through PLDT out
of which the latter get only 10% of the charges.
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Atty. G.G. Bernardo
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(b) In most cases, only drop wires and not telephone cables have been strung to the posts, which
posts have remained erect up to the present;
(c) Petitioner's linemen have strung only small messenger wires to many of the posts and they need
only small holes to pass through; and
(d) Documents existing in the NTC show that the stringing of petitioners' cables in Naga City are
according to standard and comparable to those of PLDT. The accidents mentioned by private
respondent involved trucks that were either overloaded or had loads that protruded upwards, causing
them to hit the cables.
(3) Concerning the second cause of action, the intention of the parties when they entered into the
contract was that the coverage thereof would include the whole area serviced by petitioners because at
that time, they already had subscribers outside Naga City. Private respondent, in fact, had asked for
telephone connections outside Naga City for its officers and employees residing there in addition to the
ten (10) telephone units mentioned in the contract. Petitioners have not been charging private
respondent for the installation, transfers and re-connections of said telephones so that naturally, they
use the posts for those telephone lines.
(4) With respect to the third cause of action, the NTC has found petitioners' cable installations to be
in accordance with engineering standards and practice and comparable to the best in the country.
On the basis of the foregoing countervailing evidence of the parties, the trial court found, as regards
private respondent's first cause of action, that while the contract appeared to be fair to both parties
when it was entered into by them during the first year of private respondent's operation and when its
Board of Directors did not yet have any experience in that business, it had become disadvantageous and
unfair to private respondent because of subsequent events and conditions, particularly the increase in
the volume of the subscribers of petitioners for more than ten (10) years without the corresponding
increase in the number of telephone connections to private respondent free of charge. The trial court
concluded that while in an action for reformation of contract, it cannot make another contract for the
parties, it can, however, for reasons of justice and equity, order that the contract be reformed to abolish
the inequities therein. Thus, said court ruled that the contract should be reformed by ordering
petitioners to pay private respondent compensation for the use of their posts in Naga City, while private
respondent should also be ordered to pay the monthly bills for the use of the telephones also in Naga
City. And taking into consideration the guidelines of the NEA on the rental of posts by telephone
companies and the increase in the costs of such posts, the trial court opined that a monthly rental of
P10.00 for each post of private respondent used by petitioners is reasonable, which rental it should pay
from the filing of the complaint in this case on January 2, 1989. And in like manner, private respondent
should pay petitioners from the same date its monthly bills for the use and transfers of its telephones in
Naga City at the same rate that the public are paying.
On private respondent's second cause of action, the trial court found that the contract does not
mention anything about the use by petitioners of private respondent's posts outside Naga City.
Therefore, the trial court held that for reason of equity, the contract should be reformed by including
therein the provision that for the use of private respondent's posts outside Naga City, petitioners should
pay a monthly rental of P10.00 per post, the payment to start on the date this case was filed, or on
January 2, 1989, and private respondent should also pay petitioners the monthly dues on its telephone
connections located outside Naga City beginning January, 1989.
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Atty. G.G. Bernardo
MAS
And with respect to private respondent's third cause of action, the trial court found the claim not
sufficiently proved.
Thus, the following decretal portion of the trial court's decision dated July 20, 1990:
WHEREFORE, in view of all the foregoing, decision is hereby rendered ordering the
reformation of the agreement (Exh. A); ordering the defendants to pay plaintiff's electric
poles in Naga City and in the towns of Milaor, Canaman, Magarao and Pili, Camarines
Sur and in other places where defendant NATELCO uses plaintiff's electric poles, the
sum of TEN (P10.00) PESOS per plaintiff's pole, per month beginning January, 1989 and
ordering also the plaintiff to pay defendant NATELCO the monthly dues of all its
telephones including those installed at the residence of its officers, namely; Engr.
Joventino Cruz, Engr. Antonio Borja, Engr. Antonio Macandog, Mr. Jesus Opiana and
Atty. Luis General, Jr. beginning January, 1989. Plaintiff's claim for attorney's fees and
expenses of litigation and defendants' counterclaim are both hereby ordered dismissed.
Without pronouncement as to costs.
Disagreeing with the foregoing judgment, petitioners appealed to respondent Court of Appeals. In
the decision dated May 28, 1992, respondent court affirmed the decision of the trial court, 5 but based
on different grounds to wit: (1) that Article 1267 of the New Civil Code is applicable and (2) that the
contract was subject to a potestative condition which rendered said condition void. The motion for
reconsideration was denied in the resolution dated September 10, 1992. 6Hence, the present petition.
Petitioners assign the following pertinent errors committed by respondent court:
1) in making a contract for the parties by invoking Article 1267 of the New Civil
Code;
2) in ruling that prescription of the action for reformation of the contract in this case
commenced from the time it became disadvantageous to private respondent; and
3) in ruling that the contract was subject to a potestative condition in favor of
petitioners.
Petitioners assert earnestly that Article 1267 of the New Civil Code is not applicable primarily
because the contract does not involve the rendition of service or a personal prestation and it is not for
future service with future unusual change. Instead, the ruling in the case of Occea, et al. v. Jabson, etc.,
et al., 7 which interpreted the article, should be followed in resolving this case. Besides, said article was
never raised by the parties in their pleadings and was never the subject of trial and evidence.
In applying Article 1267, respondent court rationalized:
We agree with appellant that in order that an action for reformation of contract
would lie and may prosper, there must be sufficient allegations as well as proof that the
contract in question failed to express the true intention of the parties due to error or
mistake, accident, or fraud. Indeed, in embodying the equitable remedy of reformation
of instruments in the New Civil Code, the Code Commission gave its reasons as follows:
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Atty. G.G. Bernardo
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Equity dictates the reformation of an instrument in order that the
true intention of the contracting parties may be expressed. The courts
by the reformation do not attempt to make a new contract for the
parties, but to make the instrument express their real agreement. The
rationale of the doctrine is that it would be unjust and inequitable to
allow the enforcement of a written instrument which does not reflect or
disclose the real meeting of the minds of the parties. The rigor of the
legalistic rule that a written instrument should be the final and inflexible
criterion and measure of the rights and obligations of the contracting
parties is thus tempered to forestall the effects of mistake, fraud,
inequitable conduct, or accident. (pp. 55-56, Report of Code
Commission)
Thus, Articles 1359, 1361, 1362, 1363 and 1364 of the New Civil Code provide in
essence that where through mistake or accident on the part of either or both of the
parties or mistake or fraud on the part of the clerk or typist who prepared the
instrument, the true intention of the parties is not expressed therein, then the
instrument may be reformed at the instance of either party if there was mutual mistake
on their part, or by the injured party if only he was mistaken.
Here, plaintiff-appellee did not allege in its complaint, nor does its evidence prove,
that there was a mistake on its part or mutual mistake on the part of both parties when
they entered into the agreement Exh. "A", and that because of this mistake, said
agreement failed to express their true intention. Rather, plaintiff's evidence shows that
said agreement was prepared by Atty. Luciano Maggay, then a member of plaintiff's
Board of Directors and its legal counsel at that time, who was also the legal counsel for
defendant-appellant, so that as legal counsel for both companies and presumably with
the interests of both companies in mind when he prepared the aforesaid agreement,
Atty. Maggay must have considered the same fair and equitable to both sides, and this
was affirmed by the lower court when it found said contract to have been fair to both
parties at the time of its execution. In fact, there were no complaints on the part of both
sides at the time of and after the execution of said contract, and according to 73-year
old Justino de Jesus, Vice President and General manager of appellant at the time who
signed the agreement Exh. "A" in its behalf and who was one of the witnesses for the
plaintiff (sic), both parties complied with said contract "from the very beginning" (p. 5,
tsn, April 17, 1989).
That the aforesaid contract has become inequitous or unfavorable or
disadvantageous to the plaintiff with the expansion of the business of appellant and the
increase in the volume of its subscribers in Naga City and environs through the years,
necessitating the stringing of more and bigger telephone cable wires by appellant to
plaintiff's electric posts without a corresponding increase in the ten (10) telephone
connections given by appellant to plaintiff free of charge in the agreement Exh. "A" as
consideration for its use of the latter's electric posts in Naga City, appear, however,
undisputed from the totality of the evidence on record and the lower court so found.
And it was for this reason that in the later (sic) part of 1982 or 1983 (or five or six years
after the subject agreement was entered into by the parties), plaintiff's Board of
Directors already asked Atty. Luis General who had become their legal counsel in 1982,
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Atty. G.G. Bernardo
MAS
to study said agreement which they believed had become disadvantageous to their
company and to make the proper recommendation, which study Atty. General did, and
thereafter, he already recommended to the Board the filing of a court action to reform
said contract, but no action was taken on Atty. General's recommendation because the
former general managers of plaintiff wanted to adopt a soft approach in discussing the
matter with appellant, until, during the term of General Manager Henry Pascual, the
latter, after failing to settle the problem with Atty. Luciano Maggay who had become
the president and general manager of appellant, already agreed for Atty. General's filing
of the present action. The fact that said contract has become inequitous or
disadvantageous to plaintiff as the years went by did not, however, give plaintiff a cause
of action for reformation of said contract, for the reasons already pointed out earlier.
But this does not mean that plaintiff is completely without a remedy, for we believe that
the allegations of its complaint herein and the evidence it has presented sufficiently
make out a cause of action under Art. 1267 of the New Civil Code for its release from
the agreement in question.
xxx xxx xxx
The understanding of the parties when they entered into the Agreement Exh. "A" on
November 1, 1977 and the prevailing circumstances and conditions at the time, were
described by Dioscoro Ragragio, the President of plaintiff in 1977 and one of its two
officials who signed said agreement in its behalf, as follows:
Our understanding at that time is that we will allow NATELCO to
utilize the posts of CASURECO II only in the City of Naga because at that
time the capability of NATELCO was very limited, as a matter of fact we
do [sic] not expect to be able to expand because of the legal squabbles
going on in the NATELCO. So, even at that time there were so many
subscribers in Naga City that cannot be served by the NATELCO, so as a
mater of public service we allowed them to sue (sic) our posts within
the Naga City. (p. 8, tsn April 3, 1989)
Ragragio also declared that while the telephone wires strung to the electric posts of
plaintiff were very light and that very few telephone lines were attached to the posts of
CASURECO II in 1977, said posts have become "heavily loaded" in 1989 (tsn, id.).
In truth, as also correctly found by the lower court, despite the increase in the
volume of appellant's subscribers and the corresponding increase in the telephone
cables and wires strung by it to plaintiff's electric posts in Naga City for the more 10
years that the agreement Exh. "A" of the parties has been in effect, there has been no
corresponding increase in the ten (10) telephone units connected by appellant free of
charge to plaintiff's offices and other places chosen by plaintiff's general manager which
was the only consideration provided for in said agreement for appellant's use of
plaintiffs electric posts. Not only that, appellant even started using plaintiff's electric
posts outside Naga City although this was not provided for in the agreement Exh. "A" as
it extended and expanded its telephone services to towns outside said city. Hence, while
very few of plaintiff's electric posts were being used by appellant in 1977 and they were
all in the City of Naga, the number of plaintiff's electric posts that appellant was using in
125

Atty. G.G. Bernardo
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1989 had jumped to 1,403,192 of which are outside Naga City (Exh. "B"). Add to this the
destruction of some of plaintiff's poles during typhoons like the strong typhoon Sisang in
1987 because of the heavy telephone cables attached thereto, and the escalation of the
costs of electric poles from 1977 to 1989, and the conclusion is indeed ineluctable that
the agreement Exh. "A" has already become too one-sided in favor of appellant to the
great disadvantage of plaintiff, in short, the continued enforcement of said contract has
manifestly gone far beyond the contemplation of plaintiff, so much so that it should
now be released therefrom under Art. 1267 of the New Civil Code to avoid appellant's
unjust enrichment at its (plaintiff's) expense. As stated by Tolentino in his commentaries
on the Civil Code citing foreign civilist Ruggiero, "equity demands a certain economic
equilibrium between the prestation and the counter-prestation, and does not permit the
unlimited impoverishment of one party for the benefit of the other by the excessive
rigidity of the principle of the obligatory force of contracts (IV Tolentino, Civil Code of the
Philippines, 1986 ed.,
pp. 247-248).
We therefore, find nothing wrong with the ruling of the trial court, although based
on a different and wrong premise (i.e., reformation of contract), that from the date of
the filing of this case, appellant must pay for the use of plaintiff's electric posts in Naga
City at the reasonable monthly rental of P10.00 per post, while plaintiff should pay
appellant for the telephones in the same City that it was formerly using free of charge
under the terms of the agreement Exh. "A" at the same rate being paid by the general
public. In affirming said ruling, we are not making a new contract for the parties herein,
but we find it necessary to do so in order not to disrupt the basic and essential services
being rendered by both parties herein to the public and to avoid unjust enrichment by
appellant at the expense of plaintiff, said arrangement to continue only until such time
as said parties can re-negotiate another agreement over the same
subject-matter covered by the agreement Exh. "A". Once said agreement is reached and
executed by the parties, the aforesaid ruling of the lower court and affirmed by us shall
cease to exist and shall be substituted and superseded by their new agreement. . . .. 8
Article 1267 speaks of "service" which has become so difficult. Taking into consideration the
rationale behind this provision, 9 the term "service" should be understood as referring to the
"performance" of the obligation. In the present case, the obligation of private respondent consists in
allowing petitioners to use its posts in Naga City, which is the service contemplated in said article.
Furthermore, a bare reading of this article reveals that it is not a requirement thereunder that the
contract be for future service with future unusual change. According to Senator Arturo M.
Tolentino, 10 Article 1267 states in our law the doctrine of unforseen events. This is said to be based on
the discredited theory of rebus sic stantibusin public international law; under this theory, the parties
stipulate in the light of certain prevailing conditions, and once these conditions cease to exist the
contract also ceases to exist. Considering practical needs and the demands of equity and good faith, the
disappearance of the basis of a contract gives rise to a right to relief in favor of the party prejudiced.
In a nutshell, private respondent in the Occea case filed a complaint against petitioner before the
trial court praying for modification of the terms and conditions of the contract that they entered into by
fixing the proper shares that should pertain to them out of the gross proceeds from the sales of
subdivided lots. We ordered the dismissal of the complaint therein for failure to state a sufficient cause
of action. We rationalized that the Court of Appeals misapplied Article 1267 because:
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Atty. G.G. Bernardo
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. . . respondent's complaint seeks not release from the subdivision contract but that
the court "render judgment modifying the terms and conditions of the contract . . .
by fixing the proper shares that should pertain to the herein parties out of the gross
proceeds from the sales of subdivided lots of subject subdivision". The cited article
(Article 1267) does not grant the courts (the) authority to remake, modify or revise the
contract or to fix the division of shares between the parties as contractually stipulated
with the force of law between the parties, so as to substitute its own terms for those
covenanted by the parties themselves. Respondent's complaint for modification of
contract manifestly has no basis in law and therefore states no cause of action. Under
the particular allegations of respondent's complaint and the circumstances therein
averred, the courts cannot even in equity grant the relief sought. 11
The ruling in the Occea case is not applicable because we agree with respondent court that the
allegations in private respondent's complaint and the evidence it has presented sufficiently made out a
cause of action under Article 1267. We, therefore, release the parties from their correlative obligations
under the contract. However, our disposition of the present controversy does not end here. We have to
take into account the possible consequences of merely releasing the parties therefrom: petitioners will
remove the telephone wires/cables in the posts of private respondent, resulting in disruption of their
service to the public; while private respondent, in consonance with the contract 12 will return all the
telephone units to petitioners, causing prejudice to its business. We shall not allow such eventuality.
Rather, we require, as ordered by the trial court: 1) petitioners to pay private respondent for the use of
its posts in Naga City and in the towns of Milaor, Canaman, Magarao and Pili, Camarines Sur and in other
places where petitioners use private respondent's posts, the sum of ten (P10.00) pesos per post, per
month, beginning January, 1989; and 2) private respondent to pay petitioner the monthly dues of all its
telephones at the same rate being paid by the public beginning January, 1989. The peculiar
circumstances of the present case, as distinguished further from the Occea case, necessitates exercise
of our equity jurisdiction. 13 By way of emphasis, we reiterate the rationalization of respondent court
that:
. . . In affirming said ruling, we are not making a new contract for the parties herein,
but we find it necessary to do so in order not to disrupt the basic and essential services
being rendered by both parties herein to the public and to avoid unjust enrichment by
appellant at the expense of plaintiff . . . . 14
Petitioners' assertion that Article 1267 was never raised by the parties in their pleadings and was
never the subject of trial and evidence has been passed upon by respondent court in its well reasoned
resolution, which we hereunder quote as our own:
First, we do not agree with defendant-appellant that in applying Art. 1267 of the
New Civil Code to this case, we have changed its theory and decided the same on an
issue not invoked by plaintiff in the lower court. For basically, the main and pivotal issue
in this case is whether the continued enforcement of the contract Exh. "A" between the
parties has, through the years (since 1977), become too inequitous or disadvantageous
to the plaintiff and too one-sided in favor of defendant-appellant, so that a solution
must be found to relieve plaintiff from the continued operation of said agreement and
to prevent defendant-appellant from further unjustly enriching itself at plaintiff's
expense. It is indeed unfortunate that defendant had turned deaf ears to plaintiffs
requests for renegotiation, constraining the latter to go to court. But although plaintiff
127

Atty. G.G. Bernardo
MAS
cannot, as we have held, correctly invoke reformation of contract as a proper remedy

(there having been no showing of a mistake or error in said contract on the part of any
of the parties so as to result in its failure to express their true intent), this does not
mean that plaintiff is absolutely without a remedy in order to relieve itself from a
contract that has gone far beyond its contemplation and has become so highly
inequitous and disadvantageous to it through the years because of the expansion of
defendant-appellant's business and the increase in the volume of its subscribers. And as
it is the duty of the Court to administer justice, it must do so in this case in the best way
and manner it can in the light of the proven facts and the law or laws applicable thereto.
It is settled that when the trial court decides a case in favor of a party on a certain
ground, the appellant court may uphold the decision below upon some other point
which was ignored or erroneously decided by the trial court (Garcia Valdez v. Tuazon, 40
Phil. 943; Relativo v. Castro, 76 Phil. 563; Carillo v. Salak de Paz, 18 SCRA 467).
Furthermore, the appellate court has the discretion to consider an unassigned error that
is closely related to an error properly assigned (Paterno v. Jao Yan, 1 SCRA 631;
Hernandez v. Andal, 78 Phil. 196). It has also been held that the Supreme Court (and this
Court as well) has the authority to review matters, even if they are not assigned as
errors in the appeal, if it is found that their consideration is necessary in arriving at a just
decision of the case (Saura Import & Export Co., Inc. v. Phil. International Surety Co. and
PNB, 8 SCRA 143). For it is the material allegations of fact in the complaint, not the legal
conclusion made therein or the prayer, that determines the relief to which the plaintiff
is entitled, and the plaintiff is entitled to as much relief as the facts warrant although
that relief is not specifically prayed for in the complaint (Rosales v. Reyes and Ordoveza,
25 Phil. 495; Cabigao v. Lim, 50 Phil. 844; Baguioro v. Barrios, 77 Phil. 120). To quote an
old but very illuminating decision of our Supreme Court through the pen of American
jurist Adam C. Carson:
"Under our system of pleading it is the duty of the courts to grant
the relief to which the parties are shown to be entitled by the
allegations in their pleadings and the facts proven at the trial, and the
mere fact that they themselves misconstrue the legal effect of the facts
thus alleged and proven will not prevent the court from placing the just
construction thereon and adjudicating the issues accordingly." (Alzua v.
Johnson, 21 Phil. 308)
And in the fairly recent case of Caltex Phil., Inc. v IAC, 176 SCRA 741, the Honorable
Supreme Court also held:
We rule that the respondent court did not commit any error in
taking cognizance of the aforesaid issues, although not raised before the
trial court. The presence of strong consideration of substantial justice
has led this Court to relax the well-entrenched rule that, except
questions on jurisdiction, no question will be entertained on appeal
unless it has been raised in the court below and it is within the issues
made by the parties in their pleadings (Cordero v. Cabral, L-36789, July
25, 1983, 123 SCRA 532). . . .
128

Atty. G.G. Bernardo
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We believe that the above authorities suffice to show that this Court did not err in
applying Art. 1267 of the New Civil Code to this case. Defendant-appellant stresses that
the applicability of said provision is a question of fact, and that it should have been given
the opportunity to present evidence on said question. But defendant-appellant cannot
honestly and truthfully claim that it (did) not (have) the opportunity to present evidence
on the issue of whether the continued operation of the contract Exh. "A" has now
become too one-sided in its favor and too inequitous, unfair, and disadvantageous to
plaintiff. As held in our decision, the abundant and copious evidence presented by both
parties in this case and summarized in said decision established the following essential
and vital facts which led us to apply Art. 1267 of the New Civil Code to this case:
xxx xxx xxx 15
On the issue of prescription of private respondent's action for reformation of contract, petitioners
allege that respondent court's ruling that the right of action "arose only after said contract had already
become disadvantageous and unfair to it due to subsequent events and conditions, which must be
sometime during the latter part of 1982 or in 1983 . . ." 16 is erroneous. In reformation of contracts, what
is reformed is not the contract itself, but the instrument embodying the contract. It follows that whether
the contract is disadvantageous or not is irrelevant to reformation and therefore, cannot be an element
in the determination of the period for prescription of the action to reform.
Article 1144 of the New Civil Code provides, inter alia, that an action upon a written contract must
be brought within ten (10) years from the time the right of action accrues. Clearly, the ten (10) year
period is to be reckonedfrom the time the right of action accrues which is not necessarily the date of
execution of the contract. As correctly ruled by respondent court, private respondent's right of action
arose "sometime during the latter part of 1982 or in 1983 when according to Atty. Luis General, Jr. . . .,
he was asked by (private respondent's) Board of Directors to study said contract as it already appeared
disadvantageous to (private respondent) (p. 31, tsn, May 8, 1989). (Private respondent's) cause of action
to ask for reformation of said contract should thus be considered to have arisen only in 1982 or 1983,
and from 1982 to January 2, 1989 when the complaint in this case was filed, ten (10) years had not yet
elapsed." 17
Regarding the last issue, petitioners allege that there is nothing purely potestative about the
prestations of either party because petitioner's permission for free use of telephones is not made to
depend purely on their will, neither is private respondent's permission for free use of its posts
dependent purely on its will.
Apart from applying Article 1267, respondent court cited another legal remedy available to private
respondent under the allegations of its complaint and the preponderant evidence presented by it:
. . . we believe that the provision in said agreement
(a) That the term or period of this contract shall be as long as the
party of the first part[herein appellant] has need for the electric light
posts of the party of the second part [herein plaintiff] it being
understood that this contract shall terminate when for any reason
whatsoever, the party of the second part is forced to stop, abandoned
129

Atty. G.G. Bernardo
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[sic] its operation as a public service and it becomes necessary to
remove the electric light post [sic]"; (Emphasis supplied)
is invalid for being purely potestative on the part of appellant as it leaves the
continued effectivity of the aforesaid agreement to the latter's sole and exclusive will as
long as plaintiff is in operation. A similar provision in a contract of lease wherein the
parties agreed that the lessee could stay on the leased premises "for as long as the
defendant needed the premises and can meet and pay said increases" was recently held
by the Supreme Court in Lim v. C.A., 191 SCRA 150, citing the much earlier case of
Encarnacion v. Baldomar, 77 Phil. 470, as invalid for being "a purely potestative
condition because it leaves the effectivity and enjoyment of leasehold rights to the sole
and exclusive will of the lessee." Further held the High Court in the Lim case:
The continuance, effectivity and fulfillment of a contract of lease
cannot be made to depend exclusively upon the free and uncontrolled
choice of the lessee between continuing the payment of the rentals or
not, completely depriving the owner of any say in the matter. Mutuality
does not obtain in such a contract of lease of no equality exists between
the lessor and the lessee since the life of the contract is dictated solely
by the lessee.
The above can also be said of the agreement Exh. "A" between the parties in this
case. There is no mutuality and equality between them under the afore-quoted
provision thereof since the life and continuity of said agreement is made to depend as
long as appellant needs plaintiff's electric posts. And this is precisely why, since 1977
when said agreement was executed and up to 1989 when this case was finally filed by
plaintiff, it could do nothing to be released from or terminate said agreement
notwithstanding that its continued effectivity has become very disadvantageous and
inequitous to it due to the expansion and increase of appellant's telephone services
within Naga City and even outside the same, without a corresponding increase in the
ten (10) telephone units being used by plaintiff free of charge, as well as the bad and
inefficient service of said telephones to the prejudice and inconvenience of plaintiff and
its customers. . . . 18
Petitioners' allegations must be upheld in this regard. A potestative condition is a condition, the
fulfillment of which depends upon the sole will of the debtor, in which case, the conditional obligation is
void. 19 Based on this definition, respondent court's finding that the provision in the contract, to wit:
(a) That the term or period of this contract shall be as long as the party of the first
part (petitioner) has need for the electric light posts of the party of the second part
(private respondent) . . ..
is a potestative condition, is correct. However, it must have overlooked the other conditions in the
same provision, to wit:
. . . it being understood that this contract shall terminate when for any reason
whatsoever, the party of the second part (private respondent) is forced to stop,
130

Atty. G.G. Bernardo
MAS
abandoned (sic) its operation as a public service and it becomes necessary to remove
the electric light post (sic);
which are casual conditions since they depend on chance, hazard, or the will of a third person. 20 In
sum, the contract is subject to mixed conditions, that is, they depend partly on the will of the debtor and
partly on chance, hazard or the will of a third person, which do not invalidate the aforementioned
provision. 21 Nevertheless, in view of our discussions under the first and second issues raised by
petitioners, there is no reason to set aside the questioned decision and resolution of respondent court.
WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals dated May 28,
1992 and its resolution dated September 10, 1992 are AFFIRMED.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado and Puno, JJ., concur.
#Footnotes
1 84 Phil. 654.
2 Report of the Code Commission, p. 133; cited in Rollo, p. 57.
3 Records, p. 6.
4 Ibid, pp. 6-7.
5 Rollo, p. 62.
6 Rollo, p. 71.
7 G.R. No. L-44349, October 29, 1976, 73 SCRA 637.
8 Rollo, pp. 54-59.
9 Supra.
10 Commentaries and Jurisprudence on the Civil Code of the Philippines, 1991
Edition p. 347.
11 At p. 641.
12 Records, p. 7.
13 Agne, et al. v. Director of Lands, et al., G.R. No. L-40399, February 9, 1990, 181
SCRA 793.
131

Atty. G.G. Bernardo
MAS
14 Rollo, p.59.
15 Rollo, pp. 66-69.
16 Rollo, pp. 53-54.
17 Rollo, pp. 53-54.
18 Rollo, pp. 59-61.
19 Article 1182 of the New Civil Code.
20 Civil Code of the Philippines Annotated by Edgardo L. Paras, 1985 Edition,
p. 171.
21 Ibid.
132

Atty. G.G. Bernardo
MAS
Valmonte vs CA - 1275
THIRD DIVISION
[G.R. No. L-41621. February 18, 1999]
PASTORA VALMONTE, JOSE DE LEON, AND JOAQUIN VALMONTE, petitioners, vs. THE HON. COURT OF
APPEALS, PHILIPPINE NATIONAL BANK, ARTEMIO VALENTON, AND AREOPAGITA J.
JOSON, respondents.
DECISION
PURISIMA, J.:
At bar is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court seeking a
review of the Decision[1] of the Court of Appeals which affirmed the decision of the then Court of First
Instance of Cabanatuan City, Branch III[2] in Civil Case No. 2950, entitled Pastora Valmonte, Jose de Leon
and Joaquin Valmonte versus Philippine National Bank, Artemio Valenton and Areopagita J. Joson,
dismissing plaintiffs complaint as well as defendants counterclaim.
As culled in the Decision of the Court of Appeals sought for review, the facts of the case that matter
are, as follows:
xxx On November 5, 1951, plaintiff-appellant Joaquin Valmonte sold to his daughter coappellant Pastora, three (3) parcels of land, situated in the Municipality of Jaen, Province of Nueva Ecija,
containing a total area of 70.6 hectares (Exhs. 31-Bank, 1-Valenton). A few days later, or on Nov. 12,
1951, plaintiff-appellant Pastora obtained a crop loan of P16,000.00 from defendant-appellee Philippine
National Bank and as security for payment thereof, she executed a Real Estate Mortgage, dated
November 12, 1951, in favor of appellee bank involving the same parcels of land (Exh. J.) as covered by
Transfer Certificate of Title No. NT-10423 in the name of said appellant Pastora (Exh. Q-1).
On September 19, 1952, appellant Pastora, then single, executed a Special Power of Attorney in favor of
one Virginia V. del Castelo for the purpose of borrowing money in the amount of P5,000.00 from
appellee bank with authority to mortgage the same parcels of land herein abovementioned (Exh. A). As
a result thereof, a loan of P5,000.00 payable on demand was granted by appellee bank and Virginia
Castelo executed a Real Estate Mortgage in its favor (Exhs. 6 and 7-Bank, and B).
On June 14, 1954, appellee bank sent a Notice of Extra-Judicial Sale of Mortgaged Properties to the
Provincial Sheriff of Nueva Ecija for publication (Exh. 39-Bank).
On June 20, 1954, appellant Pastora executed a Deed of Sale in favor of her father co-appellant Joaquin
Valmonte selling unto the latter the same three (3) parcels of land covered by TCT No. NT-10423 with
the following condition:
133

Atty. G.G. Bernardo
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These lands are at present mortgaged to the Philippine National Bank, and this obligation
shall be the subject of future arrangement between the vendor and vendee herein on the one
hand and the Philippine National Bank on the other before this deed of Sale shall be operative.
(Exh. 2-Valenton)
On July 19, 26 and August 2, 1954, the notice of extrajudicial sale on August 19, 1954 to be held in the
City Hall of Cabanatuan City, for the satisfaction of appellant Pastoras debt of P5,000.00 plus interest
due thereon, was published in a newspaper called Nueva Era (Exh. 56-Bank). The same notice was
posted in three (3) public and conspicuous places in the City of Cabanatuan where the schedule auction
sale will take place and in three (3) public and conspicious places in the Municipality of Jaen, Nueva Ecija
where the properties are located (Exh. 38-Bank).
On August 19, 1954, the auction sale was conducted and appellee bank was the sole and only bidder
for P5,524.40. On the same date, the Provincial Sheriff Ex-Officio issued the corresponding Minutes of
Auction Sale and Certificate of Sale (Exh. C, 55 and 54-Bank).
The period of redemption expired on August 19, 1955 (Exh. 65-Bank). Appellee bank received a letteroffer, dated August 31, 1955 from a certain Jose Talens to purchase the properties in question
forP27,000.00, P4,000.00 down and the balance payable in five (5) yearly amortizations (Exh. 40Bank). In a letter dated September 28, 1955, appellee Artemio Valenton offered to purchase said
properties forP35,000.00 payable upon execution of the contract in his favor and deposited P1,000.00 as
earnest money therefor (Exh. 41-Bank, 7-Valenton). On October 10, 1955, appellant Joaquin Valmonte
sent a letter-request to appellee bank for additional time within which he may repurchase the
properties in question for P35,000.00 (Exh 33-Bank; 8-Valenton). In view thereof and by reason of the
request of Congressman Celestino C. Juan, appellants were given up to December 31, 1955 to purchase
in cash the properties concerned in the amount of the banks total claim. As of September 7, 1955, the
Banks total claims amounted to P26,926.38, including the P16,000.00 loan obtained by appellant
Pastora in 1951 (Exhs. 66-Bank and 9-Valenton; J; 43-Bank and 58-Valenton).
On December 7, 1955, appellant Pastora designated her father, co-appellant Joaquin Valmonte as her
attorney-in-fact for the purpose of repurchasing the land from the appellee bank (Exh. H). Appellants
failed to purchase the properties on or before December 31, 1955. Hence, on January 3, 1956, appellee
Valenton deposited the balance of P34,000.00 which the bank accepted [Exhs 47-B (Bank) and 62-B
(Valenton)]. On Jan. 4, 1956, appellee bank executed the Deed of Absolute Sale in favor of appellee
Valenton (Exhs. 47-Bank, 11 Valenton and 47-C (Bank) as well as an Affidavit of Consolidation of
Ownership (Exh. D-1).
To enable the registration of the properties in the name of appellee Valenton, appellee Bank, as
attorney-in-fact of the mortgagor under the Real Estate Mortgagor, dated September 30, 1952 (Exh. B),
had to execute a Deed of Sale in its favor on January 5, 1956 (Exh. E). On January 6, 1956, a Deed of
Confirmation of Sale was executed by appellee bank for the main purpose of asserting that the existing
certificate of title covering the parcels of land in question at that time was TCT No. NT 18899 of the
land registry of Nueva Ecija in the name of appellee bank (Exh. F). Appellee Valenton obtained the
cancellation of TCT No. NT 18899 and the issuance of the Registry of Deeds of Nueva Ecija of TCT No.
NT18901 in his name (Exhs. S and S-1).
xxx
xxx
xxx
134

Atty. G.G. Bernardo
MAS
xxx The present complaint was filed on August 1, 1958; and, after joining the issues and trial on the
merits, the complaint was dismissed on January 27, 1968.[3]
The Trial court of origin, as earlier alluded to, dismissed the entire case, disposing, thus:
PREMISES CONSIDERED, judgment is hereby rendered in favor of the defendants against the plaintiffs,
dismissing the complaint with costs against the said plaintiffs.
The counterclaims of the defendants are hereby dismissed.
SO ORDERED.[4]
Therefrom, plaintiffs Pastora Valmonte, Jose de Leon and Joaquin Valmonte appealed to the Court
of Appeals, which came out with a judgment of affirmance promulgated on March 24, 1975.
Undaunted, the said plaintiffs found their way to this court via the present Petition, theorizing that:
A
THIS IS A CLEAR A CASE AS ANY WHERE PERSONS HAVE BEEN DEPRIVED OF THEIR PROPERTY WITHOUT
DUE PROCESS OF LAW.
B
THE RESPONDENT COURT OF APPEALS, COMMITTED A GRAVE ERROR WHEN IT HELD, AS DID THE TRIAL
COURT, THAT THE TWO MORTGAGES (P16,000.00 AND P5,000.00) WERE SEPARATE AND DISTINCT
FROM ONE ANOTHER; WORSE STILL, THAT ONE WAS JUNIOR AND THE OTHER WAS SENIOR; THAT
THE MERGER CAME ABOUT AFTER THE FORECLOSURE OF THE P5,000.00 PORTION OF THE MORTGAGE
SUCH THAT THE PNB BECAME CREDITOR AND DEBTOR AT THE SAME TIME.
C.
THE RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR WHEN IT DID NOT HOLD THAT,
FROM THE VERY EXPRESS PROVISIONS OF THE TWO DOCUMENTS THEP16,000.00 MORTGAGE, EXH.
J AND THE P5,000.00 MORTGAGE, EXH. B THE TWO MORTGAGES MUTUALLY AND IMMEDIATELY
MERGED INTO EACH OTHER AS SECURITY FOR THE SAME TOTALITY OF ALL PETITIONERS OBLIGATIONS
TO RESPONDENTS PNB AT THE MOMENT THE LATER DOCUMENT WAS EXECUTED ON SEPTEMBER 30,
1952, SO THAT THE RESULT WAS AN INDIVISIBLE, INSEPARABLE, SINGLE MORTGAGE WHICH CANNOT BE
FORCLOSED PARTIALLY; HENCE FORECLOSURE OF THE P5,000.00 MORTGAGE ALONE DID NOT VEST
TITLE OVER THE PROPERTY IN THE PNB.
D
THE RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR WHEN IT GAVE ITS IMPRIMATUR
TO THE TRANSFER FROM RESPONDENT PNB TO RESPONDENTS VALENTON OF PASTORAS PROPERTY
WHICH HAD NOT BEEN VALIDLY FORECLOSED.
E
135

Atty. G.G. Bernardo
MAS
THE RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR WHEN IT FAILED TO HOLD THAT
THE EXTRA-JUDICIAL FORECLOSURE OF THE P5,000.00 PORTION OF THE MORTGAGE WAS NULL AND
VOID BECAUSE OF FATAL DEFECTS IN THE PUBLICATION OF THE NOTICE OF FORECLOSURE, THE DAY OF
THE FORECLOSURE, THE PLACE OF THE FORECLOSURE, THE AUTHORITY OF THE PERSON CONDUCTING
FORECLOSURE, AND THE REALITY OF THE FORECLOSURE SALE
F
THE RESPONDENT COURT OF APPEALS ERRED IN UPHOLDING THE TRIAL COURTS DENIAL OF THE
PETITIONERS MOTION FOR LEAVE TO AMEND COMPLAINT TO CONFORM TO THE EVIDENCE AND FOR
ADMISSION OF THIRD AMENDED COMPLAINT.
The petition is not impressed with merit.
To begin with, succint and unmistakable is the consistent pronouncement that the Supreme Court
is not a trier of facts. And well entrenched is the doctrine that pure questions of fact may not be the
proper subject of appeal by certiorari under Rule 45 of the Revised Rules of Court, as this mode of
appeal is generally confined to questions of law.[5]
Anent the first error, petitioners theorize: (1) That there was insufficient publication of the notice of
sale; (2) That the posting of the notice was not in accordance with law; (3) That the price obtained
during the auction sale was unconscionably low; (4) That the Sheriff who conducted the sale had no
authority to do so; and (5) That the auction sale was void as it was conducted on a declared holiday.
It is well-settled that non-compliance with the notice and publication requirements of an
extrajudicial foreclosure sale is a factual issue. Compliance with the statutory requirements is a proven
fact and not a matter of presumption. A mortgagor who alleges absence any of such requisites has the
burden of establishing the factum probandum.[6]
Following the ruling in Sadang vs. GSIS[7], the Court of Appeals upheld the validity of the publication
of the notice of extrajudicial foreclosure, holding that the customary affidavit of the editor of a
newspaper, duly introduced in evidence, is a prima facie proof of said fact. The party alleging noncompliance with the requisite publication has the onus probandi. Absent any proof to the contrary, lack
of publication has not been substantiated. What is more, the affidavit of the editor of Nueva Era, to the
effect that the notice of sale had been published in said newspaper of general circulation once a week
for three (3) consecutive weeks, and what Basilio Castro (letter carrier in the province of Nueva
Ecija) and Eugenio de Guzman (former Justice of the Peace and Mayor of Jaen) testified and attested to
constitute enough evidence of publication.[8]
Petitioners reliance on the cases of Tan Ten Koc vs. Republic[9]; Tan Sen vs. Republic[10] and Tan Khe
Shing vs. Republic[11] is misplaced. In the said cases, in ruling that Nueva Era was not shown to be a
newspaper of general circulation, the Court considered the failure of the applcants to come forward
with positive evidence other than the editors affidavit. As they were naturalization cases, the purpose
of the publication requirement was to inform the officers concerned and the public in general of the
filing of subject petitions, to the end that the Solicitor General or the Provincial Fiscal (now provincial
prosecutor) could be furnished whatever derogatory information and evidence there may be against the
applicants or petitioners. There is no such objective in the publication requirement for extrajudicial
foreclosures. Consequently, the petitioners here cannot rely on the aforecited cases of different nature
to buttress their stance.
136

Atty. G.G. Bernardo
MAS
The alleged failure to comply with the posting requirement in that: (1) it was not posted in
three (3) public conspicuous places, and (2) the posting was not in the municipality where the properties
involved or part thereof are located, was negated by the certificate of posting, dated July 15, 1954, and
the testimony of Deputy Sheriff Jose N. Mendoza. (Exh. 38 Bank; pp. 561-563, t.s.n., Feb. 22, 1963)[12]
On the issue of unconscionably low price paid by the bank for the mortgaged properties, the
purchase price of P5,524.40 was found by the respondent court to suffice. It is well settled that when
there is a right to redeem, inadequacy of price is of no moment for the reason that the judgment debtor
has always the chance to redeem and reacquire the property. Infact, the property may be sold for less
than its fair market value precisely because the lesser the price the easier for the owner to effect a
redemption.[13]
Petitioners further theorized that the foreclosure sale in question should be invalidated since it was
conducted on a holiday. They rely on Section 31 of the Revised Administrative Code, which provides
that where the act required or permitted by law falls on a holiday, the act may be done on the next
succeeding business day. In the case under scrutiny, the auction sale was made on August 19, 1954,
which was declared a holiday by the late Pres. Ramon Magsaysay. In upholding the validity of the sale,
the Court of Appeals opined that since the law used the word may, it is merely discretionary and
cannot be given a probative meaning.[14] The Court is of the same conclusion on the validity of the sale.
Said the court in the case of Rural Bank of Caloocan, Inc. vs. Court of Appeals[15] in holding that
Section 31 of the Revised Administrative Code is not applicable to auction sales:
xxx The pretermission of a holiday applies only where the day or the last day for the doing any act
required or permitted by law falls on a holiday, or when the last day of a given period for doing an act
falls on a holiday. It does not apply to a day fixed by an office or officer of the government for an act to
be done, as distinguished from a period of tine within which an act should be done, which may be on
any day within that specified period. For example, if a party is required by law to file his answer to a
complaint within fifteen (15) days from receipt of the summons and the last day falls on a holiday, the
last day is deemed moved to the next succeeding business day. But, if the court fixes the trial of a case
on a certain day but the said date is subsequently declared a public holiday, the trial thereof is not
automatically transferred to the next succeeding business day. Since April 10, 1961 was not the day or
the last day set by law for the extrajudicial foreclosure sale, nor the last day of a given period, but a date
fixed by the deputy sheriff, the aforesaid sale cannot legally be made on the next succeesing business
day without the notices of the sale on that day being posted as prescribed in Sec. 9, Act No. 3135.[16]
Conformably, the extrajudicial foreclosure conducted on August 19, 1954 was valid,
notwithstanding the fact that the said date was declared a public holiday. Act 3135, merely requires
that sufficient publication and posting of the notice of sale be caused, as required by law.
The issue concerning the authority of the sheriff to conduct the sale is factual. This Court is bound
by the findings by the trial court, and affirmed by the respondent court, that the signing by the
Provincial Sheriff of the Minutes of Auction Sale (Exh. 55-Bank) and the Certtificate of Sale evinced that
the auction sale was conducted by the Deputy Sheriff under the direction of the Provincial Sheriff.[17]
Another basis for the Court to uphold the regularity of the extrajudicial foreclosure under
controversy is the equitable principle of estoppel. Petitionerss admission that as mortgagors, they had
asked for an extension of time to redeem subject properties estopped them from impugning the
regularity of the conduct of the sale. It bears stressing that on October 10, 1955, appellant Joaquin
Valmonte (one of the herein petitioners) sent a letter-request to the appellee bank for additional time
137

Atty. G.G. Bernardo
MAS
within which to exercise the right of redemption over the properties at P35,000.00 (Exh. 33-Bank; 8Valenton). In view of such request and of the similar request from Congressman Celestino C. Juan, the
Bank, through its Board of Directors (BOD) Resolution No. 1096, extended the redemption period until
December 31, 1955 for the appellants (the petitioners here) to purchase in cash their properties in the
amount of the total claim of the bank.[18]
Did the aforesaid act of seeking an extension of the redemption period constitute an act of
ratification within legal contemplation, thus rendering the petitioners in estoppel? The answer to this
important and pertinent question is in the affirmative. If a party in interest enters into a lawful
agreement, stipulation, compromise or arrangement calculated to benefit him in connection with
a mortgage foreclosure sale, he inevitably affirms thereby the validity, force and effect of the
sale. Similarly, a party cannot later on rely upon the supposed defects of the sale.[19] The act of plaintiffs
in asking for an extension of time to redeem the foreclosed properties estopped them from questioning
the foreclosure sale thereafter.[20]
Since the findings by the trial court are supported by the evidence and the law and the party
theorizing upon the alleged irregularities afflicting the extrajudicial foreclosure sale was unable to prove
their imputation; affirmance of the finding of respondent court is indicated.
Neither is there any sustainable basis for the second assignment of errors relied upon by
petitioners.
Petitioners contend that the respondent court erred in applying the principle of
merger. Mortgagors averred that the two loans should be considered as one mortgage credit inasmuch
as they were constituted between the same parties and on the same properties. Being a single and
indivisible obligation, the foreclosure sale in connection with the P5,000.00 loan necessarily included the
other loan ofP16,000.00. Therefore, there was no outstanding mortgage credit for the P16,000.00 loan,
and PNB being the purchaser at the auction sale, was not subrogated to answer for any encumbrance on
subject properties.
The Court of Appeals erred not on the application of the principle of merger. Merger as one of the
means of extinguishing an obligation has the following elements: (1) the merger of the characters of the
creditor and debtor must be in the same person; (2) it must take place in the person of either the
principal creditor or the principal debtor; and (3) it must be complete and definite.
As can be gleaned from the attendant facts and circumstances there were two mortgages
constituted on the subject properties by the appellants. The first mortgage was for a loan of P16,000.00
and the second one was for a loan of P5,000.00, by and between petitioners and the PNB. What the
Bank did was to foreclose the second mortgage embodied in a separate mortgage contract.
Under ordinary circumstance, if a person has a mortgage credit over a property which was sold in
an auction sale, the only right left to him was to collect its mortgage credit from the purchaser thereof
during the sale conducted. This is so because a mortgage directly and immediately subjects the
property on which it is constituted, whoever its possessor may be, to the fulfillment of the obligation for
the security of which it was created.[21] However, these steps need not be taken in the present case
because PNB was the purchaser of subject properties and it did so with full knowledge that it had a
mortgage thereon. Obligations are extinguished by the merger of the rights of the creditor and debtor.
In the case under consideration, the merger took place in the person of PNB, the principal creditor
in the case. The merger was brought about when during the auction sale, PNB purchased the properties
on which it had another subsisting mortgage credit. This court is bound by the finding of respondent
138

Atty. G.G. Bernardo
MAS
court that the two loans referred to are separate and distinct and the mere allegation by petitioners that
said loans constitute a single indivisible obligation should be stricken off as the said allegation is not
supported by evidence. In effect, the mortgage for the P16,000.00 loan was deemed
extinguished. While it is true that there was still an annotation on the Transfer Certificate of Title issued
to respondent Artemio Valenton, the said annotation or encumbrance was already discharge by
operation of law. Consequently, petitioners contention that the said title issued to Valennton was not
valid by reason of the said annotation, is devoid of any legal basis.
As aptly held by respondent court:
"xxx The purchaser in the extrajudicial sale is appellee bank itself. As such purchaser, it acquired the
right to pay off the claim of the senior mortgage. However, the senior mortgagee is also appellee
bank. In such a case, Art. 1275 of the New Civil Code as invokes by defendants-appellees in their
respective briefs, to wit:
Art. 1275. The obligation is extinguished from the time the characters of creditor and debtor are
merged in the same person.
applies. The rights pertaining to the personalities of the debtor (mortgagor) and of the creditor
(mortgagee) are merged and therfor, in case where the mortgagees of both the senior and junior
motgages are one and the same (herein appellee bank), and especially where the mortgagors of said
encumbrances are also one and the same (herein appellant Pastora Valmonte de Leon), the sale to
appellee bank operated to divest the rights of the mortgagor (appellant Pastora) of her rights and to
vest her rights with respect to the senior mortgage, in the purchaser (appellee bank), subject to such
rights and to vest her rights with respect to the senior mortgage, in the purchaser (appellee bank),
subject to such rights of redemption as may be required by law. Records show however that appellant
mortgagor failed to redeem the property within the one-year period provided by Act No. 3135, as
amended.[22]
With respect to the third assignment of errors, untenable is petitioners contention that the failure
of PNB to foreclose the first mortgage for the loan of P16,000.00 was in actuality a pactum
commissorium, which was prohibited by law, and the subsequent transfer by PNB to Valenton of the
said property is a nullity.
Pactum Commissorium takes place when in a mortgage contract, it is stipulated that the ownership
of the property would automatically pass to the vendee in case no redemption is made within a given
period, thus enabling the mortgagee to acquire ownership of the mortgaged property without need of
foreclosure.[23] It is not so in the present case where there was foreclosure of the mortgage.
When PNB opted to foreclose only the second mortgage for the loan of P5,000.00, it was well
within its right to do so. The only condition the law requires in extrajudicial foreclosure is that the loan
is already due and demandable and there was failure on the part of the mortgagor to pay the mortgage
debt. The law does not prohibit a mortgagee from choosing which of the mortgages in his favor to
foreclose. It must be borne in mind that the power to decide whether to foreclose or not resides in the
mortgagee.[24]
The next pivotal issue to resolve is whether PNB could transfer a valid title to respondent Artemio
Valenton despite the existence of a duly annotated unforeclosed mortgage between PNB and the
appellants.
139

Atty. G.G. Bernardo
MAS
The court resolves this issue in the affirmative.

Since the appellants failed to redeem within the redemption period during the extension agreed
upon, the effect of such failure to redeem was to vest absolute ownership over subject properties
purchased.[25] The annotation of the unforeclosed mortgage even if appearing on the title of Artemio
Valenton did not in any way affect the sale between the latter and PNB. In fact, since there was merger
on the part of PNB prior to the sale to said Valenton, any lien which the petitioners were claiming as
subsisting was already extinguished.
Granting ex gratia argumenti that there was no merger and the unforeclosed mortgage subsisted,
PNB still had the right to sell subject properties and the party who purchased the same shall only be
subjected to the said encumbrance. Indubitably, petitioners are not the proper parties to insist that
there be a foreclosure because as earlier stated, the prerogative to decide whether or not to foreclose
is with the mortgagee and not with the mortgagor.
In light of the foregoing, it is decisively obvious that PNB did not acquire the mortgaged properties
by pactum commissorium, but for failure of the petitioners to redeem the same. As to the lien which,
they claim, should have hindered the transfer of the certificate of title to the name of Artemio Valenton,
the merger of rights on the part of PNB extinguished whatever encumbrance there was over the
properties deeded out and there was no more lien to speak of. The transfer certificate of title to
Artemio Valenton who was a purchaser for value was valid and the petitioners cannot effectively defeat
the title of Artemio Valenton by claiming otherwise.
WHEREFORE, for lack of merit, the petition is DENIED and the decision of the Court of Appeals is
AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Romero (Chairman), Vitug, Panganiban, and Gonzaga-Reyes, JJ., concur.
[1]
Dated March 24, 1975; penned by Associate Justice Andres Reyes and concurred in by Associate
Justice Godofredo P. Ramos and Mama D. Busran.
[2]
Dated January 27, 1968 penned by Judge Salvador C. Reyes.
[3]
CA Decision, pp. 1-5; Rollo, pp. 115-119.
[4]
Amended Record on Appeal, p. 502; Rollo, p. 153.
[5]
Far East Bank & Trust Company vs. Court of Appeals, 256 SCRA 15.
[6]
Reyes vs. Court of Appeals, 107 SCRA 126.
[7]
18 SCRA 491.
[8]
CA Decision, p. 5; Rollo, p. 131.
[9]
10 SCRA 89.
[10]
21 SCRA 478.
[11]
22 SCRA 896.
140

Atty. G.G. Bernardo
[12]
MAS
CA Decision, p.17; Rollo, p. 135.
[13]
Development Bank of the Philippines vs. Moll, 43 SCRA 82; Vda de Gordon vs. CA, 109 SCRA 388,
Prudential Bank vs, Martinez, 189 SCRA 612.
[14]
[15]
104 SCRA 151.
[16]
Ibid, p. 171.
[17]
[18]
CA Decision, pp. 31-32; Rollo, pp. 145-146.
[19]
55 Am Jur 2d, p. 752. Citing the case of Holiday vs. Stuart, 151 US 229, 38 L Ed 141 etc.
[20]
Aquino vs. Macondray & Co., 97 Phil 731, 740.
[21]
Yek Tong Lin Fire and Marine Insurance Co. vs. Yusingco, 64 PHIL 473, page 481-482.
[22]
CA Decision, p. 21; Rollo; p. 135
[23]
Olea vs. Court of Appeals, 247 SCRA 274.
[24]
[25]
Rural Bank of San Mateo Inc. vs. IAC, 146 SCRA 205.
F. David Enterprises vs. Insular Bank of Asia and America, 191 SCRA 516.
141

Atty. G.G. Bernardo
MAS
Valenzuela vs Kalayaan Development and Industrial Corp

THIRD DIVISION
SPOUSES JOSE T. VALENZUELA and GLORIA
VALENZUELA,
Petitioners,
G.R. No. 163244

Present:
YNARES-SANTIAGO, J.,
Chairperson,
CHICO-NAZARIO,
VELASCO, JR.,
NACHURA, and
PERALTA, JJ.
- versus -
KALAYAAN DEVELOPMENT & INDUSTRIAL

CORPORATION,
Respondent.
Promulgated:
June 22, 2009
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
PERALTA, J.:
This is a petition for review on certiorari assailing the Decision[1] dated January 23, 2004 of the
Court of Appeals in CA-G.R. CV No. 69814, and its Resolution[2] datedApril 20, 2004, denying petitioners
motion for reconsideration.
The factual and procedural antecedents are as follows:
Kalayaan Development and Industrial Corporation (Kalayaan) is the owner of a parcel of land
covered by Transfer Certificate of Title (TCT) No. T-133026[3] issued by the Register of Deeds of Metro
Manila, District III. Later, petitioners, Spouses Jose T. Valenzuela and Gloria Valenzuela (Gloria),
occupied the said property and introduced several improvements thereon.
142

Atty. G.G. Bernardo
MAS
When Kalayaan discovered that the lot was being illegally occupied by the petitioners, it
demanded that they immediately vacate the premises and surrender possession thereof. Petitioners
then negotiated with Kalayaan to purchase the portion of the lot they were occupying. On August 5,
1994, the parties executed a Contract to Sell[4] wherein they stipulated that petitioners would purchase
236 square meters of the subject property for P1,416,000.00. Petitioners initially gave P500,000.00
upon signing the contract and agreed to pay the balance of P916,000.00 in twelve (12) equal monthly
installments, or P76,333.75 a month until fully paid.[5] The parties also agreed that, in case petitioners
failed to pay any of the installments, they would be liable for liquidated penalty at the rate of 3% a
month compounded monthly until fully paid. It was also stipulated that Kalayaan shall execute the
corresponding deed of absolute sale over the subject property only upon full payment of the total
purchase price.[6]
Thereafter,
petitioners
made
the
following
payments: P70,000.00
on October
20,
1994; P70,000.00 on November 23, 1994; and P68,000.00 on December 20, 1994, or a total
of P208,000.00. After these payments, petitioners failed to pay the agreed monthly installments.
In a letter[7] dated September 6, 1995, petitioners requested Kalayaan that they be issued a
deed of sale for the 118 sq. m. portion of the lot where their house was standing, considering that they
no longer had the resources to pay the remaining balance. They reasoned that, since they had already
paid one-half of the purchase price, or a total ofP708,000.00 representing 118 sq. m. of the subject
property, they should be issued a deed of sale for the said portion of the property.
In a letter[8] dated December 15, 1995, Kalayaan reminded petitioners of their unpaid balance
and asked that they settle it within the next few days. In a demand letter[9]dated January 30, 1996,
Kalayaan, through counsel, demanded that petitioners pay their outstanding obligation, including the
agreed penalties, within ten (10) days from receipt of the letter, or they would be constrained to file the
necessary actions against them. Again, in a letter[10] dated March 30, 1996, Kalayaan gave petitioners
another opportunity to settle their obligation within a period of ten (10) days from receipt thereof.
143

Atty. G.G. Bernardo
MAS
On June 13, 1996, petitioners wrote Atty. Atilano Huaben Lim, then counsel of Kalayaan, and
requested him to intercede on their behalf and to propose to Kalayaan that Glorias sister, Juliet Flores
Giron (Juliet), was willing to assume payment of the remaining balance for the 118 sq. m. portion of the
subject property at P10,000.00 a month.[11] Petitioners stated that they had already separated the said
118 sq. m. portion and had the property surveyed by a licensed geodetic engineer to determine the
unpaid portion of the property that needed to be separated from their lot.
On January 20, 1997, March 20, 1997, April 20, 1997, June 20, 1997, July 20, 1997, September
20, 1997, October 20, 1997, and December 20, 1997, Juliet made payments of P10,000.00 per month to
Kalayaan, which the latter accepted for and in behalf of her sister Gloria.[12]
Thereafter, Kalayaans in-house counsel, Atty. Reynaldo Romero, demanded that petitioners pay
their outstanding obligation. However, his demands remained unheeded. Thus, on June 19, 1998,
Kalayaan filed a Complaint for Rescission of Contract and Damages[13] against petitioners before the
Regional Trial Court (RTC) of Caloocan City, Branch 126, which was later docketed as Civil Case No. C18378.
On September 3, 1998, petitioners filed their Answer with Counterclaim[14] praying, among other
things, that the RTC dismiss the complaint and for Kalayaan to deliver the corresponding TCT to the
subject property, so that the same may be cancelled and a new one issued in the name of the
petitioners. Petitioners also prayed for the award of exemplary damages, moral damages, attorneys
fees, and cost of suit.[15]
After filing their respective pleadings, trial on the merits ensued. On August 2, 2000, the RTC
rendered a Decision[16] in favor of Kalayaan, rescinding the contract between the parties; ordering the
petitioners to vacate the premises; and to pay the amount of P100,000.00 as attorneys fees. The
decretal portion of the Decision reads:
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered rescinding the
contract between the plaintiff and the defendants and ordering the defendants and all
persons claiming rights under them to vacate the premises and to surrender possession
144

Atty. G.G. Bernardo
MAS
thereof to the plaintiff. Moreover, defendants shall pay the amount of P100,000.00 as
attorneys fees.
The counterclaim of the defendants is hereby ordered DISMISSED for lack of merit.
SO ORDERED.[17]
Aggrieved, petitioners sought recourse before the Court of Appeals (CA) in their appeal
docketed as CA-G.R. CV No. 163244. Petitioners argued that the RTC erred when:
IT RULED THAT THE PLAINTIFF-APPELLEE MADE A VALID FORMAL DEMAND UPON
THE DEFENDANTS-APPELANTS TO PAY THE LATTERS DUE AND OUTSTANDING
OBLIGATION;
IT RULED THAT THE PRINCIPLE OF NOVATION OF AN EXISTING OBLIGATION IS NOT
APPLICABLE IN THE INSTANT CASE;
IT RULED THAT THE PRINCIPLE OF RESCISSION IS APPLICABLE IN THE CASE AND THAT
THE PLAINTIFF-APPELLEE IS ENTITLED THERETO VIS--VIS THE DEFENDANTSAPPELLANTS;
IT FAILED TO RULE THAT THE PLAINTIFF-APPELLEE IS BARRED BY ESTOPPEL FROM
ASKING FOR THE RESCISSION OF THE CONTRACT TO SELL.
IT RULED THAT THE DEFENDANTS-APPELLANTS DID NOT HAVE THE FINANCIAL
CAPACITY TO PAY THE REMAINING BALANCE OF THE OBLIGATION AND THAT,
CONSEQUENTLY, COMPLIANCE WITH THE TERMS OF THE SAID OBLIGATION HAS
BECOME IMPOSSIBLE.
IT RULED THAT THE PLAINTIFF-APPELLEE IS ENTITLED TO ITS CLAIM FOR ATTORNEYS
FEES AND THE COST OF SUIT.[18]
On January 23, 2004, the CA rendered a Decision affirming the Decision of the RTC, the
dispositive portion of which reads:
WHEREFORE, premises considered, the assailed decision dated August 2, 2000 is
hereby AFFIRMED, and the present appeal is hereby DISMISSED for lack of merit.
SO ORDERED. (Emphasis supplied.)[19]
Petitioners filed a Motion for Reconsideration,[20] but it was denied for lack of merit in a
Resolution[21] dated April 20, 2004.
145

Atty. G.G. Bernardo
MAS
Hence, the present petition assigning the following errors:

I.
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO APPLY THE

PROVISIONS OF THE NEW CIVIL CODE REGARDING SUBSTANTIAL PERFORMANCE IN
THE JUST RESOLUTION OF THE PETITIONERS APPEAL.
II.
THE HONORABLE COURT OF APPEALS SHOULD HAVE APPLIED THE APPLICABLE

PROVISIONS OF THE LAW VIS--VIS THE RESCISSION OF CONTRACTS TO SELL REAL
PROPERTY, SPECIFICALLY THE REQUIREMENT OF A PRIOR AND VALIDLY NOTARIZED
LETTER OF DEMAND.
III. THE HONORABLE COURT OF APPEALS FAILED TO APPLY TO THE INSTANT CASE THE
PERTINENT PROVISIONS OF THE NEW CIVIL CODE REGARDING THE PRINCIPLE OF
NOVATION AS A MODE OF EXTINGUISHING AN OBLIGATION.
IV. THE AWARD, BY THE COURT OF APPEALS, OF ATTORNEYS FEES, WAS NOT IN
ACCORD WITH THE FACTS AND THE LAW.
Petitioners maintain that they should have been entitled to get at least one-half of the subject
property, because payment equivalent to its value has been made to, and received by
Kalayaan. Petitioners posit that the RTC should have applied Article 1234[22] of the Civil Code to the
present case, considering that it has been factually established that they were able to pay at least onehalf of the total obligation in good faith.
Petitioners contend that Kalayaan allowed Juliet to continue with the payment of the other half
of the property in installments of P10,000.00 a month. They also insist that they or Juliet was not given
proper demand. They maintain that the demand letters that were previously sent to them were for
their previous obligation with Kalayaan and not for the new agreement between Juliet and Kalayaan to
assume payment of the unpaid portion of the subject property. Petitioners aver that, for a demand of
rescission to be valid, it is an absolute requirement that should be made by way of a duly notarized
written notice.
Petitioners likewise claim that there was a valid novation in the present case. They aver that the
CA failed to see that the original contract between the petitioners and Kalayaan was altered, changed,
146

Atty. G.G. Bernardo
MAS
modified and restructured, as a consequence of the change in the person of the principal debtor and the
monthly amortization to be paid for the subject property. When they agreed to a monthly amortization
of P10,000.00 per month, the original contract was changed; and Kalayaan recognized Juliets capacity
to pay, as well as her designation as the new debtor. The original contract was novated and the
principal obligation to pay for the remaining half of the subject property was transferred from
petitioners to Juliet. When Kalayaan accepted the payments made by the new debtor, Juliet, it waived
its right to rescind the previous contract. Thus, the action for rescission filed by Kalayaan against them,
was unfounded, since the contract sought to be rescinded was no longer in existence.
Finally, petitioners question the RTCs award of attorneys fees. They maintain that there was
no basis for the RTC to have awarded the same. They claim that Kalayaan was not forced, by their acts,
to litigate, because Juliet was offering to pay the installments, but the offer was denied by
Kalayaan. Moreover, since there were no awards for moral and exemplary damages, the award of
attorneys fees would have no basis and should be deleted.
The petition is devoid of merit.
In the present case, the nature and characteristics of a contract to sell is determinative of the
propriety of the remedy of rescission and the award of attorneys fees.
Under a contract to sell, the seller retains title to the thing to be sold until the purchaser fully
pays the agreed purchase price. The full payment is a positive suspensive condition, the non-fulfillment
of which is not a breach of contract, but merely an event that prevents the seller from conveying title to
the purchaser. The non-payment of the purchase price renders the contract to sell ineffective and
without force and effect.[23] Unlike a contract of sale, where the title to the property passes to the
vendee upon the delivery of the thing sold, in a contract to sell, ownership is, by agreement, reserved to
the vendor and is not to pass to the vendee until full payment of the purchase price. Otherwise stated,
in a contract of sale, the vendor loses ownership over the property and cannot recover it until and
unless the contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor
147

Atty. G.G. Bernardo
MAS
until full payment of the purchase price. In the latter contract, payment of the price is a positive
suspensive condition, failure of which is not a breach but an event that prevents the obligation of the
vendor to convey title from becoming effective.[24]
Since the obligation of respondent did not arise because of the failure of petitioners to fully pay
the purchase price, Article 1191[25] of the Civil Code would have no application.
Rayos v. Court of Appeals[26] elucidates:

Construing the contracts together, it is evident that the parties executed a
contract to sell and not a contract of sale. The petitioners retained ownership without
further remedies by the respondents until the payment of the purchase price of the
property in full. Such payment is a positive suspensive condition, failure of which is
not really a breach, serious or otherwise, but an event that prevents the obligation of
the petitioners to convey title from arising, in accordance with Article 1184 of the Civil
Code. x x x
xxxx
The non-fulfillment by the respondent of his obligation to pay, which is a
suspensive condition to the obligation of the petitioners to sell and deliver the title to
the property, rendered the contract to sell ineffective and without force and
effect. The parties stand as if the conditional obligation had never existed. Article 1191
of the New Civil Code will not apply because it presupposes an obligation already
extant. There can be no rescission of an obligation that is still non-existing, the
suspensive condition not having happened.
The parties contract to sell explicitly provides that Kalayaan shall execute and deliver the
corresponding deed of absolute sale over the subject property to the petitioners upon full payment of
the total purchase price. Since petitioners failed to fully pay the purchase price for the entire property,
Kalayaans obligation to convey title to the property did not arise. Thus, Kalayaan may validly cancel the
contract to sell its land to petitioner, not because it had the power to rescind the contract, but because
their obligation thereunder did not arise.
Petitioners failed to pay the balance of the purchase price. Such payment is a positive
suspensive condition, failure of which is not a breach, serious or otherwise, but an event that prevents
148

Atty. G.G. Bernardo
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the obligation of the seller to convey title from arising.[27] The non-fulfillment by petitioners of their
obligation to pay, which is a suspensive condition for the obligation of Kalayaan to sell and deliver the
title to the property, rendered the Contract to Sell ineffective and without force and effect. The parties
stand as if the conditional obligation had never existed.[28] Inasmuch as the suspensive condition did not
take place, Kalayaan cannot be compelled to transfer ownership of the property to petitioners.
As regards petitioners claim of novation, we do not give credence to petitioners assertion that
the contract to sell was novated when Juliet was allegedly designated as the new debtor and substituted
the petitioners in paying the balance of the purchase price.
Novation is the extinguishment of an obligation by the substitution or change of the obligation

by a subsequent one which extinguishes or modifies the first, either by changing the object or principal
conditions, or by substituting another in place of the debtor, or by subrogating a third person in the
rights of the creditor.[29]
Article 1292 of the Civil Code provides that [i]n order that an obligation may be extinguished by
another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that
the old and the new obligations be on every point incompatible with each other. Novation is never
presumed. Parties to a contract must expressly agree that they are abrogating their old contract in favor
of a new one. In the absence of an express agreement, novation takes place only when the old and the
new obligations are incompatible on every point.[30] The test of incompatibility is whether or not the
two obligations can stand together, each one having its independent existence. If they cannot, they are
incompatible and the latter obligation novates the first.[31]
Thus, in order that a novation can take place, the concurrence of the following requisites are
indispensable:
1) There must be a previous valid obligation;
2) There must be an agreement of the parties concerned to a new contract;
3) There must be the extinguishment of the old contract; and
4) There must be the validity of the new contract.
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Atty. G.G. Bernardo
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In the instant case, none of the requisites are present. There is only one existing and binding
contract between the parties, because Kalayaan never agreed to the creation of a new contract between
them or Juliet. True, petitioners may have offered that they be substituted by Juliet as the new debtor
to pay for the remaining obligation. Nonetheless, Kalayaan did not acquiesce to the proposal.
Its acceptance of several payments after it demanded that petitioners pay their outstanding
obligation did not modify their original contract. Petitioners, admittedly, have been in default; and
Kalayaans acceptance of the late payments is, at best, an act of tolerance on the part of Kalayaan that
could not have modified the contract.
As to the partial payments made by petitioners from September 16, 1994 to December 20,
1997, amounting to P788,000.00, this Court resolves that the said amount be returned to the
petitioners, there being no provision regarding forfeiture of payments made in the Contract to Sell. To
rule otherwise will be unjust enrichment on the part of Kalayaan at the expense of the petitioners.
Also, the three percent (3%) penalty interest appearing in the contract is patently iniquitous and
unconscionable as to warrant the exercise by this Court of its judicial discretion. Article 2227 of the Civil
Code provides that [l]iquidated damages, whether intended as an indemnity or a penalty, shall be
equitably reduced if they are iniquitous or unconscionable. A perusal of the Contract to Sell reveals
that the three percent (3%) penalty interest on unpaid monthly installments (per condition No. 3) would
translate to a yearly penalty interest of thirty-six percent (36%).
Although this Court on various occasions has eliminated altogether the three percent (3%)
penalty interest for being unconscionable,[32] We are not inclined to do the same in the present case. A
reduction is more consistent with fairness and equity. We should not lose sight of the fact that Kalayaan
remains an unpaid seller and that it has suffered, one way or another, from petitioners nonperformance of its contractual obligations. In view of such glaring reality, We invoke the authority
granted to us by Article 1229[33] of the Civil Code, and as equity dictates, the penalty interest is
accordingly reimposed at a reduced rate of one percent (1%) interest per month, or twelve percent
(12%) per annum,[34] to be deducted from the partial payments made by the petitioners.
150

Atty. G.G. Bernardo
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As to the award of attorneys fees, the undeniable source of the present controversy is the
failure of petitioners to pay the balance of the purchase price. It is elementary that when attorneys
fees is awarded, they are so adjudicated, because it is in the nature of actual damages suffered by the
party to whom it is awarded, as he was constrained to engage the services of a counsel to represent him
for the protection of his interest.[35] Thus, although the award of attorneys fees to Kalayaan was
warranted by the circumstances obtained in this case, we find it equitable to reduce the award
from P100,000.00 to P50,000.00.
WHEREFORE, premises considered, the Decision of the Regional Trial Court in Civil Case No. C18378, dated August 2, 2000, is hereby MODIFIED to the extent that the contract between the parties is
cancelled and the attorneys fees is reduced to P50,000.00. Respondent is further ordered to refund the
amount paid by the petitioners after deducting the penalty interest due. In all other aspects, the
Decision stands.
Subject to the above disquisitions, the Decision dated January 23, 2004 and the Resolution
dated April 20, 2004, of the Court of Appeals in CA-G.R. CV No. 69814, areAFFIRMED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
MINITA V. CHICO-NAZARIO
Associate Justice
PRESBITERO J. VELASCO, JR.

Associate Justice
151

Atty. G.G. Bernardo
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ANTONIO EDUARDO B. NACHURA

Associate Justice
152

Atty. G.G. Bernardo
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[1]
Penned by Associate Justice B.A. Adefuin-De la Cruz, with Associate Justices Eliezer R. De
los Santos and Jose C. Mendoza, concurring; rollo, pp. 76-82.
[2]
Id. at 94.
[3]
Records, pp. 153-155.
[4]
Id. at 156-157.
[5]
Id. at 156.
[6]
Id. at 157.
[7]
Id. at 228.
[8]
Id. at 165.
[9]
Id. at 163.
[10]
Id. at 162.
[11]
Id. at 229.
[12]
Rollo, p. 80.
[13]
Records, pp. 1-6.
[14]
Id. at 22-30.
[15]
Id. at 29.
[16]
Rollo, pp. 34-44.
[17]
Id. at 44.
[18]
Id. at 51.
[19]
Id. at 81.
[20]
Id. at 82-88.
[21]
Id. at 94.
[22]
Art. 1234. If the obligation has been substantially performed in good faith, the obligor may
recover as though there had been a strict and complete fulfillment, less damages suffered by the
obligee.
[23]
Cordero v. F.S. Management and Development Corporation, G.R. No. 167213, October 31,
2006, 506 SCRA 451, 461-462.
[24]
Spouses Cornelio Joel I. Orden and Maria Nympha A. Orden, et al. v. Spouses Arturo and
Melodia Aurea, et al., G.R. No. 172733, August 20, 2008.
[25]
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.
xxxx
[26]
478 Phil. 477, 495-496 (2001). (Emphasis supplied; citations omitted.)
[27]
Leao v. Court of Appeals, 420 Phil. 836, 846 (2001).
[28]
Supra note 24.
[29]
Agro Conglomerates, Inc. v. Court of Appeals, 401 Phil. 644, 655 (2000).
[30]
Rillo v. Court of Appeals, G.R. No. 125347, June 19, 1997, 274 SCRA 461, 469.
[31]
Fabrigas v. San Francisco del Monte, Inc., G.R. No. 152346, November 25, 2005, 467 SCRA
247, 259.
[32]
Palmares v. Court of Appeals, 351 Phil. 664 (1998); Minute Resolution in Magallanes v.
Court of Appeals, G.R. No. 112614, May 16, 1994.
[33]
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.
[34]
Segovia Development Corporation v. J.L. Dumatol Realty and Development Corporation,
416 Phil. 528, 541 (2001).
153

Atty. G.G. Bernardo
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[35]
Mactan Cebu International Airport Authority v. Hontanosas, Jr., A.M. No. RTJ-031815, October 25, 2004, 411 SCRA 229, 244-245.
154

Atty. G.G. Bernardo
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Floirendo vs CA Mutuality of Contracts

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 148325
September 3, 2007
REYNALDO P. FLOIRENDO, JR., petitioner,

vs.
METROPOLITAN BANK and TRUST COMPANY, respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
For our resolution is the instant Petition for Review on Certiorari under Rule 45 of the 1997 Rules of
Civil Procedure, as amended, assailing the Decision1 dated February 22, 2001 and Order2 dated May 2,
2001 rendered by the Regional Trial Court (RTC), Branch 39, Cagayan de Oro City in Civil Case No. 98476, entitled, "REYNALDO P. FLOIRENDO, JR., plaintiff, v. METROPOLITAN BANK AND TRUST COMPANY,
ET AL., defendants."
Reynaldo P. Floirendo, Jr., petitioner, is the president and chairman of the Board of Directors of
Reymill Realty Corporation, a domestic corporation engaged in real estate business. On March 20, 1996,
he obtained a loan ofP1,000,000.00 from the Metropolitan Bank and Trust Company, Cagayan de Oro
City Branch, respondent, to infuse additional working capital for his company. As security for the loan,
petitioner executed a real estate mortgage in favor of respondent bank over his four (4) parcels of land,
all situated at Barangay Carmen, Cagayan de Oro City.
The loan was renewed for another year secured by the same real estate mortgage. Petitioner signed
a promissory note dated March 14, 1997 fixing the rate of interest at "15.446% per annum for the first
30 days, subject to upward/downward adjustment every 30 days thereafter"; and a penalty charge of
18% per annum"based on any unpaid principal to be computed from date of default until payment of
the obligation." The promissory note likewise provides that:
The rate of interest and/or bank charges herein stipulated, during the term of this
Promissory Note, its extension, renewals or other modifications, may be increased, decreased,
or otherwise changed from time to time by the Bank without advance notice to me/us in the
event of changes in the interest rate prescribed by law or the Monetary Board of the Central
Bank of the Philippines, in the rediscount rate of member banks with the Central Bank of the
Philippines, in the interest rates on savings and time deposits, in the interest rates on the banks
borrowings, in the reserve requirements, or in the overall costs of funding or money;
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Atty. G.G. Bernardo
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I/We hereby expressly consent to any extension and/or renewal hereof in whole or in part
and/or partial payment on account which may be requested by and/or granted to anyone of us
for the payment of this note upon payment of the corresponding renewal or extension fee.
On July 11, 1997, respondent bank started imposing higher interest rates on petitioners loan which
varied through the months, in fact, as high as 30.244% in October 1997. As a result, petitioner could no
longer pay the high interest rates charged by respondent bank. Thus, he negotiated for the renewal of
his loan. Respondent bank agreed provided petitioner would pay the arrears in interest amounting to
the total sum of P163,138.33. Despite payment by petitioner, respondent bank, instead of renewing the
loan, filed with the Office of the Clerk of Court and Provincial Sheriff, RTC, Cagayan de Oro City a petition
for foreclosure of mortgage which was granted. On August 17, 1998, the auction sale was set.
Prior thereto or on August 11, 1998, petitioner filed with the RTC, Branch 39, same city, a complaint
for reformation of real estate mortgage contract and promissory note, docketed as Civil Case No. 98476. Referring to the real estate mortgage and the promissory note as "contracts of adhesion,"
petitioner alleged that the increased interest rates unilaterally imposed by respondent bank are
scandalous, immoral, illegal and unconscionable. He also alleged that the terms and conditions of the
real estate mortgage and the promissory note are such that they could be interpreted by respondent
bank in whatever manner it wants, leaving petitioner at its mercy. Petitioner thus prayed for
reformation of these documents and the issuance of a temporary restraining order (TRO) and a writ of
preliminary injunction to enjoin the foreclosure and sale at public auction of his four (4) parcels of land.
On August 14, 1998, the RTC issued a TRO and on September 3, 1998, a writ of preliminary
injunction.
In its answer to the complaint, respondent bank asserted that the interest stipulated by the parties
in the promissory note is not per annum but on a month to month basis. The 15.446% interest appearing
therein was good only for the first 30 days of the loan, subject to upward and downward adjustment
every 30 days thereafter. The terms of the real estate mortgage and promissory note voluntarily entered
into by petitioner are clear and unequivocal. There is, therefore, no legal and factual basis for an action
for reformation of instruments.
On February 22, 2001, the RTC rendered a Judgment (1) dismissing the complaint for reformation of
instruments, (2) dissolving the writ of preliminary injunction and (3) directing the sale at public auction
of petitioners mortgaged properties. The RTC ruled:
In order that an action for reformation of an instrument may prosper, the following
requisites must occur:
1.) There must have been a meeting of the minds upon the contract;
2.) The instrument or document evidencing the contract does not express the true
agreement between the parties; and
3.) The failure of the instrument to express the agreement must be due to mistake, fraud,
inequitable conduct or accident. (National Irrigation Administration v. Gamit, G.R. No. 85869,
November 5, 1992)
156

Atty. G.G. Bernardo
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xxx
A perusal further of the complaint and the evidences submitted by the parties convinced the
court that there was certainly a meeting of the minds between the parties. Plaintiff and
defendant bank entered into a contract of loan, the terms and conditions of which, especially on
the rates of interest, are clearly and unequivocally spelled out in the promissory note. The court
believes that there was absolutely no mistake, fraud or anything that could have prevented a
meeting of the minds between the parties.
The RTC upheld the validity of the escalation clause, thus:
Escalation clauses are valid stipulations in commercial contract to maintain fiscal stability
and to retain the value of money in loan term contracts, (Llorin v. CA, G.R. No. 103592, February
4, 1993).
xxx
xxx
xxx
x x x the Court has no other alternative to resolve Issue No. 1 that defendant bank is allowed
to impose the interest rate questioned by plaintiff considering that Exhibit "B" and "B-1," which
is Exhibit "1" and "1-A" of defendant bank is very clear that the rate of interest is 15.446% per
annum for the first 30 days subject to upward/downward adjustment every 30 days thereafter.
On the issue of the validity of the foreclosure of the real estate mortgage, the RTC ruled that:
It is a settled rule that in a real estate mortgage when the obligation is not paid when due,
the mortgagee has the right to foreclose the mortgage and to have the property seized and sold
in view of applying the proceeds to the payment of the obligation (Estate Investment House v.
CA, 215 SCRA 734).
On May 2, 2001, petitioner filed a motion for reconsideration but it was denied for lack of merit.
Hence, the instant petition.
The fundamental issue for our resolution is whether the mortgage contract and the promissory note
express the true agreement between the parties herein.
Petitioner contends that the "escalation clause" in the promissory note imposing 15.446% interest
on the loan "for the first 30 days subject to upward/downward adjustment every 30 days thereafter" is
illegal, excessive and arbitrary. The determination to increase or decrease such interest rate is primarily
left to the discretion of respondent bank.
We agree.
We hold that the increases of interest rate unilaterally imposed by respondent bank without
petitioners assent are violative of the principle of mutuality of contracts ordained in Article 1308 of the
Civil Code3 which provides:
157

Atty. G.G. Bernardo
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Article 1308. The contract must bind both contracting parties; its validity or compliance
cannot be left to the will of one of them.
The binding effect of any agreement between the parties to a contract is premised on two settled
principles: (1) that obligations arising from contracts have the force of law between the contracting
parties; and (2) that there must be mutuality between the parties based on their essential equality to
which is repugnant to have one party bound by the contract leaving the other free therefrom.4 Any
contract which appears to be heavily weighed in favor of one of the parties so as to lead to an
unconscionable result is void. Any stipulation regarding the validity or compliance of the contract which
is left solely to the will of one of the parties is likewise invalid.5
The provision in the promissory note authorizing respondent bank to increase, decrease or
otherwise change from time to time the rate of interest and/or bank charges "without advance notice"
to petitioner, "in the event of change in the interest rate prescribed by law or the Monetary Board of
the Central Bank of the Philippines," does not give respondent bank unrestrained freedom to charge any
rate other than that which was agreed upon. Here, the monthly upward/downward adjustment of
interest rate is left to the will of respondent bank alone. It violates the essence of mutuality of the
contract.
In Philippine National Bank v. Court of Appeals,6 and in later cases,7 we held:
In order that obligations arising from contracts may have the force of law between the
parties, there must be mutuality between the parties based on their essential equality. A
contract containing a condition which makes its fulfillment dependent exclusively upon the
uncontrolled will of one of the contracting parties, is void (Garcia v. Rita Legarda, Inc., 21 SCRA
555). Hence, even assuming that the P1.8 million loan agreement between the PNB and the
private respondent gave the PNB a license (although in fact there was none) to increase the
interest rate at will during the term of the loan, that license would have been null and void for
being violative of the principle of mutuality essential in contracts. It would have invested the
loan agreement with the character of a contract of adhesion, where the parties do not bargain
on equal footing, the weaker partys (the debtor) participation being reduced to the alternative
"to take it or leave it" (Qua v. Law Union & Rock Insurance Co., 95 Phil. 85). Such a contract is a
veritable trap for the weaker party whom the courts of justice must protect against abuse and
imposition.
In New Sampaguita Builders Construction, Inc. (NSBCI) v. Philippine National Bank,8 we ruled that
while it is true that escalation clauses are valid in maintaining fiscal stability and retaining the value of
money on long term contracts, however, giving respondent an unbridled right to adjust the interest
independently and upwardly would completely take away from petitioner the right to assent to an
important modification in their agreement, hence, would negate the element of mutuality in their
contracts. Such escalation clause would make the fulfillment of the contracts dependent exclusively
upon the uncontrolled will of respondent bank and is therefore void. In the present case, the promissory
note gives respondent bank authority to increase the interest rate at will during the term of the loan.
This stipulation violates the principle of mutuality between the parties. It would be converting the loan
agreement into a contract of adhesion where the parties do not bargain on equal footing, the weaker
partys (petitioners) participation being reduced to the alternative "to take it or leave it.9 While the
Usury Law ceiling on interest rate was lifted by Central Bank Circular No. 905, nothing therein could
158

Atty. G.G. Bernardo
MAS
possibly be read as granting respondent bank carte blanche authority to raise interest rate to levels
which would either enslave its borrower (petitioner herein) or lead to hemorrhaging of his assets.10
In Philippine National Bank v. Court of Appeals11 we declared void the escalation clause in the Credit
Agreement between petitioner bank and private respondents whereby the "Bank reserves the right to
increase the interest rate within the limit allowed by law at any time depending on whatever policy it
may adopt in the future xxx." We held:
It is basic that there can be no contract in the true sense in the absence of the element of
agreement, or of mutual assent of the parties. If this assent is wanting on the part of one who
contracts, his act has no more efficacy than if it had been done under duress or by a person of
unsound mind.
Similarly, contract changes must be made with the consent of the contracting parties. The
minds of all the parties must meet as to the proposed modification, especially when it affects an
important aspect of the agreement. In the case of loan contracts, it cannot be gainsaid that the
rate of interest is always a vital component, for it can make or break a capital venture. Thus, any
change must be mutually agreed upon, otherwise, it is bereft of any binding effect.
We cannot countenance petitioner banks posturing that that escalation clause at bench
gives it unbridled right to unilaterally upwardly adjust the interest on private respondents loan.
That would completely take away from private respondents the right to assent to an important
modification in their agreement, and would negate the element of mutuality in contracts.
Under Article 1310 of the Civil Code, courts are granted authority to reduce/increase interest rates
equitably, thus:
Article 1310. The determination shall not be obligatory if it is evidently inequitable. In such
case, the courts shall decide what is equitable under the circumstances.
In the other Philippine National Bank v. Court of Appeals12 case, we disauthorized petitioner bank
from unilaterally raising the interest rate on the loan of private respondent from 18% to 32%, 41% and
48%. In Almeda v. Court of Appeals,13 where the interest rate was increased from 21% to as high as 68%
per annum, we declared arbitrary "the galloping increases in interest rate imposed by respondent bank
on petitioners loan, over the latters vehement protests." In Medel v. Court of Appeals,14 the stipulated
interest of 5.5% per month or 66% per annum on a loan amounting to P500,000.00 was equitably
reduced for being iniquitous, unconscionable and exorbitant. In Solangon v. Salazar,15 the stipulated
interest rate of 6% per month or 72% per annum was found to be "definitely outrageous and inordinate"
and was reduced to 12% per annum which we deemed fair and reasonable. In Imperial v. Jaucian,16 we
ruled that the trial court was justified in reducing the stipulated interest rate from 16% to 1.167% or
14% per annum and the stipulated penalty charge from 5% to 1.167% per month or 14% per annum.
In this case, respondent bank started to increase the agreed interest rate of 15.446% per annum to
24.5% on July 11, 1997 and every month thereafter; 27% on August 11, 1997; 26% on September 10,
1997; 33% on October 15, 1997; 26.5% on November 27, 1997; 27% on December 1997; 29% on January
13, 1998; 30.244% on February 7, 1998; 24.49% on March 9, 1998; 22.9% on April 18, 1998; and 18% on
159

Atty. G.G. Bernardo
MAS
May 21, 1998. Obviously, the rate increases are excessive and arbitrary. It bears reiterating that
respondent bank unilaterally increased the interest rate without petitioners knowledge and consent.
As mentioned earlier, petitioner negotiated for the renewal of his loan. As required by respondent
bank, he paid the interests due. Respondent bank then could not claim that there was no attempt on his
part to comply with his obligation. Yet, respondent bank hastily filed a petition to foreclose the
mortgage to gain the upperhand in taking petitioners four (4) parcels of land at bargain prices.
Obviously, respondent bank acted in bad faith.
In sum, we find that the requisites for reformation of the mortgage contract and promissory note
are present in this case. There has been meeting of minds of the parties upon these documents.
However, these documents do not express the parties true agreement on interest rates. And the failure
of these documents to express their agreement on interest rates was due to respondent banks
inequitable conduct.
WHEREFORE, we GRANT the petition. The Judgment dated February 22, 2001 of the RTC of Cagayan
de Oro City, Branch 39 in Civil Case No. 98-476 is REVERSED. The real estate mortgage contract and the
promissory note agreed upon by the parties are reformed in the sense that any increase in the interest
rate beyond 15.446%per annum should not be imposed by respondent bank without the consent of
petitioner. The interest he paid in excess of 15.446% should be applied to the payment of the principal
obligation.
SO ORDERED.
Puno, C.J., Chairperson, Corona, Azcuna, Garcia, JJ., concur.
Footnotes
1
Annex "J" of the petition, rollo, pp. 86-95.
Annex "O" of the petition, id., p. 112.
Spouses Florendo v. Court of Appeals, G.R. No. 101771, December 17, 1996, 265 SCRA 678,
citing Philippine National Bank v. Court of Appeals, 196 SCRA 536 (1991).
4
Garcia v. Rita Legarda, Inc., No. L-20175, October 30, 1967, 21 SCRA 555, citing 8 Manresa
556;Almeda v. Court of Appeals, G.R. No. 113412, April 17, 1996, 256 SCRA 292; Philippine
National Bank v. Court of Appeals, G.R. No. 88880, April 30, 1991, 196 SCRA 536.
5
Almeda v. Court of Appeals, supra.
Supra, at footnote 4.
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Atty. G.G. Bernardo
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Philippine National Bank v. Court of Appeals, G.R. No. 107569, November 8, 1994, 238
SCRA 20;Philippine National Bank v. Court of Appeals, G.R No. 109563, July 9, 1996, 258 SCRA
549; Spouses Florendo v. Court of Appeals, supra at footnote 3.
8
G.R. No. 148753, July 20, 2004, 435 SCRA 565, citing Polotan Sr. v. Court of Appeals, 296
SCRA 247 (1998); Philippine National Bank v. Court of Appeals, supra, at footnote 7; Garcia v.
Rita Legarda, Inc., supra, at footnote 4; Qua Chee Gan v. Law Union and Rock Insurance Co. Ltd.,
98 Phil. 85 (1955); and Imperial v. Jaucian, supra, at footnote 10.
9
Ibid., citing Philippine National Bank v. Court of Appeals, supra, at footnote 4.
10
Ibid., citing Imperial v. Jaucian, 427 SCRA 517 (2004); Spouses Solangon v. Salazar, 360
SCRA 379 (2001) and Almeda v. Court of Appeals, supra, at footnote 4.
11
12
13
14
G.R. No. 131622, November 27, 1998, 299 SCRA 481.
15
G.R. No. 125944, June 29, 2001, 360 SCRA 379.
16
17
Garcia v. Rita Legarda, Inc., No. L-20175, October 30, 1967, 21 SCRA 555; Almeda v. Court
of Appeals,G.R. No. 113412, April 17, 1997, 256 SCRA 292.
18
Philippine National Bank v. Court of Appeals, G.R. No. 88880, April 30, 1998, 196 SCRA
536, citing Garcia v. Rita Legarda, supra, Almeda v. Court of Appeals, supra.
19
Philippine National Bank v. Court of Appeals, supra, citing Garcia v. Rita Legarda, Inc,
supra; see also Almeda v. Court of Appeals, supra; Spouses Florendo v. Court of Appeals,
supra; Philippine National Bank v. Court of Appeals, G.R. No. 109563, July 9, 1996, 258 SCRA
549; Banco Filipino Savings & Mortgage Bank v. Navarro, No. L-46591, July 28, 1987.
20
New Sampaguita Builders Construction, Inc. (NSBCI) v. Philippine National Bank, supra.
21
New Sampaguita Builders Construction, Inc. (NSBCI) v. Philippine National Bank, supra,
citing Garcia v. Rita Legarda, Inc., supra.
22
Ibid., citing Garcia v. Rita Legarda, supra.
23
Qua v. Law Union and Rock Insurance Co., Ltd., 95 Phil. 85.
161

Atty. G.G. Bernardo
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24
Philippine National Bank v. Court of Appeals, supra; New Sampaguita Builders

Construction, Inc. (NSBCI) v. Philippine National Bank, supra.
25
Almeda v. Court of Appeals, supra; Philippine National Bank v. Court of Appeals, 238 SCRA
20;Solangon v. Salazar, G.R. No. 125944, June 29, 2001, 360 SCRA 379.
26
Ibid., citing Philippine National Bank v. Court of Appeals, 196 SCRA 536 (supra).
27
Qua v. Law Union and Rock Insurance Co., Ltd., 95 Phil. 85; Almeda v. Court of Appeals,
supra.
28
Almeda v. Court of Appeals, supra.
162

Atty. G.G. Bernardo
MAS
Ajax Marketing vs CA - Novation

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 118585 September 14, 1995

AJAX MARKETING & DEVELOPMENT CORPORATION, ANTONIO TAN, ELISA TAN, TAN YEE, and SPS.
MARCIAL SEE and LILIAN TAN, petitioners,
vs.
HON. COURT OF APPEALS, METROPOLITAN BANK AND TRUST COMPANY, and THE SHERIFF OF
MANILA, respondents.
FRANCISCO, J.:
In its March 30, 1994 decision, public respondent Court of Appeals affirmed the trial court's judgment
upholding the validity of the extra-judicial foreclosure of the real estate property of petitioners
spouses Marcial See and Lilian Tan, located at Paco District, Manila covered by TCT 105233, by private
respondent Metropolitan Bank and Trust Company (Metrobank). 1 Petitioners' motion for
reconsideration was denied; hence, this petition for review oncertiorari raising the following
assignments of errors:
FIRST: The Honorable Court of Appeals erred in holding that the consolidation of the
three (3) loans granted separately to three entities into a single loan of P1.0 Million was
a mere restructuring and did not effect a novation of the loan as to extinguish the
accessory mortgage contracts.
SECOND: The Honorable Court of Appeals erred in not holding that the consolidated
loan of P1.0 Million was not accompanied by the execution of a new REM, as was done
by the Bank in the earlier three (3) loans, and hence, was, to all legal intents/purposes,
unsecured.
THIRD: The Honorable Court of Appeals erred in holding that the inclusion in the extrajudicial foreclosure of the admittedly unsecured loan of P970,000.00 is a mere error that
does not invalidated said foreclosure, contrary to the pronouncement in C & C
Commercial Corp. vs. PNB, 175 SCRA 1.
FOURTH: The Honorable Court of Appeals erred in not declaring as null and void the
extra-judicial foreclosure undertaken by Metrobank on the property of Sps. Marcial See
and Lilian Tan. 2
163

Atty. G.G. Bernardo
MAS
The facts as found by public respondent Court of Appeals are as follows:

It is not disputed that Ylang-Ylang Merchandising Company, a partnership between
Angelita Rodriguez and Antonio Tan, obtained a loan in the amount of P250,000.00 from
the Metropolitan Bank and Trust Company, and to secure payment of the same, spouses
Marcial See and Lilian Tan constituted a real estate mortgage in favor of said bank over
their property in the District of Paco, Manila, covered by TCT No. 105233 of the Registry
of Deeds of Manila. The mortgage was annotated at the back of the title.
Subsequently, after the partnership had changed its name to Ajax Marketing Company
albeit without changing its composition, it obtained a loan in the sum of P150,000.00
from Metropolitan Bank and Trust Company. Again to secure the loan, spouses Marcial
See and Lilian Tan executed in favor of said bank a second real estate mortgage over the
same property. As in the first instance, the mortgage was duly annotated at the back of
TCT No. 105233.
On February 19, 1979, the partnership (Ajax Marketing Company) was converted into a
corporation denominated as Ajax Marketing and Development Corporation, with the
original partners (Angelita Rodriguez and Antonio Tan) as incorporators and three (3)
additional incorporators, namely, Elisa Tan, the wife of Antonio Tan, and Jose San Diego
and Tessie San Diego. Ajax Marketing and Development Corporation obtained from
Metropolitan Bank and Trust Company a loan of P600,000.00, the payment of which
was secured by another real estate mortgage executed by spouses Marcial See and
Lilian Tan in favor of said bank over the same realty located in the District of Paco,
Manila. Again, the third real estate mortgage was annotated at the back of TCT No.
105233.
In December 1980, the three (3) loans with an aggregate amount of P1,000,000.00 were
re-structured and consolidated into one (1) loan and Ajax Marketing and Development
Corporation, represented by Antonio Tan as Board Chairman/President and in his
personal capacity as solidary co-obligor, and Elisa Tan as Vice-President/Treasurer and in
her personal capacity as solidary co-obligor, executed a Promissory Note (PN) No. BDS3605. 3
In their interrelated first and second assignment of errors, petitioners argue that a novation occurred
when their three (3) loans, which are all secured by the same real estate property covered by TCT No.
105233 were consolidated into a single loan of P1 million under Promissory Note No. BDS-3605, thereby
extinguishing their monetary obligations and releasing the mortgaged property from liability.
Basic principles on novation need to be stressed at the outset. Novation is the extinguishment of an
obligation by the substitution or change of the obligation by a subsequent one which extinguishes or
modifies the first, either by changing the object or principal conditions, or by substituting another in
place of the debtor, or by subrogating a third person in the rights of the creditor. 4 Novation, unlike
other modes of extinction of obligations, is a juridical act with a dual function, namely, it extinguishes an
obligation and creates a new one in lieu of the old. It can be objective, subjective, or mixed. Objective
novation occurs when there is a change of the object or principal conditions of an existing obligation
while subjective novation occurs when there is a change of either the person of the debtor, or of the
creditor in an existing obligation. 5 When the change of the object or principal conditions of an obligation
164

Atty. G.G. Bernardo
MAS
occurs at the same time with the change of either in the person of the debtor or creditor a mixed
novation occurs. 6
The well settled rule is that novation is never presumed. 7 Novation will not be allowed unless it is clearly
shown by express agreement, or by acts of equal import. Thus, to effect an objective novation it is
imperative that the new obligation expressly declare that the old obligation is thereby extinguished, or
that the new obligation be on every point incompatible with the new one. 8 In the same vein, to effect a
subjective novation by a change in the person of the debtor it is necessary that the old debtor be
released expressly from the obligation, and the third person or new debtor assumes his place in the
relation. 9 There is no novation without such release as the third person who has assumed the debtor's
obligation becomes merely a co-debtor or surety. 10
The attendant facts herein do not make a case of novation. There is nothing in the records to show the
unequivocal intent of the parties to novate the three loan agreements through the execution of PN No.
BDS-3065. The provisions of PN No. BDS-3065 yield no indication of the extinguishment of, or an
incompatibility with, the three loan agreements secured by the real estate mortgages over TCT No.
105233. On its face, PN No. BDS-3065 has these words typewritten: "secured by REM" and "9.
COLLATERAL. This is wholly/partly secured by: (x) "real estate", 11 which strongly negate petitioners'
asseveration that the consolidation of the three loans effected the discharge of the mortgaged real
estate property. Otherwise, there would be no sense placing these material provisions. Moreover; the
real estate mortgages contained this common provision, to wit:
That for and in consideration of credit accommodations obtained from the MORTGAGEE
(Metropolitan Bank and Trust Company), by the MORTGAGOR and/or AJAX MKTG. DEV.
CORP./AJAX MARKETING COMPANY/YLANG-YLANG MERCHANDISING COMPANY
detailed as follows:
Nature Date Granted Due Date Amount or Line
Loans and/or P 600,000.00
Advances in 150,000.00
current account 250,000.00
and to secure the payment of the same and those that may hereafter be obtained
including the renewals or extension thereof.
xxx xxx xxx
the principal of all of which is hereby fixed at (P600,000.00/ P150,000.00/ P250,000.00) .
. .as well as those that the MORTGAGEE may have previously extended or may later
extend to the MORTGAGOR, including interest and expenses or any other obligation
owing to the MORTGAGEE, whether direct or indirect, principal or secondary, as appears
in the accounts, books and records of the MORTGAGEE, the MORTGAGOR hereby
transfer and convey by way of mortgage unto the MORTGAGEE, its successors or
assigns, the parcels of land which are described in the list inserted on page three of this
165

Atty. G.G. Bernardo
MAS
document and/or appended hereto, together with all the buildings and improvements
now existing or which may hereafter be erected or constructed thereon, of which the
MORTGAGOR declares that he/it is the absolute owner free from all liens and
encumbrances. However, if the MORTGAGOR shall pay to the MORTGAGEE, its
successors or assigns, the obligation secured by this mortgage when due, together with
interest, and shall keep and perform all and singular the covenants and agreements
herein contained for the MORTGAGOR to keep and perform, then the mortgage shall be
void; otherwise, it shall remain in full force and effect. 12
The foregoing shows that petitioners agreed to apply the real estate property to secure
obligations that they may thereafter obtain including their renewals or extensions with the
principals fixed at P600,000.00, P150,000.00, and P250,000.00 which when added have an
aggregate sum of P1.0 million. PN No. BDS-3605 merely restructured and renewed the three
previous loans to expediently make the loans current. There was no change in the object of the
prior obligations. The consolidation of the three loans, contrary to petitioners' contention, did
not release the mortgaged real estate property from any liability because the mortgage
annotations at the back of TCT No. 105233, in fact, all remained uncancelled, thus indicating the
continuing subsistence of the real estate mortgages.
Neither can it be validly contended that there was a change, or substitution in the persons of either the
creditor (Metrobank) or more specifically the debtors (petitioners) upon the consolidation of the loans
in PN No. BDS 3605. The bare fact of petitioners' conversion from a partnership to a corporation,
without sufficient evidence, either testimonial or documentary, that they were expressly released from
their obligations, did not make petitioner AJAX, with its new corporate personality, a third person or
new debtor within the context of a subjective novation. If at all, petitioner AJAX only became a codebtor or surety. Without express release of the debtor from the obligation, any third party who may
thereafter assume the obligation shall be considered merely as co-debtor or surety. Novation arising
from a purported change in the person of the debtor must be clear and express because, to repeat, it is
never presumed. Clearly then, from the aforediscussed points, neither objective nor subjective novation
occurred here.
Anent the third assigned error, petitioners posit that the extra-judicial foreclosure is invalid as it
included two unsecured loans: one, the consolidated loan of P1.0 million under PN BDS No. 3605, and
two, the P970,000.00 loan under PN BDS No. 3583 subsequently extended by Metrobank.
An action to foreclose a mortgage is usually limited to the amount mentioned in the mortgage, but
where on the four corners of the mortgage contracts, as in this case, the intent of the contracting
parties is manifest that the mortgaged property shall also answer for future loans or advancements then
the same is not improper as it is valid and binding between the parties. 13 For merely consolidating and
expediently making current the three previous loans, the loan of P1.0 million under PN BDS No. 3605,
secured by the real estate property, was correctly included in the foreclosure's bid price. The inclusion
of the unsecured loan of P970,000.00 under PN BDS NO. 3583, however, was found to be improper by
public respondent which ruling we shall not disturb for Metrobank's failure to appeal therefrom.
Nonetheless, the inclusion of PN BDS No. 3583 in the bid price did not invalidate the foreclosure
proceedings. As correctly pointed out by the Court of Appeals, the proceeds of the auction sale should
be applied to the obligation pertaining to PN BDS No. 3605 only, plus interests, expenses and other
charges accruing thereto. It is Metrobank's duty as mortgagee to return the surplus in the selling price to
the mortgagors. 14
166

Atty. G.G. Bernardo
MAS
Lastly, petitioners cite as supporting authority C & C Commercial Corp. v. Philippine National
Bank 15 where this Court enjoined the foreclosure proceedings for including unsecured obligations.
Petitioners' reliance on the C & C Commercial Corp. v. Philippine National Bank case is misplaced. In that
case, the foreclosure sale included previously incurred unsecured obligations in favor of PNB which were
not in the contemplation of the mortgage contract, whereas in the instant case, the mortgages were
one in providing that the mortgaged real estate property shall also secure future advancements or
loans, as well as renewals or extensions of the same.
Prescinding from the above discussions, the fourth assignment of error obviously needs no further
discussion.
WHEREFORE, the decision appealed from is hereby AFFIRMED in toto.
Narvasa, C.J., Regalado, Puno and Mendoza, JJ., concur.
Footnotes
1 Twelfth Division, Martin, J., Ponente. Elbinias, Guerrero. JJ., Concurring.
2 Petition , pp. 6-7; Rollo pp. 13-14.
3 Decision pp. 6-7, Rollo pp. 32-33.
4 FRANCISCO, V. J. Civil Code of the Philippines Annotated and Commented, Bk
IV Part 1, p. 676, citing 8 Manresa 417, De Cortes v. Venturanza, 79 SCRA 709,
722-723 (1977).
5 Cochingyan, Jr. v. R & B Surety and Insurance Co., Inc., 151 SCRA 339, 349
(1987).
6 Id.
7 Martinez v. Cavives, 25 Phil. 581, 586-587 (1913); Tiu Suico v. Habana, 45 Phil.
707, 713 (1924); Goni v. Court of Appeals, 144 SCRA 222 , 232 (1986).
8 Article 1292, Civil Code; Zapanta v. Rotaeche, 21 Phil. 154, 159 (1912);
Cochingyan, Jr.supra.
9 Lopez v. Court of Appeals, 114 SCRA 671, 688 (1982); Mercantile Insurance
Co., Inc. v. Court of Appeals, 196 SCRA 197, 204 (1991).
10 Dugo v. Lopea, 116 Phil. 1305 (1962); Lopez v. Court of Appeals, supra.
11 Annex E, Records.
12 Decision of the Court of Appeals dated March 30, 1994, pp. 7-8; Rollo pp. 3334.
167

Atty. G.G. Bernardo
MAS
13 Tady-Y v. Philippine National Bank, 12 SCRA 19 (1964); Julian v. Lutero, 49

Phil. 703 (1926).
14 Gorospe and Sebastian v. Gochangco, 106 Phil. 425, 431 (1959); Caparas v.
Yatco, et al., 89 Phil. 10, 12 (1951).
15 175 SCRA 1 (1989).
168

Atty. G.G. Bernardo
MAS
GSIS vs CA Mutuality of Contracts

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 195567 November 25, 1993

GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), petitioner,
vs.
HONORABLE COURT OF APPEALS and SPOUSES RAUL and ESPERANZA LEUTERIO, respondents.
The Legal Services Group for petitioner.
Jaime M. Posadas for private respondents.
PUNO, J.:
This is a petition for review on certiorari to set aside the Decision of the 10th Division of the Court of
Appeals ordering the petitioner GSIS to execute a Final Deed of Sale in favor of the spouses Raul and
Esperanza Leuterio involving a house and lot in the GSIS Village, Project 8-C, Quezon City. 1
The facts show that on December 18, 1963, the petitioner GSIS conducted a lottery draw for the
allocation of lots and housing units in Project 8-C of GSIS Village. Private respondent Esperanza Leuterio
won and was issued a Certificate of Acknowledgment to purchase the subject house and lot 2 on
December 27, 1963. In 1965, the parties entered into a Deed of Conditional Sale evidencing the
conveyance of the subject property and all improvements thereon to the Leuterio spouses for the
purchase price of P19,740.00, payable over a fifteen-year period, in 180 equal monthly installments of
P168.53 each. Paragraph 11 of the Deed of Conditional Sale provides:
Upon the full payment by the Vendee of the purchase price of the lot and
dwelling/improvement above referred to together with all the interest due thereon,
taxes and other charges and upon his faithful compliance with all the conditions of the
Contract, the Vendor agrees to execute in favor of the Vendee, or his/their heirs and
successors-in-interest a final Deed of Sale of the aforementioned land and
dealing/improvements. . . . 3
Three years elapsed before the Deed was notarized, and a copy of the same was given to the private
respondents.
169

Atty. G.G. Bernardo
MAS
After the land development and housing construction of Project 8-C were completed in 1966,
petitioner's Board of Trustees increased the purchase price indicated in the Deed of Conditional Sale
covering houses and lots therein. The new price was based on the alleged final cost of construction of
the GSIS Village. It is noted that, on the face of the Leuterio's Conditional Deed of Sale is the marginal
notation "subject to adjustment pending approval of the Board of Trustees." The Leuterio spouses
alleged that this notation was not in the Deed when they signed the same in 1965. Resolving this factual
issue, the trial court found that the appended words were inserted into the document without the
knowledge or consent of the Leuterio spouses. This finding of fact went undisturbed on appeal to the
respondent court. 4
Sometime in the early 1970's, a group (not including the Leuterios) of conditional vendees of houses and
lots in Project 8-C of GSIS Village brought suit 5 against herein petitioner, questioning the increase in
purchase price. They likewise wrote a "A Plea For Justice" to then President Ferdinand E. Marcos,
requesting for a directive to petitioner's management to "accept payments of amortization installments
on the original amounts stated in the Deed(s) of Conditional Sale."
As a result, the Office of the President created a three-man Ad Hoc committee, composed of
representatives of the Office of the President, the petitioner System, and the GSIS Village Association.
The committee found that the final cost of the Village justified a higher price range for the houses and
lots in the project.
Based on the ad hoc committee's findings, the petitioner System, with the approval of its Board of
Trustees, increased the purchase prices of the houses and lots in the GSIS Village.
On May 30, 1973, however, then Presidential Executive Assistant Jacobo C. Clave, through a
memorandum, advised petitioner that then President Marcos has approved the "Plea" and wanted its
"immediate implementation." The attempt by petitioner to have the presidential endorsement
reconsidered was denied on December 18, 1980.
Meanwhile, after years of diligently paying the monthly amortizations 6 and real estate taxes on the
subject property, the private respondents spouses informed 7 petitioner that the payments 8 for the
property had been completed, and hence, the execution of an absolute deed of sale in their favor was in
order. No action on the matter was taken by petitioner.
The instant case was initiated on May 20, 1984 in the RTC of Manila, Br. 11, with the filing of a
Complaint for Specific Performance With Damages to compel petitioner to execute in private
respondents' favor, the final Deed of Sale over the subject property. 9 The trial court found for the
Leuterios.
On January 24, 1992, the Court of Appeals 10, in its impugned Decision, upheld the trial court solely on
the basis of estoppel. It held that petitioner cannot increase the price of the subject house and lot after
it failed, through the years, to protest against private respondents' P200.00-amortization or to require
the payment by them of bigger monthly installments.11
Petitioner now urges the setting aside of the impugned Decision of the Court of Appeals, alleging that it
erred in:
170

Atty. G.G. Bernardo
MAS
I. . . . HOLDING THAT THE PETITIONER GSIS IS ESTOPPED FROM
ENFORCING THE ADJUSTMENT OF THE SELLING PRICE.
II. . . . NOT HOLDING THAT THE SPOUSES LEUTERIO MUST BE BOUND BY
THE RECOMMENDATION MADE BY THE AD HOC COMMITTEE
III. . . . FAILING TO CONSIDER THE JUSTIFICATION FOR THE ADJUSTMENT
IN THE SELLING PRICE OF THE LOTS AND HOUSING UNITS.
IV. . . . AFFIRMING THE DECISION OF THE TRIAL COURT WHICH
ORDERED THE PETITIONER GSIS TO EXECUTE THE FINAL DEED OF
SALE. 12
Upon the other hand, private respondents, in their Comment, 13 contend that the Petition only raises in
factual issues, which cannot be settled by this Court in the instant proceedings. They further contend
that no reversible errors were committed by the Court of Appeals in its impugned Decision.
We find no merit in the petition, but for reasons different from those espoused by the respondent Court
of Appeals.
The decisive issue really involves a question of fact whether or not the spouses Leuterio agreed to the
notation "subject to adjustment pending approval of the Board of Trustees" appearing on the margin of
the parties' Conditional Deed of Sale. If there was no agreement, the Leuterio spouses are only obligated
to pay the purchase price of P19,740.00 as stipulated in the main body of the Conditional Deed of Sale.
Trite to state, this Court is not a trier of facts. In a multitude of cases, we have laid down the unbending
rule that findings of fact of lower courts are binding on us unless they are marred by manifest errors.
The pleadings before us do not demonstrate that the trial court grossly erred when it found that the
purchase price agreed upon by the parties was P19,740.00 and this agreement was not made subject to
any posterior event or condition. This finding of fact was based on the explicit testimony of private
respondent Raul Leuterio that when he and his wife signed the Deed of Conditional Sale in 1965, the
notation "subject to adjustment pending approval of the Board of Trustees" was not in the
Deed. 14 Likewise, the Answer of petitioner to the Complaint of the private respondents admitted the
non-existence of this notation at the time the Deed of Conditional Sale was signed, albeit, it called the
omission an honest mistake. 15 We quote paragraph 5 of said answer, viz:
5. The omission of the marginal notation reading "(x) subject to adjustment pending
approval of the Board of Trustees" (Annexes B to B-1-b of the Complaint) on the Deed of
Conditional Sale signed by the plaintiffs, as alleged in paragraph VII of the Complaint,
must have been an honest mistake on the part of the clerk who typed the document.
This was also confirmed by the petitioner in the instant Petition for Review on Certiorari where
it is alleged that ". . . the respondents-spouses Leuterio were not required to sign a new contract
as provided in Resolution No. 966 but instead, the words 'subject to adjustment pending
approval of the Board of Trustees' were inserted in the Deed of Conditional Sale executed in
1965." Petitioner is bound by these judicial admission.
171

Atty. G.G. Bernardo
MAS
Quite clearly, therefore, the purchase price mutually agreed upon by the parties was P19,740.00. The
spouses Leuterio did not give their consent for petitioner to make a unilateral upward adjustment of this
purchase price depending on the final cost of construction of the subject house and lot. It is illegal for
petitioner to claim this prerogative, for Article 1473 of the Civil Code provides that "the fixing of the
price can never be left to the discretion of one of the contracting parties. . . ."
We also reject petitioner's contention that the spouses Leuterio are bound by the recommendation of
the ad hoccommittee as this was set aside by then President Ferdinand E. Marcos. 16 The rejection was
communicated by then Presidential Assistant Jacobo Clave to petitioner in a Memorandum dated May
30, 1973. 17 Petitioner moved for reconsideration but the motion was denied by the former President
thru Presidential Assistant Joaquin Venus, in a letter dated December 18, 1990. 18
Next, petitioner would impress on us the need to adjust the purchase price of the spouses' house and
lot in view of the change in the final cost of construction. If petitioner failed to factor this increase in the
cost of the construction in the purchase price of the subject house and lot, it has nobody to blame but
itself and it alone should suffer the loss. To be sure, given the expertise of its technical people, it has no
reason to be shortsighted. In any event, our law on contracts does not excuse a party from specifically
performing his obligation on the ground that he made a bad business judgment.
IN VIEW WHEREOF, the petition for review on certiorari is DISMISSED. Costs against petitioner.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado and Nocon, JJ., concur.
# Footnotes
1 CA-G.R. CV No. 27430 with Justice F.A. Santiago as ponente and Justices Pedro
Ramirez and Angelina Gutierrez concurring. The Decision affirmed the ruling of the RTC,
NCJR, Br. XI, Manila in Civil Case No. 84-24675.
2 The house and lot is located at No. 55 Administration St., GSIS Village. It is described in
the Certificate of Acknowledgment and in the Deed of Conditional Sale as Lot 22, Block
14, Subd. Section B in Project 8-C of the GSIS Village, with Housing Unit type 3-B-7.
3 Rollo, p. 21.
4 It is noted that on pages 10-11 of the Petition (Rollo, pp. 18-19), it is admitted by the
petitioner that the Leuterios "were not required to sign a new contract as provided in
Resolution No. 996 but instead, the words 'Subject to adjustment pending approval of
the Board of Trustees' were inserted in the Deed of Conditional Sale executed in 1965."
5 Civil Cases No. 83368 and 87603.
172

Atty. G.G. Bernardo
MAS
6 Starting September, 1967, the Leuterios paid petitioner accelerated monthly

amortizations of P200 each.
7 Through a letter of Esperanza Leuterio to the GSIS General Manager, dated June 21,
1977.
8 Including interest.
9 CV No. 84-24675.
10 The respondent court also denied petitioner's Motion for Reconsideration in a
resolution promulgated May 22, 1992.
11 Rollo, pp. 19-30.
12 Rollo, p. 15.
13 Rollo, pp. 25-28.
14 TSN October 2, 1985, pp. 9-10.
15 See pp. 10-11 Petition for Review, emphasis ours.
16 Exhibits "E-1", "E-1-A."
17 Exhibit "F".
18 Exhibit "H".
173

Atty. G.G. Bernardo
MAS
Kabiling vs NHA Autonomy of Contracts

SUPREME COURT
Manila
EN BANC
G.R. No. L-57424 December 18, 1987
ROBIDANTE L. KABILING, PRUDENCIO C. CARBON, POLICARPIO S. SEGUI RAFAEL C. CARBON, ANTONIO
C. BOLASOC, LOLITA C. CASTRO, SOTERO S. FERRER, PERFECTO C. MAMAAT, VICENTE M. MORTERA,
et. al., petitioners,
vs.
THE NATIONAL HOUSING AUTHORITY AND THE REPUBLIC OF THE PHILIPPINES, respondents.
RESOLUTION
YAP, J.:
This is a motion for reconsideration of the resolution of July 22, 1985 dismissing the amended petition
for lack of merit. In the original petition, dated July 14, 1981, petitioners assailed the constitutionality of
P.D. No. 1808 on the grounds that 1) it deprives them of their property without due process of law and
without just compensation and of their right to equal protection of the law; and 2) it violates the
constitutional prohibition against impairment of the obligation of contracts. Petitioners further alleged
that their properties are not proper subject of expropriation by the government.
Required to comment on the petition, the respondent National Housing Authority (NHA for brevity) filed
its comment on September 4, 1981 and the respondent Republic of the Philippines on September 17,
1981. In its resolution dated September 24, 1981, the Court Resolved to consider the comment of the
respondent Republic of the Philippines as Answer to the petition and required the parties to submit
their respective memoranda. The memorandum of the respondent Republic of the Philippines was
submitted on October 28, 1981, and that of the petitioners on January 6, 1983. Meanwhile, on February
24, 1982, petitioners filed an urgent petition to resolve their prayer for a temporary restraining order,
which the Court denied on April 28, 1982. A motion for reconsideration of said denial was filed by
petitioners and respondents were required to comment thereon.
On May 21, 1986, petitioners filed an Amended Petition, accompanied by a motion to admit said
amended petition. In the Amended Petition, the petitioners (only four of whom are original petitioners,
the rest being newly impleaded) invoke as an additional ground the alleged non-publication of P.D. No.
1808. On May 29,1981, the Court admitted the Amended Petition and required respondents to
comment thereon. The Court further required the Republic of the Philippines to move in the premises
within ten (10) days from notice, considering the supervening events that had transpired since the filing
of the respective memoranda of the petitioners and the respondent Republic of the Philippines.
Respondent NHA submitted its comment on June 11, 1986, stating that contrary to petitioners'
174

Atty. G.G. Bernardo
MAS
allegation in the Amended Petition, P.D. No. 1808 was published in the Official Gazette of October 4,
1982 (Volume 78, No. 40, pp. 5481-4 to 5486-8) and reiterating its arguments discussed in its comment
dated September 4, 1981 on the original petition and its later comment/opposition dated March 19,
1982. On July 2, 1986, the NHA filed a manifestation by way of report on the current status of the
subject property, stating inter alia 1) that all available workable areas in the subject property, totalling
approximately 3.1 hectares and consisting of 378 lots averaging 50 square meters each, have been
substantially developed, except for some minor repair work still to be undertaken; 2) that the NHA has
already invested P3 million representing the cost of implementing the development plans in the
workable areas of the project site; 3) that in accordance with the provisions of P.D. No. 1808, the N HA
has already deposited with the Philippine National Bank the amount equivalent to the cost of all
subdivision lots in the project site; 4) that 76 landowners have already withdrawn the corresponding
compensation for their respective lots, totalling Pl,919,402.44, while 72 landowners including the
petitioners Robidante L. Kabiling, et al. have not yet claimed the compensation for their respective lots
totalling Pl,581,676.52; and 5) that all titles to the homelots, except the lost title of Cresencio Deboma,
which is undergoing reconstitution, have already been transferred to respondent NHA pursuant to the
provision of P.D. No. 1808.
On July 11, 1986, the new Solicitor General filed on behalf of the respondent Republic of the Philippines
a comment and manifestation on the Amended Petition, stating that he was maintaining the position
taken by his predecessor in office and reiterating the prayer that the petition be dismissed for lack of
merit.
In its resolution of July 22, 1986, the Court Resolved to dismiss the Amended Petition for lack of merit. A
motion for reconsideration was filed by the petitioners on August 30, 1986, reiterating the grounds
discussed in their memorandum and praying that the resolution dismissing the Amended Petition be
reconsidered and set aside. Petitioners pray that the case be decided with " a visible disposition of its
merits."
After deliberation, the Court Resolved to DENY the motion for reconsideration, it appearing that no new
substantial and compelling ground has been alleged which warrant reconsideration of the Court's
resolution.
The petitioners' challenge to the constitutionality of P.D. No. 1808 can not be sustained. The decree,
entitled "DIRECTING THE CANCELLATION OF AWARDS, CONTRACTS OF SALE, TITLES OF LOTS WITHIN
THE AGNOLEVERIZA TENANT ASSOCIATION SUBDIVISION AND THE RECONVEYANCE OF THE SAME TO
THE GOVERNMENT UPON PAYMENT OF JUST COMPENSATION AND ORDERING THE EXPROPRIATION OF
VACANT LOTS ADJACENT THERETO WHICH ARE COVERED BY TRANSFER CERTIFICATE OF TITLES NOS.
70406, 31713, 132081 and 134314 ALL SITUATED AT MALATE, MANILA FOR UPGRADING UNDER THE
ZONAL IMPROVEMENT PROGRAM (ZIP) AND THE DISPOSAL OF LOTS GENERATED THEREIN TO THEIR
PRESENT BONA-FIDE OCCUPANTS AND OTHER QUALIFIED SQUATTER FAMILIES AND AUTHORIZING THE
APPROPRIATION OF FUNDS FOR THE PURPOSE," is a valid exercise by the State of its police power.
Explaining the objective of the decree, P.D. No. 1808 states:
WHEREAS, the government has adopted and implemented the announced policy that
slum improvement and resettlement, otherwise known as upgrading of sites and
services, is an accepted approach to meeting the housing needs and the primary
strategy in dealing with slums and other blighted communities;
175

Atty. G.G. Bernardo
MAS
WHEREAS, under Proclamation No. 1967, a portion of Lot 62 and Lot 76, both of Block
573 of the Cadastral Survey of Manila which were developed into the Agno-Leveriza
Tenant Association (ALTA) Subdivision by the City of Manila pursuant to Republic Act
No. 4145, was Identified as a depressed area for priority development (A PD) under the
Zonal Improvement Program;
WHEREAS, Republic Act No. 4145 did not resolve the land tenure problem in the area to
the extent that non-resident awardees have to eject bonafide residents in order to
acquire physical possession of their awarded lots, and an extensive displacement of
structures of resident families has to be undertaken to allow each awardee resident
family to have physical possession of the awarded lot;
WHEREAS, there is an urgent need to resolve the land tenure problem in the AgnoLeveriza area to allow the implementation of the comprehensive development plans for
this depress community as provided under the Zonal Improvement Program.
The stated objective of the decree, namely, to resolve the land tenure problem in the Agno-Leveriza
area to allow the implementation of the comprehensive development plans for this depressed
community, provides the justification for the exercise of the police power of the State. The police power
of the State has been described as "the most essential, insistent and illimitable of powers.1 It is a power
inherent in the State, plenary, "suitably vague and far from precisely defined, rooted in the conception
that man in organizing the state and imposing upon the government limitations to safeguard
constitutional rights did not intend thereby to enable individual citizens or group of citizens to obstruct
unreasonably the enactment of such salutary measure to ensure communal peace, safety, good order
and welfare. 2
The objection raised by petitioners that P.D. No. 1808 impairs the obligations of contract is without
merit. The constitutional guaranty of non-impairment of obligations of contract is limited by and subject
to the exercise of the police power of the State in the interest of public health, safety, morals and
general welfare. 3 For the same reason, petitioners can not complain that they are being deprived of
their property without due process of law.
Nor can petitioners claim that their properties are being expropriated without just compensation, since
Sec. 3 of P.D. No. 1808 provides for just compensation to lot owners who have fully paid their
obligations to the City of Manila under their respective contracts before the issuance of the decree.
However, in accordance with our decision in Export Processing Zone Authority vs. Hon. Ceferino Dulay,
etc., et al., G.R. No. 59603, April 29, 1987, which declared P.D. No. 1533 unconstitutional, those lot
owners who have not yet received compensation under the decree are entitled to a judicial
determination of the just compensation for their lots.
SO ORDERED.
Teehankee, C.J., Fernan, Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco,
Padilla, Bidin, Sarmiento and Cortes, JJ., concur.
176

Atty. G.G. Bernardo
MAS
Footnotes
1 Smith, Bell & Co. v. National, 40 Phil. 136; Rubi v. Prov. Bd. of Mindoro, 39 Phil. 660.
2 Edu v. Ericta, 35 SCRA 481.
3 Victorians v. Elizalde Rope Workers Union, 59 SCRA 54.
177

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Oblicon LLB IA SY 2014-15

Atty. G.G. Bernardo

Obligations and Contracts cases

Oblicon LLB IA SY 2014-15

G.R. No. 100290

NORBERTO TIBAJIA, JR. and CARMEN TIBAJIA, petitioners,

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Article 1249 of the Civil Code which provides:

Section 1 of Republic Act No. 529, as amended, which provides:

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Philippine currency or in an amount of money of the Philippines measured thereby, shall be as it is

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Phil. Refining Company vs Palomar - Lottery

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Fernan, Gutierrez, Jr., Padilla, Bidin and Cortes, JJ., concur.

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EPCIB vs Ngor 1250; Mutuality of Contracts

NG SHEUNG NGOR** doing

G.R. No. 171545

December 19, 2007

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Ordering [Equitable] to pay [respondents] the sum of P12 [m]illion [p]esos as

C) Ordering [Equitable] to pay [respondents] the sum of P10 [m]illion [p]esos as

Oblicon LLB IA SY 2014-15

G) Directing plaintiff Ng Sheung Ngor and Ken Marketing to pay [Equitable]

12% per annum for the peso loans;

H) Dismissing [Equitable's] counterclaim except the payment of the aforestated

Equitable and respondents filed their respective notices of appeal.[20]

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EQUITABLE WAS NOT GUILTY OF

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THE TRIAL COURT COMMITTED GRAVE

Section 1, Rule 65 of the Rules of Court provides:

that the tribunal, board or officer exercising judicial or quasi-judicial functions

Oblicon LLB IA SY 2014-15

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EQUITABLE RAISED PURE QUESTIONS

THE PROMISSORY NOTES WERE VALID

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ESCALATION CLAUSE VIOLATED THE

that the stipulated rate of interest will be reduced if the applicable

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The RTC found that Equitable's promissory notes uniformly stated:

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Article 1250. In case an extraordinary inflation or deflation of the currency

that there was an official declaration of extraordinary inflation or deflation

That he or she suffered besmirched reputation, or physical, mental or

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The case is predicated on any of the instances expressed or envisioned by

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ACCORDINGLY, the petition is hereby GRANTED.

pursuant to our ruling in Eastern Shipping Lines v. Court of Appeals,[92] the

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time petitioner Equitable PCI Bank demanded payment, whether judicially or

all other claims and counterclaims are dismissed.

TERESITA J. LEONARDO-DE CASTRO

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Now, Banco De Oro Unibank.

Date of Maturity Amount due

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The evidence adduced during trial show [respondents] received the

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Id., pp. 279-281.