G.R. No.

92201 August 21, 1991

Court of Appeals Records, pp. 1-2; Rollo, pp. 33-34) On appeal, the Regional Trial Court modified the decision and found the

RUDOLFO S. MAGAT and MINERVA F. MAGAT, petitioners, vs. PEOPLE OF THE PHILIPPINES and COURT OF

appellants guilty of the original charge of serious slander. The dispositive portion of the decision rendered on July 11, 1989 reads:

APPEALS, respondents.

WHEREFORE, the decision dated January 19, 1989 of Branch 47 of the Metropolitan Trial Court of Pasay City is modified in the sense

GUTIERREZ, JR., J.:p

that accused Rudolfo S. Magat and Minerva F. Magat are found guilty of serious slander as charged in the aforequoted Information;

The petitioners state that the respondent court instead of dismissing their petition and thereby affirming a judgment of conviction

and in line with the Indeterminate Sentence Law, there being no mitigating or aggravating circumstance which attended the

should have ordered the complaint dismissed on the ground of prescription or acquitted them for failure to prove guilt beyond

commission of the crime, they are each sentenced to suffer an indeterminate penalty of imprisonment from three (3) months of arresto

reasonable doubt.

mayor, as minimum, to one (1) year and one (1) day of prision correccional, as maximum.

On October 14, 1985, the petitioners were charged before the Metropolitan Trial Court of Pasay City under a complaint filed by Ma.

The appealed decision is affirmed insofar as it awards to complainant Domocmat the sum of P5,000.00 as moral damages and the

Luisa F. Domocmat for serious slander allegedly committed on May 12, 1985 in Room 335 of the Manila Sanitarium and Hospital in

amount of P3,000.00 as attorney's fees, and as it requires the accused to pay the costs of the suit. (Rollo, p. 57)

Pasay City.

The defense appears to have been characterized by negligence or poor handling. The petition for review filed with the Court of

The alleged defamatory words are:

Appeals was not verified and was not accompanied by certified true copies of the questioned decision. The respondent court promptly

By Rudolfo S. Magat:

denied it due course for failure to comply with the Rules.

Ikaw tarantada kang babae. Kung ilang beses kitang kinantot. Yang asawa mo sira. Kayong lahat kayang-kaya ko.

When the petitioners came to this Court, their counsel forgot to submit proofs of service of the petition to the respondent court and the

By Minerva F. Magat:

adverse party.

Putang babae ka. Malandi ka. Palibhasa hindi ka na naka-kantot ng asawa ko. Ikaw Clarie yong asawa mo naman ang lalandian niya

After deliberating on the preliminary issues, we decided to overlook the otherwise fatal procedural lapses in the interest of justice and

palibhasa hindi na siya naka-kantot ng asawa ko. (Rollo, p. 61)

gave due course to the petition. Strict adherence to long standing rules is rigidly enforced not only in the interest of orderly procedure

The petitioners are spouses working for the Manila Sanitarium and Hospital. Rudolfo is a practising physician in the hospital while

but also to assist the courts in the speedy adjudication of controversies through timely filing of petitions and payment of fees, carefully

Minerva is the secretary-receptionist in the Radiology Department of the same institution.

drafted and legible pleadings, notice to the respondent Tribunal and the adverse parties, and such faithful compliance with fixed

After trial, the Metropolitan Trial Court of Pasay convicted the accused spouses of light slander. The dispositive portion of the decision

requirements as will show thorough preparation of a case and a sincere willingness to assist the court in the expeditious and fair

rendered on January 19, 1989 reads:

dispensation of justice.

IN THE LIGHT OF THE FOREGOING CONSIDERATION, this Court candidly feels morally convinced that the crime of light slander

In exceptional cases, however, where through negligence or ignorance of counsel, the properties, lives and future of accused persons

only, instead of serious slander, with the mitigating circumstance of provocation was committed by both accused and on the basis of

may unjustly be prejudiced as when an innocent person may be railroaded to prison or proof beyond reasonable doubt was not

the pertinent allegations in the complaint under which both accused had been charged and prosecuted, proved and established

adduced, we have waived the technical rules under our equity jurisdiction and in the interest of substantive justice. This, we have done

beyond reasonable doubt as required by law, convicts them therefore for such crime and sentences both of them accordingly pursuant

in this case.

to law to each pay the amount of P150.00 as fine, P5,000.00 each as moral damages and P3,000.00 as attorney's fees and also to

During the pre-trial proceedings, the results of which are stated in the April 4, 1986 order of the Metropolitan Trial Court, the following

pay the costs of suit.

stipulations of facts and issues were made:

En Fin, this Court finds it fitting to close this verdict not only by reiterating its deep regret at having been commisioned to make the

That on May 12, 1985, spouses Dr. Rudolfo S. Magat and Minerva F. Magat were at Room 335 Manila Sanitarium and Hospital at

foregoing pronouncement long after the trial of the case had been terminated in the sala of another judge who could have been in a

about 10:00 to 10:30 o'clock, in the morning thereof;

better position to dispense justice to the parties, but also by admonishing all the parties in this case who, the records show, belong to

That private complainant Ma. Luisa F. Domocmat was at Room 335 Manila Sanitarium and Hospital on May 12, 1985 at about 10:00 to

one Christian faith to conduct a candid self-examination and soul-searching re-assessment of their relationship with our Saviour who

10:30 o'clock in the morning thereof;

upon leaving this terrestial sphere left these comforting words 'My peace, my peace I leave you. Lo! I'll be with you unto the end of the

That Dr. Rudolfo S. Magat was the wedding sponsor in the civil marriage between Ma. Luisa F. Domocmat and Dr. Jeremias

world. ...' (Rollo, p. 69)

Domocmat;

The second paragraph of the decisions' dispositive portion in this otherwise simple and inelaborate case is better understood in the

That Ma. Luisa F. Domocmat is married to Dr. Jeremias Domocmat;

light of the petitioner's contention that pressures from "the powers- that- be" were exerted on the trial judges. (Petition for Review,

That the defense admits that Exhibits A, A-1, A-2, A-3, and A-4, are the very documents filed by Ma. Luisa Domocmat with the Office of

room where Dr. Garcia and Ma. Luisa Domocmat were present, whereupon both accused one after the other, immediately and in loud

the City Fiscal of Pasay City copy of which were furnished the defense;

tones uttered the above slanderous words to the complainant Domocmat; that Dr. Garcia heard the same offensive words directed at

That the defense admits that Exhibits B, B-1, and B-2 are the affidavits and Annexes thereto of Dr. Clarita Garcia filed with the Office of

the complainant; that when Dr. Garcia tried to pacify them she (Dr. Garcia) was likewise shouted at by both accused, all defamatory

the City Fiscal of Pasay City and copy of which were served upon the respondent-spouses;

words uttered by both accused at her and complainant which tended to cast dishonor and shame on them and their families; that

That the defense, admits that on May 12, 1985, Dr. Clarita Garcia was confined at Room 335 Manila Sanitarium and Hospital, (Pre-

accused Minerva Magat later directly and specifically told Dr. Garcia: 'Ikaw Clarie, yong asawa mo naman ang lalandian niya,

Trial, Order, pp. 1-2);

palibhasa hindi na nakakantot ng asawa ko, kasi nililigawan ng asawa mo,' while Dr. Magat told his wife Minerva referring to Dr. Clarie

That the prosecution admits the execution of Exhibits 1 to 1-E and admits that it is the six-paged sworn statement of Dr. Rudolfo S.

Garcia: "Huwag mong pansinin iyan, kilala ko ang pamilya niya, mga sira ang ulo niyan, mukhang mangkukulam:" that both accused

Magat filed with the Office of the City Fiscal of Pasay City;

hurriedly left the room when they noticed complainant Domocmat calling by phone Dr. Nehemias Garcia, husband of Dr. Clarita

That the prosecution admits the existence, due execution and genuineness of defense Exhibits 2 as the suspension letter dated June

Garcia; that it is a stipulated fact as contained in the Pre-Trial Order that when the alleged defamatory and slanderous words were

12, 1985 issued by the Manila Sanitarium and Hospital suspending the accused Rudolfo S. Magat for a period of twelve (I 2) months

allegedly uttered by both accused against complainant in the private hospital room, the only persons present were complainant Ma.

or one (1) year effective from receipt thereof; (Pre-Trial Order, pp. 2-3).

Luisa Domocmat, Dr. Clarita Garcia and accused-spouses Dr. Rudolfo Magat and his wife Minerva. (Rollo, pp. 61-62)

That the prosecution admits the genuineness and due execution of Exhibits 4 and 4-A which is the writ of injunction issued by the

On the other hand, the version of the petitioners is:

Honorable Fermin A. Martin, Jr., Presiding Judge of Branch CXIV of the Regional Trial Court of Pasay City in Civil Case No. 2999-P

In the morning of the said date at the lobby of the Manila Sanitarium and Hospital, Mrs. Minerva F. Magat met Mrs. Ma. Luisa

entitled Dr. Rudolfo S. Magat plaintiff versus North Philippine Union Mission of Seventh-Day Adventists, et al., Defendants dated

Domocmat and the latter uttered "Hi, Quitin. Hi! Quintin. Kumusta ka Quintin (Quintin was a former boyfriend of Mrs. Magat prior to her

August 1, 1985 which writ enjoins the respondents and its agents from prohibiting the plaintiff from exercising his profession and

marriage)? Mrs Magat retorted. 'Ay ang kati. Ay ang kati,'

privileges as an accredited doctor of the Manila Sanitarium and Hospital and from barring the entry of plaintiffs patients as well as their

Immediately thereafter, Dr. Magat met Mrs. Magat. She then reported to her husband the incident at the lobby. In an attempt to clear

confinement at the said Hospital. The prosecution reserves the right to object to the admission of Exhibits 4 and 4-A on the ground of

the air as to the actuations of Mrs. Domocmat both decided to look for her at a place they knew she would be at that time.

inunateriality;

Upon reaching Room 335 at about 10:00 o'clock in the morning, Dr. Magat knocked at the door, finding it open, they entered and saw

xxx xxx xxx

Mrs. Domocmat and Dra. Clarita Garcia, a patient confined at the same room. Addressing Mrs. Domocmat after closing the door, Dr.

That the defense marked in evidence as Exhibit 7 the Biodata of accused Rudolfo S. Magat issued by Mrs. Charita C. Serafica,

Magat said 'Baby, bakit hanggang ngayon ay ginaganoon mo pa si Miner, wala naman siyang ginagawa sa iyo.' Mrs. Domocmat

Personnel Directress of the Manila Sanitarium and Hospital dated May 6, 1 982. The prosecution reserves the right to question the

answered, 'Bakit ka ba galit na galit, Palibhasa'y hindi ka na nakakakantot. 'Dr. Magat retorted, napakasama naman ng bibig mo, and

authenticity and materiality of this Exhibit; (Pre-Trial order, pp. 3-6).

told his wife, 'Mommy, halika na, umalis na tayo tutal sira na naman sa atin ang mga iyan .' On their way out, Mrs. Domocmat followed

That during the incident which is the subject matter of this case which occurred on May 12, 1985 at Room 335 Manila Sanitarium and

them and saidhayop, mga aso, mga putik.' (Rollo, p. 106)

Hospital at about 10:00 to 10:30 in the morning, only the accused Rudolfo S. Magat, accused Minerva F. Magat, private complainant

The issues raised in this petition for review are:

Ma. Luisa Domocmat and Dr. Clarita Garcia were present and attendant; (Pre-Trial Order, p. 54 (Rollo, pp. 35-37)

1. WHETHER OR NOT RESPONDENT COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO

The parties to the incident Dr. Rudolfo S. Magat, Mrs. Minerva F. Magat, Mrs. Ma. Luisa Domocmat and Dr. Clarita Garcia were former

LACK OF JURISDICTION IN DISMISSING THE PETITION FOR REVIEW OF THE DECISION RENDERED BY THE LOWER COURT

friends and acquaintances connected with the Manila Sanitarium and Hospital. The complainant and the accused all belong to the

WITHOUT JURISDICTION;

Seventh-Day Adventists Church which operates the hospital. Somehow, there was a parting of ways between the Magats on one hand

2. WHETHER OR NOT THE CRIME OF WHICH BOTH PETITIONER PETITIONERS WERE CONVICTED HAD ALREADY

and Mrs. Domocmat and Dr. Garcia on the other.

PRESCRIBED;

The facts for the prosecution are stated by the trial court as follows:

3. WHETHER OR NOT THE DECISION OF THE TRIAL COURT IS VALID IN THE LIGHT OF THE RELUCTANCE OF THE JUDGE

Culled from the voluminous records of the case are the following: that on May 12, 1985, one Dr. Clarita F. Garcia was confined at

WHO RENDERED THE SAME SINCE HE WAS NOT THE ONE WHO HEARD THE CASE; AND

Room 335 of the Manila Sanitarium and Hospital located at Donada Street, Pasay City, due to a surgical operation; that in the morning

4. WHETHER OR NOT THE LOWER COURT COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF

of said date, between 10:00 and 10:30, private complainant Ma. Luisa Domocmat arrived at said room when, Dr. Garcia was confined

JURISDICTION IN CONVICTING PETITIONERS SOLELY ON THE BASIS OF THE TESTIMONY OF WITNESSES WHOSE

bringing with her a basket of fruits; that shortly thereafter, accused Dr. Rudolfo Magat and his wife, Minerva Magat, entered the same

CREDIBILITY WAS NOT SUFFICIENTLY ESTABLISHED;

5. GRANTING WITHOUT ADMITTING THAT THE STATEMENTS IMPUTED TO PETITIONERS WERE MADE, WHETHER OR NOT

never heard. The RTC Executive Judge denied his request for disqualification and re-raffle of the case, so that, he took over

THE CRIME OF SLANDER WAS ACTUALLY COMMITTED IN THE ABSENCE OF PUBLICATION OF THE SLANDEROUS

reluctantly.

STATEMENTS. (Rollo, P. 207)

During the period that this MTC Judge was supposed to be reading and studying the almost one-foot thick records, he became very

The office of the Solicitor General limited itself to discussing the procedural issues insisting that the Court of Appeals properly

sick that he had to take a leave. With an obvious physical disability, the Judge returned to work. Under the circumstances, a persistent

dismissed the case and that we should not have given due course to the petition. Mention was also made of the issue on prescription

doubt occurred that the Judge could not have read and studied the whole records of the case. Incidentally, one morning, he invited

but none as regards the other basic issues. The public respondents stated:

your undersigned counsel to his Chamber. There, and worse, he disclosed that he had two decisions, one for exoneration, and the

Petitioners' belated claim in their Motion for Reconsideration of this Honorable Court's Resolution of May 9, 1990 which denied the

other for conviction of the accused. He advised your counsel to convince his clients, the accused, to accept his verdict of fine only and

instant Petition that the Metropolitan Trial Court of Pasay City was allegedly bereft of jurisdiction to conditioners them of the crime of

not to appeal any more. To this, your counsel retorted, that he can never accept a conviction of an innocent man and as a matter of

Light Slander because the same had already prescribed at the time of the filing of the Complaint against them, is destitute of merit and

principle, he has to appeal his decision and thereafter left his chamber.

deserves only scant disquisition herein.

Thus, convicted with a fine, the accused appealed the MTC Decision to the Regional Trial Court. While this case was pending in said

Suffice it to emphasize that the complaint lodged against petitioners with said court was for the crime of Serious or Grave Slander and

Court, the powers-that-be installed air conditioners inside the room of the court personnel and inside the hearing room. This may be

not for the light or minor offense of Light Slander and that after being adjudged guilty for the latter offense and without complaining

coincidental, but why is this not done in the rooms of the RTC Executive Judge who has been presiding his sala much earlier with

about the court's alleged lack of jurisdiction to do so, they appealed the Decision to the Regional Trial Court of Pasay City because of

integrity than this RTC Judge who came much later? And, as expected, this Judge convicted the accused with imprisonment despite

their alleged innocence of Isaid crime. Inasmuch as the facts and the evidence on record patently revealed that petitioners were

the fact that he could not have observed the demeanor of the witnesses who testified for the prosecution and the failure of the latter to

actually liable for the offense of Serious Slander as charged in the complaint and not merely of Light Slander, it modified the verdict of

submit any memorandum supporting its case against the accused. The hereunder would show the glaring deficiencies committed by

the Metropolitan Trial Court and held them guilty beyond peradventure of doubt of Serious Slander. (Rollo, pp. 191-192)

the trial courts a travesty of justice.

There are circumstances gleaned from the records which lead us to conclude that a miscarriage of justice may be perpetrated unless

It is not our intention to influence one way or the other this Hon. Court in disclosing all the foregoing. We still have that abiding faith in

we look deeper into the basic merits of this case.

the judicial system that somewhere and somehow justice can be obtained by the herein accused. FOR IT CAN BE SAID THAT NO

As earlier stated, Metropolitan Trial Court Judge Oscar R. Reyes included a strange obiter in the dispositive portion of his decision. He

AMOUNT OF SACRIFICE IS ENOUGH IN THE QUEST FOR TRUTH AND JUSTICE EVEN IN THESE HARD TIMES. (Rollo, pp. 15-

expressed deep regret at having been commissioned to pronounce judgment in the case stating that the Judge who heard the case

16)

but who inhibited himself from writing the decision would have been "in a better position to dispense justice to the parties." He then

The trial of this case took almost three (3) years before Judge Enrique A. Lanzanas of the Pasay Metropolitan Trial Court. The case

urged both complainant and defendants "to conduct a candid self-examination and soul-searching re-assessment of their relationship

was an extremely simple one. The disputed utterances are short. The recollection by the four persons inside the room of the disputed

with our Saviour ..."

statements was exact to the point of being verbatim and unambiguous. There was no reason for the voluminous transcripts of

In their petition for review filed with the Court of Appeals, the petitioners stated:

stenographic notes, the referrals to the Ministry of Justice, the many side issues like a hold departure order and the relevance of

What happened here is so distasteful and disgusting that it may be considered as one of the most unique and intriguing incidents in

administrative proceedings, the counter charges for libel and perjury filed against Mrs. Domocmat and other matters which

the annals of the judicial firmament. The MTC Judge who entirely heard this case that an almost one-foot thick records was amassed

unnecessarily added to the burdens of our judicial system. There was likewise the aversion of the trial Judge to firmly control the

refused to hand down a decision because he, the complainant, the accused and the witnesses are all members of the Seventh Day

progress of the proceedings and arrive at a decision either convicting or acquitting the accused. The inhibition was for no valid reason.

Adventist Church and that the Judge was being pressured one way or the other to come up with a verdict, thus, the Judge rendered an

Being a member of a religious denomination to which all parties also belong should have made it easier to decide the case objectively

Order of inhibition. If this were to be believed in, why did not the Judge disqualify himself from the outset rather than heard the case

and purely on its merits as no bias or partiality arising from religious persuasion could have been raised.

from the beginning to the end? Or, is it because he could not stand an even greater pressure from the powers-that-be that the accused

We find merit in the petition.

be convicted by all means that he had to insist in his disqualification despite an Order to the contrary from the RTC Executive Judge?

The quarrel in Room 335 of the Manila Sanitarium and Hospital took place on May 12, 1985 at about 10:00 to 10:30 o'clock in the

Another MTC Judge, a sickly one, and who has a son in the payroll of the local Government took over. He tried to disqualify himself

morning. The complaint of Mrs. Domocrat with the complaint-affidavit of Dr. Clarita Garcia was filed on September 17, 1985 or 132

reasoning that his own wife is also a Seventh Day Adventist and that it would be unfair to decide a case with a voluminous records he

days later. The sworn complaint was actually filed in the trial court on October 14, 1985.

When the trial court rendered its decision on January 19, 1989 and found the petitioners guilty of light slander, it had no jurisdiction to

However, Philippine jurisprudence considers prescription of a crime or offense as a loss or waiver by the State of its right to prosecute

sentence them to a P150.00 fine with moral damages, attorney's fees, and costs. The offense ascertained from the evidence adduced

an act prohibited and punished by law. (People v. Moran, 44 Phil. 387, 433; Santos v. Superintendent, 55 Phil, 345) Hence, while it is

during trial was a light offense and under Article 90 of the Revised Penal Code, light offenses prescribe in two (2) months. Article 89(5)

the rule that an accused who fails to move to quash before pleading, is deemed to waive all objections which are grounds of a motion

of the Revised Penal Code expressly provides:

to quash, yet, this rule cannot apply to the defense of prescription, which under Art. 69 of the Revised Penal Code extinguishes

Criminal liability is totally extinguished

criminal liability. To apply the suggestion in the aforecited memorandum could contravene said Article 89, which is a part of substantive

xxx xxx xxx

law. (Page 694, Vol. I, The Revised Penal Code, by Ramon C. Aquino) This position is further strengthened by Sec. 8, Rule 117, 1985

5. By prescription of the crime;

Rules on Criminal Procedure, which added extinction of offense as one of the exceptions to the general rule regarding the effects of a

xxx xxx xxx

failure to assert a ground of a motion to quash. (Damasco v. Laqui, 166 SCRA 214; 217-218 [1988])

(Emphasis supplied)

It is, therefore, evident that the trial court committed reversible error in convicting the petitioners of a crime that had already been

We ruled in Francisco vs. Court of Appeals (122 SCRA 538 [1983]):

extinguished through prescription. It was likewise error for the Regional Trial Court to try to correct the error by simply convicting the

Where an accused has been found to have committed a lesser offense includible within the offense charged, he cannot be convicted

petitioners of the higher offense. Our review of the records also indicates the presence of reasonable doubt as to what words were

of the lesser offense, if it has already prescribed. To hold otherwise would be to sanction the circumvention of the law on prescription

really spoken during the incident.

by the simple expedient of accusing the defendant of the graver offense. The principle has the support of overwhelming authorities in

There were only four persons present inside the hospital room. It is the word of the petitioners against that of the complainant and her

American jurisprudence:

friend. In cases where the exact words spoken form the basis for conviction or acquittal, the credibility of the witnesses, their

The general rule, as stated in 22 CJS, Criminal Law, sec. 225b, is 'as a general rule, one indicted for an offense not barred by

demeanor and candidness while testifying become all-important. Unfortunately, the usual respect we accord to factual findings of the

limitation, but convicted of a lesser included offense which is so barred, is entitled to discharge' and in 15 Am. Jur., Criminal Law, Sec.

trial court is non-availing in this case. The trial Judge who heard the testimony of the witnesses backed out of the case shortly before

343; 'It frequently happens that a change of felony includes an offense of a lower grade with a different period of limitation, so that,

decision writing time.

while the felony is not barred, the statute has run as to the lesser offense. In this situation, the rule is that if the statute has not run

To make matters worse, the Judge who succeeded him also tried to inhibit himself and when he was prevented by then Executive

against the felony, while the lesser offense is barred, the bar cannot be evaded by indicting the defendant for the felony and convicting

Judge Cesar Francisco (now a Justice of the Court of Appeals) from doing so, he formally regretted having to decide the case and

him of the offense. (State v. King, 84 SE 2d 313; 47 ALR 2 d 878r (at pp. 545-546)

confessed that the other Judge was in a better position to dispense justice to the parties. The doubts of Judge Oscar R. Reyes are

In a more recent case, we ruled that the rule on waiver to objections which are grounds of a motion to quash does not apply when

further reflected on the second page of his decision where, after reciting his attempts to inhibit himself from the case, the fear of

prescription becomes a defense and extinguishes criminal liability.

pressures being exerted, and his hospitalization for a grave illness, he stated:

We stated:

Be that as it may, this Presiding Judge holds no rancor in his heart and like a good soldier will proceed as directed albeit with deep

In the case of Francisco v. Court of Appeals, (122 SCRA 538 [1983]) the Court held that where an accused has been found to have

regret, repeat very deep regret, with the resolution of this case, which found its way into his Court after the trial of this case had been

committed a lesser offense includible within the graver offense charged, he cannot be convicted of the lesser offense if it has already

consummated, thereby depriving him of his indispensable presence during the crucial period of trial when not only he could have had

prescribed. To hold otherwise, according to the Court, would be to sanction a circumvention of the law on prescription by the simple

intently observed the presentation of evidence, both oral and documentary, especially the witnesses' testimony, but also could have

expedient of accusing the defendant of the graver offense.

had the opportunity, borrowing the beautiful language of Judge Vasquez, 'to determine the candidness, reliability and demeanor of the

Incidentally, in the case of Felino Reyes v. Hon. Intermediate Appellate Court and People of the Philippines , (G.R. No. 69867, 7 July

witnesses presented which are the necessary criteria in deciding questions of credibility of witnesses in Court.' Denied of participation

1987) a Memorandum prepared by this ponente for the court, entitled 'An Examination of the Rule Which Holds That One Cannot be

in said case's trial zone of action, this Court has nothing to rely upon in rendering this Decision except the mute records of the case but

Convicted Of A Lesser Offense includible Within a Greater Offense, Where Prosecution For The Latter Was Commenced After

is emboldened nonetheless to proceed with faith of being accorded, after invocation of Divine Providence's intercession, the Beacon of

Expiration Of Limitations Applicable To The Lesser Offense,' discusses a possible attempt to depart from the rule laid down

wisdom and guidance from above. (Rollo, p. 60)

in Francisco v. CA, (Francisco v. CA, supra) by invoking the principle of presumption of regularity in the performance of official acts and

There is a reasonable doubt because it is implausible that the words constituting the slander were actually uttered as charged.

duties, and by interpreting the phrase 'prescription of a crime or offense' as merely 'a bar to the commencement of a criminal action.'

There is no reason appearing in the records why Dr. Magat should use recollections of sexual acts to taunt Mrs. Domocmat in the heat

(Memorandum, pp. 2 and 10)

of anger. There is nothing to suggest that the two ever had any immoral, illicit, or sexual relations. Mrs. Domocmat denied their having

any single sexual encounter, not even a platonic relationship. Dr. Magat could have slandered her in some other way but reference to

And finally, the only "disinterested" person in this case may not even be considered a third party for the element of publication of

non-existent immoral relations is difficult to believe.

slanderous remarks to apply. Dr. Clarita Garcia is not exactly a disinterested person because her husband, Dr. Nehemias Garcia was

The implausibility is increased by the fact that Mrs. Magat was present. Why should a husband mock a woman with whom he had no

suspended for three months as a result of an incident with Dr. Magat in the hospital's parking lot on May 12, 1985. (Rollo, p. 43) She

relations using sexually explicit words in the presence of his wife? And it is equally difficult to believe that the wife would join in the

had cause for anger against the petitioners. The fact that the heated exchange of words was between all four persons inside the room

name-calling and declare, "Putang babae ka Malandi ka Palibhasa hindi ka na nakakantot ng asawa ko." (Emphasis supplied)

with nobody else present makes it rather doubtful that the sole presence of Dr. Garcia results ill the imputations having been publicly

As stated by the petitioners:

made.

6.3. In the case at bar, the credibility of the prosecution's evidence is readily put into question by the very nature of the alleged

In the light of the foregoing, the case should have been dismissed by the Metropolitan Trial Court as the light offense for which the

defamatory statements imputed to Petitioners. No man in this right senses would ever admit his carnal and amorous relations with

petitioners were found guilty had already prescribed when the complaint was filed. However, since either inadvertence, neglect, or a

another woman and utter scandalous, indecent and lascivious language in the presence not only of his wife but also of the very

desire to be vindicated led the petitioners to appeal a case where under Article 89 of the Revised Penal Code, criminal liability had

woman he had sexual trysts with. For a man to do that would be reflective of one's moral depravity bordering on insanity which

already been totally extinguished, we dismiss the complaint on grounds of reasonable doubt.

deserve's his commitment in a hospital or institution but definitely not incarceration for his criminal acts;

WHEREFORE, the petition is hereby GRANTED. The judgment of the Regional Trial Court, Branch 116, Pasay City is REVERSED

6.4. Likewise, it is unbelievable for a wife, after hearing his husband publicly admit his infidelity to her right in the presence of the other

and SET ASIDE. The petitioners are ACQUITTED on grounds of reasonable doubt.

woman, would utter words of similar import as those imputed to her husband, approving of and condoning, in no uncertain terms, the

SO ORDERED.

immoral and illicit relations between them;

G.R. No. 159417

6.5. It is unfortunate, however, that the trial court unduly gave greater weight to the testimony of the prosecution witnesses purportedly

PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, Petitioner, vs. THE HON. COURT OF APPEALS and CMS

substantiating the highly incredible theory it proffered than those of Petitioners who were better known for their being morally upright,

CONSTRUCTION and DEVELOPMENT CORPORATION, Respondents.

professional integrity and the more credible defense they raised as extensively testified to by an equally reliable witness; (Rollo, pp.
220-221)
Evidence to be believed must not only come from a credible source, which in this case is difficult to ascertain, but should also be
credible in itself (See People v. Aldana, 175 SCRA 635 [1989]; People v. Patog, 144 SCRA 429 [1986]; and People v. Lim, 190 SCRA
706 [1990])
There is no evidence in the record that Dr. and Mrs. Magat on one hand and Mrs. Domocmat on the other belong to a group of
liberated or "swinging" couples in whose married life, sexual liaisons are not shocking or opprobrious and can, therefore, be bandied
around in spontaneous utterances
On the other hand, there is testimony and at least twelve (12) testimonials showing good moral character. (TSN, June 26, 1987, pp. 257; Original records, pp. 1102 to 1154 and Testimonials of Minister Gregorio S. Cendana and 11 other persons (Original Records, pp.
75-87). Dr. Magat started at the bottom rank of physicians at the Manila Sanitarium and Hospital and through his performance reached
the highest rank available to a practitioner. He was also elevated to the highest positions open to laymen, namely deacon and elder, of
the Seventh Day Adventist Church. Mrs. Magat is a prominent member of the same church and worked for the hospital for more than
20 years with no derogatory records. Doubts are, therefore, engendered as to why a church elder and his wife should resort to gutter
language. Unless a person habitually uses uncouth and vulgar terms in his association with people in everyday life, he may use biting
terms in anger but not the kind alleged in this case. If we have to sustain bizarre or strange behaviour, independent testimony should
come from credible witnesses who are unfortunately missing in this case.

January 25, 2007

DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari under Rule 45 of the Rules of Civil Procedure, assailing the Decision 1 of the Court of
Appeals in CA-G.R. SP No. 66968, dated 26 August 2002, which dismissed Philippine National Construction Corporations (PNCCs)
Petition for Review of the Decision2 of Sole Arbitrator Victor P. Lazatin of the Construction Industry Arbitration Commission (CIAC)
awarding herein respondent CMS Construction and Development Corporation (CMS) the amount of P1,978,746.90 with interest at the
rate of 6% per annum from 7 July 2000 up to the date of award and thereafter, at an interest rate of 12% per annum until fully paid.
The present case arose when CMS submitted for arbitration before the CIAC a complaint for sum of money with damages against
PNCC in connection with the relocation of the 450 mm diameter steel pipes along the East Service Road of the South Luzon Tollway.
On 26 July 1996, PNCC entered into a Memorandum of Agreement with the Toll Regulatory Board, Citra Metro Manila Tollways
Corporation and Metropolitan Waterworks Sewerage System (MWSS) involving the task of relocating MWSS utilities along the South
Superhighway affected by the construction of the Manila South Skyway Project. In undertaking said task, PNCC subcontracted the
relocation of the 450 mm diameter steel pipes to CMS as the winning bidder. On 13 October 1997, even before the signing of a
contract, CMS proceeded to carry out the project upon request of PNCC.
A Subcontract Agreement was executed between PNCC and CMS on 21 October 1997. It was stated therein that the estimated
contract price was P7,990,172.61, inclusive of taxes, and that the project was to be completed within seventy-five (75) calendar days
from the signing of the contract. It was further stipulated therein that the contract price was merely an estimate and that the final price

shall be computed based on the actual accomplishment of the subcontractor as approved and accepted by PNCC, the Toll Regulatory

(i) P400,000 on January 21, 1999

Board, and the MWSS.

(ii) P100,000 on April 11, 2000

On 5 December 1997, PNCC informed CMS that it would provide the necessary equipment, manpower, and materials to assure the

(iii) P146,000 on February 8, 2001

completion of the project and that all costs pertaining thereto would be charged to the latters account. In another letter dated 19

b) Billing No. 4 was for P255,334.13. It was received by the Respondent on March 15, 1999 and approved on May 31, 1999. The

December 1997, PNCC again reiterated that it would provide manpower and equipment to CMS in order that the stated schedule for

deductions for asserted accommodations amounted to P150,043.12. The amount paid was P105,181.00 which paid on February 10,

the completion of the project shall be met. On 7 January 1998, petitioner informed CMS that the seventy-five (75) days period for the

2000.

relocation of the steel pipes had already elapsed; however, the said project was still far from completion. It was only sometime in April

c) Billing No. 5 was for P1,681,888.21. It was received by the Respondent on December 3, 1999 and approved on August 4, 2000. The

1999 that the project was finally completed.

deductions for asserted accommodations amounted to P666,895.54. The amount paid was P921,706.79 which was paid on June 7,

In conformity to the letters sent by PNCC to CMS regarding the manpower and equipment supplied by the former to ensure the

2001.

completion of the project, the following amounts were deducted by petitioner from CMSs billings as "accommodations":

Fourthly, on 23 November 1999 (after the Project was completed), the parties executed the Contract Amendment wherein the parties

Billing No. 3 P 274,548.87

agreed, among others, to wit:

Billing No. 4 150,043.12

(i) To constitute "Appendix A" thereof as the final Bill of Quantities for scope of works undertaken by the Claimant and

Billing No. 5 666, 895.54

superseded/replaced Annex C of the 21 October 1997 Subcontract Agreement (Exh. C-1).

TOTAL P1,091,487.53

(ii) P8,872,593.74 as the final Subcontract Price which "supersede(d) the price stipulated in the original Subcontract Agreement dated

Thereafter, PNCC and CMS amended the Subcontract Agreement on 23 November 1999, stating therein the final contract price in the

21 October 1997 P7,990,172.61 and any other commitment or agreement on price pertaining to works covered herein."

amount of P8,872,593.74, inclusive of taxes. It was also agreed upon by the parties under the Contract Amendment that Appendix "A"

(iii) "no further adjustment in price shall be effected and that (Claimant) hereby waived any and all claims for price adjustments and

thereof constituted the final Bill of Quantities for scope of works undertaken by the subcontractor (CMS) and superseded Annex "C" of

whatsoever in connection with the work herein covered except as that stated in pa. 3 above of this Contract Amendment." (emphasis

the 21 October 1997 Agreement and any bill of quantities earlier agreed upon by the parties in connection with the project.

supplied).

Furthermore, it was expressed therein that the said amendment superseded the price stipulated in the original Subcontract Agreement

Fifthly, there is no clear documentation that Respondent sent, and the Claimant received, much more accepted, the various charges

dated 21 October 1997 and any other commitment or agreement on price pertaining to works covered therein.

for the accommodations deducted by the Respondent. The testimony of the witnesses of both parties are diametrically opposite.

According to CMS, the amended contract price has not been fully paid by PNCC since Billing Nos. 3, 4, and 5 were only partially paid

Likewise in conflict are the respective verbal assertion of both sides that manpower, equipment, and/or materials were actually

because of the deductions made by the latter in the form of "accommodations," which CMS insists must be disallowed.

provided by the Respondent to the Claimant.

After the proceedings, Sole Arbitrator Lazatin issued an Award, the pertinent portions of which read:

Sixth, the documentation of the Respondent with respect to its invocation of Section 6.2 of the Subcontract Agreement (Exhibit R-5) is

Before resolving the specific issues raised by the parties, it would be helpful to state certain findings established at the hearings which

faulty. The seven (7) day notice was not strictly complied with. There was no specification of the items and costings of the charges now

are pivotal.

asserted in the deductions/accommodations. The Claimant is likewise remiss in failing to reply to Respondents various letters

Initially, there is no dispute that the retention money amounts to P887,259.37 which is exactly equal to ten percent (10%) of the

(Exhibits R-20 to R-40, except for two (2) response) and take issue with the same. The Respondent could not present proof that the

Subcontract Price (TSN, 13 August 2001, pp. 7-8). Both parties confirmed that no claim for defects was made by the Respondent or

Claimant received and acknowledged the accommodations, despite its verbal assertions that the Project Manager of the Claimant did.

the Owner/Client after April 19, 1999 to rectify what was completed by the Claimant. (TSN, 13 August 2001, p. 10).

There is also assertion that Claimant refused to acknowledge receipt of the accommodations.

Secondly, at the initial hearing, the Claimant no longer insisted on its claim for hydrotesting works (Issue No. 4) amounting

Lastly, and more importantly, the Claimant asserts that when the parties agreed on the Contract Amendment (which is effectively a

to P563,675.00 due to paragraph 3 of the Contract Amendment (Exhibit C-2) (TSN, 13 August, p. 3).

compromise agreement) on 23 November 1999, Respondents claims for deductions of the accommodations were deemed included in

Thirdly, some of the important details of Billing Nos. 3, 4 and 5 are as follows:

the compromise. The Contract Amendment states that it "accordingly supersedes the price stipulated x x x and any other commitment

a) Billing No. 3 was for P920,601.03. It was received by the Respondent on June 1, 1998 and approved on September 25, 1998. The

or agreement on price pertaining to works covered herein" and "no further adjustment in price shall be effected." It should be pointed

deductions for asserted accommodations amounted to P274,548.87. The amount paid was P646,052.12 which was paid in three (3)

out that on 23 November 1999, respondent had already approved Billing No. 3 (on September 25, 1998) and Billing No. 4 (on May 31,

tranches, to wit:

1999) and asserted the deductions of the accommodations. Moreover, all the claim for accommodations were already in existence on

"In the event Subcontractor fails to comply with the requirement stated therein within seven (7) days from notice/demand to comply,

23 November 1999. x x x.

PNCC shall have the authority to secure the necessary manpower, equipment from other sources, to assure completion of the works.

xxxx

All costs and expenses, including handling of charges, transportation, rentals for machinery/equipment and other expenses incidental

WHEREFORE, PREMISES CONSIDERED, an award is hereby rendered ordering the respondent to pay the Claimant the amount

thereto shall be for the account of Subcontractor and may be deducted from whatever amount that may be due or become due to

of P1,978,746.90 with interest at the rate of 6% per annum from 7 July 2000 up to the date of this Award. Thereafter, the Award shall

Subcontractor under this or in any agreement between the parties.

earn interest at the rate of 12% per annum until fully paid.3

is basically misplaced. While there was petitioner PNCCs letter dated February 16, 1998 sent to respondent CMS informing the latter

Aggrieved, PNCC sought recourse through a Petition for Review filed before the Court of Appeals maintaining that there is no basis in

that it had not coped up (sic) with the work schedule and thus requiring it to submit other requirements such as daily accomplishment

fact nor in law for the findings of the Sole Arbitrator that the deductions for "accommodations" for Billing Nos. 3, 4, and 5 should be

reports and target weekly accomplishments; nevertheless, the same is not determinant of whether or [not] the seven day notice was

disallowed as they already formed part of the compromise agreement and that the said "accommodations" were not properly

strictly complied with. (Exh. "R-32" p. 95, rollo).

documented and proved to bind CMS.

xxxx

On 26 August 2002, the appellate court rendered a Decision affirming the findings of Sole Arbitrator Lazatin. According to the Court of

In fine, there was no evidence on record which proved that the aforecited deductions for accommodations were sent and received by

Appeals:

respondent CMS. Neither was there any specification of the items and costings of the charges now asserted in the deductions for

It must be recalled that the parties initially agreed to a subcontract price of P7,990,172.61 (par. 3.1 Subcontract Agreement, Exh. "R-

accommodations.

3", p. 80, rollo); however, the same was increased to P8,872,593.74 (par. 9.1. Terms of Reference, p. 58, rollo; Final Bill of Quantities,

xxxx

p. 65, rollo) subject to petitioner PNCCs outright deduction of 10% net which would answer for any and all defect/s and/or

In view of the above disquisitions, We are inclined to uphold the sole arbitrators findings and conclusions, disallowing the deductions

deficiency/ies in the workmanship. And all the accumulated retentions shall be released within thirty days from the date of final

for accommodations made by petitioner PNCC against respondent CMS. Consequently, respondent CMS should be paid for the

acceptance of subcontracted work and which could be attained only after the lapse of the warranty period stipulated. (pars. 4.4 & 4.5.,

deductions made by petitioner PNCC in the amount of P1,091,487.53. It is a hornbook doctrine in our jurisdiction that findings of facts

Subcontract Agreement, p. 81, rollo; Contract Amendment, Exh. "R-15", p. 98, rollo). Thus, 10% of the subcontract price

of administrative bodies charged with their specific field of expertise, are afforded great weight by the courts, and in the absence of

of P8,872,593.74 is P887,259.37, which should be automatically deducted, it being part of the Subcontract Agreement" which to Our

substantial showing that such findings are made from an erroneous estimation of the evidence presented, they are conclusive, and in

mind should be respected, since the same was not part of the amendment of the contract. When the terms of an agreement have

the interest of stability of the government structure, should not be disturbed. (Ocampo vs. Commission on Elections, 325 SCRA 636). It

been reduced to writing, it is to be considered as containing all the terms agreed upon and there can be, between the parties and their

is likewise not for the reviewing court to weigh the conflicting evidence, determine the credibility of the witnesses, or otherwise

successors in interest, no evidence of such terms other than the contents of the written agreement. (Sec. 9, par. 1, Rule 130 Rules on

substitute its own judgment for that of the administrative agency on the sufficiency of the evidence; that the administrative decision in

Evidence) And there being no evidence on record which showed that petitioner PNCC claimed for any defects on the completed

matters, within the executive jurisdiction, can only be set aside on proof of grave abuse of discretion, fraud, or error of law (cited in Lo

project against respondent CMS after April 1999, the aforementioned amount of P887,259.37 should now be released/paid to the

vs. Court of Appeals, 321 SCRA 190). We hold that the Sole Arbitrators findings and conclusion as aptly ratiocinated in his assailed

latter.

decision are in accord with the facts and evidence on record and as such, must be respected.

Coming now to the resolutions of whether or not the deductions for accommodations made by petitioner PNCC in billing nos. 3 to 5

xxxx

were part of the compromise settlement and whether the same were properly documented, We opine that the same were part of the

WHEREFORE, premises considered the PETITION FOR REVIEW is hereby Denied with modifications. Accordingly, a Decision is

compromise settlement and the same were not properly documented.

hereby rendered as follows:

Petitioner PNCC contended that in view of respondent CMS delay in the execution of the project, it supplied the necessary manpower,

1) Ordering petitioner Philippine National Construction Corporation to pay respondent CMS Construction and Development

equipment and materials in order to assure the completion of the works; however, the record of the case is bereft of any evidence

Corporation the total amount of P1,978,746.90 plus 6% interest per annum from date of demand which is from July 7, 2000 until fully

which would show that indeed petitioner PNCC had supplied the necessary manpower, equipment and materials for the project, aside

satisfied, but before judgment becomes final. From the date of finality of the judgment until the obligation is totally paid. A TWELVE

from petitioners letter dated December 5, 1997 which stated that it would supply the same. (p. 92, rollo).

PERCENT (12%) interest, in lieu of the SIX PERCENT (6%) interest shall be imposed; and

Petitioners reliance on Article VI, par. 6.2.1 of the Subcontract Agreement which states:

2) Deleting the award for arbitration fees in favor of the respondent CMS Construction and Development Corporation in the amount
of P29,264.51 for lack of factual and legal basis.4

Petitioners Motion for Reconsideration having been denied, PNCC filed the instant petition assailing the Decision of the appellate

Thus, PNCC claims that from the abovequoted provision of the Subcontract Agreement, it is evident that "accommodations" for

court on the sole ground that the Court of Appeals erred in upholding the Sole Arbitrators findings and conclusion disallowing the

additional manpower or equipment supplied by PNCC in the project are deductible from whatever amount due to CMS as

deductions for accommodations made by PNCC against CMS.

subcontractor.

Before we delve into the substantial issue raised by petitioner, we shall first address the procedural issue raised by respondent.

There is no dispute that under the aforecited provision, deductions or "accommodations" may be made against the account of the

According to CMS, the issue raised by petitioner is not a proper subject of an appeal under Rule 45 of the Rules of Court. CMS

subcontractor; however, it is pivotal at this point to underscore an important provision in the Contract Amendment signed by the parties

maintains that in assailing the findings and conclusions of the Sole Arbitrator as affirmed by the Court of Appeals, petitioner only puts

on 23 November 1999. According to said amendment to the Subcontract Agreement, Appendix "A" thereof constitutes the final Bill of

into issue the findings of facts which are the bases thereof. And this Court, being not a trier of facts, is not duty-bound to probe into the

Quantities for scope of works undertaken by the subcontractor (CMS) and supersedes Annex "C" of the 21 October 1997 Agreement

accuracy of said factual findings, in the absence of clear showing that the same were arbitrary and bereft of any rational basis.

and any bill of quantities earlier agreed upon by the parties in connection with the project.1avvphi1.net

On the other hand, PNCC claims that the instant petition involves a question of law as the main issue herein is the proper

It is clear from a reading of said provision of the Contract Amendment executed after the completion of said project and after PNCC

interpretation of the Contract Amendment executed between the parties, and whether or not deductions for "accommodations" given

had determined the alleged deductions it was to charge against CMSs account that Annex "A" thereof reflects the scope of work

by PNCC are allowed under said Contract Amendment.

undertaken by CMS. Said Bill of Quantities therefore enumerates the costs borne by CMS as subcontractor in the accomplishment of

To be sure, questions of law are those that involve doubts or controversies on what the law is on certain state of facts; and questions

the project.

of fact, on the other hand, are those in which there is doubt or difference as to the truth or falsehood of the alleged facts. One test, it

A careful perusal of Annex "A" of the Contract Amendment will show that the final Bill of Quantities for the scope of works undertaken

has been held, is whether the appellate court can determine the issue raised without reviewing or evaluating the evidence, in which

by CMS for the project amounts to P8,872,593.74. There is no mention, either in the body of said Contract Amendment nor in the

case it is a question of law, otherwise it will be a question of fact.5

annex attached thereto, regarding the alleged "accommodations" which PNCC shall deduct from the amount payable to CMS. It would

We agree with petitioner that the instant case involves a question of law. At the heart of this controversy before us is the issue of

only be logical, therefore, to conclude that the Contract Amendment and Annex "A" attached thereto already reflect the actual amount

whether or not the "accommodations" claimed by PNCC may be properly deducted from the contract price stipulated under the

to be paid to CMS for the scope of work it rendered regarding the relocation of the 450 mm pipe along the East Service Road of the

Subcontract Agreement as modified by the Contract Amendment. The resolution of said issue, thus, entails an interpretation of the

South Luzon Tollway, said amendment having been executed after PNCC had already determined the necessary deductions to be

provisions of both agreements executed by both parties. And as correctly pointed out by petitioner, where an interpretation of the true

made against the account of CMS.

agreement between the parties is involved in the appeal, the appeal is in effect an inquiry of the "law" between the parties and their

The agreement or contract between the parties is the formal expression of the parties rights, duties and obligations. 7 It is the best

successors in interest, its interpretation necessarily involves a question of law, properly raised in the certiorari proceedings.6

evidence of the intention of the parties.8 Thus, when the terms of an agreement have been reduced to writing, it is considered as

Having resolved the procedural issue raised herein, we now proceed to determine the singular substantial issue raised in the instant

containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms

petition.

other than the contents of the written agreement.9 Furthermore, it is a cardinal rule that if the terms of a contract are clear and leave

PNCC maintains that Sole Arbitrator Lazatin acted arbitrarily or with grave abuse of discretion when he denied the deductions being

no doubt as to the intention of the contracting parties, the literal meaning of its stipulation shall control.10

claimed by petitioner. According to PNCC, the deductions or "accommodations" made in Billing Nos. 3, 4, and 5 are allowed under

Petitioner miserably failed to establish that Sole Arbitrator Lazatin acted arbitrarily or with grave abuse of discretion when he denied

Article VI, Paragraph 6.2.1 of the Subcontract Agreement, which states that:

the deductions claimed by petitioner. If ever Sole Arbitrator Lazatin may have committed any error in his interpretation of the

6.2.1 In the event SUBCONTRACTOR fails to comply with the above requirement stated therein within seven (7) days from

Subcontract Agreement and the Contract Amendment, such possible error is not tantamount to grave abuse of discretion, but merely

notice/demand to comply, PNCC shall have the authority to secure the necessary manpower, equipment from other sources, to assure

an error of judgment. An error of judgment is one which the court may commit in the exercise of its jurisdiction, and which error is

completion of the works. All costs and expenses, including handling of charges, transportation rentals for machineries/equipment and

reviewable only by an appeal.11 On the other hand, an error of jurisdiction is one where the act complained of was issued by the court,

other expenses incidental thereto, shall be for the account of SUBCONTRACTOR and may be deducted from whatever amount that

officer or a quasi-judicial body without or in excess of jurisdiction, or with grave abuse of discretion which is tantamount to lack or in

may be due or become due to SUBCONTRACTOR under this or in any agreement between the parties. In such case, however, PNCC

excess of jurisdiction.12 This error is correctable only by the extraordinary writ of certiorari.13

shall exert its best efforts to minimize the costs.

Nonetheless, we see no reason to disregard the determinations made by Sole Arbitrator Lazatin. As has been discussed above, the
contention of PNCC that it may legally deduct certain accommodations from the contract price as contained in the Bill of Quantities
attached to the Contract Amendment has no leg to stand on. Furthermore, in the absence of any showing of grave abuse of discretion,

this Court must sustain the factual findings of the Sole Arbitrator as sustained by the Court of Appeals, this being in accordance with

Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company rendering local as well as long distance telephone service in

the established principle that determination of certain questions of fact falling within the peculiar technical expertise of an

Naga City while private respondent Camarines Sur II Electric Cooperative, Inc. (CASURECO II) is a private corporation established for

administrative agency, must be accorded great respect, if not finality by this Court. A long line of cases establishes the basic rule that

the purpose of operating an electric power service in the same city.

the court will not interfere in matters which are addressed to the sound discretion of government agencies entrusted with the regulation

On November 1, 1977, the parties entered into a contract (Exh. "A") for the use by petitioners in the operation of its telephone service

of activities coming under the special technical knowledge and training of such agencies.14 The CIAC, having been duly constituted by

the electric light posts of private respondent in Naga City. In consideration therefor, petitioners agreed to install, free of charge, ten (10)

law as the quasi-judicial agency accorded with jurisdiction to resolve disputes arising from contracts involving construction in the

telephone connections for the use by private respondent in the following places:

Philippines,15 this Court must confer finality to its findings as they are supported by the evidence in this case.

(a) 3 units The Main Office of (private respondent);

WHEREFORE, premises considered, the instant petition is hereby DENIED. The Decision of the Court of Appeals in CA-G.R. SP No.

(b) 2 Units The Warehouse of (private respondent);

66968 dated 26 August 2002 is hereby AFFIRMED. Costs against petitioner.

(c) 1 Unit The Sub-Station of (private respondent) at Concepcion Pequea;

SO ORDERED.

(d) 1 Unit The Residence of (private respondent's) President;

(e) 1 Unit The Residence of (private respondent's) Acting General Manager; &

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.

(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

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
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:

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
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

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

action. Petitioners further alleged that their utilization of private respondent's posts could not have caused their deterioration because

petitioners to reactivate them notwithstanding their calls on the emergency line.

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

(5) Finally, Atty. Luis General, Jr., private respondent's counsel, testified that the Board of Directors asked him to study the contract

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

sometime during the latter part of 1982 or in 1983, as it had appeared very disadvantageous to private respondent. Notwithstanding

any inequity, it was suffered by them.

his recommendation for the filing of a court action to reform the contract, the former general managers of private respondent wanted to

Regarding the second cause of action, petitioners claimed that private respondent had asked for telephone lines in areas outside Naga

adopt a soft approach with petitioners about the matter until the term of General Manager Henry Pascual who, after failing to settle the

City for which its posts were used by them; and that if petitioners had refused to comply with private respondent's demands for

matter amicably with petitioners, finally agreed for him to file the present action for reformation of contract.

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

On the other hand, petitioner Maggay testified to the following effect:

its claim against them.

(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

And with respect to the third cause of action, petitioners claimed, inter alia, that their telephone service had been categorized by the

the contract was executed, but Atty. Gaudioso Tena, who was also a member of the Board of Directors of private respondent, was the

National Telecommunication Corporation (NTC) as "very high" and of "superior quality."

one who saw to it that the contract was fair to both parties.

During the trial, private respondent presented the following witnesses:

(2) With regard to the first cause of action:

(1) Dioscoro Ragragio, one of the two officials who signed the contract in its behalf, declared that it was petitioner Maggay who

(a) Private respondent has the right under the contract to use ten (10) telephone units of petitioners for as long as it wishes without

prepared the contract; that the understanding between private respondent and petitioners was that the latter would only use the posts

paying anything therefor except for long distance calls through PLDT out of which the latter get only 10% of the charges.

in Naga City because at that time, petitioners' capability was very limited and they had no expectation of expansion because of legal

(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

squabbles within the company; that private respondent agreed to allow petitioners to use its posts in Naga City because there were

present;

many subscribers therein who could not be served by them because of lack of facilities; and that while the telephone lines strung to the

(c) Petitioner's linemen have strung only small messenger wires to many of the posts and they need only small holes to pass through;

posts were very light in 1977, said posts have become heavily loaded in 1989.

and

(2) Engr. Antonio Borja, Chief of private respondent's Line Operation and Maintenance Department, declared that the posts being used

(d) Documents existing in the NTC show that the stringing of petitioners' cables in Naga City are according to standard and

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

comparable to those of PLDT. The accidents mentioned by private respondent involved trucks that were either overloaded or had

(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,

loads that protruded upwards, causing them to hit the cables.

almost 100 posts were destroyed by typhoon Sisang: around 20 posts were located between Naga City and the town of Pili while the

(3) Concerning the second cause of action, the intention of the parties when they entered into the contract was that the coverage

posts in barangay Concepcion, Naga City were broken at the middle which had been bored by petitioner's linemen to enable them to

thereof would include the whole area serviced by petitioners because at that time, they already had subscribers outside Naga City.

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

Private respondent, in fact, had asked for telephone connections outside Naga City for its officers and employees residing there in

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

addition to the ten (10) telephone units mentioned in the contract. Petitioners have not been charging private respondent for the

clearance required by the National Building Code, so that there were cases in 1988 where, because of the low clearance of the cables,

installation, transfers and re-connections of said telephones so that naturally, they use the posts for those telephone lines.

passing trucks would accidentally touch said cables causing the posts to fall and resulting in brown-outs until the electric lines were

(4) With respect to the third cause of action, the NTC has found petitioners' cable installations to be in accordance with engineering

repaired.

standards and practice and comparable to the best in the country.

(3) Dario Bernardez, Project Supervisor and Acting General Manager of private respondent and Manager of Region V of NEA,

On the basis of the foregoing countervailing evidence of the parties, the trial court found, as regards private respondent's first cause of

declared that according to NEA guidelines in 1985 (Exh. "C"), for the use by private telephone systems of electric cooperatives' posts,

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

they should pay a minimum monthly rental of P4.00 per post, and considering the escalation of prices since 1985, electric cooperatives

respondent's operation and when its Board of Directors did not yet have any experience in that business, it had become

have been charging from P10.00 to P15.00 per post, which is what petitioners should pay for the use of the posts.

disadvantageous and unfair to private respondent because of subsequent events and conditions, particularly the increase in the

(4) Engineer Antonio Macandog, Department Head of the Office of Services of private respondent, testified on the poor service

volume of the subscribers of petitioners for more than ten (10) years without the corresponding increase in the number of telephone

rendered by petitioner's telephone lines, like the telephone in their Complaints Section which was usually out of order such that they

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

case of Occea, et al. v. Jabson, etc., et al., 7 which interpreted the article, should be followed in resolving this case. Besides, said

the inequities therein. Thus, said court ruled that the contract should be reformed by ordering petitioners to pay private respondent

article was never raised by the parties in their pleadings and was never the subject of trial and evidence.

compensation for the use of their posts in Naga City, while private respondent should also be ordered to pay the monthly bills for the

In applying Article 1267, respondent court rationalized:

use of the telephones also in Naga City. And taking into consideration the guidelines of the NEA on the rental of posts by telephone

We agree with appellant that in order that an action for reformation of contract would lie and may prosper, there must be sufficient

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

allegations as well as proof that the contract in question failed to express the true intention of the parties due to error or mistake,

respondent used by petitioners is reasonable, which rental it should pay from the filing of the complaint in this case on January 2,

accident, or fraud. Indeed, in embodying the equitable remedy of reformation of instruments in the New Civil Code, the Code

1989. And in like manner, private respondent should pay petitioners from the same date its monthly bills for the use and transfers of its

Commission gave its reasons as follows:

telephones in Naga City at the same rate that the public are paying.

Equity dictates the reformation of an instrument in order that the true intention of the contracting parties may be expressed. The courts

On private respondent's second cause of action, the trial court found that the contract does not mention anything about the use by

by the reformation do not attempt to make a new contract for the parties, but to make the instrument express their real agreement. The

petitioners of private respondent's posts outside Naga City. Therefore, the trial court held that for reason of equity, the contract should

rationale of the doctrine is that it would be unjust and inequitable to allow the enforcement of a written instrument which does not

be reformed by including therein the provision that for the use of private respondent's posts outside Naga City, petitioners should pay a

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

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

final and inflexible criterion and measure of the rights and obligations of the contracting parties is thus tempered to forestall the effects

should also pay petitioners the monthly dues on its telephone connections located outside Naga City beginning January, 1989.

of mistake, fraud, inequitable conduct, or accident. (pp. 55-56, Report of Code Commission)

And with respect to private respondent's third cause of action, the trial court found the claim not sufficiently proved.

Thus, Articles 1359, 1361, 1362, 1363 and 1364 of the New Civil Code provide in essence that where through mistake or accident on

Thus, the following decretal portion of the trial court's decision dated July 20, 1990:

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

WHEREFORE, in view of all the foregoing, decision is hereby rendered ordering the reformation of the agreement (Exh. A); ordering

intention of the parties is not expressed therein, then the instrument may be reformed at the instance of either party if there was mutual

the defendants to pay plaintiff's electric poles in Naga City and in the towns of Milaor, Canaman, Magarao and Pili, Camarines Sur and

mistake on their part, or by the injured party if only he was mistaken.

in other places where defendant NATELCO uses plaintiff's electric poles, the sum of TEN (P10.00) PESOS per plaintiff's pole, per

Here, plaintiff-appellee did not allege in its complaint, nor does its evidence prove, that there was a mistake on its part or mutual

month beginning January, 1989 and ordering also the plaintiff to pay defendant NATELCO the monthly dues of all its telephones

mistake on the part of both parties when they entered into the agreement Exh. "A", and that because of this mistake, said agreement

including those installed at the residence of its officers, namely; Engr. Joventino Cruz, Engr. Antonio Borja, Engr. Antonio Macandog,

failed to express their true intention. Rather, plaintiff's evidence shows that said agreement was prepared by Atty. Luciano Maggay,

Mr. Jesus Opiana and Atty. Luis General, Jr. beginning January, 1989. Plaintiff's claim for attorney's fees and expenses of litigation and

then a member of plaintiff's Board of Directors and its legal counsel at that time, who was also the legal counsel for defendant-

defendants' counterclaim are both hereby ordered dismissed. Without pronouncement as to costs.

appellant, so that as legal counsel for both companies and presumably with the interests of both companies in mind when he prepared

Disagreeing with the foregoing judgment, petitioners appealed to respondent Court of Appeals. In the decision dated May 28, 1992,

the aforesaid agreement, Atty. Maggay must have considered the same fair and equitable to both sides, and this was affirmed by the

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

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

Code is applicable and (2) that the contract was subject to a potestative condition which rendered said condition void. The motion for

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

reconsideration was denied in the resolution dated September 10, 1992. 6 Hence, the present petition.

President and General manager of appellant at the time who signed the agreement Exh. "A" in its behalf and who was one of the

Petitioners assign the following pertinent errors committed by respondent court:

witnesses for the plaintiff (sic), both parties complied with said contract "from the very beginning" (p. 5, tsn, April 17, 1989).

1) in making a contract for the parties by invoking Article 1267 of the New Civil Code;

That the aforesaid contract has become inequitous or unfavorable or disadvantageous to the plaintiff with the expansion of the

2) in ruling that prescription of the action for reformation of the contract in this case commenced from the time it became

business of appellant and the increase in the volume of its subscribers in Naga City and environs through the years, necessitating the

disadvantageous to private respondent; and

stringing of more and bigger telephone cable wires by appellant to plaintiff's electric posts without a corresponding increase in the ten

3) in ruling that the contract was subject to a potestative condition in favor of petitioners.

(10) telephone connections given by appellant to plaintiff free of charge in the agreement Exh. "A" as consideration for its use of the

Petitioners assert earnestly that Article 1267 of the New Civil Code is not applicable primarily because the contract does not involve

latter's electric posts in Naga City, appear, however, undisputed from the totality of the evidence on record and the lower court so

the rendition of service or a personal prestation and it is not for future service with future unusual change. Instead, the ruling in the

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, to study

said agreement which they believed had become disadvantageous to their company and to make the proper recommendation, which

civilist Ruggiero, "equity demands a certain economic equilibrium between the prestation and the counter-prestation, and does not

study Atty. General did, and thereafter, he already recommended to the Board the filing of a court action to reform said contract, but no

permit the unlimited impoverishment of one party for the benefit of the other by the excessive rigidity of the principle of the obligatory

action was taken on Atty. General's recommendation because the former general managers of plaintiff wanted to adopt a soft

force

approach in discussing the matter with appellant, until, during the term of General Manager Henry Pascual, the latter, after failing to

pp. 247-248).

settle the problem with Atty. Luciano Maggay who had become the president and general manager of appellant, already agreed for

We therefore, find nothing wrong with the ruling of the trial court, although based on a different and wrong premise (i.e., reformation of

Atty. General's filing of the present action. The fact that said contract has become inequitous or disadvantageous to plaintiff as the

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

years went by did not, however, give plaintiff a cause of action for reformation of said contract, for the reasons already pointed out

reasonable monthly rental of P10.00 per post, while plaintiff should pay appellant for the telephones in the same City that it was

earlier. But this does not mean that plaintiff is completely without a remedy, for we believe that the allegations of its complaint herein

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

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

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

agreement in question.

and essential services being rendered by both parties herein to the public and to avoid unjust enrichment by appellant at the expense

xxx xxx xxx

of plaintiff, said arrangement to continue only until such time as said parties can re-negotiate another agreement over the same

The understanding of the parties when they entered into the Agreement Exh. "A" on November 1, 1977 and the prevailing

subject-matter covered by the agreement Exh. "A". Once said agreement is reached and executed by the parties, the aforesaid ruling

circumstances and conditions at the time, were described by Dioscoro Ragragio, the President of plaintiff in 1977 and one of its two

of the lower court and affirmed by us shall cease to exist and shall be substituted and superseded by their new agreement. . . .. 8

officials who signed said agreement in its behalf, as follows:

Article 1267 speaks of "service" which has become so difficult. Taking into consideration the rationale behind this provision, 9 the term

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

"service" should be understood as referring to the "performance" of the obligation. In the present case, the obligation of private

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

respondent consists in allowing petitioners to use its posts in Naga City, which is the service contemplated in said article. Furthermore,

legal squabbles going on in the NATELCO. So, even at that time there were so many subscribers in Naga City that cannot be served

a bare reading of this article reveals that it is not a requirement thereunder that the contract be for future service with future unusual

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)

change. According to Senator Arturo M. Tolentino,10 Article 1267 states in our law the doctrine of unforseen events. This is said to be

Ragragio also declared that while the telephone wires strung to the electric posts of plaintiff were very light and that very few telephone

based on the discredited theory ofrebus sic stantibus in public international law; under this theory, the parties stipulate in the light of

lines were attached to the posts of CASURECO II in 1977, said posts have become "heavily loaded" in 1989 (tsn, id.).

certain prevailing conditions, and once these conditions cease to exist the contract also ceases to exist. Considering practical needs

In truth, as also correctly found by the lower court, despite the increase in the volume of appellant's subscribers and the corresponding

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

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

prejudiced.

agreement Exh. "A" of the parties has been in effect, there has been no corresponding increase in the ten (10) telephone units

In a nutshell, private respondent in the Occea case filed a complaint against petitioner before the trial court praying for modification of

connected by appellant free of charge to plaintiff's offices and other places chosen by plaintiff's general manager which was the only

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

consideration provided for in said agreement for appellant's use of plaintiffs electric posts. Not only that, appellant even started using

proceeds from the sales of subdivided lots. We ordered the dismissal of the complaint therein for failure to state a sufficient cause of

plaintiff's electric posts outside Naga City although this was not provided for in the agreement Exh. "A" as it extended and expanded its

action. We rationalized that the Court of Appeals misapplied Article 1267 because:

telephone services to towns outside said city. Hence, while very few of plaintiff's electric posts were being used by appellant in 1977

. . . respondent's complaint seeks not release from the subdivision contract but that the court "render judgment modifying the terms

and they were all in the City of Naga, the number of plaintiff's electric posts that appellant was using in 1989 had jumped to 1,403,192

and conditions of the contract . . . by fixing the proper shares that should pertain to the herein parties out of the gross proceeds from

of which are outside Naga City (Exh. "B"). Add to this the destruction of some of plaintiff's poles during typhoons like the strong

the sales of subdivided lots of subject subdivision". The cited article (Article 1267) does not grant the courts (the) authority to remake,

typhoon Sisang in 1987 because of the heavy telephone cables attached thereto, and the escalation of the costs of electric poles from

modify or revise the contract or to fix the division of shares between the parties as contractually stipulated with the force of law

1977 to 1989, and the conclusion is indeed ineluctable that the agreement Exh. "A" has already become too one-sided in favor of

between the parties, so as to substitute its own terms for those covenanted by the parties themselves. Respondent's complaint for

appellant to the great disadvantage of plaintiff, in short, the continued enforcement of said contract has manifestly gone far beyond the

modification of contract manifestly has no basis in law and therefore states no cause of action. Under the particular allegations of

contemplation of plaintiff, so much so that it should now be released therefrom under Art. 1267 of the New Civil Code to avoid

respondent's complaint and the circumstances therein averred, the courts cannot even in equity grant the relief sought. 11

appellant's unjust enrichment at its (plaintiff's) expense. As stated by Tolentino in his commentaries on the Civil Code citing foreign

of

contracts (IV

Tolentino,

Civil

Code

of

the

Philippines,

1986

ed.,

The ruling in the Occea case is not applicable because we agree with respondent court that the allegations in private respondent's

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

complaint and the evidence it has presented sufficiently made out a cause of action under Article 1267. We, therefore, release the

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

parties from their correlative obligations under the contract. However, our disposition of the present controversy does not end here. We

Import & Export Co., Inc. v. Phil. International Surety Co. and PNB, 8 SCRA 143). For it is the material allegations of fact in the

have to take into account the possible consequences of merely releasing the parties therefrom: petitioners will remove the telephone

complaint, not the legal conclusion made therein or the prayer, that determines the relief to which the plaintiff is entitled, and the

wires/cables in the posts of private respondent, resulting in disruption of their service to the public; while private respondent, in

plaintiff is entitled to as much relief as the facts warrant although that relief is not specifically prayed for in the complaint (Rosales v.

consonance with the contract 12 will return all the telephone units to petitioners, causing prejudice to its business. We shall not allow

Reyes and Ordoveza, 25 Phil. 495; Cabigao v. Lim, 50 Phil. 844; Baguioro v. Barrios, 77 Phil. 120). To quote an old but very

such eventuality. Rather, we require, as ordered by the trial court: 1) petitioners to pay private respondent for the use of its posts in

illuminating decision of our Supreme Court through the pen of American jurist Adam C. Carson:

Naga City and in the towns of Milaor, Canaman, Magarao and Pili, Camarines Sur and in other places where petitioners use private

"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

respondent's posts, the sum of ten (P10.00) pesos per post, per month, beginning January, 1989; and 2) private respondent to pay

allegations in their pleadings and the facts proven at the trial, and the mere fact that they themselves misconstrue the legal effect of

petitioner the monthly dues of all its telephones at the same rate being paid by the public beginning January, 1989. The peculiar

the facts thus alleged and proven will not prevent the court from placing the just construction thereon and adjudicating the issues

circumstances of the present case, as distinguished further from the Occea case, necessitates exercise of our equity

accordingly." (Alzua v. Johnson, 21 Phil. 308)

jurisdiction. 13 By way of emphasis, we reiterate the rationalization of respondent court that:

And in the fairly recent case of Caltex Phil., Inc. v IAC, 176 SCRA 741, the Honorable Supreme Court also held:

. . . 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

We rule that the respondent court did not commit any error in taking cognizance of the aforesaid issues, although not raised before the

disrupt the basic and essential services being rendered by both parties herein to the public and to avoid unjust enrichment by appellant

trial court. The presence of strong consideration of substantial justice has led this Court to relax the well-entrenched rule that, except

at the expense of plaintiff . . . . 14

questions on jurisdiction, no question will be entertained on appeal unless it has been raised in the court below and it is within the

Petitioners' assertion that Article 1267 was never raised by the parties in their pleadings and was never the subject of trial and

issues made by the parties in their pleadings (Cordero v. Cabral, L-36789, July 25, 1983, 123 SCRA 532). . . .

evidence has been passed upon by respondent court in its well reasoned resolution, which we hereunder quote as our own:

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.

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

Defendant-appellant stresses that the applicability of said provision is a question of fact, and that it should have been given the

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

opportunity to present evidence on said question. But defendant-appellant cannot honestly and truthfully claim that it (did) not (have)

case is whether the continued enforcement of the contract Exh. "A" between the parties has, through the years (since 1977), become

the opportunity to present evidence on the issue of whether the continued operation of the contract Exh. "A" has now become too one-

too inequitous or disadvantageous to the plaintiff and too one-sided in favor of defendant-appellant, so that a solution must be found to

sided in its favor and too inequitous, unfair, and disadvantageous to plaintiff. As held in our decision, the abundant and copious

relieve plaintiff from the continued operation of said agreement and to prevent defendant-appellant from further unjustly enriching itself

evidence presented by both parties in this case and summarized in said decision established the following essential and vital facts

at plaintiff's expense. It is indeed unfortunate that defendant had turned deaf ears to plaintiffs requests for renegotiation, constraining

which led us to apply Art. 1267 of the New Civil Code to this case:

the latter to go to court. But although plaintiff cannot, as we have held, correctly invoke reformation of contract as a proper remedy

xxx xxx xxx 15

(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

On the issue of prescription of private respondent's action for reformation of contract, petitioners allege that respondent court's ruling

express their true intent), this does not mean that plaintiff is absolutely without a remedy in order to relieve itself from a contract that

that the right of action "arose only after said contract had already become disadvantageous and unfair to it due to subsequent events

has gone far beyond its contemplation and has become so highly inequitous and disadvantageous to it through the years because of

and conditions, which must be sometime during the latter part of 1982 or in 1983 . . ." 16 is erroneous. In reformation of contracts,

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

what is reformed is not the contract itself, but the instrument embodying the contract. It follows that whether the contract is

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

disadvantageous or not is irrelevant to reformation and therefore, cannot be an element in the determination of the period for

applicable thereto.

prescription of the action to reform.

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

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

below upon some other point which was ignored or erroneously decided by the trial court (Garcia Valdez v. Tuazon, 40 Phil. 943;

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

Relativo v. Castro, 76 Phil. 563; Carillo v. Salak de Paz, 18 SCRA 467). Furthermore, the appellate court has the discretion to consider

not necessarily the date of execution of the contract. As correctly ruled by respondent court, private respondent's right of action arose

an unassigned error that is closely related to an error properly assigned (Paterno v. Jao Yan, 1 SCRA 631; Hernandez v. Andal, 78

"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,

Petitioners' allegations must be upheld in this regard. A potestative condition is a condition, the fulfillment of which depends upon the

May 8, 1989). (Private respondent's) cause of action to ask for reformation of said contract should thus be considered to have arisen

sole will of the debtor, in which case, the conditional obligation is void. 19 Based on this definition, respondent court's finding that the

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

provision in the contract, to wit:

elapsed." 17

(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

Regarding the last issue, petitioners allege that there is nothing purely potestative about the prestations of either party because

of the party of the second part (private respondent) . . ..

petitioner's permission for free use of telephones is not made to depend purely on their will, neither is private respondent's permission

is a potestative condition, is correct. However, it must have overlooked the other conditions in the same provision, to wit:

for free use of its posts dependent purely on its will.

. . . it being understood that this contract shall terminate when for any reason whatsoever, the party of the second part (private

Apart from applying Article 1267, respondent court cited another legal remedy available to private respondent under the allegations of

respondent) is forced to stop, abandoned (sic) its operation as a public service and it becomes necessary to remove the electric light

its complaint and the preponderant evidence presented by it:

post (sic);

. . . we believe that the provision in said agreement

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

(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

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

posts of the party of the second part [herein plaintiff] it being understood that this contract shall terminate when for any reason

do not invalidate the aforementioned provision. 21 Nevertheless, in view of our discussions under the first and second issues raised by

whatsoever, the party of the second part is forced to stop, abandoned [sic] its operation as a public service and it becomes necessary

petitioners, there is no reason to set aside the questioned decision and resolution of respondent court.

to remove the electric light post [sic]"; (Emphasis supplied)

WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals dated May 28, 1992 and its resolution dated

is invalid for being purely potestative on the part of appellant as it leaves the continued effectivity of the aforesaid agreement to the

September 10, 1992 are AFFIRMED.

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

SO ORDERED.

that the lessee could stay on the leased premises "for as long as the defendant needed the premises and can meet and pay said

Narvasa, C.J., Padilla, Regalado and Puno, JJ., concur.

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

G.R. No. L-3975

November 27, 1951

FRANCISCO DALUPAN, plaintiff-appellant, vs.FRED M. HARDEN, defendant-appellant.

ESPERANZA P. DEHARDEN and ABELARDO PEREZ,
BAUTISTA ANGELO, J.:
This case came before this Court by virtue of an appeal taken from an order of the Court of First Instance of Manila dated May 19,
1950, setting aside the writs of execution and garnishment issued to the sheriff of Manila commanding him to levy on two checks, one
for P9,028.50, and another for P24,546.00, payable to Fred M. Harden which were then in possession of the receiver appointed in
case involving the liquidation of the conjugal partnership of the spouses Fred M. Harden and Esperanza P. de Harden.
The important facts necessary to determine the incident herein involved are: On August 26, 1948, plaintiff filed an action against the
defendant for the collection of P113,837.17, with interest thereon from the filing of the complaint, which represents 50 per cent of the
reduction plaintiff was able to secure from the Collector of Internal Revenue in the amount of unpaid taxes claimed to be due from the
defendant. Defendant acknowledged this claim and prayed that judgment be rendered accordingly. In the meantime, the receiver in the
liquidation of case No. R-59634 and the wife of the defendant, Esperanza P. de Harden, filed an answer in intervention claiming that
the amount sought by the plaintiff was exorbitant and prayed that it be reduced to 10 per cent of the rebate. By reason of the

acquiescence of the defendant to the claim on one hand, and the opposition of the receiver and of the wife on the other, an amicable

There can be no mistake as to the true meaning of the terms of the stipulation. Examining these terms we find that the execution limits

settlement was concluded by the plaintiff and the intervenor whereby it was agreed that the sum of P22,767.43 be paid to the plaintiff

the right of the plaintiff to ask for the execution of the judgment to whatever share Fred M. Harden may still have in the conjugal

from the funds under the control of the receiver "and the balance of P91,069.74 shall be charged exclusively against the defendant

partnership between him and his wife after the final liquidation and partition thereof. The execution of the judgment is premised upon a

Fred M. Harden from whatever share he may still have in the conjugal partnership between him and Esperanza P. de Harden after the

condition precedent, which is the final liquidation and partition of the conjugal partnership. Note that the condition does not refer to the

final liquidation and partition thereof, without pronouncement as to costs and interests." The court rendered judgment in accordance

liquidation of particular property of the partnership. It refers to the over-all and final liquidation of the partnership. Such being the

with this stipulation.

stipulation of the parties which was sanctioned and embodied by the Court in its decision, it is clear that the writ of execution asked for

Almost one year thereafter, plaintiff filed a motion for the issuance of a writ of execution to satisfy the balance of P91,069.74, which

by the plaintiff on the two checks is premature.

was favorably acted upon. At that time the receiver had in his possession two checks payable to Fred M. Harden amounting to

It is contended that this interpretation is erroneous because "the one and only purpose of specifying therein that the balance of the

P33,574.50, representing part of the proceeds of the sale of two lots belonging to the conjugal partnership which was ordered by the

judgment credit in the sum of P91,069.74 would be chargeable exclusively against Fred M. Harden's share of the conjugal partnership,

court upon the joint petition of the spouses in order that they may have funds with which to defray their living and other similar

was to free from the effects of the judgment whatever share Mrs. Esperanza P. de Harden may ultimately obtain from the conjugal

expenses. One-half of the proceeds was given to Mrs. Harden. The sheriff attempted to garnish these two checks acting upon the writ

partnerhip upon its liquidation", or, stated in another way, "to clarify the agreement between the appellant and Mrs. Harden to the effect

of execution secured by the plaintiff, but the receivership court quashed the writ, stating however in the order that it will be "without

that her share of the conjugal partnership would not in any way be bound to the payment of the balance of the credit or any portion

prejudice to the right of Francisco Dalupan to attach the money of the defendant Fred M. Harden, after the same has been delivered to

thereof." To this we do not agree. In our opinion, the purpose of the parties in making that stipulation is to defer the payment of the

the latter". When said checks were delivered to the latter". When said checks were delivered to Jose Salumbides in his capacity as

claim until after the share of Fred M. Harden in the assets of the conjugal partnership shall have been determined in order that said

attorney-in-fact of Fred M. Harden, plaintiff immediately secured another writ of garnishment in line with the suggestion of the court,

defendant may not be burdened with the liability to pay it during the pendency of the receivership. But it as it may, that fact remains

whereupon defendant again filed a motion to quash said writ, and after due hearing, the court granted the motion setting aside the writ

that the terms of the stipulation are clear and it is a well known rule of statutory construction that when the terms of a contract are clear

of garnishment, as well as the writ of execution previously issued in the case. This is the order now subject of appeal.

there is no room for interpretation.

At the outset, it should be stated that the amount which plaintiff is seeking to recover is P91,069.74, as originally demanded in the

It is also contended that "if it be maintained that the partition of the proceeds of the two lots between Mr. and Mrs. Harden was not final

complaint. This amount, is however, has already been reduced to P42,069.74 because of certain partial payments made by the

in character for the sole and only reason that said properties did not constitute the whole of the conjugal estate, the order appealed

defendant during the pendency of this case in his desire to extend aid to the plaintiff. The two checks which plaintiff attempted to

from will open wide the door to fraud, to the end that the appellant may be completely deprived of his right to have the balance of his

garnish and apply to the judgment rendered in his favor represents in part the proceeds of the sale of two lots belonging to the

judgment credit satisfied by execution." We cannot indeed discount the possibility that fraud might be committed by the defendant if we

conjugal partnership which was authorized by the receiver court to provide both spouses with funds necessary to pay their living and

will interpret his attitude in the manner insinuated by the plaintiff, but we fail to perceive how such possibility can justify us in

other similar expenses. The two checks therefore form part of the assets of the conjugal partnership. They were turned over to

interpreting the stipulation of the parties in a manner contrary to its letter and spirit. The least that we can say is that in the remote case

defendant Fred M. Harden in pursuance of the order of the Court. Plaintiff claims that they should be applied to his judgment to pay in

that the defendant should attempt to commit such fraud plaintiff is not left without a remedy. He can protect his right by taking such

full balance of the claim which defendant still owes them. And defendant vigorously objects to this pretense of the plaintiff.

precautions or steps as may be necessary under the circumstance and we are sure that the court will not begrudge him the help he

To determine the validity of this claim there is need for us to examine the basis of the writ of execution which is now sought to be

may need to protect his interest. It will then be the time for the plaintiff to act. Not now. But, in our opinion, the apprehension of the

enforced, which is the judgment rendered in favor of the plaintiff. The dispositive part of this judgment, which embodies in substance

plaintiff is more whimsical than real, as shown by the facts surrounding this incident. Thus, while the stipulation of the parties calls for

the stipulation of the parties, reads as follows:

the payment of the balance of P91,069.74 after the final liquidation of the conjugal partnership, we find in the record that defendant

Wherefore, plaintiff and intervenors agree and pray this Honorable Court that judgment be rendered in this case in accordance with the

Harden on his own volition, and even at the cost of borrowing money from some friends, made substantial payments to the plaintiff

pleadings of plaintiff and defendant, but the sum of P22,767.43 shall be paid out of the fund deposited in the Chartered Bank of India,

which brought his obligation down to the sum of P42,069.74. This is a clear proof of the good faith of Harden in this regard and of his

Australia and China, and under the control of the receiver Abelardo Perez, in Civil Case No. R-59634 of this Court, and the balance of

honest intention to pay his obligation as per his agreement. This acts belies the apprehension of the plaintiff.

P91,069.74 shall be charged exclusively against the defendant Fred M. Harden from whatever share he may still have in conjugal

Another consideration that should made refers to the proffer made by the plaintiff to the defendant to the effect that "in the event you

partnership between him and Esperanza P. de Harden, after the final liquidation and partition thereof, without pronouncement as to

lose your case with your wife, Mrs. Esperanza P. de Harden, and that after adjudication of the conjugal property what is left with you

costs and interests.

will not be sufficient for your livelihood. I shall be pleased to write off as bad debt the balance of your account in the sum of

P42,069.74" (Exhibit 2). This proffer was contained in a letter sent by the plaintiff to the defendant on March 23, 1949, which was

any amount that said plaintiff might pay in the name of the defendant on account of a promissory note for P45,000 executed by it, upon

accepted expressly by Fred M. Harden. Harden regarded this proffer as a binding obligation and acted accordingly, and for plaintiff to

receipt of said sum as loan from the China Banking Corporation, on September 25, 1928, and on account of a guaranty in the sum of

say now that proffer is but a mere gesture of generosity or an act of Christian charity without any binding legal effect is unfair to say at

P20,000 subscribed by it in favor of said bank on the 17th of said month and year, the deed, Exhibit A, having been executed to the

least. This is an added circumstance which confirms our view that the understanding between the plaintiff and the defendant is really

effect, in absolute conformity with the Chattel Mortgage Law.

to defer payment of the balance of the claim until after the final liquidation of the conjugal partnership.

One year and some months later, or in February, 1930, and in April, 1931, the steamship Yusingco needed some repairs which were

Wherefore, the order appealed from is hereby affirmed, with costs against the appellant.

made by the Earnshaw Docks & Honolulu Iron Works upon petition of A. Yusingco Hermanos which, according to documentary

Paras, C.J., Feria, Pablo, Bengzon, Padilla, Tuason, Reyes and Jugo, JJ., concur.

evidence of record, was co-owner of Pelagio Yusingco. The repairs were made upon the guaranty of the defendant and appellant

G.R. No. L-43608

Vicente Madrigal at a cost of P8,244.66.

July 20, 1937

THE YEK TONG FIRE and MARINE INSURANCE CO., LTD., plaintiff-appellant,

When neither A. Yusingco Hermanos nor Pelagio Yusingco could pay said sum to the Earnshaw Docks & Honolulu Iron Works, the

vs.

defendant and appellant Vicente Madrigal had to make payment thereof with the stipulated interest thereon, which was at the rate of 9

PELAGIO YUSINGCO, ET AL., defendants.

per cent per annum, on March 9, 1932, because he was bound thereto by reason of the bond filed by him, the payment then made by

VICENTE MADRIGAL, appellant.

him having amounted to P8,777.60. On said date, but after the credit of the Earnshaw Docks & Honolulu Iron Works, for the repairs

DIAZ, J.:

made by it on the steamshipYusingco had already been paid, said company assigned its credit against A. Yusingco Hermanos to the

The plaintiff, Yek Tong Lim Fire & Marine Insurance Co., Ltd. and the defendant Vicente Madrigal appealed from the judgment of the

defendant and appellant Vicente Madrigal, by executing to that end the instrument Exhibit 5, which was duly registered in the Bureau

Court of First Instance of Manila, ordering (a) the defendant Pelagio Yusingco to pay to the plaintiff the sum of P17,590.85 with interest

of Customs. Some days later, when said defendant discovered that he was not to be reimbursed for the repairs made on the

thereon at 12 per cent per annum for August 10, 1932, until fully paid, plus the sum of P4,500 as attorney's fees and the costs of the

steamship Yusingco, he brought an action against his codefendant Pelagio Yusingco and A. Yusingco Hermanos to compel them to

suit; (b) the defendant Vicente Madrigal to turn over to the plaintiff the amount of money received by him in October, 1932, from his

reimburse him, thereby giving rise to civil case No. 41654 of the Court of First Instance of Manila, entitled "Vicente Madrigal, plaintiff,

codefendant provincial sheriff of Surigao, and (c) absolving said sheriff from the complaint.

vs. Pelagio Yusingco and A. Yusingco Hermanos, defendants" (Exhibit 6), which resulted in a judgment favorable to him and adverse

The appeal of the defendant Vicente Madrigal according to him, is based on the ground that the lower court committed the following

to the Yusingcos, as the latter were ordered to pay him the sum of P3,269.66 plus interest thereon at said rate of 9 per cent per annum

alleged errors:

from May 6, 1931, with the costs of the suit. It was provided in the judgment that upon failure of the Yusingcos to pay the above-stated

I. In holding that the claim of the plaintiff, as mortgagee, is superior to his, as assignee of the preferred credit of Earnshaw Docks &

amounts to Vicente Madrigal, a writ of execution would be issued in order to have the steamship Yusingco sold at public auction for the

Honolulu Iron Works, which had made some repairs on the steamship Yusingco;

purpose of satisfying said amounts with the proceeds thereof.

II. In ordering him to turn over to the plaintiff the amount of money received by him from the defendant provincial sheriff of Surigao,

Inasmuch as neither the defendant Pelagio Yusingco nor A. Yusingco Hermanos paid the amount of the judgment rendered in civil

named Protolico P. Egay, which formed a part of the proceeds of the auction sale of the steamship Yusingco, and

case No. 41654, in favor of the defendant and appellant Vicente Madrigal, the latter sought and obtained from the Court of First

III. In denying his motion for a new trial based upon his allegation that the decision is contrary to law and the evidence taken.

Instance, which tried the case, the issuance of the corresponding writ of execution (Exhibit 8). However, before the sale of the

The plaintiff's appeal, in turn, is due to the fact that, according to it, the lower court erred in absolving the defendant provincial sheriff of

steamship Yusingco, by virtue of the writ of execution so issued, was carried out, the plaintiff and appellant filed with the defendant

Surigao, and in denying its motion for a new trial based on the ground that the decision, in so far as it absolves said sheriff from the

sheriff a third party claim demanding said ship for himself, alleging that it had been mortgaged to him long before the issuance of said

complaint, is not supported by the evidence and is contrary to law.

writ and, therefore, he was entitled to the possession thereof. The defendant sheriff then informed the defendant and appellant Vicente

The facts pertinent to the case, as inferred from the stipulation submitted to the lower court by the parties and from the same evidence

Madrigal that if he wished to have the execution sought by him carried out, he should file the indemnity bond required by section 451

taken during the trial, may be summarized as follows:

of Act No. 190. This was done by Vicente Madrigal, but in order to prevent him and the sheriff from proceeding with the execution, the

The defendant Pelagio Yusingco was the owner of the steamship Yusingco and, as such, he executed, on November 19, 1927, a

plaintiff and appellant instituted this case in the court of origin and asked for the issuance of a writ of preliminary injunction addressed

power of attorney in favor of Yu Seguioc to administer, lease, mortgage and sell his properties, including his vessels or steamships

to said two defendants to restrain them from selling the steamship Yusingco at public auction. The writ of preliminary injunction, which

(Exhibit N). Yu Seguios, acting as such attorneys in fact of Pelagio Yusingco, mortgaged to the plaintiff Yek Tong Lin Fire & Marine

was issued on August 19, 1932, was later dissolved, the defendant and appellant Vicente Madrigal having filed a bond of P5,000. This

Insurance Co., Ltd., with the approval of the Bureau of Customs, the steamship Yusingco belonging to the defendant, to answer for

left the preliminary injunction unimpaired and valid for the sale of the steamship Yusingco at public auction. For this reason, said ship

was sold at public auction on September 19, 1932, and was purchased, under the circumstances, by the plaintiff and appellant itself,

inasmuch as the steamship Yusingco, before as well as at the time of its sale at public auction by virtue of a judicial writ, was in the

which was the highest bidder, having made the highest bid of P12,000 (Exhibit 8). Of said amount, the defendant sheriff turned over

possession of the owners thereof, Pelagio Yusingco and A. Yusingco Hermanos, debtors of the plaintiff. If the Earnshaw Docks &

P10,195 to Vicente Madrigal in payment of his judgment credit, distributing the balance in the manner stated in Exhibit 9. It is said sum

Honolulu Iron Works had such right, naturally the defendant and appellant Vicente Madrigal later had such right, to the same extent as

of P10,195 which the lower court ordered Vicente Madrigal to turn over to the plaintiff.

the former, by virtue of the assignment made to him after he, as guarantor, paid the obligation contracted by the Yusingcos with the

In addition to the foregoing facts, it should be stated that when the defendant and appellant Vicente Madrigal instituted said civil case

Earnshaw Docks & Honolulu Iron Works for the repair of said vessel. This is necessarily so because the assignee is entitled to

No. 41654 against Pelagio Yusingco and A. Yusingco Hermanos in March, 1932, the steamship Yusingco was already in the

exercise the right and prosecute all actions belonging to the assignor (articles 1212 and 1528, Civil Code; section 114, Act No. 190).

possession of Pelagio Yusingco in the port of Surigao (Stipulation of Facts, paragraph VI).

When the plaintiff attempted to foreclose the mortgage constituted in its favor, first by filing its third party claim in civil case No. 41654

It should be added further that the payments made by the plaintiff on account of the credit of the China Banking Corporation against

wherein the writ of execution, by virtue of which the steamship Yusingco was sold at public auction, was issued, its only right with

Pelagio Yusingco, by virtue of the deed of mortgage executed by the latter in favor of said plaintiff, through an attorney in fact,

respect to said vessel was to sell it judicially or extrajudicially in accordance with law, upon default in the performance of the conditions

encumbering the steamship Yusingco, amounted to only P16,190.83 plus P700 as insurance premium, which are still less than that

of the mortgage contract entered into between it and the owners thereof, in order to apply the proceeds of the sale to its mortgage

adjudicated to the plaintiff by the lower court.

credit against said owners, or at least against Pelagio Yusingco, if such proceeds are sufficient (Bachrach Motor Co. vs. Summers, 42

The parties seem to believe that the important if not the only question to be decided is whether or not the credit of the plaintiff, as

Phil., 3), and if insufficient, to collect the balance thereof on other property belonging to said defendants (Exhibit C, page 3). The

mortgage creditor of Pelagio Yusingco, is superior to that of Vicente Madrigal, as judgment creditor of said Pelagio Yusingco

steamship Yusingco was then in custodia legis and, under the circumstances, it could neither take possession thereof nor sell it

Hermanos. If the plaintiff is to be believed, it seems clear that as they (the plaintiff, Pelagio Yusingco, Vicente Madrigal, and A.

pursuant to the conditions of its mortgage contract.

Yusingco Hermanos) as merchants, the provisions of the Code of Commerce should govern their acts (article 2, Code of Commerce).

After the steamship Yusingco had been sold by virtue of the judicial writ issued in civil case No. 41654 for the execution of the

The plaintiff contends that if Vicente Madrigal enjoyed any preferred right at all, it could have been no other than that based upon

judgment rendered in favor of Vicente Madrigal, the only right left to the plaintiff was to collect its mortgage credit from the purchaser

article 580 of said Code. The pertinent part of said article reads:

thereof at public auction, inasmuch as the rule is that a mortgage directly and immediately subjects the property on which it is

In all judicial sales of vessels for the payment of creditors, the said creditors shall have preference in the order stated:

imposed, whoever its possessor may be, to the fulfillment of the obligation for the security of which it was created (article 1876, Civil

xxx

Code); but it so happens that it can not take such steps now because it was the purchaser of the steamship Yusingco at public

xxx

xxx

8. The part of the price which has not been paid the last vendor, the credits pending for the payment of material and work in the

auction, and it was so with full knowledge that it had a mortgage credit on said vessel. Obligations are extinguished by the merger of

construction of the vessel, when it has not navigated, and those arising from the repair and equipment of the vessel and it provisioning

the rights of the creditor and debtor (articles 1156 and 1192, Civil Code).

which victuals and fuel during its last voyage.

The conclusion arrived at by this court is that the defendant and appellant Vicente Madrigal enjoys preference in the payment of his

In order that the credits provided for this subdivision may enjoy the preference they must appear by contracts recorded in the registry

judgment credit with the proceeds of the sale of the steamship Yusingco, by virtue of the assignment to him of the credit of the

of vessels, or if they were contracted for the vessel while on a voyage and said vessel has not returned to the port of her registry, they

Earnshaw Docks & Honolulu Iron Works, because it is so provided not only in article 1922 of the Civil Code but also in article 1926,

must be made under the authority required for such cases and entered in the certificate of registry of the said vessel.

rule 4, thereof, notwithstanding the preference referred to in rule 1 of the latter article, which provides that credits secured by a pledge

Basing its opinion upon the foregoing provision of law, the plaintiff contends that as the repair made on the steamship Yusingco were

exclude all others to extent of the value is not secured by pledge but by mortgage, so much so that the mortgage deed executed in its

not for averages suffered during its last voyage, the defendant Vicente Madrigal cannot invoke preferential right for having paid for

favor contains a clause to the effect that if the proceeds of the sale of the steamship Yusingco, in case it is sold by reason of default in

them as guarantor. Granting this to be true, it does not follow that the plaintiff is entitled to recover from said Vicente Madrigal what the

the performance of the conditions thereon, should be insufficient, the plaintiff could its credit on other property of the debtors (Exhibit

latter received from the defendant provincial sheriff of Surigao, by virtue of the execution of the judgment rendered in his favor. Neither

C, page 3).

does it follow that said defendant (Vicente Madrigal) has no other right of action against Pelagio Yusingco and A. Yusingco Hermanos

Rule 4 of the above-cited article 1926 reads: "In all other cases the value of the personal property shall be applied pro rata to the

for the recovery of what he had paid for them, particularly when the Earnshaw Dock & Honolulu Iron Works, which had performed the

payment of the credits which enjoy special preference with respect to such property," and a vessel is personal property, as stated in

repairs in question, assigned to him the credit it had against them. There is no doubt that under the provisions of article 1922,

the case of Philippine Refining Co. vs. Jarque (61 Phil., 229). Said rule refers to the credits stated in said article 1922 (12 Manresa,

paragraph 1, of the Civil Code, the Earnshaw Docks & Honolulu Iron Works was entitled to recover the cost of said repairs

Civil Code, 706).

(International Banking Corporation vs. Corrales, 10 Phil., 435; Bank of the Philippine Islands vs. Walter A. Smith & Co., 55 Phil., 533),

Having arrived at this conclusion, it becomes unnecessary to pass upon the other errors assigned by the parties, particularly if it is

On September 13, 1983, respondent Unisphere received a letter from petitioner CCC demanding payment of past dues.

taken into consideration that the plaintiff-appellant has to date taken no action against the defendant sheriff for the recovery of the

On December 5, 1984, petitioner E.G.V. Realty executed a Deed of Absolute Sale over Unit 301 in favor of respondent

damages it claims to have suffered, upon the indemnity bond filed by the defendant and appellant Vicente Madrigal, in accordance

Unisphere. Thereafter, Condominium Certificate of Title No. 7010 was issued in respondent Unispheres name bearing the annotation

with section 451 of Act No. 190, as amended by Act No. 4108 on December 6, 1933. Under said Act No. 4108 (section 2), all rights of

of a lien in favor of petitioner E.G.V. Realty for the unpaid condominium dues in the amount of P13,142.67.

action against indemnity bonds must be filed within the inextensible period of 120 days effective said date, December 6, 1933.

On January 28, 1987, petitioners E.G.V. Realty and CCC jointly filed a petition with the Securities and Exchange Commission (SEC)

Wherefore, the appealed judgment is modified, reversing it in so far as it orders the defendant and appellant Vicente Madrigal to turn

for the collection of the unpaid monthly dues in the amount ofP13,142.67 against respondent Unisphere.

over to the plaintiff the amount of money paid him by the provincial sheriff of Surigao from the proceeds of the sale of the

In its answer, respondent Unisphere alleged that it could not be deemed in default in the payment of said unpaid dues because its

steamship Yusingco, and affirming it in so far as it absolves said sheriff from the complaint, with the costs to the plaintiff-appellant. So

tardiness was occasioned by the petitioners' failure to comply with what was incumbent upon them, that is, to provide security for the

ordered.

building premises in order to prevent, if not to stop, the robberies taking place therein. It asserted as counterclaim that the amount

Avancea, C.J., Villa-Real, Abad Santos, Laurel and Concepcion, JJ., concur.

of P12,295.00 representing the total value of its loss due to the two robberies be awarded to it by way of damages for the latters failure

[G.R. No. 120236. July 20, 1999]

to secure the premises.

E.G.V. REALTY DEVELOPMENT CORPORATION and CRISTINA CONDOMINIUM CORPORATION, petitioners, vs. COURT OF

On January 11, 1989, SEC Hearing Officer Antero F.L. Villaflor, Jr. rendered a decision which dispositively read as follows:

APPEALS and UNISHPERE INTERNATIONAL, INC. respondents.

WHEREFORE, respondent is hereby ordered to pay petitioner the sum of P13,142.67 within fifteen (15) days from receipt of this

DECISION

Decision. Further, petitioner is hereby ordered to pay respondent within fifteen (15) days from receipt of this Decision, the sum

KAPUNAN, J.:

of P12,295.00.

This petition for review on certiorari seeks to set aside the decision and resolution of the Court of Appeals rendered on February 17,

Let copy of this Decision be furnished the Register of Deeds of Makati, Metro Manila for the purpose of cancellation of the lien in favor

1995 and on May 15, 1995, respectively, in CA-G.R. SP No. 22735 reversing the order of the Securities and Exchange Commission

of Cristina Condominium found at the back of Title for unpaid monthly dues in the sum of P13,142.67, upon full payment of respondent

(SEC) in SEC-AC No. 271 issued on August 21, 1990.

of said amount unto petitioner.

The following facts are not disputed:

SO ORDERED.[1]

Petitioner E.G.V. Realty Development Corporation (hereinafter referred to as E.G.V. Realty) is the owner/developer of a seven-storey

Both parties filed their respective motions for reconsideration.

condominium building known as Cristina Condominium. Cristina Condominium Corporation (hereinafter referred to as CCC) holds title

On July 17, 1989, the decision of Hearing Officer Villaflor was modified and amended by Hearing Officer Enrique L. Flores, Jr. to read

to all common areas of Cristina Condominium and is in charge of managing, maintaining and administering the condominiums

as follows:

common areas and providing for the buildings security.

WHEREFORE, respondents motion for reconsideration should be, as it is, hereby DENIED and the petitioners motion for

Respondent Unisphere International, Inc. (hereinafter referred to as Unisphere) is the owner/occupant of Unit 301 of said

reconsideration is hereby GRANTED.

condominium.

Accordingly, the decision dated January 11, 1989, is partially reconsidered to the effect that petitioners are not made liable for the

On November 28, 1981, respondent Unispheres Unit 301 was allegedly robbed of various items valued at P6,165.00. The incident was

value of the items/articles burglarized from respondents condominium unit.

reported to petitioner CCC.

SO ORDERED.[2]

On July 25, 1982, another robbery allegedly occurred at Unit 301 where the items carted away were valued at P6,130.00, bringing the

On July 18, 1989, respondent Unisphere filed a notice of appeal with the SEC en banc questioning the above-mentioned decision.

total value of items lost to P12,295.00. This incident was likewise reported to petitioner CCC.

On August 15, 1989, it filed a motion for an extension of thirty (30) days to file its memorandum on appeal thirty (30) days from the

On October 5, 1982, respondent Unisphere demanded compensation and reimbursement from petitioner CCC for the losses incurred

stated deadline of August 18, 1989.

as a result of the robbery.

Said motion was granted on August 17, 1989.

Petitioner CCC denied any liability for the losses claimed to have been incurred by respondent Unisphere, stating that the goods lost

On September 18, 1989, respondent Unisphere filed a second motion for extension of time to file its memorandum on appeal for

belonged to Amtrade, a third party.

another twenty (20) days.

As a consequence of the denial, respondent Unisphere withheld payment of its monthly dues starting November 1982.

The motion was likewise granted on September 26, 1989.

On October 9, 1989, respondent Unisphere filed its memorandum on appeal.

filed on time and that the amount of P13,142.67, the unpaid monthly dues of Unisphere to the Corporation should be offset by the

After the petitioners filed their reply thereto, the SEC en banc issued the Order dated February 23, 1990 which is quoted hereunder:

losses suffered by the Unisphere in the amount of P12,295.00. Unisphere is hereby ordered to pay the Cristina Condominium

Before this Commission en banc is an appeal from the Order dated July 17, 1989 of the Hearing Officer in SEC Case No. 3119 entitled

Corporation the amount of P847.67 representing the balance after offsetting the amount of P12,295.00 against the said P13,142.67,

E.G.V. Realty Development Corporation and Cristina Condominium Corporation vs. Unisphere International , Inc.

with 12% interest per annum from January 28, 1987 when the Joint Petition of the petitioners-appellees was filed before the SEC (for

The records of the case show that respondent-appellant received a copy of the above order on July 18, 1989 and filed its Notice of

collection and damages) until fully paid.

Appeal on July 21, 1989. On August 15, 1989, respondent asked for an extension of thirty (30) days to file its Memorandum on Appeal

No pronouncement as to costs.

which was granted on August 17, 1989.

SO ORDERED.[4]

On September 18, 1989, respondent asked for an additional period of twenty (20) days until October 8, 1989 to file his Appeal which

Petitioners moved for reconsideration of the said decision but the same was denied by the appellate court on May 15, 1995.

was also granted.

Hence, the instant petition for review interposed by petitioners E.G.V. Realty and CCC challenging the decision of the Court of Appeals

Respondent filed his Memorandum on October 13, 1989, five days after the due date.

on the following grounds: (a) the Court of Appeals did not acquire jurisdiction over respondent Unispheres appeal because the latter

The penultimate paragraph of Section 6 of Presidential Decree no. 902-A (as amended) clearly provides:

failed to comply with the prescribed mode of appeal; (b) even if the jurisdictional infirmity is brushed aside, the SEC en banc Order

x x x The decision, ruling or order of any such Commissioner, bodies, boards, committees, and/or officer as may be appealed to the

dated February 23, 1990 has already attained finality; and (c) the ruling of the Court of Appeals on the offsetting of the parties claims is

Commission sitting en banc within thirty (30) days after receipt by the appellant of notice of such decision, ruling or order. The

unfounded.

Commission shall promulgate rules or procedure to govern the proceedings, hearings and appeals of cases falling within its

A perusal of the foregoing issues readily reveals that petitioners raise two (2) aspects of the case for consideration, that is, the

jurisdiction.

procedural aspect and the substantive aspect.

Pursuant to the above provision, the Commission promulgated the Revised Rules of Procedure of the Securities and Exchange

We will discuss the procedural aspect first. Petitioners contend that (a) the Court of Appeals did not acquire jurisdiction over the appeal

Commisison, Section 3, Rule XVI of said Rules reiterates the thirty (30)-day period provided for under the above provision:

because respondent failed to comply with the prescribed mode of appeal; and (b) assuming that the Court of Appeals has jurisdiction,

Appeal may be taken by filing with the Hearing Officer who promulgated the decision, order or ruling within thirty (30) days from notice

the assailed SEC en banc Order of February 23, 1990 had already become final and executory.

thereof, and serving upon the adverse party, a notice of appeal and a memorandum on appeal and paying the corresponding docket

Anent the first contention, petitioners claim that respondent Unisphere erred in merely filing a notice of appeal as in ordinary civil cases

fee therefor. The appeal shall be considered perfected upon the filing of the memorandum on appeal and payment of the docket fee

from the regular courts instead of a petition for review with the Court of Appeals.

within the period hereinabove fixed.

Contrary to petitioners contention, respondent Unisphere complied with the prescribed mode of appeal. At the time the appeal was

The Commission en banc notes that respondent had, extensions included, a total of eighty (80) days to file its Appeal memorandum

elevated to the Court of Appeals in 1990, the rule governing recourse to the Court of Appeals from the decision, resolution or final

but failed to do so.

order of a quasi-judicial body was Rule 43 of the Revised Rules of Court, as amended by Republic Act No. 5434 as embodied in Batas

WHEREFORE, premises considered, the instant appeal is hereby dismissed for having been filed out of time.

Pambansa Blg. 129 and its Interim Rules and Guidelines.[5] The rule provided for a uniform procedure for appeals from the specified

SO ORDERED.[3]

administrative tribunals, SEC included, to the Court of Appeals by filing a notice of appeal with the appellate court and with the court,

Respondent Unisphere moved for a reconsideration of the above-quoted order but the same was denied, and so was it its second

officer, board, commission or agency that made or rendered the assailed ruling within fifteen (15) days from notice thereof. Records

motion for reconsideration.

bear out that respondent Unisphere complied with the foregoing rules when it filed a notice of appeal with the SEC en banc on

On September 6, 1990, respondent Unisphere filed a notice of appeal to the SEC en banc in order to question the latters ruling to the

September 6, 1990 and with the Court of Appeals on September 10, 1990. Clearly therefore, respondent Unisphere complied with the

Court of Appeals pursuant to Rule 43 of the Rules of Court, as amended by Republic Act No. 5434.

proper mode of appeal as mandated by the rules.

On September 10, 1990, it filed a notice of appeal to the Court of Appeals.

With respect to the second contention, petitioners asseverate that the February 23, 1990 order of the SEC en banc has already

The Court of Appeals reversed the SEC en bancs Order of August 21, 1990 in its Decision dated February 17, 1995 which dispositively

become final and unappealable, therefore can no longer be reversed, amended or modified. They maintain that respondent Unisphere

reads as follows:

received a copy of said order on February 26, 1990 and that ten (10) days thereafter, it filed its motion for reconsideration. Said motion

WHEREFORE, the instant petition is GRANTED and the assailed Order dated August 21, 1989 is hereby REVERSED and SET

was denied by the SEC on May 14, 1990 which was received by respondent Unisphere on May 15, 1990. Consequently, they assert

ASIDE. Another judgment is entered declaring that the appeal memorandum before the SEC (en banc) of appellant Unisphere was

that respondent Unisphere had only the remaining five (5) days or on May 20, 1990 within which to file a notice of appeal. However,

instead of appealing therefrom, respondent Unisphere filed a second motion for reconsideration on May 25, 1990 with the SEC en

the pertinent records of the validity of that conclusion the indebtedness must be one that is admitted by the alleged debtor or

banc. Petitioners contend that no second motion for reconsideration is allowed by SEC Rules unless with express prior to leave of the

pronounced by final judgment of a competent court or in this case by the Commission (Villanueva vs. Tantuico, 182 SCRA 263).

hearing officer. Said second motion for reconsideration was likewise denied on August 21, 1990. Fifteen (15) days later or on

There can be no doubt that Unisphere is indebted to the Corporation for its unpaid monthly dues in the amount of P13,142.67. This is

September 5, 1990, respondent Unisphere filed its notice of appeal.

admitted. But whether the Corporation is indebted to Unisphere is vigorously disputed by the former.It appears quite clear that the

Section 8, Rule XII of the Revised Rules of Procedure of the SEC provides that:

offsetting of debts does not extend to unliquidated, disputed claims arising from tort or breach of contract. (Compania General de

SEC. 8. Reconsideration.-- Within thirty (30) days from receipt of the order or decision of the Hearing Officer, the aggrieved party may

Tobacos vs. French and Unson, 39 Phil. 34; Lorenzo and Martinez vs. herrero, 17 Phil. 29).

file a motion for reconsideration of such order or decision together with proof of service thereof upon the adverse party. No more than

It must be noted that Unisphere just stopped paying its monthly dues to the Corporation on September 23, 1983 without notifying the

one motion for reconsideration shall be allowed unless with the express prior leave of the Hearing Officer.

latter. It was only on February 24, 1984, or five months after, that it informed the corporation of its suspension of payment of the

Respondent Unispheres non-observance of the foregoing rule rendered the February 23, 1990 and the May 14, 1990 orders of the

condominium dues to offset the losses it suffered because of the robberies.

SEC en banc final and unappealable. Its failure to perfect its appeal in the manner and within the period fixed by law rendered the

In resisting the finding which underscores their negligence, E.G.V. Realty and Cristina condominium corporation, would have this Court

decision sought to be appealed final, with the result that no court can exercise appellate jurisdiction to review the decision. [6] Contrary

appreciate in their favor the admission of Mr. Alfonso Zamora of Unisphere that there was no such agreement among the unit owners

to petitioners view, the appeal to the Court of Appeals in this case should have been perfected within fifteen (15) days from receipt of

that any member who incurred losses will be indemnified from the common contribution. (TSN, July 7, 1987, p. 60).

the order denying the motion for reconsideration on May 15, 1990. But instead of appealing, respondent Unisphere filed a prohibited

The herein appellees further argue that the cause of action for reimbursement of the value of the items lost because of the robberies

second motion for reconsideration without express prior leave of the hearing officer. Consequently, when it subsequently filed its notice

should be against the security agency and not the Corporation.

of appeal on September 6, 1990, it was already eighty-two (82) days late. Therefore, the appeal before the Court of Appeals could

On the other hand, Unisphere invokes ART. 1170 of the Civil Code which provides:

have been dismissed outright for being time-barred. Rules of procedure are intended to ensure the proper administration of justice and

ART. 1170.- Those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in any manner

the protection of substantive rights in judicial and quasi-judicial proceedings. Blatant violation of such rules smacks of a dilatory tactic

contravene the tenor thereof, are liable for damages.

which we simply cannot countenance.

There is weight in the initial factual findings of the SEC Hearing Officer with respect to the losses suffered by Unisphere in the amount

Now, we go to the substantive aspect.

of P12,295.00:

It is petitioners assertion that the ruling of the Court of Appeals to offset the alleged losses as a result of the robberies in the amount

Plaintiff likewise does not dispute the fact of robbery that occurred on November 28, 1981 and July 26, 1982 inside 301 Cristina

of P12,295.00 from the unpaid monthly dues of P13,142.67 is unfounded because respondent Unisphere is not the owner of the goods

Condominium.

lost but a third party, Amtrade. Respondent Unisphere, on its part, claims that this issue is factual, hence, not a proper issue to raise

Plaintiff admits that it had secured the services of Jimenez Protective and Security Agency to safeguard the Condominium premises

before this Court.

under its instructions and supervision, but which failed to detect the robbery incidents that occurred twice at Unit 301 of respondent,

Actually, the issue for our consideration is whether or not set-off or compensation has taken place in the instant case. The Court of

canting (sic) away bulk items.

Appeals dissertation on the matter is commendably instructive, but, lamentably, it reached a different conclusion. We quote pertinent

From the undisputed facts, plaintiff was remissed (sic) within its obligation to provide safety to respondent inside its unit. This was

portions of the assailed decision:

demonstrated by the fact that two robbery incidents befell respondents under the negligent eye of plaintiffs hired security guards. It can

Compensation or offset under the New Civil Code takes place only when two persons or entities in their own rights, are creditors and

be safely pronounced that plaintiff has not complied with what was incumbent upon it to do in a proper manner.

debtors of each other. (Art. 1278). xxx

Since it has been determined and proven by the evidence presented before the hearing office of respondent SEC that Unisphere

A distinction must be made between a debt and a mere claim. A debt is an amount actually ascertained. It is a claim which has been

indeed suffered losses because of the robbery incidents and since it (Unisphere) did not refute its liability to the corporation for the

formally passed upon by the courts or quasi-judicial bodies to which it can in law be submitted and has been declared to be a debt. A

unpaid monthly dues in the amount of P13,142. 67, this amount should be set-off against the aforestated losses of Unisphere.[7]

claim, on the other hand, is a debt in embryo. It is mere evidence of a debt and must pass thru the process prescribed by law before it

We fully agree with the appellate courts dissertation on the nature and character of a set-off or compensation. However, we cannot

develops into what is properly called a debt. (Vallarta vs. CA, 163 SCRA 587). Absent, however, any such categorical admission by an

subscribe to its conclusion that a set-off or compensation took place in this case.

obligor or final adjudication, no compensation or off-set can take place. Unless admitted by a debtor himself, the conclusion that he is

In Article 1278 of the Civil Code, compensation is said to take place when two persons, in their own right, are creditors and debtors of

in truth indebted to another cannot be definitely and finally pronounced, no matter how convinced he may be from the examination of

each other. Compensation is a mode of extinguishing to the concurrent amount, the obligations of those persons who in their own right

are reciprocally debtors an creditors of each other and the offsetting of two obligations which are reciprocally extinguished if they are of

GANCAYCO, J.:

equal value, or extinguished to the concurrent amount if of different values.[8] Article 1279 of the same Code provides:

Does the National Labor Relations Commission (NLRC) have jurisdiction to resolve a claim for non-payment of stock subscriptions to a

Article 1279. In order that compensation may be proper, it is necessary:

corporation? Assuming that it has, can an obligation arising therefrom be offset against a money claim of an employee against the

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;

employer? These are the issues brought to this court through this petition for review of a decision of the NLRC dated September 18,

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same

1987.

quality if the latter has been stated;

The only remedy provided for by law from such a decision is a special civil action for certiorari under Rule 65 of the Rules of Court

(3) That the two debts be due;

based on jurisdictional grounds or on alleged grave abuse of discretion amounting to lack or excess of jurisdiction, not by way of an

(4) That they be liquidated and demandable;

appeal by certiorari. Nevertheless, in the interest of justice, this petition is treated as a special civil action for certiorari.

(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the

Petitioner was employed in respondent corporation. On August 28, 1985, respondent Jose M. Mirasol persuaded petitioner to

debtor.

subscribe to 1,500 shares of respondent corporation at P100.00 per share or a total of P150,000.00. He made an initial payment of

Absent any showing that all of these requisites exist, compensation may not take place.

P37,500.00. On September 1, 1975, petitioner was appointed President and General Manager of the respondent corporation.

While respondent Unisphere does not deny its liability for its unpaid dues to petitioners, the latter do not admit any responsibility for the

However, on January 2, 1986, he resigned.

loss suffered by the former occasioned by the burglary. At best, what respondent Unisphere has against petitioners is just a claim, not

On December 19, 1986, petitioner instituted with the NLRC a complaint against private respondents for the payment of his unpaid

a debt. Such being the case, it is not enforceable in court. It is only the debts that are enforceable in court, there being no apparent

wages, his cost of living allowance, the balance of his gasoline and representation expenses and his bonus compensation for 1986.

defenses inherent in them.[9] Respondent Unispheres claim for its loss has not been passed upon by any legal authority so as to

Petitioner and private respondents submitted their position papers to the labor arbiter. Private respondents admitted that there is due

elevate it to the level of a debt. So we held in Alfonso Vallarta v. Court of Appeals, et al.,[10] that:

to petitioner the amount of P17,060.07 but this was applied to the unpaid balance of his subscription in the amount of P95,439.93.

Compensation or offset takes place by operation of law when two (2) persons, in their own right, are creditor and debtor of each

Petitioner questioned the set-off alleging that there was no call or notice for the payment of the unpaid subscription and that,

other. For compensation to take place, a distinction must be made between a debt and a mere claim. A debt is a claim which has been

accordingly, the alleged obligation is not enforceable.

formally passed upon by the highest authority to which it can in law be submitted and has been declared to be a debt. A claim, on the

In a decision dated April 28, 1987, the labor arbiter sustained the claim of petitioner for P17,060.07 on the ground that the employer

other hand, is a debt in embryo. It is mere evidence of a debt and must pass thru the process prescribed by law before it develops into

has no right to withhold payment of wages already earned under Article 103 of the Labor Code. Upon the appeal of the private

what is properly called a debt.[11]

respondents to public respondent NLRC, the decision of the labor arbiter was reversed in a decision dated September 18, 1987. The

Tested by the foregoing yardstick, it has not been sufficiently established that compensation or set-off is proper here as there is lack of

NLRC held that a stockholder who fails to pay his unpaid subscription on call becomes a debtor of the corporation and that the set-off

evidence to show that petitioners E.G.V. Realty and CCC and respondent Unisphere are mutually debtors and creditors to each other.

of said obligation against the wages and others due to petitioner is not contrary to law, morals and public policy.

Considering the foregoing disquisition, therefore, we find that respondent Court of Appeals committed reversible error in ruling that

Hence, the instant petition.

compensation or set-off is proper in the instant case.

The petition is impressed with merit.

WHEREFORE, for all the foregoing , the instant petition is hereby GRANTED. The Decision of the Court of Appeals dated February

Firstly, the NLRC has no jurisdiction to determine such intra-corporate dispute between the stockholder and the corporation as in the

17, 1995 is REVERSED and SET ASIDE. The Order of the Securities and Exchange Commission dated August 21, 1990 reiterating

matter of unpaid subscriptions. This controversy is within the exclusive jurisdiction of the Securities and Exchange Commission. 1

the Hearing Officers Decision dated January 11, 1989, as amended by the Order of July 17, 1989, is hereby REINSTATED. SO

Secondly, assuming arguendo that the NLRC may exercise jurisdiction over the said subject matter under the circumstances of this

ORDERED.

case, the unpaid subscriptions are not due and payable until a call is made by the corporation for payment. 2 Private respondents
have not presented a resolution of the board of directors of respondent corporation calling for the payment of the unpaid subscriptions.

G.R. No. 80039 April 18, 1989

It does not even appear that a notice of such call has been sent to petitioner by the respondent corporation.

ERNESTO M. APODACA, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, JOSE M. MIRASOL and INTRANS

What the records show is that the respondent corporation deducted the amount due to petitioner from the amount receivable from him

PHILS., INC., respondents.

for the unpaid subscriptions. 3 No doubt such set-off was without lawful basis, if not premature. As there was no notice or call for the
payment of unpaid subscriptions, the same is not yet due and payable.

Lastly, assuming further that there was a call for payment of the unpaid subscription, the NLRC cannot validly set it off against the

The agreement then came into effect when petitioner's goods were delivered to respondent's bodega and were sold by petitioner's

wages and other benefits due petitioner. Article 113 of the Labor Code allows such a deduction from the wages of the employees by

employees. Prior to the execution of the contract, however, respondents wife, Lina Sola, had an existing obligation with petitioner

the employer, only in three instances, to wit:

arising from her Franchise Distributorship Agreement with the latter. On January 26, 1995, respondent wrote a letter5 addressed to

ART. 113. Wage Deduction. No employer, in his own behalf or in behalf of any person, shall make any deduction from the wages of

Renato G. de Leon, petitioner's Vice-President for Finance, wherein he acknowledged and confirmed his wifes indebtedness to

his employees, except:

petitioner in the amount ofP1,973,154.73 (the other accountability in the sum of P1,490,091.15 was still subject to reconciliation) and,

(a) In cases where the worker is insured with his consent by the employer, and the deduction is to recompense the employer for the

together with his wife, bound himself to pay on installment basis the said debt. Consequently, petitioner withheld the payment of

amount paid by him as premium on the insurance;

respondent's service fees from February to April 1995 and applied the same as partial payments to the debt which he obligated to pay.

(b) For union dues, in cases where the right of the worker or his union to checkoff has been recognized by the employer or authorized

On April 29, 1995, respondent closed and suspended operation of his office cum bodega where petitioner's products were stored and

in writing by the individual worker concerned; and

customers were being dealt with.

(c) In cases where the employer is authorized by law or regulations issued by the Secretary of Labor.4

On May 24, 1995, respondent filed with the Regional Trial Court (RTC) of Davao, a Complaint 6 for accounting and rescission against

WHEREFORE, the petition is GRANTED and the questioned decision of the NLRC dated September 18, 1987 is hereby set aside and

petitioner alleging that petitioner withheld portions of his service fees covering the months from October 1994 to January 1995 and his

another judgment is hereby rendered ordering private respondents to pay petitioner the amount of P17,060.07 plus legal interest

whole service fees for the succeeding months of February to April 1995, the total amount of which was P222,202.84; that petitioner's

computed from the time of the filing of the complaint on December 19, 1986, with costs against private respondents.

act grossly hampered, if not paralyzed, his business operation, thus left with no other recourse, he suspended operations to minimize

SO ORDERED.

losses. He prayed for the rescission of the contract of services and for petitioner to render an accounting of his service fees.

Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.

In its Answer with Counterclaim7 filed on June 14, 1995, petitioner contended that respondents letter dated January 26, 1995

G.R. No. 174882

addressed to petitioner's Vice-President for Finance, confirmed and obligated himself to pay on installment basis the accountability of

January 21, 2013

MONDRAGON PERSONAL SALES, INC., Petitioner, vs. VICTORIANO S. SOLA, JR., Respondent.

his wife with petitioner, thus respondent's service fees/commission earned for the period of February to April 1995 amounting

DECISION

to P125,040.01 was applied by way of compensation to the amounts owing to it; that all the service fees earned by respondent prior to

PERALTA, J.:

February 1995 were fully paid to him. By way of counterclaim, petitioner asked for the payment of the amount of P1,547,892.55 which

Before us is a petition for review on certiorari seeking to set aside the Decision 1 dated February 10, 2006 and the Resolution2 dated

respondent obligated to pay plus interest; the delivery of petitioner's products padlocked in respondent's office cum bodega, the

September 6, 2006 issued by the Court of Appeals (CA) in CA-G.R. CV No. 71690.

payment for the loss of income in the amount of P833,600.00 as well as the remaining balance of P45,728.30 from the P100,000.00

Petitioner Mondragon Personal Sales Inc., a company engaged in the business of selling various consumer products through a

given by petitioner to respondent as advance money for the purchase of office equipment and the renovation of the bodega cum office.

network of sales representatives, entered into a Contract of Services3 with respondent Victoriano S. Sola, Jr. for a period of three

In his Reply and Answer8 to petitioner's counterclaim, respondent averred that he was made to believe that the sales commission

years commencing on October 2, 1994 up to October 1, 1997. Under the said contract, respondent, as service contractor, would

contained in petitioner's memorandum dated July 5, 1994 would be applicable to him; that it was improper for petitioner to confuse

provide service facilities, i.e., bodega cum office, to petitioner's products, sales force and customers in General Santos City and as

respondent's transaction with that of his wife as it was divergent in nature and terms.

such, he was entitled to commission or service fee as follows:

Pending trial, petitioner moved for the issuance of a preliminary attachment and replevin which the RTC granted in its Order dated

MONTHLY

SALES

SERVICE FEE

June 19, 1995 upon the filing of bonds.9 Respondent filed a Motion to Quash the Writ of Attachment, which the RTC denied in an
Order dated July 24, 1995.10 As respondent's motion for reconsideration was also denied, he filed with us a petition for certiorari,

(net of vat)

docketed as G.R. No. 126427, assailing the RTC orders which we dismissed in a Resolution 11 dated November 11, 1996 on
P50,000.00 to 2,500,000.00

Five percent (5%)

P2,500,001.00 to 3,000.000.00

P125,000.00

P3,000,001.00 to 3,500,000.00

150,000.00

P3,500,001.00 UP

200,000.004

procedural matters.
Trial thereafter ensued.
On July 6, 2000, the RTC rendered its Decision,12 the dispositive portion of which reads:
FOR THE FOREGOING, judgment is hereby rendered in favor of defendant and against plaintiff, ordering the latter to pay the former:

1) the sum of P1,543,643.96 representing the principal balance of plaintiff's account with defendant, plus legal interest from the time of

principally indebted to petitioner owing from the franchise distributorship agreement she earlier entered into with petitioner; that

filing of the complaint until fully paid, at the rate of 6% per annum;

granting the debt redounded to the benefit of the family and incurred with the consent of respondent, and the spouse, as joint

2) attorney's fees in the amount of P25,000.00

administrators of the community property are solidarily liable with their separate properties for debts incurred, however, such liability is

3) costs of the suit.13

only subsidiary, when the community property is not sufficient to pay for all liabilities, however, in this case, there was no showing that

In so ruling, the RTC found that in computing the service fees/commissions due respondent, the rate as provided in the contract of

the community property of the spouses was insufficient to pay the debt.

service dated January 27, 1995 was controlling, since respondent was a party thereto duly affixing his signature therein; that

The CA ordered the deletion of attorney's fees as it was respondent who was entitled to such award, since he was compelled to litigate

petitioner's computation of respondent's service fees for the months of February to April 1995 in the total amount of P125,040.01 which

to protect his interest for the unjustified act of petitioner.

was based on the said contract deserved credence. The RTC ruled that while Article 1381 of the Civil Code provides for the grounds

Petitioner's motion for reconsideration was denied in a Resolution dated September 6, 2006.

for which a contract may be rescinded, none of these grounds existed in this case; that there was no showing of fraud which petitioner

Hence, this petition where petitioner alleges that the CA erred:

employed when it entered into the contract with respondent nor did respondent agree to such a contract without knowing its content,

1. In finding that petitioner breached its contract with respondent and that there is no compensation in accordance to Article 1279 of

thus the contract was not rescissible.

the Civil Code;

As regards to petitioner's counterclaim that respondent confirmed and assumed the payment of his wife's account with petitioner, the

2. In finding that respondent did not assume the obligation of his wife;

RTC found that respondent obligated himself to pay his wife's account as evidenced by his letter dated January 26, 1995; that after

3. In remanding the case to the court a quo for proper determination of service fee withheld when the same has been determined;

deducting from the confirmed amount of P1,668,683.97 the respondent's service commission for the period from February 1995 to

4. In obliterating the award of petitioner's counterclaim when respondent admitted his obligation to petitioner.15

April 1995, which was in the total amount ofP125,040.01, the amount owing to petitioner would still be P1,543,643.96. The RTC

The CA found that petitioner's act of withholding respondent's service fees and thereafter applying them as partial payment to the

dismissed the other counterclaims, since they were not substantiated but found petitioner entitled to attorney's fees due to the amount

obligation of respondent's wife with petitioner was unlawful, considering that respondent never assumed his wifes obligation, thus,

of money involved and the time spent in pursuing the case.

there can be no legal compensation under Article 1279 of the Civil Code.

Respondent filed his appeal to the CA to which petitioner filed its appellee's brief. On February 10, 2006, the CA rendered its assailed

We do not agree.

decision, the dispositive portion of which reads as follows:

In his letter dated January 26, 1995 addressed to Mr. Renato G. De Leon, petitioner's Vice-President for Finance, respondent wrote,

WHEREFORE, in the light of the foregoing premises, herein appeal is GRANTED. Accordingly, the Contract of Services is hereby

and which we quote in full:

RESCINDED. Let the case be REMANDED to the court a quo for the proper determination of the amount of service fees unlawfully

Gentlemen:

withheld from the appellant.

This refers to the account of my wife, Lina (Beng) Sola, with Mondragon Personal Sales, Inc. in the amount of P3,463,173.88. Of this

Furthermore, Appellee is hereby ordered to pay the Appellant attorneys fees in the amount of twenty-five thousand pesos

total amount, we are initially confirming the total amount ofP1,973,154.73 as due from Lina (Beng) Sola, while the remaining balance

(P25,000.00).14

of P1,490,091.15 will be subject to a reconciliation on or before February 5, 1995.

The CA found that under Article 1191 of the Civil Code, respondent was entitled to rescind the contract of services as it was petitioner

In recognition of Lina (Beng) Sola's account, we undertake to pay P100,000.00 on or before February 01, 1995 and the balance

who breached the same by withholding the service fees lawfully due to the former; that petitioner's act of unlawfully withholding the

of P1,873,154.73 plus interest of 18% per annum and 2% administrative charge per month on the diminishing balance will be covered

service fees due respondent constituted a willful and deliberate infringement on contractual obligations which would justify rescission

by postdated checks of not less thanP100,000.00 per month starting February 28, 1995 and every end of the month thereafter but not

under Article 1191. The CA declared that the contract of services entered into by the parties did not fall under any of the rescissible

to exceed eighteen (18) months or July 31, 1996.

contracts enumerated under Article 1381 of the Civil Code but under Article 1191 which pertains to rescission of reciprocal obligations

With regards to the remaining balance of P1,490,019.15, we agree that upon final verification of these accounts, we will issue

as in the instant case.

additional postdated checks subject to the same terms and conditions as stated above.

The CA ruled that respondent did not assume his wife's obligation as he did not substitute himself in the shoes of his wife regarding

We further agree that all subsequent orders that will be released to us will be covered by postdated checks.

the payment of the latter's liability; that there can be no novation as novation was never presumed. Petitioner's act of withholding

I fully understand and voluntarily agree to the above undertaking with full knowledge of the consequences which may arise therefrom.

respondent's service fee and thereafter applying them to the obligation of his wife was unlawful, considering that respondent never

Very truly yours,

assumed his wife's obligation with petitioner; that there could be no legal compensation, since it was respondent's wife who was

(signed)

month as they fall due. Finally, there is no retention or controversy commenced by third persons over either of the debts. Thus,

Victoriano S. Sola16

compensation is proper up to the concurrent amount where petitioner owes respondent P125,040.01 for service fees, while

A reading of the letter shows that respondent becomes a co-debtor of his wife's accountabilities with petitioner. Notably, the last

respondent owes petitioner P1,973,154.73.

paragraph of his letter which states "I fully understand and voluntarily agree to the above undertaking with full knowledge of the

As legal compensation took place in this case, there is no basis for respondent to ask for rescission since he was the first to breach

consequences which may arise therefrom" and which was signed by respondent alone, shows that he solidarily bound himself to pay

their contract when, on April 29, 1995, he suddenly closed and padlocked his bodega cum office in General Santos City occupied by

such debt. Based on the letter, respondent's wife had an account with petitioner in the amount of P3,463,173.88, out of which only the

petitioner.1wphi1

amount of P1,973,154.73 was confirmed while the remaining amount of P1,490,019.15 would still be subject to reconciliation. As

Petitioner claims that the CA erred in obliterating the RTCs award of its counterclaim which it had alleged and proved during trial and

respondent bound himself to pay the amount of P1,973,154.73, he becomes petitioner's principal debtor to such amount.

which respondent even admitted.

On the other hand, respondent, as petitioner's service contractor, was entitled to a payment of service fees as provided in their

We agree.

contract of services dated January 26, 1995. We note that respondent never refuted the amount of monthly sales recorded but only

In his letter dated January 6, 1995, respondent confirmed the amount of P1,973,154.73 owing to petitioner. On September 29, 1997,

assailed in the RTC the rate of the service fees which he was entitled to. However, we find that there could be no other computation of

petitioner wrote another letter20 to petitioner's Credit and Collection Manager, Rudy Machanco, wherein he again confirmed the

the rate of the service fees other than what was provided in the contract of services dated January 26, 1995 signed by respondent and

indebtedness in the amount of P1,973,154.73. In the same letter, he showed the payments he had already made and after deducting

petitioner. Thus, we give credence to petitioner's computation of respondent's service fees for the months of February to April 1995 in

the same from the confirmed indebtedness, the total balance remained to be at P1,668,683.97. As we have said earlier, respondent's

the total amount of P125,040.01. Since respondent promised petitioner in his letter dated January 26, 1995, to monthly pay a certain

service fees from February to April 1995 which was in the total amount of P125,040.01 was not assailed at all by respondent in his

amount to cover the indebtedness to petitioner which he failed to do, the latter withheld the payment of respondent's service fees and

appeal with the CA, thus he is bound by such computation. Hence, the amount of P125,040.01 which petitioner owes respondent shall

applied the same as partial payments of the debt by way of compensation.

be offset against the P1,973,154.73 which respondent owes petitioner, and therefore leaving a balance of P1,543,643.96 which

We find that petitioner's act of withholding respondent's service fees/commissions and applying them to the latter's outstanding

respondent must pay.

obligation with the former is merely an acknowledgment of the legal compensation that occurred by operation of law between the

WHEREFORE, the petition for review is GRANTED. The Decision dated February 10, 2006 and the Resolution dated September 6,

parties.17 Compensation is a mode of extinguishing to the concurrent amount the obligations of persons who in their own right and as

2006 of the Court of Appeals are hereby REVERSED and SET ASIDE. Respondent is hereby ordered to pay petitioner the amount

principals are reciprocally debtors and creditors of each other. Legal compensation takes place by operation of law when all the

of P1,543,643.96 with 6% percent per annum from June 14, 1995 until finality of this Decision and 12% percent per annum thereafter

requisites are present, as opposed to conventional compensation which takes place when the parties agree to compensate their

until full payment.

mutual obligations even in the absence of some requisites.18 Legal compensation requires the concurrence of the following

SO ORDERED.

conditions:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;

G.R. No. 159709

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same

HEIRS OF SERVANDO FRANCO, Petitioners, vs. SPOUSES VERONICA AND DANILO GONZALES, Respondents.

quality if the latter has been stated;

DECISION

(3) That the two debts be due;

BERSAMIN, J.:

(4) That they be liquidated and demandable;

There is novation when there is an irreconcilable incompatibility between the old and the new obligations. There is no novation in case

(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the

of only slight modifications; hence, the old obligation prevails.

debtor.19

The petitioners challenge the decision promulgated on March 19, 2003,1 whereby the Court of Appeals (CA) upheld the issuance of a

We find the presence of all the requisites for legal compensation. Petitioner and respondent are both principal obligors and creditors of

writ of execution by the Regional Trial Court (RTC), Branch 16, in Malolos, Bulacan.

each other. Their debts to each other consist in a sum of money. Respondent acknowledged and bound himself to pay petitioner the

Antecedents

amount of P1,973,154.73 which was already due, while the service fees owing to respondent by petitioner become due every month.

The Court adopts the following summary of the antecedents rendered by the Court in Medel v. Court of Appeals,2the case from which

Respondent's debt is liquidated and demandable, and petitioner's payments of service fees are liquidated and demandable every

this case originated, to wit:

June 27, 2012

On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia) obtained a loan from Veronica R.

"I, WE further agree that in the event the present rate of interest on loan is increased by law or the Central Bank of the Philippines, the

Gonzales (hereafter Veronica), who was engaged in the money lending business under the name "Gonzales Credit Enterprises", in the

holder shall have the option to apply and collect the increased interest charges without notice although the original interest have

amount of P50,000.00, payable in two months. Veronica gave only the amount of P47,000.00, to the borrowers, as she

already been collected wholly or partially unless the contrary is required by law.

retained P3,000.00, as advance interest for one month at 6% per month. Servado and Leticia executed a promissory note

"It is also a special condition of this contract that the parties herein agree that the amount of peso-obligation under this agreement is

for P50,000.00, to evidence the loan, payable on January 7, 1986.

based on the present value of peso, and if there be any change in the value thereof, due to extraordinary inflation or deflation, or any

On November 19, 1985, Servando and Leticia obtained from Veronica another loan in the amount of P90,000.00, payable in two

other cause or reason, then the peso-obligation herein contracted shall be adjusted in accordance with the value of the peso then

months, at 6% interest per month. They executed a promissory note to evidence the loan, maturing on January 19, 1986. They

prevailing at the time of the complete fulfillment of obligation.

received only P84,000.00, out of the proceeds of the loan.

"Demand and notice of dishonor waived. Holder may accept partial payments and grant renewals of this note or extension of

On maturity of the two promissory notes, the borrowers failed to pay the indebtedness.

payments, reserving rights against each and all indorsers and all parties to this note.

On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amount of P300,000.00, maturing in one

"IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the debtors waive all his/their rights under the provisions of

month, secured by a real estate mortgage over a property belonging to Leticia Makalintal Yaptinchay, who issued a special power of

Section 12, Rule 39, of the Revised Rules of Court."

attorney in favor of Leticia Medel, authorizing her to execute the mortgage. Servando and Leticia executed a promissory note in favor

On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plus interests and penalties, evidenced by the

of Veronica to pay the sum of P300,000.00, after a month, or on July 11, 1986. However, only the sum of P275,000.00, was given to

above-quoted promissory note.

them out of the proceeds of the loan.

On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales, filed with the Regional Trial Court of

Like the previous loans, Servando and Medel failed to pay the third loan on maturity.

Bulacan, Branch 16, at Malolos, Bulacan, a complaint for collection of the full amount of the loan including interests and other charges.

On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel, consolidated all their previous unpaid loans

In his answer to the complaint filed with the trial court on April 5, 1990, defendant Servando alleged that he did not obtain any loan

totaling P440,000.00, and sought from Veronica another loan in the amount of P60,000.00, bringing their indebtedness to a total

from the plaintiffs; that it was defendants Leticia and Dr. Rafael Medel who borrowed from the plaintiffs the sum of P500,000.00, and

of P500,000.00, payable on August 23, 1986. They executed a promissory note, reading as follows:

actually received the amount and benefited therefrom; that the loan was secured by a real estate mortgage executed in favor of the

"Baliwag, Bulacan July 23, 1986

plaintiffs, and that he (Servando Franco) signed the promissory note only as a witness.

"Maturity Date August 23, 1986

In their separate answer filed on April 10,1990, defendants Leticia and Rafael Medel alleged that the loan was the transaction of

"P500,000.00

Leticia Yaptinchay, who executed a mortgage in favor of the plaintiffs over a parcel of real estate situated in San Juan, Batangas; that

"FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the order of VERONICA R. GONZALES doing business in the

the interest rate is excessive at 5.5% per month with additional service charge of 2% per annum, and penalty charge of 1% per month;

business style of GONZALES CREDIT ENTERPRISES, Filipino, of legal age, married to Danilo G. Gonzales, Jr., of Baliwag Bulacan,

that the stipulation for attorney's fees of 25% of the amount due is unconscionable, illegal and excessive, and that substantial

the

payments made were applied to interest, penalties and other charges.

sum

of

PESOS

........

FIVE

HUNDRED

THOUSAND

.....

(P500,000.00)

Philippine

Currency with interest thereon at the rate of5.5 PER CENT per month plus 2% service charge per annum from date hereof until

fully

After due trial, the lower court declared that the due execution and genuineness of the four promissory notes had been duly proved,

paid according to the amortization schedule contained herein. (Underscoring supplied)

and ruled that although the Usury Law had been repealed, the interest charged by the plaintiffs on the loans was unconscionable and

"Payment will be made in full at the maturity date.

"revolting to the conscience". Hence, the trial court applied "the provision of the New [Civil] Code" that the "legal rate of interest for

"Should I/WE fail to pay any amortization or portion hereof when due, all the other installments together with all interest accrued shall

loan or forbearance of money, goods or credit is 12% per annum."

immediately

Accordingly, on December 9, 1991, the trial court rendered judgment, the dispositive portion of which reads as follows:

be

due

and

payable

and

I/WE

hereby

agree

to

pay

an additional amount equivalent to one per cent (1%) per month of the amount due and demandableas penalty charges in the form of l

"WHEREFORE, premises considered, judgment is hereby rendered, as follows:

iquidated damages until

"1. Ordering the defendants Servando Franco and Leticia Medel, jointly and severally, to pay plaintiffs the amount of P47,000.00 plus

fully

paid;

and

the

further sum of TWENTYFIVE PER CENT (25%) thereof in full,

without

deductions as Attorney's Fee whether actually incurred or not, of the total amount due and demandable, exclusive of costs and judicial

12% interest per annum from November 7, 1985 and 1% per month as penalty, until the entire amount is paid in full.

or extra judicial expenses. (Underscoring supplied)

"2. Ordering the defendants Servando Franco and Leticia Y. Medel to plaintiffs, jointly and severally the amount of P84,000.00 with
12% interest per annum and 1% per cent per month as penalty from November 19,1985 until the whole amount is fully paid;

"3. Ordering the defendants to pay the plaintiffs, jointly and severally, the amount of P285,000.00 plus 12% interest per annum and 1%

The RTC granted the motion for execution over Servandos opposition, thus:

per month as penalty from July 11, 1986, until the whole amount is fully paid;

There is no doubt that the decision dated December 9, 1991 had already been affirmed and had already become final and executory.

"4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount of P50,000.00 as attorney's fees;

Thus, in accordance with Sec. 1 of Rule 39 of the 1997 Rules of Civil Procedure, execution shall issue as a matter of right. It has

"5. All counterclaims are hereby dismissed.

likewise been ruled that a judgment which has acquired finality becomes immutable and unalterable and hence may no longer be

"With costs against the defendants."

modified at any respect except only to correct clerical errors or mistakes (Korean Airlines Co. Ltd. vs. C.A., 247 SCRA 599). In this

In due time, both plaintiffs and defendants appealed to the Court of Appeals.

respect, the decision deserves to be respected.

In their appeal, plaintiffs-appellants argued that the promissory note, which consolidated all the unpaid loans of the defendants, is the

The argument about the modification of the contract or non-participation of defendant Servando Franco in the proceedings on appeal

law that governs the parties. They further argued that Circular No. 416 of the Central Bank prescribing the rate of interest for loans or

on the alleged belief that the payment he made had already absolved him from liability is of no moment. Primarily, the decision was for

forbearance of money, goods or credit at 12% per annum, applies only in the absence of a stipulation on interest rate, but not when the

him and Leticia Medel to pay the plaintiffs jointly and severally the amounts stated in the Decision. In other words, the liability of the

parties agreed thereon.

defendants thereunder is solidary. Based on this aspect alone, the new defense raised by defendant Franco is unavailing.

The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that "the Usury Law having become legally inexistent with

WHEREFORE, in the light of all the foregoing, the Court hereby grants the Motion for Execution of Judgment.

the promulgation by the Central Bank in 1982 of Circular No. 905, the lender and borrower could agree on any interest that may be

Accordingly, let a writ of execution be issued for implementation by the Deputy Sheriff of this Court.

charged on the loan". The Court of Appeals further held that "the imposition of an additional amount equivalent to 1% per month of the

SO ORDERED.9

amount due and demandable as penalty charges in the form of liquidated damages until fully paid was allowed by law".

On March 8, 2001, the RTC issued the writ of execution.10

Accordingly, on March 21, 1997, the Court of Appeals promulgated it decision reversing that of the Regional Trial Court, disposing as

Servando moved for reconsideration,11 but the RTC denied his motion.12

follows:

On March 19, 2003, the CA affirmed the RTC through its assailed decision, ruling that the execution was proper because of

"WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants are hereby ordered to pay the plaintiffs the sum

Servandos failure to comply with the terms of the compromise agreement, stating:13

of P500,000.00, plus 5.5% per month interest and 2% service charge per annum effective July 23, 1986, plus 1% per month of the

Petitioner cannot deny the fact that there was no full compliance with the tenor of the compromise agreement. Private respondents on

total amount due and demandable as penalty charges effective August 24, 1986, until the entire amount is fully paid.

their part did not disregard the payments made by the petitioner. They even offered that whatever payments made by petitioner, it can

"The award to the plaintiffs of P50,000.00 as attorney's fees is affirmed. And so is the imposition of costs against the defendants.

be deducted from the principal obligation including interest. However, private respondents posit that the payments made cannot alter,

"SO ORDERED."

modify or revoke the decision of the Supreme Court in the instant case.

On April 15, 1997, defendants-appellants filed a motion for reconsideration of the said decision. By resolution dated November 25,

In the case of Prudence Realty and Development Corporation vs. Court of Appeals, the Supreme Court ruled that:

1997, the Court of Appeals denied the motion.3

"When the terms of the compromise judgment is violated, the aggrieved party must move for its execution, not its invalidation."

On review, the Court in Medel v. Court of Appeals struck down as void the stipulation on the interest for being iniquitous or

It is clear from the aforementioned jurisprudence that even if there is a compromise agreement and the terms have been violated, the

unconscionable, and revived the judgment of the RTC rendered on December 9, 1991, viz:

aggrieved party, such as the private respondents, has the right to move for the issuance of a writ of execution of the final judgment

WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals promulgated on March 21, 1997,

subject of the compromise agreement.

and its resolution dated November 25, 1997. Instead, we render judgment REVIVING and AFFIRMING the decision dated December

Moreover, under the circumstances of this case, petitioner does not stand to suffer any harm or prejudice for the simple reason that

9, 1991, of the Regional Trial Court of Bulacan, Branch 16, Malolos, Bulacan, in Civil Case No. 134-M-90, involving the same parties.

what has been asked by private respondents to be the subject of a writ of execution is only the balance of petitioners obligation after

No pronouncement as to costs in this instance.

deducting the payments made on the basis of the compromise agreement.

SO ORDERED.4

WHEREFORE, premises considered, the instant petition is hereby DENIED DUE COURSE and consequently DISMISSED for lack of

Upon the finality of the decision in Medel v. Court of Appeals, the respondents moved for execution. 5 Servando Franco

merit.

opposed,6 claiming that he and the respondents had agreed to fix the entire obligation at P775,000.00.7According to Servando, their

SO ORDERED.

agreement, which was allegedly embodied in a receipt dated February 5, 1992, 8whereby he made an initial payment of P400,000.00

His motion for reconsideration having been denied,14 Servando appealed. He was eventually substituted by his heirs, now the

and promised to pay the balance of P375,000.00 on February 29, 1992, superseded the July 23, 1986 promissory note.

petitioners herein, on account of his intervening death. The substitution was pursuant to the resolution dated June 15, 2005.15

Issue

incompatible on every point. A compromise of a final judgment operates as a novation of the judgment obligation upon compliance with

The petitioners submit that the CA erred in ruling that:

either of these two conditions.18

The receipt dated February 5, 1992, excerpted below, did not create a new obligation incompatible with the old one under the

THE 9 DECEMBER 1991 DECISION OF BRANCH 16 OF THE REGIONAL TRIAL COURT OF MALOLOS, BULACAN WAS NOT

promissory note, viz:

NOVATED BY THE COMPROMISE AGREEMENT BETWEEN THE PARTIES ON 5 FEBRUARY 1992.

February 5, 1992

II

Received from SERVANDO FRANCO BPI Managers Check No. 001700 in the amount of P400,00.00 as partial payment of loan.

THE LIABILITY OF THE PETITIONER TO RESPONDENTS SHOULD BE BASED ON THE DECEMBER 1991 DECISION OF

Balance of P375,000.00 to be paid on or before FEBRUARY 29, 1992. In case of default an interest will be charged as stipulated in

BRANCH 16 OF THE REGIONAL TRIAL COURT OF MALOLOS, BULACAN AND NOT ON THE COMPROMISE AGREEMENT

the promissory note subject of this case.

EXECUTED IN 1992.

(Sgd)

The petitioners insist that the RTC could not validly enforce a judgment based on a promissory note that had been already novated;

V. Gonzalez19

that the promissory note had been impliedly novated when the principal obligation ofP500,000.00 had been fixed at P750,000.00, and

To be clear, novation is not presumed. This means that the parties to a contract should expressly agree to abrogate the old contract in

the maturity date had been extended from August 23, 1986 to February 29, 1992.

favor of a new one. In the absence of the express agreement, the old and the new obligations must be incompatible on every

In contrast, the respondents aver that the petitioners seek to alter, modify or revoke the final and executory decision of the Court; that

point.20 According to California Bus Lines, Inc. v. State Investment House, Inc.:21

novation did not take place because there was no complete incompatibility between the promissory note and the memorandum

The extinguishment of the old obligation by the new one is a necessary element of novation which may be effected either expressly or

receipt; that Servandos previous payment would be deducted from the total liability of the debtors based on the RTCs decision.

impliedly.1wphi1 The term "expressly" means that the contracting parties incontrovertibly disclose that their object in executing the

Issue

new contract is to extinguish the old one. Upon the other hand, no specific form is required for an implied novation, and all that is

Was there a novation of the August 23, 1986 promissory note when respondent Veronica Gonzales issued the February 5, 1992

prescribed by law would be an incompatibility between the two contracts. While there is really no hard and fast rule to determine what

receipt?

might constitute to be a sufficient change that can bring about novation, the touchstone for contrariety, however, would be an

Ruling

irreconcilable incompatibility between the old and the new obligations.

The petition lacks merits.

There is incompatibility when the two obligations cannot stand together, each one having its independent existence. If the two

obligations cannot stand together, the latter obligation novates the first. 22 Changes that breed incompatibility must be essential in

Novation

did

irreconcilable

not

transpire

because

incompatibility

no

nature and not merely accidental. The incompatibility must affect any of the essential elements of the obligation, such as its object,

existed

cause or principal conditions thereof; otherwise, the change is merely modificatory in nature and insufficient to extinguish the original

between the promissory note and the receipt

obligation.23

To buttress their claim of novation, the petitioners rely on the receipt issued on February 5, 1992 by respondent Veronica whereby

In light of the foregoing, the issuance of the receipt created no new obligation. Instead, the respondents only thereby recognized the

Servandos obligation was fixed at P750,000.00. They insist that even the maturity date was extended until February 29, 1992. Such

original obligation by stating in the receipt that the P400,000.00 was "partial payment of loan" and by referring to "the promissory note

changes, they assert, were incompatible with those of the original agreement under the promissory note.

subject of the case in imposing the interest." The loan mentioned in the receipt was still the same loan involving the P500,000.00

The petitioners assertion is wrong.

extended to Servando. Advertence to the interest stipulated in the promissory note indicated that the contract still subsisted, not

A novation arises when there is a substitution of an obligation by a subsequent one that extinguishes the first, either by changing the

replaced and extinguished, as the petitioners claim.

object or the principal conditions, or by substituting the person of the debtor, or by subrogating a third person in the rights of the

The receipt dated February 5, 1992 was only the proof of Servandos payment of his obligation as confirmed by the decision of the

creditor.16 For a valid novation to take place, there must be, therefore: (a) a previous valid obligation; (b) an agreement of the parties

RTC. It did not establish the novation of his agreement with the respondents. Indeed, the Court has ruled that an obligation to pay a

to make a new contract; (c) an extinguishment of the old contract; and (d) a valid new contract.17 In short, the new obligation

sum of money is not novated by an instrument that expressly recognizes the old, or changes only the terms of payment, or adds other

extinguishes the prior agreement only when the substitution is unequivocally declared, or the old and the new obligations are

obligations not incompatible with the old ones, or the new contract merely supplements the old one. 24 A new contract that is a mere
reiteration, acknowledgment or ratification of the old contract with slight modifications or alterations as to the cause or object or

principal conditions can stand together with the former one, and there can be no incompatibility between them. 25 Moreover, a

at monthly interest rates of 6% to 7%. Despite demands, the spouses Tibong failed to pay their outstanding loan, amounting

creditors acceptance of payment after demand does not operate as a modification of the original contract.26

to P773,000.00 exclusive of interests. The complaint contained the following prayer:

Worth noting is that Servandos liability was joint and solidary with his co-debtors. In a solidary obligation, the creditor may proceed

WHEREFORE, premises considered, it is most respectfully prayed of this Honorable Court, after due notice and hearing, to render

against any one of the solidary debtors or some or all of them simultaneously.27 The choice to determine against whom the collection

judgment ordering defendants to pay plaintiff the following:

is enforced belongs to the creditor until the obligation is fully satisfied.28Thus, the obligation was being enforced against Servando,

a). SEVEN HUNDRED SEVENTY-THREE THOUSAND PESOS (P773,000.00) representing the principal obligation of the defendants

who, in order to escape liability, should have presented evidence to prove that his obligation had already been cancelled by the new

with the stipulated interests of six (6%) percent per month from May 11, 1999 to date and or those that are stipulated on the contracts

obligation or that another debtor had assumed his place. In case of change in the person of the debtor, the substitution must be clear

as mentioned from paragraph two (2) of the complaint.

and express,29 and made with the consent of the creditor.30 Yet, these circumstances did not obtain herein, proving precisely that

b). FIFTEEN PERCENT (15%) of the total accumulated obligations as attorney's fees.

Servando remained a solidary debtor against whom the entire or part of the obligation might be enforced.

c). Actual expenses representing the filing fee and other charges and expenses to be incurred during the prosecution of this case.

Lastly, the extension of the maturity date did not constitute a novation of the previous agreement. It is settled that an extension of the

Further prays for such other relief and remedies just and equitable under the premises.4

term or period of the maturity date does not result in novation.31

Agrifina appended a copy of the Counter-Affidavit executed by Felicidad in I.S. No. 93-334, as well as copies of the promissory notes

II

and acknowledgment receipts executed by Felicidad covering the loaned amounts.5

Total liability to be reduced by P400,000.00

In their Answer with Counterclaim,6 spouses Tibong admitted that they had secured loans from Agrifina. The proceeds of the loan

The petitioners argue that Servandos remaining liability amounted to only P375,000.00, the balance indicated in the February 5, 1992

were then re-lent to other borrowers at higher interest rates. They, likewise, alleged that they had executed deeds of assignment in

receipt. Accordingly, the balance was not yet due because the respondents did not yet make a demand for payment.

favor of Agrifina, and that their debtors had executed promissory notes in Agrifina's favor. According to the spouses Tibong, this

The petitioners cannot be upheld.

resulted in a novation of the original obligation to Agrifina. They insisted that by virtue of these documents, Agrifina became the new

The balance of P375,000.00 was premised on the taking place of a novation. However, as found now, novation did not take place.

collector of their debtors; and the obligation to pay the balance of their loans had been extinguished.

Accordingly, Servandos obligation, being solidary, remained to be that decreed in the December 9, 1991 decision of the RTC,

The spouses Tibong specifically denied the material averments in paragraphs 2 and 2.1 of the complaint. While they did not state the

inclusive of interests, less the amount of P400,000.00 that was meanwhile paid by him.

total amount of their loans, they declared that they did not receive anything from Agrifina without any written receipt. 7 They prayed for

WHEREFORE, the Court AFFIRMS the decision of the Court of Appeals promulgated on March 19, 2003; ORDERS the Regional Trial

that the complaint be dismissed.

Court, Branch 16, in Malolos, Bulacan to proceed with the execution based on its decision rendered on December 9, 1991, deducting

In their Pre-Trial Brief, the spouses Tibong maintained that they have never obtained any loan from Agrifina without the benefit of a

the amount of P400,000.00 already paid by the late Servando Franco; and DIRECTS the petitioners to pay the costs of suit.

written document.8

SO ORDERED.

On August 17, 2000, the trial court issued a Pre-Trial Order where the following issues of the case were defined:
Whether or not plaintiff is entitled to her claim of P773,000.00;

G.R. No. 166704

December 20, 2006

AGRIFINA AQUINTEY, petitioner, vs.SPOUSES FELICIDAD AND RICO TIBONG, respondents.

CALLEJO, SR., J.:
Before us is a petition for review under Rule 45 of the Revised Rules on Civil Procedure of the Decision 1 of the Court of Appeals in
CA-G.R. CV No. 78075, which affirmed with modification the Decision2 of the Regional Trial Court (RTC), Branch 61, Baguio City, and
the Resolution3 of the appellate court denying reconsideration thereof.
The Antecedents
On May 6, 1999, petitioner Agrifina Aquintey filed before the RTC of Baguio City, a complaint for sum of money and damages against
the respondents, spouses Felicidad and Rico Tibong. Agrifina alleged that Felicidad had secured loans from her on several occasions,

Whether or not plaintiff is entitled to stipulated interests in the promissory notes; and
Whether or not the parties are entitled to their claim for damages.9
The Case for Petitioner
Agrifina and Felicidad were classmates at the University of Pangasinan. Felicidad's husband, Rico, also happened to be a distant
relative of Agrifina. Upon Felicidad's prodding, Agrifina agreed to lend money to Felicidad. According to Felicidad, Agrifina would be
earning interests higher than those given by the bank for her money. Felicidad told Agrifina that since she (Felicidad) was engaged in
the sale of dry goods at the GP Shopping Arcade, she would use the money to buy bonnels and thread. 10 Thus, Agrifina lent a total
sum of P773,000.00 to Felicidad, and each loan transaction was covered by either a promissory note or an acknowledgment
receipt.11Agrifina stated that she had lost the receipts signed by Felicidad for the following amounts: P100,000.00,P34,000.00
and P2,000.00.12 The particulars of the transactions are as follows:

Amount

Date Obtained

Interest Per Mo.

Due Date

P 100,000.00

May 11, 1989

6%

August 11, 1989

Corazon Dalisay

8,000.00

August 7, 1990

No date

Rita Chomacog

4,480.00

August 8, 1990

September 23, 1990

Antoinette Manuel

12,000.00

October 19, 1990

March 30, 1991

4,000.00

June 8, 1989

Rosemarie Bandas

8,000.00

August 8, 1990

February 3, 1991

50,000.00

June 13, 1989

6%

On demand

Fely Cirilo

63,600.00

September 13, 1990

No date

60,000.00

Aug. 16, 1989

7%

January 1990

Virginia Morada

62,379.00

August 9, 1990

February 9, 1991

205,000.00

Oct. 13, 1989

7%

January 1990

Carmelita Casuga

59,000.00

August 28, 1990

February 28, 1991

128,000.00

Oct. 19, 1989

7%

January 1990

Merlinda Gelacio

17,200.00

August 29, 1990

November 29, 199026

Total

P284,659.00

2,000.00

Nov. 12, 1989

6%

April 28, 1990

10,000.00

June 13, 1990

Helen Cabang, did not execute any promissory note but conformed to the Deed of Assignment of Credit which Felicidad executed in

80,000.00

Jan. 4, 1990

favor of Agrifina.27 Eliza Abance conformed to the deed of assignment for and in behalf of her sister, Fely Cirilo.28 Edna Papat-iw was

34,000.00

6%

October 19, 1989

not able to affix her signature on the deed of assignment nor sign the promissory note because she was in Taipei, Taiwan.29

100,000.00

July 14, 1989

5%

October 198913

Agrifina narrated that Felicidad showed to her the way to the debtors' houses to enable her to collect from them. One of the debtors,

Following the execution of the deeds of assignment and promissory notes, Agrifina was able to collect the total amount of P301,000.00
from Felicidad's debtors.30 In April 1990, she tried to collect the balance of Felicidad's account, but the latter told her to wait until her

According to Agrifina, Felicidad was able to pay only her loans amounting to P122,600.00.14
In July 1990, Felicidad gave to Agrifina City Trust Bank Check No. 126804 dated August 25, 1990 in the amount of P50,000.00 as
partial payment.15 However, the check was dishonored for having been drawn against insufficient funds. 16 Agrifina then filed a
criminal case against Felicidad in the Office of the City Prosecutor. An Information for violation of Batas Pambansa Bilang 22 was filed
against Felicidad, docketed as Criminal Case No. 11181-R. After trial, the court ordered Felicidad to pay P50,000.00. Felicidad

debtors had money.31 When Felicidad reneged on her promise, Agrifina filed a complaint in the Office of the Barangay Captain for the
collection of P773,000.00. However, no settlement was arrived at.32
The Case for Respondents
Felicidad testified that she and her friend Agrifina had been engaged in the money-lending business.33 Agrifina would lend her money
with monthly interest,34 and she, in turn, would re-lend the money to borrowers at a higher interest rate. Their business relationship

complied and paid the face value of the check.17

In the meantime, Agrifina learned that Felicidad had re-loaned the amounts to other borrowers. 18 Agrifina sought the assistance of
Atty. Torres G. A-ayo who advised her to require Felicidad to execute deeds of assignment over Felicidad's debtors. The lawyer also
suggested that Felicidad's debtors execute promissory notes in Agrifina's favor, to "turn over" their loans from Felicidad. This
arrangement would facilitate collection of Felicidad's account. Agrifina agreed to the proposal.19 Agrifina, Felicidad, and the latter's
debtors had a conference20 where Atty. A-ayo explained that Agrifina could apply her collections as payments of Felicidad's

turned sour when Agrifina started complaining that she (Felicidad) was actually earning more than Agrifina.35 Before the respective
maturity dates of her debtors' loans, Agrifina asked her to pay her account since Agrifina needed money to buy a house and lot in
Manila. However, she told Agrifina that she could not pay yet, as her debtors' loan payments were not yet due. 36 Agrifina then came to
her store every afternoon to collect from her, and persuaded her to go to Atty. Torres G. A-ayo for legal advice. 37 The lawyer
suggested that she indorse the accounts of her debtors to Agrifina so that the latter would be the one to collect from her debtors and
she would no longer have any obligation to Agrifina.38 She then executed deeds of assignment in favor of Agrifina covering the sums

account.21
From August 7, 1990 to October, 1990, Felicidad executed deeds of assignment of credits (obligations)22 duly notarized by Atty. Aayo, in which Felicidad transferred and assigned to Agrifina the total amount of P546,459.00 due from her debtors.23 In the said
deeds, Felicidad confirmed that her debtors were no longer indebted to her for their respective loans. For her part, Agrifina conformed
to the deeds of assignment relative to the loans of Virginia Morada and Corazon Dalisay.24 She was furnished copies of the deeds as

of money due from her debtors. She signed the deeds prepared by Atty. A-ayo in the presence of Agrifina. 39 Some of the debtors
signed the promissory notes which were likewise prepared by the lawyer. Thereafter, Agrifina personally collected from Felicidad's
debtors.40 Felicidad further narrated that she received P250,000.00 from one of her debtors, Rey Rivera, and remitted the payment to
Agrifina.41
Agrifina testified, on rebuttal, that she did not enter into a re-lending business with Felicidad. When she asked Felicidad to consolidate

well as the promissory notes.25

The following debtors of Felicidad executed promissory notes where they obliged themselves to pay directly to Agrifina:

her loans in one document, the latter told her to seek the assistance of Atty. A-ayo. 42 The lawyer suggested that Felicidad assign her
credits in order to help her collect her loans.43 She agreed to the deeds of assignment to help Felicidad collect from the debtors.44

Debtors

Account

Date of Instrument

Date Payable

Juliet & Tommy Tibong

P50,000.00

August 7, 1990

On January 20, 2003, the trial court rendered its Decision45 in favor of Agrifina. The fallo of the decision reads:
November 4, 1990 and February 4, 1991

WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendants ordering the latter to pay the plaintiffs (sic) the

The CA further declared that the deeds of assignment executed by Felicidad had the effect of payment of her outstanding obligation to

following amounts:

Agrifina in the amount of P585,659.00. It ruled that, since an assignment of credit is in the nature of a sale, the assignors remained

1. P472,000 as actual obligation with the stipulated interest of 6% per month from May 11, 1999 until the said obligation is fully paid.

liable for the warranties as they are responsible for the existence and legality of the credit at the time of the assignment.

However, the amount of P50,000 shall be deducted from the total accumulated interest for the same was already paid by the

Both parties moved to have the decision reconsidered,49 but the appellate court denied both motions on December 21, 2004.50

defendant as admitted by the plaintiff in her complaint,

Agrifina, now petitioner, filed the instant petition, contending that

2. P25,000 as attorney's fees,

1. The Honorable Court of Appeals erred in ruling that the deeds of assignment in favor of petitioner has the effect of payment of the

3. [T]o pay the costs.

original obligation even as it ruled out that the original obligation and the assigned credit are distinct and separate and can stand

SO ORDERED.46

independently from each other;

The trial court ruled that Felicidad's obligation had not been novated by the deeds of assignment and the promissory notes executed

2. The Honorable Court of Appeals erred in passing upon issues raised for the first time on appeal; and

by Felicidad's borrowers. It explained that the documents did not contain any express agreement to novate and extinguish Felicidad's

3. The Honorable Court of Appeals erred in resolving fact not in issue.51

obligation. It declared that the deeds and notes were separate contracts which could stand alone from the original indebtedness of

Petitioner avers that the appellate court erred in ruling that respondents' original obligation amounted to onlyP637,000.00 (instead

Felicidad. Considering, however, Agrifina's admission that she was able to collect from Felicidad's debtors the total amount

of P773,000.00) simply because she lost the promissory notes/receipts which evidenced the loans executed by respondent Felicidad

of P301,000.00, this should be deducted from the latter's accountability.47 Hence, the balance, exclusive of interests, amounted

Tibong. She insists that the issue of whether Felicidad owed her less than P773,000.00 was not raised by respondents during pre-trial

to P472,000.00.

and in their appellate brief; the appellate court was thus proscribed from taking cognizance of the issue.

On appeal, the CA affirmed with modification the decision of the RTC and stated that, based on the promissory notes and

Petitioner avers that respondents failed to deny, in their verified answer, that they had secured the P773,000.00 loan; hence,

acknowledgment receipts signed by Felicidad, the appellants secured loans from the appellee in the total principal amount of

respondents are deemed to have admitted the allegation in the complaint that the loans secured by respondent from her amounted

only P637,000.00, not P773,000.00 as declared by the trial court. The CA found that, other than Agrifina's bare testimony that she had

to P773,000.00. As gleaned from the trial court's pre-trial order, the main issue is whether or not she should be made to pay this

lost the promissory notes and acknowledgment receipts, she failed to present competent documentary evidence to substantiate her

amount.

claim that Felicidad had, likewise, borrowed the amounts of P100,000.00, P34,000.00, and P2,000.00. Of the P637,000.00 total

Petitioner further maintains that the CA erred in deducting the total amount of P585,659.00 covered by the deeds of assignment

account, P585,659.00 was covered by the deeds of assignment and promissory notes; hence, the balance of Felicidad's account

executed by Felicidad and the promissory notes executed by the latter's debtors, and that the balance of respondents' account was

amounted to only P51,341.00. The fallo of the decision reads:

only P51,341.00. Moreover, the appellate court's ruling that there was no novation runs counter to its holding that the primary recourse

WHEREFORE, in view of the foregoing, the decision dated January 20, 2003 of the RTC, Baguio City, Branch 61 in Civil Case No.

was against Felicidad's debtors. Petitioner avers that of the 11 deeds of assignment and promissory notes, only two bore her

4370-R is hereby MODIFIED. Defendants-appellants are hereby ordered to pay the balance of the total indebtedness in the amount

signature.52 She insists that she is not bound by the deeds which she did not sign. By assigning the obligation to pay petitioner their

of P51,341.00 plus the stipulated interest of 6% per month from May 11, 1999 until the finality of this decision.

loan accounts, Felicidad's debtors merely assumed the latter's obligation and became co-debtors to petitioner. Respondents were not

SO ORDERED.48

released from their obligation under their loan transactions, and she had the option to demand payment from them or their debtors.

The appellate court sustained the trial court's ruling that Felicidad's obligation to Agrifina had not been novated by the deeds of

Citing the ruling of this Court in Magdalena Estates, Inc. v. Rodriguez,53 petitioner insists that the first debtor is not released from

assignment and promissory notes executed in the latter's favor. Although Agrifina was subrogated as a new creditor in lieu of Felicidad,

responsibility upon reaching an agreement with the creditor. The payment by a third person of the first debtor's obligation does not

Felicidad's obligation to Agrifina under the loan transaction remained; there was no intention on their part to novate the original

constitute novation, and the creditor can still enforce the obligation against the original debtor. Petitioner also cites the ruling of this

obligation. Nonetheless, the appellate court held that the legal effects of the deeds of assignment could not be totally disregarded. The

Court in Guerrero v. Court of Appeals.54

assignments of credits were onerous, hence, had the effect of payment, pro tanto, of the outstanding obligation. The fact that Agrifina

In their Comment on the petition, respondents aver that by virtue of respondent Felicidad's execution of the deeds of assignment, and

never repudiated or rescinded such assignments only shows that she had accepted and conformed to it. Consequently, she cannot

the original debtors' execution of the promissory notes (along with their conformity to the deeds of assignment with petitioner's

collect both from Felicidad and her individual debtors without running afoul to the principle of unjust enrichment. Agrifina's primary

consent), their loan accounts with petitioner amounting to P585,659.00 had been effectively extinguished. Respondents point out that

recourse then is against Felicidad's individual debtors on the basis of the deeds of assignment and promissory notes.

this is in accordance with Article 1291, paragraph 2, of the Civil Code. Thus, the original debtors of respondents had been substituted
as petitioner's new debtors.

Respondents counter that petitioner had been subrogated to their right to collect the loan accounts of their debtors. In fact, petitioner,

amount of unliquidated damages shall be deemed admitted when not specifically denied.59 Thus, the answer should be so definite

as the new creditor of respondents' former debtors had been able to collect the latter's loan accounts which amounted to P301,000.00.

and certain in its allegations that the pleader's adversary should not be left in doubt as to what is admitted, what is denied, and what is

The sums received by respondents' debtors were the same loans which they obliged to pay to petitioner under the promissory notes

covered by denials of knowledge as sufficient to form a belief.60

executed in petitioner's favor.

In the present case, petitioner alleged the following in her complaint:

Respondents aver that their obligation to petitioner cannot stand or exist separately from the original debtors' obligation to petitioner as

2. That defendants are indebted to the plaintiff in the principal amount of SEVEN HUNDRED SEVENTY-THREE THOUSAND PESOS

the new creditor. If allowed to collect from them as well as from their original debtors, petitioner would be enriching herself at the

(P773,000.00) Philippine Currency with a stipulated interest which are broken down as follows. The said principal amounts was

expense of respondents. Thus, despite the fact that petitioner had collected P172,600.00 from respondents and P301,000.00 from the

admitted by the defendants in their counter-affidavit submitted before the court. Such affidavit is hereby attached as Annex "A;"61

original debtors, petitioner still sought to collect P773,000.00 from them in the RTC. Under the deeds of assignment executed by

xxxx

Felicidad and the original debtors' promissory notes, the original debtors' accounts were assigned to petitioner who would be the new

H) The sum of THIRTY FOUR THOUSAND PESOS (P34,000.00) with interest at six (6%) per cent per month and payable on October

creditor. In fine, respondents are no longer liable to petitioner for the balance of their loan account inclusive of interests. Respondents

19, 1989, however[,] the receipt for the meantime cannot be recovered as it was misplaced by the plaintiff but the letter of defendant

also insist that petitioner failed to prove that she (petitioner) was merely authorized to collect the accounts of the original debtors so as

FELICIDAD TIBONG is hereby attached as Annex "H" for the appreciation of the Honorable court;

to to facilitate the payment of respondents' loan obligation.

I) The sum of ONE HUNDRED THOUSAND PESOS (P100,000.00) with interest at five (5%) percent per month, obtained on July 14,

The Issues

1989 and payable on October 14, 1989. Such receipt was lost but admitted by the defendants in their counter-affidavit as attached [to]

The threshold issues are: (1) whether respondent Felicidad Tibong borrowed P773,000.00 from petitioner; and (2) whether the

this complaint and marked as Annex "A" mentioned in paragraph one (1); x x x62

obligation of respondents to pay the balance of their loans, including interest, was partially extinguished by the execution of the deeds

In their Answer, respondents admitted that they had secured loans from petitioner. While the allegations in paragraph 2 of the

of assignment in favor of petitioner, relative to the loans of Edna Papat-iw, Helen Cabang, Antoinette Manuel, and Fely Cirilo in the

complaint were specifically denied, respondents merely averred that petitioner and respondent Felicidad entered into an agreement for

total amount of P371,000.00.

the lending of money to interested borrowers at a higher interest rate. Respondents failed to declare the exact amount of the loans

The Ruling of the Court

they had secured from petitioner. They also failed to deny the allegation in paragraph 2 of the complaint that respondent Felicidad

We have carefully reviewed the brief of respondents as appellants in the CA, and find that, indeed, they had raised the issue of

signed and submitted a counter-affidavit in I.S. No. 93-334 where she admitted having secured loans from petitioner in the amount

whether they received P773,000.00 by way of loans from petitioner. They averred that, as gleaned from the documentary evidence of

ofP773,000.00. Respondents, likewise, failed to deny the allegation in paragraph 2(h) of the complaint that respondents had secured

petitioner in the RTC, the total amount they borrowed was onlyP673,000.00. They asserted that petitioner failed to adduce concrete

a P34,000.00 loan payable on October 19, 1989, evidenced by a receipt which petitioner had misplaced. Although respondents

evidence that they received P773,000.00 from her.55

specifically denied in paragraph 2.11 of their Answer the allegations in paragraph 2(I) of the complaint, they merely alleged that "they

We agree, however, with petitioner that the appellate court erred in reversing the finding of the RTC simply because petitioner failed to

have not received sums of money from the plaintiff without any receipt therefor."

present any document or receipt signed by Felicidad.

Respondents, likewise, failed to specifically deny another allegation in the complaint that they had secured aP100,000.00 loan from

Section 10, Rule 8 of the Rules of Civil Procedure requires a defendant to "specify each material allegation of fact the truth of which he

petitioner on July 14, 1989; that the loan was payable on October 14, 1989; and evidenced by a receipt which petitioner claimed to

does not admit and, whenever practicable, x x x set forth the substance of the matters upon which he relies to support his denial.56

have lost. Neither did respondents deny the allegation that respondents admitted their loan of P100,000.00 in the counter-affidavit of

Section 11, Rule 8 of the same Rules provides that allegations of the complaint not specifically denied are deemed admitted.57

respondent Felicidad, which was appended to the complaint as Annex "A." In fine, respondents had admitted the existence of

The purpose of requiring the defendant to make a specific denial is to make him disclose the matters alleged in the complaint which he

their P773,000.00 loan from petitioner.

succinctly intends to disprove at the trial, together with the matter which he relied upon to support the denial. The parties are

We agree with the finding of the CA that petitioner had no right to collect from respondents the total amount of P301,000.00, which

compelled to lay their cards on the table.58

includes more than P178,980.00 which respondent Felicidad collected from Tibong, Dalisay, Morada, Chomacog, Cabang, Casuga,

A denial is not made specific simply because it is so qualified by the defendant. A general denial does not become specific by the use

Gelacio, and Manuel. Petitioner cannot again collect the same amount from respondents; otherwise, she would be enriching herself at

of the word "specifically." When matters of whether the defendant alleges having no knowledge or information sufficient to form a belief

their expense. Neither can petitioner collect from respondents more than P103,500.00 which she had already collected from Nimo,

are plainly and necessarily within the defendant's knowledge, an alleged "ignorance or lack of information" will not be considered as a

Cantas, Rivera, Donguis, Fernandez and Ramirez.

specific denial. Section 11, Rule 8 of the Rules also provides that material averments in the complaint other than those as to the

There is no longer a need for the Court to still resolve the issue of whether respondents' obligation to pay the balance of their loan

accept the new debtor for the old. A novation is not made by showing that the substituted debtor agreed to pay the debt; it must

account to petitioner was partially extinguished by the promissory notes executed by Juliet Tibong, Corazon Dalisay, Rita Chomacog,

appear that he agreed with the creditor to do so. Moreover, the agreement must be based on the consideration of the creditor's

Carmelita Casuga, Merlinda Gelacio and Antoinette Manuel because, as admitted by petitioner, she was able to collect the amounts

agreement to look to the new debtor instead of the old. It is not essential that acceptance of the terms of the novation and release

under the notes from said debtors and applied them to respondents' accounts.

of the debtor be shown by express agreement. Facts and circumstances surrounding the transaction and the subsequent conduct of

Under Article 1231(b) of the New Civil Code, novation is enumerated as one of the ways by which obligations are extinguished.

the parties may show acceptance as clearly as an express agreement, albeit implied.72

Obligations may be modified by changing their object or principal creditor or by substituting the person of the debtor.63 The burden to

We find in this case that the CA correctly found that respondents' obligation to pay the balance of their account with petitioner was

prove the defense that an obligation has been extinguished by novation falls on the debtor.64 The nature of novation was extensively

extinguished, pro tanto, by the deeds of assignment of credit executed by respondent Felicidad in favor of petitioner.

explained in Iloilo Traders Finance, Inc. v. Heirs of Sps. Oscar Soriano, Jr.,65 as follows:

An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as

Novation may either be extinctive or modificatory, much being dependent on the nature of the change and the intention of the parties.

sale, dation in payment, exchange or donation, and without the consent of the debtor, transfers his credit and accessory rights to

Extinctive novation is never presumed; there must be an express intention to novate; in cases where it is implied, the acts of the

another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the

parties must clearly demonstrate their intent to dissolve the old obligation as the moving consideration for the emergence of the new

debtor.73 It may be in the form of sale, but at times it may constitute a dation in payment, such as when a debtor, in order to obtain a

one. Implied novation necessitates that the incompatibility between the old and new obligation be total on every point such that the old

release from his debt, assigns to his creditor a credit he has against a third person.74

obligation is completely superseded by the new one. The test of incompatibility is whether they can stand together, each one having an

In Vda. de Jayme v. Court of Appeals,75 the Court held that dacion en pago is the delivery and transmission of ownership of a thing by

independent existence; if they cannot and are irreconciliable, the subsequent obligation would also extinguish the first.

the debtor to the creditor as an accepted equivalent of the performance of the obligation. It is a special mode of payment where the

An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and, second, creating a new one in

debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking really

its stead. This kind of novation presupposes a confluence of four essential requisites: (1) a previous valid obligation; (2) an agreement

partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is

of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation.

to be charged against the debtor's obligation. As such, the essential elements of a contract of sale, namely, consent, object certain,

Novation is merely modificatory where the change brought about by any subsequent agreement is merely incidental to the main

and cause or consideration must be present. In its modern concept, what actually takes place in dacion en pago is an objective

obligation (e.g., a change in interest rates or an extension of time to pay); in this instance, the new agreement will not have the effect

novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the

of extinguishing the first but would merely supplement it or supplant some but not all of its provisions.66 (Citations Omitted)

object of the contract of sale, while the debt is considered as the purchase price. In any case, common consent is an essential

Novation which consists in substituting a new debtor (delegado) in the place of the original one (delegante) may be made even without

prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or obligation.76

the knowledge or against the will of the latter but not without the consent of the creditor. Substitution of the person of the debtor may

The requisites for dacion en pago are: (1) there must be a performance of the prestation in lieu of payment (animo solvendi) which

be effected by delegacion, meaning, the debtor offers, and the creditor (delegatario), accepts a third person who consents to the

may consist in the delivery of a corporeal thing or a real right or a credit against the third person; (2) there must be some difference

substitution and assumes the obligation. Thus, the consent of those three persons is necessary.67 In this kind of novation, it is not

between the prestation due and that which is given in substitution (aliud pro alio); and (3) there must be an agreement between the

enough to extend the juridical relation to a third person; it is necessary that the old debtor be released from the obligation, and the third

creditor and debtor that the obligation is immediately extinguished by reason of the performance of a prestation different from that

person or new debtor take his place in the relation.68 Without such release, there is no novation; the third person who has assumed

due.77

the obligation of the debtor merely becomes a co-debtor or a surety. If there is no agreement as to solidarity, the first and the new

All the requisites for a valid dation in payment are present in this case. As gleaned from the deeds, respondent Felicidad assigned to

debtor are considered obligated jointly.69

petitioner her credits "to make good" the balance of her obligation. Felicidad testified that she executed the deeds to enable her to

In Di Franco v. Steinbaum,70 the appellate court ruled that as to the consideration necessary to support a contract of novation, the rule

make partial payments of her account, since she could not comply with petitioner's frenetic demands to pay the account in cash.

is the same as in other contracts. The consideration need not be pecuniary or even beneficial to the person promising. It is sufficient if

Petitioner and respondent Felicidad agreed to relieve the latter of her obligation to pay the balance of her account, and for petitioner to

it be a loss of an inconvenience, such as the relinquishment of a right or the discharge of a debt, the postponement of a remedy, the

collect the same from respondent's debtors.

discontinuance of a suit, or forbearance to sue.

Admittedly, some of respondents' debtors, like Edna Papat-iw, were not able to affix their conformity to the deeds. In an assignment of

In City National Bank of Huron, S.D. v. Fuller,71 the Circuit Court of Appeals ruled that the theory of novation is that the new debtor

credit, however, the consent of the debtor is not essential for its perfection; the knowledge thereof or lack of it affecting only the

contracts with the old debtor that he will pay the debt, and also to the same effect with the creditor, while the latter agrees to

efficaciousness or inefficaciousness of any payment that might have been made. The assignment binds the debtor upon acquiring

knowledge of the assignment but he is entitled, even then, to raise against the assignee the same defenses he could set up against

the words are free from ambiguity and expressed plainly the purpose of the instrument, there is no occasion for interpretation; but

the assignor78 necessary in order that assignment may fully produce legal effects. Thus, the duty to pay does not depend on the

where necessary, words must be interpreted in the light of the particular subject matter. 84 And surrounding circumstances may be

consent of the debtor. The purpose of the notice is only to inform that debtor from the date of the assignment. Payment should be

considered in order to understand more perfectly the intention of the parties. Thus, the object to be accomplished through the

made to the assignee and not to the original creditor.

assignment, and the relations and conduct of the parties may be considered in construing the document.

The transfer of rights takes place upon perfection of the contract, and ownership of the right, including all appurtenant accessory

Although it has been said that an ambiguous or uncertain assignment should be construed most strictly against the assignor, the

rights, is acquired by the assignee79 who steps into the shoes of the original creditor as subrogee of the latter80 from that amount, the

general rule is that any ambiguity or uncertainty in the meaning of an assignment will be resolved against the party who prepared it;

ownership of the right is acquired by the assignee. The law does not require any formal notice to bind the debtor to the assignee, all

hence, if the assignment was prepared by the assignee, it will be construed most strictly against him or her. 85 One who chooses the

that the law requires is knowledge of the assignment. Even if the debtor had not been notified, but came to know of the assignment by

words by which a right is given ought to be held to the strict interpretation of them, rather than the other who only accepts them.86

whatever means, the debtor is bound by it. If the document of assignment is public, it is evidence even against a third person of the

Considering all the foregoing, we find that respondents still have a balance on their account to petitioner in the principal amount

facts which gave rise to its execution and of the date of the latter. The transfer of the credit must therefore be held valid and effective

of P33,841.00, the difference between their loan of P773,000.00 less P585,659.00, the payment of respondents' other debtors

from the moment it is made to appear in such instrument, and third persons must recognize it as such, in view of the authenticity of the

amounting to P103,500.00, and the P50,000.00 payment made by respondents.

document, which precludes all suspicion of fraud with respect to the date of the transfer or assignment of the credit.81

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decision and Resolution of the Court of Appeals

As gleaned from the deeds executed by respondent Felicidad relative to the accounts of her other debtors, petitioner was authorized to

are AFFIRMED with MODIFICATION in that the balance of the principal account of the respondents to the petitioner is P33,841.00. No

collect the amounts of P6,000.00 from Cabang, and P63,600.00 from Cirilo. They obliged themselves to pay petitioner. Respondent

costs.

Felicidad, likewise, unequivocably declared that Cabang and Cirilo no longer had any obligation to her.

SO ORDERED.

Equally significant is the fact that, since 1990, when respondent Felicidad executed the deeds, petitioner no longer attempted to collect

FIRST DIVISION

from respondents the balance of their accounts. It was only in 1999, or after nine (9) years had elapsed that petitioner attempted to

G.R. No. 135046

collect from respondents. In the meantime, petitioner had collected from respondents' debtors the amount of P301,000.00.

SPOUSES FLORANTE and LAARNI BAUTISTA, petitioners, vs. PILAR DEVELOPMENT CORPORATION, respondent.

August 17, 1999

While it is true that respondent Felicidad likewise authorized petitioner in the deeds to collect the debtors' accounts, and for the latter
to pay the same directly, it cannot thereby be considered that respondent merely authorized petitioner to collect the accounts of

PUNO, J.:

respondents' debtors and for her to apply her collections in partial payments of their accounts. It bears stressing that petitioner, as

This petition for review seeks to reverse and set aside the Decision and Resolution of the Court of Appeals in CA-G.R. CV No.

assignee, acquired all the rights and remedies passed by Felicidad, as assignee, at the time of the assignment. 82 Such rights and

513631 which reversed the Decision of the Regional Trial Court, Makati, Branch 138 in Civil Case No. 17702.2

remedies include the right to collect her debtors' obligations to her.

The following facts are uncontroverted.

Petitioner cannot find solace in the Court's ruling in Magdalena Estates. In that case, the Court ruled that the mere fact that novation

In 1978, petitioner spouses Florante and Laarni Bautista purchased a house and lot in Pilar Village, Las Pinas, Metro Manila. To

does not follow as a matter of course when the creditor receives a guaranty or accepts payments from a third person who has agreed

partially finance the purchase, they obtained from the Apex Mortgage & Loan Corporation (Apex) a loan in the amount of P100,180.00.

to assume the obligation when there is no agreement that the first debtor would be released from responsibility. Thus, the creditor can

They executed a promissory note on December 22, 1978 obligating themselves, jointly and severally, to pay the "principal sum of

still enforce the obligation against the original debtor.

P100,180.00 with interest rate of 12% and service charge of 3%" for a period of 240 months, or twenty years, from date, in monthly

In the present case, petitioner and respondent Felicidad agreed that the amounts due from respondents' debtors were intended to

installments of P1,378.83.3 Late payments were to be charged a penalty of one and one-half per cent (1 1/2%) of the amount due. In

"make good in part" the account of respondents. Case law is that, an assignment will, ordinarily, be interpreted or construed in

the same promissory note, petitioners authorized Apex to "increase the rate of interest and/or service charges" without notice to them

accordance with the rules of construction governing contracts generally, the primary object being always to ascertain and carry out the

in the event that a law, Presidential Decree or any Central Bank regulation should be enacted increasing the lawful rate of interest and

intention of the parties. This intention is to be derived from a consideration of the whole instrument, all parts of which should be given

service charges on the loan.4 Payment of the promissory note was secured by a second mortgage on the house and lot purchased by

effect, and is to be sought in the words and language employed.83

petitioners.5

Indeed, the Court must not go beyond the rational scope of the words used in construing an assignment, words should be construed

Petitioner spouses failed to pay several installments. On September 20, 1982, they executed another promissory note in favor of Apex.

according to their ordinary meaning, unless something in the assignment indicates that they are being used in a special sense. So, if

This note was in the amount of P142,326.43 at the increased interest rate of twenty-one per cent (21%) per annum with no provision

for service charge but with penalty charge of 1 1/2% for late payments. Payment was to be made for a period of 196 months or 16.33

years in monthly installments of P2,526.68, inclusive of principal and interest. Petitioner spouses also authorized Apex to

IN RULING THAT THE TWO (2) PROMISSORY NOTES EXECUTED BY THE PARTIES ARE INDEPENDENT OF EACH OTHER.

"increase/decrease the rate of interest and/or service charges" on the note in the event any law or Central Bank regulation shall be

CONVERSELY, IN NOT RULING THAT THE SAID PROMISSORY NOTES CONSTITUTE A SINGLE-LOAN TRANSACTION.

passed increasing or decreasing the same.6

II

In November 1983, petitioner spouses again failed to pay the installments. On June 6, 1984, Apex assigned the second promissory

IN RULING THAT THE APPLICABLE RATE OF INTEREST IS 21% PER ANNUM AS STIPULATED IN THE SECOND PROMISSORY

note to respondent Pilar Development Corporation without notice to petitioners.1wphi1.nt

NOTE.

On August 31, 1987, respondent corporation, as successor-in-interest of Apex, instituted against petitioner spouses Civil Case No.

CONVERSELY, IN NOT RULING THAT THE ESCALATION OF INTEREST RATE FROM 12% PER ANNUM (1ST PROMISSORY

17702 before the Regional Trial Court, Makati, Branch 138. Respondent corporation sought to collect from petitioners the amount of

NOTE) TO 21% PER ANNUM (2ND PROMISSORY NOTE) IS UNLAWFUL.

P140,515.11 representing the unpaid balance of the principal debt from November 23, 1983, including interest at the rate of twenty-

III

one per cent (21%) under the second promissory note, and 25% and 36% per annum in accordance with Central Bank Circular No.

IN RULING THAT 10% OF THE AMOUNT DUE IS AWARDABLE AS ATTORNEY'S FEES.

905, series of 1982. Respondent also sought payment of ten per cent (10%) of the amount due as attorney's fees.7

CONVERSELY, IN NOT RULING THAT THE AWARD OF 10% ATTORNEY'S FEES IS NOT PROPER UNDER THE

In their answer, petitioner spouses mainly contended that the terms of the second promissory note increasing the interest rate to 21%

CIRCUMSTANCES.

and the escalation clauses authorizing Apex to increase interest rates pursuant to any law or Central Bank regulation are null and void

IV

in the absence of a de-escalation clause in the same note.8

IN RULING THAT NOTICE OF ASSIGNMENT OF CREDIT IS "POINTLESS AND UNSUSTAINABLE ."

After pre-trial, both parties submitted the case for decision on the sole issue of the interest rate.

CONVERSELY, IN NOT RULING THAT NOTICE TO THE DEBTOR IS REQUIRED WHEN CREDIT IS ASSIGNED.

The trial court rendered judgment on September 22, 1995. It ordered petitioner spouses to pay respondent corporation the sum of

P140,515.11, with interest at the rate of 12% per annum, plus service charge, viz:

IN NOT RULING THAT UNDER THE CIRCUMSTANCES PETITIONERS ARE ENTITLED TO MORAL AND EXEMPLARY

WHEREFORE, judgment is hereby rendered as follows:

DAMAGES.12

(a) Plaintiff is entitled to collect from the defendants the amount of P140,515.11 with interest at the rate of 12% per annum from

The controversy in this petition involves the rate of interest respondent creditor is entitled to collect on petitioners' loan: whether it be

November 23, 1983 until the amount is fully paid plus the stipulated service charge;

12% under the promissory note of December 22, 1978, or 21% under the promissory note of September 20, 1982.

(b) Ordering defendants as joint and several obligors to pay plaintiff the amount stated in paragraph (a) hereof;

Petitioners claim that the interest rate of 12% per annum should be adjudged inasmuch as the two promissory notes constitute one

(c) Counterclaim is hereby dismissed.

transaction. Allegedly, the first note defined the terms and conditions of the loan while the second note is merely an extension of and

No pronouncement as to costs.

derives its existence from the former. Hence, the second note is governed by the stipulations in the first note.13

SO ORDERED.9

The two promissory notes are identically entitled "Promissory Note with Authority to Assign Credit." The notes were prepared by Apex

Both parties appealed to the Court of Appeals. In a Decision dated May 14, 1998, the appellate court reversed the trial court by

in standard form and consist of two (2) pages each. Except for one or two stipulations, they contain the same provisions and the same

applying the interest rate of 21% per annum, and adding attorney's fees of 10%. Thus:

blanks for the amount of the loan and other pertinent data subject of each note. However, on the upper right portion of the second

IN VIEW OF ALL THE FOREGOING, the appealed judgment is hereby REVERSED and SET ASIDE and a new one entered ordering

note, there appears a typewritten entry which reads:

the defendants to pay the plaintiffs the amount of P142,326.43, as principal with interest at the rate of 21% from November 23, 1983

This cancels PN # A-387-78 dated December 22, 1978.14

until the amount is fully paid; the sum equivalent to 10% of the amount due as attorney's fees and the costs of this suit.

Correspondingly, on the face of each page of the first promissory note, i.e., PN No. A-387-78 dated December 22, 1978, the word

SO ORDERED.10

"Cancelled" is boldly stamped twice with the date "September 16, 1982" and a signature written in a space inside the letters of the

Petitioner spouses moved for reconsideration. In a Resolution dated August 18, 1998, the Court of Appeals denied the motion but

word.15

reduced the principal amount of the obligation from P142,326.42 to P140,515.11.11

The first promissory note was cancelled by the express terms of the second promissory note. To cancel is to strike out, to revoke,

Hence this recourse.

rescind or abandon, to terminate.16 In fine, the first note was revoked and terminated. Simply put, it was novated. The extinguishment

Petitioner spouses claim that the Court of Appeals erred:

of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first is a

novation.17 Novation is made either by changing the object or principal conditions, referred to as an objective or real novation; or by

years, at 21% per annum. The interest rate of 21% provided in the second promissory note was therefore authorized under these

substituting the person of the debtor or subrogating a third person to the rights of the creditor, which is known as subjective or personal

Circulars.

novation.18 In both objective and subjective novation, a dual purpose is achieved an obligation is extinguished and a new one is

The question of whether the escalation clauses in the second promissory note are valid is irrelevant. Respondent corporation has

created in lieu thereof.19 Novation may either be express, when the new obligation declares in unequivocal terms that the old

signified that it is collecting petitioners' debt only at the fixed interest rate of 21% per annum, as expressly agreed upon in the second

obligation is extinguished; or implied, when the new obligation is on every point incompatible with the old one.20 Express novation

promissory note, not at the escalated rates authorized under the escalation clauses.32 The Court of Appeals therefore did not err in

takes place when the contracting parties expressly disclose that their object in making the new contract is to extinguish the old

applying the interest rate of 21% to petitioner's loan under the second promissory note.

contract, otherwise the old contract remains in force and the new contract is merely added to it, and each gives rise to an obligation

Neither did the Court of Appeals err in imposing attorney's fees of ten per cent (10%) on the amount, due. The award of attorney's fees

still in force.21

is expressly stipulated in the fourth paragraph of the promissory note itself, viz:

Novation has four (4) essential requisites: (1) the existence of a previous valid obligation; (2) the agreement of all parties to the new

In case of non-payment of the amount of this note or any portion of it on demand when given due, or any other amount/s due on

contract; (3) the extinguishment of the old contract; and (4) the validity of the new one.22 In the instant case, all four requisites have

account of this note, the entire obligation shall become due and demandable, and if for the enforcement of the payment thereof, APEX

been complied with. The first promissory note was a valid and subsisting contract when petitioner spouses and Apex executed the

MORTGAGE AND LOANS CORP. is constrained to entrust the case to its attorneys, I/We, jointly and severally, bind myself/ourselves

second promissory note. The second promissory note absorbed the unpaid principal and interest of P142,326.43 in the first note which

to pay TEN (10%) per cent on the amount due on the note as attorney's fees, such amount in no case to be less than FIVE HUNDRED

amount became the principal debt therein, payable at a higher interest rate of 21% per annum. Thus, the terms of the second

(P500.00) PESOS in addition to the legal fees and other incidental expenses.33

promissory note provided for a higher principal, a higher interest rate, and a higher monthly amortization, all to be paid within a shorter

Petitioners' lack of bad faith in resisting imposition of the increased interest rate cannot serve to mitigate their liability for liquidated

period of 16.33 years. These changes are substantial and constitute the principal conditions of the obligation.23 Both parties

damages. Petitioner Florante Bautista is a lawyer and he should have been aware of the effects of the stipulations in the second

voluntarily accepted the terms of the second note; and also in the same note, they unequivocally stipulated to extinguish the first note.

promissory note and the pertinent CB Circulars on his obligation. At the same time, there is no showing that the amount of liquidated

Clearly, there was animus novandi, an express intention to novate.24 The first promissory note was cancelled and replaced by the

damages is iniquitous and unconscionable for this court to equitably reduce the same.34

second note. This second note became the new contract governing the parties' obligations.

Finally, the fact that petitioners were not notified of the assignment of their credit by Apex to herein respondent corporation is not

In their second assigned error, petitioners contend that in the second promissory note, the escalation of the interest rate from 12% to

material. In the eighth paragraph of the second promissory note, petitioners expressly waived notice to any assignment of credit, viz:

21% per annum is unlawful and cannot be imposed for failure of the escalation provisions to include valid de-escalation clauses. In the

It is understood that APEX MORTGAGE AND LOANS CORPORATION has the right to assign this promissory note, or make use of it

absence of de-escalation clauses, the Court of Appeals allegedly erred in applying Central Bank Circulars Nos. 705, 712 and 905

as collateral in favor of any third person whomsoever and this will constitute as an authority therefore waiver of notice of such action

issued by the Monetary Board of the Central Bank of the Philippines.25

taken [sic].35

At the time the parties executed the first promissory note in 1978, the interest of 12% was the maximum rate fixed by the Usury Law

The purpose of the notice is only to inform the debtor that from the date of the assignment, payment should be made to the assignee

for loans secured by a mortgage upon registered real estate.26 On December 1, 1979, the Monetary Board of the Central Bank of the

and not to the original creditor.36

Philippines27 issued Circular No. 705 which fixed the effective rate of interest on loan transactions with maturities of more than 730

IN VIEW WHEREOF, the petition is denied and the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 51363 are

days to twenty-one per cent (21%) per annum for both secured and unsecured loans.28 On January 28, 1980, The Monetary Board

affirmed.1wphi1.nt

issued Circular No. 712 reiterating the effective interest rate of 21% on said loan transactions.29 On January 1, 1983, CB Circular No.

SO ORDERED.

905, series of 1982, took effect. This Circular declared that the rate of interest on any loan or forbearance of any money, goods or

G.R. No. 144291

credits, regardless of maturity and whether secured or unsecured, "shall not be subject to any ceiling prescribed under or pursuant to

EVADEL REALTY and DEVELOPMENT CORPORATION, petitioners, vs. SPOUSES ANTERO AND VIRGINIA

the Usury Law, as amended.30 In short, Circular No. 905 removed the ceiling on interest rates for secured and unsecured loans,

SORIANO, respondents.

April 20, 2001

regardless of maturity.31
When the second promissory note was executed on September 20, 1982, Central Bank Circulars Nos. 705 and 712 were already in

KAPUNAN, J.:

effect. These Circulars fixed the effective interest rate for secured loan transactions with maturities of more than 730 days, i.e., two (2)

This is an appeal by certiorari under Rule 45 of the Rules of Court of the decision of the Court of Appeals dated August 3, 2000 in CAG.R. CV No. 60292 affirming the summary judgment rendered by the Regional Trial Court, Branch 88, Cavite City, in the case

for accion reinvidicatoria filed by herein respondents Antero and Virginia Soriano against petitioner Evadel Realty and Development

square meters. Upon verification by representatives of both parties, the area encroached upon was denominated as Lot 5536-D-1 of

Corporation.

the subdivision plan of Lot 5536-D of Psd-04-092419 and was later on segregated from the mother title and issued a new transfer

The pertinent facts from which the present petition proceeds are as follows:

certificate of title, TCT No. 769166, in the name of respondent spouses.

On April 12, 1996, the spouses Antero and Virginia Soriano (respondent spouses), as sellers, entered into a "Contract to Sell " with

Respondent spouses successively sent demand letters to petitioner on February 14, March 7, and April 24, 1997, to vacate the

Evadel Realty and Development Corporation (petitioner), as buyer, over a parcel of land denominated as Lot 5536-C of the

encroached area. Petitioner admitted receiving the demand letters but refused to vacate the said area.

Subdivision Plan of Lot 5536 covered by Transfer Certificate of Title No. 125062 which was part of a huge tract of land known as the

Thus, on May 23, 1997, a complaint for accion reinvindicatoria was filed by respondent spouses against petitioner with the Regional

Imus Estate.

Trial Court, Branch 88 of Cavite City.

The pertinent portions of the Contract read:

In its Answer, petitioner admitted the encroachment but claimed that it was a builder in good faith since it merely relied on the

xxx

boundaries pointed out by the representatives of respondent spouses. Petitioner also argued that there was a novation of contract

WHEREAS : It is the desire of Party "B" to purchase a portion of a parcel of land owned by Party "A" and which portion consist of

because of the encroachment made by the national road on the property subject of the contract by 1,647 square meters.

28,958 sq.m. and specifically described as lot 5536-C of the Subdivision Plan of Lot 5536 of Imus Estate as surveyed for Antero Q.

On March 19, 1998, respondents filed a Motion for Summary Judgment, alleging that there existed no genuine issue as to the material

Soriano and covered by TCT 125062 issued by the Register of Deeds of the Province of Cavite and which portion is shown in Annex

facts of the case due to the admissions made by petitioner in its Answer.

"A" hereof.

The trial court granted the motion on June 11, 1998 and rendered judgment in favor of respondent spouses, the dispositive portion of

xxx

which reads:

I. SUBJECT

WHEREFORE, in the light of the foregoing, this court hereby orders the defendant to remove without right of indemnity and at its

The subject of this agreement is the intended sale of 28,958 sq.m. which is a portion of TCT No. 125062 in the name of Party "A" to

expense, any or all improvements that it has introduced on the parcel of land covered by TCT No. T-769166 issued by the Register of

Party "B" and which portion is herewith shown in Annex "A" hereof.

Deeds of the Province of Cavite with an area of 2,450 square meters, more or less, in the name of plaintiffs spouses and to return to

xxx

the plaintiffs the physical possession of the above-described parcel of land.

III. Conditions to Govern "Contract to Sell"

Plaintiffs' and defendants claim and counter-claim for damages and attorneys fees are dismissed. No pronouncement as to costs.

1] The amount of Twenty Eight Million Nine Hundred Fifty Eight Thousand Pesos (P28,958,000.00) representing the first installment of

SO ORDERED.2

the purchase price of the property shall be delivered by Party "B" to Party "A" upon the signing of this agreement.

This prompted petitioner to appeal the matter to the Court of Appeals. On August 3, 2000, the Court of Appeals affirmed the order for

2] The second and last installment of Twenty Eight Million Nine Hundred Fifty Eight Thousand Pesos (P28,958,000.00) shall be

summary judgment of the trial court. Hence, this petition ascribing the following errors:

delivered by Party "B" to Party "A" simultaneously with the delivery of Party "A" to Party "B" of the Torrens Title to the lot specifically

I. XXX, THE HON. COURT OF APPEALS COMMITTED AN ERROR OF LAW IN AFFIRMING THAT UNDER THE FACTUAL

described as Lot No. 5536-C containing an area of 28,958 sq. m. and herewith shown in Annex "A" hereof; still in the name of Party

CIRCUMSTANCES, A SUMMARY JUDGMENT COULD BE RENDERED BY THE COURT A QUO.

"A" and the delivery of Party "A" to Party "B" of the "Deed of Absolute Sale" to the property in favor of Party "B". Responsibility of the

II. XXX, THE HON. COURT OF APPEALS COMMITTED AN ERROR OF LAW IN ITS APPLICATION OF THE JURISPRUDENCE

transfer of the Torrens Title from the name of Party "A" to Party "B" shall be the sole responsibility of Party "B". Moreover, the balance

LAID DOWN IN THE CASE OF TERNATE v. COURT OF APPEALS (241 SCRA 254) AND NATIONAL IRRIGATION

in the amount of Twenty Eight Million Nine Hundred Fifty Eight Thousand Pesos(P28,958,000.00) shall be due and demandable

ADMINISTRATION v. GAMIT (215 SCRA 436) UNDER THE FACTUAL CONTENT OF THE CASE AT BAR.

immediately from the time Party "B", thru its President or Vice-President receives either verbal or written notice that the Torrens Title to

III. XXX, THE HON. COURT OF APPEALS COMMITTED AN ERROR OF LAW IN ITS APPLICATION OF THE JURISPRUDENCE

the segregated property and the "Deed of Absolute Sale" are already available for delivery to Party "B". In the event of delay, however,

LAID DOWN IN THE CASE OF J.M. TUASON & CO. INC. v. VDA. DE LUMANLAN (23 SCRA 230) UNDER THE FACTUAL

Party "B" shall be charged with interest and penalty in the amount of 6% per month, compounded, for every month of delay or a

CONTENT OF THE CASE AT BAR.

fraction thereof in the event the delay does not exceed one month.

IV. XXX, THE HON. COURT OF APPEALS COMMITTED AN ERROR OF LAW IN ITS APPLICATION OF THE JURISPRUDENCE

xxx1

LAID DOWN IN THE CASES OF MANILA BAY CLUB CORPORATION v. COURT OF APPEALS (245 SCRA 715) AND THE MARINE

Upon payment of the first installment, petitioner introduced improvements thereon and fenced off the property with concrete walls.

CULTURE INC. v. COURT OF APPEALS (219 SCRA 148) UNDER THE FACTUAL CONTENT OF THE CASE AT BAR.

Later, respondent spouses discovered that the area fenced off by petitioner exceeded the area subject of the contract to sell by 2,450

V. XXX, THE HON. COURT OF APPEALS COMMITTED AN ERROR OF LAW IN AFFIRMING THE DECISION OF THE COURT A

absence of any genuine issue of fact, or that the issue posed in the complaint is patently unsubstantial so as not to constitute a

QUO, THUS DEPRIVING THE PETITIONER OF ITS DAY IN COURT AND ITS CONSTITUTIONAL RIGHT TO DUE PROCESS OF

genuine issue for trial.6 Trial courts have limited authority to render summary judgments and may do so only when there is clearly no

LAW.

genuine issue as to any material fact. When the facts as pleaded by the parties are disputed or contested, proceedings for summary

Summarizing the aforecited issues, the basic issue posed for resolution is whether or not the trial court was in error in rendering

judgment cannot take the place of trial.7

summary judgment on the case.

Applying these principles to the present case, we hold that the CA did not commit any reversible error in affirming the summary

Petitioner claims that a summary judgment cannot be rendered on the case as there are genuine issues of fact which have to be

judgment rendered by the trial court. Hence, the instant petition must be denied.

threshed out during trial. It is alleged that in the original and amended complaint, private respondent spouses sought recovery of two

The case at bar is one for accion reinvindicatoria which is an action to recover ownership over real property. Respondent spouses

thousand four hundred sixty two (2,462) square meters of land. This was, however, changed to 2,450 square meters in the second

(plaintiffs below) seek to recover a certain portion of land with a total area of 2,450 square meters from petitioner which portion was

amended complaint. It is also argued that when petitioner entered upon the property in 1996, it relied on the metes and boundaries

allegedly in excess of the total area of the property actually sold by them to the latter. In a reinvindicatory action, the basic issue for

pointed out by respondents themselves and their surveyors. Moreover, title over the said area was obtained only after the

resolution is that of ownership and in the present case, the determination of ownership of the subject property is hinged on the

commencement of the complaint so petitioner could not have possibly disputed such title earlier. Therefore, petitioner maintains, the

following questions of fact - first, what was the total area of the lot sold to petitioner by respondent spouses as agreed upon and

question of the exact area of the land allegedly encroached, whether 2,462 or 2,450 square meters; and the determination of whether

embodied in the contract to sell; and second, whether or not the area being occupied by the petitioner is in excess of the land which it

its possession of the subject property was in good or bad faith, are genuine triable issues.

actually bought from respondent spouses under the said contract.

Respondent spouses, on the other hand, maintain that there are no genuine issues of fact in the present case in view of the admission

In its Answer to the Amended Complaint, petitioner admitted the existence and due execution of the Contract to Sell which contained

by petitioner of (1) the existence of the title over the subject property in the name of respondent spouses; and (2) its encroachment on

the specific description of the property it bought from respondent spouses, to wit:

the northern side of sold Lot 5536-C which is the area in dispute. It is claimed that such admissions are tantamount to an admission

xxx

that respondents have a rightful claim of ownership to the subject property warranting a summary judgment in their favor.

WHEREAS : It is the desire of Party "B" to purchase a portion of a parcel of land owned by Party "A" and which portion consist of

Prompt and expeditious resolution of cases have always been an underlying policy of the Court. For this reason, certain rules under

28,958 sq.m. and specifically described as lot 5536-C of the Subdivision Plan of Lot 5536 of Imus Estate as surveyed for Antero Q.

the Rules of Court are designed to shorten the procedure in order to allow the speedy disposition of a case. Some of these are Rule

Soriano and covered by TCT 125062 issued by the Register of Deeds of the Province of Cavite and which portion is shown in Annex

33 on Demurrer to Evidence, Rule 34 on Judgment on the Pleadings and Rule 35 on Summary Judgments. In all these instances, full-

"A" hereof.

blown trial of a case is dispensed with and judgment is rendered on the basis of the pleadings, supporting affidavits, depositions and

xxx

admissions of the parties.

Equally significant is the fact that in the same Answer, petitioner likewise admitted that the relocation survey conducted by geodetic

Under Rule 35 of the 1997 Rules of Civil Procedure, except as to the amount of damages, when there is no genuine issue as to any

engineers of both parties disclosed that indeed there were two encroachments, i.e.

material fact and the moving party is entitled to a judgment as a matter of law, summary judgment may be allowed. 3 Summary or

1) encroachment at the eastern frontage of Lot 5536-C by the national road; and

accelerated judgment is a procedural technique aimed at weeding out sham claims or defenses at an early stage of the litigation

2) encroachment by defendant (petitioner) EVADEL on the northern side of sold Lot 5536-C. 8

thereby avoiding the expense and loss of time involved in a trial.4

and that the second area encroached upon was denominated as Lot 5536-D-1 of the subdivision plan of Lot 5536-D of Psd-04-092419

The law itself determines when a summary judgment is proper. Under the rules, summary judgment is appropriate when there are no

and later on segregated from the mother title and issued a new transfer certificate of title, TCT No. 769166, during the pendency of the

genuine issues of fact which call for the presentation of evidence in a full-blown trial. Even if on their face the pleadings appear to raise

case before the trial court.

issues, when the affidavits, depositions and admissions show that such issues are not genuine, then summary judgment as prescribed

With the foregoing admissions by petitioner, clearly, there is no genuine issue of fact as to ownership of the subject property because

by the rules must ensue as a matter of law. What is crucial for determination, therefore, is the presence or absence of a genuine issue

the said admissions made by petitioner in its Answer are tantamount to an admission that respondent spouses owned the property in

as to any material fact.5

question. The CA thus correctly affirmed the trial court as it summarily resolved the issue of ownership of the subject property in favor

A "genuine issue" is an issue of fact which require the presentation of evidence as distinguished from a sham, fictitious, contrived or

of respondent spouses.

false claim. When the facts as pleaded appear uncontested or undisputed, then there is no real or genuine issue or question as to the
facts, and summary judgment is called for. The party who moves for summary judgment has the burden of demonstrating clearly the

Petitioner, however, maintains that the issue of whether or not it was a builder in good faith should not have been peremptorily

In the instant case, there was no express novation because the "second" agreement was not even put in writing.15Neither was there

disposed of by the trial court. Petitioner decries the fact that it was not given an opportunity to submit evidence to establish good faith

implied novation since it was not shown that the two agreements were materially and substantially incompatible with each other. We

as regards the improvements it introduced on respondent spouses property.

quote with approval the following findings of the trial court:

Petitioners contention is untenable. As correctly pointed out by the trial court and the CA, petitioner already admitted in its Amended

Since the alleged agreement between the plaintiffs [herein respondents] and defendant [herein petitioner] is not in writing and the

Answer that the lot in dispute is covered by TCT No. T-769166 of respondent spouses. With this admission, petitioner can no longer

alleged agreement pertains to the novation of the conditions of the contract to sell of the parcel of land subject of the instant

claim that it was a builder in good faith. Good faith consists in the belief of the builder that the land he is building on is his and his

litigation, ipso facto, novation is not applicable in this case since, as stated above, novation must be clearly proven by the proponent

ignorance of any defect or flaw in his title.9 In this case, since petitioner, by its own admission, had knowledge of respondent spouses

thereof and the defendant in this case is clearly barred by the Statute of Frauds from proving its claim.16

title over the subject lot, it was clearly in bad faith when it introduced improvements thereon.

In fine, the CA correctly affirmed the summary judgment rendered by the trial court. Considering the parties allegations and

Further, the contract to sell10 between petitioner and respondent spouses, the genuineness and due execution thereof was admitted

admissions in their respective pleadings filed with the court a quo, there existed no genuine issue as to any material fact so that

by petitioner, clearly delineated the metes and bounds of the lot subject thereof. Attached to the said contract was a graphic illustration

respondent spouses as movants therein were entitled to a judgment as a matter of law.

of the lot purchased by petitioner including a technical description thereof. Petitioner, as a real estate developer, is presumed to be

WHEREFORE, premises considered, the instant Petition is hereby DENIED for lack of merit. The assailed Decision, dated August 3,

experienced in its business and ought to have sufficient technical expertise to correctly determine the metes and bounds of the lands it

2000, of the Court of Appeals is AFFIRMED in toto.

acquires. Despite this, petitioner still introduced improvements on the lot not covered by the contract to sell. Petitioners bad faith had

SO ORDERED.

been duly established by the pleadings and there was thus no need to further conduct any trial on the matter. Our ruling

G.R. No. 191247

in Congregation of the Religious of the Virgin Mary vs. Court of Appeals11is particularly instructive:

FRANCISCO L. ROSARIO, JR., Petitioner, vs. LELLANI DE GUZMAN, ARLEEN DE GUZMAN, PHILIP RYAN DE GUZMAN, and

x x x As discussed earlier, petitioner has no right whatsoever to possess and construct permanent structures on the questioned land

ROSELLA DE GUZMANBAUTISTA, Respondents.

owned by respondents-spouses. Petitioner admits in its answer to the complaint that it introduced improvements on the subject lot
without the consent and knowledge of respondents-spouses. It is thus a builder in bad faith. Again, we find no reversible error in the
following ruling of the respondent court:
"Which leads us to a discussion of whether or not appellant was in bad faith in introducing improvements on the subject land. It cannot
be denied that appellant never gained title to the subject land as it admits to not having purchased the said lot (TSN, p. 81, November
9, 1992). Neither has appellant successfully shown any right to introduce improvements on the said land (its claim of grant of perpetual
use of the same as a road lot and its right to build on a right of way both having been rejected above). This being so, it follows that
appellant was a builder in bad faith in that, knowing that the land did not belong to it and that it had no right to build thereon, it
nevertheless caused the improvements in question to be erected."12
Finally, petitioners claim that there was a novation of contract because there was a "second" agreement between the parties due to
the encroachment made by the national road on the property subject of the contract by 1,647 square meters, is unavailing. Novation,
one of the modes of extinguishing an obligation, requires the concurrence of the following: (1) there is a valid previous obligation; (2)
the parties concerned agree to a new contract; (3) the old contract is extinguished; and (4) there is valid new contract. 13 Novation may
be express or implied. In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be
so declared in unequivocal terms (express novation) or that the old and the new obligations be on every point incompatible with each
other (implied novation).14

July 10, 2013

DECISION
MENDOZA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside the November 23, 20091 and the February
11, 20102 Orders of the Regional Trial Court, Branch 7, Manila (RTC), in Civil Case No. 89-50138, entitled "Loreta A. Chong v. Sps.
Pedro and Rosita de Guzman," denying the Motion to Determine Attorney's Fees filed by the petitioner.
The Facts
Sometime in August 1990, Spouses Pedro and Rosita de Guzman (Spouses de Guzman) engaged the legal services of Atty.
Francisco L. Rosario, Jr. (petitioner) as defense counsel in the complaint filed against them by one Loreta A. Chong (Chong) for
annulment of contract and recovery of possession with damages involving a parcel of
land in Paraaque City, covered by Transfer Certificate of Title (TCT) No. 1292, with an area of 266 square meters, more or less.
Petitioners legal services commenced from the RTC and ended up in this Court.3Spouses de Guzman, represented by petitioner, won
their case at all levels. While the case was pending before this Court, Spouses de Guzman died in a vehicular accident. Thereafter,
they were substituted by their children, namely: Rosella de Guzman-Bautista, Lellani de Guzman, Arleen de Guzman, and Philip Ryan
de Guzman (respondents).4
On September 8, 2009, petitioner filed the Motion to Determine Attorneys Fees5 before the RTC. He alleged, among others, that he
had a verbal agreement with the deceased Spouses de Guzman that he would get 25% of the market value of the subject land if the
complaint filed against them by Chong would be dismissed. Despite the fact that he had successfully represented them, respondents

refused his written demand for payment of the contracted attorneys fees. Petitioner insisted that he was entitled to an amount

Preliminarily, the Court notes that the petitioner filed this petition for review on certiorari under Rule 45 of the Rules of Court because

equivalent to 25% percent of the value of the subject land on the basis of quantum meruit.

of the denial of his motion to determine attorneys fees by the RTC. Apparently, the petitioner pursued the wrong remedy. Instead of a

On November 23, 2009, the RTC rendered the assailed order denying petitioners motion on the ground that it was filed out of time.

petition for review under Rule 45, he should have filed a petition for certiorari under Rule 65 because this case involves an error of

The RTC stated that the said motion was filed after the judgment rendered in the subject case, as affirmed by this Court, had long

jurisdiction or grave abuse of discretion on the part of the trial court.

become final and executory on October 31, 2007. The RTC wrote that considering that the motion was filed too late, it had already lost

Moreover, petitioner violated the doctrine of hierarchy of courts which prohibits direct resort to this Court unless the appropriate

jurisdiction over the case because a final decision could not be amended or corrected except for clerical errors or mistakes. There

remedy cannot be obtained in the lower tribunals.9 In this case, petitioner should have first elevated the case to the Court of Appeals

would be a variance of the judgment rendered if his claim for attorneys fees would still be included.

(CA) which has concurrent jurisdiction, together with this Court, over special civil actions for certiorari.10 Even so, this principle is not

Petitioner filed a motion for reconsideration, but it was denied by the RTC for lack of merit. Hence, this petition.

absolute and admits of certain exceptions, such as in this case, when it is demanded by the broader interest of justice.11

The Issues

Indeed, on several occasions, this Court has allowed a petition to prosper despite the utilization of an improper remedy with the

This petition is anchored on the following grounds:

reasoning that the inflexibility or rigidity of the application of the rules of procedure must give way to serve the higher ends of justice.

The strict application of procedural technicalities should not hinder the speedy disposition of the case on the merits.12 Thus, this Court

THE TRIAL COURT COMMITTED A REVERSIBLE ERROR IN DENYING THE MOTION TO DETERMINE ATTORNEYS FEES ON

deems it expedient to consider this petition as having been filed under Rule 65.

THE GROUND THAT IT LOST JURISDICTION OVER THE CASE SINCE THE JUDGMENT IN THE CASE HAS BECOME FINAL AND

With respect to the merits of the case, the Court finds in favor of petitioner.

EXECUTORY;

In order to resolve the issues in this case, it is necessary to discuss the two concepts of attorneys fees ordinary and extraordinary. In

II

its ordinary sense, it is the reasonable compensation paid to a lawyer by his client for legal services rendered. In its extraordinary

THE TRIAL COURT SERIOUSLY ERRED IN DECLARING THAT PETITIONERS CLAIM FOR ATTORNEYS FEES WOULD RESULT

concept, it is awarded by the court to the successful litigant to be paid by the losing party as indemnity for damages. 13 Although both

IN A VARIANCE OF THE JUDGMENT THAT HAS LONG BECOME FINAL AND EXECUTORY;

concepts are similar in some respects, they differ from each other, as further explained below:

III

The attorneys fee which a court may, in proper cases, award to a winning litigant is, strictly speaking, an item of damages. It differs

THE TRIAL COURT ERRED IN NOT DECLARING THAT THE FINALITY OF THE DECISION DID NOT BAR PETITIONER FROM

from that which a client pays his counsel for the latters professional services. However, the two concepts have many things in

FILING THE MOTION TO RECOVER HIS ATTORNEYS FEES.6

common that a treatment of the subject is necessary. The award that the court may grant to a successful party by way of attorneys fee

Petitioner claims that Spouses de Guzman engaged his legal services and orally agreed to pay him 25% of the market value of the

is an indemnity for damages sustained by him in prosecuting or defending, through counsel, his cause in court. It may be decreed in

subject land. He argues that a motion to recover attorneys fees can be filed and entertained by the court before and after the

favor of the party, not his lawyer, in any of the instances authorized by law. On the other hand, the attorneys fee which a client pays

judgment becomes final.

his counsel refers to the compensation for the latters services. The losing party against whom damages by way of attorneys fees may

Moreover, his oral contract with the deceased spouses can be considered a quasi-contract upon which an action can be commenced

be assessed is not bound by, nor is his liability dependent upon, the fee arrangement of the prevailing party with his lawyer. The

within six (6) years, pursuant to Article 1145 of the Civil Code. Because his motion was filed on September 8, 2009, he insists that it

amount stipulated in such fee arrangement may, however, be taken into account by the court in fixing the amount of counsel fees as

was not yet barred by prescription.7

an element of damages.

For their part, respondents counter that the motion was belatedly filed and, as such, it could no longer be granted. In addition, the RTC

The fee as an item of damages belongs to the party litigant and not to his lawyer. It forms part of his judgment recoveries against the

had already resolved the issue when it awarded the amount of 10,000.00 as attorneys fees. Respondents further assert that the law,

losing party. The client and his lawyer may, however, agree that whatever attorneys fee as an element of damages the court may

specifically Article 2208 of the Civil Code, allows the recovery of attorneys fees under a written agreement. The alleged understanding

award shall pertain to the lawyer as his compensation or as part thereof. In such a case, the court upon proper motion may require the

between their deceased parents and petitioner, however, was never put in writing. They also aver that they did not have any

losing party to pay such fee directly to the lawyer of the prevailing party.

knowledge or information about the existence of an oral contract, contrary to petitioners claims. At any rate, the respondents believe

The two concepts of attorneys fees are similar in other respects. They both require, as a prerequisite to their grant, the intervention of

that the amount of 25% of the market value of the lot is excessive and unconscionable.8

or the rendition of professional services by a lawyer. As a client may not be held liable for counsel fees in favor of his lawyer who never

The Courts Ruling

rendered services, so too may a party be not held liable for attorneys fees as damages in favor of the winning party who enforced his

rights without the assistance of counsel. Moreover, both fees are subject to judicial control and modification. And the rules governing

months from the finality of the RTC decision. Because petitioner claims to have had an oral contract of attorneys fees with the

the determination of their reasonable amount are applicable in one as in the other.14 [Emphasis and underscoring supplied]

deceased spouses, Article 1145 of the Civil Code16 allows him a period of six (6) years within which to file an action to recover

In the case at bench, the attorneys fees being claimed by the petitioner refers to the compensation for professional services rendered,

professional fees for services rendered. Respondents never asserted or provided any evidence that Spouses de Guzman refused

and not as indemnity for damages. He is demanding payment from respondents for having successfully handled the civil case filed by

petitioners legal representation. For this reason, petitioners cause of action began to run only from the time the respondents refused

Chong against Spouses de Guzman. The award of attorneys fees by the RTC in the amount of P10,000.00 in favor of Spouses de

to pay him his attorneys fees, as similarly held in the case of Anido v. Negado:17

Guzman, which was subsequently affirmed by the CA and this Court, is of no moment. The said award, made in its extraordinary

In the case at bar, private respondents allegation in the complaint that petitioners refused to sign the contract for legal services in

concept as indemnity for damages, forms part of the judgment recoverable against the losing party and is to be paid directly to

October 1978, and his filing of the complaint only on November 23, 1987 or more than nine years after his cause of action arising from

Spouses de Guzman (substituted by respondents) and not to petitioner. Thus, to grant petitioners motion to determine attorneys fees

the breach of the oral contract between him and petitioners point to the conclusion that the six-year prescriptive period within which to

would not result in a double award of attorneys fees. And, contrary to the RTC ruling, there would be no amendment of a final and

file an action based on such oral contract under Article 1145 of the Civil Code had already lapsed.

executory decision or variance in judgment.

As a lawyer, private respondent should have known that he only had six years from the time petitioners refused to sign the contract for

The Court now addresses two (2) important questions: (1) How can attorneys fees for professional services be recovered? (2) When

legal services and to acknowledge that they had engaged his services for the settlement of their parents estate within which to file his

can an action for attorneys fees for professional services be filed? The case of Traders Royal Bank Employees Union-Independent v.

complaint for collection of legal fees for the services which he rendered in their favor. [Emphases supplied]

NLRC15 is instructive:

At this juncture, having established that petitioner is entitled to attorneys fees and that he filed his claim well within the prescribed

As an adjunctive episode of the action for the recovery of bonus differentials in NLRC-NCR Certified Case No. 0466, private

period, the proper remedy is to remand the case to the RTC for the determination of the correct amount of attorneys fees. Such a

respondents present claim for attorneys fees may be filed before the NLRC even though or, better stated, especially after its earlier

procedural route, however, would only contribute to the delay of the final disposition of the controversy as any ruling by the trial court

decision had been reviewed and partially affirmed. It is well settled that a claim for attorneys fees may be asserted either in the very

on the matter would still be open for questioning before the CA and this Court. In the interest of justice, this Court deems it prudent to

action in which the services of a lawyer had been rendered or in a separate action.

suspend the rules and simply resolve the matter at this level. The Court has previously exercised its discretion in the same way in

With respect to the first situation, the remedy for recovering attorneys fees as an incident of the main action may be availed of only

National Power Corporation v. Heirs of Macabangkit Sangkay:18

when something is due to the client. Attorneys fees cannot be determined until after the main litigation has been decided and the

In the event of a dispute as to the amount of fees between the attorney and his client, and the intervention of the courts is sought, the

subject of the recovery is at the disposition of the court. The issue over attorneys fees only arises when something has been

determination requires that there be evidence to prove the amount of fees and the extent and value of the services rendered, taking

recovered from which the fee is to be paid.

into account the facts determinative thereof. Ordinarily, therefore, the determination of the attorneys fees on quantum meruit is

While a claim for attorneys fees may be filed before the judgment is rendered, the determination as to the propriety of the fees or as to

remanded to the lower court for the purpose. However, it will be just and equitable to now assess and fix the attorneys fees of both

the amount thereof will have to be held in abeyance until the main case from which the lawyers claim for attorneys fees may arise has

attorneys in order that the resolution of "a comparatively simple controversy," as Justice Regalado put it in Traders Royal Bank

become final. Otherwise, the determination to be made by the courts will be premature. Of course, a petition for attorneys fees may be

Employees Union-Independent v. NLRC, would not be needlessly prolonged, by taking into due consideration the accepted guidelines

filed before the judgment in favor of the client is satisfied or the proceeds thereof delivered to the client.

and so much of the pertinent data as are extant in the records.19 [Emphasis supplied]

It is apparent from the foregoing discussion that a lawyer has two options as to when to file his claim for professional fees. Hence,

With respect to petitioners entitlement to the claimed attorneys fees, it is the Courts considered view that he is deserving of it and

private respondent was well within his rights when he made his claim and waited for the finality of the judgment for holiday pay

that the amount should be based on quantum meruit.

differential, instead of filing it ahead of the awards complete resolution. To declare that a lawyer may file a claim for fees in the same

Quantum meruit literally meaning as much as he deserves is used as basis for determining an attorneys professional fees in the

action only before the judgment is reviewed by a higher tribunal would deprive him of his aforestated options and render ineffective the

absence of an express agreement. The recovery of attorneys fees on the basis of quantum meruit is a device that prevents an

foregoing pronouncements of this Court. [Emphases and underscoring supplied]

unscrupulous client from running away with the fruits of the legal services of counsel without paying for it and also avoids unjust

In this case, petitioner opted to file his claim as an incident in the main action, which is permitted by the rules. As to the timeliness of

enrichment on the part of the attorney himself. An attorney must show that he is entitled to reasonable compensation for the effort in

the filing, this Court holds that the questioned motion to determine attorneys fees was seasonably filed.

pursuing the clients cause, taking into account certain factors in fixing the amount of legal fees.20

The records show that the August 8, 1994 RTC decision became final and executory on October 31, 2007. 1wphi1 There is no dispute

Rule 20.01 of the Code of Professional Responsibility lists the guidelines for determining the proper amount of attorney fees, to wit:

that petitioner filed his Motion to Determine Attorneys Fees on September 8, 2009, which was only about one (1) year and eleven (11)

Rule 20.1 A lawyer shall be guided by the following factors in determining his fees:

a) The time spent and the extent of the services rendered or required;

WHEREFORE, the petition is GRANTED. Accordingly, the Court grants the Motion to Determine Attorney's Fees filed by petitioner Atty.

b) The novelty and difficulty of the questions involved;

Francisco L. Rosario, Jr. Based on quantum meruit, the amount of attorney's fees is at the rate of 15% of the market value of the

c) The importance of the subject matter;

parcel of land, covered by Transfer Certificate of Title No. 1292, at the time of payment.

d) The skill demanded;

SO ORDERED.

e) The probability of losing other employment as a result of acceptance of the proffered case;
f) The customary charges for similar services and the schedule of fees of the IBP chapter to which he belongs;
g) The amount involved in the controversy and the benefits resulting to the client from the service;
h) The contingency or certainty of compensation;
i) The character of the employment, whether occasional or established; and
j) The professional standing of the lawyer.
Petitioner unquestionably rendered legal services for respondents deceased parents in the civil case for annulment of contract and
recovery of possession with damages. He successfully represented Spouses de Guzman from the trial court level in 1990 up to this
Court in 2007, for a lengthy period of 17 years. After their tragic death in 2003, petitioner filed a notice of death and a motion for
substitution of parties with entry of appearance and motion to resolve the case before this Court. 21 As a consequence of his efforts,
the respondents were substituted in the place of their parents and were benefited by the favorable outcome of the case.
As earlier mentioned, petitioner served as defense counsel for deceased Spouses de Guzman and respondents for almost seventeen
(17) years. The Court is certain that it was not an easy task for petitioner to defend his clients cause for such a long period of time,
considering the heavy and demanding legal workload of petitioner which included the research and preparation of pleadings, the
gathering of documentary proof, the court appearances, and the various legal work necessary to the defense of Spouses de Guzman.
It cannot be denied that petitioner devoted much time and energy in handling the case for respondents. Given the considerable
amount of time spent, the diligent effort exerted by petitioner, and the quality of work shown by him in ensuring the successful defense
of his clients, petitioner clearly deserves to be awarded reasonable attorneys fees for services rendered. Justice and equity dictate
that petitioner be paid his professional fee based on quantum meruit.
The fact that the practice of law is not a business and the attorney plays a vital role in the administration of justice underscores the
need to secure him his honorarium lawfully earned as a means to preserve the decorum and respectability of the legal profession. A
lawyer is as much entitled to judicial protection against injustice, imposition or fraud on the part of his client as the client against abuse
on the part of his counsel. The duty of the court is not alone to see that a lawyer acts in a proper and lawful manner; it is also its duty
to see that a lawyer is paid his just fees. With his capital consisting of his brains and with his skill acquired at tremendous cost not only
in money but in expenditure of time and energy, he is entitled to the protection of any judicial tribunal against any attempt on the part of
his client to escape payment of his just compensation. It would be ironic if after putting forth the best in him to secure justice for his
client he himself would not get his due.22
The Court, however, is resistant in granting petitioner's prayer for an award of 25% attorney's fees based on the value of the property
subject of litigation because petitioner failed to clearly substantiate the details of his oral agreement with Spouses de Guzman. A fair
and reasonable amount of attorney's fees should be 15% of the market value of the property.

G.R. No. 159213

July 3, 2013

VECTOR SHIPPING CORPORATION and FRANCISCO SORIANO, Petitioners,

vs. AMERICAN HOME ASSURANCE COMPANY and SULPICIO LINES, INC., Respondents.
DECISION
BERSAMIN, J.:
Subrogation under Article 2207 of the Civil Code gives rise to a cause of action created by law. For purposes of the law on the
prescription of actions, the period of limitation is ten years.
The Case
Vector Shipping Corporation (Vector) and Francisco Soriano appeal the decision promulgated on July 22, 2003,1whereby the Court of
Appeals (CA) held them jointly and severally liable to pay P7 ,455,421.08 to American Home Assurance Company (respondent) as and
by way of actual damages on the basis of respondent being the subrogee of its insured Caltex Philippines, Inc. (Caltex).
Antecedents
Vector was the operator of the motor tanker M/T Vector, while Soriano was the registered owner of the M/T Vector. Respondent is a
domestic insurance corporation.2
On September 30, 1987, Caltex entered into a contract of Affreightment3 with Vector for the transport of Caltexs petroleum cargo
through the M/T Vector. Caltex insured the petroleum cargo with respondent for P7,455,421.08 under Marine Open Policy No. 345093-6.4 In the evening of December 20, 1987, the M/T Vector and the M/V Doa Paz, the latter a vessel owned and operated by
Sulpicio Lines, Inc., collided in the open sea near Dumali Point in Tablas Strait, located between the Provinces of Marinduque and
Oriental Mindoro. The collision led to the sinking of both vessels. The entire petroleum cargo of Caltex on board the M/T Vector
perished.5 On July 12, 1988, respondent indemnified Caltex for the loss of the petroleum cargo in the full amount of P7,455,421.08.6
On March 5, 1992, respondent filed a complaint against Vector, Soriano, and Sulpicio Lines, Inc. to recover the full amount
of P7,455,421.08 it paid to Caltex (Civil Case No. 92-620).7 The case was raffled to Branch 145 of the Regional Trial Court (RTC) in
Makati City.
On December 10, 1997, the RTC issued a resolution dismissing Civil Case No. 92-620 on the following grounds:
This action is upon a quasi-delict and as such must be commenced within four 4 years from the day they may be brought. [Art. 1145 in
relation to Art. 1150, Civil Code] "From the day [the action] may be brought" means from the day the quasi-delict occurred. [Capuno v.
Pepsi Cola, 13 SCRA 663]
The tort complained of in this case occurred on 20 December 1987. The action arising therefrom would under the law prescribe,
unless interrupted, on 20 December 1991.

When the case was filed against defendants Vector Shipping and Francisco Soriano on 5 March 1992, the action not having been

within a period of 10 years because the ticket issued for the transportation is by itself a complete written contract (Peralta de Guerrero

interrupted, had already prescribed.

vs. Madrigal Shipping Co., L 12951, November 17, 1959).

Under the same situation, the cross-claim of Sulpicio Lines against Vector Shipping and Francisco Soriano filed on 25 June 1992 had

Viewed with reference to the statute of limitations, an action against a carrier, whether of goods or of passengers, for injury resulting

likewise prescribed.

from a breach of contract for safe carriage is one on contract, and not in tort, and is therefore, in the absence of a specific statute

The letter of demand upon defendant Sulpicio Lines allegedly on 6 November 1991 did not interrupt the tolling of the prescriptive

relating to such actions governed by the statute fixing the period within which actions for breach of contract must be brought (53 C.J.S.

period since there is no evidence that it was actually received by the addressee. Under such circumstances, the action against

1002 citing Southern Pac. R. Co. of Mexico vs. Gonzales 61 P. 2d 377, 48 Ariz. 260, 106 A.L.R. 1012).

Sulpicio Lines had likewise prescribed.

Considering that We have already concluded that the prescriptive periods for filing action against M/V Doa Paz based on quasi delict

Even assuming that such written extra-judicial demand was received and the prescriptive period interrupted in accordance with Art.

and M/T Vector based on breach of contract have not yet expired, are We in a position to decide the appeal on its merit.

1155, Civil Code, it was only for the 10-day period within which Sulpicio Lines was required to settle its obligation. After that period

We say yes.

lapsed, the prescriptive period started again. A new 4-year period to file action was not created by the extra-judicial demand; it merely

xxxx

suspended and extended the period for 10 days, which in this case meant that the action should be commenced by 30 December

Article 2207 of the Civil Code on subrogation is explicit that if the plaintiffs property has been insured, and he has received indemnity

1991, rather than 20 December 1991.

from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company

Thus, when the complaint against Sulpicio Lines was filed on 5 March 1992, the action had prescribed.

should be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. Undoubtedly, the

PREMISES CONSIDERED, the complaint of American Home Assurance Company and the cross-claim of Sulpicio Lines against

herein appellant has the rights of a subrogee to recover from M/T Vector what it has paid by way of indemnity to Caltex.

Vector Shipping Corporation and Francisco Soriano are DISMISSED.

WHEREFORE, foregoing premises considered, the decision dated December 10, 1997 of the RTC of Makati City, Branch 145 is

Without costs.

hereby REVERSED. Accordingly, the defendant-appellees Vector Shipping Corporation and Francisco Soriano are held jointly and

SO ORDERED.8

severally liable to the plaintiff-appellant American Home Assurance Company for the payment of P7,455,421.08 as and by way of

Respondent appealed to the CA, which promulgated its assailed decision on July 22, 2003 reversing the RTC.9Although thereby

actual damages.

absolving Sulpicio Lines, Inc. of any liability to respondent, the CA held Vector and Soriano jointly and severally liable to respondent for

SO ORDERED.10

the reimbursement of the amount of P7,455,421.08 paid to Caltex, explaining:

Respondent sought the partial reconsideration of the decision of the CA, contending that Sulpicio Lines, Inc. should also be held jointly

xxxx

liable with Vector and Soriano for the actual damages awarded.11 On their part, however, Vector and Soriano immediately appealed to

The resolution of this case is primarily anchored on the determination of what kind of relationship existed between Caltex and M/V

the Court on September 12, 2003.12 Thus, on October 1, 2003, the CA held in abeyance its action on respondents partial motion for

Dona Paz and between Caltex and M/T Vector for purposes of applying the laws on prescription. The Civil Code expressly provides for

reconsideration pursuant to its internal rules until the Court has resolved this appeal.13

the number of years before the extinctive prescription sets in depending on the relationship that governs the parties.

Issues

xxxx

The main issue is whether this action of respondent was already barred by prescription for bringing it only on March 5, 1992. A related

After a careful perusal of the factual milieu and the evidence adduced by the parties, We are constrained to rule that the relationship

issue concerns the proper determination of the nature of the cause of action as arising either from a quasi-delict or a breach of

that existed between Caltex and M/V Dona Paz is that of a quasi-delict while that between Caltex and M/T Vector is culpa contractual

contract.

based on a Contract of Affreightment or a charter party.

The Court will not pass upon whether or not Sulpicio Lines, Inc. should also be held jointly liable with Vector and Soriano for the actual

xxxx

damages claimed.

On the other hand, the claim of appellant against M/T Vector is anchored on a breach of contract of affreightment. The appellant

Ruling

averred that M/T Vector committed such act for having misrepresented to the appellant that said vessel is seaworthy when in fact it is

The petition lacks merit.

not. The contract was executed between Caltex and M/T Vector on September 30, 1987 for the latter to transport thousands of barrels

Vector and Soriano posit that the RTC correctly dismissed respondents complaint on the ground of prescription. They insist that this

of different petroleum products. Under Article 1144 of the New Civil Code, actions based on written contract must be brought within 10

action was premised on a quasi-delict or upon an injury to the rights of the plaintiff, which, pursuant to Article 1146 of the Civil Code,

years from the time the right of action accrued. A passenger of a ship, or his heirs, can bring an action based on culpa contractual

must be instituted within four years from the time the cause of action accrued; that because respondents cause of action accrued on

December 20, 1987, the date of the collision, respondent had only four years, or until December 20, 1991, within which to bring its

pursuant to Article 2207, supra, was "not dependent upon, nor did it grow out of, any privity of contract or upon written assignment of

action, but its complaint was filed only on March 5, 1992, thereby rendering its action already barred for being commenced beyond the

claim but accrued simply upon payment of the insurance claim by the insurer."

four-year prescriptive period;14 and that there was no showing that respondent had made extrajudicial written demands upon them for

Considering that the cause of action accrued as of the time respondent actually indemnified Caltex in the amount of P7,455,421.08 on

the reimbursement of the insurance proceeds as to interrupt the running of the prescriptive period.15

July 12, 1988,19 the action was not yet barred by the time of the filing of its complaint on March 5, 1992, 20 which was well within the

We concur with the CAs ruling that respondents action did not yet prescribe. The legal provision governing this case was not Article

10-year period prescribed by Article 1144 of the Civil Code.

1146 of the Civil Code,16 but Article 1144 of the Civil Code, which states:

The insistence by Vector and Soriano that the running of the prescriptive period was not interrupted because of the failure of

Article 1144. The following actions must be brought within ten years from the time the cause of action accrues:

respondent to serve any extrajudicial demand was rendered inconsequential by our foregoing finding that respondents cause of action

(1)Upon a written contract;

was not based on a quasi-delict that prescribed in four years from the date of the collision on December 20, 1987, as the RTC

(2)Upon an obligation created by law;

misappreciated, but on an obligation created by law, for which the law fixed a longer prescriptive period of ten years from the accrual of

(3)Upon a judgment.

the action.

We need to clarify, however, that we cannot adopt the CAs characterization of the cause of action as based on the contract of

Still, Vector and Soriano assert that respondent had no right of subrogation to begin with, because the complaint did not allege that

affreightment between Caltex and Vector, with the breach of contract being the failure of Vector to make the M/T Vector seaworthy, as

respondent had actually paid Caltex for the loss of the cargo. They further assert that the subrogation receipt submitted by respondent

to make this action come under Article 1144 (1), supra. Instead, we find and hold that that the present action was not upon a written

was inadmissible for not being properly identified by Ricardo C. Ongpauco, respondents witness, who, although supposed to identify

contract, but upon an obligation created by law. Hence, it came under Article 1144 (2) of the Civil Code. This is because the

the subrogation receipt based on his affidavit, was not called to testify in court; and that respondent presented only one witness in the

subrogation of respondent to the rights of Caltex as the insured was by virtue of the express provision of law embodied in Article 2207

person of Teresita Espiritu, who identified Marine Open Policy No. 34-5093-6 issued by respondent to Caltex.21

of the Civil Code, to wit:

We disagree with petitioners assertions. It is undeniable that respondent preponderantly established its right of subrogation. Its Exhibit

Article 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or

C was Marine Open Policy No. 34-5093-6 that it had issued to Caltex to insure the petroleum cargo against marine peril. 22 Its Exhibit

loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the

D was the formal written claim of Caltex for the payment of the insurance coverage of P7,455,421.08 coursed through respondents

insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully

adjuster.23 Its Exhibits E to H were marine documents relating to the perished cargo on board the M/V Vector that were processed for

cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.

the purpose of verifying the insurance claim of Caltex.24 Its Exhibit I was the subrogation receipt dated July 12, 1988 showing that

(Emphasis supplied)

respondent paid Caltex P7,455,421.00 as the full settlement of Caltexs claim under Marine Open Policy No. 34-5093-6. 25 All these

The juridical situation arising under Article 2207 of the Civil Code is well explained in Pan Malayan Insurance Corporation v. Court of

exhibits were unquestionably duly presented, marked, and admitted during the trial.26Specifically, Exhibit C was admitted as an

Appeals,17 as follows:

authentic copy of Marine Open Policy No. 34-5093-6, while Exhibits D, E, F, G, H and I, inclusive, were admitted as parts of the

Article 2207 of the Civil Code is founded on the well-settled principle of subrogation.1wphi1 If the insured property is destroyed or

testimony of respondents witness Efren Villanueva, the manager for the adjustment service of the Manila Adjusters and Surveyors

damaged through the fault or negligence of a party other than the assured, then the insurer, upon payment to the assured, will be

Company.27

subrogated to the rights of the assured to recover from the wrongdoer to the extent that the insurer has been obligated to pay.

Consistent with the pertinent law and jurisprudence, therefore, Exhibit I was already enough by itself to prove the payment

Payment by the insurer to the assured operates as an equitable assignment to the former of all remedies which the latter may have

of P7,455,421.00 as the full settlement of Caltexs claim.28 The payment made to Caltex as the insured being thereby duly

against the third party whose negligence or wrongful act caused the loss.1wphi1 The right of subrogation is not dependent upon, nor

documented, respondent became subrogated as a matter of course pursuant to Article 2207 of the Civil Code. In legal contemplation,

does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim

subrogation is the "substitution of another person in the place of the creditor, to whose rights he succeeds in relation to the debt;" and

by the insurer [Compania Maritima v. Insurance Company of North America, G.R. No. L-18965, October 30, 1964, 12 SCRA 213;

is "independent of any mere contractual relations between the parties to be affected by it, and is broad enough to cover every instance

Firemans Fund Insurance Company v. Jamilla & Company, Inc., G.R. No. L-27427, April 7, 1976, 70 SCRA 323].18

in which one party is required to pay a debt for which another is primarily answerable, and which in equity and conscience ought to be

Verily, the contract of affreightment that Caltex and Vector entered into did not give rise to the legal obligation of Vector and Soriano to

discharged by the latter."29

pay the demand for reimbursement by respondent because it concerned only the agreement for the transport of Caltexs petroleum

Lastly, Vector and Soriano argue that Caltex waived and abandoned its claim by not setting up a cross-claim against them in Civil

cargo. As the Court has aptly put it in Pan Malayan Insurance Corporation v. Court of Appeals, supra, respondents right of subrogation

Case No. 18735, the suit that Sulpicio Lines, Inc. had brought to claim damages for the loss of the M/V Doa Paz from them, Oriental

Assurance Company (as insurer of the M/T Vector), and Caltex; that such failure to set up its cross- claim on the part of Caltex, the

matured in December 1997, ONLINE applied the 28% interest on the unpaid amount. However, in view of the good business

real party in interest who had suffered the loss, left respondent without any better right than Caltex, its insured, to recover anything

relationship of the parties, ONLINE allegedly applied the interest on the balance for a period of three months only. Thus, the total

from them, and forever barred Caltex from asserting any claim against them for the loss of the cargo; and that respondent was

amount due, plus interest, was P3,012,636.17.8 FAT KEE subsequently made additional payments in the amount of P2,256,541.12. A

similarly barred from asserting its present claim due to its being merely the successor-in-interest of Caltex.

balance of P756,095.05, thus, remained according to ONLINEs computations. Despite repeated demands, FAT KEE failed to pay its

The argument of Vector and Soriano would have substance and merit had Civil Case No. 18735 and this case involved the same

obligations to ONLINE without any valid reason. ONLINE was allegedly constrained to send a final demand letter for the payment of

parties and litigated the same rights and obligations. But the two actions were separate from and independent of each other. Civil Case

the aforementioned balance. As FAT KEE still ignored the demand, ONLINE instituted the instant case, praying that FAT KEE be

No. 18735 was instituted by Sulpicio Lines, Inc. to recover damages for the loss of its M/V Doa Paz. In contrast, this action was

ordered to pay the principal amount of P756,095.05, plus 28% interest per annum computed from July 28, 1998 until full payment.

brought by respondent to recover from Vector and Soriano whatever it had paid to Caltex under its marine insurance policy on the

ONLINE likewise sought the payment of 25% of the total amount due as attorneys fees, as well as litigation expenses and costs of

basis of its right of subrogation. With the clear variance between the two actions, the failure to set up the cross-claim against them in

suit.

Civil Case No. 18735 is no reason to bar this action.

FAT KEE duly answered9 the complaint alleging, inter alia, that it did not reach an agreement with ONLINE for the payment of its

WHEREFORE, the Court DENIES the petition for review on certiorari; AFFIRMS the decision promulgated on July 22, 2003; and

obligations in US dollars. FAT KEE claimed that the invoice receipts of the computer printers, which quoted the purchase price in US

ORDERS petitioners to pay the costs of suit.

dollars, were unilaterally prepared by ONLINE. While FAT KEE admitted that it offered to pay its obligations in Philippine pesos, it

SO ORDERED.

averred that the amount owing to ONLINE was onlyP5,067,925.34, as reflected in the Statement of Account (SOA) sent by ONLINE
dated December 9, 1997.10 FAT KEE stated that payments in Philippine pesos were tendered to ONLINE, in accordance with the

G.R. No. 171238

February 2, 2011

SOA, and the latter accepted the same. FAT KEE denied that it agreed to the conversion rate of P40:US$1 and claimed that it had

F.A.T. KEE COMPUTER SYSTEMS, INC., Petitioner, vs. ONLINE NETWORKS INTERNATIONAL, INC., Respondent.

already fully paid its total obligations to ONLINE. FAT KEE, thus, prayed for the dismissal of the complaint and, by way of

DECISION

counterclaim, sought the payment of P250,000.00 as attorneys fees.

LEONARDODE CASTRO, J.:

The trial of the case ensued thereafter.

For consideration of the Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, which seeks to challenge the

ONLINE first called Peter Jeoffrey Goco to the witness stand. Goco testified that he was the Legal Officer of ONLINE, whose duty was

Decision2 dated September 26, 2005 of the Court of Appeals in CA-G.R. CV No. 71910. The appellate court reversed and set aside

to monitor the outstanding or unpaid accounts of ONLINEs clients, as well as to send demand letters and recommend the filing of

the Decision3 dated November 7, 2000 of the Regional Trial Court (RTC) of Makati City, Branch 148, in Civil Case No. 99-167, which

cases should the clients fail to pay.11 FAT KEE was one of the clients of ONLINE, which had an outstanding balance of a little

dismissed the complaint filed by herein respondent Online Networks International, Inc. (ONLINE).

over P756,000.00.12 Goco stated that the invoice receipts sent to FAT KEE were denominated in US dollars as the business of

Petitioner F.A.T. Kee Computer Systems, Inc. (FAT KEE) is a domestic corporation engaged in the business of selling computer

ONLINE was to sell imported computer products, in wholesale and retail. In view of the currency fluctuations during those times,

equipment and conducting maintenance services for the units it sold.

ONLINE deemed that the better business policy was to bill their clients in US dollars. 13 FAT KEE allegedly had an outstanding

ONLINE is also a domestic corporation principally engaged in the business of selling computer units, parts and software.

balance of roughly around US$136,000.00.14 When ONLINE demanded payment, FAT KEE negotiated that it be allowed to pay in

On January 25, 1999, ONLINE filed a Complaint4 for Sum of Money against FAT KEE docketed as Civil Case No. 99-167. ONLINE

Philippine pesos. Goco attested that the parties subsequently agreed to a conversion rate of P40:US$1. FAT KEE was able to remit

alleged that sometime in November 1997, it sold computer printers to FAT KEE for which the latter agreed to pay the purchase price of

partial payments to ONLINE, but as of May 1998, the amount of P756,095.05 remained unpaid.15 As FAT KEE failed to settle its

US$136,149.43. The agreement was evidenced by Invoice Nos. 4680, 4838, 5090 and 5096 5 issued by ONLINE to FAT KEE. The

obligations, ONLINE included the payment of interests on the latters claim.16 FAT KEE then sent a letter to ONLINE, insisting that

invoice receipts contained a stipulation that "interest at 28% per annum is to be charged on all accounts overdue" and "an additional

there was no agreement as to the exchange rate to be used in converting the unpaid obligations of FAT KEE and that the latter could

sum equal to 25% of the amount will be charged by vendor for attorneys fees plus cost of collection in case of suit."6 It was further

not pay because of the extraordinary currency fluctuations.17 The lawyers of ONLINE eventually sent a demand letter18 to FAT KEE

asserted in the Complaint that thereafter, FAT KEE, through its President Frederick Huang, Jr., offered to pay its US dollar obligations

for the payment of the outstanding balance, but this too went unheeded. ONLINE, thus, filed the instant case.19

in Philippine pesos using the exchange rate of P40:US$1. ONLINE claimed to have duly accepted the offer. The amount payable was

The next witness to be presented by ONLINE was James Payoyo, an Account Manager for the said company. Payoyo testified, among

then computed at P5,445,977.20. FAT KEE then made several payments amounting to P2,502,033.06 between the periods of March

others, that sometime in November 1997, FAT KEE submitted their Purchase Order 20 for Hewlett Packard computers and printers,

and May 1998.7 As of May 12, 1998, the balance of FAT KEE purportedly amounted to P2,943,944.14. As the obligations of FAT KEE

which was quoted in US dollars.21 Prior to this, FAT KEE likewise sent ONLINE a Purchase Order22 dated October 23, 1997 and the

same was denominated in US dollars.23 Payoyo related that, on January 15, 1998, the officials of ONLINE met with Frederick Huang,

As rebuttal evidence, ONLINE offered the testimony of Melissa Tan to prove that the SOA dated December 9, 1997 that was

Jr., the President of FAT KEE, and the latters lawyer. The parties discussed the payment scheme for the outstanding balance of FAT

purportedly issued by ONLINE was in fact unauthorized and FAT KEE was duly informed of the same. Tan stated that she was the

KEE. ONLINE proposed that the total unpaid amount of more than US$136,000.00 shall be divided in two, such that 50% of the

Credit and Collection Supervisor for ONLINE.43 Sometime in December 1997, Magpili showed her a copy of the SOA dated

amount was to be paid in US dollars and the other half was to be settled in Philippine pesos. The exchange rate to be applied to the

December 9, 1997, asking Tan if she approved the said document. Tan declared that she did not issue the SOA, nor was she even

Philippine peso component was P41:US$1.24 FAT KEE then offered to renegotiate the exchange rate, offering to pay P35:US$1, but

aware of its issuance.44 Tan explained that the absence of her signature on the SOA meant that the same was not authorized by

ONLINE rejected the same. According to Payoyo, the parties subsequently agreed to a P40:US$1 conversion rate.25

ONLINE. The standard procedure was for Tan to review and approve such documents first before the same were issued. 45 Tan noted

Lastly, ONLINE called on Sonia Magpili to likewise testify to the fact that FAT KEE renegotiated with ONLINE for the conversion rate

that the SOA was prepared by Edwin Morales, an Accountant of ONLINE. When confronted about the SOA, Morales reasoned that he

of P40:US$1. Magpili stated that she was then the Executive Vice President of ONLINE 26 and was among the company officials who

merely wanted to give FAT KEE an initial computation of the latters outstanding balance, but he mistakenly included the billings that

met with FAT KEE President Huang on January 15, 1998.27 Discussed in the meeting was the proposal to split the payment to be

were denominated in US dollars.46 At the meeting between ONLINE and FAT KEE on January 15, 1998, the latter was informed that

made by FAT KEE.28 Frederick Huang, Jr. subsequently called the office of ONLINE to request for the lowering of the exchange rate

the SOA was not official and the parties negotiated the applicable conversion rate.47 Upon cross-examination, Tan revealed that

to P40:US$1, to which ONLINE agreed.29 FAT KEE made partial payments from March 1998, but later tried to negotiate again for a

ONLINE did not rectify or correct the entries contained in the SOA. No disciplinary action was likewise taken against Morales for the

lower exchange rate. Magpili testified that ONLINE no longer agreed to this proposal as the account of FAT KEE had already fallen

unauthorized issuance of the said document.48

due as of December 1997.30 On cross-examination, however, Magpili admitted that FAT KEE did not execute any written confirmation

Finally, FAT KEE presented the testimony of Frederick Huang, Jr. as surrebuttal evidence. Huang again maintained that the parties

to signify its agreement to the proposal to split its outstanding balance and the conversion rate of P40:US$1.31

failed to reach an agreement as regards the payment of FAT KEEs obligations to ONLINE, as well as the proposal to apply the

FAT KEE, afterwards, presented its testimonial evidence, calling forth Frederick Huang, Jr. to the witness stand. Pertinently, Huang

exchange rate of P37:US$1.49

testified that the exchange rate they used in order to compute their total unpaid obligation to ONLINE was P34:US$1. Huang explained

In a Decision dated November 7, 2000, the RTC dismissed the complaint of ONLINE, ratiocinating thus:

that this figure was arrived at by taking into account the SOA dated December 9, 1997. Therein, the unpaid dollar amounts in the

After assessing the evidence presented by both parties, the court is of the belief that [ONLINE] failed to establish its claim against [FAT

assailed Invoice Nos. 4680 and 483832 were denominated in Philippine pesos as P2,343,414.33 and P1,502,033.06, respectively. A

KEE]. While indeed [FAT KEE] purchased computer printers from [ONLINE], [the latter] has not established the fact that at the time

simple computation33 then revealed that the rate of exchange rate thereon was P34:US$1.34 FAT KEE also applied the said rate on

when the obligation became due and demandable, there was an agreement as to the conversion rate between [ONLINE] and [FAT

Invoice Nos. 5090 and 5096,35 such that the dollar amounts stated thereon were respectively converted to P384,107.52

KEE] as to the rate of exchange from US dollars into Philippine Peso in the payment of purchase price of printers. When there is no

and P466,480.00.

agreement between [ONLINE] and [FAT KEE] as to the rate of exchange from US dollars to Philippine peso, while it is correct to say

Huang also stated that FAT KEE quoted in US dollars the Purchase Order dated November 26, 1997, since the same was upon the

that it is the prevailing rate of exchange at the time when the obligation became due and demandable, the prevailing rate should be

instructions of Payoyo. During that time, the fluctuations of the Philippine peso were rapid and the Accounting Department of ONLINE

used that prevailing rate, is the rate pegged by [ONLINE], which was contained in the Statement of Account dated 9 December 1997.

informed Huang that the computer equipment ordered by FAT KEE would not be delivered unless FAT KEE issued a Purchase Order

x x x Edwin Morales in the Statement of Account he sent to [FAT KEE] dated 9 December 1997 computed the obligation of [FAT KEE]

in US dollars. Huang also said that there was no agreement between FAT KEE and ONLINE for the payment in US dollars, nor did the

in Philippine currency and after computing the total obligation, by simple mathematical computation, it appears indeed that the

parties agree to a specific exchange rate.36 On January 15, 1998, the parties met, but they failed to reach any agreement regarding

exchange rate used by [ONLINE] is PHP34.00 for every US$1.00. [ONLINE], therefore, is estopped from claiming that the rate of

the exchange rate and the payment in US dollars. The next day, ONLINE, through Payoyo, wrote a letter to FAT KEE, confirming their

exchange rate should be at the rate of either PHP41.50 or PHP40.00 per US$1.00, as the rate which [ONLINE] itself used is

supposed agreement on an exchange rate of P41:US$1.37 On February 23, 1998, Payoyo again wrote to Huang, informing him that

PHP34.00 for every US$1.00 by [ONLINEs] own computation. [FAT KEE] even paid an excess of PHP62,539.24.

the new exchange rate to be applied was P40:US$1. On March 2, 1998, Huang communicated to Payoyo, stating that the Board of

Considering that [FAT KEE] have fully paid the amount and there being really no dispute as to the exchange rate by [ONLINEs] own

Directors of FAT KEE agreed to settle the outstanding balance of the company at the rate of P37:US$1.38 Huang then testified that

admission in its Statement of Account dated 9 December 1997, it is but proper to consider that [FAT KEE] has fully paid its obligation

FAT KEE continued to pay its obligation in Philippine pesos until its obligation was fully paid. 39 Later, FAT KEE received demand

with [ONLINE] as evidenced by various receipts presented during the trial.

letters from ONLINE, directing the former to pay the amount of P756,095.05.40

xxxx

Mayumi Huang also testified for FAT KEE. Being the Operations Manager41 of FAT KEE, she admitted that she was the one who

With all these, considering that [ONLINE] failed to prove through preponderance of evidence its claim against [FAT KEE] and therefore

issued the Purchase Order dated November 26, 1997 to ONLINE for $13,720.00.42

[ONLINEs] complaint must be dismissed.

However, [FAT KEE] in its counterclaim claimed among others that [FAT KEE] is entitled to attorneys fees in the amount

this Court is constrained to take exception from the findings of the trial court considering that there were pieces [of] evidence which

of P250,000.00. It having been satisfactorily proven by [FAT KEE] that [it] is entitled to attorneys fees, the court, in its discretion,

had been misappreciated that will compel a contrary conclusion if properly taken into account.54

awards to [FAT KEE] the amount of PHP100,000.00 for and as attorneys fees, which [ONLINE] must pay to [FAT KEE] considering

On the issue of estoppel on the part of ONLINE, the Court of Appeals adjudged that:

that the claim of [ONLINE] is incorrect and its complaint baseless.

As borne by the records, ONLINE and FAT KEE had previous dealings with each other. Out of all their transactions in the month of

WHEREFORE, premises considered, [judgment] is hereby rendered in favor of [FAT KEE] and as against [ONLINE]. As a

November 1997, six of these were transacted using the US Currency in their price quotations; two of these were actually paid in said

consequence, [ONLINEs] Complaint is dismissed, and [ONLINE] is therefore adjudged to pay [FAT KEE] the amount of P100,000.00

notes. While We agree that Invoice Nos. 4680 and 4838 were included in the December SOA, it should not however, be assumed that

for and as attorneys fees.

the same was the applicable conversion rate upon which FAT KEE relied on.

Costs against [ONLINE].50

xxxx

On February 20, 2001, ONLINE filed a Motion for Reconsideration51 of the above decision. ONLINE argued that estoppel may not be

Even granting that FAT KEE was of the impression that P34:$1 was the applicable rate for its obligation, this was however,

invoked against it as FAT KEE did not act or rely on the representations in the SOA dated December 9, 1997. ONLINE maintained that

immediately rectified by ONLINE when the parties met on January 1998, barely two months from FAT KEEs receipt of the subject

FAT KEE was informed that the SOA was erroneous and unauthorized and the parties subsequently met and negotiated on the

statement of account and before any payment for the same was advanced by FAT KEE, in order to negotiate the conversion rate of its

exchange rate to be applied. Likewise, ONLINE challenged the award of attorneys fees in favor of FAT KEE.

obligation. x x x The fact that FAT KEE started paying its obligation under the dollar denominated invoices only on March 1998 fortifies

In an Order dated July 25, 2001, the RTC denied ONLINEs motion for lack of merit. Said the RTC:

the fact that both parties did not intend to be bound by the December SOA with respect to the subject invoices.

The principle of Estoppel properly applies to [ONLINE] brought about by the Statement of Account dated December 9, 1997 which was

Clearly, no estoppel as regards the December SOA may be ascribed to ONLINE because FAT KEE was not misled by ONLINEs

sent to [FAT KEE] through [ONLINEs] own collection clerk employee, Mr. Edwin Morales. While, indeed, there is no exchange rate

actuations, and even assuming arguendo that it was in fact misled, it still cannot invoke the principle as it was clearly negligent in not

agreed upon between [ONLINE] and [FAT KEE], [the latter] actually made payments using the exchange rate of P34 for every US

fully scrutinizing the receipts issued to it, which on their face made specific reference as to where payment was to be applied. x x x In

dollar after the Statement of Account dated December 9, 1997 was received by [FAT KEE]. Neither was there any formal action to

pegging the amount at P34:$1, a peculiar situation will result where FAT KEE will be allowed to gain from defaulting payment despite

correct the alleged unauthorized Statement of Account received by [FAT KEE] nor was the employee, Mr. Edwin Morales meted

absolute knowledge of its transactions with ONLINE. x x x.

appropriate disciplinary action for the acts. On the contrary, it was only during the rebuttal stage of the case when [ONLINE] tried to

x x x Other than its bare assertion, there were no indications to show that [FAT KEE] sought to correct the alleged irregular

rectify the alleged mistake committed and not at the time when the same was discovered. Moreover, [ONLINEs] claim that [FAT KEE]

transactions. Neither is there any evidence on record demonstrating that sometime after making the purchase order, it made known its

did not reply on the Statement of Account aforestated is not entirely correct as the payments made by [FAT KEE] which [ONLINE]

intention to take exception from the currency to be used. By and large, FAT KEE cannot now be permitted to escape liability by simply

accepted were actually based on the Statement of Account using the rate of exchange of P34 for every US Dollar.

alleging that the subject transactions were made solely upon the insistence of ONLINE.

In the matter of the award for Attorneys fees, the same is justified and reasonable under the circumstances. The complaint being

xxxx

unfounded and baseless, [FAT KEE] was forced to litigate and to engage the services of counsel for the protection of its interest. The

In this present recourse, it is undeniable that FAT KEE had given its assent to the foreign currency-based transaction with full

Court therefore finds justifiable and equitable reason for attorneys fees to be awarded.

knowledge of its probable effects and consequences that may spring therefrom. This is evident from its acquiescence to the varying

WHEREFORE, premises considered, for lack of substantial merit and for reasons stated above, the Motion for Reconsideration is

rates of exchange that ONLINE was charging the dollar transactions and its willingness to negotiate on the conversion rate. x x x And

hereby DENIED.52

while this single proof of payment may not be regarded as a customary business practice, this however, may be taken as an indicium

ONLINE thereafter filed a Notice of Appeal,53 elevating the case to the Court of Appeals.

of FAT KEEs concurrence to enter into a transaction that involves a foreign currency.55 (Emphases ours.)

On September 26, 2005, the Court of Appeals rendered a Decision, reversing the judgment of the RTC in this wise:

As regards the applicable conversion rate, the appellate court held that:

We find the appeal meritorious.

Nevertheless, despite the above findings, this Court does not agree that the rate of conversion has been pegged by the parties

In the proceedings below, both parties harped on the propriety of using the exchange rate of P40:$1 as against the stated rate

at P40:$1. It is evident that when the parties met on 15 January 1999, ONLINEs proposal to FAT KEE to use the exchange rate

contained in the December SOA which the court a quo fixed at P34.00. However, after scrutinizing the pieces of evidence submitted by

of P41:$1 was declined by the latter and instead, FAT KEE made a counter offer of P35:$1. Further renegotiations then ensued with

the contending parties, We found the pronouncement of the court a quo wanting of bases and support. Thus, in light of this conclusion,

ONLINE proposing a rate of P40:$1. On the other hand, FAT KEE, in a correspondence dated 2 March 1998, offered to use the

exchange rate of P37:$1 for the satisfaction of its remaining obligation. Thereafter, no further negotiations took place. Significantly, on

Prescinding from the foregoing, We find that the exchange rate to be applied on FAT KEEs obligation is the ratio of 37:1, and after

17 March 1998, FAT KEE started to make payments for its remaining obligations, which ONLINE accepted without any protest.

deducting the amounts already paid, FAT KEE still owes ONLINE the amount of P389,954.73 excluding interest at the rate of 28% per

In fine, if ONLINE is to be held in estoppel, it is not from the issuance of the December SOA but rather from the last offer which pegged

annum, as stated on the face of the pertinent invoices, commencing from July 1998. In the same manner and for having been

the exchange rate at the ratio of 37:1. To Our mind, the silence of ONLINE and its receipt of the FAT KEEs payment fifteen (15) days

compelled to institute this suit to vindicate its rights, attorneys fees are also awarded to the [ONLINE] but the same is reduced to 10%

after the last correspondence may be taken as an implied acquiescence to the latters offer to pay in Philippine currency pegging the

of the total award.

exchange rate at P37.00 to a US dollar.

WHEREFORE, the foregoing considered, the appeal is hereby GRANTED and the decision of the court a quo REVERSED and SET

Thereby, from its actions subsequent to FAT KEEs last offer, ONLINE is now barred from adopting an inconsistent position that would

ASIDE. Accordingly, the [FAT KEE] is ordered to pay the amount of P389,954.73 to [ONLINE] with interest at the rate [of] 28% per

eventually cause loss or injury to another. x x x

annum from July 1998 until paid, plus 10% of the total award representing attorneys fees.57

On the other hand, ONLINEs bare denial that this last offer was refused by the company simply contradicts the course of its action

FAT KEE filed a Motion for Reconsideration58 of the above decision, but the Court of Appeals denied the same in a Resolution dated

and at best, self serving. Accordingly, utilizing the ratio of 37:1, FAT KEEs obligation under Invoice Nos. 4680, 4838, 5090 and 5096

January 26, 2006.

stands in the total amount of P5,148,528.91. Admittedly, FAT KEE had already made payments for these invoices in the total amount

Hence, this petition.

of P4,758,574.18 from 17 March to 19 May 1998 and thus, only the amount of P389,954.73 remains unpaid.56

FAT KEE invokes for resolution the following legal issues, to wit:

Thus, the Court of Appeals resolved the case as follows:

The only issue now left for resolution is where ONLINEs claim should be computed at the fixed rate of exchange or the rate prevailing

THE PETITION IS COMPLETE IN FORM AND SUBSTANCE

at the time of payment of the obligation.

II

Under Republic Act No. 8183, repealing Republic Act No. 529, parties to a contract may now agree that the obligation or transaction

F.A.T. KEE DID NOT AGREE TO ENTER INTO A FOREIGN CURRENCY TRANSACTION

shall be settled in any currency other than the Philippine Currency at the time of payment. The repeal of R.A. No. 529 by R.A. No.

III

8183 has the effect of removing the prohibition on the stipulation of currency other than Philippine currency, such that obligations or

THERE WAS NO AGREEMENT TO USE A 1:37 PESO TO DOLLAR EXCHANGE RATE

transactions may now be paid in the currency agreed upon by the parties. Just like R.A. No. 529, however, the new law does not

IV

provide for the applicable rate of exchange for the conversion of foreign currency-incurred obligations in their peso equivalent. It

ONLINE WAS ESTOPPED BY THE 9 DECEMBER 1997 STATEMENT OF ACCOUNT.

follows, therefore, that the jurisprudence established in R.A. No. 529 regarding the rate of conversion remains applicable.

The Court shall determine the procedural questions first.

Thus, in Asia World Recruitment, Inc. v. National Labor Relations Commission, the High Court, applying R.A. No. 8183, sustained the

FAT KEE contests the argument of ONLINE that the instant petition is fatally defective for the failure of the former to attach the

ruling of the NLRC that obligations in foreign currency may be discharged in Philippine currency based on the prevailing rate at the

transcript of stenographic notes (TSN) of the RTC proceedings. FAT KEE counters that there is no need to annex the said TSN given

time of payment. The wisdom on which the jurisprudence interpreting R.A. No. 529 is based, equally holds true with R.A. No. 8183.

that ONLINE does not dispute the accuracy of the quoted portions of the transcripts and the petition does not request for a

Verily, it is just and fair to preserve the real value of the foreign exchange-incurred obligation to the date of its payment.

reevaluation of the evidence of the parties. Assuming arguendo that the TSN should have been attached to the petition, FAT KEE begs

In this present recourse, We observed that ONLINE failed to sufficiently establish that the obligation was payable in US currency. On

for the relaxation of the rules so as not to frustrate the ends of substantive justice. FAT KEE also rejects the contention of ONLINE that

the other hand, its actuations of negotiating for the mode of payment and allowing FAT KEE to settle its obligation in pesos are indicia

the petition raises only factual issues, which are not proper in a petition for review on certiorari. FAT KEE argues that the Court of

of the want of any unequivocal agreement between the parties. With no definite agreement that the transaction shall be settled in US

Appeals likewise erred in re-evaluating the evidence and substituted its own interpretation of the testimonies of the witnesses.

Currency at the time of payment and considering the agreement of the parties to peg the rate at P37:$1, it now becomes an

On this preliminary procedural issue, we rule that the non-attachment of the relevant portions of the TSN does not render the petition

ineluctable conclusion that FAT KEEs unpaid obligation shall be based at the rate of P37:$1 for the reasons discussed above. Further

of FAT KEE fatally defective.

validating this is ONLINEs insistence that FAT KEE was liable to pay the amount of P756,095.05 and its allegations that the remaining

Rule 45, Section 4 of the Rules of Court indeed requires the attachment to the petition for review on certiorari "such material portions

unsettled controversy was confined to the amount of the applicable exchange rate. Thus, it now becomes indubitable that the

of the record as would support the petition."59 However, such a requirement was not meant to be an ironclad rule such that the failure

obligation was payable in a fixed rate.

to follow the same would merit the outright dismissal of the petition. In accordance with Section 7 of Rule 45, "the Supreme Court may
require or allow the filing of such pleadings, briefs, memoranda or documents as it may deem necessary within such periods and

under such conditions as it may consider appropriate."60 More importantly, Section 8 of Rule 45 declares that "[i]f the petition is given

Through estoppel, an admission or representation is rendered conclusive upon the person making it and cannot be denied or

due course, the Supreme Court may require the elevation of the complete record of the case or specified parts thereof within fifteen

disproved as against the person relying thereon.

(15) days from notice."61 Given that the TSN of the proceedings before the RTC forms part of the records of the instant case, the

Estoppel can also be found in Rule 131, Section 2 (a) of the Rules of Court, viz:

failure of FAT KEE to attach the relevant portions of the TSN was already cured by the subsequent elevation of the case records to this

Sec. 2. Conclusive presumptions. The following are instances of conclusive presumptions:

Court. This pronouncement is likewise in keeping with the doctrine that procedural rules should be liberally construed in order to

(a) Whenever a party has by his own declaration, act or omission, intentionally and deliberately led another to believe a particular thing

promote their objective and assist the parties in obtaining just, speedy and inexpensive determination of every action or proceeding.62

true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act or omission be permitted to falsify it.

As to the substantive issues raised in the instant petition, the Court finds that, indeed, questions of fact are being invoked by FAT KEE.

The elements of estoppel are: first, the actor who usually must have knowledge, notice or suspicion of the true facts, communicates

A question of law arises when there is doubt as to what the law is on a certain state of facts, while there is a question of fact when the

something to another in a misleading way, either by words, conduct or silence; second, the other in fact relies, and relies reasonably or

doubt arises as to the truth or falsity of the alleged facts. For a question to be one of law, the same must not involve an examination of

justifiably, upon that communication; third, the other would be harmed materially if the actor is later permitted to assert any claim

the probative value of the evidence presented by the litigants or any of them.63

inconsistent with his earlier conduct; and fourth, the actor knows, expects or foresees that the other would act upon the information

Rule 45, Section 1 of the Rules of Court dictates that a petition for review on certiorari "shall raise only questions of law, which must be

given or that a reasonable person in the actor's position would expect or foresee such action.67

distinctly set forth."64 This rule is, however, subject to exceptions,65 one of which is when the findings of fact of the Court of Appeals

In the instant case, we find that FAT KEE cannot invoke estoppel against ONLINE for the latters issuance of the SOA on December 9,

and the RTC are conflicting. Said exception applies to the instant case.

1997. The Court agrees with the Court of Appeals ruling that any misconception on the part of FAT KEE engendered by the issuance

Substantially, FAT KEE primarily argues there was neither any agreement to enter into a foreign currency-based transaction, nor to use

of the SOA should have already been rectified when the parties subsequently met on January 15, 1998. The testimonial evidence of

a dollar exchange rate of P37:US$1. The invoice receipts denominated in US dollars were unilaterally prepared by ONLINE. Similarly,

both ONLINE and FAT KEE establish that, during the meeting, the parties tried but failed to reach an agreement as regards the

the Accounting Department of ONLINE required that the Purchase Order to be submitted by FAT KEE be denominated in US dollars

payment of FAT KEEs outstanding obligation and the exchange rate to be applied thereto. Whether or not FAT KEE was duly informed

and Frederick Huang, Jr. merely complied with the same upon the instructions of Payoyo. Contrary to ONLINEs claim, it issued the

of the fact that the SOA was unauthorized is no longer of much importance. By their act of submitting their respective proposals and

SOA dated December 9, 1997 with the alleged unpaid obligation of FAT KEE quoted in Philippine pesos. FAT KEE also takes issue

counter-proposals on the mode of payment and the exchange rate, FAT KEE and ONLINE demonstrated that it was not their intention

with the ruling of the Court of Appeals that it assented to the payment in US dollars of the transactions covered under Invoice Nos.

to be further bound by the SOA, especially with respect to the exchange rate to be used. Moreover, FAT KEE only started making

4680, 4838, 5090 and 5096. Lastly, FAT KEE reiterates the ruling of the RTC that ONLINE was estopped from seeking payment in US

payments vis--vis the subject invoice receipts on March 17, 1998, or two months after the aforementioned meeting.

dollars since the outstanding obligation of FAT KEE was denominated in Philippine pesos in the SOA dated December 9, 1997.

At this point, Mijares v. Court of Appeals68 is instructive in declaring that:

Claiming that the SOA was its only basis for payment, FAT KEE allegedly paid its obligations in accordance therewith and ONLINE

One who claims the benefit of an estoppel on the ground that he has been misled by the representations of another must not have

duly accepted the payments.

been misled through his own want of reasonable care and circumspection. A lack of diligence by a party claiming an estoppel is

After a meticulous review of the records, we resolve to deny the petition.

generally fatal. If the party conducts himself with careless indifference to means of information reasonably at hand, or ignores highly

FAT KEE subscribes to the rulings of the RTC in the Decision dated November 7, 2000 and the Order dated July 25, 2001. The trial

suspicious circumstances, he may not invoke the doctrine of estoppel. Good faith is generally regarded as requiring the exercise of

court found that there was no agreement as to the exchange rate for the conversion of the outstanding balance of FAT KEE to

reasonable diligence to learn the truth, and accordingly estoppel is denied where the party claiming it was put on inquiry as to the truth

Philippine pesos. A reading of the RTC rulings reveals that the trial court principally relied on the SOA dated December 9, 1997 and

and had available means for ascertaining it, at least where actual fraud has not been practised on the party claiming the

the testimony of Frederick Huang, Jr. in setting the exchange rate at P34:US$1. The RTC ruled that ONLINE was estopped from

estoppel.691avvphi1

claiming otherwise since FAT KEE actually paid its outstanding balance in accordance with the SOA. Furthermore, the RTC

Thus, after participating in the meeting on January 15, 1998, submitting its own proposals and further renegotiating for the lowering of

determined that ONLINE failed to undertake any action to correct the SOA, which the latter claimed was unauthorized. No disciplinary

the exchange rate, FAT KEE cannot anymore insist that it was completely under the impression that the applicable exchange rate

action was likewise taken against Edwin Morales, the employee who allegedly issued the SOA without authority.

was P34:US$1 as purportedly indicated in the December 9, 1997 SOA.

In British American Tobacco v. Camacho,66 the Court emphasized the doctrine of estoppel as follows:

Anent the proper exchange rate to be applied in this case, we likewise uphold the ruling of the Court of Appeals that estoppel finds

Estoppel, an equitable principle rooted in natural justice, prevents persons from going back on their own acts and representations, to

application in this case as regards the implied acquiescence of ONLINE to the use of the P37:US$1 exchange rate. On March 2, 1998,

the prejudice of others who have relied on them. The principle is codified in Article 1431 of the Civil Code, which provides:

after a series of proposals on the conversion rate to be applied, FAT KEE finally offered to settle its outstanding balance at the rate

of P37:US$1. To this offer, ONLINE did not respond. Thereafter, on March 17, 1998, FAT KEE began remitting payments continuously,

Sec. 3. The Commission shall be provided with technical and administrative staff support by a Secretariat to be composed of, among

which ONLINE duly accepted. Following the dictum stated in British American Tobacco, ONLINE communicated, through its silence

others, detailed personnel from the Presidential Management Staff, the National Commission for Culture and the Arts, and the National

and acceptance of payments, that it was agreeable to the P37:US$1 rate. Indeed, ONLINE should not be allowed to adopt a contrary

Historical Institute. Said Secretariat shall be headed by a full time Executive Director who shall be designated by the President.

position to the detriment of FAT KEE.

Sec. 4. The Commission shall be funded with an initial budget to be drawn from the Department of Tourism and the presidents

Premises considered, we find therefore that the applicable exchange rate to determine the outstanding balance of FAT KEE

Contingent Fund, in an amount to be recommended by the Commission, and approved by the President. Appropriations for

is P37:US$1. We note, however, that the Court of Appeals inadvertently erred in computing the remaining balance to be paid by FAT

succeeding years shall be incorporated in the budget of the Office of the President.

KEE. According to Invoice Nos. 4680, 4838, 5090 and 5096, the total unpaid amount is US$136,149.43. By applying P37:US$1 rate on

Subsequently, a corporation named the Philippine Centennial Expo 98 Corporation (Expocorp) was created.4Petitioner was among

the unpaid amount, the resulting balance isP5,037,528.91, not P5,148,528.91 as determined by the Court of Appeals. As FAT KEE has

the nine (9) Expocorp incorporators, who were also its first nine (9) directors. Petitioner was elected Expocorp Chief Executive Officer.

already paid a total amount of P4,758,574.18,70 the total unpaid amount owed to ONLINE is P278,954.73.

On August 5, 1998, Senator Ana Dominique Coseteng delivered a privilege speech in the Senate denouncing alleged anomalies in the

WHEREFORE, the Petition for Review on Certiorari is DENIED. The Decision dated September 26, 2005 of the Court of Appeals in

construction and operation of the Centennial Exposition Project at the Clark Special Economic Zone. Upon motion of Senator Franklin

CA-G.R. CV No. 71910 is hereby AFFIRMED with MODIFICATION that F.A.T. Kee Computer Systems, Inc. is ordered to pay the

Drilon, Senator Cosetengs privilege speech was referred to the Committee on Accountability of Public Officers and Investigation (The

amount of P278,954.73 to Online Networks International, Inc., with interest at the rate of 28% per annum from July 1998 until fully

Blue Ribbon Committee) and several other Senate Committees for investigation.

paid, plus 10% of the total award as attorneys fees. No costs.

On February 24, 1999, President Joseph Estrada issued Administrative Order No. 35, creating an ad hoc and independent citizens

SO ORDERED.

committee to investigate all the facts and circumstances surrounding the Philippine centennial projects, including its component

G.R. No. 145368

April 12, 2002

SALVADOR H. LAUREL, petitioner, vs. HON. ANIANO A. DESIERTO, in his capacity as Ombudsman, respondent.
KAPUNAN, J.:
On June 13, 1991, President Corazon C. Aquino issued Administrative Order No. 223 "constituting a Committee for the preparation of
the National Centennial Celebration in 1998." The Committee was mandated "to take charge of the nationwide preparations for the
National Celebration of the Philippine Centennial of the Declaration of Philippine Independence and the Inauguration of the Malolos
Congress."1
Subsequently, President Fidel V. Ramos issued Executive Order No. 128, "reconstituting the Committee for the preparation of the
National Centennial Celebrations in 1988." It renamed the Committee as the "National Centennial Commission." Appointed to chair the
reconstituted Commission was Vice-President Salvador H. Laurel. Presidents Diosdado M. Macapagal and Corazon C. Aquino were
named Honorary Chairpersons.2
Characterized as an "i body," the existence of the Commission "shall terminate upon the completion of all activities related to the
Centennial Celebrations."3 Like its predecessor Committee, the Commission was tasked to "take charge of the nationwide
preparations for the National Celebration of the Philippine Centennial of the Declaration of Philippine Independence and the
Inauguration of the Malolos Congress."
Per Section 6 of the Executive Order, the Commission was also charged with the responsibility to "prepare, for approval of the
President, a Comprehensive Plan for the Centennial Celebrations within six (6) months from the effectivity of" the Executive Order.
E.O. No. 128 also contained provisions for staff support and funding:

activities. Former Senator Rene A.V. Saguisag was appointed to chair the Committee.
On March 23, 1999, the Senate Blue Ribbon Committee filed with the Secretary of the Senate its Committee Final Report No. 30 dated
February 26, 1999. Among the Committees recommendations was "the prosecution by the Ombudsman/DOJ of Dr. Salvador Laurel,
chair of NCC and of EXPOCORP for violating the rules on public bidding, relative to the award of centennial contracts to AK (Asia
Construction & Development Corp.); for exhibiting manifest bias in the issuance of the NTP (Notice to Proceed) to AK to construct the
FR (Freedom Ring) even in the absence of a valid contract that has caused material injury to government and for participating in the
scheme to preclude audit by COA of the funds infused by the government for the implementation of the said contracts all in violation
of the anti-graft law."5
Later, on November 5, 1999, the Saguisag Committee issued its own report. It recommended "the further investigation by the
Ombudsman, and indictment, in proper cases of," among others, NCC Chair Salvador H. Laurel for violations of Section 3(e) of R.A.
No. 3019, Section 4(a) in relation to Section 11 of R.A. No. 6713, and Article 217 of the Revised Penal Code.
The Reports of the Senate Blue Ribbon and the Saguisag Committee were apparently referred to the Fact-finding and Intelligence
Bureau of the Office of the Ombudsman. On January 27, 2000, the Bureau issued its Evaluation Report, recommending:
1. that a formal complaint be filed and preliminary investigation be conducted before the Evaluation and Preliminary Investigation
Bureau (EPIB), Office of the Ombudsman against former NCC and EXPOCORP chair Salvador H. Laurel, former EXPOCORP
President Teodoro Q. Pea and AK President Edgardo H. Angeles for violation of Sec. 3(e) and (g) of R.A. No. 3019, as amended in
relation to PD 1594 and COA Rules and Regulations;
2. That the Fact Finding and Intelligence Bureau of this Office, act as the nominal complainant.6
In an Order dated April 10, 2000, Pelagio S. Apostol, OIC-Director of the Evaluation and Preliminary Investigation Bureau, directed
petitioner to submit his counter-affidavit and those of his witnesses.

On April 24, 2000, petitioner filed with the Office of the Ombudsman a Motion to Dismiss questioning the jurisdiction of said office.

and prosecutorial powers of the Ombudsman relate to cases rightfully falling within the jurisdiction of the Sandiganbayan under

In an Order dated June 13, 2000, the Ombudsman denied petitioners motion to dismiss.

Section 15 (1) of R.A. 6770 ("An Act Providing for the Functional and Structural Organization of the Office of the Ombudsman, and for

On July 3, 2000, petitioner moved for a reconsideration of the June 13, 2000 Order but the motion was denied in an Order dated

other purposes") which vests upon the Ombudsman "primary jurisdiction over cases cognizable by the Sandiganbayan" And this is

October 5, 2000.

further buttressed by Section 11 (4a) of R.A. 6770 which emphasizes that the Office of the Special Prosecutor shall have the power to

On October 25, 2000, petitioner filed the present petition for certiorari.

"conduct preliminary investigation and prosecute criminal cases within the jurisdiction of the Sandiganbayan." Thus, repeated

On November 14, 2000, the Evaluation and Preliminary Investigation Bureau issued a resolution finding "probable cause to indict

references to the Sandiganbayans jurisdiction clearly serve to limit the Ombudsmans and Special Prosecutors authority to cases

respondents SALVADOR H. LAUREL and TEODORO Q. PEA before the Sandiganbayan for conspiring to violate Section 3(e) of

cognizable by the Sandiganbayan. [Emphasis in the original.]

Republic Act No. 3019, in relation to Republic Act No. 1594." The resolution also directed that an information for violation of the said

The foregoing ruling in Uy, however, was short-lived. Upon motion for clarification by the Ombudsman in the same case, the Court set

law be filed against Laurel and Pea. Ombudsman Aniano A. Desierto approved the resolution with respect to Laurel but dismissed the

aside the foregoing pronouncement in its Resolution dated March 20, 2001. The Court explained the rationale for this reversal:

charge against Pea.

The power to investigate and to prosecute granted by law to the Ombudsman is plenary and unqualified. It pertains to any act or

In a Resolution dated September 24, 2001, the Court issued a temporary restraining order, commanding respondents to desist from

omission of any public officer or employee when such act or omission appears to be illegal, unjust, improper or inefficient . The law

filing any information before the Sandiganbayan or any court against petitioner for alleged violation of Section 3(e) of the Anti-Graft and

does not make a distinction between cases cognizable by the Sandiganbayan and those cognizable by regular courts. It has been held

Corrupt Practices Act.

that the clause "any illegal act or omission of any public official" is broad enough to embrace any crime committed by a public officer or

On November 14, 2001, the Court, upon motion of petitioner, heard the parties in oral argument.

employee.

Petitioner assails the jurisdiction of the Ombudsman on the ground that he is not a public officer because:

The reference made by RA 6770 to cases cognizable by the Sandiganbayan, particularly in Section 15(1) giving the Ombudsman

A.

primary jurisdiction over cases cognizable by the Sandiganbayan, and Section 11(4) granting the Special Prosecutor the power to

EXPOCORP, THE CORPORATION CHAIRED BY PETITIONER LAUREL WHICH UNDERTOOK THE FREEDOM RING PROJECT IN

conduct preliminary investigation and prosecute criminal cases within the jurisdiction of the Sandiganbayan, should not be construed

CONNECTION WITH WHICH VIOLATIONS OF THE ANTI-GRAFT AND CORRUPT PRACTICES WERE ALLEGEDLY COMMITTED,

as confining the scope of the investigatory and prosecutory power of the Ombudsman to such cases.

WAS A PRIVATE CORPORATION, NOT A GOVERNMENT-OWNED OR CONTROLLED CORPORATION.

Section 15 of RA 6770 gives the Ombudsman primary jurisdiction over cases cognizable by the Sandiganbayan. The law defines such

B.

primary jurisdiction as authorizing the Ombudsman "to take over, at any stage, from any investigatory agency of the government, the

THE NATIONAL CENTENNIAL COMMISSION (NCC) WAS NOT A PUBLIC OFFICE.

investigation of such cases." The grant of this authority does not necessarily imply the exclusion from its jurisdiction of cases involving

C.

public officers and employees by other courts. The exercise by the Ombudsman of his primary jurisdiction over cases cognizable by

PETITIONER, BOTH AS CHAIRMAN OF THE NCC AND OF EXPOCORP WAS NOT A "PUBLIC OFFICER" AS DEFINED UNDER

the Sandiganbayan is not incompatible with the discharge of his duty to investigate and prosecute other offenses committed by public

THE ANTI-GRAFT & CORRUPT PRACTICES ACT.7

officers and employees. Indeed, it must be stressed that the powers granted by the legislature to the Ombudsman are very broad and

In addition, petitioner in his reply8 invokes this Courts decision in Uy vs. Sandiganbayan,9 where it was held that the jurisdiction of the

encompass all kinds of malfeasance, misfeasance and non-feasance committed by public officers and employees during their tenure

Ombudsman was limited to cases cognizable by the Sandiganbayan, i.e., over public officers of Grade 27 and higher. As petitioners

of office.

position was purportedly not classified as Grade 27 or higher, the Sandiganbayan and, consequently, the Ombudsman, would have no

Moreover, the jurisdiction of the Office of the Ombudsman should not be equated with the limited authority of the Special Prosecutor

jurisdiction over him.

under Section 11 of RA 6770. The Office of the Special Prosecutor is merely a component of the Office of the Ombudsman and may

This last contention is easily dismissed. In the Courts decision in Uy, we held that "it is the prosecutor, not the Ombudsman, who has

only act under the supervision and control and upon authority of the Ombudsman. Its power to conduct preliminary investigation and to

the authority to file the corresponding information/s against petitioner in the regional trial court. The Ombudsman exercises

prosecute is limited tocriminal cases within the jurisdiction of the Sandiganbayan. Certainly, the lawmakers did not intend to confine the

prosecutorial powers only in cases cognizable by the Sandiganbayan."

investigatory and prosecutory power of the Ombudsman to these types of cases. The Ombudsman is mandated by law to act on all

In its Resolution of February 22, 2000, the Court expounded:

complaints against officers and employees of the government and to enforce their administrative, civil and criminal liability in every

The clear import of such pronouncement is to recognize the authority of the State and regular provincial and city prosecutors under the

case where the evidence warrants. To carry out this duty, the law allows him to utilize the personnel of his office and/or designate any

Department of Justice to have control over prosecution of cases falling within the jurisdiction of the regular courts. The investigation

fiscal, state prosecutor or lawyer in the government service to act as special investigator or prosecutor to assist in the investigation and

prosecution of certain cases. Those designated or deputized to assist him work under his supervision and control. The law likewise

A public office is the right, authority and duty, created and conferred by law, by which, for a given period, either fixed by law or enduring

allows him to direct the Special Prosecutor to prosecute cases outside the Sandiganbayans jurisdiction in accordance with Section 11

at the pleasure of the creating power, an individual is invested with some portion of the sovereign functions of the government, to be

(4c) of RA 6770.

exercised by him for the benefit of the public. The individual so invested is a public officer.14

The prosecution of offenses committed by public officers and employees is one of the most important functions of the Ombudsman. In

The characteristics of a public office, according to Mechem, include the delegation of sovereign functions, its creation by law and not

passing RA 6770, the Congress deliberately endowed the Ombudsman with such power to make him a more active and effective

by contract, an oath, salary, continuance of the position, scope of duties, and the designation of the position as an office.15

agent of the people in ensuring accountability in public office. A review of the development of our Ombudsman law reveals this intent.

Petitioner submits that some of these characteristics are not present in the position of NCC Chair, namely: (1) the delegation of

[Emphasis in the original.]

sovereign functions; (2) salary, since he purportedly did not receive any compensation; and (3) continuance, the tenure of the NCC

Having disposed of this contention, we proceed to the principal grounds upon which petitioner relies. We first address the argument

being temporary.

that petitioner, as Chair of the NCC, was not a public officer.

Mechem describes the delegation to the individual of some of the sovereign functions of government as "[t]he most important

The Constitution10 describes the Ombudsman and his Deputies as "protectors of the people," who "shall act promptly on complaints

characteristic" in determining whether a position is a public office or not.

filed in any form or manner against public officials or employees of the government, or any subdivision, agency or instrumentality

The most important characteristic which distinguishes an office from an employment or contract is that the creation and conferring of

thereof, including government-owned or controlled corporations." Among the awesome powers, functions, and duties vested by the

an office involves a delegation to the individual of some of the sovereign functions of government, to be exercised by him for the

Constitution11 upon the Office of the Ombudsman is to "[i]nvestigate any act or omission of any public official, employee, office or

benefit of the public; that some portion of the sovereignty of the country, either legislative, executive or judicial, attaches, for the time

agency, when such act or omission appears to be illegal, unjust, improper, or inefficient."

being, to be exercised for the public benefit. Unless the powers conferred are of this nature, the individual is not a public officer.16

The foregoing constitutional provisions are substantially reproduced in R.A. No. 6770, otherwise known as the "Ombudsman Act of

Did E.O. 128 delegate the NCC with some of the sovereign functions of government? Certainly, the law did not delegate upon the NCC

1989." Sections 13 and 15(1) of said law respectively provide:

functions that can be described as legislative or judicial. May the functions of the NCC then be described as executive?

SEC. 13. Mandate. The Ombudsman and his Deputies, as protectors of the people shall act promptly on complaints file in any form

We hold that the NCC performs executive functions. The executive power "is generally defined as the power to enforce and administer

or manner against officers or employees of the Government, or of any subdivision, agency or instrumentality thereof, including

the laws. It is the power of carrying the laws into practical operation and enforcing their due observance." 17 The executive function,

government-owned or controlled corporations, and enforce their administrative, civil and criminal liability in every case where the

therefore, concerns the implementation of the policies as set forth by law.

evidence warrants in order to promote efficient service by the Government to the people.

The Constitution provides in Article XIV (Education, Science and Technology, Arts, Culture, and Sports) thereof:

SEC. 15. Powers, Functions and Duties. The Office of the Ombudsman shall have the following powers, functions and duties:

Sec. 15. Arts and letters shall enjoy the patronage of the State. The State shall conserve, promote, and popularize the nations

(1) Investigate and prosecute on its own or on complaint by any person, any act or omission of any public officer or employee, office or

historical and cultural heritage and resources, as well as artistic creations.

agency, when such act or omission appears to be illegal unjust, improper or inefficient. It has primary jurisdiction over cases

In its preamble, A.O. No. 223 states the purposes for the creation of the Committee for the National Centennial Celebrations in 1998:

cognizable by the Sandiganbayan and, in the exercise of this primary jurisdiction, it may take over, at any stage, from any investigatory

Whereas, the birth of the Republic of the Philippines is to be celebrated in 1998, and the centennial presents an important vehicle for

agency of Government, the investigation of such cases;

fostering nationhood and a strong sense of Filipino identity;

x x x.

Whereas, the centennial can effectively showcase Filipino heritage and thereby strengthen Filipino values;

The coverage of the law appears to be limited only by Section 16, in relation to Section 13, supra:

Whereas, the success of the Centennial Celebrations may be insured only through long-range planning and continuous developmental

SEC 16. Applicability. The provisions of this Act shall apply to all kinds of malfeasance, misfeasance and non-feasance that have

programming;

been committed by any officer or employee as mentioned in Section 13 hereof, during his tenure of office.

Whereas, the active participation of the private sector in all areas of special expertise and capability, particularly in communication and

In sum, the Ombudsman has the power to investigate any malfeasance, misfeasance and non-feasance by a public officer or

information dissemination, is necessary for long-range planning and continuous developmental programming;

employee of the government, or of any subdivision, agency or instrumentality thereof, including government-owned or controlled

Whereas, there is a need to create a body which shall initiate and undertake the primary task of harnessing the multisectoral

corporations.12

components from the business, cultural, and business sectors to serve as effective instruments from the launching and overseeing of

Neither the Constitution nor the Ombudsman Act of 1989, however, defines who public officers are. A definition of public officers cited

this long-term project;

in jurisprudence13 is that provided by Mechem, a recognized authority on the subject:

x x x.

E.O. No. 128, reconstituting the Committee for the National Centennial Celebrations in 1998, cited the "need to strengthen the said

Ramos said Mr. Vice President the Central Luzon is suffering, suffering because of the eruption of Mt. Pinatubo let us try to catalize

Committee to ensure a more coordinated and synchronized celebrations of the Philippine Centennial and wider participation from the

[sic] economic recovery in that area by putting this Expo in Clark Field and so it was done I agreed and Your Honor if I may also

government and non-government or private organizations." It also referred to the "need to rationalize the relevance of historical links

mention we wanted to generate employment aside from attracting business investments and employment. And the Estrada

with other countries."

administration decided to junk this project there 48, 40 thousand people who lost job, they were employed in Expo. And our target was

The NCC was precisely created to execute the foregoing policies and objectives, to carry them into effect . Thus, the Commission was

to provide 75 thousand jobs. It would have really calibrated, accelerated the development of Central Luzon. Now, I think they are going

vested with the following functions:

back to that because they had the airport and there are plan to revive the Expo site into key park which was the original plan.

(a) To undertake the overall study, conceptualization, formulation and implementation of programs and projects on the utilization of

There can hardly be any dispute that the promotion of industrialization and full employment is a fundamental state policy.20

culture, arts, literature and media as vehicles for history, economic endeavors, and reinvigorating the spirit of national unity and sense

Petitioner invokes the ruling of this Court in Torio vs. Fontanilla21 that the holding by a municipality of a townfiesta is a proprietary

of accomplishment in every Filipino in the context of the Centennial Celebrations . In this regard, it shall include a Philippine National

rather than a governmental function. Petitioner argues that the "holding of a nationwide celebration which marked the nations 100th

Exposition 98 within Metro Manila, the original eight provinces, and Clark Air Base as its major venues;

birthday may be likened to a national fiesta which involved only the exercise of the national governments proprietary

(b) To act as principal coordinator for all the activities related to awareness and celebration of the Centennial;

function."22 In Torio, we held:

(c) To serve as the clearing house for the preparation and dissemination of all information about the plans and events for the

[Section 2282 of the Chapter on Municipal Law of the Revised Administrative Code] simply gives authority to the municipality to

Centennial Celebrations;

[celebrate] a yearly fiesta but it does not impose upon it a duty to observe one. Holding a fiesta even if the purpose is to commemorate

(d) To constitute working groups which shall undertake the implementation of the programs and projects;

a religious or historical event of the town is in essence an act for the special benefit of the community and not for the general

(e) To prioritize the refurbishment of historical sites and structures nationwide. In this regard, the Commission shall formulate schemes

welfare of the public performed in pursuance of a policy of the state. The mere fact that the celebration, as claimed, was not to secure

(e.g. lease-maintained-and-transfer, build-operate-transfer, and similar arrangements) to ensure the preservation and maintenance of

profit or gain but merely to provide entertainment to the town inhabitants is not a conclusive test. For instance, the maintenance of

the historical sites and structures;

parks is not a source of income for the town, nonetheless it is [a] private undertaking as distinguished from the maintenance of public

(f) To call upon any government agency or instrumentality and corporation, and to invite private individuals and organizations to assist

schools, jails, and the like which are for public service.

it in the performance of its tasks; and,

As stated earlier, there can be no hard and fast rule for purposes of determining the true nature of an undertaking or function of a

(g) Submit regular reports to the President on the plans, programs, projects, activities as well as the status of the preparations for the

municipality; the surrounding circumstances of a particular case are to be considered and will be decisive. The basic element, however

Celebration.18

beneficial to the public the undertaking may be, is that it is government in essence, otherwise, the function becomes private or

It bears noting the President, upon whom the executive power is vested,19 created the NCC by executive order. Book III (Office of the

propriety in character. Easily, no governmental or public policy of the state is involved in the celebration of a town fiesta.

President), Chapter 2 (Ordinance Power), Section 2 describes the nature of executive orders:

Torio, however, did not intend to lay down an all-encompassing doctrine. Note that the Court cautioned that "there can be no hard and

SEC. 2. Executive Orders. Acts of the President providing for rules of a general or permanent character in implementation or

fast rule for purposes of determining the true nature of an undertaking or function of a municipality; the surrounding circumstances of a

execution of constitutional or statutory powers shall be promulgated in executive orders. [Underscoring ours.]

particular case are to be considered and will be decisive." Thus, in footnote 15 of Torio, the Court, citing an American case, illustrated

Furthermore, the NCC was not without a role in the countrys economic development, especially in Central Luzon. Petitioner himself

how the "surrounding circumstances plus the political, social, and cultural backgrounds" could produce a conclusion different from that

admitted as much in the oral arguments before this Court:

in Torio:

MR. JUSTICE REYNATO S. PUNO:

We came across an interesting case which shows that surrounding circumstances plus the political, social, and cultural backgrounds

And in addition to that expounded by Former President Ramos, dont you agree that the task of the centennial commission was also to

may have a decisive bearing on this question. The case of Pope v. City of New Haven, et al. was an action to recover damages for

focus on the long term over all socio economic development of the zone and Central Luzon by attracting investors in the area because

personal injuries caused during a Fourth of July fireworks display resulting in the death of a bystander alleged to have been caused by

of the eruption of Mt. Pinatubo.

defendants negligence. The defendants demurred to the complaint invoking the defense that the city was engaged in the performance

FORMER VICE PRESIDENT SALVADOR H. LAUREL:

of a public governmental duty from which it received no pecuniary benefit and for negligence in the performance of which no statutory

I am glad Your Honor touched on that because that is something I wanted to touch on by lack of material time I could not but that is a

liability is imposed. This demurrer was sustained by the Superior Court of New Haven Country. Plaintiff sought to amend his complaint

very important point. When I was made Chairman I wanted the Expo to be in Batangas because I am a Batangeo but President

to allege that the celebration was for the corporate advantage of the city. This was denied. In affirming the order, the Supreme Court of

The term office, it is said, embraces the idea of tenure and duration, and certainly a position which is merely temporary and local

Errors of Connecticut held inter alia:

cannot ordinarily be considered an office. "But," says Chief Justice Marshall, "if a duty be a continuing one, which is defined by rules

Municipal corporations are exempt from liability for the negligent performance of purely public governmental duties, unless made liable

prescribed by the government and not by contract, which an individual is appointed by government to perform, who enters on the

by statute.

duties pertaining to his station without any contract defining them, if those duties continue though the person be changed, -- it seems

A municipality corporation, which under permissive authority of its charter or of statute, conducted a public Fourth of July celebration,

very difficult to distinguish such a charge or employment from an office of the person who performs the duties from an officer."

including a display of fireworks, and sent up a bomb intended to explode in the air, but which failed to explode until it reached the

At the same time, however, this element of continuance can not be considered as indispensable, for, if the other elements are present

ground, and then killed a spectator, was engaged in the performance of a governmental duty. (99 A.R. 51)

"it can make no difference," says Pearson, C.J., "whether there be but one act or a series of acts to be done, -- whether the office

This decision was concurred in by three Judges while two dissented.

expires as soon as the one act is done, or is to be held for years or during good behavior."25

At any rate the rationale of the Majority Opinion is evident from [this] excerpt:

Our conclusion that petitioner is a public officer finds support in In Re Corliss.26 There the Supreme Court of Rhode Island ruled that

"July 4th, when that date falls upon Sunday, July 5th, is made a public holiday, called Independence Day, by our statutes. All or nearly

the office of Commissioner of the United States Centennial Commission is an "office of trust" as to disqualify its holder as elector of the

all of the other states have similar statutes. While there is no United States statute making a similar provision, the different

United States President and Vice-President. (Under Article II of the United States Constitution, a person holding an office of trust or

departments of the government recognize, and have recognized since the government was established, July 4th as a national holiday.

profit under the United States is disqualified from being appointed an elector.)

Throughout the country it has been recognized and celebrated as such. These celebrations, calculated to entertain and instruct the

x x x. We think a Commissioner of the United States Centennial Commission holds an office of trust under the United States, and that

people generally and to arouse and stimulate patriotic sentiments and love of country, frequently take the form of literary exercises

he is therefore disqualified for the office of elector of President and Vice-President of the United States.

consisting of patriotic speeches and the reading of the Constitution, accompanied by a musical program including patriotic air

The commission was created under a statute of the United States approved March 3, 1871. That statute provides for the holding of an

sometimes preceded by the firing of cannon and followed by fireworks. That such celebrations are of advantage to the general public

exhibition of American and foreign arts, products, and manufactures, "under the auspices of the government of the United States," and

and their promotion a proper subject of legislation can hardly be questioned. x x x"

for the constitution of a commission, to consist of more than one delegate from each State and from each Territory of the United

Surely, a town fiesta cannot compare to the National Centennial Celebrations. The Centennial Celebrations was meant to

States, "whose functions shall continue until close of the exhibition," and "whose duty it shall be to prepare and superintend the

commemorate the birth of our nation after centuries of struggle against our former colonial master, to memorialize the liberation of our

execution of the plan for holding the exhibition." Under the statute the commissioners are appointed by the President of the United

people from oppression by a foreign power. 1998 marked 100 years of independence and sovereignty as one united nation. The

States, on the nomination of the governor of the States and Territories respectively. Various duties were imposed upon the

Celebrations was an occasion to reflect upon our history and reinvigorate our patriotism. As A.O. 223 put it, it was a "vehicle for

commission, and under the statute provision was to be made for it to have exclusive control of the exhibit before the President should

fostering nationhood and a strong sense of Filipino identity," an opportunity to "showcase Filipino heritage and thereby strengthen

announce, by proclamation, the date and place of opening and holding the exhibition. By an act of Congress approved June 1st, 1872,

Filipino values." The significance of the Celebrations could not have been lost on petitioner, who remarked during the hearing:

the duties and functions of the commission were further increased and defined. That act created a corporation, called "The Centennial

Oh, yes, certainly the State is interested in the unity of the people, we wanted to rekindle the love for freedom, love for country, that is

Board of Finance," to cooperate with the commission and to raise and disburse the funds. It was to be organized under the direction of

the over-all goal that has to make everybody feel proud that he is a Filipino, proud of our history, proud of what our forefather did in

the commission. The seventh section of the act provides "that the grounds for exhibition shall be prepared and the buildings erected by

their time. x x x.

the corporation, in accordance with plans which shall have been adopted by the United States Centennial Commission; and the rules

Clearly, the NCC performs sovereign functions. It is, therefore, a public office, and petitioner, as its Chair, is a public officer.

and regulations of said corporation, governing rates for entrance and admission fees, or otherwise affecting the rights, privileges, or

That petitioner allegedly did not receive any compensation during his tenure is of little consequence. A salary is a usual but not a

interests of the exhibitors, or of the public, shall be fixed and established by the United States Centennial Commission; and no grant

necessary criterion for determining the nature of the position. It is not conclusive. The salary is a mere incident and forms no part of

conferring rights or privileges of any description connected with said grounds or buildings, or relating to said exhibition or celebration,

the office. Where a salary or fees is annexed, the office is provided for it is a naked or honorary office, and is supposed to be accepted

shall be made without the consent of the United States Centennial Commission, and said commission shall have power to control,

merely for the public good.23 Hence, the office of petitioner as NCC Chair may be characterized as an honorary office, as opposed to

change, or revoke all such grants, and shall appoint all judges and examiners and award all premiums." The tenth section of the act

a lucrative office or an office of profit, i.e., one to which salary, compensation or fees are attached. 24 But it is a public office,

provides that "it shall be the duty of the United States Centennial Commission to supervise the closing up of the affairs of said

nonetheless.

corporation, to audit its accounts, and submit in a report to the President of the United States the financial results of the centennial

Neither is the fact that the NCC was characterized by E.O. No. 128 as an "ad-hoc body" make said commission less of a public office.

exhibition."

It is apparent from this statement, which is but partial, that the duties and functions of the commission were various, delicate, and

Moreover, the question of whether petitioner is a public officer under the Anti-Graft and Corrupt Practices Act involves the appreciation

important; that they could be successfully performed only by men of large experience and knowledge of affairs; and that they were not

of evidence and interpretation of law, matters that are best resolved at trial.

merely subordinate and provisional, but in the highest degree authoritative, discretionary, and final in their character. We think that

To illustrate, the use of the term "includes" in Section 2 (b) indicates that the definition is not restrictive. 28 The Anti-Graft and Corrupt

persons performing such duties and exercising such functions, in pursuance of statutory direction and authority, are not to be regarded

Practices Act is just one of several laws that define "public officers." Article 203 of the Revised Penal Code, for example, provides that

as mere employees, agents, or committee men, but that they are, properly speaking, officers, and that the places which they hold are

a public officer is:

offices. It appears, moreover, that they were originally regarded as officers by Congress; for the act under which they were appointed

x x x any person who, by direct provision of law, popular election or appointment by competent authority, takes part in the performance

declares, section 7, that "no compensation for services shall be paid to the commissioners or other officers, provided for in this act,

of public functions in the Government of Philippines, or performs in said Government or in any of its branches public duties as an

from the treasury of the United States." The only other officers provided for were the "alternates" appointed to serve as commissioners

employee, agent or subordinate official, of any rank or class.

when the commissioners were unable to attend.

Section 2 (14) of the Introductory Provisions of the Administrative Code of 1987,29 on the other hand, states:

Having arrived at the conclusion that the NCC performs executive functions and is, therefore, a public office, we need no longer delve

Officer as distinguished from "clerk" or "employee", refers to a person whose duties not being of a clerical or manual nature, involves

at length on the issue of whether Expocorp is a private or a public corporation. Even assuming that Expocorp is a private corporation,

the exercise of discretion in the performance of the functions of the government. When used with reference to a person having

petitioners position as Chief Executive Officer (CEO) of Expocorp arose from his Chairmanship of the NCC. Consequently, his acts or

authority to do a particular act or perform a particular person in the exercise of governmental power, "officer" includes any government

omissions as CEO of Expocorp must be viewed in the light of his powers and functions as NCC Chair.27

employee, agent or body having authority to do the act or exercise that function.

Finally, it is contended that since petitioner supposedly did not receive any compensation for his services as NCC or Expocorp Chair,

It bears noting that under Section 3 (b) of Republic Act No. 6713 (The Code of Conduct and Ethical Standards for Public Officials and

he is not a public officer as defined in Republic Act No. 3019 (The Anti-Graft and Corrupt Practices Act) and is, therefore, beyond the

Employees), one may be considered a "public official" whether or not one receives compensation, thus:

jurisdiction of the Ombudsman.

"Public Officials" include elective and appointive officials and employees, permanent or temporary, whether in the career or non-career

Respondent seeks to charge petitioner with violation of Section 3 (e) of said law, which reads:

service including military and police personnel, whether or not they receive compensation, regardless of amount.

SEC. 3. Corrupt practices of public officers. In addition to acts or omissions of public officers already penalized by existing law, the

Which of these definitions should apply, if at all?

following shall constitute corrupt practices of any public officer and are hereby declared to be unlawful:

Assuming that the definition of public officer in R.A. No. 3019 is exclusive, the term "compensation," which is not defined by said law,

xxx

has many meanings.

(e) Causing any undue injury to any party, including the Government, or giving any private party any unwarranted benefits, advantage

Under particular circumstances, "compensation" has been held to include allowance for personal expenses, commissions, expenses,

or preference in the discharge of his official, administrative or judicial functions through manifest partiality, evident bad faith or gross

fees, an honorarium, mileage or traveling expenses, payments for services, restitution or a balancing of accounts, salary, and

inexcusable negligence. This provision shall apply to officers and employees of offices or government corporations charged with the

wages.30

grant of licenses or permits or other concessions.

How then is "compensation," as the term is used in Section 2 (b) of R.A. No. 3019, to be interpreted?

A "public officer," under R.A. No. 3019, is defined by Section 2 of said law as follows:

Did petitioner receive any compensation at all as NCC Chair? Granting that petitioner did not receive any salary, the records do not

SEC. 2. Definition of terms. As used in this Act, the term

reveal if he received any allowance, fee, honorarium, or some other form of compensation. Notably, under the by-laws of Expocorp,

xxx

the CEO is entitled to per diems and compensation.31 Would such fact bear any significance?

(b) "Public officer" includes elective and appointive officials and employees, permanent or temporary, whether in the classified or

Obviously, this proceeding is not the proper forum to settle these issues lest we preempt the trial court from resolving them.

unclassified or exemption service receiving compensation, even nominal, from the government as defined in the preceding paragraph.

WHEREFORE, the petition is DISMISSED. The preliminary injunction issued in the Courts Resolution dated September 24, 2001 is

[Emphasis supplied.]

hereby LIFTED.

It is clear from Section 2 (b), above, that the definition of a "public officer" is expressly limited to the application of R.A. No. 3019. Said

SO ORDERED.

definition does not apply for purposes of determining the Ombudsmans jurisdiction, as defined by the Constitution and the
Ombudsman Act of 1989.

G.R. No. 137774

October 4, 2002

SPOUSES MANUEL R. HANOPOL and BEATRIZ T. HANOPOL, petitioners,

On April 11, 1989, Shoemart filed its Answer with Counterclaim[9] denying the material allegations of the complaint.

vs. SHOEMART INCORPORATED, Represented by Executive Vice President,

The trial court subsequently formed a Commission, composed of three (3) members, one representative from each party and Atty.

SENEN T. MENDIOLA, respondent.

Raymundo G. Vallega, the Branch Clerk of Court of Branch 25, RTC Manila, as Chairman of the Commission, for the accounting of

-----------------------------

each partys records of account with the corresponding receipts, charge invoices and other evidence of indebtedness or payment.[10]

G.R. No. 148185

October 4, 2002]

The Report of the Chairman of the Commission dated January 7, 1991, reads in part:[11]

SPOUSES MANUEL R. HANOPOL and BEATRIA T. HANOPOL, petitioners,

"That plaintiffs, thru their commissioner, submitted to the commission a total of 153 receipts and drawn checks. Twelve (12) of the

vs. HON. COURT OF APPEALS and SHOEMART, INC., Represented by SENEN T. MENDIOLA, respondents.

drawn checks were reconciled by the commission, thru defendants commissioner and both parties agreed. This leaves 141 official
receipts with a total of P1,895,699.20 tending to prove that plaintiffs Hanopol had paid to Shoemart. This amount of P1,895,699.20

DECISION

includes check AF/DA No. 91434, dated 9-11-87 in the amount of P50,000.00 which seems to cover O.R. No. 167729 which plaintiffs

AUSTRIA-MARTINEZ, J.:

denied. Both parties failed to reconcile this check with O.R. No. 167729. In the event that check AF/DA No. 91434, dated 9-11-87 is

Before us are consolidated petitions for review on certiorari filed under Rule 45 of the Rules of Court seeking to set aside the decisions

covered by O.R. No. 167729, then plaintiffs total payment to Shoemart is only P1,845,699.20. This is evidently shown in the Summary

of the Court of Appeals in CA-G.R. CV Nos. 45500[1] and 56691.[2]

of Payments (Annexes "A" to "A-6") and the corresponding copies of the official receipts (Annexes "B" to "B-46" which is also marked

Shoemart, Inc., is a corporation duly organized and existing under the laws of the Philippines engaged in the operation of department

as Annexes "C" to "C-46" of the memorandum/manifestation filed by the plaintiffs, dated November 12, 1990).

stores. On December 4, 1985, Shoemart, through its Executive Vice-President, Senen T. Mendiola, and spouses Manuel R. Hanopol

"Defendant, despite repeated plea of the undersigned Chairman, did not present or submit any proof of indebtedness or charge

and Beatriz T. Hanopol executed a Contract of Purchase on Credit.[3]

invoices for accounting purposes to support its position/claim, claiming that plaintiffs are now barred by estoppel and laches from

Under the terms of the contract, Shoemart extended credit accommodations, in the amount of Three Hundred Thousand Pesos

demanding the charge invoices covering all their transactions with Shoemart, Inc. way back December 4, 1985 in pursuance of

(P300,000.00), for purchases on credit made by holders of SM Credit Card issued by spouses Hanopol for one year, renewable yearly

paragraph 6 of the contract on purchase on credit. Defendants commissioner with the assistance of counsel merely submitted a

thereafter.[4] Spouses Hanopol were given a five percent (5%) discount on all purchases made by their cardholders, deductible from

statement of account (ledger consisting of 17 pages herein marked as Annexes "C" to "C-16").

the semi-monthly payments to be made to Shoemart by spouses Hanopol.[5]

"In effect, defendant Shoemart reiterated its position/claim in its answer with counterclaim that plaintiffs have still an outstanding

In consideration of the credit accommodations, spouses Hanopol executed a Deed of Real Estate Mortgage in favor of Shoemart on

obligation/indebtedness (to it) in the amount of P178,095.47 as of December 31, 1988 inclusive of penalty charges being collected

their properties covered by TCT Nos. (S-60763) 15079-A and (S-60762) 15078-A, situated in Barrio San Dionisio, Municipality of

from them (No. 10 of special and affirmative defenses, page 7 of answer with counterclaim)."

Paraaque, Province of Rizal.[6]

Thereafter trial on the merits ensued with plaintiffs presenting the lone testimony of Manuel Hanopol;[12] and defendant Shoemart

For failure of spouses Hanopol to pay the principal amount of One Hundred Twenty-Four Thousand Five Hundred Seventy-One Pesos

presenting four (4) employees of Shoemart, namely, Antoinette P. Garcia, Credit Manager;[13] Consuelo Cadelina, Accountant

and Eighty-Nine Centavos (P124,571.89) as of October 6, 1987, Shoemart instituted extrajudicial foreclosure proceedings against the

Manager;[14] Atty. Epitacio B. Borcedes, Jr., Corporate Secretary;[15] and Mercedes M. Alonzo, Credit Officer.[16]

mortgaged properties.

On March 21, 1994, the Regional Trial Court of Manila (Branch 25) rendered a Decision[17] in favor of spouses Hanopol, ordering

On March 29, 1989, to enjoin Shoemart and the Sheriff from proceeding with the scheduled foreclosure sale on April 6, 1989, spouses

Shoemart, as represented to by its Executive Vice-President, Senen T. Mendiola, to effect the cancellation of the real estate mortgage

Hanopol instituted Civil Case No. 89-48355 for breach of contract, refund, release/cancellation of real estate mortgage, damages with

executed by spouses Hanopol in favor of Shoemart and refund the amount of Three Hundred Twenty-One Thousand Eight Hundred

injunction before the Regional Trial Court of Manila.[7] Spouses Hanopol alleged that Shoemart breached the contract when the latter

One Pesos and Two Centavos (P321,801.02) which represents overpayment, with interest at the legal rate from the time when the

failed to furnish the former with the requisite documents by which the formers liability shall be determined, namely: charge invoices,

complaint was instituted on March 29, 1989 until full payment thereof. In addition, Shoemart was ordered to pay moral and exemplary

purchase booklets and purchase journal, as provided in their contract; that without the requisite documents, spouses Hanopol had no

damages in the amount of Thirty Thousand Pesos (P30,000.00), attorneys fees in the amount of Twenty Thousand Pesos

way of knowing that, in fact, they had already paid, even overpaid, whatever they owed to Shoemart; that despite said breach,

(P20,000.00), and the actual costs and expenses of the suit.

Shoemart even had the audacity to apply for extrajudicial foreclosure with the Sheriff.

Shoemart appealed the decision to the Court of Appeals which is docketed as CA-G.R. CV No. 45500. In a Decision[18] dated

On April 4, 1989, at the preliminary hearing for the petition for the issuance of a writ of preliminary injunction or restraining order,

November 27, 1996, the appellate court reversed and set aside the lower courts decision and, in its stead, the real estate mortgage

spouses Hanopol and Shoemart agreed to suspend the scheduled auction sale.[8]

was reinstated and spouses Hanopol were ordered to pay Ten Thousand Pesos (P10,000.00) as attorneys fees.

Spouses Hanopol sought reconsideration of the decision. Pending its resolution, Shoemart, on January 31, 1997, filed a petition for

in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee;

extrajudicial foreclosure of mortgage over the same properties with the office of Ex-Officio Sheriff of Paraaque. A foreclosure sale was

(7) when the findings of the Court of Appeals are contrary to those of the trial court; (8) when the findings of fact are conclusions

set on March 4, 1997 at 10:00 a.m.

without citation of specific evidence on which they are based; (9) when the Court of Appeals manifestly overlooked certain relevant

To enjoin the scheduled foreclosure, spouses Hanopol filed a petition for injunction with temporary restraining order and damages,

facts not disputed by the parties, which, if properly considered, would justify a different conclusion; and (10) when the findings of facts

docketed as Civil Case No. 97-059 in the Regional Trial Court of Paraaque (Branch 260).[19] Shoemart sought the dismissal of the

of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record.[31]

same on grounds of litis pendentia and forum shopping.[20] The RTC of Paraaque issued a temporary restraining order enjoining the

Petitioners submit that their case fall within the exceptions. A thorough dissection of the records, the transcripts of stenographic notes

scheduled foreclosure sale.[21] Subsequently, however, in an Order[22] dated September 29, 1997, the RTC of Paraaque granted

and the evidence adduced by each party leads us to the conclusion the extant evidence could not support a solid conclusion that there

Shoemarts motion to dismiss. Spouses Hanopol appealed to the Court the Appeals which is docketed as CA-G.R. CV 56691.

was overpayment to Shoemart by spouses Hanopol. Thus, we find that there is no reason to reverse the factual findings and

On May 21, 1998, the Court of Appeals rendered an Amended Decision[23] in CA-G.R. CV No. 45500. It reconsidered its Decision

conclusions of law of the appellate court.

dated November 27, 1996 and affirmed with modification the judgment of the trial court, setting the amount to be refunded or returned

In civil cases, the burden of proof to be established by preponderance of evidence is on the plaintiff who is the party asserting the

to spouses Hanopol at Seventy Thousand Seven Hundred Forty-Three Pesos (P70,743.00). On June 15, 1998, Shoemart filed a

affirmative of an issue. He has the burden of presenting evidence required to obtain a favorable judgment, and he, having the burden

motion for reconsideration of the said Amended Decision.

of proof, will be defeated if no evidence were given on either side.[32]

On January 4, 1999, the Court of Appeals reconsidered its Amended Decision of May 21, 1998 and reinstated its Decision of

Petitioners claim overpayment to Shoemart. As such, they had the burden of proof. The following communications between the parties

November 27, 1996.[24] Spouses Hanopol sought reconsideration of said Resolution but the appellate court denied the same in its

reveal a different picture of what actually transpired between them:

Resolution dated March 9, 1999. Hence, the petition for review on certiorari subject of G.R. No. 137774.

(a) Letter dated February 13, 1987 from Cesar S. Valdez, Credit Collection Manager, informing Beatriz Hanopol that the ten (10)

On December 29, 2000, the Court of Appeals rendered a Decision in CA-G.R. SP No. 56691, sustaining the Order of the RTC of

checks she issued were returned unpaid for insufficient funds and advising her to make payments via Managers Check to improve her

Paraaque which dismissed Civil Case No. 97-059 on the grounds of litis pendentia and forum-shopping.[25] Spouses Hanopol sought

payment record;[33]

reconsideration[26] but the appellate court in its Resolution dated May 23, 2001 denied the same.[27] Hence, the petition subject of

(b) Letter dated March 23, 1987 from Antoinette P. Garcia informing Beatriz Hanopol that her checks were returned twice for

G.R. No. 148185.

insufficiency of funds and that she should make her payment via Managers Check;[34]

Upon motion of spouses Hanopol,[28] G.R. Nos. 137774 and 148185 were consolidated.[29]

(c) Letter dated May 30, 1987 from Antoinette P. Garcia informing Beatriz Hanopol of the approval of her repayment plan in connection

In G.R. No. 137774, petitioners spouses Hanopol question the factual findings and conclusions of law of the Court of Appeals

with her past due accounts, and likewise informing her of the terms and conditions thereof;[35]

contending that: the appellate court made a serious misapprehension of facts; such findings are even conflicting and contrary to the

(d) Letter dated September 4, 1987 from Antoinette P. Garcia advising Beatriz Hanopol of her failure to comply with the terms and

findings of the trial court; the findings of credibility of a witness by the trial court cannot be overturned by the appellate court; the

conditions of her repayment plan and demanding that she update her accounts with Shoemart;[36]

appellate court gravely erred when it did not consider the doctrine of estoppel against Shoemart on the report of the commission on

(e) Letter dated December 4, 1987, confirming Manuel Hanopols commitment to submit to Shoemart a final payment proposal for his

accounting, referred to by adversarial counsel "as the best evidence"; and the appellate court misappreciated the evidentiary weight of

total past due obligations as of December 2, 1987.[37]

the unsupported open-ended, forged so-called "ledger" which cannot overcome the validity and admissibility of primary evidence

(f) Letter dated December 9, 1987 addressed to Cesar Valdez from Atty. Jose Torregoza, counsel for Manuel Hanopol, advising

"composed of detailed statement of account and the official receipts of payment both issued by Shoemart and Sps. Hanopol".

Shoemart that they will avail of the Banco de Oro (BDO) loan to pay their accountabilities instead of the repayment plan earlier

In petitions for review, the jurisdiction of this Court in cases brought before it from the Court of Appeals is limited to reviewing questions

proposed;[38]

of law which involves no examination of the probative value of the evidence presented by the litigants or any of them.[30] The

(g) Memorandum dated December 14, 1987 from Antoinette Garcia addressed to BDO Manager Tessie Sy Coson seeking the

Supreme Court is not a trier of facts; it is not our function to analyze or weigh evidence all over again. Accordingly, findings of fact of

approval of the BDO loan to be secured by Beatriz Hanopol to enable her to pay her principal obligation with Shoemart;[39]

the appellate court are generally conclusive on the Supreme Court.

(h) Letter dated February 2, 1988 addressed to Cesar Valdez from Elisa O. Go, Manager of Retail Banking Unit-Account Management

However, this rule is not without exceptions, to wit: (1) when the conclusion is a finding grounded entirely on speculations, surmises or

Group, and Violeta V. Luym, Senior Vice-President of Marketing of Banco de Oro, informing Mr. Valdez that the executive committee of

conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4)

BDO has approved the proposed loan in favor of the spouses Hanopol;[40]

when the judgment is based on a misapprehension of facts; (5) when the finding of fact are conflicting; (6) when the Court of Appeals,

(i) Letter dated February 15, 1988 addressed to Wilhelmina Guico, Account Manager of Shoemart, from Manuel Hanopol requesting

Antoinette P. Garcia, then Assistant Credit Manager of Shoemart, had confirmed the commitment of the former to submit a final

for copies of detailed products and items purchased by their credit cardholders in preparation for the signing of their loan with Banco

payment proposal for total past due obligations.[54] Prior thereto, all communications were addressed solely to petitioner Beatriz T.

de Oro;[41]

Hanopol. When petitioner Manuel R. Hanopol started communicating with Shoemart, the latter never dealt with petitioner Beatriz T.

(j) Letter dated February 29, 1988 addressed to Beatriz Hanopol from Cesar Valdez formalizing the agreement to provide the spouses

Hanopol nor was anything heard from her again.

Hanopol with copies of all charge invoices covering their principal indebtedness subject to the conditions that the invoices shall be

Furthermore, as to the allegation of the petitioners that Shoemart breached the contract when the latter failed to furnish them with the

released only after six (6) to twelve (12) months from the date of the letter and that spouses will shoulder the cost of retrieving the said

requisite documents by which their liability may be determined, namely: charge invoices, purchase booklets and purchase journal, as

invoices, inasmuch as the documents have long been stored in the warehouses together with the invoices of other

provided in their contract -- We have thoroughly perused the contract between the parties and found that nowhere is it stated therein

cardholders/principals and the sorting process would require additional personnel;[42]

that Shoemart is obliged to provide spouses Hanopol with charge invoices and purchase booklets. The contract simply provides for a

(k) Letter dated March 9, 1988 addressed to Cesar Valdez from Manuel Hanopol stating that he is not denying his responsibility with

provision relative to the Statement of Account, which reads:

Shoemart, and explaining that he is requesting for copies of charge invoices of items purchased by his cardholders for the purpose of

"STATEMENT OF ACCOUNT. A periodic statement of account due from the PRINCIPAL shall be prepared by SHOEMART which

filing a legal action against his delinquent cardholders;[43]

indicates the total amounts due from the PRINCIPAL.

(l) Letter dated March 25, 1988 addressed to Manuel Hanopol from Cesar Valdez explaining the discrepancy in the billings to the

"The PRINCIPAL, or his authorized representative, shall pick up the purchase journal of all purchases made from the 1st to the 15th

spouses Hanopol and informing him of the cost that will be incurred in retrieving the charge invoices which he requested;[44]

day of the month on or before the 25th day of the same month, and for purchases made from the 16th to the last day of the month on

(m) Letter dated June 10, 1988 addressed to Atty. Borcelis from Manuel Hanopol stating that he needed the charge invoices for the

or before the 10th day of the succeeding month from the office of SHOEMART at 400 C. Palanca Sr. Street, San Miguel, Manila, or at

purpose of filing legal action against his delinquent cardholders;[45]

such other place that may later be designated by SHOEMART.

(n) Letter dated June 30, 1988 addressed to Atty. Borcelis from Alipio Abrenica, counsel for the spouses Hanopol, stating that he

"Unless written exception is made by the PRINCIPAL on the correctness of the Statement of Account within three (3) days from receipt

needed the charge invoices requested to enable him to know how much worth of goods his cardholders purchased;[46]

thereof, the correctness of the Statement of Account shall be considered conclusive against the principal".[55]

(o) Letter dated October 19, 1988 addressed to Manuel Hanopol from Cesar Valdez asking the former to acknowledge receipt of all the

It is clear from the foregoing provision that spouses Hanopol had three (3) days to question the correctness of the Statement of

SM charge invoices which were retrieved pursuant to his request covering the period from March 15, 1987 up to October 6, 1987;[47]

Account and their failure to do so would render the Statement conclusive.

(p) Letter dated January 21, 1989 addressed to Atty. Borcelis from Atty. Yadao, counsel for the spouses Hanopol, informing Shoemart

Likewise, a Memorandum dated October 30, 1984 advised all principals, such as petitioners, that if their cardholders should have any

that they are interested in settling the account, except that the spouses Hanopol are out of town.;[48]

question about a particular charge invoice, the principal should advise Shoemart within three (3) months after the date of their

(q) Letter dated February 16, 1989 addressed to Atty. Borcelis from Atty. Yadao requesting for more records to support of the total

transaction, otherwise, their queries may not be satisfied because all invoices will be stored only for three (3) months after which they

purchases of Mr. Hanopols cardholders, this time, from December 4, 1985, when the spouses Hanopol became a guarantor of

shall be disposed of permanently.

Shoemart, up to January 15, 1988;[49]

Petitioners failed to explain their failure to question or take action regarding any discrepancies in the Statement of Account they

(r) Letter dated March 20, 1989 addressed to Atty. Borcelis from Atty. Yadao stating that they did not receive additional records of all

received, doing so only when they had difficulty settling their account with Shoemart. They never raised their claim of overpayment

purchases made by all their cardholders and demanding that the excess payments made by Mr. Hanopol be reimbursed, and

throughout the entire duration of the contract.

demanding further, that all his collaterals be released."[50]

In fact, in a letter dated March 9, 1988, petitioner Manuel R. Hanopol declared that they are not denying their liability as guarantor but

What is clear from the extant evidence is that in the year 1987 and early part of 1988, it was petitioner Beatriz T. Hanopol who was the

merely requesting charge invoices for legal action they will take against delinquent cardholders.[56] In subsequent letters, petitioners

party dealing with Shoemart. She was the one who applied as guarantor for credit cardholders with Shoemart,[51] received the

spouses Hanopol reiterated the purpose of their request for the charge invoices[57] and that they intend to settle their account with

documents relative to the account[52] and dealt with the payments of the account.[53] Verily, petitioner Beatriz T. Hanopol was the

Shoemart.[58] Only when informed in the letter dated March 20, 1989[59] of the impossibility of retrieving the charge invoices from

party most knowledgeable with the credit transactions of her cardholders and her obligations with Shoemart. Surprisingly, she was

December 4, 1985 up to January 15, 1988 (which petitioners had requested in a letter dated February 16, 1989[60]) did petitioners first

never presented as a witness to shed light into her transactions with Shoemart to bolster petitioners claim against the latter.

bring up the issue of overpayment. From the foregoing sequence of events, it can be fairly inferred that it was only then that petitioner

Petitioner Manuel R. Hanopol, who was the only witness presented by petitioners, appears to have become involved personally only

Manuel R. Hanopol was emboldened to claim overpayment since Shoemart had no documents to refute the formers claim.[61]

after the spouses already had problems settling their obligations. In a letter dated December 4, 1987 addressed to Manuel R. Hanopol,

By their silence and inaction, petitioners are deemed to have admitted the correctness of the Statement of Account of Shoemart. They

All the three (3) elements for litis pendentia as a ground for dismissal of an action are present, namely: (a) identity of parties, or at least

are estopped from questioning the veracity of the same and claim overpayment. Shoemart has in its favor the presumption that

such parties who represent the same interest in both actions; (b) identity of rights asserted and relief prayed for, the relief being

acquiescence resulted from a belief that the thing acquiesced in was conformable to the law or fact.[62]

founded on the same facts; and (c) the identity, with respect to the two (2) preceding particulars in the two (2) cases, in such that any

Petitioners should not, after the opportunity to enjoy the benefits of the contract with Shoemart, be allowed to later disown the

judgment that may be rendered in the pending case, regardless of which party is successful, would amount to res judicata in the other.

arrangement with belated allegations of overpayment when the terms thereof ultimately would prove to operate against their hopeful

[66]

expectations.

In the case at bench, the parties are the same; the relief sought in the case before the Court of Appeals and the trial court are the

The principle of estoppel in pais applies wherein when one, by his acts, representations or admissions, or by his own silence when he

same, that is, to permanently enjoin the foreclosure of the real estate mortgage executed by spouses Hanopol in favor of Shoemart;

ought to speak out, intentionally or through culpable negligence, induces another to believe certain facts to exist and such other

and, both are premised on the same facts. The judgment of the Court of Appeals would constitute a bar to the suit before the trial

rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence of such facts.[63]

court.

Contrary to the claim of petitioners, the doctrine of estoppel cannot be applied to Shoemart with respect to the Report of the Chairman

It has been held that where a litigant sues the same party against whom the same action, or actions, for the alleged violation of the

of the Commission on the accounting aspect which its own counsel considered "as the best evidence." Such statement was taken out

same right, and the enforcement of the same relief is/are still pending, the defense of litis pendentia in one case is a bar to the other,

of context. The respondents counsel merely submitted that the Report of the Commission should be read as it is. Indeed, such

and a final judgment in one would constitute res judicata and thus, would cause the dismissal of the rest.[67] Spouses Hanopol may

declaration must be interpreted together with the contents of the Report itself. The Report simply states the details of the hearing

not simply ignore a prior action and bring a second, independent action on the same set of facts while the original action is pending.

conducted by the Commission and its failure to reach a conclusion on the accounting aspect of the case.[64]

Inasmuch as the elements of litis pendentia are present, forum shopping exists. Forum shopping is the institution of two (2) or more

All the foregoing considered, we need not delve further on the proposition of petitioners that the "unsupported open-ended, forged so-

actions or proceedings on the same cause on the supposition that either one or the other court would make a favorable disposition.[68]

called ledger" cannot overcome the validity and admissibility of their primary evidence "composed of detailed statement of account

A party is not permitted to pursue simultaneous remedies in two (2) different courts. This is a practice which ridicules the judicial

and the official receipts of payment both issued by them and Shoemart.

process, plays havoc with the rules on orderly procedure, and is vexatious and unfair to the other parties to the case. [69]

As the burden of proof fell upon them, petitioners must rely upon the strength of their own evidence and not upon the weakness of

Considering that spouses Hanopol had a pending motion for reconsideration before the Court of Appeals in CA-G.R. CV No. 45500

Shoemarts defense.

relating to the foreclosure proceedings of the real estate mortgage executed by the spouses Hanopol in favor of Shoemart, said

Ultimately, spouses Hanopol failed to rebut two (2) presumptions Shoemart had in its favor, to wit: (a) that private transactions have

spouses Hanopol should have raised the issue of Shoemarts alleged manifest bad faith in pursuing with the foreclosure sale and

been fair and regular, and, (b) that the ordinary course of business had been followed.[65] We opine and so hold that the claim of

directed their motion for an injunctive order in the appellate court which still had jurisdiction over the case and the subject matter

overpayment was voiced out more as an afterthought, with no purpose other than to thwart Shoemarts claim against them for

thereof.

payment of their outstanding account and to forestall the extrajudicial foreclosure of the real estate mortgage.

Lastly, the allegation of bias and prejudiced attitude on the part of the appellate court is bereft of proof. Partiality and bad faith cannot

We come now to the matters raised in G.R. No. 148185. Petitioners take exception from the decision of the Court of Appeals

be presumed but must be proved by clear and convincing evidence.[70] Thus, the appellate court is presumed to have acted regularly

sustaining the Order dated September 29, 1997 of the RTC of Paraaque to dismiss the complaint for injunction with damages on the

and with impartiality.

grounds of litis pendentia and forum-shopping, ascribing to the appellate court bias and prejudiced attitude and grave abuse of

In sum, we find that the Court of Appeals committed no reversible error in issuing the Decisions in CA-G.R. CV Nos. 45500 and 56691.

discretion amounting to lack or excess of jurisdiction. They contend that Shoemart acted with manifest bad faith in pursuing with the

WHEREFORE, the consolidated petitions are hereby DENIED. The assailed Decisions of the Court of Appeals in CA-G.R. CV Nos.

foreclosure and auction sale of the property of spouses Hanopol, and, accordingly, should be held liable for damages.

45500 and 56691 are AFFIRMED. No pronouncement as to costs. SO ORDERED.

We are not convinced. We find no reversible error in the decision of the Court of Appeals in CA-G.R. CV 56691 sustaining the Order
dated September 29, 1997 of the Regional Trial Court of Paraaque which dismissed Civil Case No. 97-059 on the ground of litis
pendentia and forum shopping.