EN BANC

G.R. No. L-47362

December 19, 1940
JUAN F. VILLARROEL, recurrente-apelante,
vs.
BERNARDINO ESTRADA, recurrido-apelado.
D. Felipe Agoncillo en representacion del recurrente-appelante.
D. Crispin Oben en representacion del recurrido-apelado.
AVANCEA, Pres.:

a crear y hacer eficaz y exigible su obligacion voluntariamente contraida el

9 de agosto de 1930 en el Exhibito B.
La regla de que una promesa nueva de pagar una deuda prrescrita debe
ser hecha por la misma persona obligada o por otra legalmente autorizada
por ella, no es aplicable al caso presente en que no se exige el
cumplimiento de la obligacion de la obligada orignalmente, sino del que
des pues quiso voluntariamente asumir esta obligacion.
Se confirma la sentencia apelada, con las costas al apelante. Asi se
ordena.
Imperial, Diaz, Laurel, y Horrilleno, MM., estan conformes.

El 9 de mayo de 1912, Alejandro F. Callao, madre del demandado Juan F.

Villarroel, obtuvo de los esposos Mariano Estrada y Severina un prestamo
de P1,000 pagadero al cabo de siete aos (Exhibito A). Alejandra fallecio,
dejando como unico heredero al demandado. Los esposos Mariano Estrada
y Severina fallecieron tambien, dejando como unico heredero al
demandante Bernardino Estrada. El 9 de agosto de 1930, el demandado
suscribio un documento (Exhibito B) por el cual declara en deber al
demandante la cantidad de P1,000, con un interes de 12 por ciento al ao.
Esta accion versa sobre el cobro de esta cantidad.
El Juzgado de primera Instancia de Laguna, en el cual se interpuso esta
accion, condeno al demandado a pagar al demandante la cantidad
reclamada de P1,000 con sus intereses legales de 12 por ciento al ao
desde el 9 de agosto de 1930 hasta su completo pago. Se apelo de esta
sentencia.
Se notara que las partes en la presente causa son, respectivamente, los
unicos herederos de los acreedores y de la deudora originales. Esta accion
se ejercita en virtud de la obligacion que el demandado como unico hijo de
la primitiva deudora contrajo en favor del demandante, unico heredero de
loa primitivos acreedores. Se admite que la cantidad de P1,000 a que se
contrae esta obligacion es la misma deuda de la madre del demandado a
los padres del demandante.
Aunque la accion para recobrar la deuda original ha prescrito ya cuando se
interpuso la demanda en esta causa, la cuestion que se suscita en esta
apelacion es principalmente la de si, no obstante tal prescripcion, es
procedente la accion entablada. Sin embargo, no se funda la presente
accion en la obligacion original contraida por la madre del demandado,
que ya ha prescrito, sino en la que contrajo el demandado el 9 de agosto
de 1930 (Exhibito B) al asumir el cumplimiento de aquella obligacion, ya
prescrita. Siendo el demandado el unico herdero de la primitiva deudora,
con derecho a sucederla en su herencia, aquella deuda con traida por su
madre legalmente, aunque perdio su eficacia por prescripcion, ahora es,
sin embargo, para el una obligacion moral, que es consideracion suficiente

On May 9, 1912, Alejandro F. Callao, the mother of the defendant Juan F.

Villarroel, obtained from the spouses Mariano Estrada and Severina a loan
of P1,000 payable after seven years (Exhibit A). Alejandra died, leaving as
sole heir to the defendant. The spouses Mariano Estrada and Severina also
died, leaving as sole heir the plaintiff Bernardino Estrada. On August 9,
1930, the defendant signed a document (Exhibit B) by which it declares the
applicant to owe the amount of P1,000, with an interest of 12 percent per
year. This action deals with the collection of this amount.
The Court of First Instance of Laguna, in which this action was filed,
ordered the defendant to pay the claimant the claimed amount of P1,000
with his legal interests of 12 percent a year from August 9, 1930 until its
full payment. This sentence is appealed.
It will be noted that the parties to the present case are, respectively, the
sole heirs of the original creditors and debtor. This action is exercised by
virtue of the obligation that the defendant as the only child of the original
debtor contracted in favor of the plaintiff, sole heir of the primitive
creditors. It is admitted that the amount of P1,000 to which this obligation
is incurred is the same debt of the defendant's mother to the plaintiff's
parents.
Although the action to recover the original debt has already been
prescribed when the claim was filed in this case, the question that arises in
this appeal is mainly whether, notwithstanding such a prescription, the
action brought. However, the present action is not based on the original
obligation contracted by the defendant's mother, who has already been

prescribed, but in which the defendant contracted on August 9, 1930

(Exhibit B) upon assuming the fulfillment of that obligation, Already
prescribed. Since the defendant is the sole inheritor of the primitive debtor,
with the right to succeed in his inheritance, that debt, brought by his
mother legally, although it has lost its effectiveness by prescription, is now,
however, for a moral obligation, which is consideration Sufficient to create
and render effective and enforceable its obligation voluntarily contracted
on August 9, 1930 in Exhibit B.
The rule that a new promise to pay a pre-paid debt must be made by the
same obligated person or by another legally authorized by it, is not
applicable to the present case in which it is not required to fulfill the
obligation of the obligee orignally, but Of which he voluntarily wanted to
assume this obligation.
The judgment appealed against is upheld, with costs being paid to the
appellant. That is how it is commanded.
Imperial, Diaz, Laurel, and Horrilleno, MM., concurred.

Celso A. Fernandez for appellants.

Juan C. Jimenez, for appellees.
PARAS, C. J.:
On July 25, 1956, appellants filed against appellees in the Court of First
Instance of Manila a complaint praying for a 20% Christmas bonus for the
years 1954 and 1955. The court a quo on appellees' motion to dismiss,
issued the following order:
Considering the motion to dismiss filed on 15 August, 1956, set for
this morning; considering that at the hearing thereof, only
respondents appeared thru counsel and there was no appearance
for the plaintiffs although the court waited for sometime for them;
considering, however, that petitioners have submitted an
opposition which the court will consider together with the
arguments presented by respondents and the Exhibits marked and
presented, namely, Exhibits 1 to 5, at the hearing of the motion to
dismiss; considering that the action in brief is one to compel
respondents to declare a Christmas bonus for petitioners workers
in the National Development Company; considering that the Court
does not see how petitioners may have a cause of action to secure
such bonus because:
(a) A bonus is an act of liberality and the court takes it that it is not
within its judicial powers to command respondents to be liberal;
(b) Petitioners admit that respondents are not under legal duty to
give such bonus but that they had only ask that such bonus be
given to them because it is a moral obligation of respondents to
give that but as this Court understands, it has no power to compel
a party to comply with a moral obligation (Art. 142, New Civil
Code.).
IN VIEW WHEREOF, dismissed. No pronouncement as to costs.

EN BANC
G.R. No. L-13667

A motion for reconsideration of the afore-quoted order was denied. Hence

this appeal.

April 29, 1960

PRIMITIVO ANSAY, ETC., ET AL., plaintiffs-appellants,

vs.
THE BOARD OF DIRECTORS OF THE NATIONAL DEVELOPMENT
COMPANY, ET AL., defendants-appellees.

Appellants contend that there exists a cause of action in their complaint

because their claim rests on moral grounds or what in brief is defined by
law as a natural obligation.
Since appellants admit that appellees are not under legal obligation to give
such claimed bonus; that the grant arises only from a moral obligation or

the natural obligation that they discussed in their brief, this Court feels it
urgent to reproduce at this point, the definition and meaning of natural
obligation.
Article 1423 of the New Civil Code classifies obligations into civil or natural.
"Civil obligations are a right of action to compel their performance. Natural
obligations, not being based on positive law but on equity and natural law,
do not grant a right of action to enforce their performance, but after
voluntary fulfillment by the obligor, they authorize the retention of what
has been delivered or rendered by reason thereof".
It is thus readily seen that an element of natural obligation before it can be
cognizable by the court is voluntary fulfillment by the obligor. Certainly
retention can be ordered but only after there has been voluntary
performance. But here there has been no voluntary performance. In fact,
the court cannot order the performance.
At this point, we would like to reiterate what we said in the case of
Philippine Education Co. vs. CIR and the Union of Philippine Education Co.,
Employees (NUL) (92 Phil., 381; 48 Off. Gaz., 5278)
xxx

xxx

xxx

From the legal point of view a bonus is not a demandable and

enforceable obligation. It is so when it is made a part of the wage
or salary compensation.
And while it is true that the subsequent case of H. E. Heacock vs. National
Labor Union, et al., 95 Phil., 553; 50 Off. Gaz., 4253, we stated that:
Even if a bonus is not demandable for not forming part of the
wage, salary or compensation of an employee, the same may
nevertheless, be granted on equitable consideration as when it was
given in the past, though withheld in succeeding two years from
low salaried employees due to salary increases.
still the facts in said Heacock case are not the same as in the instant one,
and hence the ruling applied in said case cannot be considered in the
present action.
Premises considered, the order appealed from is hereby affirmed, without
pronouncement as to costs.
Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion,
Endencia Barrera and Gutierrez David, JJ., concur.

FIRST DIVISION
G.R. No. L-48889 May 11, 1989
DEVELOPMENT BANK OF THE PHILIPPINES (DBP), petitioner,
vs.
THE HONORABLE MIDPAINTAO L. ADIL, Judge of the Second Branch
of the Court of First Instance of Iloilo and SPOUSES PATRICIO
CONFESOR and JOVITA VILLAFUERTE, respondents.

GANCAYCO, J.:
The issue posed in this petition for review on certiorari is the validity of a
promissory note which was executed in consideration of a previous
promissory note the enforcement of which had been barred by
prescription.
On February 10, 1940 spouses Patricio Confesor and Jovita Villafuerte
obtained an agricultural loan from the Agricultural and Industrial Bank
(AIB), now the Development of the Philippines (DBP), in the sum of
P2,000.00, Philippine Currency, as evidenced by a promissory note of said
date whereby they bound themselves jointly and severally to pay the
account in ten (10) equal yearly amortizations. As the obligation remained
outstanding and unpaid even after the lapse of the aforesaid ten-year
period, Confesor, who was by then a member of the Congress of the
Philippines, executed a second promissory note on April 11, 1961 expressly
acknowledging said loan and promising to pay the same on or before June
15, 1961. The new promissory note reads as follows
I hereby promise to pay the amount covered by my
promissory note on or before June 15, 1961. Upon my
failure to do so, I hereby agree to the foreclosure of my
mortgage. It is understood that if I can secure a certificate
of indebtedness from the government of my back pay I will
be allowed to pay the amount out of it.
Said spouses not having paid the obligation on the specified date, the DBP
filed a complaint dated September 11, 1970 in the City Court of Iloilo City
against the spouses for the payment of the loan.
After trial on the merits a decision was rendered by the inferior court on
December 27, 1976, the dispositive part of which reads as follows:

WHEREFORE, premises considered, this Court renders

judgment, ordering the defendants Patricio Confesor and
Jovita Villafuerte Confesor to pay the plaintiff Development
Bank of the Philippines, jointly and severally, (a) the sum of
P5,760.96 plus additional daily interest of P l.04 from
September 17, 1970, the date Complaint was filed, until
said amount is paid; (b) the sum of P576.00 equivalent to
ten (10%) of the total claim by way of attorney's fees and
incidental expenses plus interest at the legal rate as of
September 17,1970, until fully paid; and (c) the costs of
the suit.
Defendants-spouses appealed therefrom to the Court of First Instance of
Iloilo wherein in due course a decision was rendered on April 28, 1978
reversing the appealed decision and dismissing the complaint and counterclaim with costs against the plaintiff.
A motion for reconsideration of said decision filed by plaintiff was denied in
an order of August 10, 1978. Hence this petition wherein petitioner alleges
that the decision of respondent judge is contrary to law and runs counter
to decisions of this Court when respondent judge (a) refused to recognize
the law that the right to prescription may be renounced or waived; and (b)
that in signing the second promissory note respondent Patricio Confesor
can bind the conjugal partnership; or otherwise said respondent became
liable in his personal capacity. The petition is impressed with merit. The
right to prescription may be waived or renounced. Article 1112 of Civil
Code provides:
Art. 1112. Persons with capacity to alienate property may
renounce prescription already obtained, but not the right to
prescribe in the future.
Prescription is deemed to have been tacitly renounced
when the renunciation results from acts which imply the
abandonment of the right acquired.
There is no doubt that prescription has set in as to the first promissory note
of February 10, 1940. However, when respondent Confesor executed the
second promissory note on April 11, 1961 whereby he promised to pay the
amount covered by the previous promissory note on or before June 15,
1961, and upon failure to do so, agreed to the foreclosure of the mortgage,
said respondent thereby effectively and expressly renounced and waived
his right to the prescription of the action covering the first promissory note.
This Court had ruled in a similar case that

... when a debt is already barred by prescription, it cannot

be enforced by the creditor. But a new contract recognizing
and assuming the prescribed debt would be valid and
enforceable ... . 1
Thus, it has been held
Where, therefore, a party acknowledges the correctness of
a debt and promises to pay it after the same has
prescribed and with full knowledge of the prescription he
thereby waives the benefit of prescription. 2
This is not a mere case of acknowledgment of a debt that has prescribed
but a new promise to pay the debt. The consideration of the new
promissory note is the pre-existing obligation under the first promissory
note. The statutory limitation bars the remedy but does not discharge the
debt.
A new express promise to pay a debt barred ... will take the
case from the operation of the statute of limitations as this
proceeds upon the ground that as a statutory limitation
merely bars the remedy and does not discharge the debt,
there is something more than a mere moral obligation to
support a promise, to wit a pre-existing debt which is a
sufficient consideration for the new the new promise; upon
this sufficient consideration constitutes, in fact, a new
cause of action. 3
... It is this new promise, either made in express terms or
deduced from an acknowledgement as a legal implication,
which is to be regarded as reanimating the old promise, or
as imparting vitality to the remedy (which by lapse of time
had become extinct) and thus enabling the creditor to
recover upon his original contract. 4
However, the court a quo held that in signing the promissory note alone,
respondent Confesor cannot thereby bind his wife, respondent Jovita
Villafuerte, citing Article 166 of the New Civil Code which provides:
Art. 166. Unless the wife has been declared a non compos
mentis or a spend thrift, or is under civil interdiction or is
confined in a leprosarium, the husband cannot alienate or
encumber any real property of the conjugal partnership
without, the wife's consent. If she ay compel her to refuses
unreasonably to give her consent, the court m grant the
same.

We disagree. Under Article 165 of the Civil Code, the husband is the
administrator of the conjugal partnership. As such administrator, all debts
and obligations contracted by the husband for the benefit of the conjugal
partnership, are chargeable to the conjugal partnership. 5 No doubt, in this
case, respondent Confesor signed the second promissory note for the
benefit of the conjugal partnership. Hence the conjugal partnership is liable
for this obligation.
WHEREFORE, the decision subject of the petition is reversed and set aside
and another decision is hereby rendered reinstating the decision of the City
Court of Iloilo City of December 27, 1976, without pronouncement as to
costs in this instance. This decision is immediately executory and no
motion for extension of time to file motion for reconsideration shall be
granted.
SO ORDERED.
Narvasa and Cruz, JJ., concur.
Grio-Aquino, J., took no part.

EN BANC
G.R. No. L-3756

June 30, 1952

SAGRADA ORDEN DE PREDICADORES DEL SANTISMO ROSARIO DE

FILIPINAS, plaintiff-appellee,
vs.
NATIONAL COCONUT CORPORATION, defendant-appellant.
First Assistant Corporate Counsel Federico C. Alikpala and Assistant
Attorney Augusto Kalaw for appellant.
Ramirez and Ortigas for appellee.
LABRADOR, J.:
This is an action to recover the possession of a piece of real property (land
and warehouses) situated in Pandacan Manila, and the rentals for its
occupation and use. The land belongs to the plaintiff, in whose name the
title was registered before the war. On January 4, 1943, during the
Japanese military occupation, the land was acquired by a Japanese
corporation by the name of Taiwan Tekkosho for the sum of P140,00, and
thereupon title thereto issued in its name (transfer certificate of title No.

64330, Register of Deeds, Manila). After liberation, more specifically on

April 4, 1946, the Alien Property Custodian of the United States of America
took possession, control, and custody thereof under section 12 of the
Trading with the Enemy Act, 40 Stat., 411, for the reason that it belonged
to an enemy national. During the year 1946 the property was occupied by
the Copra Export Management Company under a custodianship agreement
with United States Alien Property Custodian (Exhibit G), and when it
vacated the property it was occupied by the defendant herein. The
Philippine Government made representations with the Office Alien Property
Custodian for the use of property by the Government (see Exhibits 2, 2-A,
2-B, and 1). On March 31, 1947, the defendant was authorized to repair the
warehouse on the land, and actually spent thereon the repairs the sum of
P26,898.27. In 1948, defendant leased one-third of the warehouse to one
Dioscoro Sarile at a monthly rental of P500, which was later raised to
P1,000 a month. Sarile did not pay the rents, so action was brought against
him. It is not shown, however, if the judgment was ever executed.
Plaintiff made claim to the property before the Alien Property Custodian of
the United States, but as this was denied, it brought an action in court
(Court of First Instance of Manila, civil case No. 5007, entitled "La Sagrada
Orden Predicadores de la Provinicia del Santisimo Rosario de Filipinas," vs.
Philippine Alien Property Administrator, defendant, Republic of the
Philippines, intervenor) to annul the sale of property of Taiwan Tekkosho,
and recover its possession. The Republic of the Philippines was allowed to
intervene in the action. The case did not come for trial because the parties
presented a joint petition in which it is claimed by plaintiff that the sale in
favor of the Taiwan Tekkosho was null and void because it was executed
under threats, duress, and intimidation, and it was agreed that the title
issued in the name of the Taiwan Tekkosho be cancelled and the original
title of plaintiff re-issued; that the claims, rights, title, and interest of the
Alien Property Custodian be cancelled and held for naught; that the
occupant National Coconut Corporation has until February 28, 1949, to
recover its equipment from the property and vacate the premises; that
plaintiff, upon entry of judgment, pay to the Philippine Alien Property
Administration the sum of P140,000; and that the Philippine Alien Property
Administration be free from responsibility or liability for any act of the
National Coconut Corporation, etc. Pursuant to the agreement the court
rendered judgment releasing the defendant and the intervenor from
liability, but reversing to the plaintiff the right to recover from the National
Coconut Corporation reasonable rentals for the use and occupation of the
premises. (Exhibit A-1.)
The present action is to recover the reasonable rentals from August, 1946,
the date when the defendant began to occupy the premises, to the date it
vacated it. The defendant does not contest its liability for the rentals at the
rate of P3,000 per month from February 28, 1949 (the date specified in the
judgment in civil case No. 5007), but resists the claim therefor prior to this

date. It interposes the defense that it occupied the property in good faith,
under no obligation whatsoever to pay rentals for the use and occupation
of the warehouse. Judgment was rendered for the plaintiff to recover from
the defendant the sum of P3,000 a month, as reasonable rentals, from
August, 1946, to the date the defendant vacates the premises. The
judgment declares that plaintiff has always been the owner, as the sale of
Japanese purchaser was void ab initio; that the Alien Property
Administration never acquired any right to the property, but that it held the
same in trust until the determination as to whether or not the owner is an
enemy citizen. The trial court further declares that defendant can not claim
any better rights than its predecessor, the Alien Property Administration,
and that as defendant has used the property and had subleased portion
thereof, it must pay reasonable rentals for its occupation.
Against this judgment this appeal has been interposed, the following
assignment of error having been made on defendant-appellant's behalf:
The trial court erred in holding the defendant liable for rentals or
compensation for the use and occupation of the property from the
middle of August, 1946, to December 14, 1948.
1. Want to "ownership rights" of the Philippine Alien Property
Administration did not render illegal or invalidate its grant to the
defendant of the free use of property.
2. the decision of the Court of First Instance of Manila declaring the
sale by the plaintiff to the Japanese purchaser null and void ab
initio and that the plaintiff was and has remained as the legal
owner of the property, without legal interruption, is not conclusive.
3. Reservation to the plaintiff of the right to recover from the
defendant corporation not binding on the later;
4. Use of the property for commercial purposes in itself alone does
not justify payment of rentals.
5. Defendant's possession was in good faith.
6. Defendant's possession in the nature of usufruct.
In reply, plaintiff-appellee's counsel contends that the Philippine Allien
Property Administration (PAPA) was a mere administrator of the owner
(who ultimately was decided to be plaintiff), and that as defendant has
used it for commercial purposes and has leased portion of it, it should be

responsible therefore to the owner, who had been deprived of the

possession for so many years. (Appellee's brief, pp. 20, 23.)
We can not understand how the trial court, from the mere fact that
plaintiff-appellee was the owner of the property and the defendantappellant the occupant, which used for its own benefit but by the express
permission of the Alien Property Custodian of the United States, so easily
jumped to the conclusion that the occupant is liable for the value of such
use and occupation. If defendant-appellant is liable at all, its obligations,
must arise from any of the four sources of obligations, namley, law,
contract or quasi-contract, crime, or negligence. (Article 1089, Spanish
Civil Code.) Defendant-appellant is not guilty of any offense at all, because
it entered the premises and occupied it with the permission of the entity
which had the legal control and administration thereof, the Allien Property
Administration. Neither was there any negligence on its part. There was
also no privity (of contract or obligation) between the Alien Property
Custodian and the Taiwan Tekkosho, which had secured the possession of
the property from the plaintiff-appellee by the use of duress, such that the
Alien Property Custodian or its permittee (defendant-appellant) may be
held responsible for the supposed illegality of the occupation of the
property by the said Taiwan Tekkosho. The Allien Property Administration
had the control and administration of the property not as successor to the
interests of the enemy holder of the title, the Taiwan Tekkosho, but by
express provision of law (Trading with the Enemy Act of the United States,
40 Stat., 411; 50 U.S.C.A., 189). Neither is it a trustee of the former owner,
the plaintiff-appellee herein, but a trustee of then Government of the
United States (32 Op. Atty. Gen. 249; 50 U.S.C.A. 283), in its own right, to
the exclusion of, and against the claim or title of, the enemy owner.
(Youghioheny & Ohio Coal Co. vs. Lasevich [1920], 179 N.W., 355; 171 Wis.,
347; U.S.C.A., 282-283.) From August, 1946, when defendant-appellant
took possession, to the late of judgment on February 28, 1948, Allien
Property Administration had the absolute control of the property as trustee
of the Government of the United States, with power to dispose of it by sale
or otherwise, as though it were the absolute owner. (U.S vs. Chemical
Foundation [C.C.A. Del. 1925], 5 F. [2d], 191; 50 U.S.C.A., 283.) Therefore,
even if defendant-appellant were liable to the Allien Property
Administration for rentals, these would not accrue to the benefit of the
plaintiff-appellee, the owner, but to the United States Government.
But there is another ground why the claim or rentals can not be made
against defendant-appellant. There was no agreement between the Alien
Property Custodian and the defendant-appellant for the latter to pay
rentals on the property. The existence of an implied agreement to that
effect is contrary to the circumstances. The copra Export Management
Company, which preceded the defendant-appellant, in the possession and
use of the property, does not appear to have paid rentals therefor, as it
occupied it by what the parties denominated a "custodianship agreement,"

and there is no provision therein for the payment of rentals or of any

compensation for its custody and or occupation and the use. The Trading
with the Enemy Act, as originally enacted, was purely a measure of
conversation, hence, it is very unlikely that rentals were demanded for the
use of the property. When the National coconut Corporation succeeded the
Copra Export Management Company in the possession and use of the
property, it must have been also free from payment of rentals, especially
as it was Government corporation, and steps where then being taken by
the Philippine Government to secure the property for the National Coconut
Corporation. So that the circumstances do not justify the finding that there
was an implied agreement that the defendant-appellant was to pay for the
use and occupation of the premises at all.
The above considerations show that plaintiff-appellee's claim for rentals
before it obtained the judgment annulling the sale of the Taiwan Tekkosho
may not be predicated on any negligence or offense of the defendantappellant, or any contract, express or implied, because the Allien Property
Administration was neither a trustee of plaintiff-appellee, nor a privy to the
obligations of the Taiwan Tekkosho, its title being based by legal provision
of the seizure of enemy property. We have also tried in vain to find a law or
provision thereof, or any principle in quasi contracts or equity, upon which
the claim can be supported. On the contrary, as defendant-appellant
entered into possession without any expectation of liability for such use
and occupation, it is only fair and just that it may not be held liable
therefor. And as to the rents it collected from its lessee, the same should
accrue to it as a possessor in good faith, as this Court has already
expressly held. (Resolution, National Coconut Corporation vs. Geronimo, 83
Phil. 467.)
Lastly, the reservation of this action may not be considered as vesting a
new right; if no right to claim for rentals existed at the time of the
reservation, no rights can arise or accrue from such reservation alone.
Wherefore, the part of the judgment appealed from, which sentences
defendant-appellant to pay rentals from August, 1946, to February 28,
1949, is hereby reversed. In all other respects the judgment is affirmed.
Costs of this appeal shall be against the plaintiff-appellee.
Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Montemayor, and Bautista
Angelo, JJ, concur.

SECOND DIVISION
G.R. No. 183204

January 13, 2014

THE METROPOLITAN BANK AND TRUST COMPANY, Petitioner,

vs.
ANA GRACE ROSALES AND YO YUK TO, Respondents.
DECISION
DEL CASTILLO, J.:
Bank deposits, which are in the nature of a simple loan or mutuum, 1 must
be paid upon demand by the depositor.2
This Petition for Review on Certiorari3 under Rule 45 of the Rules of Court
assails the April 2, 2008 Decision 4 and the May 30, 2008 Resolution5 of he
Court of Appeals CA) in CA-G.R. CV No. 89086.
Factual Antecedents
Petitioner Metropolitan Bank and Trust Company is a domestic banking
corporation duly organized and existing under the laws of the Philippines. 6
Respondent Ana Grace Rosales (Rosales) is the owner of China Golden
Bridge Travel Services,7 a travel agency.8 Respondent Yo Yuk To is the
mother of respondent Rosales.9
In 2000, respondents opened a Joint Peso Account10 with petitioners PritilTondo Branch.11 As of August 4, 2004, respondents Joint Peso Account
showed a balance of P2,515,693.52.12
In May 2002, respondent Rosales accompanied her client Liu Chiu Fang, a
Taiwanese National applying for a retirees visa from the Philippine Leisure
and Retirement Authority (PLRA), to petitioners branch in Escolta to open a
savings account, as required by the PLRA.13 Since Liu Chiu Fang could
speak only in Mandarin, respondent Rosales acted as an interpreter for
her.14
On March 3, 2003, respondents opened with petitioners Pritil-Tondo Branch
a Joint Dollar Account15 with an initial deposit of US$14,000.00.16
On July 31, 2003, petitioner issued a "Hold Out" order against respondents
accounts.17
On September 3, 2003, petitioner, through its Special Audit Department
Head Antonio Ivan Aguirre, filed before the Office of the Prosecutor of
Manila a criminal case for Estafa through False Pretences,
Misrepresentation, Deceit, and Use of Falsified Documents, docketed as I.S.
No. 03I-25014,18 against respondent Rosales.19 Petitioner accused

respondent Rosales and an unidentified woman as the ones responsible for

the unauthorized and fraudulent withdrawal of US$75,000.00 from Liu Chiu
Fangs dollar account with petitioners Escolta Branch. 20 Petitioner alleged
that on February 5, 2003, its branch in Escolta received from the PLRA a
Withdrawal Clearance for the dollar account of Liu Chiu Fang;21 that in the
afternoon of the same day, respondent Rosales went to petitioners Escolta
Branch to inform its Branch Head, Celia A. Gutierrez (Gutierrez), that Liu
Chiu Fang was going to withdraw her dollar deposits in cash;22 that
Gutierrez told respondent Rosales to come back the following day because
the bank did not have enough dollars;23 that on February 6, 2003,
respondent Rosales accompanied an unidentified impostor of Liu Chiu Fang
to the bank;24 that the impostor was able to withdraw Liu Chiu Fangs dollar
deposit in the amount of US$75,000.00;25 that on March 3, 2003,
respondents opened a dollar account with petitioner; and that the bank
later discovered that the serial numbers of the dollar notes deposited by
respondents in the amount of US$11,800.00 were the same as those
withdrawn by the impostor.26
Respondent Rosales, however, denied taking part in the fraudulent and
unauthorized withdrawal from the dollar account of Liu Chiu Fang. 27
Respondent Rosales claimed that she did not go to the bank on February 5,
2003.28 Neither did she inform Gutierrez that Liu Chiu Fang was going to
close her account.29 Respondent Rosales further claimed that after Liu Chiu
Fang opened an account with petitioner, she lost track of her. 30 Respondent
Rosales version of the events that transpired thereafter is as follows:
On February 6, 2003, she received a call from Gutierrez informing her that
Liu Chiu Fang was at the bank to close her account.31 At noon of the same
day, respondent Rosales went to the bank to make a transaction. 32 While
she was transacting with the teller, she caught a glimpse of a woman
seated at the desk of the Branch Operating Officer, Melinda Perez (Perez). 33
After completing her transaction, respondent Rosales approached Perez
who informed her that Liu Chiu Fang had closed her account and had
already left.34 Perez then gave a copy of the Withdrawal Clearance issued
by the PLRA to respondent Rosales.35 On June 16, 2003, respondent Rosales
received a call from Liu Chiu Fang inquiring about the extension of her
PLRA Visa and her dollar account.36 It was only then that Liu Chiu Fang
found out that her account had been closed without her knowledge. 37
Respondent Rosales then went to the bank to inform Gutierrez and Perez of
the unauthorized withdrawal.38 On June 23, 2003, respondent Rosales and
Liu Chiu Fang went to the PLRA Office, where they were informed that the
Withdrawal Clearance was issued on the basis of a Special Power of
Attorney (SPA) executed by Liu Chiu Fang in favor of a certain Richard So. 39
Liu Chiu Fang, however, denied executing the SPA.40 The following day,
respondent Rosales, Liu Chiu Fang, Gutierrez, and Perez met at the PLRA
Office to discuss the unauthorized withdrawal.41 During the conference, the

bank officers assured Liu Chiu Fang that the money would be returned to
her.42
On December 15, 2003, the Office of the City Prosecutor of Manila issued a
Resolution dismissing the criminal case for lack of probable cause. 43
Unfazed, petitioner moved for reconsideration.
On September 10, 2004, respondents filed before the Regional Trial Court
(RTC) of Manila a Complaint44 for Breach of Obligation and Contract with
Damages, docketed as Civil Case No. 04110895 and raffled to Branch 21,
against petitioner. Respondents alleged that they attempted several times
to withdraw their deposits but were unable to because petitioner had
placed their accounts under "Hold Out" status.45 No explanation, however,
was given by petitioner as to why it issued the "Hold Out" order. 46 Thus,
they prayed that the "Hold Out" order be lifted and that they be allowed to
withdraw their deposits.47 They likewise prayed for actual, moral, and
exemplary damages, as well as attorneys fees.48
Petitioner alleged that respondents have no cause of action because it has
a valid reason for issuing the "Hold Out" order.49 It averred that due to the
fraudulent scheme of respondent Rosales, it was compelled to reimburse
Liu Chiu Fang the amount of US$75,000.0050 and to file a criminal
complaint for Estafa against respondent Rosales.51
While the case for breach of contract was being tried, the City Prosecutor
of Manila issued a Resolution dated February 18, 2005, reversing the
dismissal of the criminal complaint.52 An Information, docketed as Criminal
Case No. 05-236103,53 was then filed charging respondent Rosales with
Estafa before Branch 14 of the RTC of Manila.54
Ruling of the Regional Trial Court
On January 15, 2007, the RTC rendered a Decision 55 finding petitioner liable
for damages for breach of contract.56 The RTC ruled that it is the duty of
petitioner to release the deposit to respondents as the act of withdrawal of
a bank deposit is an act of demand by the creditor.57 The RTC also said that
the recourse of petitioner is against its negligent employees and not
against respondents.58 The dispositive portion of the Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered ordering
[petitioner] METROPOLITAN BANK & TRUST COMPANY to allow
[respondents] ANA GRACE ROSALES and YO YUK TO to withdraw their
Savings and Time Deposits with the agreed interest, actual damages of
P50,000.00, moral damages of P50,000.00, exemplary damages of
P30,000.00 and 10% of the amount due [respondents] as and for
attorneys fees plus the cost of suit.

The counterclaim of [petitioner] is hereby DISMISSED for lack of merit.

SO ORDERED.59
Ruling of the Court of Appeals
Aggrieved, petitioner appealed to the CA.
On April 2, 2008, the CA affirmed the ruling of the RTC but deleted the
award of actual damages because "the basis for [respondents] claim for
such damages is the professional fee that they paid to their legal counsel
for [respondent] Rosales defense against the criminal complaint of
[petitioner] for estafa before the Office of the City Prosecutor of Manila and
not this case."60 Thus, the CA disposed of the case in this wise:
WHEREFORE, premises considered, the Decision dated January 15, 2007 of
the RTC, Branch 21, Manila in Civil Case No. 04-110895 is AFFIRMED with
MODIFICATION that the award of actual damages to [respondents] Rosales
and Yo Yuk To is hereby DELETED.
SO ORDERED.61
Petitioner sought reconsideration but the same was denied by the CA in its
May 30, 2008 Resolution.62
Issues
Hence, this recourse by petitioner raising the following issues:
A. THE [CA] ERRED IN RULING THAT THE "HOLD-OUT" PROVISION
IN THE APPLICATION AND AGREEMENT FOR DEPOSIT ACCOUNT
DOES NOT APPLY IN THIS CASE.
B. THE [CA] ERRED WHEN IT RULED THAT PETITIONERS
EMPLOYEES WERE NEGLIGENT IN RELEASING LIU CHIU FANGS
FUNDS.
C. THE [CA] ERRED IN AFFIRMING THE AWARD OF MORAL
DAMAGES, EXEMPLARY DAMAGES, AND ATTORNEYS FEES. 63
Petitioners Arguments
Petitioner contends that the CA erred in not applying the "Hold Out" clause
stipulated in the Application and Agreement for Deposit Account. 64 It posits

that the said clause applies to any and all kinds of obligation as it does not
distinguish between obligations arising ex contractu or ex delictu. 65
Petitioner also contends that the fraud committed by respondent Rosales
was clearly established by evidence;66 thus, it was justified in issuing the
"Hold-Out" order.67 Petitioner likewise denies that its employees were
negligent in releasing the dollars.68 It claims that it was the deception
employed by respondent Rosales that caused petitioners employees to
release Liu Chiu Fangs funds to the impostor.69
Lastly, petitioner puts in issue the award of moral and exemplary damages
and attorneys fees. It insists that respondents failed to prove that it acted
in bad faith or in a wanton, fraudulent, oppressive or malevolent manner. 70
Respondents Arguments
Respondents, on the other hand, argue that there is no legal basis for
petitioner to withhold their deposits because they have no monetary
obligation to petitioner.71 They insist that petitioner miserably failed to
prove its accusations against respondent Rosales. 72 In fact, no
documentary evidence was presented to show that respondent Rosales
participated in the unauthorized withdrawal.73 They also question the fact
that the list of the serial numbers of the dollar notes fraudulently
withdrawn on February 6, 2003, was not signed or acknowledged by the
alleged impostor.74 Respondents likewise maintain that what was
established during the trial was the negligence of petitioners employees
as they allowed the withdrawal of the funds without properly verifying the
identity of the depositor.75 Furthermore, respondents contend that their
deposits are in the nature of a loan; thus, petitioner had the obligation to
return the deposits to them upon demand.76 Failing to do so makes
petitioner liable to pay respondents moral and exemplary damages, as well
as attorneys fees.77
Our Ruling
The Petition is bereft of merit.
At the outset, the relevant issues in this case are (1) whether petitioner
breached its contract with respondents, and (2) if so, whether it is liable for
damages. The issue of whether petitioners employees were negligent in
allowing the withdrawal of Liu Chiu Fangs dollar deposits has no bearing in
the resolution of this case. Thus, we find no need to discuss the same.
The "Hold Out" clause does not apply
to the instant case.

Petitioner claims that it did not breach its contract with respondents
because it has a valid reason for issuing the "Hold Out" order. Petitioner
anchors its right to withhold respondents deposits on the Application and
Agreement for Deposit Account, which reads:
Authority to Withhold, Sell and/or Set Off:
The Bank is hereby authorized to withhold as security for any and all
obligations with the Bank, all monies, properties or securities of the
Depositor now in or which may hereafter come into the possession or
under the control of the Bank, whether left with the Bank for safekeeping
or otherwise, or coming into the hands of the Bank in any way, for so much
thereof as will be sufficient to pay any or all obligations incurred by
Depositor under the Account or by reason of any other transactions
between the same parties now existing or hereafter contracted, to sell in
any public or private sale any of such properties or securities of Depositor,
and to apply the proceeds to the payment of any Depositors obligations
heretofore mentioned.
xxxx

"Hold Out" order as the case is still pending and no final judgment of
conviction has been rendered against respondent Rosales. In fact, it is
significant to note that at the time petitioner issued the "Hold Out" order,
the criminal complaint had not yet been filed. Thus, considering that
respondent Rosales is not liable under any of the five sources of obligation,
there was no legal basis for petitioner to issue the "Hold Out" order.
Accordingly, we agree with the findings of the RTC and the CA that the
"Hold Out" clause does not apply in the instant case.
In view of the foregoing, we find that petitioner is guilty of breach of
contract when it unjustifiably refused to release respondents deposit
despite demand. Having breached its contract with respondents, petitioner
is liable for damages.
Respondents are entitled to moral and
exemplary damages and attorneys fees.1wphi1
In cases of breach of contract, moral damages may be recovered only if
the defendant acted fraudulently or in bad faith,80 or is "guilty of gross
negligence amounting to bad faith, or in wanton disregard of his
contractual obligations."81

JOINT ACCOUNT
xxxx
The Bank may, at any time in its discretion and with or without notice to all
of the Depositors, assert a lien on any balance of the Account and apply all
or any part thereof against any indebtedness, matured or unmatured, that
may then be owing to the Bank by any or all of the Depositors. It is
understood that if said indebtedness is only owing from any of the
Depositors, then this provision constitutes the consent by all of the
depositors to have the Account answer for the said indebtedness to the
extent of the equal share of the debtor in the amount credited to the
Account.78
Petitioners reliance on the "Hold Out" clause in the Application and
Agreement for Deposit Account is misplaced.
The "Hold Out" clause applies only if there is a valid and existing obligation
arising from any of the sources of obligation enumerated in Article 1157 79
of the Civil Code, to wit: law, contracts, quasi-contracts, delict, and quasidelict. In this case, petitioner failed to show that respondents have an
obligation to it under any law, contract, quasi-contract, delict, or quasidelict. And although a criminal case was filed by petitioner against
respondent Rosales, this is not enough reason for petitioner to issue a

In this case, a review of the circumstances surrounding the issuance of the

"Hold Out" order reveals that petitioner issued the "Hold Out" order in bad
faith. First of all, the order was issued without any legal basis. Second,
petitioner did not inform respondents of the reason for the "Hold Out." 82
Third, the order was issued prior to the filing of the criminal complaint.
Records show that the "Hold Out" order was issued on July 31, 2003, 83
while the criminal complaint was filed only on September 3, 2003. 84 All
these taken together lead us to conclude that petitioner acted in bad faith
when it breached its contract with respondents. As we see it then,
respondents are entitled to moral damages.
As to the award of exemplary damages, Article 222985 of the Civil Code
provides that exemplary damages may be imposed "by way of example or
correction for the public good, in addition to the moral, temperate,
liquidated or compensatory damages." They are awarded only if the guilty
party acted in a wanton, fraudulent, reckless, oppressive or malevolent
manner.86
In this case, we find that petitioner indeed acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner when it refused to release the
deposits of respondents without any legal basis. We need not belabor the
fact that the banking industry is impressed with public interest. 87 As such,
"the highest degree of diligence is expected, and high standards of
integrity and performance are even required of it."88 It must therefore

"treat the accounts of its depositors with meticulous care and always to
have in mind the fiduciary nature of its relationship with them." 89 For failing
to do this, an award of exemplary damages is justified to set an example.
The award of attorney's fees is likewise proper pursuant to paragraph 1,
Article 220890 of the Civil Code.
In closing, it must be stressed that while we recognize that petitioner has
the right to protect itself from fraud or suspicions of fraud, the exercise of
his right should be done within the bounds of the law and in accordance
with due process, and not in bad faith or in a wanton disregard of its
contractual obligation to respondents.
WHEREFORE, the Petition is hereby DENIED. The assailed April 2, 2008
Decision and the May 30, 2008 Resolution of the Court of Appeals in CAG.R. CV No. 89086 are hereby AFFIRMED. SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice

THIRD DIVISION
G.R. No. 179337

April 30, 2008

JOSEPH SALUDAGA, petitioner,

vs.
FAR EASTERN UNIVERSITY and EDILBERTO C. DE JESUS in his
capacity as President of FEU, respondents.
DECISION
YNARES-SANTIAGO, J.:
This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court
assails the June 29, 2007 Decision2 of the Court of Appeals in CA-G.R. CV
No. 87050, nullifying and setting aside the November 10, 2004 Decision 3 of
the Regional Trial Court of Manila, Branch 2, in Civil Case No. 98-89483 and
dismissing the complaint filed by petitioner; as well as its August 23, 2007
Resolution4 denying the Motion for Reconsideration.5
The antecedent facts are as follows:

Petitioner Joseph Saludaga was a sophomore law student of respondent Far

Eastern University (FEU) when he was shot by Alejandro Rosete (Rosete),
one of the security guards on duty at the school premises on August 18,
1996. Petitioner was rushed to FEU-Dr. Nicanor Reyes Medical Foundation
(FEU-NRMF) due to the wound he sustained.6 Meanwhile, Rosete was
brought to the police station where he explained that the shooting was
accidental. He was eventually released considering that no formal
complaint was filed against him.
Petitioner thereafter filed a complaint for damages against respondents on
the ground that they breached their obligation to provide students with a
safe and secure environment and an atmosphere conducive to learning.
Respondents, in turn, filed a Third-Party Complaint7 against Galaxy
Development and Management Corporation (Galaxy), the agency
contracted by respondent FEU to provide security services within its
premises and Mariano D. Imperial (Imperial), Galaxy's President, to
indemnify them for whatever would be adjudged in favor of petitioner, if
any; and to pay attorney's fees and cost of the suit. On the other hand,
Galaxy and Imperial filed a Fourth-Party Complaint against AFP General
Insurance.8
On November 10, 2004, the trial court rendered a decision in favor of
petitioner, the dispositive portion of which reads:
WHEREFORE, from the foregoing, judgment is hereby rendered
ordering:
1. FEU and Edilberto de Jesus, in his capacity as president
of FEU to pay jointly and severally Joseph Saludaga the
amount of P35,298.25 for actual damages with 12%
interest per annum from the filing of the complaint until
fully paid; moral damages of P300,000.00, exemplary
damages of P500,000.00, attorney's fees of P100,000.00
and cost of the suit;
2. Galaxy Management and Development Corp. and its
president, Col. Mariano Imperial to indemnify jointly and
severally 3rd party plaintiffs (FEU and Edilberto de Jesus in
his capacity as President of FEU) for the above-mentioned
amounts;
3. And the 4th party complaint is dismissed for lack of
cause of action. No pronouncement as to costs.
SO ORDERED.9

Respondents appealed to the Court of Appeals which rendered the assailed

Decision, the decretal portion of which provides, viz:
WHEREFORE, the appeal is hereby GRANTED. The Decision dated
November 10, 2004 is hereby REVERSED and SET ASIDE. The
complaint filed by Joseph Saludaga against appellant Far Eastern
University and its President in Civil Case No. 98-89483 is
DISMISSED.

condition. This abject indifference on the part of the defendants

continued even after plaintiff was discharged from the hospital
when not even a word of consolation was heard from them. Plaintiff
waited for more than one (1) year for the defendants to perform
their moral obligation but the wait was fruitless. This indifference
and total lack of concern of defendants served to exacerbate
plaintiff's miserable condition.
xxxx

SO ORDERED.10
Petitioner filed a Motion for Reconsideration which was denied; hence, the
instant petition based on the following grounds:
THE COURT OF APPEALS SERIOUSLY ERRED IN MANNER CONTRARY
TO LAW AND JURISPRUDENCE IN RULING THAT:
5.1. THE SHOOTING INCIDENT IS A FORTUITOUS EVENT;
5.2. RESPONDENTS ARE NOT LIABLE FOR DAMAGES FOR THE
INJURY RESULTING FROM A GUNSHOT WOUND SUFFERED BY THE
PETITIONER FROM THE HANDS OF NO LESS THAN THEIR OWN
SECURITY GUARD IN VIOLATION OF THEIR BUILT-IN CONTRACTUAL
OBLIGATION TO PETITIONER, BEING THEIR LAW STUDENT AT THAT
TIME, TO PROVIDE HIM WITH A SAFE AND SECURE EDUCATIONAL
ENVIRONMENT;
5.3. SECURITY GAURD, ALEJANDRO ROSETE, WHO SHOT
PETITIONER WHILE HE WAS WALKING ON HIS WAY TO THE LAW
LIBRARY OF RESPONDENT FEU IS NOT THEIR EMPLOYEE BY VIRTUE
OF THE CONTRACT FOR SECURITY SERVICES BETWEEN GALAXY
AND FEU NOTWITHSTANDING THE FACT THAT PETITIONER, NOT
BEING A PARTY TO IT, IS NOT BOUND BY THE SAME UNDER THE
PRINCIPLE OF RELATIVITY OF CONTRACTS; and
5.4. RESPONDENT EXERCISED DUE DILIGENCE IN SELECTING
GALAXY AS THE AGENCY WHICH WOULD PROVIDE SECURITY
SERVICES WITHIN THE PREMISES OF RESPONDENT FEU. 11
Petitioner is suing respondents for damages based on the alleged breach of
student-school contract for a safe learning environment. The pertinent
portions of petitioner's Complaint read:
6.0. At the time of plaintiff's confinement, the defendants or any of
their representative did not bother to visit and inquire about his

11.0. Defendants are responsible for ensuring the safety of its

students while the latter are within the University premises. And
that should anything untoward happens to any of its students while
they are within the University's premises shall be the responsibility
of the defendants. In this case, defendants, despite being legally
and morally bound, miserably failed to protect plaintiff from injury
and thereafter, to mitigate and compensate plaintiff for said injury;
12.0. When plaintiff enrolled with defendant FEU, a contract was
entered into between them. Under this contract, defendants are
supposed to ensure that adequate steps are taken to provide an
atmosphere conducive to study and ensure the safety of the
plaintiff while inside defendant FEU's premises. In the instant case,
the latter breached this contract when defendant allowed harm to
befall upon the plaintiff when he was shot at by, of all people, their
security guard who was tasked to maintain peace inside the
campus.12
In Philippine School of Business Administration v. Court of Appeals,13 we
held that:
When an academic institution accepts students for enrollment,
there is established a contract between them, resulting in bilateral
obligations which both parties are bound to comply with. For its
part, the school undertakes to provide the student with an
education that would presumably suffice to equip him with the
necessary tools and skills to pursue higher education or a
profession. On the other hand, the student covenants to abide by
the school's academic requirements and observe its rules and
regulations.
Institutions of learning must also meet the implicit or "built-in"
obligation of providing their students with an atmosphere that
promotes or assists in attaining its primary undertaking of
imparting knowledge. Certainly, no student can absorb the
intricacies of physics or higher mathematics or explore the realm of

the arts and other sciences when bullets are flying or grenades
exploding in the air or where there looms around the school
premises a constant threat to life and limb. Necessarily, the school
must ensure that adequate steps are taken to maintain peace and
order within the campus premises and to prevent the breakdown
thereof.14
It is undisputed that petitioner was enrolled as a sophomore law student in
respondent FEU. As such, there was created a contractual obligation
between the two parties. On petitioner's part, he was obliged to comply
with the rules and regulations of the school. On the other hand, respondent
FEU, as a learning institution is mandated to impart knowledge and equip
its students with the necessary skills to pursue higher education or a
profession. At the same time, it is obliged to ensure and take adequate
steps to maintain peace and order within the campus.
It is settled that in culpa contractual, the mere proof of the existence of the
contract and the failure of its compliance justify, prima facie, a
corresponding right of relief.15 In the instant case, we find that, when
petitioner was shot inside the campus by no less the security guard who
was hired to maintain peace and secure the premises, there is a prima
facie showing that respondents failed to comply with its obligation to
provide a safe and secure environment to its students.
In order to avoid liability, however, respondents aver that the shooting
incident was a fortuitous event because they could not have reasonably
foreseen nor avoided the accident caused by Rosete as he was not their
employee;16 and that they complied with their obligation to ensure a safe
learning environment for their students by having exercised due diligence
in selecting the security services of Galaxy.
After a thorough review of the records, we find that respondents failed to
discharge the burden of proving that they exercised due diligence in
providing a safe learning environment for their students. They failed to
prove that they ensured that the guards assigned in the campus met the
requirements stipulated in the Security Service Agreement. Indeed, certain
documents about Galaxy were presented during trial; however, no
evidence as to the qualifications of Rosete as a security guard for the
university was offered.
Respondents also failed to show that they undertook steps to ascertain and
confirm that the security guards assigned to them actually possess the
qualifications required in the Security Service Agreement. It was not
proven that they examined the clearances, psychiatric test results, 201
files, and other vital documents enumerated in its contract with Galaxy.
Total reliance on the security agency about these matters or failure to

check the papers stating the qualifications of the guards is negligence on

the part of respondents. A learning institution should not be allowed to
completely relinquish or abdicate security matters in its premises to the
security agency it hired. To do so would result to contracting away its
inherent obligation to ensure a safe learning environment for its students.
Consequently, respondents' defense of force majeure must fail. In order for
force majeure to be considered, respondents must show that no negligence
or misconduct was committed that may have occasioned the loss. An act of
God cannot be invoked to protect a person who has failed to take steps to
forestall the possible adverse consequences of such a loss. One's
negligence may have concurred with an act of God in producing damage
and injury to another; nonetheless, showing that the immediate or
proximate cause of the damage or injury was a fortuitous event would not
exempt one from liability. When the effect is found to be partly the result of
a person's participation - whether by active intervention, neglect or failure
to act - the whole occurrence is humanized and removed from the rules
applicable to acts of God.17
Article 1170 of the Civil Code provides that those who are negligent in the
performance of their obligations are liable for damages. Accordingly, for
breach of contract due to negligence in providing a safe learning
environment, respondent FEU is liable to petitioner for damages. It is
essential in the award of damages that the claimant must have
satisfactorily proven during the trial the existence of the factual basis of
the damages and its causal connection to defendant's acts. 18
In the instant case, it was established that petitioner spent P35,298.25 for
his hospitalization and other medical expenses.19 While the trial court
correctly imposed interest on said amount, however, the case at bar
involves an obligation arising from a contract and not a loan or forbearance
of money. As such, the proper rate of legal interest is six percent (6%) per
annum of the amount demanded. Such interest shall continue to run from
the filing of the complaint until the finality of this Decision. 20 After this
Decision becomes final and executory, the applicable rate shall be twelve
percent (12%) per annum until its satisfaction.
The other expenses being claimed by petitioner, such as transportation
expenses and those incurred in hiring a personal assistant while
recuperating were however not duly supported by receipts. 21 In the
absence thereof, no actual damages may be awarded. Nonetheless,
temperate damages under Art. 2224 of the Civil Code may be recovered
where it has been shown that the claimant suffered some pecuniary loss
but the amount thereof cannot be proved with certainty. Hence, the
amount of P20,000.00 as temperate damages is awarded to petitioner.

As regards the award of moral damages, there is no hard and fast rule in
the determination of what would be a fair amount of moral damages since
each case must be governed by its own peculiar circumstances. 22 The
testimony of petitioner about his physical suffering, mental anguish, fright,
serious anxiety, and moral shock resulting from the shooting incident 23
justify the award of moral damages. However, moral damages are in the
category of an award designed to compensate the claimant for actual
injury suffered and not to impose a penalty on the wrongdoer. The award is
not meant to enrich the complainant at the expense of the defendant, but
to enable the injured party to obtain means, diversion, or amusements that
will serve to obviate the moral suffering he has undergone. It is aimed at
the restoration, within the limits of the possible, of the spiritual status quo
ante, and should be proportionate to the suffering inflicted. Trial courts
must then guard against the award of exorbitant damages; they should
exercise balanced restrained and measured objectivity to avoid suspicion
that it was due to passion, prejudice, or corruption on the part of the trial
court.24 We deem it just and reasonable under the circumstances to award
petitioner moral damages in the amount of P100,000.00.
Likewise, attorney's fees and litigation expenses in the amount of
P50,000.00 as part of damages is reasonable in view of Article 2208 of the
Civil Code.25 However, the award of exemplary damages is deleted
considering the absence of proof that respondents acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.
We note that the trial court held respondent De Jesus solidarily liable with
respondent FEU. In Powton Conglomerate, Inc. v. Agcolicol,26 we held that:
[A] corporation is invested by law with a personality separate and
distinct from those of the persons composing it, such that, save for
certain exceptions, corporate officers who entered into contracts in
behalf of the corporation cannot be held personally liable for the
liabilities of the latter. Personal liability of a corporate director,
trustee or officer along (although not necessarily) with the
corporation may so validly attach, as a rule, only when - (1) he
assents to a patently unlawful act of the corporation, or when he is
guilty of bad faith or gross negligence in directing its affairs, or
when there is a conflict of interest resulting in damages to the
corporation, its stockholders or other persons; (2) he consents to
the issuance of watered down stocks or who, having knowledge
thereof, does not forthwith file with the corporate secretary his
written objection thereto; (3) he agrees to hold himself personally
and solidarily liable with the corporation; or (4) he is made by a
specific provision of law personally answerable for his corporate
action.27

None of the foregoing exceptions was established in the instant case;

hence, respondent De Jesus should not be held solidarily liable with
respondent FEU.
Incidentally, although the main cause of action in the instant case is the
breach of the school-student contract, petitioner, in the alternative, also
holds respondents vicariously liable under Article 2180 of the Civil Code,
which provides:
Art. 2180. The obligation imposed by Article 2176 is demandable
not only for one's own acts or omissions, but also for those of
persons for whom one is responsible.
xxxx
Employers shall be liable for the damages caused by their
employees and household helpers acting within the scope of their
assigned tasks, even though the former are not engaged in any
business or industry.
xxxx
The responsibility treated of in this article shall cease when the
persons herein mentioned prove that they observed all the
diligence of a good father of a family to prevent damage.
We agree with the findings of the Court of Appeals that respondents cannot
be held liable for damages under Art. 2180 of the Civil Code because
respondents are not the employers of Rosete. The latter was employed by
Galaxy. The instructions issued by respondents' Security Consultant to
Galaxy and its security guards are ordinarily no more than requests
commonly envisaged in the contract for services entered into by a
principal and a security agency. They cannot be construed as the element
of control as to treat respondents as the employers of Rosete. 28
As held in Mercury Drug Corporation v. Libunao:29
In Soliman, Jr. v. Tuazon,30 we held that where the security agency
recruits, hires and assigns the works of its watchmen or security
guards to a client, the employer of such guards or watchmen is
such agency, and not the client, since the latter has no hand in
selecting the security guards. Thus, the duty to observe the
diligence of a good father of a family cannot be demanded from
the said client:

 [I]t is settled in our jurisdiction that where the security

agency, as here, recruits, hires and assigns the work of its
watchmen or security guards, the agency is the employer
of such guards or watchmen. Liability for illegal or harmful
acts committed by the security guards attaches to the
employer agency, and not to the clients or customers of
such agency. As a general rule, a client or customer of a
security agency has no hand in selecting who among the
pool of security guards or watchmen employed by the
agency shall be assigned to it; the duty to observe the
diligence of a good father of a family in the selection of the
guards cannot, in the ordinary course of events, be
demanded from the client whose premises or property are
protected by the security guards.
xxxx
The fact that a client company may give instructions or directions
to the security guards assigned to it, does not, by itself, render the
client responsible as an employer of the security guards concerned
and liable for their wrongful acts or omissions. 31
We now come to respondents' Third Party Claim against Galaxy. In
Firestone Tire and Rubber Company of the Philippines v. Tempengko,32 we
held that:
The third-party complaint is, therefore, a procedural device
whereby a 'third party' who is neither a party nor privy to the act or
deed complained of by the plaintiff, may be brought into the case
with leave of court, by the defendant, who acts as third-party
plaintiff to enforce against such third-party defendant a right for
contribution, indemnity, subrogation or any other relief, in respect
of the plaintiff's claim. The third-party complaint is actually
independent of and separate and distinct from the plaintiff's
complaint. Were it not for this provision of the Rules of Court, it
would have to be filed independently and separately from the
original complaint by the defendant against the third-party. But the
Rules permit defendant to bring in a third-party defendant or so to
speak, to litigate his separate cause of action in respect of
plaintiff's claim against a third-party in the original and principal
case with the object of avoiding circuitry of action and unnecessary
proliferation of law suits and of disposing expeditiously in one
litigation the entire subject matter arising from one particular set
of facts.33

Respondents and Galaxy were able to litigate their respective claims and
defenses in the course of the trial of petitioner's complaint. Evidence duly
supports the findings of the trial court that Galaxy is negligent not only in
the selection of its employees but also in their supervision. Indeed, no
administrative sanction was imposed against Rosete despite the shooting
incident; moreover, he was even allowed to go on leave of absence which
led eventually to his disappearance.34 Galaxy also failed to monitor
petitioner's condition or extend the necessary assistance, other than the
P5,000.00 initially given to petitioner. Galaxy and Imperial failed to make
good their pledge to reimburse petitioner's medical expenses.
For these acts of negligence and for having supplied respondent FEU with
an unqualified security guard, which resulted to the latter's breach of
obligation to petitioner, it is proper to hold Galaxy liable to respondent FEU
for such damages equivalent to the above-mentioned amounts awarded to
petitioner.
Unlike respondent De Jesus, we deem Imperial to be solidarily liable with
Galaxy for being grossly negligent in directing the affairs of the security
agency. It was Imperial who assured petitioner that his medical expenses
will be shouldered by Galaxy but said representations were not fulfilled
because they presumed that petitioner and his family were no longer
interested in filing a formal complaint against them.35
WHEREFORE, the petition is GRANTED. The June 29, 2007 Decision of the
Court of Appeals in CA-G.R. CV No. 87050 nullifying the Decision of the trial
court and dismissing the complaint as well as the August 23, 2007
Resolution denying the Motion for Reconsideration are REVERSED and
SET ASIDE. The Decision of the Regional Trial Court of Manila, Branch 2, in
Civil Case No. 98-89483 finding respondent FEU liable for damages for
breach of its obligation to provide students with a safe and secure learning
atmosphere, is AFFIRMED with the following MODIFICATIONS:
a. respondent Far Eastern University (FEU) is ORDERED to pay petitioner
actual damages in the amount of P35,298.25, plus 6% interest per annum
from the filing of the complaint until the finality of this Decision. After this
decision becomes final and executory, the applicable rate shall be twelve
percent (12%) per annum until its satisfaction;
b. respondent FEU is also ORDERED to pay petitioner temperate damages
in the amount of P20,000.00; moral damages in the amount of
P100,000.00; and attorney's fees and litigation expenses in the amount of
P50,000.00;
c. the award of exemplary damages is DELETED.

The Complaint against respondent Edilberto C. De Jesus is DISMISSED.

The counterclaims of respondents are likewise DISMISSED.
Galaxy Development and Management Corporation (Galaxy) and its
president, Mariano D. Imperial are ORDERED to jointly and severally pay
respondent FEU damages equivalent to the above-mentioned amounts
awarded to petitioner.
SO ORDERED.
CONSUELO YNARES-SANTIAGO
Associate Justice

EN BANC

G.R. No. L-36840 May 22, 1973

PEOPLE'S CAR INC., plaintiff-appellant,
vs.
COMMANDO SECURITY SERVICE AGENCY, defendant-appellee.

TEEHANKEE, J.:
In this appeal from the adverse judgment of the Davao court of first
instance limiting plaintiff-appellant's recovery under its complaint to the
sum of P1,000.00 instead of the actual damages of P8,489.10 claimed and
suffered by it as a direct result of the wrongful acts of defendant security
agency's guard assigned at plaintiff's premises in pursuance of their
"Guard Service Contract", the Court finds merit in the appeal and
accordingly reverses the trial court's judgment.
The appeal was certified to this Court by a special division of the Court of
Appeals on a four-to-one vote as per its resolution of April 14, 1973 that
"Since the case was submitted to the court a quo for decision on the
strength of the stipulation of facts, only questions of law can be involved in
the present appeal."
The Court has accepted such certification and docketed this appeal on the
strength of its own finding from the records that plaintiff's notice of appeal

was expressly to this Court (not to the appellate court)" on pure questions
of law" 1 and its record on appeal accordingly prayed that" the
corresponding records be certified and forwarded to the Honorable
Supreme Court." 2 The trial court so approved the same 3 on July 3, 1971
instead of having required the filing of a petition for review of the judgment
sought to be appealed from directly with this Court, in accordance with the
provisions of Republic Act 5440. By some unexplained and hitherto
undiscovered error of the clerk of court, furthermore, the record on appeal
was erroneously forwarded to the appellate court rather than to this Court.
The parties submitted the case for judgment on a stipulation of facts.
There is thus no dispute as to the factual bases of plaintiff's complaint for
recovery of actual damages against defendant, to wit, that under the
subsisting "Guard Service Contract" between the parties, defendantappellee as a duly licensed security service agency undertook in
consideration of the payments made by plaintiff to safeguard and protect
the business premises of (plaintiff) from theft, pilferage, robbery,
vandalism and all other unlawful acts of any person or person prejudicial to
the interest of (plaintiff)." 4
On April 5, 1970 at around 1:00 A.M., however, defendant's security guard
on duty at plaintiff's premises, "without any authority, consent, approval,
knowledge or orders of the plaintiff and/or defendant brought out of the
compound of the plaintiff a car belonging to its customer, and drove said
car for a place or places unknown, abandoning his post as such security
guard on duty inside the plaintiff's compound, and while so driving said car
in one of the City streets lost control of said car, causing the same to fall
into a ditch along J.P. Laurel St., Davao City by reason of which the
plaintiff's complaint for qualified theft against said driver, was blottered in
the office of the Davao City Police Department." 5
As a result of these wrongful acts of defendant's security guard, the car of
plaintiff's customer, Joseph Luy, which had been left with plaintiff for
servicing and maintenance, "suffered extensive damage in the total
amount of P7,079." 6 besides the car rental value "chargeable to
defendant" in the sum of P1,410.00 for a car that plaintiff had to rent and
make available to its said customer to enable him to pursue his business
and occupation for the period of forty-seven (47) days (from April 25 to
June 10, 1970) that it took plaintiff to repair the damaged car, 7 or total
actual damages incurred by plaintiff in the sum of P8,489.10.
Plaintiff claimed that defendant was liable for the entire amount under
paragraph 5 of their contract whereunder defendant assumed "sole
responsibility for the acts done during their watch hours" by its guards,
whereas defendant contended, without questioning the amount of the
actual damages incurred by plaintiff, that its liability "shall not exceed one

thousand (P1,000.00) pesos per guard post" under paragraph 4 of their

contract.
The parties thus likewise stipulated on this sole issue submitted by them
for adjudication, as follows:
Interpretation of the contract, as to the extent of the
liability of the defendant to the plaintiff by reason of the
acts of the employees of the defendant is the only issue to
be resolved.
The defendant relies on Par. 4 of the contract to support its
contention while the plaintiff relies on Par. 5 of the same
contract in support of its claims against the defendant. For
ready reference they are quoted hereunder:
'Par. 4. Party of the Second Part
(defendant) through the negligence of its
guards, after an investigation has been
conducted by the Party of the First Part
(plaintiff) wherein the Party of the Second
Part has been duly represented shall
assume full responsibilities for any loss or
damages that may occur to any property of
the Party of the First Part for which it is
accountable, during the watch hours of the
Party of the Second Part, provided the
same is reported to the Party of the Second
Part within twenty-four (24) hours of the
occurrence, except where such loss or
damage is due to force majeure, provided
however that after the proper investigation
to be made thereof that the guard on post
is found negligent and that the amount of
the loss shall not exceed ONE THOUSAND
(P1,000.00) PESOS per guard post.'
'Par. 5 The party of the Second Part
assumes the responsibility for the proper
performance by the guards employed, of
their duties and (shall) be solely
responsible for the acts done during their
watch hours, the Party of the First Part
being specifically released from any and all
liabilities to the former's employee or to
the third parties arising from the acts or

omissions done by the guard during their

tour of
duty.' ... 8
The trial court, misreading the above-quoted contractual provisions, held
that "the liability of the defendant in favor of the plaintiff falls under
paragraph 4 of the Guard Service Contract" and rendered judgment
"finding the defendant liable to the plaintiff in the amount of P1,000.00
with costs."
Hence, this appeal, which, as already indicated, is meritorious and must be
granted.
Paragraph 4 of the contract, which limits defendant's liability for the
amount of loss or damage to any property of plaintiff to "P1,000.00 per
guard post," is by its own terms applicable only for loss or damage
'through the negligence of its guards ... during the watch hours" provided
that the same is duly reported by plaintiff within 24 hours of the
occurrence and the guard's negligence is verified after proper investigation
with the attendance of both contracting parties. Said paragraph is
manifestly inapplicable to the stipulated facts of record, which involve
neither property of plaintiff that has been lost or damaged at its premises
nor mere negligence of defendant's security guard on duty.
Here, instead of defendant, through its assigned security guards,
complying with its contractual undertaking 'to safeguard and protect the
business premises of (plaintiff) from theft, robbery, vandalism and all other
unlawful acts of any person or persons," defendant's own guard on duty
unlawfully and wrongfully drove out of plaintiffs premises a customer's car,
lost control of it on the highway causing it to fall into a ditch, thereby
directly causing plaintiff to incur actual damages in the total amount of
P8,489.10.
Defendant is therefore undoubtedly liable to indemnify plaintiff for the
entire damages thus incurred, since under paragraph 5 of their contract it
"assumed the responsibility for the proper performance by the guards
employed of their duties and (contracted to) be solely responsible for the
acts done during their watch hours" and "specifically released (plaintiff)
from any and all liabilities ... to the third parties arising from the acts or
omissions done by the guards during their tour of duty." As plaintiff had
duly discharged its liability to the third party, its customer, Joseph Luy, for
the undisputed damages of P8,489.10 caused said customer, due to the
wanton and unlawful act of defendant's guard, defendant in turn was
clearly liable under the terms of paragraph 5 of their contract to indemnify
plaintiff in the same amount.

The trial court's approach that "had plaintiff understood the liability of the
defendant to fall under paragraph 5, it should have told Joseph Luy, owner
of the car, that under the Guard Service Contract, it was not liable for the
damage but the defendant and had Luy insisted on the liability of the
plaintiff, the latter should have challenged him to bring the matter to court.
If Luy accepted the challenge and instituted an action against the plaintiff,
it should have filed a third-party complaint against the Commando Security
Service Agency. But if Luy instituted the action against the plaintiff and the
defendant, the plaintiff should have filed a crossclaim against the latter," 9
was unduly technical and unrealistic and untenable.
Plaintiff was in law liable to its customer for the damages caused the
customer's car, which had been entrusted into its custody. Plaintiff
therefore was in law justified in making good such damages and relying in
turn on defendant to honor its contract and indemnify it for such
undisputed damages, which had been caused directly by the unlawful and
wrongful acts of defendant's security guard in breach of their contract. As
ordained in Article 1159, Civil Code, "obligations arising from contracts
have the force of law between the contracting parties and should be
complied with in good faith."
Plaintiff in law could not tell its customer, as per the trial court's view, that
"under the Guard Service Contract it was not liable for the damage but the
defendant" since the customer could not hold defendant to account for
the damages as he had no privity of contract with defendant. Such an
approach of telling the adverse party to go to court, notwithstanding his
plainly valid claim, aside from its ethical deficiency among others, could
hardly create any goodwill for plaintiff's business, in the same way that
defendant's baseless attempt to evade fully discharging its contractual
liability to plaintiff cannot be expected to have brought it more business.
Worse, the administration of justice is prejudiced, since the court dockets
are unduly burdened with unnecessary litigation.
ACCORDINGLY, the judgment appealed from is hereby reversed and
judgment is hereby rendered sentencing defendant-appellee to pay
plaintiff-appellant the sum of P8,489.10 as and by way of reimbursement
of the stipulated actual damages and expenses, as well as the costs of suit
in both instances. It is so ordered.
Makalintal, Zaldivar, Castro, Fernando, Barredo, Makasiar, Antonio and
Esguerra, JJ., concur.

SECOND DIVISION

G.R. No. L-23749 April 29, 1977

FAUSTINO CRUZ, plaintiff-appellant,
vs.
J. M. TUASON & COMPANY, INC., and GREGORIO ARANETA, INC.,
defendants-appellees.

BARREDO, J.:
Appeal from the order dated August 13, 1964 of the Court of First Instance
of Quezon City in Civil Case No. Q-7751, Faustino Cruz vs. J.M. Tuason &
Co., Inc., and Gregorio Araneta, Inc., dismissing the complaint of appellant
Cruz for the recovery of improvements he has made on appellees' land and
to compel appellees to convey to him 3,000 square meters of land on three
grounds: (1) failure of the complaint to state a cause of action; (2) the
cause of action of plaintiff is unenforceable under the Statute of Frauds;
and (3) the action of the plaintiff has already prescribed.
Actually, a perusal of plaintiff-appellant's complaint below shows that he
alleged two separate causes of action, namely: (1) that upon request of the
Deudors (the family of Telesforo Deudor who laid claim on the land in
question on the strength of an "informacion posesoria" ) plaintiff made
permanent improvements valued at P30,400.00 on said land having an
area of more or less 20 quinones and for which he also incurred expenses
in the amount of P7,781.74, and since defendants-appellees are being
benefited by said improvements, he is entitled to reimbursement from
them of said amounts and (2) that in 1952, defendants availed of plaintiff's
services as an intermediary with the Deudors to work for the amicable
settlement of Civil Case No. Q-135, then pending also in the Court of First
Instance of Quezon City, and involving 50 quinones of land, of Which the
20 quinones aforementioned form part, and notwithstanding his having
performed his services, as in fact, a compromise agreement entered into
on March 16, 1963 between the Deudors and the defendants was approved
by the court, the latter have refused to convey to him the 3,000 square
meters of land occupied by him, (a part of the 20 quinones above) which
said defendants had promised to do "within ten years from and after date
of signing of the compromise agreement", as consideration for his services.
Within the Period allowed by the rules, the defendants filed separate
motions to dismiss alleging three Identical grounds: (1) As regards that
improvements made by plaintiff, that the complaint states no cause of
action, the agreement regarding the same having been made by plaintiff
with the Deudors and not with the defendants, hence the theory of plaintiff
based on Article 2142 of the Code on unjust enrichment is untenable; and

(2) anent the alleged agreement about plaintiffs services as intermediary

in consideration of which, defendants promised to convey to him 3,000
square meters of land, that the same is unenforceable under the Statute of
Frauds, there being nothing in writing about it, and, in any event, (3) that
the action of plaintiff to compel such conveyance has already prescribed.
Plaintiff opposed the motion, insisting that Article 2142 of the applicable to
his case; that the Statute of Frauds cannot be invoked by defendants, not
only because Article 1403 of the Civil Code refers only to "sale of real
property or of an interest therein" and not to promises to convey real
property like the one supposedly promised by defendants to him, but also
because, he, the plaintiff has already performed his part of the agreement,
hence the agreement has already been partly executed and not merely
executory within the contemplation of the Statute; and that his action has
not prescribed for the reason that defendants had ten years to comply and
only after the said ten years did his cause of action accrue, that is, ten
years after March 16, 1963, the date of the approval of the compromise
agreement, and his complaint was filed on January 24, 1964.

reimbursement for the services and expenses stated above

from the defendants.
Defendant J. M. Tuason & Co., Inc. claimed that, insofar as
the plaintiffs claim for the reimbursement of the amounts
of P38,400.00 and P7,781.74 is concerned, it is not a privy
to the plaintiff's agreement to assist the Deudors n
improving the 50 quinones. On the other hand, the plaintiff
countered that, by holding and utilizing the improvements
introduced by him, the defendants are unjustly enriching
and benefiting at the expense of the plaintiff; and that said
improvements constitute a lien or charge of the property
itself

In the motion, dated January 31, 1964, defendant Gregorio

Araneta, Inc. prayed that the complaint against it be
dismissed on the ground that (1) the claim on which the
action is founded is unenforceable under the provision of
the Statute of Frauds; and (2) the plaintiff's action, if any
has already prescribed. In the other motion of February 11,
1964, defendant J. M. Tuason & Co., Inc. sought the
dismissal of the plaintiffs complaint on the ground that it
states no cause of action and on the Identical grounds
stated in the motion to dismiss of defendant Gregorio
Araneta, Inc. The said motions are duly opposed by the
plaintiff.

On the issue that the complaint insofar as it claims the

reimbursement for the services rendered and expenses
incurred by the plaintiff, states no cause of action, the
Court is of the opinion that the same is well-founded. It is
found that the defendants are not parties to the supposed
express contract entered into by and between the plaintiff
and the Deudors for the clearing and improvement of the
50 quinones. Furthermore in order that the alleged
improvement may be considered a lien or charge on the
property, the same should have been made in good faith
and under the mistake as to the title. The Court can take
judicial notice of the fact that the tract of land supposedly
improved by the plaintiff had been registered way back in
1914 in the name of the predecessors-in-interest of
defendant J. M. Tuason & Co., Inc. This fact is confirmed in
the decision rendered by the Supreme Court on July 31,
1956 in Case G. R. No. L-5079 entitled J.M. Tuason & Co.
Inc. vs. Geronimo Santiago, et al., Such being the case, the
plaintiff cannot claim good faith and mistake as to the title
of the land.

From the allegations of the complaint, it appears that, by

virtue of an agreement arrived at in 1948 by the plaintiff
and the Deudors, the former assisted the latter in clearing,
improving, subdividing and selling the large tract of land
consisting of 50 quinones covered by the informacion
posesoria in the name of the late Telesforo Deudor and
incurred expenses, which are valued approximately at
P38,400.00 and P7,781.74, respectively; and, for the
reasons that said improvements are being used and
enjoyed by the defendants, the plaintiff is seeking the

On the issue of statute of fraud, the Court believes that

same is applicable to the instant case. The allegation in
par. 12 of the complaint states that the defendants
promised and agreed to cede, transfer and convey unto the
plaintiff the 3,000 square meters of land in consideration of
certain services to be rendered then. it is clear that the
alleged agreement involves an interest in real property.
Under the provisions of See. 2(e) of Article 1403 of the Civil
Code, such agreement is not enforceable as it is not in
writing and subscribed by the party charged.

Ruling on the motion to dismiss, the trial court issued the herein impugned
order of August 13, 1964:

On the issue of statute of limitations, the Court holds that

the plaintiff's action has prescribed. It is alleged in par. 11
of the complaint that, sometime in 1952, the defendants
approached the plaintiff to prevail upon the Deudors to
enter to a compromise agreement in Civil Case No. Q-135
and allied cases. Furthermore, par. 13 and 14 of the
complaint alleged that the plaintiff acted as emissary of
both parties in conveying their respective proposals and
couter-proposals until the final settlement was effected on
March 16, 1953 and approved by Court on April 11, 1953.
In the present action, which was instituted on January 24,
1964, the plaintiff is seeking to enforce the supposed
agreement entered into between him and the defendants
in 1952, which was already prescribed.

services rendered in effecting the compromise between the

Deudors and defendants;
Under its order of August 3, 1964, this Honorable Court
dismissed the claim for sum of money on the ground that
the complaint does not state a cause of action against
defendants. We respectfully submit:
1. THAT THE COMPLAINT STATES A SUFFICIENT CAUSE OF
ACTION AGAINST DEFENDANTS IN SO FAR AS PLAINTIFF'S
CLAIM FOR PAYMENT OF SERVICES AND REIMBURSEMENT
OF HIS EXPENSES IS CONCERNED.
Said this Honorable Court (at p. 2, Order):

WHEREFORE, the plaintiffs complaint is hereby ordered

DISMISSED without pronouncement as to costs.

ORDER

SO ORDERED. (Pp. 65-69, Rec. on Appeal,)

xxx xxx xxx

On August 22, 1964, plaintiff's counsel filed a motion for reconsideration

dated August 20, 1964 as follows:
Plaintiff through undersigned counsel and to this Honorable
Court, respectfully moves to reconsider its Order bearing
date of 13 August 1964, on the following grounds:
1. THAT THE COMPLAINT STATES A SUFFICIENT CAUSE OF
ACTION AGAINST DEFENDANTS IN SO FAR AS PLAINTIFF'S
CLAIM PAYMENT OF SERVICES AND REIMBURSEMENT OF
HIS EXPENSES, IS CONCERNED;
II. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3,000
SQ. MS., THE SAME HAS NOT PRESCRIBED AND THE
STATUTE OF FRAUDS IS NOT APPLICABLE THERETO;
ARGUMENT
Plaintiff's complaint contains two (2) causes of action the
first being an action for sum of money in the amount of
P7,781.74 representing actual expenses and P38,400.00 as
reasonable compensation for services in improving the 50
quinones now in the possession of defendants. The second
cause of action deals with the 3,000 sq. ms. which
defendants have agreed to transfer into Plaintiff for

On the issue that the complaint, in so far as it claims the

reimbursement for the services rendered and expenses
incurred by the plaintiff, states no cause of action, the
Court is of the opinion that the same is well-founded. It is
found that the defendants are not parties to the supposed
express contract entered into by and between the plaintiff
and the Deudors for the clearing and improvement of the
50 quinones. Furthermore, in order that the alleged
improvement may he considered a lien or charge on the
property, the same should have been made in good faith
and under the mistake as to title. The Court can take
judicial notice of the fact that the tract of land supposedly
improved by the plaintiff had been registered way back in
1914 in the name of the predecessors-in-interest of
defendant J. M. Tuason & Co., Inc. This fact is confirmed in
the decision rendered by the Supreme Court on July 31,
1956 in case G. R. No. L-5079 entitled 'J M. Tuason & Co.,
Inc. vs, Geronimo Santiago, et al.' Such being the case, the
plaintiff cannot claim good faith and mistake as to the title
of the land.
The position of this Honorable Court (supra) is that the
complaint does not state a cause of action in so far as the
claim for services and expenses is concerned because the
contract for the improvement of the properties was solely
between the Deudors and plaintiff, and defendants are not
privies to it. Now, plaintiff's theory is that defendants are

nonetheless liable since they are utilizing and enjoying the

benefit's of said improvements. Thus under paragraph 16
of "he complaint, it is alleged:
(16) That the services and personal
expenses of plaintiff mentioned in
paragraph 7 hereof were rendered and in
fact paid by him to improve, as they in fact
resulted in considerable improvement of
the 50 quinones, and defendants being
now in possession of and utilizing said
improvements should reimburse and pay
plaintiff for such services and expenses.

II. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3,000

SQ. MS. THE SAME HAS NOT PRESCRIBED AND THE
STATUTE OF FRAUDS IS NOT APPLICABLE THERETO.
The Statute of Frauds is CLEARLY inapplicable to this case:
At page 2 of this Honorable Court's order dated 13 August
1964, the Court ruled as follows:
ORDER
xxx xxx xxx
On the issue of statute of fraud, the Court
believes that same is applicable to the
instant Case, The allegation in par. 12 of
the complaint states that the defendants
promised and agree to cede, transfer and
convey unto the plaintiff, 3,000 square
meters of land in consideration of certain
services to be rendered then. It is clear that
the alleged agreement involves an interest
in real property. Under the provisions of
Sec. 2(e) of Article 1403 of the Civil Code,
such agreement is not enforceable as it is
not in writing and subscribed by the party
charged.

Plaintiff's cause of action is premised inter alia, on the

theory of unjust enrichment under Article 2142 of the civil
Code:
ART. 2142. Certain lawful voluntary and
unilateral acts give rise to the juridical
relation of quasi-contract to the end that no
one shill be unjustly enriched or benefited
at the expense of another.
In like vein, Article 19 of the same Code enjoins that:
ART. 19. Every person must, in the exercise of his rights
and in the performance of his duties, act with justice, give
every-one his due and observe honesty and good faith.
We respectfully draw the attention of this Honorable Court
to the fact that ARTICLE 2142 (SUPRA) DEALS WITH QUASICONTRACTS or situations WHERE THERE IS NO CONTRACT
BETWEEN THE PARTIES TO THE ACTION. Further, as we can
readily see from the title thereof (Title XVII), that the Same
bears the designation 'EXTRA CONTRACTUAL OBLIGATIONS'
or obligations which do not arise from contracts. While it is
true that there was no agreement between plaintiff and
defendants herein for the improvement of the 50 quinones
since the latter are presently enjoying and utilizing the
benefits brought about through plaintiff's labor and
expenses, defendants should pay and reimburse him
therefor under the principle that 'no one may enrich
himself at the expense of another.' In this posture, the
complaint states a cause of action against the defendants.

To bring this issue in sharper focus, shall reproduce not

only paragraph 12 of the complaint but also the other
pertinent paragraphs therein contained. Paragraph 12
states thus:
COMPLAINT
xxx xxx xxx
12). That plaintiff conferred with the aforesaid
representatives of defendants several times and on these
occasions, the latter promised and agreed to cede, transfer
and convey unto plaintiff the 3,000 sq. ms. (now known as
Lots 16-B, 17 and 18) which plaintiff was then occupying
and continues to occupy as of this writing, for and in
consideration of the following conditions:

(a) That plaintiff succeed in convincing the

DEUDORS to enter into a compromise
agreement and that such agreement be
actually entered into by and between the
DEUDORS and defendant companies;
(b) That as of date of signing the
compromise agreement, plaintiff shall be
the owner of the 3,000 sq. ms. but the
documents evidencing his title over this
property shall be executed and delivered
by defendants to plaintiff within ten (10)
years from and after date of signing of the
compromise agreement;
(c) That plaintiff shall, without any
monetary expense of his part, assist in
clearing the 20 quinones of its occupants;
13). That in order to effect a compromise between the
parties. plaintiff not only as well acted as emissary of both
parties in conveying their respective proposals and
counter- proposals until succeeded in convinzing the
DEUDORS to settle with defendants amicably. Thus, on
March 16, 1953, a Compromise Agreement was entered
into by and between the DEUDORS and the defendant
companies; and on April 11, 1953, this agreement was
approved by this Honorable Court;
14). That in order to comply with his other obligations
under his agreement with defendant companies, plaintiff
had to confer with the occupants of the property, exposing
himself to physical harm, convincing said occupants to
leave the premises and to refrain from resorting to physical
violence in resisting defendants' demands to vacate;
That plaintiff further assisted defendants'
employees in the actual demolition and
transfer of all the houses within the
perimeter of the 20 quinones until the end
of 1955, when said area was totally cleared
and the houses transferred to another area
designated by the defendants as 'Capt.
Cruz Block' in Masambong, Quezon City.
(Pars. 12, 13 and 14, Complaint; Emphasis
supplied)

From the foregoing, it is clear then the agreement between

the parties mentioned in paragraph 12 (supra) of the
complaint has already been fully EXECUTED ON ONE PART,
namely by the plaintiff. Regarding the applicability of the
statute of frauds (Art. 1403, Civil Code), it has been
uniformly held that the statute of frauds IS APPLICABLE
ONLY TO EXECUTORY CONTRACTS BUT NOT WHERE THE
CONTRACT HAS BEEN PARTLY EXECUTED:
SAME ACTION TO ENFORCE. The statute
of frauds has been uniformly interpreted to
be applicable to executory and not to
completed or contracts. Performance of the
contracts takes it out of the operation of
the statute. ...
The statute of the frauds is not applicable
to contracts which are either totally or
partially performed, on the theory that
there is a wide field for the commission of
frauds in executory contracts which can
only be prevented by requiring them to be
in writing, a facts which is reduced to a
minimum in executed contracts because
the intention of the parties becomes
apparent buy their execution and
execution, in mots cases, concluded the
right the parties. ... The partial
performance may be proved by either
documentary or oral evidence. (At pp. 564565, Tolentino's Civil Code of the
Philippines, Vol. IV, 1962 Ed.; Emphasis
supplied).
Authorities in support of the foregoing rule are legion. Thus
Mr. Justice Moran in his 'Comments on the Rules of Court',
Vol. III, 1974 Ed., at p. 167, states:
2 THE STATUTE OF FRAUDS IS APPLICABLE
ONLY TO EXECUTORY CONTRACTS:
CONTRACTS WHICH ARE EITHER TOTALLY
OR PARTIALLY PERFORMED ARE WITHOUT
THE STATUE. The statute of frauds is
applicable only to executory contracts. It is
neither applicable to executed contracts
nor to contracts partially performed. The

reason is simple. In executory contracts

there is a wide field for fraud because
unless they be in writing there is no
palpable evidence of the intention of the
contracting parties. The statute has been
enacted to prevent fraud. On the other
hand the commission of fraud in executed
contracts is reduced to minimum in
executed contracts because (1) the
intention of the parties is made apparent
by the execution and (2) execution
concludes, in most cases, the rights of the
parties. (Emphasis supplied)
Under paragraphs 13 and 14 of the complaint (supra) one
can readily see that the plaintiff has fulfilled ALL his
obligation under the agreement between him defendants
concerning the 3,000 sq. ms. over which the latter had
agreed to execute the proper documents of transfer. This
fact is further projected in paragraph 15 of the complaint
where plaintiff states;
15). That in or about the middle of 1963,
after all the conditions stated in paragraph
12 hereof had been fulfilled and fully
complied with, plaintiff demanded of said
defendants that they execute the Deed of
Conveyance in his favor and deliver the
title certificate in his name, over the 3,000
sq. ms. but defendants failed and refused
and continue to fail and refuse to heed his
demands. (par. 15, complaint; Emphasis
supplied).
In view of the foregoing, we respectfully submit that this
Honorable court erred in holding that the statute of frauds
is applicable to plaintiff's claim over the 3,000 sq. ms.
There having been full performance of the contract on
plaintiff's part, the same takes this case out of the context
of said statute.
Plaintiff's Cause of Action had NOT Prescribed:
With all due respect to this Honorable court, we also
submit that the Court committed error in holding that this
action has prescribed:

ORDER
xxx xxx xxx
On the issue of the statute of limitations,
the Court holds that the plaintiff's action
has prescribed. It is alleged in par. III of the
complaint that, sometime in 1952, the
defendants approached the plaintiff to
prevail upon the Deudors to enter into a
compromise agreement in Civil Case No. Q135 and allied cases. Furthermore, pars. 13
and 14 of the complaint alleged that
plaintiff acted as emissary of both parties
in conveying their respective proposals and
counter-proposals until the final settlement
was affected on March 16, 1953 and
approved by the Court on April 11, 1953. In
the present actin, which was instituted on
January 24, 1964, the plaintiff is seeking to
enforce the supposed agreement entered
into between him and the defendants in
1952, which has already proscribed. (at p.
3, Order).
The present action has not prescribed, especially when we
consider carefully the terms of the agreement between
plaintiff and the defendants. First, we must draw the
attention of this Honorable Court to the fact that this is an
action to compel defendants to execute a Deed of
Conveyance over the 3,000 sq. ms. subject of their
agreement. In paragraph 12 of the complaint, the terms
and conditions of the contract between the parties are
spelled out. Paragraph 12 (b) of the complaint states:
(b) That as of date of signing the
compromise agreement, plaintiff shall be
the owner of the 3,000 sq. ms. but the
documents evidencing his title over this
property shall be executed and delivered
by defendants to plaintiff within ten (10)
years from and after date of signing of the
compromise agreement. (Emphasis
supplied).

The compromise agreement between defendants and the

Deudors which was conclude through the efforts of
plaintiff, was signed on 16 March 1953. Therefore, the
defendants had ten (10) years signed on 16 March 1953.
Therefore, the defendants had ten (10) years from said
date within which to execute the deed of conveyance in
favor of plaintiff over the 3,000 sq. ms. As long as the 10
years period has not expired, plaintiff had no right to
compel defendants to execute the document and the latter
were under no obligation to do so. Now, this 10-year period
elapsed on March 16, 1963. THEN and ONLY THEN does
plaintiff's cause of action plaintiff on March 17, 1963. Thus,
under paragraph 15, of the complaint (supra) plaintiff
made demands upon defendants for the execution of the
deed 'in or about the middle of 1963.
Since the contract now sought to be enforced was not
reduced to writing, plaintiff's cause of action expires on
March 16, 1969 or six years from March 16, 1963 WHEN
THE CAUSE OF ACTION ACCRUED (Art. 1145, Civil Code).
In this posture, we gain respectfully submit that this
Honorable Court erred in holding that plaintiff's action has
prescribed.
PRAYER
WHEREFORE, it is respectfully prayed that " Honorable
Court reconsider its Order dated August 13, 1964; and
issue another order denying the motions to dismiss of
defendants G. Araneta, Inc. and J. M. Tuason Co. Inc. for
lack of merit. (Pp. 70-85, Record on Appeal.)
Defendants filed an opposition on the main ground that "the arguments
adduced by the plaintiff are merely reiterations of his arguments contained
in his Rejoinder to Reply and Opposition, which have not only been refuted
in herein defendant's Motion to Dismiss and Reply but already passed upon
by this Honorable Court."
On September 7, 1964, the trial court denied the motion for
reconsiderations thus:
After considering the plaintiff's Motion for Reconsideration
of August 20, 1964 and it appearing that the grounds relied
upon in said motion are mere repetition of those already
resolved and discussed by this Court in the order of August

13, 1964, the instant motion is hereby denied and the

findings and conclusions arrived at by the Court in its order
of August 13, 1964 are hereby reiterated and affirmed.
SO ORDERED. (Page 90, Rec. on Appeal.)
Under date of September 24, 1964, plaintiff filed his record on appeal.
In his brief, appellant poses and discusses the following assignments of
error:
I. THAT THE LOWER COURT ERRED IN DISMISSING THE
COMPLAINT ON THE GROUND THAT APPELLANT'S CLAIM
OVER THE 3,000 SQ. MS. IS ALLEGEDLY UNENFORCEABLE
UNDER THE STATUTE OF FRAUDS;
II. THAT THE COURT A QUO FURTHER COMMITTED ERROR
IN DISMISSING APPELLANT'S COMPLAINT ON THE GROUND
THAT HIS CLAIM OVER THE 3,000 SQ. MS. IS ALLEGEDLY
BARRED BY THE STATUTE OF LIMITATIONS; and
III. THAT THE LOWER COURT ERRED IN DISMISSING THE
COMPLAINT FOR FAILURE TO STATE A CAUSE OF ACTION IN
SO FAR AS APPELLANT'S CLAIM FOR REIMBURSEMENT OF
EXPENSES AND FOR SERVICES RENDERED IN THE
IMPROVEMENT OF THE FIFTY (50) QUINONES IS
CONCERNED.
We agree with appellant that the Statute of Frauds was erroneously applied
by the trial court. It is elementary that the Statute refers to specific kinds
of transactions and that it cannot apply to any that is not enumerated
therein. And the only agreements or contracts covered thereby are the
following:
(1) Those entered into in the name of another person by
one who has been given no authority or legal
representation, or who has acted beyond his powers;
(2) Those do not comply with the Statute of Frauds as set
forth in this number, In the following cases an agreement
hereafter made shall be unenforceable by action, unless
the same, or some note or memorandum thereof, be in
writing, and subscribed by the party charged, or by his
agent; evidence, therefore, of the agreement cannot be

received without the writing, or a secondary evidence of its

contents:
(a) An agreement that by its terms is not to
be performed within a year from the
making thereof;
(b) A special promise to answer for the
debt, default, or miscarriage of another;
(c) An agreement made in consideration of
marriage, other than a mutual promise to
marry;
(d) An agreement for the sale of goods,
chattels or things in action, at a price not
less than five hundred pesos, unless the
buyer accept and receive part of such
goods and chattels, or the evidences, or
some of them of such things in action, or
pay at the time some part of the purchase
money; but when a sale is made by auction
and entry is made by the auctioneer in his
sales book, at the time of the sale, of the
amount and kind of property sold, terms of
sale, price, names of the purchasers and
person on whose account the sale is made,
it is a sufficient memorandum:
(e) An agreement for the leasing for a
longer period than one year, or for the sale
of real property or of an interest therein:
(f) a representation as to the credit of a
third person.
(3) Those where both parties are incapable of giving
consent to a contract. (Art. 1403, civil Code.)
In the instant case, what appellant is trying to enforce is the delivery to
him of 3,000 square meters of land which he claims defendants promised
to do in consideration of his services as mediator or intermediary in
effecting a compromise of the civil action, Civil Case No. 135, between the
defendants and the Deudors. In no sense may such alleged contract be
considered as being a "sale of real property or of any interest therein."

Indeed, not all dealings involving interest in real property come under the
Statute.
Moreover, appellant's complaint clearly alleges that he has already fulfilled
his part of the bargains to induce the Deudors to amicably settle their
differences with defendants as, in fact, on March 16, 1963, through his
efforts, a compromise agreement between these parties was approved by
the court. In other words, the agreement in question has already been
partially consummated, and is no longer merely executory. And it is
likewise a fundamental principle governing the application of the Statute
that the contract in dispute should be purely executory on the part of both
parties thereto.
We cannot, however, escape taking judicial notice, in relation to the
compromise agreement relied upon by appellant, that in several cases We
have decided, We have declared the same rescinded and of no effect. In J.
M. Tuason & Co., Inc. vs. Bienvenido Sanvictores, 4 SCRA 123, the Court
held:
It is also worthy of note that the compromise between
Deudors and Tuason, upon which Sanvictores predicates
his right to buy the lot he occupies, has been validly
rescinded and set aside, as recognized by this Court in its
decision in G.R. No. L-13768, Deudor vs. Tuason,
promulgated on May 30, 1961.
We repeated this observation in J.M. Tuason & Co., Inc. vs. Teodosio
Macalindong, 6 SCRA 938. Thus, viewed from what would be the ultimate
conclusion of appellant's case, We entertain grave doubts as to whether or
not he can successfully maintain his alleged cause of action against
defendants, considering that the compromise agreement that he invokes
did not actually materialize and defendants have not benefited therefrom,
not to mention the undisputed fact that, as pointed out by appellees,
appellant's other attempt to secure the same 3,000 square meters via the
judicial enforcement of the compromise agreement in which they were
supposed to be reserved for him has already been repudiated by the
courts. (pp. 5-7. Brief of Appellee Gregorio Araneta, Inc.)
As regards appellant's third assignment of error, We hold that the
allegations in his complaint do not sufficiently Appellants' reliance. on
Article 2142 of Civil Code is misplaced. Said article provides:
Certain lawful, voluntary and unilateral acts give rise to the
juridical relation of quasi-contract to the end that no one
shall be unjustly enriched or benefited at the expense of
another.

From the very language of this provision, it is obvious that a presumed

qauasi-contract cannot emerge as against one party when the subject
mater thereof is already covered by an existing contract with another
party. Predicated on the principle that no one should be allowed to unjustly
enrich himself at the expense of another, Article 2124 creates the legal
fiction of a quasi-contract precisely because of the absence of any actual
agreement between the parties concerned. Corollarily, if the one who
claims having enriched somebody has done so pursuant to a contract with
a third party, his cause of action should be against the latter, who in turn
may, if there is any ground therefor, seek relief against the party
benefited. It is essential that the act by which the defendant is benefited
must have been voluntary and unilateral on the part of the plaintiff. As one
distinguished civilian puts it, "The act is voluntary. because the actor in
quasi-contracts is not bound by any pre-existing obligation to act. It is
unilateral, because it arises from the sole will of the actor who is not
previously bound by any reciprocal or bilateral agreement. The reason why
the law creates a juridical relations and imposes certain obligation is to
prevent a situation where a person is able to benefit or take advantage of
such lawful, voluntary and unilateral acts at the expense of said actor."
(Ambrosio Padilla, Civil Law, Vol. VI, p. 748, 1969 ed.) In the case at bar,
since appellant has a clearer and more direct recourse against the Deudors
with whom he had entered into an agreement regarding the improvements
and expenditures made by him on the land of appellees. it Cannot be said,
in the sense contemplated in Article 2142, that appellees have been
enriched at the expense of appellant.
In the ultimate. therefore, Our holding above that appellant's first two
assignments of error are well taken cannot save the day for him. Aside
from his having no cause of action against appellees, there is one plain
error of omission. We have found in the order of the trial court which is as
good a ground as any other for Us to terminate this case favorably to
appellees. In said order Which We have quoted in full earlier in this opinion,
the trial court ruled that "the grounds relied upon in said motion are mere
repetitions of those already resolved and discussed by this Court in the
order of August 13, 1964", an observation which We fully share. Virtually,
therefore. appellant's motion for reconsideration was ruled to be pro-forma.
Indeed, a cursory reading of the record on appeal reveals that appellant's
motion for reconsideration above-quoted contained exactly the same
arguments and manner of discussion as his February 6, 1964 "Opposition
to Motion to Dismiss" of defendant Gregorio Araneta, Inc. ((pp. 17-25, Rec.
on Appeal) as well as his February 17, 1964 "Opposition to Motion to
Dismiss of Defendant J. M. Tuason & Co." (pp. 33-45, Rec. on Appeal and
his February 29, 1964 "Rejoinder to Reply Oil Defendant J. M. Tuason & Co."
(pp. 52-64, Rec. on Appeal) We cannot see anything in said motion for
reconsideration that is substantially different from the above oppositions
and rejoinder he had previously submitted and which the trial court had
already considered when it rendered its main order of dismissal.

Consequently, appellant's motion for reconsideration did not suspend his

period for appeal. (Estrada vs. Sto. Domingo, 28 SCRA 890, 905-6.) And as
this point was covered by appellees' "Opposition to Motion for
Reconsideration" (pp. 8689), hence, within the frame of the issues below, it
is within the ambit of Our authority as the Supreme Court to consider the
same here even if it is not discussed in the briefs of the parties. (Insular
Life Assurance Co., Ltd. Employees Association-NATU vs. Insular Life
Assurance Co., Ltd. [Resolution en banc of March 10, 1977 in G. R. No. L25291).
Now, the impugned main order was issued on August 13, 1964, while the
appeal was made on September 24, 1964 or 42 days later. Clearly, this is
beyond the 30-day reglementary period for appeal. Hence, the subject
order of dismissal was already final and executory when appellant filed his
appeal.
WHEREFORE, the appeal of Faustino Cruz in this case is dismissed. No
costs.
Fernando (Chairman), Antonio, Aquino and Martin, .JJ., concur.
Concepcion, Jr., JJ., took no part.
Martin, J., was designated to sit in the Second Division.

EN BANC
G.R. No. L-9188 December 4, 1914
GUTIERREZ HERMANOS, plaintiff-appellee,
vs.
ENGRACIO ORENSE, defendant-appellant.
William A. Kincaid, Thos. L. Hartigan, and Ceferino M. Villareal for
appellant.
Rafael de la Sierra for appellee.

TORRES, J.:
Appeal through bill of exceptions filed by counsel for the appellant from the
judgment on April 14, 1913, by the Honorable P. M. Moir, judge, wherein he

sentenced the defendant to make immediate delivery of the property in

question, through a public instrument, by transferring and conveying to the
plaintiff all his rights in the property described in the complaint and to pay
it the sum of P780, as damages, and the costs of the suit.
On March 5, 1913, counsel for Gutierrez Hermanos filed a complaint,
afterwards amended, in the Court of First Instance of Albay against Engacio
Orense, in which he set forth that on and before February 14, 1907, the
defendant Orense had been the owner of a parcel of land, with the
buildings and improvements thereon, situated in the pueblo of Guinobatan,
Albay, the location, area and boundaries of which were specified in the
complaint; that the said property has up to date been recorded in the new
property registry in the name of the said Orense, according to certificate
No. 5, with the boundaries therein given; that, on February 14, 1907, Jose
Duran, a nephew of the defendant, with the latter's knowledge and
consent, executed before a notary a public instrument whereby he sold
and conveyed to the plaintiff company, for P1,500, the aforementioned
property, the vendor Duran reserving to himself the right to repurchase it
for the same price within a period of four years from the date of the said
instrument; that the plaintiff company had not entered into possession of
the purchased property, owing to its continued occupancy by the
defendant and his nephew, Jose Duran, by virtue of a contract of lease
executed by the plaintiff to Duran, which contract was in force up to
February 14, 1911; that the said instrument of sale of the property,
executed by Jose Duran, was publicly and freely confirmed and ratified by
the defendant Orense; that, in order to perfect the title to the said
property, but that the defendant Orense refused to do so, without any
justifiable cause or reason, wherefore he should be compelled to execute
the said deed by an express order of the court, for Jose Duran is
notoriously insolvent and cannot reimburse the plaintiff company for the
price of the sale which he received, nor pay any sum whatever for the
losses and damages occasioned by the said sale, aside from the fact that
the plaintiff had suffered damage by losing the present value of the
property, which was worth P3,000; that, unless such deed of final
conveyance were executed in behalf of the plaintiff company, it would be
injured by the fraud perpetrated by the vendor, Duran, in connivance with
the defendant; that the latter had been occupying the said property since
February 14, 1911, and refused to pay the rental thereof, notwithstanding
the demand made upon him for its payment at the rate of P30 per month,
the just and reasonable value for the occupancy of the said property, the
possession of which the defendant likewise refused to deliver to the
plaintiff company, in spite of the continuous demands made upon him, the
defendant, with bad faith and to the prejudice of the firm of Gutierrez
Hermanos, claiming to have rights of ownership and possession in the said
property. Therefore it was prayed that judgment be rendered by holding
that the land and improvements in question belong legitimately and
exclusively to the plaintiff, and ordering the defendant to execute in the

plaintiff's behalf the said instrument of transfer and conveyance of the

property and of all the right, interest, title and share which the defendant
has therein; that the defendant be sentenced to pay P30 per month for
damages and rental of the property from February 14, 1911, and that, in
case these remedies were not granted to the plaintiff, the defendant be
sentenced to pay to it the sum of P3,000 as damages, together with
interest thereon since the date of the institution of this suit, and to pay the
costs and other legal expenses.
The demurrer filed to the amended complaint was overruled, with
exception on the part of the defendant, whose counsel made a general
denial of the allegations contained in the complaint, excepting those that
were admitted, and specifically denied paragraph 4 thereof to the effect
that on February 14, 1907, Jose Duran executed the deed of sale of the
property in favor of the plaintiff with the defendant's knowledge and
consent.1awphil.net
As the first special defense, counsel for the defendant alleged that the
facts set forth in the complaint with respect to the execution of the deed
did not constitute a cause of action, nor did those alleged in the other form
of action for the collection of P3,000, the value of the realty.
As the second special defense, he alleged that the defendant was the
lawful owner of the property claimed in the complaint, as his ownership
was recorded in the property registry, and that, since his title had been
registered under the proceedings in rem prescribed by Act No. 496, it was
conclusive against the plaintiff and the pretended rights alleged to have
been acquired by Jose Duran prior to such registration could not now
prevail; that the defendant had not executed any written power of attorney
nor given any verbal authority to Jose Duran in order that the latter might,
in his name and representation, sell the said property to the plaintiff
company; that the defendant's knowledge of the said sale was acquired
long after the execution of the contract of sale between Duran and
Gutierrez Hermanos, and that prior thereto the defendant did not
intentionally and deliberately perform any act such as might have induced
the plaintiff to believe that Duran was empowered and authorized by the
defendant and which would warrant him in acting to his own detriment,
under the influence of that belief. Counsel therefore prayed that the
defendant be absolved from the complaint and that the plaintiff be
sentenced to pay the costs and to hold his peace forever.
After the hearing of the case and an examination of the evidence
introduced by both parties, the court rendered the judgment
aforementioned, to which counsel for the defendant excepted and moved
for a new trial. This motion was denied, an exception was taken by the

defendant and, upon presentation of the proper bill of exceptions, the

same was approved, certified and forwarded to the clerk of his court.
This suit involves the validity and efficacy of the sale under right of
redemption of a parcel of land and a masonry house with the nipa roof
erected thereon, effected by Jose Duran, a nephew of the owner of the
property, Engracio Orense, for the sum of P1,500 by means of a notarial
instrument executed and ratified on February 14, 1907.
After the lapse of the four years stipulated for the redemption, the
defendant refused to deliver the property to the purchaser, the firm of
Gutierrez Hermanos, and to pay the rental thereof at the rate of P30 per
month for its use and occupation since February 14, 1911, when the period
for its repurchase terminated. His refusal was based on the allegations that
he had been and was then the owner of the said property, which was
registered in his name in the property registry; that he had not executed
any written power of attorney to Jose Duran, nor had he given the latter
any verbal authorization to sell the said property to the plaintiff firm in his
name; and that, prior to the execution of the deed of sale, the defendant
performed no act such as might have induced the plaintiff to believe that
Jose Duran was empowered and authorized by the defendant to effect the
said sale.
The plaintiff firm, therefore, charged Jose Duran, in the Court of First
Instance of the said province, with estafa, for having represented himself in
the said deed of sale to be the absolute owner of the aforesaid land and
improvements, whereas in reality they did not belong to him, but to the
defendant Orense. However, at the trial of the case Engracio Orense, called
as a witness, being interrogated by the fiscal as to whether he and
consented to Duran's selling the said property under right of redemption to
the firm of Gutierrez Hermanos, replied that he had. In view of this
statement by the defendant, the court acquitted Jose Duran of the charge
of estafa.
As a result of the acquittal of Jose Duran, based on the explicit testimony of
his uncle, Engacio Orense, the owner of the property, to the effect that he
had consented to his nephew Duran's selling the property under right of
repurchase to Gutierrez Hermanos, counsel for this firm filed a complainant
praying, among other remedies, that the defendant Orense be compelled
to execute a deed for the transfer and conveyance to the plaintiff company
of all the right, title and interest with Orense had in the property sold, and
to pay to the same the rental of the property due from February 14,
1911.itc-alf
Notwithstanding the allegations of the defendant, the record in this case
shows that he did give his consent in order that his nephew, Jose Duran,

might sell the property in question to Gutierrez Hermanos, and that he did
thereafter confirm and ratify the sale by means of a public instrument
executed before a notary.
It having been proven at the trial that he gave his consent to the said sale,
it follows that the defendant conferred verbal, or at least implied, power of
agency upon his nephew Duran, who accepted it in the same way by
selling the said property. The principal must therefore fulfill all the
obligations contracted by the agent, who acted within the scope of his
authority. (Civil Code, arts. 1709, 1710 and 1727.)
Even should it be held that the said consent was granted subsequently to
the sale, it is unquestionable that the defendant, the owner of the
property, approved the action of his nephew, who in this case acted as the
manager of his uncle's business, and Orense'r ratification produced the
effect of an express authorization to make the said sale. (Civil Code, arts.
1888 and 1892.)
Article 1259 of the Civil Code prescribes: "No one can contract in the name
of another without being authorized by him or without his legal
representation according to law.
A contract executed in the name of another by one who has
neither his authorization nor legal representation shall be void,
unless it should be ratified by the person in whose name it was
executed before being revoked by the other contracting party.
The sworn statement made by the defendant, Orense, while testifying as a
witness at the trial of Duran for estafa, virtually confirms and ratifies the
sale of his property effected by his nephew, Duran, and, pursuant to article
1313 of the Civil Code, remedies all defects which the contract may have
contained from the moment of its execution.
The sale of the said property made by Duran to Gutierrez Hermanos was
indeed null and void in the beginning, but afterwards became perfectly
valid and cured of the defect of nullity it bore at its execution by the
confirmation solemnly made by the said owner upon his stating under oath
to the judge that he himself consented to his nephew Jose Duran's making
the said sale. Moreover, pursuant to article 1309 of the Code, the right of
action for nullification that could have been brought became legally
extinguished from the moment the contract was validly confirmed and
ratified, and, in the present case, it is unquestionable that the defendant
did confirm the said contract of sale and consent to its execution.
On the testimony given by Engacio Orense at the trial of Duran for estafa,
the latter was acquitted, and it would not be just that the said testimony,

expressive of his consent to the sale of his property, which determined the
acquittal of his nephew, Jose Duran, who then acted as his business
manager, and which testimony wiped out the deception that in the
beginning appeared to have been practiced by the said Duran, should not
now serve in passing upon the conduct of Engracio Orense in relation to
the firm of Gutierrez Hermanos in order to prove his consent to the sale of
his property, for, had it not been for the consent admitted by the
defendant Orense, the plaintiff would have been the victim of estafa.
If the defendant Orense acknowledged and admitted under oath that he
had consented to Jose Duran's selling the property in litigation to Gutierrez
Hermanos, it is not just nor is it permissible for him afterward to deny that
admission, to the prejudice of the purchaser, who gave P1,500 for the said
property.
The contract of sale of the said property contained in the notarial
instrument of February 14, 1907, is alleged to be invalid, null and void
under the provisions of paragraph 5 of section 335 of the Code of Civil
Procedure, because the authority which Orense may have given to Duran
to make the said contract of sale is not shown to have been in writing and
signed by Orense, but the record discloses satisfactory and conclusive
proof that the defendant Orense gave his consent to the contract of sale
executed in a public instrument by his nephew Jose Duran. Such consent
was proven in a criminal action by the sworn testimony of the principal and
presented in this civil suit by other sworn testimony of the same principal
and by other evidence to which the defendant made no objection.
Therefore the principal is bound to abide by the consequences of his
agency as though it had actually been given in writing (Conlu vs. Araneta
and Guanko, 15 Phil. Rep., 387; Gallemit vs. Tabiliran, 20 Phil. Rep., 241;
Kuenzle & Streiff vs. Jiongco, 22 Phil. Rep., 110.)
The repeated and successive statements made by the defendant Orense in
two actions, wherein he affirmed that he had given his consent to the sale
of his property, meet the requirements of the law and legally excuse the
lack of written authority, and, as they are a full ratification of the acts
executed by his nephew Jose Duran, they produce the effects of an express
power of agency.
The judgment appealed from in harmony with the law and the merits of the
case, and the errors assigned thereto have been duly refuted by the
foregoing considerations, so it should be affirmed.
The judgment appealed from is hereby affirmed, with the costs against the
appellant.
Arellano, C.J., Johnson, Carson, Moreland and Araullo, JJ., concur.

THIRD DIVISION
G.R. No. 82670 September 15, 1989
DOMETILA M. ANDRES, doing business under the name and style
"IRENE'S WEARING APPAREL," petitioner,
vs.
MANUFACTURERS HANOVER & TRUST CORPORATION and COURT OF
APPEALS, respondents.
Roque A. Tamayo for petitioner.
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for private
respondent.

CORTES, J.:
Assailed in this petition for review on certiorari is the judgment of the Court
of Appeals, which, applying the doctrine of solutio indebiti, reversed the
decision of the Regional Trial Court, Branch CV, Quezon City by deciding in
favor of private respondent.
Petitioner, using the business name "Irene's Wearing Apparel," was
engaged in the manufacture of ladies garments, children's wear, men's
apparel and linens for local and foreign buyers. Among its foreign buyers
was Facets Funwear, Inc. (hereinafter referred to as FACETS) of the United
States.
In the course of the business transaction between the two, FACETS from
time to time remitted certain amounts of money to petitioner in payment
for the items it had purchased. Sometime in August 1980, FACETS
instructed the First National State Bank of New Jersey, Newark, New Jersey,
U.S.A. (hereinafter referred to as FNSB) to transfer $10,000.00 to petitioner
via Philippine National Bank, Sta. Cruz Branch, Manila (hereinafter referred
to as PNB).
Acting on said instruction, FNSB instructed private respondent
Manufacturers Hanover and Trust Corporation to effect the abovementioned transfer through its facilities and to charge the amount to the
account of FNSB with private respondent. Although private respondent was
able to send a telex to PNB to pay petitioner $10,000.00 through the

Pilipinas Bank, where petitioner had an account, the payment was not
effected immediately because the payee designated in the telex was only
"Wearing Apparel." Upon query by PNB, private respondent sent PNB
another telex dated August 27, 1980 stating that the payment was to be
made to "Irene's Wearing Apparel." On August 28, 1980, petitioner
received the remittance of $10,000.00 through Demand Draft No. 225654
of the PNB.
Meanwhile, on August 25, 1980, after learning about the delay in the
remittance of the money to petitioner, FACETS informed FNSB about the
situation. On September 8, 1980, unaware that petitioner had already
received the remittance, FACETS informed private respondent about the
delay and at the same time amended its instruction by asking it to effect
the payment through the Philippine Commercial and Industrial Bank
(hereinafter referred to as PCIB) instead of PNB.
Accordingly, private respondent, which was also unaware that petitioner
had already received the remittance of $10,000.00 from PNB instructed the
PCIB to pay $10,000.00 to petitioner. Hence, on September 11, 1980,
petitioner received a second $10,000.00 remittance.
Private respondent debited the account of FNSB for the second $10,000.00
remittance effected through PCIB. However, when FNSB discovered that
private respondent had made a duplication of the remittance, it asked for a
recredit of its account in the amount of $10,000.00. Private respondent
complied with the request.
Private respondent asked petitioner for the return of the second remittance
of $10,000.00 but the latter refused to pay. On May 12, 1982 a complaint
was filed with the Regional Trial Court, Branch CV, Quezon City which was
decided in favor of petitioner as defendant. The trial court ruled that Art.
2154 of the New Civil Code is not applicable to the case because the
second remittance was made not by mistake but by negligence and
petitioner was not unjustly enriched by virtue thereof [Record, p. 234]. On
appeal, the Court of Appeals held that Art. 2154 is applicable and reversed
the RTC decision. The dispositive portion of the Court of Appeals' decision
reads as follows:
WHEREFORE, the appealed decision is hereby REVERSED
and SET ASIDE and another one entered in favor of
plaintiff-appellant and against defendant-appellee Domelita
(sic) M. Andres, doing business under the name and style
"Irene's Wearing Apparel" to reimburse and/or return to
plaintiff-appellant the amount of $10,000.00, its equivalent
in Philippine currency, with interests at the legal rate from
the filing of the complaint on May 12, 1982 until the whole

amount is fully paid, plus twenty percent (20%) of the

amount due as attomey's fees; and to pay the costs.
With costs against defendant-appellee.
SO ORDERED. [Rollo, pp. 29-30.]
Thereafter, this petition was filed. The sole issue in this case is whether or
not the private respondent has the right to recover the second $10,000.00
remittance it had delivered to petitioner. The resolution of this issue would
hinge on the applicability of Art. 2154 of the New Civil Code which provides
that:
Art. 2154. If something received when there is no right to
demand it, and it was unduly delivered through mistake,
the obligation to return it arises.
This provision is taken from Art. 1895 of the Spanish Civil Code which
provided that:
Art. 1895. If a thing is received when there was no right to
claim it and which, through an error, has been unduly
delivered, an obligation to restore it arises.
In Velez v. Balzarza, 73 Phil. 630 (1942), the Court, speaking through Mr.
Justice Bocobo explained the nature of this article thus:
Article 1895 [now Article 2154] of the Civil Code
abovequoted, is therefore applicable. This legal provision,
which determines the quasi-contract of solution indebiti, is
one of the concrete manifestations of the ancient principle
that no one shall enrich himself unjustly at the expense of
another. In the Roman Law Digest the maxim was
formulated thus: "Jure naturae acquum est, neminem cum
alterius detrimento et injuria fieri locupletiorem." And the
Partidas declared: "Ninguno non deue enriquecerse
tortizeramente con dano de otro." Such axiom has grown
through the centuries in legislation, in the science of law
and in court decisions. The lawmaker has found it one of
the helpful guides in framing statutes and codes. Thus, it is
unfolded in many articles scattered in the Spanish Civil
Code. (See for example, articles, 360, 361, 464, 647, 648,
797, 1158, 1163, 1295, 1303, 1304, 1893 and 1895, Civil
Code.) This time-honored aphorism has also been adopted
by jurists in their study of the conflict of rights. It has been

accepted by the courts, which have not hesitated to apply

it when the exigencies of right and equity demanded its
assertion. It is a part of that affluent reservoir of justice
upon which judicial discretion draws whenever the
statutory laws are inadequate because they do not speak
or do so with a confused voice. [at p. 632.]
For this article to apply the following requisites must concur: "(1) that he
who paid was not under obligation to do so; and, (2) that payment was
made by reason of an essential mistake of fact" [City of Cebu v. Piccio, 110
Phil. 558, 563 (1960)].
It is undisputed that private respondent delivered the second $10,000.00
remittance. However, petitioner contends that the doctrine of solutio
indebiti, does not apply because its requisites are absent.
First, it is argued that petitioner had the right to demand and therefore to
retain the second $10,000.00 remittance. It is alleged that even after the
two $10,000.00 remittances are credited to petitioner's receivables from
FACETS, the latter allegedly still had a balance of $49,324.00. Hence, it is
argued that the last $10,000.00 remittance being in payment of a preexisting debt, petitioner was not thereby unjustly enriched.
The contention is without merit.
The contract of petitioner, as regards the sale of garments and other
textile products, was with FACETS. It was the latter and not private
respondent which was indebted to petitioner. On the other hand, the
contract for the transmittal of dollars from the United States to petitioner
was entered into by private respondent with FNSB. Petitioner, although
named as the payee was not privy to the contract of remittance of dollars.
Neither was private respondent a party to the contract of sale between
petitioner and FACETS. There being no contractual relation between them,
petitioner has no right to apply the second $10,000.00 remittance
delivered by mistake by private respondent to the outstanding account of
FACETS.
Petitioner next contends that the payment by respondent bank of the
second $10,000.00 remittance was not made by mistake but was the result
of negligence of its employees. In connection with this the Court of Appeals
made the following finding of facts:
The fact that Facets sent only one remittance of
$10,000.00 is not disputed. In the written interrogatories
sent to the First National State Bank of New Jersey through
the Consulate General of the Philippines in New York,

Adelaide C. Schachel, the investigation and reconciliation

clerk in the said bank testified that a request to remit a
payment for Facet Funwear Inc. was made in August, 1980.
The total amount which the First National State Bank of
New Jersey actually requested the plaintiff-appellant
Manufacturers Hanover & Trust Corporation to remit to
Irene's Wearing Apparel was US $10,000.00. Only one
remittance was requested by First National State Bank of
New Jersey as per instruction of Facets Funwear (Exhibit "J",
pp. 4-5).
That there was a mistake in the second remittance of US
$10,000.00 is borne out by the fact that both remittances
have the same reference invoice number which is 263 80.
(Exhibits "A-1- Deposition of Mr. Stanley Panasow" and "A2-Deposition of Mr. Stanley Panasow").
Plaintiff-appellant made the second remittance on the
wrong assumption that defendant-appellee did not receive
the first remittance of US $10,000.00. [Rollo, pp. 26-27.]
It is evident that the claim of petitioner is anchored on the appreciation of
the attendant facts which petitioner would have this Court review. The
Court holds that the finding by the Court of Appeals that the second
$10,000.00 remittance was made by mistake, being based on substantial
evidence, is final and conclusive. The rule regarding questions of fact being
raised with this Court in a petition for certiorari under Rule 45 of the
Revised Rules of Court has been stated in Remalante v. Tibe, G.R. No.
59514, February 25, 1988, 158 SCRA 138, thus:
The rule in this jurisdiction is that only questions of law
may be raised in a petition for certiorari under Rule 45 of
the Revised Rules of Court. "The jurisdiction of the
Supreme Court in cases brought to it from the Court of
Appeals is limited to reviewing and revising the errors of
law imputed to it, its findings of fact being conclusive"
[Chan v. Court of Appeals, G.R. No. L-27488, June 30, 1970,
33 SCRA 737, reiterating a long line of decisions]. This
Court has emphatically declared that "it is not the function
of the Supreme Court to analyze or weigh such evidence all
over again, its jurisdiction being limited to reviewing errors
of law that might have been committed by the lower court"
[Tiongco v. De la Merced, G.R. No. L-24426, July 25, 1974,
58 SCRA 89; Corona v. Court of Appeals, G.R. No. L-62482,
April 28, 1983, 121 SCRA 865; Baniqued v. Court of
Appeals, G. R. No. L-47531, February 20, 1984, 127 SCRA

596]. "Barring, therefore, a showing that the findings

complained of are totally devoid of support in the record, or
that they are so glaringly erroneous as to constitute
serious abuse of discretion, such findings must stand, for
this Court is not expected or required to examine or
contrast the oral and documentary evidence submitted by
the parties" [Santa Ana, Jr. v. Hernandez, G.R. No. L-16394,
December 17, 1966, 18 SCRA 9731. [at pp. 144-145.]

WHEREFORE, the petition is DENIED and the decision of the Court of

Appeals is hereby AFFIRMED.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr. and Bidin, JJ., concur.
Feliciano, J., is on leave.

Petitioner invokes the equitable principle that when one of two innocent
persons must suffer by the wrongful act of a third person, the loss must be
borne by the one whose negligence was the proximate cause of the loss.
EN BANC
The rule is that principles of equity cannot be applied if there is a provision
of law specifically applicable to a case [Phil. Rabbit Bus Lines, Inc. v.
Arciaga, G.R. No. L-29701, March 16, 1987,148 SCRA 433; Zabat, Jr. v.
Court of Appeals, G.R. No. L36958, July 10, 1986, 142 SCRA 587; Rural
Bank of Paranaque, Inc. v. Remolado, G.R. No. 62051, March 18, 1985, 135
SCRA 409; Cruz v. Pahati, 98 Phil. 788 (1956)]. Hence, the Court in the case
of De Garcia v. Court of Appeals, G.R. No. L-20264, January 30, 1971, 37
SCRA 129, citing Aznar v. Yapdiangco, G.R. No. L-18536, March 31, 1965,
13 SCRA 486, held:
... The common law principle that where one of two
innocent persons must suffer by a fraud perpetrated by
another, the law imposes the loss upon the party who, by
his misplaced confidence, has enabled the fraud to be
committed, cannot be applied in a case which is covered
by an express provision of the new Civil Code, specifically
Article 559. Between a common law principle and a
statutory provision, the latter must prevail in this
jurisdiction. [at p. 135.]
Having shown that Art. 2154 of the Civil Code, which embodies the
doctrine of solutio indebiti, applies in the case at bar, the Court must reject
the common law principle invoked by petitioner.
Finally, in her attempt to defeat private respondent's claim, petitioner
makes much of the fact that from the time the second $10,000.00
remittance was made, five hundred and ten days had elapsed before
private respondent demanded the return thereof. Needless to say, private
respondent instituted the complaint for recovery of the second $10,000.00
remittance well within the six years prescriptive period for actions based
upon a quasi-contract [Art. 1145 of the New Civil Code].

G.R. No. L-17447

April 30, 1963

GONZALO PUYAT & SONS, INC., plaintiff-appelle,

vs.
CITY OF MANILA AND MARCELO SARMIENTO, as City Treasurer of
Manila, defendants-appellants
Feria, Manglapus & Associates for plainttiff-appelle.Asst. City Fiscal Manuel
T. Reyes for defendants-appellants.
PAREDES, J.:
This is an appeal from the judgment of the CFI of Manila, the dispostive
portion of which reads:
"xxx Of the payments made by the plaintiff, only that made
on October 25, 1950 in the amount of P1,250.00 has
prescribed Payments made in 1951 and thereafter are still
recoverable since the extra-judicial demand made on
October 30, 1956 was well within the six-year prescriptive
period of the New CivilCode.
In view of the foregoing considerations, judgment is hereby
rendered in favor of the plaintiff, ordering the defendants
to refund the amount of P29,824.00, without interest. No
costs.
Wherefore, the parties respectfully pray that the foregoing
stipulation of facts be admitted and approved by this
Honorable Court, without prejudice to the parties adducing
other evidence to prove their case not covered by this
stipulation of facts. 1wph1.t

Defendants' counterclaim is hereby dismissed for not

having been substantiated."

1950

On August 11, 1958, the plaintiff Gonzalo Puyat & Sons, Inc., filed an action
for refund of Retail DealerlsTaxes paid by it, corresponding to the first
Quarter of 1950 up to the third Quarter of 1956, amounting to P33,785.00,
against the City of Manila and its City Treasurer.The case was submitted on
the following stipulation of facts, to wit--

(Follows the assessment for different quarters in 1951, 1952,

1953, 1954 and 1955, fixing the same amount quarterly.) x x x..

"1. That the plaintiff is a corporation duly organized and

existing according to the laws of the Philippines, with
offices at Manila; while defendant City Manila is a Municipal
Corporation duly organized in accordance with the laws of
the Philippines, and defendant Marcelino Sarmiento is the
dulyqualified incumbent City Treasurer of Manila;
"2. That plaintiff is engaged in the business of
manufacturing and selling all kinds of furniture at its
factory at 190 Rodriguez-Arias, San Miguel, Manila, and has
a display room located at 604-606 Rizal Avenue, Manila,
wherein it displays the various kind of furniture
manufactured by it and sells some goods imported by it,
such as billiard balls, bowling balls and other accessories;

Date
Paid

O.R. No.

First Quarter 1950

Jan.
25,
1950

436271X

Second Quarter 1950

Apr.
25,
1950

215895X

Third Quarter 1950

Jul. 25,
1950

243321X

Fourth Quarter 1950

Oct.
25,

Jan.
25,
1956

823047X

1,2

Second Quarter 1956

Apr.
25,
1956

855949X

1,2

Third Quarter 1956

Jul. 25,
1956

880789X

1,2

TOTAL

Amount
Assessed
and Paid.

"5. That, however, plaintiff, is liable for the payment of

taxes prescribed in Section 1, Group II or Ordinance No.
3364mas amended by Sec. 1, Group II of Ordinance No.
3816, which took effect on September 24, 1956, on the
sales of imported billiard balls, bowling balls and other
accessories at its displayroom. The taxes paid by the
plaintiff on the sales of said article are as follows:
xxx

271165X

.............

"4. That plaintiff, being a manufacturer of various kinds of

furniture, is exempt from the payment of taxes imposed
under the provisions of Sec. 1, Group II, of Ordinance No.
3364,which took effect on September 24, 1956, on the sale
of the various kinds of furniture manufactured by it
pursuant to the provisions of Sec. 18(n) of Republic Act No.
409 (Revised Charter of Manila), as restated in Section 1 of
Ordinance No.3816.

"3. That acting pursuant to the provisions of Sec. 1. group

II, of Ordinance No. 3364, defendant City Treasurer of
Manilaassessed from plaintiff retail dealer's tax
corresponding to the quarters hereunder stated on the
sales of furniture manufactured and sold by it at its factory
site, all of which assessments plaintiff paid without protest
in the erroneous belief that it was liable therefor, on the
dates and in the amount enumerated herein below:

Period

First Quarter 1956

xxx

xxx

"6. That on October 30, 1956, the plaintiff filed with

defendant City Treasurer of Manila, a formal request for
refund of the retail dealer's taxes unduly paid by it as
aforestated in paragraph 3, hereof.
"7. That on July 24, 1958, the defendant City Treasurer of
Maniladefinitely denied said request for refund.

P33,7
=====

"8. Hence on August 21, 1958, plaintiff filed the present

complaint.
"9. Based on the above stipulation of facts, the legal issues
to be resolved by this Honorable Court are: (1) the period
of prescription applicable in matters of refund of municipal
taxes errenously paid by a taxpayer and (2) refund of taxes
not paid under protest. x x x."
Said judgment was directly appealed to this Court on two dominant issues
to wit: (1) Whether or not the amounts paid by plaintiff-appelle, as retail
dealer's taxes under Ordinance 1925, as amended by Ordinance No.
3364of the City of Manila, without protest, are refundable;(2) Assuming
arguendo, that plaintiff-appellee is entitled to the refund of the retail taxes
in question, whether or not the claim for refund filed in October 1956, in so
far as said claim refers to taxes paid from 1950 to 1952 has already
prescribed. .
Under the first issue, defendants-appellants contend tht the taxes in
question were voluntarily paid by appellee company and since, in this
jurisdiction, in order that a legal basis arise for claim of refund of taxes
erroneously assessed, payment thereof must be made under protest, and
this being a condition sine qua non, and no protest having been made, -verbally or in writing, therebyindicating that the payment was voluntary,
the action must fail. Cited in support of the above contention, are the cases
of Zaragoza vs. Alfonso, 46 Phil. 160-161, and Gavino v. Municipality of
Calapan, 71 Phil. 438..
In refutation of the above stand of appellants, appellee avers tht the
payments could not have been voluntary.At most, they were paid
"mistakenly and in good faith"and "without protest in the erroneous belief
that it was liable thereof." Voluntariness is incompatible with protest and
mistake. It submits that this is a simple case of "solutio indebiti"..
Appellants do not dispute the fact that appellee-companyis exempted from
the payment of the tax in question.This is manifest from the reply of
appellant City Treasurer stating that sales of manufactured products at the
factory site are not taxable either under the Wholesalers Ordinance or
under the Retailers' Ordinance. With this admission, it would seem clear
that the taxes collected from appellee were paid, thru an error or mistake,
which places said act of payment within the pale of the new Civil Code
provision on solutio indebiti. The appellant City of Manila, at the very start,
notwithstanding the Ordinance imposing the Retailer's Tax, had no right to
demand payment thereof..
"If something is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligationto retun it arises" (Art.
2154, NCC)..

Appelle categorically stated that the payment was not voluntarily made, (a
fact found also by the lower court),but on the erronoues belief, that they
were due. Under this circumstance, the amount paid, even without protest
is recoverable. "If the payer was in doubt whether the debt was due, he
may recover if he proves that it was not due" (Art. 2156, NCC). Appellee
had duly proved that taxes were not lawfully due. There is, therefore, no
doubt that the provisions of solutio indebtiti, the new Civil Code, apply to
the admitted facts of the case..
With all, appellant quoted Manresa as saying: "x x x De la misma opinion
son el Sr. Sanchez Roman y el Sr. Galcon, et cual afirma que si la paga se
hizo por error de derecho, ni existe el cuasi-contrato ni esta obligado a la
restitucion el que cobro, aunque no se debiera lo que se pago" (Manresa,
Tomo 12, paginas 611-612). This opinion, however, has already lost its
persuasiveness, in view of the provisions of the Civil Code, recognizing
"error de derecho" as a basis for the quasi-contract, of solutio indebiti. .
"Payment by reason of a mistake in the contruction or application of a
doubtful or difficult question of law may come within the scope of the
preceding article" (Art. 21555)..
There is no gainsaying the fact that the payments made by appellee was
due to a mistake in the construction of a doubtful question of law. The
reason underlying similar provisions, as applied to illegal taxation, in the
United States, is expressed in the case of Newport v. Ringo, 37 Ky. 635,
636; 10 S.W. 2, in the following manner:.
"It is too well settled in this state to need the citation of authority that if
money be paid through a clear mistake of law or fact, essentially affecting
the rights of the parties, and which in law or conscience was not payable,
and should not be retained by the party receiving it, it may be recovered.
Both law and sound morality so dictate. Especially should this be the rule
as to illegal taxation. The taxpayer has no voice in the impositionof the
burden. He has the right to presume that the taxing power has been
lawfully exercised. He should not be required to know more than those in
authority over him, nor should he suffer loss by complying with what he
bona fide believe to be his duty as a good citizen. Upon the contrary, he
should be promoted to its ready performance by refunding to him any legal
exaction paid by him in ignorance of its illegality; and, certainly, in such a
case, if be subject to a penalty for nonpayment, his compliance under
belief of its legality, and without awaitinga resort to judicial proceedings
should not be regrded in law as so far voluntary as to affect his right of
recovery.".
"Every person who through an act or performance by another, or any other
means, acquires or comes into possession of something at the expense of
the latter without just or legal grounds, shall return the same to him"(Art.
22, Civil Code). It would seems unedifying for the government, (here the
City of Manila), that knowing it has no right at all to collect or to receive

money for alleged taxes paid by mistake, it would be reluctant to return

the same. No one should enrich itself unjustly at the expense of another
(Art. 2125, Civil Code)..
Admittedly, plaintiff-appellee paid the tax without protest.Equally admitted
is the fact that section 76 of the Charter of Manila provides that "No court
shall entertain any suit assailing the validity of tax assessed under this
article until the taxpayer shall have paid, under protest the taxes assessed
against him, xx". It should be noted, however, that the article referred to in
said section is Article XXI, entitled Department of Assessment and the
sections thereunder manifestly show that said article and its sections
relate to asseessment, collection and recovery of real estate taxes only.
Said section 76, therefor, is not applicable to the case at bar, which relates
to the recover of retail dealer taxes..
In the opinion of the Secretary of Justice (Op. 90,Series of 1957, in a
question similar to the case at bar, it was held that the requiredment of
protest refers only to the payment of taxes which are directly imposed by
the charter itself, that is, real estate taxes, which view was sustained by
judicial and administrative precedents, one of which is the case of Medina,
et al., v. City of Baguio, G.R. No. L-4269, Aug. 29, 1952. In other words,
protest is not necessary for the recovery of retail dealer's taxes, like the
present, because they are not directly imposed by the charter. In the
Medina case, the Charter of Baguio (Chap. 61, Revised Adm. Code),
provides that "no court shall entertain any suit assailing the validity of a
tax assessed unde this charter until the tax-payer shall have paid, under
protest, the taxes assessed against him (sec.25474[b], Rev. Adm. Code), a
proviso similar to section 76 of the Manila Charter. The refund of specific
taxes paid under a void ordinance was ordered, although it did not appear
that payment thereof was made under protest..
In a recent case, We said: "The appellants argue that the sum the refund of
which is sought by the appellee, was not paid under protest and hence is
not refundable. Again, the trial court correctly held that being
unauthorized, it is not a tax assessed under the Charter of the Appellant
City of Davao and for that reason, no protest is necessary for a claim or
demand for its refund" (Citing the Medina case, supra; East Asiatic Co., Ltd.
v. City of Davao, G.R. No. L-16253, Aug. 21, 1962). Lastly, being a case of
solutio indebiti, protest is not required as a condition sine qua non for its
application..
The next issue in discussion is that of prescription. Appellants maintain
that article 1146 (NCC), which provides for a period of four (4) years (upon
injury to the rights of the plaintiff), apply to the case. On the other hand,
appellee contends that provisions of Act 190 (Code of Civ. Procedure)
should apply, insofar as payments made before the effectivity of the New
Civil Code on August 30, 1950, the period of which is ten (10) years, (Sec.
40,Act No. 190; Osorio v. Tan Jongko, 51 O.G. 6211) and article 1145 (NCC),
for payments made after said effectivity, providing for a period of six (6)
years (upon quasi-contracts like solutio indebiti). Even if the provisionsof

Act No. 190 should apply to those payments made before the effectivity of
the new Civil Code, because "prescription already runnig before the
effectivity of this Code shall be governed by laws previously in force x x x"
(art. 1116, NCC), for payments made after said effectivity,providing for a
period of six (6) years (upon quasi-contracts like solutio indebiti). Even if
the provisions of Act No. 190should apply to those payments made before
the effectivity of the new Civil Code, because "prescription already running
before the effectivity of of this Code shall be govern by laws previously in
force xxx " (Art. 1116, NCC), Still payments made before August 30, 1950
are no longer recoverable in view of the second paragraph of said article
(1116), which provides:"but if since the time this Code took effect the
entire period herein required for prescription should elapse the present
Code shall be applicable even though by the former laws a longer period
might be required". Anent the payments made after August 30, 1950, it is
abvious that the action has prescribed with respect to those made before
October 30, 1950 only, considering the fact that the prescription of action
is interrupted xxx when is a writteen extra-judicial demand x x x" (Art.
1155, NCC), and the written demand in the case at bar was made on
October 30, 1956 (Stipulation of Facts).MODIFIED in the sense that only
payments made on or after October 30, 1950 should be refunded, the
decision appealed from is affirmed, in all other respects. No costs. .
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion,Dizon, Regala and
Makalintal, JJ., concur.
Padilla, Reyes, J.B.L., and Barrera, JJ., too no part.
Decision affirmed.

FIRST DIVISION
G.R. Nos. 198729-30

January 15, 2014

CBK POWER COMPANY LIMITED, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
SERENO, CJ:
This is a Petition for Review on Certiorari 1 under Rule 45 of the 1997 Rules
of Civil Procedure filed by CBK Power Company Limited (petitioner). The
Petition assails the Decision2 dated 27 June 2011 and Resolution3 dated 16
September 2011 of the Court of Tax Appeals En Banc (CTA En Banc in C.T.A.
EB Nos. 658 and 659. The assailed Decision and Resolution reversed and
set aside the Decision4 dated 3 March 2010 and Resolution5 dated 6 July
2010 rendered by the CTA Special Second Division in C.T.A. Case No. 7621,

which partly granted the claim of petitioner for the issuance of a tax credit
certificate representing the latter's alleged unutilized input taxes on local
purchases of goods and services attributable to effectively zero-rated sales
to National Power Corporation (NPC) for the second and third quarters of
2005.

a quo ruled that petitioner had until the following dates within which to file
both administrative and judicial claims:

Taxable Quarter
2005

Close of the quarter

Last Day to
File Claim for
Refund

1st quarter

31-Mar-05

31-Mar-07

2nd quarter

30-Jun-05

30-Jun-07

3rd quarter

30-Sep-05

30-Sep-07

The Facts
Petitioner is engaged, among others, in the operation, maintenance, and
management of the Kalayaan II pumped-storage hydroelectric power plant,
the new Caliraya Spillway, Caliraya, Botocan; and the Kalayaan I
hydroelectric power plants and their related facilities located in the
Province of Laguna.6
On 29 December 2004, petitioner filed an Application for VAT Zero-Rate
with the Bureau of Internal Revenue (BIR) in accordance with Section
108(B)(3) of the National Internal Revenue Code (NIRC) of 1997, as
amended. The application was duly approved by the BIR. Thus, petitioner s
sale of electr icity to the NPC from 1 January 2005 to 31 October 2005 was
declared to be entitled to the benefit of effectively zero-rated value added
tax (VAT).7
Petitioner filed its administrative claims for the issuance of tax credit
certificates for its alleged unutilized input taxes on its purchase of capital
goods and alleged unutilized input taxes on its local purchases and/or
importation of goods and services, other than capital goods, pursuant to
Sections 112(A) and (B) of the NIRC of 1997, as amended, with BIR
Revenue District Office (RDO) No. 55 of Laguna, as follows:8
Period Covered

Date Of Filing

1st quarter of 2005

30-Jun-05

2nd quarter of 2005

15-Sep-05

3rd quarter of 2005

28-Oct-05

Alleging inaction of the Commissioner of Internal Revenue (CIR), petitioner

filed a Petition for Review with the CTA on 18 April 2007.
THE CTA SPECIAL SECOND DIVISION RULING
After trial on the merits, the CTA Special Second Division rendered a
Decision on 3 March 2010. Applying Commissioner of Internal Revenue v.
Mirant Pagbilao Corporation (Mirant),9 the court

Accordingly, petitioner timely filed its administrative claims for the three
quarters of 2005. However, considering that the judicial claim was filed on
18 April 2007, the CTA Division denied the claim for the first quarter of
2005 for having been filed out of time.
After an evaluation of petitioners claim for the second and third quarters
of 2005, the court a quo partly granted the claim and ordered the issuance
of a tax credit certificate in favor of petitioner in the reduced amount of
P27,170,123.36.
The parties filed their respective Motions for Partial Reconsideration, which
were both denied by the CTA Division.
THE CTA EN BANC RULING
On appeal, relying on Commissioner of Internal Revenue v. Aichi Forging
Company of Asia, Inc. (Aichi), 10 the CTA En Banc ruled that petitioners
judicial claim for the first, second, and third quarters of 2005 were
belatedly filed.
The CTA Special Second Division Decision and Resolution were reversed
and set aside, and the Petition for Review filed in CTA Case No. 7621 was
dismissed. Petitioners Motion for Reconsideration was likewise denied for
lack of merit.
Hence, this Petition.ISSUE
Petitioners assigned errors boil down to the principal issue of the
applicable prescriptive period on its claim for refund of unutilized input VAT
for the first to third quarters of 2005.11

THE COURTS RULING

The pertinent provision of the NIRC at the time when petitioner filed its
claim for refund provides:
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-rated or Effectively Zero-rated Sales. - Any VATregistered person, whose sales are zero-rated or effectively
zero-rated may, within two (2) years after the close of the
taxable quarter when the sales were made, apply for the
issuance of a tax credit certificate or refund of creditable
input tax due or paid attributable to such sales, except
transitional input tax, to the extent that such input tax has
not been applied against output tax: Provided, however,
That in the case of zero-rated sales under Section 106(A)
(2)(a)(1),(2) and (B) and Section 108 (B)(1) and (2), the
acceptable foreign currency exchange proceeds thereof
had been duly accounted for in accordance with the rules
and regulations of the Bangko Sentral ng Pilipinas (BSP):
Provided, further, That where the taxpayer is engaged in
zero-rated or effectively zero-rated sale and also in taxable
or exempt sale of goods or properties or services, and the
amount of creditable input tax due or paid cannot be
directly and entirely attributed to any one of the
transactions, it shall be allocated proportionately on the
basis of the volume of sales.
xxxx
(D) Period within which Refund or Tax Credit of Input Taxes
shall be Made. - In proper cases, the Commissioner shall
grant a refund or issue the tax credit certificate for
creditable input taxes within one hundred twenty (120)
days from the date of submission of complete documents
in support of the application filed in accordance with
Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or
the failure on the part of the Commissioner to act on the application within
the period prescribed above, the taxpayer affected may, within thirty (30)
days from the receipt of the decision denying the claim or after the
expiration of the one hundred twenty day-period, appeal the decision or
the unacted claim with the Court of Tax Appeals.
Petitioners sales to NPC are effectively zero-rated

As aptly ruled by the CTA Special Second Division, petitioners sales to NPC
are effectively subject to zero percent (0%) VAT. The NPC is an entity with a
special charter, which categorically exempts it from the payment of any
tax, whether direct or indirect, including VAT. Thus, services rendered to
NPC by a VAT-registered entity are effectively zero-rated. In fact, the BIR
itself approved the application for zero-rating on 29 December 2004, filed
by petitioner for its sales to NPC covering January to October 2005. 12 As a
consequence, petitioner claims for the refund of the alleged excess input
tax attributable to its effectively zero-rated sales to NPC.
In Panasonic Communications Imaging Corporation of the Philippines v.
Commissioner of Internal Revenue,13 this Court ruled:
Under the 1997 NIRC, if at the end of a taxable quarter the seller charges
output taxes equal to the input taxes that his suppliers passed on to him,
no payment is required of him. It is when his output taxes exceed his input
taxes that he has to pay the excess to the BIR. If the input taxes exceed
the output taxes, however, the excess payment shall be carried over to the
succeeding quarter or quarters. Should the input taxes result from zerorated or effectively zero-rated transactions or from the acquisition of
capital goods, any excess over the output taxes shall instead be refunded
to the taxpayer.
The crux of the controversy arose from the proper application of the
prescriptive periods set forth in Section 112 of the NIRC of 1997, as
amended, and the interpretation of the applicable jurisprudence.
Although the ponente in this case expressed a different view on the
mandatory application of the 120+30 day period as prescribed in Section
112, with the finality of the Courts pronouncement on the consolidated tax
cases Commissioner of Internal Revenue v. San Roque Power Corporation,
Taganito Mining Corporation v. Commissioner of Internal Revenue, and
Philex Mining Corporation v. Commissioner of Internal Revenue14 (hereby
collectively referred as San Roque), we are constrained to apply the
dispositions therein to the facts herein which are similar.
Administrative Claim
Section 112(A) provides that after the close of the taxable quarter when
the sales were made, there is a two-year prescriptive period within which a
VAT-registered person whose sales are zero-rated or effectively zero-rated
may apply for the issuance of a tax credit certificate or refund of creditable
input tax.
Our VAT Law provides for a mechanism that would allow VAT-registered
persons to recover the excess input taxes over the output taxes they had
paid in relation to their sales. For the refund or credit of excess or
unutilized input tax, Section 112 is the governing law. Given the distinctive
nature of creditable input tax, the law under Section 112 (A) provides for a

different reckoning point for the two-year prescriptive period, specifically

for the refund or credit of that tax only.
We agree with petitioner that Mirant was not yet in existence when their
administrative claim was filed in 2005; thus, it should not retroactively be
applied to the instant case.
However, the fact remains that Section 112 is the controlling provision for
the refund or credit of input tax during the time that petitioner filed its
claim with which they ought to comply. It must be emphasized that the
Court merely clarified in Mirant that Sections 204 and 229, which
prescribed a different starting point for the two-year prescriptive limit for
filing a claim for a refund or credit of excess input tax, were not applicable.
Input tax is neither an erroneously paid nor an illegally collected internal
revenue tax.15
Section 112(A) is clear that for VAT-registered persons whose sales are
zero-rated or effectively zero-rated, a claim for the refund or credit of
creditable input tax that is due or paid, and that is attributable to zerorated or effectively zero-rated sales, must be filed within two years after
the close of the taxable quarter when such sales were made. The
reckoning frame would always be the end of the quarter when the
pertinent sale or transactions were made, regardless of when the input VAT
was paid.16
Pursuant to Section 112(A), petitioners administrative claims were filed
well within the two-year period from the close of the taxable quarter when
the effectively zero-rated sales were made, to wit:
Period Covered

Close of the
Taxable
Quarter

Last day to File Administrative

Claim

1st quarter 2005

31-Mar-05

31-Mar-07

2nd quarter 2005

30-Jun-05

30-Jun-07

3rd quarter 2005

30-Sep-05

30-Sep-07

petitioner had attached complete supporting documents necessary to

prove its entitlement to a refund in its application, absent any evidence to
the contrary.
Thereafter, the taxpayer affected by the CIRs decision or inaction may
appeal to the CTA within 30 days from the receipt of the decision or from
the expiration of the 120-day period within which the claim has not been
acted upon.
Considering further that the 30-day period to appeal to the CTA is
dependent on the 120-day period, compliance with both periods is
jurisdictional. The period of 120 days is a prerequisite for the
commencement of the 30-day period to appeal to the CTA.
Prescinding from San Roque in the consolidated case Mindanao II
Geothermal Partnership v. Commissioner of Internal Revenue and
Mindanao I Geothermal Partnership v. Commissioner of Internal Revenue, 17
this Court has ruled thus:
Notwithstanding a strict construction of any claim for tax exemption or
refund, the Court in San Roque recognized that BIR Ruling No. DA-489-03
constitutes equitable estoppel in favor of taxpayers. BIR Ruling No. DA-48903 expressly states that the "taxpayer-claimant need not wait for the lapse
of the 120-day period before it could seek judicial relief with the CTA by
way of Petition for Review." This Court discussed BIR Ruling No. DA-489-03
and its effect on taxpayers, thus:

Taxpayers should not be prejudiced by an erroneous interpretation by the

Commissioner, particularly on a difficult question of law. The abandonment
of the Atlas doctrine by Mirant and Aichi is proof that the reckoning of the
Date of Filing
prescriptive periods for input VAT tax refund or credit is a difficult question
of law. The abandonment of the Atlas doctrine did not result in Atlas, or
other taxpayers similarly situated, being made to return the tax refund or
credit they received or could have received under Atlas prior to its
30-Jun-05 abandonment. This Court is applying Mirant and Aichi prospectively. Absent
fraud, bad faith or misrepresentation, the reversal by this Court of a
15-Sep-05 general interpretative rule issued by the Commissioner, like the reversal of
a specific BIR ruling under Section 246, should also apply prospectively. x x
28-Oct-05 x.

Judicial Claim
Section 112(D) further provides that the CIR has to decide on an
administrative claim within one hundred twenty (120) days from the date
of submission of complete documents in support thereof.
Bearing in mind that the burden to prove entitlement to a tax refund is on
the taxpayer, it is presumed that in order to discharge its burden,

xxxx
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general
interpretative rule applicable to all taxpayers or a specific ruling applicable
only to a particular taxpayer. BIR Ruling No. DA-489-03 is a general
interpretative rule because it was a response to a query made, not by a
particular taxpayer, but by a government agency asked with processing
tax refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit
and Drawback Center of the Department of Finance. This government

agency is also the addressee, or the entity responded to, in BIR Ruling No.
DA-489-03. Thus, while this government agency mentions in its query to
the Commissioner the administrative claim of Lazi Bay Resources
Development, Inc., the agency was in fact asking the Commissioner what
to do in cases like the tax claim of Lazi Bay Resources Development, Inc.,
where the taxpayer did not wait for the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule.1wphi1
Thus, all taxpayers can rely on BIR Ruling No. DA-489-03 from the time of
its issuance on 10 December 2003 up to its reversal by this Court in Aichi
on 6 October 2010, where this Court held that the 120+30 day periods are
mandatory and jurisdictional. (Emphasis supplied)
In applying the foregoing to the instant case, we consider the following
pertinent dates:
1wphi1

eriod Covered

Administrative
Claim Filed

Expiration of 120days

Last day to file

Judicial Claim

st quarter 2005

30-Jun-05

28-Oct-05

27-Nov-05

d quarter 2005

15-Sep-05

13-Jan-06

13-Feb-06

d quarter 2005

28-Oct-05

26-Feb-06

The Atlas doctrine cannot save Philex from the late filing of its judicial
claim. The inaction of the Commissioner on Philexs claim during the 120day period is, by express provision of law, "deemed a denial" of Philexs
claim. Philex had 30 days from the expiration of the 120-day period to file
its judicial claim with the CTA. Philexs failure to do so rendered the
"deemed a denial" decision of the Commissioner final and inappealable.
The right to appeal to the CTA from a decision or "deemed a denial"
decision of the Commissioner is merely a statutory privilege, not a
constitutional right. The exercise of such statutory privilege requires strict
compliance with the conditions attached by the statute for its exercise.
Philex failed to comply with the statutory conditions and must thus bear
the consequences. (Emphases in the original)

Likewise, while petitioner filed its administrative and judicial claims during
the period of applicability of BIR Ruling No. DA-489-03, it cannot claim the
benefit of the exception period as it did not file its judicial claim
prematurely, but did so long after the lapse of the 30-day period following
the expiration of the 120-day period. Again, BIR Ruling No. DA-489-03
allowed premature filing of a judicial claim, which means non-exhaustion of
Judicial Claimthe 120-day period for the Commissioner to act on an administrative
Filed
claim,19 but not its late filing.
18-Apr-07

28-Mar-06

It must be emphasized that this is not a case of premature filing of a

judicial claim. Although petitioner did not file its judicial claim with the CTA
prior to the expiration of the 120-day waiting period, it failed to observe
the 30-day prescriptive period to appeal to the CTA counted from the lapse
of the 120-day period.

As this Court enunciated in San Roque , petitioner cannot rely on Atlas

either, since the latter case was promulgated only on 8 June 2007.
Moreover, the doctrine in Atlas which reckons the two-year period from the
date of filing of the return and payment of the tax, does not interpret
expressly or impliedly the 120+30 day periods. 20 Simply stated, Atlas
referred only to the reckoning of the prescriptive period for filing an
administrative claim.
For failure of petitioner to comply with the 120+30 day mandatory and
jurisdictional period, petitioner lost its right to claim a refund or credit of its
alleged excess input VAT.

Petitioner is similarly situated as Philex in the same case, San Roque, 18 in

which this Court ruled:

With regard to petitioners argument that Aichi should not be applied

retroactively, we reiterate that even without that ruling, the law is explicit
on the mandatory and jurisdictional nature of the 120+30 day period.

Unlike San Roque and Taganito, Philexs case is not one of premature filing
but of late filing. Philex did not file any petition with the CTA within the
120-day period. Philex did not also file any petition with the CTA within 30
days after the expiration of the 120-day period. Philex filed its judicial
claim long after the expiration of the 120-day period, in fact 426 days after
the lapse of the 120-day period. In any event, whether governed by
jurisprudence before, during, or after the Atlas case, Philexs judicial claim
will have to be rejected because of late filing. Whether the two-year
prescriptive period is counted from the date of payment of the output VAT
following the Atlas doctrine, or from the close of the taxable quarter when
the sales attributable to the input VAT were made following the Mirant and
Aichi doctrines, Philexs judicial claim was indisputably filed late.

Also devoid of merit is the applicability of the principle of solutio indebiti to

the present case. According to this principle, if something is received when
there is no right to demand it, and it was unduly delivered through
mistake, the obligation to return it arises. In that situation, a creditordebtor relationship is created under a quasi-contract, whereby the payor
becomes the creditor who then has the right to demand the return of
payment made by mistake, and the person who has no right to receive the
payment becomes obligated to return it.21 The quasi-contract of solutio
indebiti is based on the ancient principle that no one shall enrich oneself
unjustly at the expense of another.22

There is solutio indebiti when:

Ramon Sotelo for appellant.

Kincaid & Hartigan for appellee.

(1) Payment is made when there exists no binding relation

between the payor, who has no duty to pay, and the
person who received the payment; and
(2) Payment is made through mistake, and not through
liberality or some other cause.23
Though the principle of solutio indebiti may be applicable to some
instances of claims for a refund, the elements thereof are wanting in this
case.
First, there exists a binding relation between petitioner and the CIR, the
former being a taxpayer obligated to pay VAT.
Second, the payment of input tax was not made through mistake, since
petitioner was legally obligated to pay for that liability. The entitlement to a
refund or credit of excess input tax is solely based on the distinctive nature
of the VAT system. At the time of payment of the input VAT, the amount
paid was correct and proper.24
Finally, equity, which has been aptly described as "a justice outside
legality," is applied only in the absence of, and never against, statutory law
or judicial rules of procedure.25 Section 112 is a positive rule that should
preempt and prevail over all abstract arguments based only on equity.
Well-settled is the rule that tax refunds or credits, just like tax exemptions,
are strictly construed against the taxpayer. 26 The burden is on the taxpayer
to show strict compliance with the conditions for the grant of the tax
refund or credit.27
WHEREFORE, premises considered, the instant Petition is DENIED.
SO ORDERED.
MARIA LOURDES P. A. SERENO
Chief Justice, Chairperson

EN BANC
G.R. No. L-12191

October 14, 1918

JOSE CANGCO, plaintiff-appellant,

vs.
MANILA RAILROAD CO., defendant-appellee.

FISHER, J.:
At the time of the occurrence which gave rise to this litigation the plaintiff,
Jose Cangco, was in the employment of Manila Railroad Company in the
capacity of clerk, with a monthly wage of P25. He lived in the pueblo of San
Mateo, in the province of Rizal, which is located upon the line of the
defendant railroad company; and in coming daily by train to the company's
office in the city of Manila where he worked, he used a pass, supplied by
the company, which entitled him to ride upon the company's trains free of
charge. Upon the occasion in question, January 20, 1915, the plaintiff arose
from his seat in the second class-car where he was riding and, making, his
exit through the door, took his position upon the steps of the coach, seizing
the upright guardrail with his right hand for support.
On the side of the train where passengers alight at the San Mateo station
there is a cement platform which begins to rise with a moderate gradient
some distance away from the company's office and extends along in front
of said office for a distance sufficient to cover the length of several
coaches. As the train slowed down another passenger, named Emilio
Zuiga, also an employee of the railroad company, got off the same car,
alighting safely at the point where the platform begins to rise from the
level of the ground. When the train had proceeded a little farther the
plaintiff Jose Cangco stepped off also, but one or both of his feet came in
contact with a sack of watermelons with the result that his feet slipped
from under him and he fell violently on the platform. His body at once
rolled from the platform and was drawn under the moving car, where his
right arm was badly crushed and lacerated. It appears that after the
plaintiff alighted from the train the car moved forward possibly six meters
before it came to a full stop.
The accident occurred between 7 and 8 o'clock on a dark night, and as the
railroad station was lighted dimly by a single light located some distance
away, objects on the platform where the accident occurred were difficult to
discern especially to a person emerging from a lighted car.
The explanation of the presence of a sack of melons on the platform where
the plaintiff alighted is found in the fact that it was the customary season
for harvesting these melons and a large lot had been brought to the station
for the shipment to the market. They were contained in numerous sacks
which has been piled on the platform in a row one upon another. The
testimony shows that this row of sacks was so placed of melons and the

edge of platform; and it is clear that the fall of the plaintiff was due to the
fact that his foot alighted upon one of these melons at the moment he
stepped upon the platform. His statement that he failed to see these
objects in the darkness is readily to be credited.
The plaintiff was drawn from under the car in an unconscious condition,
and it appeared that the injuries which he had received were very serious.
He was therefore brought at once to a certain hospital in the city of Manila
where an examination was made and his arm was amputated. The result of
this operation was unsatisfactory, and the plaintiff was then carried to
another hospital where a second operation was performed and the
member was again amputated higher up near the shoulder. It appears in
evidence that the plaintiff expended the sum of P790.25 in the form of
medical and surgical fees and for other expenses in connection with the
process of his curation.
Upon August 31, 1915, he instituted this proceeding in the Court of First
Instance of the city of Manila to recover damages of the defendant
company, founding his action upon the negligence of the servants and
employees of the defendant in placing the sacks of melons upon the
platform and leaving them so placed as to be a menace to the security of
passenger alighting from the company's trains. At the hearing in the Court
of First Instance, his Honor, the trial judge, found the facts substantially as
above stated, and drew therefrom his conclusion to the effect that,
although negligence was attributable to the defendant by reason of the
fact that the sacks of melons were so placed as to obstruct passengers
passing to and from the cars, nevertheless, the plaintiff himself had failed
to use due caution in alighting from the coach and was therefore precluded
form recovering. Judgment was accordingly entered in favor of the
defendant company, and the plaintiff appealed.
It can not be doubted that the employees of the railroad company were
guilty of negligence in piling these sacks on the platform in the manner
above stated; that their presence caused the plaintiff to fall as he alighted
from the train; and that they therefore constituted an effective legal cause
of the injuries sustained by the plaintiff. It necessarily follows that the
defendant company is liable for the damage thereby occasioned unless
recovery is barred by the plaintiff's own contributory negligence. In
resolving this problem it is necessary that each of these conceptions of
liability, to-wit, the primary responsibility of the defendant company and
the contributory negligence of the plaintiff should be separately examined.
It is important to note that the foundation of the legal liability of the
defendant is the contract of carriage, and that the obligation to respond for
the damage which plaintiff has suffered arises, if at all, from the breach of
that contract by reason of the failure of defendant to exercise due care in

its performance. That is to say, its liability is direct and immediate,

differing essentially, in legal viewpoint from that presumptive responsibility
for the negligence of its servants, imposed by article 1903 of the Civil
Code, which can be rebutted by proof of the exercise of due care in their
selection and supervision. Article 1903 of the Civil Code is not applicable to
obligations arising ex contractu, but only to extra-contractual obligations
or to use the technical form of expression, that article relates only to culpa
aquiliana and not to culpa contractual.
Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 and 1104 of
the Civil Code, clearly points out this distinction, which was also recognized
by this Court in its decision in the case of Rakes vs. Atlantic, Gulf and
Pacific Co. (7 Phil. rep., 359). In commenting upon article 1093 Manresa
clearly points out the difference between "culpa, substantive and
independent, which of itself constitutes the source of an obligation
between persons not formerly connected by any legal tie" and culpa
considered as an accident in the performance of an obligation already
existing . . . ."
In the Rakes case (supra) the decision of this court was made to rest
squarely upon the proposition that article 1903 of the Civil Code is not
applicable to acts of negligence which constitute the breach of a contract.
Upon this point the Court said:
The acts to which these articles [1902 and 1903 of the Civil Code]
are applicable are understood to be those not growing out of preexisting duties of the parties to one another. But where relations
already formed give rise to duties, whether springing from contract
or quasi-contract, then breaches of those duties are subject to
article 1101, 1103, and 1104 of the same code. (Rakes vs. Atlantic,
Gulf and Pacific Co., 7 Phil. Rep., 359 at 365.)
This distinction is of the utmost importance. The liability, which, under the
Spanish law, is, in certain cases imposed upon employers with respect to
damages occasioned by the negligence of their employees to persons to
whom they are not bound by contract, is not based, as in the English
Common Law, upon the principle of respondeat superior if it were, the
master would be liable in every case and unconditionally but upon the
principle announced in article 1902 of the Civil Code, which imposes upon
all persons who by their fault or negligence, do injury to another, the
obligation of making good the damage caused. One who places a powerful
automobile in the hands of a servant whom he knows to be ignorant of the
method of managing such a vehicle, is himself guilty of an act of
negligence which makes him liable for all the consequences of his
imprudence. The obligation to make good the damage arises at the very

instant that the unskillful servant, while acting within the scope of his
employment causes the injury. The liability of the master is personal and
direct. But, if the master has not been guilty of any negligence whatever in
the selection and direction of the servant, he is not liable for the acts of the
latter, whatever done within the scope of his employment or not, if the
damage done by the servant does not amount to a breach of the contract
between the master and the person injured.
It is not accurate to say that proof of diligence and care in the selection
and control of the servant relieves the master from liability for the latter's
acts on the contrary, that proof shows that the responsibility has never
existed. As Manresa says (vol. 8, p. 68) the liability arising from extracontractual culpa is always based upon a voluntary act or omission which,
without willful intent, but by mere negligence or inattention, has caused
damage to another. A master who exercises all possible care in the
selection of his servant, taking into consideration the qualifications they
should possess for the discharge of the duties which it is his purpose to
confide to them, and directs them with equal diligence, thereby performs
his duty to third persons to whom he is bound by no contractual ties, and
he incurs no liability whatever if, by reason of the negligence of his
servants, even within the scope of their employment, such third person
suffer damage. True it is that under article 1903 of the Civil Code the law
creates a presumption that he has been negligent in the selection or
direction of his servant, but the presumption is rebuttable and yield to
proof of due care and diligence in this respect.
The supreme court of Porto Rico, in interpreting identical provisions, as
found in the Porto Rico Code, has held that these articles are applicable to
cases of extra-contractual culpa exclusively. (Carmona vs. Cuesta, 20 Porto
Rico Reports, 215.)
This distinction was again made patent by this Court in its decision in the
case of Bahia vs. Litonjua and Leynes, (30 Phil. rep., 624), which was an
action brought upon the theory of the extra-contractual liability of the
defendant to respond for the damage caused by the carelessness of his
employee while acting within the scope of his employment. The Court,
after citing the last paragraph of article 1903 of the Civil Code, said:
From this article two things are apparent: (1) That when an injury is
caused by the negligence of a servant or employee there instantly
arises a presumption of law that there was negligence on the part
of the master or employer either in selection of the servant or
employee, or in supervision over him after the selection, or both;
and (2) that that presumption is juris tantum and not juris et de
jure, and consequently, may be rebutted. It follows necessarily that
if the employer shows to the satisfaction of the court that in

selection and supervision he has exercised the care and diligence

of a good father of a family, the presumption is overcome and he is
relieved from liability.
This theory bases the responsibility of the master ultimately on his
own negligence and not on that of his servant. This is the notable
peculiarity of the Spanish law of negligence. It is, of course, in
striking contrast to the American doctrine that, in relations with
strangers, the negligence of the servant in conclusively the
negligence of the master.
The opinion there expressed by this Court, to the effect that in case of
extra-contractual culpa based upon negligence, it is necessary that there
shall have been some fault attributable to the defendant personally, and
that the last paragraph of article 1903 merely establishes a rebuttable
presumption, is in complete accord with the authoritative opinion of
Manresa, who says (vol. 12, p. 611) that the liability created by article
1903 is imposed by reason of the breach of the duties inherent in the
special relations of authority or superiority existing between the person
called upon to repair the damage and the one who, by his act or omission,
was the cause of it.
On the other hand, the liability of masters and employers for the negligent
acts or omissions of their servants or agents, when such acts or omissions
cause damages which amount to the breach of a contact, is not based
upon a mere presumption of the master's negligence in their selection or
control, and proof of exercise of the utmost diligence and care in this
regard does not relieve the master of his liability for the breach of his
contract.
Every legal obligation must of necessity be extra-contractual or
contractual. Extra-contractual obligation has its source in the breach or
omission of those mutual duties which civilized society imposes upon it
members, or which arise from these relations, other than contractual, of
certain members of society to others, generally embraced in the concept of
status. The legal rights of each member of society constitute the measure
of the corresponding legal duties, mainly negative in character, which the
existence of those rights imposes upon all other members of society. The
breach of these general duties whether due to willful intent or to mere
inattention, if productive of injury, give rise to an obligation to indemnify
the injured party. The fundamental distinction between obligations of this
character and those which arise from contract, rests upon the fact that in
cases of non-contractual obligation it is the wrongful or negligent act or
omission itself which creates the vinculum juris, whereas in contractual
relations the vinculum exists independently of the breach of the voluntary
duty assumed by the parties when entering into the contractual relation.

With respect to extra-contractual obligation arising from negligence,

whether of act or omission, it is competent for the legislature to elect
and our Legislature has so elected whom such an obligation is imposed
is morally culpable, or, on the contrary, for reasons of public policy, to
extend that liability, without regard to the lack of moral culpability, so as to
include responsibility for the negligence of those person who acts or
mission are imputable, by a legal fiction, to others who are in a position to
exercise an absolute or limited control over them. The legislature which
adopted our Civil Code has elected to limit extra-contractual liability
with certain well-defined exceptions to cases in which moral culpability
can be directly imputed to the persons to be charged. This moral
responsibility may consist in having failed to exercise due care in the
selection and control of one's agents or servants, or in the control of
persons who, by reason of their status, occupy a position of dependency
with respect to the person made liable for their conduct.
The position of a natural or juridical person who has undertaken by
contract to render service to another, is wholly different from that to which
article 1903 relates. When the sources of the obligation upon which
plaintiff's cause of action depends is a negligent act or omission, the
burden of proof rests upon plaintiff to prove the negligence if he does
not his action fails. But when the facts averred show a contractual
undertaking by defendant for the benefit of plaintiff, and it is alleged that
plaintiff has failed or refused to perform the contract, it is not necessary for
plaintiff to specify in his pleadings whether the breach of the contract is
due to willful fault or to negligence on the part of the defendant, or of his
servants or agents. Proof of the contract and of its nonperformance is
sufficient prima facie to warrant a recovery.
As a general rule . . . it is logical that in case of extra-contractual
culpa, a suing creditor should assume the burden of proof of its
existence, as the only fact upon which his action is based; while on
the contrary, in a case of negligence which presupposes the
existence of a contractual obligation, if the creditor shows that it
exists and that it has been broken, it is not necessary for him to
prove negligence. (Manresa, vol. 8, p. 71 [1907 ed., p. 76]).
As it is not necessary for the plaintiff in an action for the breach of a
contract to show that the breach was due to the negligent conduct of
defendant or of his servants, even though such be in fact the actual cause
of the breach, it is obvious that proof on the part of defendant that the
negligence or omission of his servants or agents caused the breach of the
contract would not constitute a defense to the action. If the negligence of
servants or agents could be invoked as a means of discharging the liability
arising from contract, the anomalous result would be that person acting
through the medium of agents or servants in the performance of their
contracts, would be in a better position than those acting in person. If one

delivers a valuable watch to watchmaker who contract to repair it, and the
bailee, by a personal negligent act causes its destruction, he is
unquestionably liable. Would it be logical to free him from his liability for
the breach of his contract, which involves the duty to exercise due care in
the preservation of the watch, if he shows that it was his servant whose
negligence caused the injury? If such a theory could be accepted, juridical
persons would enjoy practically complete immunity from damages arising
from the breach of their contracts if caused by negligent acts as such
juridical persons can of necessity only act through agents or servants, and
it would no doubt be true in most instances that reasonable care had been
taken in selection and direction of such servants. If one delivers securities
to a banking corporation as collateral, and they are lost by reason of the
negligence of some clerk employed by the bank, would it be just and
reasonable to permit the bank to relieve itself of liability for the breach of
its contract to return the collateral upon the payment of the debt by
proving that due care had been exercised in the selection and direction of
the clerk?
This distinction between culpa aquiliana, as the source of an obligation,
and culpa contractual as a mere incident to the performance of a contract
has frequently been recognized by the supreme court of Spain. (Sentencias
of June 27, 1894; November 20, 1896; and December 13, 1896.) In the
decisions of November 20, 1896, it appeared that plaintiff's action arose ex
contractu, but that defendant sought to avail himself of the provisions of
article 1902 of the Civil Code as a defense. The Spanish Supreme Court
rejected defendant's contention, saying:
These are not cases of injury caused, without any pre-existing
obligation, by fault or negligence, such as those to which article
1902 of the Civil Code relates, but of damages caused by the
defendant's failure to carry out the undertakings imposed by the
contracts . . . .
A brief review of the earlier decision of this court involving the liability of
employers for damage done by the negligent acts of their servants will
show that in no case has the court ever decided that the negligence of the
defendant's servants has been held to constitute a defense to an action for
damages for breach of contract.
In the case of Johnson vs. David (5 Phil. Rep., 663), the court held that the
owner of a carriage was not liable for the damages caused by the
negligence of his driver. In that case the court commented on the fact that
no evidence had been adduced in the trial court that the defendant had
been negligent in the employment of the driver, or that he had any
knowledge of his lack of skill or carefulness.

In the case of Baer Senior & Co's Successors vs. Compania Maritima (6 Phil.
Rep., 215), the plaintiff sued the defendant for damages caused by the loss
of a barge belonging to plaintiff which was allowed to get adrift by the
negligence of defendant's servants in the course of the performance of a
contract of towage. The court held, citing Manresa (vol. 8, pp. 29, 69) that
if the "obligation of the defendant grew out of a contract made between it
and the plaintiff . . . we do not think that the provisions of articles 1902 and
1903 are applicable to the case."
In the case of Chapman vs. Underwood (27 Phil. Rep., 374), plaintiff sued
the defendant to recover damages for the personal injuries caused by the
negligence of defendant's chauffeur while driving defendant's automobile
in which defendant was riding at the time. The court found that the
damages were caused by the negligence of the driver of the automobile,
but held that the master was not liable, although he was present at the
time, saying:
. . . unless the negligent acts of the driver are continued for a
length of time as to give the owner a reasonable opportunity to
observe them and to direct the driver to desist therefrom. . . . The
act complained of must be continued in the presence of the owner
for such length of time that the owner by his acquiescence, makes
the driver's acts his own.
In the case of Yamada vs. Manila Railroad Co. and Bachrach Garage &
Taxicab Co. (33 Phil. Rep., 8), it is true that the court rested its conclusion
as to the liability of the defendant upon article 1903, although the facts
disclosed that the injury complaint of by plaintiff constituted a breach of
the duty to him arising out of the contract of transportation. The express
ground of the decision in this case was that article 1903, in dealing with
the liability of a master for the negligent acts of his servants "makes the
distinction between private individuals and public enterprise;" that as to
the latter the law creates a rebuttable presumption of negligence in the
selection or direction of servants; and that in the particular case the
presumption of negligence had not been overcome.
It is evident, therefore that in its decision Yamada case, the court treated
plaintiff's action as though founded in tort rather than as based upon the
breach of the contract of carriage, and an examination of the pleadings
and of the briefs shows that the questions of law were in fact discussed
upon this theory. Viewed from the standpoint of the defendant the practical
result must have been the same in any event. The proof disclosed beyond
doubt that the defendant's servant was grossly negligent and that his
negligence was the proximate cause of plaintiff's injury. It also affirmatively
appeared that defendant had been guilty of negligence in its failure to
exercise proper discretion in the direction of the servant. Defendant was,

therefore, liable for the injury suffered by plaintiff, whether the breach of
the duty were to be regarded as constituting culpa aquiliana or culpa
contractual. As Manresa points out (vol. 8, pp. 29 and 69) whether
negligence occurs an incident in the course of the performance of a
contractual undertaking or its itself the source of an extra-contractual
undertaking obligation, its essential characteristics are identical. There is
always an act or omission productive of damage due to carelessness or
inattention on the part of the defendant. Consequently, when the court
holds that a defendant is liable in damages for having failed to exercise
due care, either directly, or in failing to exercise proper care in the
selection and direction of his servants, the practical result is identical in
either case. Therefore, it follows that it is not to be inferred, because the
court held in the Yamada case that defendant was liable for the damages
negligently caused by its servants to a person to whom it was bound by
contract, and made reference to the fact that the defendant was negligent
in the selection and control of its servants, that in such a case the court
would have held that it would have been a good defense to the action, if
presented squarely upon the theory of the breach of the contract, for
defendant to have proved that it did in fact exercise care in the selection
and control of the servant.
The true explanation of such cases is to be found by directing the attention
to the relative spheres of contractual and extra-contractual obligations.
The field of non- contractual obligation is much more broader than that of
contractual obligations, comprising, as it does, the whole extent of juridical
human relations. These two fields, figuratively speaking, concentric; that is
to say, the mere fact that a person is bound to another by contract does
not relieve him from extra-contractual liability to such person. When such a
contractual relation exists the obligor may break the contract under such
conditions that the same act which constitutes the source of an extracontractual obligation had no contract existed between the parties.
The contract of defendant to transport plaintiff carried with it, by
implication, the duty to carry him in safety and to provide safe means of
entering and leaving its trains (civil code, article 1258). That duty, being
contractual, was direct and immediate, and its non-performance could not
be excused by proof that the fault was morally imputable to defendant's
servants.
The railroad company's defense involves the assumption that even
granting that the negligent conduct of its servants in placing an
obstruction upon the platform was a breach of its contractual obligation to
maintain safe means of approaching and leaving its trains, the direct and
proximate cause of the injury suffered by plaintiff was his own contributory
negligence in failing to wait until the train had come to a complete stop
before alighting. Under the doctrine of comparative negligence announced
in the Rakes case (supra), if the accident was caused by plaintiff's own

negligence, no liability is imposed upon defendant's negligence and

plaintiff's negligence merely contributed to his injury, the damages should
be apportioned. It is, therefore, important to ascertain if defendant was in
fact guilty of negligence.
It may be admitted that had plaintiff waited until the train had come to a
full stop before alighting, the particular injury suffered by him could not
have occurred. Defendant contends, and cites many authorities in support
of the contention, that it is negligence per se for a passenger to alight from
a moving train. We are not disposed to subscribe to this doctrine in its
absolute form. We are of the opinion that this proposition is too badly
stated and is at variance with the experience of every-day life. In this
particular instance, that the train was barely moving when plaintiff alighted
is shown conclusively by the fact that it came to stop within six meters
from the place where he stepped from it. Thousands of person alight from
trains under these conditions every day of the year, and sustain no injury
where the company has kept its platform free from dangerous obstructions.
There is no reason to believe that plaintiff would have suffered any injury
whatever in alighting as he did had it not been for defendant's negligent
failure to perform its duty to provide a safe alighting place.
We are of the opinion that the correct doctrine relating to this subject is
that expressed in Thompson's work on Negligence (vol. 3, sec. 3010) as
follows:
The test by which to determine whether the passenger has been
guilty of negligence in attempting to alight from a moving railway
train, is that of ordinary or reasonable care. It is to be considered
whether an ordinarily prudent person, of the age, sex and condition
of the passenger, would have acted as the passenger acted under
the circumstances disclosed by the evidence. This care has been
defined to be, not the care which may or should be used by the
prudent man generally, but the care which a man of ordinary
prudence would use under similar circumstances, to avoid injury."
(Thompson, Commentaries on Negligence, vol. 3, sec. 3010.)
Or, it we prefer to adopt the mode of exposition used by this court in Picart
vs. Smith (37 Phil. rep., 809), we may say that the test is this; Was there
anything in the circumstances surrounding the plaintiff at the time he
alighted from the train which would have admonished a person of average
prudence that to get off the train under the conditions then existing was
dangerous? If so, the plaintiff should have desisted from alighting; and his
failure so to desist was contributory negligence.1awph!l.net
As the case now before us presents itself, the only fact from which a
conclusion can be drawn to the effect that plaintiff was guilty of

contributory negligence is that he stepped off the car without being able to
discern clearly the condition of the platform and while the train was yet
slowly moving. In considering the situation thus presented, it should not be
overlooked that the plaintiff was, as we find, ignorant of the fact that the
obstruction which was caused by the sacks of melons piled on the platform
existed; and as the defendant was bound by reason of its duty as a public
carrier to afford to its passengers facilities for safe egress from its trains,
the plaintiff had a right to assume, in the absence of some circumstance to
warn him to the contrary, that the platform was clear. The place, as we
have already stated, was dark, or dimly lighted, and this also is proof of a
failure upon the part of the defendant in the performance of a duty owing
by it to the plaintiff; for if it were by any possibility concede that it had
right to pile these sacks in the path of alighting passengers, the placing of
them adequately so that their presence would be revealed.
As pertinent to the question of contributory negligence on the part of the
plaintiff in this case the following circumstances are to be noted: The
company's platform was constructed upon a level higher than that of the
roadbed and the surrounding ground. The distance from the steps of the
car to the spot where the alighting passenger would place his feet on the
platform was thus reduced, thereby decreasing the risk incident to
stepping off. The nature of the platform, constructed as it was of cement
material, also assured to the passenger a stable and even surface on which
to alight. Furthermore, the plaintiff was possessed of the vigor and agility
of young manhood, and it was by no means so risky for him to get off while
the train was yet moving as the same act would have been in an aged or
feeble person. In determining the question of contributory negligence in
performing such act that is to say, whether the passenger acted
prudently or recklessly the age, sex, and physical condition of the
passenger are circumstances necessarily affecting the safety of the
passenger, and should be considered. Women, it has been observed, as a
general rule are less capable than men of alighting with safety under such
conditions, as the nature of their wearing apparel obstructs the free
movement of the limbs. Again, it may be noted that the place was
perfectly familiar to the plaintiff as it was his daily custom to get on and of
the train at this station. There could, therefore, be no uncertainty in his
mind with regard either to the length of the step which he was required to
take or the character of the platform where he was alighting. Our
conclusion is that the conduct of the plaintiff in undertaking to alight while
the train was yet slightly under way was not characterized by imprudence
and that therefore he was not guilty of contributory negligence.
The evidence shows that the plaintiff, at the time of the accident, was
earning P25 a month as a copyist clerk, and that the injuries he has
suffered have permanently disabled him from continuing that employment.
Defendant has not shown that any other gainful occupation is open to
plaintiff. His expectancy of life, according to the standard mortality tables,

is approximately thirty-three years. We are of the opinion that a fair

compensation for the damage suffered by him for his permanent disability
is the sum of P2,500, and that he is also entitled to recover of defendant
the additional sum of P790.25 for medical attention, hospital services, and
other incidental expenditures connected with the treatment of his injuries.

This is an action brought by the plaintiff in the Court of First Instance of

Manila against the five defendants, to recover damages in the amount of
P10,000, for physical injuries suffered as a result of an automobile
accident. On judgment being rendered as prayed for by the plaintiff, both
sets of defendants appealed.

The decision of lower court is reversed, and judgment is hereby rendered

plaintiff for the sum of P3,290.25, and for the costs of both instances. So
ordered.

On February 2, 1930, a passenger truck and an automobile of private

ownership collided while attempting to pass each other on the Talon bridge
on the Manila South Road in the municipality of Las Pias, Province of Rizal.
The truck was driven by the chauffeur Abelardo Velasco, and was owned by
Saturnino Cortez. The automobile was being operated by Bonifacio
Gutierrez, a lad 18 years of age, and was owned by Bonifacio's father and
mother, Mr. and Mrs. Manuel Gutierrez. At the time of the collision, the
father was not in the car, but the mother, together will several other
members of the Gutierrez family, seven in all, were accommodated
therein. A passenger in the autobus, by the name of Narciso Gutierrez, was
en route from San Pablo, Laguna, to Manila. The collision between the bus
and the automobile resulted in Narciso Gutierrez suffering a fracture right
leg which required medical attendance for a considerable period of time,
and which even at the date of the trial appears not to have healed
properly.

Arellano, C.J., Torres, Street and Avancea, JJ., concur.

Separate Opinions
MALCOLM, J., dissenting:
With one sentence in the majority decision, we are of full accord, namely,
"It may be admitted that had plaintiff waited until the train had come to a
full stop before alighting, the particular injury suffered by him could not
have occurred." With the general rule relative to a passenger's contributory
negligence, we are likewise in full accord, namely, "An attempt to alight
from a moving train is negligence per se." Adding these two points
together, should be absolved from the complaint, and judgment affirmed.
Johnson, J., concur.

EN BANC
G.R. No. 34840

September 23, 1931

NARCISO GUTIERREZ, plaintiff-appellee,

vs.
BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ, MANUEL
GUTIERREZ, ABELARDO VELASCO, and SATURNINO CORTEZ,
defendants-appellants.
L.D. Lockwood for appellants Velasco and Cortez.
San Agustin and Roxas for other appellants.
Ramon Diokno for appellee.
MALCOLM, J.:

It is conceded that the collision was caused by negligence pure and simple.
The difference between the parties is that, while the plaintiff blames both
sets of defendants, the owner of the passenger truck blames the
automobile, and the owner of the automobile, in turn, blames the truck. We
have given close attention to these highly debatable points, and having
done so, a majority of the court are of the opinion that the findings of the
trial judge on all controversial questions of fact find sufficient support in
the record, and so should be maintained. With this general statement set
down, we turn to consider the respective legal obligations of the
defendants.
In amplification of so much of the above pronouncement as concerns the
Gutierrez family, it may be explained that the youth Bonifacio was in
incompetent chauffeur, that he was driving at an excessive rate of speed,
and that, on approaching the bridge and the truck, he lost his head and so
contributed by his negligence to the accident. The guaranty given by the
father at the time the son was granted a license to operate motor vehicles
made the father responsible for the acts of his son. Based on these facts,
pursuant to the provisions of article 1903 of the Civil Code, the father alone
and not the minor or the mother, would be liable for the damages caused
by the minor.
We are dealing with the civil law liability of parties for obligations which
arise from fault or negligence. At the same time, we believe that, as has
been done in other cases, we can take cognizance of the common law rule
on the same subject. In the United States, it is uniformly held that the head
of a house, the owner of an automobile, who maintains it for the general
use of his family is liable for its negligent operation by one of his children,

whom he designates or permits to run it, where the car is occupied and
being used at the time of the injury for the pleasure of other members of
the owner's family than the child driving it. The theory of the law is that
the running of the machine by a child to carry other members of the family
is within the scope of the owner's business, so that he is liable for the
negligence of the child because of the relationship of master and servant.
(Huddy On Automobiles, 6th ed., sec. 660; Missell vs. Hayes [1914], 91 Atl.,
322.) The liability of Saturnino Cortez, the owner of the truck, and of his
chauffeur Abelardo Velasco rests on a different basis, namely, that of
contract which, we think, has been sufficiently demonstrated by the
allegations of the complaint, not controverted, and the evidence. The
reason for this conclusion reaches to the findings of the trial court
concerning the position of the truck on the bridge, the speed in operating
the machine, and the lack of care employed by the chauffeur. While these
facts are not as clearly evidenced as are those which convict the other
defendant, we nevertheless hesitate to disregard the points emphasized by
the trial judge. In its broader aspects, the case is one of two drivers
approaching a narrow bridge from opposite directions, with neither being
willing to slow up and give the right of way to the other, with the inevitable
result of a collision and an accident.
The defendants Velasco and Cortez further contend that there existed
contributory negligence on the part of the plaintiff, consisting principally of
his keeping his foot outside the truck, which occasioned his injury. In this
connection, it is sufficient to state that, aside from the fact that the
defense of contributory negligence was not pleaded, the evidence bearing
out this theory of the case is contradictory in the extreme and leads us far
afield into speculative matters.
The last subject for consideration relates to the amount of the award. The
appellee suggests that the amount could justly be raised to P16,517, but
naturally is not serious in asking for this sum, since no appeal was taken by
him from the judgment. The other parties unite in challenging the award of
P10,000, as excessive. All facts considered, including actual expenditures
and damages for the injury to the leg of the plaintiff, which may cause him
permanent lameness, in connection with other adjudications of this court,
lead us to conclude that a total sum for the plaintiff of P5,000 would be fair
and reasonable. The difficulty in approximating the damages by monetary
compensation is well elucidated by the divergence of opinion among the
members of the court, three of whom have inclined to the view that P3,000
would be amply sufficient, while a fourth member has argued that P7,500
would be none too much.
In consonance with the foregoing rulings, the judgment appealed from will
be modified, and the plaintiff will have judgment in his favor against the
defendants Manuel Gutierrez, Abelardo Velasco, and Saturnino Cortez,
jointly and severally, for the sum of P5,000, and the costs of both
instances.

Avancea, C.J., Johnson, Street, Villamor, Ostrand, Romualdez, and

Imperial, JJ., concur.

VILLA-REAL, J.:
I vote for an indemnity of P7,500.

SECOND DIVISION
G.R. No. 178610

November 17, 2010

HONGKONG AND SHANGHAI BANKING CORP., LTD. STAFF

RETIREMENT PLAN, Retirement Trust Fund, Inc.) Petitioner,
vs.
SPOUSES BIENVENIDO AND EDITHA BROQUEZA, Respondents.
DECISION
CARPIO, J.:
G.R. No. 178610 is a petition for review1 assailing the Decision2
promulgated on 30 March 2006 by the Court of Appeals (CA) in CA-G.R. SP
No. 62685. The appellate court granted the petition filed by Fe Gerong
(Gerong) and Spouses Bienvenido and Editha Broqueza (spouses Broqueza)
and dismissed the consolidated complaints filed by Hongkong and
Shanghai Banking Corporation, Ltd. - Staff Retirement Plan (HSBCL-SRP) for
recovery of sum of money. The appellate court reversed and set aside the
Decision3 of Branch 139 of the Regional Trial Court of Makati City (RTC) in
Civil Case No. 00-787 dated 11 December 2000, as well as its Order 4 dated
5 September 2000. The RTCs decision affirmed the Decision 5 dated 28
December 1999 of Branch 61 of the Metropolitan Trial Court (MeTC) of
Makati City in Civil Case No. 52400 for Recovery of a Sum of Money.
The Facts
The appellate court narrated the facts as follows:
Petitioners Gerong and [Editha] Broqueza (defendants below) are
employees of Hongkong and Shanghai Banking Corporation (HSBC). They
are also members of respondent Hongkong Shanghai Banking Corporation,
Ltd. Staff Retirement Plan (HSBCL-SRP, plaintiff below). The HSBCL-SRP is a

retirement plan established by HSBC through its Board of Trustees for the
benefit of the employees.
On October 1, 1990, petitioner [Editha] Broqueza obtained a car loan in the
amount of Php175,000.00. On December 12, 1991, she again applied and
was granted an appliance loan in the amount of Php24,000.00. On the
other hand, petitioner Gerong applied and was granted an emergency loan
in the amount of Php35,780.00 on June 2, 1993. These loans are paid
through automatic salary deduction.
Meanwhile [in 1993], a labor dispute arose between HSBC and its
employees. Majority of HSBCs employees were terminated, among whom
are petitioners Editha Broqueza and Fe Gerong. The employees then filed
an illegal dismissal case before the National Labor Relations Commission
(NLRC) against HSBC. The legality or illegality of such termination is now
pending before this appellate Court in CA G.R. CV No. 56797, entitled
Hongkong Shanghai Banking Corp. Employees Union, et al. vs. National
Labor Relations Commission, et al.
Because of their dismissal, petitioners were not able to pay the monthly
amortizations of their respective loans. Thus, respondent HSBCL-SRP
considered the accounts of petitioners delinquent. Demands to pay the
respective obligations were made upon petitioners, but they failed to pay. 6
HSBCL-SRP, acting through its Board of Trustees and represented by
Alejandro L. Custodio, filed Civil Case No. 52400 against the spouses
Broqueza on 31 July 1996. On 19 September 1996, HSBCL-SRP filed Civil
Case No. 52911 against Gerong. Both suits were civil actions for recovery
and collection of sums of money.
The Metropolitan Trial Courts Ruling
On 28 December 1999, the MeTC promulgated its Decision 7 in favor of
HSBCL-SRP. The MeTC ruled that the nature of HSBCL-SRPs demands for
payment is civil and has no connection to the ongoing labor dispute.
Gerong and Editha Broquezas termination from employment resulted in
the loss of continued benefits under their retirement plans. Thus, the loans
secured by their future retirement benefits to which they are no longer
entitled are reduced to unsecured and pure civil obligations. As unsecured
and pure obligations, the loans are immediately demandable.
The dispositive portion of the MeTCs decision reads:
WHEREFORE, premises considered and in view of the foregoing, the Court
finds that the plaintiff was able to prove by a preponderance of evidence

the existence and immediate demandability of the defendants loan

obligations as judgment is hereby rendered in favor of the plaintiff and
against the defendants in both cases, ordering the latter:
1. In Civil Case No. 52400, to pay the amount of Php116,740.00 at
six percent interest per annum from the time of demand and in
Civil Case No. 52911, to pay the amount of Php25,344.12 at six
percent per annum from the time of the filing of these cases, until
the amount is fully paid;
2. To pay the amount of Php20,000.00 each as reasonable
attorneys fees;
3. Cost of suit.
SO ORDERED.8
Gerong and the spouses Broqueza filed a joint appeal of the MeTCs
decision before the RTC. Gerongs case was docketed Civil Case No. 00786, while the spouses Broquezas case was docketed as Civil Case No. 00787.
The Regional Trial Courts Ruling
The RTC initially denied the joint appeal because of the belated filing of
Gerong and the spouses Broquezas memorandum. The RTC later
reconsidered the order of denial and resolved the issues in the interest of
justice.
On 11 December 2000, the RTC affirmed the MeTCs decision in toto. 9
The RTC ruled that Gerong and Editha Broquezas termination from
employment disqualified them from availing of benefits under their
retirement plans. As a consequence, there is no longer any security for the
loans. HSBCL-SRP has a legal right to demand immediate settlement of the
unpaid balance because of Gerong and Editha Broquezas continued
default in payment and their failure to provide new security for their loans.
Moreover, the absence of a period within which to pay the loan allows
HSBCL-SRP to demand immediate payment. The loan obligations are
considered pure obligations, the fulfillment of which are demandable at
once.
Gerong and the spouses Broqueza then filed a Petition for Review under
Rule 42 before the CA.

The Ruling of the Court of Appeals

On 30 March 2006, the CA rendered its Decision10 which reversed the 11
December 2000 Decision of the RTC. The CA ruled that the HSBCL-SRPs
complaints for recovery of sum of money against Gerong and the spouses
Broqueza are premature as the loan obligations have not yet matured.
Thus, no cause of action accrued in favor of HSBCL-SRP. The dispositive
portion of the appellate courts Decision reads as follows:
WHEREFORE, the assailed Decision of the RTC is REVERSED and SET ASIDE.
A new one is hereby rendered DISMISSING the consolidated complaints for
recovery of sum of money.
SO ORDERED.11

The Promissory Notes uniformly provide:

PROMISSORY NOTE
P_____ Makati, M.M. ____ 19__
FOR VALUE RECEIVED, I/WE _____ jointly and severally promise to pay to
THE HSBC RETIREMENT PLAN (hereinafter called the "PLAN") at its office in
the Municipality of Makati, Metro Manila, on or before until fully paid the
sum of PESOS ___ (P___) Philippine Currency without discount, with interest
from date hereof at the rate of Six per cent (6%) per annum, payable
monthly.
I/WE agree that the PLAN may, upon written notice, increase the interest
rate stipulated in this note at any time depending on prevailing conditions.

HSBCL-SRP filed a motion for reconsideration which the CA denied for lack
of merit in its Resolution12 promulgated on 19 June 2007.
On 6 August 2007, HSBCL-SRP filed a manifestation withdrawing the
petition against Gerong because she already settled her obligations. In a
Resolution13 of this Court dated 10 September 2007, this Court treated the
manifestation as a motion to withdraw the petition against Gerong,
granted the motion, and considered the case against Gerong closed and
terminated.

I/WE hereby expressly consent to any extensions or renewals hereof for a

portion or whole of the principal without notice to the other(s), and in such
a case our liability shall remain joint and several.1avvphi1
In case collection is made by or through an attorney, I/WE jointly and
severally agree to pay ten percent (10%) of the amount due on this note
(but in no case less than P200.00) as and for attorneys fees in addition to
expenses and costs of suit.
In case of judicial execution, I/WE hereby jointly and severally waive our
rights under the provisions of Rule 39, Section 12 of the Rules of Court. 15

Issues
HSBCL-SRP enumerated the following grounds to support its Petition:

In ruling for HSBCL-SRP, we apply the first paragraph of Article 1179 of the
Civil Code:

I. The Court of Appeals has decided a question of substance in a

way not in accord with law and applicable decisions of this
Honorable Court; and

Art. 1179. Every obligation whose performance does not depend upon a
future or uncertain event, or upon a past event unknown to the parties, is
demandable at once.

II. The Court of Appeals has departed from the accepted and usual
course of judicial proceedings in reversing the decision of the
Regional Trial Court and the Metropolitan Trial Court.14

x x x. (Emphasis supplied.)

The Courts Ruling

The petition is meritorious. We agree with the rulings of the MeTC and the
RTC.

We affirm the findings of the MeTC and the RTC that there is no date of
payment indicated in the Promissory Notes. The RTC is correct in ruling that
since the Promissory Notes do not contain a period, HSBCL-SRP has the
right to demand immediate payment. Article 1179 of the Civil Code
applies. The spouses Broquezas obligation to pay HSBCL-SRP is a pure
obligation. The fact that HSBCL-SRP was content with the prior monthly
check-off from Editha Broquezas salary is of no moment. Once Editha

Broqueza defaulted in her monthly payment, HSBCL-SRP made a demand

to enforce a pure obligation.
In their Answer, the spouses Broqueza admitted that prior to Editha
Broquezas dismissal from HSBC in December 1993, she "religiously paid
the loan amortizations, which HSBC collected through payroll check-off." 16
A definite amount is paid to HSBCL-SRP on a specific date. Editha Broqueza
authorized HSBCL-SRP to make deductions from her payroll until her loans
are fully paid. Editha Broqueza, however, defaulted in her monthly loan
payment due to her dismissal. Despite the spouses Broquezas
protestations, the payroll deduction is merely a convenient mode of
payment and not the sole source of payment for the loans. HSBCL-SRP
never agreed that the loans will be paid only through salary deductions.
Neither did HSBCL-SRP agree that if Editha Broqueza ceases to be an
employee of HSBC, her obligation to pay the loans will be suspended.
HSBCL-SRP can immediately demand payment of the loans at anytime
because the obligation to pay has no period. Moreover, the spouses
Broqueza have already incurred in default in paying the monthly
installments.
Finally, the enforcement of a loan agreement involves "debtor-creditor
relations founded on contract and does not in any way concern employee
relations. As such it should be enforced through a separate civil action in
the regular courts and not before the Labor Arbiter."17
WHEREFORE, we GRANT the petition. The Decision of the Court of
Appeals in CA-G.R. SP No. 62685 promulgated on 30 March 2006 is
REVERSED and SET ASIDE. The decision of Branch 139 of the Regional
Trial Court of Makati City in Civil Case No. 00-787, as well as the decision of
Branch 61 of the Metropolitan Trial Court of Makati City in Civil Case No.
52400 against the spouses Bienvenido and Editha Broqueza, are
AFFIRMED. Costs against respondents.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice

SECOND DIVISION

G.R. No. L-29900 June 28, 1974

IN THE MATTER OF THE INTESTATE ESTATE OF JUSTO PALANCA,

Deceased, GEORGE PAY, petitioner-appellant,
vs.
SEGUNDINA CHUA VDA. DE PALANCA, oppositor-appellee.
Florentino B. del Rosario for petitioner-appellant.
Manuel V. San Jose for oppositor-appellee.

FERNANDO, J.:p
There is no difficulty attending the disposition of this appeal by petitioner
on questions of law. While several points were raised, the decisive issue is
whether a creditor is barred by prescription in his attempt to collect on a
promissory note executed more than fifteen years earlier with the debtor
sued promising to pay either upon receipt by him of his share from a
certain estate or upon demand, the basis for the action being the latter
alternative. The lower court held that the ten-year period of limitation of
actions did apply, the note being immediately due and demandable, the
creditor admitting expressly that he was relying on the wording "upon
demand." On the above facts as found, and with the law being as it is, it
cannot be said that its decision is infected with error. We affirm.
From the appealed decision, the following appears: "The parties in this
case agreed to submit the matter for resolution on the basis of their
pleadings and annexes and their respective memoranda submitted.
Petitioner George Pay is a creditor of the Late Justo Palanca who died in
Manila on July 3, 1963. The claim of the petitioner is based on a promissory
note dated January 30, 1952, whereby the late Justo Palanca and Rosa
Gonzales Vda. de Carlos Palanca promised to pay George Pay the amount
of P26,900.00, with interest thereon at the rate of 12% per annum. George
Pay is now before this Court, asking that Segundina Chua vda. de Palanca,
surviving spouse of the late Justo Palanca, he appointed as administratrix
of a certain piece of property which is a residential dwelling located at
2656 Taft Avenue, Manila, covered by Tax Declaration No. 3114 in the
name of Justo Palanca, assessed at P41,800.00. The idea is that once said
property is brought under administration, George Pay, as creditor, can file
his claim against the administratrix." 1 It then stated that the petition could
not prosper as there was a refusal on the part of Segundina Chua Vda. de
Palanca to be appointed as administratrix; that the property sought to be
administered no longer belonged to the debtor, the late Justo Palanca; and
that the rights of petitioner-creditor had already prescribed. The
promissory note, dated January 30, 1962, is worded thus: " `For value
received from time to time since 1947, we [jointly and severally promise

to] pay to Mr. [George Pay] at his office at the China Banking Corporation
the sum of [Twenty Six Thousand Nine Hundred Pesos] (P26,900.00), with
interest thereon at the rate of 12% per annum upon receipt by either of the
undersigned of cash payment from the Estate of the late Don Carlos
Palanca or upon demand'. . . . As stated, this promissory note is signed by
Rosa Gonzales Vda. de Carlos Palanca and Justo Palanca." 2 Then came this
paragraph: "The Court has inquired whether any cash payment has been
received by either of the signers of this promissory note from the Estate of
the late Carlos Palanca. Petitioner informed that he does not insist on this
provision but that petitioner is only claiming on his right under the
promissory note ." 3 After which, came the ruling that the wording of the
promissory note being "upon demand," the obligation was immediately
due. Since it was dated January 30, 1952, it was clear that more "than ten
(10) years has already transpired from that time until to date. The action,
therefore, of the creditor has definitely prescribed." 4 The result, as above
noted, was the dismissal of the petition.
In an exhaustive brief prepared by Attorney Florentino B. del Rosario,
petitioner did assail the correctness of the rulings of the lower court as to
the effect of the refusal of the surviving spouse of the late Justo Palanca to
be appointed as administratrix, as to the property sought to be
administered no longer belonging to the debtor, the late Justo Palanca, and
as to the rights of petitioner-creditor having already prescribed. As noted at
the outset, only the question of prescription need detain us in the
disposition of this appeal. Likewise, as intimated, the decision must be
affirmed, considering the clear tenor of the promissory note.
From the manner in which the promissory note was executed, it would
appear that petitioner was hopeful that the satisfaction of his credit could
he realized either through the debtor sued receiving cash payment from
the estate of the late Carlos Palanca presumptively as one of the heirs, or,
as expressed therein, "upon demand." There is nothing in the record that
would indicate whether or not the first alternative was fulfilled. What is
undeniable is that on August 26, 1967, more than fifteen years after the
execution of the promissory note on January 30, 1952, this petition was
filed. The defense interposed was prescription. Its merit is rather obvious.
Article 1179 of the Civil Code provides: "Every obligation whose
performance does not depend upon a future or uncertain event, or upon a
past event unknown to the parties, is demandable at once." This used to
be Article 1113 of the Spanish Civil Code of 1889. As far back as Floriano v.
Delgado, 5 a 1908 decision, it has been applied according to its express
language. The well-known Spanish commentator, Manresa, on this point,
states: "Dejando con acierto, el caracter mas teorico y grafico del acto, o
sea la perfeccion de este, se fija, para determinar el concepto de la
obligacion pura, en el distinctive de esta, y que es consecuencia de aquel:
la exigibilidad immediata." 6

The obligation being due and demandable, it would appear that the filing
of the suit after fifteen years was much too late. For again, according to the
Civil Code, which is based on Section 43 of Act No. 190, the prescriptive
period for a written contract is that of ten years. 7 This is another instance
where this Court has consistently adhered to the express language of the
applicable norm. 8 There is no necessity therefore of passing upon the
other legal questions as to whether or not it did suffice for the petition to
fail just because the surviving spouse refuses to be made administratrix, or
just because the estate was left with no other property. The decision of the
lower court cannot be overturned.
WHEREFORE, the lower court decision of July 24, 1968 is affirmed. Costs
against George Pay.
Zaldivar (Chairman), Barredo, Antonio, Fernandez and Aquino, JJ., concur.

EN BANC
G.R. No. L-16570

March 9, 1922

SMITH, BELL & CO., LTD., plaintiff-appellant,

vs.
VICENTE SOTELO MATTI, defendant-appellant.
Ross and Lawrence and Ewald E. Selph for plaintiff-appellant.
Ramon Sotelo for defendant-appellant.
ROMUALDEZ, J.:
In August, 1918, the plaintiff corporation and the defendant, Mr. Vicente
Sotelo, entered into contracts whereby the former obligated itself to sell,
and the latter to purchase from it, two steel tanks, for the total price of
twenty-one thousand pesos (P21,000), the same to be shipped from New
York and delivered at Manila "within three or four months;" two expellers at
the price of twenty five thousand pesos (P25,000) each, which were to be
shipped from San Francisco in the month of September, 1918, or as soon
as possible; and two electric motors at the price of two thousand pesos
(P2,000) each, as to the delivery of which stipulation was made, couched in
these words: "Approximate delivery within ninety days. This is not
guaranteed."
The tanks arrived at Manila on the 27th of April, 1919: the expellers on the
26th of October, 1918; and the motors on the 27th of February, 1919.

The plaintiff corporation notified the defendant, Mr. Sotelo, of the arrival of
these goods, but Mr. Sotelo refused to receive them and to pay the prices
stipulated.
The plaintiff brought suit against the defendant, based on four separate
causes of action, alleging, among other facts, that it immediately notified
the defendant of the arrival of the goods, and asked instructions from him
as to the delivery thereof, and that the defendant refused to receive any of
them and to pay their price. The plaintiff, further, alleged that the expellers
and the motors were in good condition. (Amended complaint, pages 16-30,
Bill of Exceptions.)
In their answer, the defendant, Mr. Sotelo, and the intervenor, the Manila
Oil Refining and By-Products Co., Inc., denied the plaintiff's allegations as
to the shipment of these goods and their arrival at Manila, the notification
to the defendant, Mr. Sotelo, the latter's refusal to receive them and pay
their price, and the good condition of the expellers and the motors,
alleging as special defense that Mr. Sotelo had made the contracts in
question as manager of the intervenor, the Manila Oil Refining and ByProducts Co., Inc which fact was known to the plaintiff, and that "it was
only in May, 1919, that it notified the intervenor that said tanks had
arrived, the motors and the expellers having arrived incomplete and long
after the date stipulated." As a counterclaim or set-off, they also allege
that, as a consequence of the plaintiff's delay in making delivery of the
goods, which the intervenor intended to use in the manufacture of
cocoanut oil, the intervenor suffered damages in the sums of one hundred
sixteen thousand seven hundred eighty-three pesos and ninety-one
centavos (P116,783.91) for the nondelivery of the tanks, and twenty-one
thousand two hundred and fifty pesos (P21,250) on account of the
expellers and the motors not having arrived in due time.
The case having been tried, the court below absolved the defendants from
the complaint insofar as the tanks and the electric motors were concerned,
but rendered judgment against them, ordering them to "receive the
aforesaid expellers and pay the plaintiff the sum of fifty thousand pesos
(P50,00), the price of the said goods, with legal interest thereon from July
26, 1919, and costs."
Both parties appeal from this judgment, each assigning several errors in
the findings of the lower court.

The principal point at issue in this case is whether or not, under the
contracts entered into and the circumstances established in the record, the
plaintiff has fulfilled, in due time, its obligation to bring the goods in
question to Manila. If it has, then it is entitled to the relief prayed for;
otherwise, it must be held guilty of delay and liable for the consequences
thereof.
To solve this question, it is necessary to determine what period was fixed
for the delivery of the goods.
As regards the tanks, the contracts A and B (pages 61 and 62 of the
record) are similar, and in both of them we find this clause:
To be delivered within 3 or 4 months The promise or indication of
shipment carries with it absolutely no obligation on our part
Government regulations, railroad embargoes, lack of vessel space,
the exigencies of the requirement of the United States
Government, or a number of causes may act to entirely vitiate the
indication of shipment as stated. In other words, the order is
accepted on the basis of shipment at Mill's convenience, time of
shipment being merely an indication of what we hope to
accomplish.
In the contract Exhibit C (page 63 of the record), with reference to the
expellers, the following stipulation appears:
The following articles, hereinbelow more particularly described, to
be shipped at San Francisco within the month of September /18, or
as soon as possible. Two Anderson oil expellers . . . .
And in the contract relative to the motors (Exhibit D, page 64, rec.) the
following appears:
Approximate delivery within ninety days. This is not guaranteed.
This sale is subject to our being able to obtain Priority
Certificate, subject to the United States Government requirements
and also subject to confirmation of manufactures.
In all these contracts, there is a final clause as follows:
The sellers are not responsible for delays caused by fires, riots on
land or on the sea, strikes or other causes known as "Force
Majeure" entirely beyond the control of the sellers or their
representatives.

Under these stipulations, it cannot be said that any definite date was fixed
for the delivery of the goods. As to the tanks, the agreement was that the
delivery was to be made "within 3 or 4 months," but that period was
subject to the contingencies referred to in a subsequent clause. With
regard to the expellers, the contract says "within the month of September,
1918," but to this is added "or as soon as possible." And with reference to
the motors, the contract contains this expression, "Approximate delivery
within ninety days," but right after this, it is noted that "this is not
guaranteed."
The oral evidence falls short of fixing such period.
From the record it appears that these contracts were executed at the time
of the world war when there existed rigid restrictions on the export from
the United States of articles like the machinery in question, and maritime,
as well as railroad, transportation was difficult, which fact was known to
the parties; hence clauses were inserted in the contracts, regarding
"Government regulations, railroad embargoes, lack of vessel space, the
exigencies of the requirements of the United States Government," in
connection with the tanks and "Priority Certificate, subject to the United
State Government requirements," with respect to the motors. At the time
of the execution of the contracts, the parties were not unmindful of the
contingency of the United States Government not allowing the export of
the goods, nor of the fact that the other foreseen circumstances therein
stated might prevent it.
Considering these contracts in the light of the civil law, we cannot but
conclude that the term which the parties attempted to fix is so uncertain
that one cannot tell just whether, as a matter of fact, those articles could
be brought to Manila or not. If that is the case, as we think it is, the
obligations must be regarded as conditional.
Obligations for the performance of which a day certain has been
fixed shall be demandable only when the day arrives.
A day certain is understood to be one which must necessarily
arrive, even though its date be unknown.

regulations, as well as to railroad embargoes, then the delivery was subject

to a condition the fulfillment of which depended not only upon the effort of
the herein plaintiff, but upon the will of third persons who could in no way
be compelled to fulfill the condition. In cases like this, which are not
expressly provided for, but impliedly covered, by the Civil Code, the obligor
will be deemed to have sufficiently performed his part of the obligation, if
he has done all that was in his power, even if the condition has not been
fulfilled in reality.
In such cases, the decisions prior to the Civil Code have held that
the obligee having done all that was in his power, was entitled to
enforce performance of the obligation. This performance, which is
fictitious not real is not expressly authorized by the Code,
which limits itself only to declare valid those conditions and the
obligation thereby affected; but it is neither disallowed, and the
Code being thus silent, the old view can be maintained as a
doctrine. (Manresa's commentaries on the Civil Code [1907], vol. 8,
page 132.)
The decisions referred to by Mr. Manresa are those rendered by the
supreme court of Spain on November 19, 1896, and February 23, 1871.
In the former it is held:
First. That when the fulfillment of the conditions does not depend
on the will of the obligor, but on that of a third person who can in
no way be compelled to carry it out, and it is found by the lower
court that the obligor has done all in his power to comply with the
obligation, the judgment of the said court, ordering the other party
to comply with his part of the contract, is not contrary to the law of
contracts, or to Law 1, Tit. I, Book 10, of the "Novsima
Recopilacin," or Law 12, Tit. 11, of Partida 5, when in the said
finding of the lower court, no law or precedent is alleged to have
been violated. (Jurisprudencia Civil published by the directors of
the Revista General de Legislacion y Jurisprudencia [1866], vol. 14,
page 656.)
In the second decision, the following doctrine is laid down:

If the uncertainty should consist in the arrival or non-arrival of the

day, the obligation is conditional and shall be governed by the
rules of the next preceding section. (referring to pure and
conditional obligations). (Art. 1125, Civ. Code.)
And as the export of the machinery in question was, as stated in the
contract, contingent upon the sellers obtaining certificate of priority and
permission of the United States Government, subject to the rules and

Second. That when the fulfillment of the condition does not depend
on the will of the obligor, but on that of a third person, who can in
no way be compelled to carry it out, the obligor's part of the
contract is complied withalf Belisario not having exercised his right
of repurchase reserved in the sale of Basilio Borja mentioned in
paragraph (13) hereof, the affidavit of Basilio Borja for the

consolidacion de dominio was presented for record in the registry

of deeds and recorded in the registry on the same date.
(32) The Maximo Belisario left a widow, the opponent Adelina
Ferrer and three minor children, Vitaliana, Eugenio, and Aureno
Belisario as his only heirs.
(33) That in the execution and sales thereunder, in which C. H.
McClure appears as the judgment creditor, he was represented by
the opponent Peter W. Addison, who prepared and had charge of
publication of the notices of the various sales and that in none of
the sales was the notice published more than twice in a newspaper.
The claims of the opponent-appellant Addison have been very fully
and ably argued by his counsel but may, we think, be disposed of
in comparatively few words. As will be seen from the foregoing
statement of facts, he rest his title (1) on the sales under the
executions issued in cases Nos. 435, 450, 454, and 499 of the
court of the justice of the peace of Dagupan with the priority of
inscription of the last two sales in the registry of deeds, and (2) on
a purchase from the Director of Lands after the land in question
had been forfeited to the Government for non-payment of taxes
under Act No. 1791.
The sheriff's sales under the execution mentioned are fatally
defective for what of sufficient publication of the notice of sale.
Section 454 of the Code of civil Procedure reads in part as follows:
SEC. 454. Before the sale of property on execution, notice thereof
must be given, as follows:
1. In case of perishable property, by posing written notice of the
time and place of the sale in three public places of the municipality
or city where the sale is to take place, for such time as may be
reasonable, considering the character and condition of the
property;
2. *

3. In cases of real property, by posting a similar notice particularly

describing the property, for twenty days in three public places of
the municipality or city where the property is situated, and also
where the property is to be sold, and publishing a copy thereof
once a week, for the same period, in some newspaper published or
having general circulation in the province, if there be one. If there

are newspaper published in the province in both the Spanish and

English languages, then a like publication for a like period shall be
made in one newspaper published in the Spanish language, and in
one published in the English language: Provided, however, That
such publication in a newspaper will not be required when the
assessed valuation of the property does not exceed four hundred
pesos;
4. *

Examining the record, we find that in cases Nos. 435 and 450 the sales
took place on October 14, 1916; the notice first published gave the date of
the sale as October 15th, but upon discovering that October 15th was a
Sunday, the date was changed to October 14th. The correct notice was
published twice in a local newspaper, the first publication was made on
October 7th and the second and last on October 14th, the date of the sale
itself. The newspaper is a weekly periodical published every Saturday
afternoon.
In case No. 454 there were only two publications of the notice in a
newspaper, the first publication being made only fourteen days before the
date of the sale. In case No. 499, there were also only two publications, the
first of which was made thirteen days before the sale. In the last case the
sale was advertised for the hours of from 8:30 in the morning until 4:30 in
the afternoon, in violation of section 457 of the Code of Civil Procedure. In
cases Nos. 435 and 450 the hours advertised were from 9:00 in the
morning until 4.30 in the afternoon. In all of the cases the notices of the
sale were prepared by the judgment creditor or his agent, who also took
charged of the publication of such notices.
In the case of Campomanes vs. Bartolome and Germann & Co. (38 Phil.,
808), this court held that if a sheriff sells without the notice prescribe by
the Code of Civil Procedure induced thereto by the judgment creditor and
the purchaser at the sale is the judgment creditor, the sale is absolutely
void and not title passes. This must now be regarded as the settled
doctrine in this jurisdiction whatever the rule may be elsewhere.
It appears affirmatively from the evidence in the present case that there is
a newspaper published in the province where the sale in question took
place and that the assessed valuation of the property disposed of at each
sale exceeded P400. Comparing the requirements of section 454, supra,
with what was actually done, it is self-evident that notices of the sales
mentioned were not given as prescribed by the statute and taking into
consideration that in connection with these sales the appellant Addison
was either the judgment creditor or else occupied a position analogous to
that of a judgment creditor, the sales must be held invalid.

The conveyance or reconveyance of the land from the Director of Lands is

equally invalid. The provisions of Act No. 1791 pertinent to the purchase or
repurchase of land confiscated for non-payment of taxes are found in
section 19 of the Act and read:
. . . In case such redemption be not made within the time above
specified the Government of the Philippine Islands shall have an
absolute, indefeasible title to said real property. Upon the
expiration of the said ninety days, if redemption be not made, the
provincial treasurer shall immediately notify the Director of Lands
of the forfeiture and furnish him with a description of the property,
and said Director of Lands shall have full control and custody
thereof to lease or sell the same or any portion thereof in the same
manner as other public lands are leased or sold: Provided, That the
original owner, or his legal representative, shall have the right to
repurchase the entire amount of his said real property, at any time
before a sale or contract of sale has been made by the director of
Lands to a third party, by paying therefore the whole sum due
thereon at the time of ejectment together with a penalty of ten per
centum . . . .
The appellant Addison repurchased under the final proviso of the section
quoted and was allowed to do so as the successor in interest of the original
owner under the execution sale above discussed. As we have seen, he
acquired no rights under these sales, was therefore not the successor of
the original owner and could only have obtained a valid conveyance of
such titles as the Government might have by following the procedure
prescribed by the Public Land Act for the sale of public lands. he is entitled
to reimbursement for the money paid for the redemption of the land, with
interest, but has acquired no title through the redemption.
The question of the priority of the record of the sheriff's sales over that of
the sale from Belisario to Borja is extensively argued in the briefs, but from
our point of view is of no importance; void sheriff's or execution sales
cannot be validated through inscription in the Mortgage Law registry.
The opposition of Adelina Ferrer must also be overruled. She maintained
that the land in question was community property of the marriage of
Eulalio Belisario and Paula Ira: that upon the death of Paula Ira inealed
from is modified, and the defendant Mr. Vicente Sotelo Matti, sentenced to
accept and receive from the plaintiff the tanks, the expellers and the
motors in question, and to pay the plaintiff the sum of ninety-six thousand
pesos (P96,000), with legal interest thereon from July 17, 1919, the date of
the filing of the complaint, until fully paid, and the costs of both instances.
So ordered.

Araullo, C.J., Johnson, Street, Malcolm, Avancea, Villamor, Ostrand, and

Johns, JJ., concur.

EN BANC
[G.R. No. L-27454. April 30, 1970.]
ROSENDO O. CHAVES, Plaintiff-Appellant, v. FRUCTUOSO
GONZALES, Defendant-Appellee.
Chaves, Elio, Chaves & Associates, for Plaintiff-Appellant.
Sulpicio E. Platon, for Defendant-Appellee.

SYLLABUS

1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR NONPERFORMANCE; FIXING OF PERIOD BEFORE FILING OF COMPLAINT FOR
NON-PERFORMANCE, ACADEMIC. Where the time for compliance had
expired and there was breach of contract by non-performance, it was
academic for the plaintiff to have first petitioned the court to fix a period
for the performance of the contract before filing his complaint.
2. ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE 1197 OF THE CIVIL
CODE OF THE PHILIPPINES. Where the defendant virtually admitted nonperformance of the contract by returning the typewriter that he was
obliged to repair in a non-working condition, with essential parts missing,
Article 1197 of the Civil Code of the Philippines cannot be invoked. The
fixing of a period would thus be a mere formality and would serve no
purpose than to delay.
3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR. Where the
defendant-appellee contravened the tenor of his obligation because he not
only did not repair the typewriter but returned it "in shambles, he is liable
for the cost of the labor or service expended in the repair of the typewriter,
which is in the amount of P58.75, because the obligation or contract was to
repair it. In addition, he is likewise liable under Art. 1170 of the Code, for
the cost of the missing parts, in the amount of P31.10, for in his obligation
to repair the typewriter he was bound, but failed or neglected, to return it
in the same condition it was when he received it.
4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEYS FEES NOT
RECOVERABLE; NOT ALLEGED OR PROVED IN INSTANT CASE. Claims for
damages and attorneys fees must be pleaded, and the existence of the
actual basis thereof must be proved. As no findings of fact were made on
the claims for damages and attorneys fees, there is no factual basis upon

which to make an award therefor.

5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF FIRST INSTANCE TO
SUPREME COURT; ONLY QUESTIONS OF LAW REVIEWABLE. Where the
appellant directly appeals from the decision of the trial court to the
Supreme Court on questions of law, he is bound by the judgment of the
court a quo on its findings of fact.

DECISION

REYES, J.B.L., J.:

"In his answer as well as in his testimony given before this court, the
defendant made no denials of the facts narrated above, except the claim of
the plaintiff that the typewriter was delivered to the defendant through a
certain Julio Bocalin, which the defendant denied allegedly because the
typewriter was delivered to him personally by the plaintiff.
"The repair done on the typewriter by Freixas Business Machines with the
total cost of P89.85 should not, however, be fully chargeable against the
defendant. The repair invoice, Exhibit C, shows that the missing parts had
a total value of only P31.10.
"WHEREFORE, judgment is hereby rendered ordering the defendant to pay
the plaintiff the sum of P31.10, and the costs of suit.
"SO ORDERED."cralaw virtua1aw library

This is a direct appeal by the party who prevailed in a suit for breach of
oral contract and recovery of damages but was unsatisfied with the
decision rendered by the Court of First Instance of Manila, in its Civil Case
No. 65138, because it awarded him only P31.10 out of his total claim of
P690 00 for actual, temperate and moral damages and attorneys fees.
The appealed judgment, which is brief, is hereunder quoted in
full:jgc:chanrobles.com.ph
"In the early part of July, 1963, the plaintiff delivered to the defendant, who
is a typewriter repairer, a portable typewriter for routine cleaning and
servicing. The defendant was not able to finish the job after some time
despite repeated reminders made by the plaintiff. The defendant merely
gave assurances, but failed to comply with the same. In October, 1963, the
defendant asked from the plaintiff the sum of P6.00 for the purchase of
spare parts, which amount the plaintiff gave to the defendant. On October
26, 1963, after getting exasperated with the delay of the repair of the
typewriter, the plaintiff went to the house of the defendant and asked for
the return of the typewriter. The defendant delivered the typewriter in a
wrapped package. On reaching home, the plaintiff examined the typewriter
returned to him by the defendant and found out that the same was in
shambles, with the interior cover and some parts and screws missing. On
October 29, 1963. the plaintiff sent a letter to the defendant formally
demanding the return of the missing parts, the interior cover and the sum
of P6.00 (Exhibit D). The following day, the defendant returned to the
plaintiff some of the missing parts, the interior cover and the P6.00.
"On August 29, 1964, the plaintiff had his typewriter repaired by Freixas
Business Machines, and the repair job cost him a total of P89.85, including
labor and materials (Exhibit C).
"On August 23, 1965, the plaintiff commenced this action before the City
Court of Manila, demanding from the defendant the payment of P90.00 as
actual and compensatory damages, P100.00 for temperate damages,
P500.00 for moral damages, and P500.00 as attorneys fees.

The error of the court a quo, according to the plaintiff-appellant, Rosendo

O. Chaves, is that it awarded only the value of the missing parts of the
typewriter, instead of the whole cost of labor and materials that went into
the repair of the machine, as provided for in Article 1167 of the Civil Code,
reading as follows:jgc:chanrobles.com.ph
"ART. 1167. If a person obliged to do something fails to do it, the same
shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor
of the obligation. Furthermore it may be decreed that what has been poorly
done he undone."cralaw virtua1aw library
On the other hand, the position of the defendant-appellee, Fructuoso
Gonzales, is that he is not liable at all, not even for the sum of P31.10,
because his contract with plaintiff-appellant did not contain a period, so
that plaintiff-appellant should have first filed a petition for the court to fix
the period, under Article 1197 of the Civil Code, within which the defendant
appellee was to comply with the contract before said defendant-appellee
could be held liable for breach of contract.
Because the plaintiff appealed directly to the Supreme Court and the
appellee did not interpose any appeal, the facts, as found by the trial court,
are now conclusive and non-reviewable. 1
The appealed judgment states that the "plaintiff delivered to the defendant
. . . a portable typewriter for routine cleaning and servicing" ; that the
defendant was not able to finish the job after some time despite repeated
reminders made by the plaintiff" ; that the "defendant merely gave
assurances, but failed to comply with the same" ; and that "after getting
exasperated with the delay of the repair of the typewriter", the plaintiff
went to the house of the defendant and asked for its return, which was
done. The inferences derivable from these findings of fact are that the
appellant and the appellee had a perfected contract for cleaning and
servicing a typewriter; that they intended that the defendant was to finish

it at some future time although such time was not specified; and that such
time had passed without the work having been accomplished, far the
defendant returned the typewriter cannibalized and unrepaired, which in
itself is a breach of his obligation, without demanding that he should be
given more time to finish the job, or compensation for the work he had
already done. The time for compliance having evidently expired, and there
being a breach of contract by non-performance, it was academic for the
plaintiff to have first petitioned the court to fix a period for the
performance of the contract before filing his complaint in this case.
Defendant cannot invoke Article 1197 of the Civil Code for he virtually
admitted non-performance by returning the typewriter that he was obliged
to repair in a non-working condition, with essential parts missing. The
fixing of a period would thus be a mere formality and would serve no
purpose than to delay (cf. Tiglao. Et. Al. V. Manila Railroad Co. 98 Phil. 18l).
It is clear that the defendant-appellee contravened the tenor of his
obligation because he not only did not repair the typewriter but returned it
"in shambles", according to the appealed decision. For such contravention,
as appellant contends, he is liable under Article 1167 of the Civil Code. jam
quot, for the cost of executing the obligation in a proper manner. The cost
of the execution of the obligation in this case should be the cost of the
labor or service expended in the repair of the typewriter, which is in the
amount of P58.75. because the obligation or contract was to repair it.
In addition, the defendant-appellee is likewise liable, under Article 1170 of
the Code, for the cost of the missing parts, in the amount of P31.10, for in
his obligation to repair the typewriter he was bound, but failed or
neglected, to return it in the same condition it was when he received it.
Appellants claims for moral and temperate damages and attorneys fees
were, however, correctly rejected by the trial court, for these were not
alleged in his complaint (Record on Appeal, pages 1-5). Claims for
damages and attorneys fees must be pleaded, and the existence of the
actual basis thereof must be proved. 2 The appealed judgment thus made
no findings on these claims, nor on the fraud or malice charged to the
appellee. As no findings of fact were made on the claims for damages and
attorneys fees, there is no factual basis upon which to make an award
therefor. Appellant is bound by such judgment of the court, a quo, by
reason of his having resorted directly to the Supreme Court on questions of
law.
IN VIEW OF THE FOREGOING REASONS, the appealed judgment is hereby
modified, by ordering the defendant-appellee to pay, as he is hereby
ordered to pay, the plaintiff-appellant the sum of P89.85, with interest at
the legal rate from the filing of the complaint. Costs in all instances against
appellee Fructuoso Gonzales.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee
and Villamor, JJ., concur.
Barredo, J., did not take part.

EN BANC
G.R. No. L-264

October 4, 1946

VICENTE SINGSON ENCARNACION, plaintiff-appellee,

vs.
JACINTA BALDOMAR, ET AL., defendants-appellants.
Bausa and Ampil for appellants.
Tolentino and Aguas for appellee.

HILADO, J.:
Vicente Singson Encarnacion, owner of the house numbered 589 Legarda
Street, Manila, some six years ago leased said house to Jacinto Baldomar
and her son, Lefrado Fernando, upon a month-to-month basis for the
monthly rental of P35. After Manila was liberated in the last war,
specifically on March 16, 1945, and on April 7, of the same year, plaintiff
Singson Encarnacion notified defendants, the said mother and son, to
vacate the house above-mentioned on or before April 15, 1945, because
plaintiff needed it for his offices as a result of the destruction of the
building where said plaintiff had said offices before. Despite this demand,
defendants insisted on continuing their occupancy. When the original
action was lodged with the Municipal Court of Manila on April 20, 1945,
defendants were in arrears in the payment of the rental corresponding to
said month, the agrees rental being payable within the first five days of
each month. That rental was paid prior to the hearing of the case in the
municipal court, as a consequence of which said court entered judgment
for restitution and payment of rentals at the rate of P35 a month from May
1, 1945, until defendants completely vacate the premises. Although
plaintiff included in said original complaint a claim for P500 damages per
month, that claim was waived by him before the hearing in the municipal
court, on account of which nothing was said regarding said damages in the
municipal court's decision.
When the case reached the Court of First Instance of Manila upon appeal,
defendants filed therein a motion to dismiss (which was similar to a motion
to dismiss filed by them in the municipal court) based upon the ground
that the municipal court had no jurisdiction over the subject matter due to
the aforesaid claim for damages and that, therefore, the Court of First
Instance had no appellate jurisdiction over the subject matter of the action.
That motion to dismiss was denied by His Honor, Judge Mamerto Roxas, by

order dated July 21, 1945, on the ground that in the municipal court
plaintiff had waived said claim for damages and that, therefore, the same
waiver was understood also to have been made in the Court of First
Instance.lawphil.net
In the Court of First Instance the graveman of the defense interposed by
defendants, as it was expressed defendant Lefrado Fernando during the
trial, was that the contract which they had celebrated with plaintiff since
the beginning authorized them to continue occupying the house indefinetly
and while they should faithfully fulfill their obligations as respects the
payment of the rentals, and that this agreement had been ratified when
another ejectment case between the parties filed during the Japanese
regime concerning the same house was allegedly compounded in the
municipal court. The Court of First Instance gave more credit to plaintiff's
witness, Vicente Singson Encarnacion, jr., who testified that the lease had
always and since the beginning been upon a month-to-month basis. The
court added in its decision that this defense which was put up by
defendant's answer, for which reason the Court considered it as indicative
of an eleventh-hour theory. We think that the Court of First Instance was
right in so declaring. Furthermore, carried to its logical conclusion, the
defense thus set up by defendant Lefrado Fernando would leave to the sole
and exclusive will of one of the contracting parties (defendants in this
case) the validity and fulfillment of the contract of lease, within the
meaning of article 1256 of the Civil Code, since the continuance and
fulfillment of the contract would then depend solely and exclusively upon
their free and uncontrolled choice between continuing paying the rentals or
not, completely depriving the owner of all say in the matter. If this defense
were to be allowed, so long as defendants elected to continue the lease by
continuing the payment of the rentals, the owner would never be able to
discontinue it; conversely, although the owner should desire the lease to
continue, the lessees could effectively thwart his purpose if they should
prefer to terminate the contract by the simple expedient of stopping
payment of the rentals. This, of course, is prohibited by the aforesaid
article of the Civil Code. (8 Manresa, 3d ed., pp. 626, 627; Cuyugan vs.
Santos, 34 Phil., 100.)
During the pendency of the appeal in the Court of First Instance and before
the judgment appealed from was rendered on October 31, 1945, the
rentals in areas were those pertaining to the month of August, 1945, to the
date of said judgment at the rate of P35 a month. During the pendency of
the appeal in that court, certain deposits were made by defendants on
account of rentals with the clerk of said court, and in said judgment it is
disposed that the amounts thus deposited should be delivered to plaintiff.
Upon the whole, we are clearly of opinion that the judgment appealed from
should be, as it is hereby, affirmed, with the costs of the three instances to
appellants. So ordered.

Paras, Pablo, Perfecto and Padilla, JJ., concur.

EN BANC
G.R. No. 967

May 19, 1903

DARIO AND GAUDENCIO ELEIZEGUI, plaintiffs-appellees,

vs.
THE MANILA LAWN TENNIS CLUB, defendant-appellant.
Pillsburry and Sutro for appellant.
Manuel Torres Vergara for appellee.
ARELLANO, C. J.:
This suit concerns the lease of a piece of land for a fixed consideration and
to endure at the will of the lessee. By the contract of lease the lessee is
expressly authorized to make improvements upon the land, by erecting
buildings of both permanent and temporary character, by making fills,
laying pipes, and making such other improvements as might be considered
desirable for the comfort and amusement of the members.
With respect to the term of the lease the present question has arisen. In its
decision three theories have been presented: One which makes the
duration depend upon the will of the lessor, who, upon one month's notice
given to the lessee, may terminate the lease so stipulated; another which,
on the contrary, makes it dependent upon the will of the lessee, as
stipulated; and the third, in accordance with which the right is reversed to
the courts to fix the duration of the term.
The first theory is that which has prevailed in the judgment below, as
appears from the language in which the basis of the decision is expressed:
"The court is of the opinion that the contract of lease was terminated by
the notice given by the plaintiff on August 28 of last year . . . ." And such is
the theory maintained by the plaintiffs, which expressly rests upon article
1581 of the Civil Code, the law which was in force at the time the contract
was entered into (January 25, 1890). The judge, in giving to this notice the
effect of terminating the lease, undoubtedly considers that it is governed
by the article relied upon by the plaintiffs, which is of the following tenor:
"When the term has not been fixed for the lease, it is understood to be for
years when an annual rental has been fixed, for months when the rent is
monthly. . . ." The second clause of the contract provides as follows: "The
rent of the said land is fixed at 25 pesos per month." (P. 11, Bill of
Exceptions.)

In accordance with such a theory, the plaintiffs might have terminated the
lease the month following the making of the contract at any time after
the first month, which, strictly speaking, would be the only month with
respect to which they were expressly bound, they not being bound for each
successive month except by a tacit renewal (art. 1566) an effect which
they might prevent by giving the required notice.
Although the relief asked for in the complaint, drawn in accordance with
the new form of procedure established by the prevailing Code, is the
restitution of the land to the plaintiffs (a formula common to various
actions), nevertheless the action which is maintained can be no other than
that of desahucio, in accordance with the substantive law governing the
contract. The lessor says article 1569 of the Civil Code may judicially
dispossess the lessee upon the expiration of the conventional term or of
the legal term; the conventional term that is, the one agreed upon by
the parties; the legal term, in defect of the conventional, fixed for leases by
articles 1577 and 1581. We have already seen what this legal term is with
respect to urban properties, in accordance with article 1581.
Hence, it follows that the judge has only to determine whether there is or is
not conventional term. If there be a conventional term, he can not apply
the legal term fixed in subsidium to cover a case in which the parties have
made no agreement whatsoever with respect to the duration of the lease.
In this case the law interprets the presumptive intention of the parties,
they having said nothing in the contract with respect to its duration.
"Obligations arising from contracts have the force of law between the
contracting parties and must be complied with according to the tenor of
the contracts." (Art. 1091 of the Civil Code.)
The obligations which, with the force of law, the lessors assumed by the
contract entered into, so far as pertaining to the issues, are the following:
"First. . . . They lease the above-described land to Mr. Williamson, who
takes it on lease, . . . for all the time the members of the said club may
desire to use it . . . Third. . . . the owners of the land undertake to maintain
the club as tenant as long as the latter shall see fit, without altering in the
slightest degree the conditions of this contract, even though the estate be
sold."
It is necessary, therefore, to answer the first question: Was there, or was
there not, a conventional term, a duration, agreed upon in the contract in
question? If there was an agreed duration, a conventional term, then the
legal term the term fixed in article 1581 has no application; the
contract is the supreme law of the contracting parties. Over and above the
general law is the special law, expressly imposed upon themselves by the
contracting parties. Without these clauses 1 and 3, the contract would
contain no stipulation with respect to the duration of the lease, and then
article 1581, in connection with article 1569, would necessarily be
applicable. In view of these clauses, however, it can not be said that there
is no stipulation with respect to the duration of the lease, or that,
notwithstanding these clauses, article 1581, in connection with article

1569, can be applied. If this were so, it would be necessary to hold that the
lessors spoke in vain that their words are to be disregarded a claim
which can not be advanced by the plaintiffs nor upheld by any court
without citing the law which detracts all legal force from such words or
despoils them of their literal sense.
It having been demonstrated that the legal term can not be applied, there
being a conventional term, this destroys the assumption that the contract
of lease was wholly terminated by the notice given by the plaintiffs, this
notice being necessary only when it becomes necessary to have recourse
to the legal term. Nor had the plaintiffs, under the contract, any right to
give such notice. It is evident that they had no intention of stipulating that
they reserved the right to give such notice. Clause 3 begins as follows: "Mr.
Williamson, or whoever may succeed him as secretary of said club, may
terminate this lease whenever desired without other formality than that of
giving a month's notice. The owners of the land undertake to maintain the
club as tenant as long as the latter shall see fit." The right of the one and
the obligation of the others being thus placed in antithesis, there is
something more, much more, than the inclusio unius, exclusio alterius. It is
evident that the lessors did not intend to reserve to themselves the right to
rescind that which they expressly conferred upon the lessee by
establishing it exclusively in favor of the latter.
It would be the greatest absurdity to conclude that in a contract by which
the lessor has left the termination of the lease to the will of the lessee,
such a lease can or should be terminated at the will of the lessor.
It would appear to follow, from the foregoing, that, if such is the force of
the agreement, there can be no other mode of terminating the lease than
by the will of the lessee, as stipulated in this case. Such is the conclusion
maintained by the defendant in the demonstration of the first error of law
in the judgment, as alleged by him. He goes so far, under this theory, as to
maintain the possibility of a perpetual lease, either as such lease, if the
name can be applied, or else as an innominate contract, or under any
other denomination, in accordance with the agreement of the parties,
which is, in fine, the law of the contract, superior to all other law, provided
that there be no agreement against any prohibitive statute, morals, or
public policy.
It is unnecessary here to enter into a discussion of a perpetual lease in
accordance with the law and doctrine prior to the Civil Code now in force,
and which has been operative since 1889. Hence the judgment of the
supreme court of Spain of January 2, 1891, with respect to a lease made in
1887, cited by the defendant, and a decision stated by him to have been
rendered by the Audiencia of Pamplona in 1885 (it appears to be rather a
decision by the head office of land registration of July 1, 1885), and any
other decision which might be cited based upon the constitutions of
Cataluna, according to which a lease of more than ten years is understood
to create a life tenancy, or even a perpetual tenancy, are entirely out of
point in this case, in which the subject-matter is a lease entered into under

the provisions of the present Civil Code, in accordance with the principles
of which alone can this doctrine be examined.
It is not to be understood that we admit that the lease entered into was
stipulated as a life tenancy, and still less as a perpetual lease. The terms of
the contract express nothing to this effect. They do, whatever, imply this
idea. If the lease could last during such time as the lessee might see fit,
because it has been so stipulated by the lessor, it would last, first, as long
as the will of the lessee that is, all his life; second, during all the time
that he may have succession, inasmuch as he who contracts does so for
himself and his heirs. (Art. 1257 of the Civil Code.) The lease in question
does not fall within any of the cases in which the rights and obligations
arising from a contract can not be transmitted to heirs, either by its nature,
by agreement, or by provision of law. Furthermore, the lessee is an English
association.
Usufruct is a right of superior degree to that which arises from a lease. It is
a real right and includes all the jus utendi and jus fruendi. Nevertheless,
the utmost period for which a usufruct can endure, if constituted in favor a
natural person, is the lifetime of the usufructuary (art. 513, sec. 1); and if
in favor of juridical person, it can not be created for more than thirty years.
(Art. 515.) If the lease might be perpetual, in what would it be
distinguished from an emphyteusis? Why should the lessee have a greater
right than the usufructuary, as great as that of an emphyteuta, with
respect to the duration of the enjoyment of the property of another? Why
did they not contract for a usufruct or an emphyteusis? It was repeatedly
stated in the document that it was a lease, and nothing but a lease, which
was agreed upon: "Being in the full enjoyment of the necessary legal
capacity to enter into this contract of lease . . . they have agreed upon the
lease of said estate . . . They lease to Mr. Williamson, who receives it as
such. . . . The rental is fixed at 25 pesos a month. . . . The owners bind
themselves to maintain the club as tenant. . . . Upon the foregoing
conditions they make the present contract of lease. . . ." (Pp. 9, 11, and 12,
bill of exceptions.) If it is a lease, then it must be for a determinate period.
(Art. 1543.) By its very nature it must be temporary, just as by reason of its
nature an emphyteusis must be perpetual, or for an unlimited period. (Art.
1608.)
On the other hand, it can not be concluded that the termination of the
contract is to be left completely at the will of the lessee, because it has
been stipulated that its duration is to be left to his will.
The Civil Code has made provision for such a case in all kinds of
obligations. In speaking in general of obligations with a term it has supplied
the deficiency of the former law with respect to the "duration of the term
when it has been left to the will of the debtor," and provides that in this
case the term shall be fixed by the courts. (Art. 1128, sec. 2.) In every
contract, as laid down by the authorities, there is always a creditor who is
entitled to demand the performance, and a debtor upon whom rests the
obligation to perform the undertaking. In bilateral contracts the contracting

parties are mutually creditors and debtors. Thus, in this contract of lease,
the lessee is the creditor with respect to the rights enumerated in article
1554, and is the debtor with respect to the obligations imposed by articles
1555 and 1561. The term within which performance of the latter obligation
is due is what has been left to the will of the debtor. This term it is which
must be fixed by the courts.
The only action which can be maintained under the terms of the contract is
that by which it is sought to obtain from the judge the determination of this
period, and not the unlawful detainer action which has been brought an
action which presupposes the expiration of the term and makes it the duty
of the judge to simply decree an eviction. To maintain the latter action it is
sufficient to show the expiration of the term of the contract, whether
conventional or legal; in order to decree the relief to be granted in the
former action it is necessary for the judge to look into the character and
conditions of the mutual undertakings with a view to supplying the lacking
element of a time at which the lease is to expire. In the case of a loan of
money or a commodatum of furniture, the payment or return to be made
when the borrower "can conveniently do so" does not mean that he is to be
allowed to enjoy the money or to make use of the thing indefinitely or
perpetually. The courts will fix in each case, according to the
circumstances, the time for the payment or return. This is the theory also
maintained by the defendant in his demonstration of the fifth assignment
of error. "Under article 1128 of the Civil Code," thus his proposition
concludes, "contracts whose term is left to the will of one of the
contracting parties must be fixed by the courts, . . . the conditions as to the
term of this lease has a direct legislative sanction," and he cites articles
1128. "In place of the ruthless method of annihilating a solemn obligation,
which the plaintiffs in this case have sought to pursue, the Code has
provided a legitimate and easily available remedy. . . . The Code has
provided for the proper disposition of those covenants, and a case can
hardly arise more clearly demonstrating the usefulness of that provision
than the case at bar." (Pp. 52 and 53 of appellant's brief.)
The plaintiffs, with respect to this conclusion on the part of their
opponents, only say that article 1128 "expressly refers to obligations in
contracts in general, and that it is well known that a lease is included
among special contracts." But they do not observe that if contracts, simply
because special rules are provided for them, could be excepted from the
provisions of the articles of the Code relative to obligations and contracts
in general, such general provisions would be wholly without application.
The system of the Code is that of establishing general rules applicable to
all obligations and contracts, and then special provisions peculiar to each
species of contract. In no part of Title VI of Book IV, which treats of the
contract of lease, are there any special rules concerning pure of conditional
obligations which may be stipulated in a lease, because, with respect to
these matters, the provisions of section 1, chapter 3, Title I, on the subject
of obligations are wholly sufficient. With equal reason should we refer to
section 2, which deals with obligations with a term, in the same chapter
and title, if a question concerning the term arises out of a contract of lease,

as in the present case, and within this section we find article 1128, which
decides the question.
The judgment was entered below upon the theory of the expiration of a
legal term which does not exist, as the case requires that a term be fixed
by the courts under the provisions of article 1128 with respect to
obligations which, as is the present, are terminable at the will of the
obligee. It follows, therefore, that the judgment below is erroneous.
The judgment is reversed and the case will be remanded to the court
below with directions to enter a judgment of dismissal of the action in favor
of the defendant, the Manila Lawn Tennis Club, without special allowance
as to the recovery of costs. So ordered.
Mapa and Ladd, JJ., concur.
Torres, J., disqualified.

It seems clear that both parts of the article must refer to the same kind of
obligations. The first paragraph relates to obligations in which the parties
have named no period, the second to the same kind of obligations in which
the period is left to the will of the debtor. If the first paragraph is not
applicable to leases, the second is not.
The whole article was, I think, intended to apply generally to unilateral
contracts to those in which the creditor had parted with something of
value, leaving it to the debtor to say when it should be returned. In such
cases the debtor might never return it, and the creditor might thus be
deprived of his property and entirely defeated in his rights. It was to
prevent such a wrong that the article was adopted. But it has no
application to this case. The plaintiffs are not deprived of their rights. They
get every month the value which they themselves put upon the use of the
property. The time of the payment of this rent has not been left by the
contract to the will of the debtor. It is expressly provided in the contract
that it shall be paid "within the first five days after the expiration of each
month."
Article 1255 of the Civil Code is as follows:

Separate Opinions
WILLARD, J., concurring:
I concur in the foregoing opinion so far as it holds that article 1581 has no
application to the case and that the action can not be maintained. But as
to the application of article 1128 I do not concur. That article is as follows:
Should the obligation not fix a period, but it can be inferred
from its nature and circumstances that there was an
intention to grant it to the debtor, the courts shall fix the
duration of the same.
The court shall also fix the duration of the period when it
may have been left to the will of the debtor.
The court has applied the last paragraph of the article to the case of a
lease. But, applying the first paragraph to leases, we have a direct conflict
between this article and article 1581. Let us suppose the lease of a house
for 50 pesos a month. Nothing is said about the number of months during
which the lessee shall occupy it. If article 1581 is applicable to this case,
the law fixes the duration of the term and the courts have no power to
change it. If article 1128 is applied to it, the courts fix the duration of the
lease without reference to article 1581. It will, I think, be agreed by
everyone that article 1581 is the law applicable to the case, and that
article 1128 has nothing to do with it.

The contracting parties may make the agreement and

establish the clauses and conditions which they may deem
advisable, provided they are not in contravention of law,
morals, or public order.
That the parties to this contract distinctly agreed that the defendant should
have this property so long as he was willing to pay 25 pesos a month for it,
is undisputed.
I find nothing in the Code to show that when a natural person is the tenant
such an agreement would be contrary to law, morality, or public policy. In
such a case the contract would terminate at the death of the tenant. Such
is the doctrine of the French Cour de Cassation. (Houet vs. Lamarge, July
20, 1840.)
The tenant is the only person who has been given the right to say how long
the contract shall continue. That right is personal to him, and is not
property in such a sense as to pass to his heirs.
In this case the question is made more difficult by the fact that the tenant
is said to be juridical person, and it is said that the lease is therefore a
perpetual one. Just what kind of a partnership or association the defendant
is does not appear, and without knowing what kind of an entity it is we can
not say that this contract is a perpetual lease. Even if the defendant has
perpetual succession, the lease would not necessarily last forever. A
breach of any one of the obligations imposed upon the lessee by article
1555 of the Civil Code would give the landlord the right to terminate it.

EN BANC
G.R. No. L-17587

September 12, 1967

PHILIPPINE BANKING CORPORATION, representing the estate of

JUSTINA SANTOS Y CANON FAUSTINO, deceased, plaintiff-appellant,
vs.
LUI SHE in her own behalf and as administratrix of the intestate
estate of Wong Heng, deceased, defendant-appellant.
Nicanor S. Sison for plaintiff-appellant.
Ozaeta, Gibbs & Ozaeta for defendant-appellant.

CASTRO, J.:
Justina Santos y Canon Faustino and her sister Lorenzo were the owners in
common of a piece of land in Manila. This parcel, with an area of 2,582.30
square meters, is located on Rizal Avenue and opens into Florentino Torres
street at the back and Katubusan street on one side. In it are two
residential houses with entrance on Florentino Torres street and the Hen
Wah Restaurant with entrance on Rizal Avenue. The sisters lived in one of
the houses, while Wong Heng, a Chinese, lived with his family in the
restaurant. Wong had been a long-time lessee of a portion of the property,
paying a monthly rental of P2,620.
On September 22, 1957 Justina Santos became the owner of the entire
property as her sister died with no other heir. Then already well advanced
in years, being at the time 90 years old, blind, crippled and an invalid, she
was left with no other relative to live with. Her only companions in the
house were her 17 dogs and 8 maids. Her otherwise dreary existence was
brightened now and then by the visits of Wong's four children who had
become the joy of her life. Wong himself was the trusted man to whom she
delivered various amounts for safekeeping, including rentals from her
property at the corner of Ongpin and Salazar streets and the rentals which
Wong himself paid as lessee of a part of the Rizal Avenue property. Wong
also took care of the payment; in her behalf, of taxes, lawyers' fees, funeral
expenses, masses, salaries of maids and security guard, and her household
expenses.
"In grateful acknowledgment of the personal services of the lessee to her,"
Justina Santos executed on November 15, 1957 a contract of lease (Plff
Exh. 3) in favor of Wong, covering the portion then already leased to him
and another portion fronting Florentino Torres street. The lease was for 50
years, although the lessee was given the right to withdraw at any time

from the agreement; the monthly rental was P3,120. The contract covered
an area of 1,124 square meters. Ten days later (November 25), the
contract was amended (Plff Exh. 4) so as to make it cover the entire
property, including the portion on which the house of Justina Santos stood,
at an additional monthly rental of P360. For his part Wong undertook to
pay, out of the rental due from him, an amount not exceeding P1,000 a
month for the food of her dogs and the salaries of her maids.
On December 21 she executed another contract (Plff Exh. 7) giving Wong
the option to buy the leased premises for P120,000, payable within ten
years at a monthly installment of P1,000. The option, written in Tagalog,
imposed on him the obligation to pay for the food of the dogs and the
salaries of the maids in her household, the charge not to exceed P1,800 a
month. The option was conditioned on his obtaining Philippine citizenship,
a petition for which was then pending in the Court of First Instance of Rizal.
It appears, however, that this application for naturalization was withdrawn
when it was discovered that he was not a resident of Rizal. On October 28,
1958 she filed a petition to adopt him and his children on the erroneous
belief that adoption would confer on them Philippine citizenship. The error
was discovered and the proceedings were abandoned.
On November 18, 1958 she executed two other contracts, one (Plff Exh. 5)
extending the term of the lease to 99 years, and another (Plff Exh. 6) fixing
the term of the option of 50 years. Both contracts are written in Tagalog.
In two wills executed on August 24 and 29, 1959 (Def Exhs. 285 & 279),
she bade her legatees to respect the contracts she had entered into with
Wong, but in a codicil (Plff Exh. 17) of a later date (November 4, 1959) she
appears to have a change of heart. Claiming that the various contracts
were made by her because of machinations and inducements practiced by
him, she now directed her executor to secure the annulment of the
contracts.
On November 18 the present action was filed in the Court of First Instance
of Manila. The complaint alleged that the contracts were obtained by Wong
"through fraud, misrepresentation, inequitable conduct, undue influence
and abuse of confidence and trust of and (by) taking advantage of the
helplessness of the plaintiff and were made to circumvent the
constitutional provision prohibiting aliens from acquiring lands in the
Philippines and also of the Philippine Naturalization Laws." The court was
asked to direct the Register of Deeds of Manila to cancel the registration of
the contracts and to order Wong to pay Justina Santos the additional rent
of P3,120 a month from November 15, 1957 on the allegation that the
reasonable rental of the leased premises was P6,240 a month.
In his answer, Wong admitted that he enjoyed her trust and confidence as
proof of which he volunteered the information that, in addition to the sum
of P3,000 which he said she had delivered to him for safekeeping, another
sum of P22,000 had been deposited in a joint account which he had with

one of her maids. But he denied having taken advantage of her trust in
order to secure the execution of the contracts in question. As counterclaim
he sought the recovery of P9,210.49 which he said she owed him for
advances.
Wong's admission of the receipt of P22,000 and P3,000 was the cue for the
filing of an amended complaint. Thus on June 9, 1960, aside from the
nullity of the contracts, the collection of various amounts allegedly
delivered on different occasions was sought. These amounts and the dates
of their delivery are P33,724.27 (Nov. 4, 1957); P7,344.42 (Dec. 1, 1957);
P10,000 (Dec. 6, 1957); P22,000 and P3,000 (as admitted in his answer).
An accounting of the rentals from the Ongpin and Rizal Avenue properties
was also demanded.
In the meantime as a result of a petition for guardianship filed in the
Juvenile and Domestic Relations Court, the Security Bank & Trust Co. was
appointed guardian of the properties of Justina Santos, while Ephraim G.
Gochangco was appointed guardian of her person.
In his answer, Wong insisted that the various contracts were freely and
voluntarily entered into by the parties. He likewise disclaimed knowledge
of the sum of P33,724.27, admitted receipt of P7,344.42 and P10,000, but
contended that these amounts had been spent in accordance with the
instructions of Justina Santos; he expressed readiness to comply with any
order that the court might make with respect to the sums of P22,000 in the
bank and P3,000 in his possession.
The case was heard, after which the lower court rendered judgment as
follows:
[A]ll the documents mentioned in the first cause of action,
with the exception of the first which is the lease contract of
15 November 1957, are declared null and void; Wong Heng
is condemned to pay unto plaintiff thru guardian of her
property the sum of P55,554.25 with legal interest from the
date of the filing of the amended complaint; he is also
ordered to pay the sum of P3,120.00 for every month of his
occupation as lessee under the document of lease herein
sustained, from 15 November 1959, and the moneys he
has consigned since then shall be imputed to that; costs
against Wong Heng.
From this judgment both parties appealed directly to this Court. After the
case was submitted for decision, both parties died, Wong Heng on October
21, 1962 and Justina Santos on December 28, 1964. Wong was substituted
by his wife, Lui She, the other defendant in this case, while Justina Santos
was substituted by the Philippine Banking Corporation.

Justina Santos maintained now reiterated by the Philippine Banking

Corporation that the lease contract (Plff Exh. 3) should have been
annulled along with the four other contracts (Plff Exhs. 4-7) because it
lacks mutuality; because it included a portion which, at the time, was in
custodia legis; because the contract was obtained in violation of the
fiduciary relations of the parties; because her consent was obtained
through undue influence, fraud and misrepresentation; and because the
lease contract, like the rest of the contracts, is absolutely simulated.
Paragraph 5 of the lease contract states that "The lessee may at any time
withdraw from this agreement." It is claimed that this stipulation offends
article 1308 of the Civil Code which provides that "the contract must bind
both contracting parties; its validity or compliance cannot be left to the will
of one of them."
We have had occasion to delineate the scope and application of article
1308 in the early case of Taylor v. Uy Tieng Piao.1 We said in that case:
Article 1256 [now art. 1308] of the Civil Code in our opinion
creates no impediment to the insertion in a contract for
personal service of a resolutory condition permitting the
cancellation of the contract by one of the parties. Such a
stipulation, as can be readily seen, does not make either
the validity or the fulfillment of the contract dependent
upon the will of the party to whom is conceded the
privilege of cancellation; for where the contracting parties
have agreed that such option shall exist, the exercise of
the option is as much in the fulfillment of the contract as
any other act which may have been the subject of
agreement. Indeed, the cancellation of a contract in
accordance with conditions agreed upon beforehand is
fulfillment.2
And so it was held in Melencio v. Dy Tiao Lay 3 that a "provision in a lease
contract that the lessee, at any time before he erected any building on the
land, might rescind the lease, can hardly be regarded as a violation of
article 1256 [now art. 1308] of the Civil Code."
The case of Singson Encarnacion v. Baldomar 4 cannot be cited in support
of the claim of want of mutuality, because of a difference in factual setting.
In that case, the lessees argued that they could occupy the premises as
long as they paid the rent. This is of course untenable, for as this Court
said, "If this defense were to be allowed, so long as defendants elected to
continue the lease by continuing the payment of the rentals, the owner
would never be able to discontinue it; conversely, although the owner
should desire the lease to continue the lessees could effectively thwart his
purpose if they should prefer to terminate the contract by the simple
expedient of stopping payment of the rentals." Here, in contrast, the right
of the lessee to continue the lease or to terminate it is so circumscribed by

the term of the contract that it cannot be said that the continuance of the
lease depends upon his will. At any rate, even if no term had been fixed in
the agreement, this case would at most justify the fixing of a period 5 but
not the annulment of the contract.

her, I don't really know if I have expressed my opinion, but

I told her that we would rather not execute any contract
anymore, but to hold it as it was before, on a verbal month
to month contract of lease.

Nor is there merit in the claim that as the portion of the property formerly
owned by the sister of Justina Santos was still in the process of settlement
in the probate court at the time it was leased, the lease is invalid as to
such portion. Justina Santos became the owner of the entire property upon
the death of her sister Lorenzo on September 22, 1957 by force of article
777 of the Civil Code. Hence, when she leased the property on November
15, she did so already as owner thereof. As this Court explained in
upholding the sale made by an heir of a property under judicial
administration:

Q But, she did not follow your advice, and she went with
the contract just the same?

That the land could not ordinarily be levied upon while in

custodia legis does not mean that one of the heirs may not
sell the right, interest or participation which he has or
might have in the lands under administration. The ordinary
execution of property in custodia legis is prohibited in order
to avoid interference with the possession by the court. But
the sale made by an heir of his share in an inheritance,
subject to the result of the pending administration, in no
wise stands in the way of such administration. 6
It is next contended that the lease contract was obtained by Wong in
violation of his fiduciary relationship with Justina Santos, contrary to article
1646, in relation to article 1941 of the Civil Code, which disqualifies
"agents (from leasing) the property whose administration or sale may have
been entrusted to them." But Wong was never an agent of Justina Santos.
The relationship of the parties, although admittedly close and confidential,
did not amount to an agency so as to bring the case within the prohibition
of the law.
Just the same, it is argued that Wong so completely dominated her life and
affairs that the contracts express not her will but only his. Counsel for
Justina Santos cites the testimony of Atty. Tomas S. Yumol who said that he
prepared the lease contract on the basis of data given to him by Wong and
that she told him that "whatever Mr. Wong wants must be followed." 7
The testimony of Atty. Yumol cannot be read out of context in order to
warrant a finding that Wong practically dictated the terms of the contract.
What this witness said was:
Q Did you explain carefully to your client, Doa Justina, the
contents of this document before she signed it?
A I explained to her each and every one of these conditions
and I also told her these conditions were quite onerous for

A She agreed first . . .

Q Agreed what?
A Agreed with my objectives that it is really onerous and
that I was really right, but after that, I was called again by
her and she told me to follow the wishes of Mr. Wong Heng.
xxx

xxx

xxx

Q So, as far as consent is concerned, you were satisfied

that this document was perfectly proper?
xxx

xxx

xxx

A Your Honor, if I have to express my personal opinion, I

would say she is not, because, as I said before, she told me
"Whatever Mr. Wong wants must be followed."8
Wong might indeed have supplied the data which Atty. Yumol embodied in
the lease contract, but to say this is not to detract from the binding force of
the contract. For the contract was fully explained to Justina Santos by her
own lawyer. One incident, related by the same witness, makes clear that
she voluntarily consented to the lease contract. This witness said that the
original term fixed for the lease was 99 years but that as he doubted the
validity of a lease to an alien for that length of time, he tried to persuade
her to enter instead into a lease on a month-to-month basis. She was,
however, firm and unyielding. Instead of heeding the advice of the lawyer,
she ordered him, "Just follow Mr. Wong Heng."9 Recounting the incident,
Atty. Yumol declared on cross examination:
Considering her age, ninety (90) years old at the time and
her condition, she is a wealthy woman, it is just natural
when she said "This is what I want and this will be done." In
particular reference to this contract of lease, when I said
"This is not proper," she said "You just go ahead, you
prepare that, I am the owner, and if there is any illegality, I
am the only one that can question the illegality."10

Atty. Yumol further testified that she signed the lease contract in the
presence of her close friend, Hermenegilda Lao, and her maid, Natividad
Luna, who was constantly by her side.11 Any of them could have testified
on the undue influence that Wong supposedly wielded over Justina Santos,
but neither of them was presented as a witness. The truth is that even
after giving his client time to think the matter over, the lawyer could not
make her change her mind. This persuaded the lower court to uphold the
validity of the lease contract against the claim that it was procured through
undue influence.
Indeed, the charge of undue influence in this case rests on a mere
inference12 drawn from the fact that Justina Santos could not read (as she
was blind) and did not understand the English language in which the
contract is written, but that inference has been overcome by her own
evidence.
Nor is there merit in the claim that her consent to the lease contract, as
well as to the rest of the contracts in question, was given out of a mistaken
sense of gratitude to Wong who, she was made to believe, had saved her
and her sister from a fire that destroyed their house during the liberation of
Manila. For while a witness claimed that the sisters were saved by other
persons (the brothers Edilberto and Mariano Sta. Ana)13 it was Justina
Santos herself who, according to her own witness, Benjamin C. Alonzo, said
"very emphatically" that she and her sister would have perished in the fire
had it not been for Wong.14 Hence the recital in the deed of conditional
option (Plff Exh. 7) that "[I]tong si Wong Heng ang siyang nagligtas sa
aming dalawang magkapatid sa halos ay tiyak na kamatayan", and the
equally emphatic avowal of gratitude in the lease contract (Plff Exh. 3).
As it was with the lease contract (Plff Exh. 3), so it was with the rest of the
contracts (Plff Exhs. 4-7) the consent of Justina Santos was given freely
and voluntarily. As Atty. Alonzo, testifying for her, said:
[I]n nearly all documents, it was either Mr. Wong Heng or
Judge Torres and/or both. When we had conferences, they
used to tell me what the documents should contain. But, as
I said, I would always ask the old woman about them and
invariably the old woman used to tell me: "That's okay. It's
all right."15
But the lower court set aside all the contracts, with the exception of the
lease contract of November 15, 1957, on the ground that they are contrary
to the expressed wish of Justina Santos and that their considerations are
fictitious. Wong stated in his deposition that he did not pay P360 a month
for the additional premises leased to him, because she did not want him to,
but the trial court did not believe him. Neither did it believe his statement
that he paid P1,000 as consideration for each of the contracts (namely, the
option to buy the leased premises, the extension of the lease to 99 years,
and the fixing of the term of the option at 50 years), but that the amount

was returned to him by her for safekeeping. Instead, the court relied on the
testimony of Atty. Alonzo in reaching the conclusion that the contracts are
void for want of consideration.
Atty. Alonzo declared that he saw no money paid at the time of the
execution of the documents, but his negative testimony does not rule out
the possibility that the considerations were paid at some other time as the
contracts in fact recite. What is more, the consideration need not pass from
one party to the other at the time a contract is executed because the
promise of one is the consideration for the other.16
With respect to the lower court's finding that in all probability Justina
Santos could not have intended to part with her property while she was
alive nor even to lease it in its entirety as her house was built on it, suffice
it to quote the testimony of her own witness and lawyer who prepared the
contracts (Plff Exhs. 4-7) in question, Atty. Alonzo:
The ambition of the old woman, before her death,
according to her revelation to me, was to see to it that
these properties be enjoyed, even to own them, by Wong
Heng because Doa Justina told me that she did not have
any relatives, near or far, and she considered Wong Heng
as a son and his children her grandchildren; especially her
consolation in life was when she would hear the children
reciting prayers in Tagalog.17
She was very emphatic in the care of the seventeen (17)
dogs and of the maids who helped her much, and she told
me to see to it that no one could disturb Wong Heng from
those properties. That is why we thought of the ninety-nine
(99) years lease; we thought of adoption, believing that
thru adoption Wong Heng might acquire Filipino citizenship;
being the adopted child of a Filipino citizen.18
This is not to say, however, that the contracts (Plff Exhs. 3-7) are valid. For
the testimony just quoted, while dispelling doubt as to the intention of
Justina Santos, at the same time gives the clue to what we view as a
scheme to circumvent the Constitutional prohibition against the transfer of
lands to aliens. "The illicit purpose then becomes the illegal causa"19
rendering the contracts void.
Taken singly, the contracts show nothing that is necessarily illegal, but
considered collectively, they reveal an insidious pattern to subvert by
indirection what the Constitution directly prohibits. To be sure, a lease to an
alien for a reasonable period is valid. So is an option giving an alien the
right to buy real property on condition that he is granted Philippine
citizenship. As this Court said in Krivenko v. Register of Deeds:20

[A]liens are not completely excluded by the Constitution

from the use of lands for residential purposes. Since their
residence in the Philippines is temporary, they may be
granted temporary rights such as a lease contract which is
not forbidden by the Constitution. Should they desire to
remain here forever and share our fortunes and
misfortunes, Filipino citizenship is not impossible to
acquire.
But if an alien is given not only a lease of, but also an option to buy, a
piece of land, by virtue of which the Filipino owner cannot sell or otherwise
dispose of his property,21 this to last for 50 years, then it becomes clear
that the arrangement is a virtual transfer of ownership whereby the owner
divests himself in stages not only of the right to enjoy the land ( jus
possidendi, jus utendi, jus fruendi and jus abutendi) but also of the right to
dispose of it ( jus disponendi) rights the sum total of which make up
ownership. It is just as if today the possession is transferred, tomorrow, the
use, the next day, the disposition, and so on, until ultimately all the rights
of which ownership is made up are consolidated in an alien. And yet this is
just exactly what the parties in this case did within the space of one year,
with the result that Justina Santos' ownership of her property was reduced
to a hollow concept. If this can be done, then the Constitutional ban
against alien landholding in the Philippines, as announced in Krivenko v.
Register of Deeds,22 is indeed in grave peril.
It does not follow from what has been said, however, that because the
parties are in pari delicto they will be left where they are, without relief. For
one thing, the original parties who were guilty of a violation of the
fundamental charter have died and have since been substituted by their
administrators to whom it would be unjust to impute their guilt. 23 For
another thing, and this is not only cogent but also important, article 1416
of the Civil Code provides, as an exception to the rule on pari delicto, that
"When the agreement is not illegal per se but is merely prohibited, and the
prohibition by law is designed for the protection of the plaintiff, he may, if
public policy is thereby enhanced, recover what he has paid or delivered."
The Constitutional provision that "Save in cases of hereditary succession,
no private agricultural land shall be transferred or assigned except to
individuals, corporations, or associations qualified to acquire or hold lands
of the public domain in the Philippines"24 is an expression of public policy to
conserve lands for the Filipinos. As this Court said in Krivenko:
It is well to note at this juncture that in the present case we
have no choice. We are construing the Constitution as it is
and not as we may desire it to be. Perhaps the effect of our
construction is to preclude aliens admitted freely into the
Philippines from owning sites where they may build their
homes. But if this is the solemn mandate of the
Constitution, we will not attempt to compromise it even in
the name of amity or equity . . . .

For all the foregoing, we hold that under the Constitution

aliens may not acquire private or public agricultural lands,
including residential lands, and, accordingly, judgment is
affirmed, without costs.25
That policy would be defeated and its continued violation sanctioned if,
instead of setting the contracts aside and ordering the restoration of the
land to the estate of the deceased Justina Santos, this Court should apply
the general rule of pari delicto. To the extent that our ruling in this case
conflicts with that laid down in Rellosa v. Gaw Chee Hun 26 and subsequent
similar cases, the latter must be considered as pro tanto qualified.
The claim for increased rentals and attorney's fees, made in behalf of
Justina Santos, must be denied for lack of merit.
And what of the various amounts which Wong received in trust from her? It
appears that he kept two classes of accounts, one pertaining to amount
which she entrusted to him from time to time, and another pertaining to
rentals from the Ongpin property and from the Rizal Avenue property,
which he himself was leasing.
With respect to the first account, the evidence shows that he received
P33,724.27 on November 8, 1957 (Plff Exh. 16); P7,354.42 on December 1,
1957 (Plff Exh. 13); P10,000 on December 6, 1957 (Plff Exh. 14) ; and
P18,928.50 on August 26, 1959 (Def. Exh. 246), or a total of P70,007.19.
He claims, however, that he settled his accounts and that the last amount
of P18,928.50 was in fact payment to him of what in the liquidation was
found to be due to him.
He made disbursements from this account to discharge Justina Santos'
obligations for taxes, attorneys' fees, funeral services and security guard
services, but the checks (Def Exhs. 247-278) drawn by him for this purpose
amount to only P38,442.84.27 Besides, if he had really settled his accounts
with her on August 26, 1959, we cannot understand why he still had
P22,000 in the bank and P3,000 in his possession, or a total of P25,000. In
his answer, he offered to pay this amount if the court so directed him. On
these two grounds, therefore, his claim of liquidation and settlement of
accounts must be rejected.
After subtracting P38,442.84 (expenditures) from P70,007.19 (receipts),
there is a difference of P31,564 which, added to the amount of P25,000,
leaves a balance of P56,564.3528 in favor of Justina Santos.
As to the second account, the evidence shows that the monthly income
from the Ongpin property until its sale in Rizal Avenue July, 1959 was
P1,000, and that from the Rizal Avenue property, of which Wong was the
lessee, was P3,120. Against this account the household expenses and
disbursements for the care of the 17 dogs and the salaries of the 8 maids
of Justina Santos were charged. This account is contained in a notebook

(Def. Exh. 6) which shows a balance of P9,210.49 in favor of Wong. But it is

claimed that the rental from both the Ongpin and Rizal Avenue properties
was more than enough to pay for her monthly expenses and that, as a
matter of fact, there should be a balance in her favor. The lower court did
not allow either party to recover against the other. Said the court:
[T]he documents bear the earmarks of genuineness; the
trouble is that they were made only by Francisco Wong and
Antonia Matias, nick-named Toning, which was the way
she signed the loose sheets, and there is no clear proof
that Doa Justina had authorized these two to act for her in
such liquidation; on the contrary if the result of that was a
deficit as alleged and sought to be there shown, of
P9,210.49, that was not what Doa Justina apparently
understood for as the Court understands her statement to
the Honorable Judge of the Juvenile Court . . . the reason
why she preferred to stay in her home was because there
she did not incur in any debts . . . this being the case, . . .
the Court will not adjudicate in favor of Wong Heng on his
counterclaim; on the other hand, while it is claimed that
the expenses were much less than the rentals and there in
fact should be a superavit, . . . this Court must concede
that daily expenses are not easy to compute, for this
reason, the Court faced with the choice of the two
alternatives will choose the middle course which after all is
permitted by the rules of proof, Sec. 69, Rule 123 for in the
ordinary course of things, a person will live within his
income so that the conclusion of the Court will be that
there is neither deficit nor superavit and will let the matter
rest here.
Both parties on appeal reiterate their respective claims but we agree with
the lower court that both claims should be denied. Aside from the reasons
given by the court, we think that the claim of Justina Santos totalling
P37,235, as rentals due to her after deducting various expenses, should be
rejected as the evidence is none too clear about the amounts spent by
Wong for food29 masses30 and salaries of her maids.31 His claim for
P9,210.49 must likewise be rejected as his averment of liquidation is belied
by his own admission that even as late as 1960 he still had P22,000 in the
bank and P3,000 in his possession.
ACCORDINGLY, the contracts in question (Plff Exhs. 3-7) are annulled and
set aside; the land subject-matter of the contracts is ordered returned to
the estate of Justina Santos as represented by the Philippine Banking
Corporation; Wong Heng (as substituted by the defendant-appellant Lui
She) is ordered to pay the Philippine Banking Corporation the sum of
P56,564.35, with legal interest from the date of the filing of the amended
complaint; and the amounts consigned in court by Wong Heng shall be
applied to the payment of rental from November 15, 1959 until the

premises shall have been vacated by his heirs. Costs against the
defendant-appellant.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar,
Sanchez and Angeles, JJ., concur.

Separate Opinions

FERNANDO, J., concurring:

With the able and well-written opinion of Justice Castro, I am in full
agreement. The exposition of the facts leaves nothing to be desired and
the statement of the law is notable for its comprehensiveness and clarity.
This concurring opinion has been written solely to express what I consider
to be the unfortunate and deplorable consequences of applying the pari
delicto concept, as was, to my mind, indiscriminately done, to alien
landholding declared illegal under the Krivenko doctrine in some past
decisions.
It is to be remembered that in Krivenko v. The Register of Deeds of Manila,1
this Court over strong dissents held that residential and commercial lots
may be considered agricultural within the meaning of the constitutional
provision prohibiting the transfer of any private agricultural land to
individuals, corporations or associations not qualified to acquire or hold
lands of the public domain in the Philippines save in cases of hereditary
succession.
That provision of the Constitution took effect on November 15, 1935 when
the Commonwealth Government was established. The interpretation as set
forth in the Krivenko decision was only handed down on November 15,
1947. Prior to that date there were many who were of the opinion that the
phrase agricultural land should be construed strictly and not be made to
cover residential and commercial lots. Acting on that belief, several
transactions were entered into transferring such lots to alien vendees by
Filipino-vendors.
After the Krivenko decision, some Filipino vendors sought recovery of the
lots in question on the ground that the sales were null and void. No definite
ruling was made by this Court until September of 1953, when on the 29th
of said month, Rellosa v. Gaw Chee Hun,2 Bautista v. Uy Isabelo,3 Talento v.
Makiki,4 Caoile v. Chiao Peng5 were decided.
Of the four decisions in September, 1953, the most extensive discussion of
the question is found in Rellosa v. Gaw Chee Hun, the opinion being

penned by retired Justice Bautista Angelo with the concurrence only of one
Justice, Justice Labrador, also retired. Former Chief Justice Paras as well as
the former Justices Tuason and Montemayor concurred in the result. The
necessary sixth vote for a decision was given by the then Justice Bengzon,
who had a two-paragraph concurring opinion disagreeing with the main
opinion as to the force to be accorded to the two cases, 6 therein cited.
There were two dissenting opinions by former Justices Pablo and Alex
Reyes. The doctrine as announced in the Rellosa case is that while the sale
by a Filipino-vendor to an alien-vendee of a residential or a commercial lot
is null and void as held in the Krivenko case, still the Filipino-vendor has no
right to recover under a civil law doctrine, the parties being in pari delicto.
The only remedy to prevent this continuing violation of the Constitution
which the decision impliedly sanctions by allowing the alien vendees to
retain the lots in question is either escheat or reversion. Thus: "By
following either of these remedies, or by approving an implementary law
as above suggested, we can enforce the fundamental policy of our
Constitution regarding our natural resources without doing violence to the
principle of pari delicto."7

effect of a determination of unconstitutionality must be taken with

qualifications. The actual existence of a statute, prior to such a
determination, is an operative fact and may have consequences which
cannot justly be ignored. The past cannot always be erased by a new
judicial declaration. The effect of subsequent ruling as to invalidity may
have to be considered in various aspects, with respect to particular
relations, individual and corporate, and particular conduct, private and
official. Questions of rights claimed to have become vested, of status, of
prior determinations deemed to have finality and acted upon accordingly,
of public policy in the light of the nature both of the statute and of its
previous application, demand examination."

Were the parties really in pari delicto? Had the sale by and between
Filipino-vendor and alien-vendee occurred after the decision in the
Krivenko case, then the above view would be correct that both Filipinovendor and alien-vendee could not be considered as innocent parties
within the contemplation of the law. Both of them should be held equally
guilty of evasion of the Constitution.

The question then as now, therefore, was and is how to divest the alien of
such property rights on terms equitable to both parties. That question
should be justly resolved in accordance with the mandates of the
Constitution not by a wholesale condemnation of both parties for entering
into a contract at a time when there was no ban as yet arising from the
Krivenko decision, which could not have been anticipated. Unfortunately,
under the Rellosa case, it was assumed that the parties, being in pari
delicto, would be left in the situation in which they were, neither being in a
position to seek judicial redress.

Since, however, the sales in question took place prior to the Krivenko
decision, at a time when the assumption could be honestly entertained
that there was no constitutional prohibition against the sale of commercial
or residential lots by Filipino-vendor to alien-vendee, in the absence of a
definite decision by the Supreme Court, it would not be doing violence to
reason to free them from the imputation of evading the Constitution. For
evidently evasion implies at the very least knowledge of what is being
evaded. The new Civil Code expressly provides: "Mistakes upon a doubtful
or difficult question of law may be the basis of good faith."8
According to the Rellosa opinion, both parties are equally guilty of evasion
of the Constitution, based on the broader principle that "both parties are
presumed to know the law." This statement that the sales entered into
prior to the Krivenko decision were at that time already vitiated by a guilty
knowledge of the parties may be too extreme a view. It appears to ignore a
postulate of a constitutional system, wherein the words of the Constitution
acquire meaning through Supreme Court adjudication.1awphl.nt
Reference may be made by way of analogy to a decision adjudging a
statute void. Under the orthodox theory of constitutional law, the act
having been found unconstitutional was not a law, conferred no rights,
imposed no duty, afforded no protection.9 As pointed out by former Chief
Justice Hughes though in Chicot County Drainage District v. Baxter State
Bank:10 "It is quite clear, however, that such broad statements as to the

After the Krivenko decision, there is no doubt that continued possession by

alien-vendee of property acquired before its promulgation is violative of the
Constitution. It is as if an act granting aliens the right to acquire residential
and commercial lots were annulled by the Supreme Court as contrary to
the provision of the Constitution prohibiting aliens from acquiring private
agricultural land.

Would it not have been more in consonance with the Constitution, if

instead the decision compelled the restitution of the property by the alienvendee to the Filipino-vendor? Krivenko decision held in clear, explicit and
unambigous language that: "We are deciding the instant case under
section 5 of Article XIII of the Constitution which is more comprehensive
and more absolute in the sense that it prohibits the transfer to aliens of
any private agricultural land including residential land whatever its origin
might have been . . . . This prohibition [Rep. Act No. 133] makes no
distinction between private lands that are strictly agricultural and private
lands that are residential or commercial. The prohibition embraces the sale
of private lands of any kind in favor of aliens, which is again a clear
implementation and a legislative interpretation of the constitutional
prohibition. . . . It is well to note at this juncture that in the present case we
have no choice. We are construing the Constitution as it is and not as we
may desire it to be. Perhaps the effect of our construction is to preclude
aliens, admitted freely into the Philippines, from owning sites where they
may build their homes. But if this is the solemn mandate of the
Constitution, we will not attempt to compromise it even in the name of
amity or equity."11

Alien-vendee is therefore incapacitated or disqualified to acquire and hold

real estate. That incapacity and that disqualification should date from the
adoption of the Constitution on November 15, 1935. That incapacity and
that disqualification, however, was made known to Filipino-vendor and to
alien-vendee only upon the promulgation of the Krivenko decision on
November 15, 1947. Alien-vendee, therefore, cannot be allowed to
continue owning and exercising acts of ownership over said property, when
it is clearly included within the Constitutional prohibition. Alien-vendee
should thus be made to restore the property with its fruits and rents to
Filipino-vendor, its previous owner, if it could be shown that in the utmost
good faith, he transferred his title over the same to alien-vendee, upon
restitution of the purchase price of course.
The Constitution bars alien-vendees from owning the property in question.
By dismissing those suits, the lots remained in alien hands.
Notwithstanding the solution of escheat or reversion offered, they are still
at the moment of writing, for the most part in alien hands. There have
been after almost twenty years no proceedings for escheat or reversion.
Yet it is clear that an alien-vendee cannot consistently with the
constitutional provision, as interpreted in the Krivenko decision, continue
owning and exercising acts of ownership over the real estate in question. It
ought to follow then, if such a continuing violation of the fundamental law
is to be put an end to, that the Filipino-vendor, who in good faith entered
into, a contract with an incapacitated person, transferring ownership of a
piece of land after the Constitution went into full force and effect, should,
in the light of the ruling in the Krivenko case, be restored to the possession
and ownership thereof, where he has filed the appropriate case or
proceeding. Any other construction would defeat the ends and purposes
not only of this particular provision in question but the rest of the
Constitution itself.
The Constitution frowns upon the title remaining in the alien-vendees.
Restoration of the property upon payment of price received by Filipino
vendor or its reasonable equivalent as fixed by the court is the answer. To
give the constitutional provision full force and effect, in consonance with
the dictates of equity and justice, the restoration to Filipino-vendor upon
the payment of a price fixed by the court is the better remedy. He thought
he could transfer the property to an alien and did so. After the Krivenko
case had made clear that he had no right to sell nor an alien-vendee to
purchase the property in question, the obvious solution would be for him to
reacquire the same. That way the Constitution would be given, as it ought
to be given, respect and deference.

It may be said that it is too late at this stage to hope for such a solution,
the Rellosa opinion, although originally concurred in by only one justice,
being too firmly imbedded. The writer however sees a welcome sign in the
adoption by the Court in this case of the concurring opinion of the then
Justice, later Chief Justice, Bengzon. Had it been followed then, the problem
would not be still with us now. Fortunately, it is never too late not even
in constitutional adjudication.

FIRST DIVISION
G.R. No. L-34338 November 21, 1984
LOURDES VALERIO LIM, petitioner,
vs.
PEOPLE OF THE PHILIPPINES, respondent.
RELOVA, J.:
Petitioner Lourdes Valerio Lim was found guilty of the crime of estafa and
was sentenced "to suffer an imprisonment of four (4) months and one (1)
day as minimum to two (2) years and four (4) months as maximum, to
indemnify the offended party in the amount of P559.50, with subsidize
imprisonment in case of insolvency, and to pay the costs." (p. 14, Rollo)
From this judgment, appeal was taken to the then Court of Appeals which
affirmed the decision of the lower court but modified the penalty imposed
by sentencing her "to suffer an indeterminate penalty of one (1) month and
one (1) day of arresto mayor as minimum to one (1) year and one (1) day
of prision correccional as maximum, to indemnify the complainant in the
amount of P550.50 without subsidiary imprisonment, and to pay the costs
of suit." (p. 24, Rollo)
The question involved in this case is whether the receipt, Exhibit "A", is a
contract of agency to sell or a contract of sale of the subject tobacco
between petitioner and the complainant, Maria de Guzman Vda. de Ayroso,
thereby precluding criminal liability of petitioner for the crime charged.
The findings of facts of the appellate court are as follows:
... The appellant is a businesswoman. On January 10, 1966,
the appellant went to the house of Maria Ayroso and
proposed to sell Ayroso's tobacco. Ayroso agreed to the
proposition of the appellant to sell her tobacco consisting
of 615 kilos at P1.30 a kilo. The appellant was to receive

the overprice for which she could sell the tobacco. This
agreement was made in the presence of plaintiff's sister,
Salud G. Bantug. Salvador Bantug drew the document, Exh.
A, dated January 10, 1966, which reads:

Medio mahirap ang maningil sa palengke

ng Cabanatuan dahil nagsisilipat ang mga
suki ko ng puesto. Huwag kang mabahala
at tiyak na babayaran kita.

To Whom It May Concern:

Patnubayan tayo ng mahal na panginoon

Dios. (Exh. B).

This is to certify that I have received from

Mrs. Maria de Guzman Vda. de Ayroso. of
Gapan, Nueva Ecija, six hundred fifteen
kilos of leaf tobacco to be sold at Pl.30 per
kilo. The proceed in the amount of Seven
Hundred Ninety Nine Pesos and 50/100 (P
799.50) will be given to her as soon as it
was sold.
This was signed by the appellant and witnessed by the
complainant's sister, Salud Bantug, and the latter's maid,
Genoveva Ruiz. The appellant at that time was bringing a
jeep, and the tobacco was loaded in the jeep and brought
by the appellant. Of the total value of P799.50, the
appellant had paid to Ayroso only P240.00, and this was
paid on three different times. Demands for the payment of
the balance of the value of the tobacco were made upon
the appellant by Ayroso, and particularly by her sister,
Salud Bantug. Salud Bantug further testified that she had
gone to the house of the appellant several times, but the
appellant often eluded her; and that the "camarin" the
appellant was empty. Although the appellant denied that
demands for payment were made upon her, it is a fact that
on October 19, 1966, she wrote a letter to Salud Bantug
which reads as follows:
Dear Salud,
Hindi ako nakapunta dian noon a 17 nitong
nakaraan, dahil kokonte pa ang nasisingil
kong pera, magintay ka hanggang dito sa
linggo ito at tiak na ako ay magdadala sa
iyo. Gosto ko Salud ay makapagbigay man
lang ako ng marami para hindi masiadong
kahiyahiya sa iyo. Ngayon kung gosto mo
ay kahit konte muna ay bibigyan kita.
Pupunta lang kami ni Mina sa Maynila
ngayon. Salud kung talagang kailangan mo
ay bukas ay dadalhan kita ng pera.

Ludy
Pursuant to this letter, the appellant sent a money order
for P100.00 on October 24, 1967, Exh. 4, and another for
P50.00 on March 8, 1967; and she paid P90.00 on April 18,
1967 as evidenced by the receipt Exh. 2, dated April 18,
1967, or a total of P240.00. As no further amount was paid,
the complainant filed a complaint against the appellant for
estafa. (pp. 14, 15, 16, Rollo)
In this petition for review by certiorari, Lourdes Valerio Lim poses the
following questions of law, to wit:
1. Whether or not the Honorable Court of Appeals was
legally right in holding that the foregoing document
(Exhibit "A") "fixed a period" and "the obligation was
therefore, immediately demandable as soon as the tobacco
was sold" (Decision, p. 6) as against the theory of the
petitioner that the obligation does not fix a period, but
from its nature and the circumstances it can be inferred
that a period was intended in which case the only action
that can be maintained is a petition to ask the court to fix
the duration thereof;
2. Whether or not the Honorable Court of Appeals was
legally right in holding that "Art. 1197 of the New Civil
Code does not apply" as against the alternative theory of
the petitioner that the fore. going receipt (Exhibit "A")
gives rise to an obligation wherein the duration of the
period depends upon the will of the debtor in which case
the only action that can be maintained is a petition to ask
the court to fix the duration of the period; and
3. Whether or not the honorable Court of Appeals was
legally right in holding that the foregoing receipt is a
contract of agency to sell as against the theory of the
petitioner that it is a contract of sale. (pp. 3-4, Rollo)

It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the
tobacco should be turned over to the complainant as soon as the same
was sold, or, that the obligation was immediately demandable as soon as
the tobacco was disposed of. Hence, Article 1197 of the New Civil Code,
which provides that the courts may fix the duration of the obligation if it
does not fix a period, does not apply.
Anent the argument that petitioner was not an agent because Exhibit "A"
does not say that she would be paid the commission if the goods were
sold, the Court of Appeals correctly resolved the matter as follows:
... Aside from the fact that Maria Ayroso testified that the
appellant asked her to be her agent in selling Ayroso's
tobacco, the appellant herself admitted that there was an
agreement that upon the sale of the tobacco she would be
given something. The appellant is a businesswoman, and it
is unbelievable that she would go to the extent of going to
Ayroso's house and take the tobacco with a jeep which she
had brought if she did not intend to make a profit out of the
transaction. Certainly, if she was doing a favor to Maria
Ayroso and it was Ayroso who had requested her to sell her
tobacco, it would not have been the appellant who would
have gone to the house of Ayroso, but it would have been
Ayroso who would have gone to the house of the appellant
and deliver the tobacco to the appellant. (p. 19, Rollo)
The fact that appellant received the tobacco to be sold at P1.30 per kilo
and the proceeds to be given to complainant as soon as it was sold,
strongly negates transfer of ownership of the goods to the petitioner. The
agreement (Exhibit "A') constituted her as an agent with the obligation to
return the tobacco if the same was not sold.
ACCORDINGLY, the petition for review on certiorari is dismissed for lack of
merit. With costs.

GREGORIO ARANETA, INC., petitioner,

vs.
THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., LTD.,
respondent.
Araneta and Araneta for petitioner.
Rosauro Alvarez and Ernani Cruz Pao for respondent.
REYES, J.B.L., J.:
Petition for certiorari to review a judgment of the Court of Appeals, in its
CA-G.R. No. 28249-R, affirming with modification, an amendatory decision
of the Court of First Instance of Manila, in its Civil Case No. 36303, entitled
"Philippine Sugar Estates Development Co., Ltd., plaintiff, versus J. M.
Tuason & Co., Inc. and Gregorio Araneta, Inc., defendants."
As found by the Court of Appeals, the facts of this case are:
J. M. Tuason & Co., Inc. is the owner of a big tract land situated in Quezon
City, otherwise known as the Sta. Mesa Heights Subdivision, and covered
by a Torrens title in its name. On July 28, 1950, through Gregorio Araneta,
Inc., it (Tuason & Co.) sold a portion thereof with an area of 43,034.4
square meters, more or less, for the sum of P430,514.00, to Philippine
Sugar Estates Development Co., Ltd. The parties stipulated, among in the
contract of purchase and sale with mortgage, that the buyer will
Build on the said parcel land the Sto. Domingo Church and Convent
while the seller for its part will
Construct streets on the NE and NW and SW sides of the land
herein sold so that the latter will be a block surrounded by streets
on all four sides; and the street on the NE side shall be named "Sto.
Domingo Avenue;"

SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Plana, Gutierrez, Jr. and De la
Fuente, JJ., concur.

EN BANC
G.R. No. L-22558

May 31, 1967

The buyer, Philippine Sugar Estates Development Co., Ltd., finished the
construction of Sto. Domingo Church and Convent, but the seller, Gregorio
Araneta, Inc., which began constructing the streets, is unable to finish the
construction of the street in the Northeast side named (Sto. Domingo
Avenue) because a certain third-party, by the name of Manuel Abundo,
who has been physically occupying a middle part thereof, refused to
vacate the same; hence, on May 7, 1958, Philippine Sugar Estates
Development Co., Lt. filed its complaint against J. M. Tuason & Co., Inc.,
and instance, seeking to compel the latter to comply with their obligation,

as stipulated in the above-mentioned deed of sale, and/or to pay damages

in the event they failed or refused to perform said obligation.
Both defendants J. M. Tuason and Co. and Gregorio Araneta, Inc. answered
the complaint, the latter particularly setting up the principal defense that
the action was premature since its obligation to construct the streets in
question was without a definite period which needs to he fixed first by the
court in a proper suit for that purpose before a complaint for specific
performance will prosper.
The issues having been joined, the lower court proceeded with the trial,
and upon its termination, it dismissed plaintiff's complaint (in a decision
dated May 31, 1960), upholding the defenses interposed by defendant
Gregorio Araneta, Inc.1wph1.t
Plaintiff moved to reconsider and modify the above decision, praying that
the court fix a period within which defendants will comply with their
obligation to construct the streets in question.
Defendant Gregorio Araneta, Inc. opposed said motion, maintaining that
plaintiff's complaint did not expressly or impliedly allege and pray for the
fixing of a period to comply with its obligation and that the evidence
presented at the trial was insufficient to warrant the fixing of such a period.
On July 16, 1960, the lower court, after finding that "the proven facts
precisely warrants the fixing of such a period," issued an order granting
plaintiff's motion for reconsideration and amending the dispositive portion
of the decision of May 31, 1960, to read as follows:
WHEREFORE, judgment is hereby rendered giving defendant
Gregorio Araneta, Inc., a period of two (2) years from notice hereof,
within which to comply with its obligation under the contract,
Annex "A".
Defendant Gregorio Araneta, Inc. presented a motion to reconsider the
above quoted order, which motion, plaintiff opposed.
On August 16, 1960, the lower court denied defendant Gregorio Araneta,
Inc's. motion; and the latter perfected its appeal Court of Appeals.

In said appellate court, defendant-appellant Gregorio Araneta, Inc.

contended mainly that the relief granted, i.e., fixing of a period, under the
amendatory decision of July 16, 1960, was not justified by the pleadings
and not supported by the facts submitted at the trial of the case in the
court below and that the relief granted in effect allowed a change of theory
after the submission of the case for decision.
Ruling on the above contention, the appellate court declared that the fixing
of a period was within the pleadings and that there was no true change of
theory after the submission of the case for decision since defendantappellant Gregorio Araneta, Inc. itself squarely placed said issue by
alleging in paragraph 7 of the affirmative defenses contained in its answer
which reads
7. Under the Deed of Sale with Mortgage of July 28, 1950, herein
defendant has a reasonable time within which to comply with its
obligations to construct and complete the streets on the NE, NW
and SW sides of the lot in question; that under the circumstances,
said reasonable time has not elapsed;
Disposing of the other issues raised by appellant which were ruled as not
meritorious and which are not decisive in the resolution of the legal issues
posed in the instant appeal before us, said appellate court rendered its
decision dated December 27, 1963, the dispositive part of which reads
IN VIEW WHEREOF, judgment affirmed and modified; as a
consequence, defendant is given two (2) years from the date of
finality of this decision to comply with the obligation to construct
streets on the NE, NW and SW sides of the land sold to plaintiff so
that the same would be a block surrounded by streets on all four
sides.
Unsuccessful in having the above decision reconsidered, defendantappellant Gregorio Araneta, Inc. resorted to a petition for review by
certiorari to this Court. We gave it due course.
We agree with the petitioner that the decision of the Court of Appeals,
affirming that of the Court of First Instance is legally untenable. The fixing
of a period by the courts under Article 1197 of the Civil Code of the
Philippines is sought to be justified on the basis that petitioner (defendant
below) placed the absence of a period in issue by pleading in its answer
that the contract with respondent Philippine Sugar Estates Development
Co., Ltd. gave petitioner Gregorio Araneta, Inc. "reasonable time within
which to comply with its obligation to construct and complete the streets."
Neither of the courts below seems to have noticed that, on the hypothesis
stated, what the answer put in issue was not whether the court should fix

the time of performance, but whether or not the parties agreed that the
petitioner should have reasonable time to perform its part of the bargain. If
the contract so provided, then there was a period fixed, a "reasonable
time;" and all that the court should have done was to determine if that
reasonable time had already elapsed when suit was filed if it had passed,
then the court should declare that petitioner had breached the contract, as
averred in the complaint, and fix the resulting damages. On the other
hand, if the reasonable time had not yet elapsed, the court perforce was
bound to dismiss the action for being premature. But in no case can it be
logically held that under the plea above quoted, the intervention of the
court to fix the period for performance was warranted, for Article 1197 is
precisely predicated on the absence of any period fixed by the parties.
Even on the assumption that the court should have found that no
reasonable time or no period at all had been fixed (and the trial court's
amended decision nowhere declared any such fact) still, the complaint not
having sought that the Court should set a period, the court could not
proceed to do so unless the complaint in as first amended; for the original
decision is clear that the complaint proceeded on the theory that the
period for performance had already elapsed, that the contract had been
breached and defendant was already answerable in damages.
Granting, however, that it lay within the Court's power to fix the period of
performance, still the amended decision is defective in that no basis is
stated to support the conclusion that the period should be set at two years
after finality of the judgment. The list paragraph of Article 1197 is clear
that the period can not be set arbitrarily. The law expressly prescribes that

intended. As the record stands, the trial Court appears to have pulled the
two-year period set in its decision out of thin air, since no circumstances
are mentioned to support it. Plainly, this is not warranted by the Civil Code.
In this connection, it is to be borne in mind that the contract shows that the
parties were fully aware that the land described therein was occupied by
squatters, because the fact is expressly mentioned therein (Rec. on Appeal,
Petitioner's Appendix B, pp. 12-13). As the parties must have known that
they could not take the law into their own hands, but must resort to legal
processes in evicting the squatters, they must have realized that the
duration of the suits to be brought would not be under their control nor
could the same be determined in advance. The conclusion is thus forced
that the parties must have intended to defer the performance of the
obligations under the contract until the squatters were duly evicted, as
contended by the petitioner Gregorio Araneta, Inc.
The Court of Appeals objected to this conclusion that it would render the
date of performance indefinite. Yet, the circumstances admit no other
reasonable view; and this very indefiniteness is what explains why the
agreement did not specify any exact periods or dates of performance.
It follows that there is no justification in law for the setting the date of
performance at any other time than that of the eviction of the squatters
occupying the land in question; and in not so holding, both the trial Court
and the Court of Appeals committed reversible error. It is not denied that
the case against one of the squatters, Abundo, was still pending in the
Court of Appeals when its decision in this case was rendered.

the Court shall determine such period as may under the

circumstances been probably contemplated by the parties.

In view of the foregoing, the decision appealed from is reversed, and the
time for the performance of the obligations of petitioner Gregorio Araneta,
Inc. is hereby fixed at the date that all the squatters on affected areas are
finally evicted therefrom.

All that the trial court's amended decision (Rec. on Appeal, p. 124) says in
this respect is that "the proven facts precisely warrant the fixing of such a
period," a statement manifestly insufficient to explain how the two period
given to petitioner herein was arrived at.

Costs against respondent Philippine Sugar Estates Development, Co., Ltd.

So ordered.

It must be recalled that Article 1197 of the Civil Code involves a two-step
process. The Court must first determine that "the obligation does not fix a
period" (or that the period is made to depend upon the will of the debtor),"
but from the nature and the circumstances it can be inferred that a period
was intended" (Art. 1197, pars. 1 and 2). This preliminary point settled, the
Court must then proceed to the second step, and decide what period was
"probably contemplated by the parties" (Do., par. 3). So that, ultimately,
the Court can not fix a period merely because in its opinion it is or should
be reasonable, but must set the time that the parties are shown to have

Concepcion, C.J., Dizon, Regala, Makalintal, Bengzon, J.P., Sanchez and

Castro, JJ., concur.

FIRST DIVISION
June 30, 1987

G.R. No. L-55480

PACIFICA MILLARE, petitioner,
vs.
HON. HAROLD M. HERNANDO, In his capacity as Presiding Judge,
Court of Instance of Abra, Second Judicial District, Branch I,
ANTONIO CO and ELSA CO, respondents.

FELICIANO, J.:
On 17 June 1975, a five-year Contract of Lease 1 was executed between
petitioner Pacifica Millare as lessor and private respondent Elsa Co, married
to Antonio Co, as lessee. Under the written agreement, which was
scheduled to expire on 31 May 1980, the lessor-petitioner agreed to rent
out to thelessee at a monthly rate of P350.00 the "People's Restaurant", a
commercial establishment located at the corner of McKinley and Pratt
Streets in Bangued, Abra.
The present dispute arose from events which transpired during the months
of May and July in 1980. According to the Co spouses, sometime during the
last week of May 1980, the lessor informed them that they could continue
leasing the People's Restaurant so long as they were amenable to paying
creased rentals of P1,200.00 a month. In response, a counteroffer of
P700.00 a month was made by the Co spouses. At this point, the lessor
allegedly stated that the amount of monthly rentals could be resolved at a
later time since "the matter is simple among us", which alleged remark
was supposedly taken by the spouses Co to mean that the Contract of
Lease had been renewed, prompting them to continue occupying the
subject premises and to forego their search for a substitute place to rent. 2
In contrast, the lessor flatly denied ever having considered, much less
offered, a renewal of the Contract of Lease.
The variance in versions notwithstanding, the record shows that on 22 July
1980, Mrs. Millare wrote the Co spouses requesting them to vacate the
leased premises as she had no intention of renewing the Contract of Lease
which had, in the meantime, already expirecl. 3 In reply, the Co spouses
reiterated their unwillingness to pay the Pl,200.00 monthly rentals
supposedly sought bv Mrs. Millare which they considered "highly excessive,
oppressive and contrary to existing laws". They also signified their
intention to deposit the amount of rentals in court, in view of Mrs. Millare's
refusal to accept their counter-offer.4 Another letter of demand from Mrs.
Millare was received on 28 July 1980 by the Co spouses, who responded by
depositing the rentals for June and July (at 700.00 a month) in court.
On 30 August 1980, a Saturday, the Co spouses jumped the gun, as it
were, and filed a Complaint 5 (docketed as Civil Case No. 1434) with the
then Court of First Instance of Abra against Mrs. Millare and seeking

judgment (a) ordering the renewal of the Contract of Lease at a rental rate
of P700.00 a nionth and for a period of ten years, (b) ordering the
defendant to collect the sum of P1,400.00 deposited by plaintiffs with the
court, and (c) ordering the defendant to pay damages in the amount of
P50,000.00. The following Monday, on 1 September 1980, Mrs. Millare filed
an ejectment case against the Co spouses in the Municipal Court of
Bangued, Abra, docketed as Civil Case No. 661. The spouses Co,
defendants therein, sut)sequently set up lis pendens as a Civil Case No.
661. The spouses Co, defendants therein, subsequently set up lis pendens
as a defense against the complaint for ejectment.
Mrs. Millare, defendant in Civil Case No. 1434, countered with an Omnibus
Motion to Dismiss6 rounded on (a) lack of cause of action due to plaintiffs'
failure to establish a valid renewal of the Contract of Lease, and (b) lack of
jurisdiction by the trial court over the complaint for failure of plaintiffs to
secure a certification from the Lupong Tagapayapa of the barangay
wherein both disputants reside attesting that no amicable settlement
between them had been reached despite efforts to arrive at one, as
required by Section 6 of Presidential Decree No. 1508. The Co spouses
opposed the motion to dismiss. 7
In an Order dated 15 October 1980, respondent judge denied the motion to
dismiss and ordered the renewal of the Contract of Lease. Furthermore
plaintiffs were allowed to deposit all accruing monthly rentals in court,
while defendant Millare was directed to submit her answer to the
complaint. 8 A motion for reconsideration 9 was subsequently filed which,
however, was likewise denied. 10 Hence, on 13 November 1980, Mrs. Millare
filed the instant Petition for Certiorari, Prohibition and Mandamus, seeking
injunctive relief from the abovementioned orders. This Court issued a
temporary restraining order on 21 November 1980 enjoining respondent,
judge from conducting further proceedings in Civil Case No. 1434. 11
Apparently, before the temporary restraining order could be served on the
respondent judge, he rendered a "Judgment by Default" dated 26
November 1980 ordering the renewal of the lease contract for a term of 5
years counted from the expiration date of the original lease contract, and
fixing monthly rentals thereunder at P700.00 a month, payable in arrears.
On18 March 1981, this Court gave due course to the Petition for Certiorari,
Prohibition and Mandamus. 12
Two issues are presented for resolution: (1) whether or not the trial court
acquired jurisdiction over Civil Case No. 1434; and (2) whether or not
private respondents have a valid cause of action against petitioner.
Turning to the first issue, petitioner's attack on the jurisdiction of the trial
court must fail, though for reasons different from those cited by the
respondent judge. 13 We would note firstly that the conciliation procedure
required under P.D. 1508 is not a jurisdictional requirement in the sense
that failure to have prior recourse to such procedure would not deprive a
court of its jurisdiction either over the subject matter or over the person of
the defendant.14 Secondly, the acord shows that two complaints were

submitted to the barangay authorities for conciliation one by petitioner

for ejectment and the other by private respondents for renewal of the
Contract of Lease. It appears further that both complaints were, in fact,
heard by the Lupong Tagapayapa in the afternoon of 30 August 1980. After
attempts at conciliation had proven fruitless, Certifications to File Action
authorizing the parties to pursue their respective claims in court were then
issued at 5:20 p.m. of that same aftemoon, as attested to by the Barangay
Captain in a Certification presented in evidence by petitioner herself. 15
Petitioner would, nonetheless, assail the proceedings in the trial court on a
technicaety, i.e., private respondents allegedly filed their complaint at 4:00
p.m. of 30 August 1980, or one hour and twenty minutes before the
issuance of the requisite certification by the Lupng Tagapayapa. The defect
in procedure admittedly initially present at that particular moment when
private respondents first filed the complaint in the trial court, was cured by
the subsequent issuance of the Certifications to File Action by the barangay
Lupong Tagapayapa Such certifications in any event constituted
substantial comphance with the requirement of P.D. 1508.
We turn to the second issue, that is, whether or not the complaint in Civil
Case No. 1434 filed by the respondent Co spouses claiming renewal of the
contract of lease stated a valid cause of action. Paragraph 13 of the
Contract of Lease reads as follows:
13. This contract of lease is subject to the laws and
regulations ofthe goverrunent; and that this contract of
lease may be renewed after a period of five (5) years under
the terms and conditions as will be mutually agreed upon
by the parties at the time of renewal; ... (Emphasis
supplied.)
The respondent judge, in his Answer and Comment to the Petition, urges
that under paragraph 13 quoted above.
there was already a consummated and finished mutual
agreement of the parties to renew the contract of lease
after five years; what is only left unsettled between the
parties to the contract of lease is the amount of the
monthly rental; the lessor insists Pl,200 a month, while the
lessee is begging P700 a month which doubled the P350
monthly rental under the original contract .... In short, the
lease contract has never expired because paragraph 13
thereof had expressly mandated that it is renewable. ...16
In the "Judgment by Default" he rendered, the respondent Judge
elaborated his views obviously highly emotional in character in the
following extraordinary tatements:

However, it is now the negative posture of the defendantlessor to block, reject and refuse to renew said lease
contract. It is the defendant-lessor's assertion and position
that she can at the mere click of her fingers, just throw-out
the plaintiffs-lessees from the leased premises and any
time after the original term of the lease contract had
already expired; This negative position of the
defendantlessor, to the mind of this Court does not
conform to the principles and correct application of the
philosophy underlying the law of lease; for indeed, the law
of lease is impressed with public interest, social justice and
equity; reason for which, this Court cannot sanction lot
owner's business and commercial speculations by allowing
them with "unbridled discretion" to raise rentals even to
the extent of "extraordinary gargantuan proportions, and
calculated to unreasonably and unjustly eject the helpless
lessee because he cannot afford said inflated monthly
rental and thereby said lessee is placed without any
alternative, except to surrender and vacate the premises
mediately,-" Many business establishments would be
closed and the public would directly suffer the direct
consequences; Nonetheless, this is not the correct concept
or perspective the law of lease, that is, to place the lessee
always at the mercy of the lessor's "Merchant of Venice"
and to agit the latter's personal whims and caprices; the
defendant-lessor's hostile attitude by imposing upon the
lessee herein an "unreasonable and extraordinary
gargantuan monthly rental of P1,200.00", to the mind of
this Court, is "fly-by night unjust enrichment" at the
expense of said lessees; but, no Man should unjustly enrich
himself at the expense of another; under these facts and
circumstances surrounding this case, the action therefore
to renew the lease contract! is "tenable" because it falls
squarely within the coverage and command of Articles
1197 and 1670 of the New Civil Code, to wit:
xxx

xxx

xxx

The term "to be renewed" as expressly stipulated by the

herein parties in the original contract of lease means that
the lease may be renewed for another term of five (5)
years; its equivalent to a promise made by the lessor to
the lessee, and as a unilateral stipulation, obliges the
lessor to fulfill her promise; of course the lessor is free to
comply and honor her commitment or back-out from her
promise to renew the lease contract; but, once expressly
stipulated, the lessor shall not be allowed to evade or
violate the obligation to renew the lease because,
certainly, the lessor may be held hable for damages
caused to the lessee as a consequence of the unjustifiable

termination of the lease or renewal of the same; In other

words, the lessor is guilty of breach of contract: Since the
original lease was fixed for five (5) years, it follows,
therefore, that the lease contract is renewable for another
five (5) years and the lessee is not required before hand to
give express notice of this fact to the lessor because it was
expressly stipulated in the original lease contract to be
renewed; Wherefore, the bare refusal of the lessor to renew
the lease contract unless the monthly rental is P1,200.00 is
contrary to law, morals, good customs, public policy,
justice and equity because no one should unjustly enrich
herself at the expense of another. Article 1197 and 1670 of
the New Civil Code must therefore govern the case at bar
and whereby this Court is authorized to fix the period
thereof by ordering the renewal of the lease contract to
another fixed term of five (5) years.17
Clearly, the respondent judge's grasp of both the law and the Enghsh
language is tenuous at best. We are otherwise unable to comprehend how
he arrived at the reading set forth above. Paragraph 13 of the Contract of
Lease can only mean that the lessor and lessee may agree to renew the
contract upon their reaching agreement on the terms and conditions to be
embodied in such renewal contract. Failure to reach agreement on the
terms and conditions of the renewal contract will of course prevent the
contract from being renewed at all. In the instant case, the lessor and the
lessee conspicuously failed to reach agreement both on the amount of the
rental to be payable during the renewal term, and on the term of the
renewed contract.
The respondent judge cited Articles 1197 and 1670 of the Civil Code to
sustain the "Judgment by Default" by which he ordered the renewal of the
lease for another term of five years and fixed monthly rentals thereunder
at P700.00 a month. Article 1197 of the Civil Code provides as follows:
If the obligation does not fix a period, but from its nature
and the circumstances it can be inferred that a period was
intended, the courts may fix the duration thereof.

parties reserved to themselves the faculty of agreeing upon the period of

the renewal contract. The second paragraph of Article 1197 is equally
clearly inapplicable since the duration of the renewal period was not left to
the wiu of the lessee alone, but rather to the will of both the lessor and the
lessee. Most importantly, Article 1197 applies only where a contract of
lease clearly exists. Here, the contract was not renewed at all, there was in
fact no contract at all the period of which could have been fixed.
Article 1670 of the Civil Code reads thus:
If at the end of the contract the lessee should continue
enjoying the thing left for 15 days with the acquiescence of
the lessor and unless a notice to the contrary by either
party has previously been given. It is understood that there
is an implied new lease, not for the period of the original
contract but for the time established in Articles 1682 and
1687. The ther terms of the original contract shall be
revived. (Emphasis suplied.)
The respondents themselves, public and private, do not pretend that the
continued occupancy of the leased premises after 31 May 1980, the date
of expiration of the contract, was with the acquiescence of the lessor. Even
if it be assumed that tacite reconduccion had occurred, the implied new
lease could not possibly have a period of five years, but rather would have
been a month-to-month lease since the rentals (under the original
contract) were payable on a monthly basis. At the latest, an implied new
lease (had one arisen) would have expired as of the end of July 1980 in
view of the written demands served by the petitioner upon the private
respondents to vacate the previously leased premises.
It follows that the respondent judge's decision requiring renewal of the
lease has no basis in law or in fact. Save in the limited and exceptional
situations envisaged inArticles ll97 and 1670 of the Civil Code, which do
not obtain here, courts have no authority to prescribe the terms and
conditions of a contract for the parties. As pointed out by Mr. Justice J.B.L.
Reyes in Republic vs. Philippine Long Distance Telephone,Co.,[[18

In every case, the courts shall determine such period as

may, under the circumstances, have been probably
contemplated by the parties. Once fixed by the courts, the
period cannot be changed by them. (Emphasis supplied.)

[P]arties cannot be coerced to enter into a contract where

no agreement is had between them as to the principal
terms and conditions of the contract. Freedom to stipulate
such terms and conditions is of the essence of our
contractual system, and by express provision of the
statute, a contract may be annulled if tainted by violence,
intimidation or undue influence (Article 1306, 1336, 1337,
Civil Code of the Philippines).

The first paragraph of Article 1197 is clearly inapplicable, since the

Contract of Lease did in fact fix an original period of five years, which had
expired. It is also clear from paragraph 13 of the Contract of Lease that the

Contractual terms and conditions created by a court for two parties are a
contradiction in terms. If they are imposed by a judge who draws upon his
own private notions of what morals, good customs, justice, equity and

The courts shall also fix the duration of the period when it
depends upon the will of the debtor.

public policy" demand, the resulting "agreement" cannot, by definition, be

consensual or contractual in nature. It would also follow that such coerced
terms and conditions cannot be the law as between the parties
themselves. Contracts spring from the volition of the parties. That volition
cannot be supplied by a judge and a judge who pretends to do so, acts
tyrannically, arbitrarily and in excess of his jurisdiction. 19
WHEREFORE, the Petition for Certiorari, Prohibition and mandamus is
granted. The Orders of the respondent judge in Civil Case No. 1434 dated
26 September 1980 (denying petitioner's motion to dismiss) and 4
November 1980 (denying petitioner's motion for reconsideration), and the
"Judgment by Default" rendered by the respondent judge dated 26
November 1980, are hereby annulled and set aside and Civil Case No.

1434 is hereby dismissed. The temporary restraining order dated 21

November 1980 issued by this ourt, is hereby made permanent. No
pronouncement as to costs.
SO ORDERED.
Yap (Chairman), Narvasa, Melencio-Herrera, Cruz, Gancayco and
Sarmiento, JJ., concur.