CONTRACTS 2 ACJUCO 1
WHAT MAY BE STIPULATED
G.R. No. L-15127 May 30, 1961
EMETERIO CUI, plaintiff-appellant,
vs.
ARELLANO UNIVERSITY, defendant-
appellee.
CONCEPCION, J.:
Appeal by plaintiff Emeterio Cui from a decision
of the Court of First Instance of Manila,
absolving defendant Arellano University from
plaintiff's complaint, with costs against the
plaintiff, and dismissing defendant's counter
claim, for insufficiency of proof thereon.
In the language of the decision appealed from:
The essential facts of this case are short
and undisputed. As established by the
agreement of facts Exhibits X and by the
respective oral and documentary
evidence introduced by the parties, it
appears conclusive that plaintiff, before
the school year 1948-1949 took up
preparatory law course in the defendant
University. After finishing his preparatory
law course plaintiff enrolled in the
College of Law of the defendant from the
school year 1948-1949.
Plaintiff finished his law studies in the
defendant university up to and including
the first semester of the fourth year.
During all the school years in which
plaintiff was studying law in defendant
law college, Francisco R. Capistrano,
brother of the mother of plaintiff, was the
dean of the College of Law and legal
counsel of the defendant university.
Plaintiff enrolled for the last semester of
his law studies in the defendant
university but failed to pay his tuition fees
because his uncle Dean Francisco R.
Capistrano having severed his
connection with defendant and having
accepted the deanship and
chancellorship of the College of Law of
Abad Santos University, plaintiff left the
defendant's law college and enrolled for
the last semester of his fourth year law in
the college of law of the Abad Santos
University graduating from the college of
law of the latter university. Plaintiff,
during all the time he was studying law in
defendant university was awarded
scholarship grants, for scholastic merit,
so that his semestral tuition fees were
returned to him after the ends of
semester and when his scholarship
grants were awarded to him. The whole
amount of tuition fees paid by plaintiff to
defendant and refunded to him by the
latter from the first semester up to and
including the first semester of his last
year in the college of law or the fourth
year, is in total P1,033.87. After
graduating in law from Abad Santos
University he applied to take the bar
examination. To secure permission to
take the bar he needed the transcripts of
his records in defendant Arellano
University. Plaintiff petitioned the latter to
issue to him the needed transcripts. The
defendant refused until after he had paid
back the P1,033 87 which defendant
refunded to him as above stated. As he
could not take the bar examination
without those transcripts, plaintiff paid to
defendant the said sum under protest.
This is the sum which plaintiff seeks to
recover from defendant in this case.
Before defendant awarded to plaintiff the
scholarship grants as above stated, he
was made to sign the following contract
covenant and agreement:
"In consideration of the scholarship
granted to me by the University, I hereby
waive my right to transfer to another
school without having refunded to the
University (defendant) the equivalent of
my scholarship cash.
(Sgd.) Emeterio Cui".
It is admitted that, on August 16, 1949, the
Director of Private Schools issued
Memorandum No. 38, series of 1949, on the
subject of "Scholarship," addressed to "All
heads of private schools, colleges and
universities," reading:
1. School catalogs and prospectuses
submitted to this, Bureau show that
some schools offer full or partial
scholarships to deserving students —
for excellence in scholarship or for
leadership in extra-curricular
activities. Such inducements to poor
but gifted students should be
encouraged. But to stipulate the
condition that such scholarships are
good only if the students concerned
continue in the same school nullifies
the principle of merit in the award of
these scholarships.

2. When students are given full or partial
scholarships, it is understood that
such scholarships are merited and
earned. The amount in tuition and
other fees corresponding to these
scholarships should not be
subsequently charged to the recipient
students when they decide to quit
school or to transfer to another
institution. Scholarships should not
be offered merely to attract and keep
students in a school.
3. Several complaints have actually
been received from students who
have enjoyed scholarships, full or
partial, to the effect that they could not
transfer to other schools since their
credentials would not be released
unless they would pay the fees
corresponding to the period of the
scholarships. Where the Bureau
believes that the right of the student
to transfer is being denied on this
ground, it reserves the right to
authorize such transfer.
that defendant herein received a copy of this
memorandum; that plaintiff asked the Bureau of
Private Schools to pass upon the issue on his
right to secure the transcript of his record in
defendant University, without being required to
refund the sum of P1,033.87; that the Bureau of
Private Schools upheld the position taken by the
plaintiff and so advised the defendant; and that,
this notwithstanding, the latter refused to issue
said transcript of records, unless said refund
were made, and even recommended to said
Bureau that it issue a written order directing the
defendant to release said transcript of record,
"so that the case may be presented to the court
for judicial action." As above stated, plaintiff
was, accordingly, constrained to pay, and did
pay under protest, said sum of P1,033.87, in
order that he could take the bar examination in
1953. Subsequently, he brought this action for
the recovery of said amount, aside from P2,000
as moral damages, P500 as exemplary
damages, P2,000 as attorney's fees, and P500
as expenses of litigation.
In its answer, defendant reiterated the stand it
took, vis-a-vis the Bureau of Private Schools,
namely, that the provisions of its contract with
plaintiff are valid and binding and that the
memorandum above-referred to is null and void.
It, likewise, set up a counterclaim for
P10,000.00 as damages, and P3,000 as
attorney's fees.
CONTRACTS 2 ACJUCO 2
The issue in this case is whether the above
quoted provision of the contract between
plaintiff and the defendant, whereby the former
waived his right to transfer to another school
without refunding to the latter the equivalent of
his scholarships in cash, is valid or not. The
lower court resolved this question in the
affirmative, upon the ground that the
aforementioned memorandum of the Director of
Private Schools is not a law; that the provisions
thereof are advisory, not mandatory in nature;
and that, although the contractual provision
"may be unethical, yet it was more unethical for
plaintiff to quit studying with the defendant
without good reasons and simply because he
wanted to follow the example of his uncle."
Moreover, defendant maintains in its brief that
the aforementioned memorandum of the
Director of Private Schools is null and void
because said officer had no authority to issue it,
and because it had been neither approved by
the corresponding department head nor
published in the official gazette.
We do not deem it necessary or advisable to
consider as the lower court did, the question
whether plaintiff had sufficient reasons or not to
transfer from defendant University to the Abad
Santos University. The nature of the issue
before us, and its far reaching effects, transcend
personal equations and demand a
determination of the case from a high
impersonal plane. Neither do we deem it
essential to pass upon the validity of said
Memorandum No. 38, for, regardless of the
same, we are of the opinion that the stipulation
in question is contrary to public policy and,
hence, null and void. The aforesaid
memorandum merely incorporates a sound
principle of public policy. As the Director of
Private Schools correctly pointed, out in his
letter, Exhibit B, to the defendant,
There is one more point that merits
refutation and that is whether or not the
contract entered into between Cui and
Arellano University on September 10,
1951 was void as against public policy. In
the case of Zeigel vs. Illinois Trust and
Savings Bank, 245 Ill. 180, 19 Ann. Case
127, the court said: 'In determining a
public policy of the state, courts are
limited to a consideration of the
Constitution, the judicial decisions, the
statutes, and the practice of government
officers.' It might take more than a
government bureau or office to lay down
or establish a public policy, as alleged in
your communication, but courts consider
 CONTRACTS 2 ACJUCO 3

the practices of government officials as reference to the giving of free

one of the four factors in determining a scholarships to gifted children, does not
public policy of the state. It has been require scholars to reimburse the
consistently held in America that under corresponding value of the scholarships
the principles relating to the doctrine of if they transfer to other schools. So also
public policy, as applied to the law of with the leading colleges and universities
contracts, courts of justice will not of the United States after which our
recognize or uphold a transaction which educational practices or policies are
its object, operation, or tendency is patterned. In these institutions
calculated to be prejudicial to the public scholarships are granted not to attract
welfare, to sound morality or to civic and to keep brilliant students in school for
honesty (Ritter vs. Mutual Life Ins. Co., their propaganda mine but to reward
169 U.S. 139; Heding vs. Gallaghere 64 merit or help gifted students in whom
L.R.A. 811; Veazy vs. Allen, 173 N.Y. society has an established interest or a
359). If Arellano University understood first lien. (Emphasis supplied.)
clearly the real essence of scholarships
and the motives which prompted this WHEREFORE, the decision appealed from is
office to issue Memorandum No. 38, s. hereby reversed and another one shall be
1949, it should have not entered into a entered sentencing the defendant to pay to
contract of waiver with Cui on September the plaintiff the sum of P1,033.87, with interest
10, 1951, which is a direct violation of our thereon at the legal rate from September 1,
Memorandum and an open challenge to 1954, date of the institution of this case, as well
the authority of the Director of Private as the costs, and dismissing defendant's
Schools because the contract was counterclaim. It is so ordered.
repugnant to sound morality and civic
honesty. And finally, in Gabriel vs. Monte
de Piedad, Off. Gazette Supp. Dec. 6,
1941, p. 67 we read: 'In order to declare
a contract void as against public policy, a
court must find that the contract as to
consideration or the thing to be done,
contravenes some established interest of
society, or is inconsistent with sound
policy and good moralsor tends clearly to
undermine the security of individual
rights. The policy enunciated in
Memorandum No. 38, s. 1949 is sound
policy. Scholarship are awarded in
recognition of merit not to keep
outstanding students in school to bolster
its prestige. In the understanding of that
university scholarships award is a
business scheme designed to increase
the business potential of an education
institution. Thus conceived it is not only
inconsistent with sound policy but also
good morals. But what is morals?
Manresa has this definition. It is good
customs; those generally accepted
principles of morality which have
received some kind of social and
practical confirmation. The practice of
awarding scholarships to attract students
and keep them in school is not good
customs nor has it received some kind of
social and practical confirmation except
in some private institutions as in Arellano
University. The University of the
Philippines which implements Section 5
of Article XIV of the Constitution with

G.R. No. L-10551 March 3, 1917
IGNACIO ARROYO, plaintiff-appellant,
vs.
ALFRED BERWIN, defendant-appellee.
CARSON, J.:
The complaint filed in this action is as follows:
1. That both the plaintiff and the
defendant are residents of the
municipality of Iloilo, Province of
Iloilo, Philippine Islands.
2. That the defendant is a procurador
judicial in the law office of the
Attorney John Bordman, and is duly
authorized by the court to practice in
justice of the peaces courts of the
Province of Iloilo.
3. That the defendant, as
such procurador judicial, represented
Marcela Juanesa in the justice of the
peace court of Iloilo in proceeding for
theft prosecuted by the plaintiff
Ignacio Arroyo; that said cause was
decided by the said justice of the
peace against the accused, and the
latter appealed to the Court of First
Instance of Iloilo.
4. That on August 14, 1914, which was
the day set for the hearing of the
appeal of the said cause against
Marcela Juaneza for theft, Case No.
3120, the defendant requested the
plaintiff to agree to dismiss the said
criminal proceeding, and, on August
14, 1914, stipulated with the plaintiff
in the presence of Roque Samson,
among other things, that his client
Marcela Juaneza would recognize
the plaintiff's ownership in the land
situated on Calle San Juan, suburb of
Molo, municipality of Iloilo, Province
of Iloilo, where his said client ordered
the cane cut, which land and which
cut cane are referred to in the cause
for theft above-mentioned; and the
defendant furthermore agreed that
the plaintiff should obtain a Torrens
title to the said land during the next
term of the court for the trial of
cadastral cases, and that the
defendant's client, Marcela Juaneza,
would not oppose the application for
registration to be filed by the said
applicant; provided that the plaintiff
CONTRACTS 2 ACJUCO 4
would ask the prosecuting attorney to
dismiss the said proceedings filed
against Marcela Juaneza and
Alejandro Castro for the crime of
theft.
5. That the plaintiff on his part complied
with the agreement, and requested
the prosecuting attorney to dismiss
the above-mentioned criminal cause;
that the latter petitioned the court and
the court did dismiss the said cause;
that in exchange the defendant does
not wish to comply with the above-
mentioned agreement; that the
plaintiff delivered to the defendant for
the signature of the said Marcela
Juaneza a written agreement stating
that the defendant's said client
recognized the plaintiff's ownership in
the described land and that she
would not oppose the plaintiff's
application for registration; and that
up to the present time, the defendant
has not returned to the plaintiff the
said written agreement,
notwithstanding the plaintiff's many
demands.
Therefore, the plaintiff prays the court to
render judgment ordering the defendant
to comply with the agreement by causing
the latter's said client Marcela Juaneza to
sign the document in which she
recognizes the plaintiff's ownership of the
land on which she ordered the cane cut
and states that she will not oppose the
plaintiff's application for the registration
of the said land, and, further, by awarding
to the plaintiff the costs of the present
suit, as well as any other relief that justice
and equity require.
The trial judge dismissed this complaint on the
ground of the illegality of the consideration of the
alleged contract, and without stopping to
consider any other objection to the complaint
than that indicated by the court below, we are of
opinion that the order appealed from must be
affirmed.
An agreement by the owner of stolen goods to
stifle the prosecution of the person charged with
the theft, for a pecuniary or other valuable
consideration, is manifestly contrary to public
policy and the due administration of justice. In
the interest of the public it is of the utmost
 CONTRACTS 2 ACJUCO 5

importance that criminals should be prosecuted,

and that all criminal proceedings should be
instituted and maintained in the form and
manner prescribed by law; and to permit an
offender to escape the penalties prescribed by
law by the purchase of immunity from private
individuals would result in a manifest perversion
of justice.

Article 1255 of the Civil Code provides that:

The contracting parties may make the
agreement and establish the clauses and
conditions which they may dream
advisable, provided they are not in
contravention of law, morals, or public
order.

Article 1275 provides that:

Contracts without consideration or with
an illicit one have no effect whatsoever.
A consideration is illicit when it is contrary
to law and good morals.

The order entered in the court below should,

therefore, be affirmed, with the costs of the
instance against the appellant. So ordered.

G.R. No. L-19638 June 20, 1966
FILIPINAS COMPAÑIA DE SEGUROS, ET
AL., petitioners and appellees,
vs.
HON. FRANCISCO Y. MANDANAS, in his
capacity as Insurance
Commissioner, respondent and appellant.
AGRICULTURAL FIRE INSURANCE &
SURETY CO., INC., ET AL., intervenors and
appellees.
CONCEPCION, C.J.:
This is a special civil action for a declaratory
relief Thirty-nine (39) non-life insurance
companies instituted it, in the Court of First
Instance of Manila, to secure a declaration of
legality of Article 22 of the Constitution of the
Philippine Rating Bureau, of which they are
members, inasmuch as respondent Insurance
Commissioner assails its validity upon the
ground that it constitutes an illegal or undue
restraint of trade. Subsequently to the filing of
the petition, twenty (20) other non-life insurance
companies, likewise, members of said Bureau,
were allowed to intervene in support of the
petition. After appropriate proceedings, said
court rendered judgment declaring that the
aforementioned Article 22 is neither contrary to
law nor against public policy, and that,
accordingly, petitioners herein, as well as the
intervenors and other members of the
aforementioned Bureau, may lawfully observe
and enforce said Article, and are bound to
comply with the provisions thereof, without
special pronouncement as to costs. Hence this
appeal by respondent Insurance Commissioner,
who insists that the Article in question
constitutes an illegal or undue restraint of trade
and, hence, null and void.
The record discloses that on March 11, 1960,
respondent wrote to said Bureau, a
communication expressing his doubts of the
validity of said Article 22, reading:
xxx xxx xxx
In respect to the classes of insurance
specified in the Objects of the
Bureau1 and for Philippine business only,
the members of this Bureau agree not to
represent nor to effect reinsurance with,
nor to accept reinsurance from, any
Company, Body, or Underwriter licensed
to do business in the Philippines not a
Member in good standing of this Bureau.
and requesting that said provision, be,
accordingly, repealed. On April 11, 1960,
CONTRACTS 2 ACJUCO 6
respondent wrote another letter to the Bureau
inquiring on the action taken on the subject-
matter of his previous communication. In reply
thereto, the Bureau advised respondent that the
suggestion to delete said Article 22 was still
under consideration by a committee of said
Bureau. Soon thereafter, or on May 9, 1961, the
latter was advised by respondent that, being an
illegal agreement or combination in restraint of
trade, said Article should not be given force and
effect; that failure to comply with this
requirement would compel respondent to
suspend the license issued to the Bureau; and
that the latter should circularize all of its
members on this matter and advise them that
"violation of this requirement by any member of
the Bureau" would also compel respondent "to
suspend the certificate of authority of the
company concerned to do business in the
Philippines". Thereupon, or on May 16, 1961,
the present action was commenced.
Briefly, appellant maintains that, since, in the
aforementioned Article 22, members of the
Bureau "agree not to represent nor to effect
reinsurance with, nor to accept reinsurance from
any company, body, or underwriter, licensed to
do business in the Philippines not a member in
good standing of the Bureau", said provision is
illegal as a combination in restraint of trade. As
early as August 10, 1916, this Court had had
occasion to declare that the test on whether a
given agreement constitutes an unlawful
machination or a combination in restraint of
trade
... is, whether, under the particular
circumstances of the case and the nature
of the particular contract involved in it, the
contract is, or is not, unreasonable.
(Ferrazini vs. Gsell, 34 Phil. 697, 712-
13.)
This view was reiterated in Ollendorf vs.
Abrahamson (38 Phil. 585) and Red Line
Transportation Co. vs. Bachrach Motor Co. (67
Phil. 77), in the following language:
...The general tendency, we believe, of
modern authority, is to make the test
whether the restraint is reasonably
necessary for the protection of the
contracting parties. If the contract is
reasonably necessary to protect the
interest of the parties, it will be upheld.
xxx xxx xxx
...we adopt the modern rule that the
validity of restraints upon trade or
employment is to be determined by
the intrinsic reasonableness of the

restriction in each case, rather than by
any fixed rule, and that such restrictions
may be upheld when not contrary to the
public welfare and not greater than is
necessary to afford a fair and reasonable
protection to the party in whose favor it is
imposed. (Ollendorf vs. Abrahamson, 38
Phil. 585.)
...The test of validity is whether under the
particular circumstances of the case and
considering the nature of the particular
contract involved, public interest and
welfare are not involved and the restraint
is not only reasonably necessary for the
protection of the contracting parties but
will not affect the public interest or
service. (Red Line Transportation Co. vs.
Bachrach Motor Co., 67 Phil. 77.) (See
also, Del Castillo vs. Richmond, 45 Phil.
483.)
The issue in the case at bar hinges, therefore,
on the purpose or effect of the disputed
provision. The only evidence on this point is the
uncontradicted testimony of Salvador Estrada,
Chairman of the Bureau when it was first
organized and when he took the witness stand.
Briefly stated, he declared that the purpose of
Article 22 is to maintain a high degree or
standard of ethical practice, so that insurance
companies may earn and maintain the respect
of the public, because the intense competition
between the great number of non-life insurance
companies operating in the Philippines is
conducive to unethical practices, oftentimes
taking the form of underrating; that to achieve
this purpose it is highly desirable to have
cooperative action between said companies in
the compilation of their total experience in the
business, so that the Bureau could determine
more accurately the proper rate of premium to
be charged from the insured; that, several years
ago, the very Insurance Commissioner had
indicated to the Bureau the necessity of doing
something to combat underrating, for,
otherwise, he would urge the amendment of the
law so that appropriate measures could be
taken therefor by his office; that much of the
work of the Bureau has to do with rate-making
and policy-wording; that rate-making is actually
dependent very much on statistics; that, unlike
life insurance companies, which have tables of
mortality to guide them in the fixing of rates, non-
life insurance companies have, as yet, no such
guides; that, accordingly, non-life insurance
companies need an adequate record of losses
and premium collections that will enable them to
determine the amount of risk involved in each
CONTRACTS 2 ACJUCO 7
type of risk and, hence, to determine the rates
or premiums that should be charged in insuring
every type of risk; that this information cannot
be compiled without full cooperation on the part
of the companies concerned, which cannot be
expected from non-members of the Bureau,
over which the latter has no control; and that, in
addition to submitting information about their
respective experience, said Bureau members
must, likewise, share in the rather appreciable
expenses entailed in compiling the
aforementioned data and in analyzing the same.
We find nothing unlawful, or immoral, or
unreasonable, or contrary to public policy either
in the objectives thus sought to be attained by
the Bureau, or in the means availed of to
achieve said objectives, or in the consequences
of the accomplishment thereof. The purpose of
said Article 22 is not to eliminate competition,
but to promote ethical practices among non-life
insurance companies, although, incidentally it
may discourage, and hence, eliminate unfair
competition, through underrating, which in itself
is eventually injurious to the public. Indeed, in
the words of Mr. Justice Brandeis:
... the legality of an agreement or
regulation cannot be determined by so
simple a test, as whether it restrains
competition. Every agreement
concerning trade, every regulation of
trade, restrains. To bind, to restrain, is of
their very essence. The true test of
legality is whether the restraint imposed
is such as merely regulates and
promotes competition, or whether it is
such as may suppress or even destroy
competition. To determine that question
the court must ordinarily consider the
facts peculiar to the business to which
the restraint is applied; its condition
before and after the restraint was
imposed; the nature of the restraint, and
its effect, actual or probable. (Board of
Trade of Chicago vs. U.S., 246 U.S. 231,
62 L. ed. 683 [1918].)
Thus, in Sugar Institute, Inc. vs. U.S. (297 U.S.
553), the Federal Supreme Court added:
The restrictions imposed by the Sherman
Act are not mechanical or artificial. We
have repeatedly said that they set up the
essential standard of
reasonableness. Standard Oil Co. vs.
United States, 221 U.S. 1, 55 L. ed. 619,
31 S. Ct. 502, 34 L.R.A. (N.S.) 834, Ann.
Cas. 1912D, 734; United States vs.
American Tobacco Co., 221 U.S. 106, 55
L. ed. 663, 31 S. Ct. 632. They are aimed

at contracts and combinations which "by
reason of intent or the inherent nature of
the contemplated acts, prejudice the
public interests by unduly restraining
competition or unduly obstructing the
course of trade." Nash vs. United States,
229 U.S. 373, 376, 57 L. ed. 1232, 1235,
33 S. Ct. 780; United States vs. American
Linseed Oil Co., 262 U.S. 371, 388, 389,
67 L. ed. 1035, 1040, 1041, 43 S. Ct. 607.
Designed to frustrate unreasonable
restraints, they do not prevent the
adoption of reasonable means to protect
interstate commerce from destructive or
injurious practices and to promote
competition upon a sound basis.
Voluntary action to end abuses and to
foster fair competitive opportunities in the
public interest may be more effective
than legal processes. And cooperative
endeavor may appropriately have wider
objectives than merely the removal of
evils which are infractions of positive law.
Hence, the City Fiscal of Manila refused to
prosecute criminally in Manila Fire Insurance
Association for following a policy analogous to
that incorporated in the provision disputed in this
case and the action of said official was
sustained by the Secretary of Justice, upon the
ground that:
... combinations among insurance
companies or their agents to fix and
control rates of insurance do not
constitute indictable conspiracies,
provided no unlawful means are used in
accomplishing their purpose (41 C.J.
161; Aetna Ins. Co. vs. Commonwealth,
106 Ky. 864, 51 SW 624; Queen Ins. Co.
vs. State, 86 Tex. 250, 24 SW 397; I
Joyce on Insurance, par. 329-a).
Indeed, Mr. Estrada's testimony shows that the
limitation upon reinsurance contained in the
aforementioned Article 22 does not affect the
public at all, for, whether there is reinsurance or
not, the liability of the insurer in favor of the
insured is the same. Besides, there are
sufficient foreign reinsurance companies
operating in the Philippines from which non-
members of the Bureau may secure
reinsurance. What is more, whatever the
Bureau may do in the matter of rate-fixing is not
decisive insofar as the public is concerned, for
no insurance company in the Philippines may
charge a rate of premium that has not been
approved by the Insurance Commissioner.
CONTRACTS 2 ACJUCO 8
In fact, respondent's Circular No. 54, dated
February 261 1954, provides:
II. Non-life Insurance company or Group
Association of such companies.
Every non-life insurance company or
group or association of such companies
doing business in the Philippines shall file
with the Insurance Commissioner for
approval general basic schedules
showing the premium rates on all classes
of risk except marine, as distinguished
from inland marine insurable by such
insurance company or association of
insurance companies in this country.
xxx xxx xxx
An insurance company or group of such
companies may satisfy its obligation to
make such filings by becoming a member
of or subscriber to a rating organization
which makes such filing and by
authorizing the insurance commissioner
to accept such filings of the rating
organization on such company's or
group's behalf.
III. Requiring Previous Application to and
Approval by the Insurance
Commissioner before any Change in the
Rates Schedules filed with Him Shall
Take Effect.
No change in the schedules filed in
compliance with the requirements of the
next preceding paragraph shall be made
except upon application duly filed with
and approved by the Insurance
Commissioner. Said application shall
state the changes proposed and the date
of their effectivity; all changes finally
approved by the Insurance
Commissioner shall be incorporated in
the old schedules or otherwise indicated
as new in the new schedules.
IV. Empowering the Insurance
Commissioner to Investigate All Non-Life
Insurance Rates.
The Insurance Commissioner shall have
power to examine any or all
rates established by non-life insurance
companies or group or association of
such insurance companies in the
country. Should any rate appear, in the
opinion of the Insurance Commissioner,
unreasonably high or not adequate to the
financial safety or soundness to the
 CONTRACTS 2 ACJUCO 9

company charging the same, or pre-
judicial to policy-holders, the
Commissioner shall, in such case, hold a
hearing and/or conduct an
investigation. Should the result of such
hearing and/or investigation show that
the rate is unreasonably high or low that
it is not adequate to the financial safety
and soundness of the company charging
the same, or is prejudicial to policy-
holders, the Insurance Commissioner
shall direct a revision of the said rate in
accordance with his findings. Any
insurance company or group or
association of insurance companies may
be required to publish the schedule of
rates which may have been revised in
accordance herewith.
The decision of the Insurance Commissioner
shall be appealable within thirty days after it has
been rendered to the Secretary of Finance.
V. Prohibiting Non-life Insurance
Companies and their Agents from
Insuring Any Property in this Country at a
Rate Different from that in the Schedules;
Unethical Practices.
No insurance company shall engage or
participate in the insurance of any
property located in the Philippines ...
unless the schedule of rates under which
such property is insured has been filed
and approved in accordance with the
provisions of this Circular. ... . (Emphasis
ours.)
In compliance with the aforementioned Circular
No. 54, in April, 1954, the Bureau applied for the
license required therein, and submitted with its
application a copy of said Constitution. On April
28, 1954, respondent's office issued to the
Bureau the license applied for, certifying not
only that it had complied with the requirements
of Circular No. 54, but, also, that the license
empowered it "to engage in the making of rates
or policy conditions to be used by insurance
companies in the Philippines". Subsequently,
thereafter, the Bureau applied for and was
granted yearly the requisite license to operate in
accordance with the provisions of its
Constitution. During all this time, respondent's
office did not question, but impliedly
acknowledged, the legality of Article 22. It was
not until March 11, 1960, that it assailed its
validity.
Respondent's contention is anchored mainly on
Paramount Famous Lasky Corp. vs. U.S., 282
U.S. 30, but the same is not in point, not only
because it refers to the conditions under which
movie film producers and distributors determine
the terms under which theaters or exhibitors
may be allowed to run movie films — thereby
placing the exhibitors under the control of the
producers or distributors and giving the
exhibitors, in effect, no choice as to what films
and whose films they will show — but, also,
because there is, in the film industry, no agency
or officer with powers or functions comparable
to those in the Insurance Commissioner, as
regards the regulation of the business
concerned and of the transactions involved
therein.

On the same date, the Constitution of the

Wherefore, the decision appealed from should
Bureau, containing a provision substantially
be, as it is hereby affirmed, without costs. It is
identical to the one now under consideration,
so ordered.
was approved. Article 2 of said Constitution
reads:
2. OBJECTS
The objects of the Bureau shall be:
a. To establish rates in respect of Fire,
Earthquake, Riot and Civil Commotion,
Automobile and Workmen's
Compensation, and whenever
applicable, Marine Insurance business.
xxx xxx xxx
c. To file the rates referred to above, tariff
rules, and all other conditions or data
which may in any way affect premium
rates with the Office of the Insurance
Commissioner on behalf of members
for approval. (Emphasis ours.)

G.R. No. 126800 November 29, 1999
NATALIA P. BUSTAMANTE, petitioner,
vs.
SPOUSES RODITO F. ROSEL and NORMA A.
ROSEL, respondents.
RESOLUTION
PARDO, J.:
The case before the Court is a petition for review
on certiorari 1 to annul the decision of the Court
of Appeals, 2reversing and setting aside the
decision of the Regional Trial Court, 3 Quezon
City, Branch 84, in an action for specific
performance with consignation.
On March 8, 1987, at Quezon City, Norma
Rosel entered into a loan agreement with
petitioner Natalia Bustamante and her late
husband Ismael C. Bustamante, under the
following terms and conditions:
1. That the borrowers are the
registered owners of a parcel
of land, evidenced by
TRANSFER CERTIFICATE
OF TITLE No. 80667,
containing an area of FOUR
HUNDRED TWENTY THREE
(423) SQUARE Meters, more
or less, situated along
Congressional Avenue.
2.
2. That the borrowers were
desirous to borrow the sum of
ONE HUNDRED THOUSAND
(P100,000.00) PESOS from the
LENDER, for a period of two (2)
years, counted from March 1,
1987, with an interest of
EIGHTEEN (18%) PERCENT per
annum, and to guaranty the
payment thereof, they are putting
as a collateral SEVENTY (70)
SQUARE METERS portion,
inclusive of the apartment therein,
of the aforestated parcel of land,
however, in the event the
borrowers fail to pay, the lender
has the option to buy or purchase
the collateral for a total
consideration of TWO HUNDRED
THOUSAND (P200,000.00)
PESOS, inclusive of the borrowed
amount and interest therein;
3. That the lender do hereby
manifest her agreement and
conformity to the preceding
CONTRACTS 2 ACJUCO 10
paragraph, while the borrowers do
hereby confess receipt of the
borrowed amount. 4
When the loan was about to mature on March 1,
1989, respondents proposed to buy at the pre-
set price of P200,000.00, the seventy (70)
square meters parcel of land covered by TCT
No. 80667, given as collateral to guarantee
payment of the loan. Petitioner, however,
refused to sell and requested for extension of
time to pay the loan and offered to sell to
respondents another residential lot located at
Road 20, Project 8, Quezon City, with the
principal loan plus interest to be used as down
payment. Respondents refused to extend the
payment of the loan and to accept the lot in
Road 20 as it was occupied by squatters and
petitioner and her husband were not the owners
thereof but were mere land developers entitled
to subdivision shares or commission if and when
they developed at least one half of the
subdivision area. 5
Hence, on March 1, 1989, petitioner tendered
payment of the loan to respondents which the
latter refused to accept, insisting on petitioner's
signing a prepared deed of absolute sale of the
collateral.
On February 28, 1990, respondents filed with
the Regional Trial Court, Quezon City, Branch
84, a complaint for specific performance with
consignation against petitioner and her
spouse. 6
Nevertheless, on March 4, 1990, respondents
sent a demand letter asking petitioner to sell the
collateral pursuant to the option to buy
embodied in the loan agreement.
On the other hand, on March 5, 1990, petitioner
filed in the Regional Trial Court, Quezon City a
petition for consignation, and deposited the
amount of P153,000.00 with the City Treasurer
of Quezon City on August 10, 1990. 7
When petitioner refused to sell the collateral and
barangay conciliation failed, respondents
consigned the amount of P47,500.00 with the
trial court. 8 In arriving at the amount deposited,
respondents considered the principal loan of
P100,000.00 and 18% interest per
annum thereon, which amounted to
9
P52,500.00. The principal loan and the interest
taken together amounted to P152,500.00,
leaving a balance of P 47,500.00. 10

After due trial, on November 10, 1992, the trial
court rendered decision holding:
WHEREFORE, premises
considered, judgment is hereby
rendered as follows:
1. Denying the plaintiff's prayer
for the defendants' execution
of the Deed of Sale to Convey
the collateral in plaintiffs' favor;
2. Ordering the defendants to
pay the loan of P100,000.00
with interest thereon at
18% per annumcommencing
on March 2, 1989, up to and
until August 10, 1990, when
defendants deposited the
amount with the Office of the
City Treasurer under Official
Receipt No. 0116548 (Exhibit
"2"); and
3. To pay Attorney's Fees in the
amount of P5,000.00, plus costs
of suit.
SO ORDERED.
Quezon City, Philippines,
November 10, 1992.
TEODORO P. REGINO
Judge 11
On November 16, 1992, respondents appealed
from the decision to the Court of Appeals. 12 On
July 8, 1996, the Court of Appeals rendered
decision reversing the ruling of the Regional
Trial Court. The dispositive portion of the Court
of Appeals' decision reads:
IN VIEW OF THE FOREGOING,
the judgment appeal (sic) from
is REVERSED and SET
ASIDE and a new one entered in
favor of the plaintiffs ordering the
defendants to accept the amount
of P47,000.00 deposited with the
Clerk of Court of Regional Trial
Court of Quezon City under
Official Receipt No. 0719847, and
for defendants to execute the
necessary Deed of Sale in favor of
the plaintiffs over the 70 SQUARE
METER portion and the apartment
standing thereon being occupied
by the plaintiffs and covered by
TCT No. 80667 within fifteen (15)
days from finality hereof.
Defendants, in turn, are allowed to
withdraw the amount of
CONTRACTS 2 ACJUCO 11
P153,000.00 deposited by them
under Official Receipt No.
0116548 of the City Treasurer's
Office of Quezon City. All other
claims and counterclaims
are DISMISSED, for lack of
sufficient basis. No costs.
SO ORDERED. 13
Hence, this petition. 14
On January 20, 1997, we required respondents
to comment on the petition within ten (10) days
from notice. 15 On February 27, 1997,
respondents filed their comment. 16
On February 9, 1998, we resolved to deny the
petition on the ground that there was no
reversible error on the part of respondent court
in ordering the execution of the necessary deed
of sale in conformity the with the parties'
stipulated agreement. The contract is the law
between the parties thereof (Syjuco v. Court of
Appeals, 172 SCRA 111 118,
citing Phil. American General Insurance
v. Mutuc, 61 SCRA 22; Herrera v. Petrophil
Corporation, 146 SCRA 360). 17
On March 17, 1998, petitioner filed with this
Court a motion for reconsideration of the denial
alleging that the real intention of the parties to
the loan was to put up the collateral as
guarantee similar to an equitable mortgage
according to Article 1602 of the Civil Code. 18
On April 21, 1998, respondents filed an
opposition to petitioner's motion for
reconsideration. They contend that the
agreement between the parties was not a sale
with right of re-purchase, but a loan with interest
at 18% per annumfor a period of two years and
if petitioner fails to pay, the respondent was
given the right to purchase the property or
apartment for P200,000.00, which is not
contrary to law, morals, good customs, public
order or public policy. 19
Upon due consideration of petitioner's motion,
we now resolve to grant the motion for
reconsideration.
The questions presented are whether petitioner
failed to pay the loan at its maturity date and
whether the stipulation in the loan contract was
valid and enforceable.
We rule that petitioner did not fail to pay the
loan.

The loan was due for payment on March 1,
1989. On said date, petitioner tendered
payment to settle the loan which respondents
refused to accept, insisting that petitioner sell to
them the collateral of the loan.
When respondents refused to accept payment,
petitioner consigned the amount with the trial
court.
We note the eagerness of respondents to
acquire the property given as collateral to
guarantee the loan. The sale of the collateral is
an obligation with a suspensive condition. 20 It is
dependent upon the happening of an event,
without which the obligation to sell does not
arise. Since the event did not occur,
respondents do not have the right to demand
fulfillment of petitioner's obligation, especially
where the same would not only be
disadvantageous to petitioner but would also
unjustly enrich respondents considering the
inadequate consideration (P200,000.00) for a
70 square meter property situated at
Congressional Avenue, Quezon City.
Respondents argue that contracts have the
force of law between the contracting parties and
must be complied with in good faith. 21 There
are, however, certain exceptions to the rule,
specifically Article 1306 of the Civil Code, which
provides:
Art. 1306. The contracting parties
may establish such stipulations,
clauses, terms and conditions as
they may deem convenient,
provided they are not contrary to
law, morals, good customs, public
order, or public policy.
A scrutiny of the stipulation of the parties reveals
a subtle intention of the creditor to acquire the
property given as security for the loan. This is
embraced in the concept of pactum
commissorium, which is proscribed by law. 22
The elements of pactum commissorium are as
follows: (1) there should be a property
mortgaged by way of security for the payment of
the principal obligation, and (2) there should be
a stipulation for automatic appropriation by the
creditor of the thing mortgaged in case of non-
payment of the principal obligation within the
stipulated period. 23
In Nakpil vs. Intermediate Appellate Court, 24 we
said:
The arrangement entered into
between the parties,
whereby Pulong Maulap was to be
CONTRACTS 2 ACJUCO 12
"considered sold to him
(respondent) . . . in case petitioner
fails to reimburse Valdes, must
then be construed as tantamount
to pactum commissorium which is
expressly prohibited by Art. 2088
of the Civil Code. For, there was to
be automatic appropriation of the
property by Valdes in the event of
failure of petitioner to pay the
value of the advances. Thus,
contrary to respondent's
manifestation, all the elements of
apactum commissorium were
present: there was a creditor-
debtor relationship between the
parties; the property was used as
security for the loan; and there
was automatic appropriation by
respondent of Pulong Maulap in
case of default of petitioner.
A significant task in contract interpretation is the
ascertainment of the intention of the parties and
looking into the words used by the parties to
project that intention. In this case, the intent to
appropriate the property given as collateral in
favor of the creditor appears to be evident, for
the debtor is obliged to dispose of the collateral
at the pre-agreed consideration amounting to
practically the same amount as the loan. In
effect, the creditor acquires the collateral in the
event of non payment of the loan. This is within
the concept of pactum commissorium. Such
stipulation is void. 25
All persons in need of money are liable to enter
into contractual relationships whatever the
condition if only to alleviate their financial
burden albeit temporarily. Hence, courts are
duty bound to exercise caution in the
interpretation and resolution of contracts lest the
lenders devour the borrowers like vultures do
with their prey.
WHEREFORE, we GRANT petitioner's motion
for reconsideration and SET ASIDE the Court's
resolution of February 9, 1998. We REVERSE
the decision of the Court of Appeals in CA-G.R.
CV No. 40193. In lieu thereof, we hereby
DISMISS the complaint in Civil Case No. Q-90-
4813.
No costs.
SO ORDERED.

EFFECT OF CONTRACT AS TO THIRD
PARTIES
G.R. No. 120554 September 21, 1999
SO PING BUN, petitioner,
vs.
COURT OF APPEALS, TEK HUA
ENTERPRISES CORP. and MANUEL C.
TIONG, respondents.
QUISUMBING, J.:
This petition for certiorari challenges the
Decision 1 of the Court of Appeals dated
October 10, 1994, and the Resolution 2dated
June 5, 1995, in CA-G.R. CV No. 38784. The
appellate court affirmed the decision of the
Regional Trial Court of Manila, Branch 35,
except for the award of attorney's fees, as
follows:
WHEREFORE, foregoing
considered, the appeal of
respondent-appellant So Ping
Bun for lack of merit is
DISMISSED. The appealed
decision dated April 20, 1992 of
the court a quo is modified by
reducing the attorney's fees
awarded to plaintiff Tek Hua
Enterprising Corporation from
P500,000.00 to P200,000.00. 3
The facts are as follows:
In 1963, Tek Hua Trading Co, through its
managing partner, So Pek Giok, entered into
lease agreements with lessor Dee C. Chuan &
Sons Inc. (DCCSI). Subjects of four (4) lease
contracts were premises located at Nos. 930,
930-Int., 924-B and 924-C, Soler Street,
Binondo, Manila. Tek Hua used the areas to
store its textiles. The contracts each had a one-
year term. They provided that should the lessee
continue to occupy the premises after the term,
the lease shall be on a month-to-month basis.
When the contracts expired, the parties did not
renew the contracts, but Tek Hua continued to
occupy the premises. In 1976, Tek Hua Trading
Co. was dissolved. Later, the original members
of Tek Hua Trading Co. including Manuel C.
Tiong, formed Tek Hua Enterprising Corp.,
herein respondent corporation.
So Pek Giok, managing partner of Tek Hua
Trading, died in 1986. So Pek Giok's grandson,
petitioner So Ping Bun, occupied the warehouse
for his own textile business, Trendsetter
Marketing.
On August 1, 1989, lessor DCCSI sent letters
addressed to Tek Hua Enterprises, informing
CONTRACTS 2 ACJUCO 13
the latter of the 25% increase in rent effective
September 1, 1989. The rent increase was later
on reduced to 20% effective January 1, 1990,
upon other lessees' demand. Again on
December 1, 1990, the lessor implemented a
30% rent increase. Enclosed in these letters
were new lease contracts for signing. DCCSI
warned that failure of the lessee to accomplish
the contracts shall be deemed as lack of interest
on the lessee's part, and agreement to the
termination of the lease. Private respondents
did not answer any of these letters. Still, the
lease contracts were not rescinded.
On March 1, 1991, private respondent Tiong
sent a letter to petitioner which reads as follows:
March 1, 1991
Mr. So Ping Bun
930 Soler Street
Binondo, Manila
Dear Mr. So,
Due to my closed (sic) business associate (sic)
for three decades with your late grandfather Mr.
So Pek Giok and late father, Mr. So Chong Bon,
I allowed you temporarily to use the warehouse
of Tek Hua Enterprising Corp. for several years
to generate your personal business.
Since I decided to go back into textile business,
I need a warehouse immediately for my stocks.
Therefore, please be advised to vacate all your
stocks in Tek Hua Enterprising Corp.
Warehouse. You are hereby given 14 days to
vacate the premises unless you have good
reasons that you have the right to stay.
Otherwise, I will be constrained to take measure
to protect my interest.
Please give this urgent matter your preferential
attention to avoid inconvenience on your part.
Very truly yours,
(Sgd) Manuel C. Tiong
MANUEL C. TIONG
President 4
Petitioner refused to vacate. On March 4, 1992,
petitioner requested formal contracts of lease
with DCCSI in favor Trendsetter Marketing. So
Ping Bun claimed that after the death of his
grandfather, So Pek Giok, he had been
occupying the premises for his textile business
and religiously paid rent. DCCSI acceded to
petitioner's request. The lease contracts in favor
of Trendsetter were executed.

In the suit for injunction, private respondents
pressed for the nullification of the lease
contracts between DCCSI and petitioner. They
also claimed damages.
After trial, the trial court ruled:
WHEREFORE, judgment is rendered:
1. Annulling the four Contracts of Lease
(Exhibits A, A-1 to A-3, inclusive) all
dated March 11, 1991, between
defendant So Ping Bun, doing business
under the name and style of "Trendsetter
Marketing", and defendant Dee C. Chuan
& Sons, Inc. over the premises located at
Nos. 924-B, 924-C, 930 and 930, Int.,
respectively, Soler Street, Binondo
Manila;
2. Making permanent the writ of preliminary
injunction issued by this Court on June
21, 1991;
3. Ordering defendant So Ping Bun to pay
the aggrieved party, plaintiff Tek Hua
Enterprising Corporation, the sum of
P500,000.00, for attorney's fees;
4. Dismissing the complaint, insofar as
plaintiff Manuel C. Tiong is concerned,
and the respective counterclaims of the
defendant;
5. Ordering defendant So Ping Bun to pay
the costs of this lawsuit;
This judgment is without prejudice to the rights
of plaintiff Tek Hua Enterprising Corporation and
defendant Dee C. Chuan & Sons, Inc. to
negotiate for the renewal of their lease contracts
over the premises located at Nos. 930, 930-Int.,
924-B and 924-C Soler Street, Binondo, Manila,
under such terms and conditions as they agree
upon, provided they are not contrary to law,
public policy, public order, and morals.
SO ORDERED. 5
Petitioner's motion for reconsideration of the
above decision was denied.
On appeal by So Ping Bun, the Court of Appeals
upheld the trial court. On motion for
reconsideration, the appellate court modified the
decision by reducing the award of attorney's
fees from five hundred thousand (P500,000.00)
pesos to two hundred thousand (P200,000.00)
pesos.
CONTRACTS 2 ACJUCO 14
Petitioner is now before the Court raising the
following issues:
I. WHETHER THE APPELLATE COURT
ERRED IN AFFIRMING THE TRIAL
COURT'S DECISION FINDING SO
PING BUN GUILTY OF TORTUOUS
INTERFERENCE OF CONTRACT?
II. WHETHER THE APPELLATE COURT
ERRED IN AWARDING ATTORNEY'S
FEES OF P200,000.00 IN FAVOR OF
PRIVATE RESPONDENTS.
The foregoing issues involve, essentially, the
correct interpretation of the applicable law on
tortuous conduct, particularly unlawful
interference with contract. We have to begin,
obviously, with certain fundamental principles
on torts and damages.
Damage is the loss, hurt, or harm which results
from injury, and damages are the recompense
or compensation awarded for the damage
suffered. 6 One becomes liable in an action for
damages for a nontrespassory invasion of
another's interest in the private use and
enjoyment of asset if (a) the other has property
rights and privileges with respect to the use or
enjoyment interfered with, (b) the invasion is
substantial, (c) the defendant's conduct is a
legal cause of the invasion, and (d) the invasion
is either intentional and unreasonable or
unintentional and actionable under general
negligence rules. 7
The elements of tort interference are: (1)
existence of a valid contract; (2) knowledge on
the part of the third person of the existence of
contract; and (3) interference of the third person
is without legal justification or excuse. 8
A duty which the law of torts is concerned with
is respect for the property of others, and a cause
of action ex delicto may be predicated upon an
unlawful interference by one person of the
enjoyment by the other of his private
property.9 This may pertain to a situation where
a third person induces a party to renege on or
violate his undertaking under a contract. In the
case before us, petitioner's Trendsetter
Marketing asked DCCSI to execute lease
contracts in its favor, and as a result petitioner
deprived respondent corporation of the latter's
property right. Clearly, and as correctly viewed
by the appellate court, the three elements of tort
interference above-mentioned are present in the
instant case.
Authorities debate on whether interference may
be justified where the defendant acts for the sole

purpose of furthering his own financial or
economic interest. 10 One view is that, as a
general rule, justification for interfering with the
business relations of another exists where the
actor's motive is to benefit himself. Such
justification does not exist where his sole motive
is to cause harm to the other. Added to this,
some authorities believe that it is not necessary
that the interferer's interest outweigh that of the
party whose rights are invaded, and that an
individual acts under an economic interest that
is substantial, not merely de minimis, such that
wrongful and malicious motives are negatived,
for he acts in self-protection. 11Moreover
justification for protecting one's financial
position should not be made to depend on a
comparison of his economic interest in the
subject matter with that of others. 12 It is
sufficient if the impetus of his conduct lies in a
proper business interest rather than in wrongful
motives. 13
As early as Gilchrist vs. Cuddy, 14 we held that
where there was no malice in the interference of
a contract, and the impulse behind one's
conduct lies in a proper business interest rather
than in wrongful motives, a party cannot be a
malicious interferer. Where the alleged
interferer is financially interested, and such
interest motivates his conduct, it cannot be said
that he is an officious or malicious
intermeddler. 15
In the instant case, it is clear that petitioner So
Ping Bun prevailed upon DCCSI to lease the
warehouse to his enterprise at the expense of
respondent corporation. Though petitioner took
interest in the property of respondent
corporation and benefited from it, nothing on
record imputes deliberate wrongful motives or
malice on him.
Sec. 1314 of the Civil Code categorically
provides also that, "Any third person who
induces another to violate his contract shall be
liable for damages to the other contracting
party." Petitioner argues that damage is an
essential element of tort interference, and since
the trial court and the appellate court ruled that
private respondents were not entitled to actual,
moral or exemplary damages, it follows that he
ought to be absolved of any liability, including
attorney's fees.
It is true that the lower courts did not award
damages, but this was only because the extent
of damages was not quantifiable. We had a
similar situation in Gilchrist, where it was difficult
or impossible to determine the extent of damage
CONTRACTS 2 ACJUCO 15
and there was nothing on record to serve as
basis thereof. In that case we refrained from
awarding damages. We believe the same
conclusion applies in this case.
While we do not encourage tort interferers
seeking their economic interest to intrude into
existing contracts at the expense of others,
however, we find that the conduct herein
complained of did not transcend the limits
forbidding an obligatory award for damages in
the absence of any malice. The business desire
is there to make some gain to the detriment of
the contracting parties. Lack of malice, however,
precludes damages. But it does not relieve
petitioner of the legal liability for entering into
contracts and causing breach of existing ones.
The respondent appellate court correctly
confirmed the permanent injunction and
nullification of the lease contracts between
DCCSI and Trendsetter Marketing, without
awarding damages. The injunction saved the
respondents from further damage or injury
caused by petitioner's interference.
Lastly, the recovery of attorney's fees in the
concept of actual or compensatory damages, is
allowed under the circumstances provided for in
Article 2208 of the Civil Code. 16 One such
occasion is when the defendant's act or
omission has compelled the plaintiff to litigate
with third persons or to incur expenses to
protect his interest. 17 But we have consistently
held that the award of considerable damages
should have clear factual and legal bases. 18 In
connection with attorney's fees, the award
should be commensurate to the benefits that
would have been derived from a favorable
judgment. Settled is the rule that fairness of the
award of damages by the trial court calls for
appellate review such that the award if far too
excessive can be reduced. 19 This ruling applies
with equal force on the award of attorney's fees.
In a long line of cases we said, "It is not sound
policy to place in penalty on the right to litigate.
To compel the defeated party to pay the fees of
counsel for his successful opponent would
throw wide open the door of temptation to the
opposing party and his counsel to swell the fees
to undue proportions."20
Considering that the respondent corporation's
lease contract, at the time when the cause of
action accrued, ran only on a month-to-month
basis whence before it was on a yearly basis,
we find even the reduced amount of attorney's
fees ordered by the Court of Appeals still
exorbitant in the light of prevailing
21
jurisprudence. Consequently, the amount of
 CONTRACTS 2 ACJUCO 16

two hundred thousand (P200,000.00) awarded

by respondent appellate court should be
reduced to one hundred thousand
(P100,000.00) pesos as the reasonable award
or attorney's fees in favor of private respondent
corporation.

WHEREFORE, the petition is hereby DENIED.

The assailed Decision and Resolution of the
Court of Appeals in CA-G.R. CV No. 38784 are
hereby AFFIRMED, with MODIFICATION that
the award of attorney's fees is reduced from two
hundred thousand (P200,000.00) to one
hundred thousand (P100,000.00) pesos. No
pronouncement as to costs.1âwphi1.nêt
SO ORDERED.

G.R. No. 119107 March 18, 2005
JOSE V. LAGON, Petitioner,
vs.
HONORABLE COURT OF APPEALS and
MENANDRO V. LAPUZ, respondents.
DECISION
CORONA, J.:
On June 23, 1982, petitioner Jose Lagon
purchased from the estate of Bai Tonina Sepi,
through an intestate court,1two parcels of land
located at Tacurong, Sultan Kudarat. A few
months after the sale, private respondent
Menandro Lapuz filed a complaint for torts and
damages against petitioner before the Regional
Trial Court (RTC) of Sultan Kudarat.
In the complaint, private respondent, as then
plaintiff, claimed that he entered into a contract
of lease with the late Bai Tonina Sepi Mengelen
Guiabar over three parcels of land (the
"property") in Sultan Kudarat, Maguindanao
beginning 1964. One of the provisions agreed
upon was for private respondent to put up
commercial buildings which would, in turn, be
leased to new tenants. The rentals to be paid by
those tenants would answer for the rent private
respondent was obligated to pay Bai Tonina
Sepi for the lease of the land. In 1974, the lease
contract ended but since the construction of the
commercial buildings had yet to be completed,
the lease contract was allegedly renewed.
When Bai Tonina Sepi died, private respondent
started remitting his rent to the court-appointed
administrator of her estate. But when the
administrator advised him to stop collecting
rentals from the tenants of the buildings he
constructed, he discovered that petitioner,
representing himself as the new owner of the
property, had been collecting rentals from the
tenants. He thus filed a complaint against the
latter, accusing petitioner of inducing the heirs
of Bai Tonina Sepi to sell the property to him,
thereby violating his leasehold rights over it.
In his answer to the complaint, petitioner denied
that he induced the heirs of Bai Tonina to sell
the property to him, contending that the heirs
were in dire need of money to pay off the
obligations of the deceased. He also denied
interfering with private respondent's leasehold
rights as there was no lease contract covering
the property when he purchased it; that his
personal investigation and inquiry revealed no
claims or encumbrances on the subject lots.
CONTRACTS 2 ACJUCO 17
Petitioner claimed that before he bought the
property, he went to Atty. Benjamin Fajardo, the
lawyer who allegedly notarized the lease
contract between private respondent and Bai
Tonina Sepi, to verify if the parties indeed
renewed the lease contract after it expired in
1974. Petitioner averred that Atty. Fajardo
showed him four copies of the lease renewal but
these were all unsigned. To refute the existence
of a lease contract, petitioner presented in court
a certification from the Office of the Clerk of
Court confirming that no record of any lease
contract notarized by Atty. Fajardo had been
entered into their files. Petitioner added that he
only learned of the alleged lease contract when
he was informed that private respondent was
collecting rent from the tenants of the building.
Finding the complaint for tortuous interference
to be unwarranted, petitioner filed his
counterclaim and prayed for the payment of
actual and moral damages.
On July 29, 1986, the court a quo found for
private respondent (plaintiff below):
ACCORDINGLY, judgment is hereby
rendered in favor of the plaintiff:
1. Declaring the "Contract of Lease"
executed by Bai Tonina Sepi
Mangelen Guiabar in favor of the
plaintiff on November 6, 1974 (Exh.
"A" and "A-1") over Lot No. 6395, Pls-
73. Lot No 6396. Pls.-73. Lot No.
6399. 3ls-73, and Lot no.9777-A.
CSD-11-000076-D (Lot No. 3-A.
40124), all situated along Ledesma
St., Tacurong, Sultan Kudarat, which
document was notarized by Atty.
Benjamin S. Fajardo, Sr. and entered
into his notarial register as Doc. No.
619. Page No. 24. Book No. II. Series
of 1974, to be authentic and genuine
and as such valid and binding for a
period of ten (10) years specified
thereon from November 1, 1974 up to
October 31, 1984;
2. Declaring the plaintiff as the lawful
owner of the commercial buildings
found on the aforesaid lots and he is
entitled to their possession and the
collection (of rentals) of the said
commercial buildings within the
period covered by this "Contract of
Lease" in his favor;
3. Ordering the defendant to pay to the
plaintiff the following:

a. Rentals of the commercial buildings on
the lots covered by the "Contract of
Lease" in favor of the plaintiff for the
period from October 1, 1978 up to
October 31, 1984, including accrued
interests in the total amount of Five
Hundred Six Thousand Eight Hundred
Five Pesos and Fifty Six Centavos
(P506, 850.56), the same to continue to
bear interest at the legal rate of 12% per
annum until the whole amount is fully
paid by the defendant to the plaintiff;
b. Moral damages in the amount of One
Million Sixty Two Thousand Five
Hundred Pesos (P1,062,500.00);
c. Actual or compensatory damages in the
amount of Three Hundred Twelve
Thousand Five Hundred Pesos (P312,
500.00);
d. Exemplary or corrective damages in the
amount of One Hundred Eighty
Thousand Five Hundred Pesos
(P187,500.00)
e. Temperate or moderate damages in the
amount of Sixty Two Thousand Five
Hundred Pesos (P62,500.00);
f. Nominal damages in the amount of Sixty
Two Thousand Five Hundred Pesos
(P62,500.00);
g. Attorney's fees in the amount of One
Hundred Twenty Five Thousand Pesos
(P125,000.00);
h. Expenses of litigation in the amount of
Sixty Two Thousand Five Hundred
Pesos (P62,500.00);
i. Interest on the moral damages, actual or
compensatory damages temperate or
moderate damages, nominal damages,
attorney's fees and expenses of litigation
in the amounts as specified hereinabove
from May 24, 1982 up to June 27, 1986,
in the total amount of Nine Hundred
Thousand Pesos (P900,000.00); all of
which will continue to bear interests at a
legal rate of 12% per annum until the
whole amounts are fully paid by the
defendants to the plaintiffs;
CONTRACTS 2 ACJUCO 18
3. For failure of the defendant to deposit
with this Court all the rentals he had
collected from the thirteen (13)
tenants or occupants of the
commercial buildings in question, the
plaintiff is hereby restored to the
possession of his commercial
buildings for a period of seventy-three
(73) months which is the equivalent of
the total period for which he was
prevented from collecting the rentals
from the tenants or occupants of his
commercial buildings from October 1,
1978 up to October 31, 1984, and for
this purpose a Writ of Preliminary
Injunction is hereby issued, but the
plaintiff is likewise ordered to pay to
the defendant the monthly rental of
Seven Hundred Pesos (P700.00)
every end of the month for the entire
period of seventy three (73) months.
This portion of the judgment should
be considered as a mere alternative
should the defendant fail to pay the
amount of Five Hundred Five Pesos
and Fifty Six Centavos (P506,805.56)
hereinabove specified;
4. Dismissing the counterclaim
interposed by the defendant for lack
of merit;
6. With costs against the defendant.2
Petitioner appealed the judgment to the Court of
Appeals.3 In a decision dated January 31,
1995,4 the appellate court modified the assailed
judgment of the trial court as follows:
a) The award for moral damages,
compensatory damages, exemplary
damages, temperate or moderate
damages, and nominal damages as well
as expenses of litigation in the amount
of P62,500.00 and interests under
paragraph 3-a(a), (b), (c), (d), (e), (f), (g),
(h), and (i) are deleted;
b) The award for attorney's fees is
reduced to P30,000.00;
c) Paragraphs 1,2,5 and 6 are
AFFIRMED;
d) Additionally, the defendant is hereby
ordered to pay to the plaintiff by way of
actual damages the sum of P178,425.00
representing the amount of rentals he
collected from the period of October 1978
to August 1983, and minus the amount
of P42,700.00 representing rentals due
the defendant computed at P700.00 per

month for the period from August 1978 to
August 1983, with interest thereon at the
rate until the same is fully paid;
e) Paragraph 4 is deleted.5
Before the appellate court, petitioner disclaimed
knowledge of any lease contract between the
late Bai Tonina Sepi and private respondent. On
the other hand, private respondent insisted that
it was impossible for petitioner not to know
about the contract since the latter was aware
that he was collecting rentals from the tenants
of the building. While the appellate court
disbelieved the contentions of both parties, it
nevertheless held that, for petitioner to become
liable for damages, he must have known of the
lease contract and must have also acted with
malice or bad faith when he bought the subject
parcels of land.
Via this petition for review, petitioner cites the
following reasons why the Court should rule in
his favor:
1. The Honorable Court of Appeals
seriously erred in holding that petitioner
is liable for interference of contractual
relation under Article 1314 of the New
Civil Code;
2. The Honorable Court of Appeals erred
in not holding that private respondent is
precluded from recovering, if at all,
because of laches;
3. The Honorable Court of Appeals erred
in holding petitioner liable for actual
damages and attorney's fees, and;
4. The Honorable Court of Appeals erred
in dismissing petitioner's counterclaims.6
Article 1314 of the Civil Code provides that any
third person who induces another to violate his
contract shall be liable for damages to the other
contracting party. The tort recognized in that
provision is known as interference with
contractual relations.7 The interference is
penalized because it violates the property rights
of a party in a contract to reap the benefits that
should result therefrom.8
The core issue here is whether the purchase by
petitioner of the subject property, during the
supposed existence of private respondent's
lease contract with the late Bai Tonina Sepi,
constituted tortuous interference for which
petitioner should be held liable for damages.
The Court, in the case of So Ping Bun v. Court
of Appeals,9 laid down the elements of tortuous
interference with contractual relations: (a)
CONTRACTS 2 ACJUCO 19
existence of a valid contract; (b) knowledge on
the part of the third person of the existence of
the contract and (c) interference of the third
person without legal justification or excuse. In
that case, petitioner So Ping Bun occupied the
premises which the corporation of his
grandfather was leasing from private
respondent, without the knowledge and
permission of the corporation. The corporation,
prevented from using the premises for its
business, sued So Ping Bun for tortuous
interference.
As regards the first element, the existence of a
valid contract must be duly established. To
prove this, private respondent presented in
court a notarized copy of the purported lease
renewal.10 While the contract appeared as duly
notarized, the notarization thereof, however,
only proved its due execution and delivery but
not the veracity of its contents. Nonetheless,
after undergoing the rigid scrutiny of petitioner's
counsel and after the trial court declared it to be
valid and subsisting, the notarized copy of the
lease contract presented in court appeared to
be incontestable proof that private respondent
and the late Bai Tonina Sepi actually renewed
their lease contract. Settled is the rule that until
overcome by clear, strong and convincing
evidence, a notarized document continues to be
prima facie evidence of the facts that gave rise
to its execution and delivery.11
The second element, on the other hand,
requires that there be knowledge on the part of
the interferer that the contract exists.
Knowledge of the subsistence of the contract is
an essential element to state a cause of action
for tortuous interference.12 A defendant in such
a case cannot be made liable for interfering with
a contract he is unaware of.13 While it is not
necessary to prove actual knowledge, he must
nonetheless be aware of the facts which, if
followed by a reasonable inquiry, will lead to a
complete disclosure of the contractual relations
and rights of the parties in the contract. 14
In this case, petitioner claims that he had no
knowledge of the lease contract. His sellers (the
heirs of Bai Tonina Sepi) likewise allegedly did
not inform him of any existing lease contract.
After a careful perusal of the records, we find the
contention of petitioner meritorious. He
conducted his own personal investigation and
inquiry, and unearthed no suspicious
circumstance that would have made a cautious
man probe deeper and watch out for any
conflicting claim over the property. An

examination of the entire property's title bore no
indication of the leasehold interest of private
respondent. Even the registry of property had no
record of the same.15
Assuming ex gratia argumenti that petitioner
knew of the contract, such knowledge alone was
not sufficient to make him liable for tortuous
interference. Which brings us to the third
element. According to our ruling in So Ping Bun,
petitioner may be held liable only when there
was no legal justification or excuse for his
action16 or when his conduct was stirred by a
wrongful motive. To sustain a case for tortuous
interference, the defendant must have acted
with malice17 or must have been driven by
purely impious reasons to injure the plaintiff. In
other words, his act of interference cannot be
justified.18
Furthermore, the records do not support the
allegation of private respondent that petitioner
induced the heirs of Bai Tonina Sepi to sell the
property to him. The word "induce" refers to
situations where a person causes another to
choose one course of conduct by persuasion or
intimidation.19 The records show that the
decision of the heirs of the late Bai Tonina Sepi
to sell the property was completely of their own
volition and that petitioner did absolutely nothing
to influence their judgment. Private respondent
himself did not proffer any evidence to support
his claim. In short, even assuming that private
respondent was able to prove the renewal of his
lease contract with Bai Tonina Sepi, the fact was
that he was unable to prove malice or bad faith
on the part of petitioner in purchasing the
property. Therefore, the claim of tortuous
interference was never established.
In So Ping Bun, the Court discussed whether
interference can be justified at all if the interferer
acts for the sole purpose of furthering a personal
financial interest, but without malice or bad faith.
As the Court explained it:
x x x, as a general rule, justification for
interfering with the business relations of
another exists where the actor's motive is
to benefit himself. Such justification does
not exist where the actor's motive is to
cause harm to the other. Added to this,
some authorities believe that it is not
necessary that the interferer's interest
outweigh that of the party whose rights
are invaded, and that an individual acts
under an economic interest that is
substantial, not merely de minimis, such
that wrongful and malicious motives are
negatived, for he acts in self-protection.
CONTRACTS 2 ACJUCO 20
Moreover, justification for protecting
one's financial position should not be
made to depend on a comparison of his
economic interest in the subject matter
with that of the others. It is sufficient if the
impetus of his conduct lies in a proper
business interest rather than in wrongful
motives.20
The foregoing disquisition applies squarely to
the case at bar. In our view, petitioner's
purchase of the subject property was merely an
advancement of his financial or economic
interests, absent any proof that he was
enthused by improper motives. In the very early
case of Gilchrist v. Cuddy,21 the Court declared
that a person is not a malicious interferer if his
conduct is impelled by a proper business
interest. In other words, a financial or profit
motivation will not necessarily make a person an
officious interferer liable for damages as long as
there is no malice or bad faith involved.
In sum, we rule that, inasmuch as not all three
elements to hold petitioner liable for tortuous
interference are present, petitioner cannot be
made to answer for private respondent's losses.
This case is one of damnun absque injuria or
damage without injury. "Injury" is the legal
invasion of a legal right while "damage" is the
hurt, loss or harm which results from the
injury.22 In BPI Express Card Corporation v.
Court of Appeals,,23 the Court turned down the
claim for damages of a cardholder whose credit
card had been cancelled by petitioner
corporation after several defaults in payment.
We held there that there can be damage without
injury where the loss or harm is not the result of
a violation of a legal duty. In that instance, the
consequences must be borne by the injured
person alone since the law affords no remedy
for damages resulting from an act which does
not amount to legal injury or wrong.24 Indeed,
lack of malice in the conduct complained of
precludes recovery of damages.25
With respect to the attorney's fees awarded by
the appellate court to private respondent, we
rule that it cannot be recovered under the
circumstances. According to Article 2208 of the
Civil Code, attorney's fees may be awarded only
when it has been stipulated upon or under the
instances provided therein.26 Likewise, being in
the concept of actual damages, the award for
attorney's fees must have clear, factual and
legal bases27 which, in this case, do not exist.
Regarding the dismissal of petitioner's
counterclaim for actual and moral damages, the
appellate court affirmed the assailed order of the
 CONTRACTS 2 ACJUCO 21

trial court because it found no basis to grant the

amount of damages prayed for by petitioner. We
find no reason to reverse the trial court and the
Court of Appeals. Actual damages are those
awarded in satisfaction of, or in recompense for,
loss or injury sustained. To be recoverable, they
must not only be capable of proof but must
actually be proved with a reasonable degree of
certainty.28 Petitioner was unable to prove that
he suffered loss or injury, hence, his claim for
actual damages must fail. Moreover, petitioner's
prayer for moral damages was not warranted as
moral damages should result from the wrongful
act of a person. The worries and anxieties
suffered by a party hailed to court litigation are
not compensable.29

With the foregoing discussion, we no longer

deem it necessary to delve into the issue of
laches.

WHEREFORE, premises considered, the

petition is hereby GRANTED. The assailed
decision of the Court of Appeals is hereby
REVERSED and SET ASIDE.
No costs.

SO ORDERED.

MUTUALITY
G.R. No. 195567 November 25, 1993
GOVERNMENT SERVICE INSURANCE
SYSTEM (GSIS), petitioner,
vs.
HONORABLE COURT OF APPEALS and
SPOUSES RAUL and ESPERANZA
LEUTERIO, respondents.
PUNO, J.:
This is a petition for review on certiorari to set
aside the Decision of the 10th Division of the
Court of Appeals ordering the petitioner GSIS to
execute a Final Deed of Sale in favor of the
spouses Raul and Esperanza Leuterio involving
a house and lot in the GSIS Village, Project 8-
C, Quezon City. 1
The facts show that on December 18, 1963, the
petitioner GSIS conducted a lottery draw for the
allocation of lots and housing units in Project 8-
C of GSIS Village. Private respondent
Esperanza Leuterio won and was issued a
Certificate of Acknowledgment to purchase the
subject house and lot 2 on December 27, 1963.
In 1965, the parties entered into a Deed of
Conditional Sale evidencing the conveyance of
the subject property and all improvements
thereon to the Leuterio spouses for the
purchase price of P19,740.00, payable over a
fifteen-year period, in 180 equal monthly
installments of P168.53 each. Paragraph 11 of
the Deed of Conditional Sale provides:
Upon the full payment by the Vendee of the
purchase price of the lot and
dwelling/improvement above referred to
together with all the interest due thereon,
taxes and other charges and upon his faithful
compliance with all the conditions of the
Contract, the Vendor agrees to execute in
favor of the Vendee, or his/their heirs and
successors-in-interest a final Deed of Sale of
the aforementioned land and
dealing/improvements. . . .3
Three years elapsed before the Deed was
notarized, and a copy of the same was given to
the private respondents.
After the land development and housing
construction of Project 8-C were completed in
1966, petitioner's Board of Trustees increased
the purchase price indicated in the Deed of
Conditional Sale covering houses and lots
therein. The new price was based on the alleged
final cost of construction of the GSIS Village. It
CONTRACTS 2 ACJUCO 22
is noted that, on the face of the Leuterio's
Conditional Deed of Sale is the marginal
notation "subject to adjustment pending
approval of the Board of Trustees." The Leuterio
spouses alleged that this notation was not in the
Deed when they signed the same in 1965.
Resolving this factual issue, the trial court found
that the appended words were inserted into the
document without the knowledge or consent of
the Leuterio spouses. This finding of fact went
undisturbed on appeal to the respondent court. 4
Sometime in the early 1970's, a group (not
including the Leuterios) of conditional vendees
of houses and lots in Project 8-C of GSIS Village
brought suit 5 against herein petitioner,
questioning the increase in purchase price.
They likewise wrote a "A Plea For Justice" to
then President Ferdinand E. Marcos, requesting
for a directive to petitioner's management to
"accept payments of amortization installments
on the original amounts stated in the Deed(s) of
Conditional Sale."
As a result, the Office of the President created a
three-man Ad Hoc committee, composed of
representatives of the Office of the President,
the petitioner System, and the GSIS Village
Association. The committee found that the final
cost of the Village justified a higher price range
for the houses and lots in the project.
Based on the ad hoc committee's findings, the
petitioner System, with the approval of its Board
of Trustees, increased the purchase prices of
the houses and lots in the GSIS Village.
On May 30, 1973, however, then Presidential
Executive Assistant Jacobo C. Clave, through a
memorandum, advised petitioner that then
President Marcos has approved the "Plea" and
wanted its "immediate implementation." The
attempt by petitioner to have the presidential
endorsement reconsidered was denied on
December 18, 1980.
Meanwhile, after years of diligently paying the
monthly amortizations6 and real estate taxes on
the subject property, the private respondents
spouses informed7 petitioner that the
payments 8 for the property had been
completed, and hence, the execution of an
absolute deed of sale in their favor was in order.
No action on the matter was taken by petitioner.
The instant case was initiated on May 20, 1984
in the RTC of Manila, Br. 11, with the filing of a
Complaint for Specific Performance With
Damages to compel petitioner to execute in
private respondents' favor, the final Deed of

9
Sale over the subject property. The trial court
found for the Leuterios.
On January 24, 1992, the Court of Appeals 10, in
its impugned Decision, upheld the trial court
solely on the basis of estoppel. It held that
petitioner cannot increase the price of the
subject house and lot after it failed, through the
years, to protest against private respondents'
P200.00-amortization or to require the payment
by them of bigger monthly installments.11
Petitioner now urges the setting aside of the
impugned Decision of the Court of Appeals,
alleging that it erred in:
I. . . . HOLDING THAT THE PETITIONER
GSIS IS ESTOPPED FROM ENFORCING
THE ADJUSTMENT OF THE SELLING
PRICE.
II. . . . NOT HOLDING THAT THE SPOUSES
LEUTERIO MUST BE BOUND BY THE
RECOMMENDATION MADE BY THE AD
HOC COMMITTEE
III. . . . FAILING TO CONSIDER THE
JUSTIFICATION FOR THE ADJUSTMENT
IN THE SELLING PRICE OF THE LOTS
AND HOUSING UNITS.
IV. . . . AFFIRMING THE DECISION OF THE
TRIAL COURT WHICH ORDERED THE
PETITIONER GSIS TO EXECUTE THE
FINAL DEED OF SALE. 12
Upon the other hand, private respondents, in
their Comment,13 contend that the Petition only
raises in factual issues, which cannot be settled
by this Court in the instant proceedings. They
further contend that no reversible errors were
committed by the Court of Appeals in its
impugned Decision.
We find no merit in the petition, but for reasons
different from those espoused by the
respondent Court of Appeals.
The decisive issue really involves a question of
fact — whether or not the spouses Leuterio
agreed to the notation "subject to adjustment
pending approval of the Board of Trustees"
appearing on the margin of the parties'
Conditional Deed of Sale. If there was no
agreement, the Leuterio spouses are only
obligated to pay the purchase price of
P19,740.00 as stipulated in the main body of the
Conditional Deed of Sale.
Trite to state, this Court is not a trier of facts. In
a multitude of cases, we have laid down the
CONTRACTS 2 ACJUCO 23
unbending rule that findings of fact of lower
courts are binding on us unless they are marred
by manifest errors. The pleadings before us do
not demonstrate that the trial court grossly erred
when it found that the purchase price agreed
upon by the parties was P19,740.00 and this
agreement was not made subject to any
posterior event or condition. This finding of fact
was based on the explicit testimony of private
respondent Raul Leuterio that when he and his
wife signed the Deed of Conditional Sale in
1965, the notation "subject to adjustment
pending approval of the Board of Trustees" was
not in the Deed.14 Likewise, the Answer of
petitioner to the Complaint of the private
respondents admitted the non-existence of this
notation at the time the Deed of Conditional Sale
was signed, albeit, it called the omission an
honest mistake.15 We quote paragraph 5 of said
answer, viz:
5. The omission of the marginal notation
reading "(x) subject to adjustment
pending approval of the Board of
Trustees" (Annexes B to B-1-b of the
Complaint) on the Deed of
Conditional Sale signed by the
plaintiffs, as alleged in paragraph VII
of the Complaint, must have been
an honest mistake on the part of the
clerk who typed the document.
This was also confirmed by the petitioner
in the instant Petition for Review
on Certiorari where it is alleged that ". . .
the respondents-spouses Leuterio were
not required to sign a new contract as
provided in Resolution No. 966 but
instead, the words 'subject to adjustment
pending approval of the Board of
Trustees' were inserted in the Deed of
Conditional Sale executed in 1965."
Petitioner is bound by these judicial
admission.
Quite clearly, therefore, the purchase price
mutually agreed upon by the parties was
P19,740.00. The spouses Leuterio did not give
their consent for petitioner to make a unilateral
upward adjustment of this purchase price
depending on the final cost of construction of the
subject house and lot. It is illegal for petitioner to
claim this prerogative, for Article 1473 of the
Civil Code provides that "the fixing of the price
can never be left to the discretion of one of the
contracting parties. . . ."
We also reject petitioner's contention that the
spouses Leuterio are bound by the
recommendation of the ad hoc committee as
 CONTRACTS 2 ACJUCO 24

this was set aside by then President Ferdinand

E. Marcos.16 The rejection was communicated
by then Presidential Assistant Jacobo Clave to
petitioner in a Memorandum dated May 30,
1973.17 Petitioner moved for reconsideration but
the motion was denied by the former President
thru Presidential Assistant Joaquin Venus, in a
letter dated December 18, 1990. 18

Next, petitioner would impress on us the need to

adjust the purchase price of the spouses' house
and lot in view of the change in the final cost of
construction. If petitioner failed to factor this
increase in the cost of the construction in the
purchase price of the subject house and lot, it
has nobody to blame but itself and it alone
should suffer the loss. To be sure, given the
expertise of its technical people, it has no
reason to be shortsighted. In any event, our law
on contracts does not excuse a party from
specifically performing his obligation on the
ground that he made a bad business judgment.
IN VIEW WHEREOF, the petition for review
on certiorari is DISMISSED. Costs against
petitioner.

SO ORDERED.

G.R. No. 148599. March 14, 2005
PROFESSIONAL ACADEMIC PLANS, INC.,
FRANCISCO COLAYCO and BENJAMIN
DINO, Petitioners,
vs.
DINNAH L. CRISOSTOMO, Respondents.
DECISION
CALLEJO, SR., J.:
Before us is a petition for review of the
Decision1 of the Court of Appeals (CA) affirming
the decision of the Regional Trial Court in Civil
Case No. 93-197, and its Resolution denying
the motion for reconsideration thereof filed by
petitioner Professional Academic Plans, Inc.
(PAPI).
The Antecedents
Respondent Dinnah L. Crisostomo was the
PAPI District Manager for Metro Manila. As such
officer, she did not receive any salary but was
entitled to a franchise commission equivalent to
10% of the payments on remittances of clients
whose contracts or agreements had been
negotiated by her, for and in behalf of PAPI. She
was later promoted as Regional Manager.
On May 17, 1988, petitioner PAPI wrote Col.
Noe S. Andaya, the President of the Armed
Forces of the Philippines Savings and Loan
Association, Inc. (AFPSLAI) offering an
Academic Assistance Program for its members,
their children and dependents.
Noel Rueda, a sales consultant of petitioner
PAPI, initiated negotiations for the sale of pre-
need educational plans under the said program
with the AFPSLAI. However, before an
agreement was reached, Rueda’s services were
terminated. Respondent Crisostomo, as the
district manager and the immediate supervisor
of Rueda, continued the negotiation of the
account together with Guillermo R. Macariola,
the Assistant Vice-President for Sales.2 The
AFPSLAI agreed to the proposal.
On November 9, 1988, the AFPSLAI and PAPI
executed a Memorandum of Agreement
(MOA)3 in connection with scholarship funding
agreements to be entered into by PAPI and the
AFPSLAI members. These agreements shall
then embody the provisions of the Professional
Academic Program Agreement. The parties
agreed that all support services would be
provided by PAPI and that any amendments
CONTRACTS 2 ACJUCO 25
and/or modifications to the MOA would be
effective only upon approval of the parties
thereto.
By then, Rueda was no longer connected with
the petitioner corporation, hence, was
disqualified to receive the franchise
commission. Thus, the said commission was
offered to Macariola who, however, declined
and waived his right thereto in favor of
respondent Crisostomo, Rueda’s immediate
supervisor. The Executive Committee of
petitioner PAPI agreed to give the franchise
commission to respondent Crisostomo.4
Initially, respondent Crisostomo received the
10% franchise commission from December
1988 until April 1989. Later, upon the instance
of petitioner Benjamin Dino, then Assistant Vice-
President for Marketing, respondent
Crisostomo’s franchise commission was
reduced to 5% to support the operational
expenses of PAPI. After a few months, the said
commission was again reduced to 4%. Two
months later, petitioner PAPI asked for another
.25% reduction; hence, respondent
Crisostomo’s franchise commission was further
reduced to 3.75%. Finally, in January 1991,
petitioner PAPI again asked for a final reduction
of the commission to 2% to which respondent
Crisostomo agreed, on the condition that it be
reduced into writing.5
Thus, on February 7, 1991, petitioner Dino, and
Angelito B. Cruz, Vice-President for Finance
and Administration, signed a Memorandum
which reads as follows:
This will confirm your company franchise on all
AFPSLAI business with Professional Academic
Plans, Inc. under the following terms and
conditions:
1. Your franchise commission shall remain at
2% excluding Entrance and Service Fees of the
first year premium for as long as you are
connected with the company at whatever
capacity.
2. This franchise is not transferable.
For your guidance.
(Sgd.) (Sgd.)
BENJAMIN S. DINO ANGELITO B. CRUZ6
Crisostomo received her 2% commission until
October 1991.7 In the meantime, Col. Victor M.
Punzalan succeeded Col. Noe S. Andaya as
President of the AFPSLAI.8 In a Letter dated
December 16, 1991, Col. Punzalan informed

PAPI of the AFPSLAI’s decision to review the
1988 MOA.
As an aftermath of the negotiation, petitioner
PAPI and the AFPSLAI executed a MOA in April
1992, amending their prior MOA.9
The AFPSLAI resumed its remittances of the
installment payments of its members to
petitioner PAPI in June 1992.10 This time,
however, Crisostomo was not paid her
commission. In an Inter-Office
Memorandum11 dated June 1, 1992, respondent
Crisostomo’s franchise commission on sales
transacted with the AFPSLAI was terminated,
for the following reasons: (1) the new AFPSLAI
management cancelled the old MOA in October
1991 due to various anomalies and the
misrepresentation committed by PAPI’s sales
force; (2) the new MOA is largely due to
management’s effort; hence, no franchise would
be granted to any sales associates; and (3) the
franchise guidelines as per the Memorandum
dated November 1988 prescribed that in order
to maintain her franchise, 100 new paid plans
should be completed on a month to month basis
and respondent Crisostomo was not able to
meet these parameters for the period of
November 1991 to May 1992.
Nonetheless, respondent Crisostomo insisted
on the release of her 2% franchise
commission.12 She first approached her
immediate supervisor, Mrs. Editha Bayoneta,
the Senior Assistant Vice-President, but to no
avail. She then went to petitioner Dino, who
allegedly threatened her with termination if she
persisted with her demand. Unfazed, she
sought a dialogue with the President himself,
petitioner Francisco Colayco. They, however,
failed to arrive at a settlement.13 On July 6,
1992, respondent Crisostomo sent a demand
letter to petitioner PAPI. The latter informed her
that it could not accede to her demand for the
reasons stated in the Inter-Office Memorandum
dated June 1, 1992.
Thereafter, Crisostomo again approached
Colayco who advised her to make a formal
proposal. She complied and submitted a
letter14 on August 13, 1992 where she made the
following proposal:
Option 1: That I am willing to settle for a ₱5
Million amount settlement and an immediate
irrevocable resignation from your good
company,
CONTRACTS 2 ACJUCO 26
Option 2: That the 2% franchise fee/commission
be retained even if and when the undersigned is
no longer connected with Professional Group,
Inc. for as long as the AFPSLAI is still doing
business with the Professional Group. This is
considered as the royalty fee.15
However, in a Letter16 dated August 17, 1992,
petitioner Colayco informed the respondent that
her settlement proposal was totally
unacceptable and that she was being placed
under preventive suspension in order to abort
any untoward reaction resulting from the denial
of her request, which may be detrimental to the
company’s interest. Worse, she was advised not
to come back after the suspension. Thus, her
services in the company were terminated.
On January 21, 1993, respondent Crisostomo
filed a complaint for sum of money and
damages against petitioners PAPI, Colayco and
Dino. She alleged therein that as of October 2,
1992, petitioner PAPI’s sales of pre-need plans
to the AFPSLAI amounted to ₱9,193,367.20;
that she was entitled to 2% of such amount or
the sum of ₱183,867.34 as franchise
commission; and that notwithstanding the said
franchise, petitioner PAPI refused to give her
the said commissions. She, likewise, prayed for
the grant of moral and exemplary damages, plus
attorney’s fees.17
The petitioners averred in their answer to the
complaint that Crisostomo was not entitled to
the franchise commission because she did not
participate in the execution of the 1988 MOA.
They pointed out that under the December 1989
company guidelines, a franchise holder shall be
maintained only when 100 new paid plans are
completed on a month-to-month basis. They
argued that since respondent Crisostomo was
unable to meet this requirement for the period of
November 1991 to May 1992, her franchise was
terminated. The petitioners also claimed that the
AFPSLAI did not resume payments in 1992 but
entered into a new MOA after it undertook new
negotiations. They maintained that under the
new MOA, no one is entitled to a franchise,
much less respondent Crisostomo.18
The petitioners adduced testimonial evidence to
show that respondent Crisostomo had no
participation whatsoever in the negotiations
which culminated in the execution of the two
MOAs between petitioner PAPI and the
AFPSLAI. Petitioner Dino testified that before
respondent Crisostomo became the regional
manager, she was not an employee of PAPI.
According to him, after the termination of

Rueda’s employment for cause, the franchise
commission should revert back to petitioner
PAPI as a rule. While the Executive Committee
agreed to award the commission, it agreed to
give respondent Crisostomo only a 5%
commission, which was reduced to 2% until
June 1992 under the 1992 MOA. Moreover,
Crisostomo had no participation whatsoever in
the negotiations of the two agreements.
After due proceedings, the trial court rendered a
Decision on November 20, 1997, the dispositive
portion of which reads:
Premises considered, judgment is hereby
rendered in favor of the plaintiff and as against
defendants. Wherefore, defendants are hereby
ordered to release to plaintiff:
1. the sum of one hundred eighty-three
thousand eight hundred sixty-seven thousand
and twenty-five centavos (₱183,867.25) which
constitutes her commission from the AFPSLAI
contract as of October 1992, and the sum
equivalent to 2% of all future remittances by
AFPSLAI to defendant PAPI;
2. moral damages in the amount of
₱200,000.00;
3. exemplary [damages] of ₱50,000.00;
4. attorney’s fees of ₱50,000.00;
5. cost of suit.
SO ORDERED.19
The petitioners appealed the decision to the CA
which rendered judgment20 on August 31, 2000
affirming in toto the decision of the trial court.
The Ruling of the Court of Appeals
According to the CA, the letter of Col. Punzalan
did not indicate any intention to abrogate the
first MOA. At most, it merely suspended the
acceptance of the application for pre-need plans
while a thorough review of the terms and
conditions of the first MOA was being made.
The CA held that the second MOA did not
disclose any incompatibility with the first MOA
that would amount to an implied extinguishment
of the latter; nor did the new MOA use any word
suggesting the cancellation of the first. The CA
then ruled that what was executed in 1992 was
a mere modification of the first MOA.21
The CA further held that the fact that military and
political support intervened in facilitating the
revival of the AFPSLAI account did not diminish
the respondent’s right to the franchise
commission, considering that it was awarded to
CONTRACTS 2 ACJUCO 27
her by the executive committee for successfully
initiating the deal with the AFPSLAI in 1988. 22
The CA ruled that the requirement of completing
100 new plans monthly as a condition for a
franchisee to be entitled to the commission was
superseded by the Memorandum dated
February 7, 1991, which reduced the
commission to 2% from the earlier 10%.
Respondent Crisostomo was entitled to receive
such reduced commission as long as she was
connected with the petitioner corporation in
whatever capacity. Moreover, assuming that
such condition was still in effect, its non-
fulfillment from November 1991 to May 1992
could not be imputed to the respondent since it
was brought about by Col. Punzalan’s order to
suspend the acceptance of plan applications
pending a review of the first MOA.23
The CA found that the award of moral and
exemplary damages, attorney’s fees and the
costs of the suit, in favor of the respondent, was
fully supported by the evidence on record and
was justified, in light of the petitioner
corporation’s wanton disregard of respondent’s
claim for her franchise commission.24
On June 13, 2001, the CA denied the
petitioners’ motion for reconsideration for lack of
merit. Hence, they filed this petition for review
on certiorari.
The Present Petition
The petitioners submit the following issues for
our consideration:
A) WHETHER OR NOT THE OLD
MEMORANDUM OF AGREEMENT HAD BEEN
CANCELLED AND RESCINDED BY AFPSLAI;
B) WHETHER OR NOT RESPONDENT IS
ENTITLED TO THE FRANCHISE FEE OR
COMMISSION UNDER THE NEW
MEMORANDUM OF AGREEMENT UNDER
WHICH SHE HAD NO PARTICIPATION
WHATSOEVER IN THE NEGOTIATION AND
EXECUTION;
C) WHETHER OR NOT PETITIONERS, IN
DENYING RESPONDENT'S CLAIM, HAVE
COMMITTED ACTS THAT RENDER THEM
LEGALLY LIABLE FOR MORAL AND
EXEMPLARY DAMAGES AND ATTORNEY'S
FEES AND COST OF SUIT.25
Primarily, the petitioners assert that the
respondent is not entitled to a franchise
commission. They aver that the respondent did
not participate in initiating, conceptualizing, and
negotiating the first MOA with the AFPSLAI,

except that she was present during its signing.
The franchise commission for the AFPSLAI
account under the old MOA should have been
granted to Noel Rueda, who initiated and
conceptualized the transaction. The petitioners
maintain that the franchise commission was
only awarded to the respondent because those
who were entitled to it were disqualified to be
franchise holders – Rueda was disqualified for
being no longer connected with the petitioner
company, while Macariola was disqualified for
being an employee.26
Assuming that the respondent was entitled to
the franchise commission under the old MOA,
the petitioners argue that such privilege was
already extinguished, considering that the old
MOA was cancelled by the AFPSLAI thru the
Letter dated December 16, 1991. They maintain
that in writing the said letter, Col. Punzalan
intended to abrogate the old MOA and not
merely suspend the same, otherwise, the
intention to enter into "a new agreement
mutually beneficial" to both parties would not
have been mentioned therein.27 They conclude
that since there has already been an express
cancellation of the old MOA, there is no longer
a need to delve into the issue of whether the
new MOA declared in unequivocal terms that
the old MOA was being cancelled, or whether
the new MOA is incompatible with the old one.28
The petitioners point out that the respondent
had no participation whatsoever in the
negotiation or execution of the new MOA.
Considering this and the fact that the old MOA
had been duly cancelled, the respondent,
therefore, had no right to the franchise
commission on the AFPSLAI account under the
new MOA.29
The petitioners assert that the award of moral
and exemplary damages and attorney’s fees
has no basis since they did not act in bad faith
in denying the respondent’s claim.30
In her Comment on the petition, the respondent
counters that regardless of the execution of the
new MOA and her non-participation in its
negotiation and execution, her right to the
commissions from all sales emanating from the
AFPSLAI transactions subsists as long as she
remained connected with PAPI. She asserts
that the petitioners are now in estoppel to
question the grant of her commission since it
was granted through the petitioner corporation’s
authority and it was reduced into writing.31
In their Reply, the petitioners stress that the
respondent’s entitlement to the commission was
CONTRACTS 2 ACJUCO 28
not absolute. It was subject to certain
conditions, i.e., the fact that the respondent
must be connected with the company in order to
be entitled to it, and that the old MOA must
remain effective, since it was the basis for the
grant of the commission. With its cancellation,
the right of respondent to the commission,
likewise, ceased to exist. Without the new MOA,
there would no longer be any applications for
academic plans from the AFPSLAI and,
consequently, no commission to be earned.32
The Ruling of the Court
Rule 45 of the Rules of Court provides that only
legal issues may be raised. Factual issues are
beyond the province of the Supreme Court in a
petition for review, for it is not the Court’s
function to weigh the evidence all over
again.33While the Court may, in exceptional
cases, resolve factual issues, the petitioners
herein failed to establish any such exceptional
circumstances. Moreover, it is doctrinal that
findings of facts of the CA upholding those of the
trial court are binding upon the Supreme
Court.34
Even after a review of the factual issues raised
by the petitioners, we find and so rule that the
CA was correct in declaring that the first MOA
had not been cancelled, but was merely
modified by the second MOA.
A reading of the letter of Col. Punzalan to the
petitioner corporation indicates that it merely
signified the suspension of the acceptance of
new applications under the first MOA, until such
time that a thorough study was undertaken, and
a new agreement mutually beneficial to both
parties was entered into. By his letter, Col.
Punzalan did not unilaterally cancel or rescind
the first MOA. Indeed, the petitioners failed to
adduce a morsel of evidence to prove that
AFPSLAI had agreed to such cancellation or
rescission of the first MOA. It bears stressing
that abandonment of contract rights requires
proof of actual intent to abandon. 35
Once a contract is entered into, no party can
renounce it unilaterally or without the consent of
the other.36 This is the essence of the principle
of mutuality of contracts entombed in Article
130837 of the Civil Code. To effectuate
abandonment of a contract, mutual assent is
always required.38 The mere fact that one has
made a poor bargain may not be a ground for
setting aside the agreement.39
 CONTRACTS 2 ACJUCO 29

As can be gleaned from the second MOA, the · Direct payment to monthly installments to
parties merely made substantial modifications to PAPI of the 1st year start upon receipt by
the first MOA, and agreed that only those assistance granted AFPSLAI of the 13th
provisions inconsistent with those of the second by AFPSLAI to the monthly amortization of
were considered rescinded, modified and/or member the member
superseded.40 BENEFITS TO BENEFITS TO
AFPSLAI AFPSLAI
As graphically shown below, the parties agreed · 47.5% of the net · 53.5% out of the 20%
to continue with the implementation of the Initial Cash of the GCP as service
Academic Assistance Program under the Brought-In of all the fee and discount
acronym "LOVES" (Loans to Offset Very 1st year assistance · 5% out of the 80% of
Expensive Schooling) and to continue · 5% of all total the GCP as service fee
implementing the same. The rights and collections from the
obligations of the parties under the first MOA 2nd year up to the
were maintained albeit with modifications, to wit: 5th year
1988 MOA 1992 MOA IN CASE OF NON- IN CASE OF NON-
IN GENERAL IN GENERAL PAYMENT PAYMENT
· Agreement · Agreement between · AFPSLAI to · AFPSLAI to
between PAPI and AFPSLAI and the PAPI become the automatically become
AFPSLAI to to implement the terms receiver of the the receiver of the
implement the and conditions of the contract in case of contract in case of
terms and Loans to Offset Very failure to pay 3 failure to pay the
conditions of the Expensive Schooling monthly monthly
Academic (LOVES) Program amortizations amortization(s), with
Assistance Program · Benefits to accrue · AFPSLAI to dispositive right over
· Benefits to accrue directly to the member acquire all interests the plan
directly to the and the designated from the contract in
member and the heirs case the 1st year
designated heirs assistance is not
IMPLEMENTATION IMPLEMENTATION fully paid by the
· Assistance by · Putting up of an member
PAPI to AFPSLAI in extension office near IN CASE OF
terms of support the AFPSLAI building CANCELLATION
services at the expense of PAPI · Due to fraud, forgery
· Creation of a · Support and services or misrepresentation of
Committee to by PAPI in the PAPI personnel
supervise the initial implementation of the - AFPSLAI to act on it
implementation of program and notify PAPI
the program - Member’s loan to be
PAYMENT and PAYMENT and deducted from the
COLLECTION COLLECTION amounts due to PAPI,
· Financing of the · Financing in the form or to be billed to PAPI,
1st annual payment of a 5-year loan in favor in case the former is
by AFPSLAI in the of the member insufficient
form of educational equivalent to the Gross - no rebate on the
loan to the member Contract Price (GCP) service fee and
· AFPSLAI as the of the plan discount
authorized · Schedule of drawing · Due to death of either
collecting agent of out the loan proceeds the member or
monthly within 5 years beneficiary
installments of the - 20% of GCP upon - the plan shall be
members submission of the deemed fully paid for
· Remittance of complete - to be acted upon by
collections to the documentation by PAPI
PAPI from the 2nd PAPI and upon -outstanding accounts
year until the plan is approval of the loan to be deducted from
fully paid - 80% of the GCP to be AFPSLAI’s future
drawn out in 48 equal
 CONTRACTS 2 ACJUCO 30

releases or to be billed manner.43 In the instant case, despite the trial

to PAPI subject to court’s award of moral damages, it did not make
certain conditions. any pronouncement as to the basis of such
MISCELLANEOUS MISCELLANEOUS award. Therefore, the award of moral damages
· AFPSLAI to be · AFPSLAI to be free must be deleted.
free from any legal from any liability arising
implication that may between the member As a consequence, the award for exemplary
arise as to the and PAPI damages is also vacated. Exemplary damages
agreement between · Effectivity of the MOA are not recoverable as a matter of right, and
the member and immediately upon although such damages need not be proved, the
PAPI signing plaintiff must first show that he is entitled to
· Effectivity of the · Amendments and moral, temperate or compensatory damages
MOA immediately modifications to before a court can favorably consider an award
upon signing become effective only of exemplary damages.44 In this case, there was
· Amendments and upon approval of the no finding that the respondent is entitled to any
modifications to parties such damages; hence, no exemplary damages
become effective may be awarded. Finally, we also vacate the
· Prior inconsistent award of attorney’s fees since the trial court did
only upon approval agreements deemed
of the parties not make any finding that any of the instances
rescinded, modified, or enumerated in Art. 2208 of the Civil Code exists.
superseded.
]
WHEREFORE, the decision of the Court of
The fact that the respondent did not participate Appeals is AFFIRMED with MODIFICATION.
in the negotiations of the new MOA is of no The awards for moral and exemplary damages
moment. As culled from the petitioners’ and attorney’s fees are DELETED. No
testimonial evidence, the franchise commission pronouncement as to costs.
was awarded as an incentive to the one who
SO ORDERED.
initiated and successfully negotiated the
AFPSLAI account within a certain period.41 The
franchise commission was granted subject to
two conditions only: (1) that the respondent
must remain connected with the company, and
(2) that it is not transferable. At the time the new
MOA was executed, the respondent was still
connected with the petitioner corporation;
hence, she was still entitled to her commission.
Even with the modification of the first MOA by
the second one, the respondent had the right to
continue receiving her franchise commission
from the petitioner corporation.

We agree with the respondent that the

petitioners are now in estoppel to question her
entitlement to the franchise commission under
the old MOA. It must be noted that from
December 1988 until October 1991 the
respondent was continuously receiving her
franchise commission from the petitioner
corporation. It was only when the remittances
for AFPSLAI were suspended that the
respondent stopped receiving her commission.
On the issue of damages, we rule for the
petitioners. Moral damages are recoverable for
breach of contract where the breach was
wanton, reckless, malicious or in bad faith,
oppressive or abusive.42 However, moral
damages are improperly awarded, absent a
specific finding and pronouncement from the
trial court that petitioners acted in such