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FIRST DIVISION

[G.R. No. 144712. July 4, 2002]

SPOUSES SILVESTRE and CELIA PASCUAL, petitioners, vs. RODRIGO V. RAMOS, respondent. DECISION DAVIDE, JR., C.J.: Before us is a petition for review on certiorari assailing the 5 November 1999 Decision[1] and the 18 August 2000 Resolution[2] of the Court of Appeals in CA G.R. CV No. 52848. The former affirmed the 5 June 1995 and 7 September 1995 Orders of the Regional Trial Court, Malolos, Bulacan, Branch 21, in Civil Case No. 526-M-93, and the latter denied petitioners motion for reconsideration. The case at bar stemmed from the petition[3] for consolidation of title or ownership filed on 5 July 1993 with the trial court by herein respondent Rodrigo V. Ramos (hereafter RAMOS) against herein petitioners, Spouses Silvestre and Celia Pascual (hereafter the PASCUALs). In his petition, RAMOS alleged that on 3 June 1987, for and in consideration of P150,000, the PASCUALs executed in his favor a Deed of Absolute Sale with Right to Repurchase over two parcels of land and the improvements thereon located in Bambang, Bulacan, Bulacan, covered by Transfer Certificate of Title (TCT) No. 305626 of the Registry of Deeds of Bulacan. This document was annotated at the back of the title. The PASCUALs did not exercise their right to repurchase the property within the stipulated one-year period; hence, RAMOS prayed that the title or ownership over the subject parcels of land and improvements thereon be consolidated in his favor. In their Answer,[4] the PASCUALs admitted having signed the Deed of Absolute Sale with Right to Repurchase for a consideration of P150,000 but averred that what the parties had actually agreed upon and entered into was a real estate mortgage. They further alleged that there was no agreement limiting the period within which to exercise the right to repurchase and that they had even overpaid RAMOS. Furthermore, they interposed the following defenses: (a) the trial court had no jurisdiction over the subject or nature of the petition; (b) RAMOS had no legal capacity to sue; (c) the cause of action, if any, was barred by the statute of limitations; (d) the petition stated no cause of action; (e) the claim or demand set forth in RAMOSs pleading had been paid, waived, abandoned, or otherwise extinguished; and (f) RAMOS has not complied with the required confrontation and conciliation before the barangay. By way of counterclaim, the PASCUALs prayed that RAMOS be ordered to execute a Deed of Cancellation, Release or Discharge of the Deed of Absolute Sale with Right to Repurchase or a Deed of Real Estate Mortgage; deliver to them the owners duplicate of TCT No. T-305626; return the amount they had overpaid; and pay each of them moral damages and exemplary damages in the amounts of P200,000 and P50,000, respectively, plus attorneys fees of P100,000; appearance fee of P1,500 per hearing; litigation expenses; and costs of suit. After the pre-trial, the trial court issued an order[5] wherein it identified the following issues: (1) whether the Deed of Absolute Sale with Right to Repurchase is an absolute sale or a mere mortgage; (2) whether the PASCUALs have paid or overpaid the principal obligation; (3) whether the ownership over the parcel of land may be consolidated in favor of RAMOS; and (4) whether damages may be awarded. Among the documents offered in evidence by RAMOS during the trial on the merits was a document denominated as Sinumpaang Salaysay[6] signed by RAMOS and Silvestre Pascual, but not notarized. The contents of the document read: Ako, si SILVESTRE PASCUAL, Filipino, nasa hustong gulang, may asawa at kasalukuyang naninirahan sa Bambang, Bulacan, Bulacan, ay nagsasabing buong katotohanan at sumusumpa sa aking mga salaysay sa kasulatang ito: 1. Na ngayong June 3, 1987 dahil sa aking matinding pangangailangan ng puhunan ay lumapit ako at nakiusap kay Rodrigo Ramos ng Taal, Pulilan, Bulacan na pautangin ako ng halagang P150,000.00. 2. Na aming napagkasunduan na ang nasabing utang ay babayaran ko ng tubo ng seven percent (7%) o P10,500.00 isang buwan (7% per month). 3. Na bilang sangla (collateral security) sa aking utang, kami ay nagkasundo na mag-execute ng Deed of Sale with Right to Repurchase para sa aking bahay at lupa (TCT No. 305626) sa Bo. Taliptip, Bambang, Bulacan, Bulacan ngayong June 3, 1987 at binigyan ako ni Mr. Ramos ng isang taon hanggang June 3, 1988 upang mabiling muli ang

aking isinanla sa kaniya sa kasunduang babayaran kong lahat ang capital na P150,000.00 pati na ang P10,500.00 na tubo buwan buwan. 4. Na bilang karagdagang condition, si RODRIGO RAMOS ay pumayag sa aking kahilingan na kung sakali na hindi ko mabayaran ng buo ang aking pagkakautang (Principal plus interest) sa loob ng isang taon mula ngayon, ang nakasanglang bahay at lupa ay hindi muna niya iilitin (foreclose) o ipalilipat sa pangalan niya at hindi muna kami paaalisin sa tinitirhan naming bahay hanggat ang tubo (interest) na P10,500.00 ay nababayaran ko buwan buwan. 5. Na ako ay sumasang-ayon sa kundisyon ni Rodrigo Ramos na pagkatapos ng isang taon mula ngayon hanggang June 3, 1988 at puro interest lamang ang aking naibabayad buwan-buwan, kung sakaling hindi ako makabayad ng tubo for six (6) consecutive months (1/2 year after June 3, 1988 (6 na buwang hindi bayad ang interest ang utang ko) si Rodrigo Ramos ay binibigyan ko ng karapatan at kapangyarihan na mag-mayari ng aming bahay at lupa at kami ng aking pamilya ay kusang loob na aalis sa nasabing bahay at lupa na lumalabas na ibinenta ko sa kaniya dahil hindi ako nakasunod sa aming mga pinagkasunduang usapan. 6. At bilang finale ng aming kasunduan, ako ay nangangako na hindi maghahabol ng ano mang sukli sa pagkakailit ng aming bahay at lupa kung sakali mang dumating sa ganuong pagkakataon o sitwasyon o di kayay magsasampa ng reklamo kanino man. Bilang pagsang-ayon sa mga nasabing kasunduan, kami ay lumagda sa ibaba nito kalakip ng aming mga pangalan ngayong ika-3 ng Hunyo, 1987. (Sgd.)Rodrigo Ramos Nagpautang Sgd.) Silvestre Pascual Umutang

For their part, the PASCUALs presented documentary evidence consisting of acknowledgment receipts [7] to prove the payments they had made. The trial court found that the transaction between the parties was actually a loan in the amount of P150,000, the payment of which was secured by a mortgage of the property covered by TCT No. 305626. It also found that the PASCUALs had made payments in the total sum of P344,000, and that with interest at 7% per annum, the PASCUALs had overpaid the loan by P141,500. Accordingly, in its Decision[8] of 15 March 1995 the trial court decreed as follows: WHEREFORE, judgment is hereby rendered in favor of the defendants and against the plaintiff in the following manner: 1. Dismissing the plaintiffs petition; 2. Directing the Register of Deeds to cancel the annotation of the Deed of Sale with Right to Repurchase on the dorsal side of TCT No. 305626; 3. Awarding the defendants the sum of P141,500.00 as overpayment on the loan and interests; 4. Granting the defendants attorneys fee in the sum of P15,000.00 and P3,000.00 for litigation expenses. With costs against the plaintiff. RAMOS moved for the reconsideration of the decision, alleging that the trial court erred in using an interest rate of 7% per annum in the computation of the total amount of obligation because what was expressly stipulated in the Sinumpaang Salaysay was 7% per month. The total interest due from 3 June 1987 to 3 April 1995 was P987,000. Deducting therefrom the interest payments made in the sum of P344,000, the amount of P643,000 was still due as interest. Adding the latter to the principal sum of P150,000, the total amount due from the PASCUALs as of 3 April 1995 was P793,000. Finding merit in the motion for reconsideration, which was not opposed by the PASCUALs, the trial court issued on 5 June 1995 an Order[9] modifying its decision by deleting the award ofP141,500 to the PASCUALs as overpayment of the loan and interest and ordering them to pay RAMOS P511,000 representing the principal loan plus interest. The trial court acknowledged that it had inadvertently declared the interest rate to be 7% per annum when, in fact, the Sinumpaang Salaysay stipulated 7% per month. It noted that during trial, the PASCUALs never disputed the stipulated interest rate. However, the court declared that the 7% per month interest is too burdensome and onerous. Invoking the protective mantle of Article 24 of the Civil Code, which mandates the courts to be vigilant for the protection of a party at a disadvantage due to his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the trial court unilaterally reduced the interest rate from 7% per month to 5% per month. Thus, the interest due from 3 June 1987 to

3 April 1995 was P705,000. Deducting therefrom the payments made by the PASCUALs in the amount of P344,000, the net interest due was P361,000. Adding thereto the loan principal of P150,000, the total amount due from the PASCUALs was P511,000. Aggrieved by the modification of the decision, the PASCUALs filed a motion to reconsider the Order of 5 June 1995. They alleged that the motion for reconsideration filed by RAMOS was a mere scrap of paper because they received a copy of said motion only a day before the hearing, in violation of the 3-day-notice rule. Moreover, they had already paid the interests and had in fact overpaid the principal sum of P150,000. Besides, RAMOS, being an individual, could not charge more than 1% interest per month or 12% per annum; and, the interest of either 5% or 7% a month is exorbitant, unconscionable, unreasonable, usurious and inequitable. RAMOS opposed the motion of the PASCUALs. He contended that the non-compliance with the 3-day-notice rule was cured when the trial court gave them an opportunity to file their opposition, but despite the lapse of the period given them, no opposition was filed. It is not correct to say that he was not allowed to collect more than 1% per month interest considering that with the moratorium on the Usury Law, the allowable interest is that agreed upon by the parties. In the absence of any evidence that there was fraud, force or undue influence exerted upon the PASCUALs when they entered into the transaction in question, their agreement embodied in the Sinumpaang Salaysay should be respected. Furthermore, the trial court had already reduced the interest rate to 5% per month, a rate which is not exorbitant, unconscionable, unreasonable and inequitable. Their motion for reconsideration having been denied in the Order[10] of 7 September 1995, the PASCUALs seasonably appealed to the Court of Appeals. They pointed out that since the only prayer of RAMOS in his petition was to have the title or ownership over the subject land and the improvements thereon consolidated in his favor and he did not have any prayer for general relief, the trial court had no basis in ordering them to pay him the sum of P511,000. In its Decision[11] of 5 November 1999, the Court of Appeals affirmed in toto the trial courts Orders of 5 June 1995 and 7 September 1995. It ruled that while RAMOSs petition for consolidation of title or ownership did not include a prayer for the payment of the balance of the petitioners obligation and a prayer for general relief, the issue of whether there was still a balance from the amount loaned was deemed to have been raised in the pleadings by virtue of Section 5, Rule 10 of the Rules of Court, which provides that [w]hen issues not raised by the pleadings are tried with the express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. In the course of the trial, receipts were presented by the PASCUALs evidencing the payments they had made. Taken in conjunction with the Sinumpaang Salaysay which specified the interest rate at 7% per month, a mathematical computation readily leads to the conclusion that there is still a balance due from the PASCUALs, even at a reduced interest rate of 5% interest per month. With the denial of their motion for reconsideration of the decision by the Court of Appeals, the PASCUALs filed before us the instant petition raising the sole issue of whether they are liable for 5% interest per month from 3 June 1987 to 3 April 1995. Invoking this Courts ruling in Medel v. Court of Appeals,[12] they argue that the 5% per month interest is excessive, iniquitous, unconscionable and exorbitant. Moreover, respondent should not be allowed to collect interest of more than 1% per month because he tried to hide the real transaction between the parties by imposing upon them to sign a Deed of Absolute Sale with Right to Repurchase. For his part, RAMOS contends that the issue raised by petitioners cannot be entertained anymore because it was neither raised in the complaint nor ventilated during the trial. In any case, there was nothing illegal on the rate of interest agreed upon by the parties, since the ceilings on interest rates prescribed under the Usury Law had expressly been removed, and hence parties are left freely at their discretion to agree on any rate of interest. Moreover, there was no scheme to hide a usurious transaction. RAMOS then prays that the challenged decision and resolution be affirmed and that petitioners be further ordered to pay legal interest on the interest due from the time it was demanded. We see at once the proclivity of the PASCUALs to change theory almost every step of the case. By invoking the decision in Medel v. Court of Appeals, the PASCUALs are actually raising as issue the validity of the stipulated interest rate. It must be stressed that they never raised as a defense or as basis for their counterclaim the nullity of the stipulated interest. While overpayment was alleged in the Answer, no ultimate facts which constituted the basis of the overpayment was alleged. In their pre-trial brief, the PASCUALs made a long list of issues, but not one of them touched on the validity of the stipulated interest rate. Their own evidence clearly shows that they have agreed on, and have in fact paid interest at, the rate of 7% per month. Exhibits 1 to 8 specifically mentioned that the payments made were for the interest due on the P150,000 loan of the PASCUALs. In the course of the trial, the PASCUALs never put in issue the validity of the stipulated interest rate. After the trial court sustained petitioners claim that their agreement with RAMOS was actually a loan with real estate mortgage, the PASCUALs should not be allowed to turn their back on the stipulation in that agreement to pay interest at the rate of 7% per month. The PASCUALs should accept not only the favorable aspect of the courts declaration that the document is actually an equitable mortgage but also the necessary consequence of such declaration, that is, that interest on the loan as stipulated by the parties in that same document should be paid. Besides, when RAMOS moved for a reconsideration of the 15 March 1995 Decision of the trial court pointing out that the interest rate to be used should be 7% per month, the PASCUALs never lifted a finger to oppose the claim. Admittedly, in their Motion for Reconsideration of the

Order of 5 June 1995, the PASCUALs argued that the interest rate, whether it be 5% or 7%, is exorbitant, unconscionable, unreasonable, usurious and inequitable. However, in their Appellants Brief, the only argument raised by the PASCUALs was that RAMOSs petition did not contain a prayer for general relief and, hence, the trial court had no basis for ordering them to pay RAMOS P511,000 representing the principal and unpaid interest. It was only in their motion for the reconsideration of the decision of the Court of Appeals that the PASCUALs made an issue of the interest rate and prayed for its reduction to 12% per annum. In Manila Bay Club Corp. v. Court of Appeals,[13] this Court ruled that if an issue is raised only in the motion for reconsideration of the decision of the Court of Appeals, the effect is that it is as if it was never duly raised in that court at all. Our ruling in Medel v. Court of Appeals[14] is not applicable to the present case. In that case, the excessiveness of the stipulated interest at the rate of 5.5 % per month was put in issue by the defendants in the Answer. Moreover, in addition to the interest, the debtors were also required, as per stipulation in the promissory note, to pay service charge of 2% per annum and a penalty charge of 1% per month plus attorneys fee of equivalent to 25% of the amount due. In the case at bar, there is no other stipulation for the payment of an extra amount except interest on the principal loan. Thus, taken in conjunction with the stipulated service charge and penalty, the interest rate of 5.5% in the Medel case was found to be excessive, iniquitous, unconscionable, exorbitant and hence, contrary to morals, thereby making such stipulation null and void. Considering the variance in the factual circumstances of the Medel case and the instant case, we are not prepared to apply the former lest it be construed that we can strike down anytime interest rates agreed upon by parties in a loan transaction. It is a basic principle in civil law that parties are bound by the stipulations in the contracts voluntarily entered into by them. Parties are free to stipulate terms and conditions which they deem convenient provided they are not contrary to law, morals, good customs, public order, or public policy.[15] The interest rate of 7% per month was voluntarily agreed upon by RAMOS and the PASCUALs. There is nothing from the records and, in fact, there is no allegation showing that petitioners were victims of fraud when they entered into the agreement with RAMOS. Neither is there a showing that in their contractual relations with RAMOS, the PASCUALs were at a disadvantage on account of their moral dependence, ignorance, mental weakness, tender age or other handicap, which would entitle them to the vigilant protection of the courts as mandated by Article 24 of the Civil Code. Apropos in our ruling in Vales vs. Villa: All men are presumed to be sane and normal and subject to be moved by substantially the same motives. When of age and sane, they must take care of themselves. In their relations with others in the business of life, wits, sense, intelligence, training, ability and judgment meet and clash and contest, sometimes with gain and advantage to all, sometimes to a few only, with loss and injury to others. In these contests men must depend upon themselves upon their own abilities, talents, training, sense, acumen, judgment. The fact that one may be worsted by another, of itself, furnishes no cause of complaint. One man cannot complain because another is more able, or better trained, or has better sense or judgment than he has; and when the two meet on a fair field the inferior cannot murmur if the battle goes against him. The law furnishes no protection to the inferior simply because he is inferior, any more than it protects the strong because he is strong. The law furnishes protection to both alike to one no more or less than to the other. It makes no distinction between the wise and the foolish, the great and the small, the strong and the weak. The foolish may lose all they have to the wise; but that does not mean that the law will give it back to them again. Courts cannot follow one every step of his life and extricate him from bad bargains, protect him from unwise investments, relieve him from one-sided contracts, or annul the effects of foolish acts. Courts cannot constitute themselves guardians of persons who are not legally incompetent. Courts operate not because one person has been defeated or overcome by another, but because he has been defeated or overcome illegally. Men may do foolish things, make ridiculous contracts, use miserable judgment, and lose money by then indeed, all they have in the world; but not for that alone can the law intervene and restore. There must be, in addition, aviolation of law, the commission of what the law knows as an actionable wrong, before the courts are authorized to lay hold of the situation and remedy it.[16] With the suspension of the Usury Law and the removal of interest ceiling, the parties are free to stipulate the interest to be imposed on loans. Absent any evidence of fraud, undue influence, or any vice of consent exercised by RAMOS on the PASCUALs, the interest agreed upon is binding upon them. This Court is not in a position to impose upon parties contractual stipulations different from what they have agreed upon. As declared in the decision of Cuizon v. Court of Appeals,[17] It is not the province of the court to alter a contract by construction or to make a new contract for the parties; its duty is confined to the interpretation of the one which they have made for themselves without regard to its wisdom or folly as the court cannot supply material stipulations or read into the contract words which it does not contain. Thus, we cannot supplant the interest rate, which was reduced to 5% per month without opposition on the part of RAMOS. We are not persuaded by the argument of the PASCUALs that since RAMOS tried to hide the real transaction by imposing upon them the execution of a Deed of Absolute Sale with Right to Repurchase, he should not be allowed to collect more

than 1% per month interest. It is undisputed that simultaneous with the execution of the said deed was the execution of the Sinumpaang Salaysay, which set forth the true agreement of the parties. The PASCUALs cannot then claim that they did not know the real transaction. RAMOSs claim that the interest due should earn legal i nterest cannot be acted upon favorably because he did not appeal from the Order of the trial court of 5 June 1995, which simply ordered the payment by the PASCUALs of the amount of P511,000 without interest thereon. No relief can be granted a party who does not appeal.[18] Therefore, the order of the trial court should stand. Incidentally, we noticed that in the Memorandum filed by RAMOS, the ruling in Vales v. Valle was reproduced by his counsel without the proper citation. Such act constitutes plagiarism. Atty. Felimon B. Mangahas is hereby warned that a repetition of such act shall be dealt with accordingly. WHEREFORE, in view of all the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals in CAG.R. CV No. 52848 is AFFIRMED in toto. Costs against petitioners. SO ORDERED. Vitug, Kapunan, Ynares-Santiago, and Austria-Martinez, JJ., concur.

FIRST DIVISION SPS. EDGAR AND DINAH OMENGAN, Petitioners, G.R. No. 161319 Present: PUNO, C.J., SANDOVAL-GUTIERREZ, Working Chairperson, CORONA, AZCUNA and GARCIA, JJ.

- versus -

PHILIPPPINE NATIONAL BANK, HENRY M. MONTALVO AND MANUEL S. ACIERTO,* Respondents.

Promulgated: January 23, 2007

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x DECISION CORONA, J.

This petition for review on certiorari[1] seeks a review and reversal of the Court of Appeals (CA) decision [2] and resolution[3] in CA-G.R. CV No. 71302.

In October 1996, the Philippine National Bank (PNB) Tabuk (Kalinga) Branch approved petitioners-spouses application for a revolving credit line of P3 million. The loan was secured by two residential lots in Tabuk, Kalinga-Apayao covered by Transfer Certificate of Title (TCT) Nos. 12954 and 12112. The certificates of title, issued by the Registry of Deeds of the Province of KalingaApayao, were in the name of Edgar[4] Omengan married to Dinah Omengan.

The first P2.5 million was released by Branch Manager Henry Montalvo on three separate dates. The release of the final half million was, however, withheld by Montalvobecause of a letter allegedly sent by Edgars sisters. It read: A ppas, Tabuk Kalinga 7 November 1996 The Manager Philippine National Bank Tabuk Branch Poblacion, Tabuk Kalinga Sir: This refers to the land at Appas, Tabuk in the name of our brother, Edgar Omengan, which was mortgaged to [the] Bank in the amount of Three Million Pesos (P3,000,000.00), the sum of [P2.5 Million] had already been released and received by our brother, Edgar.

In this connection, it is requested that the remaining unreleased balance of [half a million pesos] be held in abeyance pending an understanding by the rest of the brothers and sisters of Edgar. Please be informed that the property mortgaged, while in the name of Edgar Omengan, is owned in co-ownership by all the children of the late Roberto and Elnora Omengan. The lawyer who drafted the document registering the subject property under Edgars name can attest to this fact. We had a prior understanding with Edgar in allowing him to make use of the property as collateral, but he refuses to comply with such arrangement. Hence, this letter. (emphasis ours)

Very truly yours, (Sgd.) Shirley O. Gamon (Sgd.) Caroline O. Salicob (Sgd.) Imogene O. Bangao (Sgd.) Alice O. Claver[5]

Montalvo was eventually replaced as branch manager by Manuel Acierto who released the remaining half million pesos to petitioners on May 2, 1997. Acierto also recommended the approval of a P2 million increase in their credit line to the Cagayan Valley Business Center Credit Committee in Santiago City.

The credit committee approved the increase of petitioners credit line (from P3 million to P5 million), provided Edgars sisters gave their conformity. Acierto informed petitioners of the conditional approval of their credit line.

But petitioners failed to secure the consent of Edgars sisters; hence, PNB put on hold the release of the additional P2 million. On October 7, 1998, Edgar Omengan demanded the release of the P2 million. He claimed that the condition for its release was not part of his credit line agreement with PNB because it was added without his consent. PNB denied his request.

On March 3, 1999, petitioners filed a complaint for breach of contract and damages against PNB with the Regional Trial Court (RTC), Branch 25 in Tabuk, Kalinga. After trial, the court decided in favor of petitioners. Accordingly, judgment is hereby rendered finding in favor of [petitioners.] [PNB is ordered]: 1) To release without delay in favor of [petitioners] the amount of P2,000,000.00 to complete the P5,000,000.00 credit line agreement; 2) To pay [petitioners] the amount of P2,760,000.00 representing the losses and/or expected income of the [petitioners] for three years; 3) 4) To pay lawful interest, until the amount aforementioned on paragraphs 1 and 2 above are fully paid; and To pay the costs.

SO ORDERED.[6]

The CA, however, on June 18, 2003, reversed and set aside the RTC decision dated April 21, 2001.[7]

Petitioners now contend that the CA erred when it did not sustain the finding of breach of contract by the RTC. [8]

The existence of breach of contract is a factual matter not usually reviewed in a petition filed under Rule 45. But since the RTC and the CA had contradictory findings, we are constrained to rule on this issue.

Was there a breach of contract? There was none.

Breach of contract is defined as follows: [It] is the failure without legal reason to comply with the terms of a contract. It is also defined as the [f]ailure, with out legal excuse, to perform any promise which forms the whole or part of the contract. [9]

In this case, the parties agreed on a P3 million credit line. This sum was completely released to petitioners who subsequently applied[10] for an increase in their credit line. This was conditionally approved by PNBs credit committee. For all intents and purposes, petitioners sought an additional loan.

The condition attached to the increase in credit line requiring petitioners to acquire the conformity of Edgars sisters was never acknowledged and accepted by petitioners. Thus, as to the additional loan, no meeting of the minds actually occurred and no breach of contract could be attributed to PNB. There was no perfected contract over the increase in credit line.

[T]he business of a bank is one affected with public interest, for which reason the bank should guard against loss due to negligence or bad faith. In approving the loan of an applicant, the bank concerns itself with proper [information] regarding its debtors.[11] Any investigation previously conducted on the property offered by petitioners as collateral did not preclude PNB from considering new information on the same property as security for a subsequent loan. The credit and property investigation for the original loan of P3 million did not oblige PNB to grant and release any additional loan. At the time the original P3 million credit line was approved, the title to the property appeared to pertain exclusively to petitioners. By the time the application for an increase was considered, however, PNB already had reason to suspect petitioners claim of exclusive ownership. A mortgagee can rely on what appears on the certificate of title presented by the mortgagor and an innocent mortgagee is not expected to conduct an exhaustive investigation on the history of the mortgagors title. This rule is strictly applied to ban king institutions. xxx Banks, indeed, should exercise more care and prudence in dealing even with registered lands, than private individuals, as their business is one affected with public interest. xxx Thus, this Court clarified that the rule that persons dealing with registered lands can rely solely on the certificate of title does not apply to banks.[12] (emphasis supplied)

Here, PNB had acquired information sufficient to induce a reasonably prudent person to inquire into the status of the title over the subject property. Instead of defending their position, petitioners merely insisted that reliance on the face of the certificate of title (in their name) was sufficient. This principle, as already mentioned, was not applicable to financial institutions like PNB.

In truth, petitioners had every chance to turn the situation in their favor if, as they said, they really owned the subject property alone, to the exclusion of any other owner(s). Unfortunately, all they offered were bare denials of the co-ownership claimed by Edgars sisters.

PNB exercised reasonable prudence in requiring the above-mentioned condition for the release of the additional loan. If the condition proved unacceptable to petitioners, the parties could have discussed other terms instead of making an obstinate and outright demand for the release of the additional amount. If the alleged co-ownership in fact had no leg to stand on, petitioners could have introduced evidence other than a simple denial of its existence.

Since PNB did not breach any contract and since it exercised the degree of diligence expected of it, it cannot be held liable for damages.

WHEREFORE, the decision and resolution of the Court of Appeals in CA-G.R. CV No. 71302 are hereby AFFIRMED.

Costs against petitioners.

SO ORDERED.

RENATO C. CORONA Associate Justice WE CONCUR:

REYNATO S. PUNO Chief Justice

ANGELINA SANDOVAL-GUTIERREZ Associate Justice Working Chairperson

ADOLFO S. AZCUNA Associate Justice

CANCIO C. GARCIA Associate Justice

CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO Chief Justice

FIRST DIVISION

[G.R. No. 126713. July 27, 1998]

ADORACION E. CRUZ, THELMA DEBBIE E. CRUZ and GERRY E. CRUZ, petitioners, vs. COURT OF APPEALS and SPOUSES ELISEO and VIRGINIA MALOLOS, respondents. DECISION PANGANIBAN, J.: Contracts constitute the law between the parties. They must be read together and interpreted in an manner that reconciles and gives life to all of them. The intent of the parties, as shown by the clear language used, prevails over post facto explanations that find no support from the words employed by the parties of from their contemporary and subsequent acts showing their understanding of such contracts, Furthermore, a subsequent agreement cannot novate or change by implication a previous one, unless old and new contracts are, on every point, incompatible with each other. Finally, collateral facts may be admitted in evidence when a rational similarity exists between the conditions giving rise to the fact offered and the circumstances surrounding the issue or fact to be proved.

The Case Before us is a petition for review on certiorari seeking to nullify the Court of Appeals (CA) Decision[1] in CA- GR CV 33566, promulgated July 15, 1996, which reversed the Regional Trial Court (RTC) of Antipolo, Rizal; and CA Resolution [2] of October 1, 1996, which denied petitioners Motion for Reconsideration. Petitioners Adoracion, Thelma Debbie, Gerry and Arnel (all surnamed Cruz) filed an action for partition against the private respondents, Spouses Eliseo and Virginia Malolos. On January 28, 1991, the trial court rendered a Decision which disposed as follows:[3] WHEREFORE, judgment is hereby rendered for the plaintiffs and against the defendants -spouses 1. Ordering the partition of the seven parcels of land totalling 1,912 sq. m. among the four (4) plaintiffs and the defendants-spouses as follows: a. b. c. d. e. Adoracion E. Cruz (1/5) Thelma Debbie Cruz (1/5) Gerry E. Cruz (1/5) Arnel E. Cruz (1/5) Spouses Eliseo and Virginia Malolos (1/5) ----------382 sq. m. 382 sq. m. 382 sq. m. 382 sq. m. 382 sq. m.

to whom Lot No. 1-C-2-B-2-B-4-L-1-A with an area of 276 sq. m. covered by TCT No. 502603 and a portion of Lot No. 1-C2-B-2-B-4-L-1-B covered by TCT No. 502604 to the extent of 106 sq. m. adjoining TCT No. 502603. 2. Ordering the parties herein to execute a project of partition in accordance [with] this decision indicating the partition of the seven (7) parcels of land within fifteen (15) days upon receipt of this judgment. 3. 4. Ordering defendants-spouses to pay plaintiffs herein P5,000.00 as and for attorneys fees; Cost of suit.

On appeal, Respondent Court reversed the trial court thus:[4] WHEREFORE, finding the appeal to be meritorious, we REVERSE the appealed decision and render judgment DISMISSING the complaint without prejudice however to the claim of plaintiff-appellees for their shares in the

proceeds of the auction sale of the seven (7) parcels of land in question against Nerissa Cruz Tamayo pursuant to the Memorandum Agreement. Cost against the plaintiff-appellees. As earlier stated, reconsideration was denied through the appellate courts challenged Resolution: [5] WHEREFORE, for lack of merit, the Motion for Reconsideration in DENIED..

The Antecedent Facts The facts of this case are undisputed. The assailed Decision relates them as follows:[6] Delfin I. Cruz and Adoracion Cruz were spouses and their children were Thelma, Nerissa, Arnel and Gerry Cruz. Upon the death of Delfin I. Cruz, [his] surviving spouse and children executed on August 22, 1977 a notarized Deed of Partial Partition (Exhibit 2) by virtue of which each one of them was given a share of several parcels of registered lands all situated in Taytay, Rizal. The following day, August 23, 1977, the same mother and children executed a Memorandum Agreement (Exhibit H) which provided: That the parties hereto are common co-owners pro-indiviso in equal shares of the following registered real properties, all situated at Taytay, Rizal, Philippines, x x x. xxx That sometime on August 22, 1977, a Deed of Partial Partition was executed among us before Atty. Virgilio J. Tamayo, Notary Public on and for the Province of Rizal, per Doc. No. 1776; Page No. 14; of his Notarial Register No. XLIX, Series of 1977; xxx That as a result of said partial partition, the properties affected were actually partitioned and the respective shares of each party, adjudicated to him/her; That despite the execution of this Deed of Partial Partition and the eventual disposal or sale of their respective shares, the contracting parties herein covenanted and agreed among themselves and by these presents do hereby bind themselves to one another that they shall share alike and received equal shares from the proceeds of the sale of any lot or lots allotted to and adjudicated in their individual names by virtue of this deed of partial partition. That this Agreement shall continue to be valid and enforceable among the contracting parties herein up to and until the last lot covered by the Deed of [P]artial [P]artition above adverted to shall have been disposed of or sold and the proceeds thereof equally divided and their respective shares received by each of them. This Memorandum Agreement was registered and annotated in the titles of the lands covered by the Deed of Partial Partition. Subsequently, the same parties caused the consolidation and subdivisions of the lands they respectively inherited from the late Delfin I. Cruz per Deed of Partial Partition. After that, they registered the Deed of Partial Partition and subdivision plans and titles were issued in their names. In the case of Nerissa Cruz Tamayo, the following titles were issued to her in her name: TCT No. 502603 (Exhibit A), TCT No. 502604, (Exhibit B), TCT No. 502605 (Exhibit C), TCT No. 502606 (Exhibit D), TCT No. 502608 (Exhibit E), TCT No. 502609 (Exhibit F), TCT No. 502610 (Exhibit G), hereinafter called the lands in question. Naturally, the annotation pertaining to the Memorandum Agreement was carried in each of said seven (7) titles and annotated in each of them. Meanwhile, the spouses Eliseo and Virginia Malolos filed Civil Case No. 31231 against the spouses Nerissa Cruz-Tamayo and Nelson Tamayo for a sum of money. The Court of First Instance of Rizal, Branch XVI (Quezon City) rendered a decision of June 1, 1981 in favor of Eliseo and Virginia condemning the spouses Nerissa and Nelson Tamayo to pay

them P126,529.00 with 12% interest per annum from the filing of the complaint plus P5,000.00 attorneys fee. After the finality of that decision, a writ of execution (Exhibit J) was issued on November 20, 1981. Enforcing said writ, the sheriff of the court levied upon the lands in question. On June 29, 1983, these properties were sold in an execution sale to the highest bidders, the spouses Eliseo and Virginia Malolos. Accordingly, the sheriff executed a Certificate of Sale (Exhibit K) over all the rights, claims, interests, titles, shares, and participations of defendant spouses Nerissa Tamayo and Ne lson Tamayo.. Nerissa Cruz Tamayo failed to exercise her right of redemption within the statutory period and so the final deed of sale was executed by the sheriff conveying the lands in question to spouses Eliseo and Virginia Malolos. The Malolos couple asked Nerissa Cruz Tamayo to give them the owners duplicate copy of the seven (7) titles of the lands in question but she refused. The couple moved the court to compel her to surrender said titles to the Register of Deeds of Rizal for cancellation. This was granted on September 7, 1984. But Nerissa was adamant. She did not comply with the Order of the court and so the Malolos couple asked the court to declare said titles as null and void. At this point, Adoracion Cruz, Thelma Cruz, Gerry Cruz and Arnel Cruz entered the picture by filing is said lower court a motion for leave to intervene and oppose [the] Maloloses motion. The Cruzes alleged that they were co-owners of Nerissa Cruz Tamayo over the lands in question. On January 18, 1985, said court issued an Order modifying the Order of September 7, 1984 by directing the surrender of the owners duplicate copies of the titles of the lands in question to the Register of Deeds not for cancellation but for the annotation of the rights, interest acquired by the Maloloses over said lands. On February 17, 1987, Adoracion, Thelma, Gerry and Arnel Cruz filed Civil Case No. 961-A for Partition of Real Estate against spouses Eliseo and Virginia Malolos over the lands in question. As already stated in the first paragraph of this Decision, the court a quo rendered a decision in favor of the plaintiffs from which the defendants appealed to this court, x x x x .

Ruling of the Court of Appeals For Respondent Court, the central issue was: Did the Memorandum of Agreement [MOA] (Exhibit H)[7] revoke, cancel or supersede the Deed of Partial Partition [DPP] (Exhibit 2)?[8] If so, then petitioners and Spouses Tamayo were co-owners of the land in issue, and partition should ensue upon motion of the former; if not, then the latter are its absolute owners and to partition should be made. Respondent Court resolved the above question in the negative for the following reasons: First, the DPP was not materially and substantially incompatible with the MOA. The DPP conferred absolute ownership of the parcels of land in issue on Nerissa Cruz Tamayo, while the MOA merely created an obligation on her part to share with the petitioners the proceeds of the sale of said properties. Second, the fact that private respondent registered the DPP was inconsistent with the allegation that they intended to abandon it. Indeed, had they meant to abandon it, they would have simply gathered the copies of said document and then torn of burned them. Third, petitioners were estopped from claiming co-ownership over the disputed properties because, as absolute owners, they either mortgaged or sold the other properties adjudicated to them by virtue of the DPP. Hence, this petition.[9]

Assignment of Errors In their Memorandum,[10] petitioners submit the following assignment of errors: A. Respondent Court erred in ruling that the Memorandum of Agreement (Exhibit H) does not prevail over the Deed of Partial Partition (Exhibit 2).

B. sale. C.

Respondent Court erred in ruling that petitioners can only claim their right to the proceeds of [the] auction

Respondent Court erred in ruling that petitioners are in estoppel by deed.

D. Respondent Court erred in ruling that the registration of the deed of partial partition precluded the petitioners from abrogating it. E. Respondent Court erred when it completely ignored the finality of the order of the Regional Trial Court of Quezon City, Branch LXXXVI as embodied in the decision of the Regional Trial Court of Antipolo, Rizal, Branch 71. In fine, the resolution of this petition hinges of the following issues: (1) whether DPP was cancelled or novated by the MOA; (2) whether the MOA established, between petitioners and the judgment debtor, a co-ownership of the lots in question; (3) whether petitioners are barred by estoppel from claiming co-ownership of the seven parcels of land; and (4) whether res judicata has set in.

The Courts Ruling

The petition is bereft of merit. It fails to demonstrate any reversible error on the part of the Court of Appeals.

First Issue: No Novation or Cancellation

In their Memorandum, petitioners insist that the MOA categorically and unmistakably named and covenanted them as coowners of the parcels in issue and novated their earlier agreement, the Deed of Partial Partition. Petitioners claim that the MOA clearly manifested their intention to create a co-ownership. This is particularly evident in Exhibit 1-B, which provides: That despite the execution of this Deed of Partial Partition and eventual disposal or sale of their respective shares, the contracting parties herein covenanted and agreed among themselves and by these presents do hereby bind themselves to one another that they shall share and receive equal shares from the proceeds of the sale of any lot or lots allotted to and adjudicated in their individual names by virtue of this deed of partial partition. The Court disagrees. The foregoing provision in the MOA does not novate, much less cancel, the earlier DPP. Novation, one of the modes of extinguishing an obligation, requires the concurrence of the following: (1) there is a previous valid obligation; (2) the parties concerned agree to a new contract; (3) the old contract is extinguished; and (4) there is a valid new contract.[11]Novation may be express or implied. Article 1292 of the Code provides: In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms [express novation],[12] or that the old and new obligations be on every point incompatible with each other [implied novation]. Tested against the foregoing standards, petitioners stance is shattered to pieces. The stipulation that the petitioners and Spouses Tamayo were co-owners was merely the introductory part of the MOA, and it reads:[13] That the parties are common co-owners pro-indiviso in equal shares of the following registered real properties, all situated at Taytay, Rizal, Philippines. xxx xxx xxx xxx

That sometime in August 22, 1977, a Deed of Partial Partition was executed among us before Atty. Virgilio J. Tamayo, Notary Public in and for the Province of Rizal, per Doc. No. 1796; Page No. 14; of his Notarial Register No. XLIX, Series of 1977; Following the above-quoted stipulation is a statement that the subject parcels of land had in fact been partitioned, but that the former co-owner intended to share with petitioners the proceeds of any sale of said land,[14] viz: That [as] a result of said partial partition, the properties affected were actually partitioned and the respe ctive shares of each party, adjudicated to him/her;

That despite the execution of this Deed of Partial Partition and the eventual disposal or sale of their respective shares, the contracting parties herein covenanted and agreed among themselves [and] to one another that they shall do [sic] hereby bind themselves to one another that they shall share alike and receive equal shares from the proceeds of the sale of any lot or lots allotted to and adjudicated in their individual names by virtue of this deed of partial partition; That this Agreement shall continue to be valid and enforceable among the contracting parties herein up to and until the last lot covered by the deed or partial partition above adverted to shall have been disposed of or sold and the proceeds thereof equally divided and their respective shares received by each of them. xxx xxx xxx

The MOA falls short of producing a novation, because it does not express a clear intent to dissolve the old obligation as a consideration for the emergence of the new one.[15] Likewise, petitioners fail to show that the DPP and the MOA are materially and substantially incompatible with each other. Petitioners admit that, under the MOA, they and the Tamayo spouses agreed to equally share in the proceeds of the sale of the lots. [16] Indeed, the DPP granted title to the lots in question to the co-owner to whom they were assigned, and the MOA created an obligation on the part of such co-owner to share with the others the proceeds of the sale of such parcels. There is no incompatibility between these two contracts. Verily, the MOA cannot be construed as a repudiation of the earlier DPP. Both documents can exist together and must be so interpreted as to give life to both. Respondent Court aptly explained:[17] The Deed of Partition conferred upon Nerissa Cruz Tamayo absolute ownership over the lands in question. The Memorandum of Agreement merely created an obligation on the part of absolute owner Nerissa Cruz Tamayo to share [with] the appellees with [sic] the proceeds of the sale of said properties. The obligation of the owner of a piece of land to share [with] somebody with [sic] its fruits or the proceeds of its sale does not necessarily impair his dominion over the property much less make the beneficiary his co-owner thereof. All in all, the basic principle underlying this ruling is simple: when the text of a contract is explicit and leaves no doubt as to its intention, the court may not read into it any intention that would contradict its plain import. [18] The hornbook rule on interpretation of contracts gives primacy to the intention of the parties, which is the law among them. Ultimately, their intention is to be deciphered not from the unilateral post facto assertions of one of the parties, but from the language used in the contract. And when the terms of the agreement, as expressed in such language, are clear, they are to be understood literally, just as they appear on the face of the contract. Indeed, the legal effects of a contract are determined by extracting the intention of the parties from the language they used and from their contemporaneous and subsequent acts.[19] This principle gains more force when third parties are concerned. To require such persons to go beyond what is clearly written in the document is unfair and unjust. They cannot possibly delve into the contracting parties minds and suspect that something is amiss, when the language of th e instrument appears clear and unequivocal.

Second Issue: No Co-ownership in the MOA

Petitioners contend that they converted their separate and individual ownership over the lands in dispute into a coownership by their execution of the MOA and the annotation thereof on the separate titles. The Court is not convinced. The very provisions of the MOA belie the existence of a co-ownership. First, it retains the partition of the properties, which petitioners supposedly placed in co-ownership; and, second, it vests in the registered owner the power to dispose of the land adjudicated to him or her under the DPP. These are antithetical to the petitioners contention. In a co-ownership, an undivided thing or right belongs to two or more persons. [20] Put differently, several persons hold common dominion over a spiritual (or ideal) part of a thing, which is not physically divided. [21] In the present case, however, the parcels of land in the MOA have all been partitioned and titled under separate and individual names. More important, the MOA stipulated that the registered owner could sell the land without the consent of the other parties to the MOA. Jus disponendi is an attribute of ownership, and only the owner can dispose of a property.[22] Contrary to petitioners claim, the annotation of the MOA in the certificate of title did not engender any co -ownership. Well settled is the doctrine that registration merely confirms, but does not confer, title. [23] It does not give the holder any better title than what he actually has. As earlier observed, the MOA did not make petitioners co-owners of the disputed parcels of land. Hence, the annotation of this document in the separate certificates of title did not grant them a greater right over the same property.

Third Issue: Estoppel by Deed

Respondent Court found that several deeds of sale and real estate mortgage, which petitioners executed when they sold or mortgaged some parcels adjudicated to them under the DPP, contained the statement that the vendor/mortgagor was the absolute owner of the parcel of residential land and that he or she represented it as free from liens and encumbrances. On the basis of these pieces of evidence, respondent Court held that petitioners were estopped from claiming that there was a co-ownership over the disputed parcels of land which were also covered by the DPP. Petitioners contend that Respondent Court , in so ruling violated the res inter alios acta rule. Petitioners contentions is untenable. Res inter alios acta, as a general rule, prohibits the admission of evidence that tends to show that what a person has done at one time is probative of the contention that he has done a similar as act at another time.[24] Evidence of similar acts or occurrences compels the dependant to meet allegations that are not mentioned in the complaint, confuses him in his defense, raises a variety of irrelevant issues, and diverts the attention of the court from the issues immediately before it. Hence, this evidentiary rule guards against the practical inconvenience of trying collateral issues and protracting the trial and prevents surprise or other mischief prejudicial to litigants. [25] The rule, however, is not without exception. While inadmissible in general, collateral facts may be received as evidence under exceptional circumstances, as when there is a rational similarity or resemblance between the conditions giving rise to the fact offered and the circumstances surrounding the issue or fact to be proved.[26] Evidence of similar acts may frequently become relevant, especially in actions based on fraud and deceit, because it sheds light on the state of mind or knowledge of a persons; it provides insight into such persons motive or intent; it uncovers a scheme, design or plan; or it reveals a mistake.[27] In this case, petitioners argue that transactions relating to the other parcels of land they entered into, in the concept of absolute owners, are inadmissible as evidence to show that the parcels in issue are not co-owned. The court is not persuaded. Evidence of such transactions falls under the exception to the rule on the res inter alios acta. Such evidence is admissible because it is relevant to an issue in the case and corroborative of evidence already received.[28] The relevancy of such transactions is readily apparent. The nature of ownership of said property should be the same as that of the lots on question since they are all subject to the MOA. If the parcels of land were held and disposed by petitioners in fee simple, in the concept of absolute owners, then the lots in question should similarly be treated as absolutely owned in fee simple by the Tamayo spouses. Unmistakably, the evidence in dispute manifests petitioners common purpose and design to treat all the parcels of land covered by the DPP as absolutely owned and not subject to co-ownership.[29] Under the principle of estoppel, petitioners are barred from claiming co-ownership of the lands in issue. In estoppel, a person, who by his deed or conduct has introduced another to act in a particular manner, is barred from adopting an inconsistent position, attitude or course of conduct that thereby causes loss or injury to another. [30] It further bars him from denying the truth of a fact which has, in the contemplation of law, become settled by the acts and proceedings of judicial or legislative officers or by the act of the party himself, either by conventional writing or by representations, express or implied or in pairs.[31] In their transaction with others, petitioners have declared that the other lands covered by the same MOA are absolutely owned, without indicating the existence of a co-ownership over such properties. Thus, they are estopped from claiming otherwise because, by their very own acts and representations as evidenced by the deeds of mortgage and of sale, they have denied such co-ownership.[32]

FOURTH ISSUES: No Res Judicata On Co-ownership Petitioners argue that the Order (Exhibit J)[33] dated January 18, 1985, issued by the RTC of Quezon City, Branch 86, which had long become final and executory, confirmed their co-ownership. Thus, they claim that Respondent Courts reversal of the ruling of the RTC of Antipolo, Rizal, is a violation of the rule on res judicata. This contention is equally untenable. The elements of res judicata are: (1) the former judgment was final; (2) the court which rendered it had jurisdiction over the subject matter and the parties;(3) the judgment was on the merits; and (4) the parties, subject matters and causes of action in the first and second actions are identical. [34] The RTC of Quezon City had no jurisdiction to decide on the merits of the present case or to entertain questions regarding the existence of co-ownership over the parcels in dispute, because the suit pending before it was only for the collection of a sum of money. Its disquisition on co-ownership was merely for the levy and the execution of the properties of the Tamayo spouses, in satisfaction of their judgment debt to the private respondents. Perhaps more glaring is the lack of identity between the two actions. The first action before the RTC of Quezon City was for the collection of money, while the second before the RTC of Antipolo, Rizal, was for partition. There being no concurrence of the elements of res judicata in this case, the Court finds no error in Respondent Courts ruling. No further discussion is needed to show the glaring difference between the two controversies.

WHEREFORE, the petition is hereby DENIED and the assailed Decision is Affirmed. Cost against petitioners. SO ORDERED. Davide, Jr., (Chairman), Bellosillo, Vitug, and Quisumbing, JJ., concur.

THIRD DIVISION

[G.R. No. 134559. December 9, 1999]

ANTONIA TORRES, assisted by her husband, ANGELO TORRES; and EMETERIA BARING, petitioners, vs. COURT OF APPEALS and MANUEL TORRES,respondents. DECISION PANGANIBAN, J.:

Courts may not extricate parties from the necessary consequences of their acts. That the terms of a contract turn out to be financially disadvantageous to them will not relieve them of their obligations therein. The lack of an inventory of real property will not ipso facto release the contracting partners from their respective obligations to each other arising from acts executed in accordance with their agreement.

The Case

The Petition for Review on Certiorari before us assails the March 5, 1998 Decision [1] Second Division of the Court of Appeals[2] (CA) in CA-GR CV No. 42378 and its June 25, 1998 Resolution denying reconsideration. The assailed Decision affirmed the ruling of the Regional Trial Court (RTC) of Cebu City in Civil Case No. R-21208, which disposed as follows: WHEREFORE, for all the foregoing considerations, the Court, finding for the defendant and against the plaintiffs, orders the dismissal of the plaintiffs complaint. The counterclaims of the defendant are likewise ordered dismissed. No pronouncement as to costs.[3]

The Facts

Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture agreement" with Respondent Manuel Torres for the development of a parcel of land into a subdivision. Pursuant to the contract, they executed a Deed of Sale covering the said parcel of land in favor of respondent, who then had it registered in his name. By mortgaging the property, respondent obtained from Equitable Bank a loan ofP40,000 which, under the Joint Venture Agreement, was to be used for the development of the subdivision.[4] All three of them also agreed to share the proceeds from the sale of the subdivided lots. The project did not push through, and the land was subsequently foreclosed by the bank. According to petitioners, the project failed because of respondents lack of funds or means and skills. They add that respondent used the loan not for the development of the subdivision, but in furtherance of his own company, Universal Umbrella Company. On the other hand, respondent alleged that he used the loan to implement the Agreement. With the said amount, he was able to effect the survey and the subdivision of the lots. He secured the Lapu Lapu City Councils approval of the subdivision project which he advertised in a local newspaper. He also caused the construction of roads, curbs and gutters. Likewise, he entered into a contract with an engineering firm for the building of sixty low-cost housing units and actually even set up a model house on one of the subdivision lots. He did all of these for a total expense of P85,000. Respondent claimed that the subdivision project failed, however, because petitioners and their relatives had separately caused the annotations of adverse claims on the title to the land, which eventually scared away prospective buyers. Despite his requests, petitioners refused to cause the clearing of the claims, thereby forcing him to give up on the project. [5] Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, who were however acquitted. Thereafter, they filed the present civil case which, upon respondent's motion, was later dismissed by the trial court in an Order dated September 6, 1982. On appeal, however, the appellate court remanded the case for further proceedings. Thereafter, the RTC issued its assailed Decision, which, as earlier stated, was affirmed by the CA.

Hence, this Petition.[6]

Ruling of the Court of Appeals

In affirming the trial court, the Court of Appeals held that petitioners and respondent had formed a partnership for the development of the subdivision. Thus, they must bear the loss suffered by the partnership in the same proportion as their share in the profits stipulated in the contract. Disagreeing with the trial courts pronouncement that losses as well as profits in a joint venture should be distributed equally,[7] the CA invoked Article 1797 of the Civil Code which provides: Article 1797 - The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion. The CA elucidated further: In the absence of stipulation, the share of each partner in th e profits and losses shall be in proportion to what he may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive such share as may be just and equitable under the circumstances. If besides his services he has contributed capital, he shall also receive a share in the profits in proportion to his capital.

The Issue

Petitioners impute to the Court of Appeals the following error: x x x [The] Court of Appeals erred in conclud ing that the transaction x x x between the petitioners and respondent was that of a joint venture/partnership, ignoring outright the provision of Article 1769, and other related provisions of the Civil Code of the Philippines.[8]

The Courts Ruling

The Petition is bereft of merit.

Main Issue: Existence of a Partnership

Petitioners deny having formed a partnership with respondent. They contend that the Joint Venture Agreement and the earlier Deed of Sale, both of which were the bases of the appellate courts finding of a partnership, were void. In the same breath, however, they assert that under those very same contracts, respondent is liable for his failure to implement the project. Because the agreement entitled them to receive 60 percent of the proceeds from the sale of the subdivision lots, they pray that respondent pay them damages equivalent to 60 percent of the value of the property. [9] The pertinent portions of the Joint Venture Agreement read as follows: KNOW ALL MEN BY THESE PRESENTS: This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day of March, 1969, by and between MR. MANUEL R. TORRES, x x x the FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA BARING, x x x the SECOND PARTY: W I T N E S S E T H:

That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this pr operty located at Lapu-Lapu City, Island of Mactan, under Lot No. 1368 covering TCT No. T-0184 with a total area of 17,009 square meters, to be sub-divided by the FIRST PARTY; Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, upon the execution of this contract for the property entrusted by the SECOND PARTY, for sub-division projects and development purposes; NOW THEREFORE, for and in consideration of the above covenants and promises herein contained the respective parties hereto do hereby stipulate and agree as follows: ONE: That the SECOND PARTY signed an absolute Deed of Sale x x x dated March 5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Currency, for 1,700 square meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of the FIRST PARTY, but the SECOND PARTY did not actually receive the payment. SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the necessary amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, for their personal obligations and this particular amount will serve as an advance payment from the FIRST PARTY for the property mentioned to be sub-divided and to be deducted from the sales. THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the interest and the principal amount involving the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, until the sub-division project is terminated and ready for sale to any interested parties, and the amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will be deducted accordingly. FOURTH: That all general expense[s] and all cost[s] involved in the sub-division project should be paid by the FIRST PARTY, exclusively and all the expenses will not be deducted from the sales after the development of the sub-division project. FIFTH: That the sales of the sub-divided lots will be divided into SIXTY PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM 40% for the FIRST PARTY, and additional profits or whatever income deriving from the sales will be divided equally according to the x x x percentage [agreed upon] by both parties. SIXTH: That the intended sub-division project of the property involved will start the work and all improvements upon the adjacent lots will be negotiated in both parties['] favor and all sales shall [be] decided by both parties. SEVENTH: That the SECOND PARTIES, should be given an option to get back the property mentioned provided the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, borrowed by the SECOND PARTY, will be paid in full to the FIRST PARTY, including all necessary improvements spent by the FIRST PARTY, and the FIRST PARTY will be given a grace period to turnover the property mentioned above. That this AGREEMENT shall be binding and obligatory to the parties who executed same freely and voluntarily for the uses and purposes therein stated.[10] A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership pursuant to Article 1767 of the Civil Code, which provides: ART. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. Under the above-quoted Agreement, petitioners would contribute property to the partnership in the form of land which was to be developed into a subdivision; while respondent would give, in addition to his industry, the amount needed for general expenses and other costs. Furthermore, the income from the said project would be divided according to the stipulated percentage. Clearly, the contract manifested the intention of the parties to form a partnership. [11] It should be stressed that the parties implemented the contract. Thus, petitioners transferred the title to the land to facilitate its use in the name of the respondent. On the other hand, respondent caused the subject land to be mortgaged, the proceeds of which were used for the survey and the subdivision of the land. As noted earlier, he developed the roads, the curbs and the gutters of the subdivision and entered into a contract to construct low-cost housing units on the property.

Respondents actions clearly belie petitioners contention that he made no contribution to the partnership. Under Article 1767 of the Civil Code, a partner may contribute not only money or property, but also industry.

Petitioners Bound by Terms of Contract

Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been expressly stipulated, but also to all necessary consequences thereof, as follows: ART. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. It is undisputed that petitioners are educated and are thus presumed to have understood the terms of the contract they voluntarily signed. If it was not in consonance with their expectations, they should have objected to it and insisted on the provisions they wanted. Courts are not authorized to extricate parties from the necessary consequences of their acts, and the fact that the contractual stipulations may turn out to be financially disadvantageous will not relieve parties thereto of their obligations. They cannot now disavow the relationship formed from such agreement due to their supposed misunderstanding of its terms.

Alleged Nullity of the Partnership Agreement

Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil Code, which provides: ART. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument. They contend that since the parties did not make, sign or attach to the public instrument an inventory of the real property contributed, the partnership is void. We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the eminent Arturo M. Tolentino states that under the aforecited provision which is a complement of Article 1771, [12] the execution of a public instrument would be useless if there is no inventory of the property contributed, because without its designation and description, they cannot be subject to inscription in the Registry of Property, and their contribution cannot prejudice third persons. This will result in fraud to those who contract with the partnership in the belief [in] the efficacy of the guaranty in which the immovables may consist. Thus, the contract is declared void by the law when no such inventory is made. The case at bar does not involve third parties who may be prejudiced. Second, petitioners themselves invoke the allegedly void contract as basis for their claim that respondent should pay them 60 percent of the value of the property.[13] They cannot in one breath deny the contract and in another recognize it, depending on what momentarily suits their purpose. Parties cannot adopt inconsistent positions in regard to a contract and courts will not tolerate, much less approve, such practice. In short, the alleged nullity of the partnership will not prevent courts from considering the Joint Venture Agreement an ordinary contract from which the parties rights and obligations to each other may be inferred and enforced.

Partnership Agreement Not the Result of an Earlier Illegal Contract

Petitioners also contend that the Joint Venture Agreement is void under Article 1422[14] of the Civil Code, because it is the direct result of an earlier illegal contract, which was for the sale of the land without valid consideration. This argument is puerile. The Joint Venture Agreement clearly states that the consideration for the sale was the expectation of profits from the subdivision project. Its first stipulation states that petitioners did not actually receive payment for the parcel of land sold to respondent. Consideration, more properly denominated as cause, can take different forms, such as the prestation or promise of a thing or service by another.[15]

In this case, the cause of the contract of sale consisted not in the stated peso value of the land, but in the expectation of profits from the subdivision project, for which the land was intended to be used. As explained by the trial court, the land was in effect given to the partnership as [petitioners] participation therein. x x x There was therefore a consideration for the sale, the [petitioners] acting in the expectation that, should the venture come into fruition, they [would] get sixty percent of the net profits.

Liability of the Parties

Claiming that respondent was solely responsible for the failure of the subdivision project, petitioners maintain that he should be made to pay damages equivalent to 60 percent of the value of the property, which was their share in the profits under the Joint Venture Agreement. We are not persuaded. True, the Court of Appeals held that petitioners acts were not the cause of the failure of the project.[16] But it also ruled that neither was respondent responsible therefor. [17] In imputing the blame solely to him, petitioners failed to give any reason why we should disregard the factual findings of the appellate court relieving him of fault. Verily, factual issues cannot be resolved in a petition for review under Rule 45, as in this case. Petitioners have not alleged, not to say shown, that their Petition constitutes one of the exceptions to this doctrine. [18] Accordingly, we find no reversible error in the CA's ruling that petitioners are not entitled to damages. WHEREFORE, the Petition is hereby DENIED and the challenged Decision AFFIRMED. Costs against petitioners. SO ORDERED. Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-61311 September 2l, 1987 FELICIDAD VILLANUEVA, FERNANDO CAISIP, ANTONIO LIANG, FELINA MIRANDA, RICARDO PUNO, FLORENCIO LAXA, and RENE OCAMPO, petitioners, vs. HON. MARIANO CASTAEDA, JR., Presiding Judge of the Court of First Instance of Pampanga, Branch III, VICENTE A. MACALINO, Officer-in-Charge, Office of the Mayor, San Fernando, Pampanga,respondents. CRUZ, J.: There is in the vicinity of the public market of San Fernando, Pampanga, along Mercado Street, a strip of land measuring 12 by 77 meters on which stands a conglomeration of vendors stalls together forming what is commonly known as a talipapa. This is the subject of the herein petition. The petitioners claim they have a right to remain in and conduct business in this area by virtue of a previous authorization granted to them by the municipal government. The respondents deny this and justify the demolition of their stalls as illegal constructions on public property. At the petitioners' behest, we have issued a temporary restraining order to preserve the status quobetween the parties pending our decision. 1 Now we shall rule on the merits. This dispute goes back to November 7, 1961, when the municipal council of San Fernando adopted Resolution No. 218 authorizing some 24 members of the Fernandino United Merchants and Traders Association to construct permanent stags and sell in the above-mentioned place. 2 The action was protested on November 10, 1961, in Civil Case No. 2040, where the Court of First Instance of Pampanga, Branch 2, issued a writ of preliminary injunction that prevented the defendants from constructing the said stalls until final resolution of the controversy. 3On January 18, 1964, while this case was pending, the municipal council of San Fernando adopted Resolution G.R. No. 29, which declared the subject area as "the parking place and as the public plaza of the municipality, 4thereby impliedly revoking Resolution No. 218, series of 1961. Four years later, on November 2, 1968, Judge Andres C. Aguilar decided the aforesaid case and held that the land occupied by the petitioners, being public in nature, was beyond the commerce of man and therefore could not be the subject of private occupancy. 5 The writ of preliminary injunction was made permanent. 6 The decision was apparently not enforced, for the petitioners were not evicted from the place; in fact, according to then they and the 128 other persons were in 1971 assigned specific areas or space allotments therein for which they paid daily fees to the municipal government. 7 The problem appears to have festered for some more years under a presumably uneasy truce among the protagonists, none of whom made any move, for some reason that does not appear in the record. Then, on January 12, 1982, the Association of Concerned Citizens and Consumers of San Fernando filed a petition for the immediate implementation of Resolution No. 29, to restore the subject property "to its original and customary use as a public plaza. 8 Acting thereon after an investigation conducted by the municipal attorney, 9 respondent Vicente A. Macalino, as officer-incharge of the office of the mayor of San Fernando, issued on June 14, 1982, a resolution requiring the municipal treasurer and the municipal engineer to demolish the stalls in the subject place beginning July 1, 1982. 10 The reaction of the petitioners was to file a petition for prohibition with the Court of First Instance of Pampanga, docketed as Civil Case No. 6470, on June 26, 1982. The respondent judge denied the petition on July 19, 1982, 11and the motion for reconsideration on August 5, 1982, 12 prompting the petitioners to come to this Court oncertiorari to challenge his decision. 13 As required, respondent Macalino filed his comment 14 on the petition, and the petitioners countered with their reply. 15 In compliance with our resolution of February 2, 1983, the petitioners submitted their memorandum 16 and respondent Macalino, for his part, asked that his comment be considered his memorandum. 17 On July 28, 1986, the new officer-incharge of the office of the mayor of San Fernando, Paterno S. Guevarra, was impleaded in lieu of Virgilio Sanchez, who had himself earlier replaced the original respondent Macalino. 18 After considering the issues and the arguments raised by the parties in their respective pleadings, we rule for the respondents. The petition must be dismissed. There is no question that the place occupied by the petitioners and from which they are sought to be evicted is a public plaza, as found by the trial court in Civil Case No. 2040. This finding was made after consideration of the antecedent facts as especially established by the testimony of former San Fernando Mayor Rodolfo Hizon, who later became governor of

Pampanga, that the National Planning Commission had reserved the area for a public plaza as early as 1951. This intention was reiterated in 1964 through the adoption of Resolution No. 29. 19 It does not appear that the decision in this case was appealed or has been reversed. In Civil Case G.R. No. 6740, which is the subject of this petition, the respondent judge saw no reason to disturb the finding in Civil Case No. 2040 and indeed used it as a basis for his own decision sustaining the questioned order. 20 The basic contention of the petitioners is that the disputed area is under lease to them by virtue of contracts they had entered into with the municipal government, first in 1961 insofar as the original occupants were concerned, and later with them and the other petitioners by virtue of the space allocations made in their favor in 1971 for which they saw they are paying daily fees. 21 The municipal government has denied making such agreements. In any case, they argue, since the fees were collected daily, the leases, assuming their validity, could be terminated at will, or any day, as the claimed rentals indicated that the period of the leases was from day to day. 22 The parties belabor this argument needlessly. A public plaza is beyond the commerce of man and so cannot be the subject of lease or any other contractual undertaking. This is elementary. Indeed, this point was settled as early as in Municipality of Cavite vs. Rojas, 23decided in 1915, where the Court declared as null and void the lease of a public plaza of the said municipality in favor of a private person. Justice Torres said in that case: According to article 344 of the Civil Code: "Property for public use in provinces and in towns comprises the provincial and town roads, the squares, streets, fountains, and public waters, the promenades, and public works of general service supported by said towns or provinces. The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could not in 1907 withdraw or exclude from public use a portion thereof in order to lease it for the sole benefit of the defendant Hilaria Rojas. In leasing a portion of said plaza or public place to the defendant for private use the plaintiff municipality exceeded its authority in the exercise of its powers by executing a contract over a thing of which it could not dispose, nor is it empowered so to do. The Civil Code, article 1271, prescribes that everything which is not outside the commerce of man may be the object of a contract, and plazas and streets are outside of this commerce, as was decided by the supreme court of Spain in its decision of February 12, 1895, which says: "communal things that cannot be sold because they are by their very nature outside of commerce are those for public use, such as the plazas, streets, common lands, rivers, fountains, etc." Therefore, it must be concluded that the contract, Exhibit C, whereby the municipality of Cavite leased to Hilaria Rojas a portion of the Plaza Soledad is null and void and of no force or effect, because it is contrary to the law and the thing leased cannot be the object of a was held that the City of contract. In Muyot vs. de la Fuente, 24 it was held that the City of Manila could not lease a portion of a public sidewalk on Plaza Sta. Cruz, being likewise beyond the commerce of man. Echoing Rojas, the decision said: Appellants claim that they had obtained permit from the present of the City of Manila, to connect booths Nos. 1 and 2, along the premises in question, and for the use of spaces where the booths were constructed, they had paid and continued paying the corresponding rentals. Granting this claim to be true, one should not entertain any doubt that such permit was not legal, because the City of Manila does not have any power or authority at all to lease a portion of a public sidewalk. The sidewalk in question, forming part of the public plaza of Sta. Cruz, could not be a proper subject matter of the contract, as it was not within the commerce of man (Article 1347, new Civil Code, and article 1271, old Civil Code). Any contract entered into by the City of Manila in connection with the sidewalk, is ipso facto null and ultra vires. (Municipality of Cavite vs. Roxas, et a1, 30 Phil. 603.) The sidewalk in question was intended for and was used by the public, in going from one place to another. "The streets and public places of the city shall be kept free and clear for the use of the public, and the sidewalks and crossings for the pedestrians, and the same shall only be used or occupied for other purpose as provided by ordinance or regulation; ..." (Sec. 1119, Revised Ordinances of the City of Manila.) The booths in question served as fruit stands for their owners and often, if not always, blocked the fire passage of pedestrians who had to take the plaza itself which used to be clogged with vehicular traffic. Exactly in point is Espiritu vs. Municipal Council of Pozorrubio, 25 where the Supreme Court declared:

There is absolutely no question that the town plaza cannot be used for the construction of market stalls, specially of residences, and that such structures constitute a nuisance subject to abatement according to law. Town plazas are properties of public dominion, to be devoted to public use and to be made available to the public in general They are outside the common of man and cannot be disposed of or even leased by the municipality to private parties. Applying this well-settled doctrine, we rule that the petitioners had no right in the first place to occupy the disputed premises and cannot insist in remaining there now on the strength of their alleged lease contracts. They should have realized and accepted this earlier, considering that even before Civil Case No. 2040 was decided, the municipalcouncil of San Fernando had already adopted Resolution No. 29, series of 1964, declaring the area as the parking place and public plaza of the municipality. It is the decision in Civil Case No. 2040 and the said resolution of the municipal council of San Fernando that respondent Macalino was seeking to enforce when he ordered the demolition of the stags constructed in the disputed area. As officerin-charge of the office of the mayor, he had the duty to clear the area and restore it to its intended use as a parking place and public plaza of the municipality of San Fernando, conformably to the aforementioned orders from the court and the council. It is, therefore, not correct to say that he had acted without authority or taken the law into his hands in issuing his order. Neither can it be said that he acted whimsically in exercising his authority for it has been established that he directed the demolition of the stalls only after, upon his instructions, the municipal attorney had conducted an investigation, to look into the complaint filed by the Association of Concerned Citizens and Consumers of San Fernando. 26 There is evidence that the petitioners were notified of this hearing, 27which they chose to disregard. Photographs of the disputed area, 28 which does look congested and ugly, show that the complaint was valid and that the area really needed to be cleared, as recommended by the municipal attorney. The Court observes that even without such investigation and recommendation, the respondent mayor was justified in ordering the area cleared on the strength alone of its status as a public plaza as declared by the judicial and legislative authorities. In calling first for the investigation (which the petitioner saw fit to boycott), he was just scrupulously paying deference to the requirements of due process, to remove an taint of arbitrariness in the action he was caged upon to take. Since the occupation of the place in question in 1961 by the original 24 stallholders (whose number later ballooned to almost 200), it has deteriorated increasingly to the great prejudice of the community in general. The proliferation of stags therein, most of them makeshift and of flammable materials, has converted it into a veritable fire trap, which, added to the fact that it obstructs access to and from the public market itself, has seriously endangered public safety. The filthy condition of the talipapa, where fish and other wet items are sold, has aggravated health and sanitation problems, besides pervading the place with a foul odor that has spread into the surrounding areas. The entire place is unsightly, to the dismay and embarrassment of the inhabitants, who want it converted into a showcase of the town of which they can all be proud. The vendors in the talipapa have also spilled into the street and obstruct the flow of traffic, thereby impairing the convenience of motorists and pedestrians alike. The regular stallholders in the public market, who pay substantial rentals to the municipality, are deprived of a sizable volume of business from prospective customers who are intercepted by the talipapa vendors before they can reach the market proper. On top of all these, the people are denied the proper use of the place as a public plaza, where they may spend their leisure in a relaxed and even beautiful environment and civic and other communal activities of the town can be held. The problems caused by the usurpation of the place by the petitioners are covered by the police power as delegated to the municipality under the general welfare clause. 29 This authorizes the municipal council "to enact such ordinances and make such regulations, not repugnant to law, as may be necessary to carry into effect and discharge the powers and duties conferred upon it by law and such as shall seem necessary and proper to provide for the health and safety, promote the prosperity, improve the morals, peace, good order, comfort, and convenience of the municipality and the inhabitants thereof, and for the protection of property therein." This authority was validly exercised in this casethrough the adoption of Resolution No. 29, series of 1964, by the municipal council of San Fernando. Even assuming a valid lease of the property in dispute, the resolution could have effectively terminated the agreement for it is settled that the police power cannot be surrendered or bargained away through the medium of a contract. 30 In fact, every contract affecting the public interest suffers a congenital infirmity in that it contains an implied reservation of the police power as a postulate of the existing legal order. 31 This power can be activated at any time to change the provisions of the contract, or even abrogate it entirely, for the promotion or protection of the general welfare. Such an act will not militate against the impairment clause, which is subject to and limited by the paramount police power. 32 We hold that the respondent judge did not commit grave abuse of discretion in denying the petition for prohibition. On the contrary, he acted correctly in sustaining the right and responsibility of the mayor to evict the petitioners from the disputed area and clear it of an the structures illegally constructed therein.

The Court feels that it would have been far more amiable if the petitioners themselves, recognizing their own civic duty, had at the outset desisted from their original stance and withdrawn in good grace from the disputed area to permit its peaceful restoration as a public plaza and parking place for the benefit of the whole municipality. They owned this little sacrifice to the community in general which has suffered all these many years because of their intransigence. Regrettably, they have refused to recognize that in the truly democratic society, the interests of the few should yield to those of the greater number in deference to the principles that the welfare of the people is the supreme law and overriding purpose. We do not see any altruism here. The traditional ties of sharing are absent here. What we find, sad to say, is a cynical disdaining of the spirit of "bayanihan," a selfish rejection of the cordial virtues of "pakikisama " and "pagbibigayan" which are the hallmarks of our people. WHEREFORE, the petition is DISMISSED. The decision dated July 19, 1982, and the order-dated August 5, 1982, are AFFIRMED. The temporary restraining order dated August 9, 1982, is LIFTED. This decision is immediately executory. Costs against the petitioners. SO ORDERED.Teehankee, C.J., Narvasa and Paras, JJ., concur.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 80774 May 31, 1988 SAN MIGUEL CORPORATION, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION and RUSTICO VEGA, respondents. Siguion Reyna, Montecillo & Ongsiako Law Offices for petitioner. The Solicitor General for public respondent. FELICIANO, J.: In line with an Innovation Program sponsored by petitioner San Miguel Corporation ("Corporation;" "SMC") and under which management undertook to grant cash awards to "all SMC employees ... except [ED-HO staff, Division Managers and higher-ranked personnel" who submit to the Corporation Ideas and suggestions found to be beneficial to the Corporation, private respondent Rustico Vega submitted on 23 September 1980 an innovation proposal. Mr. Vega's proposal was entitled "Modified Grande Pasteurization Process," and was supposed to eliminate certain alleged defects in the quality and taste of the product "San Miguel Beer Grande:" Title of Proposal Modified Grande Pasteurization Process Present Condition or Procedure At the early stage of beer grande production, several cases of beer grande full goods were received by MB as returned beer fulls (RBF). The RBF's were found to have sediments and their contents were hazy. These effects are usually caused by underpasteurization time and the pasteurzation units for beer grande were almost similar to those of the steinie. Proposed lnnovation (Attach necessary information) In order to minimize if not elienate underpasteurization of beer grande, reduce the speed of the beer grande pasteurizer thereby, increasing the pasteurization time and the pasteurization acts for grande beer. In this way, the self-life (sic) of beer grande will also be increased. 1 Mr. Vega at that time had been in the employ of petitioner Corporation for thirteen (1 3) years and was then holding the position of "mechanic in the Bottling Department of the SMC Plant Brewery situated in Tipolo, Mandaue City. Petitioner Corporation, however, did not find the aforequoted proposal acceptable and consequently refused Mr. Vega's subsequent demands for a cash award under the Innovation Program. On 22 February 1983., a Complaint 2 (docketed as Case No. RAB-VII-0170-83) was filed against petitioner Corporation with Regional Arbitration Branch No. VII (Cebu City) of the then.", Ministry of Labor and Employment. Frivate respondent Vega alleged there that his proposal "[had] been accepted by the methods analyst and implemented by the Corporation [in] October 1980," and that the same "ultimately and finally solved the problem of the Corporation in the production of Beer Grande." Private respondent thus claimed entitlement to a cash prize of P60,000.00 (the maximum award per proposal offered under the Innovation Program) and attorney's fees. In an Answer With Counterclaim and Position Paper, 3 petitioner Corporation alleged that private respondent had no cause of action. It denied ever having approved or adopted Mr. Vega's proposal as part of the Corporation's brewing procedure in the production of San Miguel Beer Grande. Among other things, petitioner stated that Mr. Vega's proposal was tumed down by the company "for lack of originality" and that the same, "even if implemented [could not] achieve the desired result." Petitioner further alleged that the Labor Arbiter had no jurisdiction, Mr. Vega having improperly bypassed the grievance machinery procedure prescribed under a then existing collective bargaining agreement between management

and employees, and available administrative remedies provided under the rules of the Innovation Program. A counterclaim for moral and exemplary damages, attorney's fees, and litigation expenses closed out petitioner's pleading. In an Order 4 dated 30 April 1986, the Labor Arbiter, noting that the money claim of complainant Vega in this case is "not a necessary incident of his employment" and that said claim is not among those mentioned in Article 217 of the Labor Code, dismissed the complaint for lack of jurisdiction. However, in a gesture of "compassion and to show the government's concern for the workingman," the Labor Arbiter also directed petitioner to pay Mr. Vega the sum of P2,000.00 as "financial assistance." The Labor Arbiter's order was subsequently appealed by both parties, private respondent Vega assailing the dismissal of his complaint for lack of jurisdiction and petitioner Corporation questioning the propriety of the award of "financial assistance" to Mr. Vega. Acting on the appeals, the public respondent National Labor Relations Commission, on 4 September 1987, rendered a Decision, 5 the dispositive portion of which reads: WHEREFORE, the appealed Order is hereby set aside and another udgment entered, order the respondent to pay the complainant the amount of P60,000.00 as explained above. SO ORDERED. In the present Petition for certiorari filed on 4 December 1987, petitioner Corporation, invoking Article 217 of the Labor Code, seeks to annul the Decision of public respondent Commission in Case No. RAB-VII-01 70-83 upon the ground that the Labor Arbiter and the Commission have no jurisdiction over the subject matter of the case. The jurisdiction of Labor Arbiters and the National Labor Relations Commission is outlined in Article 217 of the Labor Code, as last amended by Batas Pambansa Blg. 227 which took effect on 1 June 1982: ART. 217. Jurisdiction of Labor Arbiters and the commission. (a) The Labor Arbiters shall have theoriginal and exclusive jurisdiction to hear and decide within thirty (30) working days after submission of the case by the parties for decision, the following cases involving are workers, whether agricultural or non-agricultural: 1. Unfair labor practice cases; 2. Those that workers may file involving wages, hours of work and other terms and conditions of employment; 3. All money claims of workers, including those based on non-payment or underpayment of wages, overtime compensation, separation pay and other benefits provided by law or appropriate agreement, except claims for employees' compensation, social security, medicare and maternity benefits; 4. Cases involving household services; and 5. Cases arising from any violation of Article 265 of this; Code, including questions involving the legality of strikes and lockouts. (b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor Arbiters. (Emphasis supplied) While paragraph 3 above refers to "all money claims of workers," it is not necessary to suppose that the entire universe of money claims that might be asserted by workers against their employers has been absorbed into the original and exclusive jurisdiction of Labor Arbiters. In the first place, paragraph 3 should be read not in isolation from but rather within the context formed by paragraph 1 related to unfair labor practices), paragraph 2 (relating to claims concerning terms and conditions of employment), paragraph 4 (claims relating to household services, a particular species of employer-employee relations), and paragraph 5 (relating to certain activities prohibited to employees or to employers).<re||an1w> It is evident that there is a unifying element which runs through paragraphs 1 to 5 and that is, that they all refer to cases or disputes arising out of or in connection with an employer-employee relationship. This is, in other words, a situation where the rule of noscitur a sociis may be usefully invoked in clarifying the scope of paragraph 3, and any other paragraph of Article 217 of the Labor Code, as amended. We reach the above conclusion from an examination of the terms themselves of Article 217, as last amended by B.P. Blg. 227, and even though earlier versions of Article 217 of the Labor Code expressly brought within the jurisdiction of the Labor Arbiters and the NLRC "cases arising from employer employee relations," 6 which clause was not expressly carried over, in printer's ink, in Article 217 as it exists today. For it cannot be presumed that money claims of workers which do not arise out of or in connection with their employer-employee relationship, and which would therefore fall within the general jurisdiction of the regular courts of justice, were intended by the legislative authority to be

taken away from the jurisdiction of the courts and lodged with Labor Arbiters on an exclusive basis. The Court, therefore, believes and so holds that the money claims of workers" referred to in paragraph 3 of Article 217 embraces money claims which arise out of or in connection with the employer-employee relationship, or some aspect or incident of such relationship. Put a little differently, that money claims of workers which now fall within the original and exclusive jurisdiction of Labor Arbiters are those money claims which have some reasonable causal connection with the employer-employee relationship. Applying the foregoing reading to the present case, we note that petitioner's Innovation Program is an employee incentive scheme offered and open only to employees of petitioner Corporation, more specifically to employees below the rank of manager. Without the existing employer-employee relationship between the parties here, there would have been no occasion to consider the petitioner's Innovation Program or the submission by Mr. Vega of his proposal concerning beer grande; without that relationship, private respondent Vega's suit against petitioner Corporation would never have arisen. The money claim of private respondent Vega in this case, therefore, arose out of or in connection with his employment relationship with petitioner. The next issue that must logically be confronted is whether the fact that the money claim of private respondent Vega arose out of or in connection with his employment relation" with petitioner Corporation, is enough to bring such money claim within the original and exclusive jurisdiction of Labor Arbiters. In Molave Motor Sales, Inc. v. Laron, 7 the petitioner was a corporation engaged in the sale and repair of motor vehicles, while private respondent was the sales Manager of petitioner. Petitioner had sued private respondent for non-payment of accounts which had arisen from private respondent's own purchases of vehicles and parts, repair jobs on cars personally owned by him, and cash advances from the corporation. At the pre-trial in the lower court, private respondent raised the question of lack of jurisdiction of the court, stating that because petitioner's complaint arose out of the employer-employee relationship, it fell outside the jurisdiction of the court and consequently should be dismissed. Respondent Judge did dismiss the case, holding that the sum of money and damages sued for by the employer arose from the employeremployee relationship and, hence, fell within the jurisdiction of the Labor Arbiter and the NLRC. In reversing the order of dismissal and requiring respondent Judge to take cognizance of the case below, this Court, speaking through Mme. Justice Melencio-Herrera, said: Before the enactment of BP Blg. 227 on June 1, 1982, Labor Arbiters, under paragraph 5 of Article 217 of the Labor Code had jurisdiction over" all other cases arising from employer-employee relation, unless, expressly excluded by this Code." Even then, the principle followed by this Court was that, although a controversy is between an employer and an employee, the Labor Arbiters have no jurisdiction if the Labor Code is not involved. In Medina vs. Castro-Bartolome, 11 SCRA 597, 604, in negating jurisdiction of the Labor Arbiter, although the parties were an employer and two employees, Mr. Justice Abad Santos stated: The pivotal question to Our mind is whether or not the Labor Code has any relevance to the reliefs sought by the plaintiffs. For if the Labor Code has no relevance, any discussion concerning the statutes amending it and whether or not they have retroactive effect is unnecessary. It is obvious from the complaint that the plaintiffs have not alleged any unfair labor practice. Theirs is a simple action for damages for tortious acts allegedly committed by the defendants. Such being the case, the governing statute is the Civil Code and not the Labor Code. It results that the orders under review are based on a wrong premise. And in Singapore Airlines Limited v. Pao, 122 SCRA 671, 677, the following was said: Stated differently, petitioner seeks protection under the civil laws and claims no benefits under the Labor Code. The primary relief sought is for liquidated damages for breach of a contractual obligation. The other items demanded are not labor benefits demanded by workers generally taken cognizance of in labor disputes, such as payment of wages, overtime compensation or separation pay. The items claimed are the natural consequences flowing from breach of an obligation, intrinsically a civil dispute. In the case below, PLAINTIFF had sued for monies loaned to DEFENDANT, the cost of repair jobs made on his personal cars, and for the purchase price of vehicles and parts sold to him. Those accounts have no relevance to the Labor Code. The cause of action was one under the civil laws, and it does not breach any provision of the Labor Code or the contract of employment of DEFENDANT. Hence the civil courts, not the Labor Arbiters and the NLRC should have jurisdiction. 8 It seems worth noting that Medina v. Castro-Bartolome, referred to in the above excerpt, involved a claim for damages by two (2) employees against the employer company and the General Manager thereof, arising from the use of slanderous language on the occasion when the General Manager fired the two (2) employees (the Plant General Manager and the Plant Comptroller). The Court treated the claim for damages as "a simple action for damages for tortious acts" allegedly

committed by private respondents, clearly if impliedly suggesting that the claim for damages did not necessarily arise out of or in connection with the employer-employee relationship.Singapore Airlines Limited v. Pao, also cited in Molave, involved a claim for liquidated damages not by a worker but by the employer company, unlike Medina. The important principle that runs through these three (3) cases is that where the claim to the principal relief sought 9 is to be resolved not by reference to the Labor Code or other labor relations statute or a collective bargaining agreement but by the general civil law, the jurisdiction over the dispute belongs to the regular courts of justice and not to the Labor Arbiter and the NLRC. In such situations, resolution of the dispute requires expertise, not in labor management relations nor in wage structures and other terms and conditions of employment, but rather in the application of the general civil law. Clearly, such claims fall outside the area of competence or expertise ordinarily ascribed to Labor Arbiters and the NLRC and the rationale for granting jurisdiction over such claims to these agencies disappears. Applying the foregoing to the instant case, the Court notes that the SMC Innovation Program was essentially an invitation from petitioner Corporation to its employees to submit innovation proposals, and that petitioner Corporation undertook to grant cash awards to employees who accept such invitation and whose innovation suggestions, in the judgment of the Corporation's officials, satisfied the standards and requirements of the Innovation Program 10 and which, therefore, could be translated into some substantial benefit to the Corporation. Such undertaking, though unilateral in origin, could nonetheless ripen into an enforceable contractual (facio ut des) 11 obligation on the part of petitioner Corporation under certain circumstances. Thus, whether or not an enforceable contract, albeit implied arid innominate, had arisen between petitioner Corporation and private respondent Vega in the circumstances of this case, and if so, whether or not it had been breached, are preeminently legal questions, questions not to be resolved by referring to labor legislation and having nothing to do with wages or other terms and conditions of employment, but rather having recourse to our law on contracts. WEREFORE, the Petition for certiorari is GRANTED. The decision dated 4 September 1987 of public respondent National Labor Relations Commission is SET ASIDE and the complaint in Case No. RAB-VII-0170-83 is hereby DISMISSED, without prejudice to the right of private respondent Vega to file a suit before the proper court, if he so desires. No pronouncement as to costs. SO ORDERED. Fernan, Gutierrez, Jr., Bidin and Cortes, JJ., concur.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 95900 July 23, 1992 JULIUS C. OUANO, petitioner, vs. COURT OF APPEALS, MARKET DEVELOPERS, INC., JULIAN O. CHUA, SUPREME MERCHANT CONSTRUCTION SUPPLY, INC., JOHNNY ANG, alias Chua Pek Giok, and FLORENTINO RAFOLS, JR.,respondent.

REGALADO, J.: This petition for review on certiorari assails the decision of the Court of Appeals in CA-G.R. CV No. 12693, promulgated on August 30, 1990, reversing the decision of the Regional Trial Court of Cebu, Branch XI, in Civil Case No. R-20037 wherein judgment had been rendered for petitioner, as well as the resolution of said respondent court, dated October 15, 1990, denying petitioner's motion for reconsideration. 1 As found by respondent court, petitioner is the registered owner and operator of the motor vessel known as M/V Don Julio Ouano. On October 8, 1980, petitioner leased the said vessel to respondent Rafols under a charter party. The consideration for the letting and hiring of said vessel was P60,000.00 a month, with P30,000.00 as down payment and the balance of P30,000.00 to be paid within twenty (20) days after actual departure of the vessel from the port of call. It was also expressly stipulated that the charterer should operate the vessel for his own benefit and should not sublet or subcharter to the same without the knowledge and written consent of the owner. On October 11, 1980, Rafols contracted with respondent Market Developers, Inc. (hereafter, MADE) through its group manager, respondent Julian O. Chua, under an agreement denominated as a "Fixture Note" to transport 13,000 bags of cement from Iligan City to General Santos City, consigned to respondent Supreme Merchant Construction Supply, Inc. (SMCSI, for brevity) for a freightage of P46,150.00. Said amount was agreed to be payable to Rafols by MADE in two installments, that is, P23,075.00 upon loading of the cement at Iligan City and the balance of P23,075.00 upon completion of loading and receipt of the cement cargo by the consignee. The fixture note did not have the written consent of petitioner. Rafols had on board the M/V Don Julio Ouano his sobre cargo (jefe de viaje) when it departed from Iligan City until the cargo of cement was unloaded in General Santos City, the port of destination. On October 13, 1980, petitioner wrote a letter to MADE through its aforesaid manager, Chua, "to strongly request, if not demand to hold momentarily any payment or partial payment whatsoever due M/V Don Julio Ouano until Mr. Florentino Rafols makes goods his commitment" to petitioner. On October 20, 1980, MADE, as shipper, paid Rafols the amount of P23,075.00 corresponding to the last installment of the freightage for the aforestated cargo of cement. The entire cargo was thereafter unloaded at General Santos City Port and delivered to the consignee, herein respondent SMCSI, without any attempt on the part of either the captain of M/V Don Julio Ouano or the said sobre cargo of Rafols, or even of petitioner himself who was then in General Santos City Port, to hold and keep in deposit either the whole or part of the cement cargo to answer for freightage. Neither was there any demand made on any of the respondents for a bond to secure payment of the freightage, nor to assert in any manner the maritime lien for unpaid freight over the cargo by giving notice thereof to the consignee SMCI. The cement was sold in due course of trade by SMCI to its customers in October and November, 1980. On January 6, 1981, petitioner filed a complaint in the Regional Trial Court of Cebu against MADE, as shipper; SMC, as consignee; and Rafols, as charterer, seeking payment of P23,000.00 representing the freight charges for the cement cargo, aside from moral and exemplary damages in the sum of P150,000.00, attorney's fees and expenses of litigation. On March 10, 1981, MADE filed its answer, while Ang and Chua filed theirs on February 10 and May 31, 1982, respectively. Rafols was declared in default for failure to file his answer despite due service of summons.

On account of the subsequent dropping and impleading of parties defendant, the complaint underwent several amendments until the case was eventually tried on the third amended complaint, which alleged three causes of action against the aforenamed respondents as answering defendants therein. On May 25, 1985, the trial court rendered a decision in favor of petitioner, with the following disposition: WHEREFORE, premises considered, this Court render(s) judgment 1) under plaintiff's first cause of action, ordering defendant MADE (Market Developers, Inc.), Julian O. Chua, Supreme Merchant Construction Supply, Inc., Johnny Ang otherwise known as Chua Pek Giok and defaulted defendant Florentino Rafols, Jr., jointly and severally, to pay to plaintiff Julius C. Ouano the sum of P23,075.00 corresponding to the first 50% freight installment on plaintiff's vessel "M/V Don Julio Ouano" included as part of the purchase price paid by defendant SMCSI to defendant MADE, plus legal interest from January 6, 1981 date of filing of the original complaint; 2) under the second cause of action, sentencing MADE (Market Developers), Julian O. Chua and Florentino Rafols, Jr., jointly and solidarily, to pay plaintiff P50,000.00 in concept of moral and exemplary damages, and P5,000.00 attorney's fees; and 3) under the third cause of action, sentencing defendant Supreme Merchant Construction Supply, Inc. and Johnny Ang alias Chua Pek Giok, jointly and severally, to pay plaintiff P200,000.00 attorney's fees and expenses of litigation, P4,000.00, including P1,000.00 incurred by plaintiff for travel to General Santos City to coordinate with the plaintiff (sic) in serving an alias summons per sheriff's return of service (Exhibit 'S'), with costs against all the defendants. 2 On appeal, respondent Court of Appeals reversed the aforesaid decision, holding as follows: In the light of the foregoing, appellee Ouano has no cause of action against appellants MADE and SMCSI, but only against defendant Rafols. Their principals not being liable to appellee for the payment of the freightage in question, the agents, appellants Julian O. Chua and Johnny Ang aliasChua Pek Giok who had acted within the scope of their authority, would accordingly not be liable to appellee. For the same reason that the defendants-appellants are not liable to pay the appellee the freightage in question, the award of moral and exemplary damages, attorney 's fees and expenses of litigation in favor of appellee has no factual and legal basis. WHEREFORE, premises considered, the decision appealed from is reversed and set aside with respect to the defendantsappellants who are hereby absolved from the complaint. The decision is affirmed with respect to defendant Florentino Rafols. 3 Petitioner filed a motion for reconsideration which, as already stated, was denied by the Court of Appeals, 4 hence the present petition with the following assignment of errors: 1. The Honorable Court of Appeals erred in not holding respondents MADE and Chua liable for damages to petitioner for quasi-delict under Art. 2176, New Civil Code, let alone for inducement to violate contract under Art. 1314 thereof. 2. The Court of Appeals erred in not holding respondents MADE and Chua liable for all damages which are the natural and probable consequences of their act or omission, the term "all damages" being broad enough to embrace the P150,000.00 moral and exemplary damages claimed by petitioner, as well as P10,000.00 attorney's fees likewise claimed by him (Art. 2202, N.C.C.). 3. The Court of Appeals erred in not holding respondents MADE and Chua liable jointly and solidarily (Art. 2194, N.C.C.) for the foregoing damages and attorney's fee, as well as actual damages of P23,075.00 representing unpaid freight on petitioner's vessel. 4. The Court of Appeals erred in not holding that in contracts and quasi-delicts the defendants shall be liable for all damages which are the natural and probable consequences of the act or omission complained of, more so if attended with fraud, bad faith, malice or wanton attitude (Arts. 2201 and 2202, N.C.C.). 5. The Court of Appeals erred in not holding, in accord with the settled doctrine in Overseas Factors, Inc. vs.South Sea Shipping, 4 SCRA 401, that where freight is included in the purchase price, the carrier's lien exists if freight was not paid, hence, the continued liability of respondents MADE and Chua and respondents Supreme Merchant Construction Supply, Inc. and Chua Pek Giok. 5 We find no merit in this petition.

Preliminarily, the thesis of petitioner that the aforestated fixture note executed by Rafols and MADE was in derogation of the prohibition against the subletting or sub-chartering of the vessel has been duly confuted by respondent court. It pointed out that Rafols did not, by entering into said contract of transportation of the cement cargo, thereby sublease the vessel. The possession, operation, and management of the vessel was not transferred to MADE but remained with Rafols as the lessee or charterer. Rafols, as such lessee, was the one who bound himself to transport, as he did transport, the cargo of cement for a fixed price. 6 On the other hand, even indulging petitioner in his argument that there was a sublease or subcharter by reason of that one particular cargo of MADE, still no right of recovery exists in his favor against any of the private respondents, except respondent Rafols, as we shall hereunder demonstrate. It is a basic principle in civil law that, with certain exceptions not obtaining in this case, a contract can only bind the parties who had entered into it or their successors who assumed their personalities or their juridical positions, and that, as a consequence, such contract can neither favor nor prejudice a third person. 7 It is undisputed that the charter contract was entered into only by and between petitioner and respondent Rafols, and the other private respondents were neither parties thereto nor were they aware of the provisions thereof. The aforesaid allegations of petitioner that Rafols violated the prohibition in the contract against the sublease or sub-charter of the vessel without his knowledge and written consent, even if true, does not give rise to a cause of action against the supposed sublease or sub-charterer. The act of the charterer in sub-chartering the vessel, in spite of a categorical prohibition may be a violation of the contract, but the owner's right of recourse is against the original charterer, either for rescission or fulfillment, with the payment of damages in either case. 8 The obligation of contracts is limited to the parties making them and, ordinarily, only those who are parties to contracts are liable for their breach. Parties to a contract cannot thereby impose any liability on one who, under its terms, is a stranger to the contract, and, in any event, in order to bind a third person contractually, an expression of assent by such person is necessary. 9 We likewise reject the contention of petitioner that MADE and Chua should be held liable for damages for a quasi-delict under Article 2176 of the Civil Code for having failed to obtain his consent before entering into an agreement with Rafols, and under Article 1314 of the same Code for inducing Rafols to violate the charter party. The obligation to obtain the written consent of petitioner before subleasing or sub-chartering the vessel was on Rafols and not on MADE, hence the latter cannot be held liable for the supposed non-compliance therewith. Moreover, we cannot conceive of how MADE and Chua could be guilty of inducing Rafols to violate the original charter party. Firstly, there is no evidence on record to show that said respondents had knowledge of the prohibition imposed in the original charter party to sublease or sub-charter the vessel. Secondly, at the time the fixture note was entered into between Rafols and MADE, a written authorization signed by the wife of petitioner in his behalf, authorizing Rafols to execute contracts, negotiate for cargoes and receive freight payments, 10 was shown by the former to the latter. Although the said authorization may have been made by the wife, the same, however, can evidently be proof of good faith on the part of MADE and Chua who merely relied thereon. Thirdly, as stated in the fixture note, the agreement between Rafols and MADE was for the former to transport the cement of the latter using either the "M/V Don Julio Ouano or substitute vessel at his discretion." 11 Hence, the decision to use the M/V Don Julio Ouano in transporting the cargo of MADE was solely that of Rafols. Also, herein petitioner is deemed to have ratified the supposed sub-charter contract entered into by MADE and Rafols when he demanded the payment of the second freight installment as provided in the agreement and, later, received the same by virtue of the decision of the Court of First Instance of Cebu in Civil Case No. R-19845, an interpleader case filed by MADE. 12 Contrary to petitioner's contestation, the act of MADE in paying the first freight installment to Rafols is not an indication of bad faith or malice. Article 1240 of the Civil Code provides that "(p)ayment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it." Consequently, MADE, under the fixture note, was under obligation to pay the freight to Rafols. Now, even on petitioner's theory that there was a sublease, it must be stressed that in a sublease arrangement, the basic principles of which are applicable in the present case, there are two distinct leases involved, that is, the principal lease and the sublease. There are two juridical relationships which co-exist and are intimately related to each other, but which are nonetheless distinct one from the other. In such arrangement, the personality of the lessee qua lessee does not disappear; his rights and obligations vis-a-vis the lessor are not passed on to nor acquired by the sublessee. The lessor is, in the main and except only in the instances specified in the Civil Code, a stranger to the relationship between the lessee-sublessor and the sublessee. The lessee-sublessor is not an agent of the lessor nor is the lessor an agent of the lessee-sublessor. The sublessee has no right or authority to pay the sublease rentals to the lessor, said rentals being due and payable to the lessee-sublessor. 13 MADE was, therefore, under no obligation to pay petitioner since the freightage was payable to Rafols.

Although it is provided in Article 1652 of the Civil Code that the sublessee is subsidiarily liable to the lessor for any rent due from the lessee, the sublessee shall not be responsible beyond the amount of rent due from him, in accordance with the terms of the sublease, at the time of the extrajudicial demand by the lessor. However, in the case at bar, petitioner made no demand for payment from MADE. His letter dated October 13, 1980 was only a request to hold momentarily any payment due for the use of M/V Don Julio Ouano until respondent Rafols had made good his obligations to him. In the absence of any positive action on the part of petitioner, MADE could not withhold the payment of the freight to Rafols. As stated in the fixture note, the first freight installment was due and payable upon arrival of the assigned vessel at the port of loading. The goods were loaded in the vessel on or before October 9, 1980, 14hence on that date the first freight installment was already due and demandable. To further withhold the payment of said installment would constitute a breach of MADE's obligation under the foregoing contract. In addition, it is also worth noting that, as alleged in paragraph 6 of petitioner's basic complaint filed in the court below, payments were actually made after October 13, 1980 by Rafols to petitioner, to wit: (a) two checks in the total amount of P30,000.00 dated October 13 and 21, 1980, respectively; and (b) a third postdated check for P32,000.00 issued on November 9, 1980. 15 The fact that the said checks bounced for insufficient funds cannot in any way be ascribable to MADE nor can it create or affect any liability which petitioner seeks to impute to respondents MADE, SMCSI and their agents. Anent the issue on maritime lien on the cargo, it is the theory of petitioner that the first freight installment having remained unpaid to him as owner of M/V Don Julio Ouano, the maritime lien on the cargo subsists. The said contention is specious and untenable. Herein petitioner, as owner of the vessel, has no lien on the cargo. A charter party may, among other classifications, be of two kinds: One is where the owner agrees to carry a cargo which the charterer agrees to provide, and the second is where there is an entire surrender by the owner of the vessel to the charterer, who hires the vessel as one hires a house, takes her empty, and provides the officers and provisions, and, in short, the entire outfit. In such a contract, the charterer is substituted in place of the owner and becomes the owner for the voyage. 16 This second type is also known as a bareboat charter or otherwise referred to as a demise of the vessel. 17 In a charter party of the second kind, not only the entire capacity of the ship is let but the ship itself, and the possession is passed to the charterer. The entire control and management of it is given up to him. The general owner loses his lien for freight, but the lien itself is not destroyed; the charterer is substituted in his place, in whose favor the lien continues to exist when goods are taken on freight. The general owner, however, has no remedy for the charter of his vessel but his personal action on the covenants of the charter party. It is a contract in which he trusts in the personal credit of the charterer. 18 Therefore, where the charter constitutes a demise of the ship and the charterer is the owner for the voyage, and that is the kind of charter party involved in the instant case, the general owner has no lien on the cargo for the hire of the vessel, in the absence of an express provision therefor 19 as in the case at bar. Moreover, even on the assumption that petitioner had a lien on the cargo for unpaid freight, the same was deemed waived when the goods were unconditionally released to the consignee at the port of destination. A carrier has such a lien only while it retains possession of the goods, so that delivery of the goods to the consignee or a third person terminates, or constitutes a waiver of, the lien. 20 The lien of a carrier for the payment of freight charges is nothing more than the right to withhold the goods, and is inseparably associated with its possession and dependent upon it. 21 The shipowner's lien for freight is not in the nature of a hypothecation which will remain a charge upon the goods after he has parted with possession, but is simply the right to retain them until the freight is paid, and is therefore lost by an unconditional delivery of the goods to the consignee. 22 Furthermore, under Article 667 of the Code of Commerce, the period during which the lien shall subsist is twenty (20) days. Parenthetically, this has been modified by the Civil Code, Article 2241 whereof provides that credits for transportation of the goods carried, for the price of the contract and incidental expenses shall constitute a preferred claim or lien on the goods carried until their delivery and for thirty (30) days thereafter. During this period, the sale of the goods may be requested, even though there are other creditors and even if the shipper or consignee is insolvent. But, this right may not be made use of where the goods have been delivered and were turned over to a third person without malice on the part of the third person and for a valuable consideration. In the present case, the cargo of cement was unloaded from the vessel and delivered to the consignee on October 23, 1980, without any oral or written notice or demand having been made on SMCSI for unpaid freight on the cargo. Consequently, after the lapse of thirty (30) days from the date of delivery, the cargo of cement had been released from any maritime lien for unpaid freight.

Petitioner's invocation of Overseas Factors, Inc., et al. v. South Sea Shipping Co., et al., 23 therefore, is ineffectual and unavailing. In said case, the cargo was still in the possession of the carrier whose officers and crew refused to unload the same unless the balance of the freight was paid. In this case before us, the cargo had already been unconditionally delivered to the consignee SMCI without protest. WHEREFORE, the petition is DENIED and the assailed judgment of respondent Court of Appeals is hereby AFFIRMED. SO ORDERED. Narvasa, C.J., Padilla and Nocon, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-13884 February 29, 1960

NORTHERN MOTORS, INC., plaintiff-appellant, vs. PRINCE LINE, ROOSEVELT STEAMSHIP AGENCY INC., COLUMBIAN ROPE COMPANY OF THE PHILIPPINES, INC., and/or DELGADO BROTHERS, INC., defendants-appellees. Ozaeta, Gibbs and Ozaeta for appellant. Ross, Selph, Carrascoso and Janda for appellees. BARRERA, J.: This is an appeal interposed directly with this Court by plaintiff Northern Motors Inc., as owner of certain imported articles, from the decision of the Court of First Instance of Manila (in Civil Case No. 29098) ordering defendant Delgado Brothers, Inc., as the Arrastre Contractor in the Port of Manila, to pay said plaintiff the amount of P500.00 and costs, instead of P3,117.53 as demanded by it in its complaint. The facts as found and considered by the trial court must, therefore, control the resolution of this appeal. Plaintiff-appellant is the owner, by transfer from Liddel & Co., Inc., of a consignment of merchandise, consisting of 33 cases of auto spare parts and accessories, covered by Bill of Lading No. 19, discharged in Manila into the custody of defendant Delgado Brothers, Inc., and later cleared and taken delivery of by Luzon Brokerage Co., Inc., as agents of the consignee, upon presentation of the corresponding release papers from the Bureau of Customs. However, instead of 33, cases, only 32 were delivered to plaintiff's broker. Plaintiff, thereupon, demanded payment of the reasonable value (P3,117.53) of the missing case from defendant Delgado Brothers, Inc., but later offered to refund only P500.00, claiming that under paragraph 15 of its Management Contract, its liability is limited only to P500.00 unless the value of the merchandise is otherwise specified or manifested. Such was the issue presented by the pleadings, after the case was taken to court. After a short trial consisting in admissions and stipulations, the court rendered a decision which, in part, reads: It appearing that defendant Delgado Brothers, Inc. admitted having received the 33 cases in good order condition from the shipper and that it delivered only 32 cases to the consignee, the other defendants are now exempt from any liability. The only question for us to resolve is, as to whether or not paragraph 15 of the management contract limiting the liability of the arrastre contractor to P500.00 may be invoked by the Delgado Brothers, Inc. Plaintiff contends that the management contract in question is not binding upon it for the reason that it was not a party thereto. We have bad occasion to resolve a similar question in the case of Jose Bernabe and Co. vs. Delgado Brothers, Inc., Civil Case No. 306150, Court of First Instance, Manila. We advanced the opinion in that case, that paragraph 15 of the management contract is binding upon the importer or cosignee. In that case we said: "The Court is of the opinion that the plaintiff is bound by the provisions of the management contract. As a matter of fact, it complied with such provisions as were necessary for it to take delivery of the cargo. Plaintiff should not take advantage of the management contract when it suits him to do so, and reject its provisions when it thinks otherwise." We have no reason to change our opinion. We believe that in the instant case, as in the case we have mentioned above, plaintiff is bound by the provisions of the management contract. The general rule that only parties to the contract are bound to its provisions is not absolute. (Mendoza vs. PAL, Inc., G. R. No. L-3673 promulgated on February 29, 1952 and Krauffman vs. PNB, 42 Phil., 182). Plaintiff's motion for reconsideration having been denied, the present appeal was interposed. The two legal issues to be determined in this appeal are (1) whether the provisions of Paragraph 15 of the Management Contract between appellee Delgado Bothers, Inc. and the Bureau of Customs are valid, and (2) in the affirmative, whether plaintiff-appellant is bound by said provisions.

Anent the first issue, Paragraph 15 of the Management Contract, where pertinent, provides:. 15. It is further understood and strictly agreed that the CONTRACTOR (appellee) shall at its own expenses handle all merchandise upon or over said piers, wharves and other designated places, and at its own expense perform all work undertaken by it hereunder diligently and in a skillful workmanlike and efficient manner; and the CONTRACTOR (appellee) shall be solely responsible as an independent contractor for, and promptly pay to the steamship company, consignee, consignor, or other interested party or parties the invoice value of each package but which in no case shall be more than five hundred pesos (P500.00) for each package, unless the value is otherwise specified or manifested, and the corresponding arrastre charges had been paid, including all damages that may be suffered on account of loss, destruction, or damage of any merchandise while in the custody or under the control of the CONTRACTOR (appellee) upon any pier, wharf or other designated place under the supervision of the BUREAU, . . . (Emphasis supplied) Appellant claims that the above quoted provision is null and void, as it limits the liability of appellee for the loss, destruction or damage of any merchandise, to P500.00 per package, contending that to sustain the validity of the limitation would be to encourage acts of conversion and unjust enrichment on the part of the arrastre operator. Appellant, however, overlooks the fact that the limitation of appellee's liability under said provision, is not absolute or unqualified, for if the value of the merchandise is specified or manifested by the consignee, and the corresponding arrastre charges are paid on the basis of the declared value, the limitation does not apply. Consequently, the questioned provision is neither unfair nor arbitrary, as contended, because the consignee has it in his hands to hold, if he so wishes, the arrastre operator responsible for the full value of his merchandise by merely specifying it in any of the various documents required of him,1 in clearing the merchandise from the customs. For then, the appellee arrastre operator, by reason of the payment to it of a commensurate charge based on the higher declared value of the merchandise, could and should take extraordinary care of the special or valuable cargo. In this manner, there would be mutuality. What would, indeed, be unfair and arbitrary is to hold the arrastre operator liable for the full value of the merchandise after the consignee has paid the arrastre charges only a basis much lower than the true value of the goods. This Court has held as valid and binding a similar provision in a bill of lading limiting the carrier's liability to a specific amount, unless the shipper expressly declares a higher valuation and pays the corresponding rate thereon. (H. E. Heacock Company vs. Macondray & Company, Inc., 42 Phil., 205; Freixas and Company vs. Pacific Mail Steamship Co., 42 Phil., 199.)2 In the H. E. Heacock Company case, we stated that Three kinds of stipulation have often been made in a bill of lading. The first is one exempting the carrier from any and all liability for loss or damage occasioned by its own negligence. The second is one providing for an unqualified limitation of such liability to an agreed valuation. And the third is one limiting the liability of the carrier to an agreed valuation unless the shipper declares a higher value and pays a higher rate of freight. According to an almost uniform weight of authority, the first and second kinds of stipulations are invalid as being contrary to public policy, but the third is valid and enforceable. (Emphasis supplied.) The principle above enunciated was finally incorporated as law in Article 1749 of the new Civil Code, which reads: ART. 1749. A stipulation that the common carrier's liability is limited to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding. The same is true in the warehousing business where limitation on the warehouseman's liability is universally recognized and upheld. Thus However, in the absence of a prohibitory statute, the validity of a limitation of the amount of liability is generally upheld, where with a view to obtaining a compensation commensurate to the risk assumed, the warehouseman stipulates that unless the valuation of the property committed to his care is disclosed, his responsibility for loss or damage shall not exceed a certain amount or that in case of loss or damages the valuation fixed in the receipt shall be controlling." (Am. Jur., Vol. 56, p. 419, citing Taussig vs. Bode, 134 Cal. 260, 66 P. 159, 54 LRA 772, 86 Am. St. Rep. 250; Central Storage Whse. Co. vs. Pickering, 114 Ohio St. 76, 151 NE 29, 141 ALR 768). The legal relationship created between the consignee or owner of the imported goods who withdraws them from the customs house and the arrastre operator whose services are utilized for the purpose, is sufficiently akin to that existing between the consignee or owner of shipped goods and the common carrier or that between a depositor and the warehouseman, to warrant, in our opinion, the application of the same or similar principle. Consequently, we hold that the provisions of Paragraph 15 of the Management Contract in question are valid and legal. In the case of Caltex (Philippines), Inc., et al. vs. Delgado Brothers, Inc., et al., (96 Phil., 368), this Court, speaking through the Chief Justice, characterized this same Management Contract between appellee and the Bureau of Customs as "Not an ordinary agreement involving merely the parties therein as the same affects the public in general, particularly as to the

rates of an exemptions from the arrastre charges." In fact, the contract is awarded only after a public bidding in which the conditions thereof are made public for consideration by prospective bidders. We come now to the determination of the second issue of whether appellant was bound by the provisions of said Paragraph 15 of the Management Contract. Appellant contends that since it was not a party to the said contract, it was not bound by its provisions. The facts of this case and the law applicable thereto do not support this view. Article 1311 of the new Civil Code, states: ART. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent. If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliverately conferred a favor upon a third person. Tested in the light of the above legal provision, Paragraph 15 of the Management Contract in question, it is believed, contains provisions which are in the nature of stipulations pour autrui, that is, for the benefit or in favor of a third party, the appellant in the case at bar. By virtue thereof, appellee is expected to render service, not to the Bureau of Customs, but specifically and principally to the importers or consignees of the cargoes. Upon the importer's or consignee's compliance with certain conditions, namely, presentation of approved delivery permits, payment of arrastre fees, etc., he is entitled to receive, and the appellee arrastre contractor is obliged to discharge and deliver, the cargoes or merchandise corresponding to those described in the delivery permit of said importer or consignee. There can scarcely be any doubt that by said provision in the contract, appellee and the Bureau of Customs deliberately and purposely conferred benefit upon appellant, because it is to the latter that the merchandise was to be delivered in good order and payment made, in the event of damage, destruction, or loss thereof while in appellee's control or custody. Having arrived at the conclusion that said contract contain provisions which clearly and deliberately confer a favor upon a third person (using the language of the article aforecited), the next inquiry is whether the beneficiary, herein appellant, has accepted said favor and communicated his acceptance to the obligor, herein appellee. In the pleadings filed by the parties, as well as in the decision of the court a quo, we find ample evidence of appellant's acceptance of said favor and its communication thereof to appellee. Paragraph III of appellant's complaint3 contains the following allegation: Delgado Brothers had been the operator of the arrastre service at the Port of Manila up to February 29, 1956 and was authorized as such to deliver cargoes discharged by carrying vessels into its custody on presentation of release papers from the Bureau of Customs and the steamship carrier and/or its agents. Stipulation Nos. 1 and 24 read: 1. That the Delgado Brothers received 33 cases from the carrier. 2. That Delgado Brothers only delivered 32 cases to Luzon Brokerage Company, Inc. (Appellant's agent) We quote from the decision.5 . . . The parties agreed. (1) That defendant Delgado Brothers, Inc. received from the carrier, goods covered by bill of lading No. 19; (2) That in the said bill of lading, 33 cases of auto spare parts and accessories were included; (3) That Delgado Brothers, Inc. in its capacity as arrastre contractor received the 33 cases in apparent good order and condition as per corresponding tally sheets; (4) That Delgado Brothers, Inc. only delivered to the consignee 32 cases out of the 33 cases;

(5) That paragraph 15 of the management contract entered into by the Delgado Brothers, Inc. and the Bureau of Customs limits to only P500.00 the liability of the arrastre contractor for undeclared value of goods received. . . . As a matter of fact it (appellant) complied with such provision's (of the Management Contract) as were necessary for it to take delivery of the cargo. . . . It is undisputed, therefore, that appellant took delivery of its cargo from appellee, as arrastre operator under the Management Contract, and after the presentation and signing by it, through its duly authorized broker, of the pertinent documents covering the release of said cargoes. According to the law,6 before delivery of the cargo could be made, the consignee or owner, or his representative must first clear them from the Bureau of Customs and obtain therefrom a Delivery Permit and a Gate Pass. Among the conditions imposed by law for this purpose is for the owner or consignee to submit to the Collector of Customs a written declaration containing, inter alia, a "just and faithful account of the actual cost of said merchandise, including and specifying the value of all containers or coverings, and that nothing has been omitted therefrom or concealed whereby the Government of the Republic of the Philippines might be defrauded of any part of the duties lawfully due on the merchandise." In the delivery permit thus obtained, the following "Important Notice" is stamped or printed: IMPORTANT NOTICE All cargo covered by this permit are delivered to and received by Consignee's and importer's representative subject to all the terms and conditions of Management Contract between the Bureau of Customs and Delgado Brothers, Inc. (appellee), (or whoever may be arrastre contractor) dated October 21, 1950, and all amendments thereof or alternatives thereof, particularly but not limited Paragraph 15 thereof limiting the company liability to P500.00 per package, unless the value of the goods is otherwise specified manifested and the corresponding arrastre charges have been paid . . . (Emphasis supplied.). In the Gate Pass which covers the receipt and release of the cargo duly signed by the importer's or consignee's representative, the following annotation also appears: The undersigned, duly authorized to respectively represent the Bureau of Customs, the above named consignee, and the arrastre service operator, hereby certify to the correctness of the above description of the goods covered by this Gate Pass. Issuance of this Gate Pass constitutes delivery to, and receipt by CONSIGNEE of the goods as described herein, subject to all the terms and conditions contained in the Management Contract between the Bureau of Customs and Delgado Brothers, Inc. (appellee) (or whoever may be the arrastre contractor) dated October 21, 1950, and all amendments thereto or alterations thereon, particularly but not limited to Paragraph 15 thereof limiting the company liability to P500.00 per package, unless the value of the goods is otherwise specified or manifested . . . (Emphasis supplied.) Even, therefore, if appellant was not a signatory to said Management Contract, it legally became a party thereto when it (through its broker, the Luzon Brokerage Co. Inc.) obtained the delivery permit and gate pass in the above manner prescribed by law and, making use of them, demanded from appellee the delivery of the 33 cases, pursuant to appellee's undertaking in virtue of the very same Management Contract. Again, it became bound when it brought court action against appellee, also by virtue of the latter's obligations as the arrastre contractor under the same Management Contract, for the purpose of recovering the reasonable value of the missing case of auto spare parts and accessories. Under the circumstances, as the trial court aptly observed: "Plaintiff should not take advantage of the Management Contract when it suits him to do so and reject its provisions when it thinks otherwise." The principle is the same or similar to that involved in the case of Mendoza vs. Philippine Air Lines, Inc. (90 Phil., 836), wherein it was held that . . . even if the LVN Pictures, Inc. as consignor of its own initiative, and acting independently of Mendoza for the time being, made Mendoza as consignee, a stranger to the contract, if that is possible, nevertheless, when he, Mendoza, appeared at the Pili Air Port armed with the copy of the Air way Bill (Exh. 1) demanding the delivery of the shipment to him, he thereby made himself a party to the contract of transportation. . . . His demand for the delivery of the can of film to him at the Pili Air Port may be regarded as a notice of his acceptance of the stipulation of the delivery in his favor contained in the contract of carriage and delivery. In this case, he also made himself a party to the contract, or at least has come to court to enforce it . His cause of action must necessarily be founded on its breach. (Emphasis supplied.) We do not find it necessary to pass, in detail, upon appellant's claim (which we find without merit) that the limited liability provision in Paragraph 15 of the Management Contract in question has no statutory basis under Act No. 3002, as amended, inasmuch as the question was never raised by appellant in the court a quo. The rule is well-settled that no question will be considered by the appellate court which has not been raised in the court below. (Toribio vs. Decasa, 55 Phil., 461; San Agustin vs. Barrios, 68 Phil. 475.) When a party deliberately adopts a certain theory, and the case is tried

and decided upon the theory in the court below, he will not be permitted to change his theory on appeal because, to permit him to do so, would be unfair to the adverse party. (Molina vs. Somes, 24 Phil., 49; Agoncillo vs. Javier, 38 Phil., 424.) Wherefore, finding no reversible error in the decision appealed from, the same is hereby affirmed, with costs against the plaintiff-appellant. So ordered. Bengzon, Montemayor, Bautista Angelo, Labrador, Reyes, J.B.L., and Endencia, JJ. concur.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 79518 January 13, 1989 REBECCA C. YOUNG assisted by her husband ANTONIO GO, petitioner, vs. COURT OF APPEALS, PH CREDIT CORP., PHIL. HOLDING, INC. FRANCISCO VILLAROMAN, FONG YOOK LU, ELLEN YEE FONG and THE REGISTER OF DEEDS OF MANILA, respondents. Diego O. Untalan for petitioner. Esteban B. Bautista for respondents Fong Yook Lu and Ellen Yee Fong. Janette Borres for respondents.

PARAS, J.: This is a petition for review on certiorari seeking to set aside the decision of the Court of Appeals 1 in CA-G.R. No. 1002, entitled Spouses Chui Wan and Felisa Tan Yu and Rebecca Young vs. PH Credit Corporation et al., which affirmed the decision of the Regional Trial Court of Manila, Branch XXXII, earlier dismissing the complaint of petitioners for Annulment of Sale, Specific Performance and Damages, against respondents. The facts of the case are as follows: Defendant Philippine Holding, Inc. is the former owner of a piece of land located at Soler St., Sta. Cruz, Manila, and a two storey building erected thereon, consisting of six units; Unit 1350 which is vacant, Unit 1352 occupied by Antonio Young, Unit 1354 by Rebecca C. Young, Unit 1356 by Chui Wan and Felisa Tan Yu, Unit 1358 by Fong Yook Lu and Ellen Yee Fong and Unit 1360 by the Guan Heng Hardware (Rollo, pp. 14-15). The owner Philippine Holding, Inc. secured an order from the City Engineer of Manila to demolish the building. Antonio Young, then a tenant of said Unit 1352, filed an action to annul the City Engineer's demolition Order (Civil Case No. 123883) entitled Antonio S. Young vs. Philippine Holding, Inc. before the then Court of First Instance of Manila, Branch XXX. As an incident in said case, the parties submitted a Compromise Agreement to the Court on September 24, 1981. Paragraph 3 of said agreement provides that plaintiff (Antonio S. Young) and Rebecca Young and all persons claiming rights under them bind themselves to voluntarily and peacefully vacate the premises which they were occupying as lessees (Units 1352 and 1354, respectively) which are the subject of the condemnation and demolition order and to surrender possession thereof to the defendant Philippine Holding, Inc. within sixty (60) days from written notice, subject to the proviso that should defendant decided to sell the subject property or portion thereof, "plaintiff and Rebecca C. Young have the right of first refusal thereof." (Rollo, p. 49). On September 17, 1981, Philippine Holding, Inc. had previously sold the above said property described in the compromise agreement by way of dacion in payment to PH Credit Corporation (Rollo, p. 49). On November 9, 1982, the property was subdivided into two parcels, one 244.09 sq.m. in area covering Units 1350, 1352 and 1354 (TCT No. 152439) and the other 241.71 sq.m. in area covering Units 1356, 1358 and 1360 (TCT No. 152440) and both titles were placed in the name of PH Credit Corporation. On December 8, 1982, PH Credit Corporation sold the property covered by TCT 152439 to the Blessed Land Development Corporation represented by its President Antonio T. S. Young; and on September 16, 1983, PH Credit Corporation sold the property covered by TCT 152440 embracing Units 1356, 1358 and 1360 to spouses Fong Yook Lu and Ellen Yee Fong (Rollo, p. 15). Thereafter, petitioner Rebecca C. Young and her co-plaintiffs, the spouses Chui Wan and Felisa Tan Yu filed in the Regional Trial Court of Manila, Civil Case No. 84-22676 for the annulment of the sale in favor of herein respondent

spouses, Fong Yook Lu and Ellen Yee Fong and for specific performance and damages against the PH Credit Corporation and Philippine Holding, Incorporated. Plaintiff spouses Chui Wan and Felisa Tan Yu alleged that defendant corporation and Francisco Villaroman, sold the property without affording them (the plaintiffs-spouses) the right of first refusal to purchase that portion of the property which they are renting. Plaintiff Rebecca C. Young, now petitioner, also claimed the right of first refusal purportedly granted to her under the aforestated proviso of the abovesaid compromise agreement and prayed that the sale be annulled and that they be allowed to exercise her right of first refusal to purchase subject property (Rollo, p. 50). The lower court decided in favor of the defendants and against the plaintiffs, thus dismissing the complaint together with defendants' counterclaims (Rollo, p. 15) On the other hand, the claim of Rebecca C. Young was similarly rejected by the trial court on the following grounds: (1) that she was not a party in the Civil Case No. 123883, wherein subject compromise agreement was submitted and approved by the trial court apart from the fact that she did not even affix her signature to the said compromise agreement; (2) that Rebecca Young had failed to present any evidence to show that she had demanded from the defendants-owners, observance of her right of first refusal before the said owners sold units 1356, 1358 and 1360; (3) that even assuming that her supposed right of first refusal is a stipulation for the benefit of a third person, she did not inform the obligor of her acceptance as required by the second paragraph of Article 1311 of the Civil Code. Chui Wan and Felisa Tan Yu and Rebecca C. Young, assisted by her husband, appealed to the Court of Appeals which dismissed the same on August 7, 1987, for lack of merit. Hence this petition, which was brought to this Court only by Rebecca Young, assisted by her husband Antonio Go. On October 2, 1987, respondents Fong Yook Lu, moved to strike out or dismiss outright the instant petition (Rollo, p. 35). In the resolution of November 4, 1987, the Second Division of this Court required the petitioner to comment on said motion (Rollo, p. 37), which comment was filed on December 17, 1987 (Rollo, p. 38). Thereafter, in the resolution of January 20, 1988, respondents were required to file a reply thereto (Rollo, p. 42) which was filed on January 11, 1988 (Rollo, p. 43). On March 24, 1988, petitioner filed a rejoinder to reply (Rollo, p. 46) in compliance with the resolution of February 29, 1988 (Rollo, p.45). In the resolution of May 11, 1988, the petition was given due course and the parties were required to submit simultaneously their respective memoranda (Rollo, p. 47). Respondents filed their memorandum on June 29, 1988 (Rollo, p. 48), while petitioner's memorandum was filed on July 14, 1988 (Rollo, p. 64). Petitioner raised the following assignments of error: 1. The lower court erred in holding that Rebecca C. Young cannot enforce the stipulation in her favor in the compromise agreement as she is not party therein. 2. The lower court erred in holding that even if par. 3 of the compromise agreement is construed as a stipulation pour autrui Rebecca Young cannot enforce it because she did not communicate her acceptance thereof to the obligor. (Rollo, p. 7) The petition is devoid of merit. The main issue in this case is whether or not petitioner can enforce a compromise agreement to which she was not a party. This issue has already been squarely settled by this Court in the negative in J.M. Tuason & Co., Inc. v. Cadampog (7 SCRA 808 [1963])where it was ruled that appellant is not entitled to enforce a compromise agreement to which he was not a party and that as to its effect and scope, it has been determined in the sense that its effectivity if at all, is limited to the parties thereto and those mentioned in the exhibits (J.M. Tuason & Co., Inc. v. Aguirre, 7 SCRA 112 [1963]). It was reiterated later that a compromise agreement cannot bind persons who are not parties thereto (Guerrero v. C.A., 29 SCRA 791 [1969]). The pertinent portion of the Compromise Agreement reads: Plaintiff Antonio T.S. Young and the Defendant HOLDING hereby agree to implead in this action as necessary partyplaintiff, plaintiff's daughter Rebecca C. Young who is the recognized lawful lessee of the premises known and identified as 1354 Soller St., Sta. Cruz, Manila and whose written conformity appears hereunder. (Rollo, p. 18)

From the terms of this agreement, the conditions are very clear, such as: (1) that Rebecca C. Young shall be impleaded in the action and (2) that she shall signify her written conformity thereto. For unknown reasons, the above conditions were not complied with. The parties did not make any move to implead Rebecca as necessary party in the case. Neither did her written conformity appear in said agreement. While there is the printed name of Rebecca C. Young appearing at the end of the joint motion for approval of the Compromise Agreement, she did not affix her signature above her printed name, nor on the left margin of each and every page thereof. In fact, on cross-examination, she admitted that she was not a party to the case and that she did not sign the aforesaid joint motion because it was not presented to her (Rollo, p. 18). More than that, by the aforesaid actuations of the parties and petitioner's apparent lack of interest, the intention is evident, not to include the latter either in the onerous, or in the beneficient provisions of said agreement. Petitioner further argued that the stipulation giving her the right of first refusal is a stipulation pour autrui or a stipulation in favor of a third person under Article 1311 of the Civil Code. The requisites of a stipulation pour autrui or a stipulation in favor of a third person are the following: (1) there must be a stipulation in favor of a third person. (2) the stipulation must be a part, not the whole of the contract. (3) the contracting parties must have clearly and deliberately conferred a favor upon a third person, not a mere incidental benefit or interest. (4) the third person must have communicated his acceptance to the obligor before its revocation. (5) neither of the contracting parties bears the legal representation or authorization of the third party. (Florentino v. Encarnacion, Sr., 79 SCRA 193 [1977]). Assuming that petitioner is correct in claiming that this is a stipulation pour autrui it is unrebutted that she did not communicate her acceptance whether expressly or impliedly. She insists however, that the stipulation has not yet been revoked, so that her present claim or demand is still timely. As correctly observed by the Court of Appeals, the above argument is pointless, considering that the sale of subject property to some other person or entity constitutes in effect a revocation of the grant of the right of first refusal to Rebecca C. Young. PREMISES CONSIDERED, the petition is DENIED for lack of merit, and the decision of the Court of Appeals is AFFIRMED. SO ORDERED. Melencio-Herrera (Chairperson), Padilla, Sarmiento and Regalado, JJ., concur.

THIRD DIVISION

[G.R. No. 138018. July 26, 2002]

RIDO MONTECILLO, petitioner, ABUCAY, respondents.

vs. IGNACIA

REYNES

and

SPOUSES

REDEMPTOR

and

ELISA

DECISION CARPIO, J.:

The Case On March 24, 1993, the Regional Trial Court of Cebu City, Branch 18, rendered a Decision [1] declaring the deed of sale of a parcel of land in favor of petitioner null and void ab initio. The Court of Appeals,[2] in its July 16, 1998 Decision[3] as well as its February 11, 1999 Order[4] denying petitioners Motion for Reconsideration, affirmed the trial courts decision in toto. Before this Court now is a Petition for Review on Certiorari[5] assailing the Court of Appeals decision and order.

The Facts Respondents Ignacia Reynes (Reynes for brevity) and Spouses Abucay (Abucay Spouses for brevity) filed on June 20, 1984 a complaint for Declaration of Nullity and Quieting of Title against petitioner Rido Montecillo (Montecillo for brevity). Reynes asserted that she is the owner of a lot situated in Mabolo, Cebu City, covered by Transfer Certificate of Title No. 74196 and containing an area of 448 square meters (Mabolo Lot for brevity). In 1981, Reynes sold 185 square meters of the Mabolo Lot to the Abucay Spouses who built a residential house on the lot they bought. Reynes alleged further that on March 1, 1984 she signed a Deed of Sale of the Mabolo Lot in favor of Montecillo (Montecillos Deed of Sale for brevity). Reynes, being illiterate,[6] signed by affixing her thumb-mark[7] on the document. Montecillo promised to pay the agreed P47,000.00 purchase price within one month from the signing of the Deed of Sale. Montecillos Deed of Sale states as follows: That I, IGNACIA T. REYNES, of legal age, Filipino, widow, with residence and postal address at Mabolo, Cebu City, Philippines, for and in consideration of FORTY SEVEN THOUSAND (P47,000.00) PESOS, Philippine Currency, to me in hand paid by RIDO MONTECILLO, of legal age, Filipino, married, with residence and postal address at Mabolo, Cebu City, Philippines, the receipt hereof is hereby acknowledged, have sold, transferred, and conveyed, unto RIDO MONTECILLO, his heirs, executors, administrators, and assigns, forever, a parcel of land together with the improvements thereon, situated at Mabolo, Cebu City, Philippines, free from all liens and encumbrances, and more particularly described as follows: A parcel of land (Lot 203-B-2-B of the subdivision plan Psd-07-01-00 2370, being a portion of Lot 203-B-2, described on plan (LRC) Psd-76821, L.R.C. (GLRO) Record No. 5988), situated in the Barrio of Mabolo, City of Cebu. Bounded on the SE., along line 1-2 by Lot 206; on the SW., along line 2-3, by Lot 202, both of Banilad Estate; on the NW., along line 4-5, by Lot 203-B-2-A of the subdivision of Four Hundred Forty Eight (448) square meters, more or less. of which I am the absolute owner in accordance with the provisions of the Land Registration Act, my title being evidenced by Transfer Certificate of Title No. 74196 of the Registry of Deeds of the City of Cebu, Philippines. That This Land Is Not Tenanted and Does Not Fall Under the Purview of P.D. 27.[8] (Emphasis supplied) Reynes further alleged that Montecillo failed to pay the purchase price after the lapse of the one-month period, prompting Reynes to demand from Montecillo the return of the Deed of Sale. Since Montecillo refused to return the Deed of Sale,[9] Reynes executed a document unilaterally revoking the sale and gave a copy of the document to Montecillo. Subsequently, on May 23, 1984 Reynes signed a Deed of Sale transferring to the Abucay Spouses the entire Mabolo Lot, at the same time confirming the previous sale in 1981 of a 185-square meter portion of the lot. This Deed of Sale states:

I, IGNACIA T. REYNES, of legal age, Filipino, widow and resident of Mabolo, Cebu City, do hereby confirm the sale of a portion of Lot No. 74196 to an extent of 185 square meters to Spouses Redemptor Abucay and Elisa Abucay covered by Deed per Doc. No. 47, Page No. 9, Book No. V, Series of 1981 of notarial register of Benedicto Alo, of which spouses is now in occupation; That for and in consideration of the total sum of FIFTY THOUSAND (P50,000) PESOS, Philippine Currency, received in full and receipt whereof is herein acknowledged from SPOUSES REDEMPTOR ABUCAY and ELISA ABUCAY, do hereby in these presents, SELL, TRANSFER and CONVEY absolutely unto said Spouses Redemptor Abucay and Elisa Abucay, their heirs, assigns and successors-in-interest the whole parcel of land together with improvements thereon and more particularly described as follows: TCT No. 74196 A parcel of land (Lot 203-B-2-B of the subdivision plan psd-07-01-002370, being a portion of Lot 203-B-2, described on plan (LRC) Psd 76821, LRC (GLRO) Record No. 5988) situated in Mabolo, Cebu City, along Arcilla Street, containing an area of total FOUR HUNDRED FORTY EIGHT (448) Square meters. of which I am the absolute owner thereof free from all liens and encumbrances and warrant the same against claim of third persons and other deeds affecting said parcel of land other than that to the said spouses and inconsistent hereto is declared without any effect. In witness whereof, I hereunto signed this 23rd day of May, 1984 in Cebu City, Philippines. [10] Reynes and the Abucay Spouses alleged that on June 18, 1984 they received information that the Register of Deeds of Cebu City issued Certificate of Title No. 90805 in the name of Montecillo for the Mabolo Lot. Reynes and the Abucay Spouses argued that for lack of consideration there (was) no meeting of the minds[11] between Reynes and Montecillo. Thus, the trial court should declare null and void ab initio Montecillos Deed of Sale, and order the cancellation of Certificate of Title No. 90805 in the name of Montecillo. In his Answer, Montecillo, a bank executive with a B.S. Commerce degree,[12] claimed he was a buyer in good faith and had actually paid the P47,000.00 consideration stated in his Deed of Sale. Montecillo, however, admitted he still owed Reynes a balance of P10,000.00. He also alleged that he paid P50,000.00 for the release of the chattel mortgage which he argued constituted a lien on the Mabolo Lot. He further alleged that he paid for the real property tax as well as the capital gains tax on the sale of the Mabolo Lot. In their Reply, Reynes and the Abucay Spouses contended that Montecillo did not have authority to discharge the chattel mortgage, especially after Reynes revoked Montecillos Deed of Sale and gave the mortgagee a copy of the document of revocation. Reynes and the Abucay Spouses claimed that Montecillo secured the release of the chattel mortgage through machination. They further asserted that Montecillo took advantage of the real property taxes paid by the Abucay Spouses and surreptitiously caused the transfer of the title to the Mabolo Lot in his name. During pre-trial, Montecillo claimed that the consideration for the sale of the Mabolo Lot was the amount he paid to Cebu Ice and Cold Storage Corporation (Cebu Ice Storage for brevity) for the mortgage debt of Bienvenido Jayag (Jayag for brevity). Montecillo argued that the release of the mortgage was necessary since the mortgage constituted a lien on the Mabolo Lot. Reynes, however, stated that she had nothing to do with Jayags mortgage debt except that the house mortgaged by Jayag stood on a portion of the Mabolo Lot. Reynes further stated that the payment by Montecillo to release the mortgage on Jayags house is a matter between Montecillo and Jayag. The mortgage on the house, being a chattel mortgage, could not be interpreted in any way as an encumbrance on the Mabolo Lot. Reynes further claimed that the mortgage debt had long prescribed since the P47,000.00 mortgage debt was due for payment on January 30, 1967. The trial court rendered a decision on March 24, 1993 declaring the Deed of Sale to Montecillo null and void. The trial court ordered the cancellation of Montecillos Transfer Certificate of Title No. 90805 and the issuance of a new certificate of tit le in favor of the Abucay Spouses. The trial court found that Montecillos Deed of Sale had no cause or con sideration because Montecillo never paid Reynes the P47,000.00 purchase price, contrary to what is stated in the Deed of Sale that Reynes received the purchase price. The trial court ruled that Montecillos Deed of Sale produced no effect whatsoever for want of consideration. The dispositive portion of the trial courts decision reads as follows: WHEREFORE, in view of the foregoing consideration, judgment is hereby rendered declaring the deed of sale in favor of defendant null and void and of no force and effect thereby ordering the cancellation of Transfer Certificate of Title No. 90805 of the Register of Deeds of Cebu City and to declare plaintiff Spouses Redemptor and Elisa Abucay as rightful vendees and Transfer Certificate of Title to the property subject matter of the suit issued in their names. The defendants

are further directed to pay moral damages in the sum of P20,000.00 and attorneys fees in the sum of P2,000.00 plus cost of the suit. xxx Not satisfied with the trial courts Decision, Montecillo appealed the same to the Court of Appeals.

Ruling of the Court of Appeals The appellate court affirmed the Decision of the trial court in toto and dismissed the appeal[13] on the ground that Montecillos Deed of Sale is void for lack of consideration. The appellate court also denied Montecillos Motion for Reconsideration[14] on the ground that it raised no new arguments. Still dissatisfied, Montecillo filed the present petition for review on certiorari.

The Issues

Montecillo raises the following issues: 1. Was there an agreement between Reynes and Montecillo that the stated consideration of P47,000.00 in the Deed of Sale be paid to Cebu Ice and Cold Storage to secure the release of the Transfer Certificate of Title? 2. If there was none, is the Deed of Sale void from the beginning or simply rescissible?[15]

The Ruling of the Court

The petition is devoid of merit.

First issue: manner of payment of the P47,000.00 purchase price. Montecillos Deed of Sale does not state that the P47,000.00 purchase price should be paid by Montecillo to Cebu Ice Storage. Montecillo failed to adduce any evidence before the trial court showing that Reynes had agreed, verbally or in writing, that the P47,000.00 purchase price should be paid to Cebu Ice Storage. Absent any evidence showing that Reynes had agreed to the payment of the purchase price to any other party, the payment to be effective must be made to Reynes, the vendor in the sale. Article 1240 of the Civil Code provides as follows: Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. Thus, Montecillos payment to Cebu Ice Storage is not the payment that would extinguish [16] Montecillos obligation to Reynes under the Deed of Sale. It militates against common sense for Reynes to sell her Mabolo Lot for P47,000.00 if this entire amount would only go to Cebu Ice Storage, leaving not a single centavo to her for giving up ownership of a valuable property. This incredible allegation of Montecillo becomes even more absurd when one considers that Reynes did not benefit, directly or indirectly, from the payment of the P47,000.00 to Cebu Ice Storage. The trial court found that Reynes had nothing to do with Jayags mortgage debt with Cebu Ice Storage. The trial court made the following findings of fact: x x x. Plaintiff Ignacia Reynes was not a party to nor privy of the obligation in favor of the Cebu Ice and Cold Storage Corporation, the obligation being exclusively of Bienvenido Jayag and wife who mortgaged their residential house constructed on the land subject matter of the complaint. The payment by the defendant to release the residential house from the mortgage is a matter between him and Jayag and cannot by implication or deception be made to appear as an encumbrance upon the land.[17]

Thus, Montecillos payment to Jayags creditor could not possibly redound to the benefit [18] of Reynes. We find no reason to disturb the factual findings of the trial court. In petitions for review on certiorari as a mode of appeal under Rule 45, as in the instant case, a petitioner can raise only questions of law. [19] This Court is not the proper venue to consider a factual issue as it is not a trier of facts.

Second issue: whether the Deed of Sale is void ab initio or only rescissible. Under Article 1318 of the Civil Code, [T]here is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established. Article 1352 of the Civil Code also provides that [C]ontracts without cause x x x produce no effect whatsoever. Montecillo argues that his Deed of Sale has all the requisites of a valid contract. Montecillo points out that he agreed to purchase, and Reynes agreed to sell, the Mabolo Lot at the price ofP47,000.00. Thus, the three requisites for a valid contract concur: consent, object certain and consideration. Montecillo asserts there is no lack of consideration that would prevent the existence of a valid contract. Rather, there is only non-payment of the consideration within the period agreed upon for payment. Montecillo argues there is only a breach of his obligation to pay the full purchase price on time. Such breach merely gives Reynes a right to ask for specific performance, or for annulment of the obligation to sell the Mabolo Lot. Montecillo maintains that in reciprocal obligations, the injured party can choose between fulfillment and rescission, [20] or more properly cancellation, of the obligation under Article 1191[21] of the Civil Code. This Article also provides that the court shall decree the rescission claimed, unless there be just cause authorizing the fixing of the period. Montecillo claims that because Reynes failed to make a demand for payment, and instead unilaterally revoked Montecillos Deed of Sale, the court has a just cause to fix the period for payment of the balance of the purchase price. These arguments are not persuasive. Montecillos Deed of Sale states that Montecillo paid, and Reynes received, the P47,000.00 purchase price on March 1, 1984, the date of signing of the Deed of Sale. This is clear from the following provision of the Deed of Sale: That I, IGNACIA T. REYNES, x x x for and in consideration of FORTY SEVEN THOUSAND (P47,000.00) PESOS, Philippine Currency, to me in hand paid by RIDO MONTECILLO xxx, receipt of which is hereby acknowledged, have sold, transferred, and conveyed, unto RIDO MONTECILLO, x x x a parcel of land x x x. On its face, Montecillos Deed of Absolute Sale[22] appears supported by a valuable consideration. However, based on the evidence presented by both Reynes and Montecillo, the trial court found that Montecillo never paid to Reynes, and Reynes never received from Montecillo, the P47,000.00 purchase price. There was indisputably a total absence of consideration contrary to what is stated in Montecillos Deed of Sale. As pointed out by the trial court From the allegations in the pleadings of both parties and the oral and documentary evidence adduced du ring the trial, the court is convinced that the Deed of Sale (Exhibits 1 and 1-A) executed by plaintiff Ignacia Reynes acknowledged before Notary Public Ponciano Alvinio is devoid of any consideration. Plaintiff Ignacia Reynes through the representation of Baudillo Baladjay had executed a Deed of Sale in favor of defendant on the promise that the consideration should be paid within one (1) month from the execution of the Deed of Sale. However, after the lapse of said period, defendant failed to pay even a single centavo of the consideration. The answer of the defendant did not allege clearly why no consideration was paid by him except for the allegation that he had a balance of only P10,000.00. It turned out during the pre-trial that what the defendant considered as the consideration was the amount which he paid for the obligation of Bienvenido Jayag with the Cebu Ice and Cold Storage Corporation over which plaintiff Ignacia Reynes did not have a part except that the subject of the mortgage was constructed on the parcel of land in question. Plaintiff Ignacia Reynes was not a party to nor privy of the obligation in favor of the Cebu Ice and Cold Storage Corporation, the obligation being exclusively of Bienvenido Jayag and wife who mortgaged their residential house constructed on the land subject matter of the complaint. The payment by the defendant to release the residential house from the mortgage is a matter between him and Jayag and cannot by implication or deception be made to appear as an encumbrance upon the land. [23] Factual findings of the trial court are binding on us, especially if the Court of Appeals affirms such findings. [24] We do not disturb such findings unless the evidence on record clearly does not support such findings or such findings are based on a patent misunderstanding of facts,[25] which is not the case here. Thus, we find no reason to deviate from the findings of both the trial and appellate courts that no valid consideration supported Montecillos Deed of Sal e. This is not merely a case of failure to pay the purchase price, as Montecillo claims, which can only amount to a breach of obligation with rescission as the proper remedy. What we have here is a purported contract that lacks a cause - one of the three essential requisites of a valid contract. Failure to pay the consideration is different from lack of consideration. The

former results in a right to demand the fulfillment or cancellation of the obligation under an existing valid contract [26] while the latter prevents the existence of a valid contract Where the deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of sale is null and void ab initio for lack of consideration. This has been the well-settled rule as early as Ocejo Perez & Co. v. Flores,[27] a 1920 case. As subsequently explained in Mapalo v. Mapalo[28] In our view, therefore, the ruling of this Court in Ocejo Perez & Co. vs. Flores, 40 Phil. 921, is squarely applic able herein. In that case we ruled that a contract of purchase and sale is null and void and produces no effect whatsoever where the same is without cause or consideration in that the purchase price which appears thereon as paid has in fact never been paid by the purchaser to the vendor. The Court reiterated this rule in Vda. De Catindig v. Heirs of Catalina Roque,[29] to wit The Appellate Courts finding that the price was not paid or that the statement in the supposed contracts of sale (Exh. 6 to 26) as to the payment of the price was simulated fortifies the view that the alleged sales were void. If the price is simulated, the sale is void . . . (Art. 1471, Civil Code) A contract of sale is void and produces no effect whatsoever where the price, which appears thereon as paid, has in fact never been paid by the purchaser to the vendor (Ocejo, Perez & Co. vs. Flores and Bas, 40 Phil. 921; Mapalo vs. Mapalo, L-21489, May 19, 1966, 64 O.G. 331, 17 SCRA 114, 122). Such a sale is non-existent (Borromeo vs. Borromeo, 98 Phil. 432) or cannot be considered consummated (Cruzado vs. Bustos and Escaler, 34 Phil. 17; Garanciang vs. Garanciang, L22351, May 21, 1969, 28 SCRA 229). Applying this well-entrenched doctrine to the instant case, we rule that Montecillos Deed of Sale is null and void ab initio for lack of consideration. Montecillo asserts that the only issue in controversy is the mode and/or manner of payment and/or whether or not payment has been made.[30] Montecillo implies that the mode or manner of payment is separate from the consideration and does not affect the validity of the contract. In the recent case of San Miguel Properties Philippines, Inc. v. Huang,[31] we ruled that In Navarro v. Sugar Producers Cooperative Marketing Association, Inc. (1 SCRA 1181 [1961]), we laid down the rule that the manner of payment of the purchase price is an essential element before a valid and binding contract of sale can exist. Although the Civil Code does not expressly state that the minds of the parties must also meet on the terms or manner of payment of the price, the same is needed, otherwise there is no sale. As held in Toyota Shaw, Inc. v. Court of Appeals (244 SCRA 320 [1995]), agreement on the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. (Emphasis supplied) One of the three essential requisites of a valid contract is consent of the parties on the object and cause of the contract. In a contract of sale, the parties must agree not only on the price, but also on the manner of payment of the price. An agreement on the price but a disagreement on the manner of its payment will not result in consent, thus preventing the existence of a valid contract for lack of consent. This lack of consent is separate and distinct from lack of consideration where the contract states that the price has been paid when in fact it has never been paid. Reynes expected Montecillo to pay him directly the P47,000.00 purchase price within one month after the signing of the Deed of Sale. On the other hand, Montecillo thought that his agreement with Reynes required him to pay the P47,000.00 purchase price to Cebu Ice Storage to settle Jayags mortgage debt. Montecillo also acknowledged a balance of P10,000.00 in favor of Reynes although this amount is not stated in Montecillos Deed of Sale. Thus, there was no consent, or meeting of the minds, between Reynes and Montecillo on the manner of payment. This prevented the existence of a valid contract because of lack of consent. In summary, Montecillos Deed of Sale is null and void ab initio not only for lack of consideration, but also for lack of consent. The cancellation of TCT No. 90805 in the name of Montecillo is in order as there was no valid contract transferring ownership of the Mabolo Lot from Reynes to Montecillo. WHEREFORE, the petition is DENIED and the assailed Decision dated July 16, 1998 of the Court of Appeals in CA-G.R. CV No. 41349 is AFFIRMED. Costs against petitioner. SO ORDERED. Puno, (Chairman), Panganiban, and Sandoval-Gutierrez, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 20732 September 26, 1924

C. W. ROSENSTOCK, as administrator of the estate of H. W. ELSER, plaintiff-appellant, vs. EDWIN BURKE, defendant-appellant. THE COOPER COMPANY, intervenor-appellee. Camus and Delgado for plaintiff-appellant. Crossfield & O'Brien for defendant-appellant. Hartigan & Welch for intervenor-appellee. AVANCEA, J.: The defendant Edwin Burke owned a motor yacht, known as Bronzewing, which he acquired in Australia in the year 1920 for the purpose of selling it here. This yacht was purely for recreation and as no purchaser presented himself, it had been moored for several months until the plaintiff H. W. Elser, at the beginning of the year 1922, began negotiations with the defendant for the purchase thereof. At the time this yacht was mortgaged to the Asia Banking Corporation to secure the payment of a debt of P100,000 which was due and unpaid since one year prior thereto, contracted by the defendant in favor of said bank of which Mr. Avery was then the manager. The plan of the plaintiff was to organize a yacht club and sell it afterwards the yacht for P120,000, of which P20,000 was to be retained by him as commission and the remaining P100,000 to be paid to the defendant. To this end, on February 12, 1922, the defendant obtained from the plaintiff an option in writing in the following terms: For the purpose expressed by you of organizing a yacht club, I take pleasure in confirming my verbal offer to you of the motor yacht Bronzewing, at a price of one hundred and twenty thousand pesos (P120,000). This offer is open for thirty days from date. To carry out his plan, the plaintiff proposed to the defendant to make a voyage on board the yacht to the south, with prominent business men for the purpose, undoubtedly, of making an advantageous sale. But as the yacht needed some repairs to make it seaworthy for this voyage, and as, on the other hand, the defendant said that he had no funds to make said repairs, the plaintiff paid almost all their amount. It has been stipulated that the plaintiff was not to pay anything for the use of the yacht. The cost of those repairs was P6,972.21, which was already paid by the plaintiff, plus P1,730.84 due to the Cooper Company which still remains unpaid, plus P832.93, due to the plaintiff, which also remains unpaid. Once the yacht was repaired, the plaintiff gave receptions on board, and on March 6, 1922, made his pleasure voyage to the south, coming back on the 23d of the same month. The plaintiff never accepted the offer of the defendant for the purchase of the yacht contained in the letter of option of February 12, 1922. The plaintiff believed, in view of the result of that voyage, that it was convenient to replace the engine of the yacht with a new one which would cost P20,000. In this connection the plaintiff had negotiated with Mr. Avery for another loan of P20,000 with which to purchase this new engine. On the 31st of that month of March the plaintiff wrote the defendant a letter informing him, among other things, that after he had tried to obtain from Mr. Avery said new loan of P20,000 for the purchase of the engine, and that he was not disposed to purchase the vessel for more than P70,000, Mr. Avery had told him that he was not in position to give one cent more. In this letter the plaintiff suggested to the defendant that he should speak with Mr. Avery about the matter. The defendant, after an interview with Mr. Avery held on the same day, answered the plaintiff that he had arrived at an agreement with Mr. Avery about the sale of the yacht to the plaintiff for P80,000 payable as follows: P5,000 each month during the first six months and P10,000 thereafter until full payment of the price, the yacht to be mortgaged to secure payment thereof. On the first of April next, the plaintiff informed the defendant that he was not inclined to accept this proposition. On the morning of the 3d of the same month, the defendant called at the office of the plaintiff to speak with him about the matter and as a result of the interview held between them, the plaintiff in the presence of the defendant wrote a letter addressed to the latter which is literally as follows: MY DEAR MR. BURKE: In connection with the yacht Bronzewing, I am in position and am willing to entertain the purchase of it under the following terms: (a) The purchase price to be P80,000, Philippine currency.

(b) Initial payment of P10,000 to be made within sixty (60) days. (c) Payment of the balance to be made in installments of P5,000 per month, with interest on deferred payments at 9 per cent payable semiannually. (d) As security for the above, I am to deposit with you P80,000, in stock of the J. K. Pickering Co., commercial value P400,000, book value P600,000. Statement covering this will be furnished you on request. Yours very truly, (Sgd.) H. W. ELSER Proposition Accepted. (Sgd.) E. BURKE MANILA, April 3, 1922. ASIA BKG. CORP. Agreed to as above. (Sgd.) W. G. AVERY Mgr. Asia Bkg. Corp. The defendant took this letter and went to the Asia Banking Corporation and after holding an interview with Mr. Avery, both of them signed at the bottom of the letter of Mr. Elser, as appear there. On the 5th of the same month of April the plaintiff sent the defendant another letter, telling him that in view of the attitude of Mr. Avery as to the loan of P20,000 in connection with the installation of a new engine in the yacht, it was impossible for him to take charge of the boat and he made delivery thereof to the defendant. On the 8th of the same month of April the defendant answered the plaintiff that as he had accepted, with the consent of the Asia Banking Corporation, through Mr. Avery, the offer for the purchase of the yacht made by the plaintiff in his letter of the 3d of April (Exhibit 1), he made demand on him for the performance thereof. The plaintiff brings this action against the defendant to recover the sum of P6,139.28, the value of the repairs made on the yacht which he had paid for. The defendant alleges as a defense against this action that the agreement he had with the plaintiff about these repairs was that the letter was to pay for them for his own account in exchange of the gratuitous use of the yacht, and prays that he be absolved from the complaint. As a counterclaim he prays that the plaintiff be compelled to pay him the sum of P832.93, one-half of the price of the canvas used in the repair of the yacht, which has not as yet been paid by the plaintiff. Furthermore, alleging that the plaintiff purchased the vessel in accordance with his letter of April 3, 1922, he prays as a cross-complaint that the plaintiff be compelled to comply with the terms of this contract and to pay damages in the sum of P10,000. The Cooper Company was admitted to intervene in this action and claims in turn its credit of P1,730.84 for the repairs made on the yacht, the amount of which has not as yet been paid. The trial court rendered judgment sentencing the defendant to pay the plaintiff the sum of P6,139.28 with legal interest thereon at the rate of 6 per cent from April 18, 1922, and to pay the intervenor, the Cooper Company, the sum of P1,730.84 with legal interest at 6 per cent from May 19, 1922. The plaintiff was sentenced to comply in all its parts with the contract for the purchase of the yacht, according to the terms of his letter of April 3d (Exhibit 1). Both the plaintiff and the defendant appealed from this judgment. The plaintiff appeals from the judgment in so far as it compels him to purchase the yacht upon the conditions stated in the letter of April 3, 1922 (Exhibit 1). This appeal raises the question whether or not this letter was a definite offer to purchase, and the same having been accepted by the defendant with the consent of Mr. Avery on behalf of the Asia Banking Corporation, whether or not it is a contract of sale valid and binding against the plaintiff. The trial court solved this question in the affirmative. We are of the opinion that this is an error. As was seen, this letter begins as follows: "In connection with the yacht Bronzewing, I am in position and am willing to entertain the purchase of it under the following terms . . . ." The whole question is reduced to determining what the intention of the plaintiff was in using that language.

To convey the idea of a resolution to purchase, a man of ordinary intelligence and common culture would use these clear and simple words, I offer to purchase, I want to purchase, I am in position to purchase. And the stronger is the reason why the plaintiff should have expressed his intention in the same way, because, according to the defendant, he was a prosperous and progressive merchant. It must be presumed that a man in his transactions in good faith uses the best means of expressing his mind that his intelligence and culture permit so as to convey and exteriorize his will faithfully and unequivocally. But the plaintiff instead of using in his letter the expression, I want to purchase, I offer to purchase, I am in position to purchase, or other similar language of easy and unequivocal meaning, used this other, I am in position and am willing to entertain the purchase of the yacht. The word "entertain" applied to an act does not mean the resolution to perform said act, but simply a position to deliberate for deciding to perform or not to perform said act. Taking into account only the literal and technical meaning of the word "entertain," it seems to us clear that the letter of the plaintiff cannot be interpreted as a definite offer to purchase the yacht, but simply a position to deliberate whether or not he would purchase the yacht. It was but a mere invitation to a proposal being made to him, which might be accepted by him or not. Furthermore there are other circumstances which show that in writing this letter it was really not the intention of the plaintiff to make a definite offer. The plaintiff never thought of acquiring the yacht for his personal use, but for the purpose of selling it to another or to acquire it for another, thereby obtaining some gain from the transaction, and it can be said that the only thing the plaintiff wanted in connection with this yacht was that the defendant should procure its sale, naturally with some profit for himself. For this reason the original idea of the plaintiff was to organize a yacht club that would afterwards acquire the yacht through him, realizing some gain from the sale. This is clearly stated in the letter containing the option that the defendant gave him on February 12, 1922. This accounts for the fact that the plaintiff was not in a position to make a definite offer to purchase, he being sure to be able to resell the yacht to another, and this explains why he did not say in his letter of the 3d of April that he was in position to purchase the yacht, but only to entertain this purchase. On the other hand, the plaintiff thought it necessary to replace the engine of the yacht with a new one which was to cost P20,000 and has been negotiating with Mr. Avery a loan of P20,000 to make the replacing. When the plaintiff wrote his letter of the 3rd of April, he knew that Mr. Avery was not in position to grant this loan. According to this, the resolution of the plaintiff to acquire the yacht depended upon him being able to replace the engine, and this, in turn, depended upon the plaintiff being successful in obtaining the P20,000 that the new engine was to cost. This accounts also for the fact that the plaintiff was not in position to make a definite offer. But above all, there is in the record positive proof that in writing this letter of the 3d of April the plaintiff had no intention to make thereby a definite offer. This letter was written by his stenographer Mr. Parkins in his office and in the presence of the defendant who has been there precisely for the purpose of speaking about this purchase. According to the plaintiff when he was dictating that part wherein he said that he was in position to entertain the purchase of the yacht, the defendant interrupted him and suggested the elimination of the word entertain and the substitution therefor of a definite offer, but after a discussion between them, during which the plaintiff clearly said that he was not in position to make a definite offer, the word entertain now appearing in the letter was preserved. The stenographer Mr. Parkins and another employee of the plaintiff Mr. Guzman, who were present, corroborate this statement of the plaintiff. The lower court seems to have been impressed by the consideration that it was anomalous for the plaintiff to write that letter if his purpose was only to indicate to the defendant that he wanted the latter to make a proposal which he (plaintiff) might reject or accept. We see nothing anomalous in this. A proposition may be acceptable in itself, but its acceptance may depend on other circumstances; thus one may say that a determinate proposition is acceptable, and yet he may not be in a position to accept the same at the moment. The letter of the plaintiff not containing a definite offer but a mere invitation to an offer being made to him, the acceptance of the defendant placed at the bottom of this letter has not other meaning than that of accepting the proposition to make this offer, as must have been understood by the plaintiff. The appeal of the defendant raises the question as to who must pay the repairs made on the yacht. The lower court decided that it is the defendant. We are of the opinion that this is also an error. The plaintiff was the one who directly and personally ordered these repairs. It was agreed between the plaintiff and the defendant that the former was not to pay anything for the use of the yacht. This, at the first glance, would make us believe that it was the plaintiff who was to pay for the repairs in exchange for the use of the yacht in order that the profit should be reciprocal. But the plaintiff claims that his agreement was that he had to advance only the amount of the repairs, and that the defendant was at last the one to pay therefor. The defendant, in turn, claims that the agreement was that the plaintiff was to pay for these repairs in exchange for the use of the yacht. Upon this contention there is, on the one hand, but the testimony of the plaintiff and, on the other, the testimony of the defendant. But it having been the plaintiff who ordered and made these repairs, and in view of the fact that he was not obliged to pay anything for the use of the yacht, his mere testimony contradicted by that of the defendant, cannot be considered as a sufficient evidence to establish the latter's obligation. Furthermore according to the defendant, nothing was agreed upon about the kind of the repairs to be made on the yacht and there was no limit to said repairs. It seems strange that the defendant should accept liability for the amount of these repairs, leaving their extent entirely to the discretion of the plaintiff. And this discretion, according to the contention of the plaintiff, includes even that of determining

what repairs must be paid by the defendant, as evidenced by the fact that the plaintiff has not claimed the amount of any, such as the wireless telegraph that was installed in the yacht, and yet he claims as a part thereof the salaries of the officers and the crew which do not represent any improvement on the vessel. Our conclusion is that the letter of the plaintiff of April 3, 1922, was not a definite offer and that the plaintiff is bound to pay the amount of the repairs of the yacht in exchange for the use thereof. For all of the foregoing the judgment appealed from is reversed, the defendant is absolved from the complaint, the plaintiff is sentenced to pay to the Cooper Company the sum of P1,730.84 with interest and to the defendant the sum of P832.93, and the plaintiff is declared to be under no obligation to purchase the yacht upon the terms of his letter of April 3, 1922, without special pronouncement as to cost. So ordered.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-9312 October 31, 1957

ERNEST BERG, plaintiff-appellant, vs. NATIONAL CITY BANK OF NEW YORK, defendant-appellant. Alva J. Hill for plaintiff and appellant. Ross, Selph, Carrascoso and Janda for defendant and appellant. BAUTISTA ANGELO, J.: In 1941, shortly before the outbreak of the war, the Red Star Stores, Inc. was indebted to the National City Bank of New York, Manila Branch, hereinafter called the Bank, in the amount of $19,956.75 representing certain import bills purchased by said Bank. This obligation was guaranteed by Ernest Berg, hereinafter referred to as plaintiff, and by his brother, Alfred Berg. During the Japanese occupation, the Bank of Taiwan required the Red Stars Stores, Inc. to liquidate its obligation and, accordingly, plaintiff paid the same in full. After liberation, the Bank reopened and established a department to revise all prewar accounts and take such steps as may be necessary to recover them. This department sent a letter to the Red Star Stores, Inc. requesting it to indicate the steps it wanted to take to liquidate its or war obligation. On November 1, 1945, plaintiff contacted the officials of the Bank telling them that he had already settled the account with the Bank of Taiwan during the Japanese occupation, but said officials intimated that they could not regard such payment as discharging the obligation and requested that it be paid. Plaintiff acknowledged his indebtedness and agree to pay the same but stated that he desired to consult first his lawyers as to the possible effect of the cases then pending on the validity of wartime payments in Japanese military note. Subsequently, on February 1, 1946, plaintiff informed the Bank that he was willing to compromise his case by paying the indebtedness provided the Bank forego its claim as to interest. This offer was approved and on February 15, 1946, plaintiff signed an acknowledgment of the debt and an agreement relative to its liquidation (Exhibit I). On March 23, 1946, plaintiff informed the Bank that, as the sale of his real property had been delayed, he would not be able to make payment as agreed upon, but that, in the meantime, he would execute a note and a pledge placing as security the 3,300 shares of Filipinas Compania de Seguros registered in his name. This was done and the agreement was subsequently executed. On March 12, 1946, the Court of First Instance of Manila decide the case of Hia Pia vs. China Banking Corporation holding that payments made in Japanese military currency to the Bank of Taiwan did not operate to discharge the obligations, but on April 9, 1948, the decision was reversed by the Supreme Court holding said payments to be valid (G.R. No. L-554) *. On June 22, 1946, having been advised that his note was falling due, plaintiff made a partial payment of P4,913.50 and was given an extension of 30 days to pay the balance. On July 21, 1946, a second notice was given plaintiff for the payment of the balance, and on July 31, plaintiff sent a letter authorizing the Bank to sell the shares he had pledge to secure his debt and to deposit the balance, if any, in his personal account. This was done thereby liquidating the account of plaintiff. On September 27, 1948, plaintiff demanded from the Bank the repayment of the money paid by him relying on the decision of the Supreme Court in the Haw Pia case. The Bank replied that the case of the plaintiff had been compromised and can no longer be reopened. Whereupon on April 13, 1949, plaintiff commenced the present action to recover the amount paid, plus the sum of P33,000 as damages. In his complaint, plaintiff alleged that withstanding that fact that he had already paid his debt to the Bank of Taiwan, defendant, by the use of deceit, fraud, threat and intimidation still forced him to compromise his case as a result defendant sold his 3,300 shares of the Filipinas Compania de Seguros and retained the sum of P35,172.62 to pay the debt he had already paid to the Bank of Taiwan. Defendant, in turn, denied the change and alleged that plaintiff paid the sum of P35,172.62 as a result of compromise entered into for good and valuable consideration. And on May 29, 1950, the court rendered judgment ordering defendant to pay to plaintiff said amount of P35,172.62, with legal interest from August 6, 1946, plus a costs of action. No action was taken on the claim for damages. In due time, both parties appealed from the decision, plaintiff insofar as the court ignored his claim for damages, and defendant because of the adversed ruling rendered against it.

In holding that the second payment made by plaintiff to defendant of the old indebtedness was improperly made and as a consequence the money paid should be returned in view of the decision of the Supreme Court in the Haw Pia case, the trial court made the following comments: There is not much to be discussed in this case. Was the payment made by the plaintiff during the Japanese Administration valid? If it was valid as the Court believes it to be, then the obligation of the Red Star Stores, Inc. was no longer existing at the time the plaintiff made the second payment. If there was no more obligation to pay, then the demand made by the plaintiff for the payment of the obligation of the Red Star Stores, Inc.,' was illegal. Either from the standpoint of the plaintiff or from the standpoint of the defendant, the second payment was most unjustified. If payment was made because of duress, threats, or intimidation, plaintiff is entitled to the recovery of the amount be paid. If payment was made willingly and voluntarily in the belief that there was still an obligation to be paid, equity and justice demand the return of the second payment for the reason that there was no more obligation to be paid. Under ordinary circumstances, the above ruling of the court would be correct for indeed under Article 1895 of the old Civil Code, "If a thing is received where there was no right to claim it, and which through an error has been unduly delivered, an obligation to restore the same arise", and apparently where he have a duplication of payment. But in the present case the situation is different, for here we find that plaintiff and defendant had entered into a compromise whereby the formed agreed to pay his indebtedness provided the latter forego the payment of the interest, and this compromise was arrived at when there was still uncertainty as to the validity of the payments made to the Bank of Taiwan of prewar obligations. Thus, on February 15, 1946, as a result of the negotiations had between plaintiff and defendant, the latter sent to the former a letter of the following tenor: Mr. Ernest Berg 1340 Oregon St. Manila Red Star Stores, Inc. Dear Mr. Berg; This will confirm our conversation of this afternoon when you agreed to reimburse us in full for our Advance Bills local amounting to US $19,956.75 against which we are prepared to waive interest up to date. It is our understanding that you have disposed of some property and when the deal is consummated, which is expected next week, you will liquidate the subject's pre-war indebtedness to us. We take this opportunity to convey our thanks for the splendid cooperation you have displayed in discharging this obligation. Very truly yours,

(Sgd.) FRED W. HENDER Sub-Manager. I hereby acknowledge the above indebtedness and confirm that it will fully liquidated. (Sgd.) ERNEST BERG. Note that the letter says that it was a confirmation of a conversation had between plaintiff and defendant regarding the settlement of the account previously had by the former the term of which was that plaintiff would pay his account in full and defendant would waive the payment of interest. Note also that at the foot of the letter there appears the following under the signature of plaintiff: "I hereby acknowledge the above indebtedness and confirm that it will be fully liquidated." That this agreement has the nature of a compromise cannot be denied for it was entered into to avoid "the provocation of a suit" which defendant was then contemplating to take against plaintiff and his brother in the belief that the payment made to the Bank of Taiwan was not valid (Article 1809, old Civil Code). Note that at that time the decision of the Supreme Court in the Haw Pia case has not as yet been rendered. It being a compromise, it is binding upon the parties (Article 1809, old Civil Code), and as such it has "the same authority as res judicata" (Article 1816, Idem.) It is true that plaintiff claims that the agreement was forced upon him through deceit, fraud, threat or intimidation, but the trial court did not predicate its decision on any of said grounds. Apparently, the trial court was of the belief that a

compromise can only be effected if the claim to be settled was enforceable, which is not correct, for, as a rule, a compromise is entered into not because it settles a valid claim but because it settles a controversy between parties. And here there was a real compromise when defendant waived the payment of interest amounting over $4,000. The compromise of any matter is valid and binding, not because it is the settlement of a valid claim, but because it is the settlement of a controversy. (Page 877.) In order to effect a compromise there must be a definite proposition and an acceptance. As a question of law it does not matter from whom the proposition of settlement comes; if one is made and accepted, it constitutes a contract, and in the absence of fraud it is binding on both parties. (Page 879.). Hence it is a general rule in this country, that compromises are to be favored, without regard to the nature of the controversy compromised, and that they cannot be set aside because the event shows all the gain to have been on one side, and all the sacrifice on the other, if the parties have acted in good faith, and with a belief of the actual existence of the rights which they have respectively waived or abandoned; and if a settlement be made in regard to such subject, free from fraud or mistake, whereby there is a surrender or satisfaction, in whole or in part, or of something of value, upon the other, however baseless may be the claim upon either side or harsh the terms as to either of the parties, the other cannot successfully impeach the agreement in a court of justice . . . where the compromise is instituted and carried through in good faith, the fact that there was a mistake as to the laws or as to the facts, except in certain cases where the mistake was mutual and correctable as such in equity, cannot afford a basis for setting a compromise aside or defending against a suit brought thereon . . . Furthermore, and as following the rule stated, a compromise of conflicting claims asserted in good faith will not be disturbed because by a subsequent judicial decision in an analogous case it appears that one party had no rights to forego. (Page 883, 884.)" (Mccarthy vs. Barber Steamship Lines, 45 Phil., 488, 498-499). But plaintiff insists that the compromise is null and void as the same has been extorted from him by the officials of the Bank through deceit, fraud and intimidation. In this respect, the counsel or defendant says: "Mr. Berg claims that the compromise agreement was secured from him by deceit, fraud and unlawful action by the bank. The bank is referred to as an extortionist, and as a blackmailer, as being guilty of making illegal demands, of coercing Mr. Berg, of resorting to misrepresentation, illegal distortion, deceit and insidious machinations. Its acts are likened to those of a traffic policeman soliciting a bribe, on one hand, and to a highwayman extracting money from a wayfarer at the point of a gun, on the other. Mr. Berg's counsel states that Mr. Berg was compelled to settle because of fear for his life, of life imprisonment or a heavy fine, and fear of financial ruin, the implication being that the bank would cause these dire contingencies should Mr. Berg not to pay the sums demanded" (p. 4, Defendants Memorandum). But these imputations only find support in the testimony of plaintiff which were denied by the officials of the Bank. In fact, they have not been sustained. What plaintiff in effect wanted to convey is that the officials of the Bank intimidated to him that unless the account is settled, the Bank would bring an action against him or against his brother, Alfred Berg; that it would not extend any further credit facilities to him or his business enterprises; and that it would make use of its influence to prevent him from engaging in business in the Philippines. The question then that arises is: Do these threats constitute duress under the law? With regards to the first charge, we see nothing improper. It is a practice followed not only by banks but even individuals to demand payment of their accounts with the threat upon failure to do so an action would be instituted in court. Such a threat is proper within the realm of the law as a means to enforce collection. Such a threat cannot constitute duress even if the claim proves to be unfounded so long as the creditor believes that it was his right to do so. This charge has no legal basis. One element of the early law of duress continues to exist, however its boundaries may be otherwise extended. The pressure must be wrongful, and not all pressure is wrongful, and not all pressure is wrongful. The law provides certain means for the enforcement of their claims by creditors. It is not duress to threaten to take these means. Therefore, a threat to bring a civil action or to resort to remedies given by the contract is not such duress as to justify recission of a transaction induced thereby, even though there is no legal right to enforce the claim, provided the threat is made in good faith; that is, in the belief that a possible cause of action exists. But, if the threat is made with the consciousness that there is no real right of action and the purpose is coercion, a payment or contract induced thereby is voidable. In the former case, it may be said that the threatened action was rightful; in the latter case, it was not. (Section 1606, Williston on Contracts, Vol. V, pp. 4500-4502.). Plaintiff also contends that the Bank had intimidated that it would not extend to him or his enterprise further credit facilities unless he settles the former debt of the Red Star Stores, Inc. Even if there were true, the same cannot constitute duress that might invalidate the settlement, for there is nothing improper for a bank to decline further credit to any person or entity as a means to enforce the collection of its accounts if such is necessary to protect its investment. In fact, such is the practice followed by most banking institutions for it goes a long way in the determination of the paying capacity of those who deal with them. Moreover, the banking business in the Philippines is extremely competitive. There are other banks that are opened for business whose facilities plaintiff may avail of in case the threat is carried out and if plaintiff is a good

business risk he could certainly find accommodation in any one of them if he so desires. The fact that plaintiff was then under indictment for treason does not change the situation. This is rather a further reason for defendant to adopt a more stringent measure against plaintiff because of the belief, grounded or otherwise, that the collection of the account might be frustrated. Such circumstance should not be considered as a desire on the part of the defendant to harass or aggravate the alleged political or financial difficulties of plaintiff. Plaintiff likewise contends that the officials of the Bank have threatened him with reprisals in the sense that unless he settles his account they would make use of their influence to prevent him from engaging in business in the Philippines. Not only is this claim inherently untenable but it was flatly denied by the officials of the Bank. Certainly, plaintiff has not been able to indicate in what manner does defendant or its officials expect to carry out the threat imputed to them. All things considered, we find the charges of plaintiff unfounded. And considering that, under our law, intimidation can only exist "when one of the contracting parties is inspired with a reasonable and well-grounded fear of suffering an imminent and serious injury to his person or property" (Article 1267, old Civil Code), we are persuaded to conclude that the compromise in question has been entered into voluntary and, as such, is valid and binding. Having reached this conclusion, we find it unnecessary to discuss the appeal taken by plaintiff-appellant. Wherefore, the decision appealed from is reversed, without pronouncement as to costs. Paras, C. J., Bengzon, Padilla, Montemayor, Reyes, A., Labrador, Concepcion, Reyes, J.B.L., Endencia and Felix, JJ., concur.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. 128690 January 21, 1999 ABS-CBN BROADCASTING CORPORATION, petitioner, vs. HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA PRODUCTION, INC., and VICENTE DEL ROSARIO, respondents.

DAVIDE, JR., CJ.: In this petition for review on certiorari, petitioner ABS-CBN Broadcasting Corp. (hereafter ABS-CBN) seeks to reverse and set aside the decision 1 of 31 October 1996 and the resolution 2 of 10 March 1997 of the Court of Appeals in CA-G.R. CV No. 44125. The former affirmed with modification the decision 3 of 28 April 1993 of the Regional Trial Court (RTC) of Quezon City, Branch 80, in Civil Case No. Q-92-12309. The latter denied the motion to reconsider the decision of 31 October 1996. The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows: In 1990, ABS-CBN and Viva executed a Film Exhibition Agreement (Exh. "A") whereby Viva gave ABS-CBN an exclusive right to exhibit some Viva films. Sometime in December 1991, in accordance with paragraph 2.4 [sic] of said agreement stating that . 1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films for TV telecast under such terms as may be agreed upon by the parties hereto, provided, however, that such right shall be exercised by ABS-CBN from the actual offer in writing. Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-Concio, a list of three(3) film packages (36 title) from which ABS-CBN may exercise its right of first refusal under the afore-said agreement (Exhs. "1" par, 2, "2," "2-A'' and "2-B"-Viva). ABS-CBN, however through Mrs. Concio, "can tick off only ten (10) titles" (from the list) "we can purchase" (Exh. "3" - Viva) and therefore did not accept said list (TSN, June 8, 1992, pp. 9-10). The titles ticked off by Mrs. Concio are not the subject of the case at bar except the film ''Maging Sino Ka Man." For further enlightenment, this rejection letter dated January 06, 1992 (Exh "3" - Viva) is hereby quoted: 6 January 1992 Dear Vic, This is not a very formal business letter I am writing to you as I would like to express my difficulty in recommending the purchase of the three film packages you are offering ABS-CBN. From among the three packages I can only tick off 10 titles we can purchase. Please see attached. I hope you will understand my position. Most of the action pictures in the list do not have big action stars in the cast. They are not for primetime. In line with this I wish to mention that I have not scheduled for telecast several action pictures in out very first contract because of the cheap production value of these movies as well as the lack of big action stars. As a film producer, I am sure you understand what I am trying to say as Viva produces only big action pictures. In fact, I would like to request two (2) additional runs for these movies as I can only schedule them in our non-primetime slots. We have to cover the amount that was paid for these movies because as you very well know that non-primetime advertising rates are very low. These are the unaired titles in the first contract.

1. Kontra Persa [sic]. 2. Raider Platoon. 3. Underground guerillas 4. Tiger Command 5. Boy de Sabog 6. Lady Commando 7. Batang Matadero 8. Rebelyon I hope you will consider this request of mine. The other dramatic films have been offered to us before and have been rejected because of the ruling of MTRCB to have them aired at 9:00 p.m. due to their very adult themes. As for the 10 titles I have choosen [sic] from the 3 packages please consider including all the other Viva movies produced last year. I have quite an attractive offer to make. Thanking you and with my warmest regards. (Signed) Charo Santos-Concio On February 27, 1992, defendant Del Rosario approached ABS-CBN's Ms. Concio, with a list consisting of 52 original movie titles (i.e. not yet aired on television) including the 14 titles subject of the present case, as well as 104 re-runs (previously aired on television) from which ABS-CBN may choose another 52 titles, as a total of 156 titles, proposing to sell to ABS-CBN airing rights over this package of 52 originals and 52 re-runs for P60,000,000.00 of which P30,000,000.00 will be in cash and P30,000,000.00 worth of television spots (Exh. "4" to "4-C" Viva; "9" -Viva). On April 2, 1992, defendant Del Rosario and ABS-CBN general manager, Eugenio Lopez III, met at the Tamarind Grill Restaurant in Quezon City to discuss the package proposal of Viva. What transpired in that lunch meeting is the subject of conflicting versions. Mr. Lopez testified that he and Mr. Del Rosario allegedly agreed that ABS-CRN was granted exclusive film rights to fourteen (14) films for a total consideration of P36 million; that he allegedly put this agreement as to the price and number of films in a "napkin'' and signed it and gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992). On the other hand, Del Rosario denied having made any agreement with Lopez regarding the 14 Viva films; denied the existence of a napkin in which Lopez wrote something; and insisted that what he and Lopez discussed at the lunch meeting was Viva's film package offer of 104 films (52 originals and 52 re-runs) for a total price of P60 million. Mr. Lopez promising [sic]to make a counter proposal which came in the form of a proposal contract Annex "C" of the complaint (Exh. "1"- Viva; Exh. "C" - ABS-CBN). On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance discussed the terms and conditions of Viva's offer to sell the 104 films, after the rejection of the same package by ABS-CBN. On April 07, 1992, defendant Del Rosario received through his secretary, a handwritten note from Ms. Concio, (Exh. "5" Viva), which reads: "Here's the draft of the contract. I hope you find everything in order," to which was attached a draft exhibition agreement (Exh. "C''- ABS-CBN; Exh. "9" - Viva, p. 3) a counter-proposal covering 53 films, 52 of which came from the list sent by defendant Del Rosario and one film was added by Ms. Concio, for a consideration of P35 million. Exhibit "C" provides that ABS-CBN is granted films right to 53 films and contains a right of first refusal to "1992 Viva Films." The said counter proposal was however rejected by Viva's Board of Directors [in the] evening of the same day, April 7, 1992, as Viva would not sell anything less than the package of 104 films for P60 million pesos (Exh. "9" - Viva), and such rejection was relayed to Ms. Concio.

On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and meetings defendant Del Rosario and Viva's President Teresita Cruz, in consideration of P60 million, signed a letter of agreement dated April 24, 1992. granting RBS the exclusive right to air 104 Viva-produced and/or acquired films (Exh. "7-A" - RBS; Exh. "4" - RBS) including the fourteen (14) films subject of the present case. 4 On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ of preliminary injunction and/or temporary restraining order against private respondents Republic Broadcasting Corporation 5 (hereafter RBS ), Viva Production (hereafter VIVA), and Vicente Del Rosario. The complaint was docketed as Civil Case No. Q-9212309. On 27 May 1992, RTC issued a temporary restraining order 6 enjoining private respondents from proceeding with the airing, broadcasting, and televising of the fourteen VIVA films subject of the controversy, starting with the film Maging Sino Ka Man, which was scheduled to be shown on private respondents RBS' channel 7 at seven o'clock in the evening of said date. On 17 June 1992, after appropriate proceedings, the RTC issued an order 7 directing the issuance of a writ of preliminary injunction upon ABS-CBN's posting of P35 million bond. ABS-CBN moved for the reduction of the bond, 8 while private respondents moved for reconsideration of the order and offered to put up a counterbound. 9 In the meantime, private respondents filed separate answers with counterclaim. VIVA..
10

RBS also set up a cross-claim against

On 3 August 1992, the RTC issued an order 11 dissolving the writ of preliminary injunction upon the posting by RBS of a P30 million counterbond to answer for whatever damages ABS-CBN might suffer by virtue of such dissolution. However, it reduced petitioner's injunction bond to P15 million as a condition precedent for the reinstatement of the writ of preliminary injunction should private respondents be unable to post a counterbond. At the pre-trial 12 on 6 August 1992, the parties, upon suggestion of the court, agreed to explore the possibility of an amicable settlement. In the meantime, RBS prayed for and was granted reasonable time within which to put up a P30 million counterbond in the event that no settlement would be reached. As the parties failed to enter into an amicable settlement RBS posted on 1 October 1992 a counterbond, which the RTC approved in its Order of 15 October 1992. 13 On 19 October 1992, ABS-CBN filed a motion for reconsideration 14 of the 3 August and 15 October 1992 Orders, which RBS opposed. 15 On 29 October 1992, the RTC conducted a pre-trial. 16 Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a petition 17challenging the RTC's Orders of 3 August and 15 October 1992 and praying for the issuance of a writ of preliminary injunction to enjoin the RTC from enforcing said orders. The case was docketed as CA-G.R. SP No. 29300. On 3 November 1992, the Court of Appeals issued a temporary restraining order 18 to enjoin the airing, broadcasting, and televising of any or all of the films involved in the controversy. On 18 December 1992, the Court of Appeals promulgated a decision 19 dismissing the petition in CA -G.R. No. 29300 for being premature. ABS-CBN challenged the dismissal in a petition for review filed with this Court on 19 January 1993, which was docketed as G.R. No. 108363. In the meantime the RTC received the evidence for the parties in Civil Case No. Q-192-1209. Thereafter, on 28 April 1993, it rendered a decision 20 in favor of RBS and VIVA and against ABS-CBN disposing as follows: WHEREFORE, under cool reflection and prescinding from the foregoing, judgments is rendered in favor of defendants and against the plaintiff. (1) The complaint is hereby dismissed; (2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:

a) P107,727.00, the amount of premium paid by RBS to the surety which issued defendant RBS's bond to lift the injunction; b) P191,843.00 for the amount of print advertisement for "Maging Sino Ka Man" in various newspapers; c) Attorney's fees in the amount of P1 million; d) P5 million as and by way of moral damages; e) P5 million as and by way of exemplary damages; (3) For defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of reasonable attorney's fees. (4) The cross-claim of defendant RBS against defendant VIVA is dismissed. (5) Plaintiff to pay the costs. According to the RTC, there was no meeting of minds on the price and terms of the offer. The alleged agreement between Lopez III and Del Rosario was subject to the approval of the VIVA Board of Directors, and said agreement was disapproved during the meeting of the Board on 7 April 1992. Hence, there was no basis for ABS-CBN's demand that VIVA signed the 1992 Film Exhibition Agreement. Furthermore, the right of first refusal under the 1990 Film Exhibition Agreement had previously been exercised per Ms. Concio's letter to Del Rosario ticking off ten titles acceptable to them, which would have made the 1992 agreement an entirely new contract. On 21 June 1993, this Court denied 21 ABS-CBN's petition for review in G.R. No. 108363, as no reversible error was committed by the Court of Appeals in its challenged decision and the case had "become moot and academic in view of the dismissal of the main action by the court a quo in its decision" of 28 April 1993. Aggrieved by the RTC's decision, ABS-CBN appealed to the Court of Appeals claiming that there was a perfected contract between ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the subject films. Private respondents VIVA and Del Rosario also appealed seeking moral and exemplary damages and additional attorney's fees. In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the contract between ABS-CBN and VIVA had not been perfected, absent the approval by the VIVA Board of Directors of whatever Del Rosario, it's agent, might have agreed with Lopez III. The appellate court did not even believe ABS-CBN's evidence that Lopez III actually wrote down such an agreement on a "napkin," as the same was never produced in court. It likewise rejected ABS-CBN's insistence on its right of first refusal and ratiocinated as follows: As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement was entered into between Appellant ABS-CBN and appellant VIVA under Exhibit "A" in 1990, and that parag. 1.4 thereof provides: 1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA films for TV telecast under such terms as may be agreed upon by the parties hereto, provided, however, that such right shall be exercised by ABS-CBN within a period of fifteen (15) days from the actual offer in writing (Records, p. 14). [H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be subject to such terms as may be agreed upon by the parties thereto, and that the said right shall be exercised by ABS-CBN within fifteen (15) days from the actual offer in writing. Said parag. 1.4 of the agreement Exhibit "A" on the right of first refusal did not fix the price of the film right to the twentyfour (24) films, nor did it specify the terms thereof. The same are still left to be agreed upon by the parties. In the instant case, ABS-CBN's letter of rejection Exhibit 3 (Records, p. 89) stated that it can only tick off ten (10) films, and the draft contract Exhibit "C" accepted only fourteen (14) films, while parag. 1.4 of Exhibit "A'' speaks of the next twentyfour (24) films. The offer of V1VA was sometime in December 1991 (Exhibits 2, 2-A. 2-B; Records, pp. 86-88; Decision, p. 11, Records, p. 1150), when the first list of VIVA films was sent by Mr. Del Rosario to ABS-CBN. The Vice President of ABS-CBN, Ms. Charo Santos-Concio, sent a letter dated January 6, 1992 (Exhibit 3, Records, p. 89) where ABS-CBN exercised its right of refusal by rejecting the offer of VIVA.. As aptly observed by the trial court, with the said letter of Mrs. Concio of January 6, 1992, ABS-CBN had lost its right of first refusal. And even if We reckon the fifteen (15) day period from February 27, 1992

(Exhibit 4 to 4-C) when another list was sent to ABS-CBN after the letter of Mrs. Concio, still the fifteen (15) day period within which ABS-CBN shall exercise its right of first refusal has already expired. 22 Accordingly, respondent court sustained the award of actual damages consisting in the cost of print advertisements and the premium payments for the counterbond, there being adequate proof of the pecuniary loss which RBS had suffered as a result of the filing of the complaint by ABS-CBN. As to the award of moral damages, the Court of Appeals found reasonable basis therefor, holding that RBS's reputation was debased by the filing of the complaint in Civil Case No. Q-92-12309 and by the non-showing of the film "Maging Sino Ka Man." Respondent court also held that exemplary damages were correctly imposed by way of example or correction for the public good in view of the filing of the complaint despite petitioner's knowledge that the contract with VIVA had not been perfected, It also upheld the award of attorney's fees, reasoning that with ABS-CBN's act of instituting Civil Case No, Q-92-1209, RBS was "unnecessarily forced to litigate." The appellate court, however, reduced the awards of moral damages to P2 million, exemplary damages to P2 million, and attorney's fees to P500, 000.00. On the other hand, respondent Court of Appeals denied VIVA and Del Rosario's appeal because it was "RBS and not VIVA which was actually prejudiced when the complaint was filed by ABS-CBN." Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case, contending that the Court of Appeals gravely erred in I . . . RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND PRIVATE RESPONDENT VIVA NOTWITHSTANDING PREPONDERANCE OF EVIDENCE ADDUCED BY PETITIONER TO THE CONTRARY. II . . . IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS. III . . . IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS. IV . . . IN AWARDING ATTORNEY'S FEES IN FAVOR OF RBS. ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles under the 1990 Film Exhibition Agreement, as it had chosen only ten titles from the first list. It insists that we give credence to Lopez's testimony that he and Del Rosario met at the Tamarind Grill Restaurant, discussed the terms and conditions of the second list (the 1992 Film Exhibition Agreement) and upon agreement thereon, wrote the same on a paper napkin. It also asserts that the contract has already been effective, as the elements thereof, namely, consent, object, and consideration were established. It then concludes that the Court of Appeals' pronouncements were not supported by law and jurisprudence, as per our decision of 1 December 1995 in Limketkai Sons Milling, Inc. v. Court of Appeals, 23 which cited Toyota Shaw, Inc. v. Court of Appeals, 24 Ang Yu Asuncion v. Court of Appeals, 25 andVillonco Realty Company v. Bormaheco. Inc. 26 Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent for the premium on the counterbond of its own volition in order to negate the injunction issued by the trial court after the parties had ventilated their respective positions during the hearings for the purpose. The filing of the counterbond was an option available to RBS, but it can hardly be argued that ABS-CBN compelled RBS to incur such expense. Besides, RBS had another available option, i.e., move for the dissolution or the injunction; or if it was determined to put up a counterbond, it could have presented a cash bond. Furthermore under Article 2203 of the Civil Code, the party suffering loss or injury is also required to exercise the diligence of a good father of a family to minimize the damages resulting from the act or omission. As regards the cost of print advertisements, RBS had not convincingly established that this was a loss attributable to the non showing "Maging Sino Ka Man"; on the contrary, it was brought out during trial that with or without the case or the injunction, RBS would have spent such an amount to generate interest in the film. ABS-CBN further contends that there was no clear basis for the awards of moral and exemplary damages. The controversy involving ABS-CBN and RBS did not in any way originate from business transaction between them. The claims for such damages did not arise from any contractual dealings or from specific acts committed by ABS-CBN against RBS that may be characterized as wanton, fraudulent, or reckless; they arose by virtue only of the filing of the complaint, An award of

moral and exemplary damages is not warranted where the record is bereft of any proof that a party acted maliciously or in bad faith in filing an action. 27 In any case, free resort to courts for redress of wrongs is a matter of public policy. The law recognizes the right of every one to sue for that which he honestly believes to be his right without fear of standing trial for damages where by lack of sufficient evidence, legal technicalities, or a different interpretation of the laws on the matter, the case would lose ground. 28 One who makes use of his own legal right does no injury. 29 If damage results front the filing of the complaint, it is damnum absque injuria. 30 Besides, moral damages are generally not awarded in favor of a juridical person, unless it enjoys a good reputation that was debased by the offending party resulting in social humiliation. 31 As regards the award of attorney's fees, ABS-CBN maintains that the same had no factual, legal, or equitable justification. In sustaining the trial court's award, the Court of Appeals acted in clear disregard of the doctrines laid down in Buan v. Camaganacan 32 that the text of the decision should state the reason why attorney's fees are being awarded; otherwise, the award should be disallowed. Besides, no bad faith has been imputed on, much less proved as having been committed by, ABS-CBN. It has been held that "where no sufficient showing of bad faith would be reflected in a party' s persistence in a case other than an erroneous conviction of the righteousness of his cause, attorney's fees shall not be recovered as cost." 33 On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA absent any meeting of minds between them regarding the object and consideration of the alleged contract. It affirms that the ABS-CBN's claim of a right of first refusal was correctly rejected by the trial court. RBS insist the premium it had paid for the counterbond constituted a pecuniary loss upon which it may recover. It was obliged to put up the counterbound due to the injunction procured by ABS-CBN. Since the trial court found that ABS-CBN had no cause of action or valid claim against RBS and, therefore not entitled to the writ of injunction, RBS could recover from ABS-CBN the premium paid on the counterbond. Contrary to the claim of ABS-CBN, the cash bond would prove to be more expensive, as the loss would be equivalent to the cost of money RBS would forego in case the P30 million came from its funds or was borrowed from banks. RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing of the film "Maging Sino Ka Man" because the print advertisements were put out to announce the showing on a particular day and hour on Channel 7, i.e., in its entirety at one time, not a series to be shown on a periodic basis. Hence, the print advertisement were good and relevant for the particular date showing, and since the film could not be shown on that particular date and hour because of the injunction, the expenses for the advertisements had gone to waste. As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured injunctions purely for the purpose of harassing and prejudicing RBS. Pursuant then to Article 19 and 21 of the Civil Code, ABS-CBN must be held liable for such damages. Citing Tolentino, 34 damages may be awarded in cases of abuse of rights even if the act done is not illicit and there is abuse of rights were plaintiff institutes and action purely for the purpose of harassing or prejudicing the defendant. In support of its stand that a juridical entity can recover moral and exemplary damages, private respondents RBS cited People v. Manero, 35 where it was stated that such entity may recover moral and exemplary damages if it has a good reputation that is debased resulting in social humiliation. it then ratiocinates; thus: There can be no doubt that RBS' reputation has been debased by ABS-CBN's acts in this case. When RBS was not able to fulfill its commitment to the viewing public to show the film "Maging Sino Ka Man" on the scheduled dates and times (and on two occasions that RBS advertised), it suffered serious embarrassment and social humiliation. When the showing was canceled, late viewers called up RBS' offices and subjected RBS to verbal abuse ("Announce kayo nang announce, hindi ninyo naman ilalabas," "nanloloko yata kayo") (Exh. 3-RBS, par. 3). This alone was not something RBS brought upon itself. it was exactly what ABS-CBN had planned to happen. The amount of moral and exemplary damages cannot be said to be excessive. Two reasons justify the amount of the award. The first is that the humiliation suffered by RBS is national extent. RBS operations as a broadcasting company is [ sic] nationwide. Its clientele, like that of ABS-CBN, consists of those who own and watch television. It is not an exaggeration to state, and it is a matter of judicial notice that almost every other person in the country watches television. The humiliation suffered by RBS is multiplied by the number of televiewers who had anticipated the showing of the film "Maging Sino Ka Man" on May 28 and November 3, 1992 but did not see it owing to the cancellation. Added to this are the advertisers who had placed commercial spots for the telecast and to whom RBS had a commitment in consideration of the placement to show the film in the dates and times specified. The second is that it is a competitor that caused RBS to suffer the humiliation. The humiliation and injury are far greater in degree when caused by an entity whose ultimate business objective is to lure customers (viewers in this case) away from the competition. 36

For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court and the Court of Appeals do not support ABS-CBN's claim that there was a perfected contract. Such factual findings can no longer be disturbed in this petition for review under Rule 45, as only questions of law can be raised, not questions of fact. On the issue of damages and attorneys fees, they adopted the arguments of RBS. The key issues for our consideration are (1) whether there was a perfected contract between VIVA and ABS-CBN, and (2) whether RBS is entitled to damages and attorney's fees. It may be noted that the award of attorney's fees of P212,000 in favor of VIVA is not assigned as another error. I. The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between two persons whereby one binds himself to give something or to render some service to another 37 for a consideration. there is no contract unless the following requisites concur: (1) consent of the contracting parties; (2) object certain which is the subject of the contract; and (3) cause of the obligation, which is established. 38 A contract undergoes three stages: (a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties; (b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and (c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract.
39

Contracts that are consensual in nature are perfected upon mere meeting of the minds, Once there is concurrence between the offer and the acceptance upon the subject matter, consideration, and terms of payment a contract is produced. The offer must be certain. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from the proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is a rejection of the original offer. Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to generate consent because any modification or variation from the terms of the offer annuls the offer. 40 When Mr. Del Rosario of VIVA met with Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April 1992 to discuss the package of films, said package of 104 VIVA films was VIVA's offer to ABS-CBN to enter into a new Film Exhibition Agreement. But ABS-CBN, sent, through Ms. Concio, a counter-proposal in the form of a draft contract proposing exhibition of 53 films for a consideration of P35 million. This counter-proposal could be nothing less than the counter-offer of Mr. Lopez during his conference with Del Rosario at Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVA's offer, for it was met by a counter-offer which substantially varied the terms of the offer. ABS-CBN's reliance in Limketkai Sons Milling, Inc. v. Court of Appeals 41 and Villonco Realty Company v. Bormaheco, Inc., 42 is misplaced. In these cases, it was held that an acceptance may contain a request for certain changes in the terms of the offer and yet be a binding acceptance as long as "it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer, whether such request is granted or not." This ruling was, however, reversed in the resolution of 29 March 1996, 43which ruled that the acceptance of all offer must be unqualified and absolute, i.e., it "must be identical in all respects with that of the offer so as to produce consent or meeting of the minds." On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer were not material but merely clarificatory of what had previously been agreed upon. It cited the statement in Stuart v.Franklin Life Insurance Co. 44 that "a vendor's change in a phrase of the offer to purchase, which change does not essentially change the terms of the offer, does not amount to a rejection of the offer and the tender of a counter-offer." 45 However, when any of the elements of the contract is modified upon acceptance, such alteration amounts to a counter-offer. In the case at bar, ABS-CBN made no unqualified acceptance of VIVA's offer. Hence, they underwent a period of bargaining. ABS-CBN then formalized its counter-proposals or counter-offer in a draft contract, VIVA through its Board of Directors, rejected such counter-offer, Even if it be conceded arguendo that Del Rosario had accepted the counter-offer, the acceptance did not bind VIVA, as there was no proof whatsoever that Del Rosario had the specific authority to do so. Under Corporation Code, 46 unless otherwise provided by said Code, corporate powers, such as the power; to enter into contracts; are exercised by the Board of Directors. However, the Board may delegate such powers to either an executive committee or officials or contracted managers. The delegation, except for the executive committee, must be for specific purposes, 47 Delegation to officers makes the latter agents of the corporation; accordingly, the general rules of agency as to

the bindings effects of their acts would apply. 48 For such officers to be deemed fully clothed by the corporation to exercise a power of the Board, the latter must specially authorize them to do so. That Del Rosario did not have the authority to accept ABS-CBN's counter-offer was best evidenced by his submission of the draft contract to VIVA's Board of Directors for the latter's approval. In any event, there was between Del Rosario and Lopez III no meeting of minds. The following findings of the trial court are instructive: A number of considerations militate against ABS-CBN's claim that a contract was perfected at that lunch meeting on April 02, 1992 at the Tamarind Grill. FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the price and the number of films, which he wrote on a napkin. However, Exhibit "C" contains numerous provisions which, were not discussed at the Tamarind Grill, if Lopez testimony was to be believed nor could they have been physically written on a napkin. There was even doubt as to whether it was a paper napkin or a cloth napkin. In short what were written in Exhibit "C'' were not discussed, and therefore could not have been agreed upon, by the parties. How then could this court compel the parties to sign Exhibit "C" when the provisions thereof were not previously agreed upon? SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the contract was 14 films. The complaint in fact prays for delivery of 14 films. But Exhibit "C" mentions 53 films as its subject matter. Which is which If Exhibits "C" reflected the true intent of the parties, then ABS-CBN's claim for 14 films in its complaint is false or if what it alleged in the complaint is true, then Exhibit "C" did not reflect what was agreed upon by the parties. This underscores the fact that there was no meeting of the minds as to the subject matter of the contracts, so as to preclude perfection thereof. For settled is the rule that there can be no contract where there is no object which is its subject matter (Art. 1318, NCC). THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. "D") states: We were able to reach an agreement. VIVA gave us the exclusive license to show these fourteen (14) films, and we agreed to pay Viva the amount of P16,050,000.00 as well as grant Viva commercial slots worth P19,950,000.00. We had already earmarked this P16, 050,000.00. which gives a total consideration of P36 million (P19,950,000.00 plus P16,050,000.00. equals P36,000,000.00). On cross-examination Mr. Lopez testified: Q. What was written in this napkin? A. The total price, the breakdown the known Viva movies, the 7 blockbuster movies and the other 7 Viva movies because the price was broken down accordingly. The none [sic] Viva and the seven other Viva movies and the sharing between the cash portion and the concerned spot portion in the total amount of P35 million pesos. Now, which is which? P36 million or P35 million? This weakens ABS-CBN's claim. FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit "C" to Mr. Del Rosario with a handwritten note, describing said Exhibit "C" as a "draft." (Exh. "5" - Viva; tsn pp. 23-24 June 08, 1992). The said draft has a well defined meaning. Since Exhibit "C" is only a draft, or a tentative, provisional or preparatory writing prepared for discussion, the terms and conditions thereof could not have been previously agreed upon by ABS-CBN and Viva Exhibit "C'' could not therefore legally bind Viva, not having agreed thereto. In fact, Ms. Concio admitted that the terms and conditions embodied in Exhibit "C" were prepared by ABS-CBN's lawyers and there was no discussion on said terms and conditions. . . . As the parties had not yet discussed the proposed terms and conditions in Exhibit "C," and there was no evidence whatsoever that Viva agreed to the terms and conditions thereof, said document cannot be a binding contract. The fact that Viva refused to sign Exhibit "C" reveals only two [sic] well that it did not agree on its terms and conditions, and this court has no authority to compel Viva to agree thereto. FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at the Tamarind Grill was only provisional, in the sense that it was subject to approval by the Board of Directors of Viva. He testified: Q. Now, Mr. Witness, and after that Tamarind meeting ... the second meeting wherein you claimed that you have the meeting of the minds between you and Mr. Vic del Rosario, what happened?

A. Vic Del Rosario was supposed to call us up and tell us specifically the result of the discussion with the Board of Directors. Q. And you are referring to the so-called agreement which you wrote in [sic] a piece of paper? A. Yes, sir. Q. So, he was going to forward that to the board of Directors for approval? A. Yes, sir. (Tsn, pp. 42-43, June 8, 1992) Q. Did Mr. Del Rosario tell you that he will submit it to his Board for approval? A. Yes, sir. (Tsn, p. 69, June 8, 1992). The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no authority to bind Viva to a contract with ABS-CBN until and unless its Board of Directors approved it. The complaint, in fact, alleges that Mr. Del Rosario "is the Executive Producer of defendant Viva" which "is a corporation." (par. 2, complaint). As a mere agent of Viva, Del Rosario could not bind Viva unless what he did is ratified by its Board of Directors. (Vicente vs. Geraldez, 52 SCRA 210; Arnold vs. Willets and Paterson, 44 Phil. 634). As a mere agent, recognized as such by plaintiff, Del Rosario could not be held liable jointly and severally with Viva and his inclusion as party defendant has no legal basis. (Salonga vs. Warner Barner [sic] , COLTA , 88 Phil. 125; Salmon vs. Tan, 36 Phil. 556). The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was supposed to have been agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario was not a binding agreement. It is as it should be because corporate power to enter into a contract is lodged in the Board of Directors. (Sec. 23, Corporation Code). Without such board approval by the Viva board, whatever agreement Lopez and Del Rosario arrived at could not ripen into a valid contract binding upon Viva (Yao Ka Sin Trading vs.Court of Appeals, 209 SCRA 763). The evidence adduced shows that the Board of Directors of Viva rejected Exhibit "C" and insisted that the film package for 140 films be maintained (Exh. "7-1" - Viva ). 49 The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-four films under the 1990 Film Exhibition Agreement and that the meeting between Lopez and Del Rosario was a continuation of said previous contract is untenable. As observed by the trial court, ABS-CBN right of first refusal had already been exercised when Ms. Concio wrote to VIVA ticking off ten films, Thus: [T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent, was for an entirely different package. Ms. Concio herself admitted on cross-examination to having used or exercised the right of first refusal. She stated that the list was not acceptable and was indeed not accepted by ABS-CBN, (TSN, June 8, 1992, pp. 8-10). Even Mr. Lopez himself admitted that the right of the first refusal may have been already exercised by Ms. Concio (as she had). (TSN, June 8, 1992, pp. 71-75). Del Rosario himself knew and understand [sic] that ABS-CBN has lost its rights of the first refusal when his list of 36 titles were rejected (Tsn, June 9, 1992, pp. 10-11) 50 II However, we find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter 2, Title XVIII, Book IV of the Civil Code is the specific law on actual or compensatory damages. Except as provided by law or by stipulation, one is entitled to compensation for actual damages only for such pecuniary loss suffered by him as he has duly proved. 51 The indemnification shall comprehend not only the value of the loss suffered, but also that of the profits that the obligee failed to obtain. 52 In contracts and quasi-contracts the damages which may be awarded are dependent on whether the obligor acted with good faith or otherwise, It case of good faith, the damages recoverable are those which are the natural and probable consequences of the breach of the obligation and which the parties have foreseen or could have reasonably foreseen at the time of the constitution of the obligation. If the obligor acted with fraud, bad faith, malice, or wanton attitude, he shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation. 53 In crimes and quasi-delicts, the defendant shall be liable for all damages which are the natural and probable consequences of the act or omission complained of, whether or not such damages has been foreseen or could have reasonably been foreseen by the defendant. 54 Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of temporary or permanent personal injury, or for injury to the plaintiff's business standing or commercial credit. 55

The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It arose from the fact of filing of the complaint despite ABS-CBN's alleged knowledge of lack of cause of action. Thus paragraph 12 of RBS's Answer with Counterclaim and Cross-claim under the heading COUNTERCLAIM specifically alleges: 12. ABS-CBN filed the complaint knowing fully well that it has no cause of action RBS. As a result thereof, RBS suffered actual damages in the amount of P6,621,195.32. 56 Needless to state the award of actual damages cannot be comprehended under the above law on actual damages. RBS could only probably take refuge under Articles 19, 20, and 21 of the Civil Code, which read as follows: Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for tile same. Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. It may further be observed that in cases where a writ of preliminary injunction is issued, the damages which the defendant may suffer by reason of the writ are recoverable from the injunctive bond. 57 In this case, ABS-CBN had not yet filed the required bond; as a matter of fact, it asked for reduction of the bond and even went to the Court of Appeals to challenge the order on the matter, Clearly then, it was not necessary for RBS to file a counterbond. Hence, ABS-CBN cannot be held responsible for the premium RBS paid for the counterbond. Neither could ABS-CBN be liable for the print advertisements for "Maging Sino Ka Man" for lack of sufficient legal basis. The RTC issued a temporary restraining order and later, a writ of preliminary injunction on the basis of its determination that there existed sufficient ground for the issuance thereof. Notably, the RTC did not dissolve the injunction on the ground of lack of legal and factual basis, but because of the plea of RBS that it be allowed to put up a counterbond. As regards attorney's fees, the law is clear that in the absence of stipulation, attorney's fees may be recovered as actual or compensatory damages under any of the circumstances provided for in Article 2208 of the Civil Code. 58 The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premium should be placed on the right to litigate. 59 They are not to be awarded every time a party wins a suit. The power of the court to award attorney's fees under Article 2208 demands factual, legal, and equitable justification. 60 Even when claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorney's fees may not be awarded where no sufficient showing of bad faith could be reflected in a party's persistence in a case other than erroneous conviction of the righteousness of his cause. 61 As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217 thereof defines what are included in moral damages, while Article 2219 enumerates the cases where they may be recovered, Article 2220 provides that moral damages may be recovered in breaches of contract where the defendant acted fraudulently or in bad faith. RBS's claim for moral damages could possibly fall only under item (10) of Article 2219, thereof which reads: (10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35. Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered. and not to impose a penalty on the wrongdoer. 62 The award is not meant to enrich the complainant at the expense of the defendant, but to enable the injured party to obtain means, diversion, or amusements that will serve to obviate then moral suffering he has undergone. It is aimed at the restoration, within the limits of the possible, of the spiritual status quo ante, and should be proportionate to the suffering inflicted. 63 Trial courts must then guard against the award of exorbitant damages; they should exercise balanced restrained and measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption on the part of the trial court. 64 The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no senses, It cannot, therefore, experience physical suffering and mental anguish, which call be experienced only by one having a nervous system. 65 The statement in People v. Manero 66 and Mambulao Lumber Co. v. PNB 67 that a corporation may recover moral damages if it "has a good reputation that is debased, resulting in social humiliation" is an obiter dictum. On this score alone the award for damages must be set aside, since RBS is a corporation.

The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII, Book IV of the Civil Code. These are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated or compensatory damages. 68 They are recoverable in criminal cases as part of the civil liability when the crime was committed with one or more aggravating circumstances; 69 in quasi-contracts, if the defendant acted with gross negligence; 70 and in contracts and quasi-contracts, if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. 71 It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract, delict, or quasi-delict, Hence, the claims for moral and exemplary damages can only be based on Articles 19, 20, and 21 of the Civil Code. The elements of abuse of right under Article 19 are the following: (1) the existence of a legal right or duty, (2) which is exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another. Article 20 speaks of the general sanction for all other provisions of law which do not especially provide for their own sanction; while Article 21 deals with acts contra bonus mores, and has the following elements; (1) there is an act which is legal, (2) but which is contrary to morals, good custom, public order, or public policy, and (3) and it is done with intent to injure.72 Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity. 73 Such must be substantiated by evidence. 74 There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly convinced of the merits of its cause after it had undergone serious negotiations culminating in its formal submission of a draft contract. Settled is the rule that the adverse result of an action does not per se make the action wrongful and subject the actor to damages, for the law could not have meant to impose a penalty on the right to litigate. If damages result from a person's exercise of a right, it is damnum absque injuria. 75 WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV No, 44125 is hereby REVERSED except as to unappealed award of attorney's fees in favor of VIVA Productions, Inc.1wphi1.nt No pronouncement as to costs. SO ORDERED. Melo, Kapunan, Martinez and Pardo JJ., concur.

THIRD DIVISION

[G.R. No. 145017. January 28, 2005]

DR. JOSE and AIDA YASON, petitioners, vs. FAUSTINO ARCIAGA, FELIPE NERI ARCIAGA, DOMINGO ARCIAGA, and ROGELIO ARCIAGA,respondents. DECISION SANDOVAL-GUTIERREZ, J.: Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing the Amended Decision[1] of the Court of Appeals dated September 13, 2000 in CA G.R. CV No. 55668, entitled Faustino Arciaga, et. al. vs. Dr. Jose Yason and Aida Yason. The factual antecedents as borne by the records are: Spouses Emilio and Claudia Arciaga were owners of Lot No. 303-B situated in Barangay Putatan, Muntinlupa City, with an area of 5,274 square meters covered by TCT No. 40913 of the Registry of Deeds of Makati City. On March 28, 1983, they executed a Deed of Conditional Sale whereby they sold Lot No. 303-B for P265,000.00 to spouses Dr. Jose and Aida Yason, petitioners. They tendered an initial payment of P150,000.00. On April 19, 1983, upon payment of the balance of P115,000.00, spouses Emilio and Claudia Arciaga executed a Deed of Absolute Sale. That day, Claudia died. She was survived by her spouse and their six (6) children, namely: Faustino, Felipe Neri, Domingo, Rogelio, Virginia, and Juanita. Petitioners had the Deed of Absolute Sale registered in the Registry of Deeds of Makati City. They entrusted its registration to one Jesus Medina to whom they delivered the document of sale and the amount of P15,000.00 as payment for the capital gains tax. Without their knowledge, Medina falsified the Deed of Absolute Sale and had the document registered in the Registry of Deeds of Makati City. He made it appear that the sale took place on July 2, 1979, instead of April 19, 1983, and that the price of the lot was only P25,000.00, instead of P265,000.00. On the basis of the fabricated deed, TCT No. 40913 in the names of spouses Arciaga was cancelled and in lieu thereof, TCT No. 120869 was issued in the names of petitioners. Subsequently, petitioners had Lot No. 303-B subdivided into 23 smaller lots. Thus, TCT No. 120869 was cancelled and in lieu thereof, TCT Nos. 132942 to 132964 were issued. Petitioners then sold several lots to third persons, except the 13 lots covered by TCT Nos. 132942, 132943, 132945, 132946, 132948, 132950, 132951, 132953, 132954, 132955, 132958, 132962 and 132963, which they retained. Sometime in April 1989, spouses Arciagas children learned of the falsified document of sale. Four of them, namely: Faustino, Felipe Neri, Domingo and Rogelio, herein respondents, caused the filing with the Office of the Provincial Prosecutor of Makati City a complaint for falsification of documents against petitioners, docketed as I.S No. 89-1966. It was only after receiving the subpoena in April 1989 when they learned that the Deed of Absolute Sale was falsified. However, after the preliminary investigation, the Provincial Prosecutor dismissed the complaint for falsification for lack of probable cause. Undaunted, respondents, on October 12, 1989, filed with the Regional Trial Court (RTC), Branch 62, Makati City, a complaint for annulment of the 13 land titles, mentioned earlier, against petitioners. Respondents alleged inter alia that the Deed of Absolute Sale is void ab initio considering that (1) Claudia Arciaga did not give her consent to the sale as she was then seriously ill, weak, and unable to talk and (2) Jesus Medina falsified the Deed of Absolute Sale; that without Claudias consent, the contract is void; and that the 13 land titles are also void because a forged deed conveys no title. In their answer, petitioners specifically denied the allegations in the complaint and averred that they validly acquired the property by virtue of the notarized Deed of Conditional Sale and the Deed of Absolute Sale executed by spouses Emilio and Claudia Arciaga, respondents parents. The Deed of Absolute Sale was duly signed by the parties in the morning of April 19, 1983 when Claudia was still alive. It was in the evening of the same day when she died. Hence, the contract of sale is valid. Furthermore, they have no participation in the falsification of the Deed of Absolute Sale by Medina. In fact, they exerted efforts to locate him but to no avail. On August 29, 1995, the trial court rendered a Decision dismissing respondents complaint and sustaining the validity of the Deed of Conditional Sale and the Deed of Absolute Sale. The dispositive portion reads: WHEREFORE, Premises Considered, the COMPLAINT is hereby ordered DISMISSED, without pronouncement as to costs.

SO ORDERED.

In their appeal to the Court of Appeals, respondents alleged that the trial court clearly overlooked vital and significant facts which, if considered, would alter the result. Likewise, the trial court erred in concluding that the Deed of Absolute Sale forged by Medina transferred ownership to the vendees, being buyers in good faith; and in finding that Claudia Arciaga consented to the sale of the lots to petitioner spouses.[2] Initially, the Court of Appeals in its Decision dated February 21, 2000 affirmed the trial courts ruling. But upon respondents motion for reconsideration, the Appellate Court reconsidered its Decision. In its Amended Decision, it declared the Deed of Absolute Sale void, thus: WHEREFORE, Our decision dated February 21, 2000 is hereby SET ASIDE. The Deed of Absolute Sale dated April 19, 1983 is hereby declared null and void. The Registry of Deeds for Makati City is hereby ordered to cancel TCT Nos. 132942, 132943, 132945, 132946, 132948, 132950, 132951, 132953, 132954, 132955, 132958, 132962 and 132963 issued in the name of Jose Yason and to reinstate TCT No. 40913 in the name of Emilio Arciaga. SO ORDERED. In reversing its own Decision, the Appellate Court held: There is no evidence showing that said July 2, 1979 Deed of Absolute Sale covering the subject property was ever executed by the parties. The appellees themselves who were supposedly the vendees did not even know of the existence of such sale. What the appellees were claiming was that they entrusted to one Jesus Medina the original copies of the purported Deed of Absolute Sale dated April 19, 1983 and the owners copy of TCT No. 40913 together with the amount of P15,000.00 for capital gains tax and expenses for registration. xxx It turned out that Medina did not use the Deed of Sale dated April 19, 1983 but fabricated a Deed of Absolute Sale dated July 2, 1979 with a reduced consideration of P25,000.00. xxx Being a forged document, the July 2, 1979 Deed of Absolute Sale is indeed null and void. It appears, however, that a Deed of Conditional Sale dated March 28, 1983 (Exh. 1, Record, p. 289) and a Deed of Absolute Sale dated April 19, 1983 (Exh. 2, Record, p. 290) were purportedly executed by Emilio Arciaga and the appellees and that the said property was allegedly sold for P265,000.00. xxx The curious part about the controversial deeds is the date of their supposed execution, especially the date of the Absolute Deed of Sale which coincides with the date of the death of Claudia Arciaga. Also intriguing is the fact that only a thumbmark and not a signature of Claudia Arciaga was affixed on the supposed deeds, when in fact she could definitely read and write. Appellants claimed that their mother Claudia Rivera never gave her consent to the sale. They said that the thumbmark of their mother Claudia Arciaga was allegedly fixed on the Deed of Conditional Sale, if indeed it was prepared before the death of their mother on April 19, 1983, when she was already very ill and bedridden and could not anymore give her consent thereto, and the Deed of Absolute Sale was thumbmarked when she was already dead. xxx As between the testimony of the appellants and their sister Virginia Arciaga-Reyes, We are inclined to believe the claim of the former that their mother Claudia Rivera Arciaga died at around 10:00 in the morning. xxx

The time when Claudia Rivera Arciaga actually died, to Us, is crucial if only to determine the credibility of witnesses. As between Virginia Arciaga Reyes and Jacklyn de Mesa, the latter is more credible. She did not have any interest in the controverted property, unlike the appellants and Virginia Reyes, who are the children of Claudia Rivera Arciaga. The cardinal rule in the law of evidence is that the testimony must not only proceed from the mouth of a credible witness but must also be credible in itself (People vs. Serdan, G.R. 87318, September 2, 1992). xxx We certainly cannot believe the testimony of Virginia Arciaga Reyes that her mother Claudia went to the house of Atty. Fresnedi for the execution of the Deed of Conditional Sale. A person who is physically fit to travel can definitely write his signature, as only minimal effort is needed to perform this simple mechanical act. But what appeared in the deed was only a purported thumb mark of Claudia. Even Virginia Reyes said that her mother could write. Her testimony only supports the claim of the appellants that Claudia Rivera Arciaga was already very ill and weak when the Deed of Conditional Sale was purportedly executed, and was already dead when she was made to affix her thumb mark on the Deed of Absolute Sale. xxx In sum, the inconsistent testimonies of the appellee and his witnesses, particularly that of Virginia Arciaga Reyes, clearly show that Claudia Rivera Arciaga did not voluntarily affix her thumb mark on the Deed of Conditional Sale and Deed of Absolute Sale.
Hence, this petition for review on certiorari alleging that the Court of Appeals erred in declaring the Deed of Absolute Sale void for lack of consent on the part of Claudia Arciaga and because the same document was forged by Medina. The petition is impressed with merit. The rule is that only questions of law may be raised in a petition for review on certiorari; and that the factual findings of the trial court, when adopted and confirmed by the Court of Appeals, are final and conclusive on this Court. [3] However, there are exceptions, such as when the findings of the Court of Appeals are contrary to those of the trial court, [4] as in this case. In determining whether the Deed of Absolute Sale dated April 19, 1983 is valid, it must contain the essential requisites of contracts, viz: (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation which is established.[5] A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price.[6] Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.[7] To enter into a valid legal agreement, the parties must have the capacity to do so. The law presumes that every person is fully competent to enter into a contract until satisfactory proof to the contrary is presented. The burden of proof is on the individual asserting a lack of capacity to contract, and this burden has been characterized as requiring for its satisfaction clear and convincing evidence. The Appellate Court, in its Amended Decision, held that the Deed of Absolute Sale is void for lack of consent on the part of Claudia Arciaga who could not have affixed her thumbmark thereon since she was very ill then. In fact, she died a few hours thereafter. Thus, the basic issue for our resolution is whether Claudia Arciaga voluntarily affixed her thumbmark on the documents of sale. Respondents contend that Claudia did not give her consent to the contracts of sale. Since she knew how to read and write, she should have signed each document instead of merely affixing her thumbmark thereon. Domingo Arciaga, one of the respondents, testified that her mother Claudia was 82 years old when she died on April 19, 1983 due to old age and illness for four (4) months. On March 28, 1983, when the Conditional Deed of Sale was allegedly executed, she was already very weak and thin and could no longer speak. Considering her physical condition, she could not have affixed her thumbmark on the Conditional Deed of Sale that day.[8] Domingo further testified that their mother Claudia, at the time of her death, was being attended to by his sisters Juanita and Virginia Arciaga; that he saw Virginia holding the thumb of their mother to enable her to affix her thumbmark on the Deed of Absolute Sale, then being held by Juanita, thus: Q: Now, you have examined the document entitled Deed of Sale dated April 19, 1983, when for the first time did you see this document?

A: Q: A:

When my mother died. When? April 19, 1983.

Q: At what particular occasion or will you please tell the Honorable Court the circumstances how you were able to see this document on April 19, 1983? A: This is like this. While my mother was being attended, I went over to the porch and I saw Mr. Rogelio Arciaga. We talked with each other. After that I went inside the house wherein I saw Juliana Arciaga holding that document, the Deed of Sale, and Virginia Arciaga was holding the thumb of mother affixing said thumb to the document. Q: A: Q: A: Q: A: Q: Who is Virginia Arciaga? My sister. How about Juanita Arciaga? My sister also. How about Rogelio Arciaga? I have also a brother named Rogelio Arciaga but the one I mentioned has the same name as my brother. After that what happened?

A: I asked, what is that? And they told me that one parcel of land was sold already by us and they said that this is the Deed of Absolute Sale as proof that we have sold that parcel of land. I asked them: Why did you do that? It cannot be! Our mother is a good mother, why still permit her to commit a sin. Q: A: After that what happened next? They told me that they are not going to pursue with it and I told them it cannot be really done. [9]

Domingos testimony was corroborated by his brother Felipe Arciaga who testified that their mother was already dead when her thumbmark was affixed on the document of sale, thus: Q: A: Q: Did you hear any conversation between Domingo and your sisters holding the document? Yes, sir. What was the conversation that you heard?

A: My brother said that it should not be thumbmarked since my mother is already dead. My sisters Virginia and Juanita replied that the thumb marking will no longer proceed.[10] Upon the other hand, petitioners maintain that Claudia voluntarily affixed her thumbmark on the Deeds of Conditional and Absolute Sale which were notarized by Atty. Jaime Fresnedi. and Absolute Sale which were notarized by Atty. Jaime Fresnedi. Virginia Arciaga Andres, daughter of Claudia, testified that she took care of her mother. Five (5) months prior to the execution of the Conditional Deed of Sale on March 28, 1983, her parents informed her and her siblings that they would sell their land. After the sale, her brother Felipe Neri borrowed P50,000.00 from their father. Her father signed the two documents of sale, while her mother affixed her thumbmark thereon. Then Atty. Jaime Fresnedi notarized the Conditional Deed of Sale in his office, while the Deed of Absolute Sale was notarized in her house. Her brothers (respondents herein) were all notified of the sale.[11] Atty. Jaime Fresnedi testified that he notarized the subject documents and knew that Claudia affixed her thumbmark thereon, thus:

Q: A: xxx Q: A: Q: A: A: xxx Q: A: xxx Q: A: xxx Q: A: xxx

What is the importance of the signatures in these two (2) documents? That the parties who executed these documents appeared before me, your Honor.

And when did you notarize the said document, this Deed of Absolute Sale dated April 19, 1983? It was notarized in the same date. Where was it notarized? It was also notarized in my office. Yes, sir.[12]

Do you know personally Claudia Arciaga, the wife of Emilio Arciaga? No, I do not know her personally.

Prior to the execution of this document, Absolute Deed of Sale dated April 19, 1983, have you not met Claudia Rivera? I cannot remember.

When you notarized this document on April 19, 1983, did you talk to Claudia Rivera? I cannot remember.[13]

COURT: Q: A: Q: Did you ascertain whether the person who affixed that thumbmark was really CLAUDIA ARCIAGA? Yes, your Honor. What means did you take to ascertain that the one who affixed that thumbmark was CLAUDIA ARCIAGA?

A: Because, your Honor, when there is a party, not necessarily your Honor in this case, whenever a party would request me to prepare a document and notarize such document, I asked his name and he answered. Let us say for example, this Mr. dela Cruz, he says he is Mr. dela Cruz or Mrs. Arciaga. That thru that introduction I knew that they were the ones who affixed their signatures or affix their thumbmarks. Q: A: In this particular case, did you do that? Yes, your Honor.[14]

The Court of Appeals, reversing the trial court, held that respondents were able to prove that Claudia Arciaga could not have affixed her thumbmark voluntarily on the Conditional Deed of Sale as she was already very ill and bedridden and could not anymore give her consent thereto; and that the Absolute Deed of Sale was thumbmarked when she was already dead.

While it is true that Claudia was sick and bedridden, respondents failed to prove that she could no longer understand the terms of the contract and that she did not affix her thumbmark thereon. Unfortunately, they did not present the doctor or the nurse who attended to her to confirm that indeed she was mentally and physically incapable of entering into a contract. Mere weakness of mind alone, without imposition of fraud, is not a ground for vacating a contract. [15] Only if there is unfairness in the transaction, such as gross inadequacy of consideration, the low degree of intellectual capacity of the party, may be taken into consideration for the purpose of showing such fraud as will afford a ground for annulling a contract.[16] Hence, a person is not incapacitated to enter into a contract merely because of advanced years or by reason of physical infirmities, unless such age and infirmities impair his mental faculties to the extent that he is unable to properly, intelligently and fairly understand the provisions of said contract. Respondents failed to show that Claudia was deprived of reason or that her condition hindered her from freely exercising her own will at the time of the execution of the Deed of Conditional Sale. Also, it is of no moment that Claudia merely affixed her thumbmark on the document. The signature may be made by a persons cross or mark even though he is able to read and write and is valid if the deed is in all other respects a valid one.[17] Significantly, there is no evidence showing that Claudia was forced or coerced in affixing her thumbmark on the Deed of Conditional Sale. Respondents insist that their mother died in the morning of April 19, 1983, hence, she could no longer affix her thumbmark on the Deed of Absolute Sale. Petitioners, however, maintain that she died in the evening of that day and that she affixed her thumbmark on the deed in the morning of that same day. Respondents should have offered in evidence the Certificate of Death of Claudia to show the exact date and time of her death. Again, they should have presented the attending physician to testify whether or not Claudia could still affix her thumbmark then. As earlier mentioned, the burden is on the respondents to prove the lack of capacity on the part of Claudia to enter into a contract. And in proving this, they must offer clear and convincing evidence. This they failed to do. The Court of Appeals also held that there is inconsistency in the testimonies of Virginia Arciaga and Atty. Jaime Fresnedi. While Virginia testified that the Deed of Absolute Sale was notarized in her house where Claudia lived, Atty. Fresnedi declared on the witness stand that he notarized the document in his office. The Appellate Court concluded that such inconsistency clearly shows that Claudia did not voluntarily affix her thumbmark on the document of absolute sale. Records disclose, however, that when Atty. Fresnedi testified in court, nine (9) years had passed from the time he notarized the Deed of Absolute Sale. Considering the length of time that passed and the numerous documents he must have notarized, his failure to remember exactly where he notarized the contract of sale is understandable. Thus, we cannot sustain the finding and conclusion of the Court of Appeals on this point. In Chilianchin vs. Coquinco,[18] this Court held that a notarial document must be sustained in full force and effect so long as he who impugns it does not present strong, complete, and conclusive proof of its falsity or nullity on account of some flaws or defects provided by law. Here, respondents failed to present such proof. It bears emphasis that a notarized Deed of Absolute Sale has in its favor the presumption of regularity, and it carries the evidentiary weight conferred upon it with respect to its execution.[19] All told, we are convinced and so hold that there was consent on the part of Claudia Arciaga when she executed the Conditional Deed of Sale and the Deed of Absolute Sale being assailed by respondents. These documents, therefore, are valid. WHEREFORE, the challenged Decision of the Court of Appeals in CA-G.R. CV No. 55668 is REVERSED. The Decision of the RTC, Branch 62, Makati City dismissing respondents complaint is AFFIRMED. SO ORDERED. Panganiban, (Chairman), Corona, Carpio-Morales, and Garcia, JJ., concur.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-32116 April 2l, 1981 RURAL BANK OF CALOOCAN, INC. and JOSE O. DESIDERIO, JR., petitioners, vs. THE COURT OF APPEALS and MAXIMA CASTRO, respondents.

DE CASTRO, * J.: This is a petition for review by way of certiorari of the decision 1 of the Court of Appeals in CA-G.R. No. 39760-R entitled "Maxima Castro, plaintiff-appellee, versus Severino Valencia, et al., defendants; Rural Bank of Caloocan, Inc., Jose Desiderio, Jr. and Arsenio Reyes, defendants-appellants," which affirmed in toto the decision of the Court of First Instance of Manila in favor of plaintiff- appellee, the herein private respondent Maxima Castro. On December 7, 1959, respondent Maxima Castro, accompanied by Severino Valencia, went to the Rural Bank of Caloocan to apply for an industrial loan. It was Severino Valencia who arranged everything about the loan with the bank and who supplied to the latter the personal data required for Castro's loan application. On December 11, 1959, after the bank approved the loan for the amount of P3,000.00, Castro, accompanied by the Valencia spouses, signed a promissory note corresponding to her loan in favor of the bank. On the same day, December 11, 1959, the Valencia spouses obtained from the bank an equal amount of loan for P3,000.00. They signed a promissory note (Exhibit "2") corresponding to their loan in favor of the bank and had Castro affixed thereon her signature as co-maker. The two loans were secured by a real-estate mortgage (Exhibit "6") on Castro's house and lot of 150 square meters, covered by Transfer Certificate of Title No. 7419 of the Office of the Register of Deeds of Manila. On February 13, 1961, the sheriff of Manila, thru Acting Chief Deputy Sheriff Basilio Magsambol, sent a notice of sheriff's sale addressed to Castro, announcing that her property covered by T.C.T. No. 7419 would be sold at public auction on March 10, 1961 to satisfy the obligation covering the two promissory notes plus interest and attorney's fees. Upon request by Castro and the Valencias and with conformity of the bank, the auction sale that was scheduled for March 10, 1961 was postponed for April 10, 1961. But when April 10, 1961 was subsequently declared a special holiday, the sheriff of Manila sold the property covered by T.C.T. No. 7419 at a public auction sale that was held on April 11, 1961, which was the next succeeding business day following the special holiday. Castro alleged that it was only when she received the letter from the Acting Deputy Sheriff on February 13, 1961, when she learned for the first time that the mortgage contract (Exhibit "6") which was an encumbrance on her property was for P6.000.00 and not for P3,000.00 and that she was made to sign as co-maker of the promissory note (Exhibit "2") without her being informed of this. On April 4, 1961, Castro filed a suit denominated "Re: Sum of Money," against petitioners Bank and Desiderio, the Spouses Valencia, Basilio Magsambol and Arsenio Reyes as defendants in Civil Case No. 46698 before the Court of First Instance of Manila upon the charge, amongst others, that thru mistake on her part or fraud on the part of Valencias she was induced to sign as co-maker of a promissory note (Exhibit "2") and to constitute a mortgage on her house and lot to secure the questioned note. At the time of filing her complaint, respondent Castro deposited the amount of P3,383.00 with the court a quo in full payment of her personal loan plus interest. In her amended complaint, Castro prayed, amongst other, for the annulment as far as she is concerned of the promissory note (Exhibit "2") and mortgage (Exhibit "6") insofar as it exceeds P3,000.00; for the discharge of her personal obligation with the bank by reason of a deposit of P3,383.00 with the court a quo upon the filing of her complaint; for the annulment of the foreclosure sale of her property covered by T.C.T. No. 7419 in favor of Arsenio Reyes; and for the award in her favor of attorney's fees, damages and cost.

In their answers, petitioners interposed counterclaims and prayed for the dismissal of said complaint, with damages, attorney's fees and costs. 2 The pertinent facts arrived from the stipulation of facts entered into by the parties as stated by respondent Court of Appeals are as follows: Spawning the present litigation are the facts contained in the following stipulation of facts submitted by the parties themselves: 1. That the capacity and addresses of all the parties in this case are admitted . 2. That the plaintiff was the registered owner of a residential house and lot located at Nos. 1268-1270 Carola Street, Sampaloc, Manila, containing an area of one hundred fifty (150) square meters, more or less, covered by T.C.T. No. 7419 of the Office of the Register of Deeds of Manila; 3. That the signatures of the plaintiff appearing on the following documents are genuine: a) Application for Industrial Loan with the Rural Bank of Caloocan, dated December 7, 1959 in the amount of P3,000.00 attached as Annex A of this partial stipulation of facts; b) Promissory Note dated December 11, 1959 signed by the plaintiff in favor of the Rural Bank of Caloocan for the amount of P3,000.00 as per Annex B of this partial stipulation of facts; c) Application for Industrial Loan with the Rural Bank of Caloocan, dated December 11, 1959, signed only by the defendants, Severino Valencia and Catalina Valencia, attached as Annex C, of this partial stipulation of facts; d) Promissory note in favor of the Rural Bank of Caloocan, dated December 11, 1959 for the amount of P3000.00, signed by the spouses Severino Valencia and Catalina Valencia as borrowers, and plaintiff Maxima Castro, as a co-maker, attached as Annex D of this partial stipulation of facts; e) Real estate mortgage dated December 11, 1959 executed by plaintiff Maxima Castro, in favor of the Rural Bank of Caloocan, to secure the obligation of P6,000.00 attached herein as Annex E of this partial stipulation of facts; All the parties herein expressly reserved their right to present any evidence they may desire on the circumstances regarding the execution of the above-mentioned documents. 4. That the sheriff of Manila, thru Acting Chief Deputy Sheriff, Basilio Magsambol, sent a notice of sheriff's sale, address to the plaintiff, dated February 13, 1961, announcing that plaintiff's property covered by TCT No. 7419 of the Register of Deeds of the City of Manila, would be sold at public auction on March 10, 1961 to satisfy the total obligation of P5,728.50, plus interest, attorney's fees, etc., as evidenced by the Notice of Sheriff's Sale and Notice of Extrajudicial Auction Sale of the Mortgaged property, attached herewith as Annexes F and F-1, respectively, of this stipulation of facts; 5. That upon the request of the plaintiff and defendants-spouses Severino Valencia and Catalina Valencia, and with the conformity of the Rural Bank of Caloocan, the Sheriff of Manila postponed the auction sale scheduled for March 10, 1961 for thirty (30) days and the sheriff re-set the auction sale for April 10, 1961; 6. That April 10, 1961 was declared a special public holiday; (Note: No. 7 is omitted upon agreement of the parties.) 8. That on April 11, 1961, the Sheriff of Manila, sold at public auction plaintiff's property covered by T.C.T. No. 7419 and defendant, Arsenio Reyes, was the highest bidder and the corresponding certificate of sale was issued to him as per Annex G of this partial stipulation of facts; 9. That on April 16, 1962, the defendant Arsenio Reyes, executed an Affidavit of Consolidation of Ownership, a copy of which is hereto attached as Annex H of this partial stipulation of facts; 10. That on May 9, 1962, the Rural Bank of Caloocan Incorporated executed the final deed of sale in favor of the defendant, Arsenio Reyes, in the amount of P7,000.00, a copy of which is attached as Annex I of this partial stipulation of facts;

11. That the Register of Deeds of the City of Manila issued the Transfer Certificate of Title No. 67297 in favor of the defendant, Arsenio Reyes, in lieu of Transfer Certificate of Title No. 7419 which was in the name of plaintiff, Maxima Castro, which was cancelled; 12. That after defendant, Arsenio Reyes, had consolidated his title to the property as per T.C.T. No. 67299, plaintiff filed a notice of lis pendens with the Register of Deeds of Manila and the same was annotated in the back of T.C.T. No. 67299 as per Annex J of this partial stipulation of facts; and 13. That the parties hereby reserved their rights to present additional evidence on matters not covered by this partial stipulation of facts. WHEREFORE, it is respectfully prayed that the foregoing partial stipulation of facts be approved and admitted by this Honorable Court. As for the evidence presented during the trial, We quote from the decision of the Court of Appeals the statement thereof, as follows: In addition to the foregoing stipulation of facts, plaintiff claims she is a 70-year old widow who cannot read and write the English language; that she can speak the Pampango dialect only; that she has only finished second grade (t.s.n., p. 4, December 11, 1964); that in December 1959, she needed money in the amount of P3,000.00 to invest in the business of the defendant spouses Valencia, who accompanied her to the defendant bank for the purpose of securing a loan of P3,000.00; that while at the defendant bank, an employee handed to her several forms already prepared which she was asked to sign on the places indicated, with no one explaining to her the nature and contents of the documents; that she did not even receive a copy thereof; that she was given a check in the amount of P2,882.85 which she delivered to defendant spouses; that sometime in February 1961, she received a letter from the Acting Deputy Sheriff of Manila, regarding the extrajudicial foreclosure sale of her property; that it was then when she learned for the first time that the mortgage indebtedness secured by the mortgage on her property was P6,000.00 and not P3,000.00; that upon investigation of her lawyer, it was found that the papers she was made to sign were: (a) Application for a loan of P3,000.00 dated December 7, 1959 (Exh. B-1 and Exh. 1); (b) Promissory note dated December 11, 1959 for the said loan of P3,000.00 (Exh- B-2); (c) Promissory note dated December 11, 1959 for P3,000.00 with the defendants Valencia spouses as borrowers and appellee as co-maker (Exh. B-4 or Exh. 2). The auction sale set for March 10, 1961 was postponed co April 10, 1961 upon the request of defendant spouses Valencia who needed more time within which to pay their loan of P3,000.00 with the defendant bank; plaintiff claims that when she filed the complaint she deposited with the Clerk of Court the sum of P3,383.00 in full payment of her loan of P3,000.00 with the defendant bank, plus interest at the rate of 12% per annum up to April 3, 1961 (Exh. D). As additional evidence for the defendant bank, its manager declared that sometime in December, 1959, plaintiff was brought to the Office of the Bank by an employee- (t.s.n., p 4, January 27, 1966). She wept, there to inquire if she could get a loan from the bank. The claims he asked the amount and the purpose of the loan and the security to he given and plaintiff said she would need P3.000.00 to be invested in a drugstore in which she was a partner (t.s.n., p. 811. She offered as security for the loan her lot and house at Carola St., Sampaloc, Manila, which was promptly investigated by the defendant bank's inspector. Then a few days later, plaintiff came back to the bank with the wife of defendant Valencia A date was allegedly set for plaintiff and the defendant spouses for the processing of their application, but on the day fixed, plaintiff came without the defendant spouses. She signed the application and the other papers pertinent to the loan after she was interviewed by the manager of the defendant. After the application of plaintiff was made, defendant spouses had their application for a loan also prepared and signed (see Exh. 13). In his interview of plaintiff and defendant spouses, the manager of the bank was able to gather that plaintiff was in joint venture with the defendant spouses wherein she agreed to invest P3,000.00 as additional capital in the laboratory owned by said spouses (t.s.n., pp. 16-17) 3 The Court of Appeals, upon evaluation of the evidence, affirmed in toto the decision of the Court of First Instance of Manila, the dispositive portion of which reads: FOR ALL THE FOREGOING CONSIDERATIONS, the Court renders judgment and: (1) Declares that the promissory note, Exhibit '2', is invalid as against plaintiff herein;

(2) Declares that the contract of mortgage, Exhibit '6', is null and void, in so far as the amount thereof exceeds the sum of P3,000.00 representing the principal obligation of plaintiff, plus the interest thereon at 12% per annum; (3) Annuls the extrajudicial foreclosure sale at public auction of the mortgaged property held on April 11, 1961, as well as all the process and actuations made in pursuance of or in implementation thereto; (4) Holds that the total unpaid obligation of plaintiff to defendant Rural Bank of Caloocan, Inc., is only the amount of P3,000.00, plus the interest thereon at 12% per annum, as of April 3, 1961, and orders that plaintiff's deposit of P3,383.00 in the Office of the Clerk of Court be applied to the payment thereof; (5) Orders defendant Rural Bank of Caloocan, Inc. to return to defendant Arsenio Reyes the purchase price the latter paid for the mortgaged property at the public auction, as well as reimburse him of all the expenses he has incurred relative to the sale thereof; (6) Orders defendants spouses Severino D. Valencia and Catalina Valencia to pay defendant Rural Bank of Caloocan, Inc. the amount of P3,000.00 plus the corresponding 12% interest thereon per annum from December 11, 1960 until fully paid; and Orders defendants Rural Bank of Caloocan, Inc., Jose Desiderio, Jr. and spouses Severino D. Valencia and Catalina Valencia to pay plaintiff, jointly and severally, the sum of P600.00 by way of attorney's fees, as well as costs. In view of the conclusion that the court has thus reached, the counterclaims of defendant Rural Bank of Caloocan, Inc., Jose Desiderio, Jr. and Arsenio Reyes are hereby dismissed, as a corollary The Court further denies the motion of defendant Arsenio Reyes for an Order requiring Maxima Castro to deposit rentals filed on November 16, 1963, resolution of which was held in abeyance pending final determination of the case on the merits, also as a consequence of the conclusion aforesaid. 4 Petitioners Bank and Jose Desiderio moved for the reconsideration 5 of respondent court's decision. The motion having been denied, 6 they now come before this Court in the instant petition, with the following Assignment of Errors, to wit: I THE COURT OF APPEALS ERRED IN UPHOLDING THE PARTIAL ANNULMENT OF THE PROMISSORY NOTE, EXHIBIT 2, AND THE MORTGAGE, EXHIBIT 6, INSOFAR AS THEY AFFECT RESPONDENT MAXIMA CASTRO VIS-AVIS PETITIONER BANK DESPITE THE TOTAL ABSENCE OF EITHER ALLEGATION IN THE COMPLAINT OR COMPETENT PROOF IN THE EVIDENCE OF ANY FRAUD OR OTHER UNLAWFUL CONDUCT COMMITTED OR PARTICIPATED IN BY PETITIONERS IN PROCURING THE EXECUTION OF SAID CONTRACTS FROM RESPONDENT CASTRO. II THE COURT OF APPEALS ERRED IN IMPUTING UPON AND CONSIDERING PREJUDICIALLY AGAINST PETITIONERS, AS BASIS FOR THE PARTIAL ANNULMENT OF THE CONTRACTS AFORESAID ITS FINDING OF FRAUD PERPETRATED BY THE VALENCIA SPOUSES UPON RESPONDENT CASTRO IN UTTER VIOLATION OF THE RES INTER ALIOS ACTA RULE. III THE COURT OF APPEAL ERRED IN NOT HOLDING THAT, UNDER THE FACTS FOUND BY IT, RESPONDENT CASTRO IS UNDER ESTOPPEL TO IMPUGN THE REGULARITY AND VALIDITY OF HER QUESTIONED TRANSACTION WITH PETITIONER BANK. IV THE COURT OF APPEALS ERRED IN NOT FINDING THAT, BETWEEN PETITIONERS AND RESPONDENT CASTRO, THE LATTER SHOULD SUFFER THE CONSEQUENCES OF THE FRAUD PERPETRATED BY THE VALENCIA SPOUSES, IN AS MUCH AS IT WAS THRU RESPONDENT CASTRO'S NEGLIGENCE OR ACQUIESCENSE IF NOT ACTUAL CONNIVANCE THAT THE PERPETRATION OF SAID FRAUD WAS MADE POSSIBLE.

V THE COURT OF APPEALS ERRED IN UPHOLDING THE VALIDITY OF THE DEPOSIT BY RESPONDENT CASTRO OF P3,383.00 WITH THE COURT BELOW AS A TENDER AND CONSIGNATION OF PAYMENT SUFFICIENT TO DISCHARGE SAID RESPONDENT FROM HER OBLIGATION WITH PETITIONER BANK. VI THE COURT OF APPEALS ERRED IN NOT DECLARING AS VALID AND BINDING UPON RESPONDENT CASTRO THE HOLDING OF THE SALE ON FORECLOSURE ON THE BUSINESS DAY NEXT FOLLOWING THE ORIGINALLY SCHEDULED DATE THEREFOR WHICH WAS DECLARED A HOLIDAY WITHOUT NECESSITY OF FURTHER NOTICE THEREOF. The issue raised in the first three (3) assignment of errors is whether or not respondent court correctly affirmed the lower court in declaring the promissory note (Exhibit 2) invalid insofar as they affect respondent Castro vis-a-vis petitioner bank, and the mortgage contract (Exhibit 6) valid up to the amount of P3,000.00 only. Respondent court declared that the consent of Castro to the promissory note (Exhibit 2) where she signed as co-maker with the Valencias as principal borrowers and her acquiescence to the mortgage contract (Exhibit 6) where she encumbered her property to secure the amount of P6,000.00 was obtained by fraud perpetrated on her by the Valencias who had abused her confidence, taking advantage of her old age and ignorance of her financial need. Respondent court added that "the mandate of fair play decrees that she should be relieved of her obligation under the contract" pursuant to Articles 24 7 and 1332 8 of the Civil Code. The decision in effect relieved Castro of any liability to the promissory note (Exhibit 2) and the mortgage contract (Exhibit 6) was deemed valid up to the amount of P3,000.00 only which was equivalent to her personal loan to the bank. Petitioners argued that since the Valencias were solely declared in the decision to be responsible for the fraud against Castro, in the light of the res inter alios acta rule, a finding of fraud perpetrated by the spouses against Castro cannot be taken to operate prejudicially against the bank. Petitioners concluded that respondent court erred in not giving effect to the promissory note (Exhibit 2) insofar as they affect Castro and the bank and in declaring that the mortgage contract (Exhibit 6) was valid only to the extent of Castro's personal loan of P3,000.00. The records of the case reveal that respondent court's findings of fraud against the Valencias is well supported by evidence. Moreover, the findings of fact by respondent court in the matter is deemed final. 9 The decision declared the Valencias solely responsible for the defraudation of Castro. Petitioners' contention that the decision was silent regarding the participation of the bank in the fraud is, therefore, correct. We cannot agree with the contention of petitioners that the bank was defrauded by the Valencias. For one, no claim was made on this in the lower court. For another, petitioners did not submit proof to support its contention. At any rate, We observe that while the Valencias defrauded Castro by making her sign the promissory note (Exhibit 2) and the mortgage contract (Exhibit 6), they also misrepresented to the bank Castro's personal qualifications in order to secure its consent to the loan. This must be the reason which prompted the bank to contend that it was defrauded by the Valencias. But to reiterate, We cannot agree with the contention for reasons above-mentioned. However, if the contention deserves any consideration at all, it is in indicating the admission of petitioners that the bank committed mistake in giving its consent to the contracts. Thus, as a result of the fraud upon Castro and the misrepresentation to the bank inflicted by the Valencias both Castro and the bank committed mistake in giving their consents to the contracts. In other words, substantial mistake vitiated their consents given. For if Castro had been aware of what she signed and the bank of the true qualifications of the loan applicants, it is evident that they would not have given their consents to the contracts. Pursuant to Article 1342 of the Civil Code which provides: Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and the same is mutual. We cannot declare the promissory note (Exhibit 2) valid between the bank and Castro and the mortgage contract (Exhibit 6) binding on Castro beyond the amount of P3,000.00, for while the contracts may not be invalidated insofar as they affect the bank and Castro on the ground of fraud because the bank was not a participant thereto, such may however be

invalidated on the ground of substantial mistake mutually committed by them as a consequence of the fraud and misrepresentation inflicted by the Valencias. Thus, in the case of Hill vs. Veloso, 10this Court declared that a contract may be annulled on the ground of vitiated consent if deceit by a third person, even without connivance or complicity with one of the contracting parties, resulted in mutual error on the part of the parties to the contract. Petitioners argued that the amended complaint fails to contain even a general averment of fraud or mistake, and its mention in the prayer is definitely not a substantial compliance with the requirement of Section 5, Rule 8 of the Rules of Court. The records of the case, however, will show that the amended complaint contained a particular averment of fraud against the Valencias in full compliance with the provision of the Rules of Court. Although, the amended complaint made no mention of mistake being incurred in by the bank and Castro, such mention is not essential in order that the promissory note (Exhibit 2) may be declared of no binding effect between them and the mortgage (Exhibit 6) valid up to the amount of P3,000.00 only. The reason is that the mistake they mutually suffered was a mere consequence of the fraud perpetrated by the Valencias against them. Thus, the fraud particularly averred in the complaint, having been proven, is deemed sufficient basis for the declaration of the promissory note (Exhibit 2) invalid insofar as it affects Castro vis-a-vis the bank, and the mortgage contract (Exhibit 6) valid only up to the amount of P3,000.00. The second issue raised in the fourth assignment of errors is who between Castro and the bank should suffer the consequences of the fraud perpetrated by the Valencias. In attributing to Castro an consequences of the loss, petitioners argue that it was her negligence or acquiescence if not her actual connivance that made the fraud possible. Petitioners' argument utterly disregards the findings of respondent Court of Appeals wherein petitioners' negligence in the contracts has been aptly demonstrated, to wit: A witness for the defendant bank, Rodolfo Desiderio claims he had subjected the plaintiff-appellee to several interviews. If this were true why is it that her age was placed at 61 instead of 70; why was she described in the application (Exh. B-1-9) as drug manufacturer when in fact she was not; why was it placed in the application that she has income of P20,000.00 when according to plaintiff-appellee, she his not even given such kind of information -the true fact being that she was being paid P1.20 per picul of the sugarcane production in her hacienda and 500 cavans on the palay production. 11 From the foregoing, it is evident that the bank was as much , guilty as Castro was, of negligence in giving its consent to the contracts. It apparently relied on representations made by the Valencia spouses when it should have directly obtained the needed data from Castro who was the acknowledged owner of the property offered as collateral. Moreover, considering Castro's personal circumstances her lack of education, ignorance and old age she cannot be considered utterly neglectful for having been defrauded. On the contrary, it is demanded of petitioners to exercise the highest order of care and prudence in its business dealings with the Valencias considering that it is engaged in a banking business a business affected with public interest. It should have ascertained Castro's awareness of what she was signing or made her understand what obligations she was assuming, considering that she was giving accommodation to, without any consideration from the Valencia spouses. Petitioners further argue that Castro's act of holding the Valencias as her agent led the bank to believe that they were authorized to speak and bind her. She cannot now be permitted to deny the authority of the Valencias to act as her agent for one who clothes another with apparent authority as her agent is not permitted to deny such authority. The authority of the Valencias was only to follow-up Castro's loan application with the bank. They were not authorized to borrow for her. This is apparent from the fact that Castro went to the Bank to sign the promissory note for her loan of P3,000.00. If her act had been understood by the Bank to be a grant of an authority to the Valencia to borrow in her behalf, it should have required a special power of attorney executed by Castro in their favor. Since the bank did not, We can rightly assume that it did not entertain the notion, that the Valencia spouses were in any manner acting as an agent of Castro. When the Valencias borrowed from the Bank a personal loan of P3,000.00 evidenced by a promissory note (Exhibit 2) and mortgaged (Exhibit 6) Castro's property to secure said loan, the Valencias acted for their own behalf. Considering however that for the loan in which the Valencias appeared as principal borrowers, it was the property of Castro that was being mortgaged to secure said loan, the Bank should have exercised due care and prudence by making proper inquiry if Castro's consent to the mortgage was without any taint or defect. The possibility of her not knowing that she signed the promissory note (Exhibit 2) as co-maker with the Valencias and that her property was mortgaged to secure the two loans instead of her own personal loan only, in view of her personal circumstances ignorance, lack of education and old age should have placed the Bank on prudent inquiry to protect its interest and that of the public it serves. With the recent occurrence of events that have supposedly affected adversely our banking system, attributable to laxity in the conduct of bank business by its officials, the need of extreme caution and prudence by said officials and employees in the discharge of their functions cannot be over-emphasized.

Question is, likewise, raised as to the propriety of respondent court's decision which declared that Castro's consignation in court of the amount of P3,383.00 was validly made. It is contended that the consignation was made without prior offer or tender of payment to the Bank, and it therefore, not valid. In holding that there is a substantial compliance with the provision of Article 1256 of the Civil Code, respondent court considered the fact that the Bank was holding Castro liable for the sum of P6,000.00 plus 12% interest per annum, while the amount consigned was only P3,000.00 plus 12% interest; that at the time of consignation, the Bank had long foreclosed the mortgage extrajudicially and the sale of the mortgage property had already been scheduled for April 10, 1961 for non-payment of the obligation, and that despite the fact that the Bank already knew of the deposit made by Castro because the receipt of the deposit was attached to the record of the case, said Bank had not made any claim of such deposit, and that therefore, Castro was right in thinking that it was futile and useless for her to make previous offer and tender of payment directly to the Bank only in the aforesaid amount of P3,000.00 plus 12% interest. Under the foregoing circumstances, the consignation made by Castro was valid. if not under the strict provision of the law, under the more liberal considerations of equity. The final issue raised is the validity or invalidity of the extrajudicial foreclosure sale at public auction of the mortgaged property that was held on April 11, 1961. Petitioners contended that the public auction sale that was held on April 11, 1961 which was the next business day after the scheduled date of the sale on April 10, 1961, a special public holiday, was permissible and valid pursuant to the provisions of Section 31 of the Revised Administrative Code which ordains: Pretermission of holiday. Where the day, or the last day, for doing any act required or permitted by law falls on a holiday, the act may be done on the next succeeding business day. Respondent court ruled that the aforesaid sale is null and void, it not having been carried out in accordance with Section 9 of Act No. 3135, which provides: Section 9. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city. We agree with respondent court. The pretermission of a holiday applies only "where the day, or the last day for doing any act required or permitted by law falls on a holiday," or when the last day of a given period for doing an act falls on a holiday. It does not apply to a day fixed by an office or officer of the government for an act to be done, as distinguished from a period of time within which an act should be done, which may be on any day within that specified period. For example, if a party is required by law to file his answer to a complaint within fifteen (15) days from receipt of the summons and the last day falls on a holiday, the last day is deemed moved to the next succeeding business day. But, if the court fixes the trial of a case on a certain day but the said date is subsequently declared a public holiday, the trial thereof is not automatically transferred to the next succeeding business day. Since April 10, 1961 was not the day or the last day set by law for the extrajudicial foreclosure sale, nor the last day of a given period but a date fixed by the deputy sheriff, the aforesaid sale cannot legally be made on the next succeeding business day without the notices of the sale on that day being posted as prescribed in Section 9, Act No. 3135. WHEREFORE, finding no reversible error in the judgment under review, We affirm the same in toto. No pronouncement as to cost. SO ORDERED. Teehankee (Acting, C.J.) Makasiar, Fernandez, Guerrero and Melencio-Herrera, JJ., concur.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 155208 March 27, 2007

NENA LAZALITA* TATING, Petitioner, vs. FELICIDAD TATING MARCELLA, represented by SALVADOR MARCELLA, CARLOS TATING, and the COURT OF APPEALS, Respondents. DECISION AUSTRIA-MARTINEZ, J.: Assailed in the Special Civil Action for Certiorari before the Court are the Decision1 dated February 22, 2002 and the Resolution dated August 22, 2002 of the Court of Appeals (CA) in CA-G.R. CV No. 64122, which affirmed the Decision2 of the Regional Trial Court (RTC) of Cadiz City, Negros Occidental, Branch 60. The present case arose from a controversy involving a parcel of land denominated as Lot 56 of Subdivision plan Psd31182, located at Abelarde St., Cadiz City, Negros Occidental. The subject lot, containing an area of 200 square meters, was owned by Daniela Solano Vda. de Tating (Daniela) as evidenced by Transfer Certificate of Title (TCT) No. T-4393 issued by the Registry of Deeds of the City of Cadiz.3 On October 14, 1969, Daniela sold the subject property to her granddaughter, herein petitioner Nena Lazalita Tating (Nena). The contract of sale was embodied in a duly notarized Deed of Absolute Sale executed by Daniela in favor of Nena.4 Subsequently, title over the subject property was transferred in the name of Nena.5 She declared the property in her name for tax purposes and paid the real estate taxes due thereon for the years 1972, 1973, 1975 to 1986 and 1988.6 However, the land remained in possession of Daniela. On December 28, 1977, Daniela executed a sworn statement claiming that she had actually no intention of selling the property; the true agreement between her and Nena was simply to transfer title over the subject property in favor of the latter to enable her to obtain a loan by mortgaging the subject property for the purpose of helping her defray her business expenses; she later discovered that Nena did not secure any loan nor mortgage the property; she wants the title in the name of Nena cancelled and the subject property reconveyed to her.7 Daniela died on July 29, 19888 leaving her children as her heirs, namely: Ricardo, Felicidad, Julio, Carlos and Cirilo who predeceased Daniela and was represented by herein petitioner. In a letter dated March 1, 1989, Carlos informed Nena that when Daniela died they discovered the sworn statement she executed on December 28, 1977 and, as a consequence, they are demanding from Nena the return of their rightful shares over the subject property as heirs of Daniela.9 Nena did not reply. Efforts to settle the case amicably proved futile. Hence, on September 6, 1989, Carlos and Felicidad, represented by her son Salvador, filed a complaint with the RTC of Cadiz City, Negros Occidental against Nena praying for the nullification of the Deed of Absolute Sale executed by Daniela in her favor, cancellation of the TCT issued in the name of Nena, and issuance of a new title and tax declaration in favor of the heirs of Daniela.10 The complaint also prayed for the award of moral and exemplary damages as well as attorneys fees and litigation expenses. On March 19, 1993, the plaintiffs filed an amended complaint with leave of court for the purpose of excluding Ricardo as a party plaintiff, he having died intestate and without issue in March 1991. 11 He left Carlos, Felicidad, Julio, and Nena as his sole heirs. In her Answer, Nena denied that any fraud or misrepresentation attended the execution of the subject Deed of Absolute Sale. She also denied having received the letter of her uncle, Carlos. She prayed for the dismissal of the complaint, and in her counterclaim, she asked the trial court for the award of actual, exemplary and moral damages as well as attorneys fees and litigation expenses.12 Trial ensued. On November 4, 1998, the RTC rendered judgment with the following dispositive portion:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of the plaintiffs and against the defendant, and hereby declaring the document of sale dated October 14, 1969 (Exh. "Q") executed between Daniela Solano Vda. de Tating and Nena Lazalita Tating as NULL and VOID and further ordering: 1. The Register of Deeds of Cadiz City to cancel TCT No. 5975 and in lieu thereof to issue a new title in the names of Carlos Tating, Pro-indiviso owner of one-fourth () portion of the property; Felicidad Tating Marcella, Pro-indiviso owner of one-fourth () portion; Julio Tating, Pro-indiviso owner of one-fourth () portion and Nena Lazalita Tating, Pro-indiviso owner of one-fourth () portion, all of lot 56 after payment of the prescribed fees; 2. The City Assessor of the City of Cadiz to cancel Tax Declaration No. 143-00672 and in lieu thereof issue a new Tax Declaration in the names of Carlos Tating, Pro-indiviso portion; Felicidad Tating Marcella, Pro-indiviso portion; Julio Tating, Pro-indiviso portion; and Nena Lazalita Tating, Pro-indiviso portion, all of lot 56 as well as the house standing thereon be likewise declared in the names of the persons mentioned in the same proportions as above-stated after payment of the prescribed fees; 3. The defendant is furthermore ordered to pay plaintiffs the sum of P20,000.00 by way of moral damages,P10,000.00 by way of exemplary damages, P5,000.00 by way of attorneys fees and P3,000.00 by way of litigation expenses; and to 4. Pay the costs of suit. SO ORDERED.13 Nena filed an appeal with the CA. On February 22, 2002, the CA rendered its Decision affirming the judgment of the RTC.14 Nenas Motion for Reconsideration was denied by the CA in its Resolution dated August 22, 2002. 15 Hence, herein petition for certiorari anchored on the ground that the CA "has decided the instant case without due regard to and in violation of the applicable laws and Decisions of this Honorable Court and also because the Decision of the Regional Trial Court, which it has affirmed, is not supported by and is even against the evidence on record." 16 At the outset, it must be stated that the filing of the instant petition for certiorari under Rule 65 of the Rules of Court is inappropriate. Considering that the assailed Decision and Resolution of the CA finally disposed of the case, the proper remedy is a petition for review under Rule 45 of the Rules of Court. The Court notes that while the instant petition is denominated as a Petition for Certiorari under Rule 65 of the Rules of Court, there is no allegation that the CA committed grave abuse of discretion. On the other hand, the petition actually avers errors of judgment, rather than of jurisdiction, which are the proper subjects of a petition for review on certiorari. Hence, in accordance with the liberal spirit pervading the Rules of Court and in the interest of justice, the Court decided to treat the present petition for certiorari as having been filed under Rule 45, especially considering that it was filed within the reglementary period for filing the same.17 As to the merits of the case, petitioner contends that the case for the private respondents rests on the proposition that the Deed of Absolute Sale dated October 14, 1969 is simulated because Danielas actual intention was not to dispose of her property but simply to help petitioner by providing her with a collateral. Petitioner asserts that the sole evidence which persuaded both the RTC and the CA in holding that the subject deed was simulated was the Sworn Statement of Daniela dated December 28, 1977. However, petitioner argues that said Sworn Statement should have been rejected outright by the lower courts considering that Daniela has long been dead when the document was offered in evidence, thereby denying petitioner the right to cross-examine her. Petitioner also contends that while the subject deed was executed on October 14, 1969, the Sworn Statement was purportedly executed only on December 28, 1977 and was discovered only after the death of Daniela in 1994.18Petitioner argues that if the deed of sale is indeed simulated, Daniela would have taken action against the petitioner during her lifetime. However, the fact remains that up to the time of her death or almost 20 years after the Deed of Absolute Sale was executed, she never uttered a word of complaint against petitioner. Petitioner further asserts that the RTC and the CA erred in departing from the doctrine held time and again by the Supreme Court that clear, strong and convincing evidence beyond mere preponderance is required to show the falsity or nullity of a notarial document. Petitioner also argues that the RTC and the CA erred in its pronouncement that the transaction between Daniela and petitioner created a trust relationship between them because of the settled rule that where the terms of a contract are clear, it should be given full effect.

In their Comment and Memorandum, private respondents contend that petitioner failed to show that the CA or the RTC committed grave abuse of discretion in arriving at their assailed judgments; that Danielas Sworn Statement is sufficient evidence to prove that the contract of sale by and between her and petitioner was merely simulated; and that, in effect, the agreement between petitioner and Daniela created a trust relationship between them. The Court finds for the petitioner. The CA and the trial court ruled that the contract of sale between petitioner and Daniela is simulated. A contract is simulated if the parties do not intend to be bound at all (absolutely simulated) or if the parties conceal their true agreement (relatively simulated).19 The primary consideration in determining the true nature of a contract is the intention of the parties.20 Such intention is determined from the express terms of their agreement as well as from their contemporaneous and subsequent acts.21 In the present case, the main evidence presented by private respondents in proving their allegation that the subject deed of sale did not reflect the true intention of the parties thereto is the sworn statement of Daniela dated December 28, 1977. The trial court admitted the said sworn statement as part of private respondents evidence and gave credence to it. The CA also accorded great probative weight to this document. There is no issue in the admissibility of the subject sworn statement. However, the admissibility of evidence should not be equated with weight of evidence.22 The admissibility of evidence depends on its relevance and competence while the weight of evidence pertains to evidence already admitted and its tendency to convince and persuade.23Thus, a particular item of evidence may be admissible, but its evidentiary weight depends on judicial evaluation within the guidelines provided by the rules of evidence.24 It is settled that affidavits are classified as hearsay evidence since they are not generally prepared by the affiant but by another who uses his own language in writing the affiants statements, which may thus be either omitted or misunderstood by the one writing them.25 Moreover, the adverse party is deprived of the opportunity to cross-examine the affiant.26 For this reason, affidavits are generally rejected for being hearsay, unless the affiants themselves are placed on the witness stand to testify thereon.27 The Court finds that both the trial court and the CA committed error in giving the sworn statement probative weight. Since Daniela is no longer available to take the witness stand as she is already dead, the RTC and the CA should not have given probative value on Danielas sworn stat ement for purposes of proving that the contract of sale between her and petitioner was simulated and that, as a consequence, a trust relationship was created between them. Private respondents should have presented other evidence to sufficiently prove their allegation that Daniela, in fact, had no intention of disposing of her property when she executed the subject deed of sale in favor of petitioner. As in all civil cases, the burden is on the plaintiff to prove the material allegations of his complaint and he must rely on the strength of his evidence and not on the weakness of the evidence of the defendant.28 Aside from Danielas sworn statement, private respondents failed to present any other documentary evidence to prove their claim. Even the testimonies of their witnesses failed to establish that Daniela had a different intention when she entered into a contract of sale with petitioner. In Suntay v. Court of Appeals,29 the Court ruled that the most protuberant index of simulation is the complete absence, on the part of the vendee, of any attempt in any manner to assert his rights of ownership over the disputed property.30 In the present case, however, the evidence clearly shows that petitioner declared the property for taxation and paid realty taxes on it in her name. Petitioner has shown that from 1972 to 1988 she religiously paid the real estate taxes due on the said lot and that it was only in 1974 and 1987 that she failed to pay the taxes thereon. While tax receipts and declarations and receipts and declarations of ownership for taxation purposes are not, in themselves, incontrovertible evidence of ownership, they constitute at least proof that the holder has a claim of title over the property.31 The voluntary declaration of a piece of property for taxation purposes manifests not only ones sincere and honest desire to obtain title to the property and announces his adverse claim against the State and all other interested parties, but also the intention to contribute needed revenues to the Government.32 Such an act strengthens ones bona fide claim of acquisition of ownership.33 On the other hand, private respondents failed to present even a single tax receipt or declaration showing that Daniela paid taxes due on the disputed lot as proof that she claims ownership thereof. The only Tax Declaration in the name of Daniela, which private respondents presented in evidence, refers only to the house standing on the lot in controversy. 34 Even the said Tax Declaration contains a notation that herein petitioner owns the lot (Lot 56) upon which said house was built. Moreover, the Court agrees with petitioner that if the subject Deed of Absolute Sale did not really reflect the real intention of Daniela, why is it that she remained silent until her death; she never told any of her relatives regarding her actual purpose in executing the subject deed; she simply chose to make known her true intentions through the sworn statement she executed on December 28, 1977, the existence of which she kept secret from her relatives; and despite her declaration therein that she is appealing for help in order to get back the subject lot, she never took any concrete step to recover the subject property from petitioner until her death more than ten years later. It is true that Daniela retained physical possession of the property even after she executed the subject Absolute Deed of Sale and even after title to the property was transferred in petitioners favor. In fact, Daniela continued to occupy the

property in dispute until her death in 1988 while, in the meantime, petitioner continued to reside in Manila. However, it is well-established that ownership and possession are two entirely different legal concepts.35Just as possession is not a definite proof of ownership, neither is non-possession inconsistent with ownership. The first paragraph of Article 1498 of the Civil Code states that when the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. Possession, along with ownership, is transferred to the vendee by virtue of the notarized deed of conveyance.36 Thus, in light of the circumstances of the present case, it is of no legal consequence that petitioner did not take actual possession or occupation of the disputed property after the execution of the deed of sale in her favor because she was already able to perfect and complete her ownership of and title over the subject property. As to Danielas affidavit dated June 9, 1983, submitted by petitioner, which confirmed the validity of the sale of the disput ed lot in her favor, the same has no probative value, as the sworn statement earlier adverted to, for being hearsay. Naturally, private respondents were not able to cross-examine the deceased-affiant on her declarations contained in the said affidavit. However, even if Danielas affidavit of June 9, 1983 is disregarded, the fact remains that private respondents failed to prove by clear, strong and convincing evidence beyond mere preponderance of evidence 37 that the contract of sale between Daniela and petitioner was simulated. The legal presumption is in favor of the validity of contracts and the party who impugns its regularity has the burden of proving its simulation.38 Since private respondents failed to discharge the burden of proving their allegation that the contract of sale between petitioner and Daniela was simulated, the presumption of regularity and validity of the October 14, 1969 Deed of Absolute Sale stands. Considering that the Court finds the subject contract of sale between petitioner and Daniela to be valid and not fictitious or simulated, there is no more necessity to discuss the issue as to whether or not a trust relationship was created between them. WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 64122, affirming the Decision of the Regional Trial Court of Cadiz City, Negros Occidental, Branch 60, in Civil Case No. 278-C, are REVERSED AND SET ASIDE. The complaint of the private respondents is DISMISSED. No costs. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 163687 March 28, 2006

GAUDENCIO VALERIO for himself and as attorney-in-fact of BIENVENIDO VALERIO, CONRADO VALERIO, DIONISIO VALERIO, EFEPANIA VALERIO and CARLOTA DE LEON VALENZUELA, Petitioners, vs. VICENTA REFRESCA, MARIANO1 REFRESCA, DOMINGO REFRESCA, REMEDIOS REFRESCA, OLY REFRESCA, LALET REFRESCA and BENITO REFRESCA, Respondents. DECISION PUNO, J.: Narciso Valerio, married to Nieves Valerio, owned two (2) adjacent agricultural lots in Calamba, Laguna, with a total area of 6.5 hectares. One of these lots, Lot 428, was a four-hectare land. A portion thereof, consisting of 511 sq. m. and known as Lot 428-A, is the subject of the petition in the case at bar. It is undisputed that as early as 1963, spouses Alejandro and Vicenta Refresca started cultivating the 6.5-hectare land as tenants. In 1968, Narciso Valerio acquired ownership over the land. The tenancy relations between the Valerios and Refrescas were established and their harmonious relations continued uninterrupted. In 1974, the Valerios entered into a leasehold contract2with tenant Alejandro Refresca whereby the latter was allowed to continue tilling the 6.5-hectare land in exchange for fixed rentals. On February 10, 1975, Narciso Valerio, with the consent of his wife Nieves, executed a Deed of Sale whereby he sold his 6.5-hectare landholding to his heirs, namely: Susana de Leon, Leslie de Leon, petitioners Carlota de Leon Valenzuela, and Bienvenido, Dionisio, Conrado, Gaudencio, and Efepania, all surnamed Valerio. Narciso likewise conveyed 511 sq. m. of his landholding, known as Lot 428-A, in favor of his tenant Alejandro Refresca in recognition of his long service and cultivation of the subject land. On February 15, 1975, Narciso Valerio died. On December 13, 1982, the parties to the Deed of Sale, as co-owners, subdivided the 6.5-hectare land and executed a Deed of Agreement of Subdivision.3The same 511 sq. m. of land was granted to tenant Alejandro Refresca. Individual titles over the apportioned areas were subsequently issued to the vendees. Nieves Valerio, widow of Narciso, entered into another leasehold agreement with the Refrescas over the 6.5hectare landholding for the period 1984-1985 in exchange for the latters payment of rentals. On March 4, 1987, petitioners mother, Nieves Valerio, died. After tenant Alejandros demise in 1994, his widow, respondent Vicenta Refresca, succeeded him by operation of law in tilling the land. Thereafter, petitioners demanded that the respondents vacate the land. They alleged that the 511 sq. m. lot was given to the respondents on the condition that they will surrender their tenancy rights over the entire land but respondents failed to do so. In 1995, the Department of Agrarian Reform (DAR), Legal Division, in Sta. Cruz, Laguna, issued a Resolution recognizing the right of respondent Vicenta Refresca, widow of tenant Alejandro, to continue her peaceful possession and cultivation of the 6.5-hectare land. In 1998, despite the DAR ruling, petitioners sent a demand letter to respondents to vacate the land. Respondents refused. Petitioners filed a complaint4before the Regional Trial Court (RTC) of Calamba, Laguna, against respondents -- widow and children of Alejandro Refresca -- for the annulment of documents of transfer and title of Alejandro. They alleged that the cause or consideration for the transfer of the 511 sq. m. lot to the Refrescas was an agreement between Narciso and Alejandro that conveyance of said portion would serve as disturbance compensation in favor of the latter, i.e., the 511 sq. m. lot was granted to the Refrescas in exchange for the surrender of their tenancy rights over the entire 6.5-hectare land; that Alejandro allegedly obliged himself to return the 6.5-hectare land he was tilling as a tenant; that Alejandro failed to fulfill his promise and instead continued to till the land until his death; that respondents succeeded in cultivating the entire land; that as the cause for the cession of the land was not complied with, the transfer of the 511 sq. m. lot to Alejandro should be declared void as a contract without cause or consideration produced no effect.

In their Answer,5respondents maintained that the 511 sq. m. lot was granted by Narciso to tenant Alejandro as a homelot due to the generosity of the Valerio spouses with whom they had always maintained good relations; that the lot was given to them in recognition of their long years of cultivating the land; that in the 1975 Deed of Sale, Narciso apportioned his 6.5hectare land among petitioners as his heirs and Alejandro Refresca as his tenant; that as co-owners, petitioners and Alejandro subdivided the land in order that separate titles may be issued to them; that, thereafter, respondent Vicenta succeeded her husband in tilling the 6.5-hectare land; that as tenant, she paid lease rentals to petitioners who initially accepted them; and, that upon the death of petitioners mother, Nieves Valerio, petitioners demanded the Refrescas to return the 511 sq. m. land as the former intended to sell the entire land which shall then be converted to commercial use. Respondents likewise invoked prescription and estoppel in their defense. At the pre-trial conference, the parties stipulated that the transfer of the 511 sq. m. lot to Alejandro was without monetary consideration. At the trial, petitioners themselves admitted that they did not pay monetary consideration for the transfer of the specific portions of the land to them. After the trial, the RTC ruled in favor of petitioners.6It held that as the Deed of Sale executed by Narciso Valeriois absolutely simulated or fictitious and, as both parties were in pari delicto, petitioners could not demand the surrender of the 511 sq. m. lot nor could respondents retain possession thereof. The RTC ordered that the 511 sq. m. lot be reverted to the estate of the deceased Valerio spouses. The dispositive portion reads: ACCORDINGLY, judgment is hereby rendered as follows: a) the Deed of Absolute Sale and its resultant document, the Deed of Agreement of Subdivision[,] are hereby declared null and void and with no further force and effect; b) Transfer Certificate of Title No. T-151186 covering lot no. 428 of the Calamba Friar Land Estate with an area of five hundred eleven (511) square meters issued in the name of Alejandro Refresca married to Vicenta Refresca is likewise declared null and void; c) the said 511[-]square meter lot is ordered reverted to the estate of the deceased Narciso Valerio and Nieves Valerio. The prayer for damages by the plaintiffs and the counterclaim interposed by defendants are likewise ordered DISMISSED for lack of merit. With costs against plaintiffs and defendants. SO ORDERED.7 On appeal, the Court of Appeals reversed the decision of the RTC. It ruled that the Deed of Sale was not absolutely, but relatively simulated as the parties intended to be bound by it. On the issue of consideration, the Court of Appeals held that although the Deed of Sale was not supported by monetary consideration, a cause exists although the parties could not agree on what it was, i.e., while petitioners maintained that the lot was granted to Alejandro in exchange for his tenancy rights, respondents claimed that the lot was granted to them out of the generosity of the Valerio spouses. It also ruled that the remedy of petitioners for breach of contract was to either ask for rescission of the sale or specific performance within ten (10) years from the alleged breach of contract. However, as petitioners action was filed thirteen (13) years after the alleged breach, their present action has prescribed. In any case, it ruled that petitioners were estopped from assailing the deed of sale after they have agreed to subdivide the land as co-owners, thus acknowledging its provision transferring ownership of the 511 sq. m. lot to respondents.8 In this appeal, petitioners impugn the Decision of the Court of Appeals on the following grounds: THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN NOT HOLDING [THAT] THE AGREEMENT DATED FEBRUARY 10, 1975 BY AND BETWEEN NARCISO VALERIO AND ALEJANDRO REFRESCA [IS] ABSOLUTELY SIMULATED AND FICTITIOUS. THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN DECLARING THAT PETITIONERS ACTION [HAS] ALREADY PRESCRIBED. On the first issue, petitioners contend the 1975 Deed of Sale between Narciso and Alejandro is absolutely simulated or fictitious and produced no legal effect as there was no monetary consideration involved. 9Petitioners further argue that as the Deed of Sale is void, it cannot be ratified by the subsequent execution of a deed of partition among the parties.

Petitioners arguments fail to impress. Article 1345 of the Civil Code10provides that the simulation of a contract may either be absolute or relative. In absolute simulation, there is a colorable contract but it has no substance as the parties have no intention to be bound by it. The main characteristic of an absolute simulation is that the apparent contract is not really desired or intended to produce legal effect or in any way alter the juridical situation of the parties.11As a result, an absolutely simulated or fictitious contract is void, and the parties may recover from each other what they may have given under the contract. However, if the parties state a false cause in the contract to conceal their real agreement, the contract is relatively simulated and the parties are still bound by their real agreement. Hence, where the essential requisites of a contract are present and the simulation refers only to the content or terms of the contract, the agreement is absolutely binding and enforceable between the parties and their successors in interest.12 In the case at bar, the records reveal that the clear intent of Narciso Valerio in executing the 1975 Deed of Sale was to transfer ownership of the apportioned areas of his 6.5-hectare land to petitioners as his heirs and to his tenant Alejandro. Although no monetary consideration was received by landowner Narciso from any of the vendees, it cannot be said that the contract was not supported by a cause or consideration or that Narciso never intended to transfer ownership thereof. Indeed, the primary consideration in determining the true nature of a contract is the intention of the parties. If the words of a contract appear to contravene the evident intention of the parties, the latter shall prevail. Such intention is determined not only from the express terms of their agreement, but also from the contemporaneous and subsequent acts of the parties.13In the case at bar, the circumstances reveal that when landowner Narciso executed the 1975 Deed of Sale, he intended to transfer ownership of his entire 6.5-hectare landholding and apportion the area among Alejandro and the petitioners. Neither he nor his wife, during their lifetime, exerted effort to evict respondents when the latter allegedly failed to comply with the condition to surrender their tenancy rights after the sale. That petitioners and tenant Alejandro then took possession of their respective portions of the land additionally shows that Narciso divested himself of his title and control over the property. Truly, one of the most striking badges of absolute simulation is the complete absence of any attempt on the part of a vendee to assert his right of dominion over the property.14In the case at bar, petitioners and respondents were not amiss in claiming their right over their respective lots. Petitioners urge that the transfer of the lot to Alejandro was subject to the condition that the latter shall waive his tenancy rights over the 6.5-hectare land. They now impugn the transfer of ownership as the Refrescas allegedly failed to abide by the condition. Respondents, on the other hand, assert that it was generosity that motivated Narciso to cede the 511 sq. m. land to Alejandro Refresca, as an acknowledgment of his long years of cultivating the land as tenant. As the contract is one of pure beneficence, the respondents contend that the cause or consideration therefor is the liberality of the benefactor Narciso Valerio. We find that the transfer of the lot to petitioners and Alejandro is supported by a cause or consideration. If, as alleged by petitioners, the transfer was conditioned on the surrender of respondents of their tenancy rights, said condition is the consideration for the contract. If no such condition was imposed by Narciso prior to the execution of the deed of sale, the cause for the transfer of the lot to Alejandro is clearly the liberality or generosity of landowner Narciso. In either case, we agree with the ruling of the Court of Appeals that there was a cause or consideration for the transfer of the land although the parties cannot agree on what it is. On the issue of consideration, the Court is more inclined to give credence to respondents claim that the cause of the contract is the generosity of Narciso Valerio who intended to divest himself of ownership over the land. The alleged condition imposed by Narciso on respondents, i.e., for the latter to surrender their tenancy rights in exchange for the transfer of the 511 sq. m. lot to them, is belied by the records. Respondents testified that no such condition attached to the transfer as after the execution of the Deed of Sale and even after Alejandros death, respondents were allowed to continue cultivating the entire land as tenants. The records show that after the 1975 Deed of Sale, Nieves Valerio, widow of Narciso, executed a leasehold contract in favor of Vicenta Refresca, widow of Alejandro, allowing her to continue tilling the land in exchange for payment of the rentals. In fact, the tenancy right of the respondents to succeed Alejandro in tilling the land has been recognized by the DAR. Petitioners themselves admitted that Narciso transferred ownership of the 511 sq. m. land to Alejandro and the other apportioned lots to them out of the liberality of Narciso as neither the petitioners nor Alejandro paid monetary consideration therefor.15Clearly, Narciso was motivated by generosity when he divested himself of ownership over the land. This was the true intent of the parties although they tried to conceal it with the execution of a deed of sale, when the contract is in reality one of donation inter vivos. We likewise agree with the findings of the Court of Appeals that petitioners are estopped in impugning the sale as they overtly recognized the validity of the transfer of the apportioned lot to tenant Alejandro. Indeed, subsequent to the execution of the Deed of Sale, petitioners and Alejandro, as co-owners,voluntarily partitioned the 6.5-hectare lot which became the basis for the issuance of separate titles in their names.16By this explicit act, petitioners clearly intended to be bound by the 1975 Deed of Sale which transferred the subdivided lots to each of the parties.

Thus, we rule that the 1975 Deed of Sale between the parties is a relatively simulated contract as the clear intent was to transfer ownership over the land. Hence, the contract binds the parties to their true agreement, i.e., to cause the transfer of the specific apportioned areas to Alejandro and petitioners. Petitioners failed to discharge the burden of proving their allegation that the 1975 Deed of Sale is a void contract for being absolutely simulated. As this Court has ruled on the validity of the 1975 Deed of Sale, we find no reason to pass upon the issue of prescription raised by petitioners. IN VIEW WHEREOF, the petition is dismissed. No pronouncement as to costs. SO ORDERED. REYNATO S. PUNO Associate Justice WE CONCUR: ANGELINA SANDOVAL-GUTIERREZ Associate Justice RENATO C. CORONA Associate Justice CANCIO C. GARCIA Associate Justice ATTESTATION I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Associate Justice Chairman CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairmans Attestation, it is hereby certified tha t the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ARTEMIO V. PANGANIBAN Chief Justice ADOLFO S. AZCUNA Asscociate Justice

THIRD DIVISION

AURORA FE B. CAMACHO, Petitioner,

G.R. No. 127520

Present: YNARES-SANTIAGO, J., - versus CALLEJO, SR., and CHICO-NAZARIO, JJ. COURT OF APPEALS and ANGELINO BANZON, Respondents. Promulgated: February 9, 2007 x-----------------------------------------------------------------------------------------x

Chairperson, AUSTRIA-MARTINEZ,

DECISION CALLEJO, SR., J.:

This is a Petition for Review on Certiorari of the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 41268 affirming with modification the Decision[2] of the Regional Trial Court (RTC) of Balanga, Bataan, Branch 1.

The Antecedents Camacho was the owner of Lot 261, a 7.5-hectare parcel of land situated in Balanga, Bataan and covered by Transfer Certificate of Title No. T-10,185. On July 14, 1968, Camacho and respondent Atty. Angelino Banzon entered into a contract for legal services denominated as a Contract of Attorneys Fee.[3] The agreement is worded as follows: KNOW ALL MEN BY THESE PRESENTS: That we, Aurora B. Camacho, widow, of legal age and resident of Balanga, Bataan, and Angelino M. Banzon, have agreed on the following: That I, Aurora B. Camacho is the registered owner of Lot No. 261 Balanga Cadastre, has secured the legal services of Atty. Angelino M. Banzon to perform the following: 1. To negotiate with the Municipal Government of Balanga so that the above-mentioned lot shall be the site of the proposed Balanga Public Market; 2. 3. To sell 1200 sq. m. for the sum of TWENTY- FOUR THOUSAND PESOS (P24,000.00) right at the Market Site; And to perform all the legal phase incidental to this work.

That for and in consideration of this undertaking, I bind myself to pay Atty. Angelino M. Banzon FIVE THOUSAND SQUARE METERS (5000) of the said lot, for which in no case I shall not be responsible for payment of income taxes in relation hereto, this area located also at market site. That I, Angelino M. Banzon, is willing to undertake the above-enumerated undertaking. WITNESS our hands this 14 of July, 1968, in Balanga, Bataan. (Signed) ANGELINO M. BANZON (Signed) AURORA B. CAMACHO

Pursuant to the agreement, Atty. Banzon, on even date, sent a letter-proposal[4] to the municipal council offering three sites for the proposed public market which includedLot 261. Still on the same date, Camacho executed a Special Power of Attorney[5] giving Atty. Banzon the authority to execute and sign for her behalf a Deed of Donation transferring a 17,000-sq-m portion of Lot 261 to the municipal government of Balanga, Bataan. The Deed of Donation was executed, which was later accepted by the local government unit in Municipal Resolution No. 127. [6] Silvestre Tuazon had been an agricultural tenant in Lot 261 since World War II. On August 22, 1968, Tuazon and Camacho entered into an Agreement with Voluntary Surrender [7] where Tuazon voluntarily surrendered his right as a tenant of the landholding. Despite the agreement, however, Tuazon plowed a portion of the lot and planted palaywithout Camachos consent. Since Tuazon refused to vacate the premises, Camacho and the Municipality of Balanga, through then Acting Mayor Victor Y. Baluyot, filed a complaint[8] for forcible entry on November 18, 1969 before the Municipal Trial Court (MTC) of Balanga, Bataan. The complaint was docketed as Civil Case No. 424. The case was eventually decided in favor of the plaintiffs and Tuazon was ordered to vacate the lot. On appeal to the RTC, trial de novo ensued, in view of the absence of the transcript of stenographic notes of the proceedings before the MTC. The RTC issued a preliminary mandatory injunction ordering Tuazon to discontinue entering the subject premises until further orders of the court.[9] On September 1, 1973, the plaintiffs, through Atty. Banzon, and Tuazon entered into an Agreement to Stay Court Order.[10] Under the agreement, Tuazon was allowed to cultivate specific portions of the property as indicated in a sketch plan which the parties prepared, and to use the markets water supply to irrigate his plants within the lot subject to the markets preferential rights. The parties also contracted that the agreement shall in no way affect the merits of Civil Case No. 3512 and CAR Case No. 520-B73; and that no part shall be construed as impliedly creating new tenancy relationship. On December 6, 1973, Camacho filed a Manifestation[11] in Civil Case No. 3512 declaring that she had terminated the services of Atty. Banzon and had retained the services of new counsel, Atty. Victor De La Serna. On December 17, 1973, Atty. Banzon filed a Complaint-in-Intervention[12] in Civil Case No. 3512. He alleged that Camacho had engaged his services as counsel in CAR Case No. 59 B65 (where a favorable decision was rendered) and in Civ il Case No. 3512. Under the Contract of Attorneys Fee which they had both signed, Camacho would compensate him with a 5,000-sq-m portion of Lot 261 in case he succeeds in negotiating with the Municipality of Balanga in transferring the projected new public market which had been set for construction at the Doa Francisca Subdivision, all legal requirements having been approved by a municipal resolution, the Development Bank of the Philippines, and the National Urban Planning Commission. Atty. Banzon further claimed that as a consequence of the seven cases filed by/against Camacho, she further bound herself orally to give him a 1,000-sq-m portion of Lot 261 as attorneys fee. He had also acquired from Camacho by purchase an 80 -sq-m portion of the subject lot as evidenced by a Provisional Deed of Sale[13] and from third parties an 800-sq-m portion. He further declared that his requests for Camacho to deliver the portions of the subject lot remained unheeded, and that of the seven cases[14] he had handled for Camacho, four had been decided in her favor while three are pending. Atty. Banzon thus prayed for the following relief: 1. Ordering the ejectment of Defendant Silvestre Tuazon, in so far as (6880) square meters is concerned, INTERVENORS claim over Lot 261;

2. The First Cause of Action, ordering the Plaintiff Aurora B. Camacho to deliver (5000) square meters as per Annex A; EIGHTY square meters as per Annex C; EIGHT HUNDRED (800) square meters which the INTERVENOR purchased from third parties; 3. On the Second Cause of Action, ordering the Plaintiff Aurora B. Camacho to pay the sum of P8,820.00, corresponding to the lease rental of (5880) square meters a month, counted from July, 1973, until the same is delivered to the INTERVENOR; 4. On the Third Cause of Action, ordering the Plaintiff Auro ra B. Camacho to deliver (1000) square meters, as attorneys fee in handling seven (7) cases; 5. Ordering the Plaintiff Aurora B. Camacho and Defendant Silvestre Tuazon to pay jointly and severally, the sum of P5,000.00 for attorneys fee for legal services to the INTERVENOR; cost and litigation expenses of P1,000. until the case is terminated. 6. To grant such relief, just and equitable in the premises.[15]

Camacho opposed[16] Atty. Banzons motion on the ground that the admission of the complaint -in-intervention would merely serve to delay the case. She also claimed that his interest could be fully ventilated in a separate case for recovery of property or for damages. On April 5, 1974, the RTC granted[17] the motion and subsequently admitted the complaint-in-intervention. On December 31, 1973, Atty. Banzon and Tuazon entered into the following amicable settlement: 1. That for and in consideration of the sum of TWO THOUSAND PESOS (P2,000.00), Philippine currency, which have been received from the INTERVENOR and acknowledged to have been received by the Defendant Silvestre Tuazon, the latter hereby acknowledges, waives his defenses against the claim of the INTERVENOR ANGELINO M. BANZON over a portion of Lot No. 261, portion of the lot in question, to the extent of SIX THOUSAND EIGHT HUNDRED EIGHTY (6880) SQUARE METERS as claimed and contained in the COMPLAINT IN INTERVENTION and to give effect to this AMICABLE SETTLEMENT hereby surrenders the actual possession of the said portion, subject to the approval of this Hon. Court, in favor of the INTERVENOR; 2. That the herein parties to this AMICABLE SETTLEMENT waive and renounce whatever rights or claims, including future claims that each may have against each other; 3. That the parties herein bind themselves to comply with the conditions of the foregoing settlement; 4. That the foregoing AMICABLE SETTLEMENT was realized and achieved between the herein parties, thru the prior intercession of the Defendants counsel Atty. Narciso V. Cruz, Jr. WHEREFORE, it is respectfully prayed that the foregoing AMICABLE SETTLEMENT be approved and made as the basis of this Hon. Courts decision between the herein INTERVENOR and DEFENDANT Sil vestre Tuazon.[18]

In Answer[19] to the complaint-in-intervention, Camacho denied that she solicited the services of Atty. Banzon to facilitate the transfer of the site of the proposed public market; in fact, it was Atty. Banzon who approached and convinced her to donate a portion of the lot to the municipality of Balanga. He assured her that the municipality ofBalanga planned to relocate the public market and was scouting for a new location. He also told her that her lot appeared to be the most ideal location, and that he would take care of all the legal problems. Camacho admitted, however, that she signed the Contract of Attorneys Fee but only upon the request of Atty. Banzon. He told her that the document would be shown to the municipal councilors for formalitys sake to prove his authorit y to act for and in behalf of Camacho. It was never intended to bind her to pay attorneys fees. [20] She further denied that she agreed to give to Atty. Banzon 1,000 sq m for handling the seven cases; they never discussed attorneys fees. The cases stemmed from his assurance that he would take care of any legal problem resulting from the donation of her property. She was not even a party in

some of the cases cited by Atty. Banzon.[21] Lastly, she denied that he had made demands to deliver the mentioned portions of the property.[22] In his Reply,[23] Atty. Banzon countered that the Balanga Municipal Council Resolution No. 128 transferring the market site to Camachos property was enacted precisely because of his letter -proposal[24] to the municipal council. On August 14, 1977, Camacho and Tuazon entered into a Compromise Agreement, [25] whereby Camacho agreed to transfer a 1,000-sq-m portion of Lot 261-B in favor of Tuazon; for his part, Tuazon moved to dismiss Civil Case No. 3805 and to remove all the improvements outside the portion of the property which Camacho had agreed to convey to him. Thus, the RTC rendered a partial decision[26] approving the compromise agreement. On September 12, 1978, Camacho filed a Motion to Dismiss [27] the Complaint-in-Intervention filed by Atty. Banzon on the ground that the jurisdiction of the court to try the case ceased to exist because the principal action had been terminated. The RTC denied the motion in its Order[28] dated March 16, 1979. It held that Atty. Banzon had an interest over the subject property which he had to protect and that the compromise agreement between Camacho and Tuazon did not include him. Moreover, the dismissal of the intervention would not achieve its purpose of avoiding multiplicity of suits. The propriety of the denial of Camachos motion to dismiss was finally settled by this Court in Camacho v. Court of Appeals[29] where this Court affirmed the denial of the motion. After trial on the merits, the RTC rendered a Decision[30] on September 1, 1992 in favor of Atty. Banzon. The fallo reads: ACCORDINGLY, judgment is hereby rendered: 1. Ordering plaintiff Aurora B. Camacho under the Contract of Attorneys Fees, [to deliver] 5000 square meters of the subject landholding, Lot 261-B-1, covered by Transfer Certificate of Title No. T-76357, or any other derivative sublots of the original Lot 261-B; 2. Declaring the dismissal of said intervenor from the case at bar as unjustified; 3. Ordering said plaintiff to pay and deliver to said intervenor 1000 square meters of the property in question, Lot 261-B-1 or any other derivative sublots of the original Lot 261-B in case of deficiency, for legal services rendered in seven (7) cases; 4. Directing said plaintiff to deliver to said intervenor, under a Provisional Deed of Sale, 80 square meters of the subject property, Lot 261-B-1 or any other derivative sublots of the original Lot 261 in case of deficiency, after payment of the balance of the purchase price; 5. Ordering said plaintiff to execute the corresponding Deed of Sale in favor of said intervenor for the aforesaid 80 square meters; 6. Condemning said plaintiff to pay moral damages to said intervenor in the amount of P100,000.00; attorneys fees in the sum of P30,000.00; and the costs of the suit. SO ORDERED.[31]

According to the RTC, Camacho had indeed read the contract and freely affixed her signature thereon. Applying the provisions of Section 7 (now section 9), Rule 130 [32]of the Rules of Court, it concluded that the terms of the contract were embodied in the document itself. Moreover, Camacho did not bother to pay for all the other cases being handled by Atty. Banzon because she knew that she had agreed already to pay attorneys fees. The court likewise found that applying the provisions of Sections 24[33] and 26,[34] Rule 138 of the Rules of Court, the area of the lot agreed upon as attorneys fees appears to be a reasonable compensation for his services. Since Atty. Banzon handled other cases subsequent to the execution of the contract of attorneys fees, the additional 1,000-sq-m lot which the parties had orally agreed upon is proper. The RTC declared that Atty. Banzon was entitled to be compensated based on quantum meruit since his dismissal from the present case was unjustified. It also held that Camacho was obliged to execute the necessary public instrument covering the 80-sq-m portion of the lot which she

had sold to Atty. Banzon. It went further and awarded moral damages to Atty. Banzon on account of the mental anguish and besmirched reputation he had suffered. On October 8, 1992, Atty. Banzon filed a Motion for Execution Pending Appeal. [35] Camacho, on the other hand, filed a Notice of Appeal. Atty. Banzon filed a motion to dismiss on the ground that since the case originated from the municipal court, it should be assailed via petition for review. On November 20, 1992, the court issued an Order [36]denying the motion for execution pending appeal for failure to state good reasons therefor. It likewise granted the notice of appeal on the ground that the complaint-in-intervention originated from the RTC and not from the MTC; under the factual backdrop of the case, ordinary appeal is proper. On appeal to the CA, Camacho raised the following errors:
I. THE LOWER COURT ERRED IN ALLOWING JUDGE ABRAHAM VERA TO SIGN THE DECISION IN THE INSTANT CASE, CONSIDERING THAT JUDGE VERA HAD LONG CEASED TO BE THE JUDGE OF THAT COURT AND WAS THE PRESIDING JUDGE OF BRANCH 90 OF THE REGIONAL TRIAL COURT OF QUEZON CITY WHEN THE INSTANT DECISION WAS SIGNED ON SEPTEMBER 1, 1992. II. THE LOWER COURT ERRED IN UPHOLDING THE VALIDITY AND DUE EXECUTION OF CONTRACT EXH. C AND IN ORDERING PLAINTIFF TO DELIVER TO INTERVENOR 5,000 SQUARE METERS OF LOT 261-B-1, T.C.T. T-76357, CONSIDERING THAT THIS LOT IS NOT SPECIFIED IN EXH. C. III. THE LOWER COURT ERRED IN DECLARING THAT INTERVENORS DISCHARGE AS PLAINTIFFS COUNSEL IN THE CASE AT BAR WAS UNJUSTIFIED, IN AWARDING INTERVENOR MORAL DAMAGES, AND IN DISMISSING PLAINTIFFS COUNTERCLAIMS. IV. THE LOWER COURT ERRED IN AWARDING INTERVENOR 1,000 SQUARE METERS OF PLAINTIFFS LAND FOR HIS HANDLING OF ALLEGED SEVEN CASES. V. THE LOWER COURT ERRED IN ORDERING PLAINTIFF TO EXECUTE A FINAL DEED OF SALE FOR 80 SQUARE METERS OUT OF LOT 261-B-1, CONSIDERING THAT LOT 261-B-1 IS NOT SPECIFIED IN THE PROVISIONAL DEED OF SALE.[37]

On October 29, 1996, the CA rendered a decision[38] affirming with modification the RTC ruling. The fallo reads:

WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with modification requiring plaintiff Camacho to DELIVER 5,000 sq.m. and 1,000 sq. m. of Lot 261-B-1 to Intervenor as his attorneys fee and 80 sq. m. also from Lot 261 subject to the conditions embodied under no. 4 of the dispositive portion of the assailed decision all within thirty (30) days from the finality of this decision. SO ORDERED.[39]

The CA held that all the elements of a valid contract were present: Camacho (a dentistry graduate and an experienced businesswoman conversant in English) cannot plead that she did not understand the undertaking she had entered into; the object of the contract is certain since the genus of the object was expressed although there was no determination of the individual specie; and the cause of the obligation to negotiate and offer a site where the public market will be constructed is not unlawful and cannot be considered as influence peddling. As to the alleged violation of the terms of the special power of attorney, the court held that Camacho was estopped from claiming damages by reason thereof. The CA likewise found the award of moral damages to be in order; that the discharge of Atty. Banzon as counsel for Camacho was not justified and his discharge does not in any way deprive him of his right to attorneys fees. Lastly, the CA h eld

that the RTC erred in requiring Camacho to deliver Lot 261-B-1, since Atty. Banzon cannot demand a portion of superior quality in the same way that appellant cannot transfer an inferior quality.

On December 3, 1996, the CA issued a Resolution[40] instituting petitioner Aurora Fe Camacho as substitute for the deceased Aurora B. Camacho. Atty. Banzon filed a Motion for Partial Reconsideration of the CA Decision, as well as a Motion to Declare Decision Final insofar as Camacho was concerned. On the other hand, Camacho moved to cancel the notice of lis pendens. In the meantime, petitioner had filed the petition before this Court. Thus, the CA no longer acted on the motions on the ground that it had already lost jurisdiction over the case.[41] In the present petition, petitioner raises the following issues:
1. WHETHER OR NOT INTERVENOR CAN BE AWARDED A FAVORABLE JUDGMENT DESPITE ABSENCE OF ANY FINDINGS OF FACT IN THE DECISION WHICH SHOW THAT HE WAS ABLE TO PROVE THE (SIC) HIS MATERIAL ALLEGATIONS UPON WHICH HE BASIS (SIC) HIS CLAIM UNDER CONTRACT OF ATTORNEYS FEE, EXH. C, ESPECIALLY PAR. 7 OF THE COMPLAINT-IN-INTERVENTION. CAN THE BURDEN OF PROVING THE AND (SIC) DUE EXECUTION OF CONTRACT EXH. C BE SHIFTED TO PLAINTIFF CAMACHO WITHOUT VIOLATING SECT. 1, RULE 131, OF THE RULES OF COURT? 2. DID THE COURT OF APPEALS CORRECTLY APPLY THE PROVISION OF ART. 1246 OF THE CIVIL CODE TO THE INSTANT CASE IN RULING THAT CONTRACT EXH. C IS VALID AS TO OBJECT? WILL THE DECISION REQUIRING THE DELIVERY OF 5,000 SQUARE METERS OF LOT 261 BASED ON THE SAID ART. 1246, IN WHICH INTERVENOR CANNOT DEMAND A THING OF SUPERIOR QUALITY AND NEITHER CAN PLAINTIFF CAMACHO DELIVER A THING OF INFERIOR QUALITY, BE SUSCEPTIBLE OF IMPLEMENTATION WITHOUT NEED OF A NEW CONTRACT OR AGREEMENT BETWEEN THE PARTIES? IF SO, WILL THAT NOT ALL THE MORE PROVE THAT TE OBJECT OF CONTRACT EXH. C IS INDETERMINATE PURSUANT [TO] ART. 1349 OF THE CIVIL CODE? 3. WHETHER OR NOT THE COURT OF APPEALS WAS IN A POSITION TO PROCLAIM THE LEGALITY OR ILLEGALITY OF THE ALLEGED CONTRACT WITHOUT FIRST REVEALING OR SETTING FORTH THE REAL NATURE OF THIS OR THESE UNDERTAKINGS BASED ON THE ALLEGATIONS AND TESTIMONIES OF INTERVENOR. HENCE, WHETHER OR NOT THE TWO UNDERTAKINGS IN CONTRACT EXH. C ARE LAWFUL. 4. WHETHER OR NOT THE COURT OF APPEALS COMMIT A GRAVE ABUSE OF DISCRETION BY TREATING LIKE A MATTER OUT OF RECORD THE ALLEGED REASONS OF PLAINTIFF CAMACHO FOR DISMISSING INTERVENOR AS HER COUNSEL IN THE CASE AT BAR, WHICH WERE ENUMERATED AND DISCUSSED ON PAGES 42-60 OF HER APPELLANTS BRIEF, ANNEX B, AND WHICH WERE PRINCIPALLY AND SPECIFICALLY COVERED IN HER THIRD ASSIGNMENT OF ERRORS AND CONSIDERING THAT ONE OF THESE ALLEGED REASONS ALSO CONSTITUTE PLAINTIFF CAMACHOS COUNTERCLAIM FOR WHICH SHE IS SEEKING MORAL DAMAGES OF P100,000. DID NOT THE COURT OF APPEALS COMMIT GRAVE ABUSE OF DISCRETION IN REPRESENTING PLAINTIFF CAMACHOS THIRD ASSIGNED ERROR AS REFERRING MERELY TO THE ISSUE OF WHETHER OR NOT THE AWARD OF MORAL DAMAGES TO INTERVENOR IS JUSTIFIED. WAS NOT PLAINTIFF CAMACHO THEREBY DEPRIVED OF HER CONSTITUTIONAL RIGHT TO DUE PROCESS OF LAW? 5. WHETHER OR NOT THE AWARD OF 1,000 SQ. M. OF LOT 261 ATTORNEYS FEE FOR ALLEGED HANDLING OF SEVEN CASES HAS ANY LEGAL BASIS CONSIDERING THAT THERE IS NO SHOWING IN THE DECISION THAT THE ORAL CONTRACT ALLEGED BY INTERVENOR TO BE THE BASIS OF THE SAID ATTORNEYS FEE WAS DULY POROVEN (SIC).[42]

Petitioner argues that the findings of facts in the assailed decision are mere conclusions, without citation of evidence to support them. She likewise avers that consent was not clearly proven; the conclusion of the CA was based on the presumption

that the document was read prior to being signed. Petitioner insists that there is no object certain to speak of since the exact location of the subject property cannot be determined; in short, the issue is not the quality of the property but its identity. Petitioner further asserts that the cause of the contract pirating of the municipalitys market project and ejecting the tenant to convert the property into a commercial establishment is illegal. She further insists that respondent failed to accomplish the twin objective of ejecting Silvestre Tuazon and converting the remaining land into a commercial area; thus, he is not entitled to the 5,000-sq-m lot. She further contends that the CA erred in awarding moral damages because respondent did not ask for it in his complaint-in-intervention. Lastly, she asserts that the CA erred in affirming the award of the 1,000-sq-m lot pursuant to a verbal contract between Camacho and respondent, especially considering the prevailing jurisprudence against a la wyers acquisition of a clients lot in litigation without the latters consent. In his Comment,[43] respondent counters that the elements of a valid contract are present: Camachos consent to the contract is evidenced by her signature which was in fact admitted by the latter; that while it is true that the identity of the 5,000sq-m portion of Lot 261 has not been specified due to the absence of the necessary technical descriptions, it is capable of being made determinate without the need of a new agreement between the parties; as to the validity of the cause of the contract, the general principle of estoppel applies. The Ruling of the Court Article 1305 of the New Civil Code defines a contract as a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. Contracts shall be obligatory in whatev er form they may have been entered into, provided all the essential requisites for their validity are present. [44] In general, there are three (3) essential requisites for a valid contract: (1) consent of the contracting parties; (2) an object certain which is the subject of the contract; and (3) the cause of the obligation which is established.[45] The first element Consent of the contracting parties Is shown by their signatures on the Contract Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the agreement.[46] In this case, Camacho admitted the existence of the contract as well as the genuineness of her signature. However, she claimed that she signed only upon the request of Atty. Banzon, who told her that the document would only be shown to the municipal councilors (for formalitys sake) to prove his authority in her behalf. It was never intended t o bind her to pay him attorneys fees;[47] in short, petitioner insists that Camacho had not given her consent to the contract. We, however, do not agree. The contract between Camacho and respondent is evidenced by a written document signed by both parties denominated as Contract of Attorneys Fee. It is an established rule that written evidence is so much more certain and accurate than that which rests in fleeting memory only; that it would be unsafe, when parties have expressed the terms of their contract in writing, to admit weaker evidence to control and vary the stronger, and to show that the parties intended a different contract from that expressed in the writing signed by them.[48] Moreover, the moment a party affixes her signature thereon, he or she is bound by all the terms stipulated therein and is open to all the legal obligations that may arise from their breach.[49] In the instant case, Camacho voluntarily signed the document evidencing the contract. Camachos claim that the document was intended only to show respondents authority to represent her with respect to the transaction is flimsy, since a special power of attorney could just as easily have accomplished that purpose. In fact, Camacho did execute a Special Power of

Attorney[50] after the Contract of Attorneys Fee was executed, and if Camacho were to be believed, the Contract of Attorneys Fee should have been immediately canceled thereafter since it was no longer needed. As correctly held by the CA, Camacho was an experienced businesswoman, a dentistry graduate and is conversant in the English language. We note that the words and phrases used in the Contract of Attorneys Fee are very simple and clear; thus, she cannot plead that she did not understand the undertaking she had entered into.[51] Considering that her undertaking was to part with a 5,000-sq-m portion of her property, she should have been more vigilant in protecting her rights. Even assuming that the contract did not reflect the true intention of the parties as to their respective obligations, it is nevertheless binding. The existence of the written contract, coupled with Camachos admission that the signature appearing thereon was hers, constitute ineluctable evidence of her consent to the agreement. It cannot be overcome by mere denial and allegations that they did not intend to be bound thereby. We also note that Camacho did not avail of the remedy of reformation of the instrument in order to reflect what, according to her, was the true agreement. Camachos consent to the contract was further manifested in the following events that transpired after the contract was executed: the execution of the agreement with voluntary surrender signed by Tuazon; the execution of the Deed of Donation where Atty. Banzon was authorized to sign the same on behalf of Camacho; and the sale of 1200 sq. m. portion of the property right at the market site. In all these transactions, Atty. Banzon represented Camacho pursuant to the Contract of Attorneys Fee. The object of the contract Is still certain despite the parties Failure to indicate the specific Portion of the property to be Given as compensation for services Articles 1349 and 1460 of the Civil Code provide the guidelines in determining whether or not the object of the contract is certain: Article 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties. xxxx Article 1460. A thing is determinate when it is particularly designated and/or physically segregated from all others of the same class. The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new or further agreement between the parties. In this case, the object of the contract is the 5,000-sq-m portion of Lot 261, Balanga Cadastre. The failure of the parties to state its exact location in the contract is of no moment; this is a mere error occasioned by the parties failure t o describe with particularity the subject property, which does not indicate the absence of the principal object as to render the contract void.[52] Since Camacho bound herself to deliver a portion of Lot 261 to Atty. Banzon, the description of the property subject of the contract is sufficient to validate the same. The Cause or Consideration Of the contract is not illegal

In general, the cause is the why of the contract or the essential reason which moves the contracting parties to enter into the contract.[53] For the cause to be valid, it must be lawful such that it is not contrary to law, morals, good customs, public order or public policy.[54] Petitioner insists that the cause of the subject contract is illegal. However, under the terms of the contract, Atty. Banzon was obliged to negotiate with the municipal government of Balanga for the transfer of the proposed new public market to Camachos property (Lot 261); to sell 1,200 square meters ri ght at the market site; and to take charge of the legal phases incidental to the transaction which include the ejectment of persons unlawfully occupying the property (whether through

amicable settlement or court action), and the execution of the Deed of Donation and other papers necessary to consummate the transaction. There was thus nothing wrong with the services which respondent undertook to perform under the contract. They are not contrary to law, morals, good customs, public order or public policy. Petitioner argues that the cause of the contract is the pirating of the municipalitys market project and ejecting the tena nt to convert the property into a commercial establishment. This is premised on the fact that the construction of the new public market at Doa Francisca Subdivision had originally been approved by the municipal council of Balanga, the Development Bank of the Philippines, and the National Urban Planning Commission; and at the time the contract was executed, Tuazon occupied the property. The records show, however, that the municipal council was scouting for a new location because it had reservations regarding the site of the proposed project. And while Lot 261 was considered to be the most ideal (because it stands on higher ground and is not susceptible to flooding) it does not follow that respondent no longer negotiated for and in Camachos behalf. There were other terms to be negotiated, such as the mode of transfer (whether sale or donation); the titling of the property in the name of the municipality; the terms of payment, if any; and such other legalities necessary to consummate the transaction. It must be stressed that Camacho was not deprived of any property right. The portions of her property which she parted with (the 17,000-sq-m portion donated to the municipality; the 5,000-sq-m portion given to respondent as attorneys fees; and the 1,200-sq-m portion which was sold) were either in exchange for services rendered or for monetary consideration. In fact, all these transactions resulted in the increase in the economic value of her remaining properties. Thus, the defense of the illegality of respondents undertaking is baseless. The municipal council had the authority to choose the best site for its project. We also note that the market site was transferred with the active participation of Camacho, who agreed to donate the 17,000-sq-m portion of her property; the new public market was constructed and became operational; and the sale of the 1,200-sq-m lot was consummated when Camacho executed the deeds herself. Thus, petitioner cannot be allowed to evade the payment of Camachos liabilities under the contract with respondent; a contrary conclusion would negate the rule of estoppel and unjust enrichment. As to the additional 1,000-sq-m-portion of Lot 261, however, we find and so hold that respondent is not entitled thereto. Indeed, it was sufficiently established that an attorney-client relationship existed between Camacho and respondent and that the latter handled several other cases for his client. The records show that the parties had agreed upon specific sums of money as attorneys fees for the other cases: Civil Case No. C-1773 P10,000.00[55] Civil Case No. 424 P1,000.00[56] CAR Case No. 278-B70 P2,000.00[57] CAR Case No. 520-B73 P5,000.00[58] Civil Case No. 3281 P5,000.00[59] This clearly negates respondents claim of an additional 1,000-sq-m share as compensation for services rendered. Likewise, there being no evidence on respondents right over the 800 -sq-m allegedly purchased from third persons, he is likewise not entitled to this portion of the property. On the other hand, Camacho admitted in her Answer[60] to the Complaint-in-Intervention that respondent had purchased from her an 80-sq-m portion of the property. Since she had merely executed a Provisional Deed of Sale,[61] we agree with the RTC that respondent has the right to require the execution of a public instrument evidencing the sale. It must be understood that a retainer contract is the law that governs the relationship between a client and a lawyer.[62] Unless expressly stipulated, rendition of professional services by a lawyer is for a fee or compensation and is not gratuitous.[63] Whether the lawyers services were solicited or they were offered to the client for his assistance, inasmuch as these services were accepted and made use of by the latter, we must consider that there was a tacit and mutual consent as to the

rendition of the services, and thus gives rise to the obligation upon the person benefited by the services to make compensation therefor. [64] Lawyers are thus as much entitled to judicial protection against injustice on the part of their clients as the clients are against abuses on the part of the counsel. The duty of the court is not only to see that lawyers act in a proper and lawful manner, but also to see that lawyers are paid their just and lawful fees.[65] If lawyers are entitled to fees even if there is no written contract, with more reason that they are entitled thereto if their relationship is governed by a written contract of attorneys fee. In her fourth assigned error, petitioner claims that the CA failed to rule on the propriety of the dismissal of respondent as Camachos counsel. We do not agree. We uphold the following pronouncement of the CA on the matter: In this case, the grounds relied upon by plaintiff Camacho as justifications for the discharge of Intervenor are not sufficient to deprive the latter of his attorneys fees. Intervenor may see the case in an angle different from that seen by plaintiff Camacho. The procedures adopted by Intervenor may not be what plaintiff Camacho believes to be the best. But these do not in any way prove that Intervenor was working to the prejudice of plaintiff Camacho. Failure of plaintiff Camacho to prove that Intervenor intended to damage her, We consider the charges of plaintiff Camacho as mere honest difference of opinions. As to the charge that Intervenor failed to account the money he collected in behalf of plaintiff Camacho, the same is not supported by any evidence. Suffice it to say that mere allegations cannot prove a claim. [66]

The ruling of the CA on the award of moral damages is likewise in accordance with the facts and established jurisprudence: The act of plaintiff Camacho is a clear case of breach of contract. Worst, when Intervenor demanded payment, plaintiff Camacho adopted all sorts of strategies to delay payment. This case dragged on for twenty (20) years. And until this time, plaintiff Camacho continues to unjustifiably refuse the payment of the attorneys fees due to intervenor. For these, one can readily imagine the worries and anxiety gone through by Intervenor. Award of moral damages is but proper. Moral damages may be granted if the party had proven that he suffered mental anguish, serious anxiety and moral shock as a consequence of the act of the other party. Moral damages can be awarded when a party acted in bad faith as in this case by Camacho.[67]

IN LIGHT OF ALL THE FOREGOING, the appealed decision is AFFIRMED with the MODIFICATION that the award of a 1,000-square-meter portion of Lot 261 to respondent Atty. Angelito Banzon as attorneys fees is DELETED.
SO ORDERED.

SECOND DIVISION

[G.R. No. 148541. November 11, 2004]

DEVELOPMENT BANK PEREZ, respondents.

OF

THE

PHILIPPINES, petitioner,

vs. BONITA

O.

PEREZ

and

ALFREDO

DECISION CALLEJO, SR., J.: This is a petition for review on certiorari seeking to reverse and set aside the Decision[1] of the Court of Appeals (CA) dated February 28, 2001, and to reinstate the Decision of the Regional Trial Court (RTC), Makati City, Branch 145, in Civil Case No. 12057, as modified by trial courts Order dated June 11, 1993.

The Antecedents

On April 28, 1978, petitioner Development Bank of the Philippines (DBP) sent a letter to respondent Bonita Perez, informing the latter of the approval of an industrial loan amounting toP214,000.00 for the acquisition of machinery and equipment and for working capital, and an additional industrial loan amounting to P21,000.00 to cover unforeseen price escalation.[2] On May 18, 1978, the respondents were made to sign four promissory notes covering the total amount of the loan, P235,000.00. Three promissory notes for P24,000.00, P48,000.00, andP142,000.00, respectively, were executed, totaling P214,000.00. These promissory notes were all due on August 31, 1988. [3] A fourth promissory note due on September 19, 1988 was, likewise, executed to cover the additional loan of P21,000.00.[4] The promissory notes were to be paid in equal quarterly amortizations and were secured by a mortgage contract covering real and personal properties. [5] On September 6, 1978, the petitioner sent a letter[6] to the respondents informing them of the terms for the payment of the P214,000.00 industrial loan. On November 8, 1978, the petitioner sent another letter[7] to the respondents informing them about the terms and conditions of their additional P21,000.00 industrial loan. Due to the respondents' failure to comply with their amortization payments, the petitioner decided to foreclose the mortgages that secured the obligation. However, in a Letter[8] dated October 7, 1981, Mrs. Perez requested for a restructuring of their account due to difficulties they were encountering in collecting receivables. On April 1, 1982, the petitioner informed the respondents that it had approved the restructuring of their accounts. [9] The loan was restructured, and on May 6, 1982, the respondents signed another promissory note in the amount of P231,000.00 at eighteen percent (18%) interest per annum, payable quarterly at P12,553.27, over a period of ten years. The promissory note stated in part:

PROMISSORY NOTE P231,000.00 Makati, Metro Manila, May 6, 1982

On or before May 7, 1992, for value received, I/we, jointly and severally, promise to pay the DEVELOPMENT BANK OF THE PHILIPPINES, or order at its office at Makati, Metro Manila, Philippines, the sum of TWO HUNDRED THIRTY-ONE THOUSAND PESOS (P231,000.00), Philippine Currency, with interest at the rate of EIGHTEEN per centum (18%) per annum. Before the date of maturity, we hereby bind ourselves to make partial payments, the first payment to be made on August 7, 1982 and the subsequent payments on the 7th day of every three (3) months thereafter, and each of all such payments shall be TWELVE THOUSAND FIVE HUNDRED FIFTY-THREE and 27/100 PESOS (P12,553.27) which shall cover amortizations on the principal and interest at the above-mentioned rate. This loan shall be subject to penalty charges and additional interest as follows: On loan with amortizations or portions thereof in arrears irrespective of age.

Additional interest at the basic loan interest rate per annum computed on total amortizations past due irrespective of age. PLUS Penalty charge of 8% per annum computed on total amortizations in arrears irrespective of age. The DBP further reserves the right to increase, with notice to the mortgagor, the rate of interest on the loan as well as all other fees and charges on loans and advances pursuant to such policy as it may adopt from time to time during the period of the loan; Provided that the rate of interest on the loan shall be reduced in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board; Provided, further, that the adjustment in the rate of interest shall take effect on or after the effectivity of the increase or decrease in the maximum rate of interest. In case of non-payment of the amount of this note or any portion of it on demand, when due, or any other amount or amounts due on account of this note, the entire obligation shall become due and demandable, and if, for the enforcement of the payment thereof, the DEVELOPMENT BANK OF THE PHILIPPINES, is constrained to entrust the case to its attorneys, I/we, jointly and severally, bind myself/ourselves to pay for attorney's fees, as provided for in the mortgage contract, in addition to the legal fees and other incidental expenses. In the event of foreclosure of the mortgage securing this note, I/we further bind myself/ourselves, jointly and severally, to pay the deficiency , if any.
SIGNED IN THE PRESENCE OF: illegible SGD. illegible BONITA ANG ORDIALES (Bonita O. Perez) SGD. ALFREDO PEREZ

This Promissory Note supersedes the Promissory Note dated May 18, 1978 and stands secured by a mortgage contract executed by the above parties on the same date, subject to the following terms and conditions. [10] As stated in the promissory note, the first amortization was due on August 7, 1982, and the succeeding amortizations, every quarter thereafter. However, the respondents made their first payment amounting to P15,000.00[11] only on April 20, 1983 or after the lapse of three quarters.[12] Their second payment, which should have been paid on November 7, 1982, was made on December 2, 1983 and only in the amount of P5,000.00. The third payment was then made at the time when the ninth quarterly amortization should have been paid. After this, the respondents completely stopped paying. [13] The total payments they made after the restructure of the loan amounted to P35,000.00 only.[14] This failure to meet the quarterly amortization of the loan prompted the petitioner to institute foreclosure proceedings on the mortgages. The sale of the properties covered by the mortgage contract was scheduled on October 30, 1985. [15] On October 24, 1985, the respondents filed a Complaint[16] for the nullification of the new promissory note with damages and preliminary prohibitory injunction. The complaint alleged that the petitioner restructured the respondents obligation in bad faith by requiring them to sign another promissory note for P231,000.00 without considering the total payments made on the loan amounting to P224,383.43. The respondents claimed that the petitioner failed to explain to them how it had arrived at the amount of the restructured loan. The respondents also alleged that the petitioner failed to furnish them with a disclosure statement as required by Rep. Act No. 3765, also known as the Truth in Lending Act, prior to the consummation of the transaction. They averred that the interest imposed on the said transaction was usurious. They, likewise, alleged that the new promissory note constituted a novation of the previous obligations. In its answer, the petitioner denied the allegations and averred that the claim for violation of the disclosure requirement under Rep. Act No. 3765 was not within the jurisdiction of the RTC and was barred by prescription. By way of compulsory counterclaim, the petitioner prayed that the respondents be ordered to pay their obligation, plus exemplary damages and costs.[17] During trial, the petitioner presented a Statement of Account dated September 14, 1990, showing that the total amount of the obligation as of September 15, 1990 was P1,384,465.71.[18] On October 25, 1985, the trial court ordered the petitioner to desist from holding the public auction of the respondents properties. The trial court issued an Order on April 25, 1986 to maintain the status quo. In its Decision dated May 10, 1993, the court a quo upheld the validity of the new promissory note and ordered the respondents to pay their obligation. The dispositive portion reads:

WHEREFORE, judgment is rendered dismissing the complaint for failure of plaintiffs to prove their causes of action by clear preponderance of evidence, with costs against them. The order issued on April 25, 1986, ordering the defendant Bank to maintain the status quo and suspending the auction sale, is hereby set aside.

Defendant Bank's counterclaim is hereby granted, and plaintiffs are hereby ordered to pay the former the sum of One Million Three Hundred Eighty-four Thousand Four Hundred Sixty-five Pesos and Seventy-one Centavos (P1,384,465.71), representing the latter's obligation as of September 15, 1990, with interest thereon at the legal rate of twelve (12%) percent per annum pursuant to Sec. 2 of CB Circular No. 905; (Sagrador vs. Valderrama, supra), from September 15, 1990 up to full payment of said sum. The other counterclaim for exemplary damages is hereby dismissed.
SO ORDERED.[19] Upon the petitioners motion for reconsideration, the trial court issued an order [20] amending the dispositive portion of its decision by changing the rate of interest to eighteen percent (18%) per annum. Dissatisfied, the respondents appealed to the CA. On February 28, 2001, the CA rendered a decision, the dispositive portion of which reads: WHEREFORE, premises considered, the Decision dated May 10, 1993, docketed as Civil Case No. 12057 by the Regional Trial Court of Makati, Branch 145, is hereby MODIFIED in the sense that the amount ofP1,384,465.71 as of September 1990 is SET ASIDE and the formula mandated by Central Bank Circular No. 158 should be applied by the trial court in computing the total obligation and liability of appellants. All the other parts of the assailed decision are AFFIRMED in toto. SO ORDERED.[21] The CA found that the respondents did not voluntarily sign the restructured promissory note as they were only forced to sign it for fear of having their mortgaged property foreclosed by the bank. It ruled that the restructured promissory note which was prepared by the petitioner alone was a contract of adhesion which violates the rule on mutuality of contracts. Nonetheless, the CA held that the trial court should have used the formula prescribed by paragraph 3,[22] Sec. 2(i), Central Bank (CB) Circular No. 158, Rules and Regulations Implementing Rep. Act No. 3765, in computing the total obligation of the respondents considering that Sec. 3(a) thereof provides that it applies to any loans, mortgages, deeds of trust, advances and discounts.[23] The CA also held that since the loan is secured by a mortgage contract, the eighteen percent (18%) interest rate was excessive and usurious under CB Circular No. 817. According to the appellate court, CB Circular No. 905, series of 1982, simply suspended the effectivity of the Usury Law; it did not authorize either party to unilaterally raise the interest without the other party's consent.[24] Finally, the CA concluded that there was neither basis nor explanation as to how the measly amount of P214,000.00 in 1972, restructured to P231,000.00 in 1982, ballooned to P1,384,465.71 as of September 15, 1990.[25] Both parties moved to reconsider the said decision. The CA denied the said motions in a Resolution dated May 31, 2001.

The Present Petition

The petitioner raises the following grounds in the instant petition: 1. Whether or not the Honorable Court of Appeals had decided this instant case in a way not in accord with the spirit and intent of Republic Act No. 3765, otherwise known as the Truth in Lending Act, when it declared that "the trial court should have applied the formula provided by Central Bank Circular No. 158, series of 1963, as provided above to arrive at the total obligations of appellants less the amounts paid by appellants as evidenced by the vouchers and receipts attached to the records;" 2. Whether or not the conclusion of the Honorable Court of Appeals stating that the private respondents did not voluntarily sign the restructured promissory note is entirely grounded on speculations and/or surmises or conjectures; 3. Whether or not the Honorable Court of Appeals failed to notice certain relevant facts which if it had been considered would change its finding that the restructured promissory note was prepared by the appellee Bank alone; 4. Whether or not the Honorable Court of Appeals failed to notice certain relevant facts which if it had been considered would change its finding that the amount of P1,384,465.71 as of September 15, 1990 has neither basis at all nor any explanation how this amount came to existence; 5. Whether or not the conclusion of the Honorable Court of Appeals stating that petitioner DBP failed to follow Central Bank Circular No. 158 is grounded entirely on speculation and surmises or conjecture. And whether or not this finding is contradicted by another finding of the same court; and 6. Whether or not this Honorable Court of Appeals committed grave abuse of discretion when it ruled that pursuant to Central Bank Circular No. 817 the 18% interest per annum agreed upon by the parties in the restructured promissory note is usurious, and that the same should be reduced to 12% being the legal rate of interest.[26]

In a nutshell, the issues in this case are as follows: (1) whether the new promissory note is voidable for not having been voluntarily signed by the respondents and for being a contract of adhesion; (2) whether the interest rate agreed upon by the parties in the new promissory note is usurious; (3) whether Central Bank Circular No. 158 should be applied in computing the total obligations of the respondents; and (4) the amount of the total obligation of the respondents. The petition is partly meritorious. Anent the first issue, the petitioner points out that the respondents admitted to having signed the new promissory note. It avers that there was no evidence on record showing that the signing of the new promissory note was attended by mistake, violence, intimidation, undue influence, or fraud. The petitioner posits that the respondents claim of having been forced to sign the restructured note for fear of having their mortgaged property foreclosed cannot serve as legal basis to conclude that the respondents did not voluntarily sign the new promissory note. [27] The petitioner maintains that a perusal of the evidence would reveal that the new promissory note was the result of the mutual agreement of the parties and, as such, is not a contract of adhesion.[28] On the other hand, the respondents argue that this is a question of fact which is not subject to review by this Court. According to the respondents, the fact that the restructured loan proved disadvantageous to them belies the petitioners claim that they voluntarily signed the new promissory note. We agree with the petitioner. In petitions for review on certiorari as a mode of appeal under Rule 45 of the Rules of Court, the petitioner can raise only questions of law the Supreme Court is not the proper venue to consider a factual issue as it is not a trier of facts. [29] A departure from the general rule may be warranted where the findings of fact of the Court of Appeals are contrary to the findings and conclusions of the trial court, or when the same is unsupported by the evidence on record.[30] In the instant case, there was no evidence showing that the respondents signed the new promissory note through mistake, violence, intimidation, undue influence, or fraud. The respondents merely alleged that they were forced to restructure their loan for fear of having their mortgaged properties foreclosed. However, it is axiomatic that this would not amount to vitiated consent. The last paragraph of Article 1335 of the New Civil Code specifically states that a threat to enforce ones claim through competent authority, if the claim is just or legal, does not vitiate consent. Foreclosure of mortgaged properties in case of default in payment of a debtor is a legal remedy afforded by law to a creditor. Hence, a threat to foreclose the mortgage would not, per se, vitiate consent. The CA noted that the petitioner prepared the new promissory note on its own and that the only participation of the respondents was to sign the same. The CA concluded, therefore, that the new promissory note was a contract of adhesion. A contract of adhesion is so-called because its terms are prepared by only one party while the other party merely affixes his signature signifying his adhesion thereto.[31] While we accede to the appellate courts conclusion that the new promissory note was in the nature of a contract of adhesion, we cannot fathom h ow this can further the respondents case. In discussing the consequences of a contract of adhesion, we held in Rizal Commercial Banking Corporation v. Court of Appeals:[32] It bears stressing that a contract of adhesion is just as binding as ordinary contracts. It is true that we have, on occasion, struck down such contracts as void when the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal footing. Nevertheless, contracts of adhesion are not invalid per se; they are not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent.[33] On the second issue, the CA held that under CB Circular No. 817, if the loan is secured by a registered real estate, the interest of eighteen percent (18%) is usurious. The petitioner, however, argues that usury has become legally inexistent with the promulgation of CB Circular No. 905.[34] It contends that the interest rate should be eighteen percent (18%), the interest rate they agreed upon.[35] For their part, the respondents argue that the Central Bank engaged in self-legislation in enacting CB Circular No. 905. We agree with the ruling of the CA. It is elementary that the laws in force at the time the contract was made generally govern the effectivity of its provision.[36] We note that the new promissory note was executed on May 6, 1982, prior to the effectivity of CB Circular No. 905 on January 1, 1983. At that time, The Usury Law, Act No. 2655, as amended by Presidential Decree No. 116, was still in force and effect. Under the Usury Law, no person shall receive a rate of interest, including commissions, premiums, fines and penalties, higher than twelve percent (12%) per annum or the maximum rate prescribed by the Monetary Board for a loan secured by a mortgage upon real estate the title to which is duly registered.[37] In this case, by specific provision in the new promissory note, the restructured loan continued to be secured by the same mortgage contract executed on May 18, 1978 which covered real and personal properties of the respondents. We, therefore, find the eighteen percent (18%) interest rate plus the additional interest and penalty charges of eighteen percent (18%) and eight percent (8%), respectively, to be highly usurious.

In usurious loans, the entire obligation does not become void because of an agreement for usurious interest; the unpaid principal debt still stands and remains valid, but the stipulation as to the usurious interest is void. Consequently, the debt is to be considered without stipulation as to the interest.[38] In the absence of an express stipulation as to the rate of interest, the legal rate at twelve percent (12%) per annum shall be imposed.[39] Neither is the contention of the respondents that the Central Bank engaged in self-legislation correct. As we held in First Metro Investment Corporation v. Este Del Sol Mountain Reserve, Inc.: [40] Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law but simply suspended the latter's effectivi ty. The illegality of usury is wholly the creature of legislation. A Central Bank Circular cannot repeal a law. Only a law can repeal another law. Thus, retroactive application of a Central Bank Circular cannot, and should not, be presumed. [41] On the third issue, the petitioner argues that CB Circular No. 158 does not prescribe a formula in computing a debtor's monetary obligation, but merely provides for the formula in computing the simple annual rate. It contends that the amount of the debtor's obligation must be computed in accordance with the interest rate, charges, and manner of computation agreed upon by the parties.[42] We agree. The total obligation of the respondents must be computed according to the terms and conditions agreed upon. The formula provided under paragraph 3, Sec. 2(i), CB Circular No. 158 cannot be used in computing the total obligation of the respondents because it merely applies to the computation of the simple annual rate. Simple annual rate is the uniform percentage which represents the ratio, on an annual basis, between the finance charges and the amount to be financed.[43] It is one of the items required to be disclosed under the Truth in Lending Act pursuant to the States policy to protect its citizens from lack of awareness of the true cost of credit.[44] Finally, we find that the records are insufficient to enable us to determine the total amount of the respondents obligation. It is not even clear how much the respondents have already paid on the restructured loans and when such payments were made. The receipts presented in evidence by the respondents only showed that they paid P15,000.00 on April 20, 1983 and P5,000.00 on December 2, 1983.[45] On the other hand, Mr. Roberto Balarao, who is assigned to the Traffic and Processing Department of the petitioner, testified that a third payment was made, but failed to state the amount.[46] Another witness, Carmen Chamen, an account officer of the petitioner, testified that after the restructuring of the account, the total payment made was P35,000.00.[47] Moreover, considering our previous conclusion that the interest rates prescribed under the new promissory note are usurious, the statement of account presented by the petitioner is no longer pertinent. It must be stressed that such statement of account was arrived at based on the usurious interest rates. Hence, the total amount of the obligation must necessarily be recomputed. IN LIGHT OF ALL THE FOREGOING, the assailed Decision dated February 28, 2001 of the Court of Appeals and Order dated June 11, 1993 of the Regional Trial Court, Makati City, Branch 145, are AFFIRMED WITH MODIFICATION. The case is hereby REMANDED to the trial court for determination of the total amount of the respondents' obligation according to the reduced interest rate of twelve percent (12%) per annum. SO ORDERED. Austria-Martinez and Chico-Nazario, JJ., concur Puno, J., on official leave Tinga,J., on leave

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

G.R. No. 127246 April 21, 1999 SPOUSES LUIS M. ERMITAO and MANUELITA C. ERMITAO, petitioners, vs. THE COURT OF APPEALS AND BPI EXPRESS CARD CORP., respondents.

QUISUMBING, J This petition for review under Rule 45, of the Rules of Court, seeks to set aside the decision of the Court of Appeals in C.A.-G.R. CV No. 47888 reversing the trial court's 1 judgment in Civil Case No. 61357, as well as the resolution of the Court of Appeals denying petitioners' motion for reconsideration. In dispute is the validity of the stipulation embodied in the standard application form for credit cards furnished by private respondent. The stipulation makes the cardholder liable for purchases made through his lost or stolen credit card until (a) notice of such loss or theft has been given to private respondent and (b) the latter has communicated such loss or theft to its member-establishments. The facts, as found by the trial court, are not disputed. Petitioner Luis Ermitao applied for a credit card from private respondent BPI Express Card Corp. (BECC) on October 8, 1986 with his wife, Manuelita, as extension cardholder. The spouses were given credit cards with a credit limit of P10,000.00. They often exceeded this credit limit without protest from BECC. On August 29, 1989, Manuelita's bag was snatched from her as she was shopping at the Greenbelt Mall in Makati, Metro Manila. Among the items inside the bag was her BECC credit card. That same night she informed, by telephone, BECC of the loss. The call was received by BECC offices through a certain Gina Banzon. This was followed by a letter dated August 30, 1989. She also surrendered Luis' credit card and requested for replacement cards. In her letter, Manuelita stated that she "shall not be responsible for any and all charges incurred [through the use of the lost card] after August 29, 1989. 2 However, when Luis received his monthly billing statement from BECC dated September 20, 1989, the charges included amounts for purchases made on August 30, 1989 through Manuelita's lost card. Two purchases were made, one amounting to P2,350.05 and the other, P607.50. Manuelita received a billing statement dated October 20, 1989 which required her to immediately pay the total amount of P3,197.70 covering the same (unauthorized) purchases. Manuelita again wrote BECC disclaiming responsibility for those charges, which were made after she had served BECC with notice of the loss of her card. Despite the spouses' refusal to pay and the fact that they repeatedly exceeded their monthly credit limit, BECC sent them a notice dated December 29, 1989 stating that their cards had been renewed until March 1991. Notwithstanding this, however, BECC continued to include in the spouses' billing statements those purchases made through Manuelita's lost card. Luis protested this billing in his letter dated June 20, 1990. However, BECC, in a letter dated July 13, 1990, pointed out to Luis the following stipulation in their contract: In the event the card is lost or stolen, the cardholder agrees to immediately report its loss or theft in writing to BECC . . . purchases made/incurred arising from the use of the lost/stolen card shall be for the exclusive account of the cardholder and the cardholder continues to be liable for the purchases made through the use of the lost/stolen BPI Express Card until after such notice has been given to BECC and the latter has communicated such loss/theft to its member establishments. 3 Pursuant to this stipulation, BECC held Luis liable for the amount of P3,197.70 incurred through the use of his wife's lost card, exclusive of interest and penalty charges.

In his reply dated July 18, 1990, Luis stressed that the contract BECC was referring to was a contract of adhesion and warned that if BECC insisted on charging him and his wife for the unauthorized purchases, they will sue BECC for damages. This warning notwithstanding, BECC continued to bill the spouses for said purchases. 4 On April 10, 1991, Luis used his credit card to purchase gasoline at a Caltex station. The latter, however, dishonored his card. In reply to Luis' demand for an explanation, BECC wrote that it transferred the balance of his old credit card to his new one, including the unauthorized charges. Consequently, his outstanding balance exceeded his credit limit of P10,00000. He was informed that his credit card had not been cancelled but, since he exceeded his credit limit, he could not avail of his credit privileges. Once more, Luis pointed out that notice of the lost card was given to BECC before the purchases were made. Subsequently, BECC cancelled the spouses' credit cards and advised them to settle the account immediately or risk being sued for collection of said account. Constrained, petitioners sued BECC for damages. The trial court ruled in their favor, stating that there was a waiver on the part of BECC in enforcing the spouses' liability, as indicated by the following circumstances: (1) Its failure to inform the spouses that the unauthorized charges on the lost card would be carried over to their replacement cards; and (2) Its act of unqualifiedly replacing the lost card and Luis' card which were both surrendered by the spouses, even after the spouses unequivocally denied liability for the unauthorized purchases. The trial court further noted that the suspension of the spouses' credit cards was based upon the "lame excuse" that the credit limit had been exceeded, despite the fact that BECC allowed the spouses previously to exceed their credit limit, even for almost two years after the loss of Manuelita's card. Moreover, the credit limit was exceeded only after BECC added the unauthorized purchases to the liability of the spouses. BECC continued to send the spouses separate billing statements that included the unauthorized purchases, with interest and penalty charges. The trial court opined that the only purpose for the suspension of the spouses' credit privileges was to compel them to pay for the unauthorized purchases. The trial court ruled that the latter portion of the condition in the parties' contract, which states that liability for purchases made after a card is lost or stolen shall be for the account of the cardholder until after notice of the loss or theft has been given to BECC and after the latter has informed its member establishments, is void for being contrary to public policy and for being dependent upon the sole will of the debtor. 5 Moreover, the trial court observed that the contract between BECC and the Ermitaos was a contract of adhesion, whose terms must be construed strictly against BECC, the party that prepared it. The dispositive portion of the trial court's decision reads: WHEREFORE, and IN VIEW OF THE ALL THE FOREGOING CONSIDERATIONS, judgment is hereby rendered in favor of the plaintiffs, Spouses Luis M. Ermitao and Manuelita C. Ermitao and against defendant BPI Express Card Corporation: 1. Ordering the said defendant to pay the plaintiffs the sum of P100,000.00 as moral damages. 2. Ordering said defendant to pay the plaintiffs the sum of P50,000.00 as exemplary damages. 3. Ordering said defencant to pay the plaintiffs the sum equivalent to twenty per cent (20%) of the amounts abovementioned as and for attorney's fees and expenses of litigation, and 4. Ordering the said defendant to pay the costs of suit. SO ORDERED But, on appeal this decision was reversed. The Court of Appeals stated that the spouses should be bound by the contract, even though it was one of adhesion. It also said that Luis, being a lawyer, had "all the tools to drive a hard bargain had he wanted to. 6 It cited the case of Serra v. Court of Appeals 7 wherein this Court ruled that contracts of adhesion are as binding as ordinary contracts. The petitioner in Serra was a CPA-lawyer, "a highly educated man

. . . who should have been more cautious in (his) transactions. . . 8 The Court of Appeals therefore disposed of the appeal as follows: THE FOREGOING CONSIDERED, the contested decision is REVERSED. Plaintiffs/appellees are hereby directed to pay the defendant/appellant the amount of P3,197.70 with 3% interest per month and an additional 3% penalty equivalent to the amount due every month until full payment. Without cost. SO ORDERED. 9 Hence, this recourse by petitioners, in which they claim that the Court of Appeals gravely erred in: (i) Ruling that petitioners should be bound by the stipulations contained in the credit card application a document wholly prepared by private respondent itself taking into consideration the professional credentials of petitioner Luis M. Ermitao; (ii) Relying on the case of Serra v. Court of Appeals, 229 SCRA 60, because unlike that case, petitioners have no chance at all to contest the stipulations appearing in the credit card application that was drafted entirely by private respondent, thus, a clear contract of adhesion; (iii) Ruling that private respondent is not estopped by its subsequent acts after having been notified of the loss/theft of the credit card issued to petitioners, and (iv) Holding that the onerous and unconscionable condition in the credit card application that the cardholder continues to be liable for purchases made on lost or stolen credit cards not only after such notice has been given to appellant but also after the latter has communicated such loss/theft to its member establishments without any specific time or period is valid. 10 At the outset, we note that the contract between the parties in this case is indeed a contract of adhesion, so-called because its terms are prepared by only one party while the other party merely affixes his signature signifying his adhesion thereto. 11 Such contracts are not void in themselves. 12 They are as binding as ordinary contracts. Parties who enter into such contracts are free to reject the stipulations entirely. This Court, however, will not hesitate to rule out blind adherence to such contracts if they prove to be too one-sided under the attendant facts and circumstances. 13 The resolution of this petition, in our view, hinges on the validity and fairness of the stipulation on notice required by private respondent in case of loss or theft of a BECC-issued credit card. Because of the peculiar nature of contracts of adhesion, the validity thereof must be determined in light of the circumstances under which the stipulation is intended to apply. 14 The stipulation in question reads: In the event the card is lost or stolen, the cardholder agrees to immediately report its loss or theft in citing to BECC . . . purchases made/incurred arising from the use of the lost/stolen card shall be for the exclusive account of the cardholder and the cardholder continues to be liable for the purchases made through the use of the lost/stolen BPI Express Card until after such notice has been given to BECC and the latter has communicated such loss/theft to its member establishments. For the cardholder to be absolved from liability for unauthorized purchases made through his lost or stolen card, two steps must be followed: (1) the cardholder must give written notice to BECC, and (2) BECC must notify its member establishments of such loss or theft, which, naturally, it may only do upon receipt of a notice from the cardholder. Both the cardholder and BECC, then, have a responsibility to perform, in order to free the cardholder from any liability arising from the use of a lost or stolen card. In this case, the cardholder, Manuelita, has complied with what was required of her under the contract with BECC. She immediately notified BECC of the loss of her card on the same day it was lost and, the following day, she sent a written notice of the loss to BECC. That she gave such notices to BECC is admitted by BECC in the letter sent to Luis by Roberto L. Maniquiz, head of BECC's Collection Department. 15 Having thus performed her part of the notification procedure, it was reasonable for Manuelita and Luis, for that matter to expect that BECC would perform its part of the procedure, which is to forthwith notify its member-establishments. It is not unreasonable to assume that BECC would do this immediately, precisely to avoid any unauthorized charges. Clearly, what happened in this case was that BECC failed to notify promptly the establishment in which the unauthorized purchases were made with the use of Manuelita's lost card. Thus, Manuelita was being liable for those purchases, even if

there is no showing that Manuelita herself had signed for said purchases, and after notice by her concerning her card's loss was already given to BECC. BECC asserts that the period that elapsed from the time of the loss of the card to the time of its unauthorized use was too short such that "it would be next to impossible for respondent to notify all its member-establishments regarding the fact of the loss. 16 Nothing, however, prevents said member-establishments from observing verification procedures including ascertaining the genuine signature and proper identification of the purported purchaser using the credit card. BECC states that, "between two persons who are negligent, the one who made the wrong possible should bear the loss." We take this to be an admission that negligence had occurred. In effect, BECC is saying that the company, and the member-establishments or the petitioners could be negligent. However, according to BECC, petitioners should be the ones to bear the loss since it was they who made possible the commission of a wrong. This conclusion, however, is self-serving and obviously untenable. From one perspective, it was not petitioners who made possible the commission of the wrong. It could be BECC for its failure to immediately notify its members-establishments, who appear lacking in care or instruction by BECC in proper procedures, regarding signatures and the identification of card users at the point of actual purchase of goods or services. For how else could an unauthorized person succeed to use Manuelita's lost card? The cardholder was no longer in control of the procedure after it has notified BECC of the card's loss or theft. It was already BECC's responsibility to inform its member-establishments of the loss or theft of the card at the soonest possible time. We note that BECC is not a neophyte financial institution, unaware of the intricacies and risks of providing credit privileges to a large number of people. It should have anticipated an occurrence such as the one in this case and devised effective ways and means to prevent it, or otherwise insure itself against such risk. Prompt notice by the cardholder to the credit card company of the loss or theft of his card should be enough to relieve the former of any liability occasioned by the unauthorized use of his lost or stolen card. The questioned stipulation in this case, which still requires the cardholder to wait until the credit card company has notified all its member-establishments, puts the cardholder at the mercy of the credit card company which may delay indefinitely the notification of its members to minimize if not to eliminate the possibility of incurring any loss from unauthorized purchases. Or, as in this case, the credit card company may for some reason fail to promptly notify its members through absolutely no fault of the cardholder. To require the cardholder to still pay for unauthorized purchases after he has given prompt notice of the loss or theft of his card to the credit card company would simply be unfair and unjust. The Court cannot give its assent to such a stipulation which could clearly run against public policy. 17 On the matter of the damages petitioners are seeking, we must delete the award of exemplary damages, absent any clear showing that BECC acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner, as required by Article 2232 of the Civil Code. We likewise reduce the amount of moral damages to P50,000.00, considering the circumstances of the parties to the case. WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 47888 is hereby REVERSED and the decision of the Regional Trial Court, Branch 157, Pasig City in Civil Case No. 61375 is REINSTATED, with the MODIFICATION that the award of exemplary damages in the amount of P50,000.00 is hereby deleted; and the amount of moral damages is reduced to P50,000.00; but private respondent is further ordered to pay P25,000 as attorney's fees and litigation expenses. Costs against private respondents.1wphi1.nt SO ORDERED. Bellosillo, Puno, Mendoza and Buena, JJ., concur.