Obligations and Contracts - Art. 1311-1319

Obligations and Contracts Art.
1311-1319
LA VISTA ASSOCIATION, INC., petitioner, vs. COURT OF APPEALS, SOLID HOMES, INC., ATENEO DE MANILA UNIVERSITY, ROMULO VILLA, LORENZO TIMBOL, EMDEN ENCARNACION, VICENTE CASIO, JR., DOMINGO REYES, PEDRO C. MERCADO, MARIO AQUINO, RAFAEL GOSECO, PORFIRIO CABALU, JR., and ANTONIO ADRIANO, in their behalf and in behalf of the residents of LOYOLA GRAND VILLAS, INC., PHASES 1 I AND II, respondents. G.R. No. 95252 September 5, 1997 BELLOSILLO, J.: MANGYAN ROAD is a 15-meter wide thoroughfare in Quezon City abutting Katipunan Avenue on the west, traversing the edges of La Vista Subdivision on the north and of the Ateneo de Manila University and Maryknoll (now Miriam) College on the south. Mangyan Road serves as the boundary between LA VISTA on one side and ATENEO and MARYKNOLL on the other. It bends towards the east and ends at the gate of Loyola Grand Villas Subdivision. The road has been the subject of an endless dispute, the disagreements always stemming from this unresolved issue: Is there an easement of right-of-way over Mangyan Road? In resolving this controversy, the Court would wish to write finis to this seemingly interminable debate which has dragged on for more than twenty years. The area comprising the 15-meter wide roadway was originally part of a vast tract of land owned by the Tuasons in Quezon City and Marikina. On 1 July 1949 the Tuasons sold to Philippine Building Corporation a portion of their landholdings amounting to 1,330,556 square meters by virtue of a Deed of Sale with Mortgage. Paragraph three (3) of the deed provides that ". . . the boundary line between the property herein sold and the adjoining property of the VENDORS shall be a road fifteen (15) meters wide, one-half of which shall be taken from the property herein sold to the VENDEE and the other half from the portion adjoining belonging to the VENDORS." On 7 December 1951 the Philippine Building Corporation, which was then acting for and in behalf of Ateneo de Manila University (ATENEO) in buying the properties from the Tuasons, sold, assigned and formally transferred in a Deed of Assignment with Assumption of Mortgage, with the consent of the Tuasons, the subject parcel of land to ATENEO which assumed the mortgage. The deed of assignment states The ASSIGNEE hereby agrees and assumes to pay the mortgage obligation on the above-described land in favor of the MORTGAGOR and to perform any and all terms and conditions as set forth in the Deed of Sale with Mortgage dated July 1, 1949,
hereinabove referred to, which said document is incorporated herein and made an integral part of this contract by reference . . . . On their part, the Tuasons developed a part of the estate adjoining the portion sold to Philippine Building Corporation into a residential village known as La Vista Subdivision. Thus the boundary between LA VISTA and the portion sold to Philippine Building Corporation was the 15-meter wide roadway known as the Mangyan Road. On 6 June 1952 ATENEO sold to MARYKNOLL the western portion of the land adjacent to Mangyan Road. MARYKNOLL then constructed a wall in the middle of the 15-meter wide roadway making one-half of Mangyan Road part of its school campus. The Tuasons objected and later filed a complaint before the then Court of First Instance of Rizal for the demolition of the wall. Subsequently, in an amicable settlement, MARYKNOLL agreed to remove the wall and restore Mangyan Road to its original width of 15 meters. Meanwhile, the Tuasons developed its 7.5-meter share of the 15-meter wide boundary. ATENEO deferred improvement on its share and erected instead an adobe wall on the entire length of the boundary of its property parallel to the 15-meter wide roadway. On 30 January 1976 ATENEO informed LA VISTA of the former's intention to develop some 16 hectares of its property along Mangyan Road into a subdivision. In response, LA VISTA President Manuel J. Gonzales clarified certain aspects with regard to the use of Mangyan Road. Thus . . . The Mangyan Road is a road fifteen meters wide, one-half of which is taken from your property and the other half from the La Vista Subdivision. So that the easement of a right-of-way on your 71/2 m. portion was created in our favor and likewise an easement of right-of-way was created on our 7 1/2 portion of the road in your favor (paragraph 3 of the Deed of Sale between the Tuasons and the Philippine Building Corporation and Ateneo de Manila dated 1 July 1949 . . . . On 28 April 1976 LA VISTA President Manuel J. Gonzales, in a letter to ATENEO President Fr. Jose A. Cruz, S. J., offered to buy under specified conditions the property ATENEO was intending to develop. One of the conditions stipulated by the LA VISTA President was that "[i]t is the essence of the offer that the mutuaI right of way between the Ateneo de Manila University and La Vista Homeowners' Association will be extinguished." The offer of LA VISTA to buy was not accepted by ATENEO. Instead, on 10 May 1976 ATENEO offered to sell the property to the public subject to the condition that the right to use the 15-meter roadway will be transferred to the vendee who will negotiate with the legally involved parties regarding the use of such right as well as the development costs for improving the access road.
Art. 1311
Obligations and Contracts Art. 1311-1319

LA VISTA became one of the bidders. However it lost to Solid Homes, Inc., in the bidding. Thus on 29 October 1976 ATENEO executed a Deed of Sale in favor of Solid Homes, Inc., over parcels of land covering a total area of 124,424 square meters subject, among others, to the condition that 7. The VENDOR hereby passes unto the VENDEE, its assigns and successors-ininterest the privileges of such right of way which the VENDOR acquired, and still has, by virtue of the Deeds mentioned in the immediately preceeding paragraph hereof; provided, that the VENDOR shall nonetheless continue to enjoy said right of way privileges with the VENDEE, which right of way in favor of the VENDOR shall be annotated on the pertinent road lot titles. However it is hereby agreed that the implementation of such right of way shall be for the VENDEE's sole responsibility and liability, and likewise any development of such right of way shall be for the full account of the VENDEE. In the future, if needed, the VENDOR is therefore free to make use of the aforesaid right of way, and/or Mangyan Road access, but in such a case the VENDOR shall contribute a pro-rata share in the maintenance of the area. Subsequently, Solid Homes, Inc., developed a subdivision now known as Loyola Grand Villas and together they now claim to have an easement of right-of-way along Mangyan Road through which they could have access to Katipunan Avenue. LA VISTA President Manuel J. Gonzales however informed Solid Homes, Inc., that LA VISTA could not recognize the right-of-way over Mangyan Road because, first, Philippine Building Corporation and its assignee ATENEO never complied with their obligation of providing the Tuasons with a right-of-way on their 7.5-meter portion of the road and, second, since the property was purchased for commercial purposes, Solid Homes, Inc., was no longer entitled to the right-of-way as Mangyan Road was established exclusively for ATENEO in whose favor the right-of-way was originally constituted. LA VISTA, after instructing its security guards to prohibit agents and assignees of Solid Homes, Inc., from traversing Mangyan Road, then constructed one-meter high cylindrical concrete posts chained together at the middle of and along the entire length of Mangyan Road thus preventing the residents of LOYOLA from passing through. Solid Homes, Inc., complained to LA VISTA but the concrete posts were not removed. To gain access to LOYOLA through Mangyan Road an opening through the adobe wall of ATENEO was made and some six (6) cylindrical concrete posts of LA VISTA were destroyed. LA VISTA then stationed security guards in the area to prevent entry to LOYOLA through Mangyan Road. On 17 December 1976, to avert violence, Solid Homes, Inc., instituted the instant case, docketed as Civil Case No. Q-22450, before the then Court of First Instance of Rizal and prayed that LA VISTA been joined from preventing and obstructing the use
and passage of LOYOLA residents through Mangyan Road. LA VISTA in turn filed a third-party complaint against ATENEO. On 14 September 1983 the trial court issued a preliminary injunction in favor of Solid Homes, Inc. (affirming an earlier order of 22 November 1977), directing LA VISTA to desist from blocking and preventing the use of Mangyan Road. The injunction order of 14 September 1983 was however nullified 1 and set aside on 31 May 1985 by the then Intermediate Appellate Court in AC-G.R. SP No. 02534. Thus in a petition for review on certiorari, docketed as G.R. No. 71150, Solid Homes, Inc., assailed the nullification and setting aside of the preliminary injunction issued by the trial court. Meanwhile, on 20 November 1987 the Regional Trial Court of Quezon City rendered 2 a decision on the merits in Civil Case No. Q-22450 affirming and recognizing the easement of right-of-way along Mangyan Road in favor of Solid Homes, Inc., and ordering LA VISTA to pay damages thus ACCORDINGLY, judgment is hereby rendered declaring that an easement of a rightof-way exists in favor of the plaintiff over Mangyan Road, and, consequently, the injunction prayed for by the plaintiff is granted, enjoining thereby the defendant, its successors-in-interest, its/their agents and all persons acting for and on its/their behalf, from closing, obstructing, preventing or otherwise refusing to the plaintiff, its successors-in-interest, its/their agents and all persons acting for and on its/their behalf, and to the public in general, the unobstructed ingress and egress on Mangyan Road, which is the boundary road between the La Vista Subdivision on one hand, and the Ateneo de Manila University, Quezon City, and the Loyola Grand Villas Subdivision, Marikina, Metro Manila, on the other; and, in addition the defendant is ordered to pay the plaintiff reasonable attorney's fees in the amount of P30,000.00. The defendant-third-party plaintiff is also ordered to pay the third-party defendant reasonable attorney's fees for another amount of P15,000.00. The counter-claim of defendant against the plaintiff is dismissed for lack of merit. With costs against the defendant. Quite expectedly, LA VISTA appealed to the Court of Appeals, docketed as CA-G.R. CV No. 19929. On 20 April 1988 this Court, taking into consideration the 20November 1987 Decision of the trial court, dismissed the petition docketed as G.R. No. 71150 wherein Solid Homes, Inc., sought reversal of the 31 May 1985 Decision in AC-G.R. SP No. 02534 which nullified and set aside the 14 September 1983 injunction order of the trial court. There we said Considering that preliminary injunction is a provisional remedy which may be granted at any time after the commencement of the action and before judgment when it is established that the plaintiff is entitled to the relief demanded and only when his complaint shows facts entitling such reliefs (Section 3(a), Rule 58) and it appearing that the trial court had already granted the issuance of a final injunction in favor of

petitioner in its decision rendered after trial on the merits (Sections 7 & 10, Rule 58, Rules of Court), the Court resolved to Dismiss the instant petition having been rendered moot and academic. An injunction issued by the trial court after it has already made a clear pronouncement as to the plaintiff's right thereto, that is, after the same issue has been decided on the merits, the trial court having appreciated the evidence presented, is proper, notwithstanding the fact that the decision rendered is not yet final (II Moran, pp. 81-82, 1980 ed.). Being an ancillary remedy, the proceedings for preliminary injunction cannot stand separately or proceed independently of the decision rendered on the merit of the main case for injunction. The merit of the main case having been already determined in favor of the applicant, the preliminary determination of its non-existence ceases to have any force and 3 effect. On the other hand, in CA-G.R. CV No. 19929, several incidents were presented for resolution: two (2) motions filed by Solid Homes, Inc., to cite certain officers of LA VISTA for contempt for alleged violation of the injunction ordaining free access to and egress from Mangyan Road, to which LA VISTA responded with its own motion to cite Solid Homes, Inc., for contempt; a motion for leave to intervene and to re-open Mangyan Road filed by residents of LOYOLA; and, a petition praying for the issuance of a restraining order to enjoin the closing of Mangyan Road. On 21 September 1989 4 the incidents were resolved by the Court of Appeals thus 1. Defendant-appellant La Vista Association, Inc., its Board of Directors and other officials and all persons acting under their orders and in their behalf are ordered to allow all residents of Phase I and II of Loyola Grand Villas unobstructed right-of-way or passage through the Mangyan Road which is the boundary between the La Vista Subdivision and the Loyola Grand Villas Subdivision; 2. The motion to intervene as plaintiffs filed by the residents of Loyola Grand Villas Subdivision is GRANTED; and 3. The motions for contempt filed by both plaintiff-appellee and defendant-appellant are DENIED. This resolution is immediately executory.
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On 22 May 1990, pending resolution of G.R. Nos. 91433 and 91502, the Second 6 Division of the Court of Appeals in CA-G.R. CV No. 19929 affirmed in toto the Decision of the trial court in Civil Case No. Q-22450. On 6 September 1990 the motions for reconsideration and/or re-raffle and to set the case for oral argument were denied. In view of the affirmance of the Decision by the Court of Appeals in CA-G.R. CV No. 19929 this Court dismissed the petition in G.R. No. 91502 for being moot as its main concern was merely the validity of a provisional or preliminary injunction earlier issued. We also denied the petition in G.R. No. 91433 in the absence of a discernible grave abuse of discretion in the ruling of the appellate court that it could not entertain the motions to cite the parties for contempt " because a charge of contempt committed against a superior court may be filed only before the court 7 against whom the contempt has been committed" (Sec. 4, Rule 71, Rules of Court). Consequently we are left with the instant case where petitioner LA VISTA assails the Decision of respondent Court of Appeals affirming in toto the Decision of the trial court which rendered a judgment on the merits and recognized an easement of rightof-way along Mangyan Road, permanently enjoining LA VISTA from closing to Solid Homes, Inc., and its successors-in-interest the ingress and egress on Mangyan Road. In its first assigned error, petitioner LA VISTA argues that respondent appellate court erred in disregarding the decisions in (a) La Vista 8 Association, Inc., v. Hon. Ortiz, affirmed by this Court in Tecson v. Court of 9 10 Appeals; (b) La Vista Association, Inc., v. Hon. Leviste, affirmed by this Court 11 in Rivera v. Hon. Intermediate Appellate Court; and, (c) La Vista 12 v. Hon. Mendoza, and in holding that an easement of right-of-way over Mangyan 13 Road exists. We do not agree with petitioner. The reliance of petitioner on the cited cases is out of place as they involve the issuance of a preliminary injunction pending resolution of a case on the merits. In the instant case, however, the subject of inquiry is not merely the issuance of a preliminary injunction but the final injunctive writ which was issued after trial on the merits. A writ of preliminary injunction is generally based solely on initial and incomplete evidence. The opinion and findings of fact of a court when issuing a writ of preliminary injunction are interlocutory in nature and made even before the trial on the merits is terminated. Consequently there may be vital facts subsequently presented during the trial which were not obtaining when the writ of preliminary injunction was issued. Hence, to equate the basis for the issuance of a preliminary injunction with that for the issuance of a final injunctive writ is erroneous. And it does not necessarily mean that when a writ of preliminary injunction issues a final injunction follows. Accordingly, respondent Court of Appeals in its assailed Decision rightly held that
On 15 December 1989 both motions for reconsideration of Solid Homes, Inc., and LA VISTA were denied. In separate petitions, both elevated the 21 September 1989 and 15 December 1989 Resolutions of the Court of Appeals to this Court. The petition of Solid Homes, Inc., docketed as G.R. No. 91433, prayed for an order directing the appellate court to take cognizance of and hear the motions for contempt, while that of LA VISTA in G.R. No. 91502 sought the issuance of a preliminary injunction to order Solid Homes, Inc., ATENEO and LOYOLA residents to desist from intruding into Mangyan Road.

We are unswayed by appellant's theory that the cases cited by them in their Brief (pagers 17 and 32) and in their motion for early resolution (page 11, Rollo) to buttress the first assigned error, are final judgments on the merits of, and therefore res judicata to the instant query. It is quite strange that appellant was extremely cautious in not mentioning this doctrine but the vague disquisition nevertheless points to this same tenet, which upon closer examination negates the very proposition. Generally, it is axiomatic that res judicata will attach in favor of La Vista if and when the case under review was disposed of on the merits and with Finality (Manila Electric Co., vs. Artiaga. 50 Phil. 144; 147; S.Diego vs. Carmona, 70 Phil. 281; 283; cited in Comments on the Rules of Court, by Moran. Volume II, 1970 edition, page 365; Roman Catholic Archbishop vs.Director of Lands. 35 Phil. 339; 350-351, cited in Remedial Law Compendium, by Regalado, Volume I, 1986 Fourth revised Edition, page 40). Appellants suffer from the mistaken notion that the "merits" of the certiorari petitions impugning the preliminary injunction in the cases cited by it are tantamount to the merits of the main case, subject of the instant appeal. Quite the contrary, the so-called "final judgments" adverted to dealt only with the propriety of the issuance or non-issuance of the writ of preliminary injunction, unlike the present recourse which is directed against a final injunctive writ under Section 10, Rule 58. 14 Thus the invocation of the disputed matter herein is misplaced. We thus repeat what we said in Solid Homes, Inc., v. La Vista 16 Court of Appeals quoted in its assailed Decision
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Again this is misplaced. Ramos, Sr., v. Gatchalian Realty, Inc., compulsory easement of right-of-way
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concerns a legal or
Since there is no agreement between the contending parties in this case granting a right-of-way by one in favor of the other, the establishment of a voluntary easement between the petitioner and the respondent company and/or the other private respondents is ruled out. What is left to examine is whether or not petitioner is entitled to a legal or compulsory easement of a right-of-way which should be distinguished from a voluntary easement. A legal or compulsory easement is that which is constituted by law for public use or for private interest. By express provisions of Arts. 649 and 650 of the New Civil Code, the owner of an estate may claim a legal or compulsory right-of-way only after he has established the existence of four (4) requisites, namely, (a) the estate is surrounded by other immovables and is without adequate outlet to a public highway; (b) after payment of the proper indemnity; (c) the isolation was not due to the proprietor's own acts; and, (d) the right-of-way claimed is at a point least prejudicial to the servient estate, and insofar as consistent with this rule, where the distance from the dominant estate to a 20 public highway may be the shortest. A voluntary easement on the other hand is constituted simply by will or agreement of the parties. From the facts of the instant case it is very apparent that the parties and their respective predecessors-in-interest intended to establish an easement of right-of-way over Mangyan Road for their mutual benefit, both as dominant and servient estates. This is quite evident when: (a) the Tuasons and the Philippine Building Corporation in 1949 stipulated in par. 3 of their Deed of Sale with Mortgage that the "boundary line between the property herein sold and the adjoining property of the VENDORS shall be a road fifteen (15) meters wide, one-half of which shall be taken from the property herein sold to the VENDEE and the other half from the portion adjoining belonging to the vendors;" (b) the Tuasons in 1951 expressly agreed and consented to the assignment of the land to, and the assumption of all the rights and obligations by ATENEO, including the obligation to contribute seven and one-half meters of the property sold to form part of the 15-meter wide roadway; (c) the Tuasons in 1958 filed a complaint against MARYKNOLL and ATENEO for breach of contract and the enforcement of the reciprocal easement on Mangyan Road, and demanded that MARYKNOLL set back its wall to restore Mangyan Road to its original width of 15 meters, after MARYKNOLL constructed a wall in the middle of the 15-meter wide roadway; (d) LA VISTA President Manuel J. Gonzales admitted and clarified in 1976, in a letter to ATENEO President Fr. Jose A. Cruz, S.J., that "Mangyan Road is a road fifteen meters wide, one-half of which is taken from your property and the other half from the La Vista Subdivision. So that the easement of a right-of-way on your 7 1/2 m. portion was created in our favor and likewise an easement of right-of-way was created on our 7 1/2 m. portion of the road in your favor;" (e) LA VISTA, in its offer to
which respondent
Being an ancillary remedy, the proceedings for preliminary injunction cannot stand separately or proceed independently of the decision rendered on the merits of the main case for injunction. The merits of the main case having been already determined in favor of the applicant, the preliminary determination of its non-existence ceases to have any force and effect. Petitioner LA VISTA in its lengthy Memorandum also quotes our ruling 17 18 in Ramos, Sr., v. Gatchalian Realty, Inc., no less than five (5) times To allow the petitioner access to Sucat Road through Gatchalian Avenue inspite of a road right-of-way provided by the petitioner's subdivision for its buyers simply because Gatchalian Avenue allows petitioner a much greater ease in going to and coming from the main thoroughfare is to completely ignore what jurisprudence has consistently maintained through the years regarding an easement of a right-of-way, that "mere convenience for the dominant estate is not enough to serve as its basis. To justify the imposition of this servitude, there must be a real, not a fictitious or artificial, necessity for it" (See Tolentino, Civil Code of the Philippines, Vol. II, 2nd ed., 1972, p. 371)

buy the hillside portion of the ATENEO property in 1976, acknowledged the existence of the contractual right-of-way as it manifested that the mutual right-of-way between the Ateneo de Manila University and La Vista Homeowners' Association would be extinguished if it bought the adjacent ATENEO property and would thus become the owner of both the dominant and servient estates; and, (f) LA VISTA President Luis G. Quimson, in a letter addressed to the Chief Justice, received by this Court on 26 March 1997, acknowledged that "one-half of the whole length of (Mangyan Road) belongs to La Vista Assn., Inc. The other half is owned by Miriam (Maryknoll) and the Ateneo in equal portions;" These certainly are indubitable proofs that the parties concerned had indeed constituted a voluntary easement of right-of-way over Mangyan Road and, like any other contract, the same could be extinguished only by mutual agreement or by renunciation of the owner of the dominant estate. Thus respondent Court of Appeals did not commit a reversible error when it ruled that Concerning the pivotal question posed herein on the existence of an easement, we are of the belief, and thus hereby hold that a right-of-way was properly appreciated along the entire route of Mangyan Road. Incidentally, the pretense that the court a quo erred in holding that Mangyan Road is the boundary road between La Vista and Ateneo (page 31, Appellant's Brief) does not raise any critical eyebrow since the same is wholly irrelevant to the existence of a servitude thereon from their express admission to the contrary (paragraph 1, Answer). One's attention should rather be focused on the contractual stipulations in the deed of sale between the Tuason Family and the Philippine Building Corporation (paragraph 3, thereof) which were incorporated in the deed of assignment with assumption of mortgage by the Philippine Building Corporation in favor of Ateneo (first paragraph, page 4 of the deed) as well as in the deed of sale dated October 24, 1976 when the property was ultimately transferred by Ateneo to plaintiff-appellee. Like any other contractual stipulation, the same cannot be extinguished except by voluntary rescission of the contract establishing the servitude or renunciation by the owner of the dominant lots (Chuanico vs. Ibaez, 7 CA Reports, 2nd Series, 1965 edition, pages 582; 589, cited in Civil Law Annotated, by Padilla, Volume II, 1972 Edition, pages 602-603), more so when the easement was implicitly recognized by the letters of the La Vista President to Ateneo dated February 11 and April 28, 1976 (page 22, Decision; 19 Ruling Case Law 745). The free ingress and egress along Mangyan Road created by the voluntary agreement between Ateneo and Solid Homes, Inc., is thus legally demandable (Articles 619 and 625, New Civil Code) with the corresponding duty on the servient estate not to obstruct the same so much so that
When the owner of the servient tenement performs acts or constructs works impairing the use of the servitude, the owner of the dominant tenement may ask for the destruction of such works and the restoration of the things to their condition before the impairment was committed, with indemnity for damages suffered (3 Sanchez Roman 609). An injunction may also be obtained in order to restrain the owner of the servient tenement from obstructing or impairing in any manner the lawful use of the servitude (Resolme v. Lazo, 27 Phil. 416; 417; 418)." (Commentaries and Jurisprudence on the Civil Code of the Philippines, by Tolentino, Volume 2, 1963 21 edition, page 320) Resultantly, when the court says that an easement exists, it is not creating one. For, even an injunction cannot be used to create one as there is no such thing as a judicial easement. As in the instant case, the court merely declares the existence of an easement created by the parties. Respondent court could not have said it any better It must be emphasized, however, that We are not constituting an easement along Mangyan Road, but merely declaring the existence of one created by the manifest will of the parties herein in recognition of autonomy of contracts (Articles 1306 and 619, New Civil Code; Tolentino, supra, page 308; Civil Code of the Philippines, by Paras, 22 Volume II, 1984 edition, page 549). The argument of petitioner LA VISTA that there are other routes to LOYOLA from Mangyan Road is likewise meritless, to say the least. The opening of an adequate outlet to a highway can extinguish only legal or compulsory easements, not voluntary easements like in the case at bar. The fact that an easement by grant may have also qualified as an easement of necessity does not detract from its permanency as a 23 property right, which survives the termination of the necessity. That there is no contract between LA VISTA and Solid Homes, Inc., and thus the court could not have declared the existence of an easement created by the manifest will of the parties, is devoid of merit. The predecessors-in-interest of both LA VISTA and Solid Homes, Inc., i.e., the Tuasons and the Philippine Building Corporation, respectively, clearly established a contractual easement of right-of-way over Mangyan Road. When the Philippine Building Corporation transferred its rights and obligations to ATENEO the Tuasons expressly consented and agreed thereto. Meanwhile, the Tuasons themselves developed their property into what is now known as LA VISTA. On the other hand, ATENEO sold the hillside portions of its property to Solid Homes, Inc., including the right over the easement of right-of-way. In sum, when the easement in this case was established by contract, the parties unequivocally made provisions for its observance by all who in the future might succeed them in dominion.

The contractual easement of right-of-way having been confirmed, we find no reason to delve on the issue concerning P.D. No. 957 which supposedly grants free access to any subdivision street to government or public offices within the subdivision. In the instant case, the rights under the law have already been superseded by the voluntary easement of right-of-way. Finally, petitioner questions the intervention of some LOYOLA residents at a time when the case was already on appeal, and submits that intervention is no longer permissible after trial has been concluded. Suffice it to say that in Director of Lands 24 v. Court of Appeals, we said It is quite clear and patent that the motions for intervention filed by the movants at this stage of the proceedings where trial has already been concluded, a judgment thereon had been promulgated in favor of private respondent and on appeal by the losing party . . . the same was affirmed by the Court of Appeals and the instant petition for certiorari to review said judgment is already submitted for decision by the Supreme Court, are obviously and manifestly late, beyond the period prescribed under . . . Section 2, Rule 12 of the Rules of Court (now Sec. 2, Rule 19, 1997 Rules of Civil Procedure). But Rule 12 of the Rules of Court, like all other Rules therein promulgated, is simply a rule of procedure, the whole purpose and object of which is to make the powers of the Court fully and completely available for justice. The purpose of procedure is not to thwart justice. Its proper aim is to facilitate the application of justice to the rival claims of contending parties. It was created not to hinder and delay but to facilitate and promote the administration of justice. It does not constitute the thing itself which courts are always striving to secure to litigants. It is designed as the means best adopted to obtain that thing. In other words, it is a means to an end. The denial of the motions for intervention arising from the strict application of the Rule due to alleged lack of notice to, or the alleged failure of, movants to act seasonably will lead the Court to commit an act of injustice to the movants, to their successors-ininterest and to all purchasers for value and in good faith and thereby open the door to fraud, falsehood and misrepresentation, should intervenors' claims be proven to be true. After all, the intervention does not appear to have been filed to delay the proceedings. On the contrary, it seems to have expedited the resolution of the case as the incidents brought forth by the intervention, which could have been raised in another case, were resolved together with the issues herein resulting in a more thorough disposal of this case.
WHEREFORE, the Decision of respondent Court of Appeals dated 22 May 1990 and its Resolution dated 6 September 1990, which affirmed the Decision of the RTC-Br. 89, Quezon City, dated 20 November 1987, are AFFIRMED. SO ORDERED.

MANDARIN VILLA, INC., petitioner, vs. COURT OF APPEALS, and CLODUALDO DE JESUS, respondents. 2 G.R. No. 119850 June 20, 1996 FRANCISCO, J.:p With ample evidentiary support are the following antecedent facts: In the evening of October 19, 1989, private respondent, Clodualdo de Jesus, a practicing lawyer and businessman, hosted a dinner for his friends at the petitioner's restaurant, the Mandarin Villa Seafoods Village Greenhills, Mandaluyong City. After dinner the waiter handed to him the bill in the amount of P2,658.50. Private respondent offered to pay the bill through his credit card issued by Philippine Commercial Credit Card Inc. (BANKARD). This card was accepted by the waiter who immediately proceeded to the restaurant's cashier for card verification. Ten minutes later, however, the waiter returned and audibly informed private respondent that his 1 credit card had expired. Private respondent remonstrated that said credit card had 2 yet to expire on September 1990, as embossed on its face. The waiter was unmoved, thus, private respondent and two of his guests approached the restaurant's cashier who again passed the credit card over the verification computer. The same information was produced, i.e., CARD EXPIRED. Private respondent and his guests returned to their table and at this juncture, Professor Lirag, another guest, uttered the following remarks: "Clody [referring to Clodualdo de Jesus], may problema ba? Baka 3 kailangang maghugas na kami ng pinggan ?" Thereupon, private respondent left the restaurant and got his BPI Express Credit Card from his car and offered it to pay their 4 bill. This was accepted and honored by the cashier after verification. Petitioner and his companions left afterwards. The incident triggered the filing of a suit for damages by private respondent. Following a full-dress trial, judgment was rendered directing the petitioner and BANKARD to pay jointly and severally the private respondent: (a) moral damages in the amount of P250,000.00; (b) exemplary damages in the amount of P100,000.00, and (c) attorney's fees and litigation expenses in the amount of P50,000.00. Both the petitioner and BANKARD appealed to the respondent Court of Appeals which rendered a decision, thus: WHEREFORE, the decision appealed from is hereby MODIFIED by: 1. Finding appellant MANDARIN solely responsible for damages in favor of appellee; 2. Absolving appellant BANKARD of any responsibility for damages;
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3. Reducing moral damages awarded to appellee to TWENTY FIVE THOUSAND and 00/100 (P25,000.00) PESOS; 4. Reducing exemplary damages awarded to appellee to TEN THOUSAND and 00/100 (P10,000.00) PESOS; 5. Reversing and setting aside the award of P250,000.00 for attorney's fees as well as interest awarded, and 6. AFFIRMING the dismissal of all counterclaims and cross-claims. Costs against appellant Mandarin. SO ORDERED.
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Mandarin Villa, thus, interposed this present petition, faulting the respondent court with six (6) assigned errors which may be reduced to the following issues, to wit: (1) whether or not petitioner is bound to accept payment by means of credit card; (2) whether or not petitioner is negligent under the circumstances obtaining in this case; and (3) if negligent, whether or not such negligence is the proximate cause of the private respondent's damage. Petitioner contends that it cannot be faulted for its cashier's refusal to accept private respondent's BANKARD credit card, the same not being a legal tender. It argues that private respondent's offer to pay by means of credit card partook of the nature of a proposal to novate an existing obligation for which petitioner, as creditor, must first give its consent otherwise there will be no binding contract between them. Petitioner cannot seek refuge behind this averment. We note that Mandarin Villa Seafood Village is affiliated with BANKARD. In fact, an 6 "Agreement" entered into by petitioner and BANKARD dated June 23, 1989, provides inter alia: The MERCHANT shall honor validly issued PCCCI credit cards presented by their corresponding holders in the purchase of goods and/or services supplied by it provided that the card expiration date has not elapsed and the card number does not appear on the latest cancellation bulletin of lost, suspended and canceled PCCCI credit cards and, no signs of tampering, alterations or irregularities appear on the face 7 of the credit card. While private respondent, may not be a party to the said agreement, the abovequoted stipulation conferred a favor upon the private respondent, a holder of credit card validly issued by BANKARD. This stipulation is a stipulation pour autri and under Article 1311 of the Civil Code private respondent may demand its fulfillment provided
Art. 1311

he communicated his acceptance to the petitioner before its revocation. In this case, private respondent's offer to pay by means of his BANKARD credit card constitutes not only an acceptance of the said stipulation but also an explicit communication of his acceptance to the obligor. In addition, the record shows that petitioner posted a logo inside Mandarin Villa 9 Seafood Village stating that "Bankard is accepted here. This representation is conclusive upon the petitioner which it cannot deny or disprove as against the private respondent, the party relying thereon. Petitioner, therefore, cannot disclaim its obligation to accept private respondent's BANKARD credit card without violating the 10 equitable principle of estoppel. Anent the second issue, petitioner insists that it is not negligent. In support thereof, petitioner cites its good faith in checking, not just once but twice, the validity of the aforementioned credit card prior to its dishonor. It argues that since the verification machine flashed an information that the credit card has expired, petitioner could not be expected to honor the same much less be adjudged negligent for dishonoring it. Further, petitioner asseverates that it only followed the guidelines and instructions issued by BANKARD in dishonoring the aforementioned credit card. The argument is untenable. The test for determining the existence of negligence in a particular case may be stated as follows: Did the defendant in doing the alleged negligent act use the reasonable care and caution which an ordinary prudent person would have used in 11 the same situation? If not, then he is guilty of negligence. The Point of Sale (POS) Guidelines which outlined the steps that petitioner must follow under the circumstances provides. xxx xxx xxx CARD EXPIRED a. Check expiry date on card. b. If unexpired, refer to CB. b.1. If valid, honor up to maximum of SPL only. b.2. If in CB as Lost, do procedures 2a to 2e., b.3. If in CB as Suspended/Cancelled, do not honor card. 12 c. If expired, do not honor card. A cursory reading of said rule reveals that whenever the words CARD EXPIRED flashes on the screen of the verification machine, petitioner should check the credit card's expiry date embossed on the card itself. If unexpired, petitioner should honor the card provided it is not invalid, cancelled or otherwise suspended. But if expired, petitioner should not honor the card. In this case, private respondent's BANKARD
8 13
credit card has an embossed expiry date of September 1990. Clearly, it has not yet expired on October 19, 1989, when the same was wrongfully dishonored by the petitioner. Hence, petitioner did not use the reasonable care and caution which an ordinary prudent person would have used in the same situation and as such petitioner is guilty of negligence. In this connection, we quote with approval the following observations of the respondent Court. Mandarin argues that based on the POS Guidelines (supra), it has three options in case the verification machine flashes "CARD EXPIRED". It chose to exercise option (c) by not honoring appellee's credit card. However, appellant apparently intentionally glossed over option "(a) Check expiry date on card" (id.) which would have shown without any shadow of doubt that the expiry date embossed on the BANKARD was "SEP 90". (Exhibit "D".) A cursory look at the appellee's BANKARD would also reveal that appellee had been as of that date a cardholder since 1982, a fact which would 14 have entitled the customer the courtesy of better treatment. Petitioner, however, argues that private respondent's own negligence in not bringing with him sufficient cash was the proximate cause of his damage. It likewise sought 15 exculpation by contending that the remark of Professor Lirag is a supervening event and at the same time the proximate cause of private respondent's injury. We find this contention also devoid of merit. While it is true that private respondent did not have sufficient cash on hand when he hosted a dinner at petitioner's restaurant, this fact alone does not constitute negligence on his part. Neither can it be claimed that the same was the proximate cause of private respondent's damage. We 16 take judicial notice of the current practice among major establishments, petitioner included, to accept payment by means of credit cards in lieu of cash. Thus, petitioner 1 accepted private respondent's BPI Express Credit Card after verifying its validity, 7 a fact which all the more refutes petitioner's imputation of negligence on the private respondent. Neither can we conclude that the remark of Professor Lirag was a supervening event and the proximate cause of private respondent's injury. The humiliation and embarrassment of the private respondent was brought about not by such a remark of Professor Lirag but by the fact of dishonor by the petitioner of private respondent's valid BANKARD credit card. If at all, the remark of Professor Lirag served only to aggravate the embarrassment then felt by private respondent, albeit silently within himself. WHEREFORE, the instant petition is hereby DISMISSED. SO ORDERED.

INTEGRATED PACKAGING CORP., petitioner, vs. COURT OF APPEALS and FIL-ANCHOR PAPER CO., INC., respondents. 3 G.R. No. 115117 June 8, 2000 QUISUMBING, J.: This is a petition to review the decision of the Court of Appeals rendered on April 20, 1994 reversing the judgment of the Regional Trial Court of Caloocan City in an action for recovery of sum of money filed by private respondent against petitioner. In said decision, the appellate court decreed: WHEREFORE, in view of all the foregoing, the appealed judgment is hereby REVERSED and SET ASIDE. Appellee [petitioner herein] is hereby ordered to pay appellant [private respondent herein] the sum of P763,101.70, with legal interest thereon, from the date of the filing of the Complaint, until fully paid. SO ORDERED.
1
July 1979 575 reams at 307.20/ream; and October 1979 575 reams at P307.20/ream. In accordance with the standard operating practice of the parties, the materials were to be paid within a minimum of thirty days and maximum of ninety days from delivery. Later, on June 7, 1978, petitioner entered into a contract with Philippine Appliance Corporation (Philacor) to print three volumes of "Philacor Cultural Books" for delivery on the following dates: Book VI, on or before November 1978; Book VII, on or before November 1979 and; Book VIII, on or before November 1980, with a minimum of 300,000 copies at a price of P10.00 per copy or a total cost of P3,000,000.00. As of July 30, 1979, private respondent had delivered to petitioner 1,097 reams of printing paper out of the total 3,450 reams stated in the agreement. Petitioner alleged it wrote private respondent to immediately deliver the balance because further delay would greatly prejudice petitioner. From June 5, 1980 and until July 23, 1981, private respondent delivered again to petitioner various quantities of printing paper amounting to P766,101.70. However, petitioner encountered difficulties paying private respondent said amount. Accordingly, private respondent made a formal demand upon petitioner to settle the outstanding account. On July 23 and 31, 1981 and August 27, 1981, petitioner made partial payments totalling P97,200.00 which was applied to its back accounts covered by delivery invoices dated September 29-30, 3 1980 and October 1-2, 1980. Meanwhile, petitioner entered into an additional printing contract with Philacor. Unfortunately, petitioner failed to fully comply with its contract with Philacor for the printing of books VIII, IX, X and XI. Thus, Philacor demanded compensation from petitioner for the delay and damage it suffered on account of petitioner's failure. On August 14, 1981, private respondent filed with the Regional Trial Court of Caloocan City a collection suit against petitioner for the sum of P766,101.70, representing the unpaid purchase price of printing paper bought by petitioner on credit. In its answer, petitioner denied the material allegations of the complaint. By way of counterclaim, petitioner alleged that private respondent was able to deliver only 1,097 reams of printing paper which was short of 2,875 reams, in total disregard of their agreement; that private respondent failed to deliver the balance of the printing paper despite demand therefor, hence, petitioner suffered actual damages and failed to realize expected profits; and that petitioner's complaint was prematurely filed. After filing its reply and answer to the counterclaim, private respondent moved for admission of its supplemental complaint, which was granted. In said supplemental complaint, private respondent alleged that subsequent to the enumerated purchase invoices in the original complaint, petitioner made additional purchases of printing
The RTC judgment reversed by the Court of Appeals had disposed of the complain as follows: WHEREFORE, judgment is hereby rendered: Ordering plaintiff [herein private respondent] to pay defendant [herein petitioner] the sum of P27,222.60 as compensatory and actual damages after deducting P763,101.70 (value of materials received by defendant) from P790,324.30 representing compensatory damages as defendant's unrealized profits; Ordering plaintiff to pay defendant the sum of P100,000.00 as moral damages; Ordering plaintiff to pay the sum of P30,000.00 for attorney's fees; and to pay the costs of suit. SO ORDERED.
2
The facts, as culled from the records, are as follows: Petitioner and private respondent executed on May 5, 1978, an order agreement whereby private respondent bound itself to deliver to petitioner 3,450 reams of printing paper, coated, 2 sides basis, 80 lbs., 38" x 23", short grain, worth P1,040,060.00 under the following schedule: May and June 1978 450 reams at P290.00/ream; August and September 1978 700 reams at P290/ream; January 1979 575 reams at P307.20/ream; March 1979 575 reams at P307.20/ream;
3
Art. 1311

paper on credit amounting to P94,200.00. Private respondent also averred that petitioner failed and refused to pay its outstanding obligation although it made partial payments in the amount of P97,200.00 which was applied to back accounts, thus, reducing petitioner's indebtedness to P763,101.70. On July 5, 1990, the trial court rendered judgment declaring that petitioner should pay private respondent the sum of P763,101.70 representing the value of printing paper delivered by private respondent from June 5, 1980 to July 23, 1981. However, the lower court also found petitioner's counterclaim meritorious. It ruled that were it not for the failure or delay of private respondent to deliver printing paper, petitioner could have sold books to Philacor and realized profit of P790,324.30 from the sale. It further ruled that petitioner suffered a dislocation of business on account of loss of contracts and goodwill as a result of private respondent's violation of its obligation, for which the award of moral damages was justified. On appeal, the respondent Court of Appeals reversed and set aside the judgment of the trial court. The appellate court ordered petitioner to pay private respondent the sum of P763,101.70 representing the amount of unpaid printing paper delivered by private respondent to petitioner, with legal interest thereon from the date of the filing 4 of the complaint until fully paid. However, the appellate court deleted the award of P790,324.30 as compensatory damages as well as the award of moral damages and attorney's fees, for lack of factual and legal basis. Expectedly, petitioner filed this instant petition contending that the appellate court's judgment is based on erroneous conclusions of facts and law. In this recourse, petitioner assigns the following errors: [I] THE COURT OF APPEALS ERRED IN CONCLUDING THAT PRIVATE RESPONDENT DID NOT VIOLATE THE ORDER AGREEMENT. [II] THE COURT OF APPEALS ERRED IN CONCLUDING THAT RESPONDENT IS NOT LIABLE FOR PETITIONER'S BREACH OF CONTRACT WITH PHILACOR. [III] THE COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONER IS 5 NOT ENTITLED TO DAMAGES AGAINST PRIVATE RESPONDENT. In our view, the crucial issues for resolution in this case are as follows: (1) Whether or not private respondent violated the order agreement, and; (2) Whether or not private respondent is liable for petitioner's breach of contract with Philacor. Petitioner's contention lacks factual and legal basis, hence, bereft of merit.
10
Petitioner contends, firstly, that private respondent violated the order agreement when the latter failed to deliver the balance of the printing paper on the dates agreed upon. The transaction between the parties is a contract of sale whereby private respondent (seller) obligates itself to deliver printing paper to petitioner (buyer) which, in turn, 6 binds itself to pay therefor a sum of money or its equivalent (price). Both parties 7 concede that the order agreement gives rise to a reciprocal obligations such that the obligation of one is dependent upon the obligation of the other. Reciprocal obligations are to be performed simultaneously, so that the performance of one is conditioned 8 upon the simultaneous fulfillment of the other. Thus, private respondent undertakes to deliver printing paper of various quantities subject to petitioner's corresponding obligation to pay, on a maximum 90-day credit, for these materials. Note that in the contract, petitioner is not even required to make any deposit, down payment or advance payment, hence, the undertaking of private respondent to deliver the materials is conditional upon payment by petitioner within the prescribed period. Clearly, petitioner did not fulfill its side of the contract as its last payment in August 1981 could cover only materials covered by delivery invoices dated September and October 1980. There is no dispute that the agreement provides for the delivery of printing paper on different dates and a separate price has been agreed upon for each delivery. It is also admitted that it is the standard practice of the parties that the materials be paid within a minimum period of thirty (30) days and a maximum of ninety (90) days from each 9 delivery. Accordingly, the private respondent's suspension of its deliveries to petitioner whenever the latter failed to pay on time, as in this case, is legally justified under the second paragraph of Article 1583 of the Civil Code which provides that: When there is a contract of sale of goods to be delivered by stated installments, which are to be separately paid for, and the seller makes defective deliveries in respect of one or more installments, or the buyer neglects or refuses without just cause to take delivery of or pay for one or more installments, it depends in each case on the terms of the contract and the circumstances of the case, whether the breach of contract is so material as to justify the injured party in refusing to proceed further and suing for damages for breach of the entire contract, or whether the breach is severable, giving rise to a claim for compensation but not to a right to treat the whole contract as broken. (Emphasis supplied) In this case, as found a quo petitioner's evidence failed to establish that it had paid for the printing paper covered by the delivery invoices on time. Consequently, private respondent has the right to cease making further delivery, hence the private respondent did not violate the order agreement. On the contrary, it was petitioner which breached the agreement as it failed to pay on time the materials delivered by

private respondent. Respondent appellate court correctly ruled that private respondent did not violate the order agreement. On the second assigned error, petitioner contends that private respondent should be held liable for petitioner's breach of contract with Philacor. This claim is manifestly devoid of merit. As correctly held by the appellate court, private respondent cannot be held liable under the contracts entered into by petitioner with Philacor. Private respondent is not a party to said agreements. It is also not a contract pour autrui. Aforesaid contracts could not affect third persons like private respondent because of the basic civil law principle of relativity of contracts which provides that contracts can only bind the 10 parties who entered into it, and it cannot favor or prejudice a third person, even if 11 he is aware of such contract and has acted with knowledge thereof. Indeed, the order agreement entered into by petitioner and private respondent has not been shown as having a direct bearing on the contracts of petitioner with Philacor. As pointed out by private respondent and not refuted by petitioner, the paper specified in the order agreement between petitioner and private respondent are markedly different from the paper involved in the contracts of petitioner with 12 Philacor. Furthermore, the demand made by Philacor upon petitioner for the latter to comply with its printing contract is dated February 15, 1984, which is clearly made long after private respondent had filed its complaint on August 14, 1981. This demand relates to contracts with Philacor dated April 12, 1983 and May 13, 1983, which were entered into by petitioner after private respondent filed the instant case. To recapitulate, private respondent did not violate the order agreement it had with petitioner. Likewise, private respondent could not be held liable for petitioner's breach of contract with Philacor. It follows that there is no basis to hold private respondent liable for damages. Accordingly, the appellate court did not err in deleting the damages awarded by the trial court to petitioner. The rule on compensatory damages is well established. True, indemnification for damages comprehends not only the loss suffered, that is to say actual damages (damnum emergens), but also profits which the obligee failed to obtain, referred to as compensatory damages (lucrum cessans). However, to justify a grant of actual or compensatory damages, it is necessary to prove with a reasonable degree of certainty, premised upon competent proof and on the best evidence obtainable by the 13 injured party, the actual amount of loss. In the case at bar, the trial court erroneously concluded that petitioner could have sold books to Philacor at the quoted selling price of P1,850,750.55 and by deducting the production cost of P1,060,426.20, petitioner could have earned profit of P790,324.30. Admittedly, the evidence relied upon by the trial court in arriving at the amount are mere estimates prepared by
14
11
petitioner. Said evidence is highly speculative and manifestly hypothetical. It could not provide sufficient legal and factual basis for the award of P790,324.30 as compensatory damages representing petitioner's self-serving claim of unrealized profit. Further, the deletion of the award of moral damages is proper, since private respondent could not be held liable for breach of contract. Moral damages may be awarded when in a breach of contract the defendant acted in bad faith, or was guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual 15 obligation. Finally, since the award of moral damages is eliminated, so must the 16 award for attorney's fees be also deleted. WHEREFORE, the instant petition is DENIED. The decision of the Court of Appeals is AFFIRMED. Costs against petitioner. SO ORDERED.

DKC HOLDINGS CORPORATION,petitioner, vs. COURT OF APPEALS, VICTOR U. BARTOLOME and REGISTER OF DEEDS FOR 4 METRO MANILA, DISTRICT III, respondents. G.R. No. 118248 April 5, 2000 YNARES-SANTIAGO, J.: This is a petition for review on certiorari seeking the reversal of the December 5, 1994 Decision of the Court of Appeals in CA-G.R. CV No. 40849 entitled "DKC Holdings 1 Corporation vs. Victor U. Bartolome, et al.", affirming in toto the January 4, 1993 2 Decision of the Regional Trial Court of Valenzuela, Branch 172, which dismissed Civil Case No. 3337-V-90 and ordered petitioner to pay P30,000.00 as attorney's fees. The subject of the controversy is a 14,021 square meter parcel of land located in Malinta, Valenzuela, Metro Manila which was originally owned by private respondent Victor U. Bartolome's deceased mother, Encarnacion Bartolome, under Transfer Certificate of Title No. B-37615 of the Register of Deeds of Metro Manila, District III. This lot was in front of one of the textile plants of petitioner and, as such, was seen by the latter as a potential warehouse site. On March 16, 1988, petitioner entered into a Contract of Lease with Option to Buy with Encarnacion Bartolome, whereby petitioner was given the option to lease or lease with purchase the subject land, which option must be exercised within a period of two years counted from the signing of the Contract. In turn, petitioner undertook to pay P3,000.00 a month as consideration for the reservation of its option. Within the two-year period, petitioner shall serve formal written notice upon the lessor Encarnacion Bartolome of its desire to exercise its option. The contract also provided that in case petitioner chose to lease the property, it may take actual possession of the premises. In such an event, the lease shall be for a period of six years, renewable for another six years, and the monthly rental fee shall be P15,000.00 for the first six years and P18,000.00 for the next six years, in case of renewal. Petitioner regularly paid the monthly P3,000.00 provided for by the Contract to Encarnacion until her death in January 1990. Thereafter, petitioner coursed its payment to private respondent Victor Bartolome, being the sole heir of Encarnacion. Victor, however, refused to accept these payments. Meanwhile, on January 10, 1990, Victor executed an Affidavit of Self-Adjudication over all the properties of Encarnacion, including the subject lot. Accordingly, respondent Register of Deeds cancelled Transfer Certificate of Title No. B-37615 and issued Transfer Certificate of Title No. V-14249 in the name of Victor Bartolome.
4
12
On March 14, 1990, petitioner served upon Victor, via registered mail, notice that it was exercising its option to lease the property, tendering the amount of P15,000.00 as rent for the month of March. Again, Victor refused to accept the tendered rental fee and to surrender possession of the property to petitioner. Petitioner thus opened Savings Account No. 1-04-02558-I-1 with the China Banking Corporation, Cubao Branch, in the name of Victor Bartolome and deposited therein the P15,000.00 rental fee for March as well as P6,000.00 reservation fees for the months of February and March. Petitioner also tried to register and annotate the Contract on the title of Victor to the property. Although respondent Register of Deeds accepted the required fees, he nevertheless refused to register or annotate the same or even enter it in the day book or primary register.1wphi1.nt Thus, on April 23, 1990, petitioner filed a complaint for specific performance and 3 damages against Victor and the Register of Deeds, docketed as Civil Case No. 3337-V-90 which was raffled off to Branch 171 of the Regional Trial Court of Valenzuela. Petitioner prayed for the surrender and delivery of possession of the subject land in accordance with the Contract terms; the surrender of title for registration and annotation thereon of the Contract; and the payment of P500,000.00 as actual damages, P500,000.00 as moral damages, P500,000.00 as exemplary damages and P300,000.00 as attorney's fees. Meanwhile, on May 8, 1990, a Motion for Intervention with Motion to Dismiss was filed by one Andres Lanozo, who claimed that he was and has been a tenant-tiller of the subject property, which was agricultural riceland, for forty-five years. He questioned the jurisdiction of the lower court over the property and invoked the Comprehensive Agrarian Reform Law to protect his rights that would be affected by the dispute between the original parties to the case. On May 18, 1990, the lower court issued an Order referring the case to the Department of Agrarian Reform for preliminary determination and certification as to whether it was proper for trial by said court. On July 4, 1990, the lower court issued another Order referring the case to Branch 172 of the RTC of Valenzuela which was designated to hear cases involving agrarian land, after the Department of Agrarian Reform issued a letter-certification stating that referral to it for preliminary determination is no longer required. On July 16, 1990, the lower court issued an Order denying the Motion to 7 Intervene, holding that Lanozo's rights may well be ventilated in another proceeding in due time.
6 5 4
Art. 1311

After trial on the merits, the RTC of Valenzuela, Branch 172 rendered its Decision on January 4, 1993, dismissing the Complaint and ordering petitioner to pay Victor P30,000.00 as attorney's fees. On appeal to the CA, the Decision was affirmed in toto. Hence, the instant Petition assigning the following errors: (A) FIRST ASSIGNMENT OF ERROR THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE PROVISION ON THE NOTICE TO EXERCISE OPTION WAS NOT TRANSMISSIBLE. (B) SECOND ASSIGNMENT OF ERROR THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE NOTICE OF OPTION MUST BE SERVED BY DKC UPON ENCARNACION BARTOLOME PERSONALLY. (C) THIRD ASSIGNMENT OF ERROR THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE CONTRACT WAS ONE-SIDED AND ONEROUS IN FAVOR OF DKC. (D) FOURTH ASSIGNMENT OF ERROR THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE EXISTENCE OF A REGISTERED TENANCY WAS FATAL TO THE VALIDITY OF THE CONTRACT. (E) FIFTH ASSIGNMENT OF ERROR THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT PLAINTIFFAPPELLANT WAS LIABLE TO DEFENDANT-APPELLEE FOR ATTORNEY'S 8 FEES. The issue to be resolved in this case is whether or not the Contract of Lease with Option to Buy entered into by the late Encarnacion Bartolome with petitioner was terminated upon her death or whether it binds her sole heir, Victor, even after her demise. Both the lower court and the Court of Appeals held that the said contract was terminated upon the death of Encarnacion Bartolome and did not bind Victor because he was not a party thereto. Art. 1311 of the Civil Code provides, as follows
13
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. xxx xxx xxx
The general rule, therefore, is that heirs are bound by contracts entered into by their predecessors-in-interest except when the rights and obligations arising therefrom are not transmissible by (1) their nature, (2) stipulation or (3) provision of law. In the case at bar, there is neither contractual stipulation nor legal provision making the rights and obligations under the contract intransmissible. More importantly, the nature of the rights and obligations therein are, by their nature, transmissible. The nature of intransmissible rights as explained by Arturo Tolentino, an eminent civilist, is as follows: Among contracts which are intransmissible are those which are purely personal, either by provision of law, such as in cases of partnerships and agency, or by the very nature of the obligations arising therefrom, such as those requiring special personal qualifications of the obligor. It may also be stated that contracts for the payment of money debts are not transmitted to the heirs of a party, but constitute a charge against his estate. Thus, where the client in a contract for professional services of a lawyer died, leaving minor heirs, and the lawyer, instead of presenting his claim for professional services under the contract to the probate court, substituted the minors as parties for his client, it was held that the contract could not be enforced against the 9 minors; the lawyer was limited to a recovery on the basis of quantum meruit. In American jurisprudence, "(W)here acts stipulated in a contract require the exercise of special knowledge, genius, skill, taste, ability, experience, judgment, discretion, integrity, or other personal qualification of one or both parties, the agreement is of a personal nature, and terminates on the death of the party who is required to render 10 such service." It has also been held that a good measure for determining whether a contract terminates upon the death of one of the parties is whether it is of such a character that it may be performed by the promissor's personal representative. Contracts to perform personal acts which cannot be as well performed by others are discharged by the death of the promissor. Conversely, where the service or act is of such a character that it may as well be performed by another, or where the contract, by its

terms, shows that performance by others was contemplated, death does not 11 terminate the contract or excuse nonperformance. In the case at bar, there is no personal act required from the late Encarnacion Bartolome. Rather, the obligation of Encarnacion in the contract to deliver possession of the subject property to petitioner upon the exercise by the latter of its option to lease the same may very well be performed by her heir Victor. As early as 1903, it was held that "(H)e who contracts does so for himself and his 12 heirs." In 1952, it was ruled that if the predecessor was duty-bound to reconvey land to another, and at his death the reconveyance had not been made, the heirs can be compelled to execute the proper deed for reconveyance. This was grounded upon the principle that heirs cannot escape the legal consequence of a transaction entered into by their predecessor-in-interest because they have inherited the property subject 13 to the liability affecting their common ancestor. It is futile for Victor to insist that he is not a party to the contract because of the clear provision of Article 1311 of the Civil Code. Indeed, being an heir of Encarnacion, there is privity of interest between him and his deceased mother. He only succeeds to what rights his mother had and what is valid and binding against her is also valid and 14 binding as against him. This is clear from Paraaque Kings Enterprises vs. Court of 15 Appeals, where this Court rejected a similar defense With respect to the contention of respondent Raymundo that he is not privy to the lease contract, not being the lessor nor the lessee referred to therein, he could thus not have violated its provisions, but he is nevertheless a proper party. Clearly, he stepped into the shoes of the owner-lessor of the land as, by virtue of his purchase, he assumed all the obligations of the lessor under the lease contract. Moreover, he received benefits in the form of rental payments. Furthermore, the complaint, as well as the petition, prayed for the annulment of the sale of the properties to him. Both pleadings also alleged collusion between him and respondent Santos which defeated the exercise by petitioner of its right of first refusal. In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not indispensable, party to the case. A favorable judgment for the petitioner will necessarily affect the rights of respondent Raymundo as the buyer of the property over which petitioner would like to assert its right of first option to buy. In the case at bar, the subject matter of the contract is likewise a lease, which is a property right. The death of a party does not excuse nonperformance of a contract which involves a property right, and the rights and obligations thereunder pass to the personal representatives of the deceased. Similarly, nonperformance is not excused by the death of the party when the other party has a property interest in the subject 16 matter of the contract.
14
Under both Article 1311 of the Civil Code and jurisprudence, therefore, Victor is bound by the subject Contract of Lease with Option to Buy. That being resolved, we now rule on the issue of whether petitioner had complied with its obligations under the contract and with the requisites to exercise its option. The payment by petitioner of the reservation fees during the two-year period within which it had the option to lease or purchase the property is not disputed. In fact, the payment of such reservation fees, except those for February and March, 1990 were 17 admitted by Victor. This is clear from the transcripts, to wit ATTY. MOJADO: One request, Your Honor. The last payment which was allegedly made in January 1990 just indicate in that stipulation that it was issued November of 1989 and postdated January 1990 and then we will admit all. COURT: All reservation fee? ATTY. MOJADO: Yes, Your Honor. COURT: All as part of the lease? ATTY. MOJADO: Reservation fee, Your Honor. There was no payment with respect to payment of 18 rentals. Petitioner also paid the P15,000.00 monthly rental fee on the subject property by depositing the same in China Bank Savings Account No. 1-04-02558-I-1, in the name 19 of Victor as the sole heir of Encarnacion Bartolome, for the months of March to July 30, 1990, or a total of five (5) months, despite the refusal of Victor to turn over the 20 subject property. Likewise, petitioner complied with its duty to inform the other party of its intention to 21 exercise its option to lease through its letter dated Match 12, 1990, well within the two-year period for it to exercise its option. Considering that at that time Encarnacion Bartolome had already passed away, it was legitimate for petitioner to have addressed its letter to her heir.1wphi1

It appears, therefore, that the exercise by petitioner of its option to lease the subject property was made in accordance with the contractual provisions. Concomitantly, private respondent Victor Bartolome has the obligation to surrender possession of and lease the premises to petitioner for a period of six (6) years, pursuant to the Contract of Lease with Option to Buy. Coming now to the issue of tenancy, we find that this is not for this Court to pass upon in the present petition. We note that the Motion to Intervene and to Dismiss of the alleged tenant, Andres Lanozo, was denied by the lower court and that such denial was never made the subject of an appeal. As the lower court stated in its Order, the alleged right of the tenant may well be ventilated in another proceeding in due time. WHEREFORE, in view of the foregoing, the instant Petition for Review is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No. 40849 and that of the Regional Trial Court of Valenzuela in Civil Case No. 3337-V-90 are both SET ASIDE and a new one rendered ordering private respondent Victor Bartolome to: (a) surrender and deliver possession of that parcel of land covered by Transfer Certificate of Title No. V-14249 by way of lease to petitioner and to perform all obligations of his predecessor-in-interest, Encarnacion Bartolome, under the subject Contract of Lease with Option to Buy; (b) surrender and deliver his copy of Transfer Certificate of Title No. V-14249 to respondent Register of Deeds for registration and annotation thereon of the subject Contract of Lease with Option to Buy; (c) pay costs of suit. Respondent Register of Deeds is, accordingly, ordered to register and annotate the subject Contract of Lease with Option to Buy at the back of Transfer Certificate of Title No. V-14249 upon submission by petitioner of a copy thereof to his office. SO ORDERED.
15

EVERETT STEAMSHIP CORPORATION, petitioner, vs. 5 COURT OF APPEALS and HERNANDEZ TRADING CO. INC., respondents. G.R. No. 122494 October 8, 1998 MARTINEZ, J.: Petitioner Everett Steamship Corporation, through this petition for review, seeks the 1 reversal of the decision of the Court of Appeals, dated June 14, 1995, in CA-G.R. No. 428093, which affirmed the decision of the Regional Trial Court of Kalookan City, Branch 126, in Civil Case No. C-15532, finding petitioner liable to private respondent Hernandez Trading Co., Inc. for the value of the lost cargo. Private respondent imported three crates of bus spare parts marked as MARCO C/No. 12, MARCO C/No. 13 and MARCO C/No. 14, from its supplier, Maruman Trading Company, Ltd. (Maruman Trading), a foreign corporation based in Inazawa, Aichi, Japan. The crates were shipped from Nagoya, Japan to Manila on board "ADELFAEVERETTE," a vessel owned by petitioner's principal, Everett Orient Lines. The said crates were covered by Bill of Lading No. NGO53MN. Upon arrival at the port of Manila, it was discovered that the crate marked MARCO C/No. 14 was missing. This was confirmed and admitted by petitioner in its letter of January 13, 1992 addressed to private respondent, which thereafter made a formal claim upon petitioner for the value of the lost cargo amounting to One Million Five Hundred Fifty Two Thousand Five Hundred (Y1,552,500.00) Yen, the amount shown in an Invoice No. MTM-941, dated November 14, 1991. However, petitioner offered to pay only One Hundred Thousand (Y100,000.00) Yen, the maximum amount stipulated under Clause 18 of the covering bill of lading which limits the liability of petitioner. Private respondent rejected the offer and thereafter instituted a suit for collection docketed as Civil Case No. C-15532, against petitioner before the Regional Trial Court of Caloocan City, Branch 126. At the pre-trial conference, both parties manifested that they have no testimonial evidence to offer and agreed instead to file their respective memoranda. On July 16, 1993, the trial court rendered judgment in favor of private respondent, ordering petitioner to pay: (a) Y1,552,500.00; (b) Y20,000.00 or its peso equivalent representing the actual value of the lost cargo and the material and packaging cost; (c) 10% of the total amount as an award for and as contingent attorney's fees; and (d) to pay the cost of the suit. The trial court ruled:
5
2
16
Considering defendant's categorical admission of loss and its failure to overcome the presumption of negligence and fault, the Court conclusively finds defendant liable to the plaintiff. The next point of inquiry the Court wants to resolve is the extent of the liability of the defendant. As stated earlier, plaintiff contends that defendant should be held liable for the whole value for the loss of the goods in the amount of Y1,552,500.00 because the terms appearing at the back of the bill of lading was so written in fine prints and that the same was not signed by plaintiff or shipper thus, they are not bound by clause stated in paragraph 18 of the bill of lading. On the other hand, defendant merely admitted that it lost the shipment but shall be liable only up to the amount of Y100,000.00. The Court subscribes to the provisions of Article 1750 of the New Civil Code Art. 1750. "A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction or deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been fairly and freely agreed upon." It is required, however, that the contract must be reasonable and just under the circumstances and has been fairly and freely agreed upon. The requirements provided in Art. 1750 of the New Civil Code must be complied with before a common carrier can claim a limitation of its pecuniary liability in case of loss, destruction or deterioration of the goods it has undertaken to transport. In the case at bar, the Court is of the view that the requirements of said article have not been met. The fact that those conditions are printed at the back of the bill of lading in letters so small that they are hard to read would not warrant the presumption that the plaintiff or its supplier was aware of these conditions such that he had "fairly and freely agreed" to these conditions. It can not be said that the plaintiff had actually entered into a contract with the defendant, embodying the conditions as printed at the back of the bill of lading that was issued by the defendant to plaintiff. On appeal, the Court of Appeals deleted the award of attorney's fees but affirmed the trial court's findings with the additional observation that private respondent can not be bound by the terms and conditions of the bill of lading because it was not privy to the contract of carriage. It said: As to the amount of liability, no evidence appears on record to show that the appellee (Hernandez Trading Co.) consented to the terms of the Bill of Lading. The shipper named in the Bill of Lading is Maruman Trading Co., Ltd. whom the appellant (Everett Steamship Corp.) contracted with for the transportation of the lost goods. Even assuming arguendo that the shipper Maruman Trading Co., Ltd. accepted the terms of the bill of lading when it delivered the cargo to the appellant, still it does not
Art. 1311

necessarily follow that appellee Hernandez Trading, Company as consignee is bound thereby considering that the latter was never privy to the shipping contract. xxx xxx xxx Never having entered into a contract with the appellant, appellee should therefore not be bound by any of the terms and conditions in the bill of lading. Hence, it follows that the appellee may recover the full value of the shipment lost, the basis of which is not the breach of contract as appellee was never a privy to the any contract with the appellant, but is based on Article 1735 of the New Civil Code, there being no evidence to prove satisfactorily that the appellant has overcome the presumption of negligence provided for in the law. Petitioner now comes to us arguing that the Court of Appeals erred (1) in ruling that the consent of the consignee to the terms and conditions of the bill of lading is necessary to make such stipulations binding upon it; (2) in holding that the carrier's limited package liability as stipulated in the bill of lading does not apply in the instant case; and (3) in allowing private respondent to fully recover the full alleged value of its lost cargo. We shall first resolve the validity of the limited liability clause in the bill of lading. A stipulation in the bill of lading limiting the common carrier's liability for loss or destruction of a cargo to a certain sum, unless the shipper or owner declares a greater value, is sanctioned by law, particularly Articles 1749 and 1750 of the Civil Code which provide: 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. Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been freely and fairly agreed upon. Such limited-liability clause has also been consistently upheld by this Court in a 3 4 number of cases. Thus, in Sea Land Service, Inc. vs. Intermediate Appellate Court , we ruled: It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not exist, the validity and binding effect of the liability limitation clause in the bill of lading here are nevertheless fully sustainable on the basis alone of the cited Civil Code Provisions. That said stipulation is just and reasonable is arguable from the fact
17
that it echoes Art. 1750 itself in providing a limit to liability only if a greater value is not declared for the shipment in the bill of lading. To hold otherwise would amount to questioning the justness and fairness of the law itself, and this the private respondent does not pretend to do. But over and above that consideration, the just and reasonable character of such stipulation is implicit in it giving the shipper or owner the option of avoiding accrual of liability limitation by the simple and surely far from onerous expedient of declaring the nature and value of the shipment in the bill of lading. Pursuant to the afore-quoted provisions of law, it is required that the stipulation limiting the common carrier's liability for loss must be "reasonable and just under the circumstances, and has been freely and fairly agreed upon." The bill of lading subject of the present controversy specifically provides, among others: 18. All claims for which the carrier may be liable shall be adjusted and settled on the basis of the shipper's net invoice cost plus freight and insurance premiums, if paid, and in no event shall the carrier be liable for any loss of possible profits or any consequential loss. The carrier shall not be liable for any loss of or any damage to or in any connection with, goods in an amount exceeding One Hundred thousand Yen in Japanese Currency (Y100,000.00) or its equivalent in any other currency per package or customary freight unit (whichever is least) unless the value of the goods higher than this amount is declared in writing by the shipper before receipt of the goods by the carrier and inserted in the Bill of Lading and extra freight is paid as required . (Emphasis supplied) The above stipulations are, to our mind, reasonable and just. In the bill of lading, the carrier made it clear that its liability would only be up to One Hundred Thousand (Y100,000.00) Yen. However, the shipper, Maruman Trading, had the option to declare a higher valuation if the value of its cargo was higher than the limited liability of the carrier. Considering that the shipper did not declare a higher valuation, it had itself to blame for not complying with the stipulations. The trial court's ratiocination that private respondent could not have "fairly and freely" agreed to the limited liability clause in the bill of lading because the said conditions were printed in small letters does not make the bill of lading invalid. We ruled in PAL, Inc. vs. Court of Appeals that the "jurisprudence on the matter reveals the consistent holding of the court that contracts of adhesion are not invalid per se and that it has on numerous occasions upheld the binding effect
5

thereof." Also, in Philippine American General Insurance Co., Inc. vs. Sweet Lines, 6 Inc. this Court, speaking through the learned Justice Florenz D. Regalado, held: . . . Ong Yiu vs. Court of Appeals, et. al., instructs us that "contracts of adhesion wherein one party imposes a ready-made form of contract on the other . . . are contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if the adheres he gives his consent ." In the present case, not even an allegation of ignorance of a party excuses non-compliance with the contractual stipulations since the responsibility for ensuring full comprehension of the provisions of a contract of carriage devolves not on the carrier but on the owner, shipper, or consignee as the case may be. (Emphasis supplied) It was further explained in Ong Yiu vs. Court of Appeals 7 that stipulations in contracts of adhesion are valid and binding. While it may be true that petitioner had not signed the plane ticket . . ., he is nevertheless bound by the provisions thereof. "Such provisions have been held to be a part of the contract of carriage, and valid and binding upon the passenger regardless of the latter's lack of knowledge or assent to the regulation." It is what is known as a contract of "adhesion," in regards which it has been said that contracts of adhesion wherein one party imposes a ready-made form of contract on the other, as the plane ticket in the case at bar, are contracts 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. . . ., a contract limiting liability upon an agreed valuation does not offend against the policy of the law forbidding one from contracting against his own negligence. (Emphasis supplied) Greater vigilance, however, is required of the courts when dealing with contracts of adhesion in that the said contracts must be carefully scrutinized "in order to shield the unwary (or weaker party) from deceptive schemes contained in ready-made 8 covenants," such as the bill of lading in question. The stringent requirement which the courts are enjoined to observe is in recognition of Article 24 of the Civil Code which mandates that "(i)n all contractual, property or other relations, when one of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the courts must be vigilant for his protection." The shipper, Maruman Trading, we assume, has been extensively engaged in the trading business. It can not be said to be ignorant of the business transactions it entered into involving the shipment of its goods to its customers. The shipper could not have known, or should know the stipulations in the bill of lading and there it should have declared a higher valuation of the goods shipped. Moreover, Maruman Trading has not been heard to complain that it has been deceived or rushed into
18
agreeing to ship the cargo in petitioner's vessel. In fact, it was not even impleaded in this case. The next issue to be resolved is whether or not private respondent, as consignee, who is not a signatory to the bill of lading is bound by the stipulations thereof. Again, in Sea-Land Service, Inc. vs. Intermediate Appellate Court (supra), we held that even if the consignee was not a signatory to the contract of carriage between the shipper and the carrier, the consignee can still be bound by the contract. Speaking through Mr. Chief Justice Narvasa, we ruled: To begin with, there is no question of the right, in principle, of a consignee in a bill of lading to recover from the carrier or shipper for loss of, or damage to goods being transported under said bill, although that document may have been-as in practice it oftentimes is-drawn up only by the consignor and the carrier without the intervention of the consignee. . . . . . . . the right of a party in the same situation as respondent here, to recover for loss of a shipment consigned to him under a bill of lading drawn up only by and between the shipper and the carrier, springs from either a relation of agency that may exist between him and the shipper or consignor, or his status as stranger in whose favor some stipulation is made in said contract, and who becomes a party thereto when he demands fulfillment of that stipulation, in this case the delivery of the goods or cargo shipped. In neither capacity can he assert personally, in bar to any provision of the bill of lading, the alleged circumstance that fair and free agreement to such provision was vitiated by its being in such fine print as to be hardly readable. Parenthetically, it may be observed that in one comparatively recent case (Phoenix Assurance Company vs. Macondray & Co., Inc., 64 SCRA 15) where this Court found that a similar package limitation clause was "printed in the smallest type on the back of the bill of lading," it nonetheless ruled that the consignee was bound thereby on the strength of authority holding that such provisions on liability limitation are as much a part of a bill of lading as through physically in it and as though placed therein by agreement of the parties. There can, therefore, be no doubt or equivocation about the validity and enforceability of freely-agreed-upon stipulations in a contract of carriage or bill of lading limiting the liability of the carrier to an agreed valuation unless the shipper declares a higher value and inserts it into said contract or bill. This proposition, moreover, rests upon an almost uniform weight of authority. (Emphasis supplied). When private respondent formally claimed reimbursement for the missing goods from petitioner and subsequently filed a case against the latter based on the very same bill of lading, it (private respondent) accepted the provisions of the contract and thereby 9 made itself a party thereto, or at least has come to court to enforce it. Thus, private respondent cannot now reject or disregard the carrier's limited liability stipulation in

the bill of lading. In other words, private respondent is bound by the whole stipulations in the bill of lading and must respect the same. Private respondent, however, insists that the carrier should be liable for the full value of the lost cargo in the amount of Y1,552,500.00, considering that the shipper, Maruman Trading, had "fully declared the shipment . . ., the contents of each crate, 10 the dimensions, weight and value of the contents," as shown in the commercial Invoice No. MTM-941. This claim was denied by petitioner, contending that it did not know of the contents, quantity and value of "the shipment which consisted of three pre-packed crates 11 described in Bill of Lading No. NGO-53MN merely as '3 CASES SPARE PARTS.'" The bill of lading in question confirms petitioner's contention. To defeat the carrier's limited liability, the aforecited Clause 18 of the bill of lading requires that the shipper should have declared in writing a higher valuation of its goods before receipt thereof by the carrier and insert the said declaration in the bill of lading, with extra freight paid. These requirements in the bill of lading were never complied with by the shipper, hence, the liability of the carrier under the limited liability clause stands. The commercial Invoice No. MTM-941 does not in itself sufficiently and convincingly show that petitioner has knowledge of the value of the cargo as contended by private respondent. No other evidence was proffered by private respondent to support is contention. Thus, we are convinced that petitioner should be liable for the full value of the lost cargo. In fine, the liability of petitioner for the loss of the cargo is limited to One Hundred Thousand (Y100,000.00) Yen, pursuant to Clause 18 of the bill of lading. WHEREFORE, the decision of the Court of Appeals dated June 14, 1995 in C.A.-G.R. CV No. 42803 is hereby REVERSED and SET ASIDE. SO ORDERED.
19

GEORGE A. KAUFFMAN, plaintiff-appellee, vs. THE PHILIPPINE NATIONAL BANK, defendant-appellant. 6 G.R. No. 16454 September 29, 1921 STREET, J.: At the time of the transaction which gave rise to this litigation the plaintiff, George A. Kauffman, was the president of a domestic corporation engaged chiefly in the exportation of hemp from the Philippine Islands and known as the Philippine Fiber and Produce Company, of which company the plaintiff apparently held in his own right nearly the entire issue of capital stock. On February 5, 1918, the board of directors of said company, declared a dividend of P100,000 from its surplus earnings for the year 1917, of which the plaintiff was entitled to the sum of P98,000. This amount was accordingly placed to his credit on the books of the company, and so remained until in October of the same year when an unsuccessful effort was made to transmit the whole, or a greater part thereof, to the plaintiff in New York City. In this connection it appears that on October 9, 1918, George B. Wicks, treasurer of the Philippine Fiber and Produce Company, presented himself in the exchange department of the Philippine National Bank in Manila and requested that a telegraphic transfer of $45,000 should be made to the plaintiff in New York City, upon account of the Philippine Fiber and Produce Company. He was informed that the total cost of said transfer, including exchange and cost of message, would be P90,355.50. Accordingly, Wicks, as treasurer of the Philippine Fiber and Produce Company, thereupon drew and delivered a check for that amount on the Philippine National Bank; and the same was accepted by the officer selling the exchange in payment of the transfer in question. As evidence of this transaction a document was made out and delivered to Wicks, which is referred to by the bank's assistant cashier as its official receipt. This memorandum receipt is in the following language: October 9th, 1918. CABLE TRANSFER BOUGHT FROM PHILIPPINE NATIONAL BANK, Manila, P.I. Stamp P18 Foreign $45,000. Amount 3/8 % Rate P90,337.50
20
Payable through Philippine National Bank, New York. To G. A. Kauffman, New York. Total P90,355.50. Account of Philippine Fiber and Produce Company. Sold to Messrs. Philippine Fiber and Produce Company, Manila. (Sgd.) Y LERMA, Manager, Foreign Department. On the same day the Philippine National Bank dispatched to its New York agency a cablegram to the following effect: Pay George A. Kauffman, New York, account Philippine Fiber Produce Co., $45,000. (Sgd.) PHILIPPINE NATIONAL BANK, Manila. Upon receiving this telegraphic message, the bank's representative in New York sent a cable message in reply suggesting the advisability of withholding this money from Kauffman, in view of his reluctance to accept certain bills of the Philippine Fiber and Produce Company. The Philippine National Bank acquiesced in this and on October 11 dispatched to its New York agency another message to withhold the Kauffman payment as suggested. Meanwhile Wicks, the treasurer of the Philippine Fiber and Produce Company, cabled to Kauffman in New York, advising him that $45,000 had been placed to his credit in the New York agency of the Philippine National Bank; and in response to this advice Kauffman presented himself at the office of the Philippine National Bank in New York City on October 15, 1918, and demanded the money. By this time, however, the message from the Philippine National Bank of October 11, directing the withholding of payment had been received in New York, and payment was therefore refused. In view of these facts, the plaintiff Kauffman instituted the present action in the Court of First Instance of the city of Manila to recover said sum, with interest and costs; and judgment having been there entered favorably to the plaintiff, the defendant appealed. Among additional facts pertinent to the case we note the circumstance that at the time of the transaction above-mentioned, the Philippines Fiber and Produce Company did not have on deposit in the Philippine National Bank money adequate to pay the check for P90,355.50, which was delivered in payment of the telegraphic order; but the company did have credit to that extent, or more, for overdraft in current account, and the check in question was charged as an overdraft against the Philippine Fiber and Produce Company and has remained on the books of the bank as an interest-bearing item in the account of said company. It is furthermore noteworthy that no evidence has been introduced tending to show failure of consideration with respect to the amount paid for said telegraphic order. It is
Art. 1311

true that in the defendant's answer it is suggested that the failure of the bank to pay over the amount of this remittance to the plaintiff in New York City, pursuant to its agreement, was due to a desire to protect the bank in its relations with the Philippine Fiber and Produce Company, whose credit was secured at the bank by warehouse receipts on Philippine products; and it is alleged that after the exchange in question was sold the bank found that it did not have sufficient to warrant payment of the remittance. In view, however, of the failure of the bank to substantiate these allegations, or to offer any other proof showing failure of consideration, it must be assumed that the obligation of the bank was supported by adequate consideration. In this court the defense is mainly, if not exclusively, based upon the proposition that, inasmuch as the plaintiff Kauffman was not a party to the contract with the bank for the transmission of this credit, no right of action can be vested in him for the breach thereof. "In this situation," we here quote the words of the appellant's brief, "if there exists a cause of action against the defendant, it would not be in favor of the plaintiff who had taken no part at all in the transaction nor had entered into any contract with the plaintiff, but in favor of the Philippine Fiber and Produce Company, the party which contracted in its own name with the defendant." The question thus placed before us is one purely of law; and at the very threshold of the discussion it can be stated that the provisions of the Negotiable Instruments Law can come into operation there must be a document in existence of the character described in section 1 of the Law; and no rights properly speaking arise in respect to said instrument until it is delivered. In the case before us there was an order, it is true, transmitted by the defendant bank to its New York branch, for the payment of a specified sum of money to George A. Kauffman. But this order was not made payable "to order or "to bearer," as required in subsection ( d) of that Act; and inasmuch as it never left the possession of the bank, or its representative in New York City, there was no delivery in the sense intended in section 16 of the same Law. In this connection it is unnecessary to point out that the official receipt delivered by the bank to the purchaser of the telegraphic order, and already set out above, cannot itself be viewed in the light of a negotiable instrument, although it affords complete proof of the obligation actually assumed by the bank. Stated in bare simplicity the admitted facts show that the defendant bank for a valuable consideration paid by the Philippine Fiber and Produce Company agreed on October 9, 1918, to cause a sum of money to be paid to the plaintiff in New York City; and the question is whether the plaintiff can maintain an action against the bank for the nonperformance of said undertaking. In other words, is the lack of privity with the contract on the part of the plaintiff fatal to the maintenance of an action by him? The only express provision of law that has been cited as bearing directly on this question is the second paragraph of article 1257 of the Civil Code; and unless the
21
present action can be maintained under the provision, the plaintiff admittedly has no case. This provision states an exception to the more general rule expressed in the first paragraph of the same article to the effect that contracts are productive of effects only between the parties who execute them; and in harmony with this general rule are numerous decisions of this court (Wolfson vs. Estate of Martinez, 20 Phil., 340; Ibaez de Aldecoa vs. Hongkong and Shanghai Banking Corporation, 22 Phil., 572, 584; Manila Railroad Co. vs. Compaia Trasatlantica and Atlantic, Gulf and Pacific Co., 38 Phil., 873, 894.) The paragraph introducing the exception which we are now to consider is in these words: Should the contract contain any stipulation in favor of a third person, he may demand its fulfillment, provided he has given notice of his acceptance to the person bound before the stipulation has been revoked. (Art. 1257, par. 2, Civ. Code.) In the case of Uy Tam and Uy Yet vs. Leonard (30 Phil., 471), is found an elaborate dissertation upon the history and interpretation of the paragraph above quoted and so complete is the discussion contained in that opinion that it would be idle for us here to go over the same matter. Suffice it to say that Justice Trent, speaking for the court in that case, sums up its conclusions upon the conditions governing the right of the person for whose benefit a contract is made to maintain an action for the breach thereof in the following words: So, we believe the fairest test, in this jurisdiction at least, whereby to determine whether the interest of a third person in a contract is a stipulation pour autrui, or merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract. If a third person claims an enforcible interest in the contract, the question must be settled by determining whether the contracting parties desired to tender him such an interest. Did they deliberately insert terms in their agreement with the avowed purpose of conferring a favor upon such third person? In resolving this question, of course, the ordinary rules of construction and interpretation of writings must be observed. (Uy Tam and Uy Yet vs. Leonard, supra.) Further on in the same opinion he adds: "In applying this test to a stipulation pour autrui, it matters not whether the stipulation is in the nature of a gift or whether there is an obligation owing from the promise to the third person. That no such obligation exists may in some degree assist in determining whether the parties intended to benefit a third person, whether they stipulated for him." (Uy Tam and Uy Yet vs. Leonard, supra.)

In the light of the conclusion thus stated, the right of the plaintiff to maintain the present action is clear enough; for it is undeniable that the bank's promise to cause a definite sum of money to be paid to the plaintiff in New York City is a stipulation in his favor within the meaning of the paragraph above quoted; and the circumstances under which that promise was given disclose an evident intention on the part of the contracting parties that the plaintiff should have the money upon demand in New York City. The recognition of this unqualified right in the plaintiff to receive the money implies in our opinion the right in him to maintain an action to recover it; and indeed if the provision in question were not applicable to the facts now before us, it would be difficult to conceive of a case arising under it. It will be noted that under the paragraph cited a third person seeking to enforce compliance with a stipulation in his favor must signify his acceptance before it has been revoked. In this case the plaintiff clearly signified his acceptance to the bank by demanding payment; and although the Philippine National Bank had already directed its New York agency to withhold payment when this demand was made, the rights of the plaintiff cannot be considered to as there used, must be understood to imply revocation by the mutual consent of the contracting parties, or at least by direction of the party purchasing he exchange. In the course of the argument attention was directed to the case of Legniti vs. Mechanics, etc. Bank (130 N.E. Rep., 597), decided by the Court of Appeals of the State of New York on March 1, 1921, wherein it is held that, by selling a cable transfer of funds on a foreign country in ordinary course, a bank incurs a simple contractual obligation, and cannot be considered as holding the money which was paid for the transfer in the character of a specific trust. Thus, it was said, "Cable transfers, therefore, mean a method of transmitting money by cable wherein the seller engages that he has the balance at the point on which the payment is ordered and that on receipt of the cable directing the transfer his correspondent at such point will make payment to the beneficiary described in the cable. All these transaction are matters of purchase and sale create no trust relationship." As we view it there is nothing in the decision referred to decisive of the question now before us, wish is merely that of the right of the beneficiary to maintain an action against the bank selling the transfer. Upon the considerations already stated, we are of the opinion that the right of action exists, and the judgment must be affirmed. It is so ordered, with costs against the appellant. Interest will be computed as prescribed in section 510 of the Code of Civil Procedure.
22

ASSOCIATED BANK, petitioner, vs. 7 COURT OF APPEALS and LORENZO SARMIENTO JR., respondents. G.R. No. 123793 June 29, 1998 PANGANIBAN, J.: In a merger, does the surviving corporation have a right to enforce a contract entered into by the absorbed company subsequent to the date of the merger agreement, but prior to the issuance of a certificate of merger by the Securities and Exchange Commission? The Case This is a petition for review under Rule 45 of the Rules of Court, seeking to set aside 1 2 the Decision of the Court of Appeals in CA-GR CV No. 26465 promulgated on January 30, 1996, which answered the above question in the negative. The 3 challenged Decision reversed and set aside the October 17, 1986 Decision in Civil Case No. 85-32243, promulgated by the Regional Trial Court of Manila, Branch 48, 4 which disposed of the controversy in favor of herein petitioner as follows: WHEREFORE, judgment is hereby rendered in favor of the plaintiff Associated Bank. The defendant Lorenzo Sarmiento, Jr. is ordered to pay plaintiff: 1. The amount of P4,689,413.63 with interest thereon at 14% per annum until fully paid; 2. The amount of P200,000.00 as and for attorney's fees; and 3. The costs of suit. On the other hand, the Court of Appeals resolved the case in this wise:
5
23
. . . [O]n or about September 16, 1975 Associated Banking Corporation and Citizens Bank and Trust Company merged to form just one banking corporation known as Associated Citizens Bank, the surviving bank. On or about March 10, 1981, the Associated Citizens Bank changed its corporate name to Associated Bank by virtue of the Amended Articles of Incorporation. On September 7, 1977, the defendant executed in favor of Associated Bank a promissory note whereby the former undertook to pay the latter the sum of P2,500,000.00 payable on or before March 6, 1978. As per said promissory note, the defendant agreed to pay interest at 14% per annum, 3% per annum in the form of liquidated damages, compounded interests, and attorney's fees, in case of litigation equivalent to 10% of the amount due. The defendant, to date, still owes plaintiff bank the amount of P2,250,000.00 exclusive of interest and other charges. Despite repeated demands the defendant failed to pay the amount due. xxx xxx xxx . . . [T]he defendant denied all the pertinent allegations in the complaint and alleged as affirmative and[/]or special defenses that the complaint states no valid cause of action; that the plaintiff is not the proper party in interest because the promissory note was executed in favor of Citizens Bank and Trust Company; that the promissory note does not accurately reflect the true intention and agreement of the parties; that terms and conditions of the promissory note are onerous and must be construed against the creditor-payee bank; that several partial payments made in the promissory note are not properly applied; that the present action is premature; that as compulsory counterclaim the defendant prays for attorney's fees, moral damages and expenses of litigation. On May 22, 1986, the defendant was declared as if in default for failure to appear at the Pre-Trial Conference despite due notice. A Motion to Lift Order of Default and/or Reconsideration of Order dated May 22, 1986 was filed by defendant's counsel which was denied by the Court in [an] order dated September 16, 1986 and the plaintiff was allowed to present its evidence before the Court ex-parte on October 16, 1986. At the hearing before the Court ex-parte, Esteban C. Ocampo testified that . . . he is an accountant of the Loans and Discount Department of the plaintiff bank; that as such, he supervises the accounting section of the bank, he counterchecks all the transactions that transpired during the day and is responsible for all the accounts and records and other things that may[ ]be assigned to the Loans and Discount Department; that he knows the [D]efendant Lorenzo Sarmiento, Jr. because he has an outstanding loan with them as per their records; that Lorenzo Sarmiento, Jr. executed a promissory note No. TL-2649-77 dated September 7, 1977 in the amount
WHEREFORE, premises considered, the decision appealed from, dated October 17, 1986 is REVERSED and SET ASIDE and another judgment rendered DISMISSING plaintiff-appellee's complaint, docketed as Civil Case No. 85-32243. There is no pronouncement as to costs. The Facts The undisputed factual antecedents, as narrated by the trial court and adopted by 6 public respondent, are as follows:
Art. 1311

of P2,500,000.00 (Exhibit A); that Associated Banking Corporation and the Citizens Bank and Trust Company merged to form one banking corporation known as the Associated Citizens Bank and is now known as Associated Bank by virtue of its Amended Articles of Incorporation; that there were partial payments made but not full; that the defendant has not paid his obligation as evidenced by the latest statement of account (Exh. B); that as per statement of account the outstanding obligation of the defendant is P5,689,413.63 less P1,000,000.00 or P4,689,413.63 (Exh. B, B-1); that a demand letter dated June 6, 1985 was sent by the bank thru its counsel (Exh. C) which was received by the defendant on November 12, 1985 (Exh. C, C-1, C-2, C-3); that the defendant paid only P1,000,000.00 which is reflected in the Exhibit C. Based on the evidence presented by petitioner, the trial court ordered Respondent Sarmiento to pay the bank his remaining balance plus interests and attorney's fees. In 7 his appeal, Sarmiento assigned to the trial court several errors, namely: I The [trial court] erred in denying appellant's motion to dismiss appellee bank's complaint on the ground of lack of cause of action and for being barred by prescription and laches. II The same lower court erred in admitting plaintiff-appellee bank's amended complaint while defendant-appellant's motion to dismiss appelle bank's original complaint and using/availing [itself of] the new additional allegations as bases in denial of said appellant's motion and in the interpretation and application of the agreement of merger and Section 80 of BP Blg. 68, Corporation Code of the Philippines. III The [trial court] erred and gravely abuse[d] its discretion in rendering the two as if in default orders dated May 22, 1986 and September 16, 1986 and in not reconsidering the same upon technical grounds which in effect subvert the best primordial interest of substantial justice and equity. IV The court a quo erred in issuing the orders dated May 22, 1986 and September 16, 1986 declaring appellant as if in default due to non-appearance of appellant's attending counsel who had resigned from the law firm and while the parties [were] negotiating for settlement of the case and after a one million peso payment had in fact been paid to appellee bank for appellant's account at the start of such negotiation on February 18, 1986 as act of earnest desire to settle the obligation in good faith by the interested parties. V The lower court erred in according credence to appellee bank's Exhibit B statement of account which had been merely requested by its counsel during the trial and bearing date of September 30, 1986.
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VI The lower court erred in accepting and giving credence to appellee bank's 27-yearold witness Esteban C. Ocampo as of the date he testified on October 16, 1986, and therefore, he was merely an eighteen-year-old minor when appellant supposedly incurred the foisted obligation under the subject PN No. TL-2649-77 dated September 7, 1977, Exhibit A of appellee bank. VII The [trial court] erred in adopting appellee bank's Exhibit B dated September 30, 1986 in its decision given in open court on October 17, 1986 which exacted eighteen percent (18%) per annum on the foisted principal amount of P2.5 million when the subject PN, Exhibit A, stipulated only fourteen percent (14%) per annum and which was actually prayed for in appellee bank's original and amended complaints. VIII The appealed decision of the lower court erred in not considering at all appellant's affirmative defenses that (1) the subject PN No. TL-2649-77 for P2.5 million dated September 7, 1977, is merely an accommodation pour autrui of any actual consideration to appellant himself and (2) the subject PN is a contract of adhesion, hence, [it] needs [to] be strictly construed against appellee bank assuming for granted that it has the right to enforce and seek collection thereof. IX The lower court should have at least allowed appellant the opportunity to present countervailing evidence considering the huge amounts claimed by appellee bank (principal sum of P2.5 million which including accrued interests, penalties and cost of litigation totaled P4,689,413.63) and appellant's affirmative defenses pursuant to substantial justice and equity. The appellate court, however, found no need to tackle all the assigned errors and limited itself to the question of "whether [herein petitioner had] established or proven a cause of action against [herein private respondent]." Accordingly, Respondent Court held that the Associated Bank had no cause of action against Lorenzo Sarmiento Jr., since said bank was not privy to the promissory note executed by Sarmiento in favor of Citizens Bank and Trust Company (CBTC). The court ruled that the earlier merger between the two banks could not have vested Associated Bank with any interest arising from the promissory note executed in favor of CBTC after such merger. Thus, as earlier stated, Respondent Court set aside the decision of the trial court and 8 dismissed the complaint. Petitioner now comes to us for a reversal of this ruling. Issues In its petition, petitioner cites the following "reasons":
9
I The Court of Appeals erred in reversing the decision of the trial court and in declaring that petitioner has no cause of action against respondent over the promissory note.

II The Court of Appeals also erred in declaring that, since the promissory note was executed in favor of Citizens Bank and Trust Company two years after the merger between Associated Banking Corporation and Citizens Bank and Trust Company, respondent is not liable to petitioner because there is no privity of contract between respondent and Associated Bank. III The Court of Appeals erred when it ruled that petitioner, despite the merger between petitioner and Citizens Bank and Trust Company, is not a real party in interest insofar as the promissory note executed in favor of the merger. In a nutshell, the main issue is whether Associated Bank, the surviving corporation, may enforce the promissory note made by private respondent in favor of CBTC, the absorbed company, after the merger agreement had been signed. The Court's Ruling The petition is impressed with merit. The Main Issue: Associated Bank Assumed All Rights of CBTC Ordinarily, in the merger of two or more existing corporations, one of the combining corporations survives and continues the combined business, while the rest are dissolved and all their rights, properties and liabilities are acquired by the surviving 10 corporation. Although there is a dissolution of the absorbed corporations, there is no winding up of their affairs or liquidation of their assets, because the surviving corporation automatically acquires all their rights, privileges and powers, as well as 11 their liabilities. The merger, however, does not become effective upon the mere agreement of the constituent corporations. The procedure to be followed is prescribed under the 12 Corporation Code. Section 79 of said Code requires the approval by the Securities and Exchange Commission (SEC) of the articles of merger which, in turn, must have been duly approved by a majority of the respective stockholders of the constituent corporations. The same provision further states that the merger shall be effective only upon the issuance by the SEC of a certificate of merger. The effectivity date of the merger is crucial for determining when the merged or absorbed corporation ceases to exist; and when its rights, privileges, properties as well as liabilities pass on to the surviving corporation. Consistent with the aforementioned Section 79, the September 16, 1975 Agreement 13 of Merger, which Associated Banking Corporation (ABC) and Citizens Bank and Trust Company (CBTC) entered into, provided that its effectivity "shall, for all intents
25
and purposes, be the date when the necessary papers to carry out this [m]erger shall 14 have been approved by the Securities and Exchange Commission." As to the transfer of the properties of CBTC to ABC, the agreement provides: 10. Upon effective date of the Merger, all rights, privileges, powers, immunities, franchises, assets and property of [CBTC], whether real, personal or mixed, and including [CBTC's] goodwill and tradename, and all debts due to [CBTC] on whatever act, and all other things in action belonging to [CBTC] as of the effective date of the [m]erger shall be vested in [ABC], the SURVIVING BANK, without need of further act or deed, unless by express requirements of law or of a government agency, any separate or specific deed of conveyance to legally effect the transfer or assignment of any kind of property [or] asset is required, in which case such document or deed shall be executed accordingly; and all property, rights, privileges, powers, immunities, franchises and all appointments, designations and nominations, and all other rights and interests of [CBTC] as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, trustee of estates of persons mentally ill and in every other fiduciary capacity, and all and every other interest of [CBTC] shall thereafter be effectually the property of [ABC] as they were of [CBTC], and title to any real estate, whether by deed or otherwise, vested in [CBTC] shall not revert or be in any way impaired by reason thereof; provided, however, that all rights of creditors and all liens upon any property of [CBTC] shall be preserved and unimpaired and all debts, liabilities, obligations, duties and undertakings of [CBTC], whether contractual or otherwise, expressed or implied, actual or contingent, shall henceforth attach to [ABC] which shall be responsible therefor and may be enforced against [ABC] to the same extent as if the same debts liabilities, obligations, duties and undertakings have been originally incurred or contracted by [ABC], subject, however, to all rights, privileges, defenses, set-offs and counterclaims which [CBTC] 15 has or might have and which shall pertain to [ABC]. The records do not show when the SEC approved the merger. Private respondent's theory is that it took effect on the date of the execution of the agreement itself, which was September 16, 1975. Private respondent contends that, since he issued the promissory note to CBTC on September 7, 1977 two years after the merger agreement had been executed CBTC could not have conveyed or transferred to petitioner its interest in the said note, which was not yet in existence at the time of the merger. Therefore, petitioner, the surviving bank, has no right to enforce the promissory note on private respondent; such right properly pertains only to CBTC. Assuming that the effectivity date of the merger was the date of its execution, we still cannot agree that petitioner no longer has any interest in the promissory note. A closer perusal of the merger agreement leads to a different conclusion. The provision quoted earlier has this other clause:

Upon the effective date of the [m]erger, all references to [CBTC] in any deed, documents, or other papers of whatever kind or nature and wherever found shall be deemed for all intents and purposes, references to [ABC], the SURVIVING BANK, as 6 if such references were direct references to [ABC]. . . . (Emphasis supplied) Thus, the fact that the promissory note was executed after the effectivity date of the merger does not militate against petitioner. The agreement itself clearly provides that all contracts irrespective of the date of execution entered into in the name of CBTC shall be understood as pertaining to the surviving bank, herein petitioner. Since, in contrast to the earlier aforequoted provision, the latter clause no longer specifically refers only to contracts existing at the time of the merger, no distinction should be made. The clause must have been deliberately included in the agreement in order to protect the interests of the combining banks; specifically, to avoid giving the merger agreement a farcical interpretation aimed at evading fulfillment of a due obligation. Thus, although the subject promissory note names CBTC as the payee, the reference to CBTC in the note shall be construed, under the very provisions of the merger agreement, as a reference to petitioner bank, "as if such reference [was a] direct reference to" the latter "for all intents and purposes." No other construction can be given to the unequivocal stipulation. Being clear, plain and free of ambiguity, the provision must be given its literal 17 meaning and applied without a convoluted interpretation. Verba lelegis non est 18 recedendum. In light of the foregoing, the Court holds that petitioner has a valid cause of action against private respondent. Clearly, the failure of private respondent to honor his obligation under the promissory note constitutes a violation of petitioner's right to collect the proceeds of the loan it extended to the former.
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was based on a written contract and prescribes after ten years from the time its right 19 of action arose. Sarmiento's obligation under the promissory note became due and demandable on March 6, 1978. Petitioner's complaint was instituted on August 22, 1985, before the lapse of the ten-year prescriptive period. Definitely, petitioner still had every right to commence suit against the payor/obligor, the private respondent herein. Neither is petitioner's action barred by laches. The principle of laches is a creation of equity, which is applied not to penalize neglect or failure to assert a right within a reasonable time, but rather to avoid recognizing a right when to do so would result in 20 21 a clearly inequitable situation or in an injustice. To require private respondent to pay the remaining balance of his loan is certainly not inequitable or unjust. What would be manifestly unjust and inequitable is his contention that CBTC is the proper party to proceed against him despite the fact, which he himself asserts, that CBTC's corporate personality has been dissolved by virtue of its merger with petitioner. To hold that no payee/obligee exists and to let private respondent enjoy the fruits of his loan without liability is surely most unfair and unconscionable, amounting to unjust enrichment at the expense of petitioner. Besides, this Court has held that the doctrine of laches is inapplicable where the claim was filed within the prescriptive period set 22 forth under the law. No Contract Pour Autrui Private respondent, while not denying that he executed the promissory note in the amount of P2,500,000 in favor of CBTC, offers the alternative defense that said note was a contract pour autrui. A stipulation pour autrui is one in favor of a third person who may demand its fulfillment, provided he communicated his acceptance to the obligor before its revocation. An incidental benefit or interest, which another person gains, is not sufficient. The contracting parties must have clearly and deliberately conferred a favor 23 upon a third person. Florentino vs. Encarnacion Sr. enumerates the requisites for such contract: (1) the stipulation in favor of a third person must be a part of the contract, and not the contract itself; (2) the favorable stipulation should not be conditioned or compensated by any kind of obligation; and (3) neither of the contracting parties bears the legal representation or authorization of the third party. The "fairest test" in determining whether the third person's interest in a contract is a stipulation pour autrui or merely an incidental interest is to examine the intention of the parties as disclosed by their 25 contract.
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Secondary Issues: Prescription, Laches, Contract Pour Autrui, Lack of Consideration
No Prescription or Laches Private respondent's claim that the action has prescribed, pursuant to Article 1149 of the Civil Code, is legally untenable. Petitioner's suit for collection of a sum of money

We carefully and thoroughly perused the promissory note, but found no stipulation at all that would even resemble a provision in consideration of a third person. The instrument itself does not disclose the purpose of the loan contract. It merely lays down the terms of payment and the penalties incurred for failure to pay upon maturity. It is patently devoid of any indication that a benefit or interest was thereby created in favor of a person other than the contracting parties. In fact, in no part of the instrument is there any mention of a third party at all. Except for his barefaced statement, no evidence was proffered by private respondent to support his argument. Accordingly, his contention cannot be sustained. At any rate, if indeed the loan actually benefited a third person who undertook to repay the bank, private respondent 26 could have availed himself of the legal remedy of a third-party complaint. That he made no effort to implead such third person proves the hollowness of his arguments. Consideration Private respondent also claims that he received no consideration for the promissory note and, in support thereof, cites petitioner's failure to submit any proof of his loan application and of his actual receipt of the amount loaned. These arguments deserve no merit. Res ipsa loquitur. The instrument, bearing the signature of private respondent, speaks for itself. Respondent Sarmiento has not questioned the genuineness and due execution thereof. No further proof is necessary to show that he undertook to pay P2,500,000, plus interest, to petitioner bank on or before March 6, 1978. This he failed to do, as testified to by petitioner's accountant. The latter 27 presented before the trial court private respondent's statement of account as of September 30, 1986, showing an outstanding balance of P4,689,413.63 after deducting P1,000,000.00 paid seven months earlier. Furthermore, such partial payment is equivalent to an express acknowledgment of his obligation. Private respondent can no longer backtrack and deny his liability to petitioner bank. "A person 28 cannot accept and reject the same instrument." WHEREFORE, the petition is GRANTED. The assailed Decision is SET ASIDE and the Decision of RTC-Manila, Branch 48, in Civil Case No. 26465 is hereby REINSTATED. SO ORDERED.
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C. S. GILCHRIST, plaintiff-appellee, vs. E. A. CUDDY, ET AL., defendants. 8 JOSE FERNANDEZ ESPEJO and MARIANO ZALDARRIAGA, appellants. G.R. No. L-9356 February 18, 1915 TRENT, J.: An appeal by the defendants, Jose Fernandez Espejo and Mariano Zaldarriaga, from a judgment of the Court of First Instance of Iloilo, dismissing their cross-complaint upon the merits for damages against the plaintiff for the alleged wrongful issuance of a mandatory and a preliminary injunction. Upon the application of the appellee an ex parte mandatory injunction was issued on the 22d of May, 1913, directing the defendant, E. A. Cuddy, to send to the appellee a certain cinematograph film called "Zigomar" in compliance with an alleged contract which had been entered into between these two parties, and at the time an ex parte preliminary injunction was issued restraining the appellants from receiving and exhibiting in their theater the Zigomar until further orders of the court. On the 26th of that month the appellants appeared and moved the court to dissolve the preliminary injunction. When the case was called for trial on August 6, the appellee moved for the dismissal of the complaint "for the reason that there is no further necessity for the maintenance of the injunction." The motion was granted without objection as to Cuddy and denied as to the appellants in order to give them an opportunity to prove that the injunction were wrongfully issued and the amount of damages suffered by reason thereof. The pertinent part of the trial court's findings of fact in this case is as follows: It appears in this case that Cuddy was the owner of the film Zigomar and that on the 24th of April he rented it to C. S. Gilchrist for a week for P125, and it was to be delivered on the 26th of May, the week beginning that day. A few days prior to this Cuddy sent the money back to Gilchrist, which he had forwarded to him in Manila, saying that he had made other arrangements with his film. The other arrangements was the rental to these defendants Espejo and his partner for P350 for the week and the injunction was asked by Gilchrist against these parties from showing it for the week beginning the 26th of May. It appears from the testimony in this case, conclusively, that Cuddy willfully violated his contract, he being the owner of the picture, with Gilchrist because the defendants had offered him more for the same period. Mr. Espejo at the trial on the permanent injunction on the 26th of May admitted that he knew that Cuddy was the owner of the film. He was trying to get it through his agents Pathe Brothers in Manila. He is the
88
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agent of the same concern in Iloilo. There is in evidence in this case on the trial today as well as on the 26th of May, letters showing that the Pathe Brothers in Manila advised this man on two different occasions not to contend for this film Zigomar because the rental price was prohibitive and assured him also that he could not get the film for about six weeks. The last of these letters was written on the 26th of April, which showed conclusively that he knew they had to get this film from Cuddy and from this letter that the agent in Manila could not get it, but he made Cuddy an offer himself and Cuddy accepted it because he was paying about three times as much as he had contracted with Gilchrist for. Therefore, in the opinion of this court, the defendants failed signally to show the injunction against the defendant was wrongfully procured. The appellants duly excepted to the order of the court denying their motion for new trial on the ground that the evidence was insufficient to justify the decision rendered. There is lacking from the record before us the deposition of the defendant Cuddy, which apparently throws light upon a contract entered into between him and the plaintiff Gilchrist. The contents of this deposition are discussed at length in the brief of the appellants and an endeavor is made to show that no such contract was entered into. The trial court, which had this deposition before it, found that there was a contract between Cuddy and Gilchrist. Not having the deposition in question before us, it is impossible to say how strongly it militates against this findings of fact. By a series of decisions we have construed section 143 and 497 (2) of the Code of Civil Procedure to require the production of all the evidence in this court. This is the duty of the appellant and, upon his failure to perform it, we decline to proceed with a review of the evidence. In such cases we rely entirely upon the pleadings and the findings of fact of the trial court and examine only such assigned errors as raise questions of law. (Ferrer vs. Neri Abejuela, 9 Phil. Rep., 324; Valle vs. Galera, 10 Phil. Rep., 619; Salvacion vs. Salvacion, 13 Phil. Rep., 366; Breta vs. Smith, Bell & Co., 15 Phil. Rep., 446; Arroyo vs. Yulo, 18 Phil. Rep., 236; Olsen & Co. vs. Matson, Lord & Belser Co., 19 Phil. Rep., 102; Blum vs.Barretto, 19 Phil. Rep., 161; Cuyugan vs. Aguas, 19 Phil. Rep., 379; Mapa vs. Chaves, 20 Phil. Rep., 147; Mansvs. Garry, 20 Phil. Rep., 134.) It is true that some of the more recent of these cases make exceptions to the general rule. Thus, in Olsen & Co. vs. Matson, Lord & Belser Co., (19 Phil. Rep., 102), that portion of the evidence before us tended to show that grave injustice might result from a strict reliance upon the findings of fact contained in the judgment appealed from. We, therefore, gave the appellant an opportunity to explain the omission. But we required that such explanation must show a satisfactory reason for the omission, and that the missing portion of the evidence must be submitted within sixty days or cause shown for failing to do so. The other cases making exceptions to the rule are based upon peculiar circumstances which will seldom arise in practice and need not here be set forth, for the reason that they are wholly inapplicable to the present case. The appellants would be entitled to indulgence only under the doctrine of the Olsen case. But from that portion of the record before us, we are not inclined to believe that the
Art. 1314

missing deposition would be sufficient to justify us in reversing the findings of fact of the trial court that the contract in question had been made. There is in the record not only the positive and detailed testimony of Gilchrist to this effect, but there is also a letter of apology from Cuddy to Gilchrist in which the former enters into a lengthy explanation of his reasons for leasing the film to another party. The latter could only have been called forth by a broken contract with Gilchrist to lease the film to him. We, therefore, fail to find any reason for overlooking the omission of the defendants to bring up the missing portion of the evidence and, adhering to the general rule above referred to, proceed to examine the questions of law raised by the appellants. From the above-quoted findings of fact it is clear that Cuddy, a resident of Manila, was the owner of the "Zigomar;" that Gilchrist was the owner of a cinematograph theater in Iloilo; that in accordance with the terms of the contract entered into between Cuddy and Gilchrist the former leased to the latter the "Zigomar" for exhibition in his (Gilchrist's) theater for the week beginning May 26, 1913; and that Cuddy willfully violate his contract in order that he might accept the appellant's offer of P350 for the film for the same period. Did the appellants know that they were inducing Cuddy to violate his contract with a third party when they induced him to accept the P350? Espejo admitted that he knew that Cuddy was the owner of the film. He received a letter from his agents in Manila dated April 26, assuring him that he could not get the film for about six weeks. The arrangement between Cuddy and the appellants for the exhibition of the film by the latter on the 26th of May were perfected after April 26, so that the six weeks would include and extend beyond May 26. The appellants must necessarily have known at the time they made their offer to Cuddy that the latter had booked or contracted the film for six weeks from April 26. Therefore, the inevitable conclusion is that the appellants knowingly induced Cuddy to violate his contract with another person. But there is no specific finding that the appellants knew the identity of the other party. So we must assume that they did not know that Gilchrist was the person who had contracted for the film. The appellants take the position that if the preliminary injunction had not been issued against them they could have exhibited the film in their theater for a number of days beginning May 26, and could have also subleased it to other theater owners in the nearby towns and, by so doing, could have cleared, during the life of their contract with Cuddy, the amount claimed as damages. Taking this view of the case, it will be unnecessary for us to inquire whether the mandatory injunction against Cuddy was properly issued or not. No question is raised with reference to the issuance of that injunction. The right on the part of Gilchrist to enter into a contract with Cuddy for the lease of the film must be fully recognized and admitted by all. That Cuddy was liable in an action for damages for the breach of that contract, there can be no doubt. Were the appellants likewise liable for interfering with the contract between Gilchrist and
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Cuddy, they not knowing at the time the identity of one of the contracting parties? The appellants claim that they had a right to do what they did. The ground upon which the appellants base this contention is, that there was no valid and binding contract between Cuddy and Gilchrist and that, therefore, they had a right to compete with Gilchrist for the lease of the film, the right to compete being a justification for their acts. If there had been no contract between Cuddy and Gilchrist this defense would be tenable, but the mere right to compete could not justify the appellants in intentionally inducing Cuddy to take away the appellee's contractual rights. Chief Justice Wells in Walker vs. Cronin (107 Mass., 555), said: "Everyone has a right to enjoy the fruits and advantages of his own enterprise, industry, skill and credit. He has no right to be free from malicious and wanton interference, disturbance or annoyance. If disturbance or loss come as a result of competition, or the exercise of like rights by others, it is damnum absque injuria, unless some superior right by contract or otherwise is interfered with." In Read vs. Friendly Society of Operative Stonemasons ([1902] 2 K. B., 88), Darling, J., said: "I think the plaintiff has a cause of action against the defendants, unless the court is satisfied that, when they interfered with the contractual rights of plaintiff, the defendants had a sufficient justification for their interference; . . . for it is not a justification that `they acted bona fide in the best interests of the society of masons,' i. e., in their own interests. Nor is it enough that `they were not actuated by improper motives.' I think their sufficient justification for interference with plaintiff's right must be an equal or superior right in themselves, and that no one can legally excuse himself to a man, of whose contract he has procured the breach, on the ground that he acted on a wrong understanding of his own rights, or without malice, or bona fide, or in the best interests of himself, or even that he acted as an altruist, seeking only good of another and careless of his own advantage." (Quoted with approval in Beekman vs. Marsters, 195 Mass., 205.) It is said that the ground on which the liability of a third party for interfering with a contract between others rests, is that the interference was malicious. The contrary view, however, is taken by the Supreme Court of the United States in the case of Angle vs. Railway Co. (151 U. S., 1). The only motive for interference by the third party in that case was the desire to make a profit to the injury of one of the parties of the contract. There was no malice in the case beyond the desire to make an unlawful gain to the detriment of one of the contracting parties. In the case at bar the only motive for the interference with the Gilchrist Cuddy contract on the part of the appellants was a desire to make a profit by exhibiting the film in their theater. There was no malice beyond this desire; but this fact does not relieve them of the legal liability for interfering with that contract and causing its breach. It is, therefore, clear, under the above authorities, that they were liable to

Gilchrist for the damages caused by their acts, unless they are relieved from such liability by reason of the fact that they did not know at the time the identity of the original lessee (Gilchrist) of the film. The liability of the appellants arises from unlawful acts and not from contractual obligations, as they were under no such obligations to induce Cuddy to violate his contract with Gilchrist. So that if the action of Gilchrist had been one for damages, it would be governed by chapter 2, title 16, book 4 of the Civil Code. Article 1902 of that code provides that a person who, by act or omission, causes damages to another when there is fault or negligence, shall be obliged to repair the damage do done. There is nothing in this article which requires as a condition precedent to the liability of a tort-feasor that he must know the identity of a person to whom he causes damages. In fact, the chapter wherein this article is found clearly shows that no such knowledge is required in order that the injured party may recover for the damage suffered. But the fact that the appellants' interference with the Gilchrist contract was actionable did not of itself entitle Gilchrist to sue out an injunction against them. The allowance of this remedy must be justified under section 164 of the Code of Civil Procedure, which specifies the circumstance under which an injunction may issue. Upon the general doctrine of injunction we said in Devesa vs. Arbes (13 Phil. Rep., 273): An injunction is a "special remedy" adopted in that code (Act No. 190) from American practice, and originally borrowed from English legal procedure, which was there issued by the authority and under the seal of a court of equity, and limited, as in order cases where equitable relief is sought, to cases where there is no "plain, adequate, and complete remedy at law," which "will not be granted while the rights between the parties are undetermined, except in extraordinary cases where material and irreparable injury will be done,"which cannot be compensated in damages , and where there will be no adequate remedy, and which will not, as a rule, be granted, to take property out of the possession of one party and put it into that of another whose title has not been established by law. We subsequently affirmed the doctrine of the Devesa case in Palafox vs. Madamba (19 Phil., Rep., 444), and we take this occasion of again affirming it, believing, as we do, that the indiscriminate use of injunctions should be discouraged. Does the fact that the appellants did not know at the time the identity of the original lessee of the film militate against Gilchrist's right to a preliminary injunction, although the appellant's incurred civil liability for damages for such interference? In the examination of the adjudicated cases, where in injunctions have been issued to restrain wrongful interference with contracts by strangers to such contracts, we have been unable to find any case where this precise question was involved, as in all of
30
those cases which we have examined, the identity of both of the contracting parties was known to the tort-feasors. We might say, however, that this fact does not seem to have a controlling feature in those cases. There is nothing in section 164 of the Code of Civil Procedure which indicates, even remotely, that before an injunction may issue restraining the wrongful interference with contrast by strangers, the strangers must know the identity of both parties. It would seem that this is not essential, as injunctions frequently issue against municipal corporations, public service corporations, public officers, and others to restrain the commission of acts which would tend to injuriously affect the rights of person whose identity the respondents could not possibly have known beforehand. This court has held that in a proper case injunction will issue at the instance of a private citizen to restrain ultra vires acts of public officials. (Severino vs. Governor-General, 16 Phil. Rep., 366.) So we proceed to the determination of the main question of whether or not the preliminary injunction ought to have been issued in this case. As a rule, injunctions are denied to those who have an adequate remedy at law. Where the choice is between the ordinary and the extraordinary processes of law, and the former are sufficient, the rule will not permit the use of the latter. (In re Debs, 158 U. S., 564.) If the injury is irreparable, the ordinary process is inadequate. In Wahle vs.Reinbach (76 Ill., 322), the supreme court of Illinois approved a definition of the term "irreparable injury" in the following language: "By `irreparable injury' is not meant such injury as is beyond the possibility of repair, or beyond possible compensation in damages, nor necessarily great injury or great damage, but that species of injury, whether great or small, that ought not to be submitted to on the one hand or inflicted on the other; and, because it is so large on the one hand, or so small on the other, is of such constant and frequent recurrence that no fair or reasonable redress can be had therefor in a court of law." (Quoted with approval in Nashville R. R. Co. vs.McConnell, 82 Fed., 65.) The case at bar is somewhat novel, as the only contract which was broken was that between Cuddy and Gilchrist, and the profits of the appellee depended upon the patronage of the public, for which it is conceded the appellants were at liberty to complete by all fair does not deter the application of remarked in the case of the "ticket scalpers" (82 Fed., 65), the novelty of the facts does not deter the application of equitable principles. This court takes judicial notice of the general character of a cinematograph or motion-picture theater. It is a quite modern form of the play house, wherein, by means of an apparatus known as a cinematograph or cinematograph, a series of views representing closely successive phases of a moving object, are exhibited in rapid sequence, giving a picture which, owing to the persistence of vision, appears to the observer to be in continuous motion. (The Encyclopedia Britanica, vol. 6, p. 374.) The subjects which have lent themselves to the art of the photographer in this manner have increased enormously in recent years, as well as have the places where such exhibition are given. The attendance, and, consequently, the receipts, at

one of these cinematograph or motion-picture theaters depends in no small degree upon the excellence of the photographs, and it is quite common for the proprietor of the theater to secure an especially attractive exhibit as his "feature film" and advertise it as such in order to attract the public. This feature film is depended upon to secure a larger attendance that if its place on the program were filled by other films of mediocre quality. It is evident that the failure to exhibit the feature film will reduce the receipts of the theater. Hence, Gilchrist was facing the immediate prospect of diminished profits by reason of the fact that the appellants had induced Cuddy to rent to them the film Gilchrist had counted upon as his feature film. It is quite apparent that to estimate with any decree of accuracy the damages which Gilchrist would likely suffer from such an event would be quite difficult if not impossible. If he allowed the appellants to exhibit the film in Iloilo, it would be useless for him to exhibit it again, as the desire of the public to witness the production would have been already satisfied. In this extremity, the appellee applied for and was granted, as we have indicated, a mandatory injunction against Cuddy requiring him to deliver the Zigomar to Gilchrist, and a preliminary injunction against the appellants restraining them from exhibiting that film in their theater during the weeks he (Gilchrist) had a right to exhibit it. These injunction saved the plaintiff harmless from damages due to the unwarranted interference of the defendants, as well as the difficult task which would have been set for the court of estimating them in case the appellants had been allowed to carry out their illegal plans. As to whether or not the mandatory injunction should have been issued, we are not, as we have said, called upon to determine. So far as the preliminary injunction issued against the appellants is concerned, which prohibited them from exhibiting the Zigomar during the week which Gilchrist desired to exhibit it, we are of the opinion that the circumstances justified the issuance of that injunction in the discretion of the court. We are not lacking in authority to support our conclusion that the court was justified in issuing the preliminary injunction against the appellants. Upon the precise question as to whether injunction will issue to restrain wrongful interference with contracts by strangers to such contracts, it may be said that courts in the United States have usually granted such relief where the profits of the injured person are derived from his contractual relations with a large and indefinite number of individuals, thus reducing him to the necessity of proving in an action against the tort-feasor that the latter was responsible in each case for the broken contract, or else obliging him to institute individual suits against each contracting party and so exposing him to a multiplicity of suits. Sperry & Hutchinson Co. vs. Mechanics' Clothing Co. (128 Fed., 800); Sperry & Hutchinson Co. vs. Louis Weber & Co. (161 Fed., 219); Sperry & Hutchinson Co. vs. Pommer (199 Fed., 309); were all cases wherein the respondents were inducing retail merchants to break their contracts with the company for the sale of the
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latters' trading stamps. Injunction issued in each case restraining the respondents from interfering with such contracts. In the case of the Nashville R. R. Co. vs. McConnell (82 Fed., 65), the court, among other things, said: "One who wrongfully interferes in a contract between others, and, for the purpose of gain to himself induces one of the parties to break it, is liable to the party injured thereby; and his continued interference may be ground for an injunction where the injuries resulting will be irreparable." In Hamby & Toomer vs. Georgia Iron & Coal Co. (127 Ga., 792), it appears that the respondents were interfering in a contract for prison labor, and the result would be, if they were successful, the shutting down of the petitioner's plant for an indefinite time. The court held that although there was no contention that the respondents were insolvent, the trial court did not abuse its discretion in granting a preliminary injunction against the respondents. In Beekman vs. Marsters (195 Mass., 205), the plaintiff had obtained from the Jamestown Hotel Corporation, conducting a hotel within the grounds of the Jamestown Exposition, a contract whereby he was made their exclusive agent for the New England States to solicit patronage for the hotel. The defendant induced the hotel corporation to break their contract with the plaintiff in order to allow him to act also as their agent in the New England States. The court held that an action for damages would not have afforded the plaintiff adequate relief, and that an injunction was proper compelling the defendant to desist from further interference with the plaintiff's exclusive contract with the hotel company. In Citizens' Light, Heat & Power Co. vs. Montgomery Light & Water Power Co. (171 Fed., 553), the court, while admitting that there are some authorities to the contrary, held that the current authority in the United States and England is that: The violation of a legal right committed knowingly is a cause of action, and that it is a violation of a legal right to interfere with contractual relations recognized by law, if there be no sufficient justification for the interference. (Quinn vs. Leatham, supra, 510; Angle vs. Chicago, etc., Ry. Co., 151 U. S., 1; 14 Sup. Ct., 240; 38 L. Ed., 55; Martens vs. Reilly, 109 Wis., 464, 84 N. W., 840; Rice vs. Manley, 66 N. Y., 82; 23 Am. Rep., 30; Bitterman vs. L. & N. R. R. Co., 207 U. S., 205; 28 Sup. Ct., 91; 52 L. Ed., 171; Beekman vs.Marsters, 195 Mass., 205; 80 N. E., 817; 11 L. R. A. [N. S.] 201; 122 Am. St. Rep., 232; South Wales Miners' Fed. vs. Glamorgan Coal Co., Appeal Cases, 1905, p. 239.) See also Nims on Unfair Business Competition, pp. 351- 371. In 3 Elliot on Contracts, section 2511, it is said: "Injunction is the proper remedy to prevent a wrongful interference with contract by strangers to such contracts where the

legal remedy is insufficient and the resulting injury is irreparable. And where there is a malicious interference with lawful and valid contracts a permanent injunction will ordinarily issue without proof of express malice. So, an injunction may be issued where the complainant to break their contracts with him by agreeing to indemnify who breaks his contracts of employment may be adjoined from including other employees to break their contracts and enter into new contracts with a new employer of the servant who first broke his contract. But the remedy by injunction cannot be used to restrain a legitimate competition, though such competition would involve the violation of a contract. Nor will equity ordinarily enjoin employees who have quit the service of their employer from attempting by proper argument to persuade others from taking their places so long as they do not resort to force or intimidations on obstruct the public thoroughfares." Beekman vs. Marster, supra, is practically on all fours with the case at bar in that there was only one contract in question and the profits of the injured person depended upon the patronage of the public. Hamby & Toomer vs.Georgia Iron & Coal Co., supra, is also similar to the case at bar in that there was only one contract, the interference of which was stopped by injunction. For the foregoing reasons the judgment is affirmed, with costs, against the appellants.
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ANTONIA TORRES assisted by her husband, ANGELO TORRES; and EMETERIA BARING, petitioners, vs. 9 COURT OF APPEALS and MANUEL TORRES, respondents. G.R. No. 134559 December 9, 1999 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 1 2 Decision of the Court of Appeals (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 3 pronouncement as to costs. The Facts Hence, this Petition. 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 of P40,000 which, under the Joint Venture Agreement, was to be used for the 4 development of the subdivision. 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.
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According to petitioners, the project failed because of "respondent's 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 Council's 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 5 to give up on the project. 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.
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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 court's pronouncement that 7 losses as well as profits in a joint venture should be distributed equally, the CA invoked Article 1797 of the Civil Code which provides: Art. 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:
Art. 1315

In the absence of stipulation, the share of each partner in the 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: . . . [The] Court of Appeals erred in concluding that the transaction . . . 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 8 Code of the Philippines. The Court's 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 court's 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 9 value of the property. 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, . . . the FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA BARING, . . . the SECOND PARTY: WITNESSETH: That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this property located at Lapu-Lapu City, Island of Mactan, under Lot No. 1368 covering
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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 . . . 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 . . . 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 10 same freely and voluntarily for the uses and purposes therein stated. 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 11 intention of the parties to form a partnership. 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. Respondent's 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.
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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 12 complement of Article 1771, "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 13 property. 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 14 1422 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 15 service by another. 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 [petitioner's] participation therein. . . . 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 rerpondent 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 16 the cause of the failure of the project. But it also ruled that neither was respondent 17 responsible therefor. 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 18 their Petition constitutes one of the exceptions to this doctrine. Accordingly, we find no reversible error in the CA's ruling that petitioners are not entitled to damages. WHEREFORE, the Perition is hereby DENIED and the challenged Decision AFFIRMED. Costs against petitioners. SO ORDERED
36

JOSE P. DIZON, petitioner, vs. ALFREDO G. GABORRO (Substituted by PACITA DE GUZMAN GABORRO as Judicial Administratrix of the Estate of Alfredo G. Gaborro) and the 10 DEVELOPMENT BANK OF THE PHILIPPINES, respondents. G.R. No. L-36821 June 22, 1978 GUERRERO, J.: 1 Petition for review on certiorari of the decision of the Court Appeals in CA-G.R. No. 46975-R entitled "Jose P. Dizon, Plaintiff-Appellant, vs. Alfredo G. Gaborro (substituted by Pacita de Guzman Gaborro as Judicial Administratrix of the Estate of Alfredo G, Gaborro) trial the Development Bank of the Philippines, Defendants-Appellees," affirming with modification the decision of the Court of First Instance of Pampanga, Branch II in Civil Case No. 2184. The dispositive portion of the decision sought to be reviewed reads: IN VIEW OF THE FOREGOING, the judgment appealed therefrom is hereby affirmed with modification that the plaintiff-appellant has the right to refund or reimburse the defendant- appellees he sum of P131,831.91 with interest at 8% per annum from October 6, 1959 until full payment, said right to be exercised within one year from the date this judgment becomes final, with the understanding that, if he fails to do so within the said period, then he is deemed to have lost his right over the lands forever. 2 With costs against the appellant. MODIFIED. The basic issue to be resolved in this case is whether the 'Deed of Sale with Assumption of Mortgage', trial Option to Purchase Real Estate". two instruments executed by trial between Petitioner Jose P. Dizon trial Alfredo G. Gaborro (defendant below) on the same day, October 6, 1959 constitute in truth trial in fact an absolute sale of the three parcels of land therein described or merely an equitable mortgage or conveyance thereof by way of security for reimbursement, refund or repayment by petitioner Jose P. Dizon of any trial all sums which may have been paid to the Development Bank of the Philippines trial the Philippine National Bank by Alfredo G. Gaborro (later substituted herein by his wife Pacita de Guzman Gaborro as administratrix of the estate of Alfredo G. Gaborro) who had died during the pendency of the case. A supplementary issue raised is whether or not Gaborro or the respondent administratrix of the estate should account for all the fruits produced trial income
37
received by them from the lands mentioned trial described in the aforesaid "Deed of Sale with Assumption of Mortgage." The antecedent facts established in the record are not disputed. Petitioner Jose P. Dizon was the owner of the three (3) parcels of land, subject matter of this litigation, situated in Mabalacat, Pampanga with an aggregate area of 130.58 hectares, as evidenced by Transfer Certificate of Title No. 15679. He constituted a first mortgage lien in favor of the Develop. ment Bank of the Philippines in order to secure a loan in the sum of P38,000.00 trial a second mortgage lien in favor of the Philippine National Bank to cure his indebtedness to said bank in the amount of P93,831.91. Petitioner Dizon having defaulted in the payment of his debt, the Development Bank of the Philippines foreclosed the mortgage extrajudicially pursuant to the provisions of Act No. 3135. On May 26, 1959, the hinds were sold to the DBP for- P31,459.21, which amount covered the loan, interest trial expenses, trial the corresponding "Certificate of Sale," (Exhibit A-2, Exhibit 1b was executed in favor of the said On November 12, 1959, Dizon himself executed the deed of sale (Exhibit Al over the properties in favor of the DBP which deed was recorded in the Office of the Register of Deeds on October 6, 1960. Sometime prior to October 6, 1959 Alfredo G. Gaborro trial Jose P. Dizon met. Gaborro became interested in the lands of Dizon. Dizon originally intended to lease to Gaborro the property which had been lying idle for some time. But as the mortgage was already foreclosed by the DPB trial the bank in fact purchased the lands at the foreclosure sale on May 26, 1959, they abandoned the projected lease. They then entered into the following contract on October 6, 1959 captioned trial quoted, to wit: DEED OF SALE WITH ASSUMPTION OF MORTGAGE KNOW ALL MEN BY THESE PRESENTS: This DEED OF SALE WITH ASSUMPTION OF MORTGAGE, made trial executed at the City of Manila, Philippines, on this 6th day of October, 1959 by trial between JOSE P. DIZON, of legal age, Filipino, married to Norberta Torres, with residence trial postal address at Mabalacat, Pampanga, hereinafter referred to as the VENDOR. ALFREDO G. GABORRO, likewise of legal age, Filipino, married to Pacita de Guzman, with residence trial postal address at 46, 7th St., Gilmore Avenue, Quezon City, hereinafter referred to as the VENDEE, W I T N E S S E T H: That
10
Art. 1318

WHEREAS, the VENDOR is the registered owner of three (3) parcels of land covered by Transfer Certificate of Title No. 15679 of the land records of Pampanga. situated in the Municipality of Mabalacat, Province of Pampanga, trial more particularly described trial bounded as follows: 1. A parcel of land (Lot No. 188 of the Cadastral Survey of Mabalacat), with the improvements thereon, situated in the Municipality of Mabalacat, Bounded on the NE by Lot No 187: on the SE., by Lots Nos. 183, 189, 191 trial 192; on the SW by Lot No. 192 trial on the NW by the unimproved provincial road to Magalang. Containing an area of TWO HUNDRED AND TWENTY ONE THOUSAND ONE HUNDRED SEVENTY TWO SQUARE METERS (221,172), more or less. 2. A parcel of land (Lot No. 193 of the Cadastral Survey of Mabalacat), with the improvements thereon, situated in the Municipality of Mabalacat. Bounded on the NE., by a road trial Lots Nos. 569,570 trial 571; on the SE., by Lot No. 571 trial the unimproved road to Magalang, on the SW by a road; trial on the NE., by a road trial the Sapang Pritil Containing an area of NINE HUNDRED SEVENTY EIGHT THOUSAND SEVEN HUNDRED AND SEVENTEEN SQUARE METERS (978,717), more or less. 3. A parcel of land (Lot No. 568 of the Cadastral Survey of Mabalacat), with the improvements thereon, situated in the Municipality of Mabalacat. Bounded on the NE., by Lot No. 570, on the SE SW trial NW by roads. Containing an area of ONE HUNDRED FIVE THOUSAND NINE HUNDRED AND TWENTY ONE SQUARE METERS (105,921), more or less, WHEREAS, the above-described properties are presently mortgaged (first mortgage) to the Development Bank of the Philippines (,formerly Rehabilitation Finance Corporation) to secure the payment of a loan, plus interest, of THIRTY EIGHT THOUSAND PESOS ONLY (P38,000.00), Philippine currency, as evidenced by a deed of mortgage for- P... dated ... which deed was ratified trial acknowledged before Notary Public of Manila, Mr. ... as Doc. No. Page No. Reg. No. Series of 196 ... ; WHEREAS, the aforesaid properties are likewise mortgage (second mortgage) to the Philippine National Bank to secure the payment of a loan of NINETY THREE THOUSAND EIGHT HUNDRED THIRTY ONE PESOS & 91/100 (P93,831.91), Philippine Currency, plus interest up to August 13, 1957, as evidenced by deed of Mortgage for P............. dated................... which deed was ratified trial acknowledged before Notary Public of Manila, Mr, I . I as Doc. No............ Page No.......... Reg. No. Series of 196........... ; WHEREAS, the VENDOR, has offered to sell trial the VENDEE is willing to purchase the above-described properties for ONE HUNDRED THIRTY ONE THOUSAND EIGHT HUNDRED THIRTY ONE PESOS & 91 /100
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(P131,831.91), Philippine Currency, under the terms trial conditions herein below set forth; NOW, THEREFORE, for- trial in consideration of the above premises trial the amount of ONE HUNDRED THIRTY ONE THOUSAND EIGHT HUNDRED THIRTY ONE PESOS & 91/100 (P131,831.91), Philippine Currency, in hand paid in cash by the VENDEE unto the VENDOR, receipt whereof is hereby acknowledged by the VENDOR to his entire trial full satisfaction, trial the assumption by the VENDEE of the entire mortgage indebtedness, both with the Development Bank of the Philippines trial the Philippine National Bank above mentioned, the VENDOR does by these presents, sell, transfer trial convey, as he had sold, transferred, trial conveyed, by way of absolute sale, perpetually trial forever, unto the VENDEE, his heirs, successors trial assigns. above-described properties, with all the improvements thereon, free from all liens trial encumbrances of whatever nature. except the pre- existing mortgage obligations with the Development Bank of the Philippines trial the Philippine National Bank aforementioned. The VENDOR does hereby warrant title, ownership trial possession over the properties herein sold trial conveyed, trial binds himself to defend the same from any trial all claimants. That the VENDEE, does by these presents, assume as he has assumed, under the same terms trial conditions of the mortgage contracts dated ... and ... of the mortgage indebtedness of the VENDOR in favor of the Development Bank of the Philippines trial the Philippine National Bank, respectively, as if the aforesaid documents were personally executed by the VENDEE trial states trial reiterates all the terms trial conditions stipulated in said both documents, making them to all intent trial purposes, parts hereof by reference. IN WITNESS WHEREOF, the VENDOR and the VENDEE together with their instrumental witnesses, have signed this deed of the place, date, month trial year first above written. (Sgd.) JOSE P. DIZON (Sgd.) ALFREDO G. GABORRO Vendor Vendee Signed in the Presence of: (Sgd.) (Illegible) (Sgd.) (Illegible) (Acknowledgment Omitted) The second contract executed the same day, October 6, 1959 is called Option to Purchase Real Estate, trial is in the following wise trial manner:

OPTION TO PURCHASE REAL ESTATE KNOW ALL MEN BY THESE PRESENTS: That 1, ALFREDO G. GABORRO, of legal age, Filipino, married to Pacita de Guzman, with residence trial postal address at 46, 7th St., Gilmore Ave., Quezon City, for- valuable consideration, do hereby give to JOSE P. DIZON, of legal age, Filipino, married to Norberta Torres, resident of Mabalacat, Pampanga, his heirs, successors and assigns, the option of repurchasing the following described properties: TRANSFER CERTIFICATE OF TITLE (Sgd.) JOSE P. DIZON NO. 15679, PROVINCE OF PAMPANGA SIGNED IN THE PRESENCE OF: 1. A parcel of land (Lot No. 188 of Cadastral Survey of Mabalacat, Pampanga containing an area of (211,172) more or less. 2. A parcel of land (Lot No. 193 of the Cadastral Survey of Mabalacat, Pampanga), containing an area of (978,172) more or less. 3. A parcel of land (Lot No. 568 of the Cadastral Survey of Mabalacat, Pampanga containing an area of (105,921), more or less. which I acquired from the said Jose P. Dizon by purchase by virtue of that document entitled "Deed of Sale with Assumption of Mortgage" dated October 6, 1959, acknowledged by both of us before Notary Public of Manila GREGORIO SUMBILIO as DOC. No. 342, Page No. 70, Reg. No. VII Series of 1959. Said option shall be valid trial effective within the period comprises from January, 1965 to December 31, 1970, inclusive, upon payment of the amount of ONE HUNDRED THIRTY ONE THOUSAND EIGHT HUNDRED THIRTY ONE PESOS & 91/100 (?131,831.91), Philippine Currency, plus an interest of eight per centum (8%) thereof, per annum. This is without prejudice at any time to the payment by Mr. Dizon of any partial amount to be applied to the principal obligation, without any way disturbing the possession and/or ownership of the above properties since only full payment can effect the necessary change. In the event that Mr. Jose P. Dizon may be able to find a purchaser for- the foregoing properties on or the fifth year from the date the execution of this document, the GRANTEE, Mr. JOSE P. DIZON, may do so provided that the aggregate amount which was Paid to Development Bank of the Philippines trial to the Philippine National Bank together with the interests thereon at the rate of 8% shall be refunded to the undersigned. (Acknowledgment Omit)
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Furthermore, in case Mr. Jose P. Dizon shall be able to find a purchaser for- the said properties, it shall be his duty to first notify the undersigned of the contemplated sale, naming the price trial the purchaser therefor, trial awarding the first preference in the sale hereof to the undersigned. IN WITNESS WHEREOF, I have hereunto signed these presents at the City of Manila, on this 6th day of October, 1959. (Sgd.) ALFREDO G. GABORRO CONFORME:
The sum of P131,813.91 which purports to be the consideration of the sale was not actually paid by Alfredo G. Gaborro to the petitioner. The said amount represents the aggregate debts of the petitioner with the Development Bank of the Philippines trial the Philippine National Bank. After the execution of said contracts, Alfredo G. Gaborro took possession of the three parcels of land in question. On October 7, 1959, Gaborro wrote the Development Bank of the Philippines a letter (Exh. J), as follows: Sir: This is with reference to your mortgage lien of P38,000.00 more or less over the properties more particularly described in TCT No. 15679 of the land records of Pampanga in the name of Jose P. Dizon. In this connection, we have the honor to inform you that pursuant to a Deed of Sale with Assumption of Mortgage executed on October 6, 1959 by Jose P. Dizon in my favor, copy of which is hereto attached, the ownership of the same has been transferred to me subject of course to your conformity to the assumption of mortgage. As a consequence of the foregoing document, the obligation therefore of paying your goodselves the total amount of indebtedness has shifted to me Considering that these agricultural properties have not been under cultivation forquite a long time, I would therefore request that, on the premise that the assumption of mortgage would be agreeable to you, that I be allowed to pay the outstanding obligation, under the same terms trial conditions as embodied in the original contract

of mortgage within ten (10) years to be divided in 10 equal annual amortizations. I am enclosing herewith a check in the amount of P3,609.95 representing 10% of the indebtedness of Jose P. Dizon to show my honest intention in assuming the mortgage obligation to you ... The Board of Governors of the DBP, in its Resolution No. 7066 dated October 21, 1959 approved the offer of Gaborro but said Board required him to pay 20% of the purchase price as initial payment, (Exh. D) Accordingly, on July 11, 1960, the DBP trial Gaborro executed a conditional sale of the properties in consideration of the sum of P36,090.95 (Exh. C) payable 20% down trial the balance in 10 years in the yearly amortization plan at 8% per annum. On January 7, 1960, Dizon assigned his right of redemption Lo Gaborro in an instrument (Exh. 9) entitled: ASSIGNMENT OF RIGHT OF REDEMPTION AND ASSUMPTION OF OBLIGATION KNOW ALL MEN BY THESE PRESENTS: This instrument, made trial executed by trial between JOSE P. DIZON, married to Norberta P. Torres, Filipino, of legal age, with residence trial postal address at Mabalacat, Pampanga. hereinafter referred to as the ASSIGNOR trial ALFREDO G. GABORRO, married to Pacita de Guzman, likewise of legal age, Filipino, with residence trial postal address at 46, 7th Street, Gilmore Ave., Quezon City, hereinafter referred to as the ASSIGNEE, WITNESSETH: WHEREAS, the Assignor is the owner trial mortgagor of three (3) parcels agricultural land together with all the improvements existing thereon trial more particularly described trial bounded as follows: TRANSFER CERTIFICATE OF TITLE NO. 1567 PROVINCE OF PAMPANGA 1. A parcel of land (Lot No. 188 of the Cadastral Survey of Mabalacat), with the improvements thereon, situated in the Municipality of Mabalacat. Bounded on the NE by Lot No. 187: on the SE. by Lots Nos. 183, 189, 191 trial 192; on the SW. by Lot No. 192; trial on the NW by the unimproved provincial road to Magalan. Containing an area of two hundred twenty-one thousand one hundred trial seventy two square meters (221,172), more or less.
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2. A parcel of land (Lot No. 193 of the Cadastral Survey of Mabalacat), with the improvements thereon, situated in the Municipality of Mabalacat. Bounded on the NE. by a road trial Lots Nos. 569, 570 trial 571; on the SE. by Lot No. 571 trial the unimproved road to Magalan-, on the SW. by a road; trial on the NW by a road trial the Sapang Pritil Containing an area of nine hundred seventy eight thousand seven hundred and seven hundred square meters (978,717), more or less. 3. A parcel of Land (Lot No. 568 of the Cadastral Survey of Mabalacat), with the improvements thereon, situated in the Municipality of Mabalacat, Bounded on the NE. by Lot No. 570; and on the SE., SW. and NW. by roads. Containing an area of one hundred five thousand nine hundred and twenty-one square meters (105,921), more or less. WHEREAS, the above described properties were mortgaged with the Rehabilitation Finance Corporation, now Development Bank of the Philippines, which mortgage has been foreclosed on May 26, 1959; AND WHEREAS, the herein Assignor has still the right to redeem the said properties from the said Development Bank of the Philippines within a period of one (1) year counted from the date of foreclosure of the said mortgage. NOW, THEREFORE, for ......................................... trial other valuable considerations, receipt whereof is hereby acknowledged by the Assignor from the Assignee, The herein Assignor does hereby transfer trial assign to the herein Assignee, his heirs, successors trial assigns the aforesaid right to redeem the aforementioned properties above described. That with this document the herein Assignor relinquishes any and all rights to the said properties including the improvements existing thereon. That the Assignee, by these presents, hereby assumes the obligation in favor of the d Development Bank of the Philippines, as Paying whatever legal indebtedness the Assignor has with the d B in connection with the transaction regarding the hove mentioned Properties subject to the file and conditions that the said Bank may require and further recognizes the second mortgage in favor Of the Philippine National Bank. IN WITNESS WHEREOF, the parties have hereunto set their hands in the City of Manila, Philippines this --------- day of - - - - - -1959. (Sgd-) JOSE P. DIZON (Sgd.) ALFREDO G. GABORRO Assignor (Assignee) (Acknowledgment Omitted)

After the execution of the conditional e to him Gaborro made several payments to the DBP and PNB. He introduced improvements, cultivated the kinds raised sugarcane and other crops and appropriated the produce to himself. He will paid the land taxes thereon. On July 5, 1961, Jose P. Dizon through his lawyer, Atty. Leonardo Abola, wrote a letter to Gaborro informing him that he is formally offering reimburse Gaborro Of what he paid to the banks but without, however, tendering any cash, and demanding an accounting of the income and of the pro contending that the transaction they entered into was one of antichresis. Gaborro did not accede to the demands of the petitioner, whereupon, on JULY 30, 1962, Jose P. Dizon instituted a complaint in the Court of First Instance of Pampanga, Gaborro, alleging that the documents Deed of Sale With Assumption of Mortgage and the Option to Purchase Real Estate did not express the true intention and agreement bet. between the parties. Petitioner Dizon, as Plaintiff below, contended that the two deeds constitute in fact a single transaction that their real agreement was not an absolute e of the d of land but merely an equitable mortgage or conveyance by way of security for the reimbursement or refund by Dizon to Gaborro of any and all sums which the latter may have paid on account of the mortgage debts in favor of the DBP and the PNB. Plaintiff prayed that defendant Gaborro be ordered to accept plaintiff's offer to reimburse him of what he paid to the banks; to surrender the possession of the lands to plaintiff; to make an accounting of all the fruits, produce, harvest and other income which he had received from the three (3) parcels of land; and to pay the plaintiff for the loss of two barns and for damages. In its answer, the DBP specifically denied the material averments of the complaint and stated that on October 6, 1959, the plaintiff Dizon was no longer the owner of the land in question because the DBP acquired them at the extrajudicial foreclosure sale held on May 26, 1959, and that the only right which plaintiff possessed was a mere right to redeem the lands under Act 3135 as amended. Defendant Alfredo G. Gaborro also answer, denying the material averments of the complaint, stating that the "Deed of Sale with Assumption of Mortgage" expresses the true agreement of the parties "fully, truthfully and religiously" but the Option to Purchase Real Estate" does not express the true intention of the parties because it was made only to protect the reputation of the plaintiff among his townmates, and even in the supposition that said option is valid, the action is premature. He also filed a counterclaim for damages, which plaintiff denied. The issues having been joined, a pre-trial was held and the following stipulation of facts admitted by the parties was approved by the Court in the following order dated February 22, 1963: ORDER
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At today's initial trial the following were present: Mr. Leonardo Abola, for the plaintiff; Mr. Carlos Antiporda, for the defendant Alfredo Gaborro; and Mr. Virgillo Fugoso, for the Development Bank of the Philippines: The parties brave stipulated on the following facts: 1. That Annex A attached to the complaint is marked Exhibit A- Stipulation. The parties have admitted the due execution, authenticity and genuineness of said Exhibit A-Stipulation. This fact has been admitted by all the three parties. 2. That the defendant Gaborro executed Annex B, which is marked Exhibit BStipulation. This fact has been admitted only between plaintiff and defendant Gaborro. 3. That the three parcels of land referred to in paragraph 3 of the complaint, on or before October 6, 1959, were subject to a first mortgage lien in favor of the Development Bank of the Philippines, formerly Rehabilitation Finance Corporation, to secure payment of a loan obtained by the plaintiff Jose P. Dizon in the original sum of P38,000.00 plus interest, which has been assumed by defendant Gaborro by virtue of a document, Exhibit A-Stipulation, and also subject to a second mortgage lien in favor of the Philippine National Bank to secure the payment of a loan in the sum of P93,831.91 plus interest up to August 30, 1951, which mortgage liens were duly annotated on TCT 15679. This fact has been admitted by the plaintiff and defendant Gaborro. 4. In respect to the foreclosure of the first mortgage referred to above, it was admit that the same was foreclosed on May 26, 1959, the second mortgage has not been admitted nor foreclosed. 5. That the Development Bank of the Philippines admits that the first mortgage referred to above was foreclosed on May 26, 1959 under the provision,,; of Public Act No- 3135, as amended. 6. That subsequently the Development Bank and the defendant Gaborro executed a document entitled Conditional Sale over the same parcels of land referred to in paragraph 3 of the complaint, and copy thereof will be furnished by the Development Bank of the Philippines and marked Exhibit C-Stipulation. 7. That on or before October 6, 1960, TCT No. 15679 of the Register of D of Pampanga in the name of Jose P. Dizon covering the three parcels of land referred to in the complaint was cancelled and in lieu thereof TCT NO. 24292 of the Register of Deeds of Pampanga was issued in the name of the Development Bank of the Philippines. This fact has been admitted by all the parties.

8. That after the execution of the deed of conditional sale, certain payments were made by the defendant Gaborro to the Development Bank, the exact amount to be determined later and receipts of payments to be also exhibited later. This fact has been admitted by all the three parties. 9. That since October 6, 1959, the defendant Gaborro has made several payments to the PNB in the amounts appearing on the receipts which will be shown later, such payments being made on account of the sum of P38,831.91. The payment was assumed by said - defendant Gaborro. This fact has been admitted by plaintiff and defendant Gaborro only. 10. That since the execution of Exhibits A and B-Stipulation, it,, defendant Gaborro has been and still is in the actual possession f the three parcels of land in question and he is actually cultivating the same and that the land taxes thereon have been paid by said defendant Gaborro, the amounts of said taxes appearing on the official receipts to be shown later. This fact has been admitted by plaintiff and defendant Gaborro only. 11. That since defendant Gaborro took possession of the lands in question, he has been appropriating all the fruits produced and income of said lands without giving to the plaintiff any share hereof. This fact has been admitted by plaintiff and defendant Gaborro only. Let a copy of this order be served upon the plaintiff, defendant Gaborro and the Development Bank of the Philippines with the understanding that, if, within fifteen (15) days, none of the parties questions the correctness of The facts set forth above. this stipulation of facts shall be conclusive upon the parties interested in this case. Set the trial on the controversial facts on April 18, 1963 at 13:00 clock in the morning. Paragraphs 3 and 10 of the above quoted order were deleted in an order dated July 26, 1963. The records disclose that during the pendency of the case in the trial court, motions were filed by the plaintiff for the appointment of a receiver of the properties but all were denied. plaintiff also reiterated the same motion before the appellate court which, however, dismissed the same, reserving to him the right to file in the trial court. Plaintiff did file but with the same result. certiorari proceedings were resorted to in the Court of Appeals in CA-G.R. No. SP-01403 entitled "Jose P. Dizon vs. Hon. Felipe Buencamino, et al." which the respondent court denied. After trial the court held that the true agreement between Jose P. Dizon, the plaintiff therein, and the defendant Alfredo G. Gaborro is that the defendant would assume and pay the indebtedness of the plaintiff to the Development Bank of the Philippines
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and the Philippine National Bank, and in consideration therefor, the defendant was given the possession and enjoyment of the properties in question until the plaintiff shall have reimbursed to defendant fully the amount of P131,831.91 plus 8% interest per annum. Accordingly, on March 14, 1970, the lower court rendered judgment, the dispositive part of which reads: IN VIEW OF THE FOREGOING, the documents entitled 'Deed of Sale with Assumption of Mortgage'(Exhibit A-Stipulation) and 'Option to Purchase Real Estate' (Exhibit B-Stipulation) are hereby reformed to the extent indicated above. However, since this action was filed before the period allowed the plaintiff to redeem his property, the prematurity of this action aside from not being principally alleged in the complaint, deters this Court from ordering further reliefs and remedies. The counterclaim of the defendant is dismissed. The plaintiff's motion for new trial and for reconsideration and motion for admission of supplemental complaint having been denied for lack of merit, on June 6, 1970, plaintiff appealed to the Court of Appeals, which. however, affirmed the decision with the modification that the plaintiff-appellant has the right to refund or reimburse the defendant-appellee the sum of P131,831.91 with interest at 8% per annum from October 6, 1959 until full payment, said right to be exercised within one (1) year from the date the judgment becomes final, with the understanding that, if he fails to do so within the said period, then he is deemed to have lost his right over the lands forever. Petitioner's motion for reconsideration and/or rehearing having been denied by the Court of Appeals, hence the present petition for review on certiorari. The petitioner assigns the following errors, to wit: I. The Court of Appeals, like the lower court, erred in not holding that upon established facts and undisputed documentary evidence, the deed of sale with assumption of mortgage (Exhibit A-Stipulation) constitutes an equitable mortgage or conveyance to secure petitioner's obligation to reimburse or refund to defendant Alfredo Gaborro any and all sums to the extent of P131,831.91, paid by said defendant in total or partial satisfaction of petitioner's mortgage debts to the DBP and the PNB. In this connection, the Court of Appeals erred: (A) In not finding that the petitioner was the lawful owner of the lands in question: (B) In not finding that the deed of sale in question is not a real and unconditional sale; and (C) In not holding that the option to purchase real estate (Exhibit B-Stipulation is conclusive evidence that the transaction in question is in fact an equitable mortgage.

II. The Court of Appeals also erred in finding that the instrument entitled 'Assignment of Right of Redemption and Assumption of Obligation' is conclusive evidence that the real transaction Evidenced by the 'Deed of Sale with Assumption of Mortgage' is not an equitable mortgage. In this connection the said court also erred or at least committed a grave abuse of discretion: (A) In not finding that the said deed of assignment is in fact a mere reiteration of the terms and condition of the deed of sale; (B) In finding that the price or consideration of The aforesaid assignment. of right of redemption consisted of 300 cavans of palay delivered by Mrs. Gaborro to the petitioner; and (C) In finding that defendant Gaborro purchased the lands in question by virtue of the aforementioned deed of assignment. III. The, Court of Appeals, like the trial court, also erred in not finding that the estate of Alfredo G. Gaborro is under obligation to render an accounting of all the produce, fruits and other income of the lands in question from October 6, 1959, and to reconvey the said lands to the herein petitioner. In to connection, the said court also erred: (A) In not holding that as a mortgagee in possession the Gaborro estate has the obligation to either render an accounting of the produce or fruits of the lands, or to pay rentals for the occupation of said lands; (B) In not finding that the Gaborro estate has the obligations to reconvey the lands in controversy to the herein petitioner, upon payment of the balance due from him after deducting either the net value of the produce or fruits of the Said lands or the rentals thereof, (C) In not finding that further reliefs or remedies may be granted the herein petitioner; and (D) In not ordering the admission of herein petitioners 'Supplemental Complaint' dated April 30, 1970. IV. The Court of Appeals finally erred in not reversing the decision of the trial court, and in not rendering judgment declaring that the deed of sale with assumption of mortgage (Exhibit A Stipulation) is in fact an equitable mortgage; and in not ordering the Gaborro estate either to render an accounting of all the produce or fruits of the lands in question or to pay rentals for the occupation thereof, from October 6, 1959; and in not ordering the estate of Alfredo G. Gaborro to reconvey, transfer and assign unto the petitioner the aforementioned lands.
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The two instruments sought to be reformed in this case ap pear to stipulate rights and obligations between the parties thereto Pertaining to and involving parcels of land that had already beer foreclosed and sold extrajudicially, and purchased by the mortgage creditor, a degree party. It becomes, therefore, necessary to determine the legality of said rights and obligation arising from the foreclosure and e pro. proceedings only between the two contracting parties to the instruments executed between them but also in the so far a agreement affects the rights of the degree panty, the purchase Bank. Act 3135, Section 6 as amended by Act 4118, under which the Properties were extrajudicially foreclosed and sold, provides that: Sec. 6. In all cases in which an extrajudicial rule is made under the special power hereinbefore referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of e debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term or one year from and after the date of the sale; and such redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so far as these are not consistent with the provisions of this Act. Under the Revised Rules of Court, Rule 39, Section 33, the judgment debtor remains in possession of the property foreclosed and sold, during the period of redemption. If the judgment debtor is in possession of the property sold, he is entitled to retain it and receive the fruits, the purchaser not being entitled to such possession. (Riosa v. Verzosa, 26 Phil. 86; Velasco v. Rosenberg's Inc., 32 Phil. 72; Pabico v. Pauco 43 Phil. 572; Power v. PNB, 54 Phil. 54; Gorospe v. Gochangco L-12735, Oct. 30, 1959). A judgment debtor, whose property is levied on execution, may transfer his right of redemption to any one whom he may desire. The right to redeem land sold under execution within 12 months is a property right and may be sold voluntarily by its owner and may also be attached and sold under execution (Magno v. Viola and Sotto, 61 Phil. 80). Upon foreclosure and sale, the purchaser is entitled to a certificate of sale executed by the sheriff. (Section 27, Revised Rules of Court) After the termination of the period of redemption and no redemption having been made, the purchaser is entitled to a deed of conveyance and to the possession of the properties. (Section 35, Revised Rules of Court). The weight of authority is to the effect that the purchaser of land sold at public auction under a writ of execution only has an inchoate right in the property, subject to be defeated and terminated within the period of 12 months from the date of sale, by a redemption on the part of the owner. Therefore, the judgment debtor in

possession of the property is entitled to remain therein during the period allowed for redemption. (Riosa v. Verzosa. 26 Phil, 86; 89; Gonzales v. Calimbas, 51 Phil. 355.) In the case before Us, after the extrajudicial foreclosure and sale of his properties, petitioner Dizon retained the right to redeem the lands, the possession, use and enjoyment of the same during the period of redemption. And these are the only rights that Dizon could legally transfer, cede and convey unto respondent Gaborro under the instrument captioned Deed of Sale with Assumption of Mortgage (Exh. AStipulation), likewise the same rights that said respondent could acquire in consideration of the latter's promise to pay and assume the loan of petitioner Dizon with DBP and PNB. Such an instrument cannot be legally considered a real and unconditional sale of the parcels of land, firstly, because there was absolutely no money consideration therefor, as admittedly stipulated the sum of P131,831.91 mentioned in the document as the consideration "receipt of which was acknowledged" was not actually paid; and secondly, because the properties had already been previously sold by the sheriff at the foreclosure sale, thereby divesting the petitioner of his full right as owner thereof to dispose and sell the lands. In legal consequence thereby, respondent Gaborro as transferee of these certain limited rights or interests under Exh. A-Stipulation, cannot grant to petitioner Dizon more that said rights, such ac the option Co purchase the lands as stipulated in the document called Option to Purchase Real Estate (Exhibit B-Stipulation), This is necessarily so for the reason that respondent Gaborro did not purchase or acquire the full title and ownership of the properties by virtue of the Deed of Sale With Assumption of Mortgage (Exh. A Stipulation), earlier executed between them which We have ruled out as an absolute sale. The only legal effect of this Option Deed is the grant to petitioner the right to recover the properties upon reimbursing respondent Gaborro of the total sums of money that the latter may have paid to DBP and PNB on account of the mortgage debts, the said right to be exercised within the stipulated 5 years period. In the light of the foreclosure proceedings and sale of the properties, a legal point of primary importance here, as well as other relevant facts and circumstances, We agree with the findings of the trial and appellate courts that the true intention of the parties is that respondent Gaborro would assume and pay the indebtedness of petitioner Dizon to DBP and PNB, and in consideration therefor, respondent Gaborro was given the possession, the enjoyment and use of the lands until petitioner can reimburse fully the respondent the amounts paid by the latter to DBP and PNB, to accomplish the following ends: (a) payment of the bank obligations; (b) make the lands productive for the benefit of the possessor, respondent Gaborro, (c) assure the
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return of the land to the original owner, petitioner Dizon, thus rendering equity and fairness to all parties concerned. In view of all these considerations, the law and Jurisprudence, and the facts established. We find that the agreement between petitioner Dizon and respondent Gaborro is one of those inanimate contracts under Art. 1307 of the New Civil Code whereby petitioner and respondent agreed "to give and to do" certain rights and obligations respecting the lands and the mortgage debts of petitioner which would be acceptable to the bank. but partaking of the nature of the antichresis insofar as the principal parties, petitioner Dizon and respondent Gaborro, are concerned. Mistake is a ground for the reformation of an instrument which there having been a meeting of the minds of The parties o a contract, their true intention is not expressed in the instrument purporting to embody the agreement, and one of the parries may ask for such reformation to the end that such true intention may be expressed. (Art. 1359, New Civil code). When a mutual mistake of the parties causes the failure of the instrument to disclose their real agreement, said instrument may be reformed. (Art. 1361, New Civil Code.) It was a mistake for the parties to execute the Deed of Sale With Assumption of Mortgage and the Option to Purchase Real Estate and stand on the literal meaning of the file and stipulations used therein. The instruments must, therefore, be reformed in accordance with the intention and legal rights and obligations of the parties the petitioner, the respondent and the Banks. We agree with the reformation decreed by the trial and appellate courts, but in the sense that petitioner Jose P. Dizon has the right to reacquire the three parcels of land within the one-year period indicated below by refunding or reimbursing to respondent Alfredo G. Gaborro or the Judicial Administratrix of his Estate whatever amount the latter has actually paid on account of the principalonly, of the loans of Dizon with the DBP and PNB, excluding the interests and land taxes that may have been paid or may have accrued, on duly certified financial statements issued by the said banks. On the issue of the accounting of the fruits, harvests and other income received from the three parcels of land from October 6, 1959 up to the present, prayed and demanded by Dizon of Gaborro or the Judicial Administratrix of the latter's estate, We hold that in fairness and equity and in the interests of justice that since We have ruled out the obligation of petitioner Dizon to reimburse respondent Gaborro of any interests and land taxes that have accrued or been paid by the latter on the loans of Dizon with DBP and PNB, petitioner Dizon in turn is not entitled to an accounting of the fruits, harvests and other income received by respondent Gaborro from the lands, for certainly, petitioner cannot have both benefits and the two may be said to offset each other.

By virtue of the Option to Purchase Real Estate (Exh. B Stipulation) which on its face granted Dizon the option to purchase the properties which must be exercise within the period from January, 1960 to December 31, 1965 but which We held to be simply the grant of the right to petitioner Dizon to recover his properties within the said period, although already expired by reasons and circumstances beyond his control, petitioner is entitled to a reconveyance of the properties within a reasonable period The period of one year from the date of the finality of this judgment as laid down by the Court of Appeals for the exercise of such right by petitioner Dizon appears fair and reasonable and We approve the same. Since We are not informed of the status of Dizon's loan of P93,831.91 with the Philippine National Bank which appears to be on a subsisting basis, it is proper to indicate here how petitioner Dizon may exercise the right to a reconveyance of the properties as herein affirmed, as follows: (a) Dizon is granted the right to a reconveyance of the properties by reimbursing Gaborro (or his estate) whatever amounts) the latter has actually paid on account of the principal only, of Dizon's loans of P38,000.00 and P93,831.91 which the DBP and PNB, respectively, exclusive of the interests that may have accrued thereon or may have been paid by Gaborro, on the basis of duly certified statements issued by said banks; (b) Any outstanding balance due on Dizon's original principal loan of P38,000.00 with the Development Bank of the Philippines assumed by Gaborro and on Dizon's original principal loan of 93,831.91 with the PNB shag be deducted from the above-fixed reconveyance price payable to Gaborro, in order to enable Dizon to pay off the said mortgage loans directly to the said banks, in accordance with file mutually agreed upon with them by Dizon; (c) In other words, the maximum reconveyance price that Dizon is obligated to pay is the total sum of ?131,831.91 (the sum total of the principals of his two original loans with the DBP and PNB), and should the amounts due to the said banks exceed this total of P131,831.91 (because of delinquent interests and other charges), nothing shall be due Gaborro by way of reimbursement and Dizon will thereupon step into the shoes of Gaborro as owner-mortgagor of the properties and directly arrange with the banks for the settlement of the amounts still due and payable to them, subject to the right of Dizon to recover such amounts in excess of P131,831.91 from Gaborro by writ of execution in this case; and (d) As already stated, Dizon is not entitled to an accounting of the fruits, harvests and other income received by Gaborro from the land while Gaborro in turn is not entitled to the payment of any interests on any amounts paid by him on account of the
45
principal loans to the banks nor reimbursement of any interests paid by him to the banks. WHEREFORE, the judgment appealed from is hereby affirmed with the modification that petitioner Dizon is granted the right within one year from finality of this decision to a reconveyance of the properties in litigation upon payment and reimbursement to respondent estate of o G. Gaborro of the amounts actually paid by Gaborro or his estate on account of the principal only of Dizon's original loans with the Development Bank of the Philippines and Philippine National Bank in and up to the total amount of P131,831.91, under the terms and conditions set forth in the preceding paragraph with subparagraphs (a) to (d), which are hereby incorporated by reference as an integral part of this judgment, and upon the exercise of such right, respondent estate shall forthwith execute the corresponding deed of reconveyance in favor of petitioner Dizon and deliver possession of the properties to him. Without pronouncement as to costs.

TITO R. LAGAZO, petitioner, vs. 11 COURT OF APPEALS and ALFREDO CABANLIT, respondents. G.R. No. 112796 March 5, 1998 PANGANIBAN, J.: Where the acceptance of a donation was made in a separate instrument but not formally communicated to the donor, may the donation be nonetheless considered complete, valid and subsisting? Where, the deed of donation did not expressly impose any burden the expressed consideration being purely one of liberality and generosity a separate but the recipient actually paid charges imposed on the property like land taxes and installment arrearages, may the donation be deemed onerous and thus governed by the law on ordinary contracts? The Case The Court answers these questions in the negative as it resolves this petition for 1 review under Rule 45 of the Rules of Court seeking to set aside the Decision of the 2 Court of Appeals in CA-GR CV No. 38050 promulgated on November 29, 1993. The assailed Decision reversed the Regional Trial Court, Branch 30, Manila, in Civil Case 3 No. 87-39133 which had disposed of the controversy in favor of herein petitioner in 4 the following manner: WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant as follows: 1. Ordering the defendant, or any person claiming rights under him, to surrender to plaintiff possession of the premises known as Lot 8w, Block 6, Psd-135534 of the Monserrat Estate, and the improvement standing thereon, located at 3320 2nd St., V. Mapa, Old Sta. Mesa, Manila; 2. Ordering the defendant to pay plaintiff the sum of Five Thousand (P5,000.00) Pesos, as and for attorney's fees; and 3. Costs against the defendant. The defendant's counterclaims are hereby dismissed. The Facts
46
Although the legal conclusions and dispositions of the trial and the appellate courts are conflicting, the factual antecedents of the case are not substantially 5 disputed. We reproduce their narration from the assailed Decision: Civil Case No. 83-39133 involves an action filed by plaintiff-appellee [herein petitioner] on January 22, 1987 seeking to recover from defendant-appellant [a] parcel of land which the former claims to have acquired from his grandmother by donation. Defendant-appellant [herein private respondent], on the other hand, put up the defense that when the alleged donation was executed, he had already acquired the property by a Deed of Assignment from a transferee of plaintiff-appellee's grandmother. The evidence for plaintiff-appellee [herein petitioner] is summarized as follows: Catalina Jacob Vda. de Reyes, a widow and grandmother of plaintiff-appellee, was awarded in July 1975 a 60.10-square meter lot which is a portion of the Monserrat Estate, more particularly described as Lot 8W, Block 6 of Psd-135834, located at 3320 2nd St., V. Mapa, Old Sta. Mesa, Manila. The Monserrat Estate is a public land owned by the City of Manila and distributed for sale to bona fidetenants under its land-for-the-landless program. Catalina Jacob constructed a house on the lot. On October 3, 1977, or shortly before she left for Canada where she is now a permanent resident, Catalina Jacob executed a special power of attorney (Exh. "A") in favor of her son-in-law Eduardo B. Espaol authorizing him to execute all documents necessary for the final adjudication of her claim as awardee of the lot. Due to the failure of Eduardo B. Espaol to accomplish the purpose of the power of attorney granted to him, Catalina Jacob revoked said authority in an instrument executed in Canada on April 16, 1984 (Exh. "D"). Simultaneous with the revocation, Catalina Jacob executed another power of attorney of the same tenor in favor plaintiff-appellee. On January 30, 1985, Catalina Jacob executed in Canada a Deed of Donation over a Lot 8W in favor of plaintiff-appellee (Exh. "E"). Following the donation, plaintiffappellee checked with the Register of Deeds and found out that the property was in the delinquent list, so that he paid the installments in arrears and the remaining balance on the lot (Exhs. "F", "F-1" and "F-2") and declared the said property in the name of Catalina Jacob (Exhs. "G", "G-1", "G-2" and "G-3"). On January 29, 1986, plaintiff-appellee sent a demand letter to defendant-appellant asking him to vacate the premises (Exh. "H"). A similar letter was sent by plaintiffappellee's counsel to defendant on September 11, 1986 (Exh. "I"). However,
11
Art. 1319

defendant-appellant refused to vacate the premises claiming ownership thereof. Hence, plaintiff-appellee instituted the complaint for recovery of possession and damages against defendant-appellant. Opposing plaintiff-appellee's version, defendant-appellant claimed that the house and lot in controversy were his by virtue of the following documents: 1. Deed of Absolute Sale executed by Catalina Jacob dated October 7, 1977 in favor of Eduardo B. Espaol covering the residential house located at the premises (Exh. "4"). 2. Deed of Assignment over Lot 8W executed by Catalina Jacob in favor of Eduardo Espaol dated September 30, 1980 (Exh. "5"); and 3. Deed of Assignment executed by Eduardo B. Espaol over Lot 8W and a residential house thereon in favor of defendant-appellant dated October 2, 1982 (Exh. "6"). After trial, the lower court decided in favor of plaintiff-appellee and against defendantappellant, rationalizing that the version of the former is more credible than that of the latter. According to the lower court: From the oral and documentary evidence adduced by the parties[,] it appears that the plaintiff- has a better right over the property, subject matter of the case. The version of the plaintiff is more credible than that of the defendant. The theory of the plaintiff is that the house and lot belong to him by virtue of the Deed of Donation in his favor executed by his grandmother Mrs. Jacob Vda. de Reyes, the real awardee of the lot in question. The defendant's theory is that he is the owner thereof because he bought the house and lot from Eduardo Espaol, after the latter had shown and given to him Exhibits 1, 4 and 5. He admitted that he signed the Deed of Assignment in favor of Eduardo Espaol on September 30, 1980, but did not see awardee Catalina Jacob Vda. de Reyes signed [sic] it. In fact, the acknowledgement in Exhibit "5" shows that the assignor/awardee did not appear before the notary public. It may be noted that on said date, the original awardee of the lot was no longer in the Philippines, as both parties admitted that she had not come back to the Philippines since 1977. (Exhs. K, K-1). Defendant, claiming to be the owner of the lot, unbelievably did not take any action to have the said house and lot be registered or had them declared in his own name. Even his Exhibit 7 was not mailed or served to the addressee. Such attitude and laxity is very unnatural for a buyer/owner of a property, in stark contrast of [ sic] the interest shown by the plaintiff who saw to it that the lot was removed from the 6 delinquent list for non-payment of installments and taxes due thereto [sic]. Ruling of the Appellate Court
47
In reversing the trial court's decision, Respondent Court of Appeals anchored its ruling upon the absence of any showing that petitioner accepted his grandmother's donation of the subject land. Citing jurisprudence that the donee's failure to accept a donation whether in the same deed of donation or in a separate instrument renders the donation null and void, Respondent Court denied petitioner's claim of ownership over the disputed land. The appellate court also struck down petitioner's contention that the formalities for a donation of real property should not apply to his case since it was an onerous one he paid for the amortizations due on the land before and after the execution of the deed of donation reasoning that the deed showed no burden, charge or condition imposed upon the donee; thus, the payments made by petitioner were his voluntary acts. Dissatisfied with the foregoing ruling, petitioner now seeks a favorable disposition 8 from this Court. Issues Petitioner anchors his petition on the following grounds:
9
[I.] In reversing the decision of the trial court, the Court of Appeals decided a question of substance in a way not in accord with the law and applicable decisions of this Honorable Court. [II.] Even granting the correctness of the decision of the Court of Appeals, certain fact and circumstances transpired in the meantime which would render said decision manifestly unjust, unfair and inequitable to petitioner. We believe that the resolution of this case hinges on the issue of whether the donation was simple or onerous. The Court's Ruling The petition lacks merit. Main Issue: Simple or Onerous Donation? At the outset, let us differentiate between a simple donation and an onerous one. A simple or pure donation is one whose cause is pure liberality (no strings attached), while an onerous donation is one which is subject to burdens, charges or future 10 services equal to or more in value than the thing donated. Under Article 733 of the Civil Code, donations with an onerous cause shall be governed by the rules on

contracts; hence, the formalities required for a valid simple donation are not applicable. Petitioner contends that the burdens, charges or conditions imposed upon a donation need not be stated on the deed of donation itself. Thus, although the deed did not categorically impose any charge, burden or condition to be satisfied by him, the donation was onerous since he in fact and in reality paid for the installments in arrears and for the remaining balance of the lot in question. Being an onerous donation, his acceptance thereof may be express or implied, as provided under Art. 1320 of the Civil Code, and need not comply with the formalities required by Art. 749 of the same code. His payment of the arrearages and balance and his assertion of his right of possession against private respondent clearly indicate his acceptance of the donation. We rule that the donation was simple, not onerous. Even conceding that petitioner's full payment of the purchase price of the lot might have been a burden to him, such payment was not however imposed by the donor as a condition for the donation. Rather, the deed explicitly stated: That for and in consideration of the love and affection which the DONEE inspires in the DONOR, and as an act of liberality and generosity and considering further that the DONEE is a grandson of the DONOR, the DONOR hereby voluntarily and freely gives, transfer[s] and conveys, by way of donation unto said DONEE, his heirs, executors, administrators and assigns, all the right, title and interest which the said DONOR has in the above described real property, together with all the buildings and improvements found therein, free from all lines [sic] and encumbrances and charges 11 whatsoever; [emphasis supplied] It is clear that the donor did not have any intention to burden or charge petitioner as the donee. The words in the deed are in fact typical of a pure donation. We agree with Respondent Court that the payments made by petitioner were merely his voluntary acts. This much can be gathered from his testimony in court, in which he never even claimed that a burden or charge had been imposed by his grandmother. ATTY FORONDA: q After you have received this [sic] documents, the . . . revocation of power of attorney and the Special Power of Attorney in your favor, what did you do? WITNESS: a I went here in City Hall and verif[ied] the status of the award of my grandmother.
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q When you say the award, are you referring to the award in particular [of the] lot in favor of your grandmother? a Yes, Sir. q What was the result of your verification? a According to the person in the office, the papers of my grandmother is [ sic] includ[ed] in the dilinquent [sic] list. q What did you do then when you found out that the lot was includ[ed] in the dilinquent [sic] list? a I talked to the person in charged [sic] in the office and I asked him what to do so that the lot should not [be] included in the dilinquent [sic] list. ATTY. FORONDA: q And what was the anwer [sic] given to you to the inquiry which you made? WITNESS: a According to the person in the office, that I would pay the at least [ sic] one half of the installment in order to take [out] the document [from] the delinquent list. q And [were] you able to pay? a I was able to pay, sir. q What were you able to pay, one half of the balance or the entire amounts [sic]? a First, I paid the [sic] one half of the balance since the time the lot was awarded to us. q What about the remaining balance, were you able to pay it? a I was able to pay that, sir. q So, as of now, the amount in the City of Manila of the lot has already been duly paid, is it not? a Yes, sir.
12
The payments even seem to have been made pursuant to the power of 13 attorney executed by Catalina Reyes in favor of petitioner, her grandson, authorizing him to execute acts necessary for the fulfillment of her obligations.

Nothing in the records shows that such acts were meant to be a burden in the donation. As a pure or simple donation, the following provisions of the Civil Code are applicable: Art. 734. The donation is perfected from the moment the donor knows of the acceptance by the donee. Art. 746. Acceptance must be made during the lifetime of the donor and the donee. Art. 749. In order that the donation of an immovable may be valid, it must be made in a public instrument, specifying therein the property donated and the value of the charges which the donee must satisfy. The acceptance may be made in the same deed of donation and in a separate public document, but it shall not take effect unless it is done during the lifetime of the donor. If the acceptance is made in a separate instrument, the donor shall be notified thereof in authentic form, and this step shall be noted in both instruments. In the words of the esteemed Mr. Justice Jose C. Vitug, "Like any other contract, an agreement of the parties is essential. The donation, following the theory of cognition (Article 1319, Civil Code), is perfected only upon the moment the donor knows of the acceptance by the donee." Furthermore, "[i]f the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and 15 this step shall be noted in both instruments." Acceptance of the donation by the donee is, therefore, indispensable; its absence 16 makes the donation null and void. The perfection and the validity of a donation are well explained by former Sen. Arturo M. Tolentino in this wise: . . . Title to immovable property does not pass from the donor to the donee by virtue of a deed of donation until and unless it has been accepted in a public instrument and the donor duly notified thereof. The acceptance may be made in the very same instrument of donation. If the acceptance does not appear in the same document, it must be made in another. Solemn words are not necessary; it is sufficient if it shows the intention to accept. But in this case it is necessary that formal notice thereof be given to the donor, and the fact that due notice has been given must be noted in both instruments (that containing the offer to donate and that showing the acceptance). Then and only then is the donation perfected. If the instrument of donation has been recorded in the registry of property, the instrument that shows the acceptance should also be recorded. Where the deed of donation fails to show the acceptance, or where the formal notice of the acceptance, made in a separate instrument, is either not
14
49
given to the donor or else not noted in the deed of donation and in the separate 17 acceptance, the donation is null and void. Exhibit E (the deed of donation) does not show any indication that petitioner-donee accepted the gift. During the trial, he did not present any instrument evidencing such acceptance despite the fact that private respondent already raised this allegation in 18 his supplemental pleading to which petitioner raised no objection. It was only after the Court of Appeals had rendered its decision, when petitioner came before this 19 Court, that he submitted an affidavit dated August 28, 1990, manifesting that he "wholeheartedly accepted" the lot given to him by his grandmother, Catalina Reyes. This is too late, because arguments, evidence, causes of action and matters not 20 raised in the trial court may no longer be raised on appeal. True, the acceptance of a donation may be made at any time during the lifetime of the donor. And grantingarguendo that such acceptance may still be admitted in evidence on appeal, there is still need for proof that a formal notice of such acceptance was received by the donor and noted in both the deed of donation and the separate instrument embodying the acceptance. At the very least, this last legal requisite of annotation in both instruments of donation and acceptance was not fulfilled by petitioner. For this reason, the subject lot cannot be adjudicated to him. Secondary Issue: Supervening Events Petitioner also contends that certain supervening events have transpired which render the assailed Decision "manifestly unjust, unfair and inequitable" to him. The City of Manila has granted his request for the transfer to his name of the lot originally 21 awarded in favor of Catalina Reyes. A deed of sale covering the subject lot has in fact been executed between the City of Manila, as the vendor; and petitioner, as the 22 vendee. The corresponding certificate of title has also been issued in petitioner's name. A close perusal of the city government's resolution granting petitioner's request reveals that the request for and the grant of the transfer of the award were premised on the validity and perfection of the deed of donation executed by the original awardee, petitioner's grandmother. This is the same document upon which petitioner, as against private respondent, asserts his right over the lot. But, as earlier discussed and ruled, this document has no force and effect and, therefore, passes no title, right or interest. Furthermore, the same resolution states: WHEREAS, in a report submitted by Ms. [Menchu C.] Bello [, Special Investigator,] on February 7, 1990, it is stated that . . . constructed on the lot is a make-shift structure
23

used for residential purposes by the proposed transferee Tito Lagazo and his family; . . . and that constructed at Lot 8, Block 6, former Monserrat Estate is a make-shift structure used as a dwelling place by Lagazo and family because the front portion of their house which was constructed on a road lot was demolished, and the structure was extended backward covering a portion of the old temporary road lot. . . . The above findings of the investigator are, however, directly contradictory to the testimonies in court of petitioner himself and of private respondent. Petitioner claimed the following: that the house constructed on the subject lot was owned by his grandmother Catalina Jacob; that before the latter left for Canada in 1977, Eduardo Espaol had already been living in the same house and continued to do so until 1982; 24 and that private respondent occupied the premises after Espaol left. On the other hand, private respondent testified that he bought the subject house and lot from Eduardo Espaol in 1982, after which he and his family occupied the same; but sometime in 1985, they had to leave the place due to a road-widening project which 25 reduced the house to "about three meters [in] length and one arm[']s width." Between the testimonies under oath of the contending parties and the report not subjected to cross-examination which was prepared by the investigator who recommended the approval of petitioner's request for transfer, it is the former to which the Court is inclined to give more credence. The investigator's report must have been based on the misrepresentations of petitioner who arrogated unto himself the prerogatives of both Espaol and private respondent. Further, it is on record that petitioner had required private respondent to vacate the subject premises before he instituted this complaint. This shows he was not in actual possession of the property, contrary to the report of the investigator. Cabanlit's Claim of Ownership Petitioner also assails Respondent Court's conclusion that it is unnecessary to pass upon private respondent's claim over the property. Petitioner insists that the principal issue in the case, as agreed upon by the parties during pretrial, is "who between the parties is the owner of the house and lot in question." In disposing of the principal issue of the right of petitioner over the subject property under the deed of donation, we arrive at one definite conclusion: on the basis of the alleged donation, petitioner cannot be considered the lawful owner of the subject property. This does not necessarily mean, however, that private respondent is automatically the rightful owner. In resolving private respondent's claim of ownership, the examination of the genuineness of the documents (deeds of assignment over the lot between Catalina Reyes and Eduardo Espaol and between Espaol and private respondent) upon which he asserts his right is necessary, especially in light of petitioner's allegations of
50
forgery. However, the respective assignors in both documents are not parties to the instant case. Not having been impleaded in the trial court, they had no participation whatsoever in the proceedings at bar. Elementary norms of fair play and due process bar us from making any disposition which may affect their rights. Verily, there can be 26 no valid judgment for or against them. Anyhow, since petitioner, who was the plaintiff below, failed to prove with clear and convincing evidence his ownership claim over the subject property, the parties thus resume their status quo ante. The trial court should have dismissed his complaint for his failure to prove a right superior to that of private respondent, but without prejudice to any action that Catalina Reyes or Eduardo Espaol or both may have against said private respondent. Stating this point otherwise, we are not ruling in this case on the rights and obligations between, on the one hand, Catalina Reyes, her assigns and/or representatives; and, on the other, Private Respondent Cabanlit. Not having proven any right to a valid, just and demandable claim that compelled him to litigate or to incur expenses in order to protect his interests by reason of an unjustified act or omission of private respondent, petitioner cannot be awarded 27 attorney's fees. WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED. SO ORDERED.

C. W. ROSENSTOCK, as administrator of the estate of H. W. ELSER, plaintiffappellant, vs. EDWIN BURKE, defendant-appellant. 12 THE COOPER COMPANY, intervenor-appellee. G.R. No. 20732 September 26, 1924 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
12
51
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.
Art. 1319

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.
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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
53
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.

FRANCISCO BATAGAN, plaintiff-appellant, vs. ISIDRA COJUANGCO, defendant-appellee. 13 G.R. No. L-224 May 31, 1947 TUASON, J.: This is the third time appellant has come to this court. The three cases stemmed from the foreclosure of a mortgage. In the first case, appellant undertook to compel the Court of First Instance of Nueva Ecija to approved his record on appeal. There he attacked the validity of the lower court's judgment on the ground that the agreement embodied therein was fraudulent. The petition was denied. The second was an appeal from an order of the trial court refusing to set aside the sale of the mortgaged property by the sheriff. In that appeal, the appellant again failed. Now he seeks to have the appellee resell to him the property. It is a suit in the nature of an action for specific performance based on a statement in the brief of the appellee in the case for annulment of the sale. This statement was copied in this court's decision as a footnote to the court's conclusion that "appellant has no right to redeem the property sold pursuant to the foreclosure of the mortgage thereon." It reads: In order to impress the appellant that appellee is not interested in owning the mortgaged property and that she was only forced for lack of another buyer to acquire it in the auction sale, she is willing to resell the property to him for the same amount in which it was purchased at the auction sale, that is, for P1,508.28, provided it be in cash. Other pertinent facts in this connection are these: Our decision was promulgated on September 27, 1943. On October 29, 1943, Atty. Marcelino Lontok, who has represented the herein appellant in the three cases, sent Isidra Cojuangco a missive with three postal money orders for P800, stating that he was remitting that amount in behalf of his client "in accordance with your agreement," and promising to pay the balance "at the shortest possible time." The amount was rejected by Mrs. Cojuangco, who told she had not had any agreement with his client. On January 28, 1944, Atty. Lontok sent a letter through a messenger to Mrs. Cojuangco's counsel, Atty. Antonio Lucero, in Manila, enclosing the same money orders for P800 and P708.30 in paper money. This tender was also refused. On January 7, 1944, Attorney Lontok came to this court with a motion to order the appellee to comply with the offer she had made in her brief. That motion was "rejected" in a resolution dated February 18, 1944, "for having been filed after the entry of judgment." The suit at bar is a reiteration of the motion just mentioned. Because of their identity, our resolution denying the motion to compel Cojuangco to live up to her commitment was set up as a bar to the present action. The plea was overruled by the lower court
13
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as not well taken. The lower court also declared that "the statement contained in the brief of the defendant herein in G.R. No. 48980 and footnoted in the decision of the Supreme Court (was) a promise on the part of the defendant herein to resell the land in question to the plaintiff herein." Nevertheless it found that "the time for him (Batagan) to accept the promise was from the date of the brief of the defendant herein in G.R. No. 48980 until the entry of judgment," and that the acceptance having been made after the judgment had been rendered, it came too late. The question of the conclusiveness of our resolution referred to is not pressed in this appeal. Apparently abandoning her plea in this regard, the appellee makes no reference in her brief to her former contention that this action is res adjudicata. And she seems to take for granted that the signification in her brief of her willingness to allow the repurchase of the property constituted a formal offer that could have served as basis for the creation of legal relations. The sole question on which the parties have joined issue in this appeal relates to whether the appellee's offer has been duly accepted by the appellant. We are of the opinion that the acceptance was tardy. An offer of compromise settlement must be accepted within a reasonable time. (15 C.J.S., section 7.) And acceptance or rejection of an offer of compromise may be inferred from circumstances. ( Id.) The appellant's failure to act on the offer before the judgment was entered was an implied rejection of said offer. In pushing the appeal to final conclusion the appellant made it clear that he was not interested in his creditor's liberal concession. A compromise has for its purpose the avoidance or termination of a law suit. (Article 1809, Civil Code.) With the rendition of judgment the reason which induced the appellee to make her proposition ceased to exist. Again, acceptance in order to conclude the agreement must in every respect meet and correspond with the terms and conditions of the offer. (17 C.J.S., 378.) Granting that the appellant acted on time, payment of P800 fell short of the appellee's requirement. The appellee wanted P1,508.28 in cash. This was the least she was entitled to, being the amount which the court below had found to be due her. In her proposition she did not even include any interest. The substantial variance between the amount in the offer and the amount tendered not only made the purported acceptance inoperative but "put an end to the negotiations without forming a contract unless the party making the offer agreed to the suggested modification." (17 C.J.S., 383.) Otherwise, as the trial judge aptly observed, "promisors would be tied to their promises indefinitely and would not be able to dispose of the property involved" in the promise or offer. In addition, the promisor would be placed in a position where he would always lose without anything to gain. The promisee could wait until judgment is rendered and accepted the offer of compromise if the judgment happened to be more onerous to him.
Art. 1319

Appellant assigns as error the refusal of the trial court to make the finding that there was a new agreement entered into between the appellant and the appellee whereby the appellee would allow appellant to make a down payment of P800 and to pay the balance afterward. This case was submitted and decided on the pleadings. No evidence was introduced. This assignment of error involves a question of fact which the plaintiff should have proven by competent evidence. His only reliance is on Exhibit 4 which is Attorney Lontok's letter is self-serving and is absolutely incompetent as proof of the alleged agreement. The reference in Exhibit 4 to an alleged understanding between the parties might have been made in contemplation of this suit. The argument which the appellant, who came to Manila purposely to see her, would dare send her such amount without any agreement," tends to confirm this possibility. It is of interest to know that there is not the slightest intimation of such agreement in the complaint. The judgment of the lower court is affirmed with costs against the appellant.
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MAMERTO LAUDICO and FRED M. HARDEN, plaintiffs-appellants, vs. MANUEL ARIAS RODRIGUEZ, ET AL., defendants-appellants. 14 G.R. No. 16530 March 31, 1922 AVANCEA, J.: On February 5, 1919, the defendant, Vicente Arias, who, with his codefendants, owned the building Nos. 205 to 221 on Carriedo Street, on his behalf and that of his coowners, wrote a letter to the plaintiff, Mamerto Laudico, giving him an option to lease the building to a third person, and transmitting to him for that purpose a tentative contract in writing containing the conditions upon which the proposed lease should be made. Later Mr. Laudico presented his coplaintiff, Mr. Fred. M. Harden, as the party desiring to lease the building. On one hand, other conditions were added to those originally contained in the tentative contract, and, on the other, counterpropositions were made and explanations requested on certain points in order to make them clear. These negotiations were carried on by correspondence and verbally at interviews held with Mr. Vicente Arias, no definite agreement having been arrived at until the plaintiff, Mr. Laudico, finally wrote a letter to Mr. Arias on March 6, 1919, advising him that all his propositions, as amended and supplemented, were accepted. It is admitted that this letter was received by Mr. Arias by special delivery at 2.53 p.m. of that day. On that same day, at 11.25 in the morning, Mr. Arias had, in turn, written a letter to the plaintiff, Mr. Laudico, withdrawing the offer to lease the building. The chief prayer of the plaintiff in this action is that the defendants be compelled to execute the contract of lease of the building in question. It thus results that when Arias sent his letter of withdrawal to Laudico, he had not yet received the letter of acceptance, and when it reached him, he had already sent his letter of withdrawal. Under these facts we believe that no contract was perfected between the plaintiffs and the defendants. The parties agree that the circumstances under which that offer was made were such that the offer could be withdrawn at any time before acceptance. Under article 1262, paragraph 2, of the Civil Code, an acceptance by letter does not have any effect until it comes to the knowledge of the offerer. Therefore, before he learns of the acceptance, the latter is not yet bound by it and can still withdraw the offer. Consequently, when Mr. Arias wrote Mr. Laudico, withdrawing the offer, he had the right to do so, inasmuch as he had not yet receive notice of the acceptance. And when the notice of the acceptance was received by Mr. Arias, it no longer had any effect, as the offer was not then in existence, the same having already been withdrawn. There was no meeting of the minds, through offer and acceptance, which
14
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is the essence of the contract. While there was an offer, there was no acceptance, and when the latter was made and could have a binding effect, the offer was then lacking. Though both the offer and the acceptance existed, they did not meet to give birth to a contract. Our attention has been called to a doctrine laid down in some decisions to the effect that ordinarily notice of the revocation of an offer must be given to avoid an acceptance which may convert in into a binding contract, and that no such notice can be deemed to have been given to the person to whom the offer was made unless the revocation was in fact brought home to his knowledge. This, however, has no application in the instant case, because when Arias received the letter of acceptance, his letter of revocation had already been received. The latter was sent through a messenger at 11.25 in the morning directly to the office of Laudico and should have been received immediately on that same morning, or at least, before Arias received the letter of acceptance. On this point we do not give any credence to the testimony of Laudico that he received this letter of revocation at 3.30 in the afternoon of that day. Laudico is interested in destroying the effect of this revocation so that the acceptance may be valid, which is the principal ground of his complaint. But even supposing Laudico's testimony to be true, still the doctrine invoked has no application here. With regard to contracts between absent persons there are two principal theories, to wit, one holding that an acceptance by letter of an offer has no effect until it comes to the knowledge of the offerer, and the other maintaining that it is effective from the time the letter is sent. The Civil Code, in paragraph 2 of article 1262, has adopted the first theory and, according to its most eminent commentators, it means that, before the acceptance is known, the offer can be revoked, it not being necessary, in order for the revocation to have the effect of impeding the perfection of the contract, that it be known by the acceptant. Q. Mucius Scaevola says apropros: "To our mind, the power to revoke is implied in the criterion that no contract exists until the acceptance is known. As the tie or bond springs from the meeting or concurrence of the minds, since up to that moment there exists only a unilateral act, it is evident that he who makes it must have the power to revoke it by withdrawing his proposition, although with the obligation to pay such damages as may have been sustained by the person or persons to whom the offer was made and by whom it was accepted, if he in turn failed to give them notice of the withdrawal of the offer. This view is confirmed by the provision of article 1257, paragraph 2, concerning the case where a stipulation is made in favor of a third person, which provision authorizes the contracting parties to revoke the stipulation before the notice of its acceptance. That case is quite similar to that under comment, as said stipulation in favor of a third person (who, for the very reason of being a third person, is not a contracting party) is tantamount to an offer made by the makers of
Art. 1319

the contract which may or may not be accepted by him, and which does not have any effect until the obligor is notified, and may, before it is accepted, be revoked by those who have made it; therefore, the case being similar, the same rule applies." Under the second theory, the doctrine invoked by the plaintiffs is sound, because if the sending of the letter of acceptance in itself really perfects the contract, the revocation of the offer, in order to prevent it, must be known to the acceptor. But this consideration has no place in the first theory under which the forwarding of the letter of acceptance, in itself, does not have any effect until the acceptance is known by the person who has made the offer. The judgment appealed from is reversed and the defendants are absolved from the complaint, without special finding as to costs. So ordered.
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Obligations and Contracts Art. 1311-1319

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Secondary Issues: Prescription, Laches, Contract Pour Autrui, Lack of Consideration

Obligations and Contracts Art. 1311-1319

Obligations and Contracts Art. 1311-1319

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Obligations and Contracts Art. 1311-1319

Obligations and Contracts Art. 1311-1319

Obligations and Contracts Art. 1311-1319

Obligations and Contracts Art. 1311-1319

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