FILINVEST CREDIT vs. PHILIPPINE ACETYLENE G.R. No.

L-50449 January 30, 1982

Facts: Philippine Acetylene Co. purchased from Alexander Lim a motor vehicle described as Chevorlet 1969 model for P55K to be paid in instalments. As security for the payment of said promissory note, the appellant executed a chattel mortgage over the same motor vehicle in favor of said Alexander Lim. Then, Lim assigned to the Filinvest all his rights, title, and interests in the promissory note and chattel mortgage by virtue of a Deed of Assignment. Phil Acetylene defaulted in the payment of nine successive installments. Filinvest sent a demand letter. Replying thereto, Phil Acetylene wrote back of its desire to return the mortgaged property, which return shall be in full satisfaction of its indebtedness. So the vehicle was returned to the Filinvest together with the document Voluntary Surrender with Special Power of Attorney To Sell. Filinvest failed to sell the motor vehicle as there were unpaid taxes on the said vehicle. Filinvest requested the appellant to update its account by paying the installments in arrears and accruing interest. Filinvest offered to deliver back the motor vehicle to the appellant but the latter refused to accept it, so appellee instituted an action for collection of a sum of money with damages. Phil Acetylenes defense: The delivery of the motor vehicle to Filinvest extinguished its money obligation as it amounted to a dation in payment. Assuming arguendo that the return did not extinguish, it was justified in refusing payment since the appellee is not entitled to recover the same due to the breach of warranty committed by the original vendor-assignor Alexander Lim. Issue: WON there was dation in payment that extinguished Phil Acetylenes obligation? NO. Held: The mere return of the mortgaged motor vehicle by the mortgagor does not constitute dation in payment in the absence, express or implied of the true intention of the parties. Dacion en pago is the transmission of the ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of obligation. In dacion, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtors debt. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present. In its modern concept, what actually takes place in dacion en pago is an

objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered as the purchase price. In any case, common consent is an essential prerequisite, be it sale or innovation to have the effect of totally extinguishing the debt or obligation. The evidence on the record fails to show that the Filinvest consented, or at least intended, that the mere delivery to, and acceptance by him, of the mortgaged motor vehicle be construed as actual payment, more specifically dation in payment or dacion en pago. The fact that the mortgaged motor vehicle was delivered to him does not necessarily mean that ownership thereof, as juridically contemplated by dacion en pago, was transferred from appellant to appellee. In the absence of clear consent of appellee to the proferred special mode of payment, there can be no transfer of ownership of the mortgaged motor vehicle from appellant to appellee. If at all, only transfer of possession of the mortgaged motor vehicle took place, for it is quite possible that appellee, as mortgagee, merely wanted to secure possession to forestall the loss, destruction, fraudulent transfer of the vehicle to third persons, or its being rendered valueless if left in the hands of the appellant. As to the strength of the Voluntary Surrender with Special Power of Attorney To Sell, it only authorized Filinvest to look for a buyer and sell the vehicle in behalf of the appellant who retains ownership thereof, and to apply the proceeds of the sale to the mortgage indebtedness, with the undertaking of the appellant to pay the difference, if any, between the selling price and the mortgage obligation. Filinvest in essence was constituted as a mere agent to sell the motor vehicle which was delivered not as its property. If it were, he would have full power of disposition of the property, not only to sell it.

G.R. No. L-9160

April 30, 1957

on which Camara relies in support of his aforesaid pretense, provides: The payment of debts in money shall be made in the currency stipulated and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. In the meantime, the action derived from the original obligation shall be held in abeyance. It will be noted, however, that even the delivery of bills of exchange and hence, of checks, shall pursuant to the second paragraph of said Article 1249 "produce the effect of payment . . . when they have been cashed". In the case at bar, the manager's check deposited by Golez had, in fact, been cashed, for, upon its receipt, the clerk of court indorsed the check to the Provincial Treasurer of Negros Occidental, who deposited it with the Philippine National Bank, and the latter honored the check and placed the amount thereof (P25,000 or P25,396.33) to the credit of the Provincial Treasurer. The effect of these facts, in contemplation of law, was the same as if the aforementioned amount had been deposited, in cash, with the clerk of court, for, thereafter, said sum became available to him in cash. Besides, Camara had, in effect, accepted said deposit as good, not only by not objecting thereto or questioning it from March 26, 1954, to December 11, 1954, but, also by praying in a motion dated October 16, 1954, that he be allowed to withdraw the amount of said deposit, despite the fact that plaintiff's motion of April 6, 1954 copy of which had been duly served on defendant's counsel explicitly stated that the deposit had been made in a manager's check. Although, in a subsequent motion dated December 11, 1954, Camara prayed, among other things, that his aforesaid motion of October 16, 1954 be deemed withdrawn, because no cash deposit had been made, it is apparent that this move was prompted, not by any objection to said manager's check, he being aware of it long before he filed said motion dated October 16, 1954, but by the fact that, in an opposition filed by the plaintiff on October 23, 1954, he asserted that defendant should convey to him, not seven (7) lots, but twenty-four (24) lots. At any rate, said Article 1249 deals with a mode of extinction of debts and Golez is not indebted to Camara. The former merely had, under our decision of October 3, 1953, a right to demand the conveyance of the property in dispute, provided he

ADRIANO GOLEZ, plaintiff-appellee, vs. CARMELO S. CAMARA, defendant-appellant. Hilado and Corua, Jose P. Laurel, Marciano Almario for appellee. Benedicto, Sumbingco and Associates for appellant. CONCEPCION, J.: On appeal from a decision of the Court of First Instance of Negros Occidental, dated October 6, 1950, in the case at bar, this Court rendered, on October 3, 1953, a decision (G.R. No. L-446O) the dispositive part of which reads as follows: WHEREFORE, it being understood that the appellant is indebted to the appellee upon account of the repurchase price of the land in question only in the sums of P1,956.00, with twelve percent compound interest from January, 1932, and P296.18 with compound interest of twelve percent from January 24, 1945, which indebtedness should first be settled by the appellant before he is entitled to a conveyance of the land in question, the appealed judgment is in all other respects affirmed, except further that the 90-day period fixed therein shall be computed from the date this decision becomes final. So ordered without costs. (Record on Appeal, pp. 30-31.) When the records of the case were returned to the court of origin, or on March 26, 1954, plaintiff Adriano Golez deposited the sum of P25,386,33 (P386.33 in cash and P25,00 in P.N.B. Manager's check No. 444021) with said court and prayed that defendant Carmelo S. Camara be ordered to make the conveyance directed in our aforementioned decision. Presently, an issue arose on whether Camara should convey to Golez seven (7) parcels of land, as claimed by the former, or twentyfour (24) lots, as urged by the latter. Thereafter, Camara assailed the validity of said deposit, upon the ground that it had been made in check. The lower court upheld the legality of the deposit, but, it sustained Camara's pretense, as regards the number of lots he should assign to Golez. After several motions for reconsideration filed by the latter, which were, at first, denied, the court by an order dated March 1, 1955, eventually accepted plaintiff's contention, to the effect he is entitled to a deed of conveyance of said twenty four (24) lots. Hence the present appeal taken by defendant Camara. The first question for determination is the effect of the judicial consignation aforementioned, which Camara challenges as ineffective, because it, or most of it (P25,000) had not been made in cash. Article 1249 of the Civil Code of the Philippines,

paid the sum stated in said decision to the later. In other words, Golez had, for all intents and purposes, an option valid for the period set forth in said decision to acquire, for the amount fixed therein, the property in dispute. He had no obligation to pay said amount, if he did not care to get said property. In fact, Camara does not regard Golez bound to make said payment. What is more, the former does not want the latter to make it, and holds that he (Golez) cannot now legally make it, even if he (Golez) should wish to do so. Perhaps the nature of the judicial relation between Golez and Camara could be visualized with greater precision, if we remembered that said relation is essentially and objectively an outgrowth of the fact that Golez is the ultimate beneficiary of the right of redemption of Isidoro Jimenez, Aurelia Jimenez and Vicente Jimenez Yanson, except that this right has been broadened, in point of time for its exercise, as well as with respect to the properties subject thereto, as held in the order appealed from and hereinafter demonstrated. Surely, there is no legal obligation to exercise the right of redemption (Cordero vs. Siosoco, 43 Off. Gaz., 4664; Rosales vs. Reyes y Ordoveza, 25 Phil., 495). In connection with said option or right of redemption, no judicial consignation is, however, necessary. A bona fide tender of payment suffices. Such tender was validly and effectively made when, on March 26, 1954, Golez made the deposit aforementioned and prayed that Camara be ordered to make the conveyance in question. (Paez vs. Magno, 83 Phil., 403, 46 Off. Gaz., 5425, 5427; Javellana vs. Mirasol, 40 Phil., 761.) In short, Article 1249 of the Civil Code of the Philippines is inapplicable to Golez, for he is not indebted to Camara (Salvante vs. De la Cruz 88 Phil., 236; Del Rosario vs. Sandico, 85 Phil., 170, 47 Off. Gaz., 2886; Arzaga vs. Rumbaboa, et al., 91 Phil., 4999.) But even if he were, the judicial deposit made by Golez would be valid and effective, not only because Camara had already accepted it (Gutierrez vs. Carpio, 53 Phil., 334), but, also, because the manager's check in question has been cashed. The next issue is: What lots must be conveyed by Camara to Golez? In order to settle this question, a brief review of the background of this case is necessary. It appears that two (2) haciendas known as Aurelia and Buenavista, both situated in the Municipality of Isabela, province of Negros Occidental, belonged to Adriano Golez, Jose Locsin, Augusto Locsin, Isidro Jiminez, Filomena Jimenez, Aurelia Jimenez, and Vicente Jimenez Yanson, as co-owners thereof. Prior to December, 1930, judgment was rendered in Civil Case NO. 4912 of the Court of First Instance of Negros Occidental, entitled "Philippine National Bank vs. Vicente

Jimenez Yanson, Isidro Jimenez and Aurelia Jimenez," sentencing the defendants therein to pay a sum of money to said Bank. In order to satisfy this judgment, the Provincial Sheriff of said province sold at public auction the interest of said defendants in the aforementioned haciendas, which interest was purchased by the Bank, subject to the usual right of redemption of the judgment debtors. Not being, apparently, in a financial condition to pay the redemption price and, at the same time, being unwilling to give up their interest in thehaciendas, said judgment debtors sought the assistance of Golez, who, seemingly, did not have, as yet, the means necessary therefore. Said judgment debtors and Golez, accordingly, contacted Camara, and these three (3) parties, in turn, entered into a negotiations with the Bank. As a consequence of said negotiations, two (2) deeds were executed, namely: a. The first, notarized on December 29, 1931, was a "compromiso de venta," executed by the Philippine National Bank, Carmelo S. Camara and Isidoro Jimenez, Aurelia Jimenez and Vicente Jimenez Yanson, whereby the Bank promised to sell to Camara, its interest, not only in the seven (7) lots, constituting the Haciendas Aurelia and Buenavista, but, also in seventeen (17) lots, specifically described in said instrument, situated in the Municipalities of Isabela, La Carlota and Bago, Negros Occidental. The agreed price was P55,160.00, payable as follows: P5,516, on or before March 31, 1932, and the balance, of P49,644, by an annual delivery of 1,000 piculs of centrifugal sugar, the proceeds of the sale of which shall be applied to the satisfaction first, of the stipulated interests, and then of said price, beginning from the crop year 1932-1933. Likewise, Isidro Jimenez, Aurelia Jimenez and Vicente Jimenez Yanson, assigned, sold and conveyed to Camara the right to redeem their respective interests in said haciendas from the Bank. b. The second was a deed, dated December 31, 1931, and entitled "Escritura de Arrendamiento." It was executed by three (3) parties, viz: Vicente Jimenez Yanson, as attorney-in-fact for Adriano Golez, and Jose J. Locsin and Augusto Locsin, as lessors, and parties of the first part; Carmelo S. Camara and Antero Mijares as lessees, and parties of the second part; and Isidoro Jimenez, Filomena Jimenez, Aurelia Jimenez and Vicente Jimenez Yanson (this time in his own behalf), as parties of the third part. The stipulations in said instrument are prefaced with several whereas, pertinent parts of which read: Then the instrument goes on to say that, in consideration of the facts thus stated and of the mutual advantages that the parties expected to drive therefrom and from the lease agreement set forth in said document, the party of the first part thereby leased their respective shares in Haciendas Aurelia and Buenavista to the party of the second part, for a period of eight (8) years, beginning for the crop-year 1932-1933, extendible

for two (2) years, subject to the terms and conditions therein stated, among which are the following: It should be noted, at this juncture, that although said escritura de arrendamiento" names Carmelo S. Camara and Antero Mijares Jr. as lessees, Camara is, and has been, considered as the only lessee under said agreement. The record suggests no explanation therefor and none has been offered by the parties. But, since all of them are seemingly aggregated on the status of Camara as the sole lessee, under said "escritura, de arrendamiento," we will regard him as such for the purpose of this decision. here is now no question as to the right of the appellant to redeem the properties in question from the appellee, the latter not having appealed, and the only point that arises refers to the amount which the appellant has to pay. From the foregoing observations we are inclined to hold that the appellant should pay to the appellee the sum of P5,516, less P3,560 already paid on said item, or P1,956 with 12 per cent interest compounded annually from January, 1932 (it being admitted under appellant's evidence transcript, pp. 37-38 that the sum of P3,560 was paid at the commencement of the lease contract executed on December 31, 1931),plus the sum of P35,541.38. The latter amount, which was paid by the appellee on January 24, 1945, in Japanese military notes must be reduced to actual Philippine Currency under the Ballantyne Scale, since said disbursement could have been rapid in the same currency by the appellant during the Japanese occupation. After being so reduced, it shall also bear compound interest of twelve per cent per annum from January 24, 1945. It is clear from the foregoing facts that Camara is bound to convey to Golez, not only the interest of Isidro Jimenez, Aurelia Jimenez and Vicente Jimenez Yanson in the seven (7) lots constituting the Haciendas Aurelia and Buenavista, but, also, the other seventeen (17)lots described in the "'promise to sell" and in the, contract of lease" above-mentioned. It is true that the sale at public auction of the share of Isidoro Jimenez, Aurelia Jimenez and Vicente Jimenez Yanson, in said haciendas, was the factor responsible for the intervention of Camara in the contracts already adverted to. This fact, and the circumstances that the property leased to Camara were said haciendas, explain the emphasis given thereto in the pleadings and in the former decision of the Court of First Instance and of this Court. Again, the issues then submitted for determination revolved on the amount to be paid by Golez to Camara, which hinged primarily on the interpretation of said "escritura de arrendamiento" thus focusing attention on said contract of lease and on the property leased Haciendas Aurelia and Buenavista. However, neither said "compromiso de venta", nor the aforementioned "escritura de arrendamiento," was limited to a promise to sell or to a contract of lease. The former involved, also, a cession of the right of redemption, which, although

ostensibly made (in the promise to sell) in favor of Camara, turns out, in the language of the contract of lease which was part of one whole scheme agreed upon by the parties to be "por y para el Sr. Adriano Golez". The latter (contract of lease) contained, also, a promise to assign or sell in favor of Golez. In any event, said "compromiso de venta" expressly referred, not only to said haciendas, but also, to the seventeen (17) other lots therein describe. Similarly, the aforementioned "escritura de arrendamiento," explicitly states that one of the considerations therefor is said "compromiso de venta" of twenty-four (24) lots, the identification number of, and the location, area, and the interest held in each of which are specified therein. Said deed of lease, moreover, stipulates clearly that "una vez hecho el pago de la cantidad dicha al citado Banco Nacional Filipino, dischas propiedades cubiertas por dicha escritura de compromiso de venta . . . estaran todas entergados y en posesion del . . . Sr. Adriano Golez." In the light of the foregoing, and considering that the decision of this Court of October 3, 1953, and that of the former decision of the lower court, fixing the amount to be paid by Golez, obviously regarded that payment thereof is a condition precedent to, or the consideration for the conveyance undertaken to be made by Camara, there is no doubt in our mind that the phrase "land in question" used in the dispositive part of our aforementioned decision, referred to the twenty-four (24) lots to Golez. Wherefore, the order appealed from is hereby affirmed with costs against the appellant, Carmelo S. Camara. It is so ordered.

G.R. No. L-1904

March 3, 1906

FRANCISCO GONZALEZ QUIROS, plaintiff-appellee, vs. CARLOS PALANCA TAN-GUINLAY, defendant-appellant. Chicote, Miranda and Sierra for appellant. Joaquin R. Serra for appellee. WILLARD, J.: The plaintiff brought this action to recover the sum of 10,217.75 pesos, the value of goods sold by him to the defendant, and the sum of 64,984.89 pesos, as damages caused to plaintiff by the failure of the defendant to pay for the goods at the time agreed upon. The defendant in his answer denied all the allegations of the complaint, and further, alleged the pendency of another action for the same cause; a counterclaim to the amount of 40,000 pesos, for damages suffered by the defendant by reason of an attachment wrongfully secured by the plaintiff in 1893; and a further counterclaim for damages caused by reason of a prosecution for estafa instituted against him maliciously by the plaintiff. The court below ordered judgment in favor of the plaintiff for the value of the goods sold and delivered to the defendant, with interest thereon. He sustained the first counterclaim of the defendant, and assessed the damages suffered by the defendant by reason of the attachment referred to in the answer, at 6,347.75 pesos. The other defenses and counterclaims of the defendant the court held not to have been proven, and final judgment was entered for the plaintiff and against the defendant for 10,000 pesos and costs. Both parties have appealed from the judgment. (1) It is claimed by the defendant that there is no evidence to show the value of the goods sold by the plaintiff to the defendant, and that the documents introduced for the purpose of proving the value were not properly received. It is not necessary to pass upon the question as to the admissibility of this evidence, since the plaintiff, testifying at the trial, stated that the value of the goods so sold by him to the defendant was the amount which the court named in its judgment. (2) The goods referred to in the complaint were sold to the defendant in two parcels. The value of the first lot was 2,235.95 pesos. For the purpose of paying this sum the defendant delivered to the plaintiff a bill of exchange for 2,700 pesos, purporting to be drawn by Juan Vy-Teco to the order of Chua-Sengco on Lucio Icaza. When this bill of exchange was delivered to the plaintiff by the defendant, and apparently accepted by Lucio Icaza. By the terms of the acceptance the bill of exchange was payable on the 26th of December, 1893. The

plaintiff took the bill of exchange and paid the defendant in cash the difference between 2,700 pesos and the value of the goods sold, 2,235.95 pesos. At the maturity of the acceptance Icaza refused to pay the bill of exchange, on the ground that his signature thereto was a forgery, and nothing was ever realized thereon. The plaintiff neglected to have the bill of exchange protested for this nonpayment. The defendant claims that the court committed an error in ordering judgment for the full value of the goods sold, inasmuch as the plaintiff, by reason of his failure to protest the bill of exchange, must suffer the loss occasioned by its nonpayment. This contention, we thin, should be sustained. Article 1170 of the Civil Code is as follows: Payments of debts of money shall be made in the specie stipulated and, should it not be possible to deliver the specie, then in legal silver or gold coin current in Spain. The delivery of promissory notes to order or drafts of other commercial paper shall only produce the effects of payment when collected or when, by the fault of the creditor, their value has been affected. In the meantime the action arising form the original obligation shall be suspended. We have already held, in the case of Compaia General de Tabacos vs. Molina1 (No. 2091, 3 Off. Gaz., 678) that this section applies both to mercantile documents executed by the debtors themselves, and to those executed by third persons and delivered by the debtor to the creditor. The bill of exchange in this case comes within the second class, and by the terms of the second paragraph of article 1170 it must be considered as a payment of the debt, inasmuch as its value has been affected by the fault of the creditor (the plaintiff) in failing to have the bill of exchange protested for nonpayment. There should be deducted, therefore, from the sum allowed the plaintiff, 2,235.95 pesos. (3) In order to prove the first special defense set out by the defendant in his answer, viz, the pendency of another suit for the same cause of action, he presented in evidence a certified copy of a complaint presented in 1895 by the plaintiff against the defendant. No evidence was presented to show that the complaint had ever been answered. Under the former practice there was no lis pendens until the defendant had answered the complaint, and although it appears that various proceedings were taken in this suit relating to the attachment of the goods of the defendant, yet it nowhere appears that the defendant ever answered the complaint. This assignment of error can not, therefore, be sustained.

(4) In December, 1893, the plaintiff procured an attachment of the defendant's goods. This attachment was dissolved in 1897, and judgment ordered in favor of the defendant and against the plaintiff for damages suffered by the defendant by reason of the attachment. No proceedings were ever had to assess the damages until the defendant presented his counterclaim in the present case. It appears from the evidence that the goods of the defendant were seized under the plaintiff's attachment upon the 5th of December, 18933; that upon the 28th of January, 1894, the same goods were again attached in a suit by Germann & Co. against this defendant. What became of the goods does not appear, although there are indications that they were sold upon the attachment secured by Germann & Co. Under these circumstances the plaintiff can not be held responsible for the value of the goods. His responsibility would be limited to the damages suffered by the goods while they were held under his own attachment from the 5th day of December, 1893, until the 28th day of January, 1894, and for the time elapsing after the 28th of January he would incur certain responsibility in connection with Germann & Co., but under the evidence in the case there is no ground for holding that he is responsible for the value of the goods. There was no evidence to show how much the goods had been damaged, if at all, while they were in the possession of the plaintiff, nor was there any evidence to show how much they had been damaged after the 28th of January, and while they were subject to both attachments. The only evidence in regard to damages which the defendant offered was evidence relating to the value of the goods when they were seized under the plaintiff's attachment. As we have said, that is not the measure of damages in this case, and the defendant having failed to prove any other kind of damages, the decision of the court below allowing him the sum of 6,347 pesos as damages, can not be sustained. (5) In 1894 the plaintiff presented a criminal complaint against the defendant for estafa, by reason whereof the defendant was arrested and kept in confinement for nearly two years and half. He was released by an order or the United States military authorities on the 13th of April, 1899, but there does not appear in the record any order issued by any court authorizing this release. On the 27th of November, 1900, the plaintiff presented another criminal complaint for estafa against the defendant, based upon the same facts as was the first one. This complaint was later dismissed by the court, and the defendant discharged from custody, Article 326 of the Penal Code provides, as we have held in the case of United States vs. Agustina Barrera2 (3 Off. Gaz., 411), that no prosecution for a false accusation or complaint in a criminal case can be commenced unless the judge, in dismissing the first complaint, orders a complaint to be filed against the complaining witness for false accusation. The judgment dismissing the complaint against this defendant contained no such provision. We hold that this article applies not only to a criminal proceeding against the complaining witness, but also to civil proceedings, and that no action to recover damages in a civil suit can be

maintained by the person arrested against the person presenting the complaint, unless in the order acquitting the person arrested the judge certifies that the complaint was malicious, as required by said article 326. The defendant in this case, therefore, is not entitle to recover any damages by reason of the criminal prosecution against him. This disposes of all the errors assigned by the defendant. (6) The plaintiff also appealed, and claims that he is entitled to recover 60,000 pesos as damages which he suffered by reason of the nonpayment by the defendant of the amount due for goods sold to him by the plaintiff, saying that if the defendant had paid for the good as he agreed to do, the plaintiff could, by using the money so paid, have made 60,000 pesos in his business. This claim is based upon article 1101 of the Civil Code, which is as follows: Those who in fulfilling their obligations are guilty of fraud, negligence, or delay, and those who in any manner whatsoever act in contravention of the stipulations of the same, shall be subject to indemnify for the losses and damages caused thereby.Plaintiff says that the defendant in refusing to pay for these goods acted in a fraudulent manner. We do not think this article is at all applicable to the case at bar. Damages may be recovered under this article when the obligation is to do something other than the payment of money, but when the obligation which the defendant has failed to perform consists only in the payment of money the rule of damages is that laid down by article 1108 of the Civil Code, which is as follows: Should the obligation consist in the payment of a sum of money, and the debtor should be in default, the indemnity for losses and damages, should there not be a stipulation to the contrary, shall consist in the payment of the interest agreed upon, and should there be no agreement, in that of the legal interest. Until another rate is fixed by the Government interest at the rate of six per cent annum shall be considered as legal.And the only damages which the plaintiff can recover in thiscase for the nonpayment of the debt are those declared in this article, viz, interest at the rate of 6 per cent per annum. This being a mercantile contract the interest should commence to run from the time the debt became due. (Art. 341 of the Code of Commerce.) It is to be observed, moreover, that the plaintiff introduced no evidence showing the amount of his damages. The two mercantile experts whom he presented as witnesses testified that, from the examination they had already made, it would not be possible for them to state how much the plaintiff's damages

were. The plaintiff, after they had testified, cause them to make a further examination of his books, and after the evidence in the case had been closed, made an application to the court to be allowed to present the result of this examination. The court refused to open the case for this purpose, to which refusal the plaintiff excepted. The order made by the court in this respect falls within section 141 of the Code of Civil Procedure, and was not subject to exception. The result of an examination of the whole case is that from the sum of 10,217.75 pesos, the value of the goods sold and delivered by the plaintiff to the defendant, there should be deducted the sum of 2,235.95 pesos, on account of the bill of exchange hereinbefore referred to. The defendant is not entitled to recover any damages on account of the attachment of the goods procured by the plaintiff, for which he was allowed by the court below 6,347.75 pesos. The plaintiff therefore, is entitled to judgment against the defendant for the sum of 7,981.80 pesos, with interest at the rate of six per cent per annum from the 1st day of January, 1894, until the amount is paid, and the costs of this suit.The judgment of the court below is reversed and the case remanded, with instructions to enter judgment for the plaintiff for 7,981.80 pesos, with interest thereon at 6 per cent per annum from the 1st day of January, 1894, and for costs. No costs will be allowed to either party in this court. So ordered.

NEW PACIFIC TIMBER & SUPPLY CO. INC. VS. SENERIS NEW PACIFIC TIMBER & SUPPLY CO. INC. VS. SENERIS 10 SCRA 686
FACTS: Petitioner, New Pacific Timber & Supply Co. Inc. was the defendant in a complaint for collection of money filed by private respondent, Ricardo A. Tong. In this complaint, respondent Judge rendered a compromise judgment based on the amicable settlement entered by the parties wherein petitioner will pay to private respondent P54,500.00 at 6% interest per annum and P6,000.00 as attorneys fee of which P5,000.00 has been paid. Upon failure of the petitioner to pay the judgment obligation, a writ of execution worth P63,130.00 was issued levied on the personal properties of the petitioner. Before the date of the auction sale, petitioner deposited with the Clerk of Court in his capacity as the Ex-Officio Sheriff P50,000.00 in Cashiers Check of the Equitable Banking Corporation and P13,130.00 in cash for a total of P63,130.00. Private respondent refused to accept the

check and the cash and requested for the auction sale to proceed. The properties were sold for P50,000.00 to the highest bidder with a deficiency of P13,130.00. Petitioner subsequently filed an ex-parte motion for issuance of certificate of satisfaction of judgment which was denied by the respondent Judge. Hence this present petition, alleging that the respondent Judge capriciously and whimsically abused his discretion in not granting the requested motion for the reason that the judgment obligation was fully satisfied before the auction sale with the deposit made by the petitioner to the Ex-Officio Sheriff. In upholding the refusal of the private respondent to accept the check, the respondent Judge cited Article 1249 of the New Civil Code which provides that payments of debts shall be made in the currency which is the legal tender of the Philippines and Section 63 of the Central Bank Act which provides that checks representing deposit money do not have legal tender power. In sustaining the contention of the private respondent to refuse the acceptance of the cash, the respondent Judge cited Article 1248 of the New Civil Code which provides that creditor cannot be compelled to accept partial payment unless there is an express stipulation to the contrary. ISSUE: Can the check be considered a valid payment of the judgment obligation? RULING: Yes. It is to be emphasized that it is a wellknown and accepted practice in the business sector that a Cashiers Check is deemed cash. Moreover, since the check has been certified by the drawee bank, this certification implies that the check is sufficiently funded in the drawee bank and the funds will be applied whenever the check is presented for payment. The object of certifying a check is to enable the holder to use it as money. When the holder procures the check to be certified, it operates as an assignment of a part of the funds to the creditors. Hence, the exception provided in Section 63 of the Central Bank Act which states that checks which have been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor in cash the amount equal to that which is credited to his account. The Cashiers Check and the cash are valid payment of the obligation of the petitioner. The private respondent has no valid reason to refuse the acceptance of the check and cash as full payment of the obligation.

[G.R. No. 137798. October 4, 2000] LUCIA R. SINGSON, petitioner, vs. (PHILIPPINES), INC. respondent. DECISION GONZAGA-REYES, J.:

CALTEX

ten years, and at P4,200.00 for the succeeding ten years of the lease. On June 23, 1983, or five years before the expiration of the lease contract, petitioner asked respondent to adjust or increase the amount of rentals citing that the country was experiencing extraordinary inflation. In a letter dated August 3, 1983, respondent refused petitioner's request and declared that the terms of the lease contract are clear as to the rental amounts therein provided being "the maximum rental which the lessor may collect during the term of the lease."[4] On September 21, 1983, petitioner instituted a complaint before the RTC praying for, among other things, the payment by respondent of adjusted rentals based on the value of the Philippine peso at the time the contract of lease was executed. The complaint invoked Article 1250 of the Civil Code, stating that since the execution of the contract of lease in 1968 an extraordinary inflation had supervened resulting from the deterioration of worldwide economic conditions, a circumstance that was not foreseen and could not have been reasonably foreseen by the parties at the time they entered into contract. To substantiate its allegation of extraordinary inflation, petitioner presented as witness Mr. Narciso Uy, Assistant Director of the Supervising and Examining Sector of the Central Bank, who attested that the inflation rate increased abruptly during the period 1982 to 1985, caused mainly by the devaluation of the peso.[5] Petitioner also submitted into evidence a certification of the official inflation rates from 1966 to 1986 prepared by the National Economic Development Authority ("NEDA") based on consumer price index, which reflected that at the time the parties entered into the subject contract, the inflation rate was only 2.06%; then, it soared to 34.51% in 1974, and in 1984, reached a high of 50.34%.[6] In a decision rendered on July 15, 1991, the RTC dismissed the complaint for lack of merit. This judgment was affirmed by the Court of Appeals. Both courts found that petitioner was unable to prove the existence of extraordinary inflation from 1968 to 1983 (or from the year of the execution of the contract up to the year of the filing of the complaint before the RTC) as to justify an adjustment or increase in the rentals based upon the provisions of Article 1250 of the Civil Code. The Court of Appeals declared that although, admittedly, there was an economic inflation during the period in question, it was not such as to call for the application of Article 1250 which is made to apply only to "violent and sudden changes in the price level or uncommon or unusual decrease of the value of the currency. (It) does not contemplate of a normal or ordinary decline in the purchasing power of the peso."[7] The Court of Appeals also found similarly with the trial court that the terms of rental in the contract of lease dated July 16, 1968 are clear and unequivocal as to the specific amount of

Petitioner seeks a review on certiorari of the decision of the former Special Second Division of the Court of Appeals dated November 27, 1998,[1] affirming the decision of the Regional Trial Court of Manila, Branch 25[2] which dismissed petitioner's action for reformation of contract and adjustment of rentals. The facts of the case are undisputed --Petitioner and respondent entered into a contract of lease on July 16, 1968 over a parcel of land in Cubao, Quezon City. The land, which had an area of 1,400 square meters and was covered by Transfer Certificates of Title No. 43329 and 81636 issued by the Register of Deeds of Quezon City, was to be used by respondent as a gasoline service station. The contract of lease provides that the lease shall run for a period of twenty (20) years and shall abide by the following rental rates: xxx xxx xxx xxx Rental. --- The LESSEE agrees to pay the following rental for said premises: P2.50/sq.m. per month from the 1st to 10th years and P3.00/sq.m. per month from the 11th to 20th years, payable monthly in advance within the 1st 15 days of each month; provided that the rentals for the 1st 5 years less a discount of eleven (11) percent per annum computed on a monthly diminishing balance, shall be paid to LESSOR upon compliance of the three (3) conditions provided in clause (2) above. LESSEE also agrees to pay lessor, the sum of Six Thousand Pesos (P6,000.00) as demolition expenses, upon effectivity of this lease. The rental herein provided for is in any event the maximum rental which LESSOR may collect during the term of this lease or any renewal or extension thereof. LESSEE further agrees for thirty (30) days after written notice of such default has actually been delivered to the General Manager of Caltex (Philippines), Inc. LESSOR shall then have the right to terminate this lease on thirty (30) days written notice to LESSEE. xxx xxx xxx [3] Thus, based on the foregoing provisions of the lease contract, the monthly rental was fixed at P3,500.00 for the first

the rental rates and the fact that the rentals therein provided shall be the "maximum rental" which petitioner as lessor may collect. Absent any showing that such contractual provisions are contrary to law, morals, good customs, public order or public policy, the Court of Appeals held that there was no basis for not acknowledging their binding effect upon the parties. It also upheld the application by the trial court of the ruling in Filipino Pipe and Foundry Corporation vs. National Waterworks and Sewerage Authority, 161 SCRA 32, where the Court held that although there has been a decline in the purchasing power of the Philippine peso during the period 1961 to 1971, such downward fall of the currency could not be considered "extraordinary" and was simply a universal trend that has not spared the Philippines. Thus, the dispositive portion of the decision of the Court of Appeals reads: WHEREFORE, in view of the foregoing, the appeal is hereby DISMISSED and the decision appealed from is hereby AFFIRMED. SO ORDERED.[8] Petitioner's motion for reconsideration of the above decision was denied by the Court of Appeals in a resolution dated March 10, 1999. Aggrieved, petitioner filed this petition for review on certiorari where she assails as erroneous the decision of the Court of Appeals, specifically, (1) in ruling that Article 1250 of the Civil Code is inapplicable to the instant case, (2) in not recognizing the applicability of the principle of rebus sic stantibus, and (3) in applying the ruling in Filipino Pipe and Foundry Corporation vs. NAWASA. Petitioner contends that the monthly rental of P3.00 per square meter is patently inequitable. Based on the inflation rates supplied by NEDA, there was an unusual increase in inflation that could not have been foreseen by the parties; otherwise, they would not have entered into a relatively longterm contract of lease. She argued that the rentals in this case should not be regarded by their quantitative or nominal value, but as "debts of value", that is, the rental rates should be adjusted to reflect the value of the peso at the time the lease was contracted.[9] Petitioner also insists that the factual milieu of the present case is distinct from that in Filipino Pipe and Foundry Corporation vs. NAWASA. She pointed out that the inflation experienced by the country during the period 1961 to 1971 (the pertinent time period in the Filipino Pipe case) had a lowest of 1.35% in 1969 and a highest of 15.03% in 1971, whereas in the instant case, involving the period 1968 to 1983, there had been highly abnormal inflation rates like 34.51% in 1974

(triggered by the OPEC oil price increases in 1973) and 50.34% in 1984 (caused by the assassination of Benigno Aquino, Jr. in 1983). Petitioner argues that the placing of the country under martial rule in 1972, the OPEC oil price increases in 1973, and the Aquino assassination which triggered the EDSA revolution, were fortuitous events that drastically affected the Philippine economy and were beyond the reasonable contemplation of the parties. To further bolster her arguments, petitioner invokes by analogy the principle of rebus sic stantibus in public international law, under which a vital change of circumstances justifies a state's unilateral withdrawal from a treaty. In the herein case, petitioner posits that in pegging the monthly rental rates of P2.50 and P3.00 per square meter, respectively, the parties were guided by the economic conditions prevalent in 1968, when the Philippines faced robust economic prospects. Petitioner contends that between her and respondent, a corporation engaged in high stakes business and employing economic and business experts, it is the latter who had the unmistakable advantage to analyze the feasibility of entering into a 20-year lease contract at such meager rates. The only issue crucial to the present appeal is whether there existed an extraordinary inflation during the period 1968 to 1983 that would call for the application of Article 1250 of the Civil Code and justify an adjustment or increase of the rentals between the parties. Article 1250 of the Civil Code states: In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary. Article 1250 was inserted in the Civil Code of 1950 to abate the uncertainty and confusion that affected contracts entered into or payments made during World War II, and to help provide a just solution to future cases.[10] The Court has, in more than one occasion, been asked to interpret the provisions of Article 1250, and to expound on the scope and limits of "extraordinary inflation". We have held extraordinary inflation to exist when there is a decrease or increase in the purchasing power of the Philippine currency which is unusual or beyond the common fluctuation in the value of said currency, and such increase or decrease could not have been reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the establishment of the obligation.[11] An example of extraordinary inflation, as cited by the Court in Filipino Pipe and Foundry Corporation vs.

NAWASA, supra, is that which happened to the deutschmark in 1920.Thus: "More recently, in the 1920s, Germany experienced a case of hyperinflation. In early 1921, the value of the German mark was 4.2 to the U.S. dollar. By May of the same year, it had stumbled to 62 to the U.S. dollar. And as prices went up rapidly, so that by October 1923, it had reached 4.2 trillion to the U.S. dollar!" (Bernardo M. Villegas & Victor R. Abola, Economics, An Introduction [Third Edition]). As reported, "prices were going up every week, then every day, then every hour. Women were paid several times a day so that they could rush out and exchange their money for something of value before what little purchasing power was left dissolved in their hands. Some workers tried to beat the constantly rising prices by throwing their money out of the windows to their waiting wives, who would rush to unload the nearly worthless paper. A postage stamp cost millions of marks and a loaf of bread, billions." (Sidney Rutberg, "The Money Balloon", New York: Simon and Schuster, 1975, p. 19, cited in "Economics, An Introduction" by Villegas & Abola, 3rd Ed.) The supervening of extraordinary inflation is never assumed.[12] The party alleging it must lay down the factual basis for the application of Article 1250. Thus, in the Filipino Pipe case, the Court acknowledged that the voluminous records and statistics submitted by plaintiff-appellant proved that there has been a decline in the purchasing power of the Philippine peso, but this downward fall cannot be considered "extraordinary" but was simply a universal trend that has not spared our country.[13] Similarly, in Huibonhoa vs. Court of Appeals,[14] the Court dismissed plaintiff-appellant's unsubstantiated allegation that the Aquino assassination in 1983 caused building and construction costs to double during the period July 1983 to February 1984. In Serra vs. Court of Appeals,[15] the Court again did not consider the decline in the peso's purchasing power from 1983 to 1985 to be so great as to result in an extraordinary inflation. Like the Serra and Huibonhoa cases, the instant case also raises as basis for the application of Article 1250 the Philippine economic crisis in the early 1980s --- when, based on petitioner's evidence, the inflation rate rose to 50.34% in 1984. We hold that there is no legal or factual basis to support petitioner's allegation of the existence of extraordinary inflation during this period, or, for that matter, the entire time frame of 1968 to 1983, to merit the adjustment of the rentals in the lease contract dated July 16, 1968. Although by petitioner's evidence there was a decided decline in the purchasing power of the Philippine peso throughout this period, we are hard put to treat this as an "extraordinary inflation" within the meaning and intent of Article 1250. Rather, we adopt with approval the

following observations of the Court of Appeals on petitioner's evidence, especially the NEDA certification of inflation rates based on consumer price index: xxx (a) from the period 1966 to 1986, the official inflation rate never exceeded 100% in any single year; (b) the highest official inflation rate recorded was in 1984 which reached only 50.34%; (c) over a twenty one (21) year period, the Philippines experienced a single-digit inflation in ten (10) years (i.e., 1966, 1967, 1968, 1969, 1975, 1976, 1977, 1978, 1983 and 1986); (d) in other years (i.e., 1970, 1971, 1972, 1973, 1974, 1979, 1980, 1981, 1982, 1984 and 1989) when the Philippines experienced double-digit inflation rates, the average of those rates was only 20.88%; (e) while there was a decline in the purchasing power of the Philippine currency from the period 1966 to 1986, such cannot be considered as extraordinary; rather, it is a normal erosion of the value of the Philippine peso which is a characteristic of most currencies.[16] "Erosion" is indeed an accurate description of the trend of decline in the value of the peso in the past three to four decades. Unfortunate as this trend may be, it is certainly distinct from the phenomenon contemplated by Article 1250. Moreover, this Court has held that the effects of extraordinary inflation are not to be applied without an official declaration thereof by competent authorities.[17] Lastly, the provisions on rentals in the lease contract dated July 16, 1968 between petitioner and respondent are clear and categorical, and we have no reason to suppose that such lease contract does not reflect or express their true intention and agreement. The contract is the law between the parties and if there is indeed reason to adjust the rent, the parties could have by themselves negotiated the amendment of the contract.[18] WHEREFORE, the petition seeking the reversal of the decision of the Court of Appeals in CA-G.R. CV No. 54115 is DENIED. SO ORDERED.

Serra vs CA
229 SCRA 60, January 4, 1994 FACTS: G.R. No. 103338

Petitioner is the owner of a 374 square meter parcel of land in Masbate, Masbate. Sometime in 1975, private respondent Rizal Commercial Banking Corp., in its desire to put up a branch in Masbate, Masbate, negotiated with petitioner for the purchase of the then unregistered property. On May 20, 1975, a contract of lease with option to buy was contracted by the parties. Pursuant to said contract, a binding and other improvements were constructed on the land which housed the branch office of RCBC in Masbate, Masbate. Within three years from the signing of the contract, petitioner complied with his part of the agreement by having the property registered and placed under the TORRENS SYSTEM, for which OCT was issued by the Register of Deeds of the Province of Masbate. Petitioner alleges that as soon as he had the property registered, he kept on pursuing the manager of the branch to effect the sale of the lot as per their agreement. It was not until September 4, 1984, however, when the respondent bank decided to exercise its option and informed petitioner, of its intention to buy the property at the agreed price of not greater than P210.00 per square meter or a total of P78,430.00. But much to the surprise of the respondent, petitioner replied that he is no longer selling the property. Hence, a complaint for specific performance and damages were filed by respondent against petitioner. In the complaint, respondent alleged that during the negotiations it made clear to petitioner that it intends to stay permanently on property once its branch office is opened unless the exigencies of the business requires otherwise. Aside from its prayer for specific performance, it likewise asked for an award of P50,000.00 for attorneys tees PIOO,OOO.OO as exemplary damages and the cost of the suit. ISSUES: 1. Whether or not the disputed contract is a contract of adhesion. 2. Whether or not the petitioner may be compelled to exercise the option to buy before the time expires. 3. Whether or not there was no consideration to support the option, distinct from the price, hence the option cannot be exercised. HELD: 1. No. A contract of adhesion is one wherein a party usually a

corporation, prepares the stipulations in the contract while the other party merely affixes his signature or his adhesion thereto. These types of contract are as binding as ordinary contracts. Because in reality, the party who adheres to the contract is free to reject it entirely although this Court will not hesitate to rule out blind adherence to terms where facts and circumstances will show that it is basically one-sided. We do not find the situation in the present case to be inequitable. Petitioner is a highly educated man, who, at the time of the trial was already a CPA-Lawyer, and when he entered into the contract, was already a CPA, holding a respectable position with the Metropolitan Manila Commission. It is evident that a man of his stature should have been more cautious in transactions he enters into, particularly where it concerns valuable properties. He is amply equipped to drive a hard bargain if he would be so minded to. 2. No. In a unilateral promise to sell, where the debtor fails to withdraw the promise before the acceptance by the creditor, the transaction becomes a bilateral contract to sell and to buy, because upon acceptance by the creditor of the offer to sell by the debtor, there is already a meeting of the minds of the parties as to the thing which is determinate and the price which is certain. In which case, the parties may then reciprocally demand performance. Jurisprudence has taught us that an optional contract is a privilege existing only in one party the buyer. For a separate consideration paid, he is given the right to decide to purchase or not, a certain merchandise or properly, at any time within the agreed period, at a fixed price. This being his prerogative, he may not be compelled to exercise the option to buy before the time expires. 3. Yes. A price is considered certain if it is so with reference to another thing certain or when the determination thereof is left to the judgment of a specified person or persons. And generally, gross inadequacy of price does not affect a contract of sale. Contracts are to be construed according to the sense ai1d meaning of the terms which the parties themselves have used. In the present dispute, there is evidence to show that the intention of the parties is to peg the price at P210 per square meter. Northwest Orient Airlines v. CA 241 SCRA 192 [1995] FACTS: Petitioner was authorized to sell tickets of Northwest Airlin es-Japan, but failed to remit the proceeds. This prompted NWA to file suit against

petitioner in Tokyo and judgment was rendered in its fav or. Thereafter, the RTC issued a writ of execution for foreign courts dec ision. The petitioner filed for certiorari, asserting it has already made partial payments. The CA lowered the amount to be paid and in cluded in its decision that the amount may be paid in local currency at rate prevailing at time of payment. HELD: Under RA 529, stipulations on the satisfaction of obligatio ns in foreign currency are void. Payments of monetary obligations, subj ect to certain exceptions, shall be discharged in the currency which is the legal tender of the Philippines. But since the law doesn't provide for the rate of exchange for the payment of foreign currency obligations incurr ed after its enactment, jurisprudence held that the exchange rate sho uld be the prevailing rate at time of payment. This law has been amended, allowing payments for obligations to be made in currency other th an Philippine currency but then again, it failed to state what the excha nge rate that should be used. This being the case the jurisprudence regarding the use of the exchange rate at time of payment shall be used.

Northwest Orient Airlines v. CA 241 SCRA 192 [1995] FACTS [In 1974, an International Passenger Sales Agency Agreement was entered into by plaintiff Northwest Orient Airlines (Northwest) and defendant C.F. Sharp & Co. (Sharp), through its Japan branch, whereby Northwest authorized Sharp to sell the former's airlines tickets. Sharp failed to remit the proceeds of the ticket sales it made on behalf of Northwest under the agreement which led the latter to sue in Tokyo for collection of the unremitted amount, with claim for damages. The Tokyo District Court of Japan issued a writ of summons against Sharp at its office in Yokohama, Japan but the bailiff failed twice to serve the writs. Finally, the Tokyo District Court decided to have the writs of summons served at Sharp's head office in Manila. Sharp accepted the writs but despite such receipt, it failed to appear at the hearings. The District Court proceeded to hear the complaint and rendered judgment ordering Sharp to pay Northwest the sum of 83,158,195 Yen plus damages. Sharp failed to appeal and the judgment became final and executory. Northwest failed to execute the decision in Japan, hence, it filed a suit for enforcement of the judgment before the Regional Trial Court of Manila. Sharp filed its answer averring that the judgment of the Japanese court is null and void and unenforceable in this jurisdiction having been rendered without due and proper notice to Sharp. The case for enforcement of judgment was tried on the merits. Sharp filed a Motion for Judgment on a Demurrer to Evidence. The trial court granted the demurrer motion, holding that the foreign judgment in the Japanese court sought to be enforced is null and void for want of jurisdiction over the person of the defendant. Northwest appealed but the Court of Appeals sustained the trial court, holding that the process of the court has no extraterritorial effect and no jurisdiction was acquired over the person of the defendant by serving him beyond the boundaries of the state. Hence, this appeal by Northwest.] RULING "A foreign judgment is presumed to be valid and binding in the country from which it comes, until the contrary is shown. It is also proper to presume the regularity of the proceedings and the giving of due notice therein. Under Section 50, Rule 39 of the Rules of Court, a judgment in an action in personam of a tribunal of a foreign country having jurisdiction to pronounce the same is presumptive evidence of a right as between the parties and their successors-in-interest by a subsequent title. The judgment may, however, be assailed by evidence of want of jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law or fact. Also, under

Section 3 of Rule 131, a court, whether of the Philippines or elsewhere, enjoys the presumption that it was acting in the lawful exercise of jurisdiction and has regularly performed its official duty. Consequently, the party attacking a foreign judgment has the burden of an attempt to discharge that burden, it contends that the extraterritorial service of summons effected as its home office in the Philippines was not only ineffectual but also void, and the Japanese Court did not, therefore, acquire jurisdiction over it. It is settled that matters of remedy and procedure such as those relating to the service of process upon a defendant are governed by the lex fori or the internal law of the forum. In this case, it is the procedural law of Japan where the judgment was rendered that determines the validity of the extraterritorial service'of process on SHARP. As to what this law is is a question of fact, not of law. It may not be taken judicial notice of and must be pleaded and proved like any other fact. Sections 24 and 25, Rule 132 of the Rules of Court provide that it may be evidenced by an official publication or by a duly attested or authenticated copy thereof. It was then incumbent upon SHARP to present evidence as to what that Japanese procedural law is and to show taat under it, the assailed extraterritorial service is invalid. It did not. Accordingly, the presumption of validity and regularity of the service of summons and the decision thereafter rendered by the Japanese court must stand. Alternatively, in the light of the absence of proof regarding Japanese law, the presumption of identity or similarity or the so-called processual presumpcion may be invoked. Applying it, the Japanese law on the matter is presumed to be similar with the Philippine law on service of summons on a private foreign corporation doing business ir, the Philippines. Section 14 of the Rules of Court provides that if the defendant is a foreign corporation doing business in the Philippines, service may be made: 1) on its resident agent designated in accordance with law for that purpose, or 2) if there is no such resident agent, on the government official designated by law to that effect, or 3) on any of its officers or agents within the Philippines. If the foreign corporation has designated an agent to receive summons, the designation is exclusive, and service of summons is without force and gives the court no jurisdiction unless made upon him. Where the corporation has no such great agent, service shall be made on the government official designated by law, to wit: (a) the Insurance Commissioner, in the case of a foreign insurance company; (b) the Superintendent of Banks, in the case of a foreign banking corporation; and (c) the Securities and Exchange Commission, in the case of other foreign corporations duly licensed to do business in the Philippines. Whenever service of process is so made, the government office or official

served shall transmit by mail a copy of the summons or other legal process to the corporation at its home or principal office. The sending of such copy is a necessary part of the service. Nowhere in its pleadings did SHARP profess to having had a resident agent authorized to receive court processes in Japan. This silence could only mean, or at least create an impression, that it had none. Hence, service on the designated government official or any of its officers or agents in Japan could be availed of. As found by the Court of Appeals, it was the Tokyo District Court which ordered that summons for SHARP be served at its head office in the Philippines after the two attempts of service had failed. The Tokyo District Court requested the Supreme Court of Japan to cause the delivery of the summons and other legal documents to the Philippines. Acting on that request, the Supreme Court of Japan sent the summons together with the other legal documents to the Ministry of Foreign Affairs of Japan, which in turn, forwarded the same to the Japanese Embassy in Manila. Thereafter, the court processes were delivered to the Ministry (now Department) of Foreign Affairs of the Philippines then to the Executive Judge of the Court of First Instance (now Regional Trial Court) of Manila, who forthwith ordered Deputy Sheriff Rolando Balingit to serve the same on SHARP at its principal office in Manila. This service is equivalent to service on the proper government official under Section 14, Rule 14 of the Rules of Court, in relation to Section 128 of the Corporation Code. Hence, SHARP's contention that such manner of service is not valid under Philippine law holds no water. Inasmuch as SHARP was admittedly doing business in Japan through its four registered branches at the time the collection suit against it was filed, then in the light of the processual presumption, SHARP may be deemed a resident of JAPAN, and, as such, was amenable to the jurisdiction of the courts therein and may be deemed to have assented to the said courts' lawful methods of serving process. Accordingly, the extraterritorial service of summons on it by the Japanese Court was valid not only under the processual presumption but also because of the presumption of regularity of performance of official duty. CF SHARP & CO., INC. V. NORTHWEST AIRLINES, INC. 381 SCRA 314

VELASCO VS. NUISANCE

MANILA

ELECTRIC

CO.-

Noise may constitute a nuisance but it must be of such character as to produce actual physical discomfort and annoyance to a person of ordinary sensibilities. FACTS: Velasco bought three (3) adjoining lots. He sold two (2) of these to Meralco and maintained the last one as his residence. Meralco constructed on their lots a sub-station at a distance of 10-20 meters away from appellants house. The company also built a concrete wall at the sides along the streets but put up only an interlink wire fence (previously a sawali wall) on the boundary with appellant. An unceasing sound emanates from the substation, caused by transformers. Such, appellent contends, constitute a nuisance which has worsened his health condition and has lowered the value of his property. Several witnesses came forth but their testimonies were vague and imprecise. Resort was made to a sound level meter. The audible sound from different areas in Velasos property was measured in terms of decibels. It was found that the sound exceeded the average intensity levels of residences. ISSUE: Can there be a nuisance caused by noise or sound? HELD: Yes. Several American decisions are cited showing that noise is an actionable nuisance. In fact, Kentucky v. Anderson dealt with noise emanating from electrical machinery and appliances. The determining factor, however, is not just intensity or volume. It must be of such character as to produce actual physical discomfort and annoyance to a person of ordinary sensibilities. However, appellants testimony is too plainly biased. Nor are the witnesses testimonies revealing on account of different perceptions. Consequently, sound level

meters were used. As stated above, the sound exceeds average residential decibels. Also, the testimonies of appellants physicians (which were more reliable since they actually treated him, unlike the appellees) point to the noise as h aving caused appellant loss of sleep, irritation and tension weakening his constitution. Notable lastly is the fact that in the Kentucky case, where the nuisance was ordered abated, the average reading was 44 decibels while in the instant, the readings include 52, 54, and 55. The decision goes on to discuss the proper award of damages. But Meralco was ordered either to transfer the facilities or reduce the produced sound to around.

G.R. No. 82028 January 29, 1990 FILOMENO N. LANTION, CLARITA C. LANTION, and JUANA C. FUENTES, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION, GREGORIO ARANETA UNIVERSITY FOUNDATION and OBED JOSE MENESES, respondents. MELENCIO-HERRERA, J.: The instant controversy traces its roots to the retrenchment and reorganization program (RRR) adopted in 1983 by respondent Gregorio Araneta University Foundation (the University, for short). In particular, this Petition for Certiorari seeks a reversal of the Decision of public respondent National Labor Relations Commission (NLRC), dated 20 January 1988, which modified the judgment of the Labor Arbiter in the Illegal Dismissal Case entitled "Filomeno N. Lantion et als. vs. Gregorio Araneta University Foundation et als." in NLRC Case No. NCR-3-98185. The three (3) Complainants in this case charged the University with Illegal Dismissal, Non-payment of separation pay, retirement pay, and gratuity pay, Unfair Labor Practice with Damages, and Attorney's Fees. The first Complainant, Filomeno Lantion, was the Acting Vice President and Executive Officer of the University at the time of his dismissal. He started as a clerk and has had thirty-two (32) years and seven (7) months of service. His last monthly salary was P4,247.00. The second Complainant, Clarita C. Lantion is his wife. The last position she held was that of Dean of the Institute of Business and Agricultural Administration and concurrently Head and Professor of the Department of Business and Finance. She is a holder of a Ph. D in Commerce and has had twenty-six (26) years of service in the University. Her last monthly salary was P2,550.00. The third Complainant is Juana C. Fuentes, sister-in-law of petitioner Filomeno Lantion. She joined the University in 1967, her last position being that of Secretary of the Chief Legal Officer. She is a BSBA holder and has served the University for sixteen (16) years. Her last monthly salary was P998.00. On 15 March 1983, Mr. Cesar A. Mijares, then President of the University, addressed a letter to the Minister of Labor and

Employment informing him of the financial predicament of the University, thus: This University can no longer afford to continue operation under the present salary rates of its personnel. The reduction of personnel is not an adequate solution to this problem, because to do so would not enable the University to accommodate its present enrollment. ... Reducing the salaries of personnel even to an amount which is not below the statutory minimum is not legally allowable. Therefore, the only effective solution is for the University to have all its personnel resign and pay them their separation pays, or retirement pays, whichever is higher, so that it could effect a top-to-bottom reorganization and restructure its salary rates and other benefits not mandated by law ... After we have paid our employees their separation/retirement pays, we will immediately rehire them in accordance with new and restructured salary rates ... and without the benefits not mandated by law ..., subject to the University's actual needs under its reorganized set-up. On 29 March 1983, then Minister Ople replied: We understand that under the proposed retrenchment and reorganization plan, the following measures are envisaged: 1. a top-to-bottom University-wide reorganization, functional and structural in scope, as well as restructuring of salary rates and other personnel benefits not mandated by existing labor standard laws; 2. separation or retirement of ALL personnel with corresponding grants of termination pay or retirement benefits, whichever is higher; 3. re-hiring of ALL personnel so separated or retired under terms and conditions of employment to be established for the reorganized University Foundation, with the possible exception of those whose present positions will be affected by the proposed reorganizational changes. On the basis of the foregoing considerations, we find no serious objections that may be interposed to the proposed reorganization and retrenchment program of the University Foundation. Implementation of this program shall of course be instituted without prejudice to whatever benefits that might have accrued to the employees concerned at the effective date of reorganization. (Italics supplied).

On 14 October 1983, the Executive Committee of the Board of Trustees of the University issued a Memorandum-Circular providing, among others: The following guidelines are hereby issued: 1. All ad hoc, ad interim and temporary appointments will be considered terminated as of the date indicated in their respective appointments, or as of October 31, 1983, whichever is earlier; 2. GAUF faculty members and associates are invited to submit courtesy letters of resignation to the Executive Vice President on or before October 31,1983. Those who submit may be reappointed while those who would fail to submit may be retrenched; We come now to the respective situations of petitioners. On 10 November 1983, petitioner Filomeno Lantion received a letter, dated 9 November 1983, terminating him as the Acting VicePresident and concurrently Executive Officer of the University effective 11 November 1983. Petitioner Clarita Lantion, wife of Filomeno, was terminated as Dean of the Institute of Business and Agricultural Administration and Concurrent Head of the Department of Business, Finance, and Management effective 1 June 1984. While petitioner Fuentes, Filomeno's sister-in-law, was terminated as Secretary to the Legal Office on 21 November 1983. On 25 March 1985, petitioners filed their Complaint against the University and its President, respondent Obed Jose Meneses, before the NLRC. Petitioners maintain that their positions were not affected by the reorganization program; that they were not re-hired despite their seniority in service, superior qualifications, and efficiency; that petitioner, Clarita Lantion was replaced by a faculty member who does not even possess the necessary academic qualification required by the University and the Ministry of Education; that petitioner, Juana Fuentes, was replaced by an undergraduate and very much her junior in terms of service; that their dismissal was motivated by vindictiveness since petitioner, Filomeno, had previously testified in the administrative charge against respondent Meneses; that petitioners were illegally dismissed without the one-month notice and are entitled to their monetary claims and reinstatement without loss of seniority rights and with full backwages. Traversing the foregoing averments, the University contends that on 18 November 1983, petitioner Filomeno Lantion expressed in clear and unequivocal terms his conformity to be

retired and separated from the service such that he has no cause for illegal dismissal, much less for reinstatement; that on 3 November 1983, petitioner Clarita Lantion was extended an ad interim appointment as Acting Officer-in-Charge of the Institute of Business and Agricultural Administration up to 31 March 1984; that her appointment was extended to 31 May 1984 after which she was not reappointed so that since her appointment was for a fixed period the same had expired; she then ceased to be employed in the University and, in fact, she requested the payment of her termination benefits which has been partially met by the University; that petitioner Juana C. Fuentes tendered a courtesy resignation in a letter, dated 29 October 1983, which was accepted; that her position had been abolished; and that she had already been paid partially her retirement benefits. Referring to all three complainants, the University submits that they were not illegally dismissed nor was their removal motivated by vindictiveness; that the claim of vendetta is a childish and immature display of ill-feeling and animosity to respondent Meneses because of their futile attempt to hold or to administer the University; that the retrenchment program was already being implemented when respondent Meneses was appointed; and that the letter of some employees terminating their services was even signed by petitioner Filomeno Lantion. Resolving the issues raised, in a Decision, dated 17 June 1986, the Labor Arbiter opined that failure of respondents to pay retirement and other benefits due complainants does not make their retrenchment illegal (p. 7, Decision) since retrenchment was effected to avert bigger losses in the future. By reason thereof, the entitlement of complainants was limited to the payment of "retirement benefits under the Blue Book," namely, "to petitioner Filomeno Lantion the amount of P165,526.59; to Clarita C. Lantion P72,769.89; and to Juana C. Fuentes, P17,577.17; plus 10% interest from the date of their separation, with 10% attorney's fees. Partial payments received are deductible. All other claims are hereby dismissed." Both parties appealed to the NLRC. On 20 January 1988, the NLRC affirmed the Labor Arbiter's finding that retrenchment was not illegal since it was resorted to in order to avert the financial collapse of the University. But it modified the amounts awarded by deleting the 10% interest as well as the 10% attorney's fees and adjusting the award of COLA to Fuentes to P5,269.30. The following explanation was given in the matter of interest and attorney's fees: Regarding the correctness of the 10% interest of the monetary awards and 10% attorney's fees raised by the respondents in their appeal which is certainly an added financial burden because the complainants were not illegally dismissed nor was it proven that their discharge was motivated by ill-feelings or

vindictiveness, we find no sufficient or factual basis for the award. The 10% interest, is to our mind, in the for of damages and this must not only be prayed for but must also be properly averred and proven. With respect to the award of attorney's fees, we have considered the fact that respondents never resisted complainants' claim of retirement benefits which they are entitled to and which they have partially received even before filing of the complaint and therefore, we do not see any legal basis to award attorney's fees against respondents. In this Petition for Certiorari, petitioners assign the following errors to the NLRC: 1. The interest of l0% awarded by the Honorable Arbiter a quo is even a far cry of the amount of actual damages pleaded and duly established which were sustained by herein petitioners as a result of the non- payment of their retirement/gratuity pay and other employee benefits by private respondent. 2. The attorney's fees awarded by the Honorable Labor Arbiter a quo was also duly pleaded and established and herein petitioners are entitled to the same because of the obstinate refusal of private respondents to settle in full the money claims of the former despite verbal and written demands therefor, necessitating the filing of the instant case and hiring of the services of counsel. 3. Herein petitioners who had served respondent university from 16 to 32 years had been terminated from service discriminatorily, arbitrarily and illegally and had not been rehired by private respondents contrary to their own guidelines and those set forth by MOLE in the implementation of GAUF RRR program, and in not ordering the reinstatement with backwages of herein petitioners. The NLRC, Second Division, abusively ignored and/or totally disregarded applicable and clear-cut decision and/or rulings of the Supreme Court (in cases which transpired contemporaneously in the same respondent university which are four-square on the matter, and which decision had been timely brought to the attention of said NLRC Division causing flagrant and notorious discrimination against herein petitioners. (pp. 10-11, Rollo). Significantly, in his Comment/Memorandum, the Solicitor General supports the position adopted by petitioners, on this principal ground that the NLRC departed from the Decision of this Court in Gregorio Araneta University Foundation vs. NLRC et als., (G.R. Nos. 79525-26, October 29, 1987, 155 SCRA 301) [herein after, the First GAUF Case], in that "since petitioners' positions were not abolished, their dismissal should have been held illegal in the absence of basis to consider them retired or separated from the service under the retrenchment program of

the University nor are their dismissals in accordance with the regular rules and procedures on dismissal of employees" (p. 18, Comment). On the other hand, private respondents and the NLRC, on its own behalf, contend that there was no grave abuse of discretion amounting to lack of jurisdiction in holding that there was no basis in law and in fact for the award of 10% interest in the absence of malice or bad faith that preceded the termination of service of petitioners; nor was there reversible error in deleting the award of attorney's fees there being nothing in the record that petitioners even spent any amount for attorney's fees; that there was neither a departure from the rule in the First GAUF Case, supra, inasmuch as the complainants in those cases did not tender their resignation while petitioner Filomeno Lantion did; petitioner Clarita's reappointment was for a fixed period and the same had expired; while petitioner Clarita Fuentes had resigned. What is more, except for petitioner Clarita Fuentes, their positions had been abolished. Additionally, the University claims that petitioners have received partial payment of their retirement benefits whereas complainants in the First GAUF Case had not. We gave due course to the Petition and required the submittal of Memoranda, with which directive the parties have complied. There is a striking parallelism between the facts and issues in this case and those in the First GAUF Case. Both cases arose from the implementation of the retrenchment and reorganization program of the University. In the First GAUF Case, Complainants were permanent employees and had worked in the University from eighteen (18) to twenty-five (25) years. Petitioners in this case are also permanent employees and have rendered service within a span of from sixteen (16) to thirty-two (32) years. In both cases, Complainants were retrenched and not reappointed. The difference between the two cases lies in that in the First GAUF Case, Complainants therein did not submit their courtesy resignations, whereas in this case petitioners Clarita Lantion and Fuentes did. Petitioners Filomeno and Clarita Lantion were reappointed but were subsequently terminated because petitioner Filemeno allegedly resigned and Clarita's term had expired. Noting these similarities and variances, the NLRC held in the First GAUF Case, that the dismissal was illegal as their positions were not affected by the reorganization. But in this case the dismissal was pronounced legal and only the payment of retirement pay under the "Blue Book" was ordered. The basic question for determination is whether or not the NLRC gravely abused its discretion in holding in this case that petitioners were not illegally dismissed.

Following the First GAUF Case as a precedent, the answer must be in the affirmative. Under the guidelines to the retrenchment program given by the University and the Ministry of Labor, the following considerations emerge clear: (1) there was to be a separation or retirement of ALL personnel with corresponding grant of termination pay or retirement benefits, whichever is higher; (2) top-to-bottom University-wide reorganization subject, however, to the condition of rehiring of ALL personnel so separated or retired; (3) but with the exception of those whose present positions will be affected by the proposed reorganizational changes. That retrenchment was proper, therefore, there can be no question. The conditions laid down, however, were not religiously followed. Petitioners were not rehired although they fall outside the exception provided. Their positions were not affected by the re-organizational changes envisioned in the retrenchment program. The position of Vice-President continued to exist (Exh. K). And as far as Filomeno and Clarita Lantion are concerned, their temporary appointment to other positions could not have affected their permanent status pursuant to the ruling in the First GAUF Case. Clarita's position was neither abolished. She was replaced by another faculty member. It may be that petitioners Filomeno and Clarita Lantion had expressed their conformity to their termination, while Fuentes had tendered her courtesy resignation. As is obvious, however, those steps were but in administrative compliance with the Memorandum Circular of 14 October 1983 of the University, ante. As a matter of fact, courtesy resignations could have been dispensed with as all personnel were deemed resigned. Besides, such compliance had placed them in a better position than the Complainants in the First GAUF Case considering the proviso in the Memo-Circular of the University that "those who submit courtesy resignations may be reappointed while those who would fail to submit may be retrenched." Reinstatement of petitioners with backwages for three (3) years is thus called for as held in the First GAUF Case. In fact, in its Comment dated 10 December 1988, the NLRC now admits that petitioner Fuentes is entitled to reinstatement with three (3) years backwages as it is not clear from the records that her position as Secretary to the Legal Office was abolished under the retrenchment program of the University. Petitioners call attention, however, to the amendatory provision in Republic Act No. 6715 (March, 1989) to substantiate their contention that full backwages should be awarded. That provision reads:

Sec. 34. Article 279 of the Labor Code is hereby amended to read as follows: Art. 279. Security of Tenure- ... An employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges and to his full backwages, inclusive of allowances, and to his other benefits or their monetary equivalent computed from the time his compensation was withheld from him up to the time of his actual reinstatement. (Italics ours) Nothing in said law, however, provides for its retroactive application aside from the fact that the University is in dire financial straits and can hardly assume additional monetary obligations. As to the award by the Labor Arbiter of 10% interest on the retirement pay, respondent NLRC did not err in deleting it for lack of legal basis. There is no showing that private respondents were motivated by ill-feeling or bad faith. Respondents had effected partial payments of petitioners' retirement benefits even before the filing of this case except that payment could not be made in full due to financial constraints. An additional monetary burden may only exacerbate the University's inability to meet its monetary obligations due to its precarious financial state. In respect of the argument that the inflation that has supervened justifies the imposition of interest, this Court has held that the effects of extraordinary inflation are not to be applied without an agreement between the parties and without an official declaration thereof by competent authorities (Velasco vs. Manila Electric Co., G. R. No. L-18390, December 20, 1971, 42 SCRA 556; Commissioner of Public Highways vs. Burgos, L36706, March 31, 1980, 96 SCRA 831). And in regards attorney's fees, respondent NLRC properly disallowed the award as the same is granted only in case of unlawful withholding of wages (Gregorio Araneta University Foundation vs. NLRC, et al., G.R. No. L-75583, November 8, 1988,167 SCRA 79; Article III (a), P.D. 442 as amended). In this case, it cannot be said that wages had been unlawfully withheld by the University. In fact, it had made partial payments of retirement benefits. WHEREFORE, the Decision of respondent National Labor Relations Commission is REVERSED in so far as it holds that the dismissal of petitioners was not illegal and hereby ORDERS respondent Gregorio Araneta University Foundation to REINSTATE petitioners to their former positions with three (3) years backwages under the new terms and conditions of employment in the University as reorganized. In all other

respects, the Decision of the National Commission is AFFIRMED. No costs. SO ORDERED.

Labor

Relations

Paras, Padilla, Sarmiento and Regalado, JJ., concur.

Roman Catholic of Malolos v IAC

Facts:

The property subject matter of the contract consists of a parcel of land in the Province of Bulacan, issued and registered in the name of the petitioner which it sold to the private respondent. On July 7, 1971, the subject contract over the land in question was executed between the petitioner as vendor and the private respondent through its then president, Mr. Carlos F. Robes, as vendee, stipulating for a downpayment of P23,930.00 and the balance of P100,000.00 plus 12% interest per annum to be paid within four (4) years from execution of the contract. The contract likewise provides for cancellation, forfeiture of previous payments, and reconveyance of the land in question in case the private respondent would fail to complete payment within the said period. After the expiration of the stipulated period for payment, Atty. Adalia Francisco (president of the company who bought land) wrote the petitioner a formal request that her company be allowed to pay the principal amount of P100,000.00 in three (3) equal installments of six (6) months each with the first installment and the accrued interest of P24,000.00 to be paid immediately upon approval of the said request. The petitioner formally denied the said request of the private respondent, but granted the latter a grace period of five (5) days from the receipt of the denial to pay the total balance of P124,000.00. The private respondent wrote the petitioner requesting an extension of 30 days from said date to fully settle its account but this was still denied. Consequently, Atty. Francisco wrote a letter directly addressed to the petitioner, protesting the alleged refusal of the latter to accept tender of payment made by the former on the last day of the grace period. But the private respondent demanded the execution of a deed of absolute sale over the land in question Atty. Fernandez, wrote a reply to the private respondent stating the refusal of his client to execute the deed of absolute sale so the petitioner cancelled the contract and considered all previous payments forfeited and the land as ipso facto reconveyed. From a perusal of the foregoing facts, we find that both the

contending parties have conflicting versions on the main question of tender of payment. According to the trial court: . . . What made Atty. Francisco suddenly decide to pay plaintiffs obligation on tender her payment, when her request to extend the grace period has not yet been acted upon? Atty. Franciscos claim that she made a tender of payment is not worthy of credence. The trial court considered as fatal the failure of Atty. Francisco to present in court the certified personal check allegedly tendered as payment or, at least, its xerox copy, or even bank records thereof. Not satisfied with the said decision, the private respondent appealed to the IAC. The IAC reversed the decision of the trial court. The IAC, in finding that the private respondent had sufficient available funds, ipso facto concluded that the latter had tendered payment. ISSUE: 1. Whether or not the finding of the IAC that Atty. Francisco had sufficient available funds did tender payment for the said obligation. 2. Whether or not an offer of a check is a valid tender of payment of an obligation under a contract which stipulates that the consideration of the sale is in Philippine Currency. HELD: 1. No. Tender of payment involves a positive and unconditional act by the obligor of offering legal tender currency as payment to the obligee for the formers obligation and demanding that the latter accept the same. Thus, tender of payment cannot be presumed by a mere inference from surrounding circumstances. At most, sufficiency of available funds is only affirmative of the capacity or ability of the obligor to fulfill his part of the bargain. The respondent court was therefore in error. 2. No. In the case of Philippine Airlines v. Court of Appeals: Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment. A check, whether a managers check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor.The tender of payment by the private respondent was not valid for failure to comply with the requisite payment in legal tender or currency

stipulated

within

the

grace

period

the DECISION of the IAC is hereby SET ASIDE and ANNULLED and the DECISION of the trial court is REINSTATED.

CASE: Far East Bank & Trust Company vs. Diaz Realty, Inc.
I. FACTS In August 1973, Diaz and company contracted a loan from Pacific Banking Corporation (PaBC) amounting to P 720,000, with interest of 12% per annum which was later increased to 14%, 16%, 18% and 20% respectively. The loan was secured by a real estate mortgage over two parcels of land owned by Diaz Realty both located in Davao City. In 1981, Allied Company rented an office space in the building constructed in the land mortgaged; it was further agreed that the monthly rental payments of Allied Company shall be directly paid to the mortgagee [PaBC] for the lessors account. Allied bank paid the monthly rentals to PaBC in conformance with the contract. On July 5, 1985, Central Bank closed PaBC, placed it under receivership, and appointed Renan Santos as its liquidator. In December 1986, Far East Bank Trust Company purchased the credit of Diaz & Company in favor of PaBc. However, it was only in March 23, 1988 that Diaz was informed about the said purchase of credit. According to FEBTC, on March 23, 1988, Antonio Diaz (President of Diaz & Company and Vice-President of Diaz Realty) went to PaBCs office which by then housed FEBTC and was told that the latter had acquired PaBC. Diaz was told by cashier Ramon Lim that as of the said date, his outstanding balance with his loan is P 1,447,142.03. Diaz asked the defendant to make an accounting of Allied Banks monthly rental payments. In December 14, 1988, Diaz furnished a check to FEBTC in the amount of P 1,450, 000 to avoid further payments of interests and other penalties. However, FEBTC did not accept it as payment, instead, Diaz was asked to deposit the same to defendants Davao City Branch Office, pending the approval of Central Bank liquidator Renan Santos. In the meantime, Diaz asked the defendant to reduce the interest from 20% to 12% per annum; no reply was received from FEBTC. The defendant asked Diaz to change the P 1,450,000 payment to a money market placement which he obeyed and that which expired in April 14, 1989. When there was still no response from the defendant on whether or not it will accept his tender of payment, he filed his case at the Davao Regional Trial Court. In its responsive pleading, the defendant set up the following affirmative defenses: that in December 1986, FEBTC purchased from PaBC the account of Diaz for a total consideration of P 1,828, 875 and that despite the purchase PaBC Davao branch continued to collect interests and penalty charges on the loan from January 6, 1988 to July 8, 1988. It was not FEBTC but PaBC that collected the interest rates mentioned in the complaint and it is not true that FEBTC imposed exorbitant interest rates. That as a matter of fact, FEBTC tried to negotiate

with the plaintiffs and that FEBTC has no knowledge of the rates imposed previously by PaBC. Therefore, FEBTC could not be held responsible for transactions which took place before the purchase and that defendant acted at the right time to settle the account. II. ISSUES A. Whether or not the CA correctly ruled that the validity of the tender of payment was not properly raised in the RTC and could not thus be raised in the appeal. B. Whether or not the CA erred in failing to apply settled jurisprudential principles militating against the private respondents contention that a valid tender of payment had been made by it. C. Whether or not the CA correctly found that the transaction between petitioner and PaBC was an innefective novation and that the consent of private respondents was necessary therefor. D. Whether or not the CA erred in refusing to apply the rate of interest freely stipulated upon by the parties to the respondents obligation. E. Whether or not the CA committed an irreconcilable error in ordering the parties to re-negotiate the terms of the contract while finding at the same time that the mortgage contract containing the lease was valid. F. Whether or not the petition, as argued by private respondent raises questions of fact not reviewable by certiorari. III. RESOLUTION A. A check does not constitute legal tender, and that a creditor may validly refuse it. It must be emphasized, however, that this dictum does not prevent a creditor from accepting a check as payment. Meaning, the creditor has the option and the discretion of refusing or accepting it. Therefore, since the petitioner bank did not refuse respondents check, and since the check was cleared, it served as a valid tender of payment. B. The transfer of credit from PaBC to FEBTC is not an ineffective novation but instead a mere assignment of credit. Even so, FEBTC had the right to collect the full value of the credit from Diaz, ubject to the terms as originally agreed upon in the Promissory Note. C. Petitioner bank as assignee of respondents credit is entitled to the full interest rate of 20% in the computation of debt of Diaz as stipulated in the August 26, 1983 agreement. However, since there was a valid tender f payment made on November 14, 1988, the accrual of interest shall stop at that date. Thus, Diaz should pay FEBTC the principal amount of P 1,067,000 plus accrued interet thereon at 20% until November 14, 1988 less interest payments given to PaBc from December 1986-July 8, 1988. After that, interest should be computed at 12% per annum until full payment.

D. The petition is hereby denied. The decision of the CA is affirmed with the following modifications: respondent Diaz Realty is ordered to pay FEBTC its principal obligation amounting to P 1,067,000 with interest thereon computed ar 20% per annum until November 14, 1988 less any interest payments made to PaBC. Thereafter, interest shall be computed at 12% per annum until fully paid.

JESPAJO REALTY CORPORATION, petitioner, vs. HON. COURT OF APPEALS, TAN TE GUTIERREZ and CO TONG, respondents. DECISION AUSTRIA-MARTINEZ, J.: Before us is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to review and set aside the decision of the Court of Appeals promulgated on January 26, 1994 in CA-G.R. SP No. 27312[1] which reversed the decision of the Regional Trial Court in Civil Case No. 91-57757[2] and reinstated the Metropolitan Trial Court rulings in Civil Case No. 134022-CV, entitled, Jespajo Realty Corp., Plaintiff, vs. Tan Te Gutierrez and Co Tong, Defendants.[3] The uncontroverted facts of the case as found by the Court of Appeals are as follows: The subject of this controversy is an apartment building located at 619 Asuncion Street, Binondo, Manila and owned by Jespajo Realty Corporation. On February 1, 1985, said corporation, represented by its President, Jesus L. Uy, entered into separate contracts of lease with Tan Te Gutierrez and Co Tong.xxx Pursuant to the contract, Tan Te occupied room No. 217 of the subject building at a monthly rent of P847.00 while Co Teng occupied the Penthouse at a monthly rent of P910.00xxx The terms of the contract among others are the following: PERIOD OF LEASE- The lease period shall be effective as of February 1, 1985 and shall continue for an indefinite period provided the lessee is up-to-date in the payment of his monthly rentals. The LESSEE may, at his option, terminate this contract any time by giving sixty (60) days prior written notice of termination to the LESSOR. However, violation of any of the terms and conditions of this contract shall be a sufficient ground for termination thereof by the LESSOR. RENT INCREASE - For the duration of this contract, the LESSEE agrees to an automatic 20% yearly increase in the monthly rentals. Since the effectivity of the lease agreement on February 1985, the lessees religiously paid their respective monthly rentals together with the 20% yearly increased (sic) in the monthly rentals as stipulated in the contract. On January 2, 1990, the lessor corporation sent a written notice to the lessees informing

them of the formers intention to increase the monthly rentals on the occupied premises to P3,500.00 monthly effective February 1, 1990. The lessees through its counsel in a letter dated March 10, 1990 xxx manifested their opposition alleging that the same is in contravention of the terms of the contract of lease as agreed upon. Due to the opposition and the failure of the lessees to pay the increased monthly rentals in the amount of P3,500.00, the lessor through its counsel in a letter dated April 10,1990 xxx demanded that the lessees vacate the premises and pay the amount of P7,000.00 corresponding to the months of February and March, 1990. The lessees exerted effort to pay the rentals due for the months of February and March 1990 at the monthly rate stipulated in the contract but was refused by the lessor so that on May 2, 1990, they instituted before the Metropolitan Trial Court of Manila, Branch 16 a case for consignation xxx In the said complaint, plaintiffs alleged that the amount of P2,107.60 and P2,264.40 are the monthly rental obligations of Tan Te and Co Tong respectively. They sought to consign with the court their monthly rental obligations at the rate above mentioned for the months of February up to April 1990. Additionally, they prayed that the court issue an order directing the defendant to honor the terms and conditions of the lease. It is to be noted that on February 6, 1991, the trial judge in the consignation case issued an order allowing the plaintiffs therein to deposit with the City Treasurer of Manila the amount of P33,480.28 for Co Tong and the amount of P32,710.32 for Tan Te Gutierrez representing their respective rentals for thirteen (13) months from February, 1990 to January, 1991. This order however is without prejudice to the final outcome of the case. Plaintiffs duly complied with the order as evidenced by an official receipts (sic) xxx in the name of Tan Te Gutierrez and Co Tong, respectively, issued by the City Treasurer on February 11, 1991. On November 15, 1990, or more than six (6) months from the filing of the case for consignation, the lessor instituted an ejectment suit against the lessees before the Metropolitan Trial Court of Manila Branch 20 xxx. The court in its decision dated May 10, 1991 rendered a decision dismissing the ejectment suit for lack of merit. xxx[4] Portions of the MTC decision read: Furthermore, it appears that the plaintiff realizing that it had virtually surrendered certain aspects of its rights of ownership over the subject premises in stipulating that the lease shall continue for an indefinite period provided the LESSEE is up-to-

date in the payment of his monthly rentals, has raised the monthly rental to P3,500.00 which is much higher than the correct rental in accordance with their stipulated 20% automatic increase annually. This was done by the plaintiff apparently in order to create an artificial cause of action, as when the LESSEES would refuse, as in fact they refused, to pay the monthly rentals at the increase rate. This pretext of the plaintiff cannot be countenanced by law. Anent the final issue as to whether or not the defendants are already in arrears in the payment of rentals on the premises, it is noteworthy that the instant case for Unlawful Detainer was filed by the plaintiff-LESSOR herein only on November 15, 1990, while the LESSEES consignation case against the LESSOR-plaintiff herein based on the latters refusal to accept the rentals have been pending with Branch XVI of this Court since May 2, 1990. And, in accordance with the consignation case, the LESSEES, upon proper motion approved by the Court, deposited the amounts of P33,480.28 covered by O.R. No. B578503 (for CO TONG) and P32,710.32 covered by O.R. B578502 (for TAN TE GUTIERREZ) both receipts dated February 11, 1991. IN VIEW OF THE FOREGOING, and after careful scrutiny of the entire record including all documentary evidence adduced by both parties, this Court is of the opinion and so holds that the plaintiff (Jespajo Realty Corporation) has failed to establish its claims by preponderance of evidence. WHEREFORE, this case is hereby dismissed for utter lack of merit. The counterclaim is likewise dismissed for lack of evidence to support the same. No pronouncement as to costs. SO ORDERED.[5] Jespajo Realty Corporation then appealed to the Regional Trial Court which ruled in its favor, thus: The Court is fully convinced that the sum demanded by appellant as increase in appellees monthly rentals to the premises which they are renting from appellant is very reasonable considering that the leased premises are located in the commercial and business section of Manila in Binondo. It is also undisputed that appellant has a 24-hour security unit over the property as well as parking spaces and provisions for electricity, water and telephone services. In the light of the foregoing, the Court is constrained to reverse the appealed decision and hereby orders another judgment to be entered in favor of appellant.

WHEREFORE, PREMISES CONSIDERED, judgment is rendered as follows: 1. Reversing the decision of the court a quo insofar as it dismissed appellants complaint; 2. Declaring the termination or revocation [of the] lease contracts Annexes A and A-1, Complaint executed between appellant and appellees; 3. Ordering appellees, their heirs and all other persons acting for and in their behalf to vacate and surrender immediately the lease premises to appellant; 4. Adjudging appellees to pay unto appellant their rental arrearages of P57,426.45 for appellee (Tan Te Gutierrez) and P56,153.75 for appellee (Co Tong) as of April 30, 1991 and thereafter each appellee is ordered to pay also appellant the sum of P3,500.00 every month starting May 1, 1991 until they shall have fully vacated and surrendered the leased premises; 5. Appellees are likewise adjudged to pay the sum of P10,000.00 as and for attorneys fees, and 6. The costs of suit.

Civil Case No. 134022 CV for lack of merit is hereby REINSTATED. No pronouncement as to costs. SO ORDERED.[7] Petitioner comes before this Court with the following questions: I WHEN THE PARTIES TO A CONTRACT OF LEASE STIPULATED FOR AN INDEFINITE PERIOD AND SHALL CONTINUE FOR AS LONG AS THE LESSEE IS PAYING THE RENT, IS THE SAID CONTRACT INTERMINABLE EVEN BY THE LESSOR? II WHEN THERE IS A DISAGREEMENT ON THE RENTALS TO BE PAID, SHOULD IT BE RESOLVED IN A CONSIGNATION CASE OR IN AN EJECTMENT CASE?[8] Petitioner claims that the contracts of lease entered into between the petitioner and private respondents did not provide for a definite period, hence, Art. 1687 of the New Civil Code applies. Said Article reads: Art. 1687. If the period for the lease has not been fixed, it is understood to be from year to year, if the rent agreed upon is annual; from month to month, if it is monthly; from week to week, if the rent is weekly; and from day to day, if the rent is to be paid daily. However, even though a monthly rent is paid, and no period for the lease has been set, the courts may fix a longer term for the lease after the lessee has occupied the premises for over one year. If the rent is weekly, the courts may likewise determine a longer period after the lessee has been in possession for over six months. In case of daily rent, the courts may also fix a longer period after the lessee has stayed in the place for over one month. Petitioner cited Yek Seng Co. vs. Court of Appeals,[9] where this Court held that: [c]onformably, we hold that as the rental in the case at bar was paid monthly and the term was not expressly agreed upon, the lease was understood under Article 1687 of the Civil Code to be terminable from month to month.[10] On the premise that the lease contract was effective on a monthly basis, petitioner claims that the contract of lease with respondent has been terminated, without being renewed, after respondents refused to comply with the increased monthly rate of P3,500.00 and that this refusal even after receiving a notice of termination and a final demand letter is a valid cause of action for unlawful detainer.[11] As to the second issue, petitioner argues that the Court of Appeals erred in ruling that their allegation of respondents non-payment of rentals in the complaint for ejectment was false. Petitioner insists that when it filed the case of ejectment, private respondents had failed and refused to pay the

demanded P3,500.00 monthly rentals. Thus, petitioner correctly alleged non-payment of this rental as another ground for ejectment aside from the basic allegation of termination of the lease contract. Petitioner also contends that the issue of whether or not the P3,500.00 monthly rental should be the correct rental to be paid by the private respondents cannot properly be determined in the consignation case earlier filed by private respondents since the issue can be resolved only in the ejectment case.[12] Crucial in the resolution of this case is the construction of the lease agreement, particularly the portion on the period of lease, which reads: PERIOD OF LEASE- The lease period shall be effective as of February 1, 1985 and shall continue for an indefinite period provided the lessee is up-to-date in the payment of his monthly rentals.xxx Petitioner insists that the subject contract of lease did not provide for a definite period hence it falls under the ambit of Art. 1687 of the NCC, making the agreement effective on a month-to-month basis since rental payments are made monthly. The Court of Appeals opined otherwise. It reasoned that the application of Art. 1687 in this case is misplaced because when there is a fixed period for the lease, whether the period be definite or indefinite or when the period of the lease is expressly left to the will of the lessee, Art. 1687 will not apply[13], citing Eleizagui vs. Manila Lawn Tennis Club, 2 Phil 309. We agree with the ruling of the Court of Appeals. Art. 1687 finds no application in the case at bar. The lease contract between petitioner and respondents is with a period subject to a resolutory condition. The wording of the agreement is unequivocal: The lease period xxx shall continue for an indefinite period provided the lessee is up-todate in the payment of his monthly rentals. The condition imposed in order that the contract shall remain effective is that the lessee is up-to-date in his monthly payments. It is undisputed that the lessees Gutierrez and Co Tong religiously paid their rent at the increasing rate of 20% annually. The agreement between the lessor and the lessees are therefore still subsisting, with the original terms and conditions agreed upon, when the petitioner unilaterally increased the rental payment to more than 20% or P3,500.00 a month. Petitioner cites Puahay Lao vs. Suarez[14] where it said that the Court in the earlier case of Singson v. Baldomar,[15] rejected the theory that a lease could continue for an indefinite term so long as the lessee paid the rent, because then its continuance and fulfillment would depend solely on the

SO ORDERED.[6] However, said RTC decision was reversed by the Court of Appeals in the herein assailed decision, portions of which read: Be that as it may, We find that it was the private respondent who, in fact, violated the lease agreement by charging petitioners a monthly rental of P3,500.00, well in excess of the rental stipulated in the lease contract. We see in the refusal of private respondent to accept the rental being offered by petitioners, a scheme to place petitioners in default of their rental payments. However, said scheme was waylaid by petitioners consignation of the rentals due from them. In view of the foregoing discussion, We find no more necessity in discussing the last two (2) errors raised in the petition. We likewise find that the respondent court committed an error of fact and law in reversing the decision of the Metropolitan Trial Court of Manila and in arriving at the decision under review. WHEREFORE, the decision under review is hereby REVERSED and SET ASIDE. The decision dated May 10, 1991 of the Metropolitan Trial Court of Manila, Branch XX which dismissed

free and uncontrolled choice of the tenant between continuing to pay rentals or not, thereby depriving the lessors of all say in the matter as it would be contrary to the spirit of Article 1256 of the Old Civil Code, now Article 1308 of the New Civil Code of the Philippines which provides that validity or compliance of contracts can not be left to the will of one of the parties. [16] A review of the Puahay and Singson cases shows that the factual backgrounds therein are not the same as in the case at bar. In those cases, the lessees were actually in arrears with their rental payments. The Court, in the Puahay case, ruled that the lessor had the right to terminate the lease under par. 3, Art. 1673 of the Civil Code, declaring that the lessor may judicially eject the lessee for violation of any of the conditions agreed upon in the contract.[17] In the case of Singson, the lease contract was expressly on a month-to-month basis. The contention of the petitioner that a provision in a contract that the lease period shall subsist for an indefinite period provided the lessee is up-to-date in the payment of his monthly rentals is contrary to Art. 1308 of the Civil Code is not plausible. As expounded by the Court in the case of Philippine Banking Corporation vs. Lui She:[18] We have had occasion to delineate the scope and application of article 1308 in the early case of Taylor v. Uy Tieng Piao.[19] We said in that case: Article 1256 [now art. 1308] of the Civil Code in our opinion creates no impediment to the insertion in a contract for personal service of a resolutory condition permitting the cancellation of the contract by one of the parties. Such a stipulation, as can be readily seen, does not make either the validity or the fulfillment of the contract dependent upon the will of the party to whom is conceded the privilege of cancellation; for where the contracting parties have agreed that such option shall exist, the exercise of the option is as much in the fulfillment of the contract as any other act which may have been the subject of agreement. xxx.[20] Also held in the recent case of Allied Banking Corp. vs. CA where this Court upheld the validity of a contract provision in favor of the lessee:
[21]

fulfillment dependent solely upon the uncontrolled will of one of the contracting parties. An express agreement which gives the lessee the sole option to renew the lease is frequent and subject to statutory restrictions, valid and binding on the parties. This option, which is provided in the same lease agreement, is fundamentally part of the consideration in the contract and is no different from any other provision of the lease carrying an undertaking on the part of the lessor to act conditioned on the performance by the lessee. xxx The fact that such option is binding only on the lessor and can be exercised only by the lessee does not render it void for lack of mutuality. After all, the lessor is free to give or not to give the option to the lessee. And while the lessee has a right to elect whether to continue with the lease or not, once he exercises his option to continue and the lessor accepts, both parties are thereafter bound by the new lease agreement. Their rights and obligations become mutually fixed, and the lessee is entitled to retain possession of the property for the duration of the new lease, and the lessor may hold him liable for the rent therefor. The lessee cannot thereafter escape liability even if he should subsequently decide to abandon the premises. Mutuality obtains in such a contract and equality exists between the lessor and the lessee since they remain with the same faculties in respect to fulfillment.[22] (Emphasis supplied) As correctly ruled by the MTC in its decision, the grant benefit of the period in favor of the lessee was given exchange for no less than an automatic 20% yearly increase monthly rentals. This additional condition was not present the Puahay and Singson cases. of in in in

will extricate a party from an unwise or undesirable contract he or she entered into with all the required formalities and will full awareness of its consequences.[25] Anent the second issue, we likewise hold that the contention of petitioner is without merit. The Court of Appeals found that the petitioners allegation of respondents nonpayment is false. This is a finding of fact which we respect and uphold, absent any showing of arbitrariness or grave abuse on the part of the court. Furthermore, the statement of petitioner that the correct amount of rents cannot be considered in a consignation case but only in the ejectment case is misleading because nowhere in the decision of the appellate court did it state otherwise. This second issue is clearly just a futile attempt to overthrow the appellate courts ruling. Nevertheless, suffice it to be stated that under Article 1258 of the Civil Code which provides: Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom to tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases. The consignation having been made, the interested parties shall also be notified thereof. the rationale for consignation is to avoid the performance of an obligation becoming more onerous to the debtor by reason of causes not imputable to him.[26] Whether or not petitioner has a cause of action to eject private respondents from the leased premises due to refusal of the lessees to pay the increased monthly rentals had been duly determined in the ejectment case by the Municipal Trial Court which was correctly upheld by the Court of Appeals. WHEREFORE, finding no error in the assailed decision, we DENY the petition for lack of merit and AFFIRM the decision of the Court of Appeals. Costs against petitioner. SO ORDERED.

Moreover, the express provision in the lease agreement of the parties that violation of any of the terms and conditions of the contract shall be sufficient ground for termination thereof by the lessor, removes the contract from the application of Article 1308. Lastly, after having the lessees believe that their lease contract is one with an indefinite period subject only to prompt payment of the monthly rentals by the lessees, we agree with private respondents that the lessor is estopped from claiming otherwise.[23] In the case of Opulencia vs. Court of Appeals,[24] this Court held that petitioner is estopped from backing out of her representations in the contract with respondent, that is, she may not renege on her own acts and representations, to the prejudice of the respondents who relied on them. We have held in a long line of cases that neither the law nor the courts

xxx Article 1308 of the Civil Code expresses what is known in law as the principle of mutuality of contracts. xxx This binding effect of a contract on both parties is based on the principle that the obligations arising from contracts have the force of law between the contracting parties, and there must be mutuality between them based essentially on their equality under which it is repugnant to have one party bound by the contract while leaving the other free therefrom. The ultimate purpose is to render void a contract containing a condition which makes its

G.R. No. 166704

December 20, 2006

AGRIFINA AQUINTEY, petitioner, vs. SPOUSES FELICIDAD AND RICO TIBONG, respondents.

Agrifina appended a copy of the Counter-Affidavit executed by Felicidad in I.S. No. 93-334, as well as copies of the promissory notes and acknowledgment receipts executed by Felicidad covering the loaned amounts.5 In their Answer with Counterclaim,6 spouses Tibong admitted that they had secured loans from Agrifina. The proceeds of the loan were then re-lent to other borrowers at higher interest rates. They, likewise, alleged that they had executed deeds of assignment in favor of Agrifina, and that their debtors had executed promissory notes in Agrifina's favor. According to the spouses Tibong, this resulted in a novation of the original obligation to Agrifina. They insisted that by virtue of these documents, Agrifina became the new collector of their debtors; and the obligation to pay the balance of their loans had been extinguished. The spouses Tibong specifically denied the material averments in paragraphs 2 and 2.1 of the complaint. While they did not state the total amount of their loans, they declared that they did not receive anything from Agrifina without any written receipt.7 They prayed for that the complaint be dismissed. Amount

Felicidad, and each loan transaction was covered by either a promissory note or an acknowledgment receipt.11Agrifina stated that she had lost the receipts signed by Felicidad for the following amounts: P100,000.00,P34,000.00 and P2,000.00.12 The particulars of the transactions are as Date Obtained May 11, 1989 June 8, 1989 June 13, 1989 Aug. 16, 1989 Oct. 13, 1989 Oct. 19, 1989 Nov. 12, 1989 June 13, 1990 Jan. 4, 1990 July 14, 1989 follows: According to Agrifina, Felicidad was able to pay only her loans amounting to P122,600.00.14 In July 1990, Felicidad gave to Agrifina City Trust Bank Check No. 126804 dated August 25, 1990 in the amount ofP50,000.00 as partial payment.15 However, the check was dishonored for having been drawn against insufficient funds.16 Agrifina then filed a criminal case against Felicidad in the Office of the City Prosecutor. An Information for violation of Batas Pambansa Bilang 22 was filed against Felicidad, docketed as Criminal Case No. 11181-R. After trial, the court ordered Felicidad to pay P50,000.00. Felicidad complied and paid the face value of the check.17 In the meantime, Agrifina learned that Felicidad had re-loaned the amounts to other borrowers.18 Agrifina sought the assistance of Atty. Torres G. A-ayo who advised her to require Felicidad to execute deeds of assignment over Felicidad's debtors. The lawyer also suggested that Felicidad's debtors execute promissory notes in Agrifina's favor, to "turn over" their loans from Felicidad. This arrangement would facilitate collection of Felicidad's account. Agrifina agreed to the proposal.19 Agrifina, Felicidad, and the latter's debtors had a conference20 where Atty. A-ayo explained that Agrifina could apply her collections as payments of Felicidad's account.21 From August 7, 1990 to October, 1990, Felicidad executed deeds of assignment of credits (obligations)22 duly notarized by Interest Mo. 6% 6% 7% 7% 7% 6% 6% 5% Per Due Date August 11, 1989 On demand January 1990 January 1990 January 1990 April 28, 1990 October 19, 1989 October 198913

DECISION CALLEJO, SR., J.: Before us is a petition for review under Rule 45 of the Revised Rules on Civil Procedure of the Decision1 of the Court of Appeals in CA-G.R. CV No. 78075, which affirmed with modification the Decision2 of the Regional Trial Court (RTC), Branch 61, Baguio City, and the Resolution3 of the appellate court denying reconsideration thereof. The Antecedents On May 6, 1999, petitioner Agrifina Aquintey filed before the RTC of Baguio City, a complaint for sum of money and damages against the respondents, spouses Felicidad and Rico Tibong. Agrifina alleged that Felicidad had secured loans from her on several occasions, at monthly interest rates of 6% to 7%. Despite demands, the spouses Tibong failed to pay their outstanding loan, amounting to P773,000.00 exclusive of interests. The complaint contained the following prayer: WHEREFORE, premises considered, it is most respectfully prayed of this Honorable Court, after due notice and hearing, to render judgment ordering defendants to pay plaintiff the following: a). SEVEN HUNDRED SEVENTY-THREE THOUSAND PESOS (P773,000.00) representing the principal obligation of the defendants with the stipulated interests of six (6%) percent per month from May 11, 1999 to date and or those that are stipulated on the contracts as mentioned from paragraph two (2) of the complaint. b). FIFTEEN PERCENT (15%) obligations as attorney's fees. of the total accumulated

P 100,000.00 4,000.00 50,000.00 60,000.00 205,000.00 128,000.00 2,000.00 10,000.00 80,000.00 34,000.00 100,000.00

In their Pre-Trial Brief, the spouses Tibong maintained that they have never obtained any loan from Agrifina without the benefit of a written document.8 On August 17, 2000, the trial court issued a Pre-Trial Order where the following issues of the case were defined: Whether or not plaintiff is entitled to her claim of P773,000.00; Whether or not plaintiff is entitled to stipulated interests in the promissory notes; and Whether or not the parties are entitled to their claim for damages.9 The Case for Petitioner Agrifina and Felicidad were classmates at the University of Pangasinan. Felicidad's husband, Rico, also happened to be a distant relative of Agrifina. Upon Felicidad's prodding, Agrifina agreed to lend money to Felicidad. According to Felicidad, Agrifina would be earning interests higher than those given by the bank for her money. Felicidad told Agrifina that since she (Felicidad) was engaged in the sale of dry goods at the GP Shopping Arcade, she would use the money to buy bonnels and thread.10 Thus, Agrifina lent a total sum of P773,000.00 to

c). Actual expenses representing the filing fee and other charges and expenses to be incurred during the prosecution of this case. Further prays for such other relief and remedies just and equitable under the premises.4

Atty. A-ayo, in which Felicidad transferred and assigned to Agrifina the total amount of P546,459.00 due from her debtors.23 In the said deeds, Felicidad confirmed that her debtors were no longer indebted to her for their respective loans. For her part, Agrifina conformed to the deeds of assignment relative to the loans of Virginia Morada and Corazon Dalisay.24 She was furnished copies of the deeds as well as the promissory notes.25 The following debtors of Felicidad executed promissory notes where they obliged themselves to pay directly to Agrifina: Debtors Juliet & Tommy Tibong Corazon Dalisay Rita Chomacog Antoinette Manuel Rosemarie Bandas Fely Cirilo Virginia Morada Carmelita Casuga Merlinda Gelacio Total Account P50,000.00 8,000.00 4,480.00 12,000.00 8,000.00 63,600.00 62,379.00 59,000.00 17,200.00 P284,659.00 Date of Instrument August 7, 1990 August 7, 1990 August 8, 1990 October 19, 1990 August 8, 1990 September 13, 1990 August 9, 1990 August 28, 1990 August 29, 1990

lend the money to borrowers at a higher interest rate. Their business relationship turned sour when Agrifina started complaining that she (Felicidad) was actually earning more than Agrifina.35 Before the respective maturity dates of her debtors' loans, Agrifina asked her to pay her account since Agrifina needed money to buy a house and lot in Manila. However, she told Agrifina that she could not pay yet, as her debtors' loan payments were not yet due.36 Agrifina then came to her store every afternoon to collect from her, and persuaded her to go to Atty. Torres G. A-ayo for legal advice.37 The lawyer suggested that she indorse the accounts of her debtors to Agrifina so that the latter would be the one to collect from her debtors and she would no longer have any obligation to Agrifina.38 She then executed deeds of assignment in favor of Agrifina covering the Date Payable sums of money4, due from herFebruary debtors. 4, She signed the deeds November 1990 and 39 prepared 1991 by Atty. A-ayo in the presence of Agrifina. Some of the debtors signed the promissory notes which were likewise No date prepared by the lawyer. Thereafter, Agrifina personally September 23, 1990 debtors.40 Felicidad further narrated collected from Felicidad's 30, 1991 that March she received P250,000.00 from one of her debtors, Rey 41 Rivera, and remitted February 3, 1991the payment to Agrifina. No date Agrifina testified, on rebuttal, that she did not enter into a reFebruary 9, 1991 lending business with February 28, 1991 Felicidad. When she asked Felicidad to consolidate her loans in one document, the latter told her to 26 29, 1990 seekNovember the assistance of Atty. A-ayo.42 The lawyer suggested that Felicidad assign her credits in order to help her collect her loans.43 She agreed to the deeds of assignment to help Felicidad collect from the debtors.44

executed by Felicidad's borrowers. It explained that the documents did not contain any express agreement to novate and extinguish Felicidad's obligation. It declared that the deeds and notes were separate contracts which could stand alone from the original indebtedness of Felicidad. Considering, however, Agrifina's admission that she was able to collect from Felicidad's debtors the total amount of P301,000.00, this should be deducted from the latter's accountability.47 Hence, the balance, exclusive of interests, amounted to P472,000.00. On appeal, the CA affirmed with modification the decision of the RTC and stated that, based on the promissory notes and acknowledgment receipts signed by Felicidad, the appellants secured loans from the appellee in the total principal amount of only P637,000.00, not P773,000.00 as declared by the trial court. The CA found that, other than Agrifina's bare testimony that she had lost the promissory notes and acknowledgment receipts, she failed to present competent documentary evidence to substantiate her claim that Felicidad had, likewise, borrowed the amounts of P100,000.00, P34,000.00, and P2,000.00. Of the P637,000.00 total account, P585,659.00 was covered by the deeds of assignment and promissory notes; hence, the balance of Felicidad's account amounted to only P51,341.00. The fallo of the decision reads: WHEREFORE, in view of the foregoing, the decision dated January 20, 2003 of the RTC, Baguio City, Branch 61 in Civil Case No. 4370-R is hereby MODIFIED. Defendants-appellants are hereby ordered to pay the balance of the total indebtedness in the amount of P51,341.00 plus the stipulated interest of 6% per month from May 11, 1999 until the finality of this decision. SO ORDERED.48

Agrifina narrated that Felicidad showed to her the way to the debtors' houses to enable her to collect from them. One of the debtors, Helen Cabang, did not execute any promissory note but conformed to the Deed of Assignment of Credit which Felicidad executed in favor of Agrifina.27 Eliza Abance conformed to the deed of assignment for and in behalf of her sister, Fely Cirilo.28 Edna Papat-iw was not able to affix her signature on the deed of assignment nor sign the promissory note because she was in Taipei, Taiwan.29 Following the execution of the deeds of assignment and promissory notes, Agrifina was able to collect the total amount of P301,000.00 from Felicidad's debtors.30 In April 1990, she tried to collect the balance of Felicidad's account, but the latter told her to wait until her debtors had money.31 When Felicidad reneged on her promise, Agrifina filed a complaint in the Office of the Barangay Captain for the collection of P773,000.00. However, no settlement was arrived at.32 The Case for Respondents Felicidad testified that she and her friend Agrifina had been engaged in the money-lending business.33 Agrifina would lend her money with monthly interest,34 and she, in turn, would re-

On January 20, 2003, the trial court rendered its Decision45 in favor of Agrifina. The fallo of the decision reads: WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendants ordering the latter to pay the plaintiffs (sic) the following amounts: 1. P472,000 as actual obligation with the stipulated interest of 6% per month from May 11, 1999 until the said obligation is fully paid. However, the amount of P50,000 shall be deducted from the total accumulated interest for the same was already paid by the defendant as admitted by the plaintiff in her complaint, 2. P25,000 as attorney's fees, 3. [T]o pay the costs. SO ORDERED.46 The trial court ruled that Felicidad's obligation had not been novated by the deeds of assignment and the promissory notes

The appellate court sustained the trial court's ruling that Felicidad's obligation to Agrifina had not been novated by the deeds of assignment and promissory notes executed in the latter's favor. Although Agrifina was subrogated as a new creditor in lieu of Felicidad, Felicidad's obligation to Agrifina under the loan transaction remained; there was no intention on their part to novate the original obligation. Nonetheless, the appellate court held that the legal effects of the deeds of assignment could not be totally disregarded. The assignments of credits were onerous, hence, had the effect of payment, pro tanto, of the outstanding obligation. The fact that Agrifina never repudiated or rescinded such assignments only shows that she had accepted and conformed to it. Consequently, she cannot collect both from Felicidad and her individual debtors without running afoul to the principle of unjust enrichment. Agrifina's primary recourse then is against Felicidad's individual debtors on the basis of the deeds of assignment and promissory notes.

The CA further declared that the deeds of assignment executed by Felicidad had the effect of payment of her outstanding obligation to Agrifina in the amount of P585,659.00. It ruled that, since an assignment of credit is in the nature of a sale, the assignors remained liable for the warranties as they are responsible for the existence and legality of the credit at the time of the assignment. Both parties moved to have the decision reconsidered,49 but the appellate court denied both motions on December 21, 2004.50 Agrifina, now petitioner, filed the instant petition, contending that 1. The Honorable Court of Appeals erred in ruling that the deeds of assignment in favor of petitioner has the effect of payment of the original obligation even as it ruled out that the original obligation and the assigned credit are distinct and separate and can stand independently from each other; 2. The Honorable Court of Appeals erred in passing upon issues raised for the first time on appeal; and 3. The Honorable Court of Appeals erred in resolving fact not in issue.51 Petitioner avers that the appellate court erred in ruling that respondents' original obligation amounted to onlyP637,000.00 (instead of P773,000.00) simply because she lost the promissory notes/receipts which evidenced the loans executed by respondent Felicidad Tibong. She insists that the issue of whether Felicidad owed her less thanP773,000.00 was not raised by respondents during pre-trial and in their appellate brief; the appellate court was thus proscribed from taking cognizance of the issue. Petitioner avers that respondents failed to deny, in their verified answer, that they had secured the P773,000.00 loan; hence, respondents are deemed to have admitted the allegation in the complaint that the loans secured by respondent from her amounted to P773,000.00. As gleaned from the trial court's pre-trial order, the main issue is whether or not she should be made to pay this amount. Petitioner further maintains that the CA erred in deducting the total amount of P585,659.00 covered by the deeds of assignment executed by Felicidad and the promissory notes executed by the latter's debtors, and that the balance of respondents' account was only P51,341.00. Moreover, the appellate court's ruling that there was no novation runs counter to its holding that the primary recourse was against Felicidad's debtors. Petitioner avers that of the 11 deeds of assignment

and promissory notes, only two bore her signature.52 She insists that she is not bound by the deeds which she did not sign. By assigning the obligation to pay petitioner their loan accounts, Felicidad's debtors merely assumed the latter's obligation and became co-debtors to petitioner. Respondents were not released from their obligation under their loan transactions, and she had the option to demand payment from them or their debtors. Citing the ruling of this Court in Magdalena Estates, Inc. v. Rodriguez,53 petitioner insists that the first debtor is not released from responsibility upon reaching an agreement with the creditor. The payment by a third person of the first debtor's obligation does not constitute novation, and the creditor can still enforce the obligation against the original debtor. Petitioner also cites the ruling of this Court in Guerrero v. Court of Appeals.54 In their Comment on the petition, respondents aver that by virtue of respondent Felicidad's execution of the deeds of assignment, and the original debtors' execution of the promissory notes (along with their conformity to the deeds of assignment with petitioner's consent), their loan accounts with petitioner amounting to P585,659.00 had been effectively extinguished. Respondents point out that this is in accordance with Article 1291, paragraph 2, of the Civil Code. Thus, the original debtors of respondents had been substituted as petitioner's new debtors. Respondents counter that petitioner had been subrogated to their right to collect the loan accounts of their debtors. In fact, petitioner, as the new creditor of respondents' former debtors had been able to collect the latter's loan accounts which amounted to P301,000.00. The sums received by respondents' debtors were the same loans which they obliged to pay to petitioner under the promissory notes executed in petitioner's favor. Respondents aver that their obligation to petitioner cannot stand or exist separately from the original debtors' obligation to petitioner as the new creditor. If allowed to collect from them as well as from their original debtors, petitioner would be enriching herself at the expense of respondents. Thus, despite the fact that petitioner had collected P172,600.00 from respondents and P301,000.00 from the original debtors, petitioner still sought to collect P773,000.00 from them in the RTC. Under the deeds of assignment executed by Felicidad and the original debtors' promissory notes, the original debtors' accounts were assigned to petitioner who would be the new creditor. In fine, respondents are no longer liable to petitioner for the balance of their loan account inclusive of interests. Respondents also insist that petitioner failed to prove that she (petitioner) was merely authorized to collect the accounts of the original debtors so as to to facilitate the payment of respondents' loan obligation.

The Issues The threshold issues are: (1) whether respondent Felicidad Tibong borrowed P773,000.00 from petitioner; and (2) whether the obligation of respondents to pay the balance of their loans, including interest, was partially extinguished by the execution of the deeds of assignment in favor of petitioner, relative to the loans of Edna Papat-iw, Helen Cabang, Antoinette Manuel, and Fely Cirilo in the total amount of P371,000.00. The Ruling of the Court We have carefully reviewed the brief of respondents as appellants in the CA, and find that, indeed, they had raised the issue of whether they received P773,000.00 by way of loans from petitioner. They averred that, as gleaned from the documentary evidence of petitioner in the RTC, the total amount they borrowed was onlyP673,000.00. They asserted that petitioner failed to adduce concrete evidence that they received P773,000.00 from her.55 We agree, however, with petitioner that the appellate court erred in reversing the finding of the RTC simply because petitioner failed to present any document or receipt signed by Felicidad. Section 10, Rule 8 of the Rules of Civil Procedure requires a defendant to "specify each material allegation of fact the truth of which he does not admit and, whenever practicable, x x x set forth the substance of the matters upon which he relies to support his denial.56 Section 11, Rule 8 of the same Rules provides that allegations of the complaint not specifically denied are deemed admitted.57 The purpose of requiring the defendant to make a specific denial is to make him disclose the matters alleged in the complaint which he succinctly intends to disprove at the trial, together with the matter which he relied upon to support the denial. The parties are compelled to lay their cards on the table.58 A denial is not made specific simply because it is so qualified by the defendant. A general denial does not become specific by the use of the word "specifically." When matters of whether the defendant alleges having no knowledge or information sufficient to form a belief are plainly and necessarily within the defendant's knowledge, an alleged "ignorance or lack of information" will not be considered as a specific denial. Section 11, Rule 8 of the Rules also provides that material averments in the complaint other than those as to the amount of unliquidated damages shall be deemed admitted when not

specifically denied.59 Thus, the answer should be so definite and certain in its allegations that the pleader's adversary should not be left in doubt as to what is admitted, what is denied, and what is covered by denials of knowledge as sufficient to form a belief.60 In the present case, petitioner alleged the following in her complaint: 2. That defendants are indebted to the plaintiff in the principal amount of SEVEN HUNDRED SEVENTY-THREE THOUSAND PESOS (P773,000.00) Philippine Currency with a stipulated interest which are broken down as follows. The said principal amounts was admitted by the defendants in their counteraffidavit submitted before the court. Such affidavit is hereby attached as Annex "A;"61 H) The sum of THIRTY FOUR THOUSAND PESOS (P34,000.00) with interest at six (6%) per cent per month and payable on October 19, 1989, however[,] the receipt for the meantime cannot be recovered as it was misplaced by the plaintiff but the letter of defendant FELICIDAD TIBONG is hereby attached as Annex "H" for the appreciation of the Honorable court; I) The sum of ONE HUNDRED THOUSAND PESOS (P100,000.00) with interest at five (5%) percent per month, obtained on July 14, 1989 and payable on October 14, 1989. Such receipt was lost but admitted by the defendants in their counter-affidavit as attached [to] this complaint and marked as Annex "A" mentioned in paragraph one (1); x x x62 In their Answer, respondents admitted that they had secured loans from petitioner. While the allegations in paragraph 2 of the complaint were specifically denied, respondents merely averred that petitioner and respondent Felicidad entered into an agreement for the lending of money to interested borrowers at a higher interest rate. Respondents failed to declare the exact amount of the loans they had secured from petitioner. They also failed to deny the allegation in paragraph 2 of the complaint that respondent Felicidad signed and submitted a counter-affidavit in I.S. No. 93-334 where she admitted having secured loans from petitioner in the amount of P773,000.00. Respondents, likewise, failed to deny the allegation in paragraph 2(h) of the complaint that respondents had secured a P34,000.00 loan payable on October 19, 1989, evidenced by a receipt which petitioner had misplaced. Although respondents specifically denied in paragraph 2.11 of their Answer the allegations in paragraph 2(I) of the complaint, they merely alleged that "they have not received sums of money from the plaintiff without any receipt therefor."

Respondents, likewise, failed to specifically deny another allegation in the complaint that they had secured aP100,000.00 loan from petitioner on July 14, 1989; that the loan was payable on October 14, 1989; and evidenced by a receipt which petitioner claimed to have lost. Neither did respondents deny the allegation that respondents admitted their loan of P100,000.00 in the counter-affidavit of respondent Felicidad, which was appended to the complaint as Annex "A." In fine, respondents had admitted the existence of their P773,000.00 loan from petitioner. We agree with the finding of the CA that petitioner had no right to collect from respondents the total amount ofP301,000.00, which includes more than P178,980.00 which respondent Felicidad collected from Tibong, Dalisay, Morada, Chomacog, Cabang, Casuga, Gelacio, and Manuel. Petitioner cannot again collect the same amount from respondents; otherwise, she would be enriching herself at their expense. Neither can petitioner collect from respondents more than P103,500.00 which she had already collected from Nimo, Cantas, Rivera, Donguis, Fernandez and Ramirez. There is no longer a need for the Court to still resolve the issue of whether respondents' obligation to pay the balance of their loan account to petitioner was partially extinguished by the promissory notes executed by Juliet Tibong, Corazon Dalisay, Rita Chomacog, Carmelita Casuga, Merlinda Gelacio and Antoinette Manuel because, as admitted by petitioner, she was able to collect the amounts under the notes from said debtors and applied them to respondents' accounts. Under Article 1231(b) of the New Civil Code, novation is enumerated as one of the ways by which obligations are extinguished. Obligations may be modified by changing their object or principal creditor or by substituting the person of the debtor.63 The burden to prove the defense that an obligation has been extinguished by novation falls on the debtor.64 The nature of novation was extensively explained in Iloilo Traders Finance, Inc. v. Heirs of Sps. Oscar Soriano, Jr.,65 as follows: Novation may either be extinctive or modificatory, much being dependent on the nature of the change and the intention of the parties. Extinctive novation is never presumed; there must be an express intention to novate; in cases where it is implied, the acts of the parties must clearly demonstrate their intent to dissolve the old obligation as the moving consideration for the emergence of the new one. Implied novation necessitates that the incompatibility between the old and new obligation be total on every point such that the old obligation is completely superseded by the new one. The test of incompatibility is whether they can stand together, each one having an independent existence; if they cannot and are irreconciliable, the subsequent obligation would also extinguish the first.

An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and, second, creating a new one in its stead. This kind of novation presupposes a confluence of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation. Novation is merely modificatory where the change brought about by any subsequent agreement is merely incidental to the main obligation (e.g., a change in interest rates or an extension of time to pay); in this instance, the new agreement will not have the effect of extinguishing the first but would merely supplement it or supplant some but not all of its provisions.66 (Citations Omitted) Novation which consists in substituting a new debtor (delegado) in the place of the original one (delegante) may be made even without the knowledge or against the will of the latter but not without the consent of the creditor. Substitution of the person of the debtor may be effected by delegacion, meaning, the debtor offers, and the creditor (delegatario), accepts a third person who consents to the substitution and assumes the obligation. Thus, the consent of those three persons is necessary.67 In this kind of novation, it is not enough to extend the juridical relation to a third person; it is necessary that the old debtor be released from the obligation, and the third person or new debtor take his place in the relation.68 Without such release, there is no novation; the third person who has assumed the obligation of the debtor merely becomes a codebtor or a surety. If there is no agreement as to solidarity, the first and the new debtor are considered obligated jointly.69 In Di Franco v. Steinbaum,70 the appellate court ruled that as to the consideration necessary to support a contract of novation, the rule is the same as in other contracts. The consideration need not be pecuniary or even beneficial to the person promising. It is sufficient if it be a loss of an inconvenience, such as the relinquishment of a right or the discharge of a debt, the postponement of a remedy, the discontinuance of a suit, or forbearance to sue. In City National Bank of Huron, S.D. v. Fuller,71 the Circuit Court of Appeals ruled that the theory of novation is that the new debtor contracts with the old debtor that he will pay the debt, and also to the same effect with the creditor, while the latter agrees to accept the new debtor for the old. A novation is not made by showing that the substituted debtor agreed to pay the debt; it must appear that he agreed with the creditor to do so. Moreover, the agreement must be based on the consideration of the creditor's agreement to look to the new debtor instead of the old. It is not essential that acceptance of the terms of the novation and release of the debtor be shown by express agreement. Facts and circumstances surrounding the transaction and the subsequent conduct of the parties may

show acceptance as clearly as an express agreement, albeit implied.72 We find in this case that the CA correctly found that respondents' obligation to pay the balance of their account with petitioner was extinguished, pro tanto, by the deeds of assignment of credit executed by respondent Felicidad in favor of petitioner. An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as sale, dation in payment, exchange or donation, and without the consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor.73 It may be in the form of sale, but at times it may constitute a dation in payment, such as when a debtor, in order to obtain a release from his debt, assigns to his creditor a credit he has against a third person.74 In Vda. de Jayme v. Court of Appeals,75 the Court held that dacion en pago is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. It is a special mode of payment where the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor's obligation. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present. In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered as the purchase price. In any case, common consent is an essential prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or obligation.76 The requisites for dacion en pago are: (1) there must be a performance of the prestation in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the third person; (2) there must be some difference between the prestation due and that which is given in substitution (aliud pro alio); and (3) there must be an agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a prestation different from that due.77 All the requisites for a valid dation in payment are present in this case. As gleaned from the deeds, respondent Felicidad assigned to petitioner her credits "to make good" the balance of

her obligation. Felicidad testified that she executed the deeds to enable her to make partial payments of her account, since she could not comply with petitioner's frenetic demands to pay the account in cash. Petitioner and respondent Felicidad agreed to relieve the latter of her obligation to pay the balance of her account, and for petitioner to collect the same from respondent's debtors. Admittedly, some of respondents' debtors, like Edna Papat-iw, were not able to affix their conformity to the deeds. In an assignment of credit, however, the consent of the debtor is not essential for its perfection; the knowledge thereof or lack of it affecting only the efficaciousness or inefficaciousness of any payment that might have been made. The assignment binds the debtor upon acquiring knowledge of the assignment but he is entitled, even then, to raise against the assignee the same defenses he could set up against the assignor78 necessary in order that assignment may fully produce legal effects. Thus, the duty to pay does not depend on the consent of the debtor. The purpose of the notice is only to inform that debtor from the date of the assignment. Payment should be made to the assignee and not to the original creditor. The transfer of rights takes place upon perfection of the contract, and ownership of the right, including all appurtenant accessory rights, is acquired by the assignee79 who steps into the shoes of the original creditor as subrogee of the latter80 from that amount, the ownership of the right is acquired by the assignee. The law does not require any formal notice to bind the debtor to the assignee, all that the law requires is knowledge of the assignment. Even if the debtor had not been notified, but came to know of the assignment by whatever means, the debtor is bound by it. If the document of assignment is public, it is evidence even against a third person of the facts which gave rise to its execution and of the date of the latter. The transfer of the credit must therefore be held valid and effective from the moment it is made to appear in such instrument, and third persons must recognize it as such, in view of the authenticity of the document, which precludes all suspicion of fraud with respect to the date of the transfer or assignment of the credit.81 As gleaned from the deeds executed by respondent Felicidad relative to the accounts of her other debtors, petitioner was authorized to collect the amounts of P6,000.00 from Cabang, and P63,600.00 from Cirilo. They obliged themselves to pay petitioner. Respondent Felicidad, likewise, unequivocably declared that Cabang and Cirilo no longer had any obligation to her. Equally significant is the fact that, since 1990, when respondent Felicidad executed the deeds, petitioner no longer attempted to collect from respondents the balance of their accounts. It was

only in 1999, or after nine (9) years had elapsed that petitioner attempted to collect from respondents. In the meantime, petitioner had collected from respondents' debtors the amount of P301,000.00. While it is true that respondent Felicidad likewise authorized petitioner in the deeds to collect the debtors' accounts, and for the latter to pay the same directly, it cannot thereby be considered that respondent merely authorized petitioner to collect the accounts of respondents' debtors and for her to apply her collections in partial payments of their accounts. It bears stressing that petitioner, as assignee, acquired all the rights and remedies passed by Felicidad, as assignee, at the time of the assignment.82 Such rights and remedies include the right to collect her debtors' obligations to her. Petitioner cannot find solace in the Court's ruling in Magdalena Estates. In that case, the Court ruled that the mere fact that novation does not follow as a matter of course when the creditor receives a guaranty or accepts payments from a third person who has agreed to assume the obligation when there is no agreement that the first debtor would be released from responsibility. Thus, the creditor can still enforce the obligation against the original debtor. In the present case, petitioner and respondent Felicidad agreed that the amounts due from respondents' debtors were intended to "make good in part" the account of respondents. Case law is that, an assignment will, ordinarily, be interpreted or construed in accordance with the rules of construction governing contracts generally, the primary object being always to ascertain and carry out the intention of the parties. This intention is to be derived from a consideration of the whole instrument, all parts of which should be given effect, and is to be sought in the words and language employed.83 Indeed, the Court must not go beyond the rational scope of the words used in construing an assignment, words should be construed according to their ordinary meaning, unless something in the assignment indicates that they are being used in a special sense. So, if the words are free from ambiguity and expressed plainly the purpose of the instrument, there is no occasion for interpretation; but where necessary, words must be interpreted in the light of the particular subject matter.84 And surrounding circumstances may be considered in order to understand more perfectly the intention of the parties. Thus, the object to be accomplished through the assignment, and the relations and conduct of the parties may be considered in construing the document. Although it has been said that an ambiguous or uncertain assignment should be construed most strictly against the assignor, the general rule is that any ambiguity or uncertainty

in the meaning of an assignment will be resolved against the party who prepared it; hence, if the assignment was prepared by the assignee, it will be construed most strictly against him or her.85 One who chooses the words by which a right is given ought to be held to the strict interpretation of them, rather than the other who only accepts them.86 Considering all the foregoing, we find that respondents still have a balance on their account to petitioner in the principal amount of P33,841.00, the difference between their loan of P773,000.00 less P585,659.00, the payment of respondents' other debtors amounting to P103,500.00, and the P50,000.00 payment made by respondents. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decision and Resolution of the Court of Appeals are AFFIRMED with MODIFICATION in that the balance of the principal account of the respondents to the petitioner is P33,841.00. No costs. SO ORDERED.

G.R. No. 110581 September 21, 1994 TELENGTAN BROTHERS & SONS, INC. (LA SUERTE CIGAR & CIGARETTE), petitioner, vs. THE COURT OF APPEALS, KAWASAKI KISHEN KAISHA, LTD. and SMITH, BELL & CO., INC., respondents. MENDOZA, J.: This is a petition for review of the decision of the Court of Appeals, 1 in CA-G.R. CV No. 09514, affirming with modification the decision of the Regional Trial Court in a case for specific performance brought by petitioner. Private respondent Kawasaki Kishen Kaisha, Ltd. (K-Line) is a foreign shipping company doing business in the Philippines, its shipping agent being respondent the Smith, Bell & Co., Inc. It is a member of the Far East Conference, the body which fixes rates by agreement of its member-shipowners. The conference is registered with the U.S. Federal Maritime Commission. 2 On May 8, 1979, the Van Reekum Paper, Inc. entered into a contract of affreightment with the K-Line for the shipment of 468 rolls of container board liners from Savannah, Georgia to Manila. The shipment was consigned to herein petitioner La Suerte Cigar & Cigarette Factory. The contract of affreightment was embodied in Bill of Lading No. 602 issued by the carrier to the shipper. The expenses of loading and unloading were for the account of the consignee. The shipment was packed in 12 container vans and loaded on board the carrier's vessel, SS Verrazano Bridge. At Tokyo, Japan, the cargo was transhipped on two vessels of the K-Line. Ten container vans were loaded on the SSFar East Friendship, while two were loaded on the SS Hangang Glory. Shortly thereafter, the consignee (herein petitioner) received from the shipper photocopies of the bill of lading, consular invoice and packing list, as well as notice of the estimated time of arrival of the cargo. On June 11, 1979, the SS Far East Friendship arrived at the port of Manila. Aside from the regular advertisements in the shipping section of the Bulletin Today announcing the arrival of its vessels, petitioner was notified in writing of the ship's arrival, together with information that container demurrage at the rate of P4.00 per linear foot per day for the first 5 days and P8.00 per linear foot per day after the 5th day would be charged unless the consignee took delivery of the cargo within ten days.

On June 21, 1979, the other vessel SS Hangang Glory, carrying petitioner's two other vans, arrived and was discharged of its contents the next day. On the same day the shipping agent Smith, Bell & Co. released the Delivery Permit for twelve (12) containers to the broker upon payment of freight charges on the bill of lading. The next day, June 22, 1979, the Island Brokerage Co. presented, in behalf of petitioner, the shipping documents to the Customs Marine Division of the Bureau of Customs. But the latter refused to act on them because the manifest of the SS Far East Friendship covered only 10 containers, whereas the bill of lading covered 12 containers. The broker, therefore, sent back the manifest to the shipping agent with the request that the manifest be amended. Smith, Bell & Co. refused on the ground that an amendment, as requested, would violate 1005 of the Tariff and Customs Code relating to unmanifested cargo. Later, however, it agreed to add a footnote reading "Two container vans carried by the SS Hangang Glory to complete the shipment of twelve containers under the bill of lading." On June 29, 1979 the manifest was picked up from the office of respondent shipping agent by an employee of the IBC and filed with the Bureau of Customs. The manifest was approved for release on July 3, 1979. IBC wrote Smith, Bell & Co. to make of record that entry of the shipment had been delayed by the error in the manifest. On July 11, 1979, when the IBC tried to secure the release of the cargo, it was informed by private respondents' collection agent, the CBCS Guaranteed Fast Collection Services, that the free time for removing the containers from the container yard had expired on June 26, 1979, in the case of the SS Far East Friendship, and on July 9, in the case of the SS Hangang Glory, 3 and that demurrage charges had begun to run on June 27, 1979 with respect to the 10 containers on the SS Far East Friendship and on July 10, 1979 with respect to the 2 containers shipped on board the SSHangang Glory. On July 13, 1979, petitioner paid P47,680.00 representing the total demurrage charges on all the containers, but it was not able to obtain its goods. On July 16, 1979 it was able to obtain the release of two containers and on July 17, 1979 of one more container. It was able to obtain only a partial release of the cargo because of the breakdown of the arrastre's equipment at the container yard. This matter was reported by IBC in letters of complaint sent to the Philippine Ports Authority. In addition, on July 16, 1979, petitioner sent a letter dated July 12, 1979 (Exh. I) to Smith,

Bell & Co., requesting reconsideration of the demurrage charges, on the ground that the delay in claiming the goods was due to the alleged late arrival of the shipping documents, the delay caused by the amendment of the manifest, and the fact that two of the containers arrived separately from the other ten containers. On July 19, 1979, petitioner paid additional charges in the amount of P20,160.00 for the period July 14-19, 1979 to secure the release of its cargo, but still petitioner was unable to get any cargo from the remaining nine container vans. It was only the next day, July 20, 1979, that it was able to have two more containers released from the container yard, bringing to five the total number of containers whose contents had been delivered to it. Subsequently, petitioner refused to pay any more demurrage charges on the ground that there was agreement for their payment in the bill of lading and that the delay in the release of the cargo was not due to its fault but to the breakdown of the equipment at the container yard. In all, petitioner had paid demurrage charges from June 27 to July 19, 1979, in the total amount of P67,840.00, computed as follows: A. Container demurrage paid on July 13, 1979 1. Far East Friendship (Exh. H-1) June 27 July 13 (17 days) 1st 5 days @ P4/day/foot 5 days x P40 ft. x 10 ctrns. P 8,000.00 Next 12 days @ P8/day/foot 12 days x P8 x 40 ft. x 10 ctrns. P 38,400.00 P 46,400.00 2. Hangang Glory (Exh. H) July 10 July 13 (4 days) 1st 4 days: 4 days x P4 x 40 ft. x 2 ctnrs. P 1,280.00 TOTAL PAID ON JULY 13 P 47,680.00 (Exh. H-2) B. Container demurrage paid on July 19, 1979 1. Far East Friendship a. on 2 containers released July 16 days x P8 x 40 ft. x 2 ctnrs. P 1,920.00 (Exh. L-2) b. on 1 container released July 17 4 days x P8 x 40 ft. x 7 cntrs. P 1,280.00 (Exh. L-3) c. remaining 7 containers as of July 19 6 days x P8 x 40 ft. x 7 cntrs. P 13,440.00 (Exh. L-1) 2. Hangang Glory a. 5th day (July 14)

1 day x P4.00 x 40 ft. x 2 cntrs. P 320.00 b. July 15-19: 5 days x P8.00 x 40 ft. x 2 cntrs. P 3,200.00 (Exh. L) TOTAL P 20,160.00 (Exh. L-4) OVERALL TOTAL P 67,840.00 ========= On July 20, 1979 petitioner wrote private respondent for a refund of the demurrage charges, but private respondent replied on July 25, 1979 that, as member of the Far East Conference, it could not modify the rules or authorize refunds of the stipulated tariffs. Petitioner, therefore, filed this suit in the RTC for specific performance to compel private respondent carrier, through it s shipping agent, the Smith, Bell & Co., to release 7 container vans consigned to it free of charge and for a refund of P67,840.00 which it had paid, plus attorney's fees and other expenses of litigation. Petitioner also asked for the issuance of a writ of preliminary injunction to restrain private respondents from charging additional demurrage. In their amended answer, private respondents claimed that collection of container charges was authorized by 2, 23 and 29 of the bill of lading and that they were not free to waive these charges because under the United States Shipping Act of 1916 it was unlawful for any common carrier engaged in transportation involving the foreign commerce of the United States to charge or collect a greater or lesser compensation that the rates and charges specified in its tariffs on file with the Federal Maritime Commission. Private respondents alleged that petitioner knew that the contract of carriage was subject to the Far East Conference rules and that the publication of the notice of reimposition of container demurrage charges published in the shipping section of the Bulletin Today and Businessday newspapers from February 19 February 25, 1979 was binding upon petitioner. They contended further that the collection of container demurrage was an international practice which is widely accepted in ports all over the world and that it was in conformity with Republic Act No. 1407, otherwise known as the Philippine Overseas Shipping Act of 1955. Thereafter, a writ was issued after petitioner had posted a bond of P50,000.00 and the container vans were released to the petitioner. On March 19, 1986, however, the RTC dismissed petitioner's complaint. It cited the bill of lading which provided:

23. The ocean carrier shall have a lien on the goods, which shall survive delivery, for all freight, dead freight, demurrage, damages, loss, charges, expenses and any other sums whatsoever payable or chargeable to or for the account of the Merchant under this bill of lading . . . . It likewise invoked clause 29 of the bill of lading which provided: 29. . . .The terms of the ocean carrier's applicable tariff, including tariffs covering intermodal transportation on file with the Federal Maritime Commission and the Interstate Commission or any other regulatory body which governs a portion of the carriage of goods, are incorporated herein. Rule 21 of the Far East Conference Tariff No. 28-FMC No. 12 Rules and Regulations, referred to above, provides: (D) Free Time, Demurrage, and Equipment Detention at Ports in the Philippines. Note: Philippine Customs Law prescribes all cargo discharged from vessels to be given into custody of the Government Arrastre Contractor, appointed by Philippine Customs who undertakes delivery to the consignee. Demurrage charges on Containers with CY Cargo. 1. Free time will commence at 8:00 a.m. on the first working calendar day following completion of discharge of the vessel. It shall expire at 12:00 p.m. (midnight) on the tenth working calendar day, excluding Saturdays, Sundays and holidays. Work stoppage at a terminal due to labor dispute or other force majeure as defined by the conference preventing delivery of cargo or containers shall be excluded from the calculation of the free time for the period of the work stoppage. 2. Demurrage charges are incurred before the container leaves the carrier's designated CY, and shall be applicable on the container commencing the next working calendar day following expiration of the allowable free time until the consignee has taken delivery of the container or has fully striped the container of its contents in the carrier's designated CY. Demurrage charges shall be assessed hereunder: Ordinary containers P4.00 per linear foot of the container per day for the first five days; P8.00 per linear foot of the container per day, thereafter.

The RTC held that the bill of lading was the contract between the parties and, therefore, petitioner was liable for demurrage charges. It rejected petitioner's claim of force majeure. It held: This Court cannot also accord faith and credit on the plaintiff's claim that the delay in the delivery of the containers was caused by the breaking down of the equipment of the arrastre operator. Such claim was not supported with competent evidence. Let us assume the fact that the arrastre operator's equipment broke down still plaintiff has to pay the corresponding demurrage charges. The possibility that the equipment would break down was not only foreseeable, but actually, foreseen, and was notcaso fortuito. 4 The RTC, therefore, ordered: WHEREFORE, finding the preponderance of evidence in favor of the defendants and against the plaintiff, judgment is hereby rendered dismissing the complaint with costs against it. Plaintiff is hereby ordered to pay defendants the sum of P36,480.00 representing demurrage charges for the detention of the seven (7) forty-footer container vans from July 20 to August 7, 1979, with legal interest commencing on August 7, 1979 until fully paid. And plaintiff has to pay the sum of P10,000.00, by way of attorney's fees. SO ORDERED. On appeal, the case was affirmed with modification by the Court of Appeals as follows: WHEREFORE, modified as indicated above deleting the award of attorney's fees, the decision appealed from is hereby AFFIRMED in all other respects. Costs against plaintiff-appellant. SO ORDERED.
5

Hence, this petition for review in which it is contended: 1 that no demurrage lies in the absence of any showing that the vessels had been improperly detained or that loss or damage had been incurred as a consequence of improper detention 2 that respondent Court's finding that private respondent Smith Bell had promptly and on the same day amended the defective manifest is contrary to the evidence of record.

3 that respondent Court manifestly over-looked undisputed evidence presented by petitioner showing that the breakdown in the facilities and equipment of the arrastre operator further delayed petitioner's withdrawal of the cargo. 6 Petitioner prays for a reversal of the decision of the Court of Appeals and the refund to it of the demurrage charges paid by it, with interest, as well as to pay attorney's fees and expenses of litigation. Our decision will be presently explained, but in brief it is this: petitioner is liable for demurrage for delay in removing its cargo from the containers but only for the period July 3 to 13, 1979 with respect to ten containers and from July 10 to July 13, 1979, in respect of two other containers. First. With respect to petitioner's liability for demurrage, petitioner's contention is that the bill of lading does not provide for the payment of container demurrage, as Clause 23 of the bill of lading only says "demurrage," i.e., damages for the detention of vessels, and here there is no detention of vessels. Petitioner invokes the ruling inMagellan Manufacturing Marketing Corp. v. Court of Appeals 7, where we defined "demurrage" as follows: Demurrage, in its strict sense, is the compensation provided for in the contract of affreightment for the detention of the vessel beyond the time agreed on for loading and unloading. Essentially, demurrage is the claim for damages for failure to accept delivery. In a broad sense, every improper detention of a vessel may be considered a demurrage. Liability for demurrage, using the word in its strictly technical sense, exists only when expressly stipulated in the contract. Using the term in [its broader sense, damages in the] nature of demurrage are recoverable for a breach of the implied obligation to load or unload the cargo with reasonable dispatch, but only by the party to whom the duty is owed and only against one who is a party to the shipping contract. Whatever may be the merit of petitioner's contention as to the meaning of the word "demurrage" in clause 23 of the bill of lading, the fact is that clause 29(a) also of the bill of lading, in relation to Rule 21 of the Far East Conference Tariff No. 28-FMC No. 12, as quoted above, specifically provides for the payment by the consignee of demurrage for the detention of containers and other equipment after the so-called "free time." Now a bill of lading is both a receipt and a contract. As a contract, its terms and conditions are conclusive on the parties, including the consignee. What we said in one case mutatis mutandis applies to this case:

A bill of lading operates both as a receipt and a contract . . . As a contract, it names the contracting parties which include the consignee, fixes the route, destination, freight rate or charges, and stipulates the right and obligations assumed by the parties . . . . By receiving the bill of lading, Davao Parts and Services, Inc. assented to the terms of the consignment contained therein, and became bound thereby, so far as the conditions named are reasonable in the eyes of the law. Since neither appellant nor appellee alleges that any provision therein is contrary to law, morals, good customs, public policy or public order and indeed we found none the validity of the Bill of Lading must be sustained and the provisions therein properly applies to resolve the conflict between the parties. 8 As the Court of Appeals pointed out in its appealed decision, the enforcement of the rules of the Far East Conference and the Federal Maritime Commission is in accordance with Republic Act No. 1407, 1 of which declares that the Philippines, in common with other maritime nations, recognizes the international character of shipping in foreign trade and existing international practices in maritime transportation and that it is part of the national policy to cooperate with other friendly nations in the maintenance and improvement of such practices. Petitioner's argument that it is not bound by the bill of lading issued by K-Line because it is a contract of adhesion, whose terms as set forth at the back are in small prints and are hardly readable, is without merit. As we held inServando v. Philippine Steam Navigation: 9 While it may be true that petitioner had not signed the plane ticket (Exh. 12), 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 to 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. (Tolentino, Civil Code, Vol. IV, 1962 Ed., p. 462, citing Mr. Justice JBL Reyes, Lawyer's Journal, Jan. 31, 1951, p. 49). Second. With respect to the period of petitioner's liability, private respondent's position is that the "free time" expired on June 26, 1979 and demurrage began to toll on June 27, 1979, with respect to 10 containers which were unloaded from the SS Far East Friendship, while with respect to the 2 containers which were unloaded from the SSHangang Glory, the free time expired on July 9, 1979 and demurrage began to run on July 10, 1979.

This contention is without merit. Petitioner cannot be held liable for demurrage starting June 27, 1979 on the 10 containers which arrived on the SS Far East Friendship because the delay in obtaining release of the goods was not due to its fault. The evidence shows that because the manifest issued by the respondent K-Line, through the Smith, Bell & Co., stated only 10 containers, whereas the bill of lading also issued by the KLine showed there were 12 containers, the Bureau of Customs refused to give an entry permit to petitioner. For this reason, petitioner's broker, the IBC, had to see the respondent's agent (Smith, Bell & Co.) on June 22, 1979 but the latter did not immediately do something to correct the manifest. Smith, Bell & Co. was asked to "amend" the manifest, but it refused to do so on the ground that this would violate the law. It was only on June 29, 1979 that it thought of adding instead a footnote to indicate that two other container vans to account for a total of 12 container vans consigned to petitioner had been loaded on the other vessel SS Hangang Glory. It is not true that the necessary correction was made on June 22, 1979, the same day the manifest was presented to Smith, Bell & Co. There is nothing in the testimonies of witnesses of either party to support the appellate court's finding that the footnote, explaining the apparent discrepancy between the bill of lading and the manifest, was added on June 22, 1979 but that petitioner's representative did not return to pick up the manifesst until June 29, 1979. To the contrary, it is more probable to believe the petitioner's claim that the manifest was corrected only on June 29, 1979 (by which time the "free time" had already expired), because Smith, Bell & Co. did not immediately know what to do as it insisted it could not amend the manifest and only thought of adding a footnote on June 29, 1979 upon the suggestion of the IBC. Now June 29, 1979 was a Friday. Again it is probable the correct manifest was presented to the Bureau of Customs only on Monday, July 2, 1979 and, therefore, it was only on July 3 that it was approved. It was, therefore, only from this date (July 3, 1979) that petitioner could have claimed its cargo and charged for any delay in removing its cargo from the containers. With respect to the other two containers which arrived on the SS Hangang Glory, demurrage was properly considered to have accrued on July 10, 1979 since the "free time" expired on July 9. The period of delay, however, for all the 12 containers must be deemed to have stopped on July 13, 1979, because on this date petitioner paid P47,680.00. If it was not able to get its cargo from the container vans, it was because of the breakdown of the shifter or cranes. This breakdown cannot be blamed on petitioners since these were cranes of the arrastre service operator. It would be unjust to charge demurrage after July 13,

1979 since the delay in emptying the containers was not due to the fault of the petitioner. Indeed, there is no reason why petitioner should not get its cargo after paying all demurrage charges due on July 13, 1979. If it paid P20,180.00 more in demurrage charges after July 13, 1979 it was only because respondents would not release the goods. Even then petitioner was able to obtain the release of cargo from five container vans. Its trucks were unable to load anymore cargo and returned to petitioner's premises empty. In sum, we hold that petitioner can be held liable for demurrage only for the period July 3-13, 1979 and that in accordance with the stipulation in its bill of lading, it is liable for demurrage only in the amount of P28,480.00 computed as follows; A. 10 containers ex Far East Friendship (July 3-13, 1979) 1. 1st 5 days @ P4.00/day/foot 5 days x P4 x 40 ft. x 10 ctnrs. P 8,000 2. Next 6 days @ P8.00/day/foot 6 days x P8 x 40 ft. x 10 cntrs. P 19,200 P 27,200 B. 2 containers ex Hangang Glory (July 1013, 1979) 1st 4 days @ P4.00/day/foot 4 days x P4 x 40 ft. x 10 cntrs. P 1,280 TOTAL DEMURRAGE DUE P 28,480 ======= LESS: TOTAL PAID (P 67,840) OVERPAYMENT (P 39,360) As shown above there is an overpayment of P39,360.00 which should be refunded to petitioner. WHEREFORE, the decision appealed from is SET ASIDE and another one is RENDERED, ORDERING the private respondents to pay to petitioner the sum of P39,360.00 by way of refund, with legal interest. SO ORDERED.

[G.R. No. 158361. April 10, 2013.] INTERNATIONAL HOTEL CORPORATION, petitioner, vs. FRANCISCO B. JOAQUIN, JR. and RAFAEL SUAREZ, respondents. DECISION BERSAMIN, J p: To avoid unjust enrichment to a party from resulting out of a substantially performed contract, the principle of quantum meruit may be used to determine his compensation in the absence of a written agreement for that purpose. The principle of quantum meruit justifies the payment of the reasonable value of the services rendered by him. The Case Under review is the decision the Court of Appeals (CA) promulgated on November 8, 2002, 1 disposing: WHEREFORE, premises considered, the decision dated August 26, 1993 of the Regional Trial Court, Branch 13, Manila in Civil Case No. R-82-2434 is AFFIRMED with Modification as to the amounts awarded as follows: defendant-appellant IHC is ordered to pay plaintiff-appellant Joaquin P700,000.00 and plaintiffappellant Suarez P200,000.00, both to be paid in cash. SO ORDERED. Antecedents On February 1, 1969, respondent Francisco B. Joaquin, Jr. submitted a proposal to the Board of Directors of the International Hotel Corporation (IHC) for him to render technical assistance in securing a foreign loan for the construction of a hotel, to be guaranteed by the Development Bank of the Philippines (DBP). 2 The proposal encompassed nine phases, namely: (1) the preparation of a new project study; (2) the settlement of the unregistered mortgage prior to the submission of the application for guaranty for processing by DBP; (3) the preparation of papers necessary to the application for guaranty; (4) the securing of a foreign financier for the project; (5) the securing of the approval of the DBP Board of Governors; (6) the actual follow up of the application with DBP; 3 (7) the overall coordination in implementing the projections of the project study; (8) the preparation of the staff for actual hotel operations; and (9) the actual hotel operations. 4

The IHC Board of Directors approved phase one to phase six of the proposal during the special board meeting on February 11, 1969, and earmarked P2,000,000.00 for the project. 5 Anent the financing, IHC applied with DBP for a foreign loan guaranty. DBP processed the application, 6 and approved it on October 24, 1969 subject to several conditions. 7 On July 11, 1969, shortly after submitting the application to DBP, Joaquin wrote to IHC to request the payment of his fees in the amount of P500,000.00 for the services that he had provided and would be providing to IHC in relation to the hotel project that were outside the scope of the technical proposal. Joaquin intimated his amenability to receive shares of stock instead of cash in view of IHC's financial situation. 8 On July 11, 1969, the stockholders of IHC met and granted Joaquin's request, allowing the payment for both Joaquin and Rafael Suarez for their services in implementing the proposal. 9 On June 20, 1970, Joaquin presented to the IHC Board of Directors the results of his negotiations with potential foreign financiers. He narrowed the financiers to Roger Dunn & Company and Materials Handling Corporation. He recommended that the Board of Directors consider Materials Handling Corporation based on the more beneficial terms it had offered. His recommendation was accepted. 10 Negotiations with Materials Handling Corporation and, later on, with its principal, Barnes International (Barnes), ensued. While the negotiations with Barnes were ongoing, Joaquin and Jose Valero, the Executive Director of IHC, met with another financier, the Weston International Corporation (Weston), to explore possible financing. 11 When Barnes failed to deliver the needed loan, IHC informed DBP that it would submit Weston for DBP's consideration. 12As a result, DBP cancelled its previous guaranty through a letter dated December 6, 1971. 13 On December 13, 1971, IHC entered into an agreement with Weston, and communicated this development to DBP on June 26, 1972. However, DBP denied the application for guaranty for failure to comply with the conditions contained in its November 12, 1971 letter. 14 Due to Joaquin's failure to secure the needed loan, IHC, through its President Bautista, canceled the 17,000 shares of stock previously issued to Joaquin and Suarez as payment for their services. The latter requested a reconsideration of the cancellation, but their request was rejected. Consequently, Joaquin and Suarez commenced this action for specific performance, annulment, damages and injunction by a complaint dated December 6, 1973 in the Regional Trial Court

in Manila (RTC), impleading IHC and the members of its Board of Directors, namely, Felix Angelo Bautista, Sergio O. Rustia, Ephraim G. Gochangco, Mario B. Julian, Benjamin J. Bautista, Basilio L. Lirag, Danilo R. Lacerna and Hermenegildo R. Reyes. 15 The complaint alleged that the cancellation of the shares had been illegal, and had deprived them of their right to participate in the meetings and elections held by IHC; that Barnes had been recommended by IHC President Bautista, not by Joaquin; that they had failed to meet their obligation because President Bautista and his son had intervened and negotiated with Barnes instead of Weston; that DBP had canceled the guaranty because Barnes had failed to release the loan; and that IHC had agreed to compensate their services with 17,000 shares of the common stock plus cash of P1,000,000.00. 16 IHC, together with Felix Angelo Bautista, Sergio O. Rustia, Mario B. Julian and Benjamin J. Bautista, filed an answer claiming that the shares issued to Joaquin and Suarez as compensation for their "past and future services" had been issued in violation of Section 16 of the Corporation Code; that Joaquin and Suarez had not provided a foreign financier acceptable to DBP; and that they had already received P96,350.00 as payment for their services. 17 On their part, Lirag and Lacerna denied any knowledge of or participation in the cancellation of the shares. 18 Similarly, Gochangco and Reyes denied any knowledge of or participation in the cancellation of the shares, and clarified that they were not directors of IHC. 19 In the course of the proceedings, Reyes died and was substituted by Consorcia P. Reyes, the administratrix of his estate. 20 Ruling of the RTC Under its decision rendered on August 26, 1993, the RTC held IHC liable pursuant to the second paragraph of Article 1284 of the Civil Code, disposing thusly: WHEREFORE, in the light of the above facts, law and jurisprudence, the Court hereby orders the defendant International Hotel Corporation to pay plaintiff Francisco B. Joaquin, the amount of Two Hundred Thousand Pesos (P200,000.00) and to pay plaintiff Rafael Suarez the amount of Fifty Thousand Pesos (P50,000.00); that the said defendant IHC likewise pay the co-plaintiffs, attorney's fees of P20,000.00, and costs of suit. IT IS SO ORDERED. 21

The RTC found that Joaquin and Suarez had failed to meet their obligations when IHC had chosen to negotiate with Barnes rather than with Weston, the financier that Joaquin had recommended; and that the cancellation of the shares of stock had been proper under Section 68 of the Corporation Code,which allowed such transfer of shares to compensate only past services, not future ones. Ruling of the CA Both parties appealed. 22 Joaquin and Suarez assigned the following errors, to wit: DESPITE HAVING CORRECTLY ACKNOWLEDGED THAT PLAINTIFFS-APPELLANTS FULLY PERFORMED ALL THAT WAS INCUMBENT UPON THEM, THE HONORABLE JUDGE ERRED IN NOT ORDERING THAT: A.DEFENDANTS WERE UNJUSTIFIED IN CANCELLING THE SHARES OF STOCK PREVIOUSLY ISSUED TO PLAINTIFFS-APPELLANTS; AND B.DEFENDANTS PAY PLAINTIFFS-APPELLANTS TWO MILLION SEVEN HUNDRED PESOS (sic) (P2,700,000.00), INCLUDING INTEREST THEREON FROM 1973, REPRESENTING THE TOTAL OBLIGATION DUE PLAINTIFFS-APPELLANTS. 23 On the other hand, IHC attributed errors to the RTC, as follows: [I.]THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFFS-APPELLANTS HAVE NOT BEEN COMPLETELY PAID FOR THEIR SERVICES, AND IN ORDERING THE DEFENDANT-APPELLANT TO PAY TWO HUNDRED THOUSAND PESOS (P200,000.00) AND FIFTY THOUSAND PESOS (P150,000.00) TO PLAINTIFFS-APPELLANTS FRANCISCO B. JOAQUIN AND RAFAEL SUAREZ, RESPECTIVELY. [II.]THE LOWER COURT ERRED IN AWARDING PLAINTIFFS-APPELLANTS ATTORNEY'S FEES AND COSTS OF SUIT. 24 In its questioned decision promulgated on November 8, 2002, the CA concurred with the RTC, upholding IHC's liability under Article 1186 of the Civil Code.It ruled that in the context of Article 1234 of the Civil Code, Joaquin had substantially performed his obligations and had become entitled to be paid for his services; and that the issuance of the shares of stock

was ultra vires for having been issued as consideration for future services. Anent how much was due to Joaquin and Suarez, the CA explained thusly: This Court does not subscribe to plaintiffs-appellants' view that defendant-appellant IHC agreed to pay them P2,000,000.00. Plaintiff-appellant Joaquin's letter to defendant-appellee F.A. Bautista, quoting defendant-appellant IHC's board resolutions which supposedly authorized the payment of such amount cannot be sustained. The resolutions are quite clear and when taken together show that said amount was only the "estimated maximum expenses" which defendant-appellant IHC expected to incur in accomplishing phases 1 to 6, not exclusively to plaintiffs-appellants' compensation. This conclusion finds support in an unnumbered board resolution of defendantappellant IHC dated July 11, 1969: "Incidentally, it was also taken up the necessity of giving the Technical Group a portion of the compensation that was authorized by this corporation in its Resolution of February 11, 1969 considering that the assistance so far given the corporation by said Technical Group in continuing our project with the DBP and its request for guaranty for a foreign loan is 70% completed leaving only some details which are now being processed. It is estimated that P400,000.00 worth of Common Stock would be reasonable for the present accomplishments and to this effect, the President is authorized to issue the same in the name of the Technical Group, as follows: P200,000.00 in common stock to Rafael Suarez, as associate in the Technical Group, and P200,000.00 in common stock to Francisco G. Joaquin, Jr., also a member of the Technical Group. It is apparent that not all of the P2,000,000.00 was allocated exclusively to compensate plaintiffs-appellants. Rather, it was intended to fund the whole undertaking including their compensation. On the same date, defendant-appellant IHC also authorized its president to pay plaintiff-appellant Joaquin P500,000.00 either in cash or in stock or both. The amount awarded by the lower court was therefore less than what defendant-appellant IHC agreed to pay plaintiffsappellants. While this Court cannot decree that the cancelled shares be restored, for they are without a doubt null and void, still and all, defendant-appellant IHC cannot now put up its own ultra vires act as an excuse to escape obligation to plaintiffs-appellants. Instead of shares of stock, defendantappellant IHC is ordered to pay plaintiff-appellant Joaquin a

total of P700,000.00 and plaintiff-appellant P200,000.00, both to be paid in cash.

Suarez

Although the lower court failed to explain why it was granting the attorney's fees, this Court nonetheless finds its award proper given defendant-appellant IHC's actions. 25 Issues In this appeal, the IHC raises as issues for our consideration and resolution the following: I WHETHER OR NOT THE COURT OF APPEALS IS CORRECT IN AWARDING COMPENSATION AND EVEN MODIFYING THE PAYMENT TO HEREIN RESPONDENTS DESPITE NON-FULFILLMENT OF THEIR OBLIGATION TO HEREIN PETITIONER II WHETHER OR NOT THE COURT OF APPEALS IS CORRECT IN AWARDING ATTORNEY'S FEES TO RESPONDENTS 26 IHC maintains that Article 1186 of the Civil Code was erroneously applied; that it had no intention of preventing Joaquin from complying with his obligations when it adopted his recommendation to negotiate with Barnes; that Article 1234 of the Civil Code applied only if there was a merely slight deviation from the obligation, and the omission or defect was technical and unimportant; that substantial compliance was unacceptable because the foreign loan was material and was, in fact, the ultimate goal of its contract with Joaquin and Suarez; that because the obligation was indivisible and subject to a suspensive condition, Article 1181 of the Civil Code 27 applied, under which a partial performance was equivalent to nonperformance; and that the award of attorney's fees should be deleted for lack of legal and factual bases. On the part of respondents, only Joaquin filed a comment, 28 arguing that the petition was fatally defective for raising questions of fact; that the obligation was divisible and capable of partial performance; and that the suspensive condition was deemed fulfilled through IHC's own actions. 29 Ruling We deny the petition for review on certiorari subject to the ensuing disquisitions. 1. IHC raises questions of law

We first consider and resolve whether IHC's petition improperly raised questions of fact. A question of law exists when there is doubt as to what the law is on a certain state of facts, but, in contrast, a question of fact exists when the doubt arises as to the truth or falsity of the facts alleged. A question of law does not involve an examination of the probative value of the evidence presented by the litigants or by any of them; the resolution of the issue must rest solely on what the law provides on the given set of circumstances. 30 When there is no dispute as to the facts, the question of whether or not the conclusion drawn from the facts is correct is a question of law. 31 Considering that what IHC seeks to review is the CA's application of the law on the facts presented therein, there is no doubt that IHC raises questions of law. The basic issue posed here is whether the conclusions drawn by the CA were correct under the pertinent laws. 2. Article 1186 and Article 1234 of the Civil Code cannot be the source of IHC's obligation to pay respondents IHC argues that it should not be held liable because: (a) it was Joaquin who had recommended Barnes; and (b) IHC's negotiation with Barnes had been neither intentional nor willfully intended to prevent Joaquin from complying with his obligations. IHC's argument is meritorious. Article 1186 of the Civil Code reads: Article 1186.The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. This provision refers to the constructive fulfillment of a suspensive condition, 32 whose application calls for two requisites, namely: (a) the intent of the obligor to prevent the fulfillment of the condition, and (b) the actual prevention of the fulfillment. Mere intention of the debtor to prevent the happening of the condition, or to place ineffective obstacles to its compliance, without actually preventing the fulfillment, is insufficient. 33 The error lies in the CA's failure to determine IHC's intent to pre-empt Joaquin from meeting his obligations. The June 20, 1970 minutes of IHC's special board meeting discloses that Joaquin impressed upon the members of the Board that

Materials Handling was offering more favorable terms for IHC, to wit: xxx xxx xxx At the meeting all the members of the Board of Directors of the International Hotel Corporation were present with the exception of Directors Benjamin J. Bautista and Sergio O. Rustia who asked to be excused because of previous engagements. In that meeting, the President called on Mr. Francisco G. Joaquin, Jr. to explain the different negotiations he had conducted relative to obtaining the needed financing for the hotel project in keeping with the authority given to him in a resolution approved by the Board of Directors. Mr. Joaquin presently explained that he contacted several local and foreign financiers through different brokers and after examining the different offers he narrowed down his choice to two (2), to wit: the foreign financier recommended by George Wright of the Roger Dunn & Company and the offer made by the Materials Handling Corporation. After explaining the advantages and disadvantages to our corporation of the two (2) offers specifically with regard to the terms and repayment of the loan and the rate of interest requested by them, he concluded that the offer made by the Materials Handling Corporation is much more advantageous because the terms and conditions of payment as well as the rate of interest are much more reasonable and would be much less onerous to our corporation. However, he explained that the corporation accepted, in principle, the offer of Roger Dunn, per the corporation's telegrams to Mr. Rudolph Meir of the Private Bank of Zurich, Switzerland, and until such time as the corporation's negotiations with Roger Dunn is terminated, we are committed, on one way or the other, to their financing. It was decided by the Directors that, should the negotiations with Roger Dunn materialize, at the same time as the offer of Materials Handling Corporation, that the funds committed by Roger Dunn may be diverted to other borrowers of the Development Bank of the Philippines. With this condition, Director Joaquin showed the advantages of the offer of Materials Handling Corporation. Mr. Joaquin also informed the corporation that, as of this date, the bank confirmation of Roger Dunn & Company has not been received. In view of the fact that the corporation is racing against time in

securing its financing, he recommended corporation entertain other offers.

that

the

After a brief exchange of views on the part of the Directors present and after hearing the clarification and explanation made by Mr. C. M. Javier who was present and who represented the Materials Handling Corporation, the Directors present approved unanimously the recommendation of Mr. Joaquin to entertain the offer of Materials Handling Corporation. 34 Evidently, IHC only relied on the opinion of its consultant in deciding to transact with Materials Handling and, later on, with Barnes. In negotiating with Barnes, IHC had no intention, willful or otherwise, to prevent Joaquin and Suarez from meeting their undertaking. Such absence of any intention negated the basis for the CA's reliance on Article 1186 of the Civil Code. Nor do we agree with the CA's upholding of IHC's liability by virtue of Joaquin and Suarez's substantial performance. In so ruling, the CA applied Article 1234 of the Civil Code, which states: Article 1234.If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee. It is well to note that Article 1234 applies only when an obligor admits breaching the contract 35 after honestly and faithfully performing all the material elements thereof except for some technical aspects that cause no serious harm to the obligee. 36 IHC correctly submits that the provision refers to an omission or deviation that is slight, or technical and unimportant, and does not affect the real purpose of the contract. Tolentino explains the character of the obligor's breach under Article 1234 in the following manner, to wit: In order that there may be substantial performance of an obligation, there must have been an attempt in good faith to perform, without any willful or intentional departure therefrom. The deviation from the obligation must be slight, and the omission or defect must be technical and unimportant, and must not pervade the whole or be so material that the object which the parties intended to accomplish in a particular manner is not attained. The non-performance of a material part of a contract will prevent the performance from amounting to a substantial compliance.

The party claiming substantial performance must show that he has attempted in good faith to perform his contract, but has through oversight, misunderstanding or any excusable neglect failed to completely perform in certain negligible respects, for which the other party may be adequately indemnified by an allowance and deduction from the contract price or by an award of damages. But a party who knowingly and wilfully fails to perform his contract in any respect, or omits to perform a material part of it, cannot be permitted, under the protection of this rule, to compel the other party, and the trend of the more recent decisions is to hold that the percentage of omitted or irregular performance may in and of itself be sufficient to show that there had not been a substantial performance. 37 By reason of the inconsequential nature of the breach or omission, the law deems the performance as substantial, making it the obligee's duty to pay. 38The compulsion of payment is predicated on the substantial benefit derived by the obligee from the partial performance. Although compelled to pay, the obligee is nonetheless entitled to an allowance for the sum required to remedy omissions or defects and to complete the work agreed upon. 39 Conversely, the principle of substantial performance is inappropriate when the incomplete performance constitutes a material breach of the contract. A contractual breach is material if it will adversely affect the nature of the obligation that the obligor promised to deliver, the benefits that the obligee expects to receive after full compliance, and the extent that the non-performance defeated the purposes of the contract. 40 Accordingly, for the principle embodied in Article 1234 to apply, the failure of Joaquin and Suarez to comply with their commitment should not defeat the ultimate purpose of the contract. The primary objective of the parties in entering into the services agreement was to obtain a foreign loan to finance the construction of IHC's hotel project. This objective could be inferred from IHC's approval of phase 1 to phase 6 of the proposal. Phase 1 and phase 2, respectively the preparation of a new project study and the settlement of the unregistered mortgage, would pave the way for Joaquin and Suarez to render assistance to IHC in applying for the DBP guaranty and thereafter to look for an able and willing foreign financial institution acceptable to DBP. All the steps that Joaquin and Suarez undertook to accomplish had a single objective to secure a loan to fund the construction and eventual operations of the hotel of IHC. In that regard, Joaquin himself admitted that his assistance was specifically sought to seek financing for IHC's hotel project. 41 Needless to say, finding the foreign financier that DBP would guarantee was the essence of the parties' contract, so that the

failure to completely satisfy such obligation could not be characterized as slight and unimportant as to have resulted in Joaquin and Suarez's substantial performance that consequentially benefitted IHC. Whatever benefits IHC gained from their services could only be minimal, and were even probably outweighed by whatever losses IHC suffered from the delayed construction of its hotel. Consequently, Article 1234 did not apply. 3. IHC is nonetheless liable to pay under the rule on constructive fulfillment of a mixed conditional obligation Notwithstanding the inapplicability of Article 1186 and Article 1234 of the Civil Code, IHC was liable based on the nature of the obligation. Considering that the agreement between the parties was not circumscribed by a definite period, its termination was subject to a condition the happening of a future and uncertain event. 42 The prevailing rule in conditional obligations is that the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event that constitutes the condition. 43 To recall, both the RTC and the CA held that Joaquin and Suarez's obligation was subject to the suspensive condition of successfully securing a foreign loan guaranteed by DBP. IHC agrees with both lower courts, and even argues that the obligation with a suspensive condition did not arise when the event or occurrence did not happen. In that instance, partial performance of the contract subject to the suspensive condition was tantamount to no performance at all. As such, the respondents were not entitled to any compensation. We have to disagree with IHC's argument. To secure a DBP-guaranteed foreign loan did not solely depend on the diligence or the sole will of the respondents because it required the action and discretion of third persons an able and willing foreign financial institution to provide the needed funds, and the DBP Board of Governors to guarantee the loan. Such third persons could not be legally compelled to act in a manner favorable to IHC. There is no question that when the fulfillment of a condition is dependent partly on the will of one of the contracting parties, 44 or of the obligor, and partly on chance, hazard or the will of a third person, the obligation is mixed. 45 The existing rule in a mixed conditional obligation is that when the condition was not fulfilled but the obligor did all in his power to comply with the obligation, the condition should be deemed satisfied. 46

Considering that the respondents were able to secure an agreement with Weston, and subsequently tried to reverse the prior cancellation of the guaranty by DBP, we rule that they thereby constructively fulfilled their obligation. 4. Quantum meruit should apply in absence of an express agreement on the fees the

The next issue to resolve is the amount of the fees that IHC should pay to Joaquin and Suarez. Joaquin claimed that aside from the approved P2,000,000.00 fee to implement phase 1 to phase 6, the IHC Board of Directors had approved an additional P500,000.00 as payment for his services. The RTC declared that he and Suarez were entitled to P200,000.00 each, but the CA revised the amounts to P700,000.00 for Joaquin and P200,000.00 for Suarez. Anent the P2,000,000.00, the CA rightly concluded that the full amount of P2,000,000.00 could not be awarded to respondents because such amount was not allocated exclusively to compensate respondents, but was intended to be the estimated maximum to fund the expenses in undertaking phase 6 of the scope of services. Its conclusion was unquestionably borne out by the minutes of the February 11, 1969 meeting, viz.: xxx xxx xxx II The [p]reparation of the necessary papers for the DBP including the preparation of the application, the presentation of the mechanics of financing, the actual follow up with the different departments of the DBP which includes the explanation of the feasibility studies up to the approval of the loan, conditioned on the DBP's acceptance of the project as feasible. The estimated expenses for this particular phase would be contingent, i.e., upon DBP's approval of the plan now being studied and prepared, is somewhere around P2,000,000.00. After a brief discussion on the matter, the Board on motion duly made and seconded, unanimously adopted a resolution of the following tenor: RESOLUTION (Series of 1969) NO. _______

"RESOLVED, as it is hereby RESOLVED, that if the Reparations allocation and the plan being negotiated with the DBP is realized the estimated maximum expenses of P2,000,000.00 for this phase is hereby authorized subject to the sound discretion of the committee composed of Justice Felix Angelo Bautista, Jose N. Valero and Ephraim G. Gochangco." 47 (Emphasis supplied) Joaquin's claim for the additional sum of P500,000.00 was similarly without factual and legal bases. He had requested the payment of that amount to cover services rendered and still to be rendered to IHC separately from those covered by the first six phases of the scope of work. However, there is no reason to hold IHC liable for that amount due to his failure to present sufficient proof of the services rendered towards that end. Furthermore, his July 11, 1969 letter revealed that the additional services that he had supposedly rendered were identical to those enumerated in the technical proposal, thus: The Board of Directors International Hotel Corporation Thru:Justice Felix Angelo Bautista President & Chairman of the Board Gentlemen: I have the honor to request this Body for its deliberation and action on the fees for my services rendered and to be rendered to the hotel project and to the corporation. These fees are separate from the fees you have approved in your previous Board Resolution, since my fees are separate. I realize the position of the corporation at present, in that it is not in a financial position to pay my services in cash, therefore, I am requesting this Body to consider payment of my fees even in the form of shares of stock, as you have done to the other technical men and for other services rendered to the corporation by other people. Inasmuch as my fees are contingent on the successful implementation of this project, I request that my fees be based on a percentage of the total project cost. The fees which I consider reasonable for the services that I have rendered to the project up to the completion of its construction is P500,000.00. I believe said amount is reasonable since this is approximately only 3/4 of 1% of the total project cost.

So far, I have accomplished Phases 1-5 of my report dated February 1, 1969 and which you authorized us to do under Board Resolution of February 11, 1969. It is only Phase 6 which now remains to be implemented. For my appointment as Consultant dated May 12, 1969 and the Board Resolution dated June 23, 1969 wherein I was appointed to the Technical Committee, it now follows that I have been also authorized to implement part of Phases 7 & 8. A brief summary of my accomplished work has been as follows: 1.I have revised and made the new Project Study of your hotel project, making it bankable and feasible. 2.I have reduced the total cost of your project by approximately P24,735,000.00. 3.I have seen to it that a registered mortgage with the Reparations Commission did not affect the application with the IBP for approval to processing. 4.I have prepared the application papers acceptable to the DBP by means of an advance analysis and the presentation of the financial mechanics, which was accepted by the DBP. 5.I have presented the financial mechanics of the loan wherein the requirement of the DBP for an additional P19,000,000.00 in equity from the corporation became unnecessary. 6.The explanation of the financial mechanics and the justification of this project was instrumental in changing the original recommendation of the Investment Banking Department of the DBP, which recommended disapproval of this application, to the present recommendation of the Real Estate Department which is for the approval of this project for proceeding. 7.I have submitted to you several offers already of foreign financiers which are in your files. We are presently arranging the said financiers to confirm their funds to the DBP for our project.

8.We have secured the approval of the DBP to process the loan application of this corporation as per its letter July 2, 1969. 9.We have performed other services for the corporation which led to the cooperation and understanding of the different factions of this corporation. I have rendered services to your corporation for the past 6 months with no clear understanding as to the compensation of my services. All I have drawn from the corporation is the amount of P500.00 dated May 12, 1969 and personal payment advanced by Justice Felix Angelo Bautista in the amount of P1,000.00. I am, therefore, requesting this Body for their approval of my fees. I have shown my good faith and willingness to render services to your corporation which is evidenced by my continued services in the past 6 months as well as the accomplishments above mentioned. I believe that the final completion of this hotel, at least for the processing of the DBP up to the completion of the construction, will take approximately another 2 1/2 years. In view of the above, I again reiterate my request for your approval of my fees. When the corporation is in a better financial position, I will request for a withdrawal of a monthly allowance, said amount to be determined by this Body. Very truly yours, (Sgd.) Francisco (Emphasis supplied) G. Joaquin, Jr. 48

Joaquin could not even rest his claim on the approval by IHC's Board of Directors. The approval apparently arose from the confusion between the supposedly separate services that Joaquin had rendered and those to be done under the technical proposal. The minutes of the July 11, 1969 board meeting (when the Board of Directors allowed the payment for Joaquin's past services and for the 70% project completion by the technical group) showed as follows: III The Third order of business is the compensation of Mr. Francisco G. Joaquin, Jr. for his services in the corporation.

After a brief discussion that ensued, upon motion duly made and seconded, the stockholders unanimously approved a resolution of the following tenor: RESOLUTION (Series of 1969) NO. _____

"RESOLVED that Mr. Francisco G. Joaquin, Jr. be granted a compensation in the amount of Five Hundred Thousand (P500,000.00) Pesos for his past services and services still to be rendered in the future to the corporation up to the completion of the Project. The President is given full discretion to discuss with Mr. Joaquin the manner of payment of said compensation, authorizing him to pay part in stock and part in cash." Incidentally, it was also taken up the necessity of giving the Technical Group a portion of the compensation that was authorised by this corporation in its Resolution of February 11, 1969 considering that the assistance so far given the corporation by said Technical Group in continuing our project with the DBP and its request for guaranty for a foreign loan is 70% completed leaving only some details which are now being processed. It is estimated that P400,000.00 worth of Common Stock would be reasonable for the present accomplishments and to this effect, the President is authorized to issue the same in the name of the Technical Group, as follows: P200,000.00 in Common Stock to Rafael Suarez, an associate in the Technical Group, and P200,000.00 in Common stock to Francisco G. Joaquin, Jr., also a member of the Technical Group. 49 Lastly, the amount purportedly included services still to be rendered that supposedly extended until the completion of the construction of the hotel. It is basic, however, that in obligations to do, there can be no payment unless the obligation has been completely rendered. 50 It is notable that the confusion on the amounts of compensation arose from the parties' inability to agree on the fees that respondents should receive. Considering the absence of an agreement, and in view of respondents' constructive fulfillment of their obligation, the Court has to apply the principle ofquantum meruit in determining how much was still due and owing to respondents. Under the principle of quantum meruit, a contractor is allowed to recover the reasonable value

of the services rendered despite the lack of a written contract. 51 The measure of recovery under the principle should relate to the reasonable value of the services performed. 52 The principle prevents undue enrichment based on the equitable postulate that it is unjust for a person to retain any benefit without paying for it. Being predicated on equity, the principle should only be applied if no express contract was entered into, and no specific statutory provision was applicable. 53 Under the established circumstances, we deem the total amount of P200,000.00 to be reasonable compensation for respondents' services under the principle of quantum meruit. Finally, we sustain IHC's position that the grant of attorney's fees lacked factual or legal basis. Attorney's fees are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate. There should be factual or legal support in the records before the award of such fees is sustained. It is not enough justification for the award simply because respondents were compelled to protect their rights. 54 ACCORDINGLY, the Court DENIES the petition for review on certiorari; and AFFIRMS the decision of the Court of Appeals promulgated on November 8, 2002 in C.A.-G.R. No. 47094 subject to the MODIFICATIONS that: (a) International Hotel Corporation is ordered to pay Francisco G. Joaquin, Jr. and Rafael Suarez P100,000.00 each as compensation for their services, and (b) the award of P20,000.00 as attorney's fees is deleted. No costs of suit. SO ORDERED.

[G.R. No. 172346. July 24, 2013.] SPOUSES NAMEAL and LOURDES BONROSTRO, petitioners, vs. SPOUSES JUAN and CONSTANCIA LUNA, respondents. DECISION DEL CASTILLO, J p: Questioned in this case is the Court disquisition on the matter of interest. of Appeals' (CA)

VENDEE fails to pay the amount of P630,000.00 on the stipulated time, this CONTRACT TO SELL shall likewise be deemed cancelled and rescinded and . . . 5% of the total contract price [of] P1,250,000.00 shall be deemed forfeited in favor of the VENDOR. Unpaid monthly amortization shall likewise be deducted from the initial down payment in favor of the VENDOR. 7 Immediately after the execution of the said second contract, the spouses Bonrostro took possession of the property. However, except for the P200,000.00 down payment, Lourdes failed to pay any of the stipulated subsequent amortization payments. Ruling of the Regional Trial Court On January 11, 1994, Constancia and her husband, respondent Juan Luna (spouses Luna), filed before the RTC a Complaint 8 for Rescission of Contract and Damages against the spouses Bonrostro praying for the rescission of the contract, delivery of possession of the subject property, payment by the latter of their unpaid obligation, and awards of actual, moral and exemplary damages, litigation expenses and attorney's fees. HaSEcA In their Answer with Compulsory Counterclaim, 9 the spouses Bonrostro averred that they were willing to pay their total balance of P630,000.00 to the spouses Luna after they sought from them a 60-day extension to pay the same. 10 However, during the time that they were ready to pay the said amount in the last week of October 1993, Constancia and her lawyer, Atty. Arlene Carbon (Atty. Carbon), did not show up at their rendezvous. On November 24, 1993, Lourdes sent Atty. Carbon a letter 11 expressing her desire to pay the balance, but received no response from the latter. Claiming that they are still willing to settle their obligation, the spouses Bonrostro prayed that the court fix the period within which they can pay the spouses Luna. The spouses Bonrostro likewise belied that they were not paying the monthly amortization to New Capitol Estates and asserted that on November 18, 1993, they paid Bliss, the developer of New Capitol Estates, the amount of P46,303.44. Later during trial, Lourdes testified that Constancia instructed Bliss not to accept amortization payments from anyone as evidenced by her March 4, 1993 letter 12 to Bliss. On April 4, 1997, the RTC rendered its Decision 13 focusing on the sole issue of whether the spouses Bonrostro's delay in their payment of the installments constitutes a substantial breach of their obligation under the contract warranting rescission. The RTC ruled that the delay could not be considered a substantial

breach considering that Lourdes (1) requested for an extension within which to pay; (2) was willing and ready to pay as early as the last week of October 1993 and even wrote Atty. Carbon about this on November 24, 1993; (3) gave Constancia a down payment of P200,000.00; and, (4) made payment to Bliss. The dispositive portion of the said Decision reads: WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows: 1.)Declaring [t]he Contract to Sell executed by the plaintiff [Constancia] and defendant [Lourdes] with respect to the house and lot located at Blk. 26, [L]ot 19, New Capitol Estate[s], Diliman[,] Quezon City to be in force and effect. And that Lourdes Bonrostro must remain in the possession of the premises. DCTHaS 2.)Ordering the defendant[s] to pay plaintiff[s] within 60 days from receipt of this decision the sum of P300,000.00 plus an interest of 2% per month from April 1993 to November 1993. 3.)Ordering the defendant[s] to pay plaintiff[s] within sixty (60) days from receipt of this decision the sum of P330,000.00 plus an interest of 2% [per month] from July 1993 to November 1993. 4.)Ordering the defendant[s] to reimburse plaintiff[s] the sum of P214,492.62 which plaintiff[s] paid to Bliss Development Corporation. No pronouncement as to Cost. SO ORDERED. 14 As their Motion for Reconsideration 15 was likewise denied in an Order 16 dated July 15, 1997, the spouses Luna appealed to the CA. 17 Ruling of the Court of Appeals In its Decision 18 of April 15, 2005, the CA concluded that since the contract entered into by and between the parties is a Contract to Sell, rescission is not the proper remedy. Moreover, the subject contract being specifically a contract to sell a real property on installment basis, it is governed by Republic Act No. 6552 19 or the Maceda Law, Section 4 of which states:

Petitioners spouses Nameal and Lourdes Bonrostro (spouses Bonrostro) assail through this Petition for Review on Certiorari 1 the April 15, 2005 Decision 2of the CA in CAG.R. CV No. 56414 which affirmed with modifications the April 4, 1997 Decision 3 of the Regional Trial Court (RTC) of Quezon City, Branch 104 in Civil Case No. Q-94-18895. They likewise question the CA's April 17, 2006 Resolution 4 denying their motion for partial reconsideration. Factual Antecedents In 1992, respondent Constancia Luna (Constancia), as buyer, entered into a Contract to Sell 5 with Bliss Development Corporation (Bliss) involving a house and lot identified as Lot 19, Block 26 of New Capitol Estates in Diliman, Quezon City. Barely a year after, Constancia, this time as the seller, entered into another Contract to Sell 6 with petitioner Lourdes Bonrostro (Lourdes) concerning the same property under the following terms and conditions: DIESaC 1.The stipulated price of P1,250,000.00 shall be paid by the VENDEE to the VENDOR in the following manner: (a)P200,000.00 upon signing . . . [the] Contract to Sell, (b)P300,000.00 payable on or before April 30, 1993, (c)P330,000.00 payable on or before July 31, 1993, (d)P417,000.00 payable to the New Capitol Estate, for 15 years at [P6,867.12] a month, 2.. . . [I]n the event the VENDEE fails to pay second installment on time, [t]he VENDEE will starting May 1, 1993 a 2% interest on P300,000.00 monthly. Likewise, in the event the pay the the

Sec. 4.In case where less than two years of installment were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. ScAIaT If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act. (Emphases supplied) The CA held that while the spouses Luna sent the spouses Bonrostro letters 20 rescinding the contract for non-payment of the sum of P630,000.00, the same could not be considered as valid and effective cancellation under the Maceda Law since they were made within the 60-day grace period and were not notarized. The CA concluded that there being no cancellation effected in accordance with the procedure prescribed by law, the contract therefore remains valid and subsisting. The CA also affirmed the RTC's finding that Lourdes was ready to pay her obligation on November 24, 1993. However, the CA modified the RTC Decision with respect to interest, viz.: Nevertheless, there is a need to modify the appealed decision insofar as (i) the interest imposed on the sum of P300,000.00 is only for the period April 1993 to November 1993; (ii) the interest imposed on the sum of P330,000.00 is 2% per month and is only for the period July 1993 to November 1993; (iii) it does not impose interest on the amount of P214,492.62 which was paid by Constancia to BLISS in behalf of Lourdes . .. The rule is that 'no interest shall be due unless it has been expressly stipulated in writing' (Art. 1956, Civil Code). However, the contract does not provide for interest in case of default in payment of the sum of P330,000.00 to Constancia and the monthly amortizations to BLISS. CacTIE Considering that Lourdes had incurred . . . delay in the performance of her obligations, she should pay (i) interest at the rate of 2% per month on the sum of P300,000.00 from May 1, 1993 until fully paid and (ii) interest at the legal rate on the amounts of P330,000.00 and P214,492.62 from the date of default (August 1, 1993 and April 4, 1997 [date of the

appealed decision], respectively) until the same are fully paid . . . 21 Hence, the dispositive portion of the said Decision: WHEREFORE, the appealed decision is AFFIRMED with the MODIFICATIONS that paragraphs 2, 3, and 4 of its dispositive portion shall now read: 2.)Ordering the defendants to pay plaintiffs the sum of P300,000.00 plus interest thereon at the rate of 2% per month from May 1, 1993 until fully paid; 3.)Ordering the defendants to pay plaintiffs the sum of P330,000.00 plus interest thereon at the legal rate from August 1, 1993 until fully paid; and 4.)Ordering the defendants to reimburse plaintiffs the sum of P214,492.62, which plaintiffs paid to Bliss Development Corporation, plus interest thereon at the legal rate from filing of the complaint until fully reimbursed. SO ORDERED. 22 The spouses Luna no longer assailed the ruling. On the other hand, the spouses Bonrostro filed a Partial Motion for Reconsideration 23 questioning the above-mentioned modifications. The CA, however, denied for lack of merit the said motion in a Resolution 24 dated April 17, 2006. Hence, this Petition for Review on Certiorari.

The spouses Bonrostro harp on the factual finding of the RTC, as affirmed by the CA, that Lourdes was willing and ready to pay her obligation as evidenced by her November 24, 1993 letter to Atty. Carbon. They also assert that the sending of the said letter constitutes a valid tender of payment on their part. Hence, they argue that they should not be assessed any interest subsequent to the date of the said letter. Neither should they be ordered to pay interest on the amount of P214,492.62 which covers the amortizations paid by the spouses Luna to Bliss. They point out that it was Constancia who prevented them from fulfilling their obligation to pay the amortizations when she instructed Bliss not to accept payment from them. 25 The spouses Luna, on the other hand, aver that the November 24, 1993 letter of Lourdes is not equivalent to tender of payment since the mere sending of a letter expressing the intention to pay, without the accompanying payment, cannot be considered a valid tender of payment. Also, if the spouses Bonrostro were really willing and ready to pay at that time and assuming that the spouses Luna indeed refused to accept payment, the former should have resorted to consignation. Anent the payment of amortization, the spouses Luna explain that under the parties' Contract to Sell, Lourdes was to assume Constancia's balance to Bliss by paying the monthly amortization in order to avoid the cancellation of the earlier Contract to Sell entered into by Constancia with Bliss. 26 However, since Lourdes was remiss in paying the same, the spouses Luna were constrained to pay the amortization. They thus assert that reimbursement to them of the said amount with interest is proper considering that by reason of such payment, the spouses Bonrostro were spared from the interests and penalties which would have been imposed by Bliss if the amortization remained unpaid. TAIEcS Our Ruling

Issue The Petition lacks merit. The basic issue in this case is whether the CA correctly modified the RTC Decision with respect to interests. AEcIaH The Parties' Arguments As may be recalled, the RTC under paragraphs 2 and 3 of the dispositive portion of its Decision ordered the spouses Bonrostro to pay the spouses Luna the sums of P300,000.00 plus interest of 2% per month from April 1993 to November 1993 and P330,000.00 plus interest of 2% per month from July 1993 to November 1993, respectively. The CA modified these by reckoning the payment of the 2% interest on the P300,000.00 from May 1, 1993 until fully paid and by imposing interest at the legal rate on the P330,000.00 reckoned from August 1, 1993 until fully paid. The spouses Bonrostro's reliance on the RTC's factual finding that Lourdes was willing and ready to pay on November 24, 1993 is misplaced. As mentioned, the RTC in resolving the Complaint focused on the sole issue of whether the failure of spouses Bonrostro to pay the installments of P300,000.00 on April 30, 1993 and P330,000.00 on July 31, 1993 is a substantial breach of their obligation under the contract as to warrant the rescission of the same. 27 The said court ratiocinated, viz.:

After careful evaluation of the evidence testimonial and documentary, the Court believes that the defendants['] delay in the payment of the two installment[s] is not so substantial [as to] warrant [rescission] of contract. Although, the defendant failed to pay the two installments [i]n due time, she was able to communicate with the plaintiffs through letters requesting for an extension of two months within which to pay the installment[s]. In fact, on November 24, 1993 defendant informed Atty. Arlene Carbon that she was ready to pay the installments and the money is ready for pick-up. However, plaintiff did not bother to get or pick-up the money without any valid reason. It would be very prejudicial on the part of the defendant if the contract to sell be rescinded considering that she made a downpayment of P200,000.00 and made partial amortization to the Bliss Development Corporation. In fact, the defendant testified that she is willing and ready to pay the balance including the interest on November 24, 1993. The Court is of the opinion that the delay in the payment of the balance of the purchase price of the house and lot is not [so] substantial [as to] warrant the rescission of the contract to sell. The question of whether a breach of contract is substantial depends upon the attendant circumstance. . . . 28 CDHAcI Clearly, the RTC arrived at the above-quoted conclusion based on its mistaken premise that rescission is applicable to the case. Hence, its determination of whether there was substantial breach. As may be recalled, however, the CA, in its assailed Decision, found the contract between the parties as a contract to sell, specifically of a real property on installment basis, and as such categorically declared rescission to be not the proper remedy. This is considering that in a contract to sell, payment of the price is a positive suspensive condition, failure of which is not a breach of contract warranting rescission under Article 1191 29 of the Civil Code but rather just an event that prevents the supposed seller from being bound to convey title to the supposed buyer. 30 Also, and as correctly ruled by the CA, Article 1191 cannot be applied to sales of real property on installment since they are governed by the Maceda Law. 31 There being no breach to speak of in case of non-payment of the purchase price in a contract to sell, as in this case, the RTC's factual finding that Lourdes was willing and able to pay her obligation a conclusion arrived at in connection with the said court's determination of whether the non-payment of the purchase price in accordance with the terms of the contract was a substantial breach warranting rescission therefore loses significance. The spouses Bonrostro's reliance on the said

factual finding is thus misplaced. They cannot invoke their readiness and willingness to pay their obligation on November 24, 1993 as an excuse from being made liable for interest beyond the said date. HDICSa The spouses Bonrostro are interest on the installments due date of default until fully paid. liable from for the

The spouses Bonrostro assert that Lourdes' letter of November 24, 1993 amounts to tender of payment of the remaining balance amounting to P630,000.00. Accordingly, thenceforth, accrual of interest should be suspended. Tender of payment "is the manifestation by the debtor of a desire to comply with or pay an obligation. If refused without just cause, the tender of payment will discharge the debtor of the obligation to pay but only after a valid consignation of the sum due shall have been made with the proper court." 32"Consignation is the deposit of the [proper amount with a judicial authority] in accordance with rules prescribed by law, after the tender of payment has been refused or because of circumstances which render direct payment to the creditor impossible or inadvisable." 33 "Tender of payment, without more, produces no effect." 34 "[T]o have the effect of payment and the consequent extinguishment of the obligation to pay, the law requires the companion acts of tender of payment and consignation." 35 As to the effect of tender of payment on interest, noted civilist Arturo M. Tolentino explained as follows: When a tender of payment is made in such a form that the creditor could have immediately realized payment if he had accepted the tender, followed by a prompt attempt of the debtor to deposit the means of payment in court by way of consignation, the accrual of interest on the obligation will be suspended from the date of such tender. But when the tender of payment is not accompanied by the means of payment, and the debtor did not take any immediate step to make a consignation, then interest is not suspended from the time of such tender. . . . 36 (Emphasis supplied) HSTCcD Here, the subject letter merely states Lourdes' willingness and readiness to pay but it was not accompanied by payment. She claimed that she made numerous telephone calls to Atty. Carbon reminding the latter to collect her payment, but, neither said lawyer nor Constancia came to collect the payment. After that, the spouses Bonrostro took no further steps to effect

payment. They did not resort to consignation of the payment with the proper court despite knowledge that under the contract, non-payment of the installments on the agreed date would make them liable for interest thereon. The spouses Bonrostro erroneously assumed that their notice to pay would excuse them from paying interest. Their claimed tender of payment did not produce any effect whatsoever because it was not accompanied by actual payment or followed by consignation. Hence, it did not suspend the running of interest. The spouses Bonrostro are therefore liable for interest on the subject installments from the date of default until full payment of the sums of P300,000.00 and P330,000.00. The spouses liable for interest the spouses amortization. Bonrostro are likewise on the amount paid by Luna to Bliss as

The spouses Bonrostro want to be relieved from paying interest on the amount of P214,492.62 which the spouses Luna paid to Bliss as amortizations by asserting that they were prevented by the latter from fulfilling such obligation. They invoke Art. 1186 of the Civil Code which provides that "the condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment." However, the Court finds Art. 1186 inapplicable to this case. The said provision explicitly speaks of a situation where it is the obligor who voluntarily prevents fulfillment of the condition. Here, Constancia is not the obligor but the obligee. Moreover, even if this significant detail is to be ignored, the mere intention to prevent the happening of the condition or the mere placing of ineffective obstacles to its compliance, without actually preventing fulfillment is not sufficient for the application of Art. 1186. 37 Two requisites must concur for its application, to wit: (1) intent to prevent fulfillment of the condition; and, (2) actual prevention of compliance. 38 IaEHSD In this case, while it is undisputed that Constancia indeed instructed Bliss on March 4, 1994 not to accept payment from anyone but her, there is nothing on record to show that Bliss heeded the instruction of Constancia as to actually prevent the spouses Bonrostro from making payments to Bliss. There is no showing that subsequent to the said letter, the spouses Bonrostro attempted to make payment to and was refused by Bliss. Neither was there a witness presented to prove that Bliss indeed gave effect to the instruction contained in Constancia's letter. While Bliss' Project Development Officer, Mr. Ariel Cordero, testified during trial, nothing could be gathered from his testimony regarding this except for the fact that Bliss received the said letter. 39 In view of these, the spouses Luna could not be said to have placed an effective obstacle as to

actually prevent the spouses amortization payments to Bliss.

Bonrostro

from

making

On the other hand, there are telling circumstances which militate against the spouses Bonrostro's claimed keenness to comply with their obligation to pay the monthly amortization. After the execution of the contract in January 1993, they immediately took possession of the property but failed to make amortization payments. It was only after seven months or on November 18, 1993 that they made payments to Bliss in the amount of P46,303.44. 40Whether the same covers previous unpaid amortizations is also not clear as the receipt does not indicate the same 41 and per Statement of Account 42 as of March 8, 1994 issued by Bliss, the unpaid monthly amortization for February to November 1993 in the total amount of P78,271.69 remained outstanding. There was also no payment made of the amortization due on December 4, 1993 and January 4, 1994 43 before the filing of the Complaint on January 11, 1994. TcIHDa On the part of the spouses Luna, it is understandable that they paid the amortization due. The assumption of payment of the monthly amortization to Bliss was made part of the obligations of the spouses Bonrostro under their contract with the spouses Luna precisely to avoid the cancellation of the earlier contract entered into by Constancia with Bliss. But as the spouses Bonrostro failed in this obligation, the spouses Luna were constrained to pay Bliss to avoid the adverse effect of such failure. This act of the spouses Luna proved to be even more beneficial to the spouses Bonrostro as the cancellation of the Contract to Sell between Constancia and Bliss would result in the cancellation of the subsequent Contract to Sell between Constancia and Lourdes. Also, the spouses Bonrostro were relieved from paying the penalties that would have been imposed by Bliss if the monthly amortization covered by the said payment remained unpaid. The Statements of Account 44 issued by Bliss clearly state that each monthly amortization is due on or before the fourth day of every month and a penalty equivalent to 1/10th of 1% per day of delay shall be imposed for all payments made after due date. That translates to 3% monthly or 36% per annum rate of interest, three times higher than the 12% per annum rate of interest correctly imposed by the CA. Hence, the resulting situation is that the spouses Luna are constrained to part with their money while the spouses Bonrostro, despite being remiss in their obligation to pay the monthly amortization, are relieved from paying higher penalties at the expense of the former. This is aside from the fact that the spouses Bonrostro are in continued possession of the subject property and are enjoying the beneficial use thereof. Under the circumstances and considering that the spouses Bonrostro are obviously in delay in complying with their obligation to pay the amortization due from February 1993 to

January 1995 for which the spouses Luna paid P214,492.62, 45 the CA correctly ordered the reimbursement to the latter of the said amount with interest. "Delay in the performance of an obligation is looked upon with disfavor because, when a party to a contract incurs delay, the other party who performs his part of the contract suffers damages thereby." 46 As discussed, the spouses Luna obviously suffered damages brought about by the failure of the spouses Bonrostro to comply with their obligation on time. "And, sans elaboration of the matter at hand, damages take the form of interest . . . ." 47 Under Article 2209 of the Civil Code, "[i]f the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest . . . ." There being no stipulation on interest in case of delay in the payment of amortization, the CA thus correctly imposed interest at the legal rate which is now 12%per annum. SaETCI WHEREFORE, the Petition for Review on Certiorari is DENIED and the assailed Decision dated April 15, 2005 and the Resolution dated April 17, 2006 of the Court of Appeals in CA-G.R. CV No. 56414 are AFFIRMED. SO ORDERED.