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Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 3019

February 9, 1907

LA COMPAIA GENERAL DE TABACOS DE


FILIPINA, plaintiff-appellee,
vs.
VICENTE ARAZA, defendant-appellant.
T. L. McGirr for appellant.
Domingo Franco for appellee.
WILLARD, J.:
The plaintiff brought this action in the court below to
foreclose a mortgage for 8,000 pesos upon certain
land in the Province of Leyte. A demurrer to the
complaint was overruled, but to the order overruling
it the defendant did not except. The defendant
answered, alleging that the document, the basis of
the plaintiff's claim, was executed through error on
his part and through fraud on the part of the
plaintiff. A trial was had and judgment was entered
for the plaintiff as prayed for in its complaint. The
defendant moved for a new trial on the ground that
the decision was not justified by the evidence, this
motion was denied, to its denial the defendant
excepted, and he has brought the case here for
review.
Upon the questions of fact raised by the answer,
the findings of the court below are sustained by the
evidence, in no event they can be said to be plainly
and manifestly against the weight of the evidence.
Those findings include a finding that there was no
fraud on the part of the plaintiff, no mistake on the
part of the defendant, and that there was a
sufficient consideration for the contract, As has
been said, there was in the case to support all of
these conclusions.
Upon one point, however, we think that the
judgment was erroneous. The contract send upon
was executed on the 11th day of June, 1901. By
terms thereof the defendant promised to pay the
plaintiff 8,000 pesos as follows: 500 pesos on the
30th of June, 1901, and the remainder at the rate of
100 pesos a month, payable on the 30th day of
each month, until the entire 8,000 pesos was paid.
The defendant paid 400 pesos and no more.

This suit was commenced on the 12th day of June,


1903. There was no provision in the contract by
which, upon failure to pay one installment of the
debt, the whole debt should thereupon become at
once payable. We are of the opinion that the
obligation can be enforced in this action for only the
amount due and payable on the 12th day of June,
1903.
The court below gave no credit for the payment of
400 pesos admitted by the complaint to have been
received by the plaintiff. It is allowed interest upon
the entire debt from the 1st day of July, 1901. The
contract does not provide for the payment of any
interest. There is no provision in it declaring
expressly that the failure to pay when due should
put the debtor in default. There was therefore no
default which would make him liable for interest
until a demand was made. (Civil Code, art. 1100;
Manresa, Com. on Civil Code, vol 8, p. 56.) The
transaction did not constitute a mercantile loan and
article 316 of the Code of Commerce is not
applicable. There was no evidence any demand
prior to the presentation of the complaint. The
plaintiff is therefore entitled to interest only from the
commencement of the action.
The judgment is set aside and the case is
remanded to the court below with directions to
determine the amount due in accordance with the
views hereinbefore expressed and to enter
judgment for such amount. No costs will be allowed
to either party in this court. So ordered.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. L-22359

November 28, 1924

JULIO DE LA ROSA, plaintiff-appellant,


vs.
THE BANK OF THE PHILIPPINE
ISLANDS, defendant-appellant.
Ramon Sotelo for plaintiff-appellant.
Araneta and Zaragoza for defendant-appellant.
ROMUALDEZ, J.:
This action was instituted on June 11, 1923, by
means of a complaint on the ground that the
defendant bank started a contest of designs and
plans for the construction of a building, announcing
that the prizes would be awarded not later that on
November 30, 1921; that the plaintiff took part in
said contest, having performed work and incurred
expenses for that purpose; that said bank refrained
from naming judges and awarding the prizes in
accordance with the conditions stipulated. The
plaintiff prays that judgment be rendered in his
favor for the sum of P30,000 as damages, with
interest and the costs.
The defendant bank answered denying the facts
contained in the second and following paragraphs
of the complaint.
After the trial, the court rendered judgment ordering
the defendant bank to pay the plaintiff an indemnity
of P4,000 and the costs.
Both parties appealed from this judgment, the
plaintiff assigning the following errors as committed
by the trial court:
1. In holding that the sum of P4,000 was a
just and reasonable indemnity to the
plaintiff.
2. In not ordering the defendant bank to pay
the P30,000 prayed for in the complaint.
The defendant bank, in turn, assigned the following
errors as committed by the trial court:
1. In holding that the date set for the award
of prizes is essential in the contract.

2. In ordering that the sum of P4,000 be


paid to the plaintiff.
The fundamental question on which the plaintiff's
action depends is raised in the first assignment of
error made by the defendant bank, or, whether or
not the date set for the award of the prizes was
essential in the contract and, therefore, whether or
not the failure to award the prizes on said date was
breach of contract on the part of the defendant.
First of all, we find that due to the fact that the bank
started and advertised the said contest, offering
prizes under certain conditions, and the plaintiff
prepared, by labor and expense, and took part in
said contest, the bank is bound to comply with the
promise made in the rules and conditions prepared
and advertised by it.
A binding obligation may even originate in
advertisements addressed to the general
public. (6 R. C. L., 600.)
It is an elementary principle that where a
party publishes an offer to the world, and
before it is withdrawn another acts upon it,
the party making the offer is bound to
perform his promise. This principle is
frequently applied in cases of the offer of
rewards, . . . (6 R. C. L., 607.)
What is to be determined is whether or not the
defendant bank was in default in not awarding the
prizes on November, 30, 1921.
The plaintiff contends that it was, according to
paragraph 2 of article 1100 of the Civil Code, the
complete text of which is as follows:
Persons obliged to deliver or to do
something are in default from the moment
the creditor demands of them judicially or
extrajudicially the fulfillment of their
obligation.
Nevertheless, the demand of the creditor
shall not be necessary in order that the
default may arise
1. When the obligator or the law
expressly so provides;
2. When by reason of the nature and
circumstances of the obligation it
shall appear that the designation of

the time at which the thing was to be


delivered or the service rendered
was the principal inducement to the
creation of the obligation.
In reciprocal obligations neither of the
obligators shall be in default if the other
does not fulfill or does not submit to the
fulfillment of that which is incumbent upon
him. From the time on the obliges performs
his obligation the default begins for the
other party.
And the party plaintiff contends that the said date
was the principal inducement because the current
cost of concrete buildings at the time was fixed.
The fixation of said price cannot be considered as
the principal inducement of the contract, but
undoubtedly only for the uniformity of the designs to
be presented and to secure greater justice in the
appreciation of the relative merits of each work
submitted.
Such fixation of price, naturally, was not the
principal inducement for the contestants. Neither
was it for the bank which could not certain that said
price would continue to be current price when it
desired to construct the building designed.
We do not find sufficient reason for considering that
the date set for the reward of the prizes was the
principal inducement to the creation of the
obligation. And, taking into consideration the
criterion that must be followed in order to judge
whether or not the time for the performance of the
obligation is the principal inducement in a given
case, we hold that it was not in the instant case.
The distinguished Manresa explains the matter in
the following terms: 1awphi1.net
These words ("principal inducement" in
paragraph 2 of article 1100 of the Civil
Code) whose special meaning in connection
with this article and the circumstances of
each obligation does not permit of their
being confused with the permanent general
idea, and the distinct clearness of
consideration of contracts, may give rise to
serious doubts by reason of the breadth of
expression, and must be judged in each
particular case, it being impossible to give a
general rule to explain them. It will for
instance, be unquestionable that the
hypothesis implied in this exception is
affected when the matter, for instance, is

the delivery of things of the rendition of


services to be employed in agricultural
work, and the time of said work has been
designated as the date for the fulfillment of
the obligation; it will also exist when, for
instance, fruits or any objects are to be
delivered which might be used by the
creditor in industrial operations having a
determinate period for carrying them out
and designated for their delivery; and,
finally, it will also assist whenever, as in
these cases, it appears that the obligation
would not have been created for a date
other than that fixed.
The defendant bank cannot be held to have been in
default through the mere lapse of time. For this
judicial or extrajudicial demand was necessary for
the performance of the obligation, and it was not
alleged here, nor does it appear that before
bringing this action the plaintiff had ever demanded
it from the defendant bank in any manner
whatsoever. The defendant bank, therefore, was
not in default.
The plaintiff's allegation that the defendant bank
abstained from continuing the contest was not
proven. On the contrary, it was proved, and so
stated in the decision appealed from, that during
the trial of this case in the Court of First Instance
the designs were on the way to New York where
they were sent to a technical committee.
This committee, according to the new evidence
before us presented by the defendant bank and
which we now hold admissibe and admit, was
appointed by the defendant bank for the study and
determination of the designs presented and entitled
to the prizes advertised, and which rendered its
report and awarded the prizes in accordance with
the rules and conditions of the contract, except in
regard to the date of such award of prizes which, as
we have found, is not essential to the contract in
question.
It appearing that the defendant bank was not in
default it is needles to discuss the other questions
raised, all depending upon the existence of said
default.
We find the plaintiff has no cause of action in this
case,
The judgment appealed from is reversed and the
defendant is entirely absolved from the complaint,
without any express finding as to costs. So ordered.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. L-10801

February 28, 1961

MARIANO RODRIGUEZ and MARINA


RODRIGUEZ, plaintiffs-appellees,
vs.
PORFIRIO BELGICA and EMMA
BELGICA, defendants-appellants.

plaintiffs dated August 26, 1955, we wish to


inform this Honorable Court that with
regards to paragraph 1-A wherein the length
of time given to the defendants to pay the
plaintiffs of P35,000.00 is thirty (30) days,
we request that said period be seventy (70)
days counted from today, August 30, 1955.
With regard to Paragraphs 1-B and 1-C, we
are agreeable to the terms and conditions
therein stated: Court: .
Any objection to the said counter proposal
of the defendants? .

Ignacio M. Orendain for plaintiffs-appellees.


Arsenio M. Cabrera and Jose S. Fineza for
defendants-appellants.

Atty. Orendain: .

PAREDES, J.:

Court: - (To defendant Mr. Porfirio Belgica).

This was originally a partition case, instituted in the


Court of First Instance of Rizal, Quezon City
Branch. After a series of pleadings filed by the
parties, and on one of the hearings held, the
defendants made a verbal offer to compromise.
Pursuant to the said offer, the plaintiffs, on August
27, 1955, filed a "Motion re Offer to Compromise."
What transpired afterwards is best depicted in the
following judgment of the lower court: .

Mr. Porfirio Belgica, have you heard what


Atty. Fineza, your lawyer, have proposed to
the Court and are you agreeable to the
same? .

We have no objection, Your Honor.

Defendant Porfirio Belgica: .


Yes, Your Honor.
Atty. Fineza: .

"The above-entitled case was scheduled in


the calendar of this Court today to consider
the "Motion re Offer of Compromise" as a
result of the pre-trial held by the parties and
their respective Attorneys in this case.
The parties have discussed and considered
the terms and conditions set forth in said
Offer of Compromise submitted by the
attorney for the plaintiffs and as a result
thereof they have arrived at an amicable
settlement, the terms of which were dictated
in open court by the attorneys of both
parties in the presence of their clients, with
the exception of plaintiffs Mariano
Rodriguez and his wife Marina Rodriguez
who were represented by their son, Atty.
Jose Rodriguez. The terms and conditions
of said Compromise Agreement are as
follows: .
Atty. Fineza:
If your Honor please, as regards the Motion
Re Offer of Compromise presented by the

Inasmuch as defendant Porfirio Belgica will


have to negotiate a portion of the part
pertaining to him to raise the amount of
P35,000.00 with which he will pay the
plaintiffs, we request that the plaintiffs make
new selection of the portion they desire as
per plan Exhibit E.
Atty. Orendain:.
According to my clients, Your Honor, I was
instructed to choose the portion which is
nearest to Quezon City, in other words, the
portion in the bigger lot which is the
Southern portion as appears in Exhibit E
and which is encircled in red pencil, subject
to relocation or readjustment after a survey
is made.
That the plaintiffs will sign the necessary
transfer of the 36% in favor of the
defendants upon payment of the
P35,000.00.

That the plaintiffs agree to grant authority to


defendant Porfirio Belgica to negotiate the
sale or mortgage of the 36% which is
proposed to be conveyed to him, for the
purpose of raising the P35,000.00 to be
paid to the plaintiffs.
That the Motion re Offer of Compromise is
hereby made a part and parcel of the
Compromise Agreement, as modified.
Parties agree that in the event the
defendants fail to pay to the plaintiffs said
amount of P35,000.00 within the period
above fixed or stipulated, the plaintiffs will
automatically be the owners of the 36% of
the two parcels of land, and that the 14%
pertaining to the defendants will be taken
from the portion towards Caloocan, or more
particularly in the portion encircled in blue
pencil, subject to the survey and relocation
of a surveyor. Court: .
Make of record that this Compromise
Agreement was made in open court in the
presence of Atty. Jose Rodriguez, who is
the son of the plaintiff Mariano Rodriguez,
their attorney Mr. Ignacio M. Orendain, the
defendant Mr. Porfirio Belgica and his
counsel Atty. Jose S. Fineza.
Parties respectfully pray this Honorable
Court to render judgment in accordance
therewith without costs.
The transcript of the notes taken by the
Stenographer of the proceedings taken by
the parties before they arrived at an
amicable settlement was signed by the
parties and their respective attorneys and
submitted to this Court for corresponding
decision.
IN VIEW OF THE FOREGOING, judgment
is hereby rendered approving en toto the
foregoing Compromise Agreement and the
parties are hereby ordered to abide by and
comply with the terms and conditions
contained in said Compromise Agreement,
without pronouncement as to costs.
On September 3, 1955, the defendants filed a
Motion for Withdrawal of Exhibits, particularly the
Certificates of Titles covering the lands, subject
matter of the present controversy. Among the
reasons given in the motion was "the defendants

have already taken steps to effect that partition of


the property for the purpose of delimiting the
respectively portion which would appertain to each,
which delimitation has to be effected in order that
defendants may have the opportunity of negotiating
their half or any portion thereof to raise the
P35,000.00 which he undertook to pay to plaintiffs.
The above motion bore the conformity of counsel
for the plaintiffs.
On November 19, 1955, after the lapse of the
seventy (70) day period stipulated in the
compromise agreement, and upon the failure of the
defendants to pay, the plaintiffs presented a motion
praying that the defendants be ordered to deliver to
the plaintiffs the Certificates of the Titles so that
14% of the property pertaining to the defendant
could be segregated. An opposition was registered
by the defendants, contending that the inability to
meet the obligation to pay the P35,000.00 was due
to the deliberate refusal of the plaintiffs to grant the
authority to defendant Porfirio Belgica to negotiate
the sale or mortgage of the 36%; and that since the
decision had created reciprocal obligations, the
refusal or failure on the part of one to comply did
not make the other in default. In the opposition, the
defendants prayed that the plaintiffs be ordered to
grant defendant Porfirio Belgica the authority to
negotiate the sale or mortgage of the 36%. the
lower court, On November 26, 1955, ordered the
defendants to surrender to the Court the TCT's they
withdrew, not latter than December 1, 1955. On this
date the defendants filed a "Motion to Compel
Plaintiffs to Comply with the Conditions of the
Judgment", reiterating in substance, the reason
they invoked in their previous oppositions. On
December 15, 1955, the trial court acting on the
motion of the defendants, handed down the
following order, to wit:
"defendant Belgica's contention is that the
plaintiffs Mariano Rodriguez has refused to
grant the authority adverted to. Said
defendant, however, has not done anything,
nor has filed any petition with the Court
regarding the alleged refusal of the plaintiff
Rodriguez to grant such authority before the
expiration of the 70-day period fixed by the
parties within which to pay the said amount
of P35,000.00. The petition to compel the
plaintiffs to comply with the conditions of the
judgment, namely to command said
plaintiffs to grant the authority above
referred to was only filed on December 1,
1955, or after the expiration of 90 days. In
the opinion of the Court, the decision

rendered in this case has already become


final and executory under the terms and
conditions stipulated by the parties and
upon which said decision was based.
IN VIEW OF THE FOREGOING, the said
motion to compel the plaintiffs to comply
with the condition embodied in the judgment
is hereby DENIED.".
The above ordered is now the subject to the
present appeal, appellants contending in their lone
assignment of error that the lower court erred "in
denying the motion of December 1, 1955 (to
compel the plaintiffs to grant the authority), on the
ground that because of the failure of defendantsappelants to pay the plaintiffs-appelees the amount
P35,000.00 within the period of seventy days, the
judgment of August 30,1955, has already become
due and executory.".
Whether the denial of the motion of compel the
plaintiffs to grant the authority is proper and legal,
would seem to be the dominant issue..
On the plaintiffs-appellees was impose the
obligation of granting to defendants-appellants the
requisite authority to negotiate either the sale or
mortgage of the 36% interest in the property. This
is understandable, because on the face of the two
certificates of the title covering the properties,
defendants owned only 14%, while plaintiffs owned
86%. Without such authority executed by plaintiffs
in favor of the defendants, it was difficult, not to say
impossible for the latter to affect a negotiation. This
the plaintiffs the fully knew, because in the
compromise, they acknowledged that the amount of
P35,000.00 due to them would be paid within 70
days from the August 30, 1953, with money to be
delivered from the sale of mortgage of the property.
It was, therefore, incumbent upon the plaintiffs "to
grant authority" to defendants to negotiate the sale
or mortgage of the 36% of the property.
Considering that the reciprocal obligation has been
established by the compromise agreement, the
sequence in which the reciprocal obligations of the
parties are to be performed, is quite clear. The
giving of the authority to sell or mortgage precedes
the obligation of the defendants to pay
P35,000.00(Martinez vs. Cavives, 25 Phil. 581).
Until this authority is granted by the plaintiff, the 70
day period for payment will not commence to run.
The plaintiffs insinuated that defendant did not ask
for the authority. There was, however the statement
or allegation by the defendants to the effects that
they made verbal request for such authority but

plaintiffs refused to give, a statement or allegation


discredited by the lower court. But even without a
request, from the very nature of the obligation
assumed by plaintiffs, demand by defendants that it
be performed, was not necessary (Article 1169,
par. 2, Civil Code).
It is true that defendants' petition to compel the
plaintiffs to grant the authority repeatedly
mentioned, was only filed on December 1, 1955,
after the expiration of the 70-day period. It should,
however, be observed that the actuations or acts of
the defendants have always been lulled by a sense
of an honest but insecure misunderstanding, as to
the scope and extent of the terms and conditions of
the compromise. To show that defendants had not
abandoned their obligation to pay the sum of
P35,000.00, on September 3, 1955, within the 70day period which expired on November 8, 1955,
they filed a motion to withdraw documents and
certificates of title to delimit the respective portions,
in order that they (defendants) might have an
opportunity of negotiating one-half or any portion to
raise P35,000.00 to which motion the plaintiffs
agreed. While waiting for the grant of authority to
descend, like manna from Heaven, the defendants
were surprised to receive, on November 19, 1955,
plaintiffs' motion to have the titles returned so that
the defendants' 14% could be segregated, as they
(plaintiffs) wanted to remain with the 86% of the
properties.
The lower court and with it, the plaintiffs-appellees
had indulged in fine technicalities which in this
particular case, would work injustice to the
defendants-appellants, more than anything else.
The compromise agreement being onerous the
doubt should be settled in favor of the greatest
reciprocity of interests. Without the authority in
question the obligation of the defendants to pay the
plaintiffs the sum of P35,000.00 cannot be
considered as having matured, and the lapse of the
70-day period fixed in the decision can not be
adjudged as having resulted in the forfeiture of their
right to repurchase their 36% interest in the
properties (Price, Inc. v. Rilloraza, et al.. No. L8253, May 25, 1955).
The claim of the appellees that the appellants failed
to comply with their initial obligation to delimit the
property, as stated by them in their motion to
withdraw, is not supported by the evidence. The
delimitation or segregation of the property to be
sold or mortgaged which appellants should have
done first so that the authority could have been
granted, had long been accomplished. This is clear

from the words of appellees' counsel when he said,


"According to my clients, Your Honor, I was
instructed to choose the portion which is nearest to
Quezon City . . .".
In view hereof, the resolution of the lower court
dated December 15, 1955, is reversed, and another
entered, ordering the plaintiffs-appellees to execute
in favor of the defendants-appellants the proper
authority to sell or mortgage 36% of the properties
in litigation within 30 days from notice of this
decision and further directing the defendantsappellants to pay unto the plaintiffs-appellees the
sum of P35,000.00 within 30 days from the date
such authority is granted. Without special
pronouncement as to costs.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. L-4874
March 2, 1909
MARIANO VELOSO, ET AL., plaintiffs-appellees,
vs.
ANICETA FONTANOSA, ET AL., defendantsappellants.
Martin M. Levering for appellants.
Rodriguez and Del Rosario for appellees.
ARELLANO, C.J.:
This case was brought by means of a bill of
exceptions to this court for a revision of the facts
and evidence. The appeal being heard it appears:
That a complaint was filed with the Court of First
Instance of Cebu as follows: (1) That Mariano
Veloso, Damiana Veloso, and Melchor Veloso are
the sole lawful heirs of Gavino Veloso and
Buenaventura Veloso, their father and brother
respectively; (2) that the defendants are Aniceta
Fontanosa, as widow of Roberto Ancajas, and
Florentina, Leona, Maria, Juan, Romualda, Vicenta,
and Felix, all of the surname of Ancajas, the lawful
children of the deceased Roberto, and Estefania
Fontanosa, mother and legal guardian of the minor
Jose Ancajas; (3) that at he death of Gavino
Veloso, Roberto Ancajas owed him the sum of
5,065 pesos which he had borrowed prior to the
year 1881; (4) that in the apportionment of the
estate, this debt of 5,065 pesos went to
Buenaventura Veloso as his portion; (5) that in the
year 1882, Roberto Ancajas, after having
acknowledged the transfer of his indebtedness by
inheritance to Buenaventura Veloso, continued to
receive sums of money from the latter on the same
conditions, that is, as loans, and bound himself to
make annual payments in sugar; (6) that on the
11th of October, 1883, the debt of Roberto Ancajas
amounted to 10,449.18 pesos, as shown by a
liquidation of accounts made between them and
ratified by Roberto Ancajas in the said month on
October, 1883; (7) that on August 4, 1884, this
balance amounted to 12,199.65 pesos; (8) that on
May 31, 1887, it rose to 14,439.40 pesos, which
sum, however, was reduced to 12,365.20 pesos by
the payment of 2,074.20 pesos on account; (9) that
up to the year 1893 the defendants made payments
amounting to 642.27 pesos which reduced the
amount owing to 11,722.43 pesos; (10) that on the
death of Buenaventura Veloso, the defendants, as
his sole and lawful heirs, inherited, and that same

year divided between them all his property with the


exception of the above-mentioned credit, which is
at present held pro indiviso between them, and
they, as the lawful heirs of Buenaventura Veloso,
the creditor, have repeatedly called upon the
defendants to pay the said credit, but the latter
have constantly refused to do so, thus having rise
to the filing of the complaint; (11) that on account of
their delinquency in payment they have caused the
plaintiffs damages to the value of 14,068.48 pesos;
they therefore asked the court below to sentence
the defendants to pay both sums, with legal interest
thereon from the time they ceased to make
payments, and the costs.
That the attorneys who answered the complaint,
subscribed their answer: "Attorneys for Aniceta
Fontanosa, Maria, Juana, Romualda, Vicenta, and
Felix, all surnamed Ancajas, and for Estefania
Fontanosa," having previously signed the receipt
for the complaint in this manner: "Attorneys for the
defendants, with the exception of Florentina and
Leona Ancajas."
That in the answer, in addition to the general of all
the allegations in the complaint, there was put
forward as special defense: (1) That this supposed
right of action had prescribed before the action was
instituted; (2) that Romualda Ancajas and some of
the other general heirs of Roberto Ancajas were not
of age, at the time of the death of Roberto Ancajas,
nor at the time of the supposed acceptance of the
inheritance, and that there was no judicial
intervention in said acceptance.
The trial judge in his findings of fact considers that,
among other allegations of the complaint, the
following have been proven:
That Aniceta Ancajas is the wife of the said
deceased and that with the exception of the
minor Jose Ancajas, who is represented in
these proceedings by his legal guardian,
Estefania Fontanosa, and is the grandchild
of the said deceased Roberto Ancajas, most
of the defendants are his children; that as
heirs the said defendants took possession
of all the property of the said deceased after
his death, and at the present time are in
possession as the undivided owners
thereof. (B. of E., 12.)
And as conclusions of law he says:
That the defendants being the heirs of
Roberto Ancajas, deceased, and having

taken possession of the latter's property


from the time of his death to the present
time, as heirs of the said deceased, and
exercising over the same all those acts
which show ownership, which, if they were
not the heirs, they could not exercised, they
have purely and simply accepted the
inheritance from their principal, and
consequently, under article 1003 of the Civil
Code, they are liable for the encumbrances
with which the heritage is charged, not only
with the property of their principal but also
with their own; that the defendants, as heirs
of the late Roberto Ancajas, having
acknowledged and admitted the latter's debt
to Buenaventura Veloso, the principal of the
plaintiffs, which acknowledgment was made
expressly and by means of the payments
made by them to the creditor, have
contracted the express obligation to pay it
under the same terms as their aforesaid
principal; that the defendants are liable for
the payment of the sum of P11,722.43 to
the plaintiffs, in their capacity of heirs, to
Buenaventura Veloso, for the debt
contracted in his favor by their late principal
Roberto Ancajas, and which debt was
acknowledged and admitted by them; that
as the defendants have acknowledged and
admitted the said debt, toward the
settlement of which they made the last
payment in the year 1893, the right of action
for its recovery, by article 1964 of the Civil
Code, and in accordance with article 943 of
the Code of Commerce, prescribes after the
lapse of fifteen years, and inasmuch as the
period fifteen years from said date until the
time the complaint herein was presented,
has not expired, the conclusion is that the
said action is enforceable and should be
made effective; that, it being proven that
Buenaventura Veloso, the plaintiffs'
principal, had brought suit against the
defendants in the year 1896 for the payment
of said debt, it must be concluded that the
prescription of the action for recovery has
been legally interrupted, in conformity with
the provisions of article 1973 of the Civil
Code; that the debt of P11,722.43 is a credit
which originated from a mercantile contract,
and as the interest due the plaintiffs can not
be determined, they are entitled to recover
the legal interest on said amount from the
defendants at the rate of 6 per cent per
annum from the month of September, 1893,
until the full payment thereof.

The defendants appealed from this judgment of the


lower court, alleging the following errors:
1. The admission of the books marked as Exhibits
A, B, and C as evidence, and the overruling of the
motion for their exclusion.
2. The admission of Exhibits D, E, F, and G as
evidence.
3. The finding that the defendants are the heirs of
the late Roberto Ancajas, and that they purely and
simply accepted the inheritance from the said
deceased.
4. The overruling of the motion for a new trial.
With regard to the first and second errors, charged
against the admission of the documentary evidence
of the appellees, the rulings of the court below are
in accordance with the law. The books marked as
Exhibits A and B simply serve to show the origin
and progress of the debt, and they may be ignored
from the moment there was entered on folio 88 of
the book marked Exhibit C a debit and credit
account, of which Exhibit E is an exact copy, and
which shows the account maintained between
Buenaventura Veloso and Roberto Ancajas as
accepted by the latter and signed by him in proof of
his conformity with the balance of P10,449.18
appearing therein. This acknowledgment by their
principal must be decisive as to the heirs, and it
must be held to be proven that at least they are
indebted in said sum of P10,449.18, since against
the admission and validity of Exhibit E nothing has
been alleged by the appellants in this instance.
As the successive liquidations which the trial court
took into consideration until reaching the one at bar
are not specifically impugned, either in this instance
or in the court below, they are not now, therefore,
subject to revision by this court.
As to the prescription of the right of action which is
subsidiarily alleged in order to impugn the
obligation which, according to the judgment
appealed from still exists, the appellants say that
"the debt had prescribed so far as the defendants
are concerned, with the questionable exception of
the defendant Aniceta Fontanosa, widow of
Roberto Ancajas, because it appears that said
Aniceta Fontanosa was the only person who made
any payment, and it is not possible that an act
performed by one of the defendants can prejudice
the legal rights of the others." (Brief, 5.)

The court below considered as proven: (1) The


payments made by the heirs after the death of
Roberto Ancajas, the last of which was in 1893; (2)
a judicial complaint filed against these same
defendants in 1896. From these facts the court
below makes the following deductions: First, that
the right of action that existed in 1893 to demand
the settlement of the debt which, by article 1964 of
the Civil Code should prescribe at the expiration of
fifteen years, had not prescribed in 1906, the time
of filing the present complaint. Second, that in
consequence of the filing of the said complaint in
1896, the running of the statute was interrupted, as
prescribed by article 1973 of the Civil Code.
It has been proven that on the 11th of October,
1883, Roberto Ancajas acknowledged that a
balance of 10,449.18 pesos was standing against
him; that since that time he has received and paid
amounts in connection with said obligation, the last
payment being made "shortly before his death in
1888," as stated by the appellants in their brief on
page 5, that is, on May 5, 1888, as appears at folio
223 of the book offered in evidence by the
appellees as Exhibit C. It therefore follows that in
computing the time for prescription from said date it
would be necessary to take into consideration the
fact that the Civil Code was not yet in force, as it
did not become effective until December 8, 1889,
and that, at that time, the period for the prescription
of personal actions, such as the one at issue, by
law 5, title 8, book 11, of the Novisima
Recopilacion, was twenty years, which period
should expire in 1908, so that when the complaint
herein was presented in 1906, the term had not
expired; therefore, we have not to consider the
legal interruption of a term which has not yet
expired, as in the present case the question is one
of a period of prescription that commenced before
the enforcement of the Civil Code, which period, by
the terms of the article 1939 of the said code, must
be governed by the laws then in force.
The Civil Code would only be applicable, if the
whole period required thereby for prescription had
transpired after it was put in force, notwithstanding
the fact that, under the old laws, a longer lapse of
time was necessary (art. 1939, Civil Code). And
since the 8th of December, 1889, when the Civil
Code went into effect, the fifteen years required by
the provisions thereof for the prescription of the
right of personal actions have certainly elapsed. But
in the present case the court below has considered
two forms of interruption of prescription of the right,
namely, the exercise thereof before the courts, and
the act of the acknowledgment of the debt by the

debtor. The said court found that payments were


made in the years 1891, 1892, and 1893 by the
widow of the late Roberto Ancajas, and the period
for the prescription must be counted from the lastmentioned date, because the action could only
have been exercised thereafter. It is evident that
since then the term required by article 1964 of the
Civil Code has not expired, and supposing that
such payments had not been made, the court
below considered as proven that in 1896, an action
was brought for the recovery of this debt, and
against this consideration no error of law or fact has
been assigned. No judgment was rendered by
reason of the revolution that took place in 1898,
and the record of the case was lost through the
same cause; facts which were agreed to between
the contending parties at this trial. And in
conformity with the decision of the supreme court of
Spain of July 5, 1904, which interprets the right
sense of the aforesaid article 1973, the action then
instituted and that now brought are one and the
same.
Against the finding of the court below as to the first
method of interruption of the prescription, in so far
as it considered that the payments made after the
death of Roberto Ancajas by his widow, Aniceta
Fontanosa, were an acknowledgment of the debt,
the appellants allege "that an act performed by one
of the defendants can not prejudice the legal rights
of the others." But, in accordance with article 1974,
interruption of prescription of rights of action in all
kind of obligations of the heirs of the debtor,
benefits or prejudices them all alike, inasmuch as
each and all of them represent the principal, and
they jointly succeed him in his rights and
obligations.
For all the above reasons the judgment entered by
the trial court "That payment shall be made to
plaintiffs of the sum of P11,722.43 with costs," is
proper, for the reason that it is in accordance with
the law and the merits of the case.
But that the above-stated amount shall be in the
Philippine pesos "(P11,722.43)," as determined in
the judgment, is not in accordance with the law or
the merits. Even the latest sum loaned on the 31st
of May, 1887, according to the last liquidation
considered in point 8 of the complaint, was that
current at the time, and certainly the unit was not
then the Philippine peso.
Neither is the sentence contained in the judgment
appealed from, that "Legal interest on the said sum
at the rate of 6 per cent per annum shall be payable

from the month of September, 1893," in


accordance with the law. It is proper to sentence
the defendants to pay the legal interest of 6 per
cent per annum by reason of the default incurred by
the heirs of Ancajas (art. 1108, Civil Code), but
such default can not date back of September, 1893,
that is, from the time of the last payment made by
them or by Aniceta Fontanosa. Article 1100 of the
Civil Code reads:
Persons obliged . . . are in default from the
moment when the creditor demands the
fulfillment of their obligation, judicially or
extrajudicially,
And the judicial demand for the fulfillment of said
obligation was only made in 1896; hence, as the
date of the complaint interposed in that year has
not been fixed, the next amount claimed therein
should only commence to bear legal interest from
the latter part of 1896, or rather from the beginning
of 1897. In a decision of December 3, 1902, the
supreme court of Spain held:
That it is a principle of law, acknowledged
and sanctioned by article 1100, in relation to
article 1108 of the Civil Code, that interest
upon default only becomes due from the
time of the judicial or extrajudicial notice by
the creditor to the debtor, unless otherwise
expressly provided by law, or by virtue of a
contract, or on account of special
circumstances depending upon the nature
of the obligation.
As to the third and fourth errors, it is true that, in
view of the evidence submitted with the bill of
exceptions, and because all the facts of the
complaint have been generally denied by the
defendants, the following facts, which are stated in
the judgment as resulting from the record, have not
been proven:
That the other defendants, apart from the
widow of Ancajas, are the children of the
latter, and that Jose Ancajas is his
grandchild, all of them being his only heirs;
that Estefania Fontanosa is the legal
guardian of the minor Jose Ancajas; that as
such heirs they took possession of all the
property of the deceased and hold the
same pro indiviso.
And as a natural consequence, there is no ground
for the most important conclusion of law in the
decision:

That, inasmuch as they took possession of


the property of the late Roberto Ancajas,
and performed all those acts of ownership
thereof which, without being heirs they
could not have performed, they purely and
simply accepted the inheritance from their
principal, and have ever since become
liable for his debt, not only with the property
they received from him, but also with their
own property.
Florentina Ancajas is the only person who
appeared as the daughter of Roberto Ancajas and
testified as a witness for the plaintiffs, but it does
not appear that she, or another of the name of
Leona (often called Len), have ever been
summoned and cited to appear or that they failed to
answer the complaint. It is certain that they have
not answered it. From the testimony of this witness
it appears that it was Aniceta Fontanosa who, after
the death of her husband, Roberto Ancajas, made
the three last payments on account of the latter's
debt.
Thus, it is not proper that a sentence, rightly
entered against the heirs or successors of Roberto
Ancajas, should particularly fall upon the persons
named in the complaint, and to whom the judgment
refers, for no other reason than that they were
designated as such heirs in the complaint.
For the reasons above set forth we hold that the net
amount due to the plaintiffs by such persons as
may turn out to be the lawful heirs of Roberto
Ancajas, in addition to those who, apart from the
minor Jose Ancajas, appeared in this suit, has been
rightly determined, that is, the sum of 11,722.43
pesos, with legal interest thereon at the rate of 6
per cent, from the time the suit was filed in 1896,
with the costs of the first instance against the
defendants who answered the complaint. The
judgment appealed from is hereby set aside in
order that a new trial may he held for the purpose
of properly determining who are the heirs against
whom should be directed the order of payment, and
what were the acts and form of acceptance of the
inheritance, and of the possession and method of
possession of the property remaining at the death
of Roberto Ancajas; after which let a new judgment
be rendered which shall include a finding of the
equivalent of the amount owing in Philippine
currency at the time of such decision. No special
ruling is made as to the costs in this instance. So
ordered.

Republic of the Philippines


SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 118126 March 4, 1996


TRANS-ASIA SHIPPING LINES, INC., petitioner,
vs.
COURT OF APPEALS and ATTY. RENATO T.
ARROYO, respondents.

DAVIDE, JR., J.:p


As formulated by the petitioner, the issue in this
petition for review on certiorari under Rule 45 of the
Rules of Court is as follows:
In case of interruption of a vessel's
voyage and the consequent delay in
that vessel's arrival at its port of
destination, is the right of a
passenger affected thereby to be
determined and governed by the
vague Civil Code provision on
common carriers, or shall it be, in
the absence of a specific provision
thereongoverned by Art. 698 of the
Code of Commerce? 1
The petitioner considers it a "novel question of law."
Upon a closer evaluation, however, of the
challenged decision of the Court of Appeals of 23
November 1994, 2 vis-a-vis, the decision of 29 June
1992 in Civil Case No. 91-491 of the Regional Trial
Court (RTC) of Cagayan de Oro City, Branch
24, 3 as well as the allegations and arguments
adduced by the parties, we find the petitioner's
formulation of the issue imprecise. As this Court
sees it, what stands for resolution is a common
carrier's liability for damages to a passenger who
disembarked from the vessel upon its return to the
port of origin, after it suffered engine trouble and
had to stop at sea, having commenced the
contracted voyage on one engine.

The antecedents are summarized by the Court of


Appeals as follows:
Plaintiff [herein private respondent
Atty. Renato Arroyo], a public
attorney, bought a ticket [from]
defendant [herein petitioner], a
corporation engaged in . . . interisland shipping, for the voyage of
M/V Asia Thailand vessel to
Cagayan de Oro City from Cebu City
on November 12, 1991.
At around 5:30 in the evening of
November 12, 1991, plaintiff
boarded the M/V Asia Thailand
vessel. At that instance, plaintiff
noticed that some repair works [sic]
were being undertaken on the
engine of the vessel. The vessel
departed at around 11:00 in the
evening with only one (1) engine
running.
After an hour of slow voyage, the
vessel stopped near Kawit Island
and dropped its anchor thereat. After
half an hour of stillness, some
passengers demanded that they
should be allowed to return to Cebu
City for they were no longer willing to
continue their voyage to, Cagayan
de Oro City. The captain acceeded
[sic] to their request and thus the
vessel headed back to Cebu City.
At Cebu City, plaintiff together with
the other passengers who requested
to be brought back to Cebu City,
were allowed to disembark.
Thereafter, the vessel proceeded to
Cagayan de Oro City. Plaintiff, the
next day, boarded the M/V Asia
Japan for its voyage to Cagayan de
Oro City, likewise a vessel of
defendant.
On account of this failure of
defendant to transport him to the
place of destination on November
12, 1991, plaintiff filed before the
trial court a complaint for damages
against defendant. 4
In his complaint, docketed as Civil Case No. 91491, plaintiff (hereinafter private respondent)

alleged that the engines of the M/V Asia Thailand


conked out in the open sea, and for more than an
hour it was stalled and at the mercy of the waves,
thus causing fear in the passengers. It sailed back
to Cebu City after it regained power, but for
unexplained reasons, the passengers, including the
private respondent, were arrogantly told to
disembark without the necessary precautions
against possible injury to them. They were thus
unceremoniously dumped, which only exacerbated
the private respondent's mental distress. He further
alleged that by reason of the petitioner's wanton,
reckless, and willful acts, he was unnecessarily
exposed to danger and, having been stranded in
Cebu City for a day, incurred additional expenses
and loss of income. He then prayed that he be
awarded P1,100.00, P50,000.00, and P25,000.00
as compensatory, moral; and exemplary damages,
respectively. 5
In his pre-trial brief, the private respondent asserted
that his complaint was "an action for damages
arising from bad faith, breach of contract and from
tort," with the former arising from the petitioner's
"failure to carry [him] to his place of destination as
contracted," while the latter from the "conduct of the
[petitioner] resulting [in] the infliction of emotional
distress" to the private respondent. 6
After due trial, the trial court rendered its
decision 7 and ruled that the action was only for
breach of contract, with Articles 1170, 1172, and
1173 of the Civil Code as applicable law not
Article 2180 of the same Code. It was of the opinion
that Article 1170 made a person liable for damages
if, in the performance of his obligation, he was
guilty of fraud, negligence, or delay, or in any
manner contravened the tenor thereof; moreover,
pursuant to Article 2201 of the same Code, to be
entitled to damages, the non-performance of the
obligation must have been tainted not only by fraud,
negligence, or delay, but also bad faith, malice, and
wanton attitude. It then disposed of the case as
follows:
WHEREFORE, it not appearing from
the evidence that plaintiff was left in
the Port of Cebu because of the
fault, negligence, malice or wanton
attitude of defendant's employees,
the complaint is DISMISSED.
Defendant's counterclaim is likewise
dismissed it not appearing also that
filing of the case by plaintiff was
motivated by malice or bad faith. 8

The trial court made the following findings to


support its disposition:
In the light of the evidence adduced
by the parties and of the above
provisions of the New Civil Code, the
issue to be resolved, in the
resolution of this case is whether or
not, defendant thru its employees in
[sic] the night of November 12, 1991,
committed fraud, negligence, bad
faith or malice when it left plaintiff in
the Port of Cebu when it sailed back
to Cagayan de Oro City after it has
[sic] returned from Kawit Island.
Evaluation of the evidence of the
parties tended to show nothing that
defendant committed fraud. As early
as 3:00 p.m. of November 12, 1991,
defendant did not hide the fact that
the cylinder head cracked. Plaintiff
even saw during its repair. If he had
doubts as to the vessel's capacity to
sail, he had time yet to take another
boat. The ticket could be returned to
defendant and corresponding cash
[would] be returned to him.
Neither could negligence, bad faith
or malice on the part of defendant be
inferred from the evidence of the
parties. When the boat arrived at
[the] Port of Cebu after it returned
from Kawit Island, there was an
announcement that passengers who
would like to disembark were given
ten (10) minutes only to do so. By
this announcement, it could be
inferred that the boat will [sic]
proceed to Cagayan de Oro City. If
plaintiff entertained doubts, he
should have asked a member of the
crew of the boat or better still, the
captain of the boat. But as admitted
by him, he was of the impression
only that the boat will not proceed to
Cagayan de Oro that evening so he
disembarked. He was instead, the
ones [sic] negligent. Had he been
prudent, with the announcement that
those who will disembark were given
ten minutes only, he should have
lingered a little by staying in his cot
and inquired whether the boat will
proceed to Cagayan de Oro City or

not. Defendant cannot be expected


to be telling [sic] the reasons to each
passenger. Announcement by
microphone was enough.
The court is inclined to believe that
the story of defendant that the boat
returned to the Port of Cebu
because of the request of the
passengers in view of the waves.
That it did not return because of the
defective engines as shown by the
fact that fifteen (15) minutes after the
boat docked [at] the Port of Cebu
and those who wanted to proceed to
Cagayan de Oro disembarked, it left
for Cagayan de Oro City.
The defendant got nothing when the
boat returned to Cebu to let those
who did not want to proceed to
Cagayan de Oro City including
plaintiff disembarked. On the
contrary, this would mean its loss
instead because it will have to
refund their tickets or they will use it
the next trip without paying anymore.
It is hard therefore, to imagine how
defendant by leaving plaintiff in
Cebu could have acted in bad faith,
negligently, wantonly and with
malice.
If plaintiff, therefore, was not able to
[m]ake the trip that night of
November 12, 1991, it was not
because defendant maliciously did it
to exclude him [from] the trip. If he
was left, it was because of his fault
or negligence. 9
Unsatisfied, the private respondent appealed to the
Court of Appeals (CA-G.R. CV No. 39901) and
submitted for its determination the following
assignment of errors: (1) the trial court erred in not
finding that the defendant-appellee was guilty of
fraud, delay, negligence, and bad faith; and (2) the
trial court. erred in not awarding moral and
exemplary damages. 10
In its decision of 23 November 1994, 11 the Court of
Appeals reversed the trial court's decision by
applying Article 1755 in relation to Articles 2201,
2208, 2217, and 2232 of the Civil Code and,
accordingly, awarded compensatory, moral, and
exemplary damages as follows:

WHEREFORE, premises
considered, the appealed decision is
hereby REVERSED and SET ASIDE
and another one is rendered
ordering defendant-appellee to pay
plaintiff-appellant:
1. P20,000.00 as moral damages;
2. P10,000.00 as exemplary
damages;
3. P5,000.00 as attorney's fees;
4. Cost of suit.
SO ORDERED. 12
It did not, however, allow the grant of damages for
the delay in the performance of the petitioner's
obligation as the requirement of demand set forth in
Article 1169 of the Civil Code had not been met by
the private respondent. Besides, it found that the
private respondent offered no evidence to prove
that his contract of carriage with the petitioner
provided for liability in case of delay in departure,
nor that a designation of the time of departure was
the controlling motive for the establishment of the
contract. On the latter, the court a quo observed
that the private respondent even admitted he was
unaware of the vessel's departure time, and it was
only when he boarded the vessel that he became
aware of such. Finally, the respondent Court found
no reasonable basis for the private respondent's
belief that demand was useless because the
petitioner had rendered it beyond its power to
perform its obligation; on the contrary, he even
admitted that the petitioner had been assuring the
passengers that the vessel would leave on time,
and that it could still perform its obligation to
transport them as scheduled.
To justify its award of damages, the Court of
Appeals ratiocinated as follows:
It is an established and admitted fact
that the vessel before the voyage
had undergone some repair work on
the cylinder head of the engine. It is
likewise admitted by defendantappellee that it left the port of Cebu
City with only one engine running.
Defendant-appellee averred:

. . . The dropping of
the vessel's
anchor after running
slowly on only one
engine when it
departed earlier must
have alarmed some
nervous passengers .
..
The entries in the logbook which
defendant-appellee itself offered as
evidence categorically stated therein
that the vessel stopped at Kawit
Island because of engine trouble. It
reads:
2330 HRS STBD ENGINE'
EMERGENCY STOP
2350 HRS DROP ANCHOR DUE
TO ENGINE TROUBLE, 2 ENGINE
STOP.
The stoppage was not to start and
synchronized [sic] the engines of the
vessel as claimed by defendantappellee. It was because one of the
engines of the vessel broke down; it
was because of the disability of the
vessel which from the very
beginning of the voyage was known
to defendant-appellee.
Defendant-appellee from the very
start of the voyage knew for a fact
that the vessel was not yet in its
sailing condition because the second
engine was still being repaired.
Inspite of this knowledge, defendantappellee still proceeded to sail with
only one engine running.
Defendant-appellee at that instant
failed to exercise the diligence which
all common carriers should exercise
in transporting or carrying
passengers. The law does not
merely require extraordinary
diligence in the performance of the
obligation. The law mandates that
common carrier[s] should
exercise utmost diligence the
transport of passengers.

Article 1755 of the New Civil Code


provides:
Art. 1755. A common
carrier is bound to
carry the passengers
safely as far as
human care and
foresight can provide,
using the utmost
diligence of very
cautious persons,
with a due regard for
all the circumstances.
Utmost diligence of a VERY
CAUTIOUS person dictates that
defendant-appellee should have
pursued the voyage only when its
vessel was already fit to sail.
Defendant-appellee should have
made certain that the vessel [could]
complete the voyage before starting
[to] sail. Anything less than this, the
vessel [could not] sail . . . with so
many passengers on board it.
However, defendant-appellant [sic]
in complete disregard of the safety
of the passengers, chose to proceed
with its voyage even if only one
engine was running as the second
engine was still being repaired
during the voyage. Defendantappellee disregarded the not very
remote possibility that because of
the disability of the vessel, other
problems might occur which would
endanger the lives of the
passengers sailing with a disabled
vessel.
As expected, . . . engine trouble
occurred. Fortunate[ly] for
defendant-appellee, such trouble
only necessitated the stoppage of
the vessel and did not cause the
vessel to capsize. No wonder why
some passengers requested to be
brought back to Cebu City. Common
carriers which are mandated to
exercise utmost diligence should not
be taking these risks.
On this premise, plaintiff-appellant
should not be faulted why he chose

to disembark from the vessel with


the other passengers when it
returned back to Cebu City.
Defendant-appellee may call him a
very "panicky passenger" or a
"nervous person", but this will not
relieve defendant-appellee from the
liability it incurred for its failure to
exercise utmost diligence. 13
xxx xxx xxx
As to the second assigned error, we
find that plaintiff-appellant is entitled
to the award of moral and exemplary
damages for the breach committed
by defendant-appellee.
As discussed, defendant-appellee in
sailing to Cagayan de Oro City with
only one engine and with full
knowledge of the true condition of
the vessel, acted. in bad faith with
malice, in complete disregard for the
safety of the passengers and only
for its own personal
advancement/interest.
The Civil Code provides:

Moral damages are recoverable in a


damage suit predicated upon a
breach of contract of carriage where
it is proved that the carrier was guilty
of fraud or bad faith even if death
does not result. 15
Fraud and bad faith by defendantappellee having been established,
the award of moral damages is in
order.16
To serve as a deterrent to the
commission of similar acts in the
future, exemplary damages should
be imposed upon defendantappellee. 17 Exemplary damages are
designed by our civil law to permit
the courts to reshape behavior that
is socially deleterious in its
consequence by creating . . .
negative incentives or deterrents
against such behavior. 18
Moral damages having been
awarded, exemplary damages
maybe properly awarded. When
entitlement to moral damages has
been established, the award of
exemplary damages is proper. 19

Art. 2201.
xxx xxx xxx
In case of fraud, bad
faith, malice or
wanton attitude, the
obligor shall be
responsible for all
damages which may
be reasonably
attributed to the nonperformance of the
obligation.
Plaintiff-appellant is entitled to moral
damages for the mental anguish,
fright and serious anxiety he
suffered during the voyage when the
vessel's engine broke down and
when he disembarked from the
vessel during the wee hours of the
morning at Cebu City when it
returned. 14

The petitioner then instituted this petition and


submitted the question of law earlier adverted to.
Undoubtedly, there was, between the petitioner and
the private respondent, a contract of common
carriage. The laws of primary application then are
the provisions on common carriers under Section 4,
Chapter 3, Title VIII, Book IV of the Civil Code,
while for all other matters not regulated thereby, the
Code of Commerce and special laws. 20
Under Article 1733 of the Civil Code, the petitioner
was bound to observe extraordinary diligence in
ensuring the safety of the private respondent. That
meant that the petitioner was, pursuant to Article
1755 of the said Code, bound to carry the private
respondent safely as far as human care and
foresight could provide, using the utmost diligence
of very cautious persons, with due regard for all the
circumstances. In this case, we are in full accord
with the Court of Appeals that the petitioner failed
to discharge this obligation.
Before commencing the contracted voyage, the
petitioner undertook some repairs on the cylinder

head of one of the vessel's engines. But even


before it could finish these repairs, it allowed the
vessel to leave the port of origin on only one
functioning engine, instead of two. Moreover, even
the lone functioning engine was not in perfect
condition as sometime after it had run its course, it
conked out. This caused the vessel to stop and
remain a drift at sea, thus in order to prevent the
ship from capsizing, it had to drop anchor. Plainly,
the vessel was unseaworthy even before the
voyage began. For a vessel to be seaworthy, it
must be adequately equipped for the voyage and
manned with a sufficient number of competent
officers and crew. 21 The failure of a common
carrier to maintain in seaworthy condition its vessel
involved in a contract of carriage is a clear breach
of its duty prescribed in Article 1755 of the Civil
Code.
As to its liability for damages to the private
respondent, Article 1764 of the Civil Code
expressly provides:
Art. 1764. Damages in cases
comprised in this Section shall be
awarded in accordance with Title
XVIII of this Book, concerning
Damages. Article 2206 shall also
apply to the death of a passenger
caused by the breach of contract by
common carrier.
The damages comprised in Title XVIII of the
Civil Code are actual or compensatory,
moral, nominal, temperate or moderate,
liquidated, and exemplary.
In his complaint, the private respondent claims
actual or compensatory, moral, and exemplary
damages.
Actual or compensatory damages represent the
adequate compensation for pecuniary loss suffered
and for profits the obligee failed to obtain. 22
In contracts or quasi-contracts, the obligor is liable
for all the damages which may be reasonably
attributed to the non-performance of the obligation
if he is guilty of fraud, bad faith, malice, or wanton
attitude. 23
Moral damages include moral suffering, mental
anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social
humiliation, or similar injury. They may be
recovered in the cases enumerated in Article 2219

of the Civil Code, likewise, if they are the proximate


result of, as in this case, the petitioner's breach of
the contract of carriage. 24 Anent a breach of a
contract of common carriage, moral damages may
be awarded if the common carrier, like the
petitioner, acted fraudulently or in bad faith. 25
Exemplary damages are imposed by way of
example or correction for the public good, in
addition to moral, temperate, liquidated or
compensatory damages. 26 In contracts and quasicontracts, exemplary damages may be awarded if
the defendant acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner. 27 It
cannot, however, be considered as a matter of
right; the court having to decide whether or not they
should be adjudicated. 28 Before the court may
consider an award for exemplary damages, the
plaintiff must first show that he is entitled to moral,
temperate or compensatory damages; but it is not
necessary that he prove the monetary value
thereof. 29
The Court of Appeals did not grant the private
respondent actual or compensatory damages,
reasoning that no delay was incurred since there
was no demand, as required by Article 1169 of the
Civil Code. This article, however, finds no
application in this case because, as found by the
respondent Court, there was in fact no delay in the
commencement of the contracted voyage. If any
delay was incurred, it was after the commencement
of such voyage, more specifically, when the voyage
was subsequently interrupted when the vessel had
to stop near Kawit Island after the only functioning
engine conked out.
As to the rights and duties of the parties strictly
arising out of such delay, the Civil Code is silent.
However, as correctly pointed out by the petitioner,
Article 698 of the Code of Commerce specifically
provides for such a situation. It reads:
In case a voyage already begun
should be interrupted, the
passengers shall be obliged to pay
the fare in proportion to the distance
covered, without right to recover for
losses and damages if the
interruption is due to fortuitous event
or force majeure, but with a right to
indemnity if the interruption should
have been caused by the captain
exclusively. If the interruption should
be caused by the disability of the
vessel and a passenger should

agree to await the repairs, he may


not be required to pay any increased
price of passage, but his living
expenses during the stay shall be for
his own account.
This article applies suppletorily pursuant to
Article 1766 of the Civil Code.
Of course, this does not suffice for a resolution of
the case at bench for, as earlier stated, the cause
of the delay or interruption was the petitioner's
failure to observe extraordinary diligence. Article
698 must then be read together with Articles 2199,
2200, 2201, and 2208 in relation to Article 21 of the
Civil Code. So read, it means that the petitioner is
liable for any pecuniary loss or loss of profits which
the private respondent may have suffered by
reason thereof. For the private respondent, such
would be the loss of income if unable to report to
his office on the day he was supposed to arrive
were it not for the delay. This, however, assumes
that he stayed on the vessel and was with it when it
thereafter resumed its voyage; but he did not. As
he and some passengers resolved not to complete
the voyage, the vessel had to return to its port of
origin and allow them to disembark. The private
respondent then took the petitioner's other vessel
the following day, using the ticket he had
purchased for the previous day's voyage.
Any further delay then in the private respondent's
arrival at the port of destination was caused by his
decision to disembark. Had he remained on the first
vessel, he would have reached his destination at
noon of 13 November 1991, thus been able to
report to his office in the afternoon. He, therefore,
would have lost only the salary for half of a day. But
actual or compensatory damages must be
proved, 30 which the private respondent failed to do.
There is no convincing evidence that he did not
receive his salary for 13 November 1991 nor that
his absence was not excused.
We likewise fully agree with the Court of Appeals
that the petitioner is liable for moral and exemplary
damages. In allowing its unseaworthy M/V Asia
Thailand to leave the port of origin and undertake
the contracted voyage, with full awareness that it
was exposed to perils of the sea, it deliberately
disregarded its solemn duty to exercise
extraordinary diligence and obviously acted with
bad faith and in a wanton and reckless manner. On
this score, however, the petitioner asserts that the
safety or the vessel and passengers was never at
stake because the sea was "calm" in the vicinity

where it stopped as faithfully recorded in the


vessel's log book (Exhibit "4"). Hence, the petitioner
concludes, the private respondent was merely
"over-reacting" to the situation obtaining then. 31
We hold that the petitioner's defense cannot
exculpate it nor mitigate its liability. On the contrary,
such a claim demonstrates beyond cavil the
petitioner's lack of genuine concern for the safety of
its passengers. It was, perhaps, only providential
then the sea happened to be calm. Even so, the
petitioner should not expect its passengers to act in
the manner it desired. The passengers were not
stoics; becoming alarmed, anxious, or frightened at
the stoppage of a vessel at sea in an unfamiliar
zone as nighttime is not the sole prerogative of the
faint-hearted. More so in the light of the many
tragedies at sea resulting in the loss of lives of
hopeless passengers and damage to property
simply because common carriers failed in their duty
to exercise extraordinary diligence in the
performance of their obligations.
We cannot, however, give our affirmance to the
award of attorney's fees. Under Article 2208 of the
Civil Code, these are recoverable only in the
concept of actual damages, 32 not as moral
damages 33 nor judicial costs. 34 Hence, to merit
such an award, it is settled that the amount thereof
must be proven. 35 Moreover, such must be
specifically prayed for as was not done in this
caseand may not be deemed incorporated within
a general prayer for "such other relief and remedy
as this court may deem just and
equitable." 36 Finally, it must be noted that aside
from the following, the body of the respondent
Court's decision was devoid of any statement
regarding attorney's fees:
Plaintiff-appellant was forced to
litigate in order that he can claim
moral and exemplary damages for
the suffering he encurred [sic]. He is
entitled to attorney's fees pursuant
to Article 2208 of the Civil Code. It
states:
Art. 2208. In the absence of
stipulation, attorney's fees and
expenses of litigation, other than
judicial costs cannot be recovered
except:
1. When exemplary
damages are
awarded;

2. When the
defendant's act or
omission has
compelled the plaintiff
to litigate with third
persons or to incur
expenses to protect
his interest.
This Court holds that the above does not
satisfy the benchmark of "factual, legal and
equitable justification" needed as basis for
an award of attorney's fees. 37 In sum, for
lack of factual and legal basis, the award of
attorney's fees must be deleted.
WHEREFORE, the instant petition is DENIED and
the challenged decision of the Court of Appeals in
CA-G.R. CV No. 39901 is AFFIRMED subject to
the modification as to the award for attorney's fees
which is hereby SET ASIDE.
Costs against the petitioner.
SO ORDERED.

FIRST DIVISION
[G.R. No. L-46558 : July 31, 1981.]
PHILIPPINE AIR LINES, INC., Petitioner, vs. THE COURT
OF APPEALS and JESUS V. SAMSON, Respondents.

DECISION

GUERRERO, J.:

This is a petition for review on Certiorari of the decision


of the Court of Appeals 1 dated April 18, 1977, affirming
with modification the decision of the Court of First
Instance of Albay in Civil Case No. 1279, entitled Jesus
V. Samson, plaintiff, vs. Philippine Air Lines, Inc.,
defendant, for damages.
The dispositive portion of the trial courts decision
reads:
WHEREFORE, for all the foregoing considerations,
judgment is hereby rendered in favor of the plaintiff
and against the defendant ordering the defendant to
pay the plaintiff, the following sums: P1988,000.00 as
unearned income or damages; P50,000.00 for moral
damages; P20,000.00 as attorneys fees and P5,000.00
as expenses of litigation, or a total of P273,000.00.
Costs against the defendant.
The appellate court modified the above decision, to wit:
However, Plaintiff-Appellee, who has been deprived of
his job since 1954, is entitled to the legal rate of interest
on the P198,000.00 unearned income from the filing of
the complaint cranad(Sec. 8, Rule 51, Rules of Court).
WHEREFORE, with the modification indicated above,
the judgment appealed from is affirmed, with costs
against defendant-appellant.
The complaint filed on July 1, 1954 by plaintiff Jesus V.
Samson, private respondent herein, averred that on
January 8, 1951, he flew as co-pilot on a regular flight
from Manila to Legaspi with stops at Daet, Camarines
Norte and Pili, Camarines Sur, with Captain Delfin
Bustamante as commanding pilot of a C-47 plane
belonging to defendant Philippine Air Lines, Inc., now
the herein petitioner; that on attempting to land the
plane at Daet airport, Captain Delfin Bustamante due to

his very slow reaction and poor judgment overshot the


airfield and as a result, notwithstanding the diligent
efforts of the plaintiff co-pilot to avert an accident, the
airplane crashlanded beyond the runway; that the jolt
caused the head of the plaintiff to hit and break through
the thick front windshield of the airplane causing him
severe brain concussion, wounds and abrasions on the
forehead with intense pain and sufferingcranad(par. 6,
complaint).:onad
The complaint further alleged that instead of giving
plaintiff expert and proper medical treatment called for
by the nature and severity of his injuries, defendant
simply referred him to a company physician, a general
medical practitioner, who limited the treatment to the
exterior injuries without examining the severe brain
concussion of plaintiff cranad(par. 7, complaint); that
several days after the accident, defendant Philippine Air
Lines called back the plaintiff to active duty as co-pilot,
and inspite of the latters repeated request for expert
medical assistance, defendant had not given him
anycranad(par. 8, complaint); that as a consequence of
the brain injury sustained by plaintiff from the crash, he
had been having periodic dizzy spells and had been
suffering from general debility and
nervousness cranad(par. 9, complaint); that defendant
airline company instead of submitting the plaintiff to
expert medical treatment, discharged the latter from its
employ on December 21, 1953 on grounds of physical
disability, thereby causing plaintiff not only to lose his
job but to become physically unfit to continue as aviator
due to defendants negligence in not giving him the
proper medical attentioncranad(pars. 10-11,
complaint). Plaintiff prayed for damages in the amount
of P180,000.00 representing his unearned income,
P50,000.00 as moral damages, P20,000.00 as attorneys
fees and P5,000.00 as expenses, or a total of
P255,000.00.
In its answer filed on July 28, 1954, defendant PAL
denied the substantial averments in the complaint,
alleging among others, that the accident was due solely
and exclusively to inevitable unforeseen circumstances
whereby plaintiff sustained only superficial wounds and
minor injuries which were promptly treated by
defendants medical personnel cranad(par. 5, answer);
that plaintiff did not sustain brain injury or cerebral
concussion from the accident since he passed the
annual physical and medical examination given
thereafter on April 24, 1951; that the headaches and

dizziness experienced by plaintiff were due to


emotional disturbance over his inability to pass the
required up-grading or promotional course given by
defendant companycranad(par. 6, answer), and that, as
confirmed by an expert neuro-surgeon, plaintiff was
suffering-from neurosis and in view of this unfitness and
disqualification from continuing as a pilot, defendant
had to terminate plaintiffs employment cranad(pars. 7,
9, answer).
Further, defendant alleged that by the very nature of its
business as a common carrier, it is bound to employ
only pilots who are proficient and in good mental,
emotional and physical condition; that the pilot, Captain
Delfin Bustamante, was a competent and proficient
pilot, and although he was already afflicted with a
tumor of the nasopharynx even before the accident of
January 8, 1951, the Civil Aeronautics Administration, in
passing upon the fitness of pilots, gave Capt.
Bustamante a waiver of physical standards to enable
him to retain his first class airman certificate since the
affliction had not in the least affected his
proficiency cranad(pars. 16-17, answer). By way of
counterclaim, defendant prayed for P10,000.00 as
expenses for the litigation.
On March 25, 1958, defendant filed a Motion to Dismiss
on the ground that the complaint is essentially a
Workmens Compensation claim, stating a cause of
action not cognizable within the general jurisdiction of
the court. The Motion to Dismiss was denied in the
order of April 14, 1958. After the reception of evidence,
the trial court rendered on January 15, 1973 the
decision, the dispositive portion of which has been
earlier cited.
The defendant Philippine Air Lines, Inc. appealed the
decision to the Court of Appeals as being contrary to
law and unsupported by the evidence. It raised as errors
of the trial court cranad(a) the holding that the
damages allegedly suffered by plaintiff are attributable
to the accident of January 8, 1951 which was due to the
negligence of defendant in having allowed Capt. Delfin
Bustamante to continue flying despite his alleged slow
reaction and poor judgment; cranad(b) the finding that
defendant was negligent in not having given plaintiff
proper and adequate expert medical treatment and
assistance for the injuries allegedly sustained in the
accident of January 8, 1951; and cranad(c) in ordering
defendant to pay actual or compensatory damages,
moral damages and attorneys fees to the plaintiff.

On April 18, 1977, the Court of Appeals rendered its


decision affirming the judgment of the lower court but
modified the award of damages by imposing legal rate
of interest on the P198,000.00 unearned income from
the filing of the complaint, citing Sec. 8, Rule 51 of the
Rules of Court.
Its motion for reconsideration of the above judgment
having been denied, Philippine Air Lines, Inc. filed this
instant petition for Certiorari on the ground that the
decision is not in accord with law or with the applicable
jurisprudence, aside from its being replete with findings
in the nature of speculation, surmises and conjectures
not borne out by the evidence on record thereby
resulting to misapprehension of facts and amounting to
a grave abuse of discretion cranad(p. 7, Petition).
Petitioner raises the fundamental question in the case
at bar as follows: Is there a causal connection between
the injuries suffered by private respondent during the
accident on 8 January 1951 and the subsequent
periodic dizzy spells, headache and general debility of
which private respondent complained every now and
then, on the one hand, and such periodic dizzy spells,
headache and general debility allegedly caused by the
accident and private respondents eventual discharge
from employment, on the other? PAL submits that
respondent courts award of damages to private
respondent is anchored on findings in the nature of
speculations, surmises and conjectures and not borne
out by the evidence on record, thereby resulting in a
misapprehension of facts and amounting to a grave
abuse of discretion.
Petitioners submission is without merit.
As found by the respondent court, the following are the
essential facts of the case:
It appears that plaintiff, a licensee aviator, was
employed by defendant a few years prior to January 8,
1951 as a regular co-pilot on a guaranteed basic salary
of P750.00 a month. He was assigned to and/or paired
with pilot Delfin Bustamante.
Sometime in December 1950, he complained to
defendant through its authorized official about the slow
reaction and poor judgment of pilot Delfin Bustamante.
Notwithstanding said complaint, defendant allowed the
pilot to continue flying.

On January 8, 1951, the two manned the regular


afternoon flight of defendants plane from Manila to
Legaspi, with stops at Daet, Camarines Norte, and Pili,
Camarines Sur. Upon making a landing at Daet, the
pilot, with his slow reaction and poor judgment,
overshot the airfield and, as a result of and
notwithstanding diligent efforts of plaintiff to avert an
accident, the airplane crash-landed beyond the runway
into a mangrove. The jolt and impact caused plaintiff to
hit his head upon the front windshield of the plane
thereby causing his brain concussions and wounds on
the forehead, with concomittant intense pain.
Plaintiff was not given proper medical attention and
treatment demanded by the nature and severity of his
injuries. Defendant merely referred him to its clinic
attended by general practitioners on his external
injuries. His brain injury was never examined, much less
treated. On top of that negligence, defendant recalled
plaintiff to active duty as a co-pilot, completely ignoring
his plea for expert medical assistance.
Suffering periodic dizzy spells, headache and general
debility, plaintiff every now and then complained to
defendant. To make matters worst for plaintiff,
defendant discharged him from his employment on
December 21, 1953. In consequence, plaintiff has been
beset with additional worries, basically financial. He is
now a liability instead of a provider, of his family.
On July 1, 1954, plaintiff filed a complaint for damages.
Defendant vainly sought to dismiss the complaint after
filing an answer. Then, the judgment and this appeal.
Continuing, the respondent Court of Appeals further
held:
There is no question about the employment of plaintiff
by defendant, his age and salary, the overshooting by
pilot Bustamante of the airfield and crashlanding in a
mangrove, his hitting his head on the front windshield
of the plane, his intermittent dizzy spells, headache and
general debility for which he was discharged from his
employment on December 21, 1953. As the lower court
aptly stated:
From the evidence adduced by the parties, the Court
finds the following facts to be uncontroverted: That the
plaintiff Jesus V. Samson, on January 8, 1951 and a few
years prior thereto, December 21, 1953, was a duly
licensed pilot employed as a regular co-pilot of the
defendant with assignment in its domestic air service in

the Philippines; that on January 8, 1951, the


defendants airplane met an accident in crashlanding at
the Daet Airport, Camarines Norte by overshooting the
runway and reaching the mangroves at the edge of the
landing strip; that the jolt caused plaintiffs head to hit
the front windshield of the airplane causing him to
suffer wounds and abrasion on the forehead; that the
defendant, instead of giving the plaintiff expert and
proper medical treatment called for by the nature and
severity of the injuries of the plaintiff, simply referred
him to the clinic of the defendants physicians who are
only general medical practitioners and not brain
specialists; that the defendants physicians limited their
treatment to the exterior injuries on the forehead of
the plaintiff and made no examination of the severe
concussion of the brain of the plaintiff; that the Medical
Director and Flight Surgeon of the defendant were not
able to definitely determine the cause of the complaint
of the plaintiff as to the periodic attack of dizziness,
spells and headache; that due to this laxity of the
defendants physician and the continuous suffering of
the ailment of the plaintiff complained of, he demanded
for expert medical assistance for his brain injury and to
send him to the United States, which demand was
turned down and in effect denied by the defendant;
that instead the defendant referred the plaintiff to a
neurologist, Dr. Victor Reyes; that from the time that
said accident occurred on January 21, 1953, he was
ordered grounded on several occasions because of his
complaint of dizzy spells and headache; that instead of
submitting the plaintiff to expert medical treatment as
demanded by him and denied by the defendant, he was
discharged from its employment on December 21, 1953
on the ground of physical disability, and that the
plaintiff, at the time when the defendants plane met
the accident, up to the time he was discharged, was
regularly employed as a co-pilot and receiving a basic
salary of P750.00 a month plus extra pay for flying time,
and bonuses amounting to P300.00 a month.
Even defendant-appellant itself admits as not
controverted the following facts which generally admit
what have been stated above as not controverted.
In the case at bar, the following facts are not the
subject of controversy:
(1) First, that from July 1950 to 21 December 1953,
plaintiff was employed with defendant company as a
first officer or co-pilot and served in that capacity in
defendants domestic services.

(2) Second, that on January 1951, plaintiff did fly on


defendants PI-C 94, as first officer or co-pilot, with the
late Capt. Delfin Bustamante in command as pilot; that
while making a landing at the Daet airport on that date,
PI-C 94 did meet an accident as stated above.
(3) Third, that at or about the time of the discharge
from defendant company, plaintiff had complained of
spells of dizziness, headaches and nervousness,
by reason of which he was grounded from flight duty. In
short, that at that time, or approximately from
November 1953 up to the date of his discharge on 21
December 1953, plaintiff was actually physically unfit to
discharge his duties as pilot.
(4) Fourth, that plaintiffs unfitness for flight duty was
properly established after a thorough medical
examination by competent medical
experts.cralaw cranad(pp. 11-12, appellants brief)
hence, there can hardly be an issue, factual, legal or
medical.
Taking exception from the rest of the essential facts of
the case as found by the respondent court PAL claims
said facts are not fully borne out by the evidence on
record and insists that the injuries suffered by private
respondent during the accident on January 8, 1951
were superficial in nature; that the periodic spells,
headache, and general debility complaint of every now
and then by private respondent subsequent to the Jan.
8, 1951 incident were due to emotional disturbances
and that no negligence can be attributed to Capt. Delfin
Bustamante much less to PAL for the occurrence on
January 8, 1951, hence PAL cannot be held liable for
damages.
Petitioner claims absence of any causal connection
between private respondents superficial injuries and
his alleged subsequent periodic spells, headache and
general debility, pointing out that these subsequent
ailments were found by competent physician, including
an expert neuro-surgeon, to be due to emotional
disturbances insights the conclusions of Dr. Trajano V.
Bernardo that respondents complaints were
psychosomatic symptoms on the basis of declarations
made by respondent himself, which conclusions are
supported by similar diagnosis made by Drs. Damaceno
J. Ago and Villaraza stating that respondent Samson was
suffering from neurosis as well as the report of Dr.
Victor Reyes, a neurological specialist, indicating that

the symptoms were probably, most probably due to


psychogenic factors and have no organic basis.
In claiming that there is no factual basis for the finding
of the respondent court that the crash-landing caused
respondents brain concussion . cra ., with
concomittant intense pain, for on the contrary,
testimonial evidence establish the superficiality of the
injuries sustained by respondent during the accident of
January 8, 1951, petitioner quotes portions of the
testimony of Dr. Manuel S. Sayas, who declared that he
removed the band-aid on the forehead of respondent
and that he found out after removal that the latter had
two contussed superficial wounds over the supra
orbiter regions or just above the eyes measuring one
centimeter long and one millimeter deep. He examined
and found his blood pressure normal, no discharges
from the nose and ears. Dr. Trajano V. Bernardo also
testified that when he examined respondent Samson
three days after the accident, the wound was already
healed and found nothing wrong with his ears, nose and
throat so that he was declared fit for duty after the sixth
day.
Petitioner goes further. It contends that there is no
causal connection between respondents superficial
injuries sustained during the accident on January 8,
1951 and plaintiffs discharge from employment with
PAL on December 21, 1953. According to PAL, it was the
repeated recurrence of respondents neurasthenic
symptoms cranad(dizzy spells, headache, nervousness)
which prompted PALs Flight Surgeon, Dr. Bernardo, to
recommend that plaintiff be grounded permanently as
respondent was psychologically unfit to resume his
duties as pilot. PAL concludes that respondents
eventual discharge from employment with PAL was
effected for absolutely valid reasons, and only after he
was thoroughly examined and found unfit to carry out
his responsibilities and duties as a pilot.:onad
We agree with the respondent court in finding that the
dizzy spells, headache and general debility of private
respondent Samson was an after-effect of the crashlanding and We find that such holding is supported by
substantial evidence, which We quote from the courts
decision, to wit:
Defendant would imply that plaintiff suffered only
superficial wounds which were treated and not brain
injury. It would, by the opinion of its company doctors,
Dr. Bernardo and Dr. Reyes, attribute the dizzy spells

and headache to organic or as phychosomatic,


neurasthenic or psychogenic, which we find
outlandishly exaggerated.
That plaintiffs condition as psychosomatic rather than
organic in nature is allegedly confirmed by the fact that
on six cranad(6) separate occasions after the accident
he passed the required CAA physical examination for
airmans certificate. cranad(Exhs. 78, 79, 80, 81, 83 and
92). We noticed, however, that there were other similar
physical examinations conducted by the CAA on the
person of plaintiff the report on which were not
presented in evidence. Obviously, only those which
suited defendants cause were hand-picked and offered
in evidence.
We hesitate to accept the opinion of the defendants
two physicians, considering that Dr. Bernardo
admittedly referred to Dr. Reyes because he could not
determine the cause of the dizzy spells and headache
and the latter admitted that it is extremely hard to be
certain of the cause of his dizzy spells, and suggested a
possibility that it was due to postraumatic syndrome,
evidently due to the injuries suffered by the plaintiff in
hitting the forehead against the windshield of the plane
during the accident. Judgment are not based on
possibilities.
The admitted difficulty of defendants doctors in
determining the cause of the dizzy spells and headache
cannot be a sound basis for finding against the plaintiff
and in favor of defendant. Whatever it might be, the
fact is that such dizzy spells, headache and general
debility was an after-effect of the crash-landing. Be it
brain injury or psychosomatic, neurasthenic or
psychogenic, there is no gainsaying the fact that it was
caused by the crash-landing. As an effect of the cause,
not fabricated or concocted, plaintiff has to be
indemnified. The fact is that such effect caused his
discharge.
We are prone to believe the testimony of the plaintiffs
doctors.
Dr. Morales, a surgeon, found that blood was coming
from plaintiffs ears and nose. He testified that plaintiff
was suffering from cerebral concussion as a result of
traumatic injury to the brain caused by his head hitting
on the windshield of the plane during the crashlanding cranad(Exhibit G).

Dr. Conrado Aramil, a neurologist and psychiatrist with


experience in two hospitals abroad, found abnormality
reflected by the electroencephalogram examination in
the frontal area on both sides of plaintiffs
head cranad(Exhibits K, K-1).
The opinion of these two specialist renders unnecessary
that of plaintiffs wife who is a physician in her own
right and because of her relation to the plaintiff, her
testimony and opinion may not be discussed here,
although her testimony is crystallized by the opinions of
Dr. Ador Dionisio, Dr. Marquez, Dr. Jose O. Chan, Dr.
Yambao and Dr. Sandico.
Even the doctors presented by defendant admit vital
facts about plaintiffs brain injury. Dr. Bernardo admits
that due to the incident, the plaintiff continuously
complained of his fainting spells, dizziness and
headache everytime he flew as a co-pilot and everytime
he went to defendants clinic no less than 25
times cranad(Exhibits 15 to 36), that he complained
of the same to Dr. Reyes; that he promised to help send
plaintiff to the United States for expert medical
assistance provided that whatever finding thereat
should not be attributed to the crash-landing incident
to which plaintiff did not agree and that plaintiff was
completely ignored by the defendant in his plea for
expert medical assistance. They admitted that they
could not determine definitely the cause of the fainting
spells, dizziness and headache, which justifies the
demand for expert medical assistance.
We also find the imputation of gross negligence by
respondent court to PAL for having allowed Capt. Delfin
Bustamante to fly on that fateful day of the accident on
January 8, 1951 to be correct, and We affirm the same,
duly supported as it is by substantial evidence, clearly
established and cited in the decision of said court which
states as follows:
The pilot was sick. He admittedly had tumor of the
nasopharynx cranad(nose). He is now in the Great
Beyond. The spot is very near the brain and the eyes.
Tumor on the spot will affect the sinus, the breathing,
the eyes which are very near it. No one will certify the
fitness to fly a plane of one suffering from the disease.
. cra . The fact First Pilot Bustamante has a long
standing tumor of the Nasopharynx for which reason he
was grounded since November 1947 is admitted in the
letter cranad(Exh. 69-A) of Dr. Bernardo to the Medical

Director of the CAA requesting waiver of physical


standards. The request for waiver of physical standards
is itself a positive proof that the physical condition of
Capt. Bustamante is short of the standard set by the
CAA. The Deputy Administrator of the CAA granted the
request relying on the representation and
recommendation made by Dr. Bernardo cranad(See
Exh. 69). We noted, however, that the
request cranad(Exh. 69-A) says that it is believed that
his continuing to fly as a co-pilot does not involve any
hazard.cralaw cranad(Italics supplied). Flying as a First
Officer entails a very different responsibility than flying
as a mere co-pilot. Defendant requested the CAA to
allow Capt. Bustamante to fly merely as a co-pilot and it
is safe to conclude that the CAA approved the request
thus allowing Bustamante to fly only as a co-pilot. For
having allowed Bustamante to fly as a First Officer on
January 8, 1951, defendant is guilty of gross negligence
and therefore should be made liable for the resulting
accident.
As established by the evidence, the pilot used to get
treatments from Dr. Sycangco. He used to complain of
pain in the face more particularly in the nose which
caused him to have sleepless nights. Plaintiffs
observation of the pilot was reported to the Chief Pilot
who did nothing about it. Captain Carbonel of the
defendant corroborated plaintiff of this matter. The
complaint against the slow reaction of the pilot at least
proved the observation. The observation could be
disregarded. The fact that the complaint was not in
writing does not detract anything from the seriousness
thereof, considering that a miscalculation would not
only cause the death of the crew but also of the
passengers.
One month prior to the crash-landing, when the pilot
was preparing to land in Daet, plaintiff warned him that
they were not in the vicinity of Daet but above the town
of Ligao. The plane hit outside the airstrip. In another
instance, the pilot would hit the Mayon Volcano had not
plaintiff warned him. These more than prove what
plaintiff had complained of. Disregard thereof by
defendant is condemnable.
To bolster the claim that Capt. Bustamante has not
suffered from any kind of sickness which hampered his
flying ability, appellant contends that for at least one or
more years following the accident of January 8, 1951,
Capt. Bustamante continued to fly for defendant
company as a pilot, and did so with great skill and

proficiency, and without any further accident or mishap,


citing tsn. pp. 756-765, January 20, 1965. We have
painstakingly perused the records, particularly the
transcript of stenographic notes cited, but found
nothing therein to substantiate appellants contention.
Instead, We discovered that the citation covers the
testimony of Dr. Bernardo on the physical condition of
Bustamante and nothing about his skills or proficiency
to fly nor on the mishaps or accidents, matters which
are beyond Dr. Bernardos competence anyway.
Assuming that the pilot was not sick or that the tumor
did not affect the pilot in managing the plane, the
evidence shows that the overshooting of the runway
and crash-landing at the mangrove was caused by the
pilot for which acts the defendant must answer for
damages caused thereby. And for this negligence of
defendants employee, it is liable cranad(Joaquin vs.
Aniceto, 12 SCRA 308). At least, the law presumes the
employer negligent imposing upon it the burden of
proving that it exercised the diligence of a good father
of a family in the supervision of its employees.
Defendant would want to tie plaintiff to the report he
signed about the crash-landing. The report was
prepared by his pilot and because the latter pleaded
that he had a family too and would have nowhere to go
if he lost his job, plaintiffs compassion would not
upturn the truth about the crash-landing. We are for
the truth not logic of any argumentation.
At any rate, it is incorrect to say that the Accident
Report cranad(Exh. 12 & 12-A), signed by plaintiff,
exculpated Capt. Bustamante from any fault. We
observed that the Report does not categorically state
that Capt. Bustamante was not at fault. It merely relates
in chronological sequence what Capt. Bustamante and
plaintiff did from the take-off from Manila to the
landing in Daet which resulted in an accident. On the
contrary, we may infer the negligence of Bustamante
from the following portion of the Report, to wit:
. cra . I felt his brakes strong but as we neared the
intersection of the NE-SW runway, the brakes were not
as strong and I glanced at the system pressure which
indicated 900 lbs. per sq. m.
It was during the above precise instance that Capt.
Bustamante lost his bearing and disposition. Had he
maintained the pressure on the brakes the plane would
not have overshot the runway. Verily, Bustamante

displayed slow reaction and poor judgment.cranad(CA


decision, pp. 8-12).
This Court is not impressed by, much less can We accept
petitioners invocation to calibrate once again the
evidence testified to in detail and plucked from the
voluminous transcript to support petitioners own
conclusion. It is not the task of this Court to discharge
the functions of a trier of facts much less to enter into a
calibration of the evidence, notwithstanding
petitioners wail that the judgment of the respondent
court is based entirely on speculations, surmises and
conjectures. We are convinced that respondent courts
judgment is supported by strong, clear and substantial
evidence.:onad
Petitioner is a common carrier engaged in the business
of carrying or transporting passengers or goods or both,
by land, water, or air, for compensation, offering their
services to the public, as defined in Art. 1732, New Civil
Code. The law is clear in requiring a common carrier to
exercise the highest degree of care in the discharge of
its duty and business of carriage and transportation
under Arts. 1733, 1755 and 1756 of the New Civil Code.
These Articles provide:
Art. 1733. Common carriers, from the nature of their
business and for reasons of public policy, are bound to
observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported
by them, according to all the circumstances of each
case.
Such extraordinary diligence in the vigilance over the
goods is further expressed in Articles 1734, and 1745,
Nos. 5, 6, and 7, while the extraordinary diligence for
the safety of the passengers is further set forth in
articles 1755 and 1756.
Art. 1755. A common carrier is bound to carry the
passenger safely as far as human care and foresight can
provide, using the utmost diligence of very cautious
persons, with a due regard for all the circumstances.
Art. 1756. In case of death of or injuries to passengers,
common carriers are presumed to have been at fault or
to have acted negligently, unless they prove that they
observed extraordinary diligence as prescribed in
Articles 1733 and 1755.
The duty to exercise the utmost diligence on the part of
common carriers is for the safety of passengers as well

as for the members of the crew or the complement


operating the carrier, the airplane in the case at bar.
And this must be so for any omission, lapse or neglect
thereof will certainly result to the damage, prejudice,
nay injuries and even death to all aboard the plane,
passengers and crew members alike.
Now to the damages. The Court of Appeals affirmed the
award of damages made by the trial court, stating that
the damages awarded plaintiff by the lower court are
in accordance with the facts, law and jurisprudence.
The court further observed that defendant-appellant is
still fortunate, considering that the unearned income
was reckoned with only up to 1968 and not up to the
present as plaintiff-appellee is still living. Whatever
mathematical error defendant-appellant could show by
abstract argumentation, the same must be
compensated by such deficiency of the damages
awarded to plaintiff-appellee.
As awarded by the trial court, private respondent was
entitled to P198,000.00 as unearned income or
compensatory damages; P50,000.00 for moral damages,
P20,000.00 as attorneys fees and P5,000.00 as
expenses of litigation, or a total of P273,000.00.
The trial court arrived at the sum of P198,000.00 as
unearned income or damages by considering that
respondent Samson could have continued to work as
airline pilot for fifteen more years, he being only 38
years at the time the services were terminated by the
defendant cranad(PAL) and he would have earned
P120,000.00 from 1954 to 1963 or a period of
ten cranad(10) years at the rate of one thousand per
month cranad(P750.00 basic salary plus P300.00 extra
pay for extra flying time and bonuses; and considering
further that in 1964 the basic pay of defendants pilot
was increased to P12,000.00 annually, the plaintiff
could have earned from 1964 to 1968 the sum of
P60,000.00 in the form of salaries and another
P18,000.00 as bonuses and extra pay for extra flying
time at the same rate of P300 a month, or a grand total
of P198,000.00 for the entire period. This claim of the
plaintiff for loss or impairment of earning capacity is
based on the provision of Article 2205 of the New Civil
Code of the Philippines which provides that damages
may be recovered for loss or impairment of earning
capacity in cases of temporary or permanent personal
injury. This provision of law has been construed and
interpreted in the case of Aureliano Ropato, et al. vs. La
Mallorca General Partnership, 56 O.G., 7812, which

rules that law allows the recovery of damages for loss or


impairment of earning capacity in cases of temporary or
permanent personal
injury. chanroblesvirtualawlibrary(Decision, CFI, pp.
98-99, Record on Appeal)
The respondent appellate court modified the above
award by ordering payment of legal interest on the
P198,000.00 unearned income from the filing of the
claim, citing Sec. 8, Rule 51 of the Rules of Court.
Petitioner assails the award of the total sum of
P198,000.00 as unearned income up to 1968 as being
tenuous because firstly, the trial courts finding affirmed
by the respondent court is allegedly based on pure
speculation and conjecture and secondly, the award of
P300.00 a month as extra pay for extra flying time from
1954 to 1968 is likewise speculative. PAL likewise
rejects the award of moral damages in the amount of
P50,000.00 on the ground that private respondents
action before the trial court does not fall under any of
the cases enumerated in the law cranad(Art. 2219 of
the New Civil Code) for which moral damages are
recoverable and that although private respondents
action gives the appearance that it is covered under
quasi-delict as provided in Art. 21 of the New Civil Code,
the definition of quasi-delict in Art. 2176 of the New
Civil Code expressly excludes cases where there is a preexisting contractual relation between the parties, as in
the case under consideration, where an employeremployee relationship existed between PAL and private
respondent. It is further argued that private
respondents action cannot be deemed to be covered
by Art. 21, inasmuch as there is no evidence on record
to show that PAL wilfully cause(d) loss or injury
to cranad(private respondent) in a manner that is
contrary to morals, good customs or public policy
. cra . Nor can private respondents action be
considered analogous to either of the foregoing, for
the reasons are obvious that it is
not. chanroblesvirtualawlibrary(Memorandum of
petitioner, pp. 418-421, Records)
Having affirmed the gross negligence of PAL in allowing
Capt. Delfin Bustamante to fly the plane to Daet on
January 8, 1951 whose slow reaction and poor
judgment was the cause of the crash-landing of the
plane which resulted in private respondent Samson
hitting his head against the windshield and causing him
injuries for which reason PAL terminated his services
and employment as pilot after refusing to provide him

with the necessary medical treatment of respondents


periodic spells, headache and general debility produced
from said injuries, We must necessarily affirm likewise
the award of damages or compensation under the
provisions of Art. 1711 and Art. 1712 of the New Civil
Code which provide:
Art. 1711. Owners of enterprises and other employers
are obliged to pay compensation for the death or
injuries to their laborers, workmen, mechanics or other
employees, even though the event may have been
purely accidental or entirely due to a fortuitous cause, if
the death or personal injury arose out of and in the
course of the employment. The employer is also liable
for compensation if the employee contracts any illness
or disease caused by such employment or as the result
of the nature of the employment. If the mishap was due
to the employees own notorious negligence, or
voluntary act, or drunkenness, the employer shall not
be liable for compensation. When the employees lack
of due care contributed to his death or injury, the
compensation shall be equitably reduced.
Art. 1712. If the death or injury is due to the negligence
of a fellow-worker, the latter and the employer shall be
solidarily liable for compensation. If a fellow-workers
intentional or malicious act is the only cause of the
death or injury, the employer shall not be answerable,
unless it should be shown that the latter did not
exercise due diligence in the selection or supervision of
the plaintiffs fellow-worker.
The grant of compensatory damages to the private
respondent made by the trial court and affirmed by the
appellate court by computing his basic salary per annum
at P750.00 a month as basic salary and P300.00 a month
for extra pay for extra flying time including bonus given
in December every year is justified. The correct
computation however should be P750 plus P300 x 12
months = P12,600 per annum x 10 years =
P126,000.00 cranad(not P120,000.00 as computed by
the court a quo). The further grant of increase in the
basic pay of the pilots to P12,000 annually for 1964 to
1968 totalling P60,000.00 and another P18,000.00 as
bonuses and extra pay for extra flying time at the same
rate of P300.00 a month totals P78,000.00. Adding
P126,000.00 cranad(1964 to 1968 compensation)
makes a grand total of P204,000.00 cranad(not
P198,000.00 as originally computed).

As to the grant of moral damages in the sum of


P50,000.00 We also approve the same. We have noted
and considered the holding of the appellate court in the
matter of bad faith on the part of PAL, stated
hereunder, this wise:
None of the essential facts material to the
determination of the case have been seriously assailed:
the overshooting of runway and crash-landing into the
mangroves; the hitting of plaintiffs head to the front
windshield of the plane; the oozing of blood out of his
ears, nose and mouth; the intermittent dizzy spells,
headaches and general debility thereafter for which he
was discharged from his employment; the condition of
not to attribute the cause of the ailment to the crashlanding imposed in bad faith for a demanded special
medical service abroad; and the resultant brain injury
which defendants doctors could not understand nor
diagnose.
xxx
The act of defendant-appellant in unjustly refusing
plaintiff-appellees demand for special medical service
abroad for the reason that plaintiff-appellees
deteriorating physical condition was not due to the
accident violates the provisions of Article 19 of the Civil
Code on human relations to act with justice, give
everyone his due, and observe honesty and good
faith. chanroblesvirtualawlibrary(CA Resolution, pp.
151-152, Records)
We reject the theory of petitioner that private
respondent is not entitled to moral damages. Under the
facts found by the trial court and affirmed by the
appellate court and under the law and jurisprudence
cited and applied, the grant of moral damages in the
amount of P50,000.00 is proper and justified.
The fact that private respondent suffered physical
injuries in the head when the plane crash-landed due to
the negligence of Capt. Bustamante is undeniable. The
negligence of the latter is clearly a quasi-delict and
therefore Article 2219, cranad(2) New Civil Code is
applicable, justifying the recovery of moral damages.
Even from the standpoint of the petitioner that there is
an employer-employee relationship between it and
private respondent arising from the contract of
employment, private respondent is still entitled to
moral damages in view of the finding of bad faith or
malice by the appellate court, which finding We hereby

affirm, applying the provisions of Art. 2220, New Civil


Code which provides that willful injury to property may
be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such
damages are justly due. The same rule applies to
breaches of contract where the defendant acted
fraudulently or in bad faith.
The justification in the award of moral damages under
Art. 19 of the New Civil Code on Human Relations which
requires that every person must, in the exercise of his
rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and
good faith, as applied by respondent court is also welltaken and We hereby give Our affirmance thereto.
With respect to the award of attorneys fees in the sum
of P20,000.00 the same is likewise correct. As pointed
out in the decision of the Court of Appeals, the plaintiff
is entitled to attorneys fees because he was forced to
litigate in order to enforce his valid
claim cranad(Ganaban vs. Bayle, 30 SCRA 365; De la
Cruz vs. De la Cruz, 22 SCRA 33; and many others);
defendant acted in bad faith in refusing plaintiffs valid
claimcranad(Filipino Pipe Foundry Corporation vs.
Central Bank, 23 SCRA 1044); and plaintiff was
dismissed and was forced to go to court to vindicate his
right cranad(Nadura vs. Benguet Consolidated, Inc., 5
SCRA 879).
We also agree with the modification made by the
appellate court in ordering payment of legal interest
from the date judicial demand was made by Pilot
Samson against PAL with the filing of the complaint in
the lower court. We affirm the ruling of the respondent
court which reads:
Lastly, the defendant-appellant claims that the legal
rate of interest on the unearned compensation should
be computed from the date of the judgment in the
lower court, not from the filing of the complaint, citing a
case where the issue raised in the Supreme Court was
limited to when the judgment was rendered in the
lower court or in the appellate court, which does not
mean that it should not be computed from the filing of
the complaint.
Articles 1169, 2209 and 2212 of the Civil Code govern
when interest shall be computed. Thereunder interest
begins to accrue upon demand, extrajudicial or judicial.
A complaint is a judicial demand cranad(Cabarroguis vs.

Vicente, 107 Phil. 340). Under Article 2212 of the Civil


Code, interest due shall earn legal interest from the
time it is judicially demanded, although the obligation
may be silent upon this
point. chanroblesvirtualawlibrary(CA Resolution, pp.
153-154, Records).
The correct amount of compensatory damages upon
which legal interest shall accrue from the filing of the
complaint is P204,000.00 as herein computed and not
P198,000.00.
WHEREFORE, in view of all the foregoing, the judgment
of the appellate court is hereby affirmed with slight
modification in that the correct amount of
compensatory damages is P204,000.00. With costs
against petitioner.
SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 145871
January 31, 2006
LEONIDES C. DIO, petitioner,
vs.
LINA JARDINES, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
This resolves the petition for review
on certiorari seeking to set aside the Decision1 of
the Court of Appeals (CA) dated June 9, 2000
dismissing the appeal in CA-G.R. CV No. 56118
and the Resolution dated October 25, 2000 denying
the motion for reconsideration.
The antecedent facts are as follows.
On December 14, 1992, Leonides C. Dio
(petitioner) filed a Petition for Consolidation of
Ownership with the Regional Trial Court of Baguio
City, Branch 7 (RTC). She alleged that: on January
31, 1987, Lina Jardines (respondent) executed in
her favor a Deed of Sale with Pacto de Retro over a
parcel of land with improvements thereon covered
by Tax Declaration No. 44250, the consideration for
which amounted to P165,000.00; it was stipulated
in the deed that the period for redemption would
expire in six months or on July 29, 1987; such
period expired but neither respondent nor any of
her legal representatives were able to redeem or
repurchase the subject property; as a
consequence, absolute ownership over the
property has been consolidated in favor of
petitioner.2
Respondent countered in her Answer that: the
Deed of Sale with Pacto de Retro did not embody
the real intention of the parties; the transaction
actually entered into by the parties was one of
simple loan and the Deed of Sale withPacto de
Retro was executed just as a security for the loan;
the amount borrowed by respondent during the first
week of January 1987 was only P50,000.00 with
monthly interest of 9% to be paid within a period of
six months, but since said amount was insufficient
to buy construction materials for the house she was
then building, she again borrowed an additional
amount of P30,000.00; it was never the intention of
respondent to sell her property to petitioner; the
value of respondents residential house alone is
over a million pesos and if the value of the lot is
added, it would be around one and a half million
pesos; it is unthinkable that respondent would sell

her property worth one and a half million pesos for


only P165,000.00; respondent has even paid a total
of P55,000.00 out of the amount borrowed and she
is willing to settle the unpaid amount, but petitioner
insisted on appropriating the property of respondent
which she put up as collateral for the loan;
respondent has been the one paying for the realty
taxes on the subject property; and due to the
malicious suit filed by petitioner, respondent
suffered moral damages.
On September 14, 1993, petitioner filed an
Amended Complaint adding allegations that she
suffered actual and moral damages. Thus, she
prayed that she be declared the absolute owner of
the property and/or that respondent be ordered to
pay her P165,000.00 plus the agreed monthly
interest of 10%; moral and exemplary damages,
attorneys fees and expenses of litigation.
Respondent then filed her Answer to the Amended
Complaint reiterating the allegations in her Answer
but increasing the alleged valuation of the subject
property to more than two million pesos.
After trial, the RTC rendered its Decision dated
November 20, 1996, the dispositive portion of
which reads as follows:
WHEREFORE, in view of all the foregoing,
judgment is hereby rendered as follows:
a) Declaring the contract (Exh. A) entered
into by the contending parties as one of
deed of sale with right to repurchase or
pacto de retro sale;
b) Declaring the plaintiff Dio to have
acquired whatever rights Jardines has over
the parcel of land involved it being that
Jardines has no torrens title yet over said
land;
c) Declaring the plaintiff Dio the owner of
the residential house and other
improvements standing on the parcel of
land in question;
d) Ordering the consolidation of ownership
of Dio over the residential house and other
improvements, and over the rights, she
(Dio) acquired over the parcel of land in
question; and ordering the corresponding
government official (The City Assessor) of
Baguio City to undertake the consolidation
by putting in the name of plaintiff Dio the

ownership and/or rights which she acquired


from the defendant Jardines in the
corresponding document (Tax Declarations)
on file in his/her office; after the plaintiff has
complied with all the requirements and has
paid the fees necessary or incident to the
issuance of a new tax declaration as
required by law;
e) Ordering the cancellation of Tax
Declaration 44250;

1. Declaring that the true nature of the


contract entered into by the contending
parties as one of equitable mortgage and
not a pacto de retro sale;
2. Ordering the defendant-appellant to pay
plaintiff-appellee legal interest on the
amount of P165,000.00 from July 29, 1987,
the time the said interest fell due, until fully
paid;
3. No pronouncement as to cost.

f) Ordering defendant Jardines to pay actual


and/or compensatory damages to the
plaintiff as follows:
1) P3,000.00 representing expenses
in going to and from Jardines place
to collect the redemption money;
2) P1,000.00 times the number of
times Dio came to Baguio to attend
the hearing of the case as evidenced
by the signatures of Dio appearing
on the minutes of the proceedings
found in the Rollo of the case;
3) P10,000.00 attorneys fee.
Costs against defendant Jardines.
SO ORDERED.3
Respondent then appealed to the CA which
reversed the RTC judgment. The CA held that the
true nature of the contract between herein parties is
one of equitable mortgage, as shown by the fact
that (a) respondent is still in actual physical
possession of the property; (b) respondent is the
one paying the real property taxes on the property;
and (c) the amount of the supposed sale
price, P165,000.00, earns monthly interest. The
dispositive portion of the CA Decision promulgated
on June 9, 2000 reads:
WHEREFORE, foregoing premises considered, we
find that the Regional Trial Court, First Judicial
Region, Branch 07, Baguio City, committed
reversible errors in rendering its decision dated 20
November 1996 in Civil Case No. 2669-R, entitled
Leonides G. Dio, etc. vs. Lina Jardines". The
appeal at bar is herby GRANTED and the assailed
decision is hereby REVERSED and SET ASIDE.
Let a new judgment be entered as follows:

SO ORDERED.4
Petitioner moved for reconsideration of said
decision, but the same was denied per Resolution
dated October 25, 2000.
Hence, herein petition for review
on certiorari alleging that:
1. THE LOWER COURT COMMITTED AN
ERROR IN DECLARING THAT THE TRUE
NATURE OF THE CONTRACT ENTERED
INTO BY THE PARTIES AS ONE
EQUITABLE MORTGAGE AND NOT A
PACTO DE RETRO SALE;
2. THE LOWER COURT COMMITTED AN
ERROR IN ORDERING THE
RESPONDENT TO PAY PETITIONER
LEGAL INTEREST DESPITE THE
CONFLICTING ADMISSIONS OF THE
PARTIES THAT THE AGREED
INTERESTS WAS EITHER 9% OR 10%;
3. THE FINDINGS OF FACTS OF THE
LOWER COURT ARE CONTRARY TO
EVIDENCE AND THE ADMISSIONS OF
THE PARTIES;
4. THE LOWER COURT COMMITTED AN
ERROR IN GOING BEYOND THE ISSUES
OF THE CASE BY DELETING THE
AWARD FOR DAMAGES DESPITE THE
FACT THAT THE SAME WAS NOT
RAISED AS AN ISSUE IN THE APPEAL; 5
The petition lacks merit.
The Court finds the allegations of petitioner that the
findings of fact of the CA are contrary to evidence
and admissions of the parties and that it erred in

declaring the contract between the parties as an


equitable mortgage to be absolutely unfounded.

(5) When the vendor binds himself to pay


the taxes on the thing sold;

A close examination of the records of this case


reveals that the findings of fact of the CA are all
based on documentary evidence and on
admissions and stipulation of facts made by the
parties. The CAs finding that there was no gross
inadequacy of the price of respondents residential
house as stated in the contract, was based on
respondents own evidence, Tax Declaration No.
44250, which stated that the actual market value of
subject residential house in 1986 was
only P93,080.00. The fact that respondent has
remained in actual physical possession of the
property in question, and that respondent has been
the one paying the real property taxes on the
subject property was established by the admission
made by petitioner during the pre-trial conference
and embodied in the Pre-Trial Order6 dated May
25, 1994. The finding that the purchase price in the
amount of P165,000.00 earns monthly interest was
based on petitioners own testimony and admission
in her appellees brief that the amount
ofP165,000.00, if not paid on July 29, 1987, shall
bear an interest of 10% per month.

(6) In any other case where it may be fairly


inferred that the real intention of the parties
is that the transaction shall secure the
payment of a debt or the performance of
any other obligation.

The Court sees no reversible error with the


foregoing findings of fact made by the CA. The CA
correctly ruled that the true nature of the contract
entered into by herein parties was one of equitable
mortgage.
Article 1602 of the Civil Code enumerates the
instances when a purported pacto de retro sale
may be considered an equitable mortgage, to wit:
Art. 1602. The contract shall be presumed to be an
equitable mortgage, in any of the following cases:
(1) When the price of a sale with right to
repurchase is unusually inadequate;
(2) When the vendor remains in possession
as lessee or otherwise;
(3) When upon or after the expiration of the
right to repurchase another instrument
extending the period of redemption or
granting a new period is executed;
(4) When the purchaser retains for himself a
part of the purchase price;

In any of the foregoing cases, any money, fruits, or


other benefit to be received by the vendee as rent
or otherwise shall be considered as interest which
shall be subject to the usury laws. (Emphasis
supplied)
In Legaspi vs. Ong,7 the Court further explained
that:
The presence of even one of the above-mentioned
circumstances as enumerated in Article 1602 is
sufficient basis to declare a contract of sale with
right to repurchase as one of equitable mortgage.
As stated by the Code Commission which drafted
the new Civil Code, in practically all of the so-called
contracts of sale with right of repurchase, the real
intention of the parties is that the pretended
purchase price is money loaned and in order to
secure the payment of the loan, a contract
purporting to be a sale with pacto de retro is drawn
up.8
In the same case, the Court cited Article 1603 of
the Civil Code, which provides that in case of
doubt, a contract purporting to be a sale with right
to repurchase shall be construed as an equitable
mortgage.9
In the instant case, the presence of the
circumstances provided for under paragraphs (2)
and (5) of Article 1602 of the Civil Code, and the
fact that petitioner herself demands payment of
interests on the purported purchase price of the
subject property, clearly show that the intention of
the parties was merely for the property to stand as
security for a loan. The transaction between herein
parties was then correctly construed by the CA as
an equitable mortgage.
The allegation that the appellate court should not
have deleted the award for actual and/or
compensatory damages is likewise unmeritorious.
Section 8, Rule 51 of the Rules of Court provides
as follows:

Sec. 8. Questions that may be decided. No


error which does not affect the jurisdiction over the
subject matter or the validity of the judgment
appealed from or the proceedings therein will be
considered unless stated in the assignment of
errors, or closely related to or dependent on an
assigned error and properly argued in the brief,
save as the court may pass upon plain errors and
clerical errors.
Clearly, the appellate court may pass upon plain
errors even if they are not stated in the assignment
of errors. InVillegas vs. Court of Appeals,10 the
Court held:
[T]he Court is clothed with ample authority to
review matters, even if they are not assigned as
errors in the appeal, if it finds that their
consideration is necessary in arriving at a just
decision of the case.11
In the present case, the RTCs award for actual
damages is a plain error because a reading of said
trial courts Decision readily discloses that there is
no sufficient evidence on record to prove that
petitioner is entitled to the same. Petitioners only
evidence to prove her claim for actual damages is
her testimony that she has spentP3,000.00 in going
to and from respondents place to try to collect
payment and that she spent P1,000.00 every time
she travels from Bulacan, where she resides, to
Baguio in order to attend the hearings.
In People vs. Sara,12 the Court held that a witness
testimony cannot be "considered as competent
proof and cannot replace the probative value of
official receipts to justify the award of actual
damages, for jurisprudence instructs that the same
must be duly substantiated by receipts."13 Hence,
there being no official receipts whatsoever to
support petitioners claim for actual or
compensatory damages, said claim must be
denied.
The appellate court was also correct in ordering
respondent to pay "legal interest" on the amount
of P165,000.00.
Both parties admit that they came to an agreement
whereby respondent shall pay petitioner interest, at
9% (according to respondent) or 10% (according to
petitioner) per month, if she is unable to pay the
principal amount ofP165,000.00 on July 29, 1987.
In the Pre-Trial Order14 dated May 25, 1994, one of
the issues for resolution of the trial court was

"whether or not the interest to be paid under the


agreement is 10% or 9% or whether or not this
amount of interest shall be reduced equitably
pursuant to law."15
The factual milieu of Carpo vs. Chua16 is closely
analogous to the present case. In the Carpo case,
petitioners therein contracted a loan in the amount
of P175,000.00 from respondents therein, payable
within six months with an interest rate of 6% per
month. The loan was not paid upon demand.
Therein petitioners claimed that following the
Courts ruling in Medel vs. Court of Appeals,17 the
rate of interest of 6% per month or 72% per annum
as stipulated in the principal loan agreement is null
and void for being excessive, iniquitous,
unconscionable and exorbitant. The Court then
held thus:
In a long line of cases, this Court has invalidated
similar stipulations on interest rates for being
excessive, iniquitous, unconscionable and
exorbitant. In Solangon v. Salazar, we annulled the
stipulation of 6% per month or 72% per annum
interest on a P60,000.00 loan. In Imperial v.
Jaucian, we reduced the interest rate from 16% to
1.167% per month or 14% per annum. In Ruiz v.
Court of Appeals, we equitably reduced the agreed
3% per month or 36% per annum interest to 1% per
month or 12% per annum interest. The 10% and
8% interest rates per month on aP1,000,000.00
loan were reduced to 12% per annum in Cuaton v.
Salud. Recently, this Court, in Arrofo v. Quino,
reduced the 7% interest per month on
a P15,000.00 loan amounting to 84% interest per
annum to 18% per annum.
There is no need to unsettle the principle affirmed
in Medel and like cases. From that perspective, it is
apparent that the stipulated interest in the subject
loan is excessive, iniquitous, unconscionable and
exorbitant. Pursuant to the freedom of contract
principle embodied in Article 1306 of the Civil Code,
contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law,
morals, good customs, public order, or public
policy. In the ordinary course, the codal provision
may be invoked to annul the excessive stipulated
interest.
In the case at bar, the stipulated interest rate is 6%
per month, or 72% per annum. By the standards
set in the above-cited cases, this stipulation is
similarly invalid. x x x.18

Applying the afore-cited rulings to the instant case,


the inescapable conclusion is that the agreed
interest rate of 9% per month or 108% per annum,
as claimed by respondent; or 10% per month or
120% per annum, as claimed by petitioner, is
clearly excessive, iniquitous, unconscionable and
exorbitant. Although respondent admitted that she
agreed to the interest rate of 9%, which she
believed was exorbitant, she explained that she
was constrained to do so as she was badly in need
of money at that time. As declared in
the Medel case19 and Imperial vs.
Jaucian,20 "[i]niquitous and unconscionable
stipulations on interest rates, penalties and
attorneys fees are contrary to morals." Thus, in the
present case, the rate of interest being charged on
the principal loan of P165,000.00, be it 9% or 10%
per month, is void. The CA correctly reduced the
exhorbitant rate to "legal interest."
In Trade & Investment Development Corporation of
the Philippines vs. Roblett Industrial Construction
Corporation,21the Court held that:
In Eastern Shipping Lines, Inc. v. Court of Appeals,
this Court laid down the following rules with respect
to the manner of computing legal interest:
I. When an obligation, regardless of its source, i.e.,
law, contracts, quasi-contracts, delicts or quasidelicts is breached, the contravenor can be held
liable for damages. The provisions under Title XVIII
on 'Damages' of the Civil Code govern in
determining the measure of recoverable damages.
II. With regard particularly to an award of interest in
the concept of actual and compensatory damages,
the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it
consists in the payment of a sum of money, i.e.,
a loan or forbearance of money, the interest due
should be that which may have been stipulated
in writing.Furthermore, the interest due shall itself
earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed
from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of
Article 1169 of the Civil Code. 22 (Underscoring
supplied)
Applied to the present case, since the agreed
interest rate is void, the parties are considered to
have no stipulation regarding the interest rate.

Thus, the rate of interest should be 12% per annum


to be computed from judicial or extrajudicial
demand, subject to the provisions of Article 1169 of
the Civil Code, to wit:
Art. 1169. Those obliged to deliver or to do
something incur in delay from the time the obligee
judicially or extrajudicially demands from them the
fulfillment of the obligation.
However, the demand by the creditor shall not be
necessary in order that delay may exist:
(1) When the obligation or the law expressly
so declares; or
(2) When from the nature and the
circumstances of the obligation it appears
that the designation of the time when the
thing is to be delivered or the service is to
be rendered was a controlling motive for the
establishment of the contract; or
(3) When demand would be useless, as
when the obligor has rendered it beyond his
power to perform.
xxxx
The records do not show any of the circumstances
enumerated above. Consequently, the 12% interest
should be reckoned from the date of extrajudicial
demand.
Petitioner testified that she went to respondents
place several times to try to collect payment, but
she (petitioner) failed to specify the dates on which
she made such oral demand. The only evidence
which clearly shows the date when petitioner made
a demand on respondent is the demand letter
dated March 19, 1989 (Exh. "C"), which was
received by respondent or her agent on March 29,
1989 per the Registry Return Receipt (Exh. "C-1").
Hence, the interest of 12% per annum should only
begin to run from March 29, 1989, the date
respondent received the demand letter from
petitioner.
WHEREFORE, the petition is hereby DENIED. The
Decision of the Court of Appeals dated June 9,
2000 isAFFIRMED with the MODIFICATION that
the legal interest rate to be paid by respondent on
the principal amount ofP165,000.00 is twelve (12%)
percent per annum from March 29, 1989 until fully
paid.
SO ORDERED

into a foreclosure of a mortgage


indebtedness, and in executing it as such.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 34147

September 24, 1935

SEBASTIANA RODRIGUEZ, plaintiff-appellee,


vs.
IRINEA CAOIBES, defendant-appellant.
Ramon Diokno for appellant.
Claro M. Recto, Jesus Morfe and Sumulong,
Lavides and Sumulong for appellee.
VILLA-REAL, J.:
This is an appeal taken by the defendant Irinea
Caoibes from the order of the Court First Instance
of Batangas of December 14, 1934, denying the
motion of said defendant-appellant of September
25, 1934, asking that the order of the said court of
September 10, 1934, be set aside, and that the
sale made by the sheriff and the deed executed
thereunder be disapproved. The order of
September 10, 1934, is as follows:
Upon submission of the plaintiff's motion of
August 2, 1934, asking for the approval of
the sale made by the sheriff to the plaintiff of
the properties which are the subject of this
case, and the opposition to the approval of
said sale, the said opposition is overruled,
and the deed of sale of July 27, 1934, made
by the sheriff, ratified before the notary
public, N.U. Babao, and registered on page
34 of his notarial book No. 2, as document
No. 137, series of 1934, is approved. So
ordered.
Batangas, Batangas, September 10, 1934.
(Sgd.) PEDRO MA. SISON, Judge
In support of her appeal, the defendant-appellant
assigns the following alleged errors committed by
the trial court in its judgment, namely:
1. In amending the judgment of this
Honorable Supreme Court by converting an
ordinary judgment to pay a sum of money

2. In confirming the sale by the provincial


sheriff without trial or notice of trial to the
parties in order that they may befully heard,
and notwithstanding the fact (1) That the
final judgment rendered in the case was not
for the foreclosure of the mortgage but an
ordinary judgment to pay a sum of money;
(2) that the bidding being by parcels, the
award was for a lump sum; (3) that there
has been included in the notice of the public
sale interest from November 9, 1931,
whereas it should be only from the date of
decision of this Honorable Supreme Court,
November 22, 1933, when the account of
the advertised debit to P1,183.64; (4) that
there has been included in the deed "fees
and publication P219.12", without
justification and, apparently, exaggerated,
there being no right to charge interest.
3. In ordering the issuance of a writ of
possession in favor of the plaintiff of the
properties foreclosed.
The order to which the defendant-appellant's first
alleged alleged assignment of error refers is not
that of September 14, 1934, to which she accepted
and from which she announced her intention to
appeal, but that of March 12, 1934, which reads:
Motion granted: the defendant is ordered to
pay the plaintiff, within three months, three
months, the sum of P10,180.97, with legal
interest from the date of the complaint, and
the costs, and in the event said payment is
not made within the period fixed, the
properties will be sold in accordance with
law in order to make good said amount. So
ordered.
Given in open court, Batangas, Batangas,
March 12, 1934.
(Sgd.) FERNANDO JUGO, Judge
The defendant neither excepted to nor appealed
from this last order. The question raised by the
defendant-appellant in the first alleged error
assigned is the jurisdiction of the trial court
rendered in this same case on the former appeal
(G.R. No. 39044, Nov. 22, 1933 [58 Phil., 977]), the
dispositive part of which is as follows:

Wherefore, the appealed judgment is


reversed, and the defendant-appellant
Irinea Caoibes is ordered to pay the palintiffappellant Sebastiana Rodriguez the sum of
P10,180.97, with legal interest and costs.
So ordered.
Section 256 of the Code of Civil Procedure, as
amended by Act No. 2640, provides:
SEC. 256. Trial and judgment in foreclosure
suits. If upon trial in such action the court
shall find the facts set forth in the complaint
to be true, it shall ascertain the amount due
to the plaintiff upon the mortgage debt or
obligation, including interest and costs, and
shall render judgment for the sum so found
due and order that the same be paid into
court within a period of not less than three
months from and after the date on which the
order was made, and that in default of such
payment the land shall be sold to realize the
mortgage debt and costs.
In Soriano vs. Enriquez (24 Phil., 584), this court
enunciated the following doctrine:
4. ID.; ID.; JUDGMENT UNDER CODE OF
CIVIL PROCEDURE. Section 256 of the
code of Civil Procedure requires a judgment
to be rendered for a specific amount, and
that an order be made requiring that the
amount, and that an order be made
requiring that the amount for which
judgment is rendered be paid into court
within a specified time. Section 260 requires
the rendition of a judgment for the
defficiency against the defendant, who shall
be personally liable to the plaintiff, and
execution may issue thereon at once.
The case at hand is for the foreclosure of a
mortgage. It was tried as such in the Court of First
Instance of Batangas as well as in this court on
appeal. In reversing the appealed decision, by an
involuntarily omission it was not ordered to deposit
the amount of the judgment with the clerk of the
court of origin, within the period of not less than
three months, and, in default thereof, to sell the
mortgaged properties to pay the motgaged
indebtedness and the costs. This involuntarily
omission of an imperative mandate of section 256
of the Code of Civil Procedure, above quoted,
cannot alter the nature of the action, and the
amendment of the decision may be asked to

correct the defect, inasmuch as said provision is a


necessary part hereof.
On this point the America jurisprudence has laid
down the following doctrine:
A judgment or decree of foreclosure may be
corrected after its rendition in respect of an
error or omission, so as to make it conform
to the intention of the court of the facts of
the case, . . .. (42 Corpus Juris, 158.)
If anything has been omitted from the
judgment which is necessarily or properly a
part of it, and which was intended and
understood to be a part of it, but failed to be
incorporated in it through the negligence or
inadvertence of the court of counsel, or the
clerk, the omission may be supplied by an
amendment even after the term. . . . (34
Corpus Juris, 235.)
As to whether or not the herein plaintiff-appellee
had waived her right to foreclose the mortgage in
the first appeal, it was held in Hijos de I. de la
Rama vs. Sajo (45 Phil., 703), cited by said plaintiffappellee, that:
ACTION; MORTAGE, FORECLOSURE OF.
In the absence of statutory provisions of
the contrary, the mortgagee may waived his
right to foreclose a mortgage, and maintain
a personal action for the recovery of his
indebtedness. He may also obtain an
attachment when the property of the
defendant is in danger of being disposed of
or lost.
In said case there was a waiver from the
commencement of the action to foreclosed the
mortgage, the mortgagee having merely brought a
personal suit to recover a sum of money. In the
present case, there was no such waiver because,
as has been said, the case was tried as an action
to foreclose a mortgage in the Court of First
Instance as well as in this court, and the mere fact
that in her brief in the first appeal the herein
plaintiff-appellee only asked that the appealed
judgment be reversed and another be rendered
ordering the defendant-appellant to pay to said
plaintiff-appellee the sum of P10,180.97, with legal
interest and the costs in both instances, does not
constitute a waiver of the action to foreclose the
mortgage which had already been commenced and
tried in first and second instances.

While the order of the Court of First Instance of


Batangas of March 12, 1934, above quoted, is
more comprehensive than the dispositive part of
the judgment of this court, and while the proper
thing to do would have been to file a motion with
this court asking the amendment of said dispositive
part and supplying the omission, the aforesaid
amendatory order not being prejudicial, we do not
believe it necessary to reverse the same, it being
sufficient that we adopt the amplification as we do
hereby.
As the second alleged error assigned, it appears
from the bill of exceptions that the defendantappellant, on August 9, 1934, filed on opposition to
the motion for the plaintiff-appellee wherein the
latter asked for the confirmation of the sale of the
mortgaged properties made by the sheriff, setting
forth reasons in support of her opposition and
asking that the aforesaid sale be disapproved. The
order confirming the aforesaid sale from which the
defendant-appellant has taken the instant appeal
has been entered after considering the plaintiff's
motion and the defendant's opposition thereto, and
this is the sufficient compliance with the law
inasmuch as the defendant-appellant has had the
opportunity, through her opposition, to set out her
grounds against the confirmation of said sale,
consisting in that the prices for which the different
lots were sold were inadequate in the light of their
market value.
As to the sale of the mortgaged properties, the
record shows that said properties consist of several
lots and these were sold to the purchaser as the
highest bidder for each lot, but when the sheriff
issued the deed of sale he did so for all the lots as
a whole and for the total price thereof. While
section 463 of the Code of Civil Procedure requires
that the certificate of sale to be furnished by the
sheriff to the purchaser should specify the price
paid for each lot, the omission to make this
specification in the certificate of sale is not a
sufficient ground to annul the sale, the purchaser
being entitled, if she so desires, to ask for the
amendment of said certificate of sale.
As to the question of the date from which interest
should be paid on the amount of the judgment,
which is the amount of the indebtedness, the same
should be the date of the filing of the complaint to
recover the mortgage indebtedness and to
foreclose the mortgage, because the defendantappellant was legally in default and the amount
owing already liquidated from the said date.

(Veloso vs. Fontanosa, 13 Phil., 79; De la


Pea vs. Hidalgo, 16 Phil., 450.)
The challenge as the sum of P219.12 which the
sheriff charged for fees and expenses of publication
is no ground for the disapproval of the sale.
The points raised in the second alleged error
assigned are, therefore, without merit.
Passing on to the third alleged error assigned, the
fact that the real property is undivided is no bar to
placing the purchaser in possession of the property
owned in common by various co-owners in order to
take the place of the vendors as to his undivided
share. The holding in Pabico vs. Ong Pauco (43
Phil., 572), was that the purchaser of land at the
public sale under an ordinary execution is not
entitled to the possession of the land at a public
sale under an ordinary execution is not entitled to
the possession of the land sold before the
expiration of the period of one year for the
consolidation of the sale. (See
also Powell vs. National Bank, 54 Phil., 54.) The
case at hand being for the judicial foreclosure of a
mortgage, there is no right of redemption and the
purchaser acquires full ownership of the land sold
as soon as the sale is confirmed.
(Benedicto vs. Yulo, 26 Phil., 160.)
For the foregoing considerations, we are of the
opinion and so hold: (1) That the omission to state
in the dispositive part of a judgment, rendered in a
case for the foreclosure of a mortgage, that the
mortgagor should pay the amount of the judgment
to the court within a period or not the less than
three months, as provided in section 256 of the
Code of Civil Procedure, may be corrected even
after the said judgment had become final; and (2)
that the filing of a written opposition to a motion to
approve a sale of mortgaged properties is sufficient
compliance with the requirement that the
confirmation of the sale be made upon hearing the
parties.
Wherefore, the appealed order being in accordance
with law, it is hereby affirmed in all its parts, with
the cost to the appellant. So ordered.

Republic of the Philippines


SUPREME COURT
Manila

the Foundation, within a period of


not more than two (2) years from the
execution of this agreement;
provided, however, that in the event
that the Foundation does not pay the
whole or any part of such balance,
the same shall be paid with the
corresponding portion of the land or
real properties subject of the
aforesaid cases and previously
covered by the notices of lis
pendens, under such terms and
conditions as to area, valuation, and
location mutually acceptable to both
parties; but in no case shall the
payment of such balance be later
than two (2) years from the date of
this agreement; otherwise, payment
of any unpaid portion shall only be in
the form of land aforesaid;

FIRST DIVISION
G.R. No. 153004

November 5, 2004

SANTOS VENTURA HOCORMA FOUNDATION,


INC., petitioner,
vs.
ERNESTO V. SANTOS and RIVERLAND,
INC., respondents.

DECISION

QUISUMBING, J.:
Subject of the present petition for review on
certiorari is the Decision,1 dated January 30, 2002,
as well as the April 12, 2002, Resolution2 of the
Court of Appeals in CA-G.R. CV No. 55122. The
appellate court reversed the Decision,3 dated
October 4, 1996, of the Regional Trial Court of
Makati City, Branch 148, in Civil Case No. 95-811,
and likewise denied petitioner's Motion for
Reconsideration.
The facts of this case are undisputed.
Ernesto V. Santos and Santos Ventura Hocorma
Foundation, Inc. (SVHFI) were the plaintiff and
defendant, respectively, in several civil cases filed
in different courts in the Philippines. On October 26,
1990, the parties executed a Compromise
Agreement4 which amicably ended all their pending
litigations. The pertinent portions of the Agreement
read as follows:

2. Immediately upon the execution of this


agreement (and [the] receipt of the P1.5
Million), plaintiff Santos shall cause the
dismissal with prejudice of Civil Cases Nos.
88-743, 1413OR, TC-1024, 45366 and
18166 and voluntarily withdraw the appeals
in Civil Cases Nos. 4968 (C.A.-G.R. No.
26598) and 88-45366 (C.A.-G.R. No.
24304) respectively and for the immediate
lifting of the aforesaid various notices of lis
pendens on the real properties
aforementioned (by signing herein attached
corresponding documents, for such lifting);
provided, however, that in the event that
defendant Foundation shall sell or dispose
of any of the lands previously subject of lis
pendens, the proceeds of any such sale, or
any part thereof as may be required, shall
be partially devoted to the payment of the
Foundation's obligations under this
agreement as may still be subsisting and
payable at the time of any such sale or
sales;
...

1. Defendant Foundation shall pay Plaintiff


Santos P14.5 Million in the following
manner:
a. P1.5 Million immediately upon the
execution of this agreement;
b. The balance of P13 Million shall
be paid, whether in one lump sum or
in installments, at the discretion of

5. Failure of compliance of any of the


foregoing terms and conditions by either or
both parties to this agreement shall ipso
facto and ipso jure automatically entitle the
aggrieved party to a writ of execution for the
enforcement of this agreement. [Emphasis
supplied]5

In compliance with the Compromise Agreement,


respondent Santos moved for the dismissal of the
aforesaid civil cases. He also caused the lifting of
the notices of lis pendens on the real properties
involved. For its part, petitioner SVHFI, paid P1.5
million to respondent Santos, leaving a balance of
P13 million.

26, 1992, but payment of the remaining P12 million


was effected only on November 22, 1994. Thus,
respondents prayed that petitioner be ordered to
pay legal interest on the obligation, penalty,
attorney's fees and costs of litigation. Furthermore,
they prayed that the aforesaid sales be declared
final and not subject to legal redemption.

Subsequently, petitioner SVHFI sold to


Development Exchange Livelihood Corporation two
real properties, which were previously subjects of
lis pendens. Discovering the disposition made by
the petitioner, respondent Santos sent a letter to
the petitioner demanding the payment of the
remaining P13 million, which was ignored by the
latter. Meanwhile, on September 30, 1991, the
Regional Trial Court of Makati City, Branch 62,
issued a Decision6approving the compromise
agreement.

In its Answer,8 petitioner countered that


respondents have no cause of action against it
since it had fully paid its obligation to the latter. It
further claimed that the alleged delay in the
payment of the balance was due to its valid
exercise of its rights to protect its interests as
provided under the Rules. Petitioner
counterclaimed for attorney's fees and exemplary
damages.

On October 28, 1992, respondent Santos sent


another letter to petitioner inquiring when it would
pay the balance of P13 million. There was no
response from petitioner. Consequently,
respondent Santos applied with the Regional Trial
Court of Makati City, Branch 62, for the issuance of
a writ of execution of its compromise judgment
dated September 30, 1991. The RTC granted the
writ. Thus, on March 10, 1993, the Sheriff levied on
the real properties of petitioner, which were
formerly subjects of the lis pendens. Petitioner,
however, filed numerous motions to block the
enforcement of the said writ. The challenge of the
execution of the aforesaid compromise judgment
even reached the Supreme Court. All these efforts,
however, were futile.
On November 22, 1994, petitioner's real properties
located in Mabalacat, Pampanga were auctioned.
In the said auction, Riverland, Inc. was the highest
bidder for P12 million and it was issued a
Certificate of Sale covering the real properties
subject of the auction sale. Subsequently, another
auction sale was held on February 8, 1995, for the
sale of real properties of petitioner in Bacolod City.
Again, Riverland, Inc. was the highest bidder. The
Certificates of Sale issued for both properties
provided for the right of redemption within one year
from the date of registration of the said properties.
On June 2, 1995, Santos and Riverland Inc. filed a
Complaint for Declaratory Relief and
Damages7 alleging that there was delay on the part
of petitioner in paying the balance of P13 million.
They further alleged that under the Compromise
Agreement, the obligation became due on October

On October 4, 1996, the trial court rendered a


Decision9 dismissing herein respondents' complaint
and ordering them to pay attorney's fees and
exemplary damages to petitioner. Respondents
then appealed to the Court of Appeals. The
appellate court reversed the ruling of the trial court:
WHEREFORE, finding merit in the appeal,
the appealed Decision is hereby
REVERSED and judgment is hereby
rendered ordering appellee SVHFI to pay
appellants Santos and Riverland, Inc.: (1)
legal interest on the principal amount of P13
million at the rate of 12% per annum from
the date of demand on October 28, 1992 up
to the date of actual payment of the whole
obligation; and (2) P20,000 as attorney's
fees and costs of suit.
SO ORDERED.
Hence this petition for review on certiorari where
petitioner assigns the following issues:
I
WHETHER OR NOT THE COURT OF
APPEALS COMMITTED REVERSIBLE
ERROR WHEN IT AWARDED LEGAL
INTEREST IN FAVOR OF THE
RESPONDENTS, MR. SANTOS AND
RIVERLAND, INC., NOTWITHSTANDING
THE FACT THAT NEITHER IN THE
COMPROMISE AGREEMENT NOR IN THE
COMPROMISE JUDGEMENT OF HON.
JUDGE DIOKNO PROVIDES FOR
PAYMENT OF INTEREST TO THE
RESPONDENT

II
WHETHER OF NOT THE COURT OF
APPEALS ERRED IN AWARDING LEGAL
IN[T]EREST IN FAVOR OF THE
RESPONDENTS, MR. SANTOS AND
RIVERLAND, INC., NOTWITHSTANDING
THE FACT THAT THE OBLIGATION OF
THE PETITIONER TO RESPONDENT
SANTOS TO PAY A SUM OF MONEY HAD
BEEN CONVERTED TO AN OBLIGATION
TO PAY IN KIND DELIVERY OF REAL
PROPERTIES OWNED BY THE
PETITIONER WHICH HAD BEEN FULLY
PERFORMED
III
WHETHER OR NOT RESPONDENTS ARE
BARRED FROM DEMANDING PAYMENT
OF INTEREST BY REASON OF THE
WAIVER PROVISION IN THE
COMPROMISE AGREEMENT, WHICH
BECAME THE LAW AMONG THE
PARTIES10
The only issue to be resolved is whether the
respondents are entitled to legal interest.
Petitioner SVHFI alleges that where a compromise
agreement or compromise judgment does not
provide for the payment of interest, the legal
interest by way of penalty on account of fault or
delay shall not be due and payable, considering
that the obligation or loan, on which the payment of
legal interest could be based, has been superseded
by the compromise agreement.11 Furthermore, the
petitioner argues that the respondents are barred
by res judicata from seeking legal interest on
account of the waiver clause in the duly approved
compromise agreement.12 Article 4 of the
compromise agreement provides:
Plaintiff Santos waives and renounces any
and all other claims that he and his family
may have on the defendant Foundation
arising from and in connection with the
aforesaid civil cases, and defendant
Foundation, on the other hand, also waives
and renounces any and all claims that it
may have against plaintiff Santos in
connection with such cases.13 [Emphasis
supplied.]
Lastly, petitioner alleges that since the compromise
agreement did not provide for a period within which

the obligation will become due and demandable, it


is incumbent upon respondent Santos to ask for
judicial intervention for purposes of fixing the
period. It is only when a fixed period exists that the
legal interests can be computed.
Respondents profer that their right to damages is
based on delay in the payment of the obligation
provided in the Compromise Agreement. The
Compromise Agreement provides that payment
must be made within the two-year period from its
execution. This was approved by the trial court and
became the law governing their contract.
Respondents posit that petitioner's failure to comply
entitles them to damages, by way of interest.14
The petition lacks merit.
A compromise is a contract whereby the parties, by
making reciprocal concessions, avoid a litigation or
put an end to one already commenced.15 It is an
agreement between two or more persons, who, for
preventing or putting an end to a lawsuit, adjust
their difficulties by mutual consent in the manner
which they agree on, and which everyone of them
prefers in the hope of gaining, balanced by the
danger of losing.16
The general rule is that a compromise has upon the
parties the effect and authority of res judicata, with
respect to the matter definitely stated therein, or
which by implication from its terms should be
deemed to have been included therein.17 This holds
true even if the agreement has not been judicially
approved.18
In the case at bar, the Compromise Agreement was
entered into by the parties on October 26, 1990.19 It
was judicially approved on September 30,
1991.20 Applying existing jurisprudence, the
compromise agreement as a consensual contract
became binding between the parties upon its
execution and not upon its court approval. From the
time a compromise is validly entered into, it
becomes the source of the rights and obligations of
the parties thereto. The purpose of the compromise
is precisely to replace and terminate controverted
claims.21
In accordance with the compromise agreement, the
respondents asked for the dismissal of the pending
civil cases. The petitioner, on the other hand, paid
the initial P1.5 million upon the execution of the
agreement. This act of the petitioner showed that it
acknowledges that the agreement was immediately
executory and enforceable upon its execution.

As to the remaining P13 million, the terms and


conditions of the compromise agreement are clear
and unambiguous. It provides:
...
b. The balance of P13 Million shall be paid,
whether in one lump sum or in installments,
at the discretion of the Foundation, within a
period of not more than two (2) years from
the execution of this
agreement22[Emphasis supplied.]

The second requisite is also present. Petitioner


delayed in the performance. It was able to fully
settle its outstanding balance only on February 8,
1995, which is more than two years after the extrajudicial demand. Moreover, it filed several motions
and elevated adverse resolutions to the appellate
court to hinder the execution of a final and
executory judgment, and further delay the
fulfillment of its obligation.
Third, the demand letter sent to the petitioner on
October 28, 1992, was in accordance with an extrajudicial demand contemplated by law.

...
The two-year period must be counted from October
26, 1990, the date of execution of the compromise
agreement, and not on the judicial approval of the
compromise agreement on September 30, 1991.
When respondents wrote a demand letter to
petitioner on October 28, 1992, the obligation was
already due and demandable. When the petitioner
failed to pay its due obligation after the demand
was made, it incurred delay.
Article 1169 of the New Civil Code provides:
Those obliged to deliver or to do something
incur in delay from the time the obligee
judicially or extrajudicially demands from
them the fulfillment of their obligation.
[Emphasis supplied]
Delay as used in this article is synonymous to
default or mora which means delay in the fulfillment
of obligations. It is the non-fulfillment of the
obligation with respect to time.23
In order for the debtor to be in default, it is
necessary that the following requisites be present:
(1) that the obligation be demandable and already
liquidated; (2) that the debtor delays performance;
and (3) that the creditor requires the performance
judicially or extrajudicially.24
In the case at bar, the obligation was already due
and demandable after the lapse of the two-year
period from the execution of the contract. The twoyear period ended on October 26, 1992. When the
respondents gave a demand letter on October 28,
1992, to the petitioner, the obligation was already
due and demandable. Furthermore, the obligation
is liquidated because the debtor knows precisely
how much he is to pay and when he is to pay it.

Verily, the petitioner is liable for damages for the


delay in the performance of its obligation. This is
provided for in Article 117025 of the New Civil Code.
When the debtor knows the amount and period
when he is to pay, interest as damages is generally
allowed as a matter of right.26 The complaining
party has been deprived of funds to which he is
entitled by virtue of their compromise agreement.
The goal of compensation requires that the
complainant be compensated for the loss of use of
those funds. This compensation is in the form of
interest.27 In the absence of agreement, the legal
rate of interest shall prevail.28 The legal interest for
loan as forbearance of money is 12% per
annum29 to be computed from default, i.e., from
judicial or extrajudicial demand under and subject
to the provisions of Article 1169 of the Civil Code.30
WHEREFORE, the petition is DENIED for lack of
merit. The Decision dated January 30, 2002 of the
Court of Appeals and its April 12, 2002 Resolution
in CA-G.R. CV No. 55122 are AFFIRMED. Costs
against petitioner.
SO ORDERED.

FIRST DIVISION

[G.R. No. 154973. June 21, 2005]

THE PRESIDENT OF PHILIPPINE DEPOSIT


INSURANCE
CORPORATION
AS
LIQUIDATOR OF PACIFIC BANKING
CORPORATION, petitioner,
vs. HON.
WILFREDO D. REYES, Pairing Judge,
RTC Manila, Branch 31; ANG ENG JOO;
ANG KEONG LAN; and E.J. ANG
INTERNATIONAL, LTD., represented by
FORNIER
&
FORNIER
LAW, respondents.
DECISION
DAVIDE, JR., C.J.:
May an investment in a corporation, whose
existence has been terminated, be entitled to an
interest in the concept of actual and compensatory
damages from the time such investment was made
until the closure of the corporation? This is the
pivotal issue in this petition for certiorari filed by the
President of the Philippine Deposit Insurance
Corporation (PDIC), in his capacity as the
Liquidator of the Pacific Banking Corporation
(PaBC).
The antecedent facts are as follows:
On 5 July 1985, pursuant to Resolution No.
699 of the Monetary Board of the Central Bank of
the Philippines, the PaBC was placed under
receivership
on
the
ground
of
insolvency. Subsequently, it was placed under
liquidation, and a liquidator was designated.
On 7 April 1986, the Central Bank of the
Philippines, through the Office of the Solicitor
General, filed with the Regional Trial Court (RTC)
of Manila, Branch 31, a petition for assistance in
the liquidation of PaBC.
On 17 May 1991, Vitaliano N. Naagas,
President of the PDIC, was appointed by the
Central Bank as Liquidator.
On 26 June 1992, private respondents Ang
Eng Joo, Ang Keong Lan, and E.J. Ang
International Ltd. (hereafter Singaporeans), then
represented by their attorney-in-fact Gonzalo C. Sy,
filed their claim before the liquidating court. Citing
Republic Act No. 5186, otherwise known as

the Investment Incentives Act, they claimed to be


preferred creditors and prayed for the return of their
equity
investment
in
the
amount
of
US$2,531,632.18 with interest until the closure of
the PaBC.
After due hearing or on 11 September 1992,
the liquidation court, through Presiding Judge
Regino Veridiano II, issued an order that reads as
follows:
At this stage of the liquidation proceedings, the
claimants who are foreign investors should already be
paid. If there is any doubt as to whether claimants who
are foreign investors should be treated as preferred
claimants, the doubt should be resolved in favor of
claimants since it is of judicial notice that government
adopted the policy to entice foreign investors to help
boost the economy. Claimants who are foreign investors
should be treated with liberality such that they should be
categorized among preferred creditors. Claimants were
invited to invest at PaBC in 1981 and after a short period
of less than four (4) years the bank was closed in 1985
due to mismanagement.[1]

WHEREFORE, premises considered, the Liquidator of


PaBC is ordered to pay claimants through their
Attorney-in-Fact Gonzalo C. Sy, their total investment
of US$2,531,632.18 as preferred creditors. Dividends
and/or interest that accrued in favor of claimants is
hereby deferred pending study by the Liquidator who is
hereby ordered to submit his report and recommendation
within thirty (30) days from receipt of this Order.[2]
His motion for reconsideration having been
denied, the Liquidator filed a notice of appeal. In
an Order dated 28 October 1992, the liquidation
court struck off the record the notice of appeal for
having been filed beyond the 15-day period to
appeal, and directed the execution of the Order of
11 September 1992.
The Liquidator thus filed a petition
for certiorari before the Court of Appeals, which
was, however, dismissed on the ground that the
notice of appeal was correctly dismissed by the
liquidation court for having been filed out of time. In
our decision[3] of 20 March 1995 in G.R. Nos.
109373 and 112991, we sustained the Court of
Appeals, but on a different ground. We held that
while the Liquidator filed the notice of appeal within
the reglementary 30-day period provided in special
proceedings, he failed to file the requisite record on
appeal, and thus the appeal was not perfected on

time, causing the 11 September 1992 Order to


become final and executory.
Consequently, the liquidation court, through
the pairing judge Hon. Wilfredo D. Reyes, issued
an Order dated 13 April 1998 implementing the
execution order of 28 October 1992 by directing the
President of the Land Bank of the Philippines (LBP)
to release to the Sheriff the garnished amount of
US$2,531,632.18 or its peso equivalent computed
at the current exchange rate, to be paid to the
Singaporeans.
The Bureau of Internal Revenue (BIR) and the
Bangko Sentral ng Pilipinas promptly filed before
the liquidation court separate motions to hold in
abeyance the liquidation courts orders of 28
October 1992 and 13 April 1998.[4] The Liquidator
also filed an urgent motion to prohibit the
Singaporeans from withdrawing the money from
their account with the LBP.[5] It was accompanied
by an application for a temporary restraining order
and/or preliminary injunction praying that Gonzalo
C. Sy be prohibited from withdrawing the amount
of P82,658,671.43 from his account with the LBP
and be directed to return any funds that might
already have been withdrawn by him.
On 12 May 1998, Judge Reyes issued an
Order[6] denying the motions and ordered the
payment of accrued legal interest on the
Singaporeans
equity
investment
of
US$2,531,632.18 at the rate of 12% per annum
computed from 15 October 1981, the date the
outward remittance and the investment were
actually made, until its full payment, at the
exchange rate prevailing at the time of payment.
Finally, on 15 May 1998, Judge Reyes issued
another Order[7] directing the President of the
Philippine National Bank (PNB) to release the
garnished amount sufficient to cover the additional
sum ofP172,374,220.64.
Aggrieved by these orders, the BIR, PDIC, and
the Liquidator filed before the Court of Appeals a
petition for certiorari, mandamus, and prohibition
with a prayer for a temporary restraining
order[8] assailing Judge Reyes Orders of 13 April
1998, 12 May 1998, and 15 May 1998.

respondents, Singaporeans, directly


or through their new attorney-in-fact
and legal counsel, the law firm of
Fornier & Fornier;
(2) [E]njoining respondent Gonzalo C. Sy
from withdrawing the garnished
amount from his savings/current
account with the Land Bank of the
Philippines or any other bank in which
funds released from the garnished
accounts of PaBC, LBP and PNB
have been deposited; and
(3) [A]n amount equivalent to 15% of the
remaining garnished amount or the
balance of accrued legal interest of
Pesos 56,034,877.04 shall be
withheld and remitted to petitioner
Bureau of Internal Revenue, without
prejudice to the right of said petitioner
to make other assessments for taxes
in the future.
Consequently, the writ of preliminary injunction issued
on September 14, 1998 is hereby DISSOLVED. By
virtue hereof, the garnished amount from the
savings/current account with the Land Bank of the
Philippines or any other bank in which funds released
from the garnished accounts of PaBC, LBP and PNB
have been deposited may now be released only to private
respondents, Singaporeans, directly or through their new
attorney-in-fact and legal counsel, the law firm of
Fornier & Fornier.[10]
After
an
unsuccessful
motion
for
reconsideration,[11] the Liquidator came before us
assigning the following errors:
4.1
THE RESPONDENT APPELLATE COURT
COMMITTED A FUNDAMENTAL ERROR OF FACT
AND LAW WHEN IT DECLARED THE
SINGAPOREANS EQUITY INVESTMENT WITH
CLOSED PACIFIC BANKING CORPORATION
ENTITLED TO PAYMENT OF INTEREST.
4.2

[9]

In its decision of 31 January 2002, the Court


of Appeals affirmed the Orders of 13 April 1998 and
15 May 1998, but modified the Order of 12 May
1998 as follows:
(1)

[P]ayment of accrued legal interest in


the sum of P56,034,877.04 still left
uncollected shall be made to private

THE RESPONDENT APPELLATE COURT


COMMITTED A FUNDAMENTAL ERROR OF FACT
AND LAW WHEN IT APPLIED THE LANDMARK
CASE OF EASTERN SHIPPING LINES, INC. V. CA
(G.R. NO. 97412, JULY 12, 1994) IN FIXING THE
RATES OF INTEREST AND/OR DIVIDENDS THAT

ALLEGEDLY ACCRUED ON THE EQUITY


INVESTMENT OF THE SINGAPOREANS ON PABC.
4.3
ASSUMING FOR THE SAKE OF ARGUMENT THAT
PABC IS LIABLE FOR COMPENSATORY
DAMAGES TO THE SINGAPOREAN EQUITY
HOLDERS, ACCRUAL OF THE 6% INTEREST
RATE SHOULD COMMENCE FROM DEMAND.
4.4
ASSUMING FOR THE SAKE OF ARGUMENT THE
CORRECTNESS OF THE RESPONDENT
APPELLATE COURTS IMPOSITION OF THE 6%
AND 12% INTEREST RATE ON THE EQUITY
INVESTMENTS OF THE SINGAPOREAN EQUITY
HOLDERS, THE LATTER SHOULD ONLY BE
ENTITLED TO A TOTAL AMOUNT
OF P73,246,702.21 BY WAY OF THE ALLEGED
ACCRUED DIVIDENDS AND/OR INTERESTS.
4.5
FOLLOWING THE JANUARY 31, 2002 DECISION
OF THE RESPONDENT APPELLATE COURT
WHICH DIRECTED THE PAYMENT OF ALLEGED
ACCRUED DIVIDENDS AND/OR INTEREST
COMMENCING ON OCTOBER 15, 1981 WHERE
THE PREVAILING EXCHANGE RATE WAS P8.067
TO A DOLLAR, THE OVERPAYMENT TO THE
SINGAPOREAN EQUITY HOLDERS SHALL
AMOUNT TO P182,893,303.55. [12]
Anent the first issue, the Liquidator interprets
the affirmation by the Court of Appeals of the 12
May 1998 Order of Judge Reyes as amounting to
an unlawful grant of undeclared dividends. He
argues that the only fruits that can arise from an
equity investment are dividends declared from
unrestricted retained earnings by the Board of
Directors in accordance with the Corporation
Code. Absent a declaration in this case, the
interest awarded has no legal basis.
As for the second and third issues, the
Liquidator argues that no actual damages can arise
from the closure of the bank. The ruling in Eastern
Shipping Lines, Inc. v. Court of Appeals[13] is not
applicable because that case clearly refers to an
award of interest in the concept of actual and
compensatory damages in case of breach of an
obligation. The failure of PaBC to return the
Singaporeans equity investment because of its
closure is not a breach of an obligation the

closure being akin to a force majeure. If indeed


PaBC is liable to the Singaporeans for actual and
compensatory damages, accrual thereof should be
reckoned from the date of demand pursuant to
Article 1169 of the Civil Code. Instead of running
from 15 October 1981 when the Singaporeans
bought their shares in PaBC, the 6% interest rate
should be reckoned from 26 June 1992, the date
the Singaporeans filed their claim in the liquidation
court.
The Liquidator likewise asserts that there is
already an overpayment of accrued dividends or
interests. The liquidation courts Order of 12 May
1998 awarded an interest of 12% per annum to be
computed from 15 October 1981 (the date of actual
remittance of the investment) until full payment.
Pursuant
to
that
Order,
the
PNB
released P116,339,343.60. On appeal, however,
the Court of Appeals modified the decision and
awarded an interest of 6% per annum from 15
October 1981 up to PaBCs closure, as well as an
interest of 12% per annum from 11 October 1992,
when the 11 September 1992 Order became final
and executory, until 17 April 1998, when the equity
investment of US$2,531,632.18 was fully paid. With
the prevailing exchange rate of P8.067 to a dollar
on 15 October 1981, the total peso equivalent of
the Singaporeans claim is only P30,230,338.29
P20,422,676.80 of which represents the principal
equity
investment
of
US$2,531,632.18
and P9,807,661.49,
as
alleged
accrued
interest. As of 18 May 1998, the total releases to
the Singaporeans from the garnished funds of the
PaBC amounted to P213,123,641.84. There is
therefore
an
overpayment
of P182,893,303.55. Thus, the order of the Court
of Appeals to further release P56,034,877.04 from
the garnished funds would result to unjust
enrichment in favor of the Singaporeans.
For their part, the Singaporeans assert that the
Court of Appeals committed no error in affirming
their entitlement to accrued interests in the amount
of P56,034,877.04 and in ordering its payment less
15% in taxes as agreed upon by the BIR. The
Order of 11 September 1992 included the payment
of the principal due the Singaporeans as preferred
creditors, but it deferred the payment of interest on
the
principal
for
study
by
the
Liquidator.
Unfortunately,
no
study
and
recommendation was done since September 1992;
thus, the liquidation court took it upon itself to
arithmetically compute and fix the amount of
interest at the legal rate of 12% per annum as
reflected in the Order of 12 May 1998. Likewise,
the award of 12% interest has become the law of

the case with respect to the Liquidator and the


Singaporeans.
The Singaporeans also argue that the petition
should be dismissed because it assails errors of
judgment, not errors of jurisdiction. They submit
that the filing of a special civil action
for certiorari rather than an appeal is wrong,
improper, and fatal to the case. Moreover, the
issue of overpayment is a question of fact that
could not be threshed out in a special civil action
for certiorari.
We shall first tackle the procedural issue of the
propriety of the petition filed by the Liquidator.
A petition for certiorari is the proper remedy
when a tribunal, board, or officer exercising judicial
or quasi-judicial functions has acted without or in
excess of jurisdiction, or with grave abuse of
discretion amounting to lack or excess of
jurisdiction and there is no appeal nor any plain,
speedy, and adequate remedy at law.[14] Grave
abuse of discretion is defined as the capricious,
whimsical exercise of judgment as is equivalent to
lack of jurisdiction. An error of judgment committed
in the exercise of its legitimate jurisdiction is not the
same as grave abuse of discretion. Thus, the
special writ of certiorari is not the remedy for errors
of judgment that can be corrected by appeal.[15]
Although
denominated
as
a
petition
for certiorari under Rule 65 of the Rules of Civil
Procedure, the petition assigns errors of judgment
of the Court of Appeals. It does not allege grave
abuse of discretion committed by the Court of
Appeals. However, in the interest of justice, this
Court shall treat the petition as an appeal under
Rule 45 of the Rules of Civil Procedure especially
since it was filed within the reglementary period for
filing an appeal. Sections 1 and 2 of Rule 45 of the
1997 Rules of Civil Procedure provide:
SECTION 1. Filing of petition with Supreme Court. A
party desiring to appeal by certiorari from a judgment or
final order or resolution of the Court of Appeals, the
Sandiganbayan, the Regional Trial Court or other courts
whenever authorized by law, may file with the Supreme
Court a verified petition for review on certiorari. The
petition shall raise only questions of law which must be
distinctly set forth.
SEC. 2. Time for filing; extension. The petition shall
be filed within fifteen (15) days from notice of the
judgment or final order or resolution appealed from, or
of the denial of the petitioners motion for new trial or
reconsideration filed in due time after notice of the
judgment. On motion duly filed and served, with full

payment of the docket and other lawful fees and the


deposit for costs before the expiration of the
reglementary period, the Supreme Court may for
justifiable reasons grant an extension of thirty (30) days
only within which to file the petition.
The records show that the Liquidator received
on 30 August 2002 a copy of the resolution of the
Court of Appeals denying his motion for
reconsideration. He had fifteen days, or until 14
September 2002, to file a petition for review
on certiorari. Since 14 September 2002 fell on a
Saturday, he could file his petition on the next
working day, which was 16 September
2002.[16] Indeed, the Liquidator filed the instant
petition and paid the necessary docket and legal
fees on 16 September 2002.
Before delving into the merits of the case, it
bears stressing that we are constrained to make
our judgment according to the confines set by the
11 September 1992 Order of the liquidation court.
According to the principle of the law of the
case, whatever is once irrevocably established as
the controlling legal rule or decision between the
same parties in the same case continues to be the
law of the case.[17] To this the Court must adhere,
whether the legal principles laid down were correct
on general principles or not, or whether the
question is right or wrong.[18]
As a result, upon the finality of the 11
September 1992 Order, the following issues were
laid to rest: (1) the Singaporeans are deemed
preferred creditors; and (2) they are entitled to the
payment of their total investment amounting to
US$2,531,632.18.
The determination of interests or dividends
was, however, deferred pending a report to be
submitted by the Liquidator. It was only in the 12
May 1998 Order of the liquidation court that an
interest was awarded, giving rise to a new question
of law. Therefore, the award of interest is not a
controlling legal rule or decision that had been
previously established as between the parties,
since the parties did not have the chance to argue
on that issue.
A perusal of the 12 May 1998 Order shows
that the liquidation court awarded interest not as a
form of accrued dividends or return of investment,
but
as
actual
and
compensatory
damages. Categorically, the order states:
The December 16, 1993 decision of the Court of
Appeals ruled that the remittance of earnings of this type

of foreign investment is guaranteed (CA decision, p. 15,


emphasis supplied). Legal interests are earnings and
they are provided for by law arising from the
withholding of funds due to a party. They are not
computed on the amount of earnings of a business.[19]
We take note of the fact that when the trial
court, in its Order of 11 September 1992, declared
the Singaporeans to have the status of preferred
creditors, it did so only for the purpose of giving
them priority in the order of payment upon the
liquidation of the PaBC. Relying only on
the Investment Incentive Act, the trial court did not
decide whether the Singaporeans investment was
a loan or equity. Since the Singaporeans were
declared preferred creditors for a limited purpose, it
does not follow that the court likewise implied that
the original remittance of the Singaporeans was in
the nature of a loan or forbearance of money,
goods, or credit.
The Court of Appeals found that the equity
investment of US$2,531,632.18 was not a loan or
forbearance of money; hence, Central Bank
Circular No. 416, prescribing 12% interest per
annum on loans or forbearance of money, goods,
or credit is inapplicable. It applied Article 2209 of
the Civil Code, which provides for the legal interest
of 6% per annum in the absence of a stipulation to
the contrary. Thus, the Court of Appeals modified
the Order of 12 May 1998 and reduced the rate of
interest on the investment of US$2,531,632.18 from
12% to 6% to run from 15 October 1981 when the
outward remittance and equity investment was
actually made up to the closure of PaBC. Also,
following Eastern Shipping Lines, Inc. v. Court of
Appeals it upheld the grant of 12% interest on the
monetary award of US$2,531,632.18 to run from
the date of the finality of the 11 September 1992
Order until its satisfaction.
In Eastern Shipping Lines, Inc. v. Court of
Appeals, we laid down the following guidelines:
I.
When an obligation, regardless of its source, i.e.,
law, contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for
damages. The provisions under Title XVIII on
Damages of the Civil Code govern in determining the
measure of recoverable damages.
II.
With regard particularly to an award of interest, in
the concept of actual and compensatory damages, the
rate of interest, as well as the accrual thereof, is imposed,
as follows:

1.
When the obligation is breached, and it consists
in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore,
the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum
to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions
of Article 1169 of the Civil Code.
2.
When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can
be established with reasonable certainty. Accordingly,
where the demand is established with reasonable
certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169,
Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made,
the interest shall begin to run only from the date the
judgment of the court is made (at which time the
quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the
amount finally adjudged.
3.
When the judgment of the court awarding a
sum of money becomes final and executory, the rate of
legal interest whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of
credit.[20]
It is undisputed that the amount of
US$2,531,632.58 remitted by the Singaporeans
represented the 154,462 PaBC common shares
previously issued to, and owned by, Mandarin
Development
Corporation
bought
by
the
Singaporeans at the price of US$16.39 per share.
The investment was approved by the Central Bank
under Monetary Board Resolution No. 323 dated 19
February 1982 and constituted about 11% of the
total subscribed capital stock of PaBC. Clearly, the
amount remitted to PaBC by the Singaporeans was
an investment.
An investment is an expenditure to acquire
property or other assets in order to produce
revenue. It is the placing of capital or laying out of
money in a way intended to secure income or profit
from its employment. To invest is to purchase
securities of a more or less permanent nature, or to

place money or property in business ventures or


real estate, or otherwise lay it out, so that it may
produce a revenue or income.[21]
Thus, unlike a deposit of money or a loan that
earns interest, the investment of the Singaporeans
cannot be assured of a dividend or an interest on
the amount invested. For, interests or dividends
are granted only after profits or gains are
generated.
We therefore agree with the Court of Appeals
in holding that the amount of US$2,531,632.18
remitted by the Singaporeans to PaBC was not a
loan or forbearance of money in favor of
PaBC. Hence No. II-1 of the above-quoted
guidelines in Eastern Shipping Lines does not
come into play. Neither can we apply Central Bank
Circular No. 416, which imposes the rate of
12% per annum on loans and forbearance of
money. Nor can No. II-2 of the above-quoted
guidelines be invoked because, as correctly pointed
out by the Liquidator, the closure of the PaBC did
not constitute a breach of obligation. Article 2209
of the Civil Code, which was relied upon by the
Court of Appeals, does not find application
either. That Article, which provides for 6%
interest per annum, governs when there is a delay
in the payment of a sum of money. Such is not the
case here.
Thus, the Court of Appeals award of 6%
interest on the Singaporeans equity investment as
actual or compensatory damages from the date of
its remittance until the closure of PaBC has no leg
to stand on and must, therefore, be deleted.
The interest that may be awarded as actual or
compensatory damages in this case is that
provided in No. II-3 of the afore-quoted
guidelines. Upon the finality of the Order of 11
September 1992, the award of US$2,531,632.18
representing the Singaporeans equity investment
became a judgment debt. As such, it shall bear an
interest of 12% per annum from the finality of the
Order until its full satisfaction.
However, the grant of the said interest does
not bar the Singaporeans from claiming liquidating
dividends which may have accrued from their
equity investment after being determined by the
Liquidator. In the liquidation of a corporation, after
the payment of all corporate debts and liabilities,
the remaining assets, if any, must be distributed to
the stockholders in proportion to their interests in
the corporation. The share of each stockholder in
the assets upon liquidation is what is known
as liquidating dividend.[22] Verily, the Singaporeans
are entitled to 11% of the total liquidating dividend,

this being in proportion to their 11% interest of the


total subscribed capital stock of PaBC.
Anent the fourth issue, the Court is unable to
determine the veracity of the alleged overpayments
in the absence of verified records on the total
payments made in favor of the Singaporeans. The
award of the Court of Appeals of P56,034,877.04
representing uncollected interest is likewise
unsubstantiated because it was not shown how the
amount was derived.
To resolve this question of fact, the case is
hereby remanded to the trial court to recompute the
payments vis--vis the total amount due the
Singaporeans, also considering the undisputed
award of 12% interest per annum on the judgment
debt of US$2,531,632.18 to be reckoned from 22
October 1992,[23] when the 11 September 1992
Order became final, until its full satisfaction.
WHEREFORE, the decision of the Court of
Appeals of 31 January 2002 in CA-G.R. SP No.
47878 is hereby AFFIRMED insofar as the
respondents ANG ENG JOO, ANG KEONG LAN,
and E.J. ANG INTERNATIONAL, LTD., are entitled
to the payment of 12% interest per annum in the
form of actual or compensatory damages on the
judgment award of US$2,531,632.18 to run from 22
October 1992, when the 11 September 1992 Order
of the Regional Trial Court of Manila, Branch 31,
became final and executory, until the amount is
fully paid. The said decision is, however,
MODIFIED as follows:
1. The award of interest at the rate of
6% per
annum as
actual
or
compensatory damages from 15
October 1981 until the closure of PaBC
is hereby deleted for lack of basis
without
prejudice,
however,
to
liquidating dividends or interests as
may be determined by the Liquidator.
2. The Regional Trial Court of Manila,
Branch 31, is hereby directed to make
a recomputation of all the total amounts
paid by the petitioner Liquidator in favor
of the private respondent Singaporeans
taking into account the exact amount
due them, and to issue the proper
orders for payment, if warranted. The
amount due shall include the 12% rate
of legal interests on the judgment debt
of US$2,531,632.18.
SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 149734

November 19, 2004

DR. DANIEL VAZQUEZ and MA. LUIZA M.


VAZQUEZ, petitioners,
vs.
AYALA CORPORATION, respondent.

DECISION

TINGA, J.:
The rise in value of four lots in one of the country's
prime residential developments, Ayala Alabang
Village in Muntinlupa City, over a period of six (6)
years only, represents big money. The huge price
difference lies at the heart of the present
controversy. Petitioners insist that the lots should
be sold to them at 1984 prices while respondent
maintains that the prevailing market price in 1990
should be the selling price.
Dr. Daniel Vazquez and Ma. Luisa Vazquez1 filed
this Petition for Review on Certiorari2 dated
October 11, 2001 assailing the Decision3 of the
Court of Appeals dated September 6, 2001 which
reversed the Decision4 of the Regional Trial Court
(RTC) and dismissed their complaint for specific
performance and damages against Ayala
Corporation.
Despite their disparate rulings, the RTC and the
appellate court agree on the following
antecedents:5

On April 23, 1981, spouses Daniel Vasquez


and Ma. Luisa M. Vasquez (hereafter,
Vasquez spouses) entered into a
Memorandum of Agreement (MOA) with
Ayala Corporation (hereafter, AYALA) with
AYALA buying from the Vazquez spouses,
all of the latter's shares of stock in Conduit
Development, Inc. (hereafter, Conduit). The
main asset of Conduit was a 49.9 hectare
property in Ayala Alabang, Muntinlupa,
which was then being developed by Conduit
under a development plan where the land
was divided into Villages 1, 2 and 3 of the
"Don Vicente Village." The development
was then being undertaken for Conduit by
G.P. Construction and Development Corp.
(hereafter, GP Construction).
Under the MOA, Ayala was to develop the
entire property, less what was defined as
the "Retained Area" consisting of 18,736
square meters. This "Retained Area" was to
be retained by the Vazquez spouses. The
area to be developed by Ayala was called
the "Remaining Area". In this "Remaining
Area" were 4 lots adjacent to the "Retained
Area" and Ayala agreed to offer these lots
for sale to the Vazquez spouses at the
prevailing price at the time of purchase. The
relevant provisions of the MOA on this point
are:
"5.7. The BUYER hereby commits that it will
develop the 'Remaining Property' into a first
class residential subdivision of the same
class as its New Alabang Subdivision, and
that it intends to complete the first phase
under its amended development plan within
three (3) years from the date of this
Agreement. x x x"
5.15. The BUYER agrees to give the
SELLERS a first option to purchase four
developed lots next to the "Retained Area"
at the prevailing market price at the time of
the purchase."
The parties are agreed that the
development plan referred to in paragraph
5.7 is not Conduit's development plan, but
Ayala's amended development plan which
was still to be formulated as of the time of
the MOA. While in the Conduit plan, the 4
lots to be offered for sale to the Vasquez
Spouses were in the first phase thereof or
Village 1, in the Ayala plan which was

formulated a year later, it was in the third


phase, or Phase II-c.

affecting the SELLERS with respect to the


Shares or the Property; and

Under the MOA, the Vasquez spouses


made several express warranties, as
follows:

7. Additional Warranties by the SELLERS

"3.1. The SELLERS shall deliver to the


BUYER:

7.1. With respect to the Audited Financial


Statements required to be submitted at
Closing in accordance with Par. 3.1.5
above, the SELLER jointly and severally
warrant to the BUYER that:

xxx
3.1.2. The true and complete list, certified
by the Secretary and Treasurer of the
Company showing:
xxx
D. A list of all persons and/or entities with
whom the Company has pending contracts,
if any.
xxx
3.1.5. Audited financial statements of the
Company as at Closing date.
4. Conditions Precedent
All obligations of the BUYER under this
Agreement are subject to fulfillment prior to
or at the Closing, of the following conditions:
4.1. The representations and warranties by
the SELLERS contained in this Agreement
shall be true and correct at the time of
Closing as though such representations and
warranties were made at such time; and
xxx
6. Representation and Warranties by the
SELLERS
The SELLERS jointly and severally
represent and warrant to the BUYER that at
the time of the execution of this Agreement
and at the Closing:
xxx
6.2.3. There are no actions, suits or
proceedings pending, or to the knowledge
of the SELLERS, threatened against or

7.1.1 The said Audited Financial Statements


shall show that on the day of Closing, the
Company shall own the "Remaining
Property", free from all liens and
encumbrances and that the Company shall
have no obligation to any party except for
billings payable to GP Construction &
Development Corporation and advances
made by Daniel Vazquez for which BUYER
shall be responsible in accordance with Par.
2 of this Agreement.
7.1.2 Except to the extent reflected or
reserved in the Audited Financial
Statements of the Company as of Closing,
and those disclosed to BUYER, the
Company as of the date thereof, has no
liabilities of any nature whether accrued,
absolute, contingent or otherwise, including,
without limitation, tax liabilities due or to
become due and whether incurred in
respect of or measured in respect of the
Company's income prior to Closing or
arising out of transactions or state of facts
existing prior thereto.
7.2 SELLERS do not know or have no
reasonable ground to know of any basis for
any assertion against the Company as at
closing or any liability of any nature and in
any amount not fully reflected or reserved
against such Audited Financial Statements
referred to above, and those disclosed to
BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the
BUYER in writing on or before the Closing,
the Company is not engaged in or a party
to, or to the best of the knowledge of the
SELLERS, threatened with, any legal action
or other proceedings before any court or
administrative body, nor do the SELLERS
know or have reasonable grounds to know

of any basis for any such action or


proceeding or of any governmental
investigation relative to the Company.
7.6.4 To the knowledge of the SELLERS, no
default or breach exists in the due
performance and observance by the
Company of any term, covenant or condition
of any instrument or agreement to which the
company is a party or by which it is bound,
and no condition exists which, with notice or
lapse of time or both, will constitute such
default or breach."
After the execution of the MOA, Ayala
caused the suspension of work on Village 1
of the Don Vicente Project. Ayala then
received a letter from one Maximo Del
Rosario of Lancer General Builder
Corporation informing Ayala that he was
claiming the amount of P1,509,558.80 as
the subcontractor of G.P. Construction...
G.P. Construction not being able to reach
an amicable settlement with Lancer, on
March 22, 1982, Lancer sued G.P.
Construction, Conduit and Ayala in the then
Court of First Instance of Manila in Civil
Case No. 82-8598. G.P. Construction in turn
filed a cross-claim against Ayala. G.P.
Construction and Lancer both tried to enjoin
Ayala from undertaking the development of
the property. The suit was terminated only
on February 19, 1987, when it was
dismissed with prejudice after Ayala paid
both Lancer and GP Construction the total
of P4,686,113.39.
Taking the position that Ayala was obligated
to sell the 4 lots adjacent to the "Retained
Area" within 3 years from the date of the
MOA, the Vasquez spouses sent several
"reminder" letters of the approaching socalled deadline. However, no demand after
April 23, 1984, was ever made by the
Vasquez spouses for Ayala to sell the 4 lots.
On the contrary, one of the letters signed by
their authorized agent, Engr. Eduardo Turla,
categorically stated that they expected
"development of Phase 1 to be completed
by February 19, 1990, three years from the
settlement of the legal problems with the
previous contractor."
By early 1990 Ayala finished the
development of the vicinity of the 4 lots to

be offered for sale. The four lots were then


offered to be sold to the Vasquez spouses
at the prevailing price in 1990. This was
rejected by the Vasquez spouses who
wanted to pay at 1984 prices, thereby
leading to the suit below.
After trial, the court a quo rendered its
decision, the dispositive portion of which
states:
"THEREFORE, judgment is hereby
rendered in favor of plaintiffs and against
defendant, ordering defendant to sell to
plaintiffs the relevant lots described in the
Complaint in the Ayala Alabang Village at
the price of P460.00 per square meter
amounting to P1,349,540.00; ordering
defendant to reimburse to plaintiffs
attorney's fees in the sum of P200,000.00
and to pay the cost of the suit."
In its decision, the court a quo concluded
that the Vasquez spouses were not
obligated to disclose the potential claims of
GP Construction, Lancer and Del Rosario;
Ayala's accountants should have opened
the records of Conduit to find out all claims;
the warranty against suit is with respect to
"the shares of the Property" and the Lancer
suit does not affect the shares of stock sold
to Ayala; Ayala was obligated to develop
within 3 years; to say that Ayala was under
no obligation to follow a time frame was to
put the Vasquezes at Ayala's mercy; Ayala
did not develop because of a slump in the
real estate market; the MOA was drafted
and prepared by the AYALA who should
suffer its ambiguities; the option to purchase
the 4 lots is valid because it was supported
by consideration as the option is
incorporated in the MOA where the parties
had prestations to each other. [Emphasis
supplied]
Ayala Corporation filed an appeal, alleging that the
trial court erred in holding that petitioners did not
breach their warranties under the MOA6 dated April
23, 1981; that it was obliged to develop the land
where the four (4) lots subject of the option to
purchase are located within three (3) years from the
date of the MOA; that it was in delay; and that the
option to purchase was valid because it was
incorporated in the MOA and the consideration
therefor was the commitment by Ayala Corporation
to petitioners embodied in the MOA.

As previously mentioned, the Court of Appeals


reversed the RTC Decision. According to the
appellate court, Ayala Corporation was never
informed beforehand of the existence of the Lancer
claim. In fact, Ayala Corporation got a copy of the
Lancer subcontract only on May 29, 1981 from G.P.
Construction's lawyers. The Court of Appeals thus
held that petitioners violated their warranties under
the MOA when they failed to disclose Lancer's
claims. Hence, even conceding that Ayala
Corporation was obliged to develop and sell the
four (4) lots in question within three (3) years from
the date of the MOA, the obligation was suspended
during the pendency of the case filed by Lancer.
Interpreting the MOA's paragraph 5.7 abovequoted, the appellate court held that Ayala
Corporation committed to develop the first phase of
its own amended development plan and not
Conduit's development plan. Nowhere does the
MOA provide that Ayala Corporation shall follow
Conduit's development plan nor is Ayala
Corporation prohibited from changing the sequence
of the phases of the property it will develop.
Anent the question of delay, the Court of Appeals
ruled that there was no delay as petitioners never
made a demand for Ayala Corporation to sell the
subject lots to them. According to the appellate
court, what petitioners sent were mere reminder
letters the last of which was dated prior to April 23,
1984 when the obligation was not yet demandable.
At any rate, the Court of Appeals found that
petitioners in fact waived the three (3)-year period
when they sent a letter through their agent, Engr.
Eduardo Turla, stating that they "expect that the
development of Phase I will be completed by 19
February 1990, three years from the settlement of
the legal problems with the previous contractor."7
The appellate court likewise ruled that paragraph
5.15 above-quoted is not an option contract but a
right of first refusal there being no separate
consideration therefor. Since petitioners refused
Ayala Corporation's offer to sell the subject lots at
the reduced 1990 price of P5,000.00 per square
meter, they have effectively waived their right to
buy the same.
In the instant Petition, petitioners allege that the
appellate court erred in ruling that they violated
their warranties under the MOA; that Ayala
Corporation was not obliged to develop the
"Remaining Property" within three (3) years from
the execution of the MOA; that Ayala was not in
delay; and that paragraph 5.15 of the MOA is a

mere right of first refusal. Additionally, petitioners


insist that the Court should review the factual
findings of the Court of Appeals as they are in
conflict with those of the trial court.
Ayala Corporation filed a Comment on the
Petition8 dated March 26, 2002, contending that the
petition raises questions of fact and seeks a review
of evidence which is within the domain of the Court
of Appeals. Ayala Corporation maintains that the
subcontract between GP Construction, with whom
Conduit contracted for the development of the
property under a Construction Contract dated
October 10, 1980, and Lancer was not disclosed by
petitioners during the negotiations. Neither was the
liability for Lancer's claim included in the Audited
Financial Statements submitted by petitioners after
the signing of the MOA. These justify the
conclusion that petitioners breached their
warranties under the afore-quoted paragraphs of
the MOA. Since the Lancer suit ended only in
February 1989, the three (3)-year period within
which Ayala Corporation committed to develop the
property should only be counted thence. Thus,
when it offered the subject lots to petitioners in
1990, Ayala Corporation was not yet in delay.
In response to petitioners' contention that there was
no action or proceeding against them at the time of
the execution of the MOA on April 23, 1981, Ayala
Corporation avers that the facts and circumstances
which gave rise to the Lancer claim were already
extant then. Petitioners warranted that their
representations under the MOA shall be true and
correct at the time of "Closing" which shall take
place within four (4) weeks from the signing of the
MOA.9 Since the MOA was signed on April 23,
1981, "Closing" was approximately the third week
of May 1981. Hence, Lancer's claims, articulated in
a letter which Ayala Corporation received on May 4,
1981, are among the liabilities warranted against
under paragraph 7.1.2 of the MOA.
Moreover, Ayala Corporation asserts that the
warranties under the MOA are not just against suits
but against all kinds of liabilities not reflected in the
Audited Financial Statements. It cannot be faulted
for relying on the express warranty that except for
billings payable to GP Construction and advances
made by petitioner Daniel Vazquez in the amount
of P38,766.04, Conduit has no other liabilities.
Hence, petitioners cannot claim that Ayala
Corporation should have examined and
investigated the Audited Financial Statements of
Conduit and should now assume all its obligations

and liabilities including the Lancer suit and the


cross-claim of GP Construction.

Ayala Corporation itself did not consider the matter


a violation of petitioners' warranty.

Furthermore, Ayala Corporation did not make a


commitment to complete the development of the
first phase of the property within three (3) years
from the execution of the MOA. The provision
refers to a mere declaration of intent to develop the
first phase of its (Ayala Corporation's) own
development plan and not Conduit's. True to its
intention, Ayala Corporation did complete the
development of the first phase (Phase II-A) of its
amended development plan within three (3) years
from the execution of the MOA. However, it is not
obliged to develop the third phase (Phase II-C)
where the subject lots are located within the same
time frame because there is no contractual
stipulation in the MOA therefor. It is free to decide
on its own the period for the development of Phase
II-C. If petitioners wanted to impose the same three
(3)-year timetable upon the third phase of the
amended development plan, they should have filed
a suit to fix the time table in accordance with Article
119710 of the Civil Code. Having failed to do so,
Ayala Corporation cannot be declared to have been
in delay.

Moreover, petitioners submitted the Audited


Financial Statements of Conduit and allowed an
acquisition audit to be conducted by Ayala
Corporation. Thus, the latter bought Conduit with
"open eyes."

Ayala Corporation further contends that no demand


was made on it for the performance of its alleged
obligation. The letter dated October 4, 1983 sent
when petitioners were already aware of the Lancer
suit did not demand the delivery of the subject lots
by April 23, 1984. Instead, it requested Ayala
Corporation to keep petitioners posted on the
status of the case. Likewise, the letter dated March
4, 1984 was merely an inquiry as to the date when
the development of Phase 1 will be completed.
More importantly, their letter dated June 27, 1988
through Engr. Eduardo Turla expressed petitioners'
expectation that Phase 1 will be completed by
February 19, 1990.
Lastly, Ayala Corporation maintains that paragraph
5.15 of the MOA is a right of first refusal and not an
option contract.
Petitioners filed their Reply11 dated August 15,
2002 reiterating the arguments in their Petition and
contending further that they did not violate their
warranties under the MOA because the case was
filed by Lancer only on April 1, 1982, eleven (11)
months and eight (8) days after the signing of the
MOA on April 23, 1981. Ayala Corporation admitted
that it received Lancer's claim before the "Closing"
date. It therefore had all the time to rescind the
MOA. Not having done so, it can be concluded that

Petitioners also maintain that they had no


knowledge of the impending case against Conduit
at the time of the execution of the MOA. Further,
the MOA makes Ayala Corporation liable for the
payment of all billings of GP Construction. Since
Lancer's claim was actually a claim against GP
Construction being its sub-contractor, it is Ayala
Corporation and not petitioners which is liable.
Likewise, petitioners aver that although Ayala
Corporation may change the sequence of its
development plan, it is obliged under the MOA to
develop the entire area where the subject lots are
located in three (3) years.
They also assert that demand was made on Ayala
Corporation to comply with their obligation under
the MOA. Apart from their reminder letters dated
January 24, February 18 and March 5, 1984, they
also sent a letter dated March 4, 1984 which they
claim is a categorical demand for Ayala Corporation
to comply with the provisions of the MOA.
The parties were required to submit their respective
memoranda in the Resolution12 dated November
18, 2002. In compliance with this directive,
petitioners submitted their Memorandum13 dated
February 14, 2003 on even date, while Ayala
Corporation filed its Memorandum14 dated February
14, 2003 on February 17, 2003.
We shall first dispose of the procedural question
raised by the instant petition.
It is well-settled that the jurisdiction of this Court in
cases brought to it from the Court of Appeals by
way of petition for review under Rule 45 is limited to
reviewing or revising errors of law imputed to it, its
findings of fact being conclusive on this Court as a
matter of general principle. However, since in the
instant case there is a conflict between the factual
findings of the trial court and the appellate court,
particularly as regards the issues of breach of
warranty, obligation to develop and incurrence of
delay, we have to consider the evidence on record
and resolve such factual issues as an exception to
the general rule.15 In any event, the submitted issue

relating to the categorization of the right to


purchase granted to petitioners under the MOA is
legal in character.
The next issue that presents itself is whether
petitioners breached their warranties under the
MOA when they failed to disclose the Lancer claim.
The trial court declared they did not; the appellate
court found otherwise.
Ayala Corporation summarizes the clauses of the
MOA which petitioners allegedly breached when
they failed to disclose the Lancer claim:
a) Clause 7.1.1. that Conduit shall not be
obligated to anyone except to GP
Construction for P38,766.04, and for
advances made by Daniel Vazquez;
b) Clause 7.1.2. that except as reflected in
the audited financial statements Conduit
had no other liabilities whether accrued,
absolute, contingent or otherwise;
c) Clause 7.2. that there is no basis for
any assertion against Conduit of any liability
of any value not reflected or reserved in the
financial statements, and those disclosed to
Ayala;
d) Clause 7.6.3. that Conduit is not
threatened with any legal action or other
proceedings; and
e) Clause 7.6.4. that Conduit had not
breached any term, condition, or covenant
of any instrument or agreement to which it is
a party or by which it is bound.16
The Court is convinced that petitioners did not
violate the foregoing warranties.
The exchanges of communication between the
parties indicate that petitioners substantially
apprised Ayala Corporation of the Lancer claim or
the possibility thereof during the period of
negotiations for the sale of Conduit.
In a letter17 dated March 5, 1984, petitioner Daniel
Vazquez reminded Ayala Corporation's Mr. Adolfo
Duarte (Mr. Duarte) that prior to the completion of
the sale of Conduit, Ayala Corporation asked for
and was given information that GP Construction
sub-contracted, presumably to Lancer, a greater
percentage of the project than it was allowed.

Petitioners gave this information to Ayala


Corporation because the latter intimated a desire to
"break the contract of Conduit with GP." Ayala
Corporation did not deny this. In fact, Mr. Duarte's
letter18 dated March 6, 1984 indicates that Ayala
Corporation had knowledge of the Lancer
subcontract prior to its acquisition of Conduit. Ayala
Corporation even admitted that it "tried to
explorelegal basis to discontinue the contract of
Conduit with GP" but found this "not feasible when
information surfaced about the tacit consent of
Conduit to the sub-contracts of GP with Lancer."
At the latest, Ayala Corporation came to know of
the Lancer claim before the date of Closing of the
MOA. Lancer's letter19 dated April 30, 1981
informing Ayala Corporation of its unsettled claim
with GP Construction was received by Ayala
Corporation on May 4, 1981, well before the
"Closing"20 which occurred four (4) weeks after the
date of signing of the MOA on April 23, 1981, or on
May 23, 1981.
The full text of the pertinent clauses of the MOA
quoted hereunder likewise indicate that certain
matters pertaining to the liabilities of Conduit were
disclosed by petitioners to Ayala Corporation
although the specifics thereof were no longer
included in the MOA:
7.1.1 The said Audited Financial Statements
shall show that on the day of Closing, the
Company shall own the "Remaining
Property", free from all liens and
encumbrances and that the Company shall
have no obligation to any party except for
billings payable to GP Construction &
Development Corporation and advances
made by Daniel Vazquez for which BUYER
shall be responsible in accordance with
Paragraph 2 of this Agreement.
7.1.2 Except to the extent reflected or
reserved in the Audited Financial
Statements of the Company as of Closing,
and those disclosed to BUYER, the
Company as of the date hereof, has no
liabilities of any nature whether accrued,
absolute, contingent or otherwise, including,
without limitation, tax liabilities due or to
become due and whether incurred in
respect of or measured in respect of the
Company's income prior to Closing or
arising out of transactions or state of facts
existing prior thereto.

7.2 SELLERS do not know or have no


reasonable ground to know of any basis for
any assertion against the Company as at
Closing of any liability of any nature and in
any amount not fully reflected or reserved
against such Audited Financial Statements
referred to above, and those disclosed to
BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the
BUYER in writing on or before the Closing,
the Company is not engaged in or a party
to, or to the best of the knowledge of the
SELLERS, threatened with, any legal action
or other proceedings before any court or
administrative body, nor do the SELLERS
know or have reasonable grounds to know
of any basis for any such action or
proceeding or of any governmental
investigation relative to the Company.
7.6.4 To the knowledge of the SELLERS, no
default or breach exists in the due
performance and observance by the
Company of any term, covenant or condition
of any instrument or agreement to which the
Company is a party or by which it is bound,
and no condition exists which, with notice or
lapse of time or both, will constitute such
default or breach."21 [Emphasis supplied]
Hence, petitioners' warranty that Conduit is not
engaged in, a party to, or threatened with any legal
action or proceeding is qualified by Ayala
Corporation's actual knowledge of the Lancer claim
which was disclosed to Ayala Corporation before
the "Closing."
At any rate, Ayala Corporation bound itself to pay
all billings payable to GP Construction and the
advances made by petitioner Daniel Vazquez.
Specifically, under paragraph 2 of the MOA referred
to in paragraph 7.1.1, Ayala Corporation undertook
responsibility "for the payment of all billings of the
contractor GP Construction & Development
Corporation after the first billing and any payments
made by the company and/or SELLERS shall be
reimbursed by BUYER on closing which advances
to date is P1,159,012.87."22
The billings knowingly assumed by Ayala
Corporation necessarily include the Lancer claim
for which GP Construction is liable. Proof of this is
Ayala Corporation's letter23 to GP Construction

dated before "Closing" on May 4, 1981, informing


the latter of Ayala Corporation's receipt of the
Lancer claim embodied in the letter dated April 30,
1981, acknowledging that it is taking over the
contractual responsibilities of Conduit, and
requesting copies of all sub-contracts affecting the
Conduit property. The pertinent excerpts of the
letter read:

In this connection, we wish to inform you


that this morning we received a letter from
Mr. Maximo D. Del Rosario, President of
Lancer General Builders Corporation
apprising us of the existence of
subcontracts that they have with your
corporation. They have also furnished us
with a copy of their letter to you dated 30
April 1981.
Since we are taking over the contractual
responsibilities of Conduit Development,
Inc., we believe that it is necessary, at this
point in time, that you furnish us with copies
of all your subcontracts affecting the
property of Conduit, not only with Lancer
General Builders Corporation, but all
subcontracts with other parties as well24
Quite tellingly, Ayala Corporation even attached to
its Pre-Trial Brief25 dated July 9, 1992 a copy of the
letter26dated May 28, 1981 of GP Construction's
counsel addressed to Conduit furnishing the latter
with copies of all sub-contract agreements entered
into by GP Construction. Since it was addressed to
Conduit, it can be presumed that it was the latter
which gave Ayala Corporation a copy of the letter
thereby disclosing to the latter the existence of the
Lancer sub-contract.
The ineluctable conclusion is that petitioners did not
violate their warranties under the MOA. The Lancer
sub-contract and claim were substantially disclosed
to Ayala Corporation before the "Closing" date of
the MOA. Ayala Corporation cannot disavow
knowledge of the claim.
Moreover, while in its correspondence with
petitioners, Ayala Corporation did mention the filing
of the Lancer suit as an obstacle to its development
of the property, it never actually brought up nor
sought redress for petitioners' alleged breach of
warranty for failure to disclose the Lancer claim
until it filed its Answer27 dated February 17, 1992.

We now come to the correct interpretation of


paragraph 5.7 of the MOA. Does this paragraph
express a commitment or a mere intent on the part
of Ayala Corporation to develop the property within
three (3) years from date thereof? Paragraph 5.7
provides:
5.7. The BUYER hereby commits that it will
develop the 'Remaining Property' into a first
class residential subdivision of the same
class as its New Alabang Subdivision, and
that it intends to complete the first phase
under its amended development plan within
three (3) years from the date of this
Agreement.28
Notably, while the first phrase of the paragraph
uses the word "commits" in reference to the
development of the "Remaining Property" into a
first class residential subdivision, the second
phrase uses the word "intends" in relation to the
development of the first phase of the property
within three (3) years from the date of the MOA.
The variance in wording is significant. While
"commit"29 connotes a pledge to do something,
"intend"30 merely signifies a design or proposition.
Atty. Leopoldo Francisco, former Vice President of
Ayala Corporation's legal division who assisted in
drafting the MOA, testified:
COURT
You only ask what do you mean by that
intent. Just answer on that point.

seller to conform with its own standard of


development and second, your Honor,
(interrupted)31
It is thus unmistakable that this paragraph merely
expresses an intention on Ayala Corporation's part
to complete the first phase under its amended
development plan within three (3) years from the
execution of the MOA. Indeed, this paragraph is so
plainly worded that to misunderstand its import is
deplorable.
More focal to the resolution of the instant case is
paragraph 5.7's clear reference to the first phase of
Ayala Corporation's amended development plan as
the subject of the three (3)-year intended timeframe
for development. Even petitioner Daniel Vazquez
admitted on cross-examination that the paragraph
refers not to Conduit's but to Ayala Corporation's
development plan which was yet to be formulated
when the MOA was executed:
Q: Now, turning to Section 5.7 of this Memorandum
of Agreement, it is stated as follows: "The Buyer
hereby commits that to develop the remaining
property into a first class residential subdivision of
the same class as New Alabang Subdivision, and
that they intend to complete the first phase under
its amended development plan within three years
from the date of this agreement."
Now, my question to you, Dr. Vasquez is that there
is no dispute that the amended development plan
here is the amended development plan of Ayala?
A: Yes, sir.

ATTY. BLANCO
Don't talk about standard.

Q: In other words, it is not Exhibit "D-5"


which is the original plan of Conduit?

WITNESS

A: No, it is not.

A Well, the word intent here, your Honor,


was used to emphasize the tentative
character of the period of development
because it will be noted that the sentence
refers to and I quote "to complete the first
phase under its amended development plan
within three (3) years from the date of this
agreement, at the time of the execution of
this agreement, your Honor." That amended
development plan was not yet in existence
because the buyer had manifested to the
seller that the buyer could amend the
subdivision plan originally belonging to the

Q: This Exhibit "D-5" was the plan that was


being followed by GP Construction in 1981?
A: Yes, sir.
Q: And point of fact during your direct
examination as of the date of the
agreement, this amended development plan
was still to be formulated by Ayala?
A: Yes, sir.32

As correctly held by the appellate court, this


admission is crucial because while the subject lots
to be sold to petitioners were in the first phase of
the Conduit development plan, they were in the
third or last phase of the Ayala Corporation
development plan. Hence, even assuming that
paragraph 5.7 expresses a commitment on the part
of Ayala Corporation to develop the first phase of
its amended development plan within three (3)
years from the execution of the MOA, there was no
parallel commitment made as to the timeframe for
the development of the third phase where the
subject lots are located.
Lest it be forgotten, the point of this petition is the
alleged failure of Ayala Corporation to offer the
subject lots for sale to petitioners within three (3)
years from the execution of the MOA. It is not that
Ayala Corporation committed or intended to
develop the first phase of its amended development
plan within three (3) years. Whether it did or did not
is actually beside the point since the subject lots
are not located in the first phase anyway.
We now come to the issue of default or delay in the
fulfillment of the obligation.
Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to do
something incur in delay from the time the
obligee judicially or extrajudicially demands
from them the fulfillment of their obligation.
However, the demand by the creditor shall
not be necessary in order that delay may
exist:
(1) When the obligation or the law expressly
so declares; or
(2) When from the nature and the
circumstances of the obligation it appears
that the designation of the time when the
thing is to be delivered or the service is to
be rendered was a controlling motive for the
establishment of the contract; or
(3) When demand would be useless, as
when the obligor has rendered it beyond his
power to perform.
In reciprocal obligations, neither party incurs in
delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent

upon him. From the moment one of the parties


fulfills his obligation, delay by the other begins.
In order that the debtor may be in default it is
necessary that the following requisites be present:
(1) that the obligation be demandable and already
liquidated; (2) that the debtor delays performance;
and (3) that the creditor requires the performance
judicially or extrajudicially.33
Under Article 1193 of the Civil Code, obligations for
whose fulfillment a day certain has been fixed shall
be demandable only when that day comes.
However, no such day certain was fixed in the
MOA. Petitioners, therefore, cannot demand
performance after the three (3) year period fixed by
the MOA for the development of the first phase of
the property since this is not the same period
contemplated for the development of the subject
lots. Since the MOA does not specify a period for
the development of the subject lots, petitioners
should have petitioned the court to fix the period in
accordance with Article 119734 of the Civil Code. As
no such action was filed by petitioners, their
complaint for specific performance was premature,
the obligation not being demandable at that point.
Accordingly, Ayala Corporation cannot likewise be
said to have delayed performance of the obligation.
Even assuming that the MOA imposes an
obligation on Ayala Corporation to develop the
subject lots within three (3) years from date thereof,
Ayala Corporation could still not be held to have
been in delay since no demand was made by
petitioners for the performance of its obligation.
As found by the appellate court, petitioners' letters
which dealt with the three (3)-year timetable were
all dated prior to April 23, 1984, the date when the
period was supposed to expire. In other words, the
letters were sent before the obligation could
become legally demandable. Moreover, the letters
were mere reminders and not categorical demands
to perform. More importantly, petitioners waived the
three (3)-year period as evidenced by their agent,
Engr. Eduardo Turla's letter to the effect that
petitioners agreed that the three (3)-year period
should be counted from the termination of the case
filed by Lancer. The letter reads in part:
I. Completion of Phase I
As per the memorandum of Agreement also
dated April 23, 1981, it was undertaken by
your goodselves to complete the
development of Phase I within three (3)

years. Dr. & Mrs. Vazquez were made to


understand that you were unable to
accomplish this because of legal problems
with the previous contractor. These legal
problems were resolved as of February 19,
1987, and Dr. & Mrs. Vazquez therefore
expect that the development of Phase I will
be completed by February 19, 1990, three
years from the settlement of the legal
problems with the previous contractor. The
reason for this is, as you know, that
security-wise, Dr. & Mrs. Vazquez have
been advised not to construct their
residence till the surrounding area (which is
Phase I) is developed and occupied. They
have been anxious to build their residence
for quite some time now, and would like to
receive assurance from your goodselves
regarding this, in compliance with the
agreement.
II. Option on the adjoining lots
We have already written your goodselves
regarding the intention of Dr. & Mrs.
Vazquez to exercise their option to
purchase the two lots on each side (a total
of 4 lots) adjacent to their "Retained Area".
They are concerned that although over a
year has elapsed since the settlement of the
legal problems, you have not presented
them with the size, configuration, etc. of
these lots. They would appreciate being
provided with these at your earliest
convenience.35
Manifestly, this letter expresses not only petitioners'
acknowledgement that the delay in the
development of Phase I was due to the legal
problems with GP Construction, but also their
acquiescence to the completion of the development
of Phase I at the much later date of February 19,
1990. More importantly, by no stretch of semantic
interpretation can it be construed as a categorical
demand on Ayala Corporation to offer the subject
lots for sale to petitioners as the letter merely
articulates petitioners' desire to exercise their
option to purchase the subject lots and concern
over the fact that they have not been provided with
the specifications of these lots.
The letters of petitioners' children, Juan Miguel and
Victoria Vazquez, dated January 23, 198436 and
February 18, 198437 can also not be considered
categorical demands on Ayala Corporation to
develop the first phase of the property within the

three (3)-year period much less to offer the subject


lots for sale to petitioners. The letter dated January
23, 1984 reads in part:
You will understand our interest in the
completion of the roads to our property,
since we cannot develop it till you have
constructed the same. Allow us to remind
you of our Memorandum of Agreement, as
per which you committed to develop the
roads to our property "as per the original
plans of the company", and that
1. The back portion should have been
developed before the front portion which
has not been the case.
2. The whole project front and back
portions be completed by 1984.38
The letter dated February 18, 1984 is
similarly worded. It states:
In this regard, we would like to remind you of
Articles 5.7 and 5.9 of our Memorandum of
Agreement which states respectively:39
Even petitioner Daniel Vazquez' letter40 dated
March 5, 1984 does not make out a categorical
demand for Ayala Corporation to offer the subject
lots for sale on or before April 23, 1984. The letter
reads in part:
and that we expect from your goodselves
compliance with our Memorandum of
Agreement, and a definite date as to when
the road to our property and the
development of Phase I will be completed.41
At best, petitioners' letters can only be construed as
mere reminders which cannot be considered
demands for performance because it must appear
that the tolerance or benevolence of the creditor
must have ended.42
The petition finally asks us to determine whether
paragraph 5.15 of the MOA can properly be
construed as an option contract or a right of first
refusal. Paragraph 5.15 states:
5.15 The BUYER agrees to give the
SELLERS first option to purchase four
developed lots next to the "Retained Area"
at the prevailing market price at the time of
the purchase.43

The Court has clearly distinguished between an


option contract and a right of first refusal. An option
is a preparatory contract in which one party grants
to another, for a fixed period and at a determined
price, the privilege to buy or sell, or to decide
whether or not to enter into a principal contract. It
binds the party who has given the option not to
enter into the principal contract with any other
person during the period designated, and within
that period, to enter into such contract with the one
to whom the option was granted, if the latter should
decide to use the option. It is a separate and
distinct contract from that which the parties may
enter into upon the consummation of the option. It
must be supported by consideration.44
In a right of first refusal, on the other hand, while
the object might be made determinate, the exercise
of the right would be dependent not only on the
grantor's eventual intention to enter into a binding
juridical relation with another but also on terms,
including the price, that are yet to be firmed up.45
Applied to the instant case, paragraph 5.15 is
obviously a mere right of first refusal and not an
option contract. Although the paragraph has a
definite object, i.e., the sale of subject lots, the
period within which they will be offered for sale to
petitioners and, necessarily, the price for which the
subject lots will be sold are not specified. The
phrase "at the prevailing market price at the time of
the purchase" connotes that there is no definite
period within which Ayala Corporation is bound to
reserve the subject lots for petitioners to exercise
their privilege to purchase. Neither is there a fixed
or determinable price at which the subject lots will
be offered for sale. The price is considered certain
if it may be determined with reference to another
thing certain or if the determination thereof is left to
the judgment of a specified person or persons.46
Further, paragraph 5.15 was inserted into the MOA
to give petitioners the first crack to buy the subject
lots at the price which Ayala Corporation would be
willing to accept when it offers the subject lots for
sale. It is not supported by an independent
consideration. As such it is not governed by Articles
1324 and 1479 of the Civil Code, viz:
Art. 1324. When the offeror has allowed the
offeree a certain period to accept, the offer
may be withdrawn at any time before
acceptance by communicating such
withdrawal, except when the option is
founded upon a consideration, as
something paid or promised.

Art. 1479. A promise to buy and sell a


determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon
the promissor if the promise is supported by a
consideration distinct from the price.
Consequently, the "offer" may be withdrawn
anytime by communicating the withdrawal to the
other party.47
In this case, Ayala Corporation offered the subject
lots for sale to petitioners at the price of
P6,500.00/square meter, the prevailing market
price for the property when the offer was made on
June 18, 1990.48 Insisting on paying for the lots at
the prevailing market price in 1984 of
P460.00/square meter, petitioners rejected the
offer. Ayala Corporation reduced the price to
P5,000.00/square meter but again, petitioners
rejected the offer and instead made a counter-offer
in the amount of P2,000.00/square meter.49 Ayala
Corporation rejected petitioners' counter-offer. With
this rejection, petitioners lost their right to purchase
the subject lots.
It cannot, therefore, be said that Ayala Corporation
breached petitioners' right of first refusal and
should be compelled by an action for specific
performance to sell the subject lots to petitioners at
the prevailing market price in 1984.
WHEREFORE, the instant petition is DENIED. No
pronouncement as to costs.
SO ORDERED.