G.R. No.

146120

January 27, 2006

DEPARTMENT OF HEALTH, Petitioner,

vs.
HTMC ENGINEERS COMPANY, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari under Rule 45 of the Rules of Civil Procedure
assailing the Court of Appeals Decision denying petitioners petition for review of the
Decision of the Construction Industry Arbitration Commission (CIAC) awarding respondents
claim against petitioner in the total amount ofP4,430,174.00 with interest, as well as the
Resolution dated 20 November 2000 denying petitioners Motion for Reconsideration.
On various dates in May 1996, petitioner Department of Health (DOH) entered into four
OwnerConsultant Agreements with respondent HTMC Engineers Company (HTMC) involving
various infrastructure projects for East Avenue Medical Center, Rizal Medical Center, Amang
Rodriguez Medical Center, and Tondo Medical Center.
All four consultancy agreements for the above-named hospitals were similarly-worded,
indicating therein that said contracts were intended for the preparation of architectural and
engineering (A & E) design plans and bid documents/requirements, and for construction
supervision (CS). Moreover, Under Article 5.1 of the consultancy contracts, the professional fee
of HTMC is 7.5% of the project fund allocation.
Sometime in July and August 1996, respondent was able to complete the A & E services for all
four hospitals and the necessary documents were submitted to petitioner in accordance with
the consultancy agreements. Thus, on 07 October 1996, DOH Undersecretary Milagros L.
Fernandez issued a Memorandum Circular to the Chiefs of Hospital of the four hospitals
advising them to facilitate the payment for the Consultancy Service Contract of the 1995
various infrastructure projects of their respective hospitals once the copy of the approved
contract has been forwarded to their office. Thereafter, Arch. Ma. Rebecca Penafiel, Director
III, Health Infrastructure Services, DOH, on 15 October 1996, wrote to the Chiefs of
Hospital advising the latter that respondent had submitted the required contract
documents and were therefore requested to facilitate the corresponding payment of
70% of the consultancy fee as stipulated in the contracts.
On 29 November 1996, petitioner requested the following amendments to the
consultancy agreements pursuant to the guidelines issued by the National Economic
Development Authority (NEDA):

1. To divide the scope of works under the original contracts into two (2) separate
contracts:
a. Preparation of Detailed Architecture and Engineering Plans, Technical
Specifications and Detailed Estimates; and
b. Full time construction supervision.
2. To breakdown the original professional fee of 7.5% based on the project fund
allocation into two and to change the basis of payment, thus:
a. 6% based on the project contract cost (PCC) shall be paid to the claimant for
the 1st scope of work (A & E service); and
b. 1.5% based on the project contract cost shall be paid to the claimant for the
2nd scope of work (CS services).
3. To define the project contract cost as to the cost of the winning bid price.
In response to the proposed amendments, on 24 January 1997, HTMC sent the DOH a
position paper expressing their opinion on the matter. Among the contents of said position
paper are the following:
1. In order that the intent of the TOR (Terms of Reference), being the basis of the
award will not be disturbed, the 7.5% consultants fee for the Regular A&E and CS shall
be retained, splitting this to 6% for Regular A&E and 1.5% for CS is acceptable, on
certain qualifying breakdown and schedules, to wit:
a) The 7.5% shall be based on the a [sic] Project Contract Cost which includes
any adjustments (negative or positive variations);
b) The 6% A&E Consultants fee shall be paid in accordance with the following
payment schedule:
10% - of Project Allotment Fund, upon signing of contract
30% - to complete all payments to 40% of the roughly estimated Project
Construction Cost, upon 50% completion of design works
45% - to complete all payments to 85% of the detailed estimated
Project Construction Cost, upon completion and submission of the
contract documents

15% - to complete the payments to 100% of the Project Contact Cost,

upon periodic inspection during the construction of the project, further
broken to 10% upon 50% completion and 5% upon owners acceptance
of substantial completion
xxx
e) The 1.5% for CS shall be paid in accordance with the following terms of
payment as per industry practice:
15% - of the Project Contract Cost; upon signing of the contract.
Remaining balance shall be paid on an equal monthly installments [sic] and
within the original construction contract schedule
xxx
h) The combined 6% A&E and 1.5% CS or a total of 7.5% of the Project
Contract Cost shall be paid in accordance with the following:
10% - of the Project Allotment Fund (temporary basis), upon signing of
the contract
60% - to complete all payments to 70% of the detailed estimated
Project Construction Cost, upon completion and submission of the
contract documents
30% - to complete all payments to 100% of the Project Contract Cost,
upon completion of the construction of the project, further broken down
to 10% upon 50% completion and 20% upon owners acceptance of
substantial completion
Meanwhile, in compliance with the Memorandum Circular issued by DOH Undersecretary
Fernandez, the Amang Rodriguez Medical Center paid HTMC the amount of P1,870,312.00 on
19 December 1996, while the Rizal Medical Center paid HTMC P498,400.00 on 26 December
1996. Thereafter, the Tondo Medical Center paid respondent the amount of P2,119,687.00 on
10 February 1997, and the East Avenue Medical Center, the amount of P249,131.00 on 18
June 1997.
It would seem, however, that no clear settlement had been reached by the parties in
connection with petitioners proposed amendments to the consultancy agreements, thus, the
DOH refused to issue the necessary notices to proceed with the construction supervision in
favor of HTMC.

On 22 April 1998, respondents counsel sent a letter to the DOH stating that:
In the stated Owner-Consultant Agreements, my client had completed the Detailed
Architectural and Engineering Plans, Technical Specifications and Detailed Estimates, and was
paid 10% and 60% of the "Construction Contract Cost" as downpayment and for the completed
documents, respectively.
The above-referred projects had already been awarded to different Contractors and
construction works are on-going, but my client is not allowed to undertake the Construction
Supervision, inspite [sic] of repeated inquiry and request for the Notice to Proceed from the
DOH Infrastructure Service Office and the DOH PEAC.
The Owner-Consultant Agreement, in its Article 5, provides that the Consultants Fee is based
on the "project fund allocation" which should have been the basis of the percentages of
payments as partially done.
The documents (plans, specifications, estimates, etc.), which my client had undertaken for the
East Avenue Medical Center, include the complete Cold Water Supply Rehabilitation, Standard
Fire Protection, New Hot Water Supply and Distribution, and Improvement of Storm Drainage
System with a total estimated construction cost in 1996 of P44M. The documents, which my
client had undertaken for the Rizal Medical Center, include Phase I and Phase II with a total
estimated construction cost in 1996 of P30.68M.
The project fund allocation for the above-referred projects had a total of P91,200,000.00 with a
total Consultants Fee of P6,840,000.00 based on Article 5 of the Owner-Consultant
Agreement. However, only the gross amount ofP4,737,530.72 had been paid.
In spite of my clients various demands, you did not issue any Notice to Proceed for the
Construction Supervision of the above-referred projects, and that you insisted to pay on the
percentage basis of the construction contract cost in violation of the Owner-Consultant
Agreement.
In view of all the above, it is hereby requested that the balance of the Consultants Fee for the
above four (4) referred projects in the amount of P2,102,469.28 be paid in full to my client.
Further, it is requested that the Consultants Fee in the amount of P4,461,000.00 for the other
works undertaken by my client for the East Avenue and the Rizal Medical Centers, which are
awaiting project fund allocations, be likewise paid in full to my client.
Should you fail to settle with my client, the above-requested amounts within ten (10) days from
receipt hereof, we will be constrained to resort to Arbitration in pursuance to Article 12 of the
Owner-Consultant Agreement.

For petitioners continued refusal to heed respondents demand for payment and issuance of
notices to proceed, on 26 October 1998, HTMC filed a claim against DOH and requested for
arbitration with the CIAC.
On 30 March 1999, Arbitrator Custodio Parlade issued the assailed Decision in favor of HTMC,
the dispositive portion of which states:
AWAR D
In summary, award is hereby made in favor of the claimant ordering the respondent to pay
claimant the amount ofP3,543,630 due for A&E services, to reimburse claimant for its
expenses for salaries to the three engineers who were engaged by HTMC to perform
construction supervision work in the amount of P576,000.00, and to pay as damages
unrealized profit as a result of the non-performance of the this [sic] work in the amount
of P310,544.00 or the total amount of P4,430,174.00 with interest at the rate of 6% per annum
from the time of the promulgation of this decision and 12% per annum on the amount due
[principal plus accrued interest] from the date this decision becomes final.
All other claims are hereby denied.
On 27 April 2000, petitioner filed a petition for review on certiorari with the Court of Appeals,
which petition was subsequently denied for lack of merit by the appellate court on 28
September 2000. According to the Court of Appeals:
The instant petition is without merit.
Anent the issue of jurisdiction, respondent arbitrator correctly assumed jurisdiction over CIAC
Case No. 33-98. The owner-consultant agreement provides in paragraphs 12.1 and 12.2:
12.1 Disputes
Any dispute concerning any question arising under this Agreement which is not disposed of by
agreement between the parties, shall be decided by the Secretary of Health who shall furnish
the CONSULTANT a written copy of his decision.
12.2 Arbitration
The decision of the Secretary of Health shall be final and conclusive unless within thirty (30)
days from the date of receipt thereof, the CONSULTANT shall deliver to OWNER a written
notice addressed to the Secretary of Health stating its desire to submit the controversy to
arbitration. In such event, the dispute shall be decided in accordance with the provisions of the
Rules of Procedure in the Construction Industry Arbitration Law under EO 1008.

Thus, when petitioner continued not to act on HTMCs request for the observance of the
provisions of the agreement, private respondent HTMC properly submitted the claim with the
CIAC for arbitration.
Petitioners posture that the referral of the case to the CIAC is premature deserves scant
consideration. Respondent had demanded that petitioner comply with the agreement. The
latter, through the Secretary of Health, failed to act on the request. Later, a demand letter was
sent to petitioner. Still, it did not comply. Thus, in order to protect its right, HTMC properly
submitted its claim with the CIAC, it being the eventual forum of their agreement as mandated
by E.O. No. 1008.
Petitioners reliance and interpretation of the Supreme Courts ruling in Jesco Services
Incorporated vs. Vera is misplaced. The same was clarified in a subsequent resolution of the
Third Division of the Supreme Court dated September 30, 1996 in G.R. No. 125706 entitled
"China Chang Jiang Energy Corporation (Philippines) versus Rosal Infrastructure Builders,
represented by its General Manager, Alberto S. Surla, Construction Industry Arbitration
Commission, Prudencio F. Baranda, and the Court of Appeals." In effect, the owner-consultant
agreement entered into by petitioner and private respondents did not divest CIAC of jurisdiction
over the case. For even if they elected another forum, their agreement will remain to be within
the jurisdiction of CIAC. In so doing, they may not unilaterally divest CIAC of its jurisdiction as
provided for by law.
Coming now to the monetary award made by respondent arbitrator. We find the same to be in
accord with the tenor of the agreement of the parties. The agreement being the law between
them, the Court will leave it as it is. Absent any abuse in the mathematical computation of the
monetary award, the same should be respected. In the present case, the computation is based
on the provisions of the agreement entered into by the parties.
Anent the allegation of partiality on the part of respondent arbitrator, there is nothing on record
that would show that respondent arbitrator had tilted the scales of justice. The regularity in the
conduct of official duties must therefore be continued to be presumed, as no act of irregularity
much less partiality has been shown. The insinuations against respondent arbitrator [are]
without basis.
In view of the foregoing, this Court finds it unnecessary to have the present case consolidated
with CA G.R. SP No. 58994, as this would unnecessarily delay the decision in this case.
WHEREFORE, the instant petition is hereby DENIED due course for lack of merit.
Petitioners Motion for Reconsideration was also denied in a Resolution issued by the appellate
court on 20 November 2000.
Hence, the instant petition containing two issues for consideration of this Court, to wit:

I. Whether or not the Court of Appeals erred in stating that the Construction Industry
Arbitration Commission (CIAC) had jurisdiction over the claim;
II. Whether or not the Court of Appeals erred in stating that the monetary award by the
CIAC arbitrator was in accord with the tenor of the consultancy agreements.
We find no merit in the instant petition.
Contrary to the claim of the DOH, CIAC has jurisdiction over the claim of HTMC. As stated in
Section 4 of Executive Order No. 1008, also known as the "Construction Industry Arbitration
Law":
SECTION 4. Jurisdiction. The CIAC shall have original and exclusive jurisdiction over
disputes arising from, or connected with, contracts entered into by parties involved in
construction in the Philippines, whether the disputes arises before or after the completion of
the contract, or after the abandonment or breach thereof. These disputes may involve
government or private contracts. For the Board to acquire jurisdiction, the parties to a dispute
must agree to submit the same to voluntary arbitration.
Furthermore, Article III, Section 1 of the CIAC Rules of Procedure Governing Construction
Arbitration provides:
SECTION 1. Submission to CIAC Jurisdiction An arbitration clause in a construction contract
or a submission to arbitration of a construction dispute shall be deemed an agreement to
submit an existing or future controversy to CIAC jurisdiction, notwithstanding the reference to a
different arbitration institution or arbitral body in such contract or submission. When a contract
contains a clause for the submission of a future controversy to arbitration, it is not necessary
for the parties to enter into a submission agreement before the claimant may invoke the
jurisdiction of CIAC.
It is undisputed that Article 12 of the four similarly-worded consultancy agreements provides for
submission to arbitration of any dispute arising from said agreements. Said Article states:
ARTICLE 12. DISPUTES, ARBITRATION, AND TERMINATION
12.1 Disputes
Any dispute concerning any question arising under this Agreement which is not disposed of by
agreement between the parties, shall be decided by the Secretary of Health who shall furnish
the CONSULTANT a written copy of his decision.
12.2 Arbitration

The decision of the Secretary of Health shall be final and conclusive unless within thirty (30)
days from the date of receipt thereof, the CONSULTANT shall deliver to OWNER a written
notice addressed to the Secretary of Health stating its desire to submit the controversy to
arbitration. In such event, the dispute shall be decided in accordance with the provisions of the
Rules of Procedure in the Construction Industry Arbitration Law under EO 1008.
Therefore, upon the signing of said agreements in May 1996 by DOH and HTMC, both parties
have explicitly agreed that after a dispute arising from said agreements has been passed upon
by the Health Secretary, said controversy involving the consultancy agreements shall be
submitted to voluntary arbitration, jurisdiction over which is granted by law to the CIAC.
From the facts of the case, it is clear that prior to the filing of the controversy for arbitration
before the CIAC, HTMC, through counsel, had repeatedly appealed the matter before the
DOH, through the Department Secretary, but the latter failed to act upon HTMCs request. In
the letter sent to the DOH by HTMC dated 22 April 1998, it was even made clear that should
the DOH fail to address HTMCs requests, the latter shall resort to arbitration in pursuance to
the provisions of the consultancy agreements. Thus, We agree in the conclusion of the
appellate court that when petitioner continued not to act on HTMCs request for the observance
of the provisions of the agreement, respondent HTMC properly submitted the claim with the
CIAC for arbitration. As correctly stated by the Court of Appeals, petitioners posture that the
referral of the case to the CIAC is premature deserves scant consideration. Respondent had
demanded that petitioner comply with the agreement. The latter, through the Secretary of
Health, failed to act on the request. Later, a demand letter was sent to petitioner. Still, it did not
comply. Thus, in order to protect its right, HTMC properly submitted its claim with the CIAC, it
being the eventual forum of their agreement as mandated by E.O. No. 1008.
From the argument espoused by the DOH in its petition that there was no basis for the
continuation of the agreement as respondent failed to signify its intention to agree with the
amended contract, it seems that petitioner is belaboring under the mistaken notion that
HTMCs refusal to accede to the formers request for amendment of the consultancy contracts
resulted in the rescission of the original agreements, and that such rescission gave the DOH
and its personnel the right to take over the construction supervision of the projects and to
refuse the payment of any amount due HTMC under the agreements.
It must be stressed at this point that HTMCs failure to accept the amendment proposed by the
DOH did not, in any way, affect the validity and the subsistence of the four consultancy
contracts which bound both parties upon its perfection as early as May 1996. A contract
properly executed between parties continue to be the law between said parties and should be
complied with in good faith. There being a perfected contract, DOH cannot revoke or renounce
the same without the consent of the other party. Just as nobody can be forced to enter into a
contract, in the same manner, once a contract is entered into, no party can renounce it
unilaterally or without the consent of the other. It is a general principle of law that no one may
be permitted to change his mind or disavow and go back upon his own acts, or to proceed

contrary thereto, to the prejudice of the other party. As no revision to the original agreement
was ever arrived at, the terms of the original contract shall continue to govern over both the
HTMC and the DOH with respect to the infrastructure projects as if no amendments were ever
initiated. In the absence of a new perfected contract between HTMC and DOH, both parties
shall continue to be bound by the stipulations of the original contract and all its natural effects.
Based on the preceding discussion, We have established that the perfected consultancy
agreements between DOH and HTMC are valid, and therefore, under the stipulations
contained therein, DOH is under obligation to pay HTMC the unpaid sum of its consultancy
fees which according to the findings of the CIAC, as affirmed by the appellate court, amounts
to P3, 543, 630.00.
Furthermore, as has been stressed earlier, from the moment of perfection, the parties are
bound not only to the fulfillment of what has been expressly stipulated, but also to all the
consequences which, according to their nature may be in keeping with good faith, usage, and
law, thus, for the refusal of the DOH to issue the necessary notices to proceed, effectively
preventing HTMC from performing the construction supervision on the infrastructure projects,
DOH must be held liable for any damages or expense incurred by HTMC as a natural result of
any breach of the consultancy contract. Therefore, we agree in the findings of both the CIAC
and the appellate court in awarding damages in the form of unrealized profit as a result of the
non-performance of the construction supervision and in granting reimbursement for the
expenses for salaries of the three engineers engaged by HTMC for the supposed construction
supervision.
Lastly, in its Memorandum, petitioner assails, for the first time, the validity of the consultancy
agreements for the alleged failure of respondent to include in the contracts a certification of
availability of funds as required under existing laws. However, at this late a stage in the
proceedings, said issue not having been raised before the CIAC nor the Court of Appeals, fair
play, justice and due process dictate that this Court cannot now, for the first time on appeal,
pass upon this question. They must be raised seasonably in the proceedings before the lower
court.Questions raised on appeal must be within the issues framed by the parties;
consequently, issues not raised before the trial court cannot be raised for the first time on
appeal.
WHEREFORE, premises considered, the petition is hereby DENIED. The Decision of the Court
of Appeals in CA-G.R. SP No. 52539 affirming the decision of the Construction Industry
Arbitration Commission in CIAC Case No. 33-98 awarding respondent HTMC its claim for
payment of A & E services in the amount of P3,543,630.00, reimbursement for the salaries of
the three engineers engaged by HTMC to perform construction supervision in the amount
of P576,000.00, and damages in the form of unrealized profit in the amount of P310,544.00, or
the total amount of P4,430,174.00 with interest, is hereby AFFIRMED. No Costs.
SO ORDERED.

G.R. No. 156841

June 30, 2005

GF EQUITY, INC., petitioner,

vs.
ARTURO VALENZONA, respondent.
DECISION
CARPIO-MORALES, J.:
On challenge via Petition for Review on Certiorari is the Court of Appeals October 14, 2002
Decision reversing that of the Regional Trial Court (RTC) of Manila dated June 28, 1997 which
dismissed the complaint of herein respondent Arturo Valenzona (Valenzona) for breach of
contract with damages against herein petitioner GF Equity, Inc. (GF Equity).
The factual antecedents of the case are as follows:
GF Equity, represented by its Chief Financial Officer W. Steven Uytengsu (Uytengsu), hired
Valenzona as Head Coach of the Alaska basketball team in the Philippine Basketball
Association (PBA) under a Contract of Employment.
As head coach, the duties of Valenzona were described in the contract to include the following:
xxx
1. . . . coaching at all practices and games scheduled for the CORPORATIONs TEAM
during the scheduled season of the ASSOCIATION . . ., coaching all exhibition
games scheduled by the corporation as approved by the PBA during and prior to the
scheduled season, coaching (if invited to participate) in the ASSOCIATIONs All Star
Game and attending every event conducted in association with the All Star
Game,and coaching the play-off games subsequent to the scheduled season based on
the athletic program of the PBA.
xxx
3. The COACH agrees to observe and comply with all requirements of the
CORPORATION respecting conduct of its TEAM and its players, at all times whether
on or off the playing floor. The CORPORATION may, from time to time during the
continuance of this contract, establish reasonable rules for the government of its
players "at home" and "on the road"; and such rules shall be part of this contract as

fully is (sic) if herein written and shall be the responsibility of the COACH to implement;
xxx
4. The COACH agrees (a) to report at the time and place fixed by the CORPORATION
in good physical condition; (b) to keep himself throughout the entire season in good
physical condition; (c) to give his best services, as well as his loyalty to the
CORPORATION, and to serve as basketball coach for the CORPORATION and its
assignees; (d) to be neatly and fully attired in public and always to conduct himself on
and off the court according to the highest standards of honesty, morality, fair play and
sportsmanship; (e) not to do anything which is detrimental to the best interests of the
CORPORATION.
xxx
7. The COACH agrees that if so requested by the CORPORATION, he will endorse the
CORPORATIONs products in commercial advertising, promotions and the like. The
COACH further agrees to allow the CORPORATION or the ASSOCIATION to take
pictures of the COACH alone or together with others, for still photographs, motion
pictures or television, at such times as the CORPORATION or the ASSOCIATION may
designate, and no matter by whom taken may be used in any manner desired by either
of them for publicity or promotional purposes. (Underscoring supplied).
xxx
Even before the conclusion of the contract, Valenzona had already served GF Equity under a
verbal contract by coaching its team, Hills Brothers, in the 3rd PBA Conference of 1987 where
the team was runner-up.
Under the contract, GF Equity would pay Valenzona the sum of Thirty Five Thousand Pesos
(P35,000.00) monthly, net of taxes, and provide him with a service vehicle and gasoline
allowance.
While the employment period agreed upon was for two years commencing on January 1, 1988
and ending on December 31, 1989, the last sentence of paragraph 3 of the contract carried the
following condition:
3. x x x If at any time during the contract, the COACH, in the sole opinion of the
CORPORATION, fails to exhibit sufficient skill or competitive ability to coach the team, the
CORPORATION may terminate this contract. (Emphasis supplied)
Before affixing his signature on the contract, Valenzona consulted his lawyer who pointed out
the one-sidedness of the above-quoted last sentence of paragraph 3 thereof.
The caveat notwithstanding, Valenzona still acceded to the terms of the contract because he

had trust and confidence in Uytengsu who had recommended him to the management of GF
Equity.
During his stint as Alaskas head coach, the team placed third both in the Open and All-Filipino
PBA Conferences in 1988.
Valenzona was later advised by the management of GF Equity by letter of September 26, 1988
of the termination of his services in this wise:
We regret to inform you that under the contract of employment dated January 1, 1988
we are invoking our rights specified in paragraph 3.
You will continue to be paid until your outstanding balance which, as of September 25, 1988,
is P75,868.38 has been fully paid.
Please return the service vehicle to my office no later than September 30, 1988. (Emphasis
supplied)
Close to six years after the termination of his services, Valenzonas counsel, by letter of July
30, 1994,demanded from GF Equity payment of compensation arising from the arbitrary and
unilateral termination of his employment. GF Equity, however, refused the claim.
Valenzona thus filed on September 26, 1994 before the Regional Trial Court of Manila a
complaint against GF Equity for breach of contract with damages, ascribing bad faith, malice
and "disregard to fairness and to the rights of the plaintiff" by unilaterally and arbitrarily preterminating the contract without just cause and legal and factual basis. He prayed for the
award of actual damages in the amount of P560,000.00 representing his unpaid compensation
from September 26, 1988 up to December 31, 1989, at the rate of P35,000.00 a month; moral
damages in the amount of P100,000.00; exemplary damages in the amount of P50,000.00;
attorneys fees in the amount of P100,000.00; and costs of suit.
Before the trial court, Valenzona challenged the condition in paragraph 3 of the contract as
lacking the element of mutuality of contract, a clear transgression of Article 1308 of the New
Civil Code, and reliance thereon, he contended, did not warrant his unjustified and arbitrary
dismissal.
GF Equity maintained, on the other hand, that it merely exercised its right under the contract to
pre-terminate Valenzonas employment due to incompetence. And it posited that he was guilty
of laches and, in any event, his complaint should have been instituted before a labor arbiter.
The trial court, upholding the validity of the assailed provision of the contract, dismissed, by
decision of June 28, 1997, the complaint of Valenzona who, it held, was fully aware of entering
into a bad bargain.

The Court of Appeals, before which Valenzona appealed, reversed the trial courts decision, by
decision of October 14, 2002, and accordingly ordered GF Equity to pay him damages.
In its decision, the appellate court held that the questioned provision in the contract "merely
confers upon GF Equity the right to fire its coach upon a finding of inefficiency, a valid reason
within the ambit of its management prerogatives, subject to limitations imposed by law,
although not expressly stated in the clause"; and
"the rightgranted in the contract can neither be said to be immoral, unlawful, or contrary to publi
c policy." It concluded, however, that while "the mutuality of the clause" is evident, GF Equity
"abused its right by arbitrarily terminating . . . Valenzonas employment and opened itself to a
charge of bad faith." Hence, finding that Valenzonas claim for damages is "obviously . . .
based on Art. 19 of the Civil Code" which provides:
Art. 19. Every person must, in the exercise of his rights and in the performance of his duties,
act with justice, give everyone his due, and observe honesty and good faith.,
the appellate court awarded Valenzona the following damages, furnishing the justification
therefor:
. . . a) Compensatory damages representing his unearned income for 15 months. Actual and
compensatory damages are those recoverable because of a pecuniary loss in business, trade,
property, profession, job or occupation. As testified, his employment contract provided a
monthly income of PhP35,000, which he lost from September 26, 1988 up to December 31,
1989 as a consequence of his arbitrary dismissal; b) Moral damages of PhP20,000. The act
caused wounded feelings on the part of the plaintiff. Moral damages is recoverable under
Article 2220 and the chapter on Human Relations of the Civil Code (Articles 1936) when a
contract is breached in bad faith; c) Exemplary damages of PhP20,000, by way of example or
correction for the public good; and d) When exemplary damages are awarded, attorneys fees
can also be given. We deem it just to grant 10% of the actual damages as attorneys fees.
(Underscoring supplied)
Hence, this petition at bar, GF Equity faulting the appellate court in
. . . CONCLUD[ING] WRONGLY FROM ESTABLISHED FACTS IN A MANNER VIOLATIVE OF
APPLICABLE LAWS AND ESTABLISHED JURISPRUDENCE.
GF Equity argues that the appellate court committed a non-sequitur when it agreed with the
findings of fact of the lower court but reached an opposite conclusion. It avers that the
appellate court made itself a guardian of an otherwise intelligent individual well-versed in
tactical maneuvers; that the freedom to enter into contracts is protected by law, and the courts
will not interfere therewith unless the contract is contrary to law, morals, good customs, public
policy or public order; that there was absolutely no reason for the appellate court to have found

bad faith on its part; and that, at all events, Valenzona is guilty of laches for his unexplained
inaction for six years.
Central to the resolution of the instant controversy is the determination of whether the
questioned last sentence of paragraph 3 is violative of the principle of mutuality of contracts.
Mutuality is one of the characteristics of a contract, its validity or performance or compliance of
which cannot be left to the will of only one of the parties. This is enshrined in Article 1308 of
the New Civil Code, whose underlying principle is explained in Garcia v. Rita Legarda,
Inc., viz:
Article 1308 of the New Civil Code reads as follows:
"The contract must bind both contracting parties; its validity or compliance cannot be left to the
will of one of them."
The above legal provision is a virtual reproduction of Article 1256 of the old Civil Code but it
was so phrased as to emphasize the principle that the contract must bind both parties. This, of
course is based firstly, on the principle that obligations arising from contracts have the force of
law between the contracting parties and secondly, that there must be mutuality between the
parties based on their essential equality to which is repugnant to have one party bound
by the contract leaving the other free therefrom (8 Manresa 556). Its ultimate purpose
is to render void a contract containing a condition which makes its fulfillment
dependent exclusively upon the uncontrolled will of one of the contracting parties.
x x x (Emphasis, italics and underscoring supplied)
The ultimate purpose of the mutuality principle is thus to nullify a contract containing a
condition which makes its fulfillment or pre-termination
dependent exclusively upon the uncontrolled will of one of the contracting parties.
Not all contracts though which vest to one party their determination of validity or compliance or
the right to terminate the same are void for being violative of the mutuality principle.
Jurisprudence is replete with instances of cases where this Court upheld the legality of
contracts which left their fulfillment or implementation to the will of either of the parties. In
these cases, however, there was a finding of the presence of essential equality of the
parties to the contracts, thus preventing the perpetration of injustice on the weaker
party.
In the case at bar, the contract incorporates in paragraph 3 the right of GF Equity to preterminate the contract that "if the coach, in the sole opinion of the corporation, fails to exhibit
sufficient skill or competitive ability to coach the team, the corporation may terminate the
contract." The assailed condition clearly transgresses the principle of mutuality of contracts. It

leaves the determination of whether Valenzona failed to exhibit sufficient skill or competitive
ability to coach Alaska team solely to the opinion of GF Equity. Whether Valenzona indeed
failed to exhibit the required skill or competitive ability depended exclusively on the judgment of
GF Equity. In other words, GF Equity was given an unbridled prerogative to pre-terminate the
contract irrespective of the soundness, fairness or reasonableness, or even lack of basis of its
opinion.
To sustain the validity of the assailed paragraph would open the gate for arbitrary and illegal
dismissals, for void contractual stipulations would be used as justification therefor.
The assailed stipulation being violative of the mutuality principle underlying Article 1308 of the
Civil Code, it is null and void.
The nullity of the stipulation notwithstanding, GF Equity was not precluded from the right to
pre-terminate the contract. The pre-termination must have legal basis, however, if it is to be
declared justified.
GF Equity failed, however, to advance any ground to justify the pre-termination. It simply
invoked the assailed provision which is null and void.
While GF Equitys act of pre-terminating Valenzonas services cannot be considered willful as it
was based on a stipulation, albeit declared void, it, in doing so, failed to consider the abuse of
rights principle enshrined in Art. 19 of the Civil Code which provides:
Art. 19. Every person must, in the exercise of his rights and in the performance of his duties,
act with justice, give everyone his due, and observe honesty and good faith.
This provision of law sets standards which must be observed in the exercise of ones
rights as well as in the performance of its duties, to wit: to act with justice; give every one his
due; and observe honesty and good faith.
Since the pre-termination of the contract was anchored on an illegal ground, hence, contrary to
law, and GF Equity negligently failed to provide legal basis for such pre-termination, e.g. that
Valenzona breached the contract by failing to discharge his duties thereunder, GF Equity failed
to exercise in a legitimate manner its right to pre-terminate the contract, thereby abusing the
right of Valenzona to thus entitle him to damages under Art. 19 in relation to Article 20 of the
Civil Code the latter of which provides:
Art. 20. Every person who, contrary to law, willfully or negligently causes damage to another,
shall indemnify the latter for the same.
In De Guzman v. NLRC, this Court quoted the following explanation of Tolentino why it is
impermissible to abuse our rights to prejudice others.

The exercise of a right ends when the right disappears, and it disappears when it is abused,
especially to the prejudice of others. The mask of a right without the spirit of justice which gives
it life is repugnant to the modern concept of social law. It cannot be said that a person
exercises a right when he unnecessarily prejudices another or offends morals or good
customs. Over and above the specific precepts of positive law are the supreme norms of
justice which the law develops and which are expressed in three principles: honeste
vivere, alterum non laedere and jus suum quique tribuere; and he who violates them violates
the law. For this reason, it is not permissible to abuse our rights to prejudice others.
The disquisition in Globe Mackay Cable and Radio Corporation v. Court of Appeals is
just as relevant as it is illuminating on the present case. In that case, this Court declared
that even granting that the therein petitioners might have had the right to dismiss the
therein respondent from work, the abusive manner in which that right was exercised
amounted to a legal wrong for which the petitioners must be held liable.
One of the more notable innovations of the New Civil Code is the codification of "some basic
principles that are to be observed for the rightful relationship between human beings and for
the stability of the social order." [REPORT ON THE CODE COMMISSION ON THE
PROPOSED CIVIL CODE OF THE PHILIPPINES, p. 39]. The framers of the Code, seeking to
remedy the defect of the old Code which merely stated the effects of the law, but failed to draw
out its spirit, incorporated certain fundamental precepts which were "designed to indicate
certain norms that spring from the fountain of good conscience" and which were also meant to
serve as "guides for human conduct [that] should run as golden threads through society, to the
end that law may approach its supreme ideal, which is the sway and dominance of
justice" (Id.) Foremost among these principles is that pronounced in Article 19 which provides:
Art. 19. Every person must, in the exercise of his rights and in the performance of his duties,
act with justice, give everyone his due, and observe honesty and good faith.
This article, known to contain what is commonly referred to as the principle of abuse of rights,
sets certain standards which must be observed not only in the exercise of one's rights but also
in the performance of one's duties. These standards are the following: to act with justice; to
give everyone his due; and to observe honesty and good faith. The law, therefore, recognizes
a primordial limitation on all rights; that in their exercise, the norms of human conduct set forth
in Article 19 must be observed. A right, though by itself legal because recognized or
granted by law as such, may nevertheless become the source of some illegality. When a
right is exercised in a manner which does not conform with the norms enshrined in
Article 19 and results in damage to another, a legal wrong is thereby committed for
which the wrongdoer must be held responsible. But while Article 19 lays down a rule of
conduct for the government of human relations and for the maintenance of social order, it does
not provide a remedy for its violation. Generally, an action for damages under either Article 20
or Article 21 would be proper. Emphasis and underscoring supplied).

As for GF Equitys defense of laches on account of Valenzonas invocation of his right under
the contract only after the lapse of six years, the same fails.
Laches has been defined as the failure or neglect for an unreasonable and unexplained length
of time to do that which by exercising due diligence, could or should have been done earlier,
thus giving rise to a presumption that the party entitled to assert it either has abandoned or
declined to assert it. It is not concerned with mere lapse of time; the fact of delay, standing
alone, is insufficient to constitute laches.
Laches applies in equity, whereas prescription applies at law. Our courts are basically courts of
law, not courts of equity. Laches cannot thus be invoked to evade the enforcement of an
existing legal right. Equity, which has been aptly described as a "justice outside legality," is
applied only in the absence of, and never against, statutory law.Aequetas nunquam
contravenit legis. Thus, where the claim was filed within the statutory period of prescription,
recovery therefor cannot be barred by laches. The doctrine of laches should never be applied
earlier than the expiration of time limited for the commencement of actions at law, unless, as a
general rule, inexcusable delay in asserting a right and acquiescense in existing conditions are
proven. GF Equity has not proven, nay alleged, these.
Under Article 1144 of the New Civil Code, an action upon a written contract must be brought
within 10 years from the time the right of action accrues. Since the action filed by Valenzona is
an action for breach upon a written contract, his filing of the case 6 years from the date his
cause of action arose was well within the prescriptive period, hence, the defense of laches
would not, under the circumstances, lie.
Consequently, Valenzona is entitled to recover actual damages his salary which he should
have received from the time his services were terminated up to the time the employment
contract expired.
As for moral damages which the appellate court awarded, Article 2220 of the New Civil Code
allows such award to breaches of contract where the defendant acted fraudulently or in bad
faith. Malice or bad faith implies a conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity. It contemplates a state of mind affirmatively operating
with furtive design or ill-will. Bad faith means a breach of a known duty through some motive of
interest or ill will. It must, however, be substantiated by evidence. Bad faith under the law
cannot be presumed, it must be established by clear and convincing evidence.
As earlier stated, however, the pre-termination of the contract was not willful as GF Equity
based it on a provision therein which is void. Malice or bad faith cannot thus be ascribed to GF
Equity.
The unbroken jurisprudence is that in breach of contract cases where a party is not shown to
have acted fraudulently or in bad faith, liability for damages is limited to the natural and

probable consequences of the breach of the obligation which the parties had foreseen or could
reasonably have foreseen. The damages, however, do not include moral damages.
The award by the appellate court of moral damages must thus be set aside. And so must the
award of exemplary damages, absent a showing that GF Equity acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner.
The award to Valenzona of attorneys fees must remain, however, GF Equity having refused to
pay the balance of Valenzonas salaries to which he was, under the facts and circumstances of
the case, entitled under the contract, thus compelling him to litigate to protect his interest.
WHEREFORE, the decision of the Court of Appeals dated October 14, 2002 is hereby SET
ASIDE and another rendered declaring the assailed provision of the contract NULL AND VOID
and ORDERING petitioner, GF Equity, to pay private respondent, Arturo Valenzona, actual
damages in the amount of P525,000.00 and attorneys fees in the amount of P60,000.00.
Costs against petitioner.
SO ORDERED.

G.R. No. L-65425 November 5, 1987

IRENEO LEAL, JOSE LEAL, CATALINA LEAL, BERNABELA LEAL, VICENTE LEAL
EUIOGIA LEAL PATERNO RAMOS, MACARIO DEL ROSARIO, MARGARITA ALBERTO,
VICTORIA TORRES, JUSTINA MANUEL, JULIAN MANUEL, MELANIA SANTOS,
CLEMENTE SAMARIO, MARIKINA VALLEY, INC., MIGUELA MENDOZA, and REGISTER
OF DEEDS OF RIZAL, petitioners,
vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT (4th Civil Cases Division), and
VICENTE SANTIAGO (Substituted by SALUD M. SANTIAGO), respondents.

SARMIENTO, J.:
In its resolution dated September 27, 1983, the respondent Intermediate Appellate
Court, 1 speaking through Justice Porfirio V, Sison, ordered, in part, the petitioners to accept the sum of P5,600.00 from the
private respondent as repurchase price of the lots described in the "Compraventa" and, thereafter, to execute a Deed of Repurchase
to effect transfer over ownership over the same properties to the private respondent.

This ruling was a complete reversal of the earlier decision, 2 dated June 28, 1.978, penned by
Justice Paras, of the Court of Appeals, in the same case, affirming the trial court's dismissal of the
private respondent's complaint.
The petitioners, feeling aggrieved and astonished by the complete turnaround of the
respondent court, come to Us with this petition for review by certiorari.
The antecedent facts are undisputed.
This case brings us back almost half a century ago, on March 21, 1941, when a document
entitled "Compraventa," written entirely in the Spanish language, involving three parcels of
land, was executed by the private respondent's predecessors-in-interest, Vicente Santiago and
his brother, Luis Santiago, in favor of Cirilio Leal the deceased father of some of the
petitioners, Pursuant to this "Compraventa," the title over the three parcels of land in the name
of the vendors was cancelled and a new one was issued in the name of Cirilo Leal who
immediately took possession and exercised ownership over the said lands. When Cirilo died
on December 10, 1959, the subject lands were inherited by his six children, who are among
the petitioners, and who caused the consolidation and subdivision of the properties among
themselves.
Between the years 1960 and 1965, the properties were either mortgaged or leased by the
petitioners-children of Cirilo Leal to their co-petitioners.
Sometime before the agricultural year 1966-1967, Vicente Santiago approached the petitioners
and offered re- repurchase the subject properties. Petitioners, however, refused the offer.
Consequently, Vicente Santiago instituted a complaint for specific performance before the then
Court of First Instance of Quezon City on August 2, 1967.
All the trial, the court a quo rendered its decision,-dismissing the complaint on the ground that
the same was still premature considering that there was, as yet, no sale nor any alienation
equivalent to a sale. Not satisfied with this decision, the private respondent appealed to the
Court of Appeals and the latter, acting through the Fourth Division and with Justice Edgardo
Paras as ponente affirmed the decision of the court a quo.
The petitioners seasonably filed a motion to amend the dispositive portion of the decision so as
to include an order for the cancellation of the annotations at the back of the Transfer
certificates of Title issued in their favor. The private respondent,-on the other hand, filed atimely motion for reconsideration of the above decision and an opposition to petitioners' motion
to amend. These incidents were not resolved until then Court of Appeals was abolished and in
lieu of which the Intermideate Appellate Court was established In view of the said
reorganization, case was reassigned to the Fourth Civil in this cases Division.

Resolving the abovestated motion for reconsideration, the respondent court, in a resolution
penned by Justice Sison and promulgated on September 27, 1983, ruled, as follows:
WHEREFORE, Our decision of June 28, 1978 is hereby reversed and set aside
and another one is rendered ordering: (1) defendants-appellees surnamed Leal
to accept the sum of P5,600.00 from plaintiff-appellant (substituted by Salud M.
Santiago) as repurchase price of the lots described in the "Compraventa" of
March 21, 1941, and thereafter to execute a deed of repurchase sufficient in
law to transfer ownership of the properties to appellant Salud M. Santiago, the
same to be done within five (5) days from payment; (2) ordering the same
defendants Leals and defendant Clemente Samario to indemnify appellant in
the sum of P3,087.50 as rental for the year 1967-1968 and the same amount
every year thereafter; (3) ordering an the defendants jointly and severally to
pay the sum of Pl,500.00 as attorney's fees and other expenses of litigation;
and (4) ordering defendant Register of Deeds of Rizal to cancel Transfer
Certificate of Title No. 42535 in the names of Vicente Santiago and Luis
Santiago upon presentation of the deed of sale herein ordered to be executed
by the appellees in favor of Salud M. Santiago and to issue thereof another
Transfer Certificate of Title in the name alone of Salud M. Santiago. No costs
here and in the courts (sic) below.
SO ORDERED.
Verily, the well-spring whence the present controversy arose is the abovementioned
"Compraventa," more particularly paragraph (b) thereof, to wit:
xxx xxx xxx
(b) En caso de venta, no podran vender a otros dichos tres lotes de terreno
sino al aqui vendedor Vicente Santiago, o los herederos o sucesores de este
por el niismo precio de CINCO MIL SEISCIENTOS PESOS (P5,600.00)
siempre y cuando estos ultimos pueden hacer la compra. 3
xxx xxx xxx

which is now the subject of varying and conflicting interpretations.

xxx xxx xxx
It is admitted by both parties that the phrase "they shall not sell to others these three lots but
only to the seller Vicente Santiago or to his heirs or successors" is an express prohibition
against the sale of the lots described in the "Compraventa" to third persons or strangers to the
contract. However, while private respondent naturally lauds the resolution of Justice Sison,

which sustains the validity of this prohibition, the petitioners, on the other hand, endorse the
decision penned by Justice Paras, which states, in part:
xxx xxx xxx
Finally, there is grave doubt re the validity of the ostensible resolutory condition
here, namely, the prohibition to sell the lots to persons other than the vendor
(appellant); uncertainly, a prohibition to alienate should not exceed at most a
period of twenty years, otherwise there would be subversion of public policy,
which naturally frowns on unwarranted restrictions on the right of ownership. 4
xxx xxx xxx

We agree with the Paras ponencia.

Contracts are generally binding between the parties, their assigns and heirs; however, under
Art. 1255 of the Civil Code of Spain, which is applicable in this instance, pacts, clauses, and
conditions which are contrary to public order are null and void, thus, without any binding effect.
Parenthetically, the equivalent provision in the Civil Code of the Philippines is that of Art. 1306,
which states: "That 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. Public order signifies the public weal public
policy. 5 Essentially, therefore, public order and public policy mean one and the same thing. Public
policy is simply the English equivalent of "order publico" in Art. 1255 of the Civil Code of Spain. 6
One such condition which is contrary to public policy is the present prohibition to self
to third parties, because the same virtually amounts to a perpetual restriction to the
right of ownership, specifically the owner's right to freely dispose of his properties. This,
we hold that any such prohibition, indefinite and stated as to time, so much so that it shall
continue to be applicable even beyond the lifetime of the original parties to the contract, is,
without doubt, a nullity. In the light of this pronouncement, we grant the petitioners' prayer for
the cancellation of the annotations of this prohibition at the back of their Transfer Certificates
'Title.
It will be noted, moreover, that the petitioners have never sold, or even attempted to sell, the
properties subject of the "Compraventa. "
We now come to what we believe is the very issue in this case which is, whether or not under
the aforequoted paragraph (b) of the "Compraventa" a right of repurchase in favor of the
private respondent exist.

The ruling of the Fourth Division (Justice Paras) is that the said stipulation does not grant a
right to repurchase. Contrarily, the resolution of the Fourth Civil Cases Division (Justice P. V.
Sison) interpreted the same provision as granting the right to repurchase subject to a condition
precedent.
Thus, the assailed Resolution, reversing the earlier decision of the same respondent court,
ruled
xxx xxx xxx
The all-importartant phrase "en caso de venta," must of necessity refer to the
sale of the properties either by Cirilo or his heirs to the Santiago brothers
themselves or to their heirs, including appellants Vicente Santiago including
appellants Vicente Santiago and Salud M Santiago, for the same sum of
P5,600.00, "siempre y cuando estos ultimos pueden hacer la compra" (when
the latter shall be able to buy it).
xxx xxx xxx
... We repeat, The words envision the situation contemplated by the contracting
parties themselves, the resale of the lots to their owners, and NOT to a sale of
the lots to third parties or strangers to the contracts. ... 7
xxx xxx xxx

The law provides that for conventional redemption to take place, the vendor should reserve, in
no uncertain terms, the right to repurchase the thing sold. 8 Thus, the right to redeem must be
expressly stipulated in the contract of sale in order that it may have legal existence.
In the case before us, we cannot and any express or implied grant of a right to repurchase, nor
can we infer, from any word or words in the questioned paragraph, the existence of any such
right. The interpretation in the resolution (Justice Sison) is rather strained. The phrase "in case
case" of should be construed to mean "should the buyers wish to sell which is the plain and
simple import of the words, and not "the buyers should sell," which is clearly a contorted
construction of the same phrase. The resort to Article 1373 of the Civil Code of the Philippines
is erroneous. The subject phrase is patent and unambiguous, hence, it must not be given
another interpretation
But even assuming that such a right of repurchase is granted under the "Compraventa," the
petitioner correctly asserts that the same has already prescribed. Under Art. 1508 of the Civil
Code of Spain (Art,. 1606 of the Civil Code of the Philippines), the right to redeem or
repurchase, in the absence of an express agreement as to time, shall last four years from the
date of the contract. In this case then, the right to repurchase, if it was at four guaranteed

under in the "Compraventa," should have been exercise within four years from March 21, 1941
(indubitably the date of execution of the contract), or at the latest in 1945.
In the respondent court's resolution, it is further ruled that the right to repurchase was given
birth by the condition precedent provided for in the phrase "siempre y cuando estos ultimos
pueden hacer la compra" (when the buyer has money to buy). In other words, it is the
respondent court's contention that the right may be exercised only when the buyer has money
to buy. If this were so, the second paragraph of Article 1508 would apply there is agreement
as to the time, although it is indefinite, therefore, the right should be exercised within ten years,
because the law does not favor suspended ownership. Since the alleged right to repurchase
was attempted to be exercised by Vicente Santiago only in 1966, or 25 years from the date of
the contract, the said right has undoubtedly expired.
WHEREFORE, in view of the foregoing, the Resolution dated September 27, 1983, of the
respondent court is SET ASIDE and the Decision promulgated on June 28, 1978 is hereby
REINSTATED. The annotations of the prohibition to sell at the back of TCT Nos. 138837,
138838, 138839, 138840, 138841, and 138842 are hereby ordered CANCELLED. Costs
against the private respondent.
SO ORDERED.

G.R. No. 171586

July 15, 2009

NATIONAL POWER CORPORATION, Petitioner,

vs.
PROVINCE OF QUEZON and MUNICIPALITY OF PAGBILAO, Respondents.
DECISION
BRION, J.:
We resolve in this petition for review on certiorari the question of whether the National Power
Corporation (NPC), as a government-owned and controlled corporation, can claim tax
exemption under Section 234 of the Local Government Code (LGC) for the taxes due from the
Mirant Pagbilao Corporation (Mirant) whose tax liabilities the NPC has contractually assumed.
BACKGROUND FACTS
The NPC is a government-owned and controlled corporation mandated by law to undertake,
among others, the production of electricity from nuclear, geothermal, and other sources, and
the transmission of electric power on a nationwide basis. To pursue this mandate, the NPC
entered into an Energy Conversion Agreement (ECA) with Mirant on November 9, 1991. The
ECA provided for a build-operate-transfer (BOT) arrangement between Mirant and the NPC.

Mirant will build and finance a coal-fired thermal power plant on the lots owned by the NPC in
Pagbilao, Quezon for the purpose of converting fuel into electricity, and thereafter, operate and
maintain the power plant for a period of 25 years. The NPC, in turn, will supply the necessary
fuel to be converted by Mirant into electric power, take the power generated, and use it to
supply the electric power needs of the country. At the end of the 25-year term, Mirant will
transfer the power plant to the NPC without compensation. According to the NPC, the power
plant is currently operational and is one of the largest sources of electric power in the country.
Among the obligations undertaken by the NPC under the ECA was the payment of all taxes
that the government may impose on Mirant; Article 11.1 of the ECA specifically provides:
11.1 RESPONSIBILITY. [NPC] shall be responsible for the payment of (a) all taxes, import
duties, fees, charges and other levies imposed by the National Government of the Republic of
the Philippines or any agency or instrumentality thereof to which [Mirant] may at any time be or
become subject in or in relation to the performance of their obligations under this Agreement
(other than (i) taxes imposed or calculated on the basis of the net income [of Mirant] and (ii)
construction permit fees, environmental permit fees and other similar fees and charges), and
(b) all real estate taxes and assessments, rates and other charges in respect of the Site, the
buildings and improvements thereon and the Power Station. [Emphasis supplied.]
In a letter dated March 2, 2000, the Municipality of Pagbilao assessed Mirants real property
taxes on the power plant and its machineries in the total amount of P1,538,076,000.00 for the
period of 1997 to 2000. The Municipality of Pagbilao furnished the NPC a copy of the
assessment letter.
To protect its interests, the NPC filed a petition before the Local Board of Assessment Appeals
(LBAA) entitled "In Re: Petition to Declare Exempt from Payment of Property Tax on
Machineries and Equipment Used for Generation and Transmission of Power, under Section
234(c) of RA 7160 [LGC], located at Pagbilao, Quezon xxx" on April 14, 2000. The NPC
objected to the assessment against Mirant on the claim that it (the NPC) is entitled to the tax
exemptions provided in Section 234, paragraphs (c) and (e) of the LGC. These provisions
state:
Section 234. Exemptions from Real Property Tax. The following are exempted from payment
for the real property tax:
xxx

xxx

xxx

(c) All machineries and equipment that are actually, directly, and exclusively used by local
water districts and government-owned or controlled corporations engaged in the supply and
distribution of water and/or generation and transmission of electric power;
xxx

xxx

xxx

(e) Machinery and equipment used for pollution control and environmental protection.
Except as provided herein, any exemption from payment of real property tax previously
granted to, or presently enjoyed by, all persons, whether natural or juridical, including

government-owned or controlled corporations are hereby withdrawn upon the effectivity of the
Code.
Assuming that it cannot claim the exemptions stated in these provisions, the NPC alternatively
asserted that it is entitled to:
a. the lower assessment level of 10% under Section 218(d) of the LGC for governmentowned and controlled corporations engaged in the generation and transmission of
electric power, instead of the 80% assessment level for commercial properties as
imposed in the assessment letter; and
b. an allowance for depreciation of the subject machineries under Section 225 of the
LGC.
The LBAA dismissed the NPCs petition on the Municipality of Pagbilaos motion, through a
one-page Order dated November 13, 2000.
The NPC appealed the denial of its petition with the Central Board of Assessment Appeals
(CBAA). Although it noted the incompleteness of the LBAA decision for failing to state the
factual basis of its ruling, the CBAA nevertheless affirmed, in its decision of August 18, 2003,
the denial of the NPCs claim for exemption. The CBAA likewise denied the NPCs subsequent
motion for reconsideration, prompting the NPC to institute an appeal before the Court of Tax
Appeals (CTA).
Before the CTA, the NPC claimed it was procedurally erroneous for the CBAA to exercise
jurisdiction over its appeal because the LBAA issued a sin perjuicio decision, that is, the LBAA
pronounced a judgment without any finding of fact. It argued that the CBAA should have
remanded the case to the LBAA. On substantive issues, the NPC asserted the same grounds it
relied upon to support its claimed tax exemptions.
The CTA en banc resolved to dismiss the NPCs petition on February 21, 2006. From this
ruling, the NPC filed the present petition seeking the reversal of the CTA en bancs decision.
THE PETITION
The NPC contends that the CTA en banc erred in ruling that the NPC is estopped from
questioning the LBAAs sin perjuicio judgment; the LBAA decision, it posits, cannot serve as an
appealable decision that would vest the CBAA with appellate jurisdiction; a sin perjuicio
decision, by its nature, is null and void.
The NPC likewise assails the CTA en banc ruling that the NPC was not the proper party to
protest the real property tax assessment, as it did not have the requisite "legal interest." The
NPC claims that it has legal interest because of its beneficial ownership of the power plant and
its machineries; what Mirant holds is merely a naked title. Under the terms of the ECA, the
NPC also claims that it possesses all the attributes of ownership, namely, the rights to enjoy, to
dispose of, and to recover against the holder and possessor of the thing owned. That it will
acquire and fully own the power plant after the lapse of 25 years further underscores its "legal
interest" in protesting the assessment.

The NPCs assertion of beneficial ownership of the power plant also supports its claim for tax
exemptions under Section 234(c) of the LGC. The NPC alleges that it has the right to control
and supervise the entire output and operation of the power plant. This arrangement, to the
NPC, proves that it is the entity actually, directly, and exclusively using the subject machineries.
Mirants possession of the power plant is irrelevant since all of Mirant activities relating to
power generation are undertaken for and in behalf of the NPC. Additionally, all the electricity
Mirant generates is utilized by the NPC in supplying the power needs of the country; Mirant
therefore operates the power plant for the exclusive and direct benefit of the NPC. Lastly, the
NPC posits that the machineries taxed by the local government include anti-pollution devices
which should have been excluded from the assessment under Section 234(e) of the LGC.
Assuming that the NPC is liable to pay the assessed real property tax, it asserts that a
reassessment is necessary as it is entitled to depreciation allowance on the machineries and to
the lower 10% assessment level under Sections 225 and 218(d) of the LGC, respectively. This
position is complemented by its prayer to have the case remanded to the LBAA for the proper
determination of its tax liabilities.
THE COURTS RULING
This case is not one of first impression. We have previously ruled against the NPCs claimed
exemptions under the LGC in the cases of FELS Energy, Inc. v. Province of
Batangas and NPC v. CBAA. Based on the principles we declared in those cases, as well as
the defects we found in the NPCs tax assessment protest, we conclude that the petition lacks
merit.
The NPC is estopped from questioning the CBAAs jurisdiction
The assailed CTA en banc decision brushed aside the NPCs sin perjuicio arguments by
declaring that:
The court finds merit in [NPCs] claim that the Order of the LBAA of the Province of Quezon is
a sin perjuicio decision. A perusal thereof shows that the assailed Order does not contain
findings of facts in support of the dismissal of the case. It merely stated a finding of merit in the
contention of the Municipality of Pagbilao xxx.
However, on appeal before the CBAA, [NPC] assigned several errors, both in fact and in law,
pertaining to the LBAAs decision. Thus, petitioner is bound by the appellate jurisdiction of the
CBAA under the principle of equitable estoppel. In this regard, [NPC] is in no position to
question the appellate jurisdiction of the CBAA as it is the same party which sought its
jurisdiction and participated in the proceedings therein. [Emphasis supplied.]
We agree that the NPC can no longer divest the CBAA of the power to decide the appeal after
invoking and submitting itself to the boards jurisdiction. We note that even the NPC itself found
nothing objectionable in the LBAAs sin perjuicio decision when it filed its appeal before the
CBAA; the NPC did not cite this ground as basis for its appeal. What it cited were grounds that
went into the merits of its case. In fact, its appeal contained no prayer for the remand of the
case to the LBAA.

A basic jurisdictional rule, essentially based on fairness, is that a party cannot invoke a courts
jurisdiction to secure affirmative relief and, after failing to obtain the requested relief, repudiate
or question that same jurisdiction. Moreover, a remand would be unnecessary, as we find the
CBAAs and the CTA en bancs denial of NPCs claims entirely in accord with the law and with
jurisprudence.
The entity liable for tax has the right to protest the assessment
Before we resolve the question of the NPC's entitlement to tax exemption, we find it necessary
to determine first whether the NPC initiated a valid protest against the assessment. A
taxpayer's failure to question the assessment before the LBAA renders the assessment of the
local assessor final, executory, and demandable, thus precluding the taxpayer from questioning
the correctness of the assessment, or from invoking any defense that would reopen the
question of its liability on the merits.
Section 226 of the LGC lists down the two entities vested with the personality to contest an
assessment: the owner and the person with legal interest in the property.
A person legally burdened with the obligation to pay for the tax imposed on a property has
legal interest in the property and the personality to protest a tax assessment on the property.
This is the logical and legal conclusion when Section 226, on the rules governing an
assessment protest, is placed side by side with Section 250 on the payment of real property
tax; both provisions refer to the same parties who may protest and pay the tax:

SECTION 226. Local Board of Assessment

Appeals. - Any owner or person having
legal interest in the property who is not
satisfied with the action of the provincial,
city or municipal assessor in the
assessment of his property may, within
sixty (60) days from the date of receipt of
the written notice of assessment, appeal to
the Board of Assessment Appeals of the
province or city xxx.

SECTION 250. Payment of Real Property

Taxes in Instalments. - The owner of the
real property or the person having legal
interest therein may pay the basic real
property tax xxx due thereon without
interest in four (4) equal instalments xxx.

The liability for taxes generally rests on the owner of the real property at the time the tax
accrues. This is a necessary consequence that proceeds from the fact of ownership. However,
personal liability for realty taxes may also expressly rest on the entity with the beneficial use of
the real property, such as the tax on property owned by the government but leased to private
persons or entities, or when the tax assessment is made on the basis of the actual use of the
property. In either case, the unpaid realty tax attaches to the property but is directly
chargeable against the taxable person who has actual and beneficial use and
possession of the property regardless of whether or not that person is the owner.

In the present case, the NPC, contrary to its claims, is neither the owner nor the
possessor/user of the subject machineries.
The ECAs terms regarding the power plants machineries clearly vest their ownership with
Mirant. Article 2.12 of the ECA states:
2.12 OWNERSHIP OF POWER STATION. From the Effective Date until the Transfer Date [that
is, the day following the last day of the 25-year period], [Mirant] shall, directly or indirectly, own
the Power Station and all the fixtures, fittings, machinery and equipment on the Site or used in
connection with the Power Station which have been supplied by it or at its cost. [Mirant] shall
operate, manage, and maintain the Power Station for the purpose of converting fuel of [NPC]
into electricity. [Emphasis supplied.]
The NPC contends that it should nevertheless be regarded as the beneficial owner of the plant,
since it will acquire ownership thereof at the end of 25 years. The NPC also asserts, by quoting
portions of the ECA, that it has the right to control and supervise the construction and
operation of the plant, and that Mirant has retained only naked title to it. These contentions,
unfortunately, are not sufficient to vest the NPC the personality to protest the assessment.
In Cario v. Ofilado, we declared that legal interest should be an interest that is actual and
material, direct and immediate, not simply contingent or expectant. The concept of the
directness and immediacy involved is no different from that required in motions for intervention
under Rule 19 of the Rules of Court that allow one who is not a party to the case to participate
because of his or her direct and immediate interest, characterized by either gain or loss from
the judgment that the court may render. In the present case, the NPCs ownership of the plant
will happen only after the lapse of the 25-year period; until such time arrives, the NPC's claim
of ownership is merely contingent, i.e., dependent on whether the plant and its machineries
exist at that time. Prior to this event, the NPCs real interest is only in the continued operation
of the plant for the generation of electricity. This interest has not been shown to be adversely
affected by the realty taxes imposed and is an interest that NPC can protect, not by claiming an
exemption that is not due to Mirant, but by paying the taxes it (NPC) has assumed for Mirant
under the ECA.
To show that Mirant only retains a naked title, the NPC has selectively cited provisions of the
ECA to make it appear that it has the sole authority over the power plant and its operations.
Contrary to these assertions, however, a complete reading of the ECA shows that Mirant has
more substantial powers in the control and supervision of the power plant's construction and
operations.
Under Articles 2.1 and 3.1 of the ECA, Mirant is responsible for the design, construction,
equipping, testing, and commissioning of the power plant. Article 5.1 on the operation of the
power plant states that Mirant shall be responsible for the power plants management,
operation, maintenance, and repair until the Transfer Date. This is reiterated in Article 5.3
where Mirant undertakes to operate the power plant to convert fuel into electricity.
While the NPC asserts that it has the power to authorize the closure of the power plant without
any veto on the part of Mirant, the full text of Article 8.5 of the ECA shows that Mirant is
possessed with similar powers to terminate the agreement:

8.5 BUYOUT. If the circumstances set out in Article 7.18, Article 9.4, Article 14.4 or Article 28.4
arise or if, not earlier than 20 years after the Completion Date, [the NPC] gives not less than 90
days notice to [Mirant] that it wishes to close the power station, or if [the NPC] has failed to
ensure the due payment of any sum due hereunder within three months of its due date
then, upon [Mirant] giving to [the NPC] not less than 90 days notice requiring [the NPC]
to buy out [Mirant] or, as the case may be, [the NPC] giving not less than 90 days notice
requiring [Mirant] to sell out to [NPC], [NPC] shall purchase all [Mirant's] right, title, and interest
in and to the Power Station and thereupon all [Mirant's] obligations hereunder shall cease.
[Emphasis supplied.]
1avvphi1

On liability for taxes, the NPC indeed assumed responsibility for the taxes due on the power
plant and its machineries, specifically, "all real estate taxes and assessments, rates and other
charges in respect of the site, the buildings and improvements thereon and the [power plant]."
At first blush, this contractual provision would appear to make the NPC liable and give it
standing to protest the assessment. The tax liability we refer to above, however, is the liability
arising from law that the local government unit can rightfully and successfully enforce, not the
contractual liability that is enforceable between the parties to a contract as discussed below. By
law, the tax liability rests on Mirant based on its ownership, use, and possession of the plant
and its machineries.
In Testate of Concordia Lim v. City of Manila, we had occasion to rule that:
In [Baguio v. Busuego], the assumption by the vendee of the liability for real estate taxes
prospectively due was in harmony with the tax policy that the user of the property bears the
tax. In [the present case], the interpretation that the [vendee] assumed a liability for overdue
real estate taxes for the periods prior to the contract of sale is incongruent with the said policy
because there was no immediate transfer of possession of the properties previous to full
payment of the repurchase price.
xxxx
To impose the real property tax on the estate which was neither the owner nor the beneficial
user of the property during the designated periods would not only be contrary to law but also
unjust.
For a fuller appreciation of this ruling, the Baguio case referred to a contract of sale wherein
the vendee not only assumed liability for the taxes on the property, but also acquired its use
and possession, even though title remained with the vendor pending full payment of the
purchase price. Under this situation, we found the vendee who had assumed liability for the
realty taxes and who had been given use and possession to be liable. Compared with Baguio,
the Lim case supposedly involved the same contractual assumption of tax liabilities, but
possession and enjoyment of the property remained with other persons. Effectively, Lim held
that the contractual assumption of the obligation to pay real property tax, by itself, is not
sufficient to make one legally compellable by the government to pay for the taxes due; the
person liable must also have use and possession of the property.
Using the Baguio and Lim situations as guides, and after considering the comparable legal
situations of the parties assuming liability in these cases, we conclude that the NPCs
contractual liability alone cannot be the basis for the enforcement of tax liabilities against it by

the local government unit. In Baguio and Lim, the vendors still retained ownership, and the
effectiveness of the tax liabilities assumed by the vendees turned on the possession and use of
the property subject to tax. In other words, the contractual assumption of liability was
supplemented by an interest that the party assuming liability had on the property taxed; on this
basis, the vendee in Baguio was found liable, while the vendee in Lim was not. In the present
case, the NPC is neither the owner, nor the possessor or user of the property taxed. No
interest on its part thus justifies any tax liability on its part other than its voluntary contractual
undertaking. Under this legal situation, only Mirant as the contractual obligor, not the local
government unit, can enforce the tax liability that the NPC contractually assumed; the NPC
does not have the "legal interest" that the law and jurisprudence require to give it personality to
protest the tax imposed by law on Mirant.
By our above conclusion, we do not thereby pass upon the validity of the contractual stipulation
between the NPC and Mirant on the assumption of liability that the NPC undertook. All we
declare is that the stipulation is entirely between the NPC and Mirant, and does not bind third
persons who are not privy to the contract between these parties. We say this pursuant to the
principle of relativity of contracts under Article 1311 of the Civil Code which postulates that
contracts take effect only between the parties, their assigns and heirs. Quite obviously, there is
no privity between the respondent local government units and the NPC, even though both are
public corporations. The tax due will not come from one pocket and go to another pocket of the
same governmental entity. An LGU is independent and autonomous in its taxing powers and
this is clearly reflected in Section 130 of the LGC which states:
SECTION 130. Fundamental Principles. - The following fundamental principles shall govern the
exercise of the taxing and other revenue-raising powers of local government units:
xxx
(d) The revenue collected pursuant to the provisions of this Code shall inure solely to the
benefit of, and be subject to disposition by, the local government unit levying the tax, fee,
charge or other imposition unless otherwise specifically provided herein; xxx. [Emphasis
supplied.]
An exception to the rule on relativity of contracts is provided under the same Article 1311 as
follows:
If the contract should contain some stipulation in favor of a third person, he may demand its
fulfilment provided he communicated his acceptance to the obligor before its revocation. A
mere incidental benefit or interest of a person is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor upon a third person. [Emphasis supplied.]
The NPCs assumption of tax liability under Article 11.1 of the ECA does not appear, however,
to be in any way for the benefit of the Municipality of Pagbilao and the Province of Quezon. In
fact, if the NPC theory of the case were to be followed, the NPCs assumption of tax liability will
work against the interests of these LGUs. Besides, based on the objectives of the BOT
Law that underlie the parties BOT agreement, the assumption of taxes clause is an incentive
for private corporations to take part and invest in Philippine industries. Thus, the principle of
relativity of contracts applies with full force in the relationship between Mirant and NPC, on the
one hand, and the respondent LGUs, on the other.

To reiterate, only the parties to the ECA agreement can exact and demand the enforcement of
the rights and obligations it established only Mirant can demand compliance from the NPC
for the payment of the real property tax the NPC assumed to pay. The local government units
(the Municipality of Pagbilao and the Province of Quezon), as third parties to the ECA, cannot
demand payment from the NPC on the basis of Article 11.1 of the ECA alone. Corollarily, the
local government units can neither be compelled to recognize the protest of a tax assessment
from the NPC, an entity against whom it cannot enforce the tax liability.
The test of exemption is the nature of the use,
not ownership, of the subject machineries
At any rate, the NPCs claim of tax exemptions is completely without merit. To successfully
claim exemption under Section 234(c) of the LGC, the claimant must prove two elements:
a. the machineries and equipment are actually, directly, and exclusively used
by local water districts and government-owned or controlled corporations; and
b. the local water districts and government-owned and controlled corporations claiming
exemption must be engaged in the supply and distribution of water and/or the
generation and transmission of electric power.
As applied to the present case, the government-owned or controlled corporation claiming
exemption must be the entity actually, directly, and exclusively using the real properties, and
the use must be devoted to the generation and transmission of electric power. Neither the NPC
nor Mirant satisfies both requirements. Although the plants machineries are devoted to the
generation of electric power, by the NPCs own admission and as previously pointed out,
Mirant a private corporation uses and operates them. That Mirant operates the machineries
solely in compliance with the will of the NPC only underscores the fact that NPC does not
actually, directly, and exclusively use them. The machineries must be actually, directly, and
exclusively used by the government-owned or controlled corporation for the exemption under
Section 234(c) to apply.
Nor will NPC find solace in its claim that it utilizes all the power plants generated electricity in
supplying the power needs of its customers. Based on the clear wording of the law, it is the
machineries that are exempted from the payment of real property tax, not the water or
electricity that these machineries generate and distribute.
Even the NPCs claim of beneficial ownership is unavailing. The test of exemption is the use,
not the ownership of the machineries devoted to generation and transmission of electric
power. The nature of the NPCs ownership of these machineries only finds materiality in
resolving the NPCs claim of legal interest in protesting the tax assessment on Mirant. As we
discussed above, this claim is inexistent for tax protest purposes.
Lastly, from the points of view of essential fairness and the integrity of our tax system, we find it
essentially wrong to allow the NPC to assume in its BOT contracts the liability of the other
contracting party for taxes that the government can impose on that other party, and at the
same time allow NPC to turn around and say that no taxes should be collected because the
NPC is tax-exempt as a government-owned and controlled corporation. We cannot be a party

to this kind of arrangement; for us to allow it without congressional authority is to intrude into
the realm of policy and to debase the tax system that the Legislature established. We will then
also be grossly unfair to the people of the Province of Quezon and the Municipality of Pagbilao
who, by law, stand to benefit from the tax provisions of the LGC.
WHEREFORE, we DENY the National Power Corporations petition for review on certiorari,
and AFFIRM the decision of the Court of Tax Appeals en banc dated February 21, 2006. Costs
against the petitioner.
SO ORDERED.

G.R. No. 134971

March 25, 2004

HERMINIO TAYAG, petitioner,

vs.
AMANCIA LACSON, ROSENDO LACSON, ANTONIO LACSON, JUAN LACSON, TEODISIA
LACSON-ESPINOSA and THE COURT OF APPEALS, respondents.
DECISION
CALLEJO, SR., J.:
Before us is a petition for review on certiorari of the Decision 1 and the Resolution2 of
respondent Court of Appeals in CA-G.R. SP No. 44883.
The Case for the Petitioner
Respondents Angelica Tiotuyco Vda. de Lacson,3 and her children Amancia, Antonio, Juan,
and Teodosia, all surnamed Lacson, were the registered owners of three parcels of land
located in Mabalacat, Pampanga, covered by Transfer Certificates of Title (TCT) Nos. 35922-R,
35923-R, and 35925-R, registered in the Register of Deeds of San Fernando, Pampanga. The
properties, which were tenanted agricultural lands,4 were administered by Renato Espinosa for
the owner.
On March 17, 1996, a group of original farmers/tillers, namely, Julio Tiamson, Renato Gozun,
Rosita Hernandez, Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino,
Jose Sosa, Francisco Tolentino, Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue,
Dominga Laxamana, Felicencia de Leon, Emiliano Ramos, and another group, namely, Felino
G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo Quiambao, Roman
Laxamana, Eddie San Luis, Ricardo Hernandez, Nicenciana Miranda, Jose Gozun, Alfredo
Sosa, Jose Tiamson, Augusto Tolentino, Sixto Hernandez, Alex Quiambao, Isidro Tolentino,
Ceferino de Leon, Alberto Hernandez, Orlando Flores, and Aurelio Flores,5 individually
executed in favor of the petitioner separate Deeds of Assignment6 in which the assignees
assigned to the petitioner their respective rights as tenants/tillers of the landholdings
possessed and tilled by them for and in consideration of P50.00 per square meter. The said
amount was made payable "when the legal impediments to the sale of the property to the

petitioner no longer existed." The petitioner was also granted the exclusive right to buy the
property if and when the respondents, with the concurrence of the defendants-tenants, agreed
to sell the property. In the interim, the petitioner gave varied sums of money to the tenants as
partial payments, and the latter issued receipts for the said amounts.
On July 24, 1996, the petitioner called a meeting of the defendants-tenants to work out the
implementation of the terms of their separate agreements.7 However, on August 8, 1996, the
defendants-tenants, through Joven Mariano, wrote the petitioner stating that they were not
attending the meeting and instead gave notice of their collective decision to sell all their rights
and interests, as tenants/lessees, over the landholding to the respondents. 8 Explaining their
reasons for their collective decision, they wrote as follows:
Kami ay nagtiwala sa inyo, naging tapat at nanindigan sa lahat ng ating napagkasunduan,
hindi tumanggap ng ibang buyer o ahente, pero sinira ninyo ang aming pagtitiwala sa
pamamagitan ng demanda ninyo at pagbibigay ng problema sa amin na hindi naman nagbenta
ng lupa.
Kaya kami ay nagpulong at nagpasya na ibenta na lang ang aming karapatan o ang aming
lupang sinasaka sa landowner o sa mga pamilyang Lacson, dahil ayaw naming magkaroon ng
problema.
Kaya kung ang sasabihin ninyong itoy katangahan, lalo sigurong magiging katangahan kung
ibebenta pa namin sa inyo ang aming lupang sinasaka, kaya pasensya na lang Mister Tayag.
Dahil sinira ninyo ang aming pagtitiwala at katapatan.9
On August 19, 1996, the petitioner filed a complaint with the Regional Trial Court of San
Fernando, Pampanga, Branch 44, against the defendants-tenants, as well as the respondents,
for the court to fix a period within which to pay the agreed purchase price of P50.00 per square
meter to the defendants, as provided for in the Deeds of Assignment. The petitioner also
prayed for a writ of preliminary injunction against the defendants and the respondents
therein.10 The case was docketed as Civil Case No. 10910.
In his complaint, the petitioner alleged, inter alia, the following:
4. That defendants Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido
Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco
Tolentino, Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga
Laxamana, Felicencia de Leon, Emiliano Ramos are original farmers or direct tillers of
landholdings over parcels of lands covered by Transfer Certificate of Title Nos. 35922R, 35923-R and 35925-R which are registered in the names of defendants LACSONS;
while defendants Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino,
Rodolfo Quiambao, Roman Laxamana, Eddie San Luis, Alfredo Gozun, Jose Tiamson,
Augusto Tolentino, Sixto Hernandez, Alex Quiambao, Isidro Tolentino, Ceferino de
Leon, Alberto Hernandez, and Aurelio Flores are sub-tenants over the same parcel of
land.
5. That on March 17, 1996 the defendants TIAMSON, et al., entered into Deeds of
Assignment with the plaintiff by which the defendants assigned all their rights and

interests on their landholdings to the plaintiff and that on the same date (March 17,
1996), the defendants received from the plaintiff partial payments in the amounts
corresponding to their names. Subsequent payments were also received:
1st PAYMENT

2nd
PAYMENT

CHECK
NO.

1.Julio Tiamson - - - - - -

P 20,000

P 10,621.54

2. Renato Gozun - - - - - [son of Felix Gozun

(deceased)]

P 10,000

96,000

3. Rosita Hernandez - - - -

P 5,000

14,374.24

231274

P 19,374.24

4. Bienvenido Tongol - - [Son of Abundio Tongol

(deceased)]

P 10,000

14,465.90

231285

24,465.90

5. Alfonso Flores - - - - - -

P 30,000

26,648.40

231271

56,648.40

6. Norma Quiambao - - - -

P 10,000

41,501.10

231279

51,501.10

7. Rosita Tolentino - - - - -

P 10,000

22,126.08

231284

32,126.08

8. Jose Sosa - - - - - - - - -

P 10,000

14,861.31

231291

24,861.31

9. Francisco Tolentino, Sr.

P 10,000

24,237.62

231283

34,237.62

10. Emiliano Laxamana - -

P 10,000

------

------

------

11. Ruben Torres - - - - - [Son of Mariano Torres

(deceased)]

P 10,000

P 33,587.31

------

P 43,587.31

12. Meliton Allanigue

P 10,000

12,944.77

231269

P 22,944.77

13. Dominga Laxamana

P 5,000

22,269.02

231275

27,269.02

14. Felicencia de Leon

10,000

------

------

------

5,000

18,869.60

231280

23,869.60

10,000

------

------

------

17. Rica Gozun

5,000

------

------

------

18. Perla Gozun

10,000

------

------

------

19. Benigno Tolentino

10,000

------

------

------

20. Rodolfo Quiambao

10,000

------

------

------

21. Roman Laxamana

10,000

------

------

------

22. Eddie San Luis

10,000

------

------

------

23. Ricardo Hernandez

10,000

------

------

------

15. Emiliano Ramos

16. Felino G. Tolentino

231281

TOTAL
P 30,621.54
106,000.00

24. Nicenciana Miranda

10,000

------

------

------

25. Jose Gozun

10,000

------

------

------

26. Alfredo Sosa

5,000

------

------

------

27. Jose Tiamson

10,000

------

------

------

28. Augusto Tolentino

5,000

------

------

------

29. Sixto Hernandez

10,000

------

------

------

30. Alex Quiambao

10,000

------

------

------

31. Isidro Tolentino

10,000

------

------

------

------

11,378.70

231270

------

33. Alberto Hernandez

10,000

------

------

------

34. Orlando Florez

10,000

------

------

------

35. Aurelio Flores

10,000

------

------

------

32. Ceferino de Leon

6. That on July 24, 1996, the plaintiff wrote the defendants TIAMSON, et al., inviting
them for a meeting regarding the negotiations/implementations of the terms of their
Deeds of Assignment;
7. That on August 8, 1996, the defendants TIAMSON, et al., through Joven Mariano,
replied that they are no longer willing to pursue with the negotiations, and instead they
gave notice to the plaintiff that they will sell all their rights and interests to the registered
owners (defendants LACSONS).
A copy of the letter is hereto attached as Annex "A" etc.;
8. That the defendants TIAMSON, et. al., have no right to deal with the defendants
LACSON or with any third persons while their contracts with the plaintiff are subsisting;
defendants LACSONS are inducing or have induced the defendants TIAMSON, et. al.,
to violate their contracts with the plaintiff;
9. That by reason of the malicious acts of all the defendants, plaintiff suffered moral
damages in the forms of mental anguish, mental torture and serious anxiety which in
the sum of P500,000.00 for which defendants should be held liable jointly and
severally.11
In support of his plea for injunctive relief, the petitioner, as plaintiff, also alleged the
following in his complaint:
11. That to maintain the status quo, the defendants TIAMSON, et al., should be
restrained from rescinding their contracts with the plaintiff, and the defendants
LACSONS should also be restrained from accepting any offer of sale or alienation with
the defendants TIAMSON, et al., in whatever form, the latters rights and interests in

the properties mentioned in paragraph 4 hereof; further, the LACSONS should be

restrained from encumbering/alienating the subject properties covered by TCT No.
35922-R, 35923-R and TCT No. 35925-R, Registry of Deeds of San Fernando,
Pampanga;
12. That the defendants TIAMSON, et al., threaten to rescind their contracts with the
plaintiff and are also bent on selling/alienating their rights and interests over the subject
properties to their co-defendants (LACSONS) or any other persons to the damage and
prejudice of the plaintiff who already invested much money, efforts and time in the said
transactions;
13. That the plaintiff is entitled to the reliefs being demanded in the complaint;
14. That to prevent irreparable damages and prejudice to the plaintiff, as the latter has
no speedy and adequate remedy under the ordinary course of law, it is essential that a
Writ of Preliminary Injunction be issued enjoining and restraining the defendants
TIAMSON, et al., from rescinding their contracts with the plaintiff and from
selling/alienating their properties to the LACSONS or other persons;
15. That the plaintiff is willing and able to put up a reasonable bond to answer for the
damages which the defendants would suffer should the injunction prayed for and
granted be found without basis.12
The petitioner prayed, that after the proceedings, judgment be rendered as follows:
1. Pending the hearing, a Writ of Preliminary Injunction be issued prohibiting, enjoining
and restraining defendants Julio Tiamson, Renato Gozun, Rosita Hernandez,
Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa,
Francisco Tolentino Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga
Laxamana, Felicencia de Leon, Emiliano Ramos, Felino G. Tolentino, Rica Gozun,
Perla Gozun, Benigno Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San
Luis, Ricardo Hernandez, Nicenciana Miranda, Jose Gozun, Alfredo Sosa, Jose
Tiamson, Augusto Tolentino, Ceferino de Leon, Alberto Hernandez, Orlando Flores,
and Aurelio Flores from rescinding their contracts with the plaintiff and from alienating
their rights and interest over the aforementioned properties in favor of defendants
LACSONS or any other third persons; and prohibiting the defendants LACSONS from
encumbering/alienating TCT Nos. 35922-R, 35923-R and 35925-R of the Registry of
Deeds of San Fernando, Pampanga.
2. And pending the hearing of the Prayer for a Writ of Preliminary Injunction, it is prayed
that a restraining order be issued restraining the aforementioned defendants
(TIAMSON, et al.) from rescinding their contracts with the plaintiff and from alienating
the subject properties to the defendants LACSONS or any third persons; further,
restraining and enjoining the defendants LACSONS from encumbering/selling the
properties covered by TCT Nos. 35922-R, 35923-R, and 35925-R of the Registry of
Deeds of San Fernando, Pampanga.

3. Fixing the period within which plaintiff shall pay the balance of the purchase price to
the defendants TIAMSON, et al., after the lapse of legal impediment, if any.
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants to pay the plaintiff the sum of P500,000.00 as moral
damages;
6. Ordering the defendants to pay the plaintiff attorneys fees in the sum of
P100,000.00 plus litigation expenses of P50,000.00;
Plaintiff prays for such other relief as may be just and equitable under the premises. 13
In their answer to the complaint, the respondents as defendants asserted that (a) the
defendant Angelica Vda. de Lacson had died on April 24, 1993; (b) twelve of the defendants
were tenants/lessees of respondents, but the tenancy status of the rest of the defendants was
uncertain; (c) they never induced the defendants Tiamson to violate their contracts with the
petitioner; and, (d) being merely tenants-tillers, the defendants-tenants had no right to enter
into any transactions involving their properties without their knowledge and consent. They also
averred that the transfers or assignments of leasehold rights made by the defendants-tenants
to the petitioner is contrary to Presidential Decree (P.D.) No. 27 and Republic Act No. 6657, the
Comprehensive Agrarian Reform Program (CARP).14 The respondents interposed
counterclaims for damages against the petitioner as plaintiff.
The defendants-tenants Tiamson, et al., alleged in their answer with counterclaim for damages,
that the money each of them received from the petitioner were in the form of loans, and that
they were deceived into signing the deeds of assignment:
a) That all the foregoing allegations in the Answer are hereby repleaded and
incorporated in so far as they are material and relevant herein;
b) That the defendants Tiamson, et al., in so far as the Deeds of Assignment are
concern[ed] never knew that what they did sign is a Deed of Assignment. What they
knew was that they were made to sign a document that will serve as a receipt for the
loan granted [to] them by the plaintiff;
c) That the Deeds of Assignment were signed through the employment of fraud, deceit
and false pretenses of plaintiff and made the defendants believe that what they sign[ed]
was a mere receipt for amounts received by way of loans;
d) That the documents signed in blank were filled up and completed after the
defendants Tiamson, et al., signed the documents and their completion and
accomplishment was done in the absence of said defendants and, worst of all,
defendants were not provided a copy thereof;
e) That as completed, the Deeds of Assignment reflected that the defendants Tiamson,
et al., did assign all their rights and interests in the properties or landholdings they were
tilling in favor of the plaintiff. That if this is so, assuming arguendo that the documents

were voluntarily executed, the defendants Tiamson, et al., do not have any right to
transfer their interest in the landholdings they are tilling as they have no right
whatsoever in the landholdings, the landholdings belong to their co-defendants,
Lacson, et al., and therefore, the contract is null and void;
f) That while it is admitted that the defendants Tiamson, et al., received sums of money
from plaintiffs, the same were received as approved loans granted by plaintiff to the
defendants Tiamson, et al., and not as part consideration of the alleged Deeds of
Assignment; and by way of:15
At the hearing of the petitioners plea for a writ of preliminary injunction, the respondents
counsel failed to appear. In support of his plea for a writ of preliminary injunction, the petitioner
adduced in evidence the Deeds of Assignment,16 the receipts17 issued by the defendantstenants for the amounts they received from him; and the letter 18 the petitioner received from the
defendants-tenants. The petitioner then rested his case.
The respondents, thereafter, filed a Comment/Motion to dismiss/deny the petitioners plea for
injunctive relief on the following grounds: (a) the Deeds of Assignment executed by the
defendants-tenants were contrary to public policy and P.D. No. 27 and Rep. Act No. 6657; (b)
the petitioner failed to prove that the respondents induced the defendants-tenants to renege on
their obligations under the "Deeds of Assignment;" (c) not being privy to the said deeds, the
respondents are not bound by the said deeds; and, (d) the respondents had the absolute right
to sell and dispose of their property and to encumber the same and cannot be enjoined from
doing so by the trial court.
The petitioner opposed the motion, contending that it was premature for the trial court to
resolve his plea for injunctive relief, before the respondents and the defendants-tenants
adduced evidence in opposition thereto, to afford the petitioner a chance to adduce rebuttal
evidence and prove his entitlement to a writ of preliminary injunction. The respondents replied
that it was the burden of the petitioner to establish the requisites of a writ of preliminary
injunction without any evidence on their part, and that they were not bound to adduce any
evidence in opposition to the petitioners plea for a writ of preliminary injunction.
On February 13, 1997, the court issued an Order 19 denying the motion of the respondents for
being premature. It directed the hearing to proceed for the respondents to adduce their
evidence. The court ruled that the petitioner, on the basis of the material allegations of the
complaint, was entitled to injunctive relief. It also held that before the court could resolve the
petitioners plea for injunctive relief, there was need for a hearing to enable the respondents
and the defendants-tenants to adduce evidence to controvert that of the petitioner. The
respondents filed a motion for reconsideration, which the court denied in its Order dated April
16, 1997. The trial court ruled that on the face of the averments of the complaint, the pleadings
of the parties and the evidence adduced by the petitioner, the latter was entitled to injunctive
relief unless the respondents and the defendants-tenants adduced controverting evidence.
The respondents, the petitioners therein, filed a petition for certiorari in the Court of Appeals for
the nullification of the February 13, 1997 and April 16, 1997 Orders of the trial court. The case
was docketed as CA-G.R. SP No. 44883. The petitioners therein prayed in their petition that:

1. An order be issued declaring the orders of respondent court dated February 13,
1997 and April 16, 1997 as null and void;
2. An order be issued directing the respondent court to issue an order denying the
application of respondent Herminio Tayag for the issuance of a Writ of Preliminary
Injunction and/or restraining order.
3. In the meantime, a Writ of Preliminary Injunction be issued against the respondent
court, prohibiting it from issuing its own writ of injunction against Petitioners, and
thereafter making said injunction to be issued by this Court permanent.
Such other orders as may be deemed just & equitable under the premises also prayed for.20
The respondents asserted that the Deeds of Assignment executed by the assignees in favor of
the petitioner were contrary to paragraph 13 of P.D. No. 27 and the second paragraph of
Section 70 of Rep. Act No. 6657, and, as such, could not be enforced by the petitioner for
being null and void. The respondents also claimed that the enforcement of the deeds of
assignment was subject to a supervening condition:
3. That this exclusive and absolute right given to the assignee shall be exercised only when no
legal impediments exist to the lot to effect the smooth transfer of lawful ownership of the
lot/property in the name of the ASSIGNEE.21
The respondents argued that until such condition took place, the petitioner would not acquire
any right to enforce the deeds by injunctive relief. Furthermore, the petitioners plea in his
complaint before the trial court, to fix a period within which to pay the balance of the amounts
due to the tenants under said deeds after the "lapse" of any legal impediment, assumed that
the deeds were valid, when, in fact and in law, they were not. According to the respondents,
they were not parties to the deeds of assignment; hence, they were not bound by the said
deeds. The issuance of a writ of preliminary injunction would restrict and impede the exercise
of their right to dispose of their property, as provided for in Article 428 of the New Civil Code.
They asserted that the petitioner had no cause of action against them and the defendantstenants.
On April 17, 1998, the Court of Appeals rendered its decision against the petitioner, annulling
and setting aside the assailed orders of the trial court; and permanently enjoining the said trial
court from proceeding with Civil Case No. 10901. The decretal portion of the decision reads as
follows:
However, even if private respondent is denied of the injunctive relief he demands in the lower
court still he could avail of other course of action in order to protect his interest such as the
institution of a simple civil case of collection of money against TIAMSON, et al.
For all the foregoing considerations, the orders dated 13 February 1997 and 16 April 1997 are
hereby NULLIFIED and ordered SET ASIDE for having been issued with grave abuse of
discretion amounting to lack or excess of jurisdiction. Accordingly, public respondent is
permanently enjoined from proceeding with the case designated as Civil Case No. 10901. 22

The CA ruled that the respondents could not be enjoined from alienating or even encumbering
their property, especially so since they were not privies to the deeds of assignment executed
by the defendants-tenants. The defendants-tenants were not yet owners of the portions of the
landholdings respectively tilled by them; as such, they had nothing to assign to the petitioner.
Finally, the CA ruled that the deeds of assignment executed by the defendants-tenants were
contrary to P.D. No. 27 and Rep. Act No. 6657.
On August 4, 1998, the CA issued a Resolution denying the petitioners motion for
reconsideration.23
Hence, the petitioner filed his petition for review on certiorari before this Court, contending as
follows:
I
A MERE ALLEGATION IN THE ANSWER OF THE TENANTS COULD NOT BE USED AS
EVIDENCE OR BASIS FOR ANY CONCLUSION, AS THIS ALLEGATION, IS STILL THE
SUBJECT OF TRIAL IN THE LOWER COURT (RTC).24
II
THE COURT OF APPEALS CANNOT ENJOIN THE HEARING OF A PETITION FOR
PRELIMINARY INJUNCTION AT A TIME WHEN THE LOWER COURT (RTC) IS STILL
RECEIVING EVIDENCE PRECISELY TO DETERMINE WHETHER OR NOT THE WRIT OF
PRELIMINARY INJUNCTION BEING PRAYED FOR BY TAYAG SHOULD BE GRANTED OR
NOT.25
III
THE COURT OF APPEALS CANNOT USE "FACTS" NOT IN EVIDENCE, TO SUPPORT ITS
CONCLUSION THAT THE TENANTS ARE NOT YET "AWARDEES OF THE LAND REFORM.26
IV
THE COURT OF APPEALS CANNOT CAUSE THE PERMANENT STOPPAGE OF THE
ENTIRE PROCEEDINGS BELOW INCLUDING THE TRIAL ON THE MERITS OF THE CASE
CONSIDERING THAT THE ISSUE INVOLVED ONLY THE PROPRIETY OF MAINTAINING
THE STATUS QUO.27
V
THE COURT OF APPEALS CANNOT INCLUDE IN ITS DECISION THE CASE OF THE
OTHER 35 TENANTS WHO DO NOT QUESTION THE JURISDICTION OF THE LOWER
COURT (RTC) OVER THE CASE AND WHO ARE IN FACT STILL PRESENTING THEIR
EVIDENCE TO OPPOSE THE INJUNCTION PRAYED FOR, AND TO PROVE AT THE SAME
TIME THE COUNTER-CLAIMS THEY FILED AGAINST THE PETITIONER. 28
VI

THE LOWER COURT (RTC) HAS JURISDICTION OVER THE CASE FILED BY TAYAG FOR
"FIXING OF PERIOD" UNDER ART. 1197 OF THE NEW CIVIL CODE AND FOR "DAMAGES"
AGAINST THE LACSONS UNDER ART. 1314 OF THE SAME CODE. THIS CASE CANNOT
BE SUPPRESSED OR RENDERED NUGATORY UNCEREMONIOUSLY.29
The petitioner faults the Court of Appeals for permanently enjoining the trial court from
proceeding with Civil Case No. 10910. He opines that the same was too drastic, tantamount to
a dismissal of the case. He argues that at that stage, it was premature for the appellate court to
determine the merits of the case since no evidentiary hearing thereon was conducted by the
trial court. This, the Court of Appeals cannot do, since neither party moved for the dismissal of
Civil Case No. 10910. The petitioner points out that the Court of Appeals, in making its findings,
went beyond the issue raised by the private respondents, namely, whether or not the trial court
committed a grave abuse of discretion amounting to excess or lack of jurisdiction when it
denied the respondents motion for the denial/dismissal of the petitioners plea for a writ of
preliminary injunction. He, likewise, points out that the appellate court erroneously presumed
that the leaseholders were not DAR awardees and that the deeds of assignment were contrary
to law. He contends that leasehold tenants are not prohibited from conveying or waiving their
leasehold rights in his favor. He insists that there is nothing illegal with his contracts with the
leaseholders, since the same shall be effected only when there are no more "legal
impediments."
At bottom, the petitioner contends that, at that stage, it was premature for the appellate court to
determine the merits of his case since no evidentiary hearing on the merits of his complaint
had yet been conducted by the trial court.
The Comment/Motion of the
Respondents to Dismiss/Deny
Petitioners Plea for a Writ
of Preliminary Injunction
Was Not Premature.
Contrary to the ruling of the trial court, the motion of the respondents to dismiss/deny the
petitioners plea for a writ of preliminary injunction after the petitioner had adduced his
evidence, testimonial and documentary, and had rested his case on the incident, was proper
and timely. It bears stressing that the petitioner had the burden to prove his right to a writ of
preliminary injunction. He may rely solely on the material allegations of his complaint or adduce
evidence in support thereof. The petitioner adduced his evidence to support his plea for a writ
of preliminary injunction against the respondents and the defendants-tenants and rested his
case on the said incident. The respondents then had three options: (a) file a motion to
deny/dismiss the motion on the ground that the petitioner failed to discharge his burden to
prove the factual and legal basis for his plea for a writ of preliminary injunction and, if the trial
court denies his motion, for them to adduce evidence in opposition to the petitioners plea; (b)
forgo their motion and adduce testimonial and/or documentary evidence in opposition to the
petitioners plea for a writ of preliminary injunction; or, (c) waive their right to adduce evidence
and submit the incident for consideration on the basis of the pleadings of the parties and the
evidence of the petitioner. The respondents opted not to adduce any evidence, and instead
filed a motion to deny or dismiss the petitioners plea for a writ of preliminary injunction against
them, on their claim that the petitioner failed to prove his entitlement thereto. The trial court
cannot compel the respondents to adduce evidence in opposition to the petitioners plea if the

respondents opt to waive their right to adduce such evidence. Thus, the trial court should have
resolved the respondents motion even without the latters opposition and the presentation of
evidence thereon.
The RTC Committed a Grave
Abuse of Discretion Amounting
to Excess or Lack of Jurisdiction
in Issuing its February 13, 1997
and April 16, 1997 Orders
In its February 13, 1997 Order, the trial court ruled that the petitioner was entitled to a writ of
preliminary injunction against the respondents on the basis of the material averments of the
complaint. In its April 16, 1997 Order, the trial court denied the respondents motion for
reconsideration of the previous order, on its finding that the petitioner was entitled to a writ of
preliminary injunction based on the material allegations of his complaint, the evidence on
record, the pleadings of the parties, as well as the applicable laws:
For the record, the Court denied the LACSONS COMMENT/MOTION on the basis of the
facts culled from the evidence presented, the pleadings and the law applicable unswayed by
the partisan or personal interests, public opinion or fear of criticism (Canon 3, Rule 3.02, Code
of Judicial Ethics).30
Section 3, Rule 58 of the Rules of Court, as amended, enumerates the grounds for the
issuance of a writ of preliminary injunction, thus:
(a) That the applicant is entitled to the relief demanded, and the whole or part of such
relief consists in restraining the commission or continuance of the act or acts
complained of, or in requiring the performance of an act or acts, either for a limited
period or perpetually;
(b) That the commission, continuance or non-performance of the act or acts
complained of during the litigation would probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is attempting to do,
or is procuring or suffering to be done, some act or acts probably in violation of the
rights of the applicant respecting the subject of the action or proceeding, and tending to
render the judgment ineffectual.
A preliminary injunction is an extraordinary event calculated to preserve or maintain the status
quo of things ante litem and is generally availed of to prevent actual or threatened acts, until
the merits of the case can be heard. Injunction is accepted as the strong arm of equity or a
transcendent remedy.31 While generally the grant of a writ of preliminary injunction rests on the
sound discretion of the trial court taking cognizance of the case, extreme caution must be
observed in the exercise of such discretion.32 Indeed, in Olalia v. Hizon,33 we held:
It has been consistently held that there is no power the exercise of which is more delicate,
which requires greater caution, deliberation and sound discretion, or more dangerous in a
doubtful case, than the issuance of an injunction. It is the strong arm of equity that should

never be extended unless to cases of great injury, where courts of law cannot afford an
adequate or commensurate remedy in damages.
Every court should remember that an injunction is a limitation upon the freedom of action of the
defendant and should not be granted lightly or precipitately. It should be granted only when the
court is fully satisfied that the law permits it and the emergency demands it. 34
The very foundation of the jurisdiction to issue writ of injunction rests in the existence of a
cause of action and in the probability of irreparable injury, inadequacy of pecuniary
compensation and the prevention of the multiplicity of suits. Where facts are not shown to bring
the case within these conditions, the relief of injunction should be refused. 35
For the court to issue a writ of preliminary injunction, the petitioner was burdened to establish
the following: (1) a right in esse or a clear and unmistakable right to be protected; (2) a
violation of that right; (3) that there is an urgent and permanent act and urgent necessity for the
writ to prevent serious damage.36 Thus, in the absence of a clear legal right, the issuance of the
injunctive writ constitutes a grave abuse of discretion. Where the complainants right is doubtful
or disputed, injunction is not proper. Injunction is a preservative remedy aimed at protecting
substantial rights and interests. It is not designed to protect contingent or future rights. The
possibility of irreparable damage without proof of adequate existing rights is not a ground for
injunction.37
We have reviewed the pleadings of the parties and found that, as contended by the
respondents, the petitioner failed to establish the essential requisites for the issuance of a writ
of preliminary injunction. Hence, the trial court committed a grave abuse of its discretion
amounting to excess or lack of jurisdiction in denying the respondents comment/motion as well
as their motion for reconsideration.
First. The trial court cannot enjoin the respondents, at the instance of the petitioner, from
selling, disposing of and encumbering their property. As the registered owners of the property,
the respondents have the right to enjoy and dispose of their property without any other
limitations than those established by law, in accordance with Article 428 of the Civil Code. The
right to dispose of the property is the power of the owner to sell, encumber, transfer, and even
destroy the property. Ownership also includes the right to recover the possession of the
property from any other person to whom the owner has not transmitted such property, by the
appropriate action for restitution, with the fruits, and for indemnification for damages. 38 The right
of ownership of the respondents is not, of course, absolute. It is limited by those set forth by
law, such as the agrarian reform laws. Under Article 1306 of the New Civil Code, the
respondents may enter into contracts covering their property with another under such terms
and conditions as they may deem beneficial provided they are not contrary to law, morals,
good conduct, public order or public policy.
The respondents cannot be enjoined from selling or encumbering their property simply and
merely because they had executed Deeds of Assignment in favor of the petitioner, obliging
themselves to assign and transfer their rights or interests as agricultural farmers/laborers/subtenants over the landholding, and granting the petitioner the exclusive right to buy the property
subject to the occurrence of certain conditions. The respondents were not parties to the said
deeds. There is no evidence that the respondents agreed, expressly or impliedly, to the said
deeds or to the terms and conditions set forth therein. Indeed, they assailed the validity of the

said deeds on their claim that the same were contrary to the letter and spirit of P.D. No. 27 and
Rep. Act No. 6657. The petitioner even admitted when he testified that he did not know any of
the respondents, and that he had not met any of them before he filed his complaint in the RTC.
He did not even know that one of those whom he had impleaded as defendant, Angelica Vda.
de Lacson, was already dead.
Q: But you have not met any of these Lacsons?
A: Not yet, sir.
Q: Do you know that two (2) of the defendants are residents of the United States?
A: I do not know, sir.
Q: You do not know also that Angela Tiotuvie (sic) Vda. de Lacson had already been
dead?
A: I am aware of that, sir.39
We are one with the Court of Appeals in its ruling that:
We cannot see our way clear on how or why injunction should lie against petitioners. As
owners of the lands being tilled by TIAMSON, et al., petitioners, under the law, have the right to
enjoy and dispose of the same. Thus, they have the right to possess the lands, as well as the
right to encumber or alienate them. This principle of law notwithstanding, private respondent in
the lower court sought to restrain the petitioners from encumbering and/or alienating the
properties covered by TCT No. 35922-R, 35923-R and TCT No. 35925-R of the Registry of
Deeds of San Fernando, Pampanga. This cannot be allowed to prosper since it would
constitute a limitation or restriction, not otherwise established by law on their right of
ownership, more so considering that petitioners were not even privy to the alleged transaction
between private respondent and TIAMSON, et al.40
Second. A reading the averments of the complaint will show that the petitioner clearly has no
cause of action against the respondents for the principal relief prayed for therein, for the trial
court to fix a period within which to pay to each of the defendants-tenants the balance of the
P50.00 per square meter, the consideration under the Deeds of Assignment executed by the
defendants-tenants. The respondents are not parties or privies to the deeds of assignment.
The matter of the period for the petitioner to pay the balance of the said amount to each of the
defendants-tenants is an issue between them, the parties to the deed.
Third. On the face of the complaint, the action of the petitioner against the respondents and the
defendants-tenants has no legal basis. Under the Deeds of Assignment, the obligation of the
petitioner to pay to each of the defendants-tenants the balance of the purchase price was
conditioned on the occurrence of the following events: (a) the respondents agree to sell their
property to the petitioner; (b) the legal impediments to the sale of the landholding to the
petitioner no longer exist; and, (c) the petitioner decides to buy the property. When he testified,
the petitioner admitted that the legal impediments referred to in the deeds were (a) the

respondents refusal to sell their property; and, (b) the lack of approval of the Department of
Agrarian Reform:
Q : There is no specific agreement prior to the execution of those documents as when
they will pay?
A : We agreed to that, that I will pay them when there are no legal impediment, sir.
Q : Many of the documents are unlattered (sic) and you want to convey to this
Honorable Court that prior to the execution of these documents you have those
tentative agreement for instance that the amount or the cost of the price is to be paid
when there are no legal impediment, you are using the word "legal impediment," do
you know the meaning of that?
A : When there are (sic) no more legal impediment exist, sir.
Q : Did you make how (sic) to the effect that the meaning of that phrase that you used
the unlettered defendants?
A : We have agreed to that, sir.
ATTY. OCAMPO:
May I ask, Your Honor, that the witness please answer my question not to answer in
the way he wanted it.
COURT:
Just answer the question, Mr. Tayag.
WITNESS:
Yes, Your Honor.
ATTY. OCAMPO:
Q : Did you explain to them?
A : Yes, sir.
Q : What did you tell them?
A : I explain[ed] to them, sir, that the legal impediment then especially if the Lacsons
will not agree to sell their shares to me or to us it would be hard to (sic) me to pay them
in full. And those covered by DAR. I explain[ed] to them and it was clearly stated in the
title that there is [a] prohibited period of time before you can sell the property. I
explained every detail to them.41

It is only upon the occurrence of the foregoing conditions that the petitioner would be obliged to
pay to the defendants-tenants the balance of the P50.00 per square meter under the deeds of
assignment. Thus:
2. That in case the ASSIGNOR and LANDOWNER will mutually agree to sell the said
lot to the ASSIGNEE, who is given an exclusive and absolute right to buy the lot, the
ASSIGNOR shall receive the sum of FIFTY PESOS (P50.00) per square meter as
consideration of the total area actually tilled and possessed by the ASSIGNOR, less
whatever amount received by the ASSIGNOR including commissions, taxes and all
allowable deductions relative to the sale of the subject properties.
3. That this exclusive and absolute right given to the ASSIGNEE shall be exercised
only when no legal impediments exist to the lot to effect the smooth transfer of lawful
ownership of the lot/property in the name of the ASSIGNEE;
4. That the ASSIGNOR will remain in peaceful possession over the said property and
shall enjoy the fruits/earnings and/or harvest of the said lot until such time that full
payment of the agreed purchase price had been made by the ASSIGNEE. 42
There is no showing in the petitioners complaint that the respondents had agreed to sell their
property, and that the legal impediments to the agreement no longer existed. The petitioner
and the defendants-tenants had yet to submit the Deeds of Assignment to the Department of
Agrarian Reform which, in turn, had to act on and approve or disapprove the same. In fact, as
alleged by the petitioner in his complaint, he was yet to meet with the defendants-tenants to
discuss the implementation of the deeds of assignment. Unless and until the Department of
Agrarian Reform approved the said deeds, if at all, the petitioner had no right to enforce the
same in a court of law by asking the trial court to fix a period within which to pay the balance of
the purchase price and praying for injunctive relief.
We do not agree with the contention of the petitioner that the deeds of assignment executed by
the defendants-tenants are perfected option contracts.43 An option is a contract by which the
owner of the property agrees with another person that he shall have the right to buy his
property at a fixed price within a certain time. It is a condition offered or contract by which the
owner stipulates with another that the latter shall have the right to buy the property at a fixed
price within a certain time, or under, or in compliance with certain terms and conditions, or
which gives to the owner of the property the right to sell or demand a sale. It imposes no
binding obligation on the person holding the option, aside from the consideration for the offer.
Until accepted, it is not, properly speaking, treated as a contract. 44 The second party gets in
praesenti, not lands, not an agreement that he shall have the lands, but the right to call for and
receive lands if he elects.45 An option contract is a separate and distinct contract from which the
parties may enter into upon the conjunction of the option. 46
In this case, the defendants-tenants-subtenants, under the deeds of assignment, granted to
the petitioner not only an option but the exclusive right to buy the landholding. But the grantors
were merely the defendants-tenants, and not the respondents, the registered owners of the
property. Not being the registered owners of the property, the defendants-tenants could not
legally grant to the petitioner the option, much less the "exclusive right" to buy the property. As
the Latin saying goes, "NEMO DAT QUOD NON HABET."

Fourth. The petitioner impleaded the respondents as parties-defendants solely on his

allegation that the latter induced or are inducing the defendants-tenants to violate the deeds of
assignment, contrary to the provisions of Article 1314 of the New Civil Code which reads:
Art. 1314. Any third person who induces another to violate his contract shall be liable for
damages to the other contracting party.
In So Ping Bun v. Court of Appeals,47 we held that for the said law to apply, the pleader is
burdened to prove the following: (1) the existence of a valid contract; (2) knowledge by the
third person of the existence of the contract; and (3) interference by the third person in the
contractual relation without legal justification.
Where there was no malice in the interference of a contract, and the impulse behind ones
conduct lies in a proper business interest rather than in wrongful motives, a party cannot be a
malicious interferer. Where the alleged interferer is financially interested, and such interest
motivates his conduct, it cannot be said that he is an officious or malicious intermeddler.48
In fine, one who is not a party to a contract and who interferes thereon is not necessarily an
officious or malicious intermeddler. The only evidence adduced by the petitioner to prove his
claim is the letter from the defendants-tenants informing him that they had decided to sell their
rights and interests over the landholding to the respondents, instead of honoring their
obligation under the deeds of assignment because, according to them, the petitioner harassed
those tenants who did not want to execute deeds of assignment in his favor, and because the
said defendants-tenants did not want to have any problem with the respondents who could
cause their eviction for executing with the petitioner the deeds of assignment as the said deeds
are in violation of P.D. No. 27 and Rep. Act No. 6657.49 The defendants-tenants did not allege
therein that the respondents induced them to breach their contracts with the petitioner. The
petitioner himself admitted when he testified that his claim that the respondents induced the
defendants-assignees to violate contracts with him was based merely on what "he heard,"
thus:
Q: Going to your last statement that the Lacsons induces (sic) the defendants, did you
see that the Lacsons were inducing the defendants?
A: I heard and sometime in [the] first week of August, sir, they went in the barrio (sic).
As a matter of fact, that is the reason why they sent me letter that they will sell it to the
Lacsons.
Q: Incidentally, do you knew (sic) these Lacsons individually?
A: No, sir, it was only Mr. Espinosa who I knew (sic) personally, the alleged negotiator
and has the authority to sell the property.50
Even if the respondents received an offer from the defendants-tenants to assign and transfer
their rights and interests on the landholding, the respondents cannot be enjoined from
entertaining the said offer, or even negotiating with the defendants-tenants. The respondents
could not even be expected to warn the defendants-tenants for executing the said deeds in
violation of P.D. No. 27 and Rep. Act No. 6657. Under Section 22 of the latter law, beneficiaries

under P.D. No. 27 who have culpably sold, disposed of, or abandoned their land, are
disqualified from becoming beneficiaries.
From the pleadings of the petitioner, it is quite evident that his purpose in having the
defendants-tenants execute the Deeds of Assignment in his favor was to acquire the
landholding without any tenants thereon, in the event that the respondents agreed to sell the
property to him. The petitioner knew that under Section 11 of Rep. Act No. 3844, if the
respondents agreed to sell the property, the defendants-tenants shall have preferential right to
buy the same under reasonable terms and conditions:
SECTION 11. Lessees Right of Pre-emption. In case the agricultural lessor desires to sell
the landholding, the agricultural lessee shall have the preferential right to buy the same under
reasonable terms and conditions: Provided, That the entire landholding offered for sale must
be pre-empted by the Land Authority if the landowner so desires, unless the majority of the
lessees object to such acquisition: Provided, further, That where there are two or more
agricultural lessees, each shall be entitled to said preferential right only to the extent of the
area actually cultivated by him. 51
Under Section 12 of the law, if the property was sold to a third person without the knowledge of
the tenants thereon, the latter shall have the right to redeem the same at a reasonable price
and consideration. By assigning their rights and interests on the landholding under the deeds
of assignment in favor of the petitioner, the defendants-tenants thereby waived, in favor of the
petitioner, who is not a beneficiary under Section 22 of Rep. Act No. 6657, their rights of
preemption or redemption under Rep. Act No. 3844. The defendants-tenants would then have
to vacate the property in favor of the petitioner upon full payment of the purchase price. Instead
of acquiring ownership of the portions of the landholding respectively tilled by them, the
defendants-tenants would again become landless for a measly sum of P50.00 per square
meter. The petitioners scheme is subversive, not only of public policy, but also of the letter and
spirit of the agrarian laws. That the scheme of the petitioner had yet to take effect in the future
or ten years hence is not a justification. The respondents may well argue that the agrarian laws
had been violated by the defendants-tenants and the petitioner by the mere execution of the
deeds of assignment. In fact, the petitioner has implemented the deeds by paying the
defendants-tenants amounts of money and even sought their immediate implementation by
setting a meeting with the defendants-tenants. In fine, the petitioner would not wait for ten
years to evict the defendants-tenants. For him, time is of the essence.
The Appellate Court Erred
In Permanently Enjoining
The Regional Trial Court
From Continuing with the
Proceedings in Civil Case No. 10910.
We agree with the petitioners contention that the appellate court erred when it permanently
enjoined the RTC from continuing with the proceedings in Civil Case No. 10910. The only issue
before the appellate court was whether or not the trial court committed a grave abuse of
discretion amounting to excess or lack of jurisdiction in denying the respondents motion to
deny or dismiss the petitioners plea for a writ of preliminary injunction. Not one of the parties
prayed to permanently enjoin the trial court from further proceeding with Civil Case No. 10910
or to dismiss the complaint. It bears stressing that the petitioner may still amend his complaint,

and the respondents and the defendants-tenants may file motions to dismiss the complaint. By
permanently enjoining the trial court from proceeding with Civil Case No. 10910, the appellate
court acted arbitrarily and effectively dismissed the complaint motu proprio, including the
counterclaims of the respondents and that of the defendants-tenants. The defendants-tenants
were even deprived of their right to prove their special and affirmative defenses.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The Decision of
the Court of Appeals nullifying the February 13, 1996 and April 16, 1997 Orders of the RTC is
AFFIRMED. The writ of injunction issued by the Court of Appeals permanently enjoining the
RTC from further proceeding with Civil Case No. 10910 is hereby LIFTED and SET ASIDE.
The Regional Trial Court of Mabalacat, Pampanga, Branch 44, is ORDERED to continue with
the proceedings in Civil Case No. 10910 as provided for by the Rules of Court, as amended.
G.R. No. L-9356

February 18, 1915

C. S. GILCHRIST, plaintiff-appellee,
vs.
E. A. CUDDY, ET AL., defendants.
JOSE FERNANDEZ ESPEJO and MARIANO ZALDARRIAGA, appellants.
C. Lozano for appellants.
Bruce, Lawrence, Ross and Block for appellee.
TRENT, J.:
An appeal by the defendants, Jose Fernandez Espejo and Mariano Zaldarriaga, from a
judgment of the Court of First Instance of Iloilo, dismissing their cross-complaint upon the
merits for damages against the plaintiff for the alleged wrongful issuance of a mandatory and a
preliminary injunction.
Upon the application of the appellee an ex parte mandatory injunction was issued on the 22d
of May, 1913, directing the defendant, E. A. Cuddy, to send to the appellee a certain
cinematograph film called "Zigomar" in compliance with an alleged contract which had been
entered into between these two parties, and at the time anex parte preliminary injunction was
issued restraining the appellants from receiving and exhibiting in their theater the Zigomar until
further orders of the court. On the 26th of that month the appellants appeared and moved the
court to dissolve the preliminary injunction. When the case was called for trial on August 6, the
appellee moved for the dismissal of the complaint "for the reason that there is no further
necessity for the maintenance of the injunction." The motion was granted without objection as
to Cuddy and denied as to the appellants in order to give them an opportunity to prove that the
injunction were wrongfully issued and the amount of damages suffered by reason thereof.
The pertinent part of the trial court's findings of fact in this case is as follows:

It appears in this case that Cuddy was the owner of the film Zigomar and that on the
24th of April he rented it to C. S. Gilchrist for a week for P125, and it was to be
delivered on the 26th of May, the week beginning that day. A few days prior to this
Cuddy sent the money back to Gilchrist, which he had forwarded to him in Manila,
saying that he had made other arrangements with his film. The other arrangements
was the rental to these defendants Espejo and his partner for P350 for the week and
the injunction was asked by Gilchrist against these parties from showing it for the week
beginning the 26th of May.
It appears from the testimony in this case, conclusively, that Cuddy willfully violated his
contract, he being the owner of the picture, with Gilchrist because the defendants had
offered him more for the same period. Mr. Espejo at the trial on the permanent
injunction on the 26th of May admitted that he knew that Cuddy was the owner of the
film. He was trying to get it through his agents Pathe Brothers in Manila. He is the
agent of the same concern in Iloilo. There is in evidence in this case on the trial today
as well as on the 26th of May, letters showing that the Pathe Brothers in Manila
advised this man on two different occasions not to contend for this film Zigomar
because the rental price was prohibitive and assured him also that he could not get the
film for about six weeks. The last of these letters was written on the 26th of April, which
showed conclusively that he knew they had to get this film from Cuddy and from this
letter that the agent in Manila could not get it, but he made Cuddy an offer himself and
Cuddy accepted it because he was paying about three times as much as he had
contracted with Gilchrist for. Therefore, in the opinion of this court, the defendants
failed signally to show the injunction against the defendant was wrongfully procured.
The appellants duly excepted to the order of the court denying their motion for new trial on the
ground that the evidence was insufficient to justify the decision rendered. There is lacking from
the record before us the deposition of the defendant Cuddy, which apparently throws light upon
a contract entered into between him and the plaintiff Gilchrist. The contents of this deposition
are discussed at length in the brief of the appellants and an endeavor is made to show that no
such contract was entered into. The trial court, which had this deposition before it, found that
there was a contract between Cuddy and Gilchrist. Not having the deposition in question
before us, it is impossible to say how strongly it militates against this findings of fact. By a
series of decisions we have construed section 143 and 497 (2) of the Code of Civil Procedure
to require the production of all the evidence in this court. This is the duty of the appellant and,
upon his failure to perform it, we decline to proceed with a review of the evidence. In such
cases we rely entirely upon the pleadings and the findings of fact of the trial court and examine
only such assigned errors as raise questions of law. (Ferrer vs. Neri Abejuela, 9 Phil. Rep.,
324; Valle vs. Galera, 10 Phil. Rep., 619; Salvacion vs. Salvacion, 13 Phil. Rep., 366;
Breta vs. Smith, Bell & Co., 15 Phil. Rep., 446; Arroyo vs. Yulo, 18 Phil. Rep., 236; Olsen &
Co. vs. Matson, Lord & Belser Co., 19 Phil. Rep., 102; Blum vs. Barretto, 19 Phil. Rep., 161;
Cuyugan vs. Aguas, 19 Phil. Rep., 379; Mapa vs. Chaves, 20 Phil. Rep., 147; Mans vs. Garry,
20 Phil. Rep., 134.) It is true that some of the more recent of these cases make exceptions to

the general rule. Thus, in Olsen & Co. vs. Matson, Lord & Belser Co., (19 Phil. Rep., 102), that
portion of the evidence before us tended to show that grave injustice might result from a strict
reliance upon the findings of fact contained in the judgment appealed from. We, therefore,
gave the appellant an opportunity to explain the omission. But we required that such
explanation must show a satisfactory reason for the omission, and that the missing portion of
the evidence must be submitted within sixty days or cause shown for failing to do so. The other
cases making exceptions to the rule are based upon peculiar circumstances which will seldom
arise in practice and need not here be set forth, for the reason that they are wholly inapplicable
to the present case. The appellants would be entitled to indulgence only under the doctrine of
the Olsen case. But from that portion of the record before us, we are not inclined to believe that
the missing deposition would be sufficient to justify us in reversing the findings of fact of the
trial court that the contract in question had been made. There is in the record not only the
positive and detailed testimony of Gilchrist to this effect, but there is also a letter of apology
from Cuddy to Gilchrist in which the former enters into a lengthy explanation of his reasons for
leasing the film to another party. The latter could only have been called forth by a broken
contract with Gilchrist to lease the film to him. We, therefore, fail to find any reason for
overlooking the omission of the defendants to bring up the missing portion of the evidence and,
adhering to the general rule above referred to, proceed to examine the questions of law raised
by the appellants.
From the above-quoted findings of fact it is clear that Cuddy, a resident of Manila, was the
owner of the "Zigomar;" that Gilchrist was the owner of a cinematograph theater in Iloilo; that in
accordance with the terms of the contract entered into between Cuddy and Gilchrist the former
leased to the latter the "Zigomar" for exhibition in his (Gilchrist's) theater for the week
beginning May 26, 1913; and that Cuddy willfully violate his contract in order that he might
accept the appellant's offer of P350 for the film for the same period. Did the appellants know
that they were inducing Cuddy to violate his contract with a third party when they induced him
to accept the P350? Espejo admitted that he knew that Cuddy was the owner of the film. He
received a letter from his agents in Manila dated April 26, assuring him that he could not get
the film for about six weeks. The arrangement between Cuddy and the appellants for the
exhibition of the film by the latter on the 26th of May were perfected after April 26, so that the
six weeks would include and extend beyond May 26. The appellants must necessarily have
known at the time they made their offer to Cuddy that the latter had booked or contracted the
film for six weeks from April 26. Therefore, the inevitable conclusion is that the appellants
knowingly induced Cuddy to violate his contract with another person. But there is no specific
finding that the appellants knew the identity of the other party. So we must assume that they
did not know that Gilchrist was the person who had contracted for the film.
The appellants take the position that if the preliminary injunction had not been issued against
them they could have exhibited the film in their theater for a number of days beginning May 26,
and could have also subleased it to other theater owners in the nearby towns and, by so doing,
could have cleared, during the life of their contract with Cuddy, the amount claimed as
damages. Taking this view of the case, it will be unnecessary for us to inquire whether the

mandatory injunction against Cuddy was properly issued or not. No question is raised with
reference to the issuance of that injunction.
The right on the part of Gilchrist to enter into a contract with Cuddy for the lease of the film
must be fully recognized and admitted by all. That Cuddy was liable in an action for damages
for the breach of that contract, there can be no doubt. Were the appellants likewise liable for
interfering with the contract between Gilchrist and Cuddy, they not knowing at the time the
identity of one of the contracting parties? The appellants claim that they had a right to do what
they did. The ground upon which the appellants base this contention is, that there was no valid
and binding contract between Cuddy and Gilchrist and that, therefore, they had a right to
compete with Gilchrist for the lease of the film, the right to compete being a justification for their
acts. If there had been no contract between Cuddy and Gilchrist this defense would be tenable,
but the mere right to compete could not justify the appellants in intentionally inducing Cuddy to
take away the appellee's contractual rights.
Chief Justice Wells in Walker vs. Cronin (107 Mass., 555), said: "Everyone has a right to enjoy
the fruits and advantages of his own enterprise, industry, skill and credit. He has no right to be
free from malicious and wanton interference, disturbance or annoyance. If disturbance or loss
come as a result of competition, or the exercise of like rights by others, it is damnum absque
injuria, unless some superior right by contract or otherwise is interfered with."
In Read vs. Friendly Society of Operative Stonemasons ([1902] 2 K. B., 88), Darling, J., said: "I
think the plaintiff has a cause of action against the defendants, unless the court is satisfied
that, when they interfered with the contractual rights of plaintiff, the defendants had a sufficient
justification for their interference; . . . for it is not a justification that `they acted bona fide in the
best interests of the society of masons,' i. e., in their own interests. Nor is it enough that `they
were not actuated by improper motives.' I think their sufficient justification for interference with
plaintiff's right must be an equal or superior right in themselves, and that no one can legally
excuse himself to a man, of whose contract he has procured the breach, on the ground that he
acted on a wrong understanding of his own rights, or without malice, or bona fide, or in the best
interests of himself, or even that he acted as an altruist, seeking only good of another and
careless of his own advantage." (Quoted with approval in Beekman vs. Marsters, 195 Mass.,
205.)
It is said that the ground on which the liability of a third party for interfering with a contract
between others rests, is that the interference was malicious. The contrary view, however, is
taken by the Supreme Court of the United States in the case of Angle vs. Railway Co. (151 U.
S., 1). The only motive for interference by the third party in that case was the desire to make a
profit to the injury of one of the parties of the contract. There was no malice in the case beyond
the desire to make an unlawful gain to the detriment of one of the contracting parties.
In the case at bar the only motive for the interference with the Gilchrist Cuddy contract on
the part of the appellants was a desire to make a profit by exhibiting the film in their theater.

There was no malice beyond this desire; but this fact does not relieve them of the legal liability
for interfering with that contract and causing its breach. It is, therefore, clear, under the above
authorities, that they were liable to Gilchrist for the damages caused by their acts, unless they
are relieved from such liability by reason of the fact that they did not know at the time the
identity of the original lessee (Gilchrist) of the film.
The liability of the appellants arises from unlawful acts and not from contractual obligations, as
they were under no such obligations to induce Cuddy to violate his contract with Gilchrist. So
that if the action of Gilchrist had been one for damages, it would be governed by chapter 2, title
16, book 4 of the Civil Code. Article 1902 of that code provides that a person who, by act or
omission, causes damages to another when there is fault or negligence, shall be obliged to
repair the damage do done. There is nothing in this article which requires as a condition
precedent to the liability of a tort-feasor that he must know the identity of a person to whom he
causes damages. In fact, the chapter wherein this article is found clearly shows that no such
knowledge is required in order that the injured party may recover for the damage suffered.
But the fact that the appellants' interference with the Gilchrist contract was actionable did not of
itself entitle Gilchrist to sue out an injunction against them. The allowance of this remedy must
be justified under section 164 of the Code of Civil Procedure, which specifies the circumstance
under which an injunction may issue. Upon the general doctrine of injunction we said in
Devesa vs. Arbes (13 Phil. Rep., 273):
An injunction is a "special remedy" adopted in that code (Act No. 190) from American
practice, and originally borrowed from English legal procedure, which was there issued
by the authority and under the seal of a court of equity, and limited, as in order cases
where equitable relief is sought, to cases where there is no "plain, adequate, and
complete remedy at law," which "will not be granted while the rights between the
parties are undetermined, except in extraordinary cases where material and irreparable
injury will be done," which cannot be compensated in damages, and where there will
be no adequate remedy,and which will not, as a rule, be granted, to take property out
of the possession of one party and put it into that of another whose title has not been
established by law.
We subsequently affirmed the doctrine of the Devesa case in Palafox vs. Madamba (19 Phil.,
Rep., 444), and we take this occasion of again affirming it, believing, as we do, that the
indiscriminate use of injunctions should be discouraged.
Does the fact that the appellants did not know at the time the identity of the original lessee of
the film militate against Gilchrist's right to a preliminary injunction, although the appellant's
incurred civil liability for damages for such interference? In the examination of the adjudicated
cases, where in injunctions have been issued to restrain wrongful interference with contracts
by strangers to such contracts, we have been unable to find any case where this precise
question was involved, as in all of those cases which we have examined, the identity of both of

the contracting parties was known to the tort-feasors. We might say, however, that this fact
does not seem to have a controlling feature in those cases. There is nothing in section 164 of
the Code of Civil Procedure which indicates, even remotely, that before an injunction may issue
restraining the wrongful interference with contrast by strangers, the strangers must know the
identity of both parties. It would seem that this is not essential, as injunctions frequently issue
against municipal corporations, public service corporations, public officers, and others to
restrain the commission of acts which would tend to injuriously affect the rights of person
whose identity the respondents could not possibly have known beforehand. This court has held
that in a proper case injunction will issue at the instance of a private citizen to restrain ultra
vires acts of public officials. (Severino vs. Governor-General, 16 Phil. Rep., 366.) So we
proceed to the determination of the main question of whether or not the preliminary injunction
ought to have been issued in this case.
As a rule, injunctions are denied to those who have an adequate remedy at law. Where the
choice is between the ordinary and the extraordinary processes of law, and the former are
sufficient, the rule will not permit the use of the latter. (In re Debs, 158 U. S., 564.) If the injury
is irreparable, the ordinary process is inadequate. In Wahle vs.Reinbach (76 Ill., 322), the
supreme court of Illinois approved a definition of the term "irreparable injury" in the following
language: "By `irreparable injury' is not meant such injury as is beyond the possibility of repair,
or beyond possible compensation in damages, nor necessarily great injury or great damage,
but that species of injury, whether great or small, that ought not to be submitted to on the one
hand or inflicted on the other; and, because it is so large on the one hand, or so small on the
other, is of such constant and frequent recurrence that no fair or reasonable redress can be
had therefor in a court of law." (Quoted with approval in Nashville R. R. Co.vs. McConnell, 82
Fed., 65.)
The case at bar is somewhat novel, as the only contract which was broken was that between
Cuddy and Gilchrist, and the profits of the appellee depended upon the patronage of the
public, for which it is conceded the appellants were at liberty to complete by all fair does not
deter the application of remarked in the case of the "ticket scalpers" (82 Fed., 65), the novelty
of the facts does not deter the application of equitable principles. This court takes judicial
notice of the general character of a cinematograph or motion-picture theater. It is a quite
modern form of the play house, wherein, by means of an apparatus known as a cinematograph
or cinematograph, a series of views representing closely successive phases of a moving
object, are exhibited in rapid sequence, giving a picture which, owing to the persistence of
vision, appears to the observer to be in continuous motion. (The Encyclopedia Britanica, vol. 6,
p. 374.) The subjects which have lent themselves to the art of the photographer in this manner
have increased enormously in recent years, as well as have the places where such exhibition
are given. The attendance, and, consequently, the receipts, at one of these cinematograph or
motion-picture theaters depends in no small degree upon the excellence of the photographs,
and it is quite common for the proprietor of the theater to secure an especially attractive exhibit
as his "feature film" and advertise it as such in order to attract the public. This feature film is
depended upon to secure a larger attendance that if its place on the program were filled by

other films of mediocre quality. It is evident that the failure to exhibit the feature film will reduce
the receipts of the theater.
Hence, Gilchrist was facing the immediate prospect of diminished profits by reason of the fact
that the appellants had induced Cuddy to rent to them the film Gilchrist had counted upon as
his feature film. It is quite apparent that to estimate with any decree of accuracy the damages
which Gilchrist would likely suffer from such an event would be quite difficult if not impossible. If
he allowed the appellants to exhibit the film in Iloilo, it would be useless for him to exhibit it
again, as the desire of the public to witness the production would have been already satisfied.
In this extremity, the appellee applied for and was granted, as we have indicated, a mandatory
injunction against Cuddy requiring him to deliver the Zigomar to Gilchrist, and a preliminary
injunction against the appellants restraining them from exhibiting that film in their theater during
the weeks he (Gilchrist) had a right to exhibit it. These injunction saved the plaintiff harmless
from damages due to the unwarranted interference of the defendants, as well as the difficult
task which would have been set for the court of estimating them in case the appellants had
been allowed to carry out their illegal plans. As to whether or not the mandatory injunction
should have been issued, we are not, as we have said, called upon to determine. So far as the
preliminary injunction issued against the appellants is concerned, which prohibited them from
exhibiting the Zigomar during the week which Gilchrist desired to exhibit it, we are of the
opinion that the circumstances justified the issuance of that injunction in the discretion of the
court.
We are not lacking in authority to support our conclusion that the court was justified in issuing
the preliminary injunction against the appellants. Upon the precise question as to whether
injunction will issue to restrain wrongful interference with contracts by strangers to such
contracts, it may be said that courts in the United States have usually granted such relief
where the profits of the injured person are derived from his contractual relations with a large
and indefinite number of individuals, thus reducing him to the necessity of proving in an action
against the tort-feasor that the latter was responsible in each case for the broken contract, or
else obliging him to institute individual suits against each contracting party and so exposing
him to a multiplicity of suits. Sperry & Hutchinson Co. vs. Mechanics' Clothing Co. (128 Fed.,
800); Sperry & Hutchinson Co. vs. Louis Weber & Co. (161 Fed., 219); Sperry & Hutchinson
Co. vs. Pommer (199 Fed., 309); were all cases wherein the respondents were inducing retail
merchants to break their contracts with the company for the sale of the latters' trading stamps.
Injunction issued in each case restraining the respondents from interfering with such contracts.
In the case of the Nashville R. R. Co. vs. McConnell (82 Fed., 65), the court, among other
things, said: "One who wrongfully interferes in a contract between others, and, for the purpose
of gain to himself induces one of the parties to break it, is liable to the party injured thereby;
and his continued interference may be ground for an injunction where the injuries resulting will
be irreparable."

In Hamby & Toomer vs. Georgia Iron & Coal Co. (127 Ga., 792), it appears that the
respondents were interfering in a contract for prison labor, and the result would be, if they were
successful, the shutting down of the petitioner's plant for an indefinite time. The court held that
although there was no contention that the respondents were insolvent, the trial court did not
abuse its discretion in granting a preliminary injunction against the respondents.
In Beekman vs. Marsters (195 Mass., 205), the plaintiff had obtained from the Jamestown
Hotel Corporation, conducting a hotel within the grounds of the Jamestown Exposition, a
contract whereby he was made their exclusive agent for the New England States to solicit
patronage for the hotel. The defendant induced the hotel corporation to break their contract
with the plaintiff in order to allow him to act also as their agent in the New England States. The
court held that an action for damages would not have afforded the plaintiff adequate relief, and
that an injunction was proper compelling the defendant to desist from further interference with
the plaintiff's exclusive contract with the hotel company.
In Citizens' Light, Heat & Power Co. vs. Montgomery Light & Water Power Co. (171 Fed., 553),
the court, while admitting that there are some authorities to the contrary, held that the current
authority in the United States and England is that:
The violation of a legal right committed knowingly is a cause of action, and that it is a
violation of a legal right to interfere with contractual relations recognized by law, if there
be no sufficient justification for the interference. (Quinn vs. Leatham, supra, 510;
Angle vs. Chicago, etc., Ry. Co., 151 U. S., 1; 14 Sup. Ct., 240; 38 L. Ed., 55;
Martens vs. Reilly, 109 Wis., 464, 84 N. W., 840; Rice vs. Manley, 66 N. Y., 82; 23 Am.
Rep., 30; Bitterman vs. L. & N. R. R. Co., 207 U. S., 205; 28 Sup. Ct., 91; 52 L. Ed.,
171; Beekman vs.Marsters, 195 Mass., 205; 80 N. E., 817; 11 L. R. A. [N. S.] 201; 122
Am. St. Rep., 232; South Wales Miners' Fed. vs. Glamorgan Coal Co., Appeal Cases,
1905, p. 239.)
See also Nims on Unfair Business Competition, pp. 351- 371.
In 3 Elliot on Contracts, section 2511, it is said: "Injunction is the proper remedy to prevent a
wrongful interference with contract by strangers to such contracts where the legal remedy is
insufficient and the resulting injury is irreparable. And where there is a malicious interference
with lawful and valid contracts a permanent injunction will ordinarily issue without proof of
express malice. So, an injunction may be issued where the complainant to break their
contracts with him by agreeing to indemnify who breaks his contracts of employment may be
adjoined from including other employees to break their contracts and enter into new contracts
with a new employer of the servant who first broke his contract. But the remedy by injunction
cannot be used to restrain a legitimate competition, though such competition would involve the
violation of a contract. Nor will equity ordinarily enjoin employees who have quit the service of
their employer from attempting by proper argument to persuade others from taking their places
so long as they do not resort to force or intimidations on obstruct the public thoroughfares."

Beekman vs. Marster, supra, is practically on all fours with the case at bar in that there was
only one contract in question and the profits of the injured person depended upon the
patronage of the public. Hamby & Toomer vs.Georgia Iron & Coal Co., supra, is also similar to
the case at bar in that there was only one contract, the interference of which was stopped by
injunction.
For the foregoing reasons the judgment is affirmed, with costs, against the appellants.
Arellano, C.J., Torres, Carson and Araullo, JJ., concur.
G.R. No. 120554 September 21, 1999
SO PING BUN, petitioner,
vs.
COURT OF APPEALS, TEK HUA ENTERPRISES CORP. and MANUEL C.
TIONG, respondents.

QUISUMBING, J.:
This petition for certiorari challenges the Decision 1 of the Court of Appeals dated October 10,
1994, and the Resolution2 dated June 5, 1995, in CA-G.R. CV No. 38784. The appellate court
affirmed the decision of the Regional Trial Court of Manila, Branch 35, except for the award of
attorney's fees, as follows:
WHEREFORE, foregoing considered, the appeal of respondent-appellant So
Ping Bun for lack of merit is DISMISSED. The appealed decision dated April 20,
1992 of the court a quo is modified by reducing the attorney's fees awarded to
plaintiff Tek Hua Enterprising Corporation from P500,000.00 to P200,000.00. 3
The facts are as follows:
In 1963, Tek Hua Trading Co, through its managing partner, So Pek Giok, entered into lease
agreements with lessor Dee C. Chuan & Sons Inc. (DCCSI). Subjects of four (4) lease
contracts were premises located at Nos. 930, 930-Int., 924-B and 924-C, Soler Street,
Binondo, Manila. Tek Hua used the areas to store its textiles. The contracts each had a oneyear term. They provided that should the lessee continue to occupy the premises after the
term, the lease shall be on a month-to-month basis.
When the contracts expired, the parties did not renew the contracts, but Tek Hua continued to
occupy the premises. In 1976, Tek Hua Trading Co. was dissolved. Later, the original members

of Tek Hua Trading Co. including Manuel C. Tiong, formed Tek Hua Enterprising Corp., herein
respondent corporation.
So Pek Giok, managing partner of Tek Hua Trading, died in 1986. So Pek Giok's grandson,
petitioner So Ping Bun, occupied the warehouse for his own textile business, Trendsetter
Marketing.
On August 1, 1989, lessor DCCSI sent letters addressed to Tek Hua Enterprises, informing the
latter of the 25% increase in rent effective September 1, 1989. The rent increase was later on
reduced to 20% effective January 1, 1990, upon other lessees' demand. Again on December 1,
1990, the lessor implemented a 30% rent increase. Enclosed in these letters were new lease
contracts for signing. DCCSI warned that failure of the lessee to accomplish the contracts shall
be deemed as lack of interest on the lessee's part, and agreement to the termination of the
lease. Private respondents did not answer any of these letters. Still, the lease contracts were
not rescinded.
On March 1, 1991, private respondent Tiong sent a letter to petitioner which reads as follows:
March 1, 1991
Mr. So Ping Bun
930 Soler Street
Binondo, Manila
Dear Mr. So,
Due to my closed (sic) business associate (sic) for three decades with your late
grandfather Mr. So Pek Giok and late father, Mr. So Chong Bon, I allowed you
temporarily to use the warehouse of Tek Hua Enterprising Corp. for several
years to generate your personal business.
Since I decided to go back into textile business, I need a warehouse
immediately for my stocks. Therefore, please be advised to vacate all your
stocks in Tek Hua Enterprising Corp. Warehouse. You are hereby given 14
days to vacate the premises unless you have good reasons that you have the
right to stay. Otherwise, I will be constrained to take measure to protect my
interest.
Please give this urgent matter your preferential attention to avoid
inconvenience on your part.

Very truly yours,

(Sgd) Manuel C. Tiong
MANUEL C. TIONG
President 4
Petitioner refused to vacate. On March 4, 1992, petitioner requested formal contracts of lease
with DCCSI in favor Trendsetter Marketing. So Ping Bun claimed that after the death of his
grandfather, So Pek Giok, he had been occupying the premises for his textile business and
religiously paid rent. DCCSI acceded to petitioner's request. The lease contracts in favor of
Trendsetter were executed.
In the suit for injunction, private respondents pressed for the nullification of the lease contracts
between DCCSI and petitioner. They also claimed damages.
After trial, the trial court ruled:
WHEREFORE, judgment is rendered:
1. Annulling the four Contracts of Lease
(Exhibits A, A-1 to A-3, inclusive) all dated March
11, 1991, between defendant So Ping Bun,
doing business under the name and style of
"Trendsetter Marketing", and defendant Dee C.
Chuan & Sons, Inc. over the premises located at
Nos. 924-B, 924-C, 930 and 930, Int.,
respectively, Soler Street, Binondo Manila;
2. Making permanent the writ of preliminary
injunction issued by this Court on June 21,
1991;
3. Ordering defendant So Ping Bun to pay the
aggrieved party, plaintiff Tek Hua Enterprising
Corporation, the sum of P500,000.00, for
attorney's fees;
4. Dismissing the complaint, insofar as plaintiff
Manuel C. Tiong is concerned, and the
respective counterclaims of the defendant;

5. Ordering defendant So Ping Bun to pay the

costs of this lawsuit;
This judgment is without prejudice to the rights of plaintiff Tek Hua Enterprising
Corporation and defendant Dee C. Chuan & Sons, Inc. to negotiate for the
renewal of their lease contracts over the premises located at Nos. 930, 930-Int.,
924-B and 924-C Soler Street, Binondo, Manila, under such terms and
conditions as they agree upon, provided they are not contrary to law, public
policy, public order, and morals.
SO ORDERED. 5
Petitioner's motion for reconsideration of the above decision was denied.
On appeal by So Ping Bun, the Court of Appeals upheld the trial court. On motion for
reconsideration, the appellate court modified the decision by reducing the award of attorney's
fees from five hundred thousand (P500,000.00) pesos to two hundred thousand (P200,000.00)
pesos.
Petitioner is now before the Court raising the following issues:
I. WHETHER THE APPELLATE COURT ERRED IN
AFFIRMING THE TRIAL COURT'S DECISION
FINDING SO PING BUN GUILTY OF TORTUOUS
INTERFERENCE OF CONTRACT?
II. WHETHER THE APPELLATE COURT ERRED IN
AWARDING ATTORNEY'S FEES OF P200,000.00 IN
FAVOR OF PRIVATE RESPONDENTS.
The foregoing issues involve, essentially, the correct interpretation of the applicable law on
tortuous conduct, particularly unlawful interference with contract. We have to begin, obviously,
with certain fundamental principles on torts and damages.
Damage is the loss, hurt, or harm which results from injury, and damages are the recompense
or compensation awarded for the damage suffered. 6 One becomes liable in an action for
damages for a nontrespassory invasion of another's interest in the private use and enjoyment of
asset if (a) the other has property rights and privileges with respect to the use or enjoyment
interfered with, (b) the invasion is substantial, (c) the defendant's conduct is a legal cause of the
invasion, and (d) the invasion is either intentional and unreasonable or unintentional and actionable
under general negligence rules. 7

The elements of tort interference are: (1) existence of a valid contract; (2) knowledge on the
part of the third person of the existence of contract; and (3) interference of the third person is
without legal justification or excuse.8
A duty which the law of torts is concerned with is respect for the property of others, and a
cause of action ex delicto may be predicated upon an unlawful interference by one person of
the enjoyment by the other of his private
property. 9 This may pertain to a situation where a third person induces a party to renege on or
violate his undertaking under a contract. In the case before us, petitioner's Trendsetter Marketing
asked DCCSI to execute lease contracts in its favor, and as a result petitioner deprived respondent
corporation of the latter's property right. Clearly, and as correctly viewed by the appellate court, the
three elements of tort interference above-mentioned are present in the instant case.
Authorities debate on whether interference may be justified where the defendant acts for the
sole purpose of furthering his own financial or economic interest. 10 One view is that, as a
general rule, justification for interfering with the business relations of another exists where the
actor's motive is to benefit himself. Such justification does not exist where his sole motive is to
cause harm to the other. Added to this, some authorities believe that it is not necessary that the
interferer's interest outweigh that of the party whose rights are invaded, and that an individual acts
under an economic interest that is substantial, not merely de minimis, such that wrongful and
malicious motives are negatived, for he acts in self-protection. 11 Moreover justification for protecting
one's financial position should not be made to depend on a comparison of his economic interest in
the subject matter with that of others. 12 It is sufficient if the impetus of his conduct lies in a proper
business interest rather than in wrongful motives. 13
As early as Gilchrist vs. Cuddy, 14 we held that where there was no malice in the interference of a
contract, and the impulse behind one's conduct lies in a proper business interest rather than in
wrongful motives, a party cannot be a malicious interferer. Where the alleged interferer is financially
interested, and such interest motivates his conduct, it cannot be said that he is an officious or
malicious intermeddler. 15
In the instant case, it is clear that petitioner So Ping Bun prevailed upon DCCSI to lease the
warehouse to his enterprise at the expense of respondent corporation. Though petitioner took
interest in the property of respondent corporation and benefited from it, nothing on record
imputes deliberate wrongful motives or malice on him.
Sec. 1314 of the Civil Code categorically provides also that, "Any third person who induces
another to violate his contract shall be liable for damages to the other contracting party."
Petitioner argues that damage is an essential element of tort interference, and since the trial
court and the appellate court ruled that private respondents were not entitled to actual, moral
or exemplary damages, it follows that he ought to be absolved of any liability, including
attorney's fees.

It is true that the lower courts did not award damages, but this was only because the extent of
damages was not quantifiable. We had a similar situation in Gilchrist, where it was difficult or
impossible to determine the extent of damage and there was nothing on record to serve as
basis thereof. In that case we refrained from awarding damages. We believe the same
conclusion applies in this case.
While we do not encourage tort interferers seeking their economic interest to intrude into
existing contracts at the expense of others, however, we find that the conduct herein
complained of did not transcend the limits forbidding an obligatory award for damages in the
absence of any malice. The business desire is there to make some gain to the detriment of the
contracting parties. Lack of malice, however, precludes damages. But it does not relieve
petitioner of the legal liability for entering into contracts and causing breach of existing ones.
The respondent appellate court correctly confirmed the permanent injunction and nullification
of the lease contracts between DCCSI and Trendsetter Marketing, without awarding damages.
The injunction saved the respondents from further damage or injury caused by petitioner's
interference.
Lastly, the recovery of attorney's fees in the concept of actual or compensatory damages, is
allowed under the circumstances provided for in Article 2208 of the Civil Code. 16 One such
occasion is when the defendant's act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest. 17 But we have consistently held that the award
of considerable damages should have clear factual and legal bases. 18 In connection with attorney's
fees, the award should be commensurate to the benefits that would have been derived from a
favorable judgment. Settled is the rule that fairness of the award of damages by the trial court calls
for appellate review such that the award if far too excessive can be reduced. 19 This ruling applies
with equal force on the award of attorney's fees. In a long line of cases we said, "It is not sound
policy to place in penalty on the right to litigate. To compel the defeated party to pay the fees of
counsel for his successful opponent would throw wide open the door of temptation to the opposing
party and his counsel to swell the fees to undue proportions." 20
Considering that the respondent corporation's lease contract, at the time when the cause of
action accrued, ran only on a month-to-month basis whence before it was on a yearly basis,
we find even the reduced amount of attorney's fees ordered by the Court of Appeals still
exorbitant in the light of prevailing jurisprudence. 21Consequently, the amount of two hundred
thousand (P200,000.00) awarded by respondent appellate court should be reduced to one hundred
thousand (P100,000.00) pesos as the reasonable award or attorney's fees in favor of private
respondent corporation.
WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the
Court of Appeals in CA-G.R. CV No. 38784 are hereby AFFIRMED, with MODIFICATION that
the award of attorney's fees is reduced from two hundred thousand (P200,000.00) to one
hundred thousand (P100,000.00) pesos. No pronouncement as to costs.
1wphi1.nt

SO ORDERED.

G.R. No. 119107

March 18, 2005

JOSE V. LAGON, Petitioner,

vs.
HONORABLE COURT OF APPEALS and MENANDRO V. LAPUZ, respondents.
DECISION
CORONA, J.:
On June 23, 1982, petitioner Jose Lagon purchased from the estate of Bai Tonina Sepi,
through an intestate court, two parcels of land located at Tacurong, Sultan Kudarat. A few
months after the sale, private respondent Menandro Lapuz filed a complaint for torts and
damages against petitioner before the Regional Trial Court (RTC) of Sultan Kudarat.
In the complaint, private respondent, as then plaintiff, claimed that he entered into a contract of
lease with the late Bai Tonina Sepi Mengelen Guiabar over three parcels of land (the
"property") in Sultan Kudarat, Maguindanao beginning 1964. One of the provisions agreed
upon was for private respondent to put up commercial buildings which would, in turn, be leased
to new tenants. The rentals to be paid by those tenants would answer for the rent private
respondent was obligated to pay Bai Tonina Sepi for the lease of the land. In 1974, the lease
contract ended but since the construction of the commercial buildings had yet to be completed,
the lease contract was allegedly renewed.
When Bai Tonina Sepi died, private respondent started remitting his rent to the court-appointed
administrator of her estate. But when the administrator advised him to stop collecting rentals
from the tenants of the buildings he constructed, he discovered that petitioner, representing
himself as the new owner of the property, had been collecting rentals from the tenants. He thus
filed a complaint against the latter, accusing petitioner of inducing the heirs of Bai Tonina Sepi
to sell the property to him, thereby violating his leasehold rights over it.
In his answer to the complaint, petitioner denied that he induced the heirs of Bai Tonina to sell
the property to him, contending that the heirs were in dire need of money to pay off the
obligations of the deceased. He also denied interfering with private respondent's leasehold
rights as there was no lease contract covering the property when he purchased it; that his
personal investigation and inquiry revealed no claims or encumbrances on the subject lots.
Petitioner claimed that before he bought the property, he went to Atty. Benjamin Fajardo, the
lawyer who allegedly notarized the lease contract between private respondent and Bai Tonina
Sepi, to verify if the parties indeed renewed the lease contract after it expired in 1974.
Petitioner averred that Atty. Fajardo showed him four copies of the lease renewal but these
were all unsigned. To refute the existence of a lease contract, petitioner presented in court a

certification from the Office of the Clerk of Court confirming that no record of any lease contract
notarized by Atty. Fajardo had been entered into their files. Petitioner added that he only
learned of the alleged lease contract when he was informed that private respondent was
collecting rent from the tenants of the building.
Finding the complaint for tortuous interference to be unwarranted, petitioner filed his
counterclaim and prayed for the payment of actual and moral damages.
On July 29, 1986, the court a quo found for private respondent (plaintiff below):
ACCORDINGLY, judgment is hereby rendered in favor of the plaintiff:
1. Declaring the "Contract of Lease" executed by Bai Tonina Sepi Mangelen Guiabar in
favor of the plaintiff on November 6, 1974 (Exh. "A" and "A-1") over Lot No. 6395, Pls73. Lot No 6396. Pls.-73. Lot No. 6399. 3ls-73, and Lot no.9777-A. CSD-11-000076-D
(Lot No. 3-A. 40124), all situated along Ledesma St., Tacurong, Sultan Kudarat, which
document was notarized by Atty. Benjamin S. Fajardo, Sr. and entered into his notarial
register as Doc. No. 619. Page No. 24. Book No. II. Series of 1974, to be authentic and
genuine and as such valid and binding for a period of ten (10) years specified thereon
from November 1, 1974 up to October 31, 1984;
2. Declaring the plaintiff as the lawful owner of the commercial buildings found on the
aforesaid lots and he is entitled to their possession and the collection (of rentals) of the
said commercial buildings within the period covered by this "Contract of Lease" in his
favor;
3. Ordering the defendant to pay to the plaintiff the following:
a) Rentals of the commercial buildings on the lots covered by the "Contract of
Lease" in favor of the plaintiff for the period from October 1, 1978 up to October
31, 1984, including accrued interests in the total amount of Five Hundred Six
Thousand Eight Hundred Five Pesos and Fifty Six Centavos (P506, 850.56),
the same to continue to bear interest at the legal rate of 12% per annum until
the whole amount is fully paid by the defendant to the plaintiff;
b) Moral damages in the amount of One Million Sixty Two Thousand Five
Hundred Pesos (P1,062,500.00);
c) Actual or compensatory damages in the amount of Three Hundred Twelve
Thousand Five Hundred Pesos (P312, 500.00);
d) Exemplary or corrective damages in the amount of One Hundred Eighty
Thousand Five Hundred Pesos (P187,500.00)

e) Temperate or moderate damages in the amount of Sixty Two Thousand Five

Hundred Pesos (P62,500.00);
f) Nominal damages in the amount of Sixty Two Thousand Five Hundred Pesos
(P62,500.00);
g) Attorney's fees in the amount of One Hundred Twenty Five Thousand Pesos
(P125,000.00);
h) Expenses of litigation in the amount of Sixty Two Thousand Five Hundred
Pesos (P62,500.00);
i) Interest on the moral damages, actual or compensatory damages temperate
or moderate damages, nominal damages, attorney's fees and expenses of
litigation in the amounts as specified hereinabove from May 24, 1982 up to
June 27, 1986, in the total amount of Nine Hundred Thousand Pesos
(P900,000.00); all of which will continue to bear interests at a legal rate of 12%
per annum until the whole amounts are fully paid by the defendants to the
plaintiffs;
4. For failure of the defendant to deposit with this Court all the rentals he had collected
from the thirteen (13) tenants or occupants of the commercial buildings in question, the
plaintiff is hereby restored to the possession of his commercial buildings for a period of
seventy-three (73) months which is the equivalent of the total period for which he was
prevented from collecting the rentals from the tenants or occupants of his commercial
buildings from October 1, 1978 up to October 31, 1984, and for this purpose a Writ of
Preliminary Injunction is hereby issued, but the plaintiff is likewise ordered to pay to the
defendant the monthly rental of Seven Hundred Pesos (P700.00) every end of the
month for the entire period of seventy three (73) months. This portion of the judgment
should be considered as a mere alternative should the defendant fail to pay the amount
of Five Hundred Five Pesos and Fifty Six Centavos (P506,805.56) hereinabove
specified;
5. Dismissing the counterclaim interposed by the defendant for lack of merit;
6. With costs against the defendant.
Petitioner appealed the judgment to the Court of Appeals. In a decision dated January 31,
1995, the appellate court modified the assailed judgment of the trial court as follows:
a) The award for moral damages, compensatory damages, exemplary damages,
temperate or moderate damages, and nominal damages as well as expenses of

litigation in the amount of P62,500.00 and interests under paragraph 3-a(a), (b), (c),
(d), (e), (f), (g), (h), and (i) are deleted;
b) The award for attorney's fees is reduced to P30,000.00;
c) Paragraphs 1,2,5 and 6 are AFFIRMED;
d) Additionally, the defendant is hereby ordered to pay to the plaintiff by way of actual
damages the sum ofP178,425.00 representing the amount of rentals he collected from
the period of October 1978 to August 1983, and minus the amount of P42,700.00
representing rentals due the defendant computed at P700.00 per month for the period
from August 1978 to August 1983, with interest thereon at the rate until the same is
fully paid;
e) Paragraph 4 is deleted.
Before the appellate court, petitioner disclaimed knowledge of any lease contract between the
late Bai Tonina Sepi and private respondent. On the other hand, private respondent insisted
that it was impossible for petitioner not to know about the contract since the latter was aware
that he was collecting rentals from the tenants of the building. While the appellate court
disbelieved the contentions of both parties, it nevertheless held that, for petitioner to become
liable for damages, he must have known of the lease contract and must have also acted with
malice or bad faith when he bought the subject parcels of land.
Via this petition for review, petitioner cites the following reasons why the Court should rule in
his favor:
1. The Honorable Court of Appeals seriously erred in holding that petitioner is liable for
interference of contractual relation under Article 1314 of the New Civil Code;
2. The Honorable Court of Appeals erred in not holding that private respondent is
precluded from recovering, if at all, because of laches;
3. The Honorable Court of Appeals erred in holding petitioner liable for actual damages
and attorney's fees, and;
4. The Honorable Court of Appeals erred in dismissing petitioner's counterclaims.
Article 1314 of the Civil Code provides that any third person who induces another to violate his
contract shall be liable for damages to the other contracting party. The tort recognized in that
provision is known as interference with contractual relations. The interference is penalized
because it violates the property rights of a party in a contract to reap the benefits that should
result therefrom.

The core issue here is whether the purchase by petitioner of the subject property, during the
supposed existence of private respondent's lease contract with the late Bai Tonina Sepi,
constituted tortuous interference for which petitioner should be held liable for damages.
The Court, in the case of So Ping Bun v. Court of Appeals, laid down the elements of tortuous
interference with contractual relations: (a) existence of a valid contract; (b) knowledge on the
part of the third person of the existence of the contract and (c) interference of the third person
without legal justification or excuse. In that case, petitioner So Ping Bun occupied the premises
which the corporation of his grandfather was leasing from private respondent, without the
knowledge and permission of the corporation. The corporation, prevented from using the
premises for its business, sued So Ping Bun for tortuous interference.
As regards the first element, the existence of a valid contract must be duly established. To
prove this, private respondent presented in court a notarized copy of the purported lease
renewal. While the contract appeared as duly notarized, the notarization thereof, however, only
proved its due execution and delivery but not the veracity of its contents. Nonetheless, after
undergoing the rigid scrutiny of petitioner's counsel and after the trial court declared it to be
valid and subsisting, the notarized copy of the lease contract presented in court appeared to be
incontestable proof that private respondent and the late Bai Tonina Sepi actually renewed their
lease contract. Settled is the rule that until overcome by clear, strong and convincing evidence,
a notarized document continues to be prima facie evidence of the facts that gave rise to its
execution and delivery.
The second element, on the other hand, requires that there be knowledge on the part of the
interferer that the contract exists. Knowledge of the subsistence of the contract is an essential
element to state a cause of action for tortuous interference. A defendant in such a case cannot
be made liable for interfering with a contract he is unaware of. While it is not necessary to
prove actual knowledge, he must nonetheless be aware of the facts which, if followed by a
reasonable inquiry, will lead to a complete disclosure of the contractual relations and rights of
the parties in the contract.
In this case, petitioner claims that he had no knowledge of the lease contract. His sellers (the
heirs of Bai Tonina Sepi) likewise allegedly did not inform him of any existing lease contract.
After a careful perusal of the records, we find the contention of petitioner meritorious. He
conducted his own personal investigation and inquiry, and unearthed no suspicious
circumstance that would have made a cautious man probe deeper and watch out for any
conflicting claim over the property. An examination of the entire property's title bore no
indication of the leasehold interest of private respondent. Even the registry of property had no
record of the same.
Assuming ex gratia argumenti that petitioner knew of the contract, such knowledge alone was
not sufficient to make him liable for tortuous interference. Which brings us to the third element.

According to our ruling in So Ping Bun, petitioner may be held liable only when there was no
legal justification or excuse for his action or when his conduct was stirred by a wrongful motive.
To sustain a case for tortuous interference, the defendant must have acted with malice or must
have been driven by purely impious reasons to injure the plaintiff. In other words, his act of
interference cannot be justified.
Furthermore, the records do not support the allegation of private respondent that petitioner
induced the heirs of Bai Tonina Sepi to sell the property to him. The word "induce" refers to
situations where a person causes another to choose one course of conduct by persuasion or
intimidation. The records show that the decision of the heirs of the late Bai Tonina Sepi to sell
the property was completely of their own volition and that petitioner did absolutely nothing to
influence their judgment. Private respondent himself did not proffer any evidence to support his
claim. In short, even assuming that private respondent was able to prove the renewal of his
lease contract with Bai Tonina Sepi, the fact was that he was unable to prove malice or bad
faith on the part of petitioner in purchasing the property. Therefore, the claim of tortuous
interference was never established.
In So Ping Bun, the Court discussed whether interference can be justified at all if the interferer
acts for the sole purpose of furthering a personal financial interest, but without malice or bad
faith. As the Court explained it:
x x x, as a general rule, justification for interfering with the business relations of another
exists where the actor's motive is to benefit himself. Such justification does not exist
where the actor's motive is to cause harm to the other. Added to this, some authorities
believe that it is not necessary that the interferer's interest outweigh that of the party
whose rights are invaded, and that an individual acts under an economic interest that is
substantial, not merely de minimis, such that wrongful and malicious motives are
negatived, for he acts in self-protection. Moreover, justification for protecting one's
financial position should not be made to depend on a comparison of his economic
interest in the subject matter with that of the others. It is sufficient if the impetus of his
conduct lies in a proper business interest rather than in wrongful motives.
The foregoing disquisition applies squarely to the case at bar. In our view, petitioner's purchase
of the subject property was merely an advancement of his financial or economic interests,
absent any proof that he was enthused by improper motives. In the very early case of Gilchrist
v. Cuddy, the Court declared that a person is not a malicious interferer if his conduct is impelled
by a proper business interest. In other words, a financial or profit motivation will not necessarily
make a person an officious interferer liable for damages as long as there is no malice or bad
faith involved.
In sum, we rule that, inasmuch as not all three elements to hold petitioner liable for tortuous
interference are present, petitioner cannot be made to answer for private respondent's losses.

This case is one of damnun absque injuria or damage without injury. "Injury" is the legal
invasion of a legal right while "damage" is the hurt, loss or harm which results from the
injury. In BPI Express Card Corporation v. Court of Appeals,, the Court turned down the claim
for damages of a cardholder whose credit card had been cancelled by petitioner corporation
after several defaults in payment. We held there that there can be damage without injury where
the loss or harm is not the result of a violation of a legal duty. In that instance, the
consequences must be borne by the injured person alone since the law affords no remedy for
damages resulting from an act which does not amount to legal injury or wrong. Indeed, lack of
malice in the conduct complained of precludes recovery of damages.
With respect to the attorney's fees awarded by the appellate court to private respondent, we
rule that it cannot be recovered under the circumstances. According to Article 2208 of the Civil
Code, attorney's fees may be awarded only when it has been stipulated upon or under the
instances provided therein. Likewise, being in the concept of actual damages, the award for
attorney's fees must have clear, factual and legal bases which, in this case, do not exist.
Regarding the dismissal of petitioner's counterclaim for actual and moral damages, the
appellate court affirmed the assailed order of the trial court because it found no basis to grant
the amount of damages prayed for by petitioner. We find no reason to reverse the trial court
and the Court of Appeals. Actual damages are those awarded in satisfaction of, or in
recompense for, loss or injury sustained. To be recoverable, they must not only be capable of
proof but must actually be proved with a reasonable degree of certainty. Petitioner was unable
to prove that he suffered loss or injury, hence, his claim for actual damages must fail.
Moreover, petitioner's prayer for moral damages was not warranted as moral damages should
result from the wrongful act of a person. The worries and anxieties suffered by a party hailed to
court litigation are not compensable.
With the foregoing discussion, we no longer deem it necessary to delve into the issue of
laches.
WHEREFORE, premises considered, the petition is hereby GRANTED. The assailed decision
of the Court of Appeals is hereby REVERSED and SET ASIDE.

G.R. No. 157391. July 15, 2005

LIMITLESS POTENTIALS, INC., Petitioners,
vs.
THE HON. REINATO G. QUILALA, in his capacity as Presiding Judge of the Regional
Trial Court, Branch 57, City of Makati and The ROMAN CATHOLIC ARCHBISHOP OF
MANILA, Respondents.
G.R. No. 160749. July 15, 2005

ROMAN CATHOLIC ARCHBISHOP OF MANILA, represented by Most Reverend Msgr.

ROLANDO DELA CRUZ, Petitioners,
vs.
. LIMITLESS POTENTIALS, INC., Respondents.
G.R. No. 160816. July 15, 2005
LIMITLESS POTENTIALS, INC., Petitioners,
vs.
. ROMAN CATHOLIC ARCHBISHOP OF MANILA, represented by Most Reverend Msgr.
ROLANDO DELA CRUZ, Respondents.
DECISION
CALLEJO, SR., J.:
On October 20, 1987, the Roman Catholic Archbishop of Manila (RCAM), as lessor, and
Limitless Potentials, Inc. (LPI), as lessee, executed a Contract of Lease for advertising
purposes over certain areas, including Lot 28-B, in the property covered by TCT No.
328187 where the Our Lady of Guadalupe Minor Seminary Compound and the San Carlos
Seminary Compound are located.
LPI bound and obliged itself to pay a monthly rental of P11,000.00, with a 10% increase every
two years. Due to a pending case between RCAM and Advertising Associates, LPI was unable
to take possession of the premises. Thus, on November 14, 1989, RCAM and LPI executed an
"Amendment to an Agreement," fixing the period for the lease of the premises from February 1,
1990 to March 1, 1997, with a monthly rental of P12,000.00, to be increased by 10% every
year.
In the meantime, other advertising agencies, including ASTRO Advertising, Inc. (ASTRO),
applied to RCAM for the putting up of neon signs/billboards in the leased premises. RCAM
referred the applications to LPI.
LPI wrote RCAM that it would execute the appropriate contracts with the applicants, and
oversee the installation and operation of neon advertising signs; the overlapping of signboards
would be avoided and the area would not be rendered unsightly and unmanageable. It also
stated that the monthly rentals from the agencies shall go to the church to enable it to earn
more. RCAM agreed.
On January 18, 1990, LPI, as sublessor, and ASTRO, as sublessee, executed an agreement
(Sublease Agreement) in which LPI sublet Lot 28-B for a period of five (5) years from February
1, 1990 to February 1, 1995. The parties agreed on the following monthly rentals:

1st year - P 21,000.00

2nd year - 23,000.00
3rd year - 25,410.00
4th year - 27,951.00
5th year - 30,746.00
Under the agreement, ASTRO was to remit the rentals for the property directly to RCAM.
RCAM, through a representative, was one of the two witnesses to the deed.
LPI paid the rentals to RCAM until August 1993. ASTRO also paid to RCAM the rentals due
under the Sublease Agreement from February 1, 1990 to July 1, 1993 totaling P832,920.00;
LPI, however, was not credited the rental payments made by ASTRO.
On September 28, 1993, RCAM and LPI executed a Memorandum of Agreement (MOA) in
which RCAM leased to LPI the areas/spaces subject of the lease agreement, including those
sublet to ASTRO for a period of four (4) years, from August 1, 1993 to July 31, 1997. LPI
agreed to pay RCAM monthly rentals in the amount ofP60,783.96 payable within the first five
(5) days of the month, with ten (10%) percent annual interest. This MOA expressly cancelled
the prior agreements of the parties. It was, likewise, agreed upon that if the lease were to be
extended after the four-year period, LPI would pay a monthly rental of P97,084.15, payable
within the first five (5) days of the month, with 12% annual increment.
When the sublease to ASTRO expired in February 1995, RCAM did not turn over to LPI the
possession of the sublet advertising spaces/areas; instead, the said areas were leased to
Macgraphics Carranz International Corporation (MCIC) which erected its own billboards and
advertising signs thereon. In a Letter dated February 11, 1997, LPI informed MCIC that it was
the lessee of the premises previously sublet to ASTRO, and demanded that the said billboards
be removed within 24 hours. MCIC ignored the letter, but LPI did not file any action against
RCAM or MCIC.
On October 12, 1995, LPI received a letter from RCAM, informing it that it violated the MOA, to
wit:
1. Non-payment of rentals since March 1995.
The Memorandum specifically provides for the immediate rescission of the contractual relation
as Limitless failed to pay the proper rentals within the first five days of each month.
2. The misuse of the property since November 1994.

Despite the warning given your company by Fr. Jovi Mejino, your employees continue to
assemble and construct billboards destined for areas outside of the specified properties in the
Memorandum.
3. The causing of inconvenience, disturbance or nuisance.
There is the matter of your employees leaving behind garbage and construction scrap after
assembling the above billboards and a sublessee who damaged the swimming pool.
RCAM, likewise, declared that it considered the MOA rescinded as of October 31, 1995 and
demanded payment of the alleged back rentals from ASTRO, as well as increments thereof
from March to October 1995 and attorneys fees; and that LPI vacate the property and remove
its billboards or non-permanent structures by October 31, 1995, otherwise, RCAM would
dismantle the same.
On October 19, 1995, LPI filed a Complaint against RCAM with the Regional Trial Court (RTC)
of Makati City, for consignation of the amount of P300,000.00 corresponding to the rentals from
March to October 1995, with a plea for a writ of preliminary injunction and temporary
restraining order. The complaint contained the following prayer:
WHEREFORE, it is respectfully prayed that, immediately upon hearing thereof, a Temporary
Restraining Order be issued by the Honorable Executive Judge, prohibiting defendants RCAM,
Yalung and/or Villasor, including their employees, subordinates and/or its agents, from
enforcing their demands and/or threats in the October 12, 1995 Letter (Annex "D") and, after
hearing, a writ of preliminary injunction be issued pending final determination of this case.
It is further prayed that plaintiff be allowed to consign the amount of THREE HUNDRED
THOUSAND PESOS (P300,000.00) with this Honorable Court to show its willingness,
readiness and/or capability to pay for whatever amount is really due defendant RCAM from the
months of March to October 1995, if any, and whatever sum is actually due to defendant
RCAM as monthly rentals for the subject advertising areas or spaces thereafter. It is further
prayed that defendants RCAM and/or Astro be ordered to pay plaintiff Limitless the sum of
NINE HUNDRED NINETY THOUSAND FOUR HUNDRED SIXTY-TWO PESOS AND NINETY
CENTAVOS (P990,462.90) plus twelve (12) percent interest thereon from date of filing hereof.
It is further prayed that defendants RCAM, Yalung and/or Villasor be jointly and severally
ordered to pay the plaintiffs Quirino Quin Baterna, Gregoria T. Baterna, Quirino Roni Baterna,
Mary Gelle Baterna-Maranan and Louise Belle Baterna-Maranan, the sums of ONE MILLION
PESOS (P1,000,000.00) EACH as moral damages. It is finally prayed [that] said defendants be
ordered jointly and severally to pay plaintiffs the amount of P100,000.00 plus 25% of the
amounts demanded or awarded as a consequence hereof, exclusive of hearing and other
expenses as may be proven during trial hereof, subject to the reservations made herein.

The case was docketed as Civil Case No. 95-1559 and raffled to Branch 57 of the said court.
LPI alleged, among others, that it should be credited for the rental payments of ASTRO to
RCAM from February 1990 to February 1995. The court issued an Order on October 30, 1995,
enjoining the defendant (RCAM) to maintain the status quo, thus, allowing the plaintiff (LPI) to
continue using the advertising areas/spaces.
Still unaware of the complaint, RCAM wrote LPI on October 28, 1995, demanding payment of
back rentals, including those from ASTRO, from March to October 1995, and damages and
attorneys fees, totalingP1,021,219.15 within five (5) days from receipt thereof.
RCAM filed a Complaint for unlawful detainer against LPI before the Metropolitan Trial Court of
Makati (MTC) on November 13, 1995 praying, thus:
WHEREFORE, it is respectfully prayed that a Summary Judgment be rendered in favor of the
Plaintiff against the Defendant ordering the Defendant:
1. To vacate and peacefully surrender the premises to Plaintiff and/or to allow Plaintiff to
remove or dismantle any and all advertising signs or non-permanent structures;
2. To pay Plaintiff the amount of rentals due from March 1995 until Defendant vacates the
premises; with legal interests and penalties;
3. To pay the Plaintiff the amount of P50,000.00 as attorneys fees plus P2,000.00 per hearing
as appearance fees;
4. To pay the cost of suit.
Plaintiff prays for such other reliefs just and equitable under the premises.
The complaint was docketed as Civil Case No. 50450. RCAM alleged that the defendant failed
to pay rentals from March 1995. In its answer to the complaint, LPI alleged, inter alia, that
RCAM had no cause of action against it for ejectment, and prayed that:
WHEREFORE, it is respectfully prayed that this Answer with Affirmative Defenses and
Compulsory Counterclaim be noted, and this ejectment case be ordered dismissed, without
prejudice to defendants compulsory counterclaim. It is finally prayed that defendant be granted
such other reliefs as may be considered just, proper and equitable based on the foregoing
premises.
On October 30, 1995, LPI filed a Complaint against RCAM, et al., with the RTC of Makati, for
damages on account of the latters failure to comply with the order of the RTC in Civil Case No.
95-1559. The case was docketed as Civil Case No. 96-949, raffled to Branch 136 of the RTC.
The complaint was dismissed on October 24, 1996.

Meanwhile, on September 13, 1996, the RTC (in Civil Case No. 95-1559) issued an
Order dismissing the complaint on the grounds of lack of jurisdiction, litis pendencia, and lack
of cause of action.
On October 5, 1996, RCAM caused the dismantling of the billboards of LPI on the leased
premises. For its part, LPI filed a criminal complaint for malicious mischief against Bishop
Crisostomo Yalung, et al. An Information was, thereafter, filed against the said accused with the
MTC for malicious mischief, docketed as Criminal Case No. 207096. During the pre-trial, the
parties agreed to submit a reconciliation of the parties respective accounts.
In its Position Paper in Civil Case No. 50450, LPI averred that during the first period from
February 1, 1990 (when the sublease agreement was executed) to August 1, 1993 (when the
MOA took effect) ASTRO had remitted rentals to RCAM for its account in the total amount
of P832,920.00; the said amount should be credited to it and deducted from its accountability
for the period covering March 1995 to October 1995, in the total amount of P553,134.00;
hence, it had overpaid RCAM in the amount of P279,786.00.
LPI posited that during the second period (from August 1, 1993 to February 1, 1995 when the
sublease expired), ASTROs payments to RCAM had been credited to LPI. Hence, there was
no reason why ASTROs rental payments during the first period should not likewise be credited
to it.
On May 25, 2000, the MTC rendered judgment in favor of LPI in Civil Case No. 50450 for
unlawful detainer. Thefallo of the decision reads:
WHEREFORE, judgment is hereby rendered:
1. declaring defendants possession over the leased premises to be lawful;
2. ordering defendant to pay the monthly rentals from September 1995 until it stopped
occupying the leased premises;
3. ordering plaintiff to pay defendant the amount of P100,000.00 as damages.
The MTC declared that based on the reconciliation of the account of LPI, it had
paid P1,584,185.82 to RCAM. Since the rentals due for the period of February 1, 1990 to
March 1, 1995 amounted to P1,239,635.00, LPI made an overpayment of P344,550.33.
According to the court, the payments made directly to RCAM during the first period of the
sublease (February 1, 1990 to July 1, 1993) in the amount of P832,920.00 should not be
credited to LPI because the latter had donated the amount to RCAM, in accordance with the
Letter dated November 28, 1989, and as stipulated in the sublease agreement. The MTC
declared that such stipulation was a stipulation pour autrui under Article 1311 of the New Civil
Code. However, the court also declared that LPI should be credited for the payments made by

ASTRO during the second period (from August 1993, after the MOA took effect, to March
1995). The MTC also held that LPI was obliged to pay rentals in the amount
of P414,486.50 from March 1995 to October 1995 when the complaint was filed.
LPI appealed the decision to the RTC and alleged that the MTC erred as follows:
I
IN RULING THAT THE RENTAL PAYMENTS MADE BY DEFENDANT-APPELLANTS SUBLESSEE, ASTRO ADVERTISING, INC., (AAI) TO RCAM SHOULD NOT BE CREDITED AS
PART OF AND AGAINST THE RENTAL OBLIGATION OF THE DEFENDANT-APPELLANT
(LPI).
II
IN FINDING THAT APPELLANTS RENTAL OVERPAYMENT TO APPELLEE (RCAM) IS
ONLY P344,550.33 WHEN IT IS ACTUALLY P796,421.44.
III
IN NOT ORDERING APPELLEE TO RETURN TO APPELLANT THE LATTERS
OVERPAYMENT IN THE SUM OFP796,421.44;
IV
IN ORDERING THE APPELLANT TO PAY APPELLEE MONTHLY RENTALS FROM
SEPTEMBER 1995 UNTIL IT SUPPOSEDLY STOPPED OCCUPYING THE PREMISES; AND
V
IN NOT ORDERING PLAINTIFF TO ALLOW DEFENDANT TO CONTINUE THE LEASE FOR
THE UNUSED AND UNEXPIRED PERIOD THEREOF OF SIXTEEN (16) MONTHS (31
OCTOBER 1995 TO 31 JULY 1997).
On October 10, 2001, the RTC rendered judgment affirming the appealed decision with
modification. It declared that LPI overpaid the RCAM in the amount of P796,421.44.
The fallo of the decision reads:
WHEREFORE, premises considered, the Decision appealed from is hereby affirmed in all
respects subject to the following modification:
1. Ordering the plaintiff to return to defendant the sum of P796,421.44 representing the
overpayment of rentals made by the appellant to the appellee.

SO ORDERED.
The RTC ruled that LPI should be credited for the rental payments of ASTRO during the first
period (from February 1, 1990 to August 1, 1993). The RTC rejected the ruling of the MTC that
the stipulation in the sublease agreement in favor of RCAM was not a stipulation pour autrui. It,
likewise, rejected RCAMs claim that the rentals due from ASTRO during the said period were
LPIs donations to RCAM.
LPI filed a motion for partial reconsideration of the decision, in that RCAM be ordered to
reinstate possession of the leased premises to it for the unexpired period of the lease - four (4)
years and nine (9) months, from October 31, 1995 to July 31, 2000. LPI argued that the
running of the lease period was suspended pending the adjudication of the ejectment case
against it.
On May 24, 2002, the RTC issued an Order granting the motion of LPI and rendered an
amended decision, the decretal portion of which reads:
WHEREFORE, premises considered, the Decision appealed from is hereby affirmed in all
respects subject to the following modification:
1. Ordering the plaintiff to restore to the defendant the possession of the leased property for a
period of 21 months from October 31, 1995 to July 31, 1997.
2. Ordering the plaintiff to return to defendant the sum of P796,421.44 representing
overpayment of rentals by the appellant to the appellee.
SO ORDERED.
LPI filed a motion for execution of the Amended Decision of the RTC, to compel RCAM to
restore possession of the property to LPI. On October 14, 2002, the trial court issued an
Order denying the motion. LPI filed a motion for reconsideration of the said order, which the
RTC denied on January 9, 2003.
RCAM filed a petition for review on certiorari with the Court of Appeals (CA), alleging that the
RTC erred in holding that the stipulation in the Sublease Agreement was not a stipulation pour
autrui; in ordering it to refundP796,421.44 to LPI although the latter did not interpose any
counterclaim for the said amount; and in extending the lease period through ordering the
reinstatement of the LPI to the property despite the lapse of the lease period under the MOA,
and despite the absence of MCIC as party to the case which had introducedP20,000,000.00
worth of improvements on the property.

For its part, LPI filed a petition for certiorari and mandamus with this Court, assailing the
October 14, 2002 and January 9, 2003 Orders of the RTC. The case was docketed as G.R.
No. 157391. LPI alleged therein the following:
RESPONDENT JUDGE ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK AND/OR EXCESS OF JURISDICTION IN ISSUING THE ASSAILED ORDERS
BECAUSE:
1. HE ERRONEOUSLY RULED THAT THE RULE ON IMMEDIATE EXECUTION UNDER
SECTION 21, OF THE REVISED RULES ON SUMMARY PROCEDURE AND SECTION 21,
RULE 70, OF THE 1997 RULES OF CIVIL PROCEDURE, APPLY ONLY WHEN THE
JUDGMENT IS FOR THE PLAINTIFF; HENCE, PETITIONER, THE DEFENDANT, IS NOT
ENTITLED TO IMMEDIATE EXECUTION OF JUDGMENT EVEN IF IT IS THE PARTY
DISPOSSESSED.
2. HE FAILED TO APPRECIATE THE CLEAR AND STARK DISPARITY IN THE FACTUAL
LANDSCAPE BETWEEN THE PRESENT CASE AND THAT OF THE DECIDED CASE HE
RELIED UPON (PASCUA VS. NABLE, 71 PHIL. 186) BECAUSE IN THE PRESENT CASE, IT
IS THE DEFENDANT (PETITIONER) WHICH WAS UNLAWFULLY AND FORCIBLY
DISPOSSESSED BY THE PLAINTIFF DURING THE PENDENCY OF THE EJECTMENT
CASE.
LPI averred that under Section 21 of the Rules on Summary Procedure, the decision of the
RTC on appeal in ejectment cases should be immediately executory, without distinction as to in
whose favor the decision is rendered. The petitioner posits that Section 21, Rule 70 of the
Rules of Court should apply, since it was evicted from the property by RCAM while the latters
complaint in Civil Case No. 50450 was still pending.
In its comment on the petition, RCAM averred that immediate execution of the RTC decision is
proper only if the same is in favor of the petitioner as plaintiff. In a case where the decision is in
favor of the defendant-respondent, the procedure is different. The respondent also averred that
the petition had become moot and academic because the CA had rendered judgment in CAG.R. SP No. 71261, setting aside and reversing the amended decision of the RTC and
affirming with modification the MTC ruling.
Indeed, the CA had rendered judgment in CA-G.R. SP No. 71261 on June 30, 2003, granting
the petition of RCAM. The fallo of the decision reads:
WHEREFORE, the petition is GRANTED. The Decision dated October 10, 2001 and the Order
dated May 24, 2002 of the Regional Trial Court of Makati are hereby SET ASIDE, and the
Decision dated May 25, 2002 of the Metropolitan Trial Court of Makati is hereby
AFFIRMED, with the modification that the petitioner Roman Catholic Archbishop of Manila is

ordered to return to the respondent Limitless Potentials, Inc. the amount of P344,550.33, with
legal interest thereon from date of the finality of this Decision until full payment thereof.
No pronouncement as to costs.
SO ORDERED.
The CA agreed with the ruling of the MTC that applying Article 1311 of the New Civil Code, no
double payments were made during the first period of the lease. The payments of LPI
pertained only to those areas/spaces leased by it, while the payments of ASTRO pertained to
the areas/spaces sublet to it; hence, such payments should not be credited to LPI. Relying on
the rulings of this Court in Filoil Refinery Corporation v. Sayo, and ,the CA, likewise, ruled that
the RTC also erred in ordering LPI to be placed in possession of the property, considering that
the MOA had already expired pendente lite; hence, LPI could no longer regain possession of
the property as lessee.
RCAM filed a petition for review on certiorari of the decision in CA-G.R. SP No. 71261,
docketed as G.R. No. 160749; LPI filed a similar petition, docketed as G.R. No. 160816. LPI
raised the following issues:
I.
DOES THE STIPULATED PERIOD OF A LEASE CONTINUE TO RUN AGAINST THE
LESSEE EVEN IF, THRU THE ADMITTEDLY ILLEGAL ACTS OF THE LESSOR, THE
LESSEE WAS UNLAWFULLY DISPOSSESSED OF THE PREMISES AND PREVENTED
FROM MAKING FULL USE OF THE PERIOD?
II.
IS A STIPULATION IN A CONTRACT OF SUBLEASE THAT THE SUBLESSEES RENT
SHALL BE PAID DIRECTLY TO THE PRINCIPAL LESSOR, A STIPULATION POUR AUTRUI?
[III.]
ASSUMING ARGUENDO IT IS, ARE THE DIRECT RENTAL PAYMENTS OF THE
SUBLESSEE TO THE PRINCIPAL LESSOR NOT CREDITABLE AGAINST OR DEDUCTIBLE
FROM THE LESSEES RENT?
The Issues
The issues raised in the three (3) cases are the following: (a) whether or not LPI had overpaid
RCAM for rentals due up to February 1, 1995 (insofar as the sublet spaces are concerned) and
October 5, 1995 (insofar as the rest of the leased premises are concerned), and if so, how

much LPI had overpaid; (b) whether or not LPI had the right to continue to possess the
property from the time RCAM rescinded the MOA, until the expiration of the two-year period;
and (c) whether the amended decision of the RTC ordering RCAM to restore possession of the
property to LPI was immediately executory.
RCAM avers that the CA erred in ruling that LPI overpaid by P344,550.33 as of March 1995. It
maintains that LPI had paid only P1,584,185.83 and, deducting the amount of P1,239,635.50
which it was obliged to pay as rentals, it had overpaid by only P344,550.33. RCAM laments
that the CA ignored the finding of the MTC that LPI failed to pay the rentals due for six months
(from March 1995 to October 1995) when the MOA was rescinded, in the amount
of P414,486.00; this should be added to the amount of P1,239,635.00. As such, LPI is entitled
to a refund of only P69,935.61. RCAM insists that the CA erred in affirming the amended
decision of the RTC.
For its part, LPI avers that it should not be made to pay rentals from March 1995 because as
early as February 1, 1995, it had not been able to use the areas/spaces previously sublet to
ASTRO. Moreover, the rentals paid directly by ASTRO to RCAM in the total amount
of P1,255,889.55 from 1990 to 1994 should be credited to it, since there was no intent to
donate the said amount to RCAM. The amounts remitted by ASTRO to RCAM were made in
payment of a debt or obligation. Furthermore, there was no stipulation pour autrui in favor of
RCAM as it was already a party to the sublease agreement between LPI and ASTRO. The
benefit conferred upon RCAM under the sublease agreement was merely incidental, because it
was a creditor of ASTRO and as such entitled to the rentals, either directly from LPI or
indirectly from ASTRO, as the sublessee. Even if Article 1311 of the New Civil Code were to
apply, and assuming that the rental payments made by ASTRO were in the nature of
donations, RCAM, as donee-beneficiary, was required by Article 748 of the New Civil Code to
accept the donation in writing. Hence, RCAM must refund to LPI the amount of P798,421.96.
LPI insists that the theory of donation was but a belated concoction of RCAM. Thus, the
decision of the CA is erroneous and should be reversed, and the amended decision of the RTC
should be maintained.
LPI asserts that it had the right to continue to possess the leased premises during the entire
duration of the contract, that is, from October 31, 1995 when RCAM unilaterally rescinded the
MOA. Since the unilateral rescission of the MOA was nullified, the possession of the leased
spaces/areas must be restored to it for the unexpired period of the agreement.
On March 30, 2005, the Court resolved to consolidate the three (3) cases in the Second
Division.
The Rulings of the Court
On the first issue, the Court agrees with RCAM that LPI was obliged to continue paying the
rentals for the leased premises (except those previously sublet to ASTRO) from March 1995

until October 1995 and up to its eviction therefrom on October 5, 1996. This is so because LPI
continued to possess and use the same until October 6, 1996 despite the unilateral rescission
of the MOA by RCAM. We note that LPI consigned the rentals for March 1995 to October 1995
to the RTC in Civil Case No. 95-1559. Hence, the rentals due for such period should be added
to P1,239,645.00 which LPI was obliged to pay to RCAM.
However, the Court rejects the contention of RCAM that LPI is obliged to pay rentals for the
areas/spaces sublet to ASTRO after February 1995. It bears stressing that, after the expiration
of the sublease agreement between LPI and ASTRO in February 1995, RCAM did not turn
over the said areas/spaces to LPI; instead, it leased the said areas/spaces to MCIC, in
violation of its MOA with LPI. RCAM even dismantled the billboards of LPI on October 6, 1996.
Under Article 1054(3) of the New Civil Code, RCAM, as lessor, was obliged to maintain the LPI,
as lessee, in the peaceful and adequate enjoyment of the areas/spaces for the entire duration
of the contract. And since it failed to comply with its obligation, the LPI had the right to suspend
the payments of rentals until possession thereof had been delivered to it. It also had the right to
ask for the rescission of the MOA and indemnification for damages, or only the latter, allowing
the contract to remain in force. It would be unjust enrichment on the part of RCAM to require
LPI to pay rentals for the areas/spaces leased by RCAM to MCIC. The MTC is mandated to
ascertain, after hearing the parties, the reasonable rentals LPI is obliged to pay for the leased
areas/spaces, (except those sublet to MCIC) and ascertain, based on its findings, the amount
that RCAM is obliged to refund to LPI, if any.
We agree with the ruling of the CA that the sublease contract between LPI and ASTRO
contains a stipulation pour autrui in favor of RCAM, which the latter had accepted long before
LPI filed its complaint in Civil Case No. 96-949.
Central to the issue is Article 1311 of the New Civil Code, which provides:
Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in
cases where the rights and obligations arising from the contracts are not transmissible by their
nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the
property he received from the decedent.
If a contract should contain some stipulation in favor of a third person, he may demand its
fulfillment provided he communicated his acceptance to the obligor before its revocation. A
mere incidental benefit or interest of a person is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor upon a third person.
The definition of a stipulation pour autrui is set forth in the second paragraph of the above
provision. The requisites for such stipulation are the following: (a) the stipulation in favor of a
third person, the third-party beneficiary which should be a part, not the whole, of the contract;
(b) the contracting parties must have clearly and deliberately conferred a favor upon a third

person, not a mere incidental benefit or interest; (c) the favorable stipulations should not be
conditioned or compensated by any kind of obligation whatsoever; (d) the third person must
have communicated his acceptance to the obligor before its revocation; and (e) neither of the
contracting parties bear the legal representation or authorization of the third party.
The third-party may be (a) a donee beneficiary; (b) a creditor beneficiary; or (c) an incidental
beneficiary. A donee beneficiary is regarded as such only if it appears from the terms of the
promisee, in view of the accompanying circumstances, that the purpose of the promisee in
obtaining the promise of and/or part of the performance thereof is to make a gift to the
beneficiary or to confer upon him a right against the promisee to secure performance neither
due nor supposed or asserted to be due from the promisee to the beneficiary.
The intent of the promisee to benefit a third person as a primary party-in-interest is generally
said to be controlling. It is not enough that the contract may operate to the benefit of a thirdparty. It must appear that the parties intent to recognize him as the primary party-in-interest
and privy to the promise. Such intent may be gleaned from the construction of the contract in
the light of the surrounding circumstances. Intent, in a legal sense, is defined as the purpose to
use a particular manner to effect a certain result. Otherwise stated, if the performance of a
promise will satisfy an actual or supposed or asserted duty of the promisee to the beneficiary,
he is a creditor beneficiary and may enforce the promise. The right of recovery of a third-party
beneficiary is upon the theory that the contracting parties intended to create a cause of action
in his favor. The right of the beneficiary is, however, limited by the terms of the promise.
Absent the intent to benefit a third-party, such party is merely an incidental beneficiary. Such
party is one who benefits from the contract of another but whose benefit was not the intent of
the contracting parties. An incidental beneficiary has no right or obligation under the
contract. If, indeed, there is an intent of the parties to a contract to benefit a third person, it
matters not whether the stipulation is in the nature of a gift or whether there is an obligation
owing from the promisee to the third person.
Contrary to the contention of LPI, the third-party beneficiary may accept the benefit in any
form. Article 1311 of the New Civil Code does not require that the acceptance by the third-party
beneficiary of the benefit be in writing. Indeed, in Florentino v. Encarnacion, Sr., the Court ruled
that:
The acceptance does not have to be in any particular form, even when the stipulation is for the
third person an act of liberality or generosity on the part of the promisor or promisee.
It need not be made expressly and formally. Notification of acceptance, other than such as is
involved in the making of demand, is unnecessary.
A trust constituted between two contracting parties for the benefit of a third person is not
subject to the rules governing donation of real property. The beneficiary of a trust may demand

performance of the obligation without having formally accepted the benefit of the trust in a
public document, upon mere acquiescence in the formation of the trust and acceptance under
the second paragraph of Art. 1257 of the Civil Code.
In the present case, a careful study of the surrounding circumstances of the agreement has
revealed that RCAM is a third-party beneficiary under the sublease agreement between LPI
and ASTRO. The records show that ASTRO filed an application with RCAM for the installation
of its own billboards on the spaces/areas leased by LPI; RCAM then referred the application to
LPI. Without any solicitation therefor, LPI informed RCAM, through a letter, that it would earn
more from monthly rentals from ASTRO, and that such rentals "shall go to the church."Indeed,
under the sublease agreement between LPI and ASTRO, the latter is obliged to remit its rental
payments directly to RCAM, and not to LPI. RCAM accepted the offer of LPI and indeed,
received all the rentals of ASTRO from February 1990 to July 1993. RCAM did not credit the
said rentals to LPI. For its part, LPI paid the rentals under its lease agreement with RCAM,
without deducting therefrom the rental payments of ASTRO for the said period. LPI never
demanded that RCAM credit it for the rental payments of ASTRO. It was only when LPI sued
RCAM for consignation, and the latter filed a suit for ejectment that LPI claimed the crediting of
ASTROs rental payments from February 1990 to July 1993 for the first time. Such claim, as
correctly ruled by the MTC and the CA, was but an afterthought, thus:
The Court does not agree with defendant that there were double payments made during the
"first period". It is apparent that the rentals being paid by defendant during the "first period"
cover only the area/space actually used by defendant and does not cover the area/space used
by Astro Advertising, although the portion occupied by the latter are within the area being
leased by defendant from plaintiff. This observation finds support in the letter of Louise Belle
Baterina, dated Nov. 28, 1998, addressed to RCAM, informing the latter that rental payments
made by the sublessees "shall go to the church" in order for the latter to earn more. If rental
payments shall be deducted from defendants monthly rentals or credited to the defendant,
plaintiff will not earn more. Such was not the intention of Louse Belle Baterina when she wrote
her letter dated Nov. 28, 1988. Beside, the action of defendant Belle that payments made by
Astro Advertising during the "first period" were supposed to be credited to defendant, why then
did it not bring the matter to the attention of plaintiff. Why is it that when defendant received
from plaintiff the Statement of Account as of December 1944 (Exhibit 5 the defendant) showing
that it has an outstanding obligation in the amount of P171,200.63, it did not raise in issue the
matter of its overpayment and instead on March 8, 1995, defendant meekly paid the amount
of P279,549.00 under official receipt no. 73991 and rentals from January to March 1995 in the
total amount of P108,349.00.
The factual backdrop is similar to that in Florentino v. Encarnacion, Sr. where the Court ruled
While a stipulation in favor of a third person has no binding effect in itself before its
acceptance by the party favored, the law does not provide when the third person must make
his acceptance. As a rule, there is no time limit; such third person has all the time until the

stipulation is revoked. Here, we find that the church accepted the stipulation in its favor before
it is sought to be revoked by some of the co-owners, namely the petitioners-appellees herein. It
is not disputed that from the time of the death of Doa Encarnacion Florentino in 1941, as had
always been the case since time immemorial, up to a year before the filing of their application
in May 1964, the Church had been enjoying the benefits of the stipulation. The enjoyment of
benefits flowing therefrom for almost seventeen years without question from any quarters can
only be construed as an implied acceptance by the Church of the stipulation pour autrui before
its revocation.
It bears stressing that under the lease agreement between RCAM and LPI, the latter was
obliged to pay a monthly rental of only P12,000.00 subject to an annual 10% increase. In
contrast, under the sublease agreement between LPI and ASTRO, the latter was obliged to
pay a monthly rental to LPI of P21,000.00, P23,000.00 andP25,410.00 covering the period of
February 1, 1990 to February 1993. LPI remitted its rentals to RCAM periodically during the
said period without any preconditions. Not only that - LPI likewise failed to demand from RCAM
that it be credited for the rental payments of ASTRO. LPI continued to remit its rental payments
to RCAM as provided for in no less than the lease agreement.
It is true that, after the execution of the MOA, the rental payments of ASTRO during the second
period (February 1995 to October 1995) were credited to the LPI; this does not mean,
however, that the rental payments of ASTRO during the first period should, likewise, be
similarly credited. Based on the pleadings of the parties, RCAM and LPI had agreed to revoke
the stipulation pour autrui in the sublease agreement during the second period.
The contention of LPI that RCAM is a party to the sublease agreement is belied by the records.
As gleaned from the agreement, RCAM was merely a witness to the deed. It bears stressing
that in a sublease agreement, there are two distinct leases involved: the principal lease and the
sublease. In a contract of sublease, the lessor is not a party. Except in those cases provided by
the New Civil Code, the lessor is a stranger to the relationship between the lessee and
sublessee. The latter has no right or authority to pay the sublease rentals to the lessor, the said
rentals being due and payable to the lessee. However, the lessor may demand the payment by
the sublessee of the rentals due from the lessee if the latter fails to pay the same.
On the second issue, the appellate court reversed the ruling of the RTC ordering RCAM to
restore possession of the leased property to LPI for a period of 21 months corresponding to the
alleged unused portion of the period set in the MOA: from October 31, 1995 when RCAM
unilaterally rescinded the MOA, to July 31, 1997. Citing the rulings of the Court in Filoil
Refinery Corporation v. Sayo, and , the CA held as follows:
The MTC was correct in not ordering the restoration of LPI in possession of the leased
premises. The reason is obvious. The four-year term of the lease under the MOU (sic), which
began on August 1, 1993 had expired on July 31, 1997. In view of the expiration of the lease,
the directive of the Court a quo to restore LPI in possession of the leased premises for the

period of 21 months from October 31, 1995 to July 31, 1997 was moot and academic, such
period having already lapsed. A lessees claim of possessory rights over the leased premises is
lost upon the expiry of the lease contract. The subject directive cannot be interpreted to
empower LPI to retake possession of the leased premises even after July 31, 1997, as this will
amount to an extension of the lease, contrary to the express provision in the lease contract. A
court is completely devoid of authority to extend the lease after the period stipulated has
expired.
It is the contention of LPI that the unused period of the lease was suspended when RCAM
unilaterally rescinded the MOA in October 1995. Citing Article 539 of the New Civil Code, it
asserts that, being the lessee, it is entitled to the possession of the said premises for the
unused period of the lease. LPI asserts that RCAM, as lessor, was mandated to maintain it in
the peaceful possession of the leased premises for the period fixed in the MOA, a period fixed
for the benefit of both parties. Its right to remain in possession of the property for the duration
of the lease was not lost by the expiration of the lease period during the pendency of the
ejectment case in the MTC until its elevation to the Court. LPI argues that it would be unjust if it
would be deprived of its right to remain in possession of the premises simply because the
unused portion of the lease period expired while the ejectment case filed by RCAM against LPI
was pending.
Citing the ruling of the Court in , RCAM avers that the literal meaning of the MOA should be
enforced. It argues that LPIs claim, that the unused portion of the lease period was suspended
because of its unilateral rescission of the MOA, has no basis in fact and in law. It insists that
the Court has no authority to create, construct or alter the MOA, except in those instances
provided for in Article 1197 and Article 1670 of the New Civil Code. In light of the nullification of
the rescission of the MOA, the only right of LPI is to file an action for its rescission and
damages under Article 1191 of the New Civil Code.
The contention of LPI is correct.
As lessor, RCAM was obliged to maintain LPIs peaceful and adequate possession and
enjoyment of the lease for the entire duration of the contract. Indeed, it is the duty of the lessor
to place the lessee in the legal possession of the premises and to maintain the peaceful
possession thereof during the entire term of the lease. The lessee has the right to be respected
in his possession and should he be disturbed therein, he shall be restored to said possession
by the means established by the law or by the Rules of Court. Every possessor, under the law,
includes all kinds of possession, including that of a mere holder. Possession is not protection
against right but against the exercise of a right by ones own authority. If the owner/lessor
forcibly dispossesses a lessee, the lessor would be acting illegally, and the lessee shall be
entitled to be restored to his possession via an action for forcible entry with a plea for a writ of
preliminary mandatory injunction within five (5) days from the filing of the complaint to restore
him to his possession, by an accion publiciana or by an action to compel the lessor to comply
with his obligation under the contract of lease. The lessee may ask for the rescission of the

lease contract and indemnification for damages, or only the latter, allowing the contract to
remain in force.
A lessee unlawfully evicted by the lessor is entitled to be restored to the possession of the
property leased for the "unused" period of the lease contract, counted from his eviction; such
"unexpired portion" of the contract cannot be affected by the lapse of the period pending the
final resolution of the complaint for ejectment filed by the lessor.
It bears stressing that in a reciprocal contract, like a lease, the period of the lease must be
deemed to have been agreed upon for the benefit of both parties, absent any language therein
showing that the term was deliberately fixed for the benefit of either the lessor or the lessee
alone. Its continuance, effectivity or fulfillment cannot be made to depend exclusively upon the
free and uncontrolled choice of just one party to a lease contract.
In this case, RCAM unilaterally rescinded the contract; it had the billboards of LPI on the
spaces/areas leased by the latter dismantled on October 5, 1996, without waiting for the final
outcome of the ejectment case. The MTC, RTC and the CA found this unilateral rescission of
the MOA unlawful. Indisputably, RCAM was obliged to deliver to LPI the premises which it
forcibly took over on the said date.
It bears stressing that LPI had occupied the leased property from August 1, 1993 to October 6,
1996, or only three (3) years, two months and two days. Thus, LPI is entitled to remain in the
property, as lessee, for the unused portion of the four-year period provided for in the MOA. By
so ruling, the Court would not be extending the period of the lease contrary to the MOA; the
Court would thereby be merely enforcing the same. As covenanted, LPI must remain in
possession of the property, as lessee, for a period of four (4) years - not a day less. For the
Court to do otherwise would be to enrich RCAM at the expense of LPI, allowing the former to
profit by its misdeeds.
The Court of Appeals reliance on the rulings of the Court in Filoil Refinery Corporation v.
Sayo and Tan v. Lim is misplaced. The factual backdrop and the issues in the two cases are
markedly different. In Filoil Refinery Corporation, the issue was whether the action for unlawful
detainer against the petitioner should be filed against the sublessee (which was in possession
of the leased property) even if the lease period had expired. The Court ruled that any
sublessee of Filoil or any other person or entity claiming any right under the petition cannot
remain in possession of the property beyond the expiry date of the lease contract. On the other
hand, the Court, in Tan,held that the petition for a writ of preliminary mandatory injunction had
no merit because there was no evidence that the petitioner had an easement of right-of-way to
the street by virtue of a title or prescription, or that the condition or a legal easement was
properly made. Moreover, Tan filed his complaint with a plea for a mandatory injunction long
after his lease contract had expired.

As for the recovery of the possession of the areas/spaces now in possession of MCIC, this
matter should be the subject of a separate action against the said corporation and RCAM,
since the lease contract between MCIC and RCAM was executed before the latter filed its
complaint for ejectment against LPI. The judgment of the MTC and this Court is not binding on
MCIC; it must be given its day in court.
On the last issue, the Court finds and so holds that the RTC did not commit any grave abuse of
discretion in denying LPIs motion for execution of that portion of the amended decision
ordering RCAM to place it in possession of the subject areas/spaces. The execution of the
judgment pending appeal is proper only if the judgment is in favor of the plaintiff and against
the defendant, and not vice versa. This is in accordance with Section 19, Rule 70 of the Rules
of Court, to wit:
SEC. 19. Immediate execution of judgment; how to stay same. If judgment is rendered
against the defendant, execution shall issue immediately upon motion, unless an appeal has
been perfected and the defendant to stay execution files a sufficient supersedeas bond,
approved by the Municipal Trial Court and executed in favor of the plaintiff to pay the rents,
damages, and costs accruing down to the time of the judgment appealed from, and unless,
during the pendency of the appeal, he deposits with the appellate court the amount of rent due
from time to time under the contract, if any, as determined by the judgment of the Municipal
Trial Court. In the absence of a contract, he shall deposit with the Regional Trial Court the
reasonable value of the use and occupation of the premises for the preceding month or period
at the rate determined by the judgment of the lower court on or before the tenth day of each
succeeding month or period. The supersedeas bond shall be transmitted by the Municipal Trial
Court, with the other papers, to the clerk of the Regional Trial Court to which the action is
appealed.
What LPI should have done when RCAM dismantled its billboards on October 5, 1996 while
the ejectment case was still pending in the MTC was to file a motion with the said court to
compel RCAM to restore the possession of the property to it pending the resolution of the
ejectment case. However, LPI failed to do so.
IN LIGHT OF ALL THE FOREGOING, the Court renders judgment as follows:
1) The Petition in G.R. No. 157391 is DENIED for lack of merit.
2) The Petitions in G.R. Nos. 160749 and 160816 are PARTIALLY GRANTED. The Decision of
the Court of Appeals is SET ASIDE. The Decision and Amended Decision of the RTC are
AFFIRMED WITH MODIFICATIONS, thus:
a) The records are REMANDED to the MTC for it to determine, after hearing the parties, the
precise amount to be refunded by the Roman Catholic Archbishop of Manila to Limitless
Potentials, Inc., if any, in light of the Courts decision;

b) The Roman Catholic Archbishop of Manila is ORDERED to deliver possession of the

areas/spaces leased to Limitless Potentials, Inc., covered by the Memorandum of Agreement
dated September 28, 1993, except those areas now leased to MCIC; Limitless Potentials, Inc.
shall be entitled to remain in possession of the property for the remaining period of the lease,
with the corresponding rental rate as provided for in the Memorandum of Agreement dated
September 28, 1993.
No costs.
SO ORDERED.