Oblicon (Feb 9, 2017)

CONSENSUALITY OF CONTRACTS OBLIGATORY FORCE CASES 203-209 PG.
541-
556
G.R. No. 128690 January 21, 1999
ABS-CBN BROADCASTING CORPORATION, petitioner,

vs.
HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA PRODUCTION, INC., and
VICENTE DEL ROSARIO, respondents.
DAVIDE, JR., CJ.:
In this petition for review on certiorari, petitioner ABS-CBN Broadcasting Corp. (hereafter ABS-CBN) seeks to
reverse and set aside the decision 1 of 31 October 1996 and the resolution 2 of 10 March 1997 of the Court of Appeals in
CA-G.R. CV No. 44125. The former affirmed with modification the decision 3 of 28 April 1993 of the Regional Trial Court
(RTC) of Quezon City, Branch 80, in Civil Case No. Q-92-12309. The latter denied the motion to reconsider the decision of
31 October 1996.
The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows:
In 1990, ABS-CBN and Viva executed a Film Exhibition Agreement (Exh. "A") whereby Viva gave
ABS-CBN an exclusive right to exhibit some Viva films. Sometime in December 1991, in accordance
with paragraph 2.4 [sic] of said agreement stating that .
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films for TV telecast
under such terms as may be agreed upon by the parties hereto, provided, however, that such right
shall be exercised by ABS-CBN from the actual offer in writing.
Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-
Concio, a list of three(3) film packages (36 title) from which ABS-CBN may exercise its right of first
refusal under the afore-said agreement (Exhs. "1" par, 2, "2," "2-A'' and "2-B"-Viva). ABS-CBN,
however through Mrs. Concio, "can tick off only ten (10) titles" (from the list) "we can purchase" (Exh.
"3" - Viva) and therefore did not accept said list (TSN, June 8, 1992, pp. 9-10). The titles ticked off by
Mrs. Concio are not the subject of the case at bar except the film ''Maging Sino Ka Man."
For further enlightenment, this rejection letter dated January 06, 1992 (Exh "3" - Viva) is hereby
quoted:
6 January 1992
Dear Vic,
This is not a very formal business letter I am writing to you as I would like to express my difficulty in
recommending the purchase of the three film packages you are offering ABS-CBN.
From among the three packages I can only tick off 10 titles we can purchase. Please see attached. I
hope you will understand my position. Most of the action pictures in the list do not have big action
stars in the cast. They are not for primetime. In line with this I wish to mention that I have not
scheduled for telecast several action pictures in out very first contract because of the cheap
production value of these movies as well as the lack of big action stars. As a film producer, I am sure
you understand what I am trying to say as Viva produces only big action pictures.
In fact, I would like to request two (2) additional runs for these movies as I can only schedule them in
our non-primetime slots. We have to cover the amount that was paid for these movies because as
you very well know that non-primetime advertising rates are very low. These are the unaired titles in
the first contract.
CONSENSUALITY OF CONTRACTS OBLIGATORY FORCE CASES 203-209 PG. 541-
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1. Kontra Persa [sic].
2. Raider Platoon.
3. Underground guerillas
4. Tiger Command
5. Boy de Sabog
6. Lady Commando
7. Batang Matadero
8. Rebelyon
I hope you will consider this request of mine.
The other dramatic films have been offered to us before and have been rejected because of the
ruling of MTRCB to have them aired at 9:00 p.m. due to their very adult themes.
As for the 10 titles I have choosen [sic] from the 3 packages please consider including all the other
Viva movies produced last year. I have quite an attractive offer to make.
Thanking you and with my warmest regards.
(Signed)
Charo Santos-Concio
On February 27, 1992, defendant Del Rosario approached ABS-CBN's Ms. Concio, with a list
consisting of 52 original movie titles (i.e. not yet aired on television) including the 14 titles subject of
the present case, as well as 104 re-runs (previously aired on television) from which ABS-CBN may
choose another 52 titles, as a total of 156 titles, proposing to sell to ABS-CBN airing rights over this
package of 52 originals and 52 re-runs for P60,000,000.00 of which P30,000,000.00 will be in cash
and P30,000,000.00 worth of television spots (Exh. "4" to "4-C" Viva; "9" -Viva).
On April 2, 1992, defendant Del Rosario and ABS-CBN general manager, Eugenio Lopez III, met at
the Tamarind Grill Restaurant in Quezon City to discuss the package proposal of Viva. What
transpired in that lunch meeting is the subject of conflicting versions. Mr. Lopez testified that he and
Mr. Del Rosario allegedly agreed that ABS-CRN was granted exclusive film rights to fourteen (14)
films for a total consideration of P36 million; that he allegedly put this agreement as to the price and
number of films in a "napkin'' and signed it and gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24-26,
77-78, June 8, 1992). On the other hand, Del Rosario denied having made any agreement with
Lopez regarding the 14 Viva films; denied the existence of a napkin in which Lopez wrote something;
and insisted that what he and Lopez discussed at the lunch meeting was Viva's film package offer of
104 films (52 originals and 52 re-runs) for a total price of P60 million. Mr. Lopez promising [sic]to
make a counter proposal which came in the form of a proposal contract Annex "C" of the complaint
(Exh. "1"- Viva; Exh. "C" - ABS-CBN).
On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance
discussed the terms and conditions of Viva's offer to sell the 104 films, after the rejection of the same
package by ABS-CBN.
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On April 07, 1992, defendant Del Rosario received through his secretary, a handwritten note from
Ms. Concio, (Exh. "5" - Viva), which reads: "Here's the draft of the contract. I hope you find
everything in order," to which was attached a draft exhibition agreement (Exh. "C''- ABS-CBN; Exh.
"9" - Viva, p. 3) a counter-proposal covering 53 films, 52 of which came from the list sent by
defendant Del Rosario and one film was added by Ms. Concio, for a consideration of P35 million.
Exhibit "C" provides that ABS-CBN is granted films right to 53 films and contains a right of first
refusal to "1992 Viva Films." The said counter proposal was however rejected by Viva's Board of
Directors [in the] evening of the same day, April 7, 1992, as Viva would not sell anything less than
the package of 104 films for P60 million pesos (Exh. "9" - Viva), and such rejection was relayed to
Ms. Concio.
On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and meetings
defendant Del Rosario and Viva's President Teresita Cruz, in consideration of P60 million, signed a
letter of agreement dated April 24, 1992. granting RBS the exclusive right to air 104 Viva-produced
and/or acquired films (Exh. "7-A" - RBS; Exh. "4" - RBS) including the fourteen (14) films subject of
the present case. 4
On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ of
preliminary injunction and/or temporary restraining order against private respondents Republic Broadcasting
Corporation 5 (hereafter RBS ), Viva Production (hereafter VIVA), and Vicente Del Rosario. The complaint was docketed
as Civil Case No. Q-92-12309.
On 27 May 1992, RTC issued a temporary restraining order 6 enjoining private respondents from proceeding with the
airing, broadcasting, and televising of the fourteen VIVA films subject of the controversy, starting with the film Maging Sino
Ka Man, which was scheduled to be shown on private respondents RBS' channel 7 at seven o'clock in the evening of said
date.
On 17 June 1992, after appropriate proceedings, the RTC issued an

order 7 directing the issuance of a writ of preliminary injunction upon ABS-CBN's posting of P35 million bond. ABS-CBN
moved for the reduction of the bond, 8 while private respondents moved for reconsideration of the order and offered to put
up a counterbound. 9
In the meantime, private respondents filed separate answers with counterclaim. 10

RBS also set up a cross-claim
against VIVA..
On 3 August 1992, the RTC issued an order 11 dissolving the writ of preliminary injunction upon the posting by RBS of a
P30 million counterbond to answer for whatever damages ABS-CBN might suffer by virtue of such dissolution. However, it
reduced petitioner's injunction bond to P15 million as a condition precedent for the reinstatement of the writ of preliminary
injunction should private respondents be unable to post a counterbond.
At the pre-trial 12 on 6 August 1992, the parties, upon suggestion of the court, agreed to explore the possibility of an
amicable settlement. In the meantime, RBS prayed for and was granted reasonable time within which to put up a P30
million counterbond in the event that no settlement would be reached.
As the parties failed to enter into an amicable settlement RBS posted on 1 October 1992 a counterbond, which the
RTC approved in its Order of 15 October 1992. 13
On 19 October 1992, ABS-CBN filed a motion for reconsideration 14

of the 3 August and 15 October 1992 Orders,
which RBS opposed. 15
On 29 October 1992, the RTC conducted a pre-trial. 16
Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a petition 17challenging
the RTC's Orders of 3 August and 15 October 1992 and praying for the issuance of a writ of preliminary injunction to
enjoin the RTC from enforcing said orders. The case was docketed as CA-G.R. SP No. 29300.
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On 3 November 1992, the Court of Appeals issued a temporary restraining order 18 to enjoin the airing, broadcasting,
and televising of any or all of the films involved in the controversy.
On 18 December 1992, the Court of Appeals promulgated a decision 19 dismissing the petition in CA -G.R. No. 29300
for being premature. ABS-CBN challenged the dismissal in a petition for review filed with this Court on 19 January 1993,
which was docketed as G.R. No. 108363.
In the meantime the RTC received the evidence for the parties in Civil Case No. Q-192-1209. Thereafter, on 28 April
1993, it rendered a decision 20 in favor of RBS and VIVA and against ABS-CBN disposing as follows:
WHEREFORE, under cool reflection and prescinding from the foregoing, judgments is rendered in
favor of defendants and against the plaintiff.
(1) The complaint is hereby dismissed;
(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:
a) P107,727.00, the amount of premium paid by RBS to the surety

which issued defendant RBS's bond to lift the injunction;
b) P191,843.00 for the amount of print advertisement for "Maging

Sino Ka Man" in various newspapers;
c) Attorney's fees in the amount of P1 million;
d) P5 million as and by way of moral damages;
e) P5 million as and by way of exemplary damages;
(3) For defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of
reasonable attorney's fees.
(4) The cross-claim of defendant RBS against defendant VIVA is dismissed.
(5) Plaintiff to pay the costs.
According to the RTC, there was no meeting of minds on the price and terms of the offer. The alleged agreement
between Lopez III and Del Rosario was subject to the approval of the VIVA Board of Directors, and said agreement
was disapproved during the meeting of the Board on 7 April 1992. Hence, there was no basis for ABS-CBN's
demand that VIVA signed the 1992 Film Exhibition Agreement. Furthermore, the right of first refusal under the 1990
Film Exhibition Agreement had previously been exercised per Ms. Concio's letter to Del Rosario ticking off ten titles
acceptable to them, which would have made the 1992 agreement an entirely new contract.
On 21 June 1993, this Court denied 21 ABS-CBN's petition for review in G.R. No. 108363, as no reversible error was
committed by the Court of Appeals in its challenged decision and the case had "become moot and academic in view of the
dismissal of the main action by the court a quo in its decision" of 28 April 1993.
Aggrieved by the RTC's decision, ABS-CBN appealed to the Court of Appeals claiming that there was a perfected
contract between ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the subject films. Private
respondents VIVA and Del Rosario also appealed seeking moral and exemplary damages and additional attorney's
fees.
In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the contract between ABS-CBN
and VIVA had not been perfected, absent the approval by the VIVA Board of Directors of whatever Del Rosario, it's
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agent, might have agreed with Lopez III. The appellate court did not even believe ABS-CBN's evidence that Lopez
III actually wrote down such an agreement on a "napkin," as the same was never produced in court. It likewise
rejected ABS-CBN's insistence on its right of first refusal and ratiocinated as follows:
As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement was
entered into between Appellant ABS-CBN and appellant VIVA under Exhibit "A" in 1990, and that
parag. 1.4 thereof provides:
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA
films for TV telecast under such terms as may be agreed upon by the parties hereto,
provided, however, that such right shall be exercised by ABS-CBN within a period of
fifteen (15) days from the actual offer in writing (Records, p. 14).
[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be subject to
such terms as may be agreed upon by the parties thereto, and that the said right shall be exercised
by ABS-CBN within fifteen (15) days from the actual offer in writing.
Said parag. 1.4 of the agreement Exhibit "A" on the right of first refusal did not fix the price of the film
right to the twenty-four (24) films, nor did it specify the terms thereof. The same are still left to be
agreed upon by the parties.
In the instant case, ABS-CBN's letter of rejection Exhibit 3 (Records, p. 89) stated that it can only tick
off ten (10) films, and the draft contract Exhibit "C" accepted only fourteen (14) films, while parag. 1.4
of Exhibit "A'' speaks of the next twenty-four (24) films.
The offer of V1VA was sometime in December 1991 (Exhibits 2, 2-A. 2-B; Records, pp. 86-88;
Decision, p. 11, Records, p. 1150), when the first list of VIVA films was sent by Mr. Del Rosario to
ABS-CBN. The Vice President of ABS-CBN, Ms. Charo Santos-Concio, sent a letter dated January
6, 1992 (Exhibit 3, Records, p. 89) where ABS-CBN exercised its right of refusal by rejecting the
offer of VIVA.. As aptly observed by the trial court, with the said letter of Mrs. Concio of January 6,
1992, ABS-CBN had lost its right of first refusal. And even if We reckon the fifteen (15) day period
from February 27, 1992 (Exhibit 4 to 4-C) when another list was sent to ABS-CBN after the letter of
Mrs. Concio, still the fifteen (15) day period within which ABS-CBN shall exercise its right of first
refusal has already expired.22
Accordingly, respondent court sustained the award of actual damages consisting in the cost of print advertisements
and the premium payments for the counterbond, there being adequate proof of the pecuniary loss which RBS had
suffered as a result of the filing of the complaint by ABS-CBN. As to the award of moral damages, the Court of
Appeals found reasonable basis therefor, holding that RBS's reputation was debased by the filing of the complaint in
Civil Case No. Q-92-12309 and by the non-showing of the film "Maging Sino Ka Man." Respondent court also held
that exemplary damages were correctly imposed by way of example or correction for the public good in view of the
filing of the complaint despite petitioner's knowledge that the contract with VIVA had not been perfected, It also
upheld the award of attorney's fees, reasoning that with ABS-CBN's act of instituting Civil Case No, Q-92-1209, RBS
was "unnecessarily forced to litigate." The appellate court, however, reduced the awards of moral damages to P2
million, exemplary damages to P2 million, and attorney's fees to P500, 000.00.
On the other hand, respondent Court of Appeals denied VIVA and Del Rosario's appeal because it was "RBS and
not VIVA which was actually prejudiced when the complaint was filed by ABS-CBN."
Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case, contending that the Court
of Appeals gravely erred in
I
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. . . RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND

PRIVATE RESPONDENT VIVA NOTWITHSTANDING PREPONDERANCE OF EVIDENCE
ADDUCED BY PETITIONER TO THE CONTRARY.
II
. . . IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE

RESPONDENT RBS.
III
. . . IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE RESPONDENT

RBS.
IV
. . . IN AWARDING ATTORNEY'S FEES IN FAVOR OF RBS.
ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles under the 1990 Film
Exhibition Agreement, as it had chosen only ten titles from the first list. It insists that we give credence to Lopez's
testimony that he and Del Rosario met at the Tamarind Grill Restaurant, discussed the terms and conditions of the
second list (the 1992 Film Exhibition Agreement) and upon agreement thereon, wrote the same on a paper napkin.
It also asserts that the contract has already been effective, as the elements thereof, namely, consent, object, and
consideration were established. It then concludes that the Court of Appeals' pronouncements were not supported by
law and jurisprudence, as per our decision of 1 December 1995 in Limketkai Sons Milling, Inc. v. Court of
Appeals, 23 which cited Toyota Shaw, Inc. v. Court of Appeals, 24 Ang Yu Asuncion v. Court of Appeals, 25 and Villonco
Realty Company v. Bormaheco. Inc. 26
Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent for the premium on the
counterbond of its own volition in order to negate the injunction issued by the trial court after the parties had
ventilated their respective positions during the hearings for the purpose. The filing of the counterbond was an option
available to RBS, but it can hardly be argued that ABS-CBN compelled RBS to incur such expense. Besides, RBS
had another available option, i.e., move for the dissolution or the injunction; or if it was determined to put up a
counterbond, it could have presented a cash bond. Furthermore under Article 2203 of the Civil Code, the party
suffering loss or injury is also required to exercise the diligence of a good father of a family to minimize the damages
resulting from the act or omission. As regards the cost of print advertisements, RBS had not convincingly
established that this was a loss attributable to the non showing "Maging Sino Ka Man"; on the contrary, it was
brought out during trial that with or without the case or the injunction, RBS would have spent such an amount to
generate interest in the film.
ABS-CBN further contends that there was no clear basis for the awards of moral and exemplary damages. The
controversy involving ABS-CBN and RBS did not in any way originate from business transaction between them. The
claims for such damages did not arise from any contractual dealings or from specific acts committed by ABS-CBN
against RBS that may be characterized as wanton, fraudulent, or reckless; they arose by virtue only of the filing of
the complaint, An award of moral and exemplary damages is not warranted where the record is bereft of any proof
that a party acted maliciously or in bad faith in filing an action. 27 In any case, free resort to courts for redress of wrongs
is a matter of public policy. The law recognizes the right of every one to sue for that which he honestly believes to be his
right without fear of standing trial for damages where by lack of sufficient evidence, legal technicalities, or a different
interpretation of the laws on the matter, the case would lose ground. 28 One who makes use of his own legal right does no
injury. 29 If damage results front the filing of the complaint, it is damnum absque injuria. 30 Besides, moral damages are
generally not awarded in favor of a juridical person, unless it enjoys a good reputation that was debased by the offending
party resulting in social humiliation. 31
As regards the award of attorney's fees, ABS-CBN maintains that the same had no factual, legal, or equitable
justification. In sustaining the trial court's award, the Court of Appeals acted in clear disregard of the doctrines laid
down in Buan v. Camaganacan 32 that the text of the decision should state the reason why attorney's fees are being
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awarded; otherwise, the award should be disallowed. Besides, no bad faith has been imputed on, much less proved as
having been committed by, ABS-CBN. It has been held that "where no sufficient showing of bad faith would be reflected in
a party' s persistence in a case other than an erroneous conviction of the righteousness of his cause, attorney's fees shall
not be recovered as cost." 33
On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA absent any
meeting of minds between them regarding the object and consideration of the alleged contract. It affirms that the
ABS-CBN's claim of a right of first refusal was correctly rejected by the trial court. RBS insist the premium it had
paid for the counterbond constituted a pecuniary loss upon which it may recover. It was obliged to put up the
counterbound due to the injunction procured by ABS-CBN. Since the trial court found that ABS-CBN had no cause
of action or valid claim against RBS and, therefore not entitled to the writ of injunction, RBS could recover from ABS-
CBN the premium paid on the counterbond. Contrary to the claim of ABS-CBN, the cash bond would prove to be
more expensive, as the loss would be equivalent to the cost of money RBS would forego in case the P30 million
came from its funds or was borrowed from banks.
RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing of the film "Maging
Sino Ka Man" because the print advertisements were put out to announce the showing on a particular day and hour
on Channel 7, i.e., in its entirety at one time, not a series to be shown on a periodic basis. Hence, the print
advertisement were good and relevant for the particular date showing, and since the film could not be shown on that
particular date and hour because of the injunction, the expenses for the advertisements had gone to waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured injunctions
purely for the purpose of harassing and prejudicing RBS. Pursuant then to Article 19 and 21 of the Civil Code, ABS-
CBN must be held liable for such damages. Citing Tolentino, 34 damages may be awarded in cases of abuse of rights
even if the act done is not illicit and there is abuse of rights were plaintiff institutes and action purely for the purpose of
harassing or prejudicing the defendant.
In support of its stand that a juridical entity can recover moral and exemplary damages, private respondents
RBS cited People v. Manero, 35 where it was stated that such entity may recover moral and exemplary damages if it has
a good reputation that is debased resulting in social humiliation. it then ratiocinates; thus:
There can be no doubt that RBS' reputation has been debased by ABS-CBN's acts in this case.
When RBS was not able to fulfill its commitment to the viewing public to show the film "Maging Sino
Ka Man" on the scheduled dates and times (and on two occasions that RBS advertised), it suffered
serious embarrassment and social humiliation. When the showing was canceled, late viewers called
up RBS' offices and subjected RBS to verbal abuse ("Announce kayo nang announce, hindi ninyo
naman ilalabas," "nanloloko yata kayo") (Exh. 3-RBS, par. 3). This alone was not something RBS
brought upon itself. it was exactly what ABS-CBN had planned to happen.
The amount of moral and exemplary damages cannot be said to be excessive. Two reasons justify
the amount of the award.
The first is that the humiliation suffered by RBS is national extent. RBS operations as a broadcasting
company is [sic] nationwide. Its clientele, like that of ABS-CBN, consists of those who own and
watch television. It is not an exaggeration to state, and it is a matter of judicial notice that almost
every other person in the country watches television. The humiliation suffered by RBS is multiplied
by the number of televiewers who had anticipated the showing of the film "Maging Sino Ka Man" on
May 28 and November 3, 1992 but did not see it owing to the cancellation. Added to this are the
advertisers who had placed commercial spots for the telecast and to whom RBS had a commitment
in consideration of the placement to show the film in the dates and times specified.
The second is that it is a competitor that caused RBS to suffer the humiliation. The humiliation and
injury are far greater in degree when caused by an entity whose ultimate business objective is to lure
customers (viewers in this case) away from the competition. 36
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For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court and the Court of
Appeals do not support ABS-CBN's claim that there was a perfected contract. Such factual findings can no longer
be disturbed in this petition for review under Rule 45, as only questions of law can be raised, not questions of fact.
On the issue of damages and attorneys fees, they adopted the arguments of RBS.
The key issues for our consideration are (1) whether there was a perfected contract between VIVA and ABS-CBN,
and (2) whether RBS is entitled to damages and attorney's fees. It may be noted that the award of attorney's fees of
P212,000 in favor of VIVA is not assigned as another error.
I.
The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between two persons
whereby one binds himself to give something or to render some service to another 37 for a consideration. there is no
contract unless the following requisites concur: (1) consent of the contracting parties; (2) object certain which is the
subject of the contract; and (3) cause of the obligation, which is established. 38 A contract undergoes three stages:
(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending
at the moment of agreement of the parties;
(b) perfection or birth of the contract, which is the moment when the parties come to agree on the
terms of the contract; and
(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the
contract. 39
Contracts that are consensual in nature are perfected upon mere meeting of the minds, Once there is concurrence
between the offer and the acceptance upon the subject matter, consideration, and terms of payment a contract is
produced. The offer must be certain. To convert the offer into a contract, the acceptance must be absolute and must
not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from
the proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is a
rejection of the original offer. Consequently, when something is desired which is not exactly what is proposed in the
offer, such acceptance is not sufficient to generate consent because any modification or variation from the terms of
the offer annuls the offer. 40
When Mr. Del Rosario of VIVA met with Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April 1992 to discuss the
package of films, said package of 104 VIVA films was VIVA's offer to ABS-CBN to enter into a new Film Exhibition
Agreement. But ABS-CBN, sent, through Ms. Concio, a counter-proposal in the form of a draft contract proposing
exhibition of 53 films for a consideration of P35 million. This counter-proposal could be nothing less than the
counter-offer of Mr. Lopez during his conference with Del Rosario at Tamarind Grill Restaurant. Clearly, there was no
acceptance of VIVA's offer, for it was met by a counter-offer which substantially varied the terms of the offer.
ABS-CBN's reliance in Limketkai Sons Milling, Inc. v. Court of

Appeals 41 and Villonco Realty Company v. Bormaheco, Inc., 42 is misplaced. In these cases, it was held that an
acceptance may contain a request for certain changes in the terms of the offer and yet be a binding acceptance as long
as "it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer, whether such request
is granted or not." This ruling was, however, reversed in the resolution of 29 March 1996, 43 which ruled that the
acceptance of all offer must be unqualified and absolute, i.e., it "must be identical in all respects with that of the offer so as
to produce consent or meeting of the minds."
On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer were not material
but merely clarificatory of what had previously been agreed upon. It cited the statement in Stuart v. Franklin Life
Insurance Co. 44 that "a vendor's change in a phrase of the offer to purchase, which change does not essentially change
the terms of the offer, does not amount to a rejection of the offer and the tender of a counter-offer." 45 However, when any
of the elements of the contract is modified upon acceptance, such alteration amounts to a counter-offer.
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In the case at bar, ABS-CBN made no unqualified acceptance of VIVA's offer. Hence, they underwent a period of
bargaining. ABS-CBN then formalized its counter-proposals or counter-offer in a draft contract, VIVA through its
Board of Directors, rejected such counter-offer, Even if it be conceded arguendo that Del Rosario had accepted the
counter-offer, the acceptance did not bind VIVA, as there was no proof whatsoever that Del Rosario had the specific
authority to do so.
Under Corporation Code, 46 unless otherwise provided by said Code, corporate powers, such as the power; to enter into
contracts; are exercised by the Board of Directors. However, the Board may delegate such powers to either an executive
committee or officials or contracted managers. The delegation, except for the executive committee, must be for specific
purposes, 47 Delegation to officers makes the latter agents of the corporation; accordingly, the general rules of agency as
to the bindings effects of their acts would
apply. 48 For such officers to be deemed fully clothed by the corporation to exercise a power of the Board, the latter must
specially authorize them to do so. That Del Rosario did not have the authority to accept ABS-CBN's counter-offer was best
evidenced by his submission of the draft contract to VIVA's Board of Directors for the latter's approval. In any event, there
was between Del Rosario and Lopez III no meeting of minds. The following findings of the trial court are instructive:
A number of considerations militate against ABS-CBN's claim that a contract was perfected at that
lunch meeting on April 02, 1992 at the Tamarind Grill.
FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the price and
the number of films, which he wrote on a napkin. However, Exhibit "C" contains numerous provisions
which, were not discussed at the Tamarind Grill, if Lopez testimony was to be believed nor could
they have been physically written on a napkin. There was even doubt as to whether it was a paper
napkin or a cloth napkin. In short what were written in Exhibit "C'' were not discussed, and therefore
could not have been agreed upon, by the parties. How then could this court compel the parties to
sign Exhibit "C" when the provisions thereof were not previously agreed upon?
SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the contract was
14 films. The complaint in fact prays for delivery of 14 films. But Exhibit "C" mentions 53 films as its
subject matter. Which is which If Exhibits "C" reflected the true intent of the parties, then ABS-CBN's
claim for 14 films in its complaint is false or if what it alleged in the complaint is true, then Exhibit "C"
did not reflect what was agreed upon by the parties. This underscores the fact that there was no
meeting of the minds as to the subject matter of the contracts, so as to preclude perfection thereof.
For settled is the rule that there can be no contract where there is no object which is its subject
matter (Art. 1318, NCC).
THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. "D") states:
We were able to reach an agreement. VIVA gave us the exclusive license to show
these fourteen (14) films, and we agreed to pay Viva the amount of P16,050,000.00
as well as grant Viva commercial slots worth P19,950,000.00. We had already
earmarked this P16, 050,000.00.
which gives a total consideration of P36 million (P19,950,000.00 plus P16,050,000.00. equals
P36,000,000.00).
On cross-examination Mr. Lopez testified:
Q. What was written in this napkin?
A. The total price, the breakdown the known Viva movies, the 7 blockbuster movies
and the other 7 Viva movies because the price was broken down accordingly. The
none [sic] Viva and the seven other Viva movies and the sharing between the cash
portion and the concerned spot portion in the total amount of P35 million pesos.
556
Now, which is which? P36 million or P35 million? This weakens ABS-CBN's claim.
FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit "C" to Mr. Del
Rosario with a handwritten note, describing said Exhibit "C" as a "draft." (Exh. "5" - Viva; tsn pp. 23-
24 June 08, 1992). The said draft has a well defined meaning.
Since Exhibit "C" is only a draft, or a tentative, provisional or preparatory writing prepared for
discussion, the terms and conditions thereof could not have been previously agreed upon by ABS-
CBN and Viva Exhibit "C'' could not therefore legally bind Viva, not having agreed thereto. In fact,
Ms. Concio admitted that the terms and conditions embodied in Exhibit "C" were prepared by ABS-
CBN's lawyers and there was no discussion on said terms and conditions. . . .
As the parties had not yet discussed the proposed terms and conditions in Exhibit "C," and there
was no evidence whatsoever that Viva agreed to the terms and conditions thereof, said document
cannot be a binding contract. The fact that Viva refused to sign Exhibit "C" reveals only two [sic] well
that it did not agree on its terms and conditions, and this court has no authority to compel Viva to
agree thereto.
FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at the Tamarind
Grill was only provisional, in the sense that it was subject to approval by the Board of Directors of
Viva. He testified:
Q. Now, Mr. Witness, and after that Tamarind meeting ... the second meeting wherein
you claimed that you have the meeting of the minds between you and Mr. Vic del
Rosario, what happened?
A. Vic Del Rosario was supposed to call us up and tell us specifically the result of the
discussion with the Board of Directors.
Q. And you are referring to the so-called agreement which you wrote in [sic] a piece
of paper?
A. Yes, sir.
Q. So, he was going to forward that to the board of Directors for approval?
A. Yes, sir. (Tsn, pp. 42-43, June 8, 1992)
Q. Did Mr. Del Rosario tell you that he will submit it to his Board for approval?
A. Yes, sir. (Tsn, p. 69, June 8, 1992).
The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no
authority to bind Viva to a contract with ABS-CBN until and unless its Board of Directors approved it.
The complaint, in fact, alleges that Mr. Del Rosario "is the Executive Producer of defendant Viva"
which "is a corporation." (par. 2, complaint). As a mere agent of Viva, Del Rosario could not bind
Viva unless what he did is ratified by its Board of Directors. (Vicente vs. Geraldez, 52 SCRA
210; Arnold vs. Willets and Paterson, 44 Phil. 634). As a mere agent, recognized as such by plaintiff,
Del Rosario could not be held liable jointly and severally with Viva and his inclusion as party
defendant has no legal basis. (Salonga vs. Warner Barner [sic] , COLTA , 88 Phil. 125; Salmon vs.
Tan, 36 Phil. 556).
The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was
supposed to have been agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario was
not a binding agreement. It is as it should be because corporate power to enter into a contract is
556
lodged in the Board of Directors. (Sec. 23, Corporation Code). Without such board approval by the
Viva board, whatever agreement Lopez and Del Rosario arrived at could not ripen into a valid
contract binding upon Viva (Yao Ka Sin Trading vs. Court of Appeals, 209 SCRA 763). The evidence
adduced shows that the Board of Directors of Viva rejected Exhibit "C" and insisted that the film
package for 140 films be maintained (Exh. "7-1" - Viva ). 49
The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-four films under the 1990
Film Exhibition Agreement and that the meeting between Lopez and Del Rosario was a continuation of said previous
contract is untenable. As observed by the trial court, ABS-CBN right of first refusal had already been exercised when
Ms. Concio wrote to VIVA ticking off ten films, Thus:
[T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent, was for an
entirely different package. Ms. Concio herself admitted on cross-examination to having used or
exercised the right of first refusal. She stated that the list was not acceptable and was indeed not
accepted by ABS-CBN, (TSN, June 8, 1992, pp. 8-10). Even Mr. Lopez himself admitted that the
right of the first refusal may have been already exercised by Ms. Concio (as she had). (TSN, June 8,
1992, pp. 71-75). Del Rosario himself knew and understand [sic] that ABS-CBN has lost its rights of
the first refusal when his list of 36 titles were rejected (Tsn, June 9, 1992, pp. 10-11) 50
II
However, we find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter 2, Title
XVIII, Book IV of the Civil Code is the specific law on actual or compensatory damages. Except as provided by law
or by stipulation, one is entitled to compensation for actual damages only for such pecuniary loss suffered by him as
he has duly proved. 51 The indemnification shall comprehend not only the value of the loss suffered, but also that of the
profits that the obligee failed to obtain. 52 In contracts and quasi-contracts the damages which may be awarded are
dependent on whether the obligor acted with good faith or otherwise, It case of good faith, the damages recoverable are
those which are the natural and probable consequences of the breach of the obligation and which the parties have
foreseen or could have reasonably foreseen at the time of the constitution of the obligation. If the obligor acted with fraud,
bad faith, malice, or wanton attitude, he shall be responsible for all damages which may be reasonably attributed to the
non-performance of the obligation. 53 In crimes and quasi-delicts, the defendant shall be liable for all damages which are
the natural and probable consequences of the act or omission complained of, whether or not such damages has been
foreseen or could have reasonably been foreseen by the defendant. 54
Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of temporary or
permanent personal injury, or for injury to the plaintiff's business standing or commercial credit. 55
The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It arose from
the fact of filing of the complaint despite ABS-CBN's alleged knowledge of lack of cause of action. Thus paragraph
12 of RBS's Answer with Counterclaim and Cross-claim under the heading COUNTERCLAIM specifically alleges:
12. ABS-CBN filed the complaint knowing fully well that it has no cause of action RBS. As a result
thereof, RBS suffered actual damages in the amount of P6,621,195.32. 56
Needless to state the award of actual damages cannot be comprehended under the above law on actual damages.
RBS could only probably take refuge under Articles 19, 20, and 21 of the Civil Code, which read as follows:
Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith.
Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall
indemnify the latter for tile same.
Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage.
556
It may further be observed that in cases where a writ of preliminary injunction is issued, the damages which the
defendant may suffer by reason of the writ are recoverable from the injunctive bond. 57 In this case, ABS-CBN had not
yet filed the required bond; as a matter of fact, it asked for reduction of the bond and even went to the Court of Appeals to
challenge the order on the matter, Clearly then, it was not necessary for RBS to file a counterbond. Hence, ABS-CBN
cannot be held responsible for the premium RBS paid for the counterbond.
Neither could ABS-CBN be liable for the print advertisements for "Maging Sino Ka Man" for lack of sufficient legal
basis. The RTC issued a temporary restraining order and later, a writ of preliminary injunction on the basis of its
determination that there existed sufficient ground for the issuance thereof. Notably, the RTC did not dissolve the
injunction on the ground of lack of legal and factual basis, but because of the plea of RBS that it be allowed to put
up a counterbond.
As regards attorney's fees, the law is clear that in the absence of stipulation, attorney's fees may be recovered as
actual or compensatory damages under any of the circumstances provided for in Article 2208 of the Civil Code. 58
The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no
premium should be placed on the right to litigate. 59 They are not to be awarded every time a party wins a suit. The
power of the court to award attorney's fees under Article 2208 demands factual, legal, and equitable justification. 60 Even
when claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorney's fees may
not be awarded where no sufficient showing of bad faith could be reflected in a party's persistence in a case other than
erroneous conviction of the righteousness of his cause. 61
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217 thereof
defines what are included in moral damages, while Article 2219 enumerates the cases where they may be
recovered, Article 2220 provides that moral damages may be recovered in breaches of contract where the
defendant acted fraudulently or in bad faith. RBS's claim for moral damages could possibly fall only under item (10)
of Article 2219, thereof which reads:
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered. and
not to impose a penalty on the wrongdoer. 62 The award is not meant to enrich the complainant at the expense of the
defendant, but to enable the injured party to obtain means, diversion, or amusements that will serve to obviate then moral
suffering he has undergone. It is aimed at the restoration, within the limits of the possible, of the spiritual status quo ante,
and should be proportionate to the suffering inflicted. 63 Trial courts must then guard against the award of exorbitant
damages; they should exercise balanced restrained and measured objectivity to avoid suspicion that it was due to
passion, prejudice, or corruption on the part of the trial court. 64
The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and
having existence only in legal contemplation, it has no feelings, no emotions, no senses, It cannot, therefore,
experience physical suffering and mental anguish, which call be experienced only by one having a nervous
system. 65 The statement in People v. Manero 66 and Mambulao Lumber Co. v. PNB 67 that a corporation may recover
moral damages if it "has a good reputation that is debased, resulting in social humiliation" is an obiter dictum. On this
score alone the award for damages must be set aside, since RBS is a corporation.
The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII, Book IV of the Civil Code. These are
imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated or
compensatory damages. 68 They are recoverable in criminal cases as part of the civil liability when the crime was
committed with one or more aggravating circumstances; 69 in quasi-contracts, if the defendant acted with gross
negligence; 70 and in contracts and quasi-contracts, if the defendant acted in a wanton, fraudulent, reckless, oppressive, or
malevolent manner. 71
It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract, delict, or
quasi-delict, Hence, the claims for moral and exemplary damages can only be based on Articles 19, 20, and 21 of
the Civil Code.
556
The elements of abuse of right under Article 19 are the following: (1) the existence of a legal right or duty, (2) which
is exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another. Article 20 speaks of the general
sanction for all other provisions of law which do not especially provide for their own sanction; while Article 21 deals
with acts contra bonus mores, and has the following elements; (1) there is an act which is legal, (2) but which is
contrary to morals, good custom, public order, or public policy, and (3) and it is done with intent to injure. 72
Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a conscious and
intentional design to do a wrongful act for a dishonest purpose or moral obliquity. 73 Such must be substantiated by
evidence. 74
There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly convinced of the
merits of its cause after it had undergone serious negotiations culminating in its formal submission of a draft
contract. Settled is the rule that the adverse result of an action does not per se make the action wrongful and subject
the actor to damages, for the law could not have meant to impose a penalty on the right to litigate. If damages result
from a person's exercise of a right, it is damnum absque injuria. 75
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV
No, 44125 is hereby REVERSED except as to unappealed award of attorney's fees in favor of VIVA Productions,
Inc.
1wphi1.nt
No pronouncement as to costs.
SO ORDERED.
556
[G.R. No. 131726. May 7, 2002]
YOLANDA PALATTAO, petitioner, vs. THE COURT OF APPEALS, HON. ANTONIO J.

FINEZA, as Presiding Judge of the Regional Trial Court of Caloocan City, Branch
131 and MARCELO CO, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review under Rule 45 of the Rules of Court seeking to set aside the August
29, 1997 decision[1] and the November 28, 1997 resolution[2] of the Court of Appeals[3] in CA-G.R.
SP No. 40031, affirming the decision [4] of the Regional Trial Court of Caloocan City, Branch 131, in
Civil Case No. C-17033 which reversed the Decision [5] of the Metropolitan Trial Court of Caloocan,
Branch 53, in an ejectment suit docketed as Civil Case No. 21755.
The antecedent facts are as follows: Petitioner Yolanda Palattao entered into a lease contract
whereby she leased to private respondent a house and a 490-square-meter lot located in 101
Caimito Road, Caloocan City, covered by Transfer Certificate of Title No. 247536 and registered in
the name of petitioner. The duration of the lease contract was for three years, commencing from
January 1, 1991, to December 31, 1993, renewable at the option of the parties. The agreed monthly
rental was P7,500.00 for the first year; P8,000.00 for the second year; and P8,500.00 for the third
year. The contract gave respondent lessee the first option to purchase the leased property. [6]
During the last year of the contract, the parties began negotiations for the sale of the leased
premises to private respondent. In a letter dated April 2, 1993, petitioner offered to sell to private
respondent 413.28 square meters of the leased lot at P7,800.00 per square meter, or for the total
amount of P3,223,548.00.[7] Private respondent replied on April 15, 1993 wherein he informed
petitioner that he shall definitely exercise [his] option [to buy] the leased property. [8] Private
respondent, however, manifested his desire to buy the whole 490-square-meter leased premises and
inquired from petitioner the reason why only 413.28 square meters of the leased lot were being
offered for sale. In a letter dated November 6, 1993, petitioner made a final offer to sell the lot at
P7,500.00 per square meter with a downpayment of 50% upon the signing of the contract of
conditional sale, the balance payable in one year with a monthly lease/interest payment of
P14,000.00 which must be paid on or before the fifth day of every month that the balance is still
outstanding.[9] On November 7, 1993, private respondent accepted petitioners offer and reiterated
his request for clarification as to the size of the lot for sale. [10] Petitioner acknowledged private
respondents acceptance of the offer in his letter dated November 10, 1993.
Petitioner gave private respondent on or before November 24, 1993, within which to pay the
50% downpayment in cash or managers check. Petitioner stressed that failure to pay the
downpayment on the stipulated period will enable petitioner to freely sell her property to
556
others. Petitioner likewise notified private respondent that she is no longer renewing the lease
agreement upon its expiration on December 31, 1993.[11]
Private respondent did not accept the terms proposed by petitioner. Neither was there any
documents of sale nor payment by private respondent of the required downpayment. Private
respondent wrote a letter to petitioner on November 29, 1993 manifesting his intention to exercise
his option to renew their lease contract for another three years, starting January 1, 1994 to
December 31, 1996.[12] This was rejected by petitioner, reiterating that she was no longer renewing
the lease. Petitioner demanded that private respondent vacate the premises, but the latter refused.
Hence, private respondent filed with the Regional Trial Court of Caloocan, Branch 127, a case
for specific performance, docketed as Civil Case No. 16287, [13] seeking to compel petitioner to sell
to him the leased property. Private respondent further prayed for the issuance of a writ of
preliminary injunction to prevent petitioner from filing an ejectment case upon the expiration of the
lease contract on December 31, 1993.
During the proceedings in the specific performance case, the parties agreed to maintain
the status quo. After they failed to reach an amicable settlement, petitioner filed the instant
ejectment case before the Metropolitan Trial Court of Caloocan City, Branch 53. [14] In his answer,
[15]
private respondent alleged that he refused to vacate the leased premises because there was a
perfected contract of sale of the leased property between him and petitioner. Private respondent
argued that he did not abandon his option to buy the leased property and that his proposal to renew
the lease was but an alternative proposal to the sale. He further contended that the filing of the
ejectment case violated their agreement to maintain the status quo.
On July 28, 1995, the Metropolitan Trial Court rendered a decision in favor of petitioner. The
dispositive portion thereof states:
WHEREFORE,judgmentisherebyrenderedinfavoroftheplaintiffandagainstthedefendant,
orderingthedefendantandallpersonsclaimingrightunderhimtopaytheplaintiffasfollows:
1.P12,000.00permonthrepresentingreasonablemonthlyrentalfromJanuary1,1994and
monthsthereafteruntildefendantsshallvacatethesubjectpremises;
2.P10,000.00representingattorneysfee;
3.Topaythecostofsuit.
SOORDERED.[16]
On appeal, the Regional Trial Court reversed the assailed decision, disposing as follows:
WHEREFORE,inviewofalltheforegoing,theassaileddecisionoftheMetropolitanTrialCourt,
Branch53,thisCity,renderedonJuly28,1995,isherebyREVERSEDandSETASIDE,withcosts
deofficio.
SOORDERED.[17]
556
Aggrieved, petitioner filed a petition for review with the Court of Appeals, which dismissed the
petition. Likewise, the motion for reconsideration was denied on August 29, 1997. Hence, the
instant petition anchored upon the following grounds:
I
THECOURTOFAPPEALSANDRTC,CALOOCANCITY,BRANCH131,ERREDIN
DECLARINGTHATPETITIONERISGUILTYOFESTOPPELINFILINGANEJECTMENT
CASEAGAINSTRESPONDENTCO.
II
THECOURTOFAPPEALSANDRTC,CALOOCANCITY,BRANCH131,ERREDIN
FINDINGTHATANINJUNCTIVESUITWILLBARTHEFILINGOFEJECTMENTCASE
AGAINSTRESPONDENTCO.
III
THERTC,CALOOCANCITY,BRANCH131,ERREDINDECLARINGTHATTHEREWAS
APERFECTEDCONTRACTOFSALEBETWEENTHEPARTIESOVERTHELEASED
PROPERTY.[18]
The petition is impressed with merit.

The Court of Appeals ruled that petitioner was estopped from filing the instant ejectment suit
against private respondent by the alleged status quo agreement reached in the specific performance
case filed by private respondent against petitioner. A reading, however, of the transcript of
stenographic notes taken during the January 21, 1994 hearing discloses that the agreement to
maintain the status quo pertained only to the duration of the negotiation for an amicable settlement
and was not intended to be operative until the final disposition of the specific performance
case. Thus:
xxxxxxxxx
Court
Before we go into the prayer for preliminary injunction and of the merit of the case I want to see if I can make the
parties settle their differences.
Atty. Siapan
We will in the meantime maintain the status quo on the matter pending further negotiation.
Court
As a matter of injunction, are you willing to maintain a status quo muna [?]
Atty. Mendez
Yes, your Honor.
Court
How about Atty. Uy are you willing?
556
Atty. Uy
Yes, your Honor.
Court
I will not issue any injunction but there will be a status quo and we will concentrate our efforts on letting the
parties to (sic) negotiate and enter into an agreement.[19]
xxxxxxxxx
I will give you the same facts of the case. I want to settle this and not go into trial because in due time I will not
finish the case, my stay here is only Acting Presiding Judge and there are other judges nominated for this sala and
once the judge will be (sic) appointed then I go, let us get advantage of settling the matter. I will have your
gentlemans agreement that there will be no adversarial attitude among you will (sic) never arrive at any
agreement.
Atty. Siapan
In the meantime, we will move for a resetting of this case your Honor.
Court
Anyway, this is a gentlemans agreement that there will be no new movement but the status quo will be
maintained.
Atty. Siapan, Atty. Mendez & Atty. Uy.
Yes, your Honor. (simultaneously (sic) in saying)[20]
The foregoing agreement to maintain the status quo pending negotiations was noted by the trial
court in its January 21, 1994 Order postponing the hearing to enable the parties to arrive at an
amicable settlement, to wit:
Uponagreementofthepartieshereinforpostponementoftodaysscheduleastheremightbesome
possibilityofsettlingtheclaimsherein,letthehearingtodaybecancelled.
InthemeantimethiscaseissetforhearingonFebruary28,1994at8:30a.m.,shouldtheparties
notarriveatanyamicablesettlement.[21]
It is beyond cavil therefore that the preservation of the status quo agreed upon by the parties
applied only during the period of negotiations for an amicable settlement and cannot be construed
to be effective for the duration of the pendency of the specific performance case. It is a settled rule
that injunction suits and specific performance cases, inter alia, will not preclude the filing of, or
abate, an ejectment case. Unlawful detainer and forcible entry suits under Rule 70 are designed to
summarily restore physical possession of a piece of land or building to one who has been illegally
or forcibly deprived thereof, without prejudice to the settlement of the parties' opposing claims of
juridical possession in appropriate proceedings. It has been held that these actions are intended to
avoid disruption of public order by those who would take the law in their hands purportedly to
enforce their claimed right of possession. In these cases, the issue is pure physical or de
factopossession, and pronouncements made on questions of ownership are provisional in nature. [22]
In Wilmon Auto Supply Corporation, et al., v. Court of Appeals, et al.,[23] the issue of whether or
not an ejectment case based on expiration of lease contract should be abated by an action to enforce
556
the right of preemption or prior purchase of the leased premises was resolved in the negative. The
Court outlined the following precedents:
1. Injunction suits instituted in the RTC by defendants in ejectment actions in the municipal trial courts or other
courts of the first level (Nacorda v. Yatco, 17 SCRA 920 [1966]) do not abate the latter; and neither do
proceedings on consignation of rentals (Lim Si v. Lim, 98 Phil. 868 [1956], citing Pue, et al. v. Gonzales, 87
Phil. 81 [1950]).
2. An "accion publiciana" does not suspend an ejectment suit against the plaintiff in the former (Ramirez v.
Bleza, 106 SCRA 187 [1981]).
3. A "writ of possession case" where ownership is concededly the principal issue before the Regional Trial Court
does not preclude nor bar the execution of the judgment in an unlawful detainer suit where the only issue
involved is the material possession or possession de facto of the premises (Heirs of F. Guballa, Sr. v. C.A., et
al.; etc., 168 SCRA 518 [1988]).
4. An action for quieting of title to property is not a bar to an ejectment suit involving the same property
(Quimpo v. de la Victoria, 46 SCRA 139 [1972]).
5. Suits for specific performance with damages do not affect ejectment actions (e.g., to compel renewal of a
lease contract) (Desamito v. Cuyegkeng, 18 SCRA 1184 [1966]; Rosales v. CFI, 154 SCRA 153 [1987];
Commander Realty, Inc. v. C.A., 161 SCRA 264 [1988]).
6. An action for reformation of instrument (e.g., from deed of absolute sale to one of sale with pacto de retro)
does not suspend an ejectment suit between the same parties (Judith v. Abragan, 66 SCRA 600 [1975]).
7. An action for reconveyance of property or "accion reivindicatoria" also has no effect on ejectment suits
regarding the same property (Del Rosario v. Jimenez, 8 SCRA 549 [1963]; Salinas v. Navarro, 126 SCRA
167; De la Cruz v. C.A., 133 SCRA 520 [1984]); Drilon v. Gaurana, 149 SCRA 352 [1987]; Ching v. Malaya,
153 SCRA 412 [1987]; Philippine Feeds Milling Co., Inc. v. C.A., 174 SCRA 108; Dante v. Sison, 174
SCRA 517 [1989]; Guzman v. C.A. [annulment of sale and reconveyance], 177 SCRA 604 [1989]; Demamay
v. C.A., 186 SCRA 608 [1990]; Leopoldo Sy v. C.A., et al., [annulment of sale and reconveyance], G.R. No.
95818, Aug. 2, 1991).
8. Neither do suits for annulment of sale, or title, or document affecting property operate to abate ejectment
actions respecting the same property (Salinas v. Navarro [annulment of deed of sale with assumption of
mortgage and/or to declare the same an equitable mortgage], 126 SCRA 167 [1983]; Ang Ping v. RTC
[annulment of sale and title], 154 SCRA 153 [1987]; Caparros v. C.A. [annulment of title], 170 SCRA 758
[1989]; Dante v. Sison [annulment of sale with damages], 174 SCRA 517; Galgala v. Benguet Consolidated,
Inc. [annulment of document], 177 SCRA 288 [1989]).
TheunderlyingreasonsfortheaboverulingwerethattheactionsintheRegionalTrialCourtdid
notinvolvephysicalordefactopossession,and,onnotafewoccasions,thatthecaseinthe
RegionalTrialCourtwasmerelyaploytodelaydispositionoftheejectmentproceeding,orthatthe
issuespresentedintheformercouldquiteaseasilybesetupasdefensesintheejectmentactionand
thereresolved.
Only in rare instances is suspension allowed to await the outcome of the pending civil
action. In Wilmon, the Court recognized that Vda. De Legaspi v. Avendao [24] was an exception to the
general rule against suspension of an ejectment proceeding. [25] Thus:
xxx[A]sregardstheseeminglycontraryrulinginVda.deLegaspiv.Avendano,89SCRA135
(1977),thisCourtobservedinSalinasv.Navarro,126SCRA167,172173(1983),thatthe
exceptiontotheruleinthiscaseofVda.deLegaspiisbasedonstrongreasonsofequitynotfound
556
inthepresentpetition.Therightofthepetitionerisnotsoseriouslyplacedinissueinthe
annulmentcaseastowarrantadeviation,onequitablegrounds,fromtheimperativenatureofthe
rule.IntheVda.deLegaspicase,executionofthedecisionintheejectmentcasewouldalsohave
meantdemolitionofthepremises,afactornotpresentinthispetition.
In the case at bar, the continued occupation by private respondent of the leased premises is
conditioned upon his right to acquire ownership over said property. The factual milieu obtaining
here, however, hardly falls within the aforecited exception as the resolution of the ejectment suit
will not result in the demolition of the leased premises, as in the case of Vda. De Legaspi v.
Avendao.Verily, private respondent failed to show strong reasons of equity to sustain the suspension
or dismissal of the ejectment case. Argumentum a simili valet in lege. Precedents are helpful in
deciding cases when they are on all fours or at least substantially identical with previous litigations.
[26]
Faced with the same scenario on which the general rule is founded, and finding no reason to
deviate therefrom, the Court adheres to the settled jurisprudence that suits involving ownership may
not be successfully pleaded in abatement of an action for ejectment.
Contracts that are consensual in nature, like a contract of sale, are perfected upon mere meeting
of the minds. Once there is concurrence between the offer and the acceptance upon the subject
matter, consideration, and terms of payment, a contract is produced. The offer must be certain. To
convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of
the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from the
proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter-offer
and is a rejection of the original offer. Consequently, when something is desired which is not
exactly what is proposed in the offer, such acceptance is not sufficient to generate consent because
any modification or variation from the terms of the offer annuls the offer.[27]
In the case at bar, while it is true that private respondent informed petitioner that he is accepting
the latters offer to sell the leased property, it appears that they did not reach an agreement as to the
extent of the lot subject of the proposed sale. This is evident from the April 15, 1993 reply-letter of
private respondent to petitioner, to wit:
IwouldliketoinformyouthatIshalldefinitelyexercisemyoptionasembodiedinProvisionF
(FirstOption)ofourContractofLeasedatedDecember21,1990.Asperagreement,myfirst
optioncoversthe490squaremeterssitewhichIamcurrentlyleasingfromyouat101Caimito
Road,CaloocanCity.Specifically,yourTransferCertificateofTitle#247536delineatesthe
propertysizesas492squaremeters.
Youroffer,however,statesonly413.28squaremetersareforsaletome.Itrustthatthisismerely
anoversightonyourpart.Notwithstandingtherumorstotheeffectthatpartofthepropertyhave
alreadybeensoldtootherparties,Iwouldliketobelievethatyoustillretainabsoluteownership
overtheentirepropertycoveredbymyContractofLease.Kindlyenlightenmeonthismatterso
thatwecanproceedwiththenegotiationsforthesaleofyourpropertytome. [28]
Likewise, in his November 7, 1993 reply-letter, private respondent stated that:

556
WhileitistruethatyoufirstofferedyourpropertyforsaletomelastApril14,1993,itisalso
equallytruethatyouonlycorrespondwithmeonthismatteragainonOctober27,1993.Ianswered
yourApril14offerwitharegisteredmailonApril15,1993.Init,IstatedthatIamdefinitely
exercisingmyfirstoptiontopurchaseyourpropertyinaccordancewithProvisionsFofour
ContractofLeasedatedDecember21,1990.Likewise,Irequestedyoutoexplainthediscrepancy
betweenthesizeofthepropertybeingofferedforsale(413.28squaremeters)asagainstthesize
statedinmyoptionwhichis492squaremeters.However,Ididnotgetanyreplyfromyouonthis
matter.Hencethenegotiationsgotstalled.Ifanybodyshouldbeblamedfortheprolonged
negotiation,thensurelyitisnotallminealone. [29]
The foregoing letters reveal that private respondent did not give his consent to buy only 413.28
square meters of the leased lot, as he desired to purchase the whole 490 square-meter-leased
premises which, however, was not what was exactly proposed in petitioners offer. Clearly,
therefore, private respondents acceptance of petitioners offer was not absolute, and will
consequently not generate consent that would perfect a contract.
Even assuming that the parties reached an agreement as to the size of the lot subject of the sale,
the records show that there was subsequently a mutual withdrawal from the contract. [30] This is so
because in the November 10, 1993 letter of petitioner, she gave private respondent until November
24, 1993 to pay 50% of the purchase price, with the caveat that failure to do so would authorize her
to sell to others the leased premises. The period within which to pay the downpayment is a new
term or a counter-offer in the contract which needs acceptance by private respondent.The latter,
however, failed to pay said downpayment, or to at least manifest his conformity to the period given
by petitioner. Neither did private respondent ask for an extension nor insist on the sale of the
subject lot. What appears in the record is private respondents November 29, 1993 letter informing
petitioner that he shall exercise or avail of the option to renew their lease contract for another three
years, starting January 1, 1994 to December 31, 1996. Evidently, there was a subsequent mutual
backing out from the contract of sale. Hence, private respondent cannot compel petitioner to sell
the leased property to him.
Considering that the lease contract was not renewed after its expiration on December 31, 1991,
private respondent has no more right to continue occupying the leased premises. Consequently, his
ejectment therefrom must be sustained.
As to the monthly rental to be paid by private respondent from the expiration of their contract
of lease until the premises is vacated, we find that the P12,000.00 awarded by the Metropolitan
Trial Court must be reduced to P8,500.00, it being the highest amount of monthly rental stated in
the lease contract.
WHEREFORE, the petition is GRANTED. The August 29, 1997 decision and the November
28, 1997 resolution of the Court of Appeals in CA-G.R. SP No. 40031 are SET ASIDE. The
Decision of the Metropolitan Trial Court of Caloocan, Branch 53, in Civil Case No. 21755 is
REINSTATED subject to the modification that the monthly rental to be paid by private respondent
from the date of the termination of the lease contract until the leased premises is vacated is reduced
to P8,500.00.
SO ORDERED.
556
556
G.R. No. 124267 January 31, 2003
NATIONAL COMMERCIAL BANK OF SAUDI ARABIA, petitioner,

vs.
COURT OF APPEALS and PHILIPPINE BANKING CORPORATION, respondents.
CARPIO MORALES, J.:
May the unrippled doctrine that a motion filed without the requisite notice of hearing is a useless piece of paper with
no legal effect1 be, under the facts of the case, relaxed?
Petitioner National Commercial Bank of Saudi Arabia (NCBSA) filed a case against respondent Philippine Banking
Corporation (PBC) in the Regional Trial Court (RTC) of Makati on December 4, 1985 to recover "the duplication in
the payment of the proceeds of a letter of credit [NCBSA] has issued . . . brought about by the fact that both the
head office and the Makati branch of [PBC, the negotiating bank,] collected the proceeds of the letter of credit." 2
On August 24, 1993, the RTC of Makati rendered a decision in favor of NCBSA. 3 PBC received a copy of the
decision on September 3, 19934 and on the 12th day of the period of appeal or on September 15, 1993, it filed a
Motion for Reconsideration.5 The motion, however, did not contain a notice of hearing. 6
On September 21, 1993, NCBSA filed a Manifestation pointing out that PBC's Motion for Reconsideration did not
contain any notice of hearing.7
On September 27, 1993, NCBSA filed a Motion for Writ of Execution of the decision of the trial court. 8 On even date,
PBC filed a Motion to Set "Motion for Reconsideration" for Hearing 9 alleging as follows:
xxx xxx xxx
2. The Motion for Reconsideration raised both questions of facts and law arising from the erroneous findings
made by the Honorable Court in the said Decision;
3. In order that defendant can fully amplify and expound on the issues raised on the said motions, there is a
need to set the Motion for Hearing.
xxx xxx xxx10
NCBSA opposed this motion vigorously, it praying that it be stricken off the records. 11
By Order of February 1, 1994, the trial court struck from the records of the case PBC's Motion for Reconsideration of
its decision and granted NCBSA's Motion for Writ of Execution. 12
PBC filed a Motion for Reconsideration of said Order of February 1, 1994, this time alleging that PBC's failure to
comply with the 3-day notice rule "was essentially an honest mistake or oversight of counsel." 13 This motion was just
as vigorously opposed by NCBSA.14
By Order of March 2, 1994, the trial court denied PBC's Motion for Reconsideration of its Order of February 1, 1994,
finding that "[t]here are no compelling reasons to warrant a liberal construction of the rules on Motions." 15
PBC assailed before the Court of Appeals via Petition for Certiorari the trial court's March 2, 1994 Order.16
By Decision of February 27, 1995, the Court of Appeals dismissed PBC's Petition for Certiorari. 17 On PBC's Motion
for Reconsideration, however, the Court of Appeals, by Amended Decision of March 8, 1996, set aside its February
556
27, 1995 Decision and granted PBC's Petition for Certiorari and directed the trial court to resolve PBC's Motion for
Reconsideration (of the trial court's August 24, 1993 Decision).18
Justifying its setting aside of its February 27, 1995 Decision, the Court of Appeals held in its Amended Decision:
. . . [T]o deny petitioner's motion for reconsideration on the ground of failure to contain a notice of hearing is
too harsh an application of procedural rules especially so when petitioner has filed a motion to set the
motion for reconsideration for hearing and had furnished private respondent a copy of the motion, a fact
which is not denied by the latter.19
NCBSA thus comes to this Court assailing the Court of Appeals' Amended Decision.
The petition is impressed with merit.
The requirement of notice under Sections 4 and 5, Rule 15 in connection with Section 2, Rule 37 of the Revised
Rules of Court20 is mandatory. The absence of a notice of hearing is fatal and, in cases of motions to reconsider a
decision, the running of the period to appeal is not tolled by their filing or pendency.21 In the case at bar, it is not
disputed that PBC's Motion for Reconsideration of the August 24, 1993 decision of the trial court did not contain the
requisite notice of hearing.
In an attempt to cure the defect, PBC filed on Motion to Set the "Motion for Reconsideration" for Hearing on
September 27, 1993, or 9 days after the period for filing the Notice of Appeal had expired.
The motion for reconsideration, however, being fatally defective for lack of notice of hearing, cannot be cured by a
belated filing of a notice of hearing.22 More so in the case at bar where the Motion to Set the "Motion for
Reconsideration" was filed after the expiration of the period for filing an appeal.
NCBSA thus calls for the strict application of our rules of procedure to avoid further delays in the disposition of the
case,23 which has remained pending for more than 17 years.
PBC, on the other hand, invokes a just and fair determination of the case. 24
PBC's appeal for justice and fairness does not lie, however, there being nothing on record to show that it has been a
victim of injustice or unfairness. On the contrary, as found by the Court of Appeals in its original decision, PBC had
the opportunity to participate in the trial and present its defense and had actually made full use of the remedies
under our rules of procedure.25 More importantly, there was no oppressive exercise of judicial authority that would
call for the annulment of the trial court's resolutions.26
The finality of the decision of the trial court cannot be set aside purely on the basis of liberality for while it is true that
a litigation is not a game of technicalities, this does not mean that the Rules of Court may be ignored at will and at
random. Only for the most persuasive of reasons should the court allow a relaxation of its procedural rules. 27
PBC, however, has not advanced any persuasive or exceptional reason in failing to set its Motion for
Reconsideration of the trial court's decision for hearing. In fact, in its Motion to Set "Motion for Reconsideration" for
Hearing, PBC was completely silent on why it did not set the Motion for Reconsideration for hearing. It just alleged
that, as earlier quoted, "[i]n order that defendant can fully amplify and expound on the issues raised on said motion,
there is a need to set the Motion [for Reconsideration] for Hearing."28 This allegation conveys that, if there was no
need for PBC to "fully amplify and expound on the issues raised" in the Motion for Reconsideration, no setting for
hearing of said motion was needed. But as earlier stated, the requirement of notice in this kind of motion is
mandatory. The Motion for Reconsideration thus remained a mere scrap of paper which deserved no consideration.
But assuming that PBC had presented exceptional reason or excuse for its failure to comply with the notice
requirement, the Motion for Reconsideration would be denied on the ground that it is pro forma.
556
In its Rejoinder29 to NCBSA's Reply to Comment to the petition at bar, PBC alleged that it was, in its Motion for
Reconsideration of the trial court's decision, raising "serious questions involving findings of fact and conclusions of
law by the trial court," thus "questioning the decision as being contrary to law and the evidence on record." 30 A
reading of the records will show, however, that the same three issues raised by PBC during the trial prescription,
laches and lack of double payment are what are being raised in its Motion for Reconsideration of the decision of
the trial court.
PBC's Motion for Reconsideration of the trial court's decision was thus "in substance . . . a reiteration of reasons and
arguments"31 raised before the trial court for the dismissal of NCBSA's complaint, which reasons and arguments had
already been considered and resolved against it on the merits by the trial court. The Motion for Reconsideration was
thus merely pro forma.
Technicality aside, en passant, on the merits of PBC's Motion for Reconsideration of the trial court's decision, the
trial court did not err in brushing aside its main defense of prescription that NCBSA's complaint is "based on the
quasi-contract of solutio indebiti,"32 hence, it prescribes in six years and, therefore, when NCBSA filed its complaint
nine years after the cause of action arose, it had prescribed.
Solutio indebiti applies where: (1) a payment is made when there exists no binding relation between the payor, who
has no duty to pay, and the person who received the payment, and (2) the payment is made through mistake, and
not through liberality or some other cause33 In the case at bar, PBC and NCBSA were bound by their contract, the
letter of credit, under which NCBSA obliged itself to pay PBC, subject to compliance by the latter with certain
conditions provided therein. As such, the cause of action was based on a contract, and the prescriptive period is
ten,34 not six years.
Even PBC's defense of laches is bereft of merit, the cause of action not having yet prescribed at the time NCBSA's
complaint was filed.
Courts should never apply the doctrine of laches earlier than the expiration of time limited for the commencement of
actions at law.35
And as to PBC's allegation that the trial court erred in finding the existence of double payment, suffice it to state that
PBC, while denying that there was double payment, itself admitted having received a second set of payment for the
same amount covered by the letter of credit. Thus, in its petition for certiorari 36 filed with the Court of Appeals, it
alleged, quoted verbatim:
The second set for the same amount, although it was received and credited to [PBC's] account with Chemical Bank
New York, were to be and subsequently transmitted to the account of Labroco (International, Philippines) . . .
37
(Emphasis supplied.)
WHEREFORE, the instant petition for review on certiorari is GRANTED. The Amended Decision of the Court of
Appeals dated March 8, 1996 is SET ASIDE and the Resolutions of the Regional Trial Court declaring the Motion for
Reconsideration filed by the Philippine Banking Corporation as pro forma is REINSTATED.
SO ORDERED.
Puno, Panganiban, Sandoval-Gutierrez, and Corona JJ., concur.

556
[G.R. No. 148541. November 11, 2004]
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. BONITA O. PEREZ

and ALFREDO PEREZ, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari seeking to reverse and set aside the
Decision[1] of the Court of Appeals (CA) dated February 28, 2001, and to reinstate the
Decision of the Regional Trial Court (RTC), Makati City, Branch 145, in Civil Case No.
12057, as modified by trial courts Order dated June 11, 1993.
The Antecedents
On April 28, 1978, petitioner Development Bank of the Philippines (DBP) sent a letter
to respondent Bonita Perez, informing the latter of the approval of an industrial loan
amounting to P214,000.00 for the acquisition of machinery and equipment and for working
capital, and an additional industrial loan amounting to P21,000.00 to cover unforeseen
price escalation.[2]
On May 18, 1978, the respondents were made to sign four promissory notes covering
the total amount of the loan, P235,000.00. Three promissory notes
for P24,000.00, P48,000.00, and P142,000.00, respectively, were executed,
totaling P214,000.00. These promissory notes were all due on August 31, 1988. [3] A fourth
promissory note due on September 19, 1988 was, likewise, executed to cover the
additional loan of P21,000.00.[4] The promissory notes were to be paid in equal quarterly
amortizations and were secured by a mortgage contract covering real and personal
properties.[5]
On September 6, 1978, the petitioner sent a letter [6] to the respondents informing them
of the terms for the payment of the P214,000.00 industrial loan. On November 8, 1978,
the petitioner sent another letter[7] to the respondents informing them about the terms and
conditions of their additional P21,000.00 industrial loan.
Due to the respondents' failure to comply with their amortization payments, the
petitioner decided to foreclose the mortgages that secured the obligation. However, in a
Letter[8] dated October 7, 1981, Mrs. Perez requested for a restructuring of their account
due to difficulties they were encountering in collecting receivables.
556
On April 1, 1982, the petitioner informed the respondents that it had approved the
restructuring of their accounts.[9] The loan was restructured, and on May 6, 1982, the
respondents signed another promissory note in the amount of P231,000.00 at eighteen
percent (18%) interest per annum, payable quarterly at P12,553.27, over a period of ten
years. The promissory note stated in part:
PROMISSORYNOTE
P231,000.00Makati,MetroManila,May6,1982
OnorbeforeMay7,1992,forvaluereceived,I/we,jointlyandseverally,promisetopay
theDEVELOPMENTBANKOFTHEPHILIPPINES,ororderatitsofficeatMakati,
MetroManila,Philippines,thesumofTWOHUNDREDTHIRTYONETHOUSAND
PESOS(P231,000.00),PhilippineCurrency,withinterestattherateofEIGHTEENper
centum(18%)perannum.Beforethedateofmaturity,weherebybindourselvestomake
partialpayments,thefirstpaymenttobemadeonAugust7,1982andthesubsequent
paymentsonthe7thdayofeverythree(3)monthsthereafter,andeachofallsuch
paymentsshallbeTWELVETHOUSANDFIVEHUNDREDFIFTYTHREEand27/100
PESOS(P12,553.27)whichshallcoveramortizationsontheprincipalandinterestatthe
abovementionedrate.
Thisloanshallbesubjecttopenaltychargesandadditionalinterestasfollows:
Onloanwithamortizationsorportionsthereof
inarrearsirrespectiveofage.
Additionalinterestatthebasicloaninterestrate
perannumcomputedontotalamortizationspast
dueirrespectiveofage.
PLUS
Penaltychargeof8%perannumcomputedon
totalamortizationsinarrearsirrespectiveof
age.
TheDBPfurtherreservestherighttoincrease,withnoticetothemortgagor,therateof
interestontheloanaswellasallotherfeesandchargesonloansandadvancespursuantto
suchpolicyasitmayadoptfromtimetotimeduringtheperiodoftheloan;Providedthat
therateofinterestontheloanshallbereducedintheeventthattheapplicablemaximum
rateofinterestisreducedbylaworbytheMonetaryBoard;Provided,further,thatthe
adjustmentintherateofinterestshalltakeeffectonoraftertheeffectivityoftheincrease
ordecreaseinthemaximumrateofinterest.
556
Incaseofnonpaymentoftheamountofthisnoteoranyportionofitondemand,when
due,oranyotheramountoramountsdueonaccountofthisnote,theentireobligation
shallbecomedueanddemandable,andif,fortheenforcementofthepaymentthereof,the
DEVELOPMENTBANKOFTHEPHILIPPINES,isconstrainedtoentrustthecasetoits
attorneys,I/we,jointlyandseverally,bindmyself/ourselvestopayforattorney'sfees,as
providedforinthemortgagecontract,inadditiontothelegalfeesandotherincidental
expenses.Intheeventofforeclosureofthemortgagesecuringthisnote,I/wefurtherbind
myself/ourselves,jointlyandseverally,topaythedeficiency,ifany.
SIGNEDINTHEPRESENCEOF:
illegibleSGD.SGD.
illegibleBONITAANGORDIALESALFREDOPEREZ
(BonitaO.Perez)
ThisPromissoryNotesupersedesthePromissoryNotedatedMay18,1978andstands
securedbyamortgagecontractexecutedbytheabovepartiesonthesamedate,subjectto
thefollowingtermsandconditions.[10]
As stated in the promissory note, the first amortization was due on August 7, 1982,
and the succeeding amortizations, every quarter thereafter. However, the respondents
made their first payment amounting to P15,000.00[11] only on April 20, 1983 or after the
lapse of three quarters.[12] Their second payment, which should have been paid on
November 7, 1982, was made on December 2, 1983 and only in the amount of P5,000.00.
The third payment was then made at the time when the ninth quarterly amortization should
have been paid. After this, the respondents completely stopped paying.[13] The total
payments they made after the restructure of the loan amounted to P35,000.00 only.[14]
This failure to meet the quarterly amortization of the loan prompted the petitioner to
institute foreclosure proceedings on the mortgages. The sale of the properties covered by
the mortgage contract was scheduled on October 30, 1985.[15]
On October 24, 1985, the respondents filed a Complaint [16] for the nullification of the
new promissory note with damages and preliminary prohibitory injunction. The complaint
alleged that the petitioner restructured the respondents obligation in bad faith by requiring
them to sign another promissory note for P231,000.00 without considering the total
payments made on the loan amounting to P224,383.43. The respondents claimed that the
petitioner failed to explain to them how it had arrived at the amount of the restructured
loan. The respondents also alleged that the petitioner failed to furnish them with a
disclosure statement as required by Rep. Act No. 3765, also known as the Truth in
Lending Act, prior to the consummation of the transaction. They averred that the interest
imposed on the said transaction was usurious. They, likewise, alleged that the new
promissory note constituted a novation of the previous obligations.
556
In its answer, the petitioner denied the allegations and averred that the claim for
violation of the disclosure requirement under Rep. Act No. 3765 was not within the
jurisdiction of the RTC and was barred by prescription. By way of compulsory
counterclaim, the petitioner prayed that the respondents be ordered to pay their obligation,
plus exemplary damages and costs.[17] During trial, the petitioner presented a Statement of
Account dated September 14, 1990, showing that the total amount of the obligation as of
September 15, 1990 was P1,384,465.71.[18]
On October 25, 1985, the trial court ordered the petitioner to desist from holding the
public auction of the respondents properties. The trial court issued an Order on April 25,
1986 to maintain the status quo.
In its Decision dated May 10, 1993, the court a quo upheld the validity of the new
promissory note and ordered the respondents to pay their obligation. The dispositive
portion reads:
WHEREFORE,judgmentisrendereddismissingthecomplaintforfailureofplaintiffsto
provetheircausesofactionbyclearpreponderanceofevidence,withcostsagainstthem.
TheorderissuedonApril25,1986,orderingthedefendantBanktomaintainthe
statusquoandsuspendingtheauctionsale,isherebysetaside.
DefendantBank'scounterclaimisherebygranted,andplaintiffsareherebyorderedtopay
theformerthesumofOneMillionThreeHundredEightyfourThousandFourHundred
SixtyfivePesosandSeventyoneCentavos(P1,384,465.71),representingthelatter's
obligationasofSeptember15,1990,withinterestthereonatthelegalrateoftwelve(12%)
percentperannumpursuanttoSec.2ofCBCircularNo.905;(Sagradorvs.
Valderrama,supra),fromSeptember15,1990uptofullpaymentofsaidsum.Theother
counterclaimforexemplarydamagesisherebydismissed.
SOORDERED.[19]
Upon the petitioners motion for reconsideration, the trial court issued an
order[20] amending the dispositive portion of its decision by changing the rate of interest to
eighteen percent (18%) per annum.
Dissatisfied, the respondents appealed to the CA. On February 28, 2001, the CA
rendered a decision, the dispositive portion of which reads:
WHEREFORE,premisesconsidered,theDecisiondatedMay10,1993,docketedasCivilCaseNo.
12057bytheRegionalTrialCourtofMakati,Branch145,isherebyMODIFIEDinthesensethat
theamountofP1,384,465.71asofSeptember1990isSETASIDEandtheformulamandatedby
CentralBankCircularNo.158shouldbeappliedbythetrialcourtincomputingthetotalobligation
andliabilityofappellants.AlltheotherpartsoftheassaileddecisionareAFFIRMEDintoto.
556
SOORDERED.[21]
The CA found that the respondents did not voluntarily sign the restructured promissory
note as they were only forced to sign it for fear of having their mortgaged property
foreclosed by the bank. It ruled that the restructured promissory note which was prepared
by the petitioner alone was a contract of adhesion which violates the rule on mutuality of
contracts.
Nonetheless, the CA held that the trial court should have used the formula prescribed
by paragraph 3,[22] Sec. 2(i), Central Bank (CB) Circular No. 158, Rules and Regulations
Implementing Rep. Act No. 3765, in computing the total obligation of the respondents
considering that Sec. 3(a) thereof provides that it applies to any loans, mortgages, deeds
of trust, advances and discounts.[23] The CA also held that since the loan is secured by a
mortgage contract, the eighteen percent (18%) interest rate was excessive and usurious
under CB Circular No. 817. According to the appellate court, CB Circular No. 905, series
of 1982, simply suspended the effectivity of the Usury Law; it did not authorize either party
to unilaterally raise the interest without the other party's consent. [24] Finally, the CA
concluded that there was neither basis nor explanation as to how the measly amount
of P214,000.00 in 1972, restructured to P231,000.00 in 1982, ballooned to P1,384,465.71
as of September 15, 1990.[25]
Both parties moved to reconsider the said decision. The CA denied the said motions in
a Resolution dated May 31, 2001.
The Present Petition
The petitioner raises the following grounds in the instant petition:

1. Whether or not the Honorable Court of Appeals had decided this instant case in a way not in
accord with the spirit and intent of Republic Act No. 3765, otherwise known as the Truth in
Lending Act, when it declared that "the trial court should have applied the formula provided by
Central Bank Circular No. 158, series of 1963, as provided above to arrive at the total
obligations of appellants less the amounts paid by appellants as evidenced by the vouchers
and receipts attached to the records;"
2. Whether or not the conclusion of the Honorable Court of Appeals stating that the private
respondents did not voluntarily sign the restructured promissory note is entirely grounded on
speculations and/or surmises or conjectures;
3. Whether or not the Honorable Court of Appeals failed to notice certain relevant facts which if it
had been considered would change its finding that the restructured promissory note was
prepared by the appellee Bank alone;
4. Whether or not the Honorable Court of Appeals failed to notice certain relevant facts which if it
had been considered would change its finding that the amount of P1,384,465.71 as of
September 15, 1990 has neither basis at all nor any explanation how this amount came to
existence;
5. Whether or not the conclusion of the Honorable Court of Appeals stating that petitioner DBP
failed to follow Central Bank Circular No. 158 is grounded entirely on speculation and surmises
556
or conjecture. And whether or not this finding is contradicted by another finding of the same
court; and
6. Whether or not this Honorable Court of Appeals committed grave abuse of discretion when it
ruled that pursuant to Central Bank Circular No. 817 the 18% interest per annum agreed upon
by the parties in the restructured promissory note is usurious, and that the same should be
reduced to 12% being the legal rate of interest.[26]
In a nutshell, the issues in this case are as follows: (1) whether the new promissory
note is voidable for not having been voluntarily signed by the respondents and for being a
contract of adhesion; (2) whether the interest rate agreed upon by the parties in the new
promissory note is usurious; (3) whether Central Bank Circular No. 158 should be applied
in computing the total obligations of the respondents; and (4) the amount of the total
obligation of the respondents.
The petition is partly meritorious.
Anent the first issue, the petitioner points out that the respondents admitted to having
signed the new promissory note. It avers that there was no evidence on record showing
that the signing of the new promissory note was attended by mistake, violence,
intimidation, undue influence, or fraud. The petitioner posits that the respondents claim of
having been forced to sign the restructured note for fear of having their mortgaged
property foreclosed cannot serve as legal basis to conclude that the respondents did not
voluntarily sign the new promissory note. [27] The petitioner maintains that a perusal of the
evidence would reveal that the new promissory note was the result of the mutual
agreement of the parties and, as such, is not a contract of adhesion.[28]
On the other hand, the respondents argue that this is a question of fact which is not
subject to review by this Court. According to the respondents, the fact that the restructured
loan proved disadvantageous to them belies the petitioners claim that they voluntarily
signed the new promissory note.
We agree with the petitioner.
In petitions for review on certiorari as a mode of appeal under Rule 45 of the Rules of
Court, the petitioner can raise only questions of law the Supreme Court is not the proper
venue to consider a factual issue as it is not a trier of facts. [29] A departure from the general
rule may be warranted where the findings of fact of the Court of Appeals are contrary to
the findings and conclusions of the trial court, or when the same is unsupported by the
evidence on record.[30]
In the instant case, there was no evidence showing that the respondents signed the
new promissory note through mistake, violence, intimidation, undue influence, or fraud.
The respondents merely alleged that they were forced to restructure their loan for fear of
having their mortgaged properties foreclosed. However, it is axiomatic that this would not
amount to vitiated consent. The last paragraph of Article 1335 of the New Civil Code
specifically states that a threat to enforce ones claim through competent authority, if the
claim is just or legal, does not vitiate consent. Foreclosure of mortgaged properties in case
556
of default in payment of a debtor is a legal remedy afforded by law to a creditor. Hence, a

threat to foreclose the mortgage would not, per se, vitiate consent.
The CA noted that the petitioner prepared the new promissory note on its own and that
the only participation of the respondents was to sign the same. The CA concluded,
therefore, that the new promissory note was a contract of adhesion.
A contract of adhesion is so-called because its terms are prepared by only one party
while the other party merely affixes his signature signifying his adhesion thereto. [31]While
we accede to the appellate courts conclusion that the new promissory note was in the
nature of a contract of adhesion, we cannot fathom how this can further the respondents
case. In discussing the consequences of a contract of adhesion, we held in Rizal
Commercial Banking Corporation v. Court of Appeals:[32]
Itbearsstressingthatacontractofadhesionisjustasbindingasordinarycontracts.Itistrue
thatwehave,onoccasion,struckdownsuchcontractsasvoidwhentheweakerpartyis
imposeduponindealingwiththedominantbargainingpartyandisreducedtothealternative
oftakingitorleavingit,completelydeprivedoftheopportunitytobargainonequalfooting.
Nevertheless,contractsofadhesionarenotinvalidperse;theyarenotentirelyprohibited.
Theonewhoadherestothecontractisinrealityfreetorejectitentirely;ifheadheres,he
giveshisconsent.[33]
On the second issue, the CA held that under CB Circular No. 817, if the loan is
secured by a registered real estate, the interest of eighteen percent (18%) is usurious. The
petitioner, however, argues that usury has become legally inexistent with the promulgation
of CB Circular No. 905.[34] It contends that the interest rate should be eighteen percent
(18%), the interest rate they agreed upon.[35] For their part, the respondents argue that the
Central Bank engaged in self-legislation in enacting CB Circular No. 905.
We agree with the ruling of the CA. It is elementary that the laws in force at the time
the contract was made generally govern the effectivity of its provision. [36] We note that the
new promissory note was executed on May 6, 1982, prior to the effectivity of CB Circular
No. 905 on January 1, 1983. At that time, The Usury Law, Act No. 2655, as amended by
Presidential Decree No. 116, was still in force and effect.
Under the Usury Law, no person shall receive a rate of interest, including
commissions, premiums, fines and penalties, higher than twelve percent (12%) per annum
or the maximum rate prescribed by the Monetary Board for a loan secured by a mortgage
upon real estate the title to which is duly registered.[37]
In this case, by specific provision in the new promissory note, the restructured loan
continued to be secured by the same mortgage contract executed on May 18, 1978 which
covered real and personal properties of the respondents. We, therefore, find the eighteen
percent (18%) interest rate plus the additional interest and penalty charges of eighteen
percent (18%) and eight percent (8%), respectively, to be highly usurious.
556
In usurious loans, the entire obligation does not become void because of an
agreement for usurious interest; the unpaid principal debt still stands and remains valid,
but the stipulation as to the usurious interest is void. Consequently, the debt is to be
considered without stipulation as to the interest.[38] In the absence of an express stipulation
as to the rate of interest, the legal rate at twelve percent (12%) per annum shall be
imposed.[39]
Neither is the contention of the respondents that the Central Bank engaged in self-
legislation correct. As we held in First Metro Investment Corporation v. Este Del Sol
Mountain Reserve, Inc.: [40]
CentralBankCircularNo.905didnotrepealnorinanywayamendtheUsuryLawbut
simplysuspendedthelatter'seffectivity.Theillegalityofusuryiswhollythecreatureof
legislation.ACentralBankCircularcannotrepealalaw.Onlyalawcanrepealanotherlaw.
Thus,retroactiveapplicationofaCentralBankCircularcannot,andshouldnot,be
presumed.[41]
On the third issue, the petitioner argues that CB Circular No. 158 does not prescribe a
formula in computing a debtor's monetary obligation, but merely provides for the formula in
computing the simple annual rate. It contends that the amount of the debtor's obligation
must be computed in accordance with the interest rate, charges, and manner of
computation agreed upon by the parties.[42]
We agree. The total obligation of the respondents must be computed according to the
terms and conditions agreed upon. The formula provided under paragraph 3, Sec. 2(i), CB
Circular No. 158 cannot be used in computing the total obligation of the respondents
because it merely applies to the computation of the simple annual rate. Simple annual rate
is the uniform percentage which represents the ratio, on an annual basis, between the
finance charges and the amount to be financed.[43] It is one of the items required to be
disclosed under the Truth in Lending Act pursuant to the States policy to protect its
citizens from lack of awareness of the true cost of credit.[44]
Finally, we find that the records are insufficient to enable us to determine the total
amount of the respondents obligation. It is not even clear how much the respondents have
already paid on the restructured loans and when such payments were made. The receipts
presented in evidence by the respondents only showed that they paid P15,000.00 on April
20, 1983 and P5,000.00 on December 2, 1983.[45] On the other hand, Mr. Roberto Balarao,
who is assigned to the Traffic and Processing Department of the petitioner, testified that a
third payment was made, but failed to state the amount. [46] Another witness, Carmen
Chamen, an account officer of the petitioner, testified that after the restructuring of the
account, the total payment made was P35,000.00.[47]
Moreover, considering our previous conclusion that the interest rates prescribed under
the new promissory note are usurious, the statement of account presented by the
petitioner is no longer pertinent. It must be stressed that such statement of account was
556
arrived at based on the usurious interest rates. Hence, the total amount of the obligation
must necessarily be recomputed.
IN LIGHT OF ALL THE FOREGOING, the assailed Decision dated February 28, 2001
of the Court of Appeals and Order dated June 11, 1993 of the Regional Trial Court, Makati
City, Branch 145, are AFFIRMED WITH MODIFICATION. The case is hereby REMANDED
to the trial court for determination of the total amount of the respondents' obligation
according to the reduced interest rate of twelve percent (12%) per annum.
SO ORDERED.
556
G.R. No. 201112 October 23, 2012
ARCHBISHOP FERNANDO R. CAPALLA, OMAR SOLITARIO ALI and MARY ANNE L. SUSANO, Petitioners,
vs.
THE HONORABLE COMMISSION ON ELECTIONS, Respondent.
x-----------------------x
G.R. No. 201121
SOLIDARITY FOR SOVEREIGNITY (S4S) represented by Ma. Linda Olaguer; RAMON PEDROSA, BENJAMIN
PAULINO SR., EVELYN CORONEL, MA. LINDA OLAGUER MONTAYRE, and NELSON T.
MONTAYRE,Petitioners,
vs.
COMMISSION ON ELECTIONS represented by its Chairman, Commissioner SIXTO S. BRILLANTES,
JR., Respondent.
x-----------------------x
G.R. No. 201127
TEOFISTO T. GUINGONA, BISHOP BRODERICK S. PABILLO, SOLITA COLLAS MONSOD, MARIA CORAZON
MENDOZA ACOL, FR. JOSE DIZON, NELSON JAVA CELIS, PABLO R. MANALASTAS, GEORGINA R.
ENCANTO and ANNA LEAH E. COLINA, Petitioners,
vs.
COMMISSION ON ELECTIONS and SMARTMATIC TIM CORPORATION, Respondents.
x-----------------------x
G.R. No. 201413
TANGGULANG DEMOKRASYA (TAN DEM), INC., EVELYN L. KILA YKO, TERESITA D. BALTAZAR, PILAR L.
CALDERON and ELITA T. MONTILLA, Petitioners,
vs.
COMMISSION ON ELECTIONS and SMARTMATIC-TIM CORPORATION, Respondents.
RESOLUTION
PERALTA, J.:
Before the Court are the Motions for Reconsideration separately filed by movants Teofisto T. Guingona, Bishop
Broderick S. Pabillo, Solita Collas Monsod, Maria Corazon Mendoza Acol, Fr. Jose Dizon, Nelson Java Celis, Pablo
R. Manalastas, Georgina R. Encanto and Anna Leah E. Colina (herein referred to as Guingona, et al.) in G.R. No.
201127;1 Solidarity for Sovereignty (S4S) represented by Ma. Linda Olaguer, Ramon Pedrosa, Benjamin Paulino Sr.,
Evelyn Coronel, Ma. Linda Olaguer Montayre, and Nelson T. Montayre (referred to as S4S, et al.) in G.R. No.
201121;2 and Tanggulang Demokrasya (Tan Dem), Inc., Evelyn L. Kilayko, Teresita D.
Baltazar, Pilar L. Calderon and Elita T. Montilla (Tan Dem, et al. for brevity) in G.R. No. 201413. 3 Movants implore
the Court to take a second look at the June 13, 2012 Decision 4 dismissing their petitions filed against respondents
Commission on Elections (Comelec), represented by its Chairman Commissioner Sixto S. Brillantes, Jr. (Chairman
Brillantes), and Smartmatic-TIM Corporation (Smartmatic-TIM).
For a proper perspective, the facts as found by the Court in the assailed decision are briefly stated below:
556
On July 10, 2009, the Comelec and Smartmatic-TIM entered into a Contract for the Provision of an Automated
Election System for the May 10, 2010 Synchronized National and Local Elections (AES Contract) which is a
Contract of Lease with Option to Purchase (OTP) the goods listed therein consisting of the Precinct Count Optical
Scan (PCOS), both software and hardware.5 The Comelec was given until December 31, 2010 within which to
exercise the option but opted not to exercise the same except for 920 units of PCOS machines with the
corresponding canvassing/consolidation system (CCS) for the special elections in certain areas in Basilan, Lanao
del Sur and Bulacan.6
On March 6, 2012, the Comelec issued Resolution No. 9373 resolving to seriously consider exercising the OTP
subject to certain conditions.7 It issued another Resolution numbered 9376 resolving to exercise the OTP in
accordance with the AES Contract.8 On March 29, 2012, it issued Resolution No. 9377 resolving to accept
Smartmatic-TIMs offer to extend the period to exercise the OTP until March 31, 2012. 9 The Agreement on the
Extension of the OTP under the AES Contract (Extension Agreement) was eventually signed on March 30,
2012.10Finally, it issued Resolution No. 9378 resolving to approve the Deed of Sale between the Comelec and
Smartmatic-TIM to purchase the latters PCOS machines to be used in the upcoming 2013 elections. 11 The Deed of
Sale was forthwith executed.12
Claiming that the foregoing Comelec issuances and transactions entered pursuant thereto are illegal and
unconstitutional, movants filed separate petitions for certiorari, prohibition and mandamus before the Court.
Movants failed to obtain a favorable decision when the Court rendered a Decision 13 on June 13, 2012 dismissing
their petitions. Hence, the motions for reconsideration based on the following grounds:
G.R. No. 201127
I. THE HONORABLE COURT, WITH ALL DUE RESPECT, ERRED IN HOLDING THAT THE PERIOD OF
THE OPTION TO PURCHASE HAS NOT EXPIRED;
II. THE HONORABLE COURT, WITH ALL DUE RESPECT, ERRED IN HOLDING THAT THERE WAS NO
SUBSTANTIAL AMENDMENT TO THE AES CONTRACT; AND
II. THE HONORABLE COURT, WITH ALL DUE RESPECT, ERRED IN HOLDING THAT THE SUBJECT
AMENDMENT IS ADVANTAGEOUS TO THE PUBLIC.14
Movants Guingona, et al. disagree with the Courts interpretation of Article 2.2 of the AES Contract and insist that
the use of the words "without prejudice" and "surviving" explicitly distinguished the "period of the option to purchase"
from the "Term of this Contract." They thus conclude that the warranty provision and the OTP are covered by a
totally different period and not by the term of the AES Contract.15 They also argue that the bid bulletins relative to the
AES Contract expressly stated the deadline for Comelec to exercise the OTP 16 and that the parties intended that the
stated period be definite and non-extendible.17 Movants likewise aver that the Court erred in holding that there was
no substantial amendment to the AES Contract.18 Citing San Diego v. The Municipality of Naujan, Province of
Mindoro,19 as discussed in Justice Arturo D. Brions Dissenting Opinion,20 and as allegedly reiterated in San
Buenaventura v. Municipality of San Jose, Camarines Sur, et al.,21 Guingona et al. points out that an extension,
however short, of the period of a publicly bidded out contract is a substantial amendment that requires public
bidding because the period in an OTP is a vital and essential particular to the contract. 22 Movants add that the Court
erred in holding that the subject amendment is advantageous to the public as the extended option contract is void
and thus can never be said to inure to the benefit of the public.23 Lastly, movants claim that the Comelec still has the
time to conduct public bidding to procure the items necessary for the 2013 elections and that the needed budget
could be provided by Congress.24
G.R. No. 201121

556
Petitioners humbly submit that the Order of this Honorable Court dismissing the petition by upholding the validity of
the extended option to purchase and the constitutionality of the AES Contract implementation is contrary to law and
the Constitution.25
Movants S4S, et al. implore the Court to take a second look at the relevance of the release of the performance
security to the subject expired option contract since it did not alter the fact of such expiration. 26 They explain that the
Courts conclusion is a dangerous precedent, because it would encourage circumvention of the laws and rules on
government contracts since the parties could enter into collusion to defer the release of the performance security for
the sole purpose of prolonging the effectivity of the contract.27 They reiterate their argument that any extension of the
option period amounts to a new procurement which must comply with the requirements of bidding under Republic
Act (RA) No. 918428 and stress that the March 31, 2012 Deed of Sale is not a special transaction which warrants any
exemption from the mandatory requirements of a public bidding.29 It is likewise their view that time constraints,
budgetary consideration and other advantages in extending the option period are not plausible justifications for non-
compliance with the requirements of public bidding.30 Finally, movants assail the constitutionality of the entire AES
Contract and consequently of the option contract because of its failure to provide that the mandatory minimum
system capabilities be complied with; and because of the provision on shared responsibility between the Comelec
and Smartmatic.31
G.R. No. 201413
I. THE NON-RELEASE OF THE SECURITY DEPOSIT BY COMELEC INDICATES THE EXISTENCE OF

UNFULFILLED OBLIGATIONS BY THE CONTRACTOR, AND THEREFORE, IT IS ABSURD TO CITE THIS
UNCURED BREACH BY THE CONTRACTOR TO JUSTIFY THE GRANT OF MORE RIGHTS TO THE
SAID CONTRACTOR BY EXTENDING THE EXPIRED OPTION TO PURCHASE WHICH EFFECTIVELY
CIRCUMVENTS THE GOVERNMENT PROCUREMENT LAW.
II. THERE IS NO JUSTIFIABLE BASIS TO ACCEPT MERE ARGUMENTS THAT THE PCOS IS CAPABLE
OF RUNNING WITH DIGITAL SIGNATURES, SECURE[D] FROM HACKING AND COMPLIANT WITH THE
MINIMUM ACCURACY RATE OF 99.995%, WHEN IN ACTUAL PERFORMANCE DURING MAY 2010
[ELECTIONS,] THE PCOS OPERATED WITHOUT DIGITAL SIGNATURES, FOUND VULNERABLE TO
HACKING AND FAILED BY THE ACCURACY REQUIREMENT, AS SHOWN BY THE APPLICABLE
COMELEC RESOLUTIONS, TWG-RMA REPORT, AUDIT LOGS AND PRINT LOGS.32
Movants Tan Dem, et al. convey their view on the absurdity of the Courts decision in justifying the resurrection of
the dead OTP with the continuing effectivity of the stipulation on performance security notwithstanding the presumed
existence of uncured contractual breach by the contractor.33 They also express doubt that the PCOS machines are
capable of running with digital signatures compliant with the minimum accuracy rate. 34
For their part, respondents offer the following comments:
COMELEC
The Comelec, on the other hand, argues that it validly exercised the OTP because the period for its exercise was
amended and accordingly extended to March 31, 2012. It highlights the provision in the AES Contract on the right to
amend the contract which the parties did during its effectivity.35 It does not agree with movants claim that the parties
to the contract intended that the option period be definite. 36 Rather, it maintains that the parties are free to extend the
option period in the same way that they can amend the other provisions of the contract. 37 Moreover, the Comelec
insists that the extension of the option period is neither a material nor substantial amendment considering that after
the extension, the AES Contract taken as a whole still contains substantially the same terms and conditions as the
original contract and does not translate to concrete financial advantages to Smartmatic-TIM. 38 It also argues that the
extension of the option period could not have affected the bid prices or financial proposals of the bidders since they
understood from the RFP that it had no separate price allocation. 39 It emphasizes that a longer period was not a
benefit but a burden to the bidders such that they would not have submitted a lower but in fact a higher bid because
they would have to give up the opportunity to lease or sell the PCOS machines to third parties and it would also
result in higher costs in warehousing and security.40 The Comelec also opines that San Diego and San
556
Buenaventura, cited by movants, are not applicable because they involve alterations of the essential terms and
conditions of the main contract to the disadvantage of the government unlike this case where there is an alteration
only with respect to the ancillary provision of the AES Contract and for the benefit of the Comelec. 41 The Comelec
reiterates that the extension of the option period is advantageous to it and burdensome for Smartmatic-TIM. 42 Lastly,
it posits that the exercise of the OTP was the more prudent choice for the Comelec taking into consideration the
budget and time constraints.43
SMARTMATIC-TIM
Smartmatic-TIM contends that the OTP is only an ancillary provision in the subsisting AES Contract which has
already satisfied the public bidding requirements.44 It disagrees with petitioners that the extension of the option
period was unilateral and claims instead that it was mutual as the parties in fact executed an agreement on the
extension.45 Assuming that the option period had already expired, the extension is not a substantial or material
amendment since it only pertains to a residual component of the AES Contract. 46 It also echoes the Comelecs
argument that the San Diego and San Buenaventura cases are not applicable to the present case because of the
difference in factual circumstances.47 Moreover, it reiterates its claim that the extension is favorable to the Comelec
and does not prejudice the other bidders.48 Smartmatic-TIM explains that the retention of the performance security is
due to its residual continuing obligations to maintain the PCOS machines and update the software in anticipation of
their possible use for elections after 2010, and not due to the existence of unfulfilled obligations as provided in the
AES Contract.49 It likewise points out that the alleged flaws and deficiencies of the PCOS machines do not affect its
compliance with the requirements of RA 9369.50 It emphasizes that the use of digital signatures and their availability
for use in future elections have been adequately established.51 It also defends PCOS machines compliance with the
minimum requirements under RA 9369 as found by the Court in Roque v. Comelec. 52 As to the alleged glitches,
Smartmatic-TIM claims that they are not attributable to any inherent defect in the PCOS machines and, in any case,
enhancements have already been made.53 Lastly, Smartmatic-TIM stresses that the arguments challenging the
validity and constitutionality of the AES Contract and the performance by the Comelec of its mandate have already
been rejected with finality by the Court in Roque v. Comelec.54
We find no reason to disturb our June 13, 2012 Decision.
Clearly, under the AES Contract, the Comelec was given until December 31, 2010 within which to exercise the OTP
the subject goods listed therein including the PCOS machines. The option was, however, not exercised within said
period. But the parties later entered into an extension agreement giving the Comelec until March 31, 2012 within
which to exercise it. With the extension of the period, the Comelec validly exercised the option and eventually
entered into a contract of sale of the subject goods. The extension of the option period, the subsequent exercise
thereof, and the eventual execution of the Deed of Sale became the subjects of the petitions challenging their
validity in light of the contractual stipulations of respondents and the provisions of RA 9184.
In our June 13, 2012 Decision, we decided in favor of respondents and placed a stamp of validity on the assailed
resolutions and transactions entered into. Based on the AES Contract, we sustained the parties right to amend the
same by extending the option period. Considering that the performance security had not been released to
Smartmatic-TIM, the contract was still effective which can still be amended by the mutual agreement of the parties,
such amendment being reduced in writing. To be sure, the option contract is embodied in the AES Contract whereby
the Comelec was given the right to decide whether or not to buy the subject goods listed therein under the terms
and conditions also agreed upon by the parties. As we simply held in the assailed decision:
While the contract indeed specifically required the Comelec to notify Smartmatic-TIM of its OTP the subject goods
until December 31, 2010, a reading of the other provisions of the AES contract would show that the parties are given
the right to amend the contract which may include the period within which to exercise the option. There is, likewise,
no prohibition on the extension of the period, provided that the contract is still effective. 55
In interpreting Article 2.2 of the AES Contract, movants claim that the use of the word "surviving" and the phrase
"without prejudice" suggests that the warranty provision and the OTP are covered by a different period and not by
the term of the AES Contract.56
556
We cannot subscribe to said postulation. Article 2.2 of the AES Contract reads:
Article 2
EFFECTIVITY
xxxx
2.2. The Term of this Contract begins from the date of effectivity until the release of the Performance Security,
without prejudice to the surviving provisions of this Contract including the warranty provision as prescribed in Article
8.3 and the period of the option to purchase (Emphasis supplied).
The provision means that the contract takes effect from the date of effectivity until the release of the performance
security. Article 8 thereof, on the other hand, states when the performance security is released, to wit:
Article 8
Performance Security and Warranty
xxxx
Within seven (7) days from delivery by the PROVIDER to COMELEC of the Over-all Project Management Report
after successful conduct of the May 10, 2010 elections, COMELEC shall release to the PROVIDER the above-
mentioned Performance Security without need of demand.
The performance security may, therefore, be released before December 31, 2010, the deadline set in the AES
Contract within which the Comelec could exercise the option. The moment the performance security is released, the
contract would have ceased to exist. However, since it is without prejudice to the surviving provisions of the contract,
the warranty provision and the period of the option to purchase survive even after the release of the performance
security. While these surviving provisions may have different terms, in no way can we then consider the provision on
the OTP separate from the main contract of lease such that it cannot be amended under Article 19.
In this case, the contract is still effective because the performance security has not been released. Thus, not only
the option and warranty provisions survive but the entire contract as well. In light of the contractual provisions, we,
therefore, sustain the amendment of the option period.
The amendment of a previously bidded contract is not per se invalid. For it to be nullified, the amendment must be
substantial such that the other bidders were deprived of the terms and opportunities granted to the winning bidder
after it won the same and that it is prejudicial to public interest. In our assailed decision, we found the amendment
not substantial because no additional right was made available to Smartmatic-TIM that was not previously available
to the other bidders; except for the extension of the option period, the exercise of the option was still subject to same
terms and conditions such as the purchase price and the warranty provisions; and the amendment is more
advantageous to the Comelec and the public.
Movants seek the application of San Diego57 where we nullified the extension of the lease agreement and
considered said amendment substantial. We, however, find the case inapplicable. The extension made in San Diego
pertained to the period of the main contract of lease while in this case, the extension referred not to the main
contract of lease of goods and services but to the period within which to exercise the OTP. In extending the original
period of lease of five years to another five years without public bidding, the Municipality of Naujan, Province of
Mindoro acted in violation of existing law. The period of lease undoubtedly was a vital and essential particular to the
contract of lease. In San Diego, the Municipality of Naujan was the lessor of its municipal waters and the petitioner,
the lessee. An extension of the lease contract would mean that the lessee would be given undue advantage
because it would enjoy the lease of the property under the same terms and conditions for a longer period. Moreover,
prior to the extension of the lease period, the rentals were reduced upon the request of the lessee. The end result
was that the municipality was deprived of income by way of rentals because of the reduced rates and longer period
of lease.
556
In this case, the extension of the option period means that the Comelec had more time to determine the propriety of
exercising the option. With the extension, the Comelec could acquire the subject PCOS machines under the same
terms and conditions as earlier agreed upon. The end result is that the Comelec acquired the subject PCOS
1wphi1
machines with its meager budget and was able to utilize the rentals paid for the 2010 elections as part of the
purchase price.
We maintain the view that the extension of the option period is an amendment to the AES Contract authorized by
Article 19 thereof. As held in Agan, Jr. v. Philippine International Air Terminals Co., Inc.: 58
While we concede that a winning bidder is not precluded from modifying or amending certain provisions of the
contract bidded upon, such changes must not constitute substantial or material amendments that would alter the
basic parameters of the contract and would constitute a denial to the other bidders of the opportunity to bid on the
same terms. Hence, the determination of whether or not a modification or amendment of a contract bidded out
constitutes a substantial amendment rests on whether the contract, when taken as a whole, would contain
substantially different terms and conditions that would have the effect of altering the technical and/or financial
proposals previously submitted by other bidders. The alterations and modifications in the contract executed between
the government and the winning bidder must be such as to render such executed contract to be an entirely different
contract from the one that was bidded upon.59
It must be pointed out that public biddings are held for the best protection of the public and to give the public the
best possible advantages by means of open competition between the bidders, and to change them without
complying with the bidding requirement would be against public policy.60 What are prohibited are modifications or
amendments which give the winning bidder an edge or advantage over the other bidders who took part in the
bidding, or which make the signed contract unfavorable to the government. 61 In this case, as thoroughly discussed in
our June 13, 2012 Decision, the extension of the option period and the eventual purchase of the subject goods
resulted in more benefits and advantages to the government and to the public in general.
While movants may have apprehensions on the effect to government contracts of allowing "advantage to the
government" as justification for the absence of competitive public bidding, it must be stressed that the same
reasoning could only be used under similar circumstances. The "advantage to the government," time and budget
constraints, the application of the rules on valid amendment of government contracts, and the successful conduct of
the May 2010 elections are among the factors looked into in arriving at the conclusion that the assailed Resolutions
issued by the Comelec and the agreement and deed entered into between the Comelec and Smartmatic-TIM, are
valid.
Lastly, we need not further discuss the issues raised by movants on the alleged glitches of the subject PCOS
machines, their compliance with the minimum system capabilities required by law, and the supposed abdication of
the Comelecs exclusive power in the conduct of elections as these issues have been either thoroughly discussed in
the assailed decision or in the earlier case of Roque, Jr. v. Commission on Elections. 62
WHEREFORE, premises considered, the motions for reconsideration are DENIED for lack of merit.
SO ORDERED.
556
G.R. No. L-23546 August 29, 1974
LAGUNA TAYABAS BUS COMPANY and BATANGAS TRANSPORTATION COMPANY, petitioners,

vs.
FRANCISCO C. MANABAT, as assignee of Bian Transportation Company, Insolvent, respondent.
Domingo E. de Lara for petitioners.
M. A. Concordia & V.A. Guevarra for respondent.
MAKASIAR, J.:p
This is an appeal by certiorari from a judgment of the Court of Appeals dated August 31, 1964, which WE AFFIRM.
The undisputed facts are recounted by the Court of Appeals through then Associate Justice Salvador Esguerra thus:
On January 20, 1956, a contract was executed whereby the Bian Transportation Company leased
to the Laguna-Tayabas Bus Company at a monthly rental of P2,500.00 its certificates of public
convenience over the lines known as Manila-Bian, Manila-Canlubang and Sta. Rosa-Manila, and to
the Batangas Transportation Company its certificate of public convenience over the line known as
Manila-Batangas Wharf, together with one "International" truck, for a period of five years, renewable
for another similar period, to commence from the approval of the lease contract by the Public
Service Commission. On the same date the Public Service Commission provisionally approved the
lease contract on condition that the lessees should operate on the leased lines in accordance with
the prescribed time schedule and that such approval was subject to modification or cancellation and
to whatever decision that in due time might be rendered in the case.
Sometime after the execution of the lease contract, the plaintiff Bian Transportation Company was
declared insolvent in Special Proceedings No. B-30 of the Court of First Instance of Laguna, and
Francisco C. Manabat was appointed as its assignee. From time to time, the defendants paid the
lease rentals up to December, 1957, with the exception of the rental for August 1957, from which
there was deducted the sum of P1,836.92 without the consent of the plaintiff. This deduction was
based on the ground that the employees of the defendants on the leased lines went on strike for 6
days in June and another 6 days in July, 1957, and caused a loss of P500 for each strike, or a total
of P1,000.00; and that in Civil Case No. 696 of the Court of First Instance of Batangas, Branch II,
judgment was rendered in favor of defendant Batangas Transportation Company against the Bian
Transportation Company for the sum of P836.92. The assignee of the plaintiff objected to such
deduction, claiming that the contract of lease would be suspended only if the defendants could not
operate the leased lines due to the action of the officers, employees or laborers of the lessor but not
of the lessees, and that the deduction of P836.92 amounted to a fraudulent preference in the
insolvency proceedings as whatever judgment might have been rendered in favor of any of the
lessees should have been filed as a claim in said proceedings. The defendants neither refunded the
deductions nor paid the rentals beginning January, 1958, notwithstanding demands therefor made
from time to time. At first, the defendants assured the plaintiff that the lease rentals would be paid,
although it might be delayed, but in the end they failed to comply with their promise.
On February 18, 1958, the Batangas Transportation Company and Laguna-Tayabas Bus Company
separately filed with the Public Service Commission a petition for authority to suspend the operation
on the lines covered by the certificates of public convenience leased to each of them by the Bian
Transportation Company. The defendants alleged as reasons the reduction in the amount of dollars
allowed by the Monetary Board of the Central Bank of the Philippines for the purchase of spare parts
needed in the operation of their trucks, the alleged difficulty encountered in securing said parts, and
556
their procurement at exorbitant costs, thus rendering the operation of the leased lines prohibitive.
The defendants further alleged that the high cost of operation, coupled with the lack of passenger
traffic on the leased lines resulted in financial losses. For these reasons they asked permission to
suspend the operation of the leased lines until such time as the operating expenses were restored to
normal levels so as to allow the lessees to realize a reasonable margin of profit from their operation.
Plaintiff's assignee opposed the petition on the ground that the Public Service Commission had no
jurisdiction to grant the relief prayed for as it should involve the interpretation of the lease contract,
which act falls exclusively within the jurisdiction of the ordinary courts; that the petitioners had not
asked for the suspension of the operation of the lines covered by their own certificates of public
convenience; that to grant the petition would amount to an impairment of the obligation of contract;
and that the defendants have no legal personality to ask for suspension of the operation of the
leased lines since they belonged exclusively to the plaintiffwho is the grantee of the corresponding
certificate of public convenience. Aside from the assignee, the Commissioner of the Internal
Revenue and other creditors of the Bian Transportation Company, like the Standard Vacuum Oil
Co. and Parsons Hardware Company, filed oppositions to the petitions for suspension of operation.
On October 15, 1958, the Public Service Commission overruled all oppositions filed by the assignee
and other creditors of the insolvent, holding that upon its approval of the lease contract, the lessees
acquired the operating rights of the lessor and assumed full responsibility for compliance with all the
terms and conditions of the certificate of public convenience. The Public Service Commission further
stated that the petition to suspend operation did not pertain to any act of dominion or ownership but
only to the use of the certificate of public convenience which had been transferred by the plaintiff to
the defendants, and that the suspension prayed for was but an incident of the operation of the lines
leased to the defendants. The Public Service Commission further ruled that being a quasi-judicial
body of limited jurisdiction, it had no authority to interpret contracts, which function belongs to the
exclusive domain of the ordinary courts, but the petition did not call for interpretation of any provision
of the lease contract as the authority of the Public Service Commission to grant or deny the prayer
therein was derived from its regulatory power over the leased certificates of public convenience.
While proceedings before the Public Service Commission were thus going on, as a consequence of the continuing
failure of the lessees to fulfill their earlier promise to pay the accruing rentals on the leased certificates,
On May 19, 1959, plaintiff Bian Transportation Company represented by Francisco C. Manabat,
assignee, filed this action against defendants Laguna Tayabas Bus Company and Batangas
Transportation Company for the recovery of the sum of P42,500 representing the accrued rentals for
the lease of the certificates of public convenience of the former to the latter, corresponding to the
period from January 1958, to May 1959, inclusive, plus the sum of P1,836.92 which was deducted
by the defendants from the rentals due for August, 1957, together with all subsequent rentals from
June, 1959, that became due and payable; P5,000.00 for attorney's fees and such corrective and
exemplary damages as the court may find reasonable.
The defendants moved to dismiss the complaint for lack of jurisdiction over the subject matter of the
action, there being another case pending in the Public Service Commission between the same
parties for the same cause. ... (pp. 20-21, rec.; pp. 54-55, ROA).
The motion to dismiss was, however, denied. Meanwhile
The Public Service Commission delegated its Chief Attorney to receive evidence of the parties on
the petition of the herein defendants for authority to suspend operation on the lines leased to them
by the plaintiff. The defendants, the assignee of the plaintiff and other creditors of the insolvent
presented evidence before the Chief Attorney and the hearing was concluded on June 29, 1959. On
October 20, 1959, the Public Service Commission issued an order the dispositive part of which
reads as follows:
556
In view of the foregoing, the petitioners herein are authorized to suspend their
operation of the trips of the Bian Transportation Company between Batangas Piers-
Manila, Bian-Manila, Sta. Rosa-Manila and Canlubang-Manila authorized in the
aforementioned cases from the date of the filing of their petition on February 18,
1958, until December 31, 1959. (p. 25, rec.; pp. 60-61, ROA).
Going back to the Court of First Instance of Laguna
... The motion (to dismiss) having been denied, the defendants answered the complaint, alleging
among others, that the Public Service Commission authorized the suspension of operation over the
leased lines from February 18, 1950, up to December 31, 1959, and hence the lease contract should
be deemed suspended during that period; that plaintiff failed to place defendants in peaceful and
adequate enjoyment and possession of the things leased; that as a result of the plaintiff being
declared insolvent the lease contract lost further force and effect and payment of rentals thereafter
was made under a mistake and should be refunded to the defendants. (p. 21; rec.; p. 55, ROA).
The Court of Appeals proceeded to state that
After hearing in the court a quo and presentation by the parties herein of their respective
memoranda, the trial court on March 18, 1960, rendered judgment in favor of plaintiff, ordering the
defendants jointly and severally to pay to the former the sum of P65,000.00 for the rentals of the
certificates of public convenience corresponding to the period from January, 1958, to February,
1960, inclusive, including the withheld amount of P836.92 from the rentals for August, 1957, plus the
rentals that might become due and payable beginning March, 1960, at the rate of P2,500.00 a
month, with interest on the sums of P42,500 and P836.92 at the rate of 6% per annum from the date
of the filing of the complaint, with interest on the subsequent rentals at the same rate beginning the
first of the following month, plus the sum of P3,000.00 as attorney's fees, and the cost of the suit.
(pp. 25-26, rec.)
From the decision of the Court of First Instance, defendants appealed to the Court of Appeals, which affirmed the
same in toto in its decision dated August 31, 1964. Said decision was received by the appellants on September 7,
1964.
On September 21, 1964, appellants filed the present appeal, raising the following questions of law:
1. Considering that the Court of Appeals found that the Public Service Commission provisionally
approved the lease contract of January 20, 1956 between petitioners and Bian Transportation
Company upon the condition, amongothers, that such approval was subject to modification and
cancellation and towhatever decision that in due time might be rendered in the case, the Court
ofAppeals erred in giving no legal effect and significance whatever to the suspension of operations
later granted by the Public Service Commission after due hearing covering the lines leased to
petitioners thereby nullifying, contrary to law and decisions of this Honorable Court, the authority and
powersconferred on the Public Service Commission.
2. The Court of Appeals misapplied the statutory rules on interpreting contracts and erred in its
construction of the clauses in the lease agreement authorizing petitioners to suspend operation
without the corresponding liability for rentals during the period of suspension.
3. Contrary to various decisions of this Honorable Court relieving the lessee from the obligation to
pay rent where there is failure to use or enjoy the thing leased, the Court of Appeals erroneously
required petitioners to pay rentals, with interest, during the period of suspension of the lease from
January, 1958 up to the expiration of the agreement on January 20, 1961. (p. 7, rec.)
On October 12, 1964, the Supreme Court issued a resolution dismissing said petition "for lack of merit." (p. 43, rec.).
Said resolution was received by petitioners on October 16, 1964.
556
On October 31, 1964, the day the Court's resolution was to become final, petitioners filed a "Motion to Admit
Amended Petition and to Give Due Course Thereto." In said motion, petitioners explained
... The amendment includes an alternative ground relating to petitioners' prayer for the reduction of
the rentals payable by them. This alternative petition was not included in the original one as
petitioners where genuinely convinced that they should have been absolved from all liabilities
whatever. However, in view of the apparent position taken by this Honorable Court, as implied in its
resolution on October 12, 1964, notice of which was received on October 16, 1964, petitioners now
squarely submit their alternative position for consideration. There is decisional authority for the
reduction of rentals payable (see Reyes v. Caltex, 47 O.G. 1193, 1203-1204) (p. 44, rec).
The new question raised is presented thus:
xxx xxx xxx
IV
This Honorable Court is authorized to equitably reduce the rentals payableby the petitioners, should
this Honorable Court adopt the position of the Courtof Appeals and the lower court that petitioners
have not been releived from thepayment of rentals on the leased lines. (p. 7 Amended Petition for
Certiorari,pp. 46, 52, rec.).
On November 5, 1964, the Supreme Court required respondents herein to file an answer to the
amended petition. On the same date, respondents filed, quite belatedly, an opposition to the motion
of the petitioners. Said opposition was later "noted" by the Court in its resolution dated December 1,
1964.
First, it must be pointed out that the first three questions of law raised by petitioners were already disposed of in Our
resolution dated October 12, 1964 dismissing the original petition for lack of merit, which in effect affirmed the
appealed decision of the Court of of Appeals. Although, in their motion to admit amended petition dated October 31,
1964, petitioners sought a reconsideration of the said resolution not only in the light of the fourth legal issue raised
but also on the said first three legal questions, the petitioners advanced no additional arguments nor cited new
authorities in support of their stand on the first three questions of law. They merely reproduced verbatim from their
original petition their discussion on said questions.
To the extent therefore that the motion filed by the petitioner seeks a reconsideration of our order of dismissal by
submitting anew, through the amended petition, the very same arguments already dismissed by this Court, the
motion shall be considered pro forma, (See Estrada v. Sto. Domingo, 28 SCRA 890, 905-906, 911) and hence is
without merit.
Consequently, we limit the resolution of this case solely on the discussions on the last (fourth) question of law
raised, taking into consideration the discussion on the first three questions only insofar as they place the petitioners'
discussion on the fourth question in its proper context and perspective.
II
The undisguised object of petitioners' discussion on the fourth question of law raised is to justify their plea for a
reduction of the rentals on the ground that the subject matter of the lease was allegedly not used by them as a result
of the suspension of operations on the lines authorized by the Public Service Commission.
In support of said plea, petitioners invoke article 1680 of the Civil Code which grants lessees of rural lands a right to
a reduction of rentals whenever the harvest on the land leased is considerably damaged by an extraordinary
556
fortuitous event. Reliance was also placed by the petitioners on Our decision in Reyes v. Caltex (Phil.) Inc., 84 Phil.
654, which supposedly applied said article by analogy to a lease other than that covered by said legal provision.
The authorities from which the petitioners draw support, however, are not applicable to the case at bar.
Article 1680 of the Civil Code reads thus:
Art. 1680. The lessee shall have no right to a reduction of the rent on accountof the sterility of the
land leased, or by reason of the loss of fruits due toordinary fortuitous events; but he shall have such
right in case of the loss ofmore than one-half of the fruits through extraordinary and unforeseen
fortuitous events, save always when there is a specific stipulation to the contrary.
Extraordinary fortuitous events are understood to be: fire, war, pestilence, unusual flood, locusts,
earthquake, or others which are uncommon, and which thecontracting parties could not have
reasonably foreseen.
Article 1680, it will be observed is a special provision for leases of rural lands. No other legal provision makes it
applicable to ordinary leases. Had theintention of the lawmakers been so, they would have placed the article among
the general provisions on lease. Nor can the article be applied analogously to ordinary leases, for precisely because
of its special character, it was meant to apply only to a special specie of lease. It is a provision of social justice
designed to relieve poor farmers from the harsh consequences of their contracts with rich landowners. And taken in
that light, the article provides no refuge to lessees whose financial standing or social position is equal to, or even
better than, the lessor as in the case at bar.
Even if the cited article were a general rule on lease, its provisions nevertheless do not extend to petitioners. One of
its requisites is that the cause of loss of the fruits of the leased property must be an "extraordinary and unforeseen
fortuitous event." The circumstances of the instant case fail tosatisfy such requisite. As correctly ruled by the Court
of Appeals, the alleged causes for the suspension of operations on the lines leased, namely, the high prices of spare
parts and gasoline and the reduction of the dollar allocations, "already existed when the contract of lease was
executed" (p. 11, Decision; p. 30, rec.; Cuyugan v. Dizon, 89 Phil. 80). The cause of petitioners' inability to operate
on the lines cannot, therefore, be ascribed to fortuitous events or circumstances beyond their control, but to their
own voluntary desistance (p. 13, Decision; p. 32, rec.).
If the petitioners would predicate their plea on the basis solely of their inability to use the certificates of public
convenience, absent the requisite of fortuitous event, the cited article would speak strongly against their plea.Article
1680 opens with the statement: "The lessee shall have no right to reduction of the rent on account of the sterility of
the land leased ... ." Obviously, no reduction can be sustained on the ground that the operation of the leased lines
was suspended upon the mere speculation that it would yield no substantial profit for the lessee bus company.
Petitioners' profits may be reduced due to increase operating costs; but the volume of passenger traffic along the
leased lines not only remains same but may even increase as the tempo of the movement of population is
intensified by the industrial development of the areas covered or connected by the leased routes. Moreover, upon
proper showing, the Public Service Commission might have granted petitioners an increase in rates, as it has done
so in several instances, so that public interest will always be promoted by a continuous flow of transportation
facilities to service the population and the economy. The citizenry and the economy will suffer by reason of any
disruption in the transportation facilities.
Furthermore, we are not at all convinced that the lease contract brought no material advantage to the lessor for the
period of suspension. It must be recalled that the lease contract not only stipulated for the transfer of the lessor's
right to operate the lines covered by the contract, but also for a forbearance on the part of the lessor to operate
transportation business along the same lines and to hold a certificate for that purpose. Thus, even if the lessee
would not actually make use of the lessor's certificates over the leased lines, the contractual commitment of the
lessor not to operate on the lines would sufficiently insure added profit to the lessees on account of the lease
contract. In other words, the commitment alone of the lessor under the contract would enable the lessees to reap full
benefits therefrom since the commuting public would, after all, be forced at their inconvenience and prejudice
to patronize petitioner's remaining buses.
556
Contrary to what petitioners want to suggest, WE refused in the Reyes case, supra, to apply by analogy Article 1680
and consequently, WE denied the plea oflessee therein for an equitable reduction of the stipulated rentals, holding
that:
The general rule on performance of contracts is graphically set forth in American treatises which is
also the rule, in our opinion, obtaining under the Civil Code.
Where a person by his contract charges himself with an obligation possible to be performed, he must
perform it, unless the performance is rendered impossible by the act of God, by the law, or by the
other party, it being the rule that in case the party desires to be excused from the performance in the
event of contingencies arising, it is his duty to provide therefor in his contract. Hence, performance is
not excused by subsequent inability to perform, by unforeseen difficulties, by unusual or unexpected
expenses, by danger, by inevitable accident, by breaking of machinery, by strikes, by sickness, by
failure of a party to avail himself of the benefits tobe had under the contract, by weather conditions,
by financial stringency or bystagnation of business. Neither is performance excused by the fact that
the contract turns out to be hard and improvident, unprofitable, or impracticable, ill-advised, or even
foolish, or less profitable, unexpectedly burdensome. (17 CJS 946-948) (Reyes vs. Caltex, supra,
664. Emphasis supplied).
Also expressed in said case is a ruling in American jurisprudence, which found relevance again in the case at bar, to
wit: "(S)ince, by the lease, the lessee was to have the advantage of casual profits of the leased premises, he should
run the hazard of casual losses during the term and not lay the whole burden upon the lessor." (Reyes vs. Caltex,
supra, 664).
Militating further against a grant of reduction of the rentals to the petitioners is the petitioners' conduct which is not in
accord with the rules of fair play and justice. Petitioners, it must be recalled, promised to pay the accrued rentals in
due time. Later, however, when they believed they found a convenient excuse for escaping their obligation, they
reneged on their earlier promise. Moreover, petitioners' option to suspend operation on the leased lines appears
malicious. Thus, Justice Esguerra, speaking for the Court of Appeals, propounded the following questions: "If it were
true that thecause of the suspension was the high prices of spare parts, gasoline and needed materials and the
reduction of the dollar allocation, why was it that only plaintiff-appellee's certificate of public convenience was sought
to be suspended? Why did not the defendants-appellants ask for a corresponding reduction or suspension under
their own certificate along the same route? Suppose the prices of the spare parts and needed materials were cheap,
would the defendants-appellants have paid more than what is stipulated in the lease contract? We believe not.
Hence, the suspension of operation on the leased lines was conceived as a scheme to lessen operation costs with
the expectation of greater profit." (p. 14, Decision).
Indeed, petitioners came to court with unclean hands, which fact militates against their plea for equity.
WHEREFORE, THE ORIGINAL AND AMENDED PETITIONS ARE HEREBY DISMISSED, AND THE DECISION OF
THE COURT OF APPEALS DATED AUGUST 31, 1964 IS HEREBY AFFIRMED, WITH COSTS AGAINST
PETITIONERS.
556
G.R. No. L-21979 September 29, 1967
NATIONAL MARKETING CORPORATION, plaintiff-appellant,

vs.
ATLAS TRADING DEVELOPMENT CORPORATION and the ALTO SURETY and INSURANCE CO.,
INC., defendants-appellees.
Tomas P. Matic, Jr. for plaintiff-appellant.

Domingo T. Zavalla for defendants-appellees.
FERNANDO, J.:
What is to be determined in this appeal is the correctness of a lower court decision absolving from liability
defendants Atlas Trading Development Corporation (hereinafter referred to as Atlas) and Alto Surety & Insurance
Company (hereinafter referred to as Alto), the former under a contract for the sale of galvanized steel sheets and
the latter under a performance bond.
While the plaintiff-appellant is the National Marketing Corporation, the action was originally started by its
predecessor Philippine Relief and Trade Rehabilitation Administration (hereinafter referred to as the Pratra). In its
complaint dated June 14, 1950, it alleged: On July 21, 1948, defendant Atlas offered to sell to the plaintiff 8,000
metric tons of galvanized sheets at the price of U.S. $247 per ton of 1,000 kilos, CIF Manila, to be shipped
beginning August, 1948;1 on July 24, 1948, the plaintiff made an order and agreed to purchase the galvanized
sheets offered by defendant Atlas with the condition that the seller should furnish a performance bond in favor of the
plaintiff in the amount of P100,000.00;2 on August 5, 1948, the plaintiff and defendant Atlas as sales brokers for
West India Commercial Corp. of New York City, N.Y., U.S.A. executed a contract of purchase and sale wherein the
said defendant obligated itself to sell 8,000 metric tons of galvanized steel sheets, at the price of U. S. $247 per ton
of 1,000 kilos CIF Manila;3 under the aforementioned contract, defendant Atlas obligated itself to furnish in favor of
Pratra a performance bond in the sum of P100,000.00 to guarantee the faithful compliance of all the terms and
conditions of the said contract, with defendant Alto as surety; 4 in compliance with its undertakings in the contract, the
plaintiff on August 26,1948, opened a letter of credit with the Philippine National Bank for the amount of U.S.
$1,976,000.00 in favor of the West India Commercial Corp. of New York, United States. 5
Neither defendant Atlas nor its supposed principal the West India Commercial Corp. of New York delivered the 8,000
metric tons of galvanized steel sheets involved in the contract.6 The aforementioned contract having provided that in
case of violation of any of its terms and conditions, the buyer will be entitled to recover liquidated damages in the
amount of 20% of the total contractual value of the merchandise therein described, U. S. $1,976,000.00, 20% of
which is U. S. $395,200.00 or P790,400.00,7 plaintiff sought to recover the same from Atlas. It likewise prayed that
defendant Alto be condemned to pay the plaintiff the amount of P100,000.00, the amount of the performance bond.
In the answer of defendant Atlas, filed on July 15, 1950, it admitted making the offer, adding however that plaintiff
was duly informed that it was acting in its representative capacity; 8 that an order to purchase the galvanized steel
sheets was in fact made by plaintiff;9 that such a contract of purchase and sale as set forth in paragraph 4 of the
complaint was in fact executed, although the date of the execution was not on August 5, 1948 but on August 21,
1948, with the further allegation that its terms and conditions were "modified, altered and supplemented by another
agreement dated August 20, 1948;" that while there was opened on August 26, 1948, a letter of credit for the
amount of U. S. $1,976,000.00 in favor of West India Commercial Company of New York, U.S.A. by the Philippine
National Bank, acting on plaintiff's application, such letter of credit being in favor of the beneficiary, West India
Commercial Company of New York, New York, U. S. A., it could not be utilized in view of what was considered
"serious discrepancies between the terms of the said letter of credit and the contract;" no delivery of the 8,000
metric tons of galvanized steel sheets, was made as there was no obligation to do so, but even if it arose, "delivery
was made impossible by the prior rescission of the contracts by plaintiff." 10 It further set up five special defenses and
a counterclaim for P100,000.00.
556
Defendant Alto denied the allegations of the complaint on the ground that it had no knowledge or information
sufficient to form a belief as to what was therein contained except the execution of the bond for and on behalf of the
West India Commercial Corporation of New York to guarantee the latter's performance of its obligation, if any, under
the contract which, having been executed and acknowledged on August 21, 1948 and not on August 5, 1948 as
alleged, could not be the basis of any obligation. On the assumption however that the latter contract could be the
one referred to in the bond, it alleged that it did so for and on behalf of the West India Commercial Corporation of
New York to guarantee the performance of its obligation, if any, and that it never incurred any obligation at all under
the contract which was the basis of the complaint "as it was never a party to it, nor did it authorize anyone to
obligate it in any manner whatsoever," and that plaintiff "having discharged the West India Commercial Corporation
of New York from liability on said contract, [defendant Alto] is and must likewise be discharged, the obligation of the
surety being merely accessory to that of the principal."
After trial, the lower court promulgated a decision on July 29, 1962 dismissing the complaint. In absolving defendant
Atlas, it held that it "was duly authorized to act as agent or broker of the West India Commercial Company in
entering into the contract of purchase and sale."11 Even if its liability could be held to be direct, the Pratra, having
demanded payment of damages from West India Commercial Corporation and not from it, waived whatever claim it
might have against Atlas. The above circumstances taken in connection with what the lower court found to be a
discrepancy in the letter of credit in favor of the West India Commercial Corporation, which it held to be a condition
precedent for the obligation of the latter under such contract to arise, such discrepancy consisting of no period of
grace of 60 days for delivery having been provided for, although subsequently corrected but only after the first
delivery was "already impossible physically for the West India Commercial Company to make on time" led it to
conclude that for all legal intents and purposes, such contract of purchase and sale "had not been operative up to
the time it was rescinded by the Pratra on September 23, 1948, due to the failure of the latter to perform the
condition precedent of establishing a sufficient letter of credit." 12 No liability could therefore attach to defendant
Atlas.1awphl.nt
The same conclusion was reached as far as defendant Alto was concerned. Thus: "As to the defendant Alto Surety,
we hold that judgment cannot be rendered against it. Alto Surety posted its bond for the West India Commercial
Corporation and not for the defendant Atlas. And as the West India Commercial Corporation is not a party in this
suit, there is nothing for the Alto Surety to answer. The case against the Alto Surety and Insurance Co., Inc., is also
dismissed."13
The facts as found by the lower court are in accordance with the evidence. The law as applied cannot be
characterized as erroneous. The judgment must be affirmed.
It being undisputed that no such delivery of the 8,000 metric tons of galvanized steel sheets contracted for was ever
made, the decisive question is whether liability could be deemed to have arisen. If the answer were in the
affirmative, the next question would be, who is to be held accountable? Defendant Atlas was absolved from any
responsibility by the lower court. It justified the non-delivery because of the discrepancy between what was provided
for in the contract of the purchase and sale14 and the letter of credit15 which under the contract had to be opened. As
noted in the Brief submitted by Atty. Domingo Zavalla for defendant Atlas, distinguished for its clarity and lucidity the
failure of the letter of credit to comply with what was agreed upon "is very apparent and noticeable." Under the
contract, the shipment of the galvanized steel sheets could be made during a period from August, 1948 to February,
1949 with a grace of 60 days, i.e., "all shipments within 60 days of the above schedule would be accepted as good
delivery."16 The letter of credit on the other hand did not provide for such a period of grace of 60 days for late
shipment. The corrected letter of credit was received by the West India Commercial Corporation only on September
7, 1948. As the first shipment was supposed to have been made in August, it was impossible for the West India
Commercial Corporation to make it on time. Under the above circumstances the correctness of the assertion in a
radiogram of West India Commercial Corporation sent to defendant Atlas stating that serious discrepancy "from
contract" would prevent it from "using letter of credit in present form" cannot be denied.
In a decision of this Court,17 it was held that the failure to open a letter of credit within a period agreed upon suffices
to prevent a binding juridical tie from being created. That case, dealing with offer and acceptance, reiterated the
principle that to bind the offer or, "the offeree must comply with the conditions of the offer." The situation before us
deals with a perfected contract. Here the time element does not enter into the failure of one party to live up to the
terms of the contract. What was manifest was the discrepancy between what was agreed upon in the contract and
556
the letter of credit, the effectivity of which requires that "all conditions contained [in it] be strictly complied with,
however, onerous they may be."18 The above principle is deemed "absolutely necessary for the protection of the
banking and mercantile community." There is a New York Supreme Court decision to the effect that a "material
variance between the letter of credit and the sales agreement would excuse non-performance by the seller." 19
Plaintiff-appellant must have been mindful of the force and applicability of the above controlling principle. In its Brief,
it sought to avoid its application by alleging that by its very nature "a letter of credit cannot contain all the particulars
nor can it embody all the agreements previously entered into by the parties for the terms and conditions of their
agreement are already contained in separate documents."20 Plaintiff-appellant would then allege that no such period
of allowance or grace for the late shipment was provided for because the same was already embodied in the
contract of purchase and sale, Exhibit C.21 Such an argument is far from persuasive. An authoritative excerpt from
Zollman on Banks and Banking argues to the contrary. Thus: "Where, therefore, legal relations arise from a letter of
credit, such letter contains the entire contract of the parties, and their resulting obligations should be measured by
its provisions. It constitutes the complete agreement, and is independent of the contract of sale between the buyer
and the seller, and is unaffected by any breach of contract on the part of the seller or the buyer or by any
controversy which may arise between the buyer and seller or by any other transaction between the buyer and
seller."22
It follows then that the lower court was correct in holding that no liability was incurred under the contract of purchase
and sale because of such failure to make the delivery. Such being the case, the question of whether or not
defendant Atlas, which acted as a sales broker, could be held liable for the alleged breach need not be passed
upon.
As for the surety, defendant Alto, the judgment must likewise be affirmed for the obvious reason that as no
accountability of the principal arose from the failure to make the delivery of the galvanized steel sheets, it was
equally exempt from liability.
WHEREFORE, the judgment appealed from is affirmed. Without pronouncement as to costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro and Angeles, JJ., concur.
Bengzon, J.P., J., is on leave.
556

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CONSENSUALITY OF CONTRACTS OBLIGATORY FORCE CASES 203-209 PG.

G.R. No. 128690 January 21, 1999

ABS-CBN BROADCASTING CORPORATION, petitioner,

DAVIDE, JR., CJ.:

1. Kontra Persa [sic].

I hope you will consider this request of mine.

Thanking you and with my warmest regards.

On 17 June 1992, after appropriate proceedings, the RTC issued an

In the meantime, private respondents filed separate answers with counterclaim. 10

On 19 October 1992, ABS-CBN filed a motion for reconsideration 14

On 29 October 1992, the RTC conducted a pre-trial. 16

(1) The complaint is hereby dismissed;

(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:

a) P107,727.00, the amount of premium paid by RBS to the surety

b) P191,843.00 for the amount of print advertisement for "Maging

c) Attorney's fees in the amount of P1 million;

d) P5 million as and by way of moral damages;

e) P5 million as and by way of exemplary damages;

(4) The cross-claim of defendant RBS against defendant VIVA is dismissed.

(5) Plaintiff to pay the costs.

. . . RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND

. . . IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE

. . . IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE RESPONDENT

. . . IN AWARDING ATTORNEY'S FEES IN FAVOR OF RBS.

ABS-CBN's reliance in Limketkai Sons Milling, Inc. v. Court of

On cross-examination Mr. Lopez testified:

Q. What was written in this napkin?

A. Yes, sir. (Tsn, pp. 42-43, June 8, 1992)

A. Yes, sir. (Tsn, p. 69, June 8, 1992).

[G.R. No. 131726. May 7, 2002]

YOLANDA PALATTAO, petitioner, vs. THE COURT OF APPEALS, HON. ANTONIO J.

The petition is impressed with merit.

Likewise, in his November 7, 1993 reply-letter, private respondent stated that:

G.R. No. 124267 January 31, 2003

NATIONAL COMMERCIAL BANK OF SAUDI ARABIA, petitioner,

CARPIO MORALES, J.:

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The petition is impressed with merit.

Puno, Panganiban, Sandoval-Gutierrez, and Corona JJ., concur.

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

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. BONITA O. PEREZ

The Present Petition

The petitioner raises the following grounds in the instant petition:

of default in payment of a debtor is a legal remedy afforded by law to a creditor. Hence, a

G.R. No. 201112 October 23, 2012

G.R. No. 201121

G.R. No. 201127

G.R. No. 201413

G.R. No. 201127

G.R. No. 201121

G.R. No. 201413

I. THE NON-RELEASE OF THE SECURITY DEPOSIT BY COMELEC INDICATES THE EXISTENCE OF

For their part, respondents offer the following comments:

We find no reason to disturb our June 13, 2012 Decision.

G.R. No. L-23546 August 29, 1974

LAGUNA TAYABAS BUS COMPANY and BATANGAS TRANSPORTATION COMPANY, petitioners,

Domingo E. de Lara for petitioners.

M. A. Concordia & V.A. Guevarra for respondent.

The motion to dismiss was, however, denied. Meanwhile

Going back to the Court of First Instance of Laguna

The Court of Appeals proceeded to state that

The new question raised is presented thus:

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