Contracts Assigned Cases

ANICETO G. SALUDO, JR., G.R. No.
184041
Petitioner, Present:
CORONA, C.J.,
Chairperson
NACHURA,*
LEONARDO-DE CASTRO,
DEL CASTILLO, and
PEREZ, JJ.
-versus-
Promulgated:
October 13, 2010
SECURITY BANK CORPORATION,

Respondent.
x---------------------------------------------------------------------------------------- x
DECISION
PEREZ, J.:
Before this Court is a petition for review on certiorari seeking the

reversal of the Decision[1] of the Court of Appeals in CA-G.R. CV No. 88079
dated 24 January 2008 which affirmed the Decision[2] of Branch 149 of the
Regional Trial Court (RTC) of Makati City, finding petitioner Aniceto G.
Saludo, Jr. and Booklight, Inc. (Booklight) jointly and severally liable to
Security Bank Corporation (SBC).
The basic facts follow
On 30 May 1996, Booklight was extended an omnibus line credit

facility[3] by SBC in the amount of P10,000,000.00. Said loan was covered
by a Credit Agreement[4] and a Continuing Suretyship[5] with petitioner as
surety, both documents dated 1 August 1996, to secure full payment and
performance of the obligations arising from the credit accommodation.
Booklight drew several availments of the approved credit facility from 1996
to 1997 and faithfully complied with the terms of the loan. On 30 October
1997, SBC approved the renewal of credit facility of Booklight in the
amount of P10,000,000.00 under the prevailing security lending rate.
[6]
From August 3 to 14, 1998, Booklight executed nine (9) promissory
notes[7] in favor of SBC in the aggregate amount of P9,652,725.00. For
failure to settle the loans upon maturity, demands[8]were made on Booklight
and petitioner for the payment of the obligation but the duo failed to pay. As
of 15 May 2000, the obligation of Booklight stood at P10,487,875.41,
inclusive of interest past due and penalty.[9]
On 16 June 2000, SBC filed against Booklight and herein petitioner

an action for collection of sum of money with the RTC. Booklight initially
filed a motion to dismiss, which was later on denied for lack of merit. In his
Answer, Booklight asserted that the amount demanded by SBC was not
based on the omnibus credit line facility of 30 May 1996, but rather on the
amendment of the credit facilities on 15 October 1996 increasing the loan
line from P8,000,000.00 to P10,000,000.00. Booklight denied executing the
promissory notes. It also claimed that it was not in default as in fact, it paid
the sum of P1,599,126.11 on 30 September 1999 as a prelude to
restructuring its loan for which it earnestly negotiated for a mutually
acceptable agreement until 5 July 2000, without knowing that SBC had
already filed the collection case.[10]
In his Answer to the complaint, herein petitioner alleged that under the
Continuing Suretyship, it was the parties understanding that his undertaking
and liability was merely as an accommodation guarantor of Booklight. He
countered that he came to know that Booklight offered to pay SBC the
partial payment of the loan and proposed the restructuring of the
obligation. Petitioner argued that said offer to pay constitutes a valid tender
of payment which discharged Booklights obligation to the extent of the
offer. Petitioner also averred that the imposition of the penalty on the
supposed due and unpaid principal obligation based on the penalty rate of
2% per month is clearly unconscionable.[11]
On 7 March 2005, Booklight was declared in default. Consequently, SBC

presented its evidence ex-parte. The case against petitioner, however,
proceeded and the latter was able to present evidence on his behalf.
After trial, the RTC ruled that petitioner is jointly and solidarily liable with
Booklight under the Continuing Suretyship Agreement. The dispositive
portion reads:
WHEREFORE, in view of the foregoing considerations, the Court hereby
finds in favor of the plaintiff against the defendants by ordering the
defendants Booklight, Inc. and Aniceto G. Saludo, Jr., jointly and severally
liable (solidarily liable) to plaintiff [sic], the following sums of Philippine
Pesos:
PN No. Amount Interest Rate (per BeginningUntil fully
annum) paid
74/787/98 P1,927,000.00 20.189% November 2, 1998
74/788/98 913,545.00 20.189% November 2, 1998
74/789/98 1,927,090.00 20.189% November 2, 1998
74/791/98 500,000.0 20.178% November 4, 1998
74/792/98 800,000.00 20.178% November 4, 1998
74/793/98 665,000.00 20.178% November 3, 1998
74/808/98 970,000.00 20.178% November 9, 1998
74/822/98 975,000.00 20.178% November 12, 1998
74/823/98 975,000.00 20.178% November 12, 1998
with attorneys fee of P100,000.00 plus cost of suit.[12]
The Court of Appeals affirmed in toto the ruling of the RTC.[13] Petitioner
filed a motion for reconsideration but it was denied by the Court of Appeals
on 7 August 2008.[14]
Hence, the instant petition on the following arguments:
1. The first credit facility has a one-year term from 30 June

1996 to 30 June 1997 while the second credit facility runs
from 30 October 1997 to 30 October 1998.
2. When the first credit facility expired, its accessory

contract, the Continuing Surety agreement likewise
expired.
3. The second credit facility is not covered by the
Continuing Suretyship, thus, availments made in 1998 by
Booklight are not covered by the Continuing Suretyship.
4. The approval of the second credit facility necessitates

the consent of petitioner for the latters Continuing
Suretyship to be effective.
5. The nine (9) promissory notes executed and drawn by

Booklight in 1998 did not specify that they were drawn
against and subject to the Continuing Suretyship. Neither
was it mentioned in the Continuing Suretyship that it was
executed to serve as collateral to the nine (9) promissory
notes.
6. The Continuing Suretyship is a contract of adhesion and

petitioners participation to it is his signing of his contract.
7. The approval of the second credit facility is considered a

novation of the first sufficient to extinguish the
Continuing Suretyship and discharge petitioner.
8. The 20.178% interest rate imposed by the RTC is

unconscionable.[15]
The main derivative of these averments is the issue of whether or not

petitioner should be held solidarily liable for the second credit facility
extended to Booklight.
We rule in the affirmative.
There is no doubt that Booklight was extended two (2) credit facilities,
each with a one-year term, by SBC. Booklight availed of these two (2) credit
lines. While Booklight was able to comply with its obligation under the first
credit line, it defaulted in the payment of the loan obligation amounting
to P9,652,725.00 under the second credit line. There is likewise no dispute
that the first credit line facility, with a term from 30 June 1996 to 30 June
1997, was covered by a Continuing Suretyship with petitioner acting as the
surety. The dispute is on the coverage by the Continuing Suretyship of the
loan contracted under the second credit facility.
Under the Continuing Suretyship, petitioner undertook to guarantee
the following obligations:
a) Guaranteed Obligations the obligations of the Debtor arising from

all credit accommodations extended by the Bank to the
Debtor, including increases, renewals, roll-overs, extensions,
restructurings, amendments or novations thereof, as well as (i)
all obligations of the Debtor presently or hereafter owing to the
Bank, as appears in the accounts, books and records of the Bank,
whether direct or indirect, and (ii) any and all expenses which the
Bank may incur in enforcing any of its rights, powers and remedies
under the Credit Instruments as defined hereinbelow; [16] (Emphasis
supplied.)
Whether the second credit facility is considered a renewal of the first

or a brand new credit facility altogether was indirectly answered by the trial
court when it invoked paragraph 10 of the Continuing Suretyship which
provides:
10. Continuity of Suretyship. This Suretyship shall remain in full

force and effect until full and due payment and performance of the
Guaranteed Obligations. This Suretyship shall not be terminated by
the partial payment to the Bank of Guaranteed Obligations by any
other surety or sureties of the Guaranteed Obligations, even if the
particular surety or sureties are relieved of further liabilities.[17]
and concluded that the liability of petitioner did not expire upon the
termination of the first credit facility.
It cannot be gainsaid that the second credit facility was renewed for another
one-year term by SBC. The terms of renewal read:
30 October 1997
BOOKLIGHT, INC.
xxxx
Gentlemen:
We are pleased to advise you that the Bank has approved the renewal of
your credit facility subject to the terms and conditions set forth below:
Facility : Loan Line

Amount : P10,000,000.00
Collateral : Existing JSS of Atty. Aniceto Saludo (marital consent waived)
Term : 180 day Promissory Notes
Interest Rate : Prevailing SBC lending rate; subject to monthly setting and
payment
Expiry : October 31, 1998
x x x x.[18]
This very renewal is explicitly covered by the guaranteed obligations of the

Continuing Suretyship.
The essence of a continuing surety has been highlighted in the case

of Totanes v. China Banking Corporation[19] in this wise:
Comprehensive or continuing surety agreements are, in fact, quite
commonplace in present day financial and commercial practice. A bank or
financing company which anticipates entering into a series of credit
transactions with a particular company, normally requires the projected
principal debtor to execute a continuing surety agreement along with its
sureties. By executing such an agreement, the principal places itself in a
position to enter into the projected series of transactions with its creditor;
with such suretyship agreement, there would be no need to execute a
separate surety contract or bond for each financing or credit
accommodation extended to the principal debtor.[20]
In Gateway Electronics Corporation v. Asianbank Corporation,[21] the Court

emphasized that [b]y its nature, a continuing suretyship covers current and
future loans, provided that, with respect to future loan transactions, they are
x x x within the description or contemplation of the contract of guaranty.
Petitioner argues that the approval of the second credit facility necessitates
his consent considering the onerous and solidary liability of a surety. This is
contrary to the express waiver of his consent to such renewal, contained in
paragraph 12 of the Continuing Suretyship, which provides in part:
12. Waivers by the Surety. The Surety hereby waives: x x x (v) notice or
consent to any modification, amendment, renewal, extension or grace
period granted by the Bank to the Debtor with respect to the Credit
Instruments.[22]
Respondent, as last resort, harps on the novation of the first credit

facility to exculpate itself from liability from the second credit facility.
At the outset, it must be pointed out that the Credit Agreement is
actually the principal contract and it covers all credit facilities now or
hereafter extended by [SBC] to [Booklight];[23] and that the suretyship
agreement was executed precisely to guarantee these obligations, i.e., the
credit facilities arising from the credit agreement. The principal contract is
the credit agreement covered by the Continuing Suretyship.
The two loan facilities availed by Booklight under the credit

agreement are the Omnibus Line amounting to P10,000,000.00 granted to
Booklight in 1996 and the other one is the Loan Line of the same amount in
1997. Petitioner however seeks to muddle the issue by insisting that these
two availments were two separate principal contracts, conveniently ignoring
the fact that it is the credit agreement which constitutes the principal contract
signed by Booklight in order to avail of SBCs credit facilities. The two
credit facilities are but loans made available to Booklight pursuant to the
credit agreement.
On these facts the novation argument advanced by petitioner must fail.
There is no novation to speak of. It is the first credit facility that

expired and not the Credit Agreement. There was a second loan pursuant to
the same credit agreement. The terms and conditions under the Credit
Agreement continue to apply and the Continuing Suretyship continues to
guarantee the Credit Agreement.
The lameness of petitioners stand is pointed up by his attempt to

escape from liability by labelling the Continuing Suretyship as a contract of
adhesion.
A contract of adhesion is defined as one in which one of the parties
imposes a ready-made form of contract, which the other party may accept
or reject, but which the latter cannot modify. One party prepares the
stipulation in the contract, while the other party merely affixes his
signature or his adhesion thereto, giving no room for negotiation and
depriving the latter of the opportunity to bargain on equal footing.[24]
A contract of adhesion presupposes that the party adhering to the

contract is a weaker party. That cannot be said of petitioner. He is a lawyer.
He is deemed knowledgeable of the legal implications of the contract that he
is signing.
It must be borne in mind, however, that contracts of adhesion are
not invalid per se. Contracts of adhesion, where one party imposes a
ready-made form of contract on the other, are not entirely prohibited. The
one who adheres to the contract is, in reality, free to reject it entirely; if he
adheres, he gives his consent.[25]
Finally, petitioner challenges the imposition of 20.189% interest rate

as unconscionable. We rule otherwise. In Development Bank of the
Philippines v. Family Foods Manufacturing Co. Ltd.,[26] this Court upheld the
validity of the imposition of 18% and 22% stipulated rates of interest in the
two (2) promissory notes.Likewise in Spouses Bacolor v. Banco Filipino
Savings and Mortgage Bank,[27] the 24% interest rate agreed upon by parties
was held as not violative of the Usury Law, as amended by Presidential
Decree No. 116.
WHEREFORE, the petition is DENIED. The Decision dated 24 January

2008 of the Court of Appeals in CA-G.R. CV No. 88079 is AFFIRMED in
toto.
G.R. No. L-47544 January 28, 1980
PEPITO VELASCO, AMABLE LUMANLAN, RAMON GALANG, FELIPE LUMBANG and
APOLONIO DE LOS SANTOS, petitioners,
vs.
COURT OF APPEALS and GOVERNMENT SERVICE INSURANCE SYSTEM, respondents.
Ocampo, Velasco, Sicat & Associate for petitioners.
Manuel M. Lazaro for respondent GSIS.
BARREDO, J.:
Petition for certiorari, erroneously citing Section I of Rule 65, for the review of the decision of the
Special Division of Five of the Court of Appeals dated December 6, 1977 in CA .G.R. No. 06152
declaring, by a vote of four to one, null and void the order of the Court of First Instance of Pampanga
in Civil Case No. 4260 dated December 2, 1976, which had declared the judgment of said court in said
case final and executory, directing in consequence, said trial court to approve the record on appeal of
herein respondent Government Service Insurance System (GSIS for short) and to give due course to
its appeal, setting aside correspondingly the restraining order it had previously issued in the same
case, the Court of Appeals holding that, contrary to the ruling of the trial court, the motion for new trial
of the GSIS admittedly filed on time is not pro-forma and, therefore, the period to appeal the trial
court's decision in question had been suspended by said motion, hence, said decision was still
appealable.
From the foregoing brief statement of the nature of the instant case, it would appear that Our sole
function in this proceeding should be to resolve the single issue of whether or not the Court of Appeals
erred in ruling that the motion for new trial of the GSIS in question should indeed be deemed pro-
forma. But going over the extended pleadings of both parties, the Court is immediately impressed that
substantial justice may not be timely achieved, if We should decide this case upon such a technical
ground alone. We have carefully read all the allegations and arguments of the parties, very ably and
comprehensively expounded by evidently knowledgeable and unusually competent counsel, and We
feel We can better serve the interests of justice by broadening the scope of Our inquiry, for as the
record before Us stands, We see that there is enough basis for Us to end the basic controversy
between the parties here and now, dispensing, however, with procedural steps which would not
anyway affect substantially the merits of their respective claims.
As a matter of fact, after our first study of this case, We already announced Our intention in this
direction at the hearing held on February 21, 1979, where Attys. Celestino T. Ocampo, Vicente Sicat
and Victoriano David appeared and argued for the petitioners and Justice Manuel Lazaro and Atty.
Antonio F. Navarrete, for the GSIS. We reiterated said intention in Our resolution of said date by
requiring the parties "to INFORM the Court ... whether or not there are any issues of fact that the
purported appeal of private respondent would involve and whether or not petitioners controvert the
same, with the end in view of enabling this Court to take the necessary steps to convert this
proceeding into an appeal ... (under) Republic Act 5440". To be sure, in its compliance dated April 10,
1979 with said resolution, GSIS does enumerate certain allegedly "pivotal factual issues" its appeal
"would involve." However, as will be explained anon even the "pivotal factual issues" referred to may
be justly resolved here without the need of returning this case to the trial court. The exact position of
the parties in respect to said issues and the allegations of fact in their pleadings here and in the court
below as well as the undisputed evidence related thereto are so clearly stated and comprehensively
discussed by the parties in their said pleadings that to conduct further proceedings or to await any
other briefs from them would be superfluous and a waste of time and effort. Accordingly, We now deem
this case as submitted for Our decision as a duly made appeal under Republic Act 5440.
According to GSIS:
A Detailed Statement of Facts and of the Case

It is not without reason to state that the ambience of a particular case has much to
contribute to the resolution thereof. So it is with the instant case. And for a better
appreciation of the antecedents which led to the decision of the Court of First
Instance of Pampanga and subsequently the questioned decision of the respondent
Court of Appeals, the environmental facts which spawned them should thus be laid
bare before this Honorable Court, the better to appreciate their factual significance
and legal consequences.
1. Sometime on November 10, 1965, Alta Farms secured from the GSIS a Three
Million Two Hundred Fifty Five Thousand Pesos (P3,255,000.00) loan and an
additional loan of Five Million Sixty-Two Thousand Pesos (P5,062,000.00) on October
5, 1967, to finance a piggery project. These loans were secured by two mortgage
(Exh. "B").
2. Alta Farms defaulted in the payment of its amortizations. it is presumably because

of this that Alta Farms executed a Deed of Sale With Assumption of Mortgage with
Asian Engineering Corporation on July 10, 1969 (Exh. "C"), but without the previous
consent or approval of the GSIS and in direct violation of the provisions of the
mortgage contracts.
3. Even without the approval of the Deed of Sale With Assumption of Mortgage by the
GSIS, Asian Engineering Corporation executed an Exclusive Sales Agency,
Management and Administration Contract in favor of Laigo Realty Corporation, with
the intention of converting the piggery farm into a subdivision (Exh. "D"). And on
October 20, 1969, Asian Engineering executed another contract with Laigo, whereby
Laigo was to undertake the development of the property into a subdivision (Exh. "E").
Conformably with the two contracts (Exh "D" and "E"), Laigo started the development
of the lot into a subdivision.
Contract of Petitioner
Lumanlan and his admission
4. After developing the area, on December 4, 1969, Laigo entered into a contract
(Exh. "GG") with Amable Lumanlan, one of the petitioners, to construct for the home
buyers, 20 houses on the subdivision. The contract provided that Laigo shall secure
the agreement and signature of the home buyers (Paragraph 6 of Agreement, Exh.
"GG") and that Laigo "shall pay for the houses on a "turn-key" bases" (Paragraph 5 of
Agreement, Exh. "GG"). The parties to the agreement are, stated by the agreement
itself, as follows:
This Agreement, executed this 29th day of November, 1969, in the

City of Manila, by and between
LAIGO REALTY CORPORATION, ...
represented by its President,
RHODY E. LAIGO, ... hereinafter referred to as the FIRST PARTY
- and -
... AMABLE G. LUMANLAN ... hereinafter referred to as the

SECOND PARTY.
And the signatories are -
IN WITNESS WHEREOF, the parties hereunto affixed their

signatures this 4th day of Dec. 1969 at Manila, Philippines.
(Sgd) Illegible
LAIGO REALTY CORPORATION ALEJANDRO Y. DE JESUS
BY: By:
(Sgd) RHODY E. LAIGO (Sgd) Illegible
(t) RHODY E. LAIGO AMABLE G. LUMANLAN
- President -
(Sgd) Illegible
ANASTACIO F. DANAN
(See Exh. "GG")
5. Petitioner Lumanlan allegedly constructed 20 houses for the home buyers and for
which he claims a balance of P309,187.76 from the home buyers and Laigo. This is
reflected in Exhibit "X" of petitioners. However, in the letter of Lumanlan to the GSIS
on January 7, 1972, he was collecting only P216,500.00 (Exh. "W" evidence of
Lumanlan). Thus, even the evidence of Lumanlan on what is due him is conflicting.
6. Out of his claim, petitioner Lumanlan admits that Mrs. Rhody Laigo paid him in
several checks totalling P124,855.00 but which checks were all dishonored when
presented for payment. This is Exhibit "X" of petitioners.
7. Thus, on November 7, 1970, petitioner Lumanlan wrote a letter to Laigo Realty

Corporation (Exh. "Y", evidence of Lumanlan) which reads
I wish to inform you that I have received from Mrs. Rhody E. Laigo
several bank checks which were either dishonored by the bank or
were cancelled at the request of Mrs. Rhody E. Laigo for reasons of
insufficient funds.
The following are the checks:
DATE SER. NO. AMOUNT BANK
May 20,1970 646371 P36,000.00 Prudential Bank
June 10,1970 659907 9,000.00
June 30, 1970 646397 20,000.00

July 6, 1970 646398 19,800.00
July 3, 1970 464399 11,250.00
Aug. 7,1970 659913 16,200.00
Aug. 14,1970 659914 12,605.00
Total P124,855.00
8. In the same letter, Exh, "Y", Lumanlan admits that the checks of Laigo that were
dishonored were intended to pay 8 houses occupied by home buyers, who caused
the construction in accordance with the Agreement of Laigo and Lumanlan (Exh.
"GG"). The letter of Lumanlan also admits -
This amount was intended to pay for eight (8) houses occupied by
the following home buyers:
1
. Liborio Yalung P18,000.00
2. Caridad Pascua 13,500.00
3. Antonio Candelaria 15,300.00
4. Alberto Rarela 11,800.00
5. Felomena 16,200.00
Gonzales
6. Estelita Manalang 16,200.00
7. Rogelio Zabala 16,200.00
8. Wilhelmina Paras 16,200.00
P123,400.00
Refund for expenses
in the execution of
housing plans for the 1 ,455.00
above houses. P 124,855.00
It is significant to note that Exhibits "GG", "W" "X" and "Y" are part of
the evidence of petitioners.
9. On December 17, 1970, Laigo acknowledged its dishonored checks and promised
to make good the same. This is reflected in Exhibit "Y-l" of petitioners. The
dishonored checks were all presented by petitioners and marked Exhibits "II-l" to "II-
6".
Velasco and his admissions
10. On December 29, 1969, Laigo entered into a contract with petitioner Pepito
Velasco to construct houses for the home buyers who agreed with Velasco on the
prices and the downpayment. Exhibits "HH" and "HH-l" for petitioners. The parties to
the contract are -
LAIGO REALTY CORPORATION, ... as the FIRST PARTY
- and -
... PEPITO VELASCO, ... jointly known as the SECOND PARTY;
11. Petitioner Velasco constructed houses for various home buyers, who individually
agreed with Velasco, as to the prices and the downpayment to be paid by the
individual home buyers.
When neither Laigo nor the individual home buyers paid for the home constructed,
Velasco wrote the GSIS to intercede for the unpaid accounts of the home buyers
(Exh. "AA" for petitioners). Exhibit "AA" admits that Pepito Velasco is one of the
building contractors contracted by Laigo to construct houses for home buyers. it
states the names of the home buyers, the cost of houses agreed upon, the
downpayment made by the buyers and their respective balance to Velasco. Since the
letter of Velasco, Exh. "AA", is a written admission that is highly revealing and
illuminating we feel it important and material to quote therefrom as follows.
May I inform your good offices that the undersigned is one of the
building contractors contracted by the Laigo Realty Corporation to
construct residential houses of lot buyers therein For your further
information the following are the names of the lot owners for whom
the undersigned have constructed houses for, including the
respective balances payable to me as of this date.
Name of Buyer Cost of House Down Balances

1. Benjamin Cristobal P19,500.00 P1,950.00
2. Nehemiah Quipot 23,000.00 2,300.00
3. Alberto Villalon 18,000.00 1,800.00
4. Luis Jacob 20,000.00 2,000.00
5. Jose Salonga 20,000.00 2,000.00
6. Antonio Jontillano 12,500.00 1,200.00
P1
xxx xxx xxx
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This is the evidence of Velasco.
12. Velasco admits that Laigo paid him in five (5) checks with the total amount of
P35,000.00 but which all bounched or were dishonored (Exh. "BB" of petitioners). It is
interesting to note that in the same letter of Velasco to his lawyer, Velasco also
named the buyers of the houses for whom he constructed the houses and the
balance due from the home buyers (See Exh. "BB" of petitioners).
Con tract of Petitioner
de los Santos and his
admissions
13. On March 4, 1970, Laigo entered into a contract with petitioner Apolonio de los
Santos whereby the latter agreed to construct houses for the home buyers and Laigo
agreed to pay the full purchase price of every house constructed ... based on a "turn-
key arrangement". (Vide Exh. "A") The parties to the contract are shown as follows:
If these conditions above are acceptable to your good self, kindly

signify your conformity below.
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(Date) March 4, 1970
(Vide Exhibit "A" of petitioners)
Galang and his admissions
14. Petitioner Ramon Galang also constructed a house for Victor Coquilla for an
agreed price of P14,000.00. Coquilla paid a downpayment of P1,400.00, thereby
leaving a balance of P12,600.00, which he wanted the GSIS to pay. Thus, in his letter
to the GSIS (Exh "CC" for Petitioners) he admits -
In connection with your Palos Verdes Estate Subdivision located in

Talipapa, Caloocan City and which was era d Realty Corporation I
wish to inform you that I have the Laigo Realty Corporation
constructed in the subdivision the following house, its owner and
cost of construction
Name Of Owner Cost of House Amount Paid Balance
1. Victor Coquilla P14,000.00 P1,400.00 P12,600.00
May I inform your good Offices further that the amount of P12,600.00 referred to
above as the 'balance 'is payable to the undersigned, Payment of which has been
delayed for almost one and a half years now.
Trusting that you give this letter your usual Prompt attention, I beg to remain
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(Vide Exh. "KK" for petitioners; emphasis supplied)
Lumbang
15. Petitioner Felipe Lumbang also claims to have constructed for the home buyers
upon the instance of Laigo, four (4) houses with the balance of P82,705.00.
Lumanlan admits that he constructed the four houses for the home buyers who paid
him a downpayment but who still have outstanding balances Vide Exh. "LL" for the
petitioners).
16. The Deed of Sale With Assumption of Mortgage between Alta Farms and Asian
Engineering, for one reason or another, was not approved by the GSIS. And when
Alta Farms failed to liquidate its accounts, GSIS foreclosed the properties including
all improvements (the house in 1970. In November and December 1971, the
Certificate of Sale in favor of the GSIS were issued.
17. While the properties were under foreclosure and even pending the consolidation
of titles, certain lots were sold on installment basis, for which Laigo received
P985,000.00, and 63 houses in various stages were constructed, among which are
the houses allegedly constructed by the petitioners.
xxx xxx xxx
21. An along, from the time the contracts were entered into by Laigo Realty
Corporation, the petitioners had always directed their claims against Laigo Realty
Corporation as may be shown by Exhibits "Z", "X", "Y" and "I-1"; Laigo would pay by
checks to the contractors; and when the checks were dishonored they would always
file a protest with Laigo Realty Corporation. Originally, an claims were addressed to
Laigo Realty Corporation, being the party who executed the contracts
22. When the petitioners could not collect from Laigo and the home buyers and after
the GSIS foreclosed the subdivision including the improvements (the houses
constructed), the petitioners sent a letter of demand on August 3, 1974 (Exhibit "EE")
for GSIS to pay for the indebtedness of Laigo Realty Corporation. It is enlightening
and interesting to note that the annexes to the letter specifies who are the home
buyers who caused the construction the agreed price of the construction between the
home buyers and the contractors, the downpayment made by the home buyers to the
contractors, and the balance of the home buyers due the contractors by reason of the
contracts (Exhibits "EE-l" and "EE-2"). It is crystal clear from the letter of the lawyer of
the petitioners that the ones who caused the construction are home buyers through
Laigo Realty Corporation, that the home buyers made downpayments to the
contractors, and that the latter agreed to the price and the balance that were not paid
by the home buyers This is certainly indubitable proof that the GSIS had nothing to
do whatsoever in the construction of the houses by the petitioners.
23. On August 12. 1974, the Assistant General Manager on A legal affairs - he GSIS
categorically and specifically denied the an the firm and clear legal ground, among
others, that the has no privity of contract with the petitioners (Exhibit "FF"). This
denial of the claim of the negates, rebukes and belies any and all or on the other
inter-office the GSIS.
24. On April 14, 1975, the petitioners filed a case against the GSIS for the on of mm
of money representing labor and materials used in the construction of houses caused
by home buyers the intercession of Laigo Realty Corporation in the principal sum of
P607,328.27. The complaint, docketed as Civil Case No. 4260 of the Court of First
Instance of Pampanga, prayed for -
(1) The sum of SIX HUNDRED SEVEN THOUSAND THREE

HUNDRED TWENTY EIGHT & 271100 PESOS (P607,328.27) in its
current value due to inflation with legal interest from the date of
extrajudicial demand;
(2) the sum of FIFTY THOUSAND (P50,000.00) PESOS as

attorney's fees;
(3) such sum for exemplary damages as may be assess by this
Honorable Court against the defendant; and
(4) the costs of this suit (Vide pp. 91-95 of the instant Amended
Petition)
25. On July 30, 1975, and within the extensions of time granted, the GSIS filed its
Answer traversing the claims and alleging, among others, that the petitioners have no
privity of contract with the GSIS; that the petitioners have no cause of action; and that
Laigo Realty Corporation which entered into the contracts with the petitioners is a
necessary and indispensable party who should be included as a party to properly
ventilate the issues and to avoid multiplicity of suits (pp. 96-101 of the instant
Amended Petition).
26. After pre-trial was terminated the petitioners presented their evidence, and
thereafter, under date of December 16, 1975, they filed their Plaintiffs' Formal Offer of
Evidence (pp. 103-113 of the instant Amended Petition).
27. On February 20, 1976, the petitioners and the GSIS filed their "Joint
Manifestation" which in substance is a stipulation of facts (pp. 114-116 of the instant
Amended Petition). The petitioners agreed that the witnesses of the GSIS to be
presented would testify on the following-
a. The execution of the Deed of Quitclaim dated May 7, 1970,

executed in favor of defendant GSIS by Laigo Realty
notwithstanding the followed ownership." GSIS if they were
presented evidence." (Pp. 379-391, Record. Corporation freeing
said defendant from any and all claims arising out of the suppliers,
contractors and house such as plaintiffs in the Palos Verdes Estate
which now constitutes the GSIS Hills Subdivision
b. At the time of the Extra-Judicial Foreclosure of the Estate

Mortgage on November, 1971, conducted by defendant or Laigo
properties, plaintiff's claims are not registered;
c. Plaintiffs' services were contracted by Laigo Corporation and not

by the defendant GSIS;
d That defendant up to the present has not collected the house

owner of the 63 houses built by the plaintiffs proceedings and
consolidation of ownership
The petitioners thus did not choose to cross-examine or dispute what they had
agreed upon as the testimonies of the witnesses of the to testify; hence, they stand
as uncontroverted evidence. 1
Significantly, the trial court's conclusions of fact are substantially as alleged by the GSIS above, except
as to certain details which We deem immaterial in the light of the legal provisions and principles upon
which We believe the resolution of this controversy should be based. It may be stated in this
connection, however, that the trial court made the following findings and conclusions as regards the
amount petitioners are entitled to recover:
The next issue that would then necessarily follow is: - How much are the plaintiffs
entitled to be paid?
Again, an examination of the plaintiffs' uncontroverted evidence disclose that as of

the time they were ordered to 'cease and desist' from introducing any further
improvement on the property, they had already constructed several houses valued (in
common to them) in the total of P609,328.27 and for which amount representing the
actual cost of construction of the houses (materials and labor already considered) as
of those years of construction (1969-1970), they had not yet been fully paid; that
upon consolidation of ownership of the entire Palos Verdes Estate Subdivision where
said plaintiffs had introduced the improvements aforesaid in the GSIS, they made
written request for payment of what was already then due them on the defendant
GSIS - new owner of the premises but that their said request had fallen on deaf ears.
Consequently, for having been compelled to litigate and to incur unnecessary
expenses instead of given the opportunity of making use of the proceeds of their
investment and labor in further investments and work, said plaintiffs are here now
further invoking justice and equity on their side and praying that they be paid their
afore-stated entitlement in the amount of P607,328.27 in the equivalent or present
value of our Pesos as devaluated. Thus, through testimonial evidence now also
standing on record unrebutted, said plaintiffs proceeded to show to the Court the
effect of such devaluation of the currency on the prices of materials, as well as on
their rights and claims, as follow:
1969-1970 1975
MATERIAL Cost Cost
1. White Sand Porac P9.00 per cu. m. P30.00 per cu. m.
2. Crashed Gravel-Baliwag 15.00 per cu. m. 30.00 per cu. m.
3. Cement 3.90 per bag 14.00 per bag
4. Lumber .36 to .42 per 1. 70 to 1.80 per
board foot board ft.
5. Nails . 75 per kilo 4.20 per kilo
6. GI Sheets 1.00 per linear 4.20 to 4.50 per
foot linear foot
7. Paint 10.50 to 1 1.00 per 38.00 to 40.00
gallon per gallon
8. Iron bars 2.7 5 to 3. 00 15.00
9. Toilet materials 110.00 to 120.00 410. 00 to 420. 00

Water closet, Phil.
Standard with seat cover
And indeed, this Court can take judicial notice of the fact that a house costing, say
P10,000.00 in 1969-1970, would now cost no less than P40,000.00. So that,
considering that the generally accepted standard or ratio in the determination of the
costs of materials and labor supplied and put in the construction by the builder-
contractors that the latter (labor) is 30% of that of the former (cost of materials), a
computation of plaintiffs dues as is, or P607,328,27, would give this:
a. Cost of materials P
467,
175.
50
b. Cost of labor 140,

152
.50
Total 607,
328.
00
In effect, by considering the aforesaid four times increase in said materials costing
P467,175.50, the same materials would now cost P1,868,702.00. By adding 30% of
said amount of P1,868.702.00, or P560,610.60 for the cost of labor, to the said cost
of materials, the total amount to which plaintiffs would therefore, be justly and
equitably entitled is the sum of P2,429,312.60. And the facts and circumstances as
proven, in the honest opinion of this Court as a court of law and equity, truly warrant
that this said amount be awarded to the plaintiffs. (pp. 193-195, Record.)
Parenthetically, the following reprobation by the Court of Appeals of the foregoing posture of the trial
court reveals how much the same had evidently influenced said appellate court to rule in favor of
allowing respondent's appeal:
This Court finds no compelling reason to bar appellate review of the unprecedented
judgment, mentioned at the outset, which revalued upwards four-fold to repeat, four
times the amount of plaintiffs' claim (as alleged in their complaint)
representing actual costs of houses built by them for the former owner-mortgagor of
the subdivision that, eventually, was acquired by the GSIS as highest bidder at the
foreclosure sale.
It bears emphasis that "unjust enrichment", which was invoked by plaintiffs in suing
the GSIS instead of the former owner and/or the developer (which contracted with
plaintiff in regard to the houses in question), is manifest in the judgment sought to be
elevated to this appellate court. For, under that judgment, plaintiffs stand to receive,
from and at the expense of the GSIS, as new owner, and to keep for themselves
as additional increment more than P 1.8 million OVER and ABOVE actual costs of
materials and labor that went into the building of said houses, according to their own
allegations and evidence. Whether or not the trial court can, by the simple expedient
of taking "judicial notice" of inflation, quadruple the plaintiffs' claim, in the light of the
Civil Code provision (Art. 1250) authorizing revaluation only upon proof
of "extraordinary inflation or deflation of the currency" and of Republic Act No. 524
providing that obligation shall be discharged in the currency that is legal tender at the
time of payment, is an important and far-reaching legal question that deserves further
examination or review not only by this court but also, if need be, by the Supreme
Court." (Pp. 31-32, Record.)
Truth to tell however, contrary to the contention of GSIS, the trial court's four-fold award may not be
said to be entirely baseless and arbitrary, much less based on no more than the judicial notice taken
by His Honor that "a house costing, say P10,000 in 1969-1970, would now cost no less than P40,000."
That the trial court did not award more than what petitioners had demanded in their complaint is clearly
evidenced by their allegation in Paragraph 5 of their complaint regarding the effects of inflation as wen
as by their prayer that they be paid "the sum of Six Hundred Seven Thousand Three Hundred Twenty-
Eight and 27/100 Pesos (P607,328.27) in its current value due to inflation", as well as by the
testimonial evidence referred to in detail in the decision in question, as can be seen in the portions
thereof We have quoted above.
Thus, We find and hold that the material facts in this case are beyond dispute and the only issues We
have to resolve are legal ones. It is clear to Us that petitioners did construct, furnishing the materials
and labor needed for the purpose the 63 houses that now belong to or are owned by respondent
GSIS. It is alleged in Paragraphs 5 and 8 of petitioners' complaint that:
5. That during the period of the joint venture agreement being negotiated by the
Government Service Insurance System and the Laigo Realty Corporation, the
plaintiffs herein constructed residential house and other improvements at the said
GSIS His Subdivision, furnishing materials, supplies, labor and miscellaneous
services at their own expense, which costs of mass labor and miscellaneous services
total the amount of P607,328.27, and which is broken down or itemized as follows:
Amable C. Lumanlan ------------ P309,187.76
Pepito Velasco 142,510.00

--------------------
Apolonio de los Santos 60,325.51

--------
Felipe Lumbang 82,705.00

------------------
Ramon Galang 12,600.00

--------------------
That the foregoing expenditures and- claims are computed on the basis of actual
costs of ma and labor as of the time of the construction;
That owing to the inflation which is a matter of judicial notice, such costs of materials
and labor is now reasonably assessed at very much more than the above-mentioned
amount
xxx xxx xxx

8. That the construction of houses and improvements has greatly increased the value
of the aforesaid defendant's property. (Pp. 71-72, Record.)
The answer of GSIS to the foregoing allegations is as follows:
5. It specifically denies the allegations in paragraph 5, the truth being defendant is not
liable for any of the materials, supplies and labor allegedly furnished and supplied by
plaintiffs to Palos Verdes Estate Subdivision as the same pertain exclusively to Laigo
Realty Corporation, since on 7 May 1970, Laigo Realty Corporation executed a Deed
of Quitclaim and Undertaking, xerox copy of which is hereto attached as Annex "1"
and made an integral part hereof, holding free and harmless defendant from claims of
materialmen, contractor or any other person arising out of or having connection with
the development of the said subdivision. Thus the "NOW, THEREFORE" clause of
said Deed of Quitclaim and Undertaking provides:
NO THEREFORE, for and in consideration of the above premises;

and in the event of disapproval by the GSIS of its proposal to
develop- the aforesaid property of ALTA FARMS, INC. into a
subdivision, REALTY CORPORATION hereby forever quitclaims,
releases and waives in favor of the GSIS its rights and interests in
the aforesaid property of ALTA FARMS, INC. arising out of the
development of the aforesaid property into a subdivision, and further
shall answer and pay for any claim of or liability to any contractor,
material furnisher, lot buyer, or any other person arising out of or
having connection with said subdivision development. If the GSIS,
for any reason, shall be held liable on any such claims or liabilities
or otherwise its mortgage hen be diminished, LAIGO REALTY
CORPORATION further binds itself to indemnify the GSIS such
sums corresponding to such claims or diminution.
xxx xxx xxx
8. It admits the allegations in paragraph 8.(Pp. 76-77, Record.)
In other words, apart from- admitting expressly that "the constructions of houses and improvements
has greatly increased the value" of the subdivision it now owns, nowhere in its statement of the
material facts in Paragraph 5 of its answer relative to the allegations of the petitioners regarding the
construction by them of the houses in dispute and the cost thereof to each of them does respondent
deny said facts as not true. What GSIS limitedly alleged in its answer is the legal proposition that it is
not liable therefor because of lack of contractual privity between it and petitioners. It may be safely said
then that it does not now lie in the lips of GSIS to maintain that petitioners did not build the houses in
question and that the cost thereof is different from what petitioners have stated in their complaint.
What is more, the reliance of GSIS on the Deed of Quitclaim of May 7, 1970 is to Our mind misplaced.
We have analyzed this document carefully, and We are of the considered view that it is actually
evidence against GSIS. Even if what is unnatural in ordinary business or industrial experience were
assumed, that is, that GSIS was unaware all along during the period of their construction of the work
then being done by petitioners - albeit it is possible there was no express consent given to - by and
thru the aforementioned deed of quitclaim, GSIS agreed to receive and did actually receive the
benefits of what petitioners had accomplished or would accomplish under their contracts with Laigo.,
So much so, that the dispositive portion of the quitclaim dead does not really relieve GSIS from liability
to petitioners. Properly viewed, GSIS virtually assumed under said deed, liability in regard to claims
like those of petitioners who might not be paid by Laigo albeit said liability has been made subject to
the reservation that it could seek indemnity from Laigo.
GSIS received Alta Farms' proposal about the conversion of their piggery project into a subdivision (in
which Laigo Realty's participation was mentioned) as early as February 5, 1970. It was only in
November, 1970 that it issued its "cease and desist" order. From all indications, the jobs of petitioners
were already practically finished then. Thus, in Paragraph 17 of its Comment on the petition herein,
GSIS states:
17. While the properties were under foreclosure and even pending the consolidation
of titles, certain lots were sold to installment basis, for which Laigo received
P985,000.00, and 63 houses in various stages were constructed, among which are
the houses allegedly constructed by the petitioners. (P. 387, Record.)
And in the Joint Manifestation filed by the parties with the trial court as late as February 20, 1976,
GSIS made it clear that "defendant (GSIS) up to the present has not collected from the house owners
of the 63 houses built by the plaintiffs notwithstanding the foreclosure proceedings and consolidation
6f ownership." Again, it is thus obvious that GSIS assumed ownership of the houses built by petitioners
and was benefited by the same, and the fact that it has not collected any payment from the "house
owners" or the construction of the houses respectively occupied by them is of no moment insofar as its
liability to petitioners is concerned. Surely, it is not pretended that those "house owners" would be
allowed to enrich themselves at the expense of petitioners. Indeed, the term "house owners" is
inappropriate, if only because in Paragraph 16 of its Comment on the petition herein, GSIS
unequivocally state that "GSIS foreclosed the properties including all improvements (the houses in
1970" and, thereby, became the owner of said houses.
Upon the foregoing factual premises, the legal issue that arises is whether or not GSIS is liable to the
petitioners for the cost of the materials and labor furnished by them in construction of the 63 houses
now owned by the GSIS and for the construction of which no payment has been made on the balance
due petitioners. Our considered view is and We so hold that even in equity alone, GSIS should pay the
petitioners. After all, it admits it has not collected from the ones who appear to be the buyers thereof,
albeit it must be collecting the installments on the lots. All it has to do then is to pass on to them what it
has to pay petitioners. In law, GSIS is, under the peculiar circumstances of this case, the owner of said
houses. Pursuant to Article 1729 of the Civil Code:
Those who put their labor upon or furnish materials for a piece of work undertaken by
the contractor have an action against the owner up to the amount owing from the
latter to the contractor at the time the claim is made. However, the following shall not
prejudice the laborers, employees and furnishers of materials:
1) Payments made by the owner to the contractor before they are due;
2) Renunciation by the contractor of any amount due him from the owner.
This article is subject to the provisions of special laws. (1597a)
Laigo admittedly has not paid petitioners. The "bouncing" checks issued by it in their favor is
mentioned by GSIS itself in its statement of the facts. We hold that upon this premise it is a fair
construction of the Deed of Quitclaim aforementioned, that GSIS can be held liable to petitioners,
without prejudice to its securing corresponding indemnity from Laigo. It is obvious from the terms of
said deed that GSIS contemplated the possibility of its being liable for Laigo's account, otherwise,
there was no need for the reservation. This is one such liability. In this connection while, indeed, Article
1729 refers to the laborers and materialmen themselves, under the peculiar circumstances of this
case, it is but fair and just that petitioners be deemed as suing for the reimbursement of what they
have already paid the laborers and materialmen, as otherwise they (petitioners) would be unduly
prejudiced while either Laigo, GSIS or the occupants of the houses would enrich themselves at their
expense. It is a bad law that would allow such a result.
At this juncture, We need to add only that Article 1311 of the Civil Code which GSIS invokes is not
applicable where the situation contemplated in Article 1729 obtains. The intention of the latter provision
is to protect the laborers and the materialmen from being taken advantage of by unscrupulous
contractors and from possible connivance between owners and contractors. Thus, a constructive
vinculum or contractual privity is created by this provision, by way of exception to the principle
underlying Article 1311 between the owner, on the one hand, and those who furnish labor and/or
materials, on the other. As a matter of fact, insofar as the laborers are concerned, by a special law, Act
No. 3959, they are given added protection by requiring contractors to file bonds guaranteeing payment
to them. And under Article 2242 of the Civil Code, paragraphs (3) and (4), claims of laborers and
materialmen, respectively, enjoy preference among the creditors of the owner in regard to specific
immovable property.
As regards Article 525 of the Civil Code also invoked by GSIS, suffice it to say that this provision refers
particularly to instances where the bad faith or the good faith of the builder is the decisive factor in
determining liability. In the case at bar, there is no necessity to pass on the question of whether
petitioners acted in good faith or bad faith, for the simple reason that under the Deed of Quitclaim,
GSIS freely accepted the benefits of what they have accomplished.
GSIS contends that Laigo should have been joined as defendant in this case. While petitioners could
have done so, they were not under such obligation mandatorily. Under the circumstances of this case,
Laigo is only a necessary party, not an indispensable one. And to allay GSIS, its right to secure
reimbursement from Laigo is hereby reserved.
Coming now to the amount for which GSIS is liable, We reiterate that, to be sure, there is evidence in
the record, uncontradicted at that, regarding the lower value of money at the time the demand upon
GSIS was made compared to that when petitioners furnished the labor and materials in question. We
are not, however, inclined to go along with the trial court that the amount demanded should be
multiplied four times. We believe that it being a matter of judicial notice that the prices of labor and
material have substantially risen since 1970, it would be fair enough to make respondent liable for
interest on the amount of the demand, which is supported by evidence and not effectively disputed by
GSIS in its answer, at the rate of 12% per annum from the time petitioners filed their complaint below
on April 14,1975.
In addition, We hold that our award to petitioners of attorney's fees in the amount of Fifty Thousand
(P50,00.00) Pesos would only be just and proper. As We view the position taken by GSIS in this case,
petitioners were compelled to litigate over a matter that could have been justly and equitably settled
without having to go to court, particularly, when it is considered that under the Deed of Quitclaim
several times mentioned earlier, GSIS freely accepted from Laigo the benefits of the expenses for
labor and material incurred by petitioners in the houses in question, hence, as We have said above,
GSIS had no legal basis for insisting that Article 1729 of the Civil Code does not apply to this case, it
being indisputably the owner of said houses already. Besides, it must be borne in mind that the claims
of petitioners are in the nature of claims of the laborers and materialmen themselves. Accordingly,
Article 2208, paragraphs 2, 7 and 11, are applicable hereto. Indeed, the "house owners " or occupants
who have not paid either petitioners or Laigo, or even the GSIS should not be allowed to enrich
themselves at the expense of petitioners, and the most feasible way of avoiding such a result is for
GSIS to Pay Petitioners and then pass on to said "house owners" what it would have to pay under this
judgment.
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered affirming the decision appealed
from, with the modification that respondent GSIS shall pay petitioners the total amount of SIX
HUNDRED SEVEN THOUSAND THREE HUNDRED TWENTY EIGHT AND 27/100 PESOS
(P607,328.27), plus interest at 8% per annum from April 14, 1975 (which is less than that allowed by
Circular No. 416 of the Central Bank dated July 29, 1974) until fully paid, the said sum to correspond
separately to petitioners as follows:
Amable C. Lumanlan P309,187.76 plus interest
Pepito Velasco 142,510.00
Apolonio de log Santos 60,325.51

Felipe Lumbang 82,705.00 and
Ramon Galang 12,600.00
plus Fifty Thousand (P50,000) Pesos as attorney's fees for an of them and the costs.
THIRD DIVISION
G.R. No. 175483, October 14, 2015
VALENTINA S. CLEMENTE, Petitioner, v. THE COURT OF APPEALS, ANNIE SHOTWELL JALANDOON, ET

AL., Respondents.
DECISION
JARDELEZA, J.:
This is a Petition for Review on Certiorari1 under Rule 45 of the Revised Rules of Court filed by Valentina S.
Clemente ("petitioner") from the Decision2 of August 23, 2005 and the Resolution3 dated November 15, 2006 of
the Court of Appeals (CA) Eighth Division in CA-G.R. CV No. 70918.
Petitioner assails the Decision of the CA which ruled that two (2) deeds of absolute sale executed between
petitioner and Adela de Guzman Shotwell ("Adela"), her grandmother, are void and inexistent for being simulated
and lacking consideration. The CA affirmed the Decision of the Regional Trial Court (RTC) of Quezon City, Branch
89, but deleted the holding of the latter that an implied trust existed.
The Facts
Adela owned three (3) adjoining parcels of land in Scout Ojeda Street, Diliman, Quezon City, subdivided as Lots
32, 34 and 35-B (the "Properties"). Among the improvements on the Properties was Adela's house (also referred
to as the "big house"). During her lifetime, Adela allowed her children, namely, Annie Shotwell Jalandoon, Carlos
G. Shotwell ("Carlos Sr."), Anselmo G. Shotwell and Corazon S. Basset, and her grandchildren, 4 the use and
possession of the Properties and its improvements.5
Sometime in 1985 and 1987, Adela simulated the transfer of Lots 32 and Lot 34 to her two grandsons from
Carlos Sr., namely, Carlos V. Shotwell, Jr. ("Carlos Jr.") and Dennis V. Shotwell.6 As a consequence, Transfer
Certificate of Title (TCT) No. 338708/PR 9421 was issued over Lot 32 under the name of Carlos Jr., while TCT No.
366256/PR 9422 was issued over Lot 34 under the name of Dennis.7On the other hand, Lot 35-B remained with
Adela and was covered by TCT No. 374531. It is undisputed that the transfers were never intended to vest title to
Carlos Jr. and Dennis who both will return the lots to Adela when requested.8
On April 18, 1989, prior to Adela and petitioner's departure for the United States, Adela requested Carlos Jr. and
Dennis to execute a deed of reconveyance9 over Lots 32 and 34. The deed of reconveyance was executed on the
same day and was registered with the Registry of Deeds on April 24, 1989. 10
On April 25, 1989, Adela executed a deed of absolute sale11 over Lots 32 and 34, and their improvements, in
favor of petitioner, bearing on its face the price of P250,000.00. On the same day, Adela also executed a special
power of attorney12 (SPA) in favor of petitioner. Petitioner's authority under the SPA included the power to
administer, take charge and manage, for Adela's benefit, the Properties and all her other real and personal
properties in the Philippines.13 The deed of absolute sale and the SPA were notarized on the same day by Atty.
Dionilo D. Marfil in Quezon City.14
On April 29, 1989, Adela and petitioner left for the United States.15 When petitioner returned to the Philippines,
she registered the sale over Lots 32 and 34 with the Registry of Deeds on September 25, 1989. TCT No. 19811
and TCT No. 19809 were then issued in the name of petitioner over Lots 32 and 34, respectively.16
On January 14, 1990, Adela died in the United States and was succeeded by her four children.17
Soon thereafter, petitioner sought to eject Annie and Carlos Sr., who were then staying on the Properties. Only
then did Annie and Carlos Sr. learn of the transfer of titles to petitioner. Thus, on July 9, 1990, Annie, Carlos Sr.
and Anselmo, represented by Annie, ("private respondents") filed a complaint for reconveyance of
property18 against petitioner before Branch 89 of the RTC of Quezon City. It was docketed as Civil Case No. Q-90-
6035 and titled "Annie S. Jalandoon, et al. v. Valentino. Clemente"19
In the course of the trial, private respondents discovered that Adela and petitioner executed another deed of
absolute sale20 over Lot 35-B on April 25, 1989 (collectively with the deed of absolute sale over Lots 32 and 34,
"Deeds of Absolute Sale"), bearing on its face the price of F60,000.00.21 This was notarized on the same date by
one Orancio Generoso in Manila, but it was registered with the Registry of Deeds only on October 5, 1990. 22 Thus,
private respondents amended their complaint to include Lot 35-B.23
In their amended complaint, private respondents sought nullification of the Deeds of Absolute Sale. They alleged
that Adela only wanted to help petitioner travel to the United States, by making it appear that petitioner has
ownership of the Properties. They further alleged that similar to the previous simulated transfers to Carlos Jr. and
Dennis, petitioner also undertook and warranted to execute a deed of reconveyance in favor of the deceased over
the Properties, if and when Adela should demand the same. They finally alleged that no consideration was given
by petitioner to Adela in exchange for the simulated conveyances. 24
On October 3, 1997, Carlos Sr. died and was substituted only by Dennis. 25 In an order dated June 18, 1999, the
case was dismissed with respect to Annie after she manifested her intention to withdraw as a party-
plaintiff.26 Anselmo Shotwell also died without any compulsory heir on September 7, 2000.
On February 26, 2001, the trial court promulgated a Decision27 in favor of private respondents. Its decretal
portion reads: cralawlawlibrary
WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Declaring null and void the Deeds of Absolute Sale both dated April 25, 1989 between the late Adela De
Guzman Shotwell and the defendant; ChanRoblesVirtualawlibrary
2. Ordering the cancellation of Transfer Certificates of Title Nos. 19809, 19811 and 26558, all of the
Registry of Deeds of Quezon City and in the name of defendant Valentina Clemente; and
3. Ordering the defendant to execute a Deed of Reconveyance in favor of the estate of the late Adela de
Guzman Shotwell over the three (3) subject lots, respectively covered by Transfer Certificates of Title
Nos. 19809, 19811 and 26558 of the Registry of Deeds of Quezon City;
With costs against defendant.
SO ORDERED.28 chanrobleslaw
On appeal, the CA affirmed with modification the Decision. The CA ruled that the Deeds of Absolute Sale were
simulated. It also ruled that the conveyances of the Properties to petitioner were made without consideration and
with no intention to have legal effect.29
The CA agreed with the trial court that the contemporaneous and subsequent acts of petitioner and her
grandmother are enough to render the conveyances null and void on the ground of being simulated. 30The CA
found that Adela retained and continued to exercise dominion over the Properties even after she executed the
conveyances to petitioner.31 By contrast, petitioner did not exercise control over the properties because she
continued to honor the decisions of Adela. The CA also affirmed the court a quo's finding that the conveyances
were not supported by any consideration.32
Petitioner filed a Motion for Reconsideration33 dated September 12, 2005 but this was denied by the CA in its
Resolution34 dated November 15, 2006.
Hence, this petition. The petition raises the principal issue of whether or not the CA erred in affirming the decision
of the trial court, that the Deeds of Absolute Sale between petitioner and her late grandmother over the
Properties are simulated and without consideration, and hence, void and inexistent. 35
Ruling of the Court
We deny the petition.
In a Petition for Review on Certiorari

under Rule 45, only questions of law
may be entertained.
Whether or not the CA erred in affirming the decision of the RTC that the Deeds of Absolute Sale between
petitioner and her late grandmother are simulated and without consideration, and hence, void and inexistent, is a
question of fact which is not within the province of a petition for review on certiorari under Rule 45 of the Revised
Rules of Court.
Section 1, Rule 45 of the Revised Rules of Court states that the petition filed shall raise only questions of law,
which must be distinctly set forth. We have explained the difference between a question of fact and a question of
law, to wit:
cralawlawlibrary
A question of law arises when there is doubt as to what the law is on a certain state of facts, while there is a
question of fact when the doubt arises as to the truth or falsity of the alleged facts. For a question to be one of
law, the same must not involve an examination of the probative value of the evidence presented by the litigants
or any of them. The resolution of the issue must rest solely on what the law provides on the given set of
circumstances. Once it is clear that the issue invites a review of the evidence presented, the question posed is
one of fact.36 chanrobleslaw
Most of the issues raised by petitioner are questions of fact that invite a review of the evidence presented by the
parties below. We have repeatedly ruled that the issue on the genuineness of a deed of sale is essentially a
question of fact.37 We are not a trier of facts and do not normally undertake the re-examination of the evidence
presented by the contending parties during the trial of the case.38 This is especially true where the trial court's
factual findings are adopted and affirmed by the CA as in the present case. 39 Factual findings of the trial court
affirmed by the CA are final and conclusive and may not be reviewed on appeal. 40 While it is true that there are
recognized exceptions41 to the general rule that only questions of law may be entertained in a Rule 45 petition,
we find that there is none obtaining in this case.
Nevertheless, and to erase any doubt on the correctness of the assailed ruling, we examined the records below
and have arrived at the same conclusion. Petitioner has not been able to show that the lower courts committed
error in appreciating the evidence of record.
The Deeds of Absolute Sale between

petitioner and the late Adela Shotwell
are null and void for lack of consent
and consideration.
While the Deeds of Absolute Sale appear to be valid on their face, the courts are not completely precluded to
consider evidence aliunde in determining the real intent of the parties. This is especially true when the validity of
the contracts was put in issue by one of the parties in his pleadings.42 Here, private respondents assail the validity
of the Deeds of Absolute Sale by alleging that they were simulated and lacked consideration.
A. Simulated contract
The Civil Code defines a contract as a meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service.43 Article 1318 provides that there is no contract
unless the following requisites concur: cralawlawlibrary
(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract; and
(3) Cause of the obligation which is established. chanroble slaw
All these elements must be present to constitute a valid contract; the absence of one renders the contract void.
As one of the essential elements, consent when wanting makes the contract non-existent. Consent is manifested
by the meeting of the offer and the acceptance of the thing and the cause, which are to constitute the
contract.44 A contract of sale is perfected at the moment there is a meeting of the minds upon the thing that is
the object of the contract, and upon the price.45
Here, there was no valid contract of sale between petitioner and Adela because their consent was absent. The
contract of sale was a mere simulation.
Simulation takes place when the parties do not really want the contract they have executed to produce the legal
effects expressed by its wordings.46 Article 1345 of the Civil Code provides that the simulation of a contract may
either be absolute or relative. The former takes place when the parties do not intend to be bound at all; the
latter, when the parties conceal their true agreement. The case of Heirs of Policronio M. Ureta, Sr. v. Heirs of
Liberate M. Ureta47 is instructive on the matter of absolute simulation of contracts, viz: cralawlawlibrary
In absolute simulation, there is a colorable contract but it has no substance as the parties have no intention
to be bound by it. The main characteristic of an absolute simulation is that the apparent contract is not really
desired or intended to produce legal effect or in any way alter the juridical situation of the parties. As a result,
an absolutely simulated or fictitious contract is void, and the parties may recover from each other what
they may have given under the contract...48 (Emphasis supplied) chanrobleslaw
In short, in absolute simulation there appears to be a valid contract but there is actually none because the
element of consent is lacking.49 This is so because the parties do not actually intend to be bound by the terms of
the contract.
In determining the true nature of a contract, the primary test is the intention of the parties. If the words of a
contract appear to contravene the evident intention of the parties, the latter shall prevail. Such intention is
determined not only from the express terms of their agreement, but also from the contemporaneous and
subsequent acts of the parties.50 This is especially true in a claim of absolute simulation where a colorable
contract is executed.
In ruling that the Deeds of Absolute Sale were absolutely simulated, the lower courts considered the totality of
the prior, contemporaneous and subsequent acts of the parties. The following circumstances led the RTC and the
CA to conclude that the Deeds of Absolute Sale are simulated, and that the transfers were never intended to
affect the juridical relation of the parties: chanRoble svirtualLawlibrary
a) There was no indication that Adela intended to alienate her properties in favor of petitioner. In fact, the letter
of Adela to Dennis dated April 18, 198951 reveals that she has reserved the ownership of the Properties in favor of
Dennis.
b) Adela continued exercising acts of dominion and control over the properties, even after the execution of the
Deeds of Absolute Sale, and though she lived abroad for a time. In Adela's letter dated August 25, 1989 52 to a
certain Candy, she advised the latter to stay in the big house. Also, in petitioner's letter to her cousin Dennis
dated July 3, 1989,53 she admitted that Adela continued to be in charge of the Properties; that she has no "say"
when it comes to the Properties; that she does not intend to claim exclusive ownership of Lot 35-B; and that she
is aware that the ownership and control of the Properties are intended to be consolidated in Dennis.
c) The SPA executed on the same day as the Deeds of Absolute Sale appointing petitioner as administratrix of
Adela's properties, including the Properties, is repugnant to petitioner's claim that the ownership of the same had
been transferred to her.
d) The previous sales of the Properties to Dennis and Carlos, Jr. were simulated. This history, coupled with Adela's
treatment of petitioner, and the surrounding circumstances of the sales, strongly show that Adela only granted
petitioner the same favor she had granted to Dennis and Carlos Jr.
The April 18, 1989 letter to Dennis convincingly shows Adela's intention to give him the Properties. Part of the
letter reads: "Dennis, the two lot [sic] 32-34 at your said lower house will be at name yours [sic] plus the 35 part
of Cora or Teens [sic] house are all under your name"54 Petitioner claims this letter was not properly identified
and is thus, hearsay evidence. The records, however, show that the letter was admitted by the trial court in its
Order dated February 24, 1993.55 While it is true that the letter is dated prior (or six days before to be exact) to
the execution of the Deeds of Absolute Sale and is not conclusive that Adela did not change her mind, we find
that the language of the letter is more consistent with the other pieces of evidence that show Adela never
intended to relinquish ownership of the Properties to petitioner. In this regard, we see no compelling reason to
depart from the findings of the trial court as there appears no grave abuse of discretion in its admission and
consideration of the letter.
Petitioner's letter to her cousin Dennis dated July 3, 1989 also sufficiently establishes that Adela retained control
over the Properties, even after the execution of the Deeds of Absolute Sale. Petitioner herself admitted that she
was only following the orders of Adela, and that she has no claim over the Properties. We quote in verbatim the
relevant part of the letter:
cralawla wlibrary
...Now, before I left going back here in Mla. Mommy Dela ask me to read your letter about the big house and
lot, and I explained it to her. Now Mommy and Mommy Dela wants that the house is for everyone who will need
to stay, well that is what they say. Alam mo naman, I have no "say" esp. when it comes with properties &
you know that. Now kung ano gusto nila that goes. Now, to be honest Mommy was surprise [sic] bakit daw
kailangan mawalan ng karapatan sa bahay eh Nanay daw nila iyon at tayo apo lang, Eh wala akong masasabi
dyan, to be truthful to you, I only get the orders... Tapos, sinisingil pa ako ng P1,000 --para sa gate
napinapagawa nya sa lot 35-B, eh hindi na lang ako kiimibo pero nagdamdam ako, imagine minsan na lang sya
nakagawa ng bien sa akin at wala sa intention ko na suluhin ang 35-B, ganyan pa sya... Now tungkol sa iyo,
alam ko meron ka rin lupa tapos yung bahay na malaki ikaw rin ang titira at magmamahala sa lahat.
Anyway, itong bahay ko sa iyo rin, alam mo naman na I'm just making the kids grow a little older then we
have to home in the states...56 (Emphasis supplied)
chanrobleslaw
Moreover, Adela's letter to petitioner's cousin Candy dated August 25, 1989 shows Adela's retention of dominion
over the Properties even after the sales. In the letter, Adela even requested her granddaughter Candy to stay in
the house rent and expense free.57 Petitioner claims that Candy and the house referred to in the letter were not
identified. Records show, however, that petitioner has testified she has a cousin named Candy Shotwell who
stayed at the "big house" since February 1989.58
Clearly, the submission of petitioner to the orders of Adela does not only show that the latter retained dominion
over the Properties, but also that petitioner did not exercise acts of ownership over it. If at all, her actions only
affirm the conclusion that she was merely an administratrix of the Properties by virtue of the SPA.
On the SPA, petitioner claims the lower courts erred in holding that it is inconsistent with her claim of ownership.
Petitioner claims that she has sufficiently explained that the SPA is not for the administration of the Properties,
but for the reconstitution of their titles.
We agree with the lower courts that the execution of an SPA for the administration of the Properties, on the same
day the Deeds of Absolute Sale were executed, is antithetical to the relinquishment of ownership. The SPA shows
that it is so worded as to leave no doubt that Adela is appointing petitioner as the administratrix of her properties
in Scout Ojeda. Had the SPA been intended only to facilitate the processing of the reconstitution of the titles,
there would have been no need to confer other powers of administration, such as the collection of debts, filing of
suit, etc., to petitioner.59 In any case, the explanation given by petitioner that the SPA was executed so as only to
facilitate the reconstitution of the titles of the Properties is not inconsistent with the idea of her being the
administratrix of the Properties. On the other hand, the idea of assigning her as administratrix is not only
inconsistent, but also repugnant, to the intention of selling and relinquishing ownership of the Properties.
Petitioner next questions the lower courts' findings that the Deeds of Absolute Sale are simulated because the
previous transfers to Adela's other grandchildren were also simulated. It may be true that, taken by itself, the
fact that Adela had previously feigned the transfer of ownership of Lots 32 and 34 to her other grandchildren
would not automatically mean that the subject Deeds of Absolute Sale are likewise void. The lower courts,
however, did not rely solely on this fact, but considered it with the rest of the evidence, the totality of which
reveals that Adela's intention was merely to feign the transfer to petitioner.
The fact that unlike in the case of Dennis and Carlos, Jr., she was not asked by Adela to execute a deed of
reconveyance, is of no moment. There was a considerable lapse of time from the moment of the transfer to
Dennis and Carlos, Jr. of Lots 32 and 34 in 1985 and in 1987, respectively, and until the execution of the deed of
reconveyance in 1989. Here, the alleged Deeds of Absolute Sale were executed in April 1989. Adela died in
January 1990 in the United States. Given the short period of time between the alleged execution of the Deeds of
Absolute Sale and the sudden demise of Adela, the fact that petitioner was not asked to execute a deed of
reconveyance is understandable. This is because there was no chance at all to do so. Thus, the fact that she did
not execute a deed of reconveyance does not help her case.
We affirm the conclusion reached by the RTC and the CA that the evidence presented below prove that Adela did
not intend to alienate the Properties in favor of petitioner, and that the transfers were merely a sham to
accommodate petitioner in her travel abroad.
Petitioner claims that we should consider that there is only one heir of the late Adela who is contesting the sale,
and that out of the many transactions involving the decedent's other properties, the sale to petitioner is the only
one being questioned. We are not convinced that these are material to the resolution of the case. As aptly passed
upon by the CA in its assailed Resolution: cralawla wlibrary
In a contest for the declaration of nullity of an instrument for being simulated, the number of contestants is not
determinative of the propriety of the cause. Any person who is prejudiced by a simulated contract may set
up its inexistence. In this instant case, it does not matter if the contest is made by one, some or all of the
heirs.
Neither would the existence of other contracts which remain unquestioned deter an action for the nullity of an
instrument. A contract is rendered meaningful and forceful by the intention of the parties relative thereto, and
such intention can only be relevant to that particular contract which is produced or, as in this case, to that which
is not produced. That the deed of sale in [petitioner's] favor has been held to be simulated is not indicative of the
simulation of any other contract executed by the deceased Adela de Guzman Shotwell during her lifetime. 60 chanrobleslaw
To this we add that other alleged transactions made by Adela cannot be used as evidence to prove the validity of
the conveyances to petitioner. For one, we are not aware of any of these transactions or whether there are indeed
other transactions. More importantly, the validity of these transactions does not prove directly or indirectly the
validity of the conveyances in question.
B. No consideration for the sale
We also find no compelling reason to depart from the court a quo's finding that Adela never received the
consideration stipulated in the simulated Deeds of Absolute Sale.
Although on their face, the Deeds of Absolute Sale appear to be supported by valuable consideration, the RTC and
the CA found that there was no money involved in the sale. The consideration in the Deeds of Absolute Sale was
superimposed on the spaces therein, bearing a font type different from that used in the rest of the
document.61 The lower courts also found that the duplicate originals of the Deeds of Absolute Sale bear a different
entry with regard to the price.62
Article 1471 of the Civil Code provides that "if the price is simulated, the sale is void." Where a deed of sale
states that the purchase price has been paid but in fact has never been paid, the deed of sale is null and void for
lack of consideration.63 Thus, although the contracts state that the purchase price of P250,000.00 and P60,000.00
were paid by petitioner to Adela for the Properties, the evidence shows that the contrary is true, because no
money changed hands. Apart from her testimony, petitioner did not present proof that she paid for the
Properties.
There is no implied trust.
We also affirm the CA's deletion of the pronouncement of the trial court as to the existence of an implied trust.
The trial court found that a resulting trust, a form of implied trust based on Article 1453 64 of the Civil Code, was
created between Adela and petitioner.
Resulting trusts65 arise from the nature or circumstances of the consideration involved in a transaction whereby
one person becomes invested with legal title but is obligated in equity to hold his title for the benefit of
another.66 It is founded on the equitable doctrine that valuable consideration and not legal title is determinative of
equitable title or interest and is always presumed to have been contemplated by the parties. 67 Since the intent is
not expressed in the instrument or deed of conveyance, it is to be found in the nature of the parties'
transaction.68 Resulting trusts are thus describable as intention-enforcing trusts.69 An example of a resulting trust
is Article 1453 of the Civil Code.
We, however, agree with the CA that no implied trust can be generated by the simulated transfers because being
fictitious or simulated, the transfers were null and void ab initio from the very beginning and thus vested no
rights whatsoever in favor of petitioner. That which is inexistent cannot give life to anything at all. 70
Article 1453 contemplates that legal titles were validly vested in petitioner. Considering, however, that the sales
lack not only the element of consent for being absolutely simulated, but also the element of consideration, these
transactions are void and inexistent and produce no effect. Being null and void from the beginning, no transfer of
title, both legal and beneficial, was ever effected to petitioner.
In any case, regardless of the presence of an implied trust, this will not affect the disposition of the case. As void
contracts do not produce any effect, the result will be the same in that the Properties will be reeonveyed to the
estate of the late Adela de Guzman Shotwell.
WHEREFORE, the petition is DENIED.,

G.R. No. L-40258 September 11, 1980
LIM YHI LUYA, petitioner,
vs.
COURT OF APPEALS and HIND SUGAR COMPANY respondents.
GUERRERO, J.:
This is a Petition for Review by way of certiorari of the Decision of the Court of Appeals in CA-G.R. No.
51546-R entitled Lim Yhi Luya, Plaintiff-Appellee, versus Hind Sugar Company, Defendant-
Appellant, which reversed and modified the decision of the Court of First Instance of Pangasinan in
favor of the plaintiff-appellee, now the herein petitioner.
The antecedent facts may be stated as follows:
Petitioner Lim Yhi Luya is a businessman, resident of Lingayen, Pangasinan where he operates a
grocery store, hardware store and gasoline station. Private respondent Hind Sugar Company is
engaged in the manufacturing and marketing of sugar, its principal office located in Manaoag,
Pangasinan. Vice President and General Manager of respondent company is Atty. Emiliano Abalos.
His assistant is Generoso Bongato, while the cashier and accountant of the company is Teodoro
Garcia.
Petitioner and private respondent since 1958 have had business dealings with each other, the
company selling sugar to the petitioner and the latter has been supplying the company with diesoline,
gasoline, muriatic acid, sulfuric acid, other supplies and materials ordered on credit. On November 12,
1970, petitioner received a telegram from Manager Abalos in the following tenor: "Please come
tomorrow morning without fail." (Exh. "B"). The following day, November 13, 1970, petitioner
proceeded to the company and in the office of Manager Abalos, the latter offered to sell sugar at
P37.00 per picul. The parties agreed to the purchase of 4,085 piculs of sugar at P35.00 per picul. The
specific terms of the contract are shown in Exhibit "a" as follows:
CONTRACT OF SALE OF SUGAR
Seller : Hind Sugar Company
Manaoag, Pangasinan
Buyer : Lim Yhi Luya
Lingayen, Pangasinan
Quantity: Four Thousand Eighty-Five (4,085)
piculs of Hind-2 sugar, 1969-70 crop
Price : Thirty Five (?35.00) Pesos per
picul, f.o.b. Manaoag
Terms : Cash upon signing of this contract.
Manaoag, Pangasina, Nov. 13, 1970.
On the same day, November 13, 1970, in compliance with the contract, four delivery orders (Nos.
3054, 3055, 3056, and 3057) were issued to petitioner by cashier Garcia upon instructions of Manager
Abalos covering the total quantity of sugar sold, 4,085 piculs. Between November 13, 1970 to January
27, 1971, petitioner withdrew from the company warehouse in varying quantities a total amount of
3,735 piculs under substitute delivery orders, leaving a balance of 350 piculs undelivered.
On January 22, 1971, the question of payment cropped out between the parties. Petitioner claimed
that he had paid P142,975.00 to the company officials, Cashier Garcia and Manager Abalos on
November 13. 1970 and as proof of his payment, he referred to the contract Exhibit "A", particularly to
the stipulation stating "Terms: Cash upon sing of this contract." Respondent company officials denied
the claim of the petitioner, alleging that petitioner never paid for the sugar on November 13, 1970 or at
any time thereafter. An audit report or examination of the books of the company made by External
Auditor Victorino Daroya showed no payment by petitioner.
On May 17, 1971, petitioner, as plaintiff below, filed the complaint against the defendant Hind Sugar
Company, now the herein respondent, in Civil Case No. 14873 before the Court of First Instance of
Pangasinan on six (6) causes of action, alleging
On his First Cause of Action: That defendant- appellant has unreasonably, unlawfully
and maliciously refused and failed to deliver to him 350 piculs of the sugar he bought
from it under their contract (Exh. "A") with a value of P12,250.00 altho the has
already paid the full price thereof;
On his Second Cause of Action: That defendant-appellant has unreasonably, unlawfully and
maliciously refused and failed to deliver to him 1,000 piculs of export sugar altho he has deposited to
the account of the defendant-appellant the price thereof in the amount of P55,000.00 which the latter
has already withdrawn, the agreed period of delivery which was January 27, 1971 having expired.
On his Third Cause of Action: That defendant- appellant has refused, despite repeated demands, to
release to him 160 piculs of Hind-3 sugar valued at P6,400.00, which he has already paid;
On his Fourth Cause of Action: That despite his demands that defendant-appellant liquidate and pay
its indebtedness to him in the amount of P60,602.30 for supplies of diesolene, gasoline, muriatic acid,
sulfuric acid and other materials needed by it, exclusive of interest and attorney's fees, which were
payable within 30 days from date of delivery, the defendant-appellant has refused to settle with him;
On his Fifth Cause of Action: That defendant- appellant's willful, unjust, unreasonable, malicious and
fraudulent refusal to pay its just obligations has caused him mental anguish, serious anxiety, wounded
feelings, moral shock, social humiliation and similar injuries, entitling him to P50,000 in moral
compensatory and exemplary damages, and on
The Sixth Cause of Action: That he be paid the sum of P50,000 for attoney's fees and expenses of
litigation.
Answering the complaint, defendant-appellant alleges that
On the First Cause of Action: The contract marked as Exhibit "A" was duly executed but it stopped
delivery of the last 350 piculs of sugar under said contract when plaintiff-appellee who has not paid any
amount not even for the sugar already withdrawn by him, refused, inspite of demands, to pay the
consideration mentioned in the contract claiming that he had already paid the full price stipulated
therein. For this, parties had agreed to suspend further delivery of sugar under the contract until
plaintiff-appellee could prove payment;
On the Second Cause of Action: Altho plaintiff- appellee has deposited P55,000 on January 20, 1971
for export sugar, in view of the occurrence of a controversy between the parties regarding the
implementation of the Contract Exhibit "A", both parties came to the understanding that no delivery
would be made until the question of payment of the 4,085 piculs of sugar mentioned in said contract
shall have been satisfactorily settled between them.
On the Third Cause of Action: The 160 piculs of Hind- 3 sugar referred to here is the remaining portion
of 1,313 piculs purchased by plaintiff-appellee on June 3, 1970, and the unclaimed sugar was always
ready for delivery but plaintiff-appellee preferred withdrawing from the 4,085 piculs covered by the
contract Exhibit "A" instead.
On the Fourth Cause of Action: Plaintiff-appellee has in truth delivered supplies to defendant-appellant
but the invoices mentioned in the complaint are not the same as the original delivery receipts signed
by defendant- appellant's employee when supplies were received, and the figures contained therein
are inaccurate. Moreover, such supplies were never payable on a 30-day-from-delivery term, but the
standing practice was to off-set their value against the costs of sugar purchased by plaintiff-appellee,
and
On the Fifth and Sixth Causes of Action: Defendant-appellant denies the averments therein and
alleges that the answers to such causes of action are fully covered by its answers to the first four
causes of action.
By way of Counterclaim, defendant-appellant prays that from the unpaid cost of the 3,085 piculs of
sugar contracted and practically all taken by plaintiff-appellee amounting to P142,975.00, the value of
the materials supplied amounting to P59,500.00, the P55,000.00 deposited to its account on January
20, 1971, and the amount of P6,080.00 representing the value of the 350 piculs of sugar unclaimed by
plaintiff- appellee, after it was reprocessed- or a total of P132,830.30 be off-set, and the balance in
the amount of P10,144.70 in its favor be paid to it, and that plaintiff-appellee be required to pay, in
addition thereto, another sum of P10,000.00 for and as attorney's fees and costs of litigation." 1
Answering the Counterclaim, plaintiff-appellee denied for being false and untrue the material
allegations of paragraphs 1, 2, 3, 4, 5 and 6 of the Counterclaim and as special defenses, he alleges:
(1) that defendant's counterclaim states no cause of action; and (2) that the complaint was filed by
plaintiff because defendant has acted in gross and evident bad faith in refusing to satisfy plaintiff's
plainly valid, just and demandable claim. At the pre-trial conference, the parties submitted a partial
stipulation of facts reproduced as follows:
COMES NOW the parties in the above-entitled case, through counsel and
respectfully submit the following Partial Stipulation of Facts and statement of the
issues:
1. Plaintiff is of legal age, with capacity to sue and be sued and is a resident of Lingayen, Pangasinan
whereas defendant is a corporation duly organized and existing in accordance with the laws of the
Philippines likewise with capacity to sue and to be sued;
2. Defendant admits having executed on November 13, 1970 a Contract of Sale for 4,085 piculs of
Hind-2 sugar, a xerox copy of which is attached to this Partial Stipulation of Facts and marked as
Annex "1". The signature appearing in Annex "1" hereof above the typewritten name Emiliano L.
Abalos is that of the Vice President and General Manager of defendant Hind Sugar Company, Mr.
Emiliano L. Abalos and the signature appearing above the typewritten name Lim Yhi Luya appearing in
Annex "1" hereof is that of the plaintiff herein;
3. On November 13, 1970, upon execution of the Contract of Sale marked as Annex "I" hereof,
defendant delivered and issued to plaintiff four (4) delivery orders Nos. 3054, 3055, 3056 and 3057
marked respectively as Annexes "1", "2", "3" and "4" of defendant's Answer and attached to this Partial
Stipulation of Facts as Annexes "2", "13", "4" and "5" hereof;
4. That on various occasions, the latest on January 23, 1971, the defendant delivered to the plaintiff on
account of the contract, Annex "1" hereof and by virtue of the delivery orders issued by the defendant
at the request of the plaintiff in substitution of the delivery orders marked as Annexes "2", "3", "4" and
"5", the substitute delivery orders hereto attached and marked as Annexes "6" to "110" inclusive
(summarized herein under Annexes "111" to "114" inclusive), showing a total of 3,735 piculs of sugar
already delivered and leaving a balance still undelivered by the defendant to the plaintiff of 350 piculs
of Hind-2 sugar, covered by Delivery Orders Nos. 3252, 3254, 3255, 3256, 3257, 3258, 3259, 3260,
3230, 3232, and 3233, marked as Annexes "115" to "125", inclusive;
5. That the plaintiff deposited with the Consolidated Bank and Trust Corporation, Dagupan City
Branch, in the name of the Hind Sugar Company, the sum of FIFTY FIVE THOUSAND PESOS
(P55,000.00) on January 20, 1971;
6. That defendant issued to plaintiff a provisional receipt dated January 27, 1971 for said amount of
P55,000.00 (FIFTY FIVE THOUSAND PESOS), copy of which is hereto attached as Annex 126";
7. That on June 3, 1970, the defendant sold to the plaintiff 1,313 piculs of sugar at the rate of P40.00
per picul of H-2 sugar and P38.00 per picul of H-3 sugar, which plaintiff has fully paid per cash debit
hereto attached as Annex "127", of which 160 piculs of H-3 sugar remain undelivered by the defendant
to plaintiff;
8. That the plaintiff supplied the defendant with diesoline, gasoline, muriatic acid, sulphuric acid and
other supplies and materials ordered by defendant from plaintiff on credit;
9. The plaintiff delivered to defendant on credit for the month of January, 197 1, supplies and materials
in the amount of Pl 3,988.20 under invoices Nos. 6327, 6329, 6330, 6331, 6332, 6333 and 6334,
marked as Annexes "128" to "134" inclusive;
10. The plaintiff delivered to defendant on credit for the month of February, 1971, supplies and
materials in the amount of P23,455.10;
11. That in the month of March, 1971, plaintiff delivered to the defendant on credit supplies and
materials worth P18,051.00;
12. That in the month of April, 1971, the plaintiff, delivered to defendant on credit, supplies and
materials worth P5,098.00; 13. The parties submit that the issues to be threshed out between the
parties at the trial of this case are the following:
(a) As to the first cause of action, the remaining issue is whether or not plaintiffs has
paid to defendant the sum of P142,975.00 which is the purchase price of the 4,085
piculs of sugar subject to the contract of sale marked as Annex "I" hereof;
(b) On the second cause of action, the issue is whether or not the plaintiff is entitled
to the delivery by the defendant of 1,000 piculs of export sugar by virtue of the
deposit on January 20, 1971 of the amount of P55,000.00;
(c) On the third cause of action, issue is whether or not plaintiff is entitled to delivery
by defendant of 160 piculs of Hind-3 sugar sold by defendant to plaintiff on June
3,1970;
(d) On the fourth cause of action, the issue are (1) what business practice or
practices if any were observed by the plaintiff and the defendant in their business
dealings relative to the purchase of supplies and materials by the defendant from the
plaintiff on credit; (2) what is the total amount due, if any, from the defendant to the
plaintiff for supplies and materials delivered by plaintiff to defendant on credit; (3)
whether the supplies and materials delivered by plaintiff to defendant were payable
within thirty (30) days from date of delivery and overdue account to earn interests at
the rate of 12% per annum an additional amount equivalent to 25% of the amount or
value of the good in litigation as attorney's fees;
(e) On the sixth cause of action, whether or not plaintiff is entitled to attorney's fees
and expenses of litigation;
(g) Whether defendant is entitled or not to any set off;
(h) Whether defendant is entitled to attorney's fees.
14. The parties hereby reserve the right to present evidence on all other matters not herein stipulated.
The trial Court has correctly surmised that the principal issue in this case is whether or not the plaintiff-
appellee has paid the sum of P142,975.00 which is the purchase price of the 4,085 piculs of sugar
covered by the contract of sale (Exhibit "A") between the parties. This Contract reads as follows:
CONTRACT OF SALE OF SUGAR
(HIND-2) 1969-70
SELLER : HIND SUGAR COMPANY
Manaoag, Pangasinan.
BUYER : LIM YHI LUYA
Lingayen, Pangasinan
QUANTITY : Four Thousand Eighty Five
(4,085) (Piculs of HIND-2
Sugar, 1969-70 Crop).
PRICE : Thirty Five (P35.00) PESOS per
picul F.O.B., Manaoag
TERMS : Cash upon signing of this
Contract
Manaoag, Pangasinan, November 13,1970
HIND SUGAR COMPANY
By:
(SGD.) EMILIANO L. ABALOS (SGD.) LIM YHI LUYA
Vice President & Gen. Mgr. (Buyer)
(Seller)
Plaintiff-appellee claimed during the trial that he has paid the said amount and when pressed to show
his receipt of payment, he points to that portion of the contract which reads: "Terms: Cash upon
signing of this Contract" as his receipt and evidence of payment. On the other hand, defendant-
appellant maintained that plaintiff-appellee has not paid anything on the contract and the contract does
not prove payment but merely created plaintiff-appellee's obligation to pay. 2
After trial, the Court of First Instance of Pangasinan rendered judgment, the dispositive portion of
which reads:
WHEREFORE, this Court renders judgment as follows:
(1) On he first cause of action, ordering the defendant to immediately deliver to plaintiff the 350 piculs
of H-2 sugar or to pay plaintiff the sum of P12,250,00 plus legal rate of interest from November 13,
1970, until fully paid, giving unto the plaintiff the option to choose whether to receive the sugar or to
receive the payment corresponding to the same;
(2) On the second cause of action, ordering the defendant to deliver immediately to the plaintiff the
1,000 piculs of export sugar or to pay the plaintiff the sum of P55,000.00 with legal rate of interest from
January 20, 1971, but giving the option or choice to the plaintiff;
(3) With respect to the third cause of action, ordering the defendant to deliver to the plaintiff the 160
piculs of H-3 sugar or to pay to plaintiff the sum of P6,400.00 with legal rate of interest from June 3,
1970 but with the option again belonging to the plaintiff;
(4) On the fourth cause of action, ordering the defendant to pay to the plaintiff the sum of P60,592.30
with interest at 12% per annum from the filing of the complaint and to pay attorney's fees of 25% of the
principal obligation, that is, the sum of P15,148.08;
(5) On the fifth and sixth causes of action, ordering the defendant to pay to the plaintiff the sum of
P25,000.00 as damages and to pay another sum of P15,000.00 as attorney's fees, the said fees
referring to the first, second and third causes of action; and
(6) Lastly, ordering the defendant to pay the costs of suit.
SO ORDERED.
Defendant Hind Sugar Company appealed to the Court of Appeals. The appellate court rendered the
following judgment, thus
WHEREFORE, judgment is hereby rendered
(1) ordering plaintiff-appellee to pay defendant- appellant the sum of P130,725.00 which is the price of
3,735 piculs of sugar, at P35 a picul, which plaintiff has withdrawn and received as a result of the
contract of sale Exhibit "A", and cancelling the obligation of defendant-appellant to deliver the
remaining 350 piculs called for in said contract for failure of plaintiff-appellee to pay for the same;
(2) finding the defendant-appellant liable to return to plaintiff-appellee the latter's deposit of
P55,000.00;
(3) finding the defendant-appellant liable to pay plaintiff-appellee the sum of P6,040.00 which was
realized from reprocessing the 160 piculs of sugar paid for but intentionally not claimed by plaintiff-
appellee;
(4) finding the defendant-appellant liable to plaintiff-appellee for the sum of P60,592.30 for materials
and supplies which the latter supplied to it for the months of January, February, March, and April 1971.
Provided, however, that the plaintiff-appellee may deduct the said amounts of P55,000.00, P6,080.00
and P60,592.30, totalling P121,672.30 in all, from his total obligation of P130,725.00 to the defendant-
appellant, paying the latter in cash only the remaining balance of P9,052.70; and
(5) ordering the plaintiff-appellee to pay defendant-appellant the further amount of P10,000.00 for and
as attorney's fees.
With costs against plaintiff-appellee.
SO ORDERED.
Plaintiff-appellee, now the herein petitioner, having filed a Motion for Reconsideration
but denied by the respondent Court of Appeals, he now comes before Us with the
instant Petition for Review of the decision.
In reversing the judgment of the lower court on the first cause of action, the Court of Appeals said:
Plaintiff-appellee claimed during the trial that he has paid the said amount and when
pressed to show his receipt of payment, he points to that portion of the contract which
reads: "Terms: Cash upon signing of this Contract" as his receipt and evidence of
payment. On the other hand, defendant-appellant maintained that plaintiff- appellee
has not paid anything on the contract and the contract does not prove payment but
merely created plaintiff-appellee's obligation to pay.
'We agree with defendant-appellant. The contract in its entirety proves no more than that there has
been a meeting of the minds of the parties. The signing perfected the contract but did not ex propio
vigore consummate it. It gave the parties the right to demand reciprocally the performance of the
obligations assumed by each. The vendor assumed to deliver the amount of sugar sold while the
vendee which is the plaintiff-appellee was to pay the contracted price upon the signing of the contract.
The questioned portion of the contract does not say, and is not therefore an evidence that plaintiff-
appellee has paid or has performed his obligation to pay. Stated in another way, the provision of the
Contract in question means that the payment of P142,975.00 IS TO FOLLOW or IS TO BE MADE (and
NOT WAS MADE) upon the signing of said contract".
The appellate court further declared that it cannot believe as true facts the testimony of the petitioner
that he paid the sum of P142,975.000 around 1:30 o'clock in the afternoon of November 13, 1970 to
Emiliano Abalos and Teodoro Garcia, in cash because he was asked to pay in cash, and the evidence
of his payment was the contract (Exhibit "A") itself because the respondent company did not want to
issue a separate receipt for his payment as the sugar sold belonged not to it but to ARCA.
The court said that there is no reason for Emiliano Abalos to deny petitioner's claim of payment if that
was really made, pointing to the evidence of close relationship between the parties which show that
Emiliano Abalos went all the way to accommodate the petitioner by modifying the contract, changing
the condition or mode of payment provided in Exhibit "A" even without changing the written contract
itself. It would have been an affront on their friendship had Emiliano Abalos followed the suggestions of
the trial court (that Abalos should have demanded that the contract be corrected in such a way that it
does not appear that the 4,085 piculs of sugar was not really paid for or he should have put a note on
the two copies of the contract that the 4,085 piculs of sugar were not then paid), the appellate court
reasoned out.
And according to the court, the explanation of Abalos in allowing or agreeing to release the delivery
orders covering the 4,085 piculs of sugar sold even without payment by the petitioner (which
explanation is not even pointed out or intimated in the decision) 'is a rational and very probable one.
After holding that the claim of petitioner that he paid the P142,975.00 wholly in cash is improbable; that
it, is simply not the way with businessmen because modern business moves on credit and checks; that
it is unthinkable to a businessman to keep so, much money in his possession when petitioner banks
with several banking houses in Lingayen and Dagupan City and has always paid mostly in checks in
previous and subsequent transactions, the court resolved, "We seriously doubt that as a successful
businessman he will ever disregard sound business practice of keeping his cash in the bank,
especially that, according to him it was not his money but one he has received in trust and for a certain
A. Chang Trading in Makati."
Petitioner contends that the appellate court erred, first in holding that the contract of sale of sugar
executed by and between petitioner and respondent is not evidence that payment of the sugar had
been made by the petitioner to respondent upon the signing of said contract; the Court of Appeals
likewise erred in holding that it was incumbent upon the petitioner to produce a receipt' signed by
respondent to prove that payment of the sugar covered by the contract of sale had in fact been made
by petitioner to respondent; it erred in not holding that petitioner had already fully paid the respondent
the sugar bought; and second, in reversing the decision of the trial court and in not affirming the same.
The first error may be resolved by tile rules on the interpretation of contracts, and the second on the
basis of whether the general rule, that findings of the appellate tribunal are binding and must be
respected by Us must govern the case at bar or the well-established exceptions to said rule.
At this juncture, it is well to lay down cardinal rules in the interpretation of contracts as provided in the
New Civil Code, thus
Art. 1370. If the terms of a contract are Clear and leave no doubt upon the intention
of the contracting parties. the literal meaning of its stipulation shall control.
If the words appear to be contrary to the evident intention of the parties, the latter
shall prevail over the former.
Art. 1371. In order to judge the intention. Of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.
Art. 1375. Words which may have different significations shall be understood in that
which is most in keeping with the nature and object of the contract.
Art. 1377. The interpretation of obscure words or stipulations in a contract shall not
favor the party who caused the obscurity.
According to the trial court, "(t)here is no question that the contract was signed on November 13, 1970,
in the office of the Hind Sugar Company at Manaoag, Pangasinan. The contract itself is so clear and
explicit that it cast no doubt as to its meaning. "Cash upon signing of this contract meaning to say, that
once the contract was signed, the payment of the 4.085 piculs of sugar which is P142,975.00 was
made. After the said contract was signed and as sustained by the plaintiff, he has already delivered the
P142,975.00 in cash to the cashier of the defendan't, the said plaintiff was given all the delivery orders
covering the 4,085 piculs of sugar sold and by the giving of the delivery orders to the plaintiff, the latter
was entitled to withdraw all the 4,085 piculs sugar from the company's warehouse" This is also the
stand of the petition.
Contrari-wise, the appellate court castigates the "ex cathedra pronouncement of the trial court that the
words 'Terms: Cash upon the signing of this contract' means that payment was made and the contract
itself is the receipt evidencing payment", as not based on proven facts, adding further that the trial
court "has taken the dubious, weak, unreliable and improbable statements of plaintiff-appellee for true,
or for granted, and in so doing the trial court has fallen wittingly or unwittingly into the error of begging
the question (petitio principii)." in other words, respondent company's interpretation of the contract was
upheld.
Considering the admitted fact that the contract of sale (Exhibit "A") was prepared in the office of
respondent company by Generoso Bongato, Assistant to the Manager of the company, upon
instruction of General Manager Emiliano L. Abalos who is a lawyer, and We are now confronted with
the varying or conflicting interpretations of the parties thereto, the respondent company contending
that the stipulation "Terms: Cash upon signing of this contract" does not mean that the agreement was
a cash transaction because no money was paid by the petitioner at the time of the signing thereof,
whereas the petitioner insists that it was a cash transaction inasmuch as he paid cash amounting to
P142,975.00 upon the signing of the contract, the payment having been made at around 1:30 in the
afternoon of November 13, 1970 to the cashier, Teodoro Garcia, and Manager Abalos although the
sale was agreed to in the morning of the same day, November 13, 1970, the conflicting interpretations
have shrouded the stipulation with ambiguity or vagueness. Then, the cardinal rule should and must
apply, which is that the interpretation shall not favor the party who caused the ambiguity (Art. 1377,
New Civil Code). We rule that in the instant case, the interpretation to be taken shall not favor the
respondent company since it is the party who caused the ambiguity in its preparation.
We do not agree with the meaning of the provision in the contract ascribed by the respondent court in
its decision that: "Stated in another way, the provision of the Contract in question means that the
payment of the P142,975.00 IS TO FOLLOW or IS TO BE MADE (and NOT WAS MADE) upon the
signing of said contract." As already drafted or drawn up, complete and finalized with all the signatures
thereon of the contracting parties and presented in court as Exhibit "A" without any change whatsoever
in the mode of payment, such provision plainly and simply means that the payment was in CASH, and
not on CREDIT. The ambiguity raised by the use of the words or phrases in the questioned provision
must be resolved and interpreted against the respondent company.
In truth the stipulation in the contract which reads: "Terms: Cash upon signing of this contract" is very
clear and simple in its meaning, leaving no doubt in Our minds upon the intention of the contracting
parties, hence, the first rule of contract interpretation that the literal meaning of its stipulation shall
control, is the governing rule at hand. Resorting to Webster's Third New International Dictionary, p.
2515, for the definition of the word "upon" which literally means, among others, "10a (1): immediately
following on; very soon after; ... b: on the occasion of at the time of; ... " the clear import of the
stipulation is that payment was made on the occasion of or at the time of the signing of the contract
and not that payment will follow the signing. We must adopt the former meaning because it is such an
interpretation that would most adequately render the contract effectual, following Article 1373 of the
New Civil Code which provides:
Art. 1373. If some stipulation of any contract should admit of several meanings, it
shall be understood as bearing that import which is most adequate to render it
effectua.
The evidence for the petitioner establishes that after paying the cash consideration to Cashier Garcia
and Manager Abalos, the parties signed the contract and thereafter a signed copy of said contract was
given to petitioner and also the four (4) delivery orders covering the 4,085 piculs of sugar sold. The
questioned stipulation recites exactly the act of payment which is the paying of the money on the
occasion of or at the time of the signing. Respondent would have Us believe that the stipulation does
not mean what it conveys because petitioner has not paid cash after the signing of the contract nor at
any time thereafter. We cannot agree with the respondent for otherwise the sanctity of the written
contract can easily be violated and impugned, for otherwise oral testimony would prevail over a written
document to vary, alter or modify the written terms, and most importantly, respondent's interpretation
would render the stipulation ineffectual as a mere agreement.
Petitioner claims that Exh. "A" is the receipt of his payment of the P142,975.00 cash upon the signing
of the contract. Respondent, on the other hand, insists that it is not a written acknowledgement or
written admission of having received the sum of P142,975.00 and may not be considered a receipt for
any purpose (Brief for the Respondent, p. 34), although he fully agrees with the proposition that any
written acknowledgement or written admission of anything received is a receipt (same page 34). This
is exactly what the trial court ruled that "It would be redundant to discuss what are the forms of
receipts, but anything evidencing or admitting payment in compliance with an obligation is a receipt
and AS THE CONTRACT, EXH. A AS WELL AS THE SIGNED COPY, IS AN EVIDENCE OF
PAYMENT OF THE P142,975.00 IT MUST BE CONSIDERED A RECEIPT FOR ALL PURPOSES"
(Decision,. Record on Appeal, p. 60). We affirm the lower court's ruling.
One fact that weighs heavily in support of the lower court's ruling is that respondent cannot show nor
produce any document or record whatsoever that petitioner did not pay the consideration demanded in
cash. While Manager Abalos claims that the mode of payment was altered or changed, there is no
showing or proof that the contract, Exh. "A", was accordingly changed or altered. And neither was such
alteration or change noted or recorded in the books of the respondent company.
The trial court, justifying and supporting its judgment in favor of the petitioner, cites the following facts:
(1) The liquidation sheet dated December 30, 1970, Exh. "O", prepared by the cashier of defendant
company, more than a month after the transaction in question on November 13, 1970 does not charge
the petitioner with any indebtedness to the respondent company of whatever amount, much less the
amount of P142,975.00; instead, it appears from said Exhibit "O" that as of December 30, 1970, the
company had two outstanding vales in favor of the petitioner: one for P18,000.00 obtained on
December 1, 1970 and another for P8,800.00 taken on December 15, 1970; (2) that petitioner had
always transacted with respondent company in cash and never on credit as admitted by Teodoro
Garcia, cashier of the company; (3) that petitioner had been withdrawing sugar from the company at its
warehouse after November 13, 1970 until January 23, 1971, totalling a quantity of 3,735 piculs of
sugar by virtue of the contract Exhibit "A" without the company demanding from the petitioner either
verbally or in writing the payment, even only partial of such a big amount (P142,975.00).
The above facts show contemporaneous and subsequent acts of the parties in relation to the
transaction between them as embodied in the Contract of Sale of Sugar (Exh. "A") from which the
intention of the contracting parties may be judged correctly. The trial court was correct in judging and
deciding the intention of the parties from their actuations contemporaneous with and subsequent to the
agreement for the sale of the sugar in question, and We sustain the trial court, applying Art. 1371, New
Civil Code, supra.
The most telling, crucial and significant act contemporaneous with and subsequent to the signing of
the agreement embodied in Exhibit "A", which needs emphasis, is the delivery to the petitioner of four
(4) delivery orders (Nos. 3054, 3055, 3056 and 3057) covering all the 4,035 piculs of sugar subject of
the contract on November 13, 1970, the very day that the contract was entered into and signed by the
parties. The delivery orders is admitted by the parties and included in the Partial Stipulation of Facts,
paragraph 3 thereof. Viewed in the light of the established fact that all sugar transactions between
petitioner and respondent are always in cash, as admitted by Teodoro Garcia who is the cashier of
respondent company (Testimony of Teodoro Garcia, t.s.n., Estrada, Hearing, April 22, 1972, pp. 1819),
the issuance of the four delivery orders is a clear confirmation of the fact that petitioner paid in cash
the cost of the sugar in the amount of P142,975.00 on the very day that the contract was signed,
November 13, 1970, which is also the day that the delivery orders were given to him by the cashier
upon direct instruction from the manager.
Furthermore, the issuance of and delivery to the petitioner buyer of the said four delivery orders
covering all the 4,085 piculs of sugar placed the control and possession of the thing sold to the
vendee, the herein petitioner, and pursuant to Article 1497 of the New Civil Code, the sugar sold is
understood as delivered to the petitioner. The thing sold shall be understood as delivered when it is
placed in the control and possession of the vendee. Therefore, when the thing subject of the sale is
placed in the control and possession of the vendee, delivery is complete. (La Fuerza, Inc. vs. Court of
Appeals, 23 SCRA 1217)
In the case at bar, at the moment the delivery orders were issued and given to the petitioner-vendee,
there was a symbolic or feigned tradition of the sugar sold since the delivery orders are documents of
title to goods which, under Article 1636, New Civil Code, includes any bill of lading, dock, warrant,
quedan, or warehouse receipt or order for the delivery of goods, or any other document used in the
ordinary course of business in the sale or transfer of goods, as proof of the possession or control of
the goods, or authorizing or purporting to authorize the possessor of the document to transfer or
receive, either by indorsement or by delivery, goods represented by such document. And when the
petitioner-buyer withdrew from the respondent's warehouse, hauled and took delivery on various dates
and varying quantities of sugar piculs to 3,735 piculs, there was actual delivery thereof which
consummated the sale. It is not correct, therefore, for the respondent court to hold that "the contract in
its entirety proves no more than that there has been a meeting of the minds of the parties." It is more
than that because the parties did not end the agreement by simply signing the contract, Exhibit "A".
The minds of the parties did not only come to a meeting but they continued to implement and
consummate the same.
It may be true, as the decision under review opined, that "the signing perfected the contract but did
not ex propio vigore consummate it," if the parties stopped or desisted thereafter, but the issuance and
delivery of the delivery orders covering the total quantity of sugar sold was a consummation of the
agreement, more so when petitioner-buyer was allowed by respondent company's officials to
substitute the four delivery orders Nos. 3054, 3055, 3056, and 3057 marked Annexes "2", "3", "4", and
"5" with substitute delivery orders marked Annexes "6" to "110" showing a total of 3,735 piculs of sugar
already delivered to the petitioner, leaving a small amount of 350 piculs still unwithdrawn for which
petitioner filed the original complaint in Civil Case No. 14873 against the company for delivery. These
facts which are not disputed showing that petitioner was allowed to receive the delivery orders on
November 13, 1970 immediately after the signing of the agreement on the same day and that he was
further allowed on various dates between November 13,1970 to January 23, 1971 to take delivery in
varying amounts totalling 3,735 piculs of sugar, have not been properly appreciated by respondent
court, which failure or omission in Our mind constitute grave and prejudicial abuse of discretion.
This brings Us to the consideration and resolution of the second assignment of error wherein petitioner
contends that the exception to the general rule, and not the general rule itself on the finality of the
findings of fact by the Court of Appeals, is applicable and must govern in the instant case.
It is, of course, well-established that the general rule that the appellate court's findings of facts are
binding and must be respected by Us, has recognized exceptions.
In Ramos vs. Pepsi-Cola Bottling Co., et al., L-22533, February 9, 1967, 19 SCRA 289, We
enumerated the following as exceptions to the general rule:
1. Where there is a grave abuse of discretion (Buyco vs. People, 95 Phil. 453);
2. When the finding is grounded entirely on speculation, surmises or conjectures (Joaquin vs. Navarro,
93 Phil 257);
3. When the inference made is manifestly mistaken, absurb or impossible (Luna vs. Linatoc, 74 Phil.
15);
4. When the judgment of the Court of Appeals was based on a misapprehension of facts (De la Cruz
vs. Sosing, 94 Phil. 26);
5. When the factual findings are conflicting (Casica vs Villaseca, 101 Phil. 1205); or
6. When the Court of Appeals, in making its findings, went beyond the issues of the case and the same
are contrary to the admissions of both appellant and appellee (Evangelists vs. Alto Surety & Insurance
Co., 1139, April 23,1958).
In Roque vs. Buan L-22459, October 31, 1967, 21 SCRA 642, We reversed the conclusion of the Court
of Appeals, having found it to be: (1) contrary to the established facts; (2) an inference based on mere
assumption; (3) contrary to the res ipsa loquitur rule, and (4) not in conformity with the physical law of
nature. And in Fortus vs. Novero, L-22370, June 29, 1968, 23 SCRA 1330, We ruled that in extreme
cases calling for the exercise of Our supervisory jurisdiction, this Tribunal may disturb or reverse any
particular finding of fact of the Court of Appeals should We find it to, be arbitrary or whimsical or
entirely outside the issues raised by the parties in their respective pleadings. Again, in Bunyi vs.
Reyes, L-28845, June 10, 1971, 39 SCRA 504, We reversed the factual findings of the appellate court
based on an assumption unsuppoted, by the evidence on record.
In Sotto vs. Teves, 86 SCRA 154, and Alsua-Betts, et al., vs. Court of Appeals, et al., 92 SCRA 332,
We reiterated and listed the exceptions to the general rule.
And considering that in the case at bar the findings of the Court of Appeals are contrary to those of the
trial court, a minute scrutiny by the Supreme Court is in order, and resort to duly proven evidence
becomes necessary. (Legaspi vs. Court of Appeals, L-39877, Feb. 20, 1976, 69 SCRA 360, 364, citing
Tolentino vs. De Jesus, et al., L-32797, March 27, 1974, 56 SCRA 167).
There is merit to petitioner's contention that the appellate court misappreciated or misapprehended the
import of the liquidation sheet marked Exhibit "O" which is a financial statement prepared by the
cashier of the respondent company, Teodoro Garcia, barely two months after the contract under
litigation was entered into, indicating the mutual obligations between the parties. Petitioner points out
in said statement that he had no liability whatsoever to the company, much less the cost of the sugar
he had bought on November 13, 1970. On the contrary, the statement contains outstanding "vales" of
P18,000.00 and P8,800.00 taken by the. company and due to petitioner. The Court of Appeals said it is
a fallacy to believe that Exhibit "O" is a liquidation of the periodic accounts of the parties when in fact, it
is no more than the itemization on how the amount of P97,960.51 representing cost of supplies and
materials from. the petitioner and two "vales' ".n the sum of P18,000.00 and P8,800.00 each, or a total
of P124,760.51 had been se off or deducted from two expected payments coming from the petitioner
amounting to P140,259.41. In any event, whether Exhibit "O" is a liquidation sheet or itemization of
supplies and materials for set-off or deduction, it is a customary and normal business practice to
indicate and include all outstanding accounts, whether payable or receivable, pertaining to a particular
customer or client at the close of the business year. This is a custom or usage which respondent court
failed to consider and appreciate in the case at bar.
We agree with the petitioner that the decision under review has overlooked matters of substance in the
evaluation of the evidence. For one, it is an established fact that the transaction in question was no
recorded-in the books of the respondent company. This is the clear testimony of Victorino Daroya,
External Auditor of the Hind Sugar Company (t.s.n., Vinluan, p. 32, Hearing on May 13, 1972). And
another significant fact, is that according to General Manager Emiliano Abalos, there was no document
to show that the transaction was not cash upon signing of the contract, in his testimony at the hearing
on May 22, 1972. (t.s.n., Estrada, pp. 35-36).
The logical implication of the ruling of the respondent court which upheld the position of the
respondent company that the purchase of sugar was not a cash transaction, is Chat the purchase was
on credit. However, since it appears that the transaction was not recorded in the company books and
there was no document showing it was not cash, the inference arises that the respondent company
allowed, tolerated, and/or sanctioned a credit transaction to be unrecorded in the company books
which is simply irregular, unbusiness-like and anomalous. For a corporation or company like the
respondent engaged in the big business of sugar central, in the production and marketing as well as
export of sugar, and in the present case involving more than a hundred thousand pesos, to keep no
record of the transaction in question is blatantly, against ordinary business practice and procedure in
bookkeeping or accounting. Whether the explanation. of the respondent company's officials rests on
close personal friendship or cordial attachment with a particular customer or client, the conclusion is
inevitable that the appealed judgment is grounded on findings that are irrational, absurd and arbitrary
because the court in effect sustained the version of the company officers who wantonly and recklessly
violated a customary business rule of protecting first and above all the interest of the company they
serve.
In the evaluation and appreciation of the evidence on record, We find that the respondent court gave
credence to the unsupported testimony of General Manager Emiliano Abalos that the term or mode of
payment stipulated in the written contract, Exh. "A", had been changed by him to "payment as
withdrawals are made." This is clear as testified to by Manager Abalos in the hearing on May 22, 1972,
t.s.n., pp. 3839. The evidence, however, does not show nor is there proof that the contract, Exh. "A",
was accordingly changed or altered from "cash upon signing of the contract" to "payment as
withdrawals are made." In sustaining the oral testimony of Manager Abalos on the alleged change of
payment, as against the written terms of the contract that it was cash payment, the respondent court
held that "Emiliano Abalos went all the way to accommodate the plaintiff-appellee by modifying the
contract, changing the condition or mode of payment provided in Exhibit "A" even without changing the
written contract itself."
This ruling of the court upholding the oral testimony and claim of Manager Abalos as against the
written contract itself is a grave and prejudicial error in the appreciation of the evidence because it is a
clear and flagrant disregard of the parol evidence rule (Section 7, Rule 130, Rev. Rules of Court)
providing that: "When the terms of an agreement have been reduced to writing, it is to be considered
as containing all such terms, and, therefore, there can be, between the parties and their successors in
interest, no evidence of the terms of the agreement other than the contents of the writing, except in the
following cases: (a) Where a mistake or imperfection of the writing, or its failure to express-the true
intent and agreement of the parties, or the validity of the agreement is put in issue by the pleadings;
(b) When there is an intrinsic ambiguity in the writing.
Petitioner faults and impeaches the conclusions of the appellate court as founded entirely on
speculations, surmises or conjectures. Thus, he castigates the court's holding which ruled that "(t)he
claim of plaintiff- appellee that he paid the P142,975.00 wholly in cash is improbable. It is simply not
the way with businessmen. Modern business moves on credits and debts ..." and that "it is unthinkable
to a businessman to keep cash all the time in his residence in Lingayen, even if he did not know when
or how soon he would disburse it." The appealed decision questions: "Why would plaintiff-appellee be
keeping so much cash in his possession and why should he pay P142,975.00 all in cash" and then
concludes: "We cannot imagine plaintiff-appellee taking the risk of loss of this money by keeping it in
his house."
The contention of the petitioner that the respondent court indulged in speculations and conjectures
which are baseless, is impressed with merit. Truly, the very specific term of the contract specified cash
payment. The instruction of General Manager Abalos to his assistant, Generoso Bongato, was
particularized to the mode of payment which was "cash upon signing of this contract" and the
instruction was duly obeyed and complied with. It is certainly whimsical and absurd for the Court of
Appeals to speculate and surmise that petitioner ought not to have brought and produced the cash
money and should not even have such cash money in his possession. A review of the appellate court's
findings is, therefore, justified and warranted.
Respondents court is also taken to task for ignoring or suppressing the testimony of Manuel Chua Lim,
son of petitioner and a 24-year old graduate of Bachelor of Science in Commerce, major in
Accounting, who accompanied his father to the cashier's office of respondent company and witnessed
the payment of the money in cash by his father to the cashier, Teodoro Garcia, in the presence of
Generoso Bongato and Manager Abalos, saw the signing of the contract and that thereafter, the four
(4) delivery orders were given to his father, including a signed copy of the contract, Exhibit "A".
Admittedly, this piece of evidence which is clear, positive and convincing was never considered by the
court which was its legal duty to evaluate and appreciate, considering that the presence of Manuel
Chua Lim and his testimony was not directly denied nor disputed by any of the officials so named and
their witnesses, Hence, We find petitioner's contention that the court's omission among other grave
and serious prejudicial errors pointed by petitioner justify the reversal of the appealed judgment. to be
tenable.
We affirm the decision of the trial court in ruling that petitioner has paid in cash the sum of
P142,975.00 to respondent company for the purchase of 4,085 piculs of H-2 sugar and is entitled to
the delivery of 350 piculs of H-2 sugar or to be paid the sum of P12,250.00 plus legal interest from
November 13, 1970 until fully paid, at the option of petitioner.
On the second cause of action, the judgment of the appellate court is correct insofar as it orders the
respondent company to return to the petitioner the latter's deposit of P55,000.00 but should be
modified to include payment of legal interest from January 20, 1971 until fully paid and giving the
option to petitioner either to receive the money or take delivery of 1,000 piculs of export sugar from
respondent company.
On the third cause of action, the appealed judgment is also correct but the same is likewise modified to
include payment of legal interest on the sum of P6,400.00 from June 3, 1970 until fully paid, or to take
delivery from respondent the 160 piculs of H-3 sugar, at the option of the petitioner.
On the fourth cause of action, the judgment of the Court of Appeals finding respondent company liable
to petitioner for the sum of P60,592.30 for materials and supplies which the latter supplied to it for the
months of January, February, March and April, 1971 is also correct. The second portion under
paragraph (4) of the judgment is set aside, as well as paragraph (5) thereof which ordered petitioner to
pay attorney's fees,
In other words, the decision of the trial court being in accordance with the evidence established and
the law applicable, the same is hereby reinstated in toto,
WHEREFORE, IN VIEW OF THE FOREGOING, We hereby reverse and set aside paragraph (1) and
the second portion of paragraph (4) of the appealed judgment, and modify the remaining portions of
said judgment. Judgment is hereby rendered
(1) On the first cause of action., ordering the respondent to immediately deliver to petitioner the 350
piculs of H-2 sugar or to pay petitioner the sum of P12,250.00 plus legal rate of interest from
November 13, 1970, until fully paid. giving unto the petitioner the option to choose whether to receive
the sugar or to receive the payment corresponding to the same:
(2) On the second cause of action, ordering the respondent to deliver immediately to the petitioner the
1,000 piculs of export sugar or to pay the petitioner the sum of P55,000.00 with legal rate of interest
from January 20, 1971, but giving the option or choice to the petitioner;
(3) With respect to the third cause of action, ordering the respondent to deliver to the petitioner the 160
piculs of H-3 sugar or to pay to petitioner the sum of P6,400.00 with legal rate of interest from June 3.
1970, but the option again belonging to the petitioner;
(4) On the fourth cause of action ordering the respondent to pay to the, petitioner the sum of
P60,592.30 with interest at 12% per annum from the filing of the complaint and to pay attorney's fees
of 25% of the principal obligation, that is, the sum of P15,143.08;
(5) On the fifth and sixth causes of action, ordering the respondent to pay to the petitioner the sum of
P25,000.00 as damages and to pay another sum of P15,000.00 as attorney's fees, the said fees
referring to the first, second and third causes of action.
Costs against respondent.
SO ORDERED.
G.R. No. L-38303 May 30, 1988
HONGKONG & SHANGHAI BANKING CORPORATION, plaintiff-appellant,
vs.
RALPH PAULI and SPOUSES SALLY P. GARGANERA and MATEO GARGANERA, defendants-
appellees.
Siguion Reyna, Montecillo & Ongsiako for plaintiff-appellant.
Nordy P. Diploma for defendants-appellees.
GRIO-AQUINO J.:
This appealed case was preceded by three (3) other cases between the parties, to wit:
1) Civil Case No. 32799 Court of First Instance Manila
On June 14, 1957, the Hongkong & Shanghai Banking Corporation filed a complaint against the
defendant Ralph Pauli, to collect the sum of P258,964.15. It was docketed as Civil Case No. 32799 in
the Court of First Instance of Manila.
After the trial, judgment was rendered in favor of the Bank on June 2, 1959, the dispositive portion of
which provided as follows:
WHEREFORE, judgment is hereby rendered ordering defendant to pay to plaintiff the

sum of P219,236.20 with legal interest thereon from June 14, 1957, until fully paid,
and the costs.
On appeal by the defendant debtor, the decision was upheld by the Supreme Court on March 31, 1962
in case G.R. No. L-15713.
The decision having become final, the Bank endeavored to execute it but the writs of execution were
returned unsatisfied because no leviable assets of Pauli could be located by the sheriffs.
Unknown to the Hongkong & Shanghai Bank, Pauli had on January 8, 1957 purchased from the
Philippine National Bank (PNB) a sugar cane plantation known as Hacienda Riverside (Lot No. 693 of
Saravia Cadastre, Negros Occidental). To avoid discovery of the transaction by his creditors, he did
not register the deed of Sale. Six years later, on March 1, 1963, he fraudulently sold the hacienda to
his daughter, defendant-appellee Sally Garganera, and her husband Mateo Garganera. The sale was
registered on March 5, 1963. Transfer Certificate of Title No. 34425 was issued to the Garganeras.
2) Civil Case No. 626 Court of First Instance Negros Occidental
At the instance of Warner Barnes & Co., another creditor of Pauli, the sale to the Garganera spouses
was declared fictitious for being in fraud of creditors by the Court of First Instance of Negros
Occidental, Silay City, Branch VII, in its decision dated October 15, 1968 in Civil Case No. 262, entitled
Warner Barnes & Co., Ltd. vs. Ralph Pauli and Spouses Mateo and Sally Garganera."
The defendants appealed the decision to the Court of Appeals where it was docketed as CA-G.R. No.
43163-R. On December 18, 1969, the defendants entered into a compromise agreement with the
Warner Barnes & Co., Ltd., by paying its judgment credit of P28,962.11 On the same date, December
18, 1969, they filed in the Court of Appeals a "Joint Motion to Dismiss" praying that the appealed case
be dismissed with prejudice and that the decision of the Court of First Instance of Negros Occidental in
Civil Case No. 262 be set aside." The Court of Appeals approved the compromise and dismissed the
case, CA-GR No. 43163-R, on January 6, 1970 (p. 78, Records).
3) Civil Case No. 75319 Court of First Instance Manila

Having discovered that the sugar plantation belonged to Paul, the Hongkong and Shanghai Bank filed
on January 13, 1969 in the Court of First Instance of Manila a complaint for revival of the 1962
judgment in its favor in Civil Case No. 32799. The case was docketed as Civil Case No. 75319. A writ
of preliminary attachment was issued against Pauli's, rights, interests and participation in Lot No. 693
of Cad. Survey of Saravia, covered by the Garganera's TCT No. T-34425. Pauli prayed for the
dismissal of the complaint and the lifting of the order of attachment on Lot No. 693.
Under the pretext of amicably settling Civil Case No. 75319, defendant Ralph Pauli repeatedly
postponed hearings of the case, to enable defendants-spouses, Sally P. Garganera and Mateo
Garganera, to intervene in Civil Case No. 75319, which they did on October 21, 1969.
On January 23, 1971, the Court rendered judgment in Civil Case No. 75319, the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered:
1. Decreeing the revival of the judgment rendered on June, 2, 1959 in Civil Case No.
32799 of the Court of First Instance of Manila, entitled "Hongkong and Shanghai
Banking Corporation, plaintiff, versus Ralph Pauli, defendant," as aimed by the
Supreme Court in its decision promulgated on March 31, 1962 in Civil Case No. G.R.
L-15713, entitled "Hongkong and Shanghai Banking Corporation, plaintiff-appellate,
versus Ralph Pauli, defendant-appellant;
2. Ordering defendant to pay to plaintiff the sum of P219,276.20 with legal interest
thereon from June 14, 1957 until fully paid, and the costs;
3. Ordering the discharge of the attachment levied upon and annotated on Transfer
Certificate of Title No. T-34425 of the land records of the Province of Negros
Occidental in virtue of the writ issued in the above-entitled case on February 21,
1969; and
4. Dismissing all the claims for damages respectively interposed by the litigants
therein.
No appeal was taken by Pauli from this decision.
Civil Case No. 465 Court of First Instance Negros Occidental
On February 17, 1971, the Bank filed a new complaint against Pauli and the Garganeras which was
docketed as Civil Case No. 465 in the Court of First Instance of Negros Occidental, Branch I, praying
for annulment of the Conditional Sale as well as the Deed of Sale, of Hacienda Riverside to the
Garganeras and also for annulment of Garganera's Certificate of Title No. T-34425.
Pauli filed a Motion to Dismiss on the grounds of res judicata, prescription, waiver and abandonment of
claim.
The Garganeras filed a similar Motion to Dismiss dated March 17, 1971.
On June 15, 1971, the Court granted the motions to dismiss on the grounds of prescription of the
action and res judicata.
The plaintiff appealed to the Court of Appeals. The defendants-appellees, the spouses Mateo and
Sally Garganera, with the conformity of the plaintiff-appellant, filed a motion to certify the appeal to this
Court as only questions of law res judicata and prescription of the action- are involved. The Court of
Appeals granted the motion.
Has the action for annulment of the sale of Lot 693 to the Garganeras prescribed? Did prescription of
the action commence to run from the registration of the sale, or from the discovery of the transaction
by the Bank?
When a transaction involves registered land, the four-year period fixed in Article 1391 within winch to
bring an action for annulment of the deed, shall be computed from the registration of the conveyance
(March 5, 1963) on the familiar theory that the registration of the document is constructive notice of the
conveyance to the whole world (Armentia vs. Patriarca, 18 SCRA 1253; Avecilla vs. Yatco, 103 Phil.
666).
Plaintiff's submission that the four-year period commenced to run from the date when the Bank
obtained actual knowledge of the fraudulent sale of Pauli's land to the Garganeras (sometime in 1969)
and that hence the four-year period for bringing an action to annul the sale had not yet expired when it
filed the action for annullment on February 17, 1971, is unacceptable. That theory would diminish
public faith in the integrity of torrens titles and impair commercial transactions involving registered
lands for it would render uncertain the computation of the period for the prescription of such actions.
Civil Case No. 465, the action for annulment of the Sale is not barred by res judicata, specifically, the
prior judgment in Civil Case No. 75319, for revival of the judgment in the collection suit, Civil Case No.
32799, for the subject matter and causes of action in the two cases are different. The three (3)
Identities required for the application of the bar by prior judgment: Identity of parties, of subject matter
and causes of action, are lacking.
Nevertheless, as the plaintiff's right of action in Civil Case No. 465 had already prescribed, the trial
court did not err in dismissing the case.
WHEREFORE,finding no reversible error in the order dated June 15, 1971 of the trial court dismissing
Civil Case No. 465, the same is hereby affirmed.
G.R. No. L-25891 November 29, 1977
BENEDICTO M. JAVIER, as administrator of the Estate of Eusebio Cruz, petitioner,
vs.
DOMINGA VDA. DE CRUZ, and LEONILA, ROMAN, ELISEO, LIBERATA, and MELECIO, all
surnamed CRUZ, respondents.
Jose F. Aguirre for petitioner.
Pedro A. Manzanares for respondents.
FERNANDEZ, J.:
This is an appeal by the plaintiff from the decision of the Court of First Instance of Rizal in Civil Case
No. 5996 entitled "Benedicto M. Javier, etc. vs. Dominga Vda. de Cruz, et al." the dispositive part of
which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered one in favor of the

defendants and against the plaintiff dismissing the two above-entitled cases,
dissolving the writ of preliminary injunction, ordering the plaintiff to pay attorney's fees
in the sum of One Thousand Pesos (P1,000.00) and condemning the said plaintiff to
pay the costs of suit.
IT IS ORDERED. Pasig, Rizal, August 29, 1962. (Sgd.) Andres Reyes
( /t/ ) ANDRES REYES Judge 1
The Court of Appeals, in a resolution promulgated on March 19, 1966 certified to the Supreme Court
the case because "the value of the property in question is more than half a million pesos ..." hence "is
beyond the jurisdiction of this Court." 2
On February 1, 1960 Benedicto M. Javier, as administrator of the Estate of Eusebio Cruz, instituted
against Dominga Vda. de Cruz and her children Civil Case No. 5996 to declare null and void a deed of
sale of a part of a parcel of land located in Barrio San Isidro, Taytay, Rizal containing an area of
182,959 square meters and assessed at P4,310.00 under Tax No. 9136 under Tax No. 9136 in the
name of Estate of E. Cruz.
The amended complaint stated that Eusebio Cruz, who died on February 2, 1941 at the age of 100
years without leaving any will nor compulsory heirs, was the absolute and exclusive owner of a parcel
of mountainous and unimproved land situated in sitio Matogalo, Taytay, Rizal which he inherited from
his forebears, described therein; that during his lifetime, Eusebio Cruz had been living with one
Teodora Santos 'without the sanction of marriage"; that Teodora Santos had with her as distant
relatives and protegees the brothers Gregorio Cruz and Justo Cruz; that Gregorio Cruz was the father
of Delfin Cruz, deceased husband of defendant Dominga Vda. de Cruz and father of defendants
Leonila, Roman, Eliseo, Leberata and Melecio, all surnamed Cruz; that on January 16, 1941 Delfin
Cruz, by means of deceit and in collusion with persons among them his father Gregorio Cruz made
Eusebio Cruz, who could read and write, stamp his thumbmark on a deed of sale of a portion of the
land described in the complaint consisting of 26,577 square meters for the sum of P700.00 in favor of
said Delfin Cruz; that at that time Delfin Cruz did not have theithin thirty days from submittal of the
case for decision, but the validity of the law cannot be seriously challenged." 14
Petitioner fiscal, as already stated, filed the informations in the ten cases with the Circuit Criminal
Court rather than with the respondent judge's court to mitigate the latter court's caseload in
accordance with the purpose of the Circuit Criminal Court law or at the request of the offended parties
and complainants. Since the filing of the information or complaint "supplies -the occasion for the
exercise of jurisdiction vested by law in a particular court" 15 and the law confers concurrent
jurisdiction in the Circuit Criminal Court, the said court properly assumed jurisdiction over the said
cases and there is no lawful basis for respondent judge's prayer that said cases be returned to his
court "for the lawful actions which are needed on them" and to set at naught the judgments of
conviction already rendered by the Circuit Criminal Court in some of the cases and the other
proceedings therein.
For administrative and record purposes, however, petitioner fiscal should have promptly and in due
course advised the clerk of respondent judge's court that the informations had been filed with the
Circuit Criminal Court. Petitioner fiscal recognized this oversight and duly "apologized humbly" to
respondent judge and pleaded an "acute lack of personnel in his office" in extenuation. Under the
circumstances and considering that petitioner was only discharging his duty according to his best
lights, and could not be said to have in any way acted arbitrarily or in bad faith in filing the informations
with the Circuit Criminal Court, his apology could have been graciously accepted by respondent judge
with an admonition to exercise greater care in the future, in lieu of the unwarranted imposition of
punitive fines in the total sum of P 1,000.00.
ACCORDINGLY, the questioned contempt orders and fines imposed therein are annulled and set
aside. Without costs.
Makasiar, Muoz Palma, Martin, Fernandez and Guerrero JJ., concur.

G.R. No. L-31831 April 28, 1983
JESUS PINEDA, petitioner,
vs.
JOSE V. DELA RAMA and COURT OF APPEALS, respondents.
Rosauro Alvarez for petitioner.
Arturo Zialcita for respondents.
GUTIERREZ, JR., J.:
This is a petition to review on certiorari a decision of the Court of Appeals which declared petitioner
Jesus Pineda liable on his promissory note for P9,300.00 and directed him to pay attorney's fees of
P400.00 to private respondent, Jose V. dela Rama.
Dela Rama is a practising lawyer whose services were retained by Pineda for the purpose of making
representations with the chairman and general manager of the National Rice and Corn Administration
(NARIC) to stop or delay the institution of criminal charges against Pineda who allegedly
misappropriated 11,000 cavans of palay deposited at his ricemill in Concepcion, Tarlac. The NARIC
general manager was allegedly an intimate friend of Dela Rama.
According to Dela Rama, petitioner Pineda has used up all his funds to buy a big hacienda in Mindoro
and, therefore, borrowed the P9,300.00 subject of his complaint for collection. In addition to filling the
suit to collect the loan evidenced by the matured promissory note, Dela Rama also sued to collect
P5,000.00 attorney's fees for legal services rendered as Pineda's counsel in the case being
investigated by NARIC.
The Court of First Instance of Manila decided Civil Case No. 45762 in favor of petitioner Pineda. The
court believed the evidence of Pineda that he signed the promissory note for P9,300.00 only because
Dela Rama had told him that this amount had already been advanced to grease the palms of the
'Chairman and General Manager of NARIC in order to save Pineda from criminal prosecution.
The court stated:
xxx xxx xxx
... The Court, after hearing the testimonies of the witness and examining the exhibits
in question, finds that Exhibit A proves that the defendant himself did not receive the
amount stated therein, because according to said exhibit that amount was advanced
by the plaintiff in connection with the defendant's case, entirely contradicting the
testimony of the plaintiff himself, who stated in open Court that he gave the amount in
cash in two installments to the defendant. The Court is more inclined to believe the
contents of Exhibit A, than the testimony of the plaintiff. On this particular matter, the
defendant has established that the plaintiff made him believe that he was giving
money to the authorities of the NARIC to grease their palms to suspend the
prosecution of the defendant, but the defendant, upon inquiry, found out that none of
the authorities has received that amount, and there was no case that was ever
contemplated to be filed against him. It clearly follows, therefore, that the amount
involved in this Exhibit A was imaginary. It was given to the defendant, not to
somebody else. The purpose for which the amount was intended was illegal.
However, the Court believes that plaintiff was able to get from the defendant the
amount of P3,000.00 on October 7, as shown by the check issued by the defendant,
Exhibit 2, and the letter, Exhibit 7, was antedated October 6, as per plaintiff's wishes
to show that defendant was indebted for P3,000.00 when, as a matter of fact, such
amount was produced in order to grease the palms of the NARIC officials for
withholding an imaginary criminal case. Such amount was never given to such
officials nor was there any contemplated case against the defendant. The purpose for
which such amount was intended was indeed illegal.
The trial court rendered judgment as follows:
WHEREFORE, the Court finds by a preponderance of evidence that the amount of

P9,300.00 evidenced by Exhibit A was not received by the defendant, nor given to
any party for the defendant's benefit.Consequently, the plaintiff has no right to recover
said amount. The amount of P3,000.00 was given by the defendant to grease the
palms of the NARIC officials. The purpose was illegal, null and void. Besides, it was
not given at all, nor was it true that there was a contemplated case against the
defendant. Such amount should be returned to the defendant. The services rendered
by the plaintiff to the defendant is worth only P400.00, taking into consideration that
the plaintiff received an air-conditioner and six sacks of rice. The court orders that the
plaintiff should return to the defendant the amount of P3,000.00, minus P400.00 plus
costs.
The Court of Appeals reversed the decision of the trial court on a finding that Pineda, being a person of
more than average intelligence, astute in business, and wise in the ways of men would not "sign any
document or paper with his name unless he was fully aware of the contents and important thereof,
knowing as he must have known that the language and practices of business and of trade and
commerce call to account every careless or thoughtless word or deed."
The appellate court stated:
No rule is more fundamental and by men of honor and goodwill more dearly
cherished, than that which declares that obligations arising from contracts have the
force of law between the contracting parties and should be complied with in good
faith. Corollary to and in furtherance of this principle, Section 24 of the Negotiable
instruments Law (Act No. 2031) explicitly provides that every negotiable instrument is
deemed prima facie to have been issued for a valuable consideration, and every
person whose signature appears thereon to have become a party thereto for value.
We find this petition meritorious.
The Court of Appeals relied on the efficacy of the promissory note for its decision, citing Section 24 of
the Negotiable Instruments Law which reads:
SECTION 24. Presumption of consideration.Every negotiable instrument is

deemed prima facie to have been issued for a valuable consideration; and every
person whose signature appears thereon to have become a party thereto for value.
The Court of Appeals' reliance on the above provision is misplaced. The presumption that a negotiable
instrument is issued for a valuable consideration is only puma facie. It can be rebutted by proof to the
contrary. (Bank of the Philippine Islands v. Laguna Coconut Oil Co. et al., 48 Phil. 5).
According to Dela Rama, he loaned the P9,300.00 to Pineda in two installments on two occasions five
days apart - first loan for P5,000.00 and second loan for P4,300.00, both given in cash. He also
alleged that previously he loaned P3,000.00 but Pineda paid this other loan two days afterward.
These allegations of Dela Rama are belied by the promissory note itself. The second sentence of the
note reads - "This represents the cash advances made by him in connection with my case for which he
is my attorney-in- law."
The terms of the note sustain the version of Pineda that he signed the P9,300.00 promissory note
because he believed Dela Rama's story that these amounts had already been advanced by Dela
Rama and given as gifts for NARIC officials.
Dela Rama himself admits that Pineda engaged his services to delay by one month the filing of the
NARIC case against Pineda while the latter was trying to work out an amicable settlement. There is no
question that Dela Rama was indeed a close friend of then NARIC Administrator Jose Rodriquez
having worked with him in the Philippine consulate at Hongkong and that Dela Rama made what he
calls "proper representations" with Rodriguez and with other NARIC officials in connection with the
investigation of the criminal charges against Pineda.
We agree with the trial court which believed Pineda. It is indeed unusual for a lawyer to lend money to
his client whom he had known for only three months, with no security for the loan and on interest. Dela
Rama testified that he did not even know what Pineda was going to do with the money he borrowed
from him. The petitioner had just purchased a hacienda in Mindoro for P210,000.00, owned sugar and
rice lands in Tarlac of around 800 hectares, and had P60,000.00 deposits in three banks when he
executed the note. It is more logical to believe that Pineda would not borrow P5,000.00 and P4,300.00
five days apart from a man whom he calls a "fixer" and whom he had known for only three months.
There is no dispute that an air-conditioning unit valued at P1,250.00 was purchased by Pineda's son
and given to Dela Rama although the latter claims he paid P1,250.00 for the unit when he received it.
Pineda, however, alleged that he gave the air-conditioning unit because Dela Rama told him that Dr.
Rodriguez was asking for one air-conditioning machine of 1.5 horsepower for the latter's NARIC office.
Pineda further testified that six cavans of first class rice also intended for the NARIC Chairman and
General Manager, together with the airconditioning unit, never reached Dr. Rodriguez but were kept by
the lawyer.
Considering the foregoing, we agree with the trial court that the promissory note was executed for an
illegal consideration. Articles 1409 and 1412 of the Civil Code in part, provide:
Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs,
public order and public policy;
xxx xxx xxx
Art. 1412. If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed:
(1) When the fault is on the part of both contracting parties, neither may recover what
he has given by virtue of the contract, or demand the performance of the other's
undertaking.
xxx xxx xxx
Whether or not the supposed cash advances reached their destination is of no moment. The
consideration for the promissory note - to influence public officers in the performance of their duties - is
contrary to law and public policy. The promissory note is void ab initio and no cause of action for the
collection cases can arise from it.
WHEREFORE, the decision of the Court of Appeals is SET ASIDE. The complaint and the
counterclaim in Civil Case No. 45762 are both DISMISSED.
G.R. No. L-65510 March 9, 1987
TEJA MARKETING AND/OR ANGEL JAUCIAN, petitioner,
vs.
HONORABLE INTERMEDIATE APPELLATE COURT * AND PEDRO N. NALE, respondents.
Cirilo A. Diaz, Jr. for petitioner.
Henry V. Briguera for private respondent.
PARAS, J.:
"'Ex pacto illicito' non oritur actio" (No action arises out of illicit bargain) is the time-honored maxim that
must be applied to the parties in the case at bar. Having entered into an illegal contract, neither can
seek relief from the courts, and each must bear the consequences of his acts." (Lita Enterprises vs.
IAC, 129 SCRA 81.)
The factual background of this case is undisputed. The same is narrated by the respondent court in its
now assailed decision, as follows:
On May 9, 1975, the defendant bought from the plaintiff a motorcycle with complete
accessories and a sidecar in the total consideration of P8,000.00 as shown by
Invoice No. 144 (Exh. "A"). Out of the total purchase price the defendant gave a
downpayment of P1,700.00 with a promise that he would pay plaintiff the balance
within sixty days. The defendant, however, failed to comply with his promise and so
upon his own request, the period of paying the balance was extended to one year in
monthly installments until January 1976 when he stopped paying anymore. The
plaintiff made demands but just the same the defendant failed to comply with the
same thus forcing the plaintiff to consult a lawyer and file this action for his damage in
the amount of P546.21 for attorney's fees and P100.00 for expenses of litigation. The
plaintiff also claims that as of February 20, 1978, the total account of the defendant
was already P2,731.06 as shown in a statement of account (Exhibit. "B"). This
amount includes not only the balance of P1,700.00 but an additional 12% interest per
annum on the said balance from January 26, 1976 to February 27, 1978; a 2%
service charge; and P 546.21 representing attorney's fees.
In this particular transaction a chattel mortgage (Exhibit 1) was constituted as a

security for the payment of the balance of the purchase price. It has been the practice
of financing firms that whenever there is a balance of the purchase price the
registration papers of the motor vehicle subject of the sale are not given to the buyer.
The records of the LTC show that the motorcycle sold to the defendant was first
mortgaged to the Teja Marketing by Angel Jaucian though the Teja Marketing and
Angel Jaucian are one and the same, because it was made to appear that way only
as the defendant had no franchise of his own and he attached the unit to the plaintiff's
MCH Line. The agreement also of the parties here was for the plaintiff to undertake
the yearly registration of the motorcycle with the Land Transportation Commission.
Pursuant to this agreement the defendant on February 22, 1976 gave the plaintiff
P90.00, the P8.00 would be for the mortgage fee and the P82.00 for the registration
fee of the motorcycle. The plaintiff, however failed to register the motorcycle on that
year on the ground that the defendant failed to comply with some requirements such
as the payment of the insurance premiums and the bringing of the motorcycle to the
LTC for stenciling, the plaintiff saying that the defendant was hiding the motorcycle
from him. Lastly, the plaintiff explained also that though the ownership of the
motorcycle was already transferred to the defendant the vehicle was still mortgaged
with the consent of the defendant to the Rural Bank of Camaligan for the reason that
all motorcycle purchased from the plaintiff on credit was rediscounted with the bank.
On his part the defendant did not dispute the sale and the outstanding balance of
P1,700. 00 still payable to the plaintiff. The defendant was persuaded to buy from the
plaintiff the motorcycle with the side car because of the condition that the plaintiff
would be the one to register every year the motorcycle with the Land Transportation
Commission. In 1976, however, the plaintfff failed to register both the chattel
mortgage and the motorcycle with the LTC notwithstanding the fact that the
defendant gave him P90.00 for mortgage fee and registration fee and had the
motorcycle insured with La Perla Compana de Seguros (Exhibit "6") as shown also by
the Certificate of cover (Exhibit "3"). Because of this failure of the plaintiff to comply
with his obligation to register the motorcycle the defendant suffered damages when
he failed to claim any insurance indemnity which would amount to no less than
P15,000.00 for the more than two times that the motorcycle figured in accidents aside
from the loss of the daily income of P15.00 as boundary fee beginning October 1976
when the motorcycle was impounded by the LTC for not being registered.
The defendant disputed the claim of the plaintiff that he was hiding from the plaintiff
the motorcycle resulting in its not being registered. The truth being that the
motorcycle was being used for transporting passengers and it kept on travelling from
one place to another. The motor vehicle sold to him was mortgaged by the plaintiff
with the Rural Bank of Camaligan without his consent and knowledge and the
defendant was not even given a copy of the mortgage deed. The defendant claims
that it is not true that the motorcycle was mortgaged because of re-discounting for
rediscounting is only true with Rural Banks and the Central Bank. The defendant puts
the blame on the plaintiff for not registering the motorcycle with the LTC and for not
giving him the registration papers inspite of demands made. Finally, the evidence of
the defendant shows that because of the filing of this case he was forced to retain the
services of a lawyer for a fee on not less than P1,000.00.
xxx xxx xxx
... it also appears and the Court so finds that defendant purchased the motorcycle in
question, particularly for the purpose of engaging and using the same in the
transportation business and for this purpose said trimobile unit was attached to the
plaintiffs transportation line who had the franchise, so much so that in the registration
certificate, the plaintiff appears to be the owner of the unit. Furthermore, it appears to
have been agreed, further between the plaintiff and the defendant, that plaintiff would
undertake the yearly registration of the unit in question with the LTC. Thus, for the
registration of the unit for the year 1976, per agreement, the defendant gave to the
plaintiff the amount of P82.00 for its registration, as well as the insurance coverage of
the unit.
Eventually, petitioner Teja Marketing and/or Angel Jaucian filed an action for "Sum of Money with
Damages" against private respondent Pedro N. Nale in the City Court of Naga City. The City Court
rendered judgment in favor of petitioner, the dispositive portion of which reads:
WHEREFORE, decision is hereby rendered dismissing the counterclaim and ordering

the defendant to pay plaintiff the sum of P1,700.00 representing the unpaid balance
of the purchase price with legal rate of interest from the date of the filing of the
complaint until the same is fully paid; to pay plaintiff the sum of P546.21 as attorney's
fees; to pay plaintiff the sum of P200.00 as expenses of litigation; and to pay the
costs.
SO ORDERED.
On appeal to the Court of First Instance of Camarines Sur, the decision was affirmed in toto. Private
respondent filed a petition for review with the Intermediate Appellate Court and on July 18, 1983 the
said Court promulgated its decision, the pertinent portion of which reads
However, as the purchase of the motorcycle for operation as a trimobile under the
franchise of the private respondent Jaucian, pursuant to what is commonly known as
the "kabit system", without the prior approval of the Board of Transportation (formerly
the Public Service Commission) was an illegal transaction involving the fictitious
registration of the motor vehicle in the name of the private respondent so that he may
traffic with the privileges of his franchise, or certificate of public convenience, to
operate a tricycle service, the parties being in pari delicto, neither of them may bring
an action against the other to enforce their illegal contract [Art. 1412 (a), Civil Code].
xxx xxx xxx
WHEREFORE, the decision under review is hereby set aside. The complaint of
respondent Teja Marketing and/or Angel Jaucian, as well as the counterclaim of
petitioner Pedro Nale in Civil Case No. 1153 of the Court of First Instance of
Camarines Sur (formerly Civil Case No. 5856 of the City Court of Naga City) are
dismissed. No pronouncement as to costs.
SO ORDERED.
The decision is now before Us on a petition for review, petitioner Teja Marketing and/or Angel Jaucian
presenting a lone assignment of error whether or not respondent court erred in applying the
doctrine of "pari delicto."
We find the petition devoid of merit.
Unquestionably, the parties herein operated under an arrangement, commonly known as the "kabit
system" whereby a person who has been granted a certificate of public convenience allows another
person who owns motor vehicles to operate under such franchise for a fee. A certificate of public
convenience is a special privilege conferred by the government. Abuse of this privilege by the grantees
thereof cannot be countenanced. The "kabit system" has been Identified as one of the root causes of
the prevalence of graft and corruption in the government transportation offices.
Although not outrightly penalized as a criminal offense, the kabit system is invariably recognized as
being contrary to public policy and, therefore, void and in existent under Article 1409 of the Civil Code.
It is a fundamental principle that the court will not aid either party to enforce an illegal contract, but will
leave both where it finds then. Upon this premise it would be error to accord the parties relief from their
predicament. Article 1412 of the Civil Code denies them such aid. It provides:
Art. 1412. If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed:
1. When the fault is on the part of both contracting parties, neither may recover that
he has given by virtue of the contract, or demand, the performance of the other's
undertaking.
The defect of in existence of a contract is permanent and cannot be cured by ratification or by

prescription. The mere lapse of time cannot give efficacy to contracts that are null and void.
WHEREFORE, the petition is hereby dismissed for lack of merit. The assailed decision of the
Intermediate Appellate Court (now the Court of Appeals) is AFFIRMED. No costs.
SO ORDERED.

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ANICETO G. SALUDO, JR., G.R. No.

October 13, 2010

SECURITY BANK CORPORATION,

Before this Court is a petition for review on certiorari seeking the

The basic facts follow

On 30 May 1996, Booklight was extended an omnibus line credit

On 16 June 2000, SBC filed against Booklight and herein petitioner

On 7 March 2005, Booklight was declared in default. Consequently, SBC

with attorneys fee of P100,000.00 plus cost of suit.[12]

Hence, the instant petition on the following arguments:

1. The first credit facility has a one-year term from 30 June

2. When the first credit facility expired, its accessory

4. The approval of the second credit facility necessitates

5. The nine (9) promissory notes executed and drawn by

6. The Continuing Suretyship is a contract of adhesion and

7. The approval of the second credit facility is considered a

8. The 20.178% interest rate imposed by the RTC is

The main derivative of these averments is the issue of whether or not

a) Guaranteed Obligations the obligations of the Debtor arising from

Whether the second credit facility is considered a renewal of the first

10. Continuity of Suretyship. This Suretyship shall remain in full

Facility : Loan Line

This very renewal is explicitly covered by the guaranteed obligations of the

The essence of a continuing surety has been highlighted in the case

In Gateway Electronics Corporation v. Asianbank Corporation,[21] the Court

Respondent, as last resort, harps on the novation of the first credit

The two loan facilities availed by Booklight under the credit

On these facts the novation argument advanced by petitioner must fail.

There is no novation to speak of. It is the first credit facility that

The lameness of petitioners stand is pointed up by his attempt to

A contract of adhesion presupposes that the party adhering to the

Finally, petitioner challenges the imposition of 20.189% interest rate

WHEREFORE, the petition is DENIED. The Decision dated 24 January

Ocampo, Velasco, Sicat & Associate for petitioners.

Manuel M. Lazaro for respondent GSIS.

A Detailed Statement of Facts and of the Case

2. Alta Farms defaulted in the payment of its amortizations. it is presumably because

Lumanlan and his admission

This Agreement, executed this 29th day of November, 1969, in the

LAIGO REALTY CORPORATION, ...

represented by its President,

RHODY E. LAIGO, ... hereinafter referred to as the FIRST PARTY

... AMABLE G. LUMANLAN ... hereinafter referred to as the

And the signatories are -

IN WITNESS WHEREOF, the parties hereunto affixed their

LAIGO REALTY CORPORATION ALEJANDRO Y. DE JESUS

(Sgd) RHODY E. LAIGO (Sgd) Illegible

(t) RHODY E. LAIGO AMABLE G. LUMANLAN

(See Exh. "GG")

7. Thus, on November 7, 1970, petitioner Lumanlan wrote a letter to Laigo Realty

The following are the checks:

DATE SER. NO. AMOUNT BANK

May 20,1970 646371 P36,000.00 Prudential Bank

June 10,1970 659907 9,000.00

June 30, 1970 646397 20,000.00

July 3, 1970 464399 11,250.00

Aug. 7,1970 659913 16,200.00

Aug. 14,1970 659914 12,605.00

2. Caridad Pascua 13,500.00

3. Antonio Candelaria 15,300.00

4. Alberto Rarela 11,800.00

6. Estelita Manalang 16,200.00

7. Rogelio Zabala 16,200.00