Republic of the Philippines Gentlemen:
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 176246 February 13, 2009
PREMIERE DEVELOPMENT BANK, Petitioner,
vs.
CENTRAL SURETY & INSURANCE COMPANY,
INC., Respondent.
DECISION
NACHURA, J.:
Before us is a petition for review on certiorari assailing the Court
of Appeals (CA) Decision1 in CA-G.R. CV No. 85930, which
reversed and set aside the decision of the Regional Trial Court
(RTC), Branch 132, Makati City in Civil Case No. 0051306.2
On August 20, 1999, respondent Central Surety & Insurance
Company (Central Surety) obtained an industrial loan
of P6,000,000.00 from petitioner Premiere Development Bank
(Premiere Bank) with a maturity date of August 14, 2000.
This P6,000,000.00 loan, evidenced by Promissory Note (PN)
No. 714-Y,3 stipulates payment of 17% interest per annum
payable monthly in arrears and the principal payable on due
date. In addition, PN No. 714-Y provides for a penalty charge of
24% interest per annum based on the unpaid
amortization/installment or the entire unpaid balance of the loan.
In all, should Central Surety fail to pay, it would be liable to
Premiere Bank for: (1) unpaid interest up to maturity date; (2)
unpaid penalties up to maturity date; and (3) unpaid balance of
the principal.
To secure payment of the P6,000,000.00 loan, Central Surety
executed in favor of Premiere Bank a Deed of Assignment with
Pledge4 covering Central Suretys Membership Fee Certificate
No. 217 representing its proprietary share in Wack Wack Golf
and Country Club Incorporated (Wack Wack Membership). In
both PN No. 714-Y and Deed of Assignment, Constancio T.
Castaeda, Jr. and Engracio T. Castaeda, president and vice-
president of Central Surety, respectively, represented Central
Surety and solidarily bound themselves to the payment of the
obligation.
Parenthetically, Central Surety had another commercial loan
with Premiere Bank in the amount of P40,898,000.00 maturing
on October 10, 2001. This loan was, likewise, evidenced by a
PN numbered 376-X5 and secured by a real estate mortgage
over Condominium Certificate of Title No. 8804, Makati City. PN
No. 376-X was availed of through a renewal of Central Suretys
prior loan, then covered by PN No. 367-Z.6 As with
the P6,000,000.00 loan and the constituted pledge over the
Wack Wack Membership, the P40,898,000.00 loan with real
estate mortgage was transacted by Constancio and Engracio
Castaeda on behalf of Central Surety.
It appears that on August 22, 2000, Premiere Bank sent a letter
to Central Surety demanding payment of the P6,000,000.00
loan, to wit:
August 22, 2000
CENTRAL SURETY AND INSURANCE CO.
2nd Floor Universalre Bldg.
No. 106 Paseo de Roxas, Legaspi Village
Makati City
Attention: Mr. Constancio T. Castaneda, Jr.
President
Mr. Engracio T. Castaneda
Vice President
-------------------------------------------------
This has reference to your overdue loan of P6.0 Million.
We regret to inform you that despite efforts to restructure the
same, you have failed up to this time, to submit the required
documents and come up with equity necessary to implement the
restructuring scheme.
In view thereof, we regret that unless the above loan is settled
on or before five (5) days from the date hereof, we shall
exercise our option to have the Stock Certificate No. 217 with
Serial No. 1793 duly issued by Wack Wack Golf and Country
Club, Inc. transferred in the name of Premiere Development
Bank in accordance with the terms and conditions of the Deed
of Assignment with Pledge executed in favor of Premiere
Development Bank.
We shall appreciate your prompt compliance.
Very truly yours,
(sgd.)
IGNACIO R. NEBRIDA, JR.
Senior Asst. Vice President/
Business Development Group - Head7
Posthaste, Central Surety responded and sent the following
letter dated August 24, 2000:
24 August 2000
Mr. Ignacio R. Nebrida, Jr.
Senior Asst. Vice President/
Business Development Group Head
Premiere Bank
EDSA cor. Magallanes Avenue
Makati City
Sir:
With reference to this 6.0 Million loan account, we have
informed Ms. Evangeline Veloira that we are intending to settle
the account by the end of September. As of 14 August 2000 we
made payment to your bank as per receipt attached.
As you may know, present conditions have been difficult for the
insurance industry whose performance is so closely linked to
the nations economic prosperity; and we are now asking for
some consideration and leeway on your very stiff and immediate
demands.
Kindly extend to us your favorable approval.
Very truly yours,
(sgd.)
ENGRACIO T. CASTANEDA
Vice-President8
Accordingly, by September 20, 2000, Central Surety issued
Bank of Commerce (BC) Check No. 081149 dated September
22, 2000 in the amount of P6,000,000.00 and payable to
Premiere Bank. The check was received by Premiere Banks
Senior Account Manager, Evangeline Veloira, with the notation
"full payment of loan-Wack Wack," as reflected in Central
Suretys Disbursement Voucher.10 However, for undisclosed
reasons, Premiere Bank returned BC Check No. 08114 to
Central Surety, and in its letter dated September 28, 2000,
demanded from the latter, not just payment of
the P6,000,000.00 loan, but also the P40,898,000.00 loan which
was originally covered by PN No. 367-Z.11 In the same letter,
Premiere Bank threatened foreclosure of the loans respective
securities, the pledge and real estate mortgage, should Central
Surety fail to pay these within ten days from date, thus:
28 September 2000
CENTRAL SURETY & INSURANCE CO.
By: Constancio T. Castaeda Jr. President
Engracio T. Castaeda Vice President
2nd Floor Universalre Bldg. No. 106
Paseo de Roxas, Legaspi Village, Makati City
RE: YOUR COMMERCIAL LOAN OF P40,898,000.00 &
P6,000,000.00 WITH PREMIERE DEVELOPMENT BANK
UNDER ACCOUNT NOS. COM-367-Z AND COM 714-Y
**************************************************
Dear Sirs:
We write on behalf of our client, Premiere Development Bank, in
connection with your above-captioned loan account.
While our client has given you all the concessions, facilities and
opportunities to service your loans, we regret to inform you that
you have failed to settle the same despite their past due status.
In view of the foregoing and to protect the interest of our client,
please be advised that unless the outstanding balances of your
loan accounts as of date plus interest, penalties and other fees
and charges are paid in full or necessary arrangements
acceptable to our client is made by you within ten (10) days
from date hereof, we shall be constrained much to our regret, to
file foreclosure proceedings against the collateral of the loan
mortgaged to the Bank or pursue such action necessary in the
premises.
We trust, therefore, that you will give this matter your
preferential attention.
Very truly yours,
(sgd.)
PACITA M. ARAOS12
(italics supplied)
The very next day, on September 29, 2000, Central Surety,
through its counsel, wrote Premiere Bank and re-tendered
payment of the check:
29 September 2000
PREMIERE BANK
EDSA cor. Magallanes Avenue
Makati City
Attention: Mr. Ignacio R. Nebrida, Jr.
Senior Asst. Vice President/
Business Development Group Head
Re : Promissory Note No. 714-Y
Sir:
This is further to our clients letter to you dated 24 August 2000,
informing you that it would settle its account by the end of
September 2000.
Please be advised that on 20 September 2000 our client
delivered to your bank BC cheque no. 08114 payable to
Premiere Bank in the amount of SIX MILLION PESOS
(P6,000,000.00), which was received by your Senior Account
Manager, Ms. Evangeline Veloira. However, for unexplained
reasons the cheque was returned to us.
We are again tendering to you the said cheque of SIX MILLION
PESOS (P6,000,000.00), in payment of PN#714-Y. Please
accept the cheque and issue the corresponding receipt thereof.
Should you again refuse to accept this cheque, then I shall
advise my client to deposit it in court for proper disposition.
Thank you.
Very truly yours,
(sgd.)
EPIFANIO E. CUA
Counsel for Central Surety & Insurance Company13
(italics supplied)
On even date, a separate letter with another BC Check No.
08115 in the amount of P2,600,000.00 was also tendered to
Premiere Bank as payment for the Spouses Engracio and
Lourdes Castaedas (Spouses Castaedas) personal loan
covered by PN No. 717-X and secured by Manila Polo Club, Inc.
membership shares.
On October 13, 2000, Premiere Bank responded and signified
acceptance of Central Suretys checks under the following
application of payments:
13 October 2000
ATTY. EPIFANIO E. CUA
2/F Universalre Condominium
106 Paseo de Roxas
Legaspi Village, Makati City
Dear Atty. Cua:
Thank you for your two (2) letters both dated 29 September
2000 on behalf of your clients with the enclosed check nos.
0008114 and 0008115 for the total of P8,600,000.00.
As previously relayed to your client, Premiere Bank cannot
accept the two (2) checks as full settlement of the obligation
under Account Nos. PN #714-Y and PN # 717-X, as the amount
is insufficient.
In accordance with the terms and conditions of the Promissory
Notes executed by your clients in favor of Premiere
Development Bank, we have applied the two (2) checks to the
due obligations of your clients as follows:
1) Account No.: COM 235-Z14 P1,044,939.45
2) Account No.: IND 717-X P1,459,693.15
3) Account No.: COM 367-Z15 P4,476,200.18
4) Account No.: COM 714-Y P1,619,187.22
TOTAL P8,600,000.00
We are enclosing Xerox copy each of four (4) official receipts
covering the above payments. The originals are with us which
your clients or their duly authorized representative may pick-up
anytime during office hours.
We shall appreciate the settlement in full of the accounts of your
client or necessary arrangements for settlement thereof be
made as soon as possible to put the accounts on up to-date
status.
Thank you.
Very truly yours,
(sgd.)
MS. ELSA M. SAPAPO
Manager
Loans Accounting and
Control Department16
Significantly, the P8,600,000.00 check payments were not
applied in full to Central Suretys P6,000,000.00 loan under PN
No. 714-Y and the Spouses Castaedas personal loan
of P2,600,000.00 under PN No. 717-X. Premiere Bank also
applied proceeds thereof to a commercial loan under PN No.
235-Z taken out by Casent Realty and Development
Corporation (Casent Realty),17 and to Central Suretys loan
originally covered by PN No. 367-Z, renewed under PN No.
376-X, maturing on October 20, 2001.
Strongly objecting to Premiere Banks application of payments,
Central Suretys counsel wrote Premiere Bank and reiterated
Central Suretys demand for the application of the check
payments to the loans covered by PN Nos. 714-X and 714-Y.
Additionally, Central Surety asked that the Wack Wack
Membership pledge, the security for the P6,000,000.00 loan,
should be released.
In the final exchange of correspondence, Premiere Bank,
through its SAVP/Acting Head-LGC, Atty. Pacita Araos,
responded and refused to accede to Central Suretys demand.
Premiere Bank insisted that the PN covering the P6,000,000.00
loan granted Premiere Bank sole discretion respecting: (1)
debts to which payments should be applied in cases of several
obligations by an obligor and/or debtor; and (2) the initial
application of payments to other costs, advances, expenses,
and past due interest stipulated thereunder.
As a result, Central Surety filed a complaint for damages and
release of security collateral, specifically praying that the court
render judgment: (1) declaring Central Suretys P6,000,000.00
loan covered by PN No. 714-Y as fully paid; (2) ordering
Premiere Bank to release to Central Surety its membership
certificate of shares in Wack Wack; (3) ordering Premiere Bank
to pay Central Surety compensatory and actual damages,
exemplary damages, attorneys fees, and expenses of litigation;
and (4) directing Premiere Bank to pay the cost of suit.
On July 12, 2005, the RTC rendered a decision dismissing
Central Suretys complaint and ordering it to pay Premiere
Bank P100,000.00 as attorneys fees. The RTC ruled that the
stipulation in the PN granting Premiere Bank sole discretion in
the application of payments, although it partook of a contract of
adhesion, was valid. It disposed of the case, to wit:
Now that the issue as to the validity of the stipulation is settled,
[Premiere Bank] was right in contending that it had the right to
apply [Central Suretys] payment to the most onerous obligation
or to the one it sees fit to be paid first from among the several
obligations. The application of the payment to the other two
loans of Central Surety namely, account nos. COM 367-Z and
IND 714-Y was within [Premiere Banks] valid exercise of its
right according the stipulation.lawphil.net However, [Premiere
Bank] erred in applying the payment to the loan of Casent
Realty and to the personal obligation of Mr. Engracio Castaeda
despite their connection with one another. Therefore, [Premiere
Bank] cannot apply the payment tendered by Central Surety to
the other two entities capriciously and expressly violating the
law and pertinent Central Bank rules and regulations. Hence,
the application of the payment to the loan of Casent Realty
(Account No. COM 236-Z) and to the loan of Mr. Engracio
Castaeda (Account No. IND 717-X) is void and must be
annulled.
As to the issue of whether or not [Central Surety] is entitled to
the release of Membership Fee Certificate in the Wack Wack
Golf and Country Club, considering now that [Central Surety]
cannot compel [Premiere Bank] to release the subject collateral.
With regard to the issue of damages and attorneys fees, the
court finds no basis to grant [Premiere Banks] prayer for moral
and exemplary damages but deems it just and equitable to
award in its favor attorneys fees in the sum of Php 100,000.00.
WHEREFORE, judgment is hereby rendered dismissing the
complaint and ordering [Central Surety] to pay [Premiere Bank]
Php 100,000.00 as attorneys fees.18 (emphasis supplied)
On appeal by Central Surety, the CA reversed and set aside the
trial courts ruling. The appellate court held that with Premiere
Banks letter dated August 22, 2000 specifically demanding
payment of Central Suretys P6,000,000.00 loan, it was deemed
to have waived the stipulation in PN No. 714-Y granting it the
right to solely determine application of payments, and was,
consequently, estopped from enforcing the same. In this regard,
with the holding of full settlement of Central
Suretys P6,000,000.00 loan under PN No. 714-Y, the CA
ordered the release of the Wack Wack Membership pledged to
Premiere Bank.
Hence, this recourse by Premiere Bank positing the following
issues:
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
COMMITTED REVERSIBLE AND PALPABLE ERROR WHEN
IT APPLIED THE PRINCIPLE OF WAIVER AND ESTOPPEL IN
THE PRESENT CASE INSOFAR AS THE DEMAND LETTER
SENT TO [CENTRAL SURETY] IS CONCERNED NULLIFYING
THE APPLICATION OF PAYMENTS EXERCISED BY
[PREMIERE BANK]
WHETHER OR NOT THE FINDING OF WAIVER AND
ESTOPPEL BY THE HONORABLE COURT OF APPEALS
COULD PREVAIL OVER THE CLEAR AND UNMISTAKABLE
STATUTORY AND CONTRACTUAL RIGHT OF [PREMIERE
BANK] TO EXERCISE APPLICATION OF PAYMENT AS
WARRANTED BY THE PROMISSORY NOTE
EVEN ASSUMING EX GRATIA THAT THE 6 MILLION
SHOULD BE APPLIED TO THE SUBJECT LOAN OF
RESPONDENT, WHETHER OR NOT THE SUBJECT WACK-
WACK SHARES COULD BE RELEASE[D] DESPITE THE
CROSS DEFAULT AND CROSS GUARANTEE PROVISIONS
OF THE DEED OF ASSIGNMENT WITH PLEDGE AND
RELEVANT REAL ESTATE MORTGAGE CONTRACTS
EXECUTED BY [CENTRAL SURETY], CASENT REALTY AND
SPS. CASTAEDA.
WHETHER OR NOT THERE IS A VALID TENDER OF
PAYMENT AND CONSIGNATION OF THE SUBJECT TWO
CHECK PAYMENTS BY [CENTRAL SURETY].
WHETHER OR NOT, AS CORRECTLY FOUND BY THE
COURT A QUO [CENTRAL SURETY] IS ESTOPPED FROM
CONTESTING THE STIPULATIONS OR PROVISIONS OF
THE PROMISSORY NOTES AUTHORIZING [PREMIERE
BANK] TO MAKE SUCH APPLICATION OF PAYMENTS
WHETHER OR NOT AS CORRECTLY FOUND BY THE
LOWER COURT [PREMIERE BANK] IS ENTITLED TO AN
AWARD OF DAMAGES AS OCCASIONED BY THE
MALICIOUS FILING OF THIS SUIT.19
At the outset, we qualify that this case deals only with the
extinguishment of Central Suretys P6,000,000.00 loan secured
by the Wack Wack Membership pledge. We do not dispose
herein the matter of the P2,600,000.00 loan covered by PN No.
717-X subject of BC Check No. 08115.
We note that both lower courts were one in annulling Premiere
Banks application of payments to the loans of Casent Realty
and the Spouses Castaeda under PN Nos. 235-Z and 717-X,
respectively, thus:
It bears stressing that the parties to PN No. 714-Y secured by
Wack Wack membership certificate are only Central Surety, as
debtor and [Premiere Bank], as creditor. Thus, when the
questioned stipulation speaks of "several obligations", it only
refers to the obligations of [Central Surety] and nobody else.
[I]t is plain that [Central Surety] has only two loan obligations,
namely: 1.) Account No. 714-Y secured by Wack Wack
membership certificate; and 2.) Account No. 367-Z secured
by Condominium Certificate of Title. The two loans are secured
by separate and different collaterals. The collateral for Account
No. 714-Y, which is the Wack Wack membership certificate
answers only for that account and nothing else. The collateral
for Account No. 367-Z, which is the Condominium Certificate of
Title, is answerable only for the said account.
The fact that the loan obligations of [Central Surety] are secured
by separate and distinct collateral simply shows that each
collateral secures only a particular loan obligation and does not
cover loans including future loans or advancements.
As regards the loan covered by Account No. 235-Z, this was
obtained by Casent Realty, not by [Central Surety]. Although Mr.
Engracio Castaeda is the vice-president of [Central Surety],
and president of Casent Realty, it does not follow that the two
corporations are one and the same. Both are invested by law
with a personality separate and distinct from each other.
Thus, [Central Surety] cannot be held liable for the obligation of
Casent Realty, absent evidence showing that the latter is being
used to defeat public convenience, justify wrong, protect fraud
or defend crime; or used as a shield to confuse the legitimate
issues, or when it is merely an adjunct, a business conduit or an
alter ego of [Central Surety] or of another corporation; or used
as a cloak to cover for fraud or illegality, or to work injustice, or
where necessary to achieve equity or for the protection of
creditors.1avvphi1
Likewise, [Central Surety] cannot be held accountable for the
loan obligation of spouses Castaeda under Account No. IND
717-X. Settled is the rule that a corporation is invested by law
with a personality separate and distinct from those of the
persons composing it. The corporate debt or credit is not the
debt or credit of the stockholder nor is the stockholders debt or
credit that of the corporation.
The mere fact that a person is a president of the corporation
does not render the property he owns or possesses the property
of the corporation, since that president, as an individual, and the
corporation are separate entities.20
In fact, Premiere Bank did not appeal or question the RTCs
ruling specifically annulling the application of the P6,000,000.00
check payment to the respective loans of Casent Realty and the
Spouses Castaeda. Undoubtedly, Premiere Bank cannot be
allowed, through this petition, to surreptitiously include the
validity of its application of payments concerning the loans to
Casent Realty and the Spouses Castaeda.
Thus, we sift through the issues posited by Premiere Bank and
restate the same, to wit:
1. Whether Premiere Bank waived its right of
application of payments on the loans of Central Surety.
2. In the alternative, whether the P6,000,000.00 loan of
Central Surety was extinguished by the encashment of
BC Check No. 08114.
3. Corollarily, whether the release of the Wack Wack
Membership pledge is in order.
The Petition is meritorious.
We shall take the first and the second issues in tandem.
Creditor given right to apply payments
At the hub of the controversy is the statutory provision on
application of payments, specifically Article 1252 of the Civil
Code, viz.:
Article 1252. He who has various debts of the same kind in
favor of one and the same creditor, may declare at the time of
making the payment, to which of them the same must be
applied. Unless the parties so stipulate, or when the application
of payment is made by the party for whose benefit the term has
been constituted, application shall not be made as to debts
which are not yet due.
If the debtor accepts from the creditor a receipt in which an
application of the payment is made, the former cannot complain
of the same, unless there is a cause for invalidating the
contract.
The debtors right to apply payment is not mandatory. This is
clear from the use of the word "may" rather than the word "shall"
in the provision which reads: "He who has various debts of the
same kind in favor of one and the same creditor, may declare at
the time of making the payment, to which of the same must be
applied."
Indeed, the debtors right to apply payment has been
considered merely directory, and not mandatory,21 following this
Courts earlier pronouncement that "the ordinary acceptation of
the terms may and shall may be resorted to as guides in
ascertaining the mandatory or directory character of statutory
provisions."22
Article 1252 gives the right to the debtor to choose to which of
several obligations to apply a particular payment that he tenders
to the creditor. But likewise granted in the same provision is the
right of the creditor to apply such payment in case the debtor
fails to direct its application. This is obvious in Art. 1252, par. 2,
viz.: "If the debtor accepts from the creditor a receipt in which an
application of payment is made, the former cannot complain of
the same." It is the directory nature of this right and the
subsidiary right of the creditor to apply payments when the
debtor does not elect to do so that make this right, like any other
right, waivable.
Rights may be waived, unless the waiver is contrary to law,
public order, public policy, morals or good customs, or
prejudicial to a third person with a right recognized by law. 23
A debtor, in making a voluntary payment, may at the time of
payment direct an application of it to whatever account he
chooses, unless he has assigned or waived that right. If the
debtor does not do so, the right passes to the creditor, who may
make such application as he chooses. But if neither party has
exercised its option, the court will apply the payment according
to the justice and equity of the case, taking into consideration all
its circumstances.24
Verily, the debtors right to apply payment can be waived and
even granted to the creditor if the debtor so agrees.25This was
explained by former Senator Arturo M. Tolentino, an
acknowledged expert on the Civil Code, thus:
The following are some limitations on the right of the debtor to
apply his payment:
xxxx
5) when there is an agreement as to the debts which are to be
paid first, the debtor cannot vary this agreement.26
Relevantly, in a Decision of the Supreme Court of Kansas in a
case with parallel facts, it was held that:
The debtor requested Planters apply the payments to the 1981
loan rather than to the 1978 loan. Planters refused. Planters
notes it was expressly provided in the security agreement on the
1981 loan that Planters had a legal right to direct application of
payments in its sole discretion. Appellees do not refute this.
Hence, the debtors had no right by agreement to direct the
payments. This also precludes the application of the U.S. Rule,
which applies only in absence of a statute or specific
agreement. Thus the trial court erred. Planters was entitled to
apply the Hi-Plains payments as it saw fit.27
In the case at bench, the records show that Premiere Bank and
Central Surety entered into several contracts of loan, securities
by way of pledges, and suretyship agreements. In at least two
(2) promissory notes between the parties, Promissory Note No.
714-Y and Promissory Note No. 376-X, Central Surety
expressly agreed to grant Premiere Bank the authority to apply
any and all of Central Suretys payments, thus:
In case I/We have several obligations with [Premiere Bank],
I/We hereby empower [Premiere Bank] to apply without notice
and in any manner it sees fit, any or all of my/our deposits and
payments to any of my/our obligations whether due or not. Any
such application of deposits or payments shall be conclusive
and binding upon us.
This proviso is representative of all the other Promissory Notes
involved in this case. It is in the exercise of this express
authority under the Promissory Notes, and following Bangko
Sentral ng Pilipinas Regulations, that Premiere Bank applied
payments made by Central Surety, as it deemed fit, to the
several debts of the latter.
All debts were due; There was no
waiver on the part of petitioner
Undoubtedly, at the time of conflict between the parties material
to this case, Promissory Note No. 714-Y dated August 20, 1999,
in the amount of P6,000,000.00 and secured by the pledge of
the Wack Wack Membership, was past the due and demand
stage. By its terms, Premiere Bank was entitled to declare said
Note and all sums payable thereunder immediately due and
payable, without need of "presentment, demand, protest or
notice of any kind." The subsequent demand made by Premiere
Bank was, therefore, merely a superfluity, which cannot be
equated with a waiver of the right to demand payment of all the
matured obligations of Central Surety to Premiere Bank.
Moreover, this Court may take judicial notice that the standard
practice in commercial transactions to send demand letters has
become part and parcel of every collection effort, especially in
light of the legal requirement that demand is a prerequisite
before default may set in, subject to certain well-known
exceptions, including the situation where the law or the
obligations expressly declare it unnecessary.28
Neither can it be said that Premiere Bank waived its right to
apply payments when it specifically demanded payment of
the P6,000,000.00 loan under Promissory Note No. 714-Y. It is
an elementary rule that the existence of a waiver must be
positively demonstrated since a waiver by implication is not
normally countenanced. The norm is that a waiver must not only
be voluntary, but must have been made knowingly, intelligently,
and with sufficient awareness of the relevant circumstances and
likely consequences. There must be persuasive evidence to
show an actual intention to relinquish the right. Mere silence on
the part of the holder of the right should not be construed as a
surrender thereof; the courts must indulge every reasonable
presumption against the existence and validity of such waiver.29
Besides, in this case, any inference of a waiver of Premiere
Banks, as creditor, right to apply payments is eschewed by the
express provision of the Promissory Note that: "no failure on the
part of [Premiere Bank] to exercise, and no delay in
exercising any right hereunder, shall operate as a waiver
thereof."
Thus, we find it unnecessary to rule on the applicability of the
equitable principle of waiver that the Court of Appeals ascribed
to the demand made by Premiere Bank upon Central Surety to
pay the amount of P6,000,000.00, in the face of both the
express provisions of the law and the agreements entered into
by the parties. After all, a diligent creditor should not needlessly
be interfered with in the prosecution of his legal remedies. 30
When Central Surety directed the application of its payment to a
specific debt, it knew it had another debt with Premiere Bank,
that covered by Promissory Note 367-Z, which had been
renewed under Promissory Note 376-X, in the amount
of P40.898 Million. Central Surety is aware that Promissory
Note 367-Z (or 376-X) contains the same provision as in
Promissory Note No 714-Y which grants the Premiere Bank
authority to apply payments made by Central Surety, viz.:
In case I/We have several obligations with [Premiere Bank],
I/We hereby empower [Premiere Bank] to apply without notice
and in any manner it sees fit, any or all of my/our deposits and
payments to any of my/our obligations whether due or not. Any
such application of deposits or payments shall be conclusive
and binding upon us.31
Obviously, Central Surety is also cognizant that Promissory
Note 367-Z contains the proviso that:
the bank shall be entitled to declare this Note and all sums
payable hereunder to be immediately due and payable, without
need of presentment, demand, protest or notice of nay kind, all
of which I/We hereby expressly waive, upon occurrence of any
of the following events: x x x (ii) My/Our failure to pay
any amortization or installment due hereunder; (iii) My/Our
failure to pay money due under any other document or
agreement evidencing obligations for borrowed money x x x.32
by virtue of which, it follows that the obligation under Promissory
Note 367-Z had become past due and demandable, with further
notice expressly waived, when Central Surety defaulted on its
obligations under Promissory Note No. 714-Y.
Mendoza v. Court of Appeals33 forecloses any doubt that an
acceleration clause is valid and produces legal effects. In fact, in
Selegna Management and Development Corporation v. United
Coconut Planters Bank,34 we held that:
Considering that the contract is the law between the parties,
respondent is justified in invoking the acceleration clause
declaring the entire obligation immediately due and payable.
That clause obliged petitioners to pay the entire loan on January
29, 1999, the date fixed by respondent.
It is worth noting that after the delayed payment
of P6,000,000.00 was tendered by Central Surety, Premiere
Bank returned the amount as insufficient, ostensibly because
there was, at least, another account that was likewise due.
Obviously, in its demand of 28 September 2000, petitioner
sought payment, not just of the P6,000,000.00, but of all these
past due accounts. There is extant testimony to support this
claim, as the transcript of stenographic notes on the testimony
of Atty. Araos reveals:
Atty. Opinion: Q. But you accepted this payment of Six Million
(P6,000,000.00) later on when together with this was paid
another check for 1.8 Million?
Witness: A. We accepted.
Atty. Opinion: Q. And you applied this to four (4) other accounts
three (3) other accounts or to four (4) accounts mentioned in
Exhibit "J." Is that correct?
Atty. Tagalog: We can stipulate on that. Your Honor.
Court: This was stipulated?
Atty. Tagalog: Yes, Your Honor. In fact, there is already
stipulation that we confirm that those are the applications of
payments made by the defendant Bank on those loan accounts.
Atty. Opinion: Q. Were these accounts due already when you
made this application, distribution of payments?
Witness: A. Yes sir.35
Conversely, in its evidence-in-chief, Central Surety did not
present any witness to testify on the payment of its obligations.
In fact, the record shows that after marking its evidence, Central
Surety proceeded to offer its evidence immediately. Only on the
rebuttal stage did Central Surety present a witness; but even
then, no evidence was adduced of payment of any other
obligation. In this light, the Court is constrained to rule that all
obligations of Central Surety to Premiere Bank were due; and
thus, the application of payments was warranted.
Being in receipt of amounts tendered by Central Surety, which
were insufficient to cover its more onerous obligations, Premiere
Bank cannot be faulted for exercising the authority granted to it
under the Promissory Notes, and applying payment to the
obligations as it deemed fit. Subject to the caveat that our ruling
herein shall be limited only to the transactions entered into by
the parties to this case, the Court will not disturb the finding of
the lower court that Premiere Bank rightly applied the payments
that Central Surety had tendered. Corollary thereto, and upon
the second issue, the tender of the amount of P6,000,000.00 by
 Central Surety, and the encashment of BC Check No. 08114 did the ASSIGNOR
not totally extinguish the debt covered by PN No. 714-Y. / PLEDGOR
shall hereafter
execute in
Release of the pledged
favor of the
ASSIGNEE/PL
Wack Wack Membership EDGEE

Contract of Adhesion From these transactions and the proviso in the Deed of
Assignment with Pledge, it is clear that the security, which
To the extent that the subject promissory notes were prepared peculiarly specified an amount at P15,000,000.00 (notably
by the Premiere Bank and presented to Central Surety for greater than the amount of the promissory note it secured), was
signature, these agreements were, indeed, contracts of intended to guarantee not just the obligation under PN 714-Y,
adhesion. But contracts of adhesion are not invalid per se. but also future advances. Thus, the said deed is explicit:
Contracts of adhesion, where one party imposes a ready-made
form of contract on the other, are not entirely prohibited. The As security for the payment of loan obtained by the
one who adheres to the contract is, in reality, free to reject it ASSIGNOR/PLEDGOR from the ASSIGNEE/PLEDGEE in the
entirely; if he adheres, he gives his consent. amount of FIFTEEN MILLION PESOS (15,000,000.00)
Philippine Currency in accordance with the Promissory Note
In interpreting such contracts, however, courts are expected to attached hereto and made an integral part hereof as Annex
observe greater vigilance in order to shield the unwary or "A" and/or such Promissory Note/s which the
weaker party from deceptive schemes contained in ready-made ASSIGNOR/PLEDGOR shall hereafter execute in favor of the
covenants.36 Thus, Article 24 of the Civil Code pertinently ASSIGNEE/PLEDGEE, the ASSIGNOR/PLEDGOR hereby
states: transfers, assigns, conveys, endorses, encumbers and delivers
by way of first pledge unto the ASSIGNEE/PLEDGEE, its
successors and assigns, that certain Membership fee Certificate
In all contractual, property or other relations, when one of the
parties is at a disadvantage on Date Instrument Amount Stipulation
account of his moral dependence,
ignorance, indigence, mental Notarized, Sept. 22, Continuing P40,898,000.00 In consideration of the loan and/or any
weakness, tender age or other 1999 Guaranty/Comprehensive credit accommodation which you
handicap, the courts must be vigilant Surety Agreement (petitioner) have extended and/or will
for his protection. extend to Central Surety and Insurance
Co.
Share in Wack Wack Golf and Country Club Incorporate
But in this case, Central Surety does not appear so weak as to
covered by Stock Certificate No. 217 with Serial No. 1793 duly
be placed at a distinct disadvantage vis--vis the bank. As found
by the lower court: issue by Wack Wack Golf and Country Club Incorporated on
August 27, 1996 in the name of the ASSIGNOR." (Emphasis
made in the Petition.)
Considering that [Central Surety] is a known business entity, the
[Premiere Bank] was right in assuming that the [Central Surety]
Then, a Continuing Guaranty/Comprehensive Surety Agreement
could not have been cheated or misled in agreeing thereto, it
was later executed by Central Surety as follows:
could have negotiated with the bank on a more favorable term
considering that it has already established a certain reputation
with the [Premiere Bank]
as evidenced by its Date
Instrument
Amount
Stipulation
numerous transactions. It covered
is therefore absurd that an
established company such August 20, 1999 PN 714-Y P6M
as the [Central Surety] has
no knowledge of the law
August 29, 1999 Deed of Assignment with P 15 M As security for PN 714-Y and/or such
regarding bank practice in Pledge Promissory Note/s which the ASSIGNOR /
loan transactions. PLEDGOR shall hereafter execute in favor of
the ASSIGNEE/PLEDGEE
The Dragnet Clause.
Notarized, Continuing P40,898,000.00 In consideration of the loan and/or any credit
The factual circumstances Sept. 22, 1999 Guaranty/Comprehensive accommodation which you (petitioner) have
Surety Agreement extended and/or will extend to Central Surety
of this case showing the
and Insurance Co.
chain of transactions and
long-standing relationship
between Premiere Bank October 10, 2000 Promissory Note 376-X (PN P40,898,000.00
and Central Surety militate 367-Z)
against the latters prayer And on October 10, 2000, Promissory Note 376-X was entered
in its complaint for the release of the Wack Wack Membership, into, a renewal of the prior Promissory Note 367-Z, in the
the security attached to Promissory Note 714-Y. amount of P40,898,000.00. In all, the transactions that
transpired between Premiere Bank and Central Surety manifest
A tally of the facts shows the following transactions between themselves, thusly:
Premiere Bank and Central Surety:
From the foregoing, it is more than apparent that when, on
August 29, 1999, the parties executed the Deed of Assignment
Date Instrument Amount Stipulation with Pledge (of the Wack Wack Membership), to serve as
covered security for an obligation in the amount of P15,000,000.00
(when the actual loan covered by PN No. 714-Y was
only P6,000,000.00), the intent of the parties was for the Wack
August 20, 1999 PN 714-Y P6M Wack Membership to serve as security also for future
advancements. The subsequent loan was nothing more than a
fulfillment of the intention of the parties. Of course, because the
August 29, 1999 Deed of P 15 M As security for subsequent loan was for a much greater amount
Assignment with PN 714-Y (P40,898,000.00), it became necessary to put up another
Pledge and/or such security, in addition to the Wack Wack Membership. Thus, the
Promissory subsequent surety agreement and the specific security for PN
Note/s which
No. 367-X were, like the Wack Wack Membership, meant to
secure the ballooning debt of the Central Surety.
The above-quoted provision in the Deed of Assignment, also
known as the "dragnet clause" in American jurisprudence, would
subsume all debts of respondent of past and future origins. It is
a valid and legal undertaking, and the amounts specified as
consideration in the contracts do not limit the amount for which
the pledge or mortgage stands as security, if from the four
corners of the instrument, the intent to secure future and other
indebtedness can be gathered. A pledge or mortgage given to
secure future advancements is a continuing security and is not
discharged by the repayment of the amount named in the
mortgage until the full amount of all advancements shall have
been paid.37
Our ruling in Prudential Bank v. Alviar38 is instructive:
A "blanket mortgage clause," also known as a "dragnet clause"
in American jurisprudence, is one which is specifically phrased
to subsume all debts of past or future origins. Such clauses are
"carefully scrutinized and strictly construed." Mortgages of this
character enable the parties to provide continuous dealings, the
nature or extent of which may not be known or anticipated at the
time, and they avoid the expense and inconvenience of
executing a new security on each new transaction. A "dragnet
clause" operates as a convenience and accommodation to the
borrowers as it makes available additional funds without their
having to execute additional security documents, thereby saving
time, travel, loan closing costs, costs of extra legal services,
recording fees, et cetera. Indeed, it has been settled in a long
line of decisions that mortgages given to secure future
advancements are valid and legal contracts, and the amounts
named as consideration in said contracts do not limit the
amount for which the mortgage may stand as security if from the
four corners of the instrument the intent to secure future and
other indebtedness can be gathered.
The "blanket mortgage clause" in the instant case states:
That for and in consideration of certain loans, overdraft and
other credit accommodations obtained from the Mortgagee by
the Mortgagor and/or ________________ hereinafter referred
to, irrespective of number, as DEBTOR, and to secure the
payment of the same and those that may hereafter be
obtained, the principal or all of which is hereby fixed at Two
Hundred Fifty Thousand (P250,000.00) Pesos, Philippine
Currency, as well as those that the Mortgagee may extend to
the Mortgagor and/or DEBTOR, including interest and expenses
or any other obligation owing to the Mortgagee, whether direct
or indirect, principal or secondary as appears in the accounts,
books and records of the Mortgagee, the Mortgagor does
hereby transfer and convey by way of mortgage unto the
Mortgagee, its successors or assigns, the parcels of land which
are described in the list inserted on the back of this document,
and/or appended hereto, together with all the buildings and
improvements now existing or which may hereafter be erected
or constructed thereon, of which the Mortgagor declares that
he/it is the absolute owner free from all liens and incumbrances.
...
xxxx
In the case at bar, the subsequent loans obtained by
respondents were secured by other securities, thus: PN
BD#76/C-345, executed by Don Alviar was secured by a "hold-
out" on his foreign currency savings account, while PN
BD#76/C-430, executed by respondents for Donalco Trading,
Inc., was secured by "Clean-Phase out TOD CA 3923" and
eventually by a deed of assignment on two promissory notes
executed by Bancom Realty Corporation with Deed of
Guarantee in favor of A.U. Valencia and Co., and by a chattel
mortgage on various heavy and transportation equipment. The
matter of PN BD#76/C-430 has already been discussed. Thus,
the critical issue is whether the "blanket mortgage" clause
applies even to subsequent advancements for which other
securities were intended, or particularly, to PN BD#76/C-345.
Under American jurisprudence, two schools of thought have
emerged on this question. One school advocates that a "dragnet
clause" so worded as to be broad enough to cover all other
debts in addition to the one specifically secured will be
construed to cover a different debt, although such other debt is
secured by another mortgage. The contrary thinking maintains
that a mortgage with such a clause will not secure a note that
expresses on its face that it is otherwise secured as to its
entirety, at least to anything other than a deficiency after
exhausting the security specified therein, such deficiency being
an indebtedness within the meaning of the mortgage, in the
absence of a special contract excluding it from the arrangement.
The latter school represents the better position. The parties
having conformed to the "blanket mortgage clause" or "dragnet
clause," it is reasonable to conclude that they also agreed to an
implied understanding that subsequent loans need not be
secured by other securities, as the subsequent loans will be
secured by the first mortgage. In other words, the sufficiency of
the first security is a corollary component of the "dragnet
clause." But of course, there is no prohibition, as in the
mortgage contract in issue, against contractually requiring other
securities for the subsequent loans. Thus, when the mortgagor
takes another loan for which another security was given it could
not be inferred that such loan was made in reliance solely on
the original security with the "dragnet clause," but rather, on the
new security given. This is the "reliance on the security test."
Hence, based on the "reliance on the security test," the
California court in the cited case made an inquiry whether the
second loan was made in reliance on the original security
containing a "dragnet clause." Accordingly, finding a different
security was taken for the second loan no intent that the parties
relied on the security of the first loan could be inferred, so it was
held. The rationale involved, the court said, was that the
"dragnet clause" in the first security instrument constituted a
continuing offer by the borrower to secure further loans under
the security of the first security instrument, and that when the
lender accepted a different security he did not accept the offer.
In another case, it was held that a mortgage with a "dragnet
clause" is an "offer" by the mortgagor to the bank to provide the
security of the mortgage for advances of and when they were
made. Thus, it was concluded that the "offer" was not accepted
by the bank when a subsequent advance was made because
(1) the second note was secured by a chattel mortgage on
certain vehicles, and the clause therein stated that the note was
secured by such chattel mortgage; (2) there was no reference in
the second note or chattel mortgage indicating a connection
between the real estate mortgage and the advance; (3) the
mortgagor signed the real estate mortgage by her name alone,
whereas the second note and chattel mortgage were signed by
the mortgagor doing business under an assumed name; and (4)
there was no allegation by the bank, and apparently no proof,
that it relied on the security of the real estate mortgage in
making the advance.
Indeed, in some instances, it has been held that in the absence
of clear, supportive evidence of a contrary intention, a mortgage
containing a "dragnet clause" will not be extended to cover
future advances unless the document evidencing the
subsequent advance refers to the mortgage as providing
security therefor.
It was therefore improper for petitioner in this case to seek
foreclosure of the mortgaged property because of non-payment
of all the three promissory notes. While the existence and
validity of the "dragnet clause" cannot be denied, there is a
need to respect the existence of the other security given for PN
BD#76/C-345. The foreclosure of the mortgaged property
should only be for the P250,000.00 loan covered by PN
BD#75/C-252, and for any amount not covered by the security
for the second promissory note. As held in one case, where
deeds absolute in form were executed to secure any and all
kinds of indebtedness that might subsequently become due, a
balance due on a note, after exhausting the special security
given for the payment of such note, was in the absence of a
special agreement to the contrary, within the protection of the
mortgage, notwithstanding the giving of the special security.
This is recognition that while the "dragnet clause" subsists, the
security specifically executed for subsequent loans must first be
exhausted before the mortgaged property can be resorted to.
The security clause involved in the case at bar shows that, by its
terms:
As security for the payment of loan obtained by the
ASSIGNOR/PLEDGOR from the ASSIGNEE/PLEDGEE in the
amount of FIFTEEN MILLION PESOS (15,000,000.00)
Philippine Currency in accordance with the Promissory Note
attached hereto and made an integral part hereof as Annex "A"
and/or such Promissory Note/s which the
ASSIGNOR/PLEDGOR shall hereafter execute in favor of the
ASSIGNEE/PLEDGEE, the ASSIGNOR/ PLEDGOR hereby
transfers, assigns, conveys, endorses, encumbers and delivers
by way of first pledge unto the ASSIGNEE/PLEDGEE, its
successors and assigns, that certain Membership fee Certificate
Share in Wack Wack Golf and Country Club Incorporated
covered by Stock Certificate No. 217 with Serial No. 1793 duly
issue by Wack Wack Golf and Country Club Incorporated on
August 27, 1996 in the name of the ASSIGNOR."
it is comparable with the security clause in the case of
Prudential, viz.:
That for and in consideration of certain loans, overdraft and
other credit accommodations obtained from the Mortgagee by
the Mortgagor and/or ________________ hereinafter referred
to, irrespective of number, as DEBTOR, and to secure the
payment of the same and those that may hereafter be
obtained, the principal or all of which is hereby fixed at Two
Hundred Fifty Thousand (P250,000.00) Pesos, Philippine
Currency, as well as those that the Mortgagee may extend to
the Mortgagor and/or DEBTOR, including interest and expenses
or any other obligation owing to the Mortgagee, whether direct
or indirect, principal or secondary as appears in the accounts,
books and records of the Mortgagee, the Mortgagor does
hereby transfer and convey by way of mortgage unto the
Mortgagee, its successors or assigns, the parcels of land which
are described in the list inserted on the back of this document,
and/or appended hereto, together with all the buildings and
improvements now existing or which may hereafter be erected
or constructed thereon, of which the Mortgagor declares that
he/it is the absolute owner free from all liens and incumbrances.
...
and there is no substantive difference between the terms
utilized in both clauses securing future advances.
To recall, the critical issue resolved in Prudential was whether
the "blanket mortgage" clause applies even to subsequent
advancements for which other securities were intended. We
then declared that the special security for subsequent loans
must first be exhausted in a situation where the creditor desires
to foreclose on the "subsequent" loans that are due. However,
the "dragnet clause" allows the creditor to hold on to the first
security in case of deficiency after foreclosure on the special
security for the subsequent loans.
In Prudential, we disallowed the petitioners attempt at multiple
foreclosures, as it foreclosed on all of the mortgaged properties
serving as individual securities for each of the three loans. This
Court then laid down the rule, thus:
where deeds absolute in form were executed to secure any and
all kinds of indebtedness that might subsequently become due,
a balance due on a note, after exhausting the special security
given for the payment of such note, was, in the absence of a
special agreement to the contrary, within the protection of the
mortgage, notwithstanding the giving of the special security.
This is recognition that while the "dragnet clause" subsists, the
security specifically executed for subsequent loans must first be
exhausted before the mortgaged property can be resorted to.
However, this does not prevent the creditor from foreclosing on
the security for the first loan if that loan is past due, because
there is nothing in law that prohibits the exercise of that right.
Hence, in the case at bench, Premiere Bank has the right to
foreclose on the Wack Wack Membership, the security
corresponding to the first promissory note, with the deed of
assignment that originated the "dragnet clause." This conforms
to the doctrine in Prudential, as, in fact, acknowledged in the
decisions penultimate paragraph, viz.:
Petitioner, however, is not without recourse. Both the Court of
Appeals and the trial court found that respondents have not yet
paid the P250,000.00 and gave no credence to their claim that
they paid the said amount when they paid
petitioner P2,000,000.00. Thus, the mortgaged property could
still be properly subjected to foreclosure proceedings for the
unpaid P250,000.00 loan, and as mentioned earlier, for any
deficiency after D/A SFDX#129, security for PN BD#76/c-345,
has been exhausted, subject of course to defenses which are
available to respondents.
In any event, even without this Courts prescription in Prudential,
the release of the Wack Wack Membership as the pledged
security for Promissory Note 714-Y cannot yet be done as
sought by Central Surety. The chain of contracts concluded
between Premiere Bank and Central Surety reveals that the
Wack Wack Membership, which stood as security for
Promissory Note 714-Y, and which also stands as security for
subsequent debts of Central Surety, is a security in the form of a
pledge. Its return to Central Surety upon the pretext that Central
Surety is entitled to pay only the obligation in Promissory Note
No. 714-Y, will result in the extinguishment of the pledge, even
with respect to the subsequent obligations, because Article
2110 of the Civil Code provides:
(I)f the thing pledged is returned by the pledgor or owner, the
pledge is extinguished. Any stipulation to the contrary is void.
This is contrary to the express agreement of the parties,
something which Central Surety wants this Court to undo. We
reiterate that, as a rule, courts cannot intervene to save parties
from disadvantageous provisions of their contracts if they
consented to the same freely and voluntarily.39
Attorneys Fees
The final issue is the propriety of attorneys fees. The trial court
based its award on the supposed malice of Central Surety in
instituting this case against Premiere Bank. We find no malice
on the part of Central Surety; indeed, we are convinced that
Central Surety filed the case in the lower court in good faith,
upon the honest belief that it had the prerogative to choose to
which loan its payments should be applied.
Malicious prosecution, both in criminal and civil cases, requires
the presence of two elements, to wit: (a) malice and (b) absence
of probable cause. Moreover, there must be proof that the
prosecution was prompted by a sinister design to vex and
humiliate a person; and that it was initiated deliberately,
knowing that the charge was false and baseless. Hence, the
mere filing of what turns out to be an unsuccessful suit does not
render a person liable for malicious prosecution, for the law
could not have meant to impose a penalty on the right to
litigate.40 Malice must be proved with clear and convincing
evidence, which we find wanting in this case.
WHEREFORE, the instant petition is PARTIALLY GRANTED.
The assailed Decision of the Court of Appeals in CA-G.R. CV
No. 85930 dated July 31, 2006, as well as its Resolution dated
January 4, 2007, are REVERSED and SET ASIDE. The
Decision of the Regional Trial Court of Makati City, Branch 132,
in Civil Case No. 00-1536, dated July 12, 2005, is
REINSTATED with the MODIFICATION that the award of
attorneys fees to petitioner is DELETED. No pronouncement as
to costs.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
MA. ALICIA AUSTRIA- MINITA V. CHICO-
 40
MARTINEZ NAZARIO Ceballos v. Intestate Estate of the Late Emigdio Mercado, G.R. No. 155856,
Associate Justice Associate Justice May 28, 2004, 430 SCRA 323, 336, citing China Banking Corporation v. Court of
Appeals, 231 SCRA 472 (1994).

TERESITA J. LEONARDO-DE CASTRO*

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached

in consultation before the case was assigned to the writer of the
opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairperson's Attestation, I certify that the conclusions in the above Decision
had been reached in consultation before the case was assigned to the writer
of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

Footnotes
* Per Raffle dated February 18, 2008.
1 Penned by Presiding Justice Ruben T. Reyes (now a retired member of this

Court), with Associate Justices Rebecca de Guia-Salvador and Monina Arevalo-

Zenarosa, concurring; rollo, pp. 45-69.
2 Penned by Judge Rommel O. Baybay.
3 Annex "A" of the Complaint, records, p. 11.
4 Annex "B" of the Complaint, id. at 12-13.
5
Annex "E," formal offer of exhibits, id. at 206.
6 Rollo, p. 11.
7 Annex "D" of the Complaint, records, p. 15. (Italics supplied.)
8 Annex "E" of the Complaint, id. at 16. (Italics supplied.)
9
Annex "G" of the Complaint, id. at 18.
10 Annex "G-1" of the Complaint, id. at 18.
11 Now covered by PN No. 376-X to mature on October 20, 2001.
12
Annex "H" of the Complaint, records, p. 19.
13 Annex "I" of the Complaint, id. at 20.
14 Loan of P40,000,000.00 to Casent Realty and Development Corporation with

Engracio Castaeda signing the PN as president thereof.

15
Supra notes 3, 4.
16
Annexes "J," "J-1" of the Complaint, records, pp. 21-22.
17 An affiliate company of Central Surety with Engracio Castaeda as president

thereof.
18 Rollo, pp. 79-80.
19
Id. at 9-10.
20 Id. at 61-64.
21 Baltazar v. Lingayen Gulf Electric Power Co., Inc., 121 Phil. 1308, 1321

(1965).
22 Social Security Commission v. Court of Appeals, G.R. No. 152058, September

27, 2004, 439 SCRA 239.

23 CIVIL CODE, Art. 6.
24 Allen & Robinson v. F. H. Redward and Hawaiian Lodge, No. 21, of Free and

Accepted Masons, April 25, 1896, 10 Haw. 273, 1896 WL 1624 (Hawaii Rep.).
25 IV Tolentino, Commentaries and Jurisprudence on the Civil Code of the

Philippines, 311 (1985), citing Salvat 104-105, 7 Planiol & Ripert 542, De Buen,
3 Colin & Capitant, 188, 296.
26
Id.
27 The Ram Company, Inc. v. The Estate of Clyde K. Kobbeman, et al. and

Planters Bank and Trust Company, Appellant, No. 56408, March 2, 1985, 236
Kan. 751, 696 P. 2d 936, citing Gray v. Amoco Production Company, 1 Kan.
App. 2d 338, P 11, 564 P. 2d 579 (1977) affd in part, revd in part 223 Kan.
441, 573 P. 2d 1080 (1978),
28 CIVIL CODE, Art. 1169.
29 Valderama v. Macalde, G.R. No. 165005, September 16, 2005, 470 SCRA 168,

183, citing People v. Bodoso, 446 Phil. 838 (2003).

30 Francis Saul II, Trustee, et al. v. Vaughn & Co., Ltd., Nos. 32433, 32462,

December 5, 1977, 240 Ga. 301, 241 S.e. 2d 180.

31 Emphasis supplied.
32 Emphasis supplied.
33 G.R. No. 116216, June 20, 1997, 274 SCRA 527.
34
G.R. No. 165662, May 3, 2006, 489 SCRA 125.
35
TSN, July 9, 2004, pp. 42-43.
36 Everett Steamship Corporation v. Court of Appeals, 358 Phil. 129, 137

(1998), citing Ong Yiu v. Court of Appeals, 91 SCRA 223 (1979).

37 Republic Planters Bank v. Sarmiento, G.R. No. 170785, October 19, 2007,

537 SCRA 303, 314.

38 G.R. No. 150197, July 28, 2005, 464 SCRA 353.
39 Development Bank of the Philippines v. Court of Appeals, G.R. No. 138703,

June 30, 2006, 494 SCRA 25, 46.

 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 116805 June 22, 2000
MARIO S. ESPINA, petitioner,
vs.
THE COURT OF APPEALS and RENE G. DIAZ, respondents.
PARDO, J.:
The case before the Court is an appeal from a decision of the
Court of Appeals 1 reversing that of the Regional Trial Court,
Antipolo, Rizal, 2 affirming in all respects the decision of the
Municipal Trial Court, Antipolo, Rizal, 3 ordering respondent
Rene G. Diaz to vacate the condominium unit owned by
petitioner and to pay back current rentals, attorney's fees and
costs.1wphi1.nt
The facts, as found by the Court of Appeals, are as follows:
Mario S. Espina is the registered owner of a Condominium Unit
No. 403, Victoria Valley Condominium, Valley Golf Subdivision,
Antipolo, Rizal. Such ownership is evidenced by Condominium
Certificate of Title No. N-10 (p. 31, Rollo).
On November 29, 1991, Mario S. Espina, the private
respondent as seller, and Rene G. Diaz, the petitioner as buyer,
executed a Provisional Deed of Sale, whereby the former sold
to the latter the aforesaid condominium unit for the amount of
P100,000.00 to be paid upon the execution of the contract and
the balance to be paid through PCI Bank postdated checks as
follows:
1. P400,000.00 Check No. 301245 January 15, 1992
2. P200,000.00 Check No. 301246 February 1, 1992
3. P200,000.00 Check No. 301247 February 22, 1992
4. P200,000.00 Check No. 301248 March 14, 1992
5. P200,000.00 Check No. 301249 April 4, 1992
6. P200,000.00 Check No. 301250 April 25, 1992 (pp.
59-61, Rollo).
Subsequently, in a letter dated January 22, 1992, petitioner
informed private respondent that his checking account with PCI
Bank has been closed and a new checking account with the
same drawee bank is opened for practical purposes. The letter
further stated that the postdated checks issued will be replaced
with new ones in the same drawee bank (p. 63, Rollo).
On January 25, 1992, petitioner through Ms. Socorro Diaz, wife
of petitioner, paid private respondent Mario Espina
P200,000.00, acknowledged by him as partial payment for the
condominium unit subject of this controversy (p. 64, Rollo).
On July 26, 1992, private respondent sent petitioner a "Notice of
Cancellation" of the Provisional Deed of Sale (p. 48, Rollo).
However, despite the Notice of Cancellation from private
respondent, the latter accepted payment from petitioner per
Metrobank Check No. 395694 dated and encashed on October
28, 1992 in the amount of P100,000.00 (p. 64, Rollo).
On February 24, 1993, private respondent filed a complaint
docketed as Civil Case No. 2104 for Unlawful Detainer against
petitioner before the Municipal Trial Court of Antipolo, Branch 1.
On November 12, 1993, the trial court rendered its decision, the
dispositive portion of which reads:
WHEREFORE, in view of the foregoing consideration, judgment
is hereby rendered ordering the defendant and all persons
claiming rights under him to vacate unit 403 of the Victoria Golf
Valley Condominium, Valley Golf Subdivision, Antipolo, Rizal; to
pay the total arrears of P126,000.00, covering the period July
1991 up to the filing (sic) complaint, and to pay P7,000.00 every
month thereafter as rentals unit (sic) he vacates the premises;
to pay the amount of P5,000.00 as and attorney's fees; the
amount of P300.00 per appearance, and costs of suit.
However, the plaintiff may refund to the defendant the balance
from (sic) P400,000.00 after deducting all the total obligations of
the defendant as specified in the decision from receipt of said
decision.
SO ORDERED. (Decision, Annex "B"; p. 27, Rollo).
From the said decision, petitioner appealed to the Regional Trial
Court Branch 71, Antipolo, Rizal. On April 29, 1994, said
appellate court affirmed in all respects the decision of the trial
court. 4
On June 14, 1994, petitioner filed with the Court of Appeals a
petition for review.
On July 20, 1994, the Court of Appeals promulgated its decision
reversing the appealed decision and dismissing the complaint
for unlawful detainer with costs against petitioner Espina.
On August 8, 1994, petitioner filed a motion for reconsideration
of the decision of the Court of Appeals. 5
On August 19, 1994, the Court of Appeals denied the motion. 6
Hence, this appeal via petition for review on certiorari. 7
The basic issue raised is whether the Court of Appeals erred in
ruling that the provisional deed of sale novated the existing
contract of lease and that petitioner had no cause of action for
ejectment against respondent Diaz.
We resolve the issue in favor of petitioner.
According to respondent Diaz, the provisional deed of sale that
was subsequently executed by the parties novated the original
existing contract of lease. The contention cannot be sustained.
Respondent originally occupied the condominium unit in
question in 1987 as a lessee. 8 While he occupied the premises
as lessee, petitioner agreed to sell the condominium unit to
respondent by installments. 9 The agreement to sell was
provisional as the consideration was payable in installments.
The question is, did the provisional deed of sale novate the
existing lease contract? The answer is no. The novation must
be clearly proved since its existence is not presumed. 10 "In this
light, novation is never presumed; it must be proven as a fact
either by express stipulation of the parties or by implication
derived from an irreconcilable incompatibility between old and
new obligations or contracts." 11 Novation takes place only if the
parties expressly so provide, otherwise, the original contract
remains in force. In other words, the parties to a contract must
expressly agree that they are abrogating their old contract in
favor of a new one. 12 Where there is no clear agreement to
create a new contract in place of the existing one, novation
cannot be presumed to take place, unless the terms of the new
contract are fully incompatible with the former agreement on
every point. 13 Thus, a deed of cession of the right to repurchase
a piece of land does not supersede a contract of lease over the
same property. 14 In the provisional deed of sale in this case,
after the initial down payment, respondent's checks in payment
of six installments all bounced and were dishonored upon
presentment for the reason that the bank account was
closed. 15 Consequently, on July 26, 1992, petitioner terminated
the provisional deed of sale by a notarial notice of
cancellation. 16 Nonetheless, respondent Diaz continued to
occupy the premises, as lessee, but failed to pay the rentals
due. On October 28, 1992, respondent made a payment of
P100,000.00 that may be applied either to the back rentals or
for the purchase of the condominium unit. On February 13,
1993, petitioner gave respondent a notice to vacate the
premises and to pay his back rentals. 17 Failing to do so,
respondent's possession became unlawful and his eviction was
proper. Hence, on February 24, 1993, petitioner filed with the
Municipal Trial Court, Antipolo, Rizal, Branch 01 an action for
unlawful detainer against respondent Diaz. 18

Now respondent contends that the petitioner's subsequent

acceptance of such payment effectively withdrew the
cancellation of the provisional sale. We do not agree. Unless the
application of payment is expressly indicated, the payment shall
be applied to the obligation most onerous to the debtor. 19 In this
case, the unpaid rentals constituted the more onerous obligation
of the respondent to petitioner. As the payment did not fully
settle the unpaid rentals, petitioner's cause of action for
ejectment survives. Thus, the Court of Appeals erred in ruling
that the payment was "additional payment" for the purchase of
the property.

WHEREFORE, the Court GRANTS the petition for review

on certiorari, and REVERSES the decision of the Court of
Appeals. 20 Consequently, the Court REVIVES the decision of
the Regional Trial Court, Antipolo, Rizal, Branch
71, 21 affirming in toto the decision of the Municipal Trial Court,
Antipolo, Rizal, Branch 01. 22

No costs.

SO ORDERED.1wphi1.nt

Davide, Jr., C.J., Puno, Kapunan and Ynares-Santiago, JJ.,

concur.

Footnotes
1
In CA-G.R. SP No. 34214, promulgated on July 20, 1994, Labitoria,
J., ponente, Cui and Martin, Jr., JJ., concurring.
2
In Civil Case No. 94-2997, decision, dated April 29, 1994, Judge Felix
S. Caballes, presiding.
3
In Civil Case No. 2104, decision, dated November 12, 1993, Judge
Ruth C. Santos, presiding.
4
Petition, Annex "G", Rollo, pp. 64-69.
5
Ibid., Annex "H", Rollo, pp. 70-87.
6
Petition, Annex "I", Rollo, p. 89.
7
Filed on October 5, 1994, Petition for Review on Certiorari, Rollo, pp.
9-34. On November 22, 1995, we gave due course to the petition, Rollo,
p. 199.
8
Petition for Review on Certiorari, paragraph 18, Section (b), Rollo,
p.13.
9
Petition, Annex "K", Rollo, pp. 105-108.
10
Rillo v. Court of Appeals, 274 SCRA 461, 469 [1997], citing Pacific
Mills, Inc. v. Court of Appeals, 206 SCRA 317 [1992]; Bisaya Land
Transportation v. Sanchez, 153 SCRA 532 [1987].
11
Uraca v. Court of Appeals, 278 SCRA 702, 710 [1997].
12
Rillo v. Court of Appeals, supra, citing Ajax Marketing and
Development Corporation v. Court of Appeals, 248 SCRA 222 [1995].
13
Rillo v. Court of Appeals, supra; Nyco Sales Corporation v. BA
Finance Corporation, 200 SCRA 637 [1991]; Lim Tay v. Court of
Appeals, 293 SCRA 634, 657 [1998].
14
Tolentino, Civil Code of the Philippines, Vol. IV, 1993 Reprinting, p.
383-384.
15
Petition for Review on Certiorari, paragraph 18, Section (e), Rollo, p.
13.
16
Ibid., Section (f), Rollo, p. 14.
17
Ibid., Section (g), Rollo, p. 14.
18
CA Decision, Rollo, p. 65.
19
Art. 1254, Civil Code.
20
In CA-G.R. SP No. 34214.
21
In Civil Case No. 94-2997, dated April 29, 1994.
22
In Civil Case No. 2104, dated November 12, 1993.
 Republic of the Philippines EIGHTY FOUR CENTAVOS (P53,642.84) shall be paid
SUPREME COURT within 24 months from the date of complete delivery thereof,
Manila the balance shall be paid in the manner herein stated as
shown in the Schedule of Payments, 2 ... to wit:
SECOND DIVISION
TOTAL F.O.B. COST P536,428.44
A.M. No. 21901-96 June 27, 1978
AMOUNT OF 1st INSTALLMENT (10% OF F.O.B. COST)
REPARATIONS COMMISSION, plaintiff-appellants, P53,642.84
vs.
UNIVERSAL DEEP-SEA FISHING CORPORATION and DUE DATE OF 1st INSTALLMENT May 8, 1961
MANILA SURETY AND FIDELITY CO., INC., defendant-
appellants. TERM: Ten (10) EQUAL YEARLY INSTALLMENTS

MANILA SURETY & FIDELITY CO., INC., third-party RATE OF INTEREST: THREE PERCENT (3%) PER
plaintiff-appellee, ANNUM
vs.
PABLO S. SARMIENTO, third-party defendant-appellant.
No. of Date Due Amount
Installmen
CONCEPCION JR., J.: ts

1 May 8, 1962 P56,597.

Appeal of the defendant Universal Deep-Sea Fishing 20
Corporation, defendant and third-party plaintiff Manila Surety
and Fidelity Co., Inc., and third-party defendant Pablo 2 May 8, 1963 P56,597.20
Sarmiento from the decision of the Court of First Instance of
Manila, the dispositive portion of which reads as follows: 3 May 8, 1964 P56,597.20

4 May 8, 1965 P56,597.20

WHEREFORE, judgment is rendered as follows:
1. The defendant Universal Deep-Sea Fishing Corporation is
hereby sentenced to pay the plaintiff the sum of P100,242.04
in the first cause of action, P141,343.45 in the second cause
of action and P54,500.00 in the third cause of action, all with
interest at the rate of 6% per annum from August 10, 1962,
the date of the filing of the complaint, until fully paid;
2. Defendant Manila Surety & Fidelity Co., Inc., is hereby
sentenced to pay the plaintiff, jointly and severally with
defendant Universal Deep-Sea Fishing Corporation, the sum
of P53,643.00 in the first cause of action, P68,777.77 in the
second cause of action and P54,508.00 in the third cause of
action;
3. Defendant Universal Deep-Sea Fishing Corporation and
Pablo Sarmiento are hereby sentenced to pay, jointly and
severally, the Manila Surety & Fidelity Co., Inc., the sum of
P53,643.00 and P68,777.77 with interest thereon at the rate
of 12% per annum from August 10, 1962 until fully paid plus
P2,000.00 as attorney's fees;
4. Defendant Universal Deep-Sea Fishing Corporation is
hereby sentenced to pay the Manila Surety & Fidelity Co.,
Inc., the sum of P54,508.00 with interest thereon at the rate
of 12% per annum from August 10, 1962, until fully paid;
5. Defendant Universal Deep-Sea Fishing Corporation shall
pay the costs. 1
It is not disputed that the Universal Deep-Sea Fishing
Corporation, hereinafter referred to as UNIVERSAL for short.
was awarded six (6) trawl boats by the. Reparations
Commission as end-user of reparations goods. These fishing
boats, christened the M/S UNIFISH 1, M/S UNIFISH 2. M/S
UNIFISH 3. M/S UNIFISH 4, M/S UNIFISH 5, and M/S
UNIFISH 6. were delivered to UNIVERSAL two at a time,
f.o.b. Japanese port.
The M/S UNIFISH 1 and M/S UNIFISH 2, with an aggregate
purchase price of P536,428.44, were delivered to
UNIVERSAL on November 20,1958, and the contract of
Conditional Purchase and Sale of Reparations Goods,
executed by and between the parties on February 12, 1960,
provided among others, that "the first installment
representing 10% of the amount or FIFTY THREE
THOUSAND SIX HUNDRED FORTY TWO PESOS AND
5 May 8, 1966 P56,597.2
6 May 8, 1967 P56,597.20
7 May 8, 1968 P56,597.20
8 May 8, 1969 P56,597.20
9 May 8, 1970 P56,597.20
10 May 8, 1971 P56,597.20
To guarantee the faithful compliance with the obligations
under said contract, a performance bond in the amount of
P53,643.00, with UNIVERSAL as principal and the Manila
Surety & Fidelity Co., Inc., as surety, was executed in favor
of the Reparations Commission. 3 A Corresponding indemnity
agreement was executed to indemnify the surety company for
any damage, loss charges, etc., which it may sustain or incur as
a consequence of having become a surety upon the
performance bond. 4
The M/S UNIFISH 3 and M/S UNIFISH 4, with a total
purchase price of P687,777.76 were delivered to
UNIVERSAL on April 20, 1959 and the Contract of
Conditional Purchase and Sale Reparations Goods, dated
November 25, 1959, 5 provided that "the first installment
representing 10% of the amount or SIXTY-EIGHT THOUSAND
SEVEN HUNDRED SEVENTY-SEVEN PESOS AND
SEVENTY-SEVEN CENTAVOS shall be paid within 24 months
from the date of complete delivery thereof, the balance shall be
paid in the manner herein stated as shown in the Schedule of
Payments, . . . , to wit:
TOTAL F.O.B. COSTS P687,777.76
AMOUNT OF 1st INSTALLMENT (10% of F.O.B. COST)
P68,777.77
DUE DATE OF 1st INSTALLMENT July, 1961
TERM: Ten (10) EQUAL YEARLY INSTALLMENTS
RATE OF INTEREST: THREE PERCENT (3%) PER
ANNUM
 No. of judgment, surety company to recover various amounts of
Due Date Amount
Installments money due under these contracts. In answer, UNIVERSAL
claimed that judgment, amounts of money sought to be
1 July, 1962 P72,565.68 collected are not yet due and demandable. The surety
company also contended that judgment, action is premature,
2 July, 1963 P72,565.68 but set up a cross-claim against UNIVERSAL for
reimbursement of whatever amount of money it may have to
3 July, 1964 P72,565.68 pay judgment, plaintiff by reason of judgment, complaint,
including interest, and for judgment, collection of
4 July, 1965 P72,565.68 accumulated and unpaid premiums on judgment, bonds with
interest thereon. With leave of courts first obtained,
5 July, 1966 P72,565.68 judgment, surety company filed a third-party complaint
against Pablo S. Sarmiento, one of the indemnitors in
6 July, 1967 P72,565.68 judgment, indemnity agreements. The third-party defendant
Pablo S. Sarmiento denied personal liability claiming that he
7 July, 1968 P72,565.68 signed judgment, indemnity agreements in question in his
capacity as acting general manager of UNIVERSAL. After
8 July, 1969 P72,565.68
appropriate proceedings and upon judgment, preceding
facts, judgment, trial court rendered judgment, judgment
9 July, 1970 P72,565.68
hereinbefore stated. hence, this appeal.
10 July, 1971 P72,565.68
(1) The principal issue for resolution is whether or not
judgment, first installments under judgment, three (3)
A performance bond in the amount of P68,777.77, issued by contracts of conditional purchase and sale of reparations
the Manila Surety & Fidelity Co., Inc., was also submitted to goods were already due and demandable when judgment,
guarantee the faithful compliance with the obligations set complaint was filed. UNIVERSAL contends that there is an
forth in the contract, 6 and indemnity agreement was executed obscurity in judgment, terms of judgment, contracts in
in favor of the surety company in consideration of the said question which were caused by the plaintiff as to judgment,
bond. 7 amounts and due dates of judgment, first installments which
should have been first fixed before a creditor can demand its
The delivery of the M/S UNIFISH 5 and M/S UNIFISH 6 is payment from judgment, debtor. To be explicit. counsel
covered by a contract for the Utilization of Reparations points to judgment, Schedule of Payment attached to, and
Goods (M/S "UNIFISH 5" and M/S "UNIFISH 6") executed by forming a part of, the contract for judgment, purchase and
the parties on February 12, 1960, 8 and the Schedule of sale of judgment, M/S UNIFISH 1 and M/S UNIFISH 2 which
Payments attached thereto, provided, as follows: states that judgment, amount of first installment is
P53,642.84 and judgment, due date of its payment is May 8,
AMOUNT OF 1st INSTALLMENT (10% of F.O.B. COST) 1961. However, judgment, amount of the first of succeeding
P54,500.00 itemized installments is P56,597.20 and judgment, due date
is May 8, 1962. In the case of the M/S UNIFISH 3 and M/S
UNIFISH 4, the first installments are P68,777.77 and due in
DUE DATE OF 1st INSTALLMENT Oct. 17, 1961 July, 1961 and P72,565.68 and due in July 1962,
respectively. In the contract for the purchase and sale of the
TERM: TEN (10) EQUAL YEARLY INSTALLMENTS M/S UNIFISH 5 and M/S UNIFISH 6, the amounts indicated
as first installments are P54,500.00 and P57,501.57, and the
RATE OF INTEREST: THREE PERCENT (3%) PER due dates of payment are October 17, 1961 and October 17,
ANNUM 1962, respectively.

No. of
The terms of the contracts for the purchase and sale of the
Installments
Date Due Amount reparations vessels, however, are very clear and leave no
doubt as to the intent of the contracting parties. Thus, in the
1 Oct. 17, 1962 P57,501.57 contract concerning the M/S UNIFISH 1 and M/S UNIFISH 2,
the parties expressly agreed that the first installment
2 Oct. 17, 1963 P57,501.57 representing 10% of the purchase price or P53,642.84 shall
be paid within 24 months from the date of complete delivery
3 Oct. 17, 1964 P57,501.57 of the vessel or on May 8, 1961, and the balance to be paid
in ten (10) equal yearly installments. The amount of
4 Oct. 17, 1965 P57,501.57 P56,597.20 due on May 8, 1962, which is also claimed to be
a "first installment," is but the first of the ten (10) equal yearly
5 Oct. 17, 1966 P57,501.57 installments of balance of judgment, purchase price. In
judgment, case of Reparations Commission vs. Northern
6 Oct. 17, 1967 P57,501.57 Lines, Inc. et al., 12 where judgment, Schedule of Payments,
likewise on RC-LEGAL DEPT FORM NO. 1, also allegedly
7 Oct. 17, 1968 P57,501.57 indicated two (2) due dates for judgment, payment of judgment,
first installment, judgment, Court said:
8 Oct. 17, 1969 P57,501.57
(a) The major premise in appellants' process of reasoning is
9 Oct. 17, 1970 P57,501.57
that the first installments due on April 25, 1963, and May 26,
1963, are 'first installments. although they are not so
10 Oct. 17, 1971 P57,501.57 9
designated in judgment, schedule appended to each of
judgment, contracts between judgment, parties. Appellant's,
A performance bond in judgment, amount of P54,500.00 moreover, assume that judgment, 'first' installment
issued by judgment, Manila Surety & Fidelity Co., Inc., 10was is included in judgment, ten (10) equal yearly installments'
submitted, and an indemnity agreement was executed by mentioned subsequently to said 'first' installment. In feet,
UNIVERSAL in favor of judgment, surety company. 11 however, only one installment is labeled as 'first' in each one
of said schedules, and that is judgment, installment due on
'April 25, 1962' - as regards M/S Don Salvador or
On August 10, 1962, judgment, Reparations Commission
Magsaysay - and that due on 'May 26, 1962'- as regards
instituted judgment, present action against UNIVERSAL and
M/S Don Amando or Estancia. The schedules do not
describe judgment, 'ten (10) equal yearly installments'
following the one characterized therein as 'first' meaning
'number,' not order or sequence, of installments and the
numerals 1, 2, 3, 4, 5, 6, 7, 8, 9, 10 written before each of
said 'ten (10) equal yearly installments following the 'first' to
accrue after the due date of said 'first' installment. Just the
same, the parties have not so described (as 'first') in the
schedules forming part of their contracts the installments
numbered '1' in the list contained in each. Moreover,
considering that the words 'TERMS: Ten (10) EQUAL
YEARLY INSTALLMENTS,' appear after the lines reading:
'AMOUNT OF 1st INSTALLMENT (10% OF F.O.B. COSTS)
P174,761.42' and DUE DATE OF 1st INSTALLMENT April
25, 1962 (or May 26, 1962) and that, subsequently to said
'TERM: Ten (10) EQUAL YEARLY INSTALLMENTS,' there
is a list of ten (10) equal yearly installments, it is clear that
the latter do not include the one designated as 'first'
installment.
xxx xxx xxx
(b) The pertinent part of Section 12 of Rep. Act No. 1789,
pursuant to which the vessels in question were sold to the
Buyer reads:
. . . Capital goods . . . disposed of to private parties as
provided for in subsection (a) of Section two hereof shall be
sold on a cash or credit basis, under rules and regulations as
may be determined by the Commission. Sales on a credit
basis shall be payable in installments: Provided, That
judgment, first installment shall be paid within twenty-four
months after complete delivery of judgment, capital goods
and judgment, balance within a period not exceeding ten
years, . . . plus judgment, service provided for in section ten
thereof; Provided further, That judgment, unpaid balance of
judgment, price thereof shall bear interest at judgment, rate
of not more than three percent per annum. . . . .
It should be noted that, pursuant to judgment, schedules
attached to judgment, contracts with judgment, Buyer,
judgment, 'complete delivery' of judgment, vessels took
place on April 25, and May 26, 1960, respectively, so that
judgment, the 24 months taxed by law for judgment,
payment of judgment, 'First installment expired on April 25,
1962 and May 26,1962, which are judgment, very dates
stated in judgment, aforementioned schedules for judgment,
payment of judgment, respective '1st' installments. What is
more, in view of said legal provision, judgment,
Commission had no authority to agree that the 1st
installment shall be paid on any later date, and judgment,
Buyer must have been aware of this fact. Hence, judgment,
parties could not have intended judgment, first installments
to become due on April 25, and May 26, 1963 It is, likewise,
obvious - particularly when considered in relation to
judgment, provision above quoted - that judgment, 'ten (10)
equal yearly installments.' mentioned in the schedules, refer
to the 'balance' of the price to be paid by the
buyer, after deducting judgment, 'first' installment, so hat,
altogether, there would be 'eleven' installments, namely, the
first , which would be the 10% of the F.O.B. cost of the
vessel as agreed upon between 'The Governments of the
Philippines and Japan and 'ten (10) yearly installments,'
representing the balance of "he amount due to he
Commission from judgment, Buyer, including tile interest
thereon.
Viewing judgment, contracts between judgment, parties in
judgment, light of the foregoing exposition, judgment, first
installment on judgment, M/S UNIFISH 1 and M/S UNIFISH
2 of judgment, amount of P53,642.84 was due on May 8,
1961, while judgment, first installments on judgment, M/S
UNIFISH 3 and M/S UNIFISH 4, and judgment, M/S
UNIFISH 5 and M/S UNIFISH 6 in judgment, amounts of
P68,777.77 and P54,500.00 were due on July 31, 1961 and
October 17, 1961, respectively. Accordingly judgment,
obligation of UNIVERSAL to pay judgment, first installments
on the purchase price of judgment, six (6) reparations
vessels was already due and demandable when the present
action was commenced on August 10, 1962. Also due and
demanded from UNIVERSAL were the first of the ten (10)
equal yearly installments on the balance of the purchase
price of the M/S UNIFISH I and M/S UNIFISH 2 in the
amount of P56,597.20 and P72,565.68 on judgment, M/S
UNIFISH 3 and M/S UNIFISH 4. The first accrued on May 8,
1962, while judgment, second fell due on July 31, 1962.
(2) The claim of judgment, surety company to the effect that
the trial court erred in not awarding it the amount of
P7,251.42, as premium is the performance bonds, is well
taken. The payment of premiums on the bonds to the surety
company had been expressly undertaken by UNIVERSAL in
the indemnity agreements executed by it in favor of
judgment, surety company. The premium is judgment,
consideration for furnishing judgment, bonds and judgment,
obligation to pay judgment, same subsists for as long as
judgment, liability of judgment, surety shall exist. 13 Hence,
UNIVERSAL should pay judgment, amount of P7,251.42 to
judgment, surety company.
(3) The surety company also claims that judgment, trial court
erred in not applying judgment, amount of P10,000.00, paid
as down payment by UNIVERSAL to judgment, Reparations
Commission, to judgment, guaranteed indebtedness.
According to judgment, surety company, under Article 1254
of judgment, Civil rode, where there is no imputation of
payment made by either judgment, debtor or creditor, The
debt which is the most onerous to the debtor shall be
deemed to have been satisfied, so that the amount of
P10,000.00 paid by UNIVERSAL as down payment on the
purchase of the, M/S UNIFISH 1 and M/S UNIFISH 2 should
be applied to the guaranteed portion of the debt, this
releasing part of the liability hence the obligation of 'The
surety company shall be only P43,643.00, instead of
P53,643.00.
The rules contained in Articles 1252 to 1254 of judgment,
Civil Code apply to a person owing several debts of
judgment, same kind to a single creditor. They cannot be
made applicable to a person whose obligation as a mere
surety is both contingent and singular, 14 which in this case is
the full and faithful compliance with the terms of the contract of
conditional purchase and sale of reparations goods, The
obligation included the payment, not only of the first installment
in the amount of P53,643.00, but also of the ten (10) equal
yearly installments of P56,597.20 per annum. The amount of
P10,000.00 was, indeed, deducted from judgment, amount of
P53,643.00, but then judgment, first of judgment, ten (10) equal
yearly installments had also accrued, hence, no error was
committed in holding judgment, surety company to judgment,
full extent of its undertaking.
(4) Finally, We find no merit in judgment, claim of judgment,
third-party defendant Pablo S. Sarmiento that he is not
personally liable having merely executed judgment,
indemnity agreements 15 in his capacity as acting general
manager of UNIVERSAL. Pablo S. Sarmiento appears to have
signed the indemnity agreement twice the first, in this
capacity as acting general manager of UNIVERSAL, and the
second, in his individual capacity. The indemnity agreements in
question state the following. among others:
In consideration of judgment, responsibility undertaken by
judgment, Company, for judgment, original bond, and for any
renewal, extension or substitution thereof, judgment,
undersigned, jointly and severally, bind themselves in favor
of judgment, said COMPANY in judgment, following terms:
xxx xxx xxx
Dated at City of Manila this - - - - day of July l969.
600 Cottage 3, UNIVERSAL DEEP-SEA FISHING CORP.
Aguinaldo Com- BY:
pound, Echague, s/PABLO S. SARMIENTO Manila t/PABLO
S. SARMIENTO Signature

s/PABLO S. SARMIENTO Address t/PABLO S.

SARMIENTO Signature

Besides, the "acknowledgment" stated that "Pablo S.

Sarmiento for himself and on behalf of Universal Deep-Sea
Fishing Corporation" personally appeared before the notary
and acknowledged that judgment, document is his own free
and voluntary act and deed.

WHEREFORE, judgment, judgment appealed from is hereby

affirmed with judgment, modification that judgment,
UNIVERSAL Deep-Sea Fishing Corporation is further
ordered to pay judgment, Manila Surety & Fidelity Co., Inc.,
judgment, amount of P7,251.42 for judgment, premiums and
documentary stamps on judgment, performance bonds.
Appellants shall pay proportionate costs.

SO ORDERED.

Antonio, Aquino, Santos, and Guerrero, JJ., concur.

Fernando and Barredo, JJ., took no part.

Footnotes

1 Record on Appeal, pp. 239-240

2 Exhibit "A".
3 Exhibit "B"
4 Exhibit "16-B-Surety"
5 Exhibit "C".
6 Exhibit "D"
7 Exhibit 14-Surety.
8 Exhibit "E".
9 Par. 5 of Affirm. Defense of UNIVERSAL, Record on Appeal, p. 152.
10 Exhibit "F"
11 Exhibit 15-Surety.
12 L-24835, July 31, 1970, 34 SCRA 203.
13 Arranz vs. Manila Surety & Fidelity Co., 101 Phil. 272.
14 Socony-Vacuum Corp. vs. Leon Miraflores, 67 Phil. 304.
15 Exh. 14-Surety and Exh. 16-Surety.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 123855 November 20, 2000
NEREO J. PACULDO, petitioner,
vs.
BONIFACIO C. REGALADO, respondent.
DECISION
PARDO, J.:
The case before the Court is an appeal via certiorari seeking to
set aside the decision of the Court of Appeals1which affirmed
that of the Regional Trial Court, Quezon City, and the
Metropolitan Trial Court, Quezon City ordering the ejectment of
petitioner from the property subject of the controversy.
The facts are as follows:
On December 27, 1990, petitioner Nereo J. Paculdo (hereafter
Nereo) and respondent Bonifacio C. Regalado (hereafter
Bonifacio) entered into a contract of lease over a 16,478 square
meter parcel of land with a wet market building, located along
Don Mariano Marcos Avenue, Fairview Park, Quezon City. The
contract was for twenty five (25) years, commencing on January
1, 1991 and ending on December 31, 2015. For the first five (5)
years of the contract beginning December 27, 1990, Nereo
would pay a monthly rental of P450,000.00, payable within the
first five (5) days of each month at Bonifacios office, with a 2%
penalty for every month of late payment.
Aside from the above lease, petitioner leased eleven (11) other
property from respondent, ten (10) of which were located within
the Fairview compound, while the eleventh was located along
Quirino Highway, Quezon City. Petitioner also purchased from
respondent eight (8) units of heavy equipment and vehicles in
the aggregate amount of P1,020,000.00.
On account of petitioners failure to pay P361,895.55 2 in rental
for the month of May, 1992, and the monthly rental of
P450,000.00 for the months of June and July 1992, on July 6,
1992, respondent sent a demand letter to petitioner demanding
payment of the back rentals, and if no payment was made within
fifteen (15) days from receipt of the letter, it would cause the
cancellation of the lease contract.3 Another demand letter
followed this on July 17, 1992, reiterating the demand for
payment and for petitioner to vacate the subject premises.4
Without the knowledge of petitioner, on August 3, 1992,
respondent mortgaged the land subject of the lease contract,
including the improvements which petitioner introduced into the
land amounting to P35,000,000.00, to Monte de Piedad Savings
Bank, as security for a loan in the amount of P20,000,000.00. 5
On August 12, 1992, and on subsequent dates thereafter,
respondent refused to accept petitioners daily rental payments. 6
On August 20, 1992, petitioner filed with the Regional Trial
Court, Quezon City an action for injunction and damages
seeking to enjoin respondent from disturbing his possession of
the property subject of the lease contract.7 On the same day,
respondent filed with the Metropolitan Trial Court, Quezon City a
complaint for ejectment against petitioner. Attached to the
complaint were the two (2) demand letters dated July 6 and July
17, 1992.8
On August 25, 1992, five (5) days after the filing of the
ejectment complaint, respondent moved to withdraw the
complaint on the ground that certain details had been omitted in
the complaint and must be re-computed.
On April 22, 1993, respondent re-filed the ejectment complaint
with the Metropolitan Trial Court, Quezon City.Computed from
August 1992 until March 31, 1993, the monthly reasonable
compensation that petitioner was liable for was in the total sum
of P3,924,000.00.9
On January 31, 1994, the Metropolitan Trial Court, Quezon City
rendered a decision in favor of respondent, the dispositive
portion of which reads:
"WHEREFORE, judgment is hereby rendered in favor of the
plaintiff and against the defendant, as follows:
"1. Ordering the defendant and all persons claiming
right under him to vacate the leased premises located
at Don Mariano Marcos Avenue, Fairview Park,
Quezon City, Metro-Manila covered by Transfer
Certificate of Title RT-6883 of the Registry of Deeds of
Quezon City;
"2. Ordering the defendant to pay the sum of
P527,119.27 representing the unpaid monthly rentals
as of June 30, 1992 plus 2% interest thereon;
"3. Ordering the defendant to pay the sum of
P450,000.00 a month plus 2% interest thereon starting
July 1992 and every month thereafter until the
defendant and all persons claiming right under him
shall have actually vacated the premises and surrender
possession thereof to the plaintiff;
"4. Ordering the defendant to pay the sum of
P5,000,000.00 as and for attorneys fees; and
"5. Ordering the defendant to pay the costs of suit.
"SO ORDERED."10
In time, petitioner appealed to the Regional Trial Court, Quezon
City, Branch 220.11
On February 19, 1994, respondent, with the support of fifty (50)
armed security guards forcibly entered the property and took
possession of the wet market building.12
On July 6, 1994, the Regional Trial Court, Quezon City, Branch
220 rendered a decision affirming in toto the decision of the
Metropolitan Trial Court, to wit:
"WHEREFORE, the appealed decision dated January 31, 1994,
for being in accordance with the evidence presented and the
law on the matter, is hereby affirmed in toto.
"Let a writ of execution issue against defendant and his surety,
to answer for the decision of the lower court."13
On the same day, the Regional Trial Court issued a writ of
execution14 whereupon, petitioner vacated the subject premises
voluntarily. By July 12, 1994, petitioner had completely turned
over possession of subject property to respondent.
Meanwhile, on July 21, 1994, petitioner filed a petition for review
with the Court of Appeals.15 He alleged that he had paid the
amount of P11,478,121.85 for security deposit and rentals on
the wet market building, but respondent, without his consent,
applied portions of the payment to his other obligations. The
vouchers and receipts indicated that the payments made were
for rentals. Thus, at the time of payment petitioner had declared
as to which obligation the payment must be applied.
On February 10, 1995, the Court of Appeals promulgated its
decision finding that petitioner impliedly consented to
respondents application of payment to his other obligations
and, thus, dismissed the petition for lack of merit. 16
On March 3, 1995, petitioner filed a motion for
reconsideration;17 however, on February 9, 1996 the Court of
Appeals denied the motion.18
Hence, this appeal.19
At issue is whether petitioner was truly in arrears in the payment
of rentals on the subject property at the time of the filing of the
complaint for ejectment.
As found by the Metropolitan Trial Court and Regional Trial
Court, petitioner made a total payment of P10,949,447.18, to
respondent as of July 2, 1992.
If the payment made by respondent applied to petitioners other
obligations is set aside, and the amount petitioner paid be
applied purely to the rentals on the Fairview wet market
building, there would be an excess payment of P1,049,447.18
as of July 2, 1992. The computation in such case would be as
follows:
Amount paid as of July 2, 1992 P10,949,447.18
Less:
Monthly rent from January 1991-
July 1992
P450,000.00 x 19 months P 8,550,000.00
Less:
Security deposit P 1,350,000.00
==============
Excess amount paid P 1,049,447.18
In the letter dated November 19, 1991, respondent proposed
that petitioners security deposit for the Quirino lot, in the
amount of P643,276.48, be applied as partial payment for his
account under the subject lot as well as to real estate taxes on
the Quirino lot.20 Petitioner interposed no objection, as
evidenced by his signature signifying his conformity thereto.
In an earlier letter, dated July 15, 1991,21 respondent informed
petitioner that the payment was to be applied not only to
petitioners accounts under both the subject land and the
Quirino lot but also to heavy equipment bought by the latter from
respondent. Petitioner claimed that the amount applied as
payment for the heavy equipment was critical because it was
equivalent to more than two (2) months rental of the subject
property, which was the basis for the ejectment case in the
Metropolitan Trial Court.
The controversy stemmed from the fact that unlike the
November 19, 1991 letter, which bore a conformity portion with
petitioners signature, the July 15, 1991 letter did not contain the
signature of petitioner.
In nevertheless concluding that petitioner gave his consent
thereto, the Court of Appeals upheld both the lower courts and
trial courts findings that petitioner received the second letter
and its attachment and he raised no objection thereto.
In other words, would petitioners failure to object to the letter of
July 15, 1991 and its proposed application of payments amount
to consent to such application?
Petitioner submits that his silence is not consent but is in fact a
rejection.
The right to specify which among his various obligations to the
same creditor is to be satisfied first rests with the debtor, 22 as
provided by law, to wit:
"Article 1252. He who has various debts of the same kind in
favor of one and the same creditor, may declare at the time of
making the payment, to which of them the same must be
applied. Unless the parties so stipulate, or when the application
of payment is made by the party for whose benefit the term has
been constituted, application shall not be made as to debts
which are not yet due.
If the debtor accepts from the creditor a receipt in which an
application of the payment is made, the former cannot complain
of the same, unless there is a cause for invalidating the
contract."23
At the time petitioner made the payments, he made it clear to
respondent that they were to be applied to his rental obligations
on the Fairview wet market property. Though he entered into
various contracts and obligations with respondent, including a
lease contract over eleven (11) property in Quezon City and
sale of eight (8) heavy equipment, all the payments made, about
P11, 000,000.00, were to be applied to rental and security
deposit on the Fairview wet market property.
Respondent Regalado argues that assuming that petitioner
expressed at the time of payment which among his obligations
were to be satisfied first, petitioner is estopped by his assent to
the application made by the respondent. This assent is inferred
from the silence of petitioner on the July 15, 1991
letter24 containing a statement of the application of payments,
which was different from the application made by petitioner. A
big chunk of the amount paid by petitioner went into the
satisfaction of an obligation which was not yet due and
demandable--the payment of the eight (8) heavy equipment
amounting to about P1,020,000.00.
The statement of account prepared by respondent was not the
receipt contemplated under the law. The receipt is the evidence
of payment executed at the time of payment, and not the
statement of account executed several days thereafter.
There was no clear assent by petitioner to the change in the
manner of application of payment.1wphi1 The petitioners
silence as regards the application of payment by respondent
cannot mean that he consented thereto. There was no meeting
of the minds. Though an offer may be made, the acceptance of
such offer must be unconditional and unbounded in order that
concurrence can give rise to a perfected contract.25 Hence,
petitioner could not be in estoppel.
Assuming arguendo that, as alleged by respondent, petitioner
did not, at the time the payments were made, choose the
obligation to be satisfied first, respondent may exercise the right
to apply the payments to the other obligations of petitioner. But
this is subject to the condition that the petitioner must give his
consent. Petitioners silence is not tantamount to consent. The
consent must be clear and definite.
Under the law, if the debtor did not declare at the time he made
the payment to which of his debts with the creditor the payment
is to be applied, the law provided the guideline--no payment is
to be made to a debt that is not yet due26 and the payment has
to be applied first to the debt most onerous to the debtor. 27
In the instant case, the purchase price of the eight (8) heavy
equipment was not yet due at the time the payment was made,
for there was no date set for such payment. Neither was there a
demand by the creditor to make the obligation to pay the
purchase price due and demandable.28 Hence, the application
made by respondent is contrary to the provisions of the law.
The lease over the Fairview wet market property is the most
onerous among all the obligations of petitioner to respondent. It
was established that the wet market is a going-concern and that
petitioner has invested about P35,000,000.00, in the form of
improvements, on the property. Hence, petitioner would stand to
lose more if the lease would be rescinded, than if the contract of
sale of heavy equipment would not proceed.
The decision of the Court of Appeals was based on a
misapprehension of the facts and the law on the application of
payment. Hence, the ejectment case subject of the instant
petition must be dismissed, without prejudice to the
determination and settlement of the money claims of the
parties inter se.
WHEREFORE, the Court GRANTS the petition. The Court
REVERSES and SETS ASIDE the decision of the Court of
Appeals in CA-G. R. SP No. 34634.
ACCORDINGLY, the Court REVERSES the decision of the
Regional Trial Court, Quezon City, Branch 220 in Civil Case No.
94-20813, and dismisses the complaint filed with the
Metropolitan Trial Court, Quezon City, Branch 36 in Civil Case
No. MTC XXXVI-7089.

No costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Ynares-

Santiago, JJ., concur.

Footnotes
1
In CA-G. R. SP No. 34634, promulgated on February 10, 1995, Reyes, R. T.,
J., ponente, Herrera, O. M. and Gutierrez, A. S., JJ., concurring, Rollo, pp. 138-
148.
2 This represents the balance of the rental payment due from petitioner,

computed as follows: Partial payment of P255,104.45 made on July 24, 1992;

P90,000.00 on July 28, 1992; and P3,674.67 or a sum total of P188,779.12
from where the 2% stipulated penalty interest must first be satisfied, leaving
an amount of P88,104.45 to be applied and deducted from the P450,000.00
rental due for the month of May, 1992.
3 Complaint, Annex "C", RTC Record, Vol. I, p. 13.
4
Complaint, Annex "D", RTC Record, Vol. I, p. 14.
5 Petition for Review, CA Rollo, pp. 2-24, at p. 5.
6 Answer, RTC Record, Vol. I, pp. 35-45.
7 Ibid., p. 40.
8 Originally raffled to Branch 33 (later transferred to Branch 36) and docketed

as Civil Case No. 7089, Answer, RTC Record, Vol. I, p. 41.

9 Complaint, RTC Record, Vol. I, pp. 1-7, at p. 5.
10
Decision, Civil Case No. MTC XXXVI-7089, Petition, Annex "D", Rollo, pp. 98-
102.
11 Docketed as Civil Case No. Q-94-20813.
12 Petition for Review, CA Rollo, pp. 2-24, at p. 7.
13
Ibid., pp. 25-33.
14 Ibid., pp. 34-35.
15
Docketed as CA-G.R. SP No. 34634, CA Rollo, pp. 2-24.
16 Petition, Annex "D", Rollo, pp. 138-148.
17
Petition, Annex "E", Rollo, pp. 149-182.
18 Resolution, Rollo, pp. 193-194.
19 Petition filed on March 19, 1996, Rollo, pp. 8-62. On June 18, 1997, we gave

due course to the petition, Rollo, p. 281.

20 Rollo, p. 185.
21 Rollo, p. 183.
22 Peoples Surety and Insurance Co, Inc. v. Gabriel and Sons Traders Co.

Inc.,118 Phil. 1418 [1963].

23
Civil Code.
24 Supra, Note 21.
25
Maria Cristina Fertilizer Corp. v. Court of Appeals, 339 Phil. 349 [1997].
26 Article 1252, Civil Code.
27
Article 1254, Civil Code; Espina v. Court of Appeals, G. R. No. 116805, June
22, 2000.
28
Rose Packing Co., Inc. v. Court of Appeals, 167 SCRA 309, 318 [1988].
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-18411 December 17, 1966
MAGDALENA ESTATES, INC., plaintiff-appellee,
vs.
ANTONIO A. RODRIGUEZ and HERMINIA C.
RODRIGUEZ, defendants-appellants.
Roxas and Sarmiento for plaintiff-appelle.
Somero, Baclig and Savello for defendants-appellants.
REGALA, J.:
Appeal from the decision of the Court of First Instance of
Manila ordering the defendants-appellants to pay jointly and
severally to the plaintiff-appellee the sum of P655.89, plus
legal interest thereon from date of the judicial demand, the
sum of P100.00 as attorney's fees, and to pay the costs.
The appellants bought from the appellee a parcel of land in
Quezon City known as Lot 7-K-2-G, Psd-26193. In view of
an unpaid balance of P5,000.00 on account of the purchase
price of the lot, the appellants executed on January 4, 1957,
the following promissory note representing the said account:
PROMISSORY NOTE
P5,000.00
Manila, January 4, 1957
We, the Spouses ANTONIO A. RODRIGUEZ and HERMINIA C.
RODRIGUEZ, jointly and severally promise to pay the Magdalena
Estates, Inc., or order, at its offices in the City of Manila, without
any demand the sum of FIVE THOUSAND PESOS (P5,000.00),
Philippine currency, with interest at the rate of Nine Per Cent 9%
per annum, within sixty (60) days from January 7, 1957. The sum
of P5,000.00 represents the balance of the purchase price of the
parcel of land known as Lot 7-K-2-G, Psd. 26193, containing an
area of 2,191 square meters, Quezon City.
(Sgd.) Antonio A. Rodriguez
( T ) ANTONIO A. RODRIGUEZ
(Sgd.) Herminia C. Rodriguez
( T ) HERMINIA C. RODRIGUEZ
Signed in the Presence of:
(Sgd.) ILLEGIBLE
(Sgd.) ILLEGIBLE
On the same date, the appellants and the Luzon Surety Co.,
Inc. executed a bond in favor of the appellee, the
undertaking thereof being embodied therein as follows:
. . . comply with the obligation to pay the amount of
P5,000.00 representing balance of the purchase
price of a parcel of land known as Lot 7-K-2-G, Psd-
26193, with an area of 2191 square meters, Quezon
City, covered by Transfer Certificate of Title No. 13
(6947), Quezon City, within a period of sixty (60)
days from January 7, 1957; That the Surety shall be
notified in writing within Ten (10) days from moment
of default otherwise, this undertaking is
automatically null and void.
On June 20, 1958, when the obligation of the appellants
became due and demandable, the Luzon Surety Co., Inc.
paid to the appellee the sum of P5,000.00. Subsequently,
the appellee demanded from the appellants the payment of
P655.89 corresponding to the alleged accumulated interests
on the principal of P5,000.00. Due to the refusal of the
appellants to pay the said interest, the appellee started this
suit in the Municipal Court of Manila to enforce the collection
thereof. The said court, on February 5, 1959, rendered
judgment in favor of the appellee and against the appellants,
ordering the latter to pay jointly and severally the appellee
the sum of P655.89 with interest thereon at the legal rate
from November 10, 1958, the date of the filing of the
complaint, until the whole amount is fully paid. Not satisfied
with that judgment, appellants appealed to the Court of First
Instance of Manila, where the case was submitted for
decision on the pleadings. The Court of First Instance of
Manila rendered the judgment stated at the outset of this
decision.
On appeal directly to this Court, the following errors are
assigned:
I. The lower court erred in concluding as a fact from
the pleadings that the plaintiff-appellee demanded,
and the Luzon Surety Co., Inc. refused, the payment
of interest in the amount of P655.89, and in not
finding and declaring that said plaintiff-appellee
waived or condoned the said interests.
II. The lower court erred in not finding and declaring
that the obligation of the defendants-appellants in
favor of the plaintiff-appellee was totally
extinguished by payment and/or condonation.
III. The lower court erred in not finding and declaring
that the promissory note executed by the
defendants-appellants in favor of the plaintiff-
appellee was, insofar as the said document
provided for the payment of interests, novated when
the plaintiff-appellee unqualifiedly accepted the
surety bond which merely guaranteed payment of
the principal in the sum of P5,000.00.
Appellants claim that the pleadings do not show that there
was demand made by the appellee for the payment of
accrued interest and what could be deduced therefrom was
merely that the appellee demanded from the Luzon Surety
Co., Inc., in the capacity of the latter as surety, the payment
of the obligation of the appellants, and said appellee
accepted unqualifiedly the amount of P5,000.00 as
performance by the obligor and/or obligors of the obligation
in its favor. It is further claimed that the unqualified
acceptance of payment made by the Luzon Surety Co., Inc.
of P5,000.00 or only the amount of the principal obligation
and without exercising its (appellee's) right to apply a portion
of P655.89 thereof to the payment of the alleged interest due
despite its presumed knowledge of its right to do so, the
appellee showed that it waived or condoned the interests
due, because Articles 1235 and 1253 of the Civil Code
provide:
ART. 1235. When the obligee accepts the
performance, knowing its incompleteness or
irregularity, and without expressing any protest or
objection, the obligation is deemed fully complied
with.
ART. 1253. If the debt produces interest, payment
of the principal shall not be deemed to have been
made until the interests have been recovered.
We do not agree with the contention of the appellants. It is
very clear in the promissory note that the principal obligation
is the balance of the purchase price of the parcel of land
known as Lot 7-K-2-G, Psd-26193, which is the sum of
P5,000.00, and in the surety bond, the Luzon Surety Co.,
Inc. undertook "to pay the amount of P5,000.00 representing
balance of the purchase price of a parcel of land known as
Lot 7-K-2-G, Psd-26193, . . . ." The appellee did not protest
nor object when it accepted the payment of P5,000.00
because it knew that that was the complete amount
undertaken by the surety as appearing in the contract. The
liability of a surety is not extended, by implication, beyond
the terms of his contract.1 It is for the same reason that the
appellee cannot apply a part of the P5,000.00 as payment
for the accrued interest. Appellants are relying on Article
1253 of the Civil Code, but the rules contained in Articles
1252 to 1254 of the Civil Code apply to a person owing
several debts of the same kind of a single creditor. They
cannot be made applicable to a person whose obligation as
a mere surety is both contingent and singular; his liability is
confined to such obligation, and he is entitled to have all
payments made applied exclusively to said application and
to no other.2 Besides, Article 1253 of the Civil Code is merely
directory, and not mandatory.3 Inasmuch as the appellee
cannot protest for non-payment of the interest when it
accepted the amount of P5,000.00 from the Luzon Surety
Co., Inc., nor apply a part of that amount as payment for the
interest, we cannot now say that there was a waiver or
condonation on the interest due.

It is claimed that there was a novation and/or modification of

the obligation of the appellants in favor of the appellee
because the appellee accepted without reservation the
subsequent agreement set forth in the surety bond despite
its failure to provide that it also guaranteed payment of
accruing interest.

The rule is settled that novation by presumption has never

been favored. To be sustained, it needs to be established
that the old and new contracts are incompatible in all points,
or that the will to novate appears by express agreement of
the parties or in acts of similar import.4

An obligation to pay a sum of money is not novated, in a new

instrument wherein the old is ratified, by changing only the
terms of payment and adding other obligations not
incompatible with the old one,5 or wherein the old contract is
merely supplemented by the new one.6 The mere fact that
the creditor receives a guaranty or accepts payments from a
third person who has agreed to assume the obligation, when
there is no agreement that the first debtor shall be released
from responsibility does not constitute a novation, and the
creditor can still enforce the obligation against the original
debtor. (Straight v. Haskel, 49 Phil. 614; Pacific Commercial
Co. v. Sotto, 34 Phil. 237; Estate of Mota v. Serra, 47 Phil.
464; Dugo v. Lopena, supra ). In the instant case, the
surety bond is not a new and separate contract but an
accessory of the promissory note.

WHEREFORE, the judgment appealed from should be, as it

is hereby, affirmed, with costs against the appellants.

Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Makalintal,

Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.

Footnotes
1
La Insular v. Machuaca Go Tauco, 39 Phil. 567.
2 Socony-Vacuum Corp. v. Miraflores, 67 Phil. 304.
3 Baltazar v. Lingayen Gulf Electric Co., Inc., G.R. Nos. L-16236-38, June 30,

1965.
4
Martinez v. Cavives, 25 Phil. 581; Tiu Sinco v. Havana, 45 Phil. 417; Asia
Banking Corporation v. Lacson, 48 Phil. 482; Pascual v. Lacsamana, 53 O.G.
2467; Dugo v. Lopena, et al., G.R. No. L-18377, Dec. 29, 1962.
5 Inchausti v. Yulo, 34 Phil. 978; Pablo v. Sapungan, 71 Phil. 145.
6 Ramos v. Gibbon, 67 Phil. 371; Dugo v. Lopena, supra.
 [G.R. No. L-48448. February 20, 1984.]
CRESENCIO, MAGIN, JUANITO, SOCRATES, and IMELDA,
all surnamed VELEZ, Petitioners, v. HON. CELSO AVELINO,
Presiding Judge, CFI Cebu Branch XIII, ALDING ACEDERA,
FABIANA ALLISON, RAFAEL ALQUISALAS, VICTOR
ALFAFARA, FORTUNATO BARGAYO, NATIVIDAD
BAJARIAS, ELISEO BELARMA, MAURA BELARMA, VIDAL
BUSTAMANTE, MARCIAL BURGOS, MAXIMO CABAHUG,
FLORO COROCOTO, HILARIO GAVIOLA, ROSITA GARCIA,
LEOPOLDO LINES, MAGDALENA TESORO, RAMON
TEJANO, PLACIDA TEJANO, JUANITA VERGARA, and
AMBROSIO VILLACES, Respondents.
E. P. Gabriel, Jr., for Petitioners.
Pedro L. Albino for Private Respondents.
SYLLABUS
1. CIVIL LAW; PROPERTY; ACCION PUBLICIANA; NATURE
THEREOF AS DIFFERENTIATED FROM FORCIBLE ENTRY
AND UNLAWFUL DETAINER; CASE AT BAR. Whether or
not respondent Judge acted with grave abuse of discretion must
be resolved in the affirmative. It should be recalled that this is a
case of accion publiciana, the purpose of which is being to
establish who have a better right to possess. (Bernabe, Et. Al. v.
Judge Dayrit, Et Al., G.R. No. 58399, Oct. 27, 1983). There is
no allegation of forcible entry in the complaint. Neither is it a
case of unlawful detainer because the preponderance of
evidence shows that the occupancy of private respondents on
the lot in question is due to the tolerance of the owners thereof
and against the latters will. Private respondents admit that they
have no written contract of lease with the petitioners not with
petitioners predecessor in interest. Only Marcial Burgos alleged
that he had an oral agreement with Rodrigo Velez, all others
surprisingly failed to testify that they had such an oral
agreement of lease. They likewise admit that their houses were
constructed without building permits. In the true sense of the
word, respondents are squatters. As such, their possession is
by tolerance. (Pangilinan v. Aguilar, 43 SCRA 136). Although
respondents had been paying nominal rentals ranging from
P4.00 to P12.00 per month for some time, they did not thereby
acquire the legal status of tenants. Squatting is unlawful and no
amount of acquiescence converts it into a lawful act. Illegal
constructions constitute public nuisance per se. They pose
problems of health and sanitation. (Cf. City of Manila v. Garcia,
Et Al., 19 SCRA 413).
2. ID.; LEASE; EJECTMENT UNDER PRESIDENTIAL
DECREE NO. 20; NONPAYMENT OF RENTAL, A GROUND
THEREFOR; CASE AT BAR. Even if the case were to be
decided as an ejectment case, the insistence of respondents
that they are lessees and, therefore, under the protective mantle
of Presidential Decree No. 20 loses ground when We consider
the finding of fact that respondents had not been paying any
consideration for the occupancy of their respective premises.
Said Presidential Decree No. 20 suspended ejectment when the
lease is for an indefinite period. It did not suspend ejectment on
other grounds like lack of payment of the rental stipulated.
3. ID.; ID.; ID.; ID.; REMEDY OF LESSEES WHEN OWNERS
OF LOT FAIL TO COLLECT OR REFUSE TO ACCEPT
RENTALS. The failure of the owners to collect, or their
refusal to accept the rentals are not valid defenses. Article 1256
of the Civil Code provides that "if the creditor to whom tender of
payment has been made refuses without just cause to accept it,
the debtor shall be released from responsibility by the
consignation of the thing or sum due."cralaw virtua1aw library
4. ID.; ID.; ID.; NEED OF OWNER/LESSOR TO REPOSSESS
PROPERTY FOR HIS OWN USE OR FOR THE USE OF ANY
MEMBER OF HIS FAMILY AS A RESIDENTIAL UNIT, A
GROUND THEREFOR; CASE AT BAR. The petitioners
need of the premises for their own use or for the use of any
member of his family as a residential unit entitles them to the
possession of the lots in question. Batas Pambansa Blg. 25,
which took effect on April 10, 1979, provides as additional
ground for judicial ejectment the need of the owner/lessor to
repossess his property for his own use or for the use of any
member of his family as a residential unit, such owner or
immediate member not being the owner of any other available
residential unit.
DECISION
GUERRERO, J.:
This is a petition for certiorari filed by Cresencio, Magin, Juanito,
Socrates and Imelda, all surnamed Velez, seeking the reversal,
for grave abuse of discretion, the decision dated May 22, 1978
of the Court of First Instance of Cebu, Branch XIII dismissing
their complaint for recovery of possession of five parcels of land
pursuant to Presidential Decree No. 20.
The evidence shows that the five parcels of land all located at
Katipunan Street, Cebu City, then assessed at P17,000.00 and
known as Lots 5311-A-2-A, 5311-A-2-B, 5311-A-2-C, 5311-A-2-
D and 5311-A-2-F, were formerly owned by Rodrigo Velez, the
father of petitioners. In an extrajudicial partition, the said lots
were adjudicated to petitioners herein on June 16, 1970. As
early as 1970, petitioners made a demand to vacate upon
respondents who asked an extension of one year but thereafter,
respondents changed their minds and refused to vacate. Around
the end of 1973, petitioners again advised respondents that they
needed the premises for their own use and ordered them to
vacate the premises by removing their dwelling units from the
lots. Upon their refusal, petitioners filed an ejectment case
before the City Court of Cebu, which case was docketed as Civil
Case No. R-17011. On motion of respondents, the City Court
dismissed the case without prejudice in an Order dated August
3, 1974 on the ground that there exists no cause of action,
following the suspension of judicial ejectment by Presidential
Decree No. 20. On July 3, 1976, petitioners made again an
extrajudicial demand in a letter which required respondents to
vacate the premises within 15 days at the same time
threatening them with prosecution under Presidential Decree
No. 772 for the crime of squatting. On August 5, 1976,
petitioners filed the complaint for recovery of possession of the
aforesaid five parcels of land alleging that except for Magin
Velez, they have no other lot of their own and are living on other
persons premises; that respondents are not only occupying the
premises but also accepting boarders and/or using the same for
commercial purposes and that several demands have been
made to give way to the needs of petitioners and their
respective families but respondents maliciously, abusively and
defiantly refused to accede to petitioners lawful
demands.chanrobles.com : virtual law library
In their answer, respondents admitted the ownership of the land
by petitioners. But in their special and affirmative defenses, they
alleged that they have been occupying portions of the lots by
virtue of oral agreements of lease for an indefinite period,
paying monthly rentals for their respective portions ranging from
P4.00 to P12.00; that the present action is barred by res
judicata and or prior judgment and that the present action, if at
all there is any cause of action, is essentially one for unlawful
detainer since the last demand to vacate was made less than a
year ago.
Eight of the twenty respondents testified that they are the
original occupants of the lots while two of them, Segundo
Macatol and Hilario Gaviola, claimed to have bought their
houses from third persons with the understanding that they
should pay rentals to the landowner, Rodrigo Velez. They also
testified that they have been paying rentals for their respective
portions ranging from P4.00 to P12.00. In support of their claim
of payment of rentals, at least six of them presented one or two
receipts dated 1973 or earlier (Exhibits 2, 2-A to 2-I) and
claimed that other receipts were lost. But all respondents
admitted not having paid rentals since 1973, some reasoning
out that nobody collected and others claiming that Fabiola Velez
Garganera, Rodrigo Velez daughter, refused to accept their
rentals. At least one of them, Hilario Gaviola, produced what he
claimed as a building permit but the same turned out to be a
mere application.chanrobles virtual lawlibrary
After the case was submitted for decision, the trial court
ruled:jgc:chanrobles.com.ph
"It appearing that the defendants are lessees of the portions of
the land in question wherein their respective dwelling units are
erected, personal use by the plaintiffs and/or then families of the
said land, cannot be a valid ground for judicial ejectment of the
former, pursuant to Presidential Decree No. 20, issued by the
President on March 15, 1977." (sic, should be October 12,
1972). (Decision of the CFI, p. 5; Rollo, p. 30).
On the ground that respondent Judge of the Court of First
Instance of Cebu acted with grave abuse of discretion in the
exercise of his judicial functions by holding that private
respondents are lessees and, therefore, privileged to continue
staying on the lots in question pursuant to Presidential Decree
No. 20, the plaintiffs below brought this instant petition
for certiorari.
Petitioners contend that the preponderance of evidence shows
that the occupancy of private respondents on the lots in
question is due to the tolerance of the owners thereof and
against the latters will.
Conceding that respondents are lessees, petitioners claim that
Presidential Decree No. 20 does not mean that (1) they are
freed from paying rentals for the lots in question; (2) they can
use the lots for commercial purposes; and (3) they can refuse to
adduce evidence specifically referring to the twelve
respondents who did not testify on their behalf.
In answer to the argument of respondents that they are willing to
pay rentals if petitioners send collectors, petitioners cite Article
1256 of the Civil Code where mere willingness to pay is not
payment, thus:jgc:chanrobles.com.ph
"Art. 1256. If the creditor to whom tender of payment has been
made refuses without just cause to accept it, the debtor shall be
released from responsibility by the consignation of the thing or
sum due."cralaw virtua1aw library
Petitioners also claim that they had presented evidence that
some respondents, particularly Natividad Bajaras, Maura
Belarma and Placida Tejano, are using the premises not only as
residences but also stores while Alding Acedera is using her
residence as a boarding house, thereby removing said
respondents from the protective mantle of Presidential Decree
No. 20.
Finally, petitioners invoke the equal protection rights guaranteed
by the Constitution contending that respondent Judges undue
application of Presidential Decree No. 20 in spite of the
undisputed fact that petitioners have no other lot of their own
and are renting other peoples properties, except Magin Velez
(who nevertheless wants to recover his property for the use of
one of his children who is married), constitutes a denial of said
constitutional provision.chanrobles law library : red
Whether or not respondent Judge acted with grave abuse of
discretion must be resolved in the affirmative. It should be
recalled that this is a case of accion publiciana, the purpose of
which is being to establish who have a better right to possess.
(Bernabe, Et. Al. v. Judge Dayrit, Et Al., G.R. No. 58399, Oct.
27, 1983). There is no allegation of forcible entry in the
complaint. Neither is it a case of unlawful detainer because the
preponderance of evidence shows that the occupancy of private
respondents on the lot in question is due to the tolerance of the
owners thereof and against the latters will. Private respondents
admit that they have no written contract of lease with the
petitioners not with petitioners predecessor in interest. Only
Marcial Burgos alleged that he had an oral agreement with
Rodrigo Velez, all others surprisingly failed to testify that they
had such an oral agreement of lease. They likewise admit that
their houses were constructed without building permits. In the
true sense of the word, respondents are squatters. As such,
their possession is by tolerance. (Pangilinan v. Aguilar, 43
SCRA 136). Although respondents had been paying nominal
rentals ranging from P4.00 to P12.00 per month for some time,
they did not thereby acquire the legal status of tenants.
Squatting is unlawful and no amount of acquiescence converts it
into a lawful act. Illegal constructions constitute public nuisance
per se. They pose problems of health and sanitation. (Cf. City of
Manila v. Garcia, Et Al., 19 SCRA 413).
Even if the case were to be decided as an ejectment case, the
insistence of respondents that they are lessees and, therefore,
under the protective mantle of Presidential Decree No. 20 loses
ground when We consider the finding of fact that respondents
had not been paying any consideration for the occupancy of
their respective premises. Said Presidential Decree No. 20
suspended ejectment when the lease is for an indefinite period.
It did not suspend ejectment on other grounds like lack of
payment of the rental stipulated.chanrobles virtual lawlibrary
The failure of the owners to collect, or their refusal to accept the
rentals are not valid defenses. Article 1256 of the Civil Code
provides that "if the creditor to whom tender of payment has
been made refuses without just cause to accept it, the debtor
shall be released from responsibility by the consignation of the
thing or sum due."cralaw virtua1aw library
Independently of the foregoing, the petitioners need of the
premises for their own use or for the use of any member of his
family as a residential unit entitles them to the possession of the
lots in question. Batas Pambansa Blg. 25, which took effect on
April 10, 1979, provides as additional ground for judicial
ejectment the need of the owner/lessor to repossess his
property for his own use or for the use of any member of his
family as a residential unit, such owner or immediate member
not being the owner of any other available residential
unit.chanrobles.com.ph : virtual law library
Even before the effectivity of Batas Pambansa Blg. 25,
Presidential Decree No. 20 had been held to be not without
exception. In Ongchengco v. City Court of Zamboanga, 95
SCRA 313, this Court ruled that "extreme necessity for personal
use of the property entitles the owner to exemption from the
operation of PD 20 which suspends the provision of Article 1673
of the Civil Code on judicial ejectment." The case of Betts v.
Matias, 97 SCRA 439, reaffirmed that "Presidential Decree No.
20 does not sanction the deprivation of a lessor of residential
property in extreme need of the leased premises for his own use
of his right to terminate the lease and recover possession of his
property." Then, in Sinclair v. Court of Appeals, 115 SCRA 318,
this Court held that "a strict and rigid compliance with
Presidential Decree No. 20 is not in order, for an exemption
from its provisions is warranted for humanitarian reasons."
Again, in Tan Tok Lee v. CFI of Kaloocan City, 121 SCRA 438,
this Court said that "petitioners reliance on the provision of
Presidential Decree No. 20 is not well taken. It could not have
been the intention of the said decree to deprive the owner of the
rightful use of her home, more so, when petitioners reneged on
their promise to look for another house in the mistaken belief
that PD 20 gave them a preferential right over that of the owner.
To deny the owner of the use and possession of her property
would be tantamount to depriving her of her constitutional right
to abode." In Rantael v. Court of Appeals, Et Al., 97 SCRA 453,
this Court upheld the right of the lessor to judicially eject the
lessee on the ground not only that "expiration of period of
written lease contract is manifestly present" but also because
Batas Pambansa Blg. 25 which superseded P.D. 20 "buttresses
the right of respondent Llave to judicially eject petitioner Rantael
from the leased premises." In Santos v. Court of Appeals and
Paraguas, G.R. No. L-45071, May 30, 1983, this Court held that
"the retroactive application of Batas Pambansa Blg. 25 to
pending ejectment cases is already a settled matter and may no
longer be questioned. (Alejandro Melchor, Jr., etc. v. Hon. Jose
L. Morja, etc., Et Al., G.R. No. L-35256, March 17, 1983;
Gutierrez v. Cantada, 90 SCRA 1; Ongchengco v. City Court of
Zamboanga, 95 SCRA 313; Betts v. Matias, 97 SCRA 439). It
was also held therein that "the right of the private respondents
over the property which they own in order to use the same as
their residence, not being owners of any other dwelling place,
may not be denied. Such right is expressly recognized by Batas
Pambansa Blg. 25. Elemental sense of justice and fairness
dictates that it must be so." chanrobles.com.ph : virtual law
library
WHEREFORE, the petition for certiorari is granted. The decision
of the defunct Court of First Instance of Cebu, Branch XIII,
dismissing the complaint of petitioners, is hereby REVERSED
and SET ASIDE. A new judgment is hereby entered in favor of
petitioners, ordering respondents to vacate the premises in
question and to remove their respective constructions and/or
improvements therefrom within sixty (60) days from notice.
SO ORDERED.
Makasiar (Chairman), Aquino, Concepcion, Jr., Abad Santos,
De Castro and Escolin, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 171298 April 15, 2013
SPOUSES OSCAR and THELMA
CACAYORIN, Petitioners,
vs.
ARMED FORCES AND POLICE MUTUAL BENEFIT
ASSOCIATION, INC., Respondent.
DECISION
DEL CASTILLO, J.:
Consignation is necessarily judicial. Article 1258 of the Civil
Code specifically provides that consignation shall be made
by depositing the thing or things due at the disposal of
judicial authority. The said provision clearly precludes
consignation in venues other than the courts.
Assailed in this Petition for Review on Certiorari1 are the
September 29, 2005 Decision2 of the Court of Appeals (CA)
which granted the Petition for Certiorari in CA-G.R. SP No.
84446 and its January 12, 2006 Resolution3denying
petitioners' Motion for Reconsideration.4
Factual Antecedents
Petitioner Oscar Cacayorin (Oscar) is a member of
respondent Armed Forces and Police Mutual Benefit
Association, Inc. (AFPMBAI), a mutual benefit association
duly organized and existing under Philippine laws and
engaged in the business of developing low-cost housing
projects for personnel of the Armed Forces of the
Philippines, Philippine National Police, Bureau of Fire
Protection, Bureau of Jail Management and Penology, and
Philippine Coast Guard. He filed an application with
AFPMBAI to purchase a piece of property which the latter
owned, specifically Lot 5, Block 8, Phase I, Kalikasan Mutual
Homes, San Pedro, Puerto Princesa City (the property),
through a loan facility.
On July 4, 1994, Oscar and his wife and co-petitioner herein,
Thelma, on one hand, and the Rural Bank of San Teodoro
(the Rural Bank) on the other, executed a Loan and
Mortgage Agreement5 with the former as borrowers and the
Rural Bank as lender, under the auspices of Pag-IBIG or
Home Development Mutual Funds Home Financing
Program.
The Rural Bank issued an August 22, 1994 letter of
guaranty6 informing AFPMBAI that the proceeds of
petitioners approved loan in the amount of P77,418.00 shall
be released to AFPMBAI after title to the property is
transferred in petitioners name and after the registration and
annotation of the parties mortgage agreement.
On the basis of the Rural Banks letter of guaranty,
AFPMBAI executed in petitioners favor a Deed of Absolute
Sale,7 and a new title Transfer Certificate of Title No.
370178 (TCT No. 37017) was issued in their name, with the
corresponding annotation of their mortgage agreement with
the Rural Bank, under Entry No. 3364.9
Unfortunately, the Pag-IBIG loan facility did not push through
and the Rural Bank closed and was placed under
receivership by the Philippine Deposit Insurance Corporation
(PDIC). Meanwhile, AFPMBAI somehow was able to take
possession of petitioners loan documents and TCT No.
37017, while petitioners were unable to pay the
loan/consideration for the property.
AFPMBAI made oral and written demands for petitioners to
pay the loan/ consideration for the property.10
In July 2003, petitioners filed a Complaint11 for consignation
of loan payment, recovery of title and cancellation of
mortgage annotation against AFPMBAI, PDIC and the
Register of Deeds of Puerto Princesa City. The case was
docketed as Civil Case No. 3812 and raffled to Branch 47 of
the Regional Trial Court (RTC) of Puerto Princesa City
(Puerto Princesa RTC). Petitioners alleged in their Complaint
that as a result of the Rural Banks closure and PDICs claim
that their loan papers could not be located, they were left in
a quandary as to where they should tender full payment of
the loan and how to secure cancellation of the mortgage
annotation on TCT No. 37017. Petitioners prayed, thus:
a. That after the filing of this complaint an order be made
allowing the consignation x x x of Php77,418.00.
b. For the court to compute and declare the amount of
interest to be paid by the plaintiffs and thereafter to allow the
consignation of the interest payments in order to give way for
the full discharge of the loan.
c. To order the AFPMBAI to turn over to the custody of the
court the loan records and title (T.C.T. No. 37017) of the
plaintiffs if the same are in their possession.
d. To declare the full payment of the principal loan and
interest and ordering the full discharge from mortgage of the
property covered by T.C.T. No. 37017.
e. To order the Register of Deeds of Puerto Princesa City to
cancel the annotation of real estate mortgage under Entry
No. 3364 at the back of T.C.T. No. 37017.
f. Thereafter, to turn over to the plaintiffs their title free from
the aforesaid mortgage loan.12
AFPMBAI filed a Motion to Dismiss13 claiming that
petitioners Complaint falls within the jurisdiction of the
Housing and Land Use Regulatory Board (HLURB) and not
the Puerto Princesa RTC, as it was filed by petitioners in
their capacity as buyers of a subdivision lot and it prays for
specific performance of contractual and legal obligations
decreed under Presidential Decree No. 95714 (PD 957). It
added that since no prior valid tender of payment was made
by petitioners, the consignation case was fatally defective
and susceptible to dismissal.
Ruling of the Regional Trial Court
In an October 16, 2003 Order,15 the trial court denied
AFPMBAIs Motion to Dismiss, declaring that since title has
been transferred in the name of petitioners and the action
involves consignation of loan payments, it possessed
jurisdiction to continue with the case. It further held that the
only remaining unsettled transaction is between petitioners
and PDIC as the appointed receiver of the Rural Bank.
AFPMBAI filed a Motion for Reconsideration,16 which the trial
court denied in its March 19, 2004 Order.17
Ruling of the Court of Appeals
AFPMBAI thus instituted CA-G.R. SP No. 84446, which is a
Petition for Certiorari18 raising the issue of jurisdiction. On
September 29, 2005, the CA rendered the assailed Decision
decreeing as follows:
WHEREFORE, premises considered, this Petition is
GRANTED. The Assailed 16 October 2003 and 19 March
2004 Orders of the public respondent judge are hereby
ordered VACATED and SET ASIDE.
SO ORDERED.19
The CA held that Civil Case No. 3812 is a case for specific
performance of AFPMBAIs contractual and statutory
obligations as owner/developer of Kalikasan Mutual Homes,
which makes PD 957 applicable and thus places the case
within the jurisdiction of the HLURB. It said that since one of
the remedies prayed for is the delivery to petitioners of TCT
No. 37017, the case is cognizable exclusively by the
HLURB.
Petitioners moved for reconsideration which was denied by
the CA in its January 12, 2006 Resolution.
Hence, the instant Petition.
Issue
The sole issue that must be resolved in this Petition is: Does
the Complaint in Civil Case No. 3812 fall within the exclusive
jurisdiction of the HLURB?
Petitioners Arguments
Petitioners assert that the elements which make up a valid
case for consignation are present in their Complaint. They
add that since a deed of absolute sale has been issued in
their favor, and possession of the property has been
surrendered to them, not to mention that title has been
placed in their name, the HLURB lost jurisdiction over their
case. And for this same reason, petitioners argue that their
case may not be said to be one for specific performance of
contractual and legal obligations under PD 957 as nothing
more was left to be done in order to perfect or consolidate
their title.
Petitioners thus pray that the herein assailed Decision and
Resolution of the CA be set aside, and that the trial court be
ordered to continue with the proceedings in Civil Case No.
3812.
Respondent's Arguments
Respondent, on the other hand, insists in its Comment20 that
jurisdiction over petitioners case lies with the HLURB, as it
springs from their contractual relation as seller and buyer,
respectively, of a subdivision lot. The prayer in petitioners
Complaint involves the surrender or delivery of the title after
full payment of the purchase price, which respondent claims
are reciprocal obligations in a sale transaction covered by
PD 957. Respondent adds that in effect, petitioners are
exacting specific performance from it, which places their
case within the jurisdiction of the HLURB.
Our Ruling
The Court grants the Petition.
The Complaint makes out a case for consignation.
The settled principle is that "the allegations of the Complaint
determine the nature of the action and consequently the
jurisdiction of the courts. This rule applies whether or not the
plaintiff is entitled to recover upon all or some of the claims
asserted therein as this is a matter that can be resolved only
after and as a result of the trial."21
Does the Complaint in Civil Case No. 3812 make out a case
for consignation? It alleges that:
6.0 Not long after however, RBST22 closed shop and
defendant Philippine Deposit Insurance Corporation (PDIC)
was appointed as its receiver. The plaintiffs, through a
representative, made a verbal inquiry to the PDIC regarding
the payment of their loan but were told that it has no
information or record of the said loan. This made [sic] the
plaintiffs in quandary as to where or whom they will pay their
loan, which they intend to pay in full, so as to cancel the
annotation of mortgage in their title.
7.0 It was discovered that the loan papers of the plaintiffs,
including the duplicate original of their title, were in the
possession of defendant AFPMBAI. It was unclear though
why the said documents including the title were in the
possession of AFPMBAI. These papers should have been in
RBSTs possession and given to PDIC after its closure in the
latters capacity as receiver.
8.0 Plaintiffs are now intending to pay in full their real
estate loan but could not decide where to pay the same
because of RBST [sic] closure and PDICs failure to locate
the loan records and title. This courts intervention is now
needed in order to determine to [sic] where or whom the loan
should be paid.
9.0 Plaintiffs hereby respectfully prays [sic] for this court to
allow the deposit of the amount of Php77,418.00 as full
payment of their principal loan, excluding interest, pursuant
to the Loan and Mortgage Agreement on 4 July 1994.23
From the above allegations, it appears that the petitioners
debt is outstanding; that the Rural Banks receiver, PDIC,
informed petitioners that it has no record of their loan even
as it took over the affairs of the Rural Bank, which on record
is the petitioners creditor as per the July 4, 1994 Loan and
Mortgage Agreement; that one way or another, AFPMBAI
came into possession of the loan documents as well as TCT
No. 37017; that petitioners are ready to pay the loan in full;
however, under the circumstances, they do not know which
of the two the Rural Bank or AFPMBAI should receive
full payment of the purchase price, or to whom tender of
payment must validly be made.
Under Article 1256 of the Civil Code,24 the debtor shall be
released from responsibility by the consignation of the thing
or sum due, without need of prior tender of payment, when
the creditor is absent or unknown, or when he is
incapacitated to receive the payment at the time it is due, or
when two or more persons claim the same right to collect, or
when the title to the obligation has been lost. Applying Article
1256 to the petitioners case as shaped by the allegations in
their Complaint, the Court finds that a case for consignation
has been made out, as it now appears that there are two
entities which petitioners must deal with in order to fully
secure their title to the property: 1) the Rural Bank (through
PDIC), which is the apparent creditor under the July 4, 1994
Loan and Mortgage Agreement; and 2) AFPMBAI, which is
currently in possession of the loan documents and the
certificate of title, and the one making demands upon
petitioners to pay. Clearly, the allegations in the Complaint
present a situation where the creditor is unknown, or that two
or more entities appear to possess the same right to collect
from petitioners. Whatever transpired between the Rural
Bank or PDIC and AFPMBAI in respect of petitioners loan
account, if any, such that AFPMBAI came into possession of
the loan documents and TCT No. 37017, it appears that
petitioners were not informed thereof, nor made privy
thereto.
Indeed, the instant case presents a unique situation where
the buyer, through no fault of his own, was able to obtain title
to real property in his name even before he could pay the
purchase price in full. There appears to be no vitiated
consent, nor is there any other impediment to the
consummation of their agreement, just as it appears that it
would be to the best interests of all parties to the sale that it
be once and for all completed and terminated. For this
reason, Civil Case No. 3812 should at this juncture be
allowed to proceed.
Moreover, petitioners position is buttressed by AFPMBAIs MARIANO C. DEL CASTILLO
own admission in its Comment25 that it made oral and written Associate Justice
demands upon the former, which naturally aggravated their
confusion as to who was their rightful creditor to whom WE CONCUR:
payment should be made the Rural Bank or AFPMBAI. Its
subsequent filing of the Motion to Dismiss runs counter to its
ANTONIO T. CARPIO
demands to pay. If it wanted to be paid with alacrity, then it
Associate Justice
should not have moved to dismiss Civil Case No. 3812,
Chairperson
which was brought precisely by the petitioners in order to be
able to finally settle their obligation in full.
DIOSDADO M. JOSE PORTUGAL
Finally, the lack of prior tender of payment by the petitioners PERALTA* PEREZ
is not fatal to their consignation case. They filed the case for Associate Justice Associate Justice
the exact reason that they were at a loss as to which
between the two the Rural Bank or AFPMBAI was ESTELA M. PERLAS-BERNABE
entitled to such a tender of payment. Besides, as earlier Associate Justice
stated, Article 1256 authorizes consignation alone, without
need of prior tender of payment, where the ground for
ATTESTATION
consignation is that the creditor is unknown, or does not
appear at the place of payment; or is incapacitated to
receive the payment at the time it is due; or when, without I attest that the conclusions in the above Decision had been
just cause, he refuses to give a receipt; or when two or more reached in consultation before the case was assigned to the
persons claim the same right to collect; or when the title of writer of the opinion of the Court's Division.
the obligation has been lost.
ANTONIO T. CARPIO
Consignation is necessarily judicial; hence, jurisdiction lies Associate Justice
with the RTC, not with the HLURB. Chairperson

On the question of jurisdiction, petitioners case should be CERTIFICATION

tried in the Puerto Princesa RTC, and not the HLURB.
Consignation is necessarily judicial,26 as the Civil Code itself
provides that consignation shall be made by depositing the
thing or things due at the disposal of judicial authority, thus:
Art. 1258. Consignation shall be made by depositing the
things due at the disposal of judicial authority, before whom
the tender of payment shall be proved, in a proper case, and
the announcement of the consignation in other cases.
Pursuant to Section 13, Article VIII of the Constitution and
the Division Chairperson's Attestation, I certify that the
conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of
the opinion of the Court's Division.
MARIA LOURDES P. A. SERENO
Chief Justice

The consignation having been made, the interested parties Footnotes

* Per Raffle dated April 10, 2013.
shall also be notified thereof. (Emphasis and underscoring 1
Rollo, pp. 9-30.
supplied) 2
Id. at 95-103; penned by Associate Justice Andres B. Reyes, Jr. and concurred
in by Associate JusticesRosmari D. Carandang and Monina Arevalo-Zenarosa.
3
Id. at Ill.
The above provision clearly precludes consignation in 4
Id. at 204-109.
5
venues other than the courts. Elsewhere, what may be
1w phi1
Id. at 149-151.
6
CA rollo, p. 26.
made is a valid tender of payment, but not consignation. The 7
Id. at 27-28.
two, however, are to be distinguished. 8
Id. at 29.
9
Id. (dorsal).
10
Rollo, p. 119.
11
Tender of payment must be distinguished from consignation. 12
Id. at 45-51.
Id. at 48-49.
Tender is the antecedent of consignation, that is, an act 13
Id. at 52-57.
preparatory to the consignation, which is the principal, and 14
The Subdivision and Condominium Buyers' Protective Decree.
15
from which are derived the immediate consequences which Rollo, pp. 66-68; penned by Judge Perfecto E. Pe. The Order decreed as
follows:
the debtor desires or seeks to obtain. Tender of payment ALL THE FOREGOING CONSIDERED, the Court hereby denies the motion filed
may be extrajudicial, while consignation is necessarily by the plaintiffs thruCounsel only as against the defendant AFPMBAI, but declared
judicial, and the priority of the first is the attempt to make a [sic] in default the other defendant PDIC.The Court hereby orders the defendant
AFPMBAI to file its necessary pleading within fifteen (15) days from receipt of this
private settlement before proceeding to the solemnities of order.
consignation. (8 Manresa 325).27 16
CA rollo, pp. 54-58.
17
Id. at 23.
18
Id. at 2-19.
While it may be true that petitioners claim relates to the 19
Rollo, pp. 102-103.
20
Id. at 114-130.
terms and conditions of the sale of AFPMBAIs subdivision 21
Bulao v. Court of Appeals, G.R. No. 101983, February 1, 1993, 218 SCRA 321,
lot, this is overshadowed by the fact that since the Complaint 323, citing Magay v. Estiandan, 161 Phil. 586, 590 (1976).
22
in Civil Case No. 3812 pleads a case for consignation, the 23
The Rural Bank of San Teodoro.
Rollo, pp. 47-48.
HLURB is without jurisdiction to try it, as such case may only 24
Art. 1256. If the creditor to whom tender of payment has been made refuses
be tried by the regular courts. without just cause to accept it, the debtor shall be released from responsibility by
the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases:
WHEREFORE, premises considered, the Petition is (1) When the creditor is absent or unknown, or does not appear at the place of
GRANTED. The September 29, 2005 Decision and January payment;
(2) When he is incapacitated to receive the payment at the time it is due;
12, 2006 Resolution of the Court of Appeals in CA-G.R. SP (3) When, without just cause, he refuses to give a receipt;
No. 84446 are ANNULLED and SET ASIDE. The October (4) When two or more persons claim the same right to collect;
16, 2003 and March 19, 2004 Orders of the Regional Trial (5) When the title of the obligation has been lost.
25
Rollo, p. 119.
Court of Puerto Princesa City, Branch 47, are REINSTATED, 26
Soco v. Hon. Militante, 208 Phil. 151, 159 (1983); Mclaughlin v. Court of
and the case is REMANDED to the said court for Appeals, 229 Phil. 8, 18 (1986); Meat Packing Corporation of the Philippines v.
Sandiganbayan, 411 Phil. 959, 973 (2001); B.E. San Diego, Inc. v. Alzul, G.R. No.
continuation of the proceedings. 169501, June 8, 2007, 524 SCRA 402, 426, 428-429.
27
Soco v. Hon. Militante, supra at 160-161.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 172346 July 24, 2013
SPOUSES NAMEAL and LOURDES
BONROSTRO, Petitioners,
vs.
SPOUSES JUAN and CONSTANCIA LUNA, Respondents.
DECISION
DEL CASTILLO, J.:
Questioned in this case is the Court of Appeals' (CA)
disquisition on the matter of interest.
Petitioners spouses Nameal and Lourdes Bonrostro (spouses
Bonrostro) assail through this Petition for Review on
Certiorari1 the April 15, 2005 Decision2 of the CA in CA-G.R. CV
No. 56414 which affirmed with modifications the April 4, 1997
Decision3 of the Regional Trial Court (RTC) of Quezon City,
Branch 104 in Civil Case No. Q-94-18895. They likewise
question the CA April17, 2006 Resolution4 denying their motion
for partial reconsideration.
Factual Antecedents
In 1992, respondent Constancia Luna (Constancia), as buyer,
entered into a Contract to Sell5 with Bliss Development
Corporation (Bliss) involving a house and lot identified as Lot
19, Block 26 of New Capitol Estates in Diliman, Quezon City.
Barely a year after, Constancia, this time as the seller, entered
into another Contract to Sell6with petitioner Lourdes Bonrostro
(Lourdes) concerning the same property under the following
terms and conditions:
1. The stipulated price of P1,250,000.00 shall be paid
by the VENDEE to the VENDOR in the following
manner:
(a) P200,000.00 upon signing x x x the
Contract To Sell,
(b) P300,000.00 payable on or before April
30, 1993,
(c) P330,000.00 payable on or before July 31,
1993,
(d) P417,000.00 payable to the New Capitol
Estate, for 15 years at P6,867.12 a month,
2. x x x In the event the VENDEE fails to pay the
second installment on time, the VENDEE will pay
starting May 1, 1993 a 2% interest on the P300,000.00
monthly. Likewise, in the event the VENDEE fails to
pay the amount of P630,000.00 on the stipulated time,
this CONTRACT TO SELL shall likewise be deemed
cancelled and rescinded and x x x 5% of the total
contract price of P1,250,000.00 shall be deemed
forfeited in favor of the VENDOR. Unpaid monthly
amortization shall likewise be deducted from the initial
down payment in favor of the VENDOR.7
Immediately after the execution of the said second contract, the
spouses Bonrostro took possession of the property. However,
except for the P200,000.00 down payment, Lourdes failed to
pay any of the stipulated subsequent amortization payments.
Ruling of the Regional Trial Court
On January 11, 1994, Constancia and her husband, respondent
Juan Luna (spouses Luna), filed before the RTC a
Complaint8 for Rescission of Contract and Damages against the
spouses Bonrostro praying for the rescission of the contract,
delivery of possession of the subject property, payment by the
latter of their unpaid obligation, and awards of actual, moral and
exemplary damages, litigation expenses and attorneys fees.
In their Answer with Compulsory Counterclaim,9 the spouses
Bonrostro averred that they were willing to pay their total
balance of P630,000.00 to the spouses Luna after they sought
from them a 60-day extension to pay the same.10 However,
during the time that they were ready to pay the said amount in
the last week of October 1993, Constancia and her lawyer, Atty.
Arlene Carbon (Atty. Carbon), did not show up at their
rendezvous. On November 24, 1993, Lourdes sent Atty. Carbon
a letter11 expressing her desire to pay the balance, but received
no response from the latter. Claiming that they are still willing to
settle their obligation, the spouses Bonrostro prayed that the
court fix the period within which they can pay the spouses Luna.
The spouses Bonrostro likewise belied that they were not
paying the monthly amortization to New Capitol Estates and
asserted that on November 18, 1993, they paid Bliss, the
developer of New Capitol Estates, the amount of P46,303.44.
Later during trial, Lourdes testified that Constancia instructed
Bliss not to accept amortization payments from anyone as
evidenced by her March 4, 1993 letter12 to Bliss.
On April 4, 1997, the RTC rendered its Decision13 focusing on
the sole issue of whether the spouses Bonrostros delay in their
payment of the installments constitutes a substantial breach of
their obligation under the contract warranting rescission. The
RTC ruled that the delay could not be considered a substantial
breach considering that Lourdes (1) requested for an extension
within which to pay; (2) was willing and ready to pay as early as
the last week of October 1993 and even wrote Atty. Carbon
about this on November 24, 1993; (3) gave Constancia a down
payment of P200,000.00; and, (4) made payment to Bliss.
The dispositive portion of the said Decision reads:
WHEREFORE, in view of the foregoing, judgment is hereby
rendered as follows:
1.) Declaring the Contract to Sell executed by the
plaintiff Constancia and defendant Lourdes with
respect to the house and lot located at Blk. 26, Lot 19,
New Capitol Estates, Diliman, Quezon City to be in
force and effect. And that Lourdes Bonrostro must
remain in the possession of the premises.
2.) Ordering the defendants to pay plaintiffs within 60
days from receipt of this decision the sum
of P300,000.00 plus an interest of 2% per month from
April 1993 to November 1993.
3.) Ordering the defendants to pay plaintiffs within sixty
(60) days from receipt of this decision the sum
of P330,000.00 plus an interest of 2% per month from
July 1993 to November 1993.
4.) Ordering the defendants to reimburse plaintiffs the
sum of P214,492.62 which plaintiffs paid to Bliss
Development Corporation.
No pronouncement as to Cost.
SO ORDERED.14
As their Motion for Reconsideration15 was likewise denied in an
Order16 dated July 15, 1997, the spouses Luna appealed to the
CA.17
Ruling of the Court of Appeals
In its Decision18 of April 15, 2005, the CA concluded that since
the contract entered into by and between the parties is a
Contract to Sell, rescission is not the proper remedy. Moreover,
the subject contract being specifically a contract to sell a real
property on installment basis, it is governed by Republic Act No.
655219 or the Maceda Law, Section 4 of which states:
Sec. 4. In case where less than two years of installment were
paid, the seller shall give the buyer a grace period of not less
than sixty days from the date the installment became due.
If the buyer fails to pay the installments due at the expiration of
the grace period, the seller may cancel the contract after thirty
days from receipt by the buyer of the notice of cancellation or
the demand for rescission of the contract by a notarial act.
(Emphases supplied)
The CA held that while the spouses Luna sent the spouses
Bonrostro letters20 rescinding the contract for non-payment of
the sum of P630,000.00, the same could not be considered as
valid and effective cancellation under the Maceda Law since
they were made within the 60-day grace period and were not
notarized. The CA concluded that there being no cancellation
effected in accordance with the procedure prescribed by law,
the contract therefore remains valid and subsisting.
The CA also affirmed the RTCs finding that Lourdes was ready
to pay her obligation on November 24, 1993.
However, the CA modified the RTC Decision with respect to
interest, viz:
Nevertheless, there is a need to modify the appealed decision
insofar as (i) the interest imposed on the sum of P300,000.00 is
only for the period April 1993 to November 1993; (ii) the interest
imposed on the sum of P330,000.00 is 2% per month and is
only for the period July 1993 to November 1993; (iii) it does not
impose interest on the amount of P214,492.62 which was paid
by Constancia to BLISS in behalf of Lourdes x x x
The rule is that no interest shall be due unless it has been
expressly stipulated in writing (Art. 1956, Civil Code). However,
the contract does not provide for interest in case of default in
payment of the sum of P330,000.00 to Constancia and the
monthly amortizations to BLISS.
Considering that Lourdes had incurred x x x delay in the
performance of her obligations, she should pay (i) interest at the
rate of 2% per month on the sum of P300,000.00 from May 1,
1993 until fully paid and (ii) interest at the legal rate on the
amounts of P330,000.00 and P214,492.62 from the date of
default (August 1, 1993 and April 4, 1997 date of the appealed
decision, respectively) until the same are fully paid x x x21
Hence, the dispositive portion of the said Decision:
WHEREFORE, the appealed decision is AFFIRMED with the
MODIFICATIONS that paragraphs 2, 3, and 4 of its dispositive
portion shall now read:
2.) Ordering the defendants to pay plaintiffs the sum
of P300,000.00 plus interest thereon at the rate of 2%
per month from May 1, 1993 until fully paid;
3.) Ordering the defendants to pay plaintiffs the sum
of P330,000.00 plus interest thereon at the legal rate
from August 1, 1993 until fully paid; and
4.) Ordering the defendants to reimburse plaintiffs the
sum of P214,492.62, which plaintiffs paid to Bliss
Development Corporation, plus interest thereon at the
legal rate from filing of the complaint until fully
reimbursed.
SO ORDERED.22
The spouses Luna no longer assailed the ruling. On the other
hand, the spouses Bonrostro filed a Partial Motion for
Reconsideration23 questioning the above-mentioned
modifications. The CA, however, denied for lack of merit the
said motion in a Resolution24 dated April 17, 2006.
Hence, this Petition for Review on Certiorari.
Issue
The basic issue in this case is whether the CA correctly
modified the RTC Decision with respect to interests.
The Parties Arguments
As may be recalled, the RTC under paragraphs 2 and 3 of the
dispositive portion of its Decision ordered the spouses
Bonrostro to pay the spouses Luna the sums of P300,000.00
plus interest of 2% per month from April 1993 to November
1993 and P330,000.00 plus interest of 2% per month from July
1993 to November 1993, respectively. The CA modified these
by reckoning the payment of the 2% interest on
the P300,000.00 from May 1, 1993 until fully paid and by
imposing interest at the legal rate on the P330,000.00 reckoned
from August 1, 1993 until fully paid.
The spouses Bonrostro harp on the factual finding of the RTC,
as affirmed by the CA, that Lourdes was willing and ready to
pay her obligation as evidenced by her November 24, 1993
letter to Atty. Carbon. They also assert that the sending of the
said letter constitutes a valid tender of payment on their part.
Hence, they argue that they should not be assessed any
interest subsequent to the date of the said letter. Neither should
they be ordered to pay interest on the amount of P214,492.62
which covers the amortizations paid by the spouses Luna to
Bliss. They point out that it was Constancia who prevented them
from fulfilling their obligation to pay the amortizations when she
instructed Bliss not to accept payment from them.25
The spouses Luna, on the other hand, aver that the November
24, 1993 letter of Lourdes is not equivalent to tender of payment
since the mere sending of a letter expressing the intention to
pay, without the accompanying payment, cannot be considered
a valid tender of payment. Also, if the spouses Bonrostro were
really willing and ready to pay at that time and assuming that the
spouses Luna indeed refused to accept payment, the former
should have resorted to consignation. Anent the payment of
amortization, the spouses Luna explain that under the parties
Contract to Sell, Lourdes was to assume Constancias balance
to Bliss by paying the monthly amortization in order to avoid the
cancellation of the earlier Contract to Sell entered into by
Constancia with Bliss.26 However, since Lourdes was remiss in
paying the same, the spouses Luna were constrained to pay the
amortization. They thus assert that reimbursement to them of
the said amount with interest is proper considering that by
reason of such payment, the spouses Bonrostro were spared
from the interests and penalties which would have been
imposed by Bliss if the amortizations remained unpaid.
Our Ruling
The Petition lacks merit.
The spouses Bonrostros reliance on the RTCs factual finding
that Lourdes was willing and ready to pay on November 24,
1993 is misplaced.
As mentioned, the RTC in resolving the Complaint focused on
the sole issue of whether the failure of spouses Bonrostro to pay
the installments of P300,000.00 on April 30, 1993
and P330,000.00 on July 31, 1993 is a substantial breach of
their obligation under the contract as to warrant the rescission of
the same.27 The said court ratiocinated, viz:
After careful evaluation of the evidence testimonial and
documentary, the Court believes that the defendants delay in
the payment of the two installments is not so substantial as to
warrant rescission of contract. Although, the defendant failed to
pay the two installments in due time, she was able to
communicate with the plaintiffs through letters requesting for an
extension of two months within which to pay the installments. In
fact, on November 24, 1993 defendant informed Atty. Arlene
Carbon that she was ready to pay the installments and the
money is ready for pick-up. However, plaintiff did not bother to
get or pick-up the money without any valid reason. It would be
very prejudicial on the part of the defendant if the contract to sell
be rescinded considering that she made a downpayment
of P200,000.00 and made partial amortization to the Bliss
Development Corporation. In fact, the defendant testified that
she is willing and ready to pay the balance including the interest
on November 24, 1993.
The Court is of the opinion that the delay in the payment of the
balance of the purchase price of the house and lot is not so
substantial as to warrant the rescission of the contract to sell.
The question of whether a breach of contract is substantial
depends upon the attendant circumstance. x x x28
Clearly, the RTC arrived at the above-quoted conclusion based
on its mistaken premise that rescission is applicable to the case.
Hence, its determination of whether there was substantial
breach. As may be recalled, however, the CA, in its assailed
Decision, found the contract between the parties as a contract
to sell, specifically of a real property on installment basis, and as
such categorically declared rescission to be not the proper
remedy. This is considering that in a contract to sell, payment of
the price is a positive suspensive condition, failure of which is
not a breach of contract warranting rescission under Article
119129 of the Civil Code but rather just an event that prevents
the supposed seller from being bound to convey title to the
supposed buyer.30 Also, and as correctly ruled by the CA, Article
1191 cannot be applied to sales of real property on installment
since they are governed by the Maceda Law.31
There being no breach to speak of in case of non-payment of
the purchase price in a contract to sell, as in this case, the
RTCs factual finding that Lourdes was willing and able to pay
her obligation a conclusion arrived at in connection with the
said courts determination of whether the non-payment of the
purchase price in accordance with the terms of the contract was
a substantial breach warranting rescission therefore loses
significance. The spouses Bonrostros reliance on the said
factual finding is thus misplaced. They cannot invoke their
readiness and willingness to pay their obligation on November
24, 1993 as an excuse from being made liable for interest
beyond the said date.
The spouses Bonrostro are liable for interest on the installments
due from the date of default until fully paid.
The spouses Bonrostro assert that Lourdes letter of November
24, 1993 amounts to tender of payment of the remaining
balance amounting to P630,000.00. Accordingly, thenceforth,
accrual of interest should be suspended.
Tender of payment "is the manifestation by the debtor of a
desire to comply with or pay an obligation. If refused without just
cause, the tender of payment will discharge the debtor of the
obligation to pay but only after a valid consignation of the sum
due shall have been made with the proper
court."32 "Consignation is the deposit of the proper amount with
a judicial authority in accordance with rules prescribed by law,
after the tender of payment has been refused or because of
circumstances which render direct payment to the creditor
impossible or inadvisable."33
"Tender of payment, without more, produces no effect."34 "To
have the effect of payment and the consequent extinguishment
of the obligation to pay, the law requires the companion acts of
tender of payment and consignation."35
As to the effect of tender of payment on interest, noted civilist
Arturo M. Tolentino explained as follows:
When a tender of payment is made in such a form that the
creditor could have immediately realized payment if he had
accepted the tender, followed by a prompt attempt of the debtor
to deposit the means of payment in court by way of
consignation, the accrual of interest on the obligation will be
suspended from the date of such tender. But when the tender of
payment is not accompanied by the means of payment, and the
debtor did not take any immediate step to make a consignation,
then interest is not suspended from the time of such tender. x x
x x36(Emphasis supplied)
Here, the subject letter merely states Lourdes willingness and
readiness to pay but it was not accompanied by payment. She
claimed that she made numerous telephone calls to Atty.
Carbon reminding the latter to collect her payment, but, neither
said lawyer nor Constancia came to collect the payment. After
that, the spouses Bonrostro took no further steps to effect
payment. They did not resort to consignation of the payment
with the proper court despite knowledge that under the contract,
non-payment of the installments on the agreed date would make
them liable for interest thereon. The spouses Bonrostro
erroneously assumed that their notice to pay would excuse
them from paying interest. Their claimed tender of payment did
not produce any effect whatsoever because it was not
accompanied by actual payment or followed by consignation.
Hence, it did not suspend the running of interest. The spouses
Bonrostro are therefore liable for interest on the subject
installments from the date of default until full payment of the
sums of P300,000.00 and P330,000.00.
The spouses Bonrostro are likewise liable for interest on the
amount paid by the spouses Luna to Bliss as amortization.
The spouses Bonrostro want to be relieved from paying interest
on the amount of P214,492.62 which the spouses Luna paid to
Bliss as amortizations by asserting that they were prevented by
the latter from fulfilling such obligation. They invoke Art. 1186 of
the Civil Code which provides that "the condition shall be
deemed fulfilled when the obligor voluntarily prevents its
fulfillment."
However, the Court finds Art. 1186 inapplicable to this case.
The said provision explicitly speaks of a situation where it is the
obligor who voluntarily prevents fulfillment of the condition.
Here, Constancia is not the obligor but the obligee. Moreover,
even if this significant detail is to be ignored, the mere intention
to prevent the happening of the condition or the mere placing of
ineffective obstacles to its compliance, without actually
preventing fulfillment is not sufficient for the application of Art.
1186.37 Two requisites must concur for its application, to wit: (1)
intent to prevent fulfillment of the condition; and, (2) actual
prevention of compliance.38
In this case, while it is undisputed that Constancia indeed
instructed Bliss on March 4, 1994 not to accept payment from
anyone but her, there is nothing on record to show that Bliss
heeded the instruction of Constancia as to actually prevent the
spouses Bonrostro from making payments to Bliss. There is no
showing that subsequent to the said letter, the spouses
Bonrostro attempted to make payment to and was refused by
Bliss. Neither was there a witness presented to prove that Bliss
indeed gave effect to the instruction contained in Constancias
letter. While Bliss Project Development Officer, Mr. Ariel
Cordero, testified during trial, nothing could be gathered from
his testimony regarding this except for the fact that Bliss
received the said letter.39 In view of these, the spouses Luna
could not be said to have placed an effective obstacle as to
actually prevent the spouses Bonrostro from making
amortization payments to Bliss.
On the other hand, there are telling circumstances which militate
against the spouses Bonrostros claimed keenness to comply
with their obligation to pay the monthly amortization. After the
execution of the contract in January 1993, they immediately
took possession of the property but failed to make amortization
payments. It was only after seven months or on November 18,
1993 that they made payments to Bliss in the amount
of P46,303.44.40 Whether the same covers previous unpaid
amortizations is also not clear as the receipt does not indicate
the same41 and per Statement of Account42 as of March 8, 1994
issued by Bliss, the unpaid monthly amortizations for February
to November 1993 in the total amount of P78,271.69 remained
outstanding. There was also no payment made of the
amortizations due on December 4, 1993 and January 4,
199443 before the filing of the Complaint on January 11, 1994.
On the part of the spouses Luna, it is understandable that they
paid the amortizations due.1wphi1 The assumption of payment
of the monthly amortization to Bliss was made part of the
obligations of the spouses Bonrostro under their contract with
the spouses Luna precisely to avoid the cancellation of the
earlier contract entered into by Constancia with Bliss. But as the
spouses Bonrostro failed in this obligation, the spouses Luna ANTONIO T. CARPIO
were constrained to pay Bliss to avoid the adverse effect of Associate Justice
such failure. This act of the spouses Luna proved to be even Chairperson
more beneficial to the spouses Bonrostro as the cancellation of
the Contract to Sell between Constancia and Bliss would result CERTIFICATION
in the cancellation of the subsequent Contract to Sell between
Constancia and Lourdes. Also, the spouses Bonrostro were
relieved from paying the penalties that would have been Pursuant to Section 13, Article VITI of the Constitution and the
imposed by Bliss if the monthly amortizations covered by the Division Chairperson's Attestation, I certify that the conclusions
said payment remained unpaid. The Statements of in the above Decision had been reached in consultation before
Account44 issued by Bliss clearly state that each monthly the case was assigned to the writer of the opinion of the Court's
amortization is due on or before the fourth day of every month Division.
and a penalty equivalent to 1/10th of 1% per day of delay shall
be imposed for all payments made after due date. That MARIA LOURDES P. A. SERENO
translates to 3% monthly or 36% per annum rate of interest, Chief Justice
three times higher than the 12% per annum rate of interest
correctly imposed by the CA. Footnotes
1 Rollo, pp. 8-23.
2 CA rollo, pp. 69-78; penned by Associate Justice Edgardo P. Cruz and concurred in by
Hence, the resulting situation is that the spouses Luna are Presiding Justice Romeo A. Brawner and Associate Justice Jose C. Mendoza (now a
constrained to part with their money while the spouses member of this Court).
Bonrostro, despite being remiss in their obligation to pay the 3 Records, pp. 300-302; penned by Judge Angel V. Colet.
4 CA rollo, pp. 101-103; penned by Associate Justice Edgardo P. Cruz and concurred in by
monthly amortization, are relieved from paying higher penalties
Associate Justices Noel G. Tijam and Vicente S.E. Veloso.
at the expense of the former. This is aside from the fact that the 5 Records, pp. 8-13.
spouses Bonrostro are in continued possession of the subject 6 Id. at 14.

property and are enjoying the beneficial use thereof. Under the 7 Id.
8 Id. at 1-7.
circumstances and considering that the spouses Bonrostro are
9 Id. at 56-60.
obviously in delay in complying with their obligation to pay the 10 See Letter of Lourdes dated August 18, 1993, id. at 63.
amortizations due from February 1993 to January 1995 for 11 Id. at 64.
which the spouses Luna paid P214,492.62,45 the CA correctly 12 Id. at 224. It states as follows:

ordered the reimbursement to the latter of the said amount with xxxx
interest. "Delay in the performance of an obligation is looked This is to formally inform you of my previous verbal notice that I have not authorized
anyone to negotiate and pay in my behalf my unit at Block 26 Lot 19 New Capitol Estates
upon with disfavor because, when a party to a contract incurs
Project.
delay, the other party who performs his part of the contract Any alleged authority is a forgery or a result of a misrepresentation.
suffers damages thereby."46 As discussed, the spouses Luna Please communicate with the undersigned in the event anyone pretends to negotiate on
obviously suffered damages brought about by the failure of the the said unit.
spouses Bonrostro to comply with their obligation on time. "And, Very truly yours,
Sgd.
sans elaboration of the matter at hand, damages take the form CONSTANCIA LUNA
of interest x x x."47 13 Id. at 300-302.
14 Id. at 302.
15 Id. at 303-310.
Under Article 2209 of the Civil Code, "if the obligation consists in 16 Id. at 327-328.
the payment of a sum of money, and the debtor incurs in delay, 17 See Notice of Appeal, id. at 329-330.

the indemnity for damages, there being no stipulation to the 18 CA rollo, pp. 69-78.
19 Also known as the Realty Installment Buyer Protection Act.
contrary, shall be the payment of the interest agreed upon, and
20 Dated August 2, 1993, records, p.147; dated September 16, 1993, id. at 149-151; dated
in the absence of stipulation, the legal interest x x x." There
November 15, 1993, id. 152-153.
being no stipulation on interest in case of delay in the payment 21 CA rollo, p. 77.
of amortization, the CA thus correctly imposed interest at the 22 Id. at 77-78.

legal rate which is now 12% per annum. 23 Id. at 79-88.

24 Id. at 101-103.
25 Records, p. 224.

WHEREFORE, the Petition for Review on Certiorari is DENIED 26 Article 8.01 of the Contract to Sell entered into by Constancia with Bliss provides:

and the assailed Decision dated April 15, 2005 and the In the event the BUYER fails to pay any installment [when] due or fails to pay all
Resolution dated April 17, 2006 of the Court of Appeals in CA- installments and interests in arrears at the expiration of the grace period when such grace
period is available to the BUYER, or otherwise fails to comply with any of the terms and
G.R. CV No. 56414 are AFFIRMED. conditions of this contract, the SELLER may, at its sole option, cause the cancellation of
this contract by giving the buyer a notice of cancellation or demand for rescission of the
SO ORDERED. contract without need of judicial action. x x x (Id. at 10.)
27 See relevant portion of the RTC Decision, id. at 301.
28 Id.
29 Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
MARIANO C. DEL CASTILLO
the obligors should not comply with what is incumbent upon him.
Associate Justice
The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he
WE CONCUR: has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
ANTONIO T. CARPIO xxxx
30 Reyes v. Tuparan, G.R. No. 188064, June 1, 2011, 650 SCRA 283, 296.
Associate Justice 31 DESIDERIO, JURADO P., Comments and Jurisprudence on Obligations and Contracts,
Chairperson Twelfth Revised Edition, 2010, pp. 138-139.
32 Allandale Sportsline Inc. v. The Good Development Corporation, G.R. No. 164521,

December 18, 2008, 574 SCRA 625, 634.

ARTURO D. BRION JOSE PORTUGAL PEREZ 33 TOLENTINO, ARTURO, M., Commentaries and Jurisprudence on the Civil Code of the

Associate Justice Associate Justice Philippines, Volume IV, 1973, p. 305.

34 Allandale Sportsline Inc. v. The Good Development Corporation, supra.
35 Cinco v. Court of Appeals, G.R. No. 151903, October 9, 2009, 603 SCRA 108, 119.

ESTELA M. PERLAS-BERNABE 36 Supra note 32 at 306.

37 Id. at 155.
Associate Justice
38 Id.
39 See TSN dated June 8, 1995, pp. 1-26.

ATTESTATION 40 Records, p. 65.

41 The said receipt indicates "PAYMENT ACCEPTED w/o PREJUDICE W/ THE TERMS &

CONDITIONS OF COMPROMISE AGREEMENT DATED NOV. 27 91 in CIVIL CASE # 52992

I attest that the conclusions in the above Decision had been BDC VS. LUNA"
reached in consultation before the case was assigned to the 42 Records, p. 80.

writer of the opinion of the Courts Division.

43 Id.
44 Dated March 3, 1994, id. at 80 and January 30, 1995, id. at 159.
45 Id.
46 Arwood Industries, Inc. v. D.M. Consunji, Inc., 442 Phil. 203, 212 (2002).
47 Id.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 156846 February 23, 2004
TEDDY G. PABUGAIS, petitioner
vs.
DAVE P. SAHIJWANI, respondent.
DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for review on certiorari is the January
16, 2003 Amended Decision1 of the Court of Appeals2in CA-
G.R. CV No. 55740 which set aside the November 29, 1996
Decision3 of the Regional Trial Court of Makati, Branch 64, in
Civil Case No. 94-2363.
Pursuant to an "Agreement And Undertaking"4 dated December
3, 1993, petitioner Teddy G. Pabugais, in consideration of the
amount of Fifteen Million Four Hundred Eighty Seven Thousand
Five Hundred Pesos (P15,487,500.00), agreed to sell to
respondent Dave P. Sahijwani a lot containing 1,239 square
meters located at Jacaranda Street, North Forbes Park, Makati,
Metro Manila. Respondent paid petitioner the amount of
P600,000.00 as option/reservation fee and the balance of
P14,887,500.00 to be paid within 60 days from the execution of
the contract, simultaneous with delivery of the owners duplicate
Transfer Certificate of Title in respondents name the Deed of
Absolute Sale; the Certificate of Non-Tax Delinquency on real
estate taxes and Clearance on Payment of Association Dues.
The parties further agreed that failure on the part of respondent
to pay the balance of the purchase price entitles petitioner to
forfeit the P600,000.00 option/reservation fee; while non-
delivery by the latter of the necessary documents obliges him to
return to respondent the said option/reservation fee with interest
at 18% per annum, thus
5. DEFAULT In case the FIRST PARTY [herein respondent]
fails to pay the balance of the purchase price within the
stipulated due date, the sum of P600,000.00 shall be deemed
forfeited, on the other hand, should the SECOND PARTY
[herein petitioner] fail to deliver within the stipulated period the
documents hereby undertaken, the SECOND PARTY shall
return the sum of P600,000.00 with interest at 18% per annum. 5
Petitioner failed to deliver the required documents. In
compliance with their agreement, he returned to respondent the
latters P600,000.00 option/reservation fee by way of Far East
Bank & Trust Company Check No. 25AO54252P, which was,
however, dishonored.
What transpired thereafter is disputed by both parties. Petitioner
claimed that he twice tendered to respondent, through his
counsel, the amount of P672,900.00 (representing the
P600,000.00 option/reservation fee plus 18% interest per
annum computed from December 3, 1993 to August 3, 1994) in
the form of Far East Bank & Trust Company Managers Check
No. 088498, dated August 3, 1994, but said counsel refused to
accept the same. His first attempt to tender payment was
allegedly made on August 3, 1994 through his
messenger;6 while the second one was on August 8,
1994,7 when he sent via DHL Worldwide Services, the
managers check attached to a letter dated August 5, 1994. 8 On
August 11, 1994, petitioner wrote a letter to respondent saying
that he is consigning the amount tendered with the Regional
Trial Court of Makati City.9 On August 15, 1994, petitioner filed a
complaint for consignation.10
Respondents counsel, on the other hand, admitted that his
office received petitioners letter dated August 5, 1994, but
claimed that no check was appended thereto.11 He averred that
there was no valid tender of payment because no check was
tendered and the computation of the amount to be tendered was
insufficient,12 because petitioner verbally promised to pay 3%
monthly interest and 25% attorneys fees as penalty for default,
in addition to the interest of 18% per annum on the P600,000.00
option/reservation fee.13
On November 29, 1996, the trial court rendered a decision
declaring the consignation invalid for failure to prove that
petitioner tendered payment to respondent and that the latter
refused to receive the same. It further held that even assuming
that respondent refused the tender, the same is justified
because the managers check allegedly offered by petitioner
was not legal tender, hence, there was no valid tender of
payment. The trial court ordered petitioner to pay respondent
the amount of P600,000.00 with interest of 18% per annum from
December 3, 1993 until fully paid, plus moral damages and
attorneys fees.14
Petitioner appealed the decision to the Court of Appeals.
Meanwhile, his counsel, Atty. Wilhelmina V. Joven, died and
she was substituted by Atty. Salvador P. De Guzman, Jr.15 On
December 20, 2001, petitioner executed a "Deed of
Assignment"16 assigning in favor of Atty. De Guzman, Jr., part of
the P672,900.00 consigned with the trial court as partial
payment of the latters attorneys fees.17 Thereafter, on January
7, 2002, petitioner filed an Ex Parte Motion to Withdraw
Consigned Money.18 This was followed by a "Motion to
Intervene" filed by Atty. De Guzman, Jr., praying that the
amount consigned be released to him by virtue of the Deed of
Assignment.19
Petitioners motion to withdraw the amount consigned was
denied by the Court of Appeals and the decision of the trial court
was affirmed with modification as to the amount of moral
damages and attorneys fees.20
On a motion for reconsideration, the Court of Appeals declared
the consignation as valid in an Amended Decision dated
January 16, 2003. It held that the validity of the consignation
had the effect of extinguishing petitioners obligation to return
the option/reservation fee to respondent. Hence, petitioner can
no longer withdraw the same. The decretal portion of the
Amended Decision states:
WHEREFORE, premises considered, our decision dated April
26, 2002 is RECONSIDERED. The trial courts decision is
hereby REVERSED and SET ASIDE, and a new one is entered
(1) DECLARING as valid the consignation by the plaintiff-
appellant in favor of defendant-appellee of the amount of
P672,900.00 with the Makati City RTC Clerk of Court and
deposited under Official Receipt No. 379061 dated 15 August
1994 and (2) DECLARING as extinguished appellants
obligation in favor of appellee under paragraph 5 of the parties
"AGREEMENT AND UNDERTAKING". Neither party shall
recover costs from the other.
SO ORDERED.21
Unfazed, petitioner filed the instant petition for review
contending, inter alia, that he can withdraw the amount
deposited with the trial court as a matter of right because at the
time he moved for the withdrawal thereof, the Court of Appeals
has yet to rule on the consignations validity and the respondent
had not yet accepted the same.
The resolution of the case at bar hinges on the following issues:
(1) Was there a valid consignation? and (2) Can petitioner
withdraw the amount consigned as a matter of right?
Consignation is the act of depositing the thing due with the court
or judicial authorities whenever the creditor cannot accept or
refuses to accept payment and it generally requires a prior
tender of payment.22 In order that consignation may be effective,
the debtor must show that: (1) there was a debt due; (2) the
consignation of the obligation had been made because the
creditor to whom tender of payment was made refused to
accept it, or because he was absent or incapacitated, or
because several persons claimed to be entitled to receive the
amount due or because the title to the obligation has been lost;
(3) previous notice of the consignation had been given to the
person interested in the performance of the obligation; (4) the
amount due was placed at the disposal of the court; and (5)
after the consignation had been made the person interested
was notified thereof. Failure in any of these requirements is
enough ground to render a consignation ineffective. 23
The issues to be resolved in the instant case concerns one of
the important requisites of consignation, i.e, the existence of a
valid tender of payment. As testified by the counsel for
respondent, the reasons why his client did not accept
petitioners tender of payment were (1) the check mentioned
in the August 5, 1994 letter of petitioner manifesting that he is
settling the obligation was not attached to the said letter; and (2)
the amount tendered was insufficient to cover the obligation. It is
obvious that the reason for respondents non-acceptance of the
tender of payment was the alleged insufficiency thereof and
not because the said check was not tendered to respondent, or
because it was in the form of managers check. While it is true
that in general, a managers check is not legal tender, the
creditor has the option of refusing or accepting it. 24 Payment in
check by the debtor may be acceptable as valid, if no prompt
objection to said payment is made.25 Consequently, petitioners
tender of payment in the form of managers check is valid.
Anent the sufficiency of the amount tendered, it appears that
only the interest of 18% per annum on the P600,000.00
option/reservation fee stated in the default clause of the
"Agreement And Undertaking" was agreed upon by the parties,
thus
5. DEFAULT In case the FIRST PARTY [herein respondent]
fails to pay the balance of the purchase price within the
stipulated due date, the sum of P600,000.00 shall be deemed
forfeited, on the other hand, should the SECOND PARTY
[herein petitioner] fail to deliver within the stipulated period the
documents hereby undertaken, the SECOND PARTY shall
return the sum of P600,000.00 with interest at 18% per
annum.26
The managers check in the amount of P672,900.00
(representing the P600,000.00 option/reservation fee plus 18%
interest per annum computed from December 3, 1993 to August
3, 1994) which was tendered but refused by respondent, and
thereafter consigned with the court, was enough to satisfy the
obligation.
There being a valid tender of payment in an amount sufficient to
extinguish the obligation, the consignation is valid.
As regards petitioners right to withdraw the amount consigned,
reliance on Article 1260 of the Civil Code is misplaced. The said
Article provides
Art. 1260. Once the consignation has been duly made, the
debtor may ask the judge to order the cancellation of the
obligation.
Before the creditor has accepted the consignation, or before a
judicial confirmation that the consignation has been properly
made, the debtor may withdraw the thing or the sum deposited,
allowing the obligation to remain in force.
The amount consigned with the trial court can no longer be
withdrawn by petitioner because respondents prayer in his
answer that the amount consigned be awarded to him is
equivalent to an acceptance of the consignation, which has the
effect of extinguishing petitioners obligation.
Moreover, petitioner failed to manifest his intention to comply
with the "Agreement And Undertaking" by delivering the
necessary documents and the lot subject of the sale to
respondent in exchange for the amount deposited. Withdrawal
of the money consigned would enrich petitioner and unjustly
prejudice respondent.
The withdrawal of the amount deposited in order to pay
attorneys fees to petitioners counsel, Atty. De Guzman, Jr.,
violates Article 1491 of the Civil Code which forbids lawyers
from acquiring by assignment, property and rights which are the
object of any litigation in which they may take part by virtue of
their profession.27 Furthermore, Rule 10 of the Canons of
Professional Ethics provides that "the lawyer should not
purchase any interest in the subject matter of the litigation which
he is conducting." The assailed transaction falls within the
prohibition because the Deed assigning the amount of
P672,900.00 to Atty. De Guzman, Jr., as part of his attorneys
fees was executed during the pendency of this case with the
Court of Appeals. In his Motion to Intervene, Atty. De Guzman,
Jr., not only asserted ownership over said amount, but likewise
prayed that the same be released to him. That petitioner
knowingly and voluntarily assigned the subject amount to his
counsel did not remove their agreement within the ambit of the
prohibitory provisions.28 To grant the withdrawal would be to
sanction a void contract.29
WHEREFORE, in view of all the foregoing, the instant petition
for review is DENIED. The January 16, 2003 Amended Decision
of the Court of Appeals in CA-G.R. CV No. 55740, which
declared the consignation by the petitioner in favor of
respondent of the amount of P672,900.00 with the Clerk of
Court of the Regional Trial Court of Makati City valid, and which
declared petitioners obligation to respondent under paragraph 5
of the "Agreement And Undertaking" as having been
extinguished, is AFFIRMED. No costs.
SO ORDERED.
Davide, Jr., C.J. (Chairman), Panganiban, and Azcuna, JJ.,
concur.
Carpio, J., no part, former counsel of a party.
Footnotes
1 Rollo, p. 18.
2 Penned by Associate Justice Eliezer R. De Los Santos and concurred in by Associate
Justices Cancio C. Garcia and Marina L. Buzon.
3 Records, p. 157.
4 Id., p. 85.
5 Id., p. 86.
6 TSN, 24 July 1995, pp. 9-10.
7 DHL Delivery Receipt, Records, p. 16.
8 TSN, 24 July 1995, pp. 11-14.
9 Records, p. 94.
10 Id., p. 1.
11 TSN, 14 February 1996, p. 37.
12 Id., p. 39.
13 TSN, 27 March 1996, pp. 9-10; 22-23; 29-30.
14 Records, p. 160.
15 His "Entry of Appearance" for petitioner which was received by the Court of Appeals on
July 4, 2000, was noted in the October 30, 2000 Resolution of said court (CA Rollo, p.
114).
16 Rollo, p. 116.
17 Pertinent portion thereof, reads:
WHEREAS, in order that he may pay the estate of the late Atty. Wilhelmina Joven and at
the same time give partial payment to herein ASSIGNEE of the latters attorneys fees, the
ASSIGNOR has decided to assign the consigned money to herein ASSIGNEE;
NOW, THEREFORE, for and in consideration of the foregoing premises, and of the terms
and conditions hereinafter stated, the ASSIGNOR, by these presents, irrevocably ASSIGNS
to the herein ASSIGNEE the P672,900.00 now on deposit with the Clerk of Court of the
Regional Trial Court of Makati City under Official Receipt No. 3790631 dated August 15,
1994 in Civil Case No. 94-2363 entitled "Teddy G. Pabugais, petitioner v. Dave Sahijwani,
respondent", provided that at least 40% of said amount is paid to the Estate of the late
Atty. Wilhelmina Joven.
xxx xxx xxx
TEDDY G. PABUGAIS SALVADOR P. DE GUZMAN, JR.
Assignor Assignee
18 CA Rollo, p. 117.
19 Id., p. 158.
20 Id., p. 123.
21 Rollo, p. 29.
22 Legaspi v. Court of Appeals, 226 Phil. 24, 29 (1986); citing Limkako v. Teodoro, 74 Phil.
313 (1943).
23 Soco v. Militante, 208 Phil. 151, 160 (1983); citing Jose Ponce de Leon v. Santiago
Syjuco, Inc., 90 Phil. 311 (1951); Civil Code, Articles 1256-1258.
24 Far East Bank & Trust Company v. Diaz Realty, Inc., G.R. No. 138588, 23 August 2001,
363 SCRA 659, 667; citing Tibajia, Jr. v. Court of Appeals, G.R. No. 100290, 4 June 1993,
223 SCRA 163; Roman Catholic Bishop of Malolos, Inc. v. Intermediate Appellate Court,
G.R. No. 72110, 16 November 1990, 191 SCRA 411.
25 Soco v. Militante, supra.
26 Records, p. 86.
27 Article 1491. The following persons cannot acquire by purchase, even at a public or
judicial auction, either in person or through the mediation of another:
xxx xxx xxx
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and
other officers and employees connected with the administration of justice, the property
and rights in litigation or levied upon an execution before the court within whose
jurisdiction or territory they exercise their respective functions; this prohibition includes
the act of acquiring by assignment and shall apply to lawyers, with respect to the property
and rights which may be the object of any litigation in which they may take part by virtue
of their profession.
28 Ordinio v. Palongan Eduarte, A.M. No. 3216, 16 March 1992, 207 SCRA 229, 231-232;
citing In re: Atty. Melchor E. Ruste, 70 Phil. 243 (1940).
29 Rubias v. Batiller, 151-A Phil. 584, 600 (1973); Fornilda v. Branch 164, RTC IVth Judicial
Region, Pasig, G.R. No. L-72306, 5 October 1988, 166 SCRA 281, 288-289.

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 142882 May 2, 2006
SPS. RICARDO AND LYDIA LLOBRERA, SPS. BENJAMIN
AND ESTHER LLOBRERA, SPS. MIKE AND RESIDA MALA,
SPS. OTOR AND DOLINANG BAGONTE, SPS. EDUARDO
AND DAMIANA ICO, SPS. ANTONIO AND MERLY
SOLOMON, SPS. ANSELMO AND VICKY SOLOMON, SPS.
ALEX AND CARMELITA CALLEJO, SPS. DEMETRIO AND
JOSEFINA FERRER, SPS. BENJAMIN AND ANITA
MISLANG, SPS. DOMINGO AND FELICIDAD SANCHEZ,
SPS. FERNANDO AND CARMELITA QUEBRAL, SPS.
BERNARDO AND PRISCILLA MOLINA, PRISCILLA BAGA
AND BELEN SEMBRANO, Petitioners,
vs.
JOSEFINA V. FERNANDEZ, Respondent.
DECISION
GARCIA, J.:
Under consideration is this petition for review on certiorari under
Rule 45 of the Rules of Court to nullify and set aside the
following issuances of the Court of Appeals (CA) in CA-G.R. SP
No. 48918, to wit:
1. Decision dated June 30, 1999,1 affirming the
Decision dated August 7, 1998 of the Regional Trial
Court (RTC) of Dagupan City, Branch 41, in Civil Case
No. 98-02353-D which affirmed an earlier decision of
the Municipal Trial Court in Cities (MTCC), Dagupan
City, Branch 2, in Civil Case No. 10848, entitled
"Josefina F. De Venecia Fernandez vs. Sps. Mariano
and Lourdes Melecio, et al.," an action for ejectment.
2. Resolution dated March 27, 2000,2 denying
petitioners motion for reconsideration.
Subject of the controversy is a 1,849 square-meter parcel of
land, covered by Transfer Certificate of Title No. 9042.
Respondent Josefina V. Fernandez, as one of the registered co-
owners of the land, served a written demand letter upon
petitioners Spouses Llobrera, et al., to vacate the premises
within fifteen (15) days from notice. Receipt of the demand letter
notwithstanding, petitioners refused to vacate, necessitating the
filing by the respondent of a formal complaint against them
before the Barangay Captain of Barangay 11, Dagupan City.
Upon failure of the parties to reach any settlement, the
Barangay Captain issued the necessary certification to file
action.
Respondent then filed a verified Complaint for ejectment and
damages against the petitioners before the MTCC of Dagupan
City, which complaint was raffled to Branch 2 thereof.
By way of defense, petitioners alleged in their Answer that they
had been occupying the property in question beginning the year
1945 onwards, when their predecessors-in-interest, with the
permission of Gualberto de Venecia, one of the other co-owners
of said land, developed and occupied the same on condition
that they will pay their monthly rental of P20.00 each. From then
on, they have continuously paid their monthly rentals to
Gualberto de Venecia or Rosita de Venecia or their
representatives, such payments being duly acknowledged by
receipts. Beginning sometime June 1996, however, the
representative of Gualberto de Venecia refused to accept their
rentals, prompting them to consign the same to Banco San
Juan, which bank deposit they continued to maintain and update
with their monthly rental payments.
In a decision dated February 18, 1998, the MTCC rendered
judgment for the respondent as plaintiff, thus:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the plaintiff and against the defendants as
follows:
1. Ordering each of the defendants to vacate the
portion of the land in question they respectively occupy
and to restore the possession thereof to the plaintiff
and her co-owners;
2. Ordering each of the defendants to pay to the
plaintiff the amount of P300.00 per month from January
17, 1997 until they vacate the land in question as the
reasonable compensation for the use and occupation
of the premises;
3. Ordering the defendants to pay proportionately the
amount of P10,000.00 as attorneys fee and P2,000.00
as litigation expenses, and to pay the cost of suit.
SO ORDERED.
On petitioners appeal to the RTC of Dagupan City, Branch 41
thereof, in its decision of August 7, 1998, affirmed the foregoing
judgment.
Therefrom, petitioners went to the CA whereat their recourse
was docketed as CA-G.R. SP. No. 48918. As stated at the
threshold hereof, the CA, in its Decision of June 30, 1999,
affirmed that of the RTC. With the CAs denial of their motion for
reconsideration, in its Resolution of March 27, 2000, petitioners
are now before this Court with the following assignment of
errors:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED
IN:
A. HOLDING THAT THE OCCUPATION AND
POSSESSION oF THE PROPERTY in question is by
mere tolerance of the respondent.
B. holding that the failure of the petitioners
(defendants) to vacate the premises after demands
were made upon them is a valid ground for their
ejectment.
C. holding that the consignation made by petitioners in
contemplation of article 1256 of the new civil code is
not legally tenable.1avvphil.net
D. affirming the decision of the regional trial court
dated August 7, 1998 which, likewise affirmed the
decision of the mtcc decision dated February 18, 1998
insofar as the order for the petitioners (defendants) to
pay rental and attorneys fees and litigation expenses.
At the heart of the controversy is the issue of whether
petitioners possession of the subject property is founded on
contract or not. This factual issue was resolved by the three (3)
courts below in favor of respondent. As tersely put by the CA in
its assailed decision of June 30, 1999:
Petitioners failed to present any written memorandum of the
alleged lease arrangements between them and Gualberto De
Venecia. The receipts claimed to have been issued by the
owner were not presented on the excuse that the March 19,
1996 fire burned the same. Simply put, there is a dearth of
evidence to substantiate the averred lessor-lessee relationship.
x x x.3
Consistent with this Courts long-standing policy, when the three
courts below have consistently and unanimously ruled on a
factual issue, such ruling is deemed final and conclusive upon
this Court, especially in the absence of any cogent reason to
depart therefrom.
From the absence of proof of any contractual basis for
petitioners possession of the subject premises, the only legal
implication is that their possession thereof is by mere tolerance. CANCIO C. GARCIA
In Roxas vs. Court of Appeals,4 we ruled: Associate Justice

A person who occupies the land of another at the latters WE CONCUR:

tolerance or permission, without any contract between them, is
necessarily bound by an implied promise that he will vacate (On leave)
upon demand, failing which, a summary action for ejectment is REYNATO S. PUNO
the proper remedy against him. Associate Justice
Chairperson
The judgment favoring the ejectment of petitioners being
consistent with law and jurisprudence can only be affirmed. The
ANGELINA SANDOVAL- RENATO C.
alleged consignation of the P20.00 monthly rental to a bank
GUTIERREZ CORONA
account in respondents name cannot save the day for the
petitioners simply because of the absence of any contractual Associate Justice Asscociate Justice
basis for their claim to rightful possession of the subject
property. Consignation based on Article 1256 of the Civil Code ADOLFO S. AZCUNA
indispensably requires a creditor-debtor relationship between Associate Justice
the parties, in the absence of which, the legal effects thereof
cannot be availed of.
ATTESTATION

Article 1256 pertinently provides:

I attest that the conclusions in the above decision were reached
in consultation before the case was assigned to the writer of the
Art. 1256. If the creditor to whom tender of payment has been opinion of the Courts Division.
made refuses without just cause to accept it, the debtor shall be
released from responsibility by the consignation of the thing or
ANGELINA SANDOVAL-GUTIERREZ
sum due.
Associate Justice
Acting Chairperson, Second Division
Unless there is an unjust refusal by a creditor to accept payment
from a debtor, Article 1256 cannot apply. In the present case,
CERTIFICATION
the possession of the property by the petitioners being by mere
tolerance as they failed to establish through competent
evidence the existence of any contractual relations between Pursuant to Article VIII, Section 13 of the Constitution, and the
them and the respondent, the latter has no obligation to receive Division Chairperson's Attestation, it is hereby certified that the
any payment from them. Since respondent is not a creditor to conclusions in the above decision were reached in consultation
petitioners as far as the alleged P20.00 monthly rental payment before the case was assigned to the writer of the opinion of the
is concerned, respondent cannot be compelled to receive such Court.
payment even through consignation under Article 1256. The
bank deposit made by the petitioners intended as consignation ARTEMIO V. PANGANIBAN
has no legal effect insofar as the respondent is concerned. Chief Justice

Finally, as regards the damages awarded by the MTCC in favor

of the respondent, as affirmed by both the RTC and the CA,
petitioners failed to present any convincing argument for the
Court to modify the same. The facts of the case duly warrant
Footnotes
payment by the petitioners to respondent of actual and
compensatory damages for depriving the latter of the beneficial
1
use and possession of the property. Also, the unjustified refusal Penned by then Associate Justice Presbitero J.
to surrender possession of the property by the petitioners who Velasco, Jr. (now a member of this Court) with then
were fully aware that they cannot present any competent Associate Justice Fermin Martin, Jr. (now ret.) and
evidence before the court to prove their claim to rightful Associate Justice Eloy R. Bello, Jr. (now ret.),
possession as against the true owners is a valid legal basis to concurring; Rollo, pp. 21-27.
award attorneys fees as damages, as well as litigation
expenses and cost of suit. 2 Rollo, pp. 34-35.

Rule 70 of the Rules of Court relevantly reads: 3 Decision, p. 5; Rollo, p. 25.

Sec. 17. Judgment. If after trial the court finds that the 4 G.R. No. 138955, Oct. 29, 2002; 391 SCRA 351
allegations of the complaint are true, it shall render judgment in [2002].
favor of the plaintiff for the restitution of the premises, the sum
justly due as arrears of rent or as reasonable compensation for
the use and occupation of the premises, attorneys fees and
costs. If it finds that said allegations are not true, it shall render
judgment for the defendant to recover his costs. If a
counterclaim is established, the court shall render judgment for
the sum found in arrears from either party and award costs as
justice requires. (Emphasis supplied).

There is no doubt whatsoever that it is within the MTCCs

competence and jurisdiction to award attorneys fees and costs
in an ejectment case. After thoroughly considering petitioners
arguments in this respect, the Court cannot find any strong and
compelling reason to disturb the unanimous ruling of the three
(3) courts below on the matter of damages.

WHEREFORE, the petition is hereby DENIED for lack of merit,

with costs against petitioners.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 172259 December 5, 2006
SPS. JAIME BENOS and MARINA BENOS, petitioners,
vs.
SPS. GREGORIO LAWILAO and JANICE GAIL
LAWILAO, respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review under Rule 45 of the Rules of Court
assails the December 5, 2005 Decision1 of the Court of Appeals
in CA-G.R. SP No. 78845, affirming the Judgment2 dated July 1,
2003 of the Regional Trial Court of Bontoc, Mountain Province,
Branch 35, in Civil Case No. 1091. The Regional Trial Court
reversed the Decision3dated November 14, 2002 of the
Municipal Circuit Trial Court of Bauko, Mountain Province in
Civil Case No. 314, and ordered the consolidation of ownership
of subject property in the name of respondent-spouses Gregorio
and Janice Gail Lawilao. Also assailed is the March 17, 2006
Resolution4 denying petitioners motion for reconsideration.
The antecedent facts are as follows:
On February 11, 1999, petitioner-spouses Jaime and Marina
Benos ("the Benos spouses") and respondent-spouses Gregorio
and Janice Gail Lawilao ("the Lawilao spouses") executed a
Pacto de Retro Sale5 where the Benos spouses sold their lot
covered by Tax Declaration No. 25300 and the building erected
thereon for P300,000.00, one half of which was to be paid in
cash to the Benos spouses and the other half to be paid to the
bank to pay off the loan of the Benos spouses which was
secured by the same lot and building. Under the contract, the
Benos spouses could redeem the property within 18 months
from date of execution by returning the contract price,
otherwise, the sale would become irrevocable without necessity
of a final deed to consolidate ownership over the property in the
name of the Lawilao spouses.
After paying the P150,000.00, the Lawilao spouses immediately
took possession of the property and leased out the building
thereon. However, instead of paying the loan to the bank,
Janice Lawilao restructured it twice. Eventually, the loan
became due and demandable.
On August 14, 2000, a son of the Benos spouses paid the bank
P159,000.00 representing the principal and interest. On the
same day, the Lawilao spouses also went to the bank and
offered to pay the loan, but the bank refused to accept the
payment. The Lawilao spouses then filed with the Municipal
Circuit Trial Court a petition6 docketed as Civil Case No. 310 for
consignation against the bank and simultaneously deposited the
amount of P159,000.00. Upon the banks motion, the court
dismissed the petition for lack of cause of action.
Subsequently, the Lawilao spouses filed with the Municipal
Circuit Trial Court a complaint docketed as Civil Case No. 314,
for consolidation of ownership. This complaint is the precursor
of the instant petition. The Benos spouses moved to dismiss on
grounds of lack of jurisdiction and lack of cause of action but it
was denied and the parties went to trial.
On November 14, 2002, the Municipal Circuit Trial Court
rendered judgment in favor of the Benos spouses, the
dispositive portion of which states:
IN THE LIGHT of all the foregoing considerations, for
lack of legal and factual basis to demand consolidation
of ownership over the subject property, the above-
entitled case is hereby ordered dismissed.
No pronouncement as to damages on the ground that
no premium should be assessed on the right to litigate.
No costs.
SO ORDERED.7
The Lawilao spouses appealed before the Regional Trial Court
which reversed the Municipal Circuit Trial Court and declared
the ownership of the subject property consolidated in favor of
the Lawilao spouses.8
The Benos spouses appealed to the Court of Appeals which
affirmed the Regional Trial Court on December 5, 2005. The
dispositive portion of the Decision reads:
WHEREFORE, the petition for review is DISMISSED
for lack of sufficient merit. The decision rendered by
the Regional Trial Court, Branch 35, Bontoc, Mountain
Province in Civil Case No. 1091 on 1 July 2003,
reversing the decision of the Municipal Circuit Trial
Court of Bauko-Sabangan, Mountain Province in (Civil
Case No.) 314, is AFFIRMED.
SO ORDERED.9
The appellate court denied petitioners motion for
reconsideration, hence, the instant petition on the following
assignment of errors:
4.0. It was error for the Regional Trial Court and,
subsequently, the Court of Appeals to rule that
respondents can consolidate ownership over the
subject property.
4.1. It was likewise error for said lower courts not to
have ruled that the contract between the parties is
actually an equitable mortgage.10
The Benos spouses argue that consolidation is not proper
because the Lawilao spouses violated the terms of the contract
by not paying the bank loan; that having breached the terms of
the contract, the Lawilao spouses cannot insist on the
performance thereof by the Benos spouses; that the contract
was actually an equitable mortgage as shown by the
inadequacy of the consideration for the subject property; and
that respondent-spouses remedy should have been for
recovery of the loan or foreclosure of mortgage.
The Lawilao spouses, on the other hand, assert that the Pacto
de Retro Sale reflected the parties true agreement; that the
Benos spouses cannot vary its terms and conditions because
they did not put in issue in their pleadings its ambiguity, mistake
or imperfection as well as its failure to express the parties true
intention; that the Benos spouses admitted its genuineness and
due execution; and that the delivery of the property to the
Lawilao spouses after the execution of the contract shows that
the agreement was a sale with a right of repurchase and not an
equitable mortgage.
The Lawilao spouses also claim that they complied with their
obligation when they offered to pay the loan to the bank and
filed a petition for consignation; and that because of the failure
of the Benos spouses to redeem the property, the title and
ownership thereof immediately vested in them (Lawilao
spouses).
The issue for resolution is whether the Lawilao spouses can
consolidate ownership over the subject property.
The petition is impressed with merit.
In ruling for respondents, the Court of Appeals held that: (1) the
pacto de retro sale was perfected because the parties
voluntarily agreed upon the object thereof and the price; (2) the
Lawilao spouses acquired possession over the property
immediately after execution of the pacto de retro sale; (3) the
pacto de retro sale does not provide for automatic rescission in
case the Lawilao spouses fail to pay the full price; (4) the Benos
spouses did not rescind the contract after the Lawilao spouses
failed to pay the P150,000.00 loan; (5) Janice Lawilao offered to
pay the loan and deposited P150,000.00 to the bank although
the period for payment had expired thus, complying with Article
1592 of the Civil Code allowing payment even after expiration of
the period as long as no demand for rescission of the contract
had been made either judicially or by a notarial act; (6) the title
and ownership of the Lawilao spouses became absolute when
the Benos spouses failed to repurchase the lot within the
redemption period; and (7) the payment by the Benos spouses
son of P159,000.00 to the bank does not amount to a
repurchase as it violates Article 1616 of the Civil Code requiring
the vendor to return to the vendee the price of the sale, the
expenses of the contract and other necessary and useful
expenses.11
Contrary to the aforesaid findings, the evidence shows that the
Lawilao spouses did not make a valid tender of payment and
consignation of the balance of the contract price. As correctly
found by the Regional Trial Court:
As matters stand, no valid tender of payment and/or
consignation of the P150,000.00 which the Appellant
(Lawilaos) still owes the Appellee (Benos) has been
effected by the former. The amount of P159,000.00
deposited with the MCTC is in relation to Civil Case
No. 310 earlier dismissed by said court, and not to the
instant action. Hence, this Court cannot automatically
apply such sum in satisfaction of the aforesaid debt of
the Appellant and order the Appellee creditor to accept
the same.12 (Emphasis supplied)
The Lawilao spouses did not appeal said finding, and it has
become final and binding on them. Although they had
repeatedly alleged in their pleadings that the amount of
P159,000.00 was still with the trial court which the Benos
spouses could withdraw anytime, they never made any step to
withdraw the amount and thereafter consign it. Compliance with
the requirements of tender and consignation to have the effect
of payment are mandatory. Thus
Tender of payment is the manifestation by debtors of
their desire to comply with or to pay their obligation. If
the creditor refuses the tender of payment without just
cause, the debtors are discharged from the obligation
by the consignation of the sum due. Consignation is
made by depositing the proper amount to the judicial
authority, before whom the tender of payment and the
announcement of the consignation shall be proved. All
interested parties are to be notified of the consignation.
Compliance with these requisites is
mandatory.13(Emphasis supplied)
In the instant case, records show that the Lawilao spouses filed
the petition for consignation against the bank in Civil Case No.
310 without notifying the Benos spouses. The petition was
dismissed for lack of cause of action against the bank. Hence,
the Lawilao spouses failed to prove their offer to pay the
balance of the purchase price and consignation. In fact, even
before the filing of the consignation case, the Lawilao spouses
never notified the Benos spouses of their offer to pay.
Thus, as far as the Benos are concerned, there was no full and
complete payment of the contract price, which gives them the
right to rescind the contract pursuant to Articles 1191 in relation
to Article 1592 of the Civil Code, which provide:
Art. 1191. The power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment
of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights
of third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 of the
Mortgage Law.
Art. 1592. In the sale of immovable property, even
though it may have been stipulated that upon failure to
pay the price at the time agreed upon the rescission of
the contract shall of right take place, the vendee may
pay, even after the expiration of the period, as long as
no demand for rescission of the contract has been
made upon him either judicially or by a notarial act.
After the demand, the court may not grant him a new
term.
In the instant case, while the Benos spouses did not rescind the
Pacto de Retro Sale through a notarial act, they nevertheless
rescinded the same in their Answer with Counterclaim where
they stated that:
14. Plaintiffs did not perform their obligation as spelled
out in the Pacto de Retro Sale (ANNEX "A"),
particularly the assumption of the obligation of
defendants to the Rural Bank of Bontoc. Defendants
were the ones who paid their loan through their son,
ZALDY BENOS. As a result, ANNEX "A" is rendered
null and of no effect. Therefore, the VENDEE a retro
who is one of plaintiffs herein cannot consolidate her
ownership over the property subject of the null and
ineffective instrument.
15. Since plaintiffs did not perform their corresponding
obligation under ANNEX "A", defendants have been all
too willing to return the amount of ON[E] HUNDRED
FIFTY THOUSAND PESOS (P150,000.00) and
reasonable interest thereon to plaintiffs. But plaintiffs
refused to accept the same.
With the filing of this answer, defendants pray that this
serves as a notice of tender of payment, and they shall
consign the amount with the proper court as soon as it
is legally feasible.14
They also prayed that the Municipal Circuit Trial Court render
judgment "[d]eclaring the Pacto de Retro Sale rescinded or
ineffective or void for lack of, or insufficient consideration."15
In Iringan v. Court of Appeals,16 we ruled that "even a
crossclaim found in the Answer could constitute a judicial
demand for rescission that satisfies the requirement of the law."
Similarly, the counterclaim of the Benos spouses in their answer
satisfied the requisites for the judicial rescission of the subject
Pacto de Retro Sale.
The Municipal Circuit Trial Court thus correctly dismissed the
complaint for consolidation of ownership filed by the Lawilao
spouses for their failure to comply with the conditions of the
Pacto de Retro Sale. Nevertheless, it refused to declare the
rescission of the Pacto de Retro Sale as prayed for in the
counterclaim of the Benos spouses, stating that:
How about the other obligations and/or rights owing to
either party by virtue of the Pacto de Retro Sale? This,
the court opines that it can not delve into without
overstepping the limits of his functions there being
appropriate remedies. It is hornbook in our
jurisprudence that a right in law may be enforced and a
wrong way be remedied but always through the
appropriate action.17
The issue of rescission having been put in issue in the answer
and the same having been litigated upon without objections by
the Lawilao spouses on grounds of jurisdiction, the Municipal
Circuit Trial Court should have ruled on the same and wrote finis
to the controversy.
Thus, as a necessary consequence of its ruling that the Lawilao
spouses breached the terms of the Pacto de Retro Sale, the
Municipal Circuit Trial Court should have rescinded the Pacto de
Retro Sale and directed the Benos spouses to return
P150,000.00 to the Lawilao spouses, pursuant to our ruling in
Cannu v. Galang,18 to wit:
Petitioners maintain that inasmuch as respondents-
spouses Galang were not granted the right to
unilaterally rescind the sale under the Deed of Sale
with Assumption of Mortgage, they should have first
asked the court for the rescission thereof before they
fully paid the outstanding balance of the mortgage loan
with the NHMFC. They claim that such payment is a
unilateral act of rescission which violates existing
jurisprudence.
November 14, 2002 of the Municipal Circuit Trial Court of
Bauko, Mountain Province in Civil Case No. No. 314 dismissing
respondents complaint for consolidation of ownership and
damages is REINSTATED WITH THE MODIFICATION that the
Pacto de Retro Sale dated February 11, 1999 is declared
rescinded and petitioners are ordered to return the amount of
P150,000.00 to respondents. No costs.
SO ORDERED.
Panganiban, C.J. (Chairperson), Austria-Martinez, Callejo, Sr.,
and Chico-Nazario, JJ., concur.

In Tan v. Court of Appeals, this court said:

Footnotes
1 Rollo, pp. 25-33. Penned by Associate Justice Santiago Javier Ranada and
. . . [T]he power to rescind obligations is
implied in reciprocal ones in case one of the concurred in by Associate Justices Roberto A. Barrios and Mario L. Guaria III.
2
obligors should not comply with what is Id. at 46-49. Penned by Pairing Judge Artemio B. Marrero.
3 Id. at 38-45. Penned by Judge James P. Kibiten.
incumbent upon him is clear from a reading of 4 Id. at 23.
the Civil Code provisions. However, it is 5
Id. at 35-36.
equally settled that, in the absence of a 6 Id. at 42.
stipulation to the contrary, this power must be 7 Id. at 44-45.
invoked judicially; it cannot be exercised 8 Id. at 49.
solely on a partys own judgment that the 9 Id. at 32.
other has committed a breach of the 10 Id. at 12.
obligation. Where there is nothing in the 11 Id. at 30-32.

contract empowering the petitioner to rescind 12

Id. at 49.
it without resort to the courts, the petitioners 13 Ramos v. Sarao, G.R. No. 149756, February 11, 2005, 451 SCRA 103, 118-

action in unilaterally terminating the contract 119.

in this case is unjustified. 14 CA rollo, p. 37.
15
Id. at 38.
16 418 Phil. 286, 296 (2001).
It is evident that the contract under consideration does 17 Rollo, p. 44.
not contain a provision authorizing its extrajudicial 18
G.R. No. 139523, May 26, 2005, 459 SCRA 80, 99-101.
rescission in case one of the parties fails to comply
with what is incumbent upon him. This being the case,
respondents-spouses should have asked for judicial
intervention to obtain a judicial declaration of
rescission. Be that as it may, and considering that
respondents-spouses Answer (with affirmative
defenses) with Counterclaim seeks for the rescission of
the Deed of Sale with Assumption of Mortgage, it
behooves the court to settle the matter once and for all
than to have the case re-litigated again on an issue
already heard on the merits and which this court has
already taken cognizance of. Having found that
petitioners seriously breached the contract, we,
therefore, declare the same is rescinded in favor of
respondents-spouses.

As a consequence of the rescission or, more

accurately, resolution of the Deed of Sale with
Assumption of Mortgage, it is the duty of the court to
require the parties to surrender whatever they may
have received from the other. The parties should be
restored to their original situation.

The record shows petitioners paid respondents-

spouses the amount of P75,000.00 out of the
P120,000.00 agreed upon. They also made payments
to NHMFC amounting to P55,312.47. As to the
petitioners alleged payment to CERF Realty of
P46,616.70, except for petitioner Leticia Cannus bare
allegation, we find the same not to be supported by
competent evidence. As a general rule, one who
pleads payment has the burden of proving it. However,
since it has been admitted in respondents-spouses
Answer that petitioners shall assume the second
mortgage with CERF Realty in the amount of
P35,000.00, and that Adelina Timbang, respondents-
spouses very own witness, testified that same has
been paid, it is but proper to return this amount to
petitioners. The three amounts total P165,312.47 -- the
sum to be returned to petitioners.

WHEREFORE, the petition is GRANTED. The Decision dated

December 5, 2005 and Resolution dated March 17, 2006 of the
Court of Appeals in CA-G.R. SP No. 78845, affirming the
Judgment dated July 1, 2003 of the Regional Trial Court of
Bontoc, Mountain Province, Branch 35, in Civil Case No. 1091,
are REVERSED and SET ASIDE. The Decision dated
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 169501 June 8, 2007
B.E. SAN DIEGO, INC., petitioner,
vs.
ROSARIO T. ALZUL, respondent.
DECISION
VELASCO, JR., J.:
The Case
This Petition for Review on Certiorari1 under Rule 45 questions
the February 18, 2005 Decision2 of the Court of Appeals (CA) in
CA-G.R. SP No. 81341, which granted respondent Alzul the
right to pay the balance of the purchase price within five (5)
days from receipt of the CA Decision despite the lapse of the
original period given to said party through the final Resolution of
this Court in an earlier case. The CA ruling reversed the
September 18, 2003 Resolution3 and December 2, 2003
Order4 of the Office of the President (OP) in O.P. Case No. 01-
1-097, which upheld the dismissal of respondent Alzuls
complaint for consignation and specific performance before the
Housing and Land Use Regulatory Board (HLURB) in HLURB
Case No. REM-A-99097-0167. Likewise challenged is the
August 31, 2005 CA Resolution5 rejecting petitioners Motion for
Reconsideration.
The Facts
The facts culled by the CA are as follows:
On February 10, 1975, [respondent] Rosario T. Alzul purchased
from [petitioner] B.E. San Diego, Inc. four (4) subdivision lots
with an aggregate area of 1,275 square meters located at
Aurora Subdivision, Maysilo, Malabon. These lots, which are
now subject of this petition, were bought through installment
under Contract to Sell No. 867 at One Hundred Pesos
(100.00) per square meter, with a downpayment [sic] of
Twelve Thousand Seven Hundred Fifty Pesos (12,750.00),
and monthly installments of One Thousand Two Hundred Forty-
Nine Pesos (1,249.50). The interest agreed upon was 12
percent (12%) per annum until fully paid, thus, the total
purchase price was Two Hundred Thirty Seven Thousand Six
Hundred Sixty Pesos (237,660.00).
[Respondent] took immediate possession of the subject
property, setting up a perimeter fence and constructing a house
thereon.
On July 25, 1977, [respondent] signed a "Conditional Deed of
Assignment and Transfer of Rights" which assigned to a certain
Wilson P. Yu her rights under the Contract to Sell. [Petitioner]
was notified of the execution of such deed. Later on, the
Contract to Sell in [respondents] name was cancelled, and
[petitioner] issued a new one in favor of Yu although it was also
denominated as "Contract to Sell No. 867".
On July 4, 1979, [respondent] informed [petitioner] about Yus
failure and refusal to pay the amounts due under the conditional
deed. She also manifested that she would be the one to pay the
installments due to respondent on account of Yus default.
On August 25, 1980, [respondent] commenced an action for
rescission of the conditional deed of assignment against Yu
before the Regional Trial Court of Caloocan City. Subsequently,
on September 30, 1985, [respondent] caused the annotation of
notices of lis pendens on the titles covering the subject lots.
The trial court ruled in [respondents] favor in the rescission
case. The decision was even affirmed by this [appellate] Court.
Yu brought his cause before the Supreme Court in a Petition for
Review, but this was likewise denied.
On February 17, 1989, [petitioner] notified [respondent] that
Contract to Sell No. 867 was declared rescinded and cancelled.
On April 28, 1989, the subject lots were sold to spouses Carlos
and Sandra Ventura who were allegedly surprised to find the
annotation of lis pendens in their owners duplicate title.
On May 8, 1990, the Ventura spouses filed an action for
Quieting of Title with Prayer for Cancellation of Annotation and
Damages before the Regional Trial Court of Malabon. The trial
court ruled in favor of the Ventura spouses. On appeal before
this [appellate] Court, however, the decision was reversed on
November 27, 1992, as follows:
"WHEREFORE, the appealed decision is hereby REVERSED
and SET ASIDE, and the complaint therein is ordered
dismissed. Transfer Certificates of Title Nos. N-1922, N-1923,
N-1924, and N-1925, all of the Register of Deeds of Metro
Manila, District III, Malabon Branch, in the names of plaintiffs-
appellees Carlos N. Ventura and Sandra L. Ventura are hereby
declared null and void, and the titles of ownership reinstated in
the name of B.E. San Diego, Inc. with the corresponding notices
of lis pendens therein annotated in favor of defendant-appellant
until such time that ownership of the subject parcels of land is
transferred to herein defendant-appellant Rosario Alzul. Costs
against plaintiff-appellees.
SO ORDERED."
Upon filing of an appeal to the Supreme Court docketed as GR
No. 109078, the above decision was affirmed on December 26,
1995. A motion for reconsideration was filed, but this was
denied by the Highest Tribunal on February 5, 1996.
On June 17, 1996, a resolution was issued by the Supreme
Court, ordering, as follows:
"We, however, agree with the observation made by movants
that no time limit was set by the respondent Court of Appeals in
its assailed Decision for the private respondent herein, Rosario
Alzul, to pay B.E. San Diego, Inc. the original owner of the
properties in litigation. To rectify such oversight, private
respondent Rosario T. Alzul is hereby given a non-extendible
period of thirty (30) days from entry of judgment, within which to
make full payment for the properties in question. xxx" (Emphasis
supplied.)
On July 12, 1996, an Entry of Judgment was issued. In an
attempt to comply with the Supreme Courts directive, herein
[respondent] tried to serve payment upon [petitioner] on August
29, 1996, August 30, 1996 and September 28, 1996. On all
these dates, however, [petitioner] allegedly refused to accept
payment from [respondent].
On November 11, 1996, [respondent] filed a Manifestation in
GR No. 109078 informing the Supreme Court that [petitioner],
on three (3) occasions, refused to accept [her] payment of the
balance in the amount of 187,380.00. On January 29, 1997, a
Resolution was issued by the Supreme Court referring the case
to the court of origin for appropriate action, on account of
[respondents] manifestation.
On October 21, 1997, [respondents] counsel wrote a letter to
[petitioner] citing the latters refusal to accept her payment on
several occasions. It was also mentioned therein that due to its
refusal, [respondent] would just consign the balance due to
[petitioner] before the proper judicial authority.
On January 14, 1998, a reply was sent by [petitioner] through a
certain Flora San Diego. [Respondents] request was rejected
on account of the following:
1. We have long legally rescinded the sale in her favor in view of
her failure to pay the monthly amortization as per contract.
2. She sold her rights to Mr. Wilson Yu who failed to pay his
monthly amortizations, too.
3. We are not and have never been a part of the case you are
alluding to hence we cannot be bound by the same.
4. The property in question is now under process to be
reconveyed to us as ordered by the court by virtue of a
compromised (sic) agreement entered into in Civil Case No.
2655 MN of the Malabon RTC Branch entitled Spouses Carlos
Ventura and Sandra Ventura vs. B.E. San Diego, Inc. xxx
Thinking that an action for consignation alone would not be
sufficient to allow for the execution of a final judgment in her
favor, [respondent] decided to file an action for consignation and
specific performance against [petitioner] before the Housing and
Land Use Regulatory Board on March 12, 1998. The complaint,
docketed as REM-031298-10039, prayed that a) [respondent]
be considered to have fully paid the total purchase price of the
subject properties; b) TCT Nos. N-155545 to 48 which were
declared void in CA GR No. L-109078 be cancelled; c) new
certificates of title over the subject properties be issued in the
name of [respondent]; and d) [petitioner] be ordered to
reimburse [respondent] the sum of Fifty Thousand Pesos
(50,000.00) as attorneys fees and litigation expenses.
On July 12, 1999, a decision was rendered by the HLURB
through Housing and Land Use Arbiter Dunstan T. San Vicente.
It was held, thus:
"The purported "consignation" in this case is thus of no moment,
inasmuch as the amount allegedly due was not even deposited
or placed at the disposal of this Office by the complainant.
In any event, we agree with [petitioner] that even if the
complainant had actually made the consignation of the amount,
such consignation is still ineffective and void for having been
done long after the expiration of the non-extendible period set
forth in the 17 June 1996 Supreme Court Resolution that
expired on 20 September 1996.
WHEREFORE, Premises Considered, a judgment is hereby
rendered DISMISSING the complaint. Cost against complainant.
IT (sic) SO ORDERED."
Aggrieved by the above decision, [respondent] filed a Petition
for Review before the HLURBs First Division. On March 17,
2000, a decision was rendered dismissing the petition for lack of
merit, and affirming the decision dated July 12, 1999.
[Respondent] filed a Motion for Reconsideration, but this was
denied on July 31, 2001.
[Respondent] then filed an appeal to the Office of the President.
This was, however, dismissed on June 2, 2003 for having been
filed out of time. Again, [respondent] moved for its
reconsideration. On September 18, 2003, the Office of the
President gave due course to [respondents] motion, and
resolved the motion according to its merits. The single question
resolved was whether or not [respondents] offer of consignation
was correctly denied by the HLURB. Said office ruled in the
affirmative, and We quote:
"From the foregoing, it is evident that there was no valid
consignation of the balance of the purchase price. The 30-day
non-extendible period set forth in the 17 June 1996 resolution
had already expired on 20 September 1996. The HLURB is
therefore justified in refusing the consignation, otherwise it
would be accused of extending the period beyond that provided
by the Supreme Court. A valid consignation is effected when
there is an actual consignation of the amount due within the
prescribed period (St. Dominic Corporation vs. Intermediate
Appellate Court, 138 SCRA 242). x x x
WHEREFORE, premises considered, the appeal is hereby
DISMISSED for lack of merit. x x x"
[Respondent] filed a Motion for Reconsideration [of] the above
Resolution, but this was denied with finality on December 2,
2003.6
The Ruling of the Court of Appeals
Respondent Alzul brought before the CA a petition for certiorari
docketed as CA-G.R. SP No. 67637, ascribing grave abuse of
discretion to the OP in dismissing her appeal in O.P. Case No.
01-1-097 and affirming the March 17, 2000 Decision7 and July
31, 2001 Resolution8 of the HLURB First Division in HLURB
Case No. REM-A-990907-0167.
On February 18, 2005, the CA rendered its assailed Decision
reversing the September 18, 2003 Resolution and December 2,
2003 Order of the OP, the fallo of which reads:
WHEREFORE, in the higher interest of justice, the assailed
Decision, Resolution and Order dated March 17, 2000,
September 18, 2003 and December 2, 2003, respectively, are
hereby REVERSED and SET ASIDE. Accordingly, [respondent
Alzul] is hereby ordered to pay [petitioner B.E. San Diego, Inc.]
the balance due for the sale of the subject four parcels of land
within five (5) days from receipt of this decision. [Petitioner B.E.
San Diego, Inc.], on the other hand, is ordered to accept such
payment from [respondent Alzul], after which, the corresponding
Deed of Sale must be issued.
SO ORDERED.9
The CA agreed with the HLURB that no valid consignation was
made by respondent but found that justice would be better
served by allowing respondent Alzul to effect the consignation,
albeit belatedly. It cited the respondents right over the disputed
lots as confirmed by this Court in G.R. No. 109078, which, if
taken away on account of the delay in completing the payment,
would amount to a grave injustice.
Moreover, the CA pointed out that respondents counsel
concededly lacked the vigilance and competence in defending
his clients right when he failed to consign the balance on time;
nonetheless, such may be disregarded in the interest of justice.
It considered the failure of respondents counsel to avail of the
remedy of consignation as a procedural lapse, citing the
principle that where a rigid application of the rules will result in a
manifest failure or miscarriage of justice, technicalities can be
ignored.
A copy of the February 18, 2005 CA Decision was received by
respondent Alzul through her counsel on February 24, 2005.
On March 4, 2005, respondent filed a Compliance and Motion
for Extension of Time to Comply with the Decision of the
[CA]10 praying that she be given an extension of ten (10) days or
from March 2 to 11, 2005 to comply with the CA Decision. On
the other hand, on March 8, 2005, petitioner filed its Motion for
Reconsideration with Opposition to Petitioners "Motion for
Extension of Time to Comply with the Decision of the [CA]."11
Through its assailed August 31, 2005 Resolution, the CA denied
petitioners Motion for Reconsideration, and finding that
respondent duly exerted efforts to comply with its Decision and
a valid consignation was made by respondent, it granted the
requested 10-day extension of time to comply with the February
18, 2005 Decision and her motion for consignation. The fallo of
said Resolution reads:
IN VIEW OF THE FOREGOING, the motion for extension to
comply with the Decision is hereby GRANTED, the motion for
reconsideration is DENIED and the motion for consignation is
GRANTED. [Petitioner] B.E. San Diego, Inc. is hereby ordered
to receive the payment of [respondent] Rosario T. Alzul and to
issue, in her favor, the corresponding Deed of Sale.12
The Issues
Hence, before us is the instant petition with the following issues:
1. Whether or not the Court of Appeals, in issuing the assailed
18 February 2005 Decision and 31 August 2005 Resolution in
CA-G.R. SP No. 81341, has decided questions of law in a way
not in accord with law and with the applicable decisions of the
Honorable Court;
2. Whether or not the Court of Appeals committed patent grave
abuse of discretion and/or acted without or in excess of
jurisdiction in granting respondent Alzuls subsequent motion for
extension of time to comply with the 18 February 2005 decision
and motion for consignation; and
3. Whether or not the 18 February 2005 Decision and 31 August
2005 Resolution of the Court of Appeals in CA-G.R. SP No.
81341 ought to be annulled and set aside, for being contrary to
law and jurisprudence.13
The Courts Ruling
On the procedural issue, petitioner B.E. San Diego, Inc. assails
the sufficiency of respondent Alzuls CA petition as the latter, in
violation of the rules, allegedly lacked the essential and relevant
pleadings filed with the HLURB and the OP.
Section 6 of Rule 43, 1997 Rules of Civil Procedure pertinently
provides:
SEC. 6. Contents of the petition.The petition for review shall x
x x (c) be accompanied by a clearly legible duplicate original or
a certified true copy of the award, judgment, final order or
resolution appealed from, together with certified true copies of
such material portions of the record referred to therein and
other supporting papers; x x x (Emphasis supplied.)
The above proviso explicitly requires the following to be
appended to a petition: 1) clearly legible duplicate original or a
certified true copy of the award, judgment, final order, or
resolution appealed from; 2) certified true copies of such
material portions of the record referred to in the petition; and 3)
other supporting papers.
Obviously, the main reason for the prescribed attachments is to
facilitate the review and evaluation of the petition by making
readily available to the CA all the orders, resolutions, decisions,
pleadings, transcripts, documents, and pieces of evidence that
are material and relevant to the issues presented in the petition
without relying on the case records of the lower court. The rule
is the reviewing court can determine the merits of the petition
solely on the basis of the submissions by the parties 14 without
the use of the records of the court a quo. It is a fact that it takes
several months before the records are elevated to the higher
court, thus the resulting delay in the review of the petition. The
attachment of all essential and necessary papers and
documents is mandatory; otherwise, the petition can be rejected
outright under Sec. 7 of Rule 43 of the Rules of Court, which
provides:
Effect of failure to comply with requirements.The failure of the
petitioner to comply with any of the foregoing requirements
regarding the payment of the docket and other lawful fees, the
deposit for costs, proof of service of the petition, and the
contents of and the documents which should accompany the
petition shall be sufficient ground for the dismissal thereof.
To prevent premature dismissals, the requirements under Sec.
6 on the contents of the petition have to be elucidated.
First, there can be no question that only the award, judgment, or
final order or resolution issued by the lower court or agency and
appealed from has to be certified as true.
The second set of attachments refers to the "certified true
copies of such material portions of the record referred to
therein."
Material is defined as "important; more or less necessary;
having influence or effect; going to the merits; having to do with
matter, as distinguished from form."15 Thus, material portions of
the records are those parts of the records that are relevant and
directly bear on the issues and arguments raised and discussed
in the petition. They may include any of the pleadings that are
subject of any issue, documentary evidence, transcripts of
testimonial evidence, and parts of the records pertinent and
relevant to the grounds supporting the petition. The attachment
of the material portions is subject to the qualification that these
are referred to or cited in the petition. Thus, only the material
parts specified in the petition have to be appended and that
would be sufficient compliance with the rule as to form.
It would be prudent however for the petitioner to attach all parts
of the records which are relevant, necessary, or important in
whatever way to be able to reach the resolution of the issues of
the petition. The availability of such documents to the ponente
and members of a Division can easily provide the substance
and support to the merits of the grounds put forward by the
petitioner. Moreover, the processing time for the review and
resolution of the petition is greatly abbreviated, thereby
obviating intolerable delays.
Lastly, it has to be explained whether the material portions of
the records have to be certified as true by the clerk of court or
his/her duly authorized representative as provided in Sec. 6 of
Rule 43. If strictly required, the rule to require attachment of
certified true copies of the material portions will surely make the
preparation of the petition more tedious, cumbersome, and
expensive. It should therefore be construed that merely clear
and legible copies of the material portions will suffice. The rules
on the different modes of appeal from the lower courts or quasi-
judicial agencies to the CA reveal that it is only Rule 43 that
specifically states that the material portions to be appended to
the petition should be certified true copies. Rule 41 of course
does not require attachment of the pertinent records since the
entire records are elevated to the CA. Rule 42 on petition for
review from the trial court in aid of its appellate jurisdiction to the
CA speaks of plain copies of the material portions of the record
as would support the allegations of the petition.16 Even Rule 45
on appeal by certiorari from the CA to this Court simply speaks
of material portions of the records without indicating that these
should be certified true copies. Rule 46 on original cases to this
Court only requires plain copies of the material portions of the
records. Finally, Rule 65 on special civil actions requires only
copies of relevant and pertinent pleadings and documents.
From the foregoing premises, the inescapable conclusion is that
only plain and clear copies of the material portions of the
records are required under Sec. 3 of Rule 43. This finding is
buttressed by our ruling in Cadayona v. CA, where it was held
that only judgments or final orders of the lower courts are
needed to be certified true copies or duplicate originals.17 There
is no plausible reason why a different treatment or stricter
requirement should be applied to petitions under Rule 43.
The last requirement is the attachment of "other supporting
papers." Again, it is only in Rule 43 that we encounter the
requirement of annexing "supporting papers" to the petition.
This can be interpreted to mean other documents, pictures, and
pieces of evidence not forming parts of the records of the lower
court or agency that can bolster and shore up the petition. While
not so specified in Sec. 3 of Rule 43, it is inarguable that said
papers must also be relevant and material to the petition;
otherwise, the attachments would be mere surplusages and
devoid of use and value.
Petitioner claims respondents petition in CA-G.R. SP No. 81341
failed to attach material documents of the records of the HLURB
and the OP. They cry foul that none of the pleadings filed with
the HLURB and the OP found their way into the CA petition. It
prays that the CA petition should have been dismissed under
Sec. 7 of Rule 43 due to the lack of needed attachments.
Petitioners postulation must fail.
Sec. 7 of Rule 43 does not prescribe outright rejection of the
petition if it is not accompanied by the required documents but
simply gives the discretion to the CA to determine whether such
breach constitutes a "sufficient ground" for dismissal.
Apparently, petitioner was not able to convince the CA that the
alleged missing attachments deprived said court of the full
opportunity and facility in examining and resolving the petition. It
has not been satisfactorily shown that the pleadings filed by
petitioner with the quasi-judicial agencies have material bearing
or importance to the CA petition. Such pleadings could have
been attached to the comment of respondent and hence, no
prejudice would be suffered. Thus, the CA did not exercise its
discretion in an arbitrary or oppressive manner by giving due
course to the petition.
In addition, it was noted in Cusi-Hernandez v. Diaz that the CA
Revised Internal Rules provide certain flexibility in the
submission of additional documents:
When a petition does not have the complete annexes or the
required number of copies, the Chief of the Judicial Records
Division shall require the petitioner to complete the annexes or
file the necessary number of copies of the petition before
docketing the case. Pleadings improperly filed in court shall be
returned to the sender by the Chief of the Judicial Records
Division.18
In Rosa Yap Paras, et al. v. Judge Ismael O. Baldado, et al., the
Court preferred the determination of cases on the merits over
technicality or procedural imperfections so that the ends of
justice would be served better, thus:
At the same time, the Rules of Court encourage a reading of the
procedural requirements in a manner that will help secure and
not defeat justice. Thus:
Section 6. Construction.These Rules shall be liberally
construed in order to promote their objective of securing a just,
speedy and inexpensive disposition of every action and
proceeding.
As expressed in Alberto vs. Court of Appeals, "(w)hat should
guide judicial action is the principle that a party-litigant is to be
given the fullest opportunity to establish the merits of his
complaint or defense rather than for him to lose life, liberty,
honor or property on technicalities. x x x (T)he rules of
procedure should be viewed as mere tools designed to facilitate
the attainment of justice. Their strict and rigid application, which
would result in technicalities that tend to frustrate rather than
promote substantial justice, must always be eschewed."19
Now we will address the main issuewhether respondent Alzul
is still entitled to consignation despite the lapse of the period
provided by the Court in G.R. No. 109078 entitled Yu v. Court of
Appeals.
Petitioner stresses the fact that respondent Alzul did not comply
with this Courts June 17, 1996 Resolution20 which gave a non-
extendible period of thirty (30) days from entry of judgment
within which to make full payment for the subject properties. The
entry of judgment shows that the December 26, 1995
Resolution21 in G.R. No. 109078 became final and executory on
July 2, 1996. Respondent Alzul received through counsel a copy
of the entry of judgment on August 21, 1996. Thus, respondent
had until September 20, 1996 within which to make the full
payment.
After three (3) unsuccessful tenders of payment, respondent
Alzul made no consignation of the amount to the court of origin.
It was only on March 12, 1998 or about a year and a half later
that respondent offered to consign said amount in an action for
consignment before the HLURB. Relying on the case of St.
Dominic Corporation v. Intermediate Appellate
Court,22 petitioner strongly asserts that upon its refusal to accept
the tendered payment, respondent ought to have consigned it
with the court of origin also within the 30-day period or within a
reasonable time thereafter. Respondent failed to do this as she
waited for a year and a half before instituting the instant action
for specific performance and consignment before the HLURB.
Moreover, petitioner argues that respondents delay of a year
and a half to pursue full payment must be regarded as a waiver
on her part to claim whatever residual remedies she might still
have for the enforcement of the June 17, 1996 Resolution in
G.R. No. 109078.
Petitioner further contends that even if the action before the
HLURB was made on time, that is, within the 30-day period, still
it is fatally defective as respondent did not deposit any amount
with the HLURB which violated the rules for consignment which
require actual deposit of the amount allegedly due with the
proper judicial authority.
Premised upon these considerations, petitioner faults the
appellate court for its grant of respondents petition for review
which nullified the denial by the HLURB Arbiter, HLURB First
Division, and the OP of respondents action.
On the other hand, respondent contends that the June 17, 1996
Resolution of this Court should not be construed against her
inability to effect payment due to the obstinate and unjust
refusal by petitionera supervening circumstance beyond her
control. Respondent underscores that within the 30-day period,
she repeatedly attempted to effect the payment to no avail.
Moreover, the much delayed response of petitioner embodied in
its January 14, 1998 letter23 confirming its refusal was based on
untenable, baseless, and contrived grounds.
Moreover, she argues that the December 26, 1995 Resolution in
G.R. No. 109078 granting her proprietary rights over the subject
lots has long become final and executory.
Anent the issue of laches and estoppel, respondent strongly
contends that such do not apply in the instant case as
incontrovertible circumstances show that she has relentlessly
pursued the protection and enforcement of her rights over the
disputed lots for over a quarter of a century.
After a careful study of the factual milieu, applicable laws, and
jurisprudence, we find the petition meritorious.
Respondent Alzul was accorded legal rights over subject
properties
In G.R. No. 109078, finding no reversible error on the part of the
CA, we denied Wilson P. Yus petition and affirmed the
appellate courts ruling that as between Wilson P. Yu, the
Ventura spouses, petitioner B.E. San Diego, Inc., and
respondent Alzul, respondent has inchoate proprietary rights
over the disputed lots. We upheld the CA ruling declaring as
"null and void" the titles issued in the name of the Ventura
spouses and reinstating them in the name of B.E. San Diego,
Inc., with the corresponding notices of lis pendens annotated on
them in favor of respondent until such time that ownership of the
subject parcels of land is transferred to respondent Rosario
Alzul.
It is thus clear that we accorded respondent Alzul expectant
rights over the disputed lots, but such is conditioned on the
payment of the balance of the purchase price. Having been
conceded such rights, respondent had the obligation to pay the
remaining balance to vest absolute title and rights of ownership
in his name over the subject properties.
In our June 17, 1996 Resolution, we clearly specified thirty (30)
days from entry of judgment for respondent to promptly effect
the full payment of the balance of the purchase price for the
subject properties, thus:
We however agree with the observation made by movants that
no time limit was set by the respondent Court of Appeals in its
assailed Decision for the private respondent herein, Rosario
Alzul, to pay B.E. San Diego, Inc., the original owner of the
properties in litigation. To rectify such oversight, private
respondent Rosario T. Alzul is hereby given a non-extendible
period of thirty (30) days from entry of judgment, within which to
make full payment for the properties in question.24 (Emphasis
supplied.)
The non-compliance with our June 17, 1996 Resolution is fatal
to respondent Alzuls action for consignation and specific
performance
Unfortunately, respondent failed to effect such full payment of
the balance of the purchase price for the subject properties.
No consignation within the 30-day period or at a reasonable
time thereafter
It is clear as day that respondent did not attempt nor pursue
consignation within the 30-day period given to her in
accordance with the prescribed legal procedure. She received a
copy of the entry of judgment on August 21, 1996 and had 30
days or until September 20, 1996 to pay the balance of the
purchase price to petitioner. She made a tender of payment on
August 29, 1996, August 30, 1996, and September 28, 1996, all
of which were refused by petitioner possibly because the latter
is of the view that it is not bound by the November 27, 1992
Decision in CA-G.R. CV No. 33619 nor the December 26, 1995
Resolution in G.R. No. 109078, and the fact that respondent has
forfeited her rights to the lots because of her failure to pay the
monthly amortizations.
It must be borne in mind however that a mere tender of payment
is not enough to extinguish an obligation. In Meat Packing
Corporation of the Philippines v. Sandiganbayan, we
distinguished consignation from tender of payment and
reiterated the rule that both must be validly done in order to
effect the extinguishment of the obligation, thus:
Consignation is the act of depositing the thing due with the court
or judicial authorities whenever the creditor cannot accept or
refuses to accept payment, and it generally requires a prior
tender of payment. It should be distinguished from tender of
payment. Tender is the antecedent of consignation, that is, an
act preparatory to the consignation, which is the principal, and
from which are derived the immediate consequences which the
debtor desires or seeks to obtain. Tender of payment may be
extrajudicial, while consignation is necessarily judicial, and the
priority of the first is the attempt to make a private settlement
before proceeding to the solemnities of consignation. Tender
and consignation, where validly made, produces the effect of
payment and extinguishes the obligation. 25 (Emphasis supplied.)
There is no dispute that a valid tender of payment had been
made by respondent. Absent however a valid consignation,
mere tender will not suffice to extinguish her obligation and
consummate the acquisition of the subject properties.
In St. Dominic Corporation involving the payment of the
installment balance for the purchase of a lot similar to the case
at bar, where a period has been judicially directed to effect the
payment, the Court held that a valid consignation is made when
the amount is consigned with the court within the required
period or within a reasonable time thereafter. We ruled as
follows:
First of all, the decision of the then Court of Appeals which was
promulgated on October 21, 1981, is quite clear when it ordered
the payment of the balance of the purchase price for the
disputed lot within 60 days "from receipt hereof" meaning from
the receipt of the decision by the respondents. It is an admitted
fact that the respondents received a copy of the decision on
October 30, 1981. Hence, they had up to December 29, 1981 to
make the payment. Upon refusal by the petitioner to receive
such payment, the proper procedure was for the respondent to
consign the same with the court also within the 60-day period or
within a reasonable time thereafter.26 (Emphasis supplied.)
The records also reveal that respondent failed to effect
consignation within a reasonable time after the 30-day period
which expired on September 20, 1996. Instead of consigning
the amount with the court of origin, respondent filed her
November 11, 1996 Manifestation informing this Court of
petitioners unjust refusal of the tender of payment. We acted
favorably to it by issuing our January 28, 1997 Resolution which
ordered, thus:
Considering the manifestation, dated November 11, 1996, filed
by counsel for private respondent Rosario T. Alzul, stating that
private respondent tendered to B.E. San Diego, Inc. the
payment of the sum of P187,380.00 representing the balance of
the purchase price of the properties which are the subject of this
litigation, but B.E. San Diego, Inc., refused to accept the same,
the Court resolved to REFER the case to the court of origin, for
appropriate action.27
Respondent still failed to take the cue by her inaction to consign
the amount with the court of origin. Undoubtedly, pursuing the
action for consignation on March 12, 1998 or over a year after
the Court issued its January 28, 1997 Resolution is way beyond
a "reasonable time thereafter." Indeed, we have accorded
respondent, through said Resolution, all the opportunity to
pursue consignation with the court of origin and yet, respondent
failed to make a valid consignation. This is already inexcusable
neglect on the part of respondent.
No valid consignation made
We agree with petitioners assertion that even granting
arguendo that the instant case for consignation was instituted
within the 30-day period or within a reasonable time thereafter, it
would still not accord respondent relief as no valid consignation
was made. Certainly, the records show that there was no valid
consignation made by respondent before the HLURB as she did
not deposit the amount with the quasi-judicial body as required
by law and the rules.
Pertinently, the first paragraph of Article 1258 of the Civil Code
provides that "[c]onsignation shall be made by depositing the
things due at the disposal of judicial authority, before whom the
tender of payment shall be proved, in a proper case, and the
announcement of the consignation in other cases (emphasis
supplied)."
It is true enough that respondent tendered payment to petitioner
three (3) times through a Solidbank Managers Check No. 1146
in the amount of PhP 187,38028 on August 29 and 30, 1996 and
September 28, 1996. It is true likewise that petitioner refused to
accept it but not without good reasons. Petitioner was not
impleaded as a party by the Ventura spouses in the Malabon
City RTC case for quieting of title against Wilson Yu nor in the
appealed case to the CA nor in G.R. No. 109078.
Petitioner is of the view that there was no jurisdiction acquired
over its person and hence, it is not bound by the final judgment
and June 17, 1996 Resolution in G.R. No. 109078. Secondly,
petitioner believed that respondent Alzul has lost her rights over
the subject lot by the rescission of the sale in her favor due to
the latters failure to pay the installments and also as a result of
her transferees failure to pay the agreed amortizations. And
even in the face of the refusal by petitioner to accept tender of
payment, respondent is not left without a remedy. It is basic that
consignation is an available remedy, and respondent, with the
aid of her counsel, could have easily availed of such course of
action sanctioned under the Civil Code.
Considering the tenor of our June 17, 1996 Resolution,
respondent ought to have consigned the amount with the court
of origin within the non-extendible period of 30 days that was
accorded her or within a reasonable time thereafter.
As cited earlier, consignation is the act of depositing the thing
due with the court or judicial authorities whenever the creditor
cannot accept or refuses to accept payment and it generally
requires a prior tender of payment.29 It is of no moment if the
refusal to accept payment be reasonable or not. Indeed,
consignation is the remedy for an unjust refusal to accept
payment. The first paragraph of Art. 1256 of the Civil Code
precisely provides that "[i]f the creditor to whom tender of
payment has been made refuses without just cause to
accept it, the debtor shall be released from responsibility by
the consignation of the thing or sum due (emphasis
supplied)."
The proper and valid consignation of the amount due with the
court of origin, which shall judicially pronounce the validity of the
consignation and declare the debtor to be released from his/her
responsibility, shall extinguish the corresponding obligation.
Moreover, in order that consignation may be effective, the
debtor must show that: (1) there was a debt due; (2) the
consignation of the obligation had been made because the
creditor to whom tender of payment was made refused to
accept it, or because s/he was absent or incapacitated, or
because several persons claimed to be entitled to receive the
amount due or because the title to the obligation had been lost;
(3) previous notice of the consignation had been given to the
person interested in the performance of the obligation; (4) the
amount due was placed at the disposal of the court; and (5)
after the consignation had been made, the person interested
was notified of the action.30
Respondent did not comply with the provisions of law
particularly with the fourth and fifth requirements specified
above for a valid consignation. In her complaint for consignation
and specific performance, respondent only prayed that she be
allowed to make the consignation without placing or depositing
the amount due at the disposal of the court of origin. Verily,
respondent made no valid consignation.
The rights of petitioner and respondent over the 1,275 square
meter lot subject of this petition will be determined by the
significance and effects of the December 26, 1995 Resolution
rendered in G.R. No. 109078 entitled Yu v. Court of Appeals. 31
The subject matter of G.R. No. 109078 is the November 27,
1992 Decision rendered in CA-G.R. CV No. 33619 entitled
Carlos N. Ventura and Sandra L. Ventura v. Rosario T. Alzul, et
al., the fallo of which reads:
WHEREFORE, the appealed decision is hereby REVERSED
AND SET ASIDE, and the complaint therein is ordered
dismissed. Transfer Certificates of Title Nos. N-1922, N-1923,
N-1924, and N-1925, all of the Register of Deeds of Metro
Manila, District III, Malabon Branch, in the names of plaintiffs-
appellees Carlos N. Ventura and Sandra L. Ventura are hereby
declared null and void, and the titles of ownership reinstated in
the name of B.E. San Diego, Inc., with the corresponding
notices of lis pendens therein annotated in favor of defendant-
appellant until such time that ownership of the subject parcels of
land is transferred to herein defendant-appellant Rosario Alzul.
Costs against plaintiff-appellees.
SO ORDERED.32
On December 26, 1995, this Court issued the Resolution in G.R.
No. 109078 wherein it found no reversible error in the actions of
the CA in its aforequoted disposition in CA-G.R. CV No. 33619,
and resolved to deny the petition for lack of merit. On February
5, 1996, this Court denied with finality the Motion for
Reconsideration filed by petitioner Wilson Yu.
However, on June 17, 1996, this Court, in resolving the Motion
for Reconsideration of private respondents Spouses Carlos and
Sandra Ventura, granted respondent Alzul "a non-extendible
period of thirty (30) days from entry of judgment, within which to
make full payment for the properties in question."33
The question iscan the Court, the CA, or the Malabon City
RTC order petitioner B.E. San Diego, Inc. to accept the tender
of payment made by respondent Alzul?
Definitely, they cannot. The reason is that petitioner was not
impleaded as a party in the Malabon City RTC civil case, CA-
G.R. CV No. 33619, nor in G.R. No. 109078 and hence is not
under the jurisdiction of said courts. What were determined and
decided in the CA Decision in CA-G.R. CV No. 33619 were the
annulment of the titles of spouses Carlos and Sandra Ventura,
the reinstatement of said titles to the name of petitioner, and the
declaration that the ownership of the lots subject of said titles
will be transferred to respondent. There is no directive to
respondent granting her the right to pay the balance of the price
to petitioner and, more importantly, there is no order for
petitioner to accept the payment. The dispositive or fallo of the
decision is what actually constitutes the judgment or resolution
of the court that can be the subject of execution. Where there is
a conflict between the dispositive portion of the decision and its
body, the dispositive portion controls irrespective of what
appears in the body of the decision.34 Such being the case,
petitioner is not duty bound to accept any tender of payment
from respondent precisely because such diktat is absent in the
fallo of the CA Decision which was affirmed by this Court in its
December 26, 1995 Resolution in G.R. No. 109078.
The lacuna in the CA Decision was sought to be corrected in its
June 17, 1996 Resolution in G.R. No. 109078 where respondent
was given "a non-extendible period of thirty (30) days from entry
of judgment, within which to make full payment for the
properties in question." Pursuant to this Resolution, what was
established was the right of respondent to pay the balance of
the purchase price within 30 days. Again, the query iscan this
Court, the CA, or the trial court compel petitioner to accept the
tender of payment from respondent?
The answer is no. The reason is obvious as jurisdiction was
never acquired over the person of petitioner. The action for
quieting of title is characterized as quasi in rem. In Realty Sales
Enterprise, Inc. v. Intermediate Appellate Court, it was held that:
Suits to quiet title are not technically suits in rem, nor are they,
strictly speaking, in personam, but being against the person in
respect of the res, these proceedings are characterized as quasi
in rem. (McDaniel v. McElvy, 108 So. 820 [1926].) The judgment
in such proceedings is conclusive only between the parties.
(Emphasis supplied.)35
Not being impleaded as a necessary or indispensable party,
petitioner is not bound by the dispositions in the CA Decision in
CA-G.R. CV No. 33619 and the Resolutions of this Court in
G.R. No. 109078. Moreover, there is no explicit and clear
directive for petitioner to accept the payment of the balance of
the price.
It is for this reason that respondent cannot ask for a writ of
execution from the trial court where the complaint was originally
instituted as said court has no jurisdiction over the person of
petitioner. Even if a writ is issued, it should conform to the
judgment, and the fallo of the CA Decision does not impose the
duty or obligation on the part of petitioner to accept the payment
from respondent. It is the settled doctrine that a writ of execution
must conform to the judgment and if it is different from or
exceeds the terms of the judgment, then it is a nullity.36
In addition, Sec. 10, Rule 39 provides the procedure for
execution of judgments for specific acts, thus:
Sec. 10. Execution of judgments for specific act.(a)
Conveyance, delivery of deeds, or other specific acts; vesting
title.If a judgment directs a party to execute a conveyance of
land or personal property, or to deliver deeds or other
documents, or to perform any other specific act in connection
therewith, and the party fails to comply within the time specified,
the court may direct the act to be done at the cost of the
disobedient party by some other person appointed by the court
and the act when so done shall have like effect as if done by the
party. If real or personal property is situated within the
Philippines, the court in lieu of directing a conveyance thereof
may by an order divest the title of any party and vest it in others,
which shall have the force and effect of a conveyance executed
in due form of law.
The rule mentions the directive to a "party." It is therefore
essential that the person tasked to perform the specific act is
impleaded as a party to the case. Otherwise, the judgment
cannot be executed. In the case at bar, petitioner should have
been impleaded as a party so as to compel it to accept payment
and execute the deed of sale over the disputed lots in favor of
respondent. As petitioner was not impleaded as a party, then
the CA Decision in CA-G.R. CV No. 33619 as affirmed in G.R.
No. 109078 cannot be enforced against it.
The cause of action available to respondent is to file an action
for consignation against petitioner which she did by registering a
complaint for consignation before the HLURB on March 12,
1998. Unfortunately, it was filed way beyond the 30-day period
which lapsed on September 20, 1996 or immediately thereafter.
Because of the failure of respondent to effect payment to
petitioner within the 30-day period or soon thereafter, her rights
to buy the disputed lots have been forfeited, lost, and
extinguished.
In St. Dominic Corporation, which is substantially similar to the
case at bar, we explained the procedure when a party is
directed to pay the balance of the purchase price based on a
court decision, thus:
First of all, the decision of the then Court of Appeals which was
promulgated on October 21, 1981, is quite clear when it ordered
the payment of the balance of the purchase price for the
disputed lot within 60 days "from receipt hereof," meaning from
the receipt of the decision by the respondents. It is an admitted
fact that the respondents received a copy of the decision on
October 30, 1981. Hence, they had up to December 29, 1981 to
make the payment. Upon refusal by the petitioner to receive
such payment, the proper procedure was for the respondent to
consign the same with the court also within the 60-day period or
within a reasonable time thereafter. The fact that efforts were
made by the petitioner to reach an agreement with the
respondents after the promulgation of the decision did not in
anyway affect the finality of the judgment. This was clearly
emphasized in the order of the appellate court on May 6, 1982.
Secondly, even if we reckon the 60-day period from the date of
the finality of the decision as interpreted by the appellate court,
such finality should be counted from March 5, 1982, which was
the date the decision became final as indicated in the entry of
judgment and not from August 26, 1982 which is the date the
entry was made. The date of a finality of a decision is entirely
distinct from the date of its entry and the delay in the latter does
not affect the effectivity of the former as such is counted from
the expiration of the period to appeal.37 x x x
WHEREFORE, the petition is GRANTED, the February 18,
2005 Decision and August 31, 2005 Resolution of the CA are
REVERSED and SET ASIDE, and the September 18, 2003
Resolution and December 2, 2003 Order of the OP are hereby
REINSTATED. Petitioner is ORDERED to reimburse
respondent whatever amount the latter has paid for the subject
properties per the Contract to Sell No. 867. Petitioner is
DECLARED to be the true and legal owner of Lots Nos. 5, 6, 7,
and 8, Block 18, Aurora Subdivision, Maysilo, Malabon City. The
Register of Deeds of Manila, District III, Malabon City Branch is
ORDERED to cancel Transfer Certificates of Title Nos. N-1922,
N-1923, N-1924, and N-1925 in the names of spouses Carlos N.
Ventura and Sandra L. Ventura and register the same in the
name of petitioner. The lis pendens in favor of respondent
annotated on the Transfer Certificates of Title over the subject
properties is hereby LIFTED, and the Register of Deeds for
Metro Manila, District III is DIRECTED to CANCEL said lis
pendens. Respondent and all persons claiming under her are
ORDERED to vacate the subject properties and surrender them
to petitioner within sixty (60) days from finality of this judgment.
No pronouncement as to costs.
SO ORDERED.
PRESBITERO J. VELASCO, JR.
Associate Justice
WE CONCUR:

In the aforecited case, the lot owner was made a party to the LEONARDO A. QUISUMBING
case and the judgment of the court was for the plaintiff to pay to Associate Justice
the lot owner the balance of the purchase price within 60 days Chairperson
from receipt of the Decision. Even assuming arguendo that
petitioner B.E. San Diego, Inc., though not a party in the
complaint for quieting of title, can be compelled to receive the ANTONIO T. CARPIO CONCHITA CARPIO
purchase price, still, the refusal to receive the money requires Associate Justice MORALES
respondent Alzul to follow the procedure in St. Dominic Associate Justice
Corporation and consign the money with the court of origin.
Having failed in this respect, respondents rights to the property DANTE O. TINGA
have been forfeited as a result of non-payment within the Associate Justice
prescribed time frame.

The CA relied on justice and equity in granting an additional

period of five (5) days from receipt of the February 18, 2005
Decision in CA-G.R. SP No. 81341 to pay the balance due for
CERTIFICATION
the sale of the four lots.38 While we commiserate with the plight
of respondent, the CA ruling will not prevail over the established
axiom that equity is applied only in the absence of and never Pursuant to Section 13, Article VIII of the Constitution, I certify
against statutory law or judicial rules of procedure.39 For all its that the conclusions in the above Decision had been reached in
conceded merits, equity is available only in the absence of law consultation before the case was assigned to the writer of the
and not as its replacement.40 Equity as an exceptional opinion of the Courts Division.
extenuating circumstance does not favor, nor may it be used to
reward, the indolent. This Court will not allow a party, in guise of LEONARDO A. QUISUMBING
equity, to benefit from respondents own negligence. 41 Acting Chief Justice

In the light of the foregoing considerations, we find that the grant Footnotes
of respondents petition in CA-G.R. SP No. 81341 and the 1
Rollo, pp. 3-37.
2
recognition of the belated consignation of the amount find no Id. at 44-57. The Decision was penned by Associate Justice Eugenio
support nor basis in law, rule, or jurisprudence. The CAs S. Labitoria (Chairperson) and concurred in by Associate Justices
holding that the non-consignation of the amount due is merely a Eliezer R. Delos Santos and Arturo D. Brion.
3
Id. at 97-99.
procedural lapse on the part of respondents counsel is 4
Id. at 100.
misplaced and is contrary to settled jurisprudence. Plainly, 5
Id. at 59-62. The Resolution was penned by Associate Justice Eliezer
respondents rights over the subject property are now lost and R. de los Santos (Acting Chairperson) and concurred in by Associate
forfeited. Justices Arturo D. Brion and Vicente Q. Roxas.
6
Supra note 2, at 45-51.
7
Rollo, pp. 162-168.
Having resolved the core issue on the validity of the 8
Id. at 262-263.
consignation, the Court sees no further need to discuss the 9
Supra note 2, at 56.
remaining issues raised in the petition. 10
Rollo, pp. 340-344.
11
Id. at 345-364.
12
Petitioner to reimburse payments Supra note 5, at 62.
13
Rollo, pp. 467-468.
14
Atillo v. Bombay, G.R. No. 136096, February 7, 2001, 351 SCRA 361,
However, respondent had made payments over the subject 369; cited in San Miguel Corporation v. Aballa, G.R. No. 149011, June
properties based on her agreement with petitioner. So as not to 28, 2005, 461 SCRA 392.
enrich itself at the expense of respondent, petitioner is obliged
15
H. Black, Blacks Law Dictionary 976 (6th ed., 1990).
16
to reimburse respondent whatever amount was paid by her in Sec. 2.
17
G.R. No. 128772, February 3, 2000, 324 SCRA 619, 625.
form of monthly amortizations. On the other hand, if respondent 18
G.R. No. 140436, July 18, 2000, 336 SCRA 113, 120; citing the CA
is in possession of the subject properties, she and all persons Revised Internal Rules, Rule 3, Sec. 3(d).
claiming under her should surrender the possession to 19
G.R. No. 140713, March 8, 2001, 354 SCRA 141, 145; citing the
petitioner. Revised Rules of Court, Rule 1.
20
Rollo, pp. 131-132.
21
Yu v. Court of Appeals, 251 SCRA 509.
22
No. L-67207, August 26, 1985, 138 SCRA 242.
23
Rollo, p. 140.
24
Supra note 20, at 131.
25
G.R. No. 103068, June 22, 2001, 359 SCRA 409, 421.
26
Supra note 22, at 250-251.
27
Rollo, p. 134.
28
Id. at 136.
29
Supra note 25.
30
Banco Filipino Savings and Mortgate Bank v. Diaz, G.R. No. 153134,
June 27, 2006, 493 SCRA 248, 263, citing Pabugais v. Sahijwani, G.R.
No. 156846, February 23, 2004, 423 SCRA 596, 601.
31
Supra note 21.
32
Rollo, p. 119.
33
Id. at 131.
34
1 Regalado, Remedial Law Compendium 371.
35
No. L-67451, September 28, 1987, 154 SCRA 328, 348.
36
Villoria v. Piccio, etc., et al., 95 Phil. 802, 805-806 (1954).
37
Supra note 22.
38
Supra note 2, at 56.
39
Mendiola v. Court of Appeals, G.R. No. 122807, July 5, 1996, 258
SCRA 492, 502.
40
Aguila v. Court of First Instance of Batangas, Branch I, No. L-48335,
April 15, 1988, 160 SCRA 352, 359-360.
41
Mesina v. Meer, G.R. No. 146845, July 2, 2002, 383 SCRA 625, 635.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-52733 July 23, 1985
PILAR DE GUZMAN, ROLANDO GESTUVO, and MINERVA
GESTUVO, petitioners,
vs.
THE HON. COURT OF APPEALS, THE HON. JUDGE PEDRO
JL. BAUTISTA, Presiding Judge of the Court of First
Instance of Rizal, Branch III, Pasay City, and LEONIDA P.
SINGH, respondents.
Barredo, Reyno & Tomacruz Law Office for petitioners.
Adriano T Bruno for private respondent.
CONCEPCION, JR., J.:
Petition for the reversal of the decision of the respondent appeal
appellate court which dismissed the petition to annul and set
aside the orders of the Court of First Instance of Rizal, Pasay
City Branch, dismissing the petitioners' appeal in Civil Case No.
5247- P and to restrain the respondents from enforcing the
same. Acting upon the petition, the Court issued a temporary
restraining order on May 16, 1980, restraining the respondents
from enforcing and/or carrying out the decision in question. 1
The facts of record show that on February 17, 1971, the
petitioners, as SELLER, and the private respondent, as BUYER,
executed a Contract to Sell covering two (2) parcels of land
owned by the petitioners located at Cementina Street, Pasay
City and covered by TCT Nos. 11326 and 11327 of the Register
of Deeds of Pasay City. It was stipulated therein that the private
respondent should pay the balance of the purchase price of
P133,640.00 on or before February 17, 1975. Two days before
the said date, or on February 15, 1975, the private respondent
asked the petitioners to furnish her with a statement of account
of the balance due; copies of the certificates of title covering the
two parcels of land subject of the sale; and a copy of the power
of attorney executed by Rolando Gestuvo in favor of Pilar de
Guzman. But, the petitioners denied the request. As a result, the
private respondent filed a complaint for specific performance
with damages against the petitioners before the Court of First
Instance of Rizal. The case, however, was dismissed for failure
to prosecute. But, the private respondent subsequently refiled
the case. The case was docketed in court as Civil Case No.
5247-P. In her complaint, the private respondent charged that
the petitioners, by refusing to furnish her with copies of the
documents requested, deliberately intended not to comply with
their obligations under the contract to sell, as a result of which
the said petitioners committed a breach of contract, and had
also acted unfairly and in manifest bad faith for which they
should be held liable for damages. Answering the complaint, the
petitioners claimed that the complaint failed to state a cause of
action; that the balance due was already pre-determined in the
contract; that the petitioners have no obligation to furnish the
private respondent with copies of the documents requested; and
that the private respondent's failure to pay the balance of the
purchase price on the date specified had caused the contract to
expire and become ineffective without necessity of notice or of
any judicial declaration to that effect.
On November 29, 1977, the trial court rendered a decision
approving the compromise agreement submitted by the parties
wherein they agreed on the following:
1. That, not later than December 18, 1977, plaintiff will pay
defendants the total amount of TWO HUNDRED FORTY
THOUSAND (P240,000.00) PESOS, Philippine Currency and in
case of failure to do so, she shall have only until January 27,
1978 within which to pay the total amount of TWO HUNDRED
FIFTY THOUSAND (P250,000.00) PESOS, Philippine
Currency, which shall be treated as complete and final payment
of the consideration in the contract to sell, dated February 17,
1971. (Annex "A", Complaint);
2. That, immediately upon receipt of either amounts within the
periods so contemplated, defendants undertake to immediately
execute the necessary legal instruments to transfer to plaintiff
the title to the parcels of land subject of the above-mentioned
Contract to Sell, free from liens and encumbrances but with the
understanding that all the expenses necessary for the issuance
of a new Transfer Certificate of Title in favor of plaintiff or her
assigns including documentary stamp taxes, science stamp
taxes and legal research fund fees shall be for her sole and
exclusive account;
3. That defendants would temporarily desist from enforcing their
right or possession over the properties involved herein until
January 27, 1978, but this shall not be construed as an
abandonment or waiver of its causes of action as embodied in
her Complaint in Civil Case No. 12446 entitled "Pilar de
Guzman vs. Wilfredo C. Tan, etc." for Ejectment pending before
Branch IV of the Pasay City Court;
4. Should plaintiff fail to pay either of the amounts abovestated
within the period herein stipulated, the aforesaid Contract to Sell
dated February 17, 1971 shall be deemed rescinded and
defendants would immediately enforce its right of possession of
the premises and plaintiff agrees to voluntarily surrender and
vacate the same without further notice or demand;
5. That payment of either amounts above-stated shall take place
before the Honorable Judge Pedro Jl. Bautista in the courtroom
of the Court of First Instance of Rizal, Branch III in Pasay City at
10:00 a.m. Friday, January 27, 1978 unless payment has been
earlier made, in which case plaintiff shall produce receipt of the
same at the same time and place, otherwise defendants shag
immediately be entitled to a Writ of Execution on its right of
possession over the premises;
6. Lastly, that both parties waive and abandon, by reason
hereof, their respective claims and counterclaims as embodied
in the Complaint and Answer. 2
On January 28, 1978, the petitioners filed a motion for the
issuance of a writ of execution, claiming that the private
respondent had failed to abide by the terms of the compromise
agreement and pay the amount specified in their compromise
agreement within the period stipulated. 3 The private respondent
opposed the motion, saying that she had complied with the
terms and conditions of the compromise agreement and asked
the court to direct the petitioners to comply with the court's
decision and execute the necessary documents to effect the
transfer of ownership of the two parcels of land in question to
her. 4
Acting upon the motions, the respondent judge issued an order
on March 27, 1978, denying the petitioners' motion for
execution, and instead, directed the petitioners to immediately
execute the necessary documents, transferring to private
respondent the title to the properties. He also ordered the Clerk
of Court to release to the petitioners the amount of
P250,000.00, which had been deposited by the private
respondent, upon proper receipt therefor. 5
The petitioners filed a motion for the reconsideration of the
order, 6 but the trial court denied the same in an order dated
July 24, 1978. 7
Whereupon, the petitioners filed a notice of appeal, appeal
bond, 8 and a motion for extension of time (20 days) within
which to submit a record on appeal. 9 On August 21, 1978, they
filed a second motion for extension of time (5 days) within which
to file their record on appeal, 10 and on August 26, 1978, they
submitted their record on appeal.
On September 30, 1978, the private respondent filed a motion
to dismiss the appeal on the grounds that: (1) the orders
appealed from are inappealable; and (2) that the record on
appeal is defective as it does not contain the material data
showing that the appeal was perfected on time. 11 The trial court
found merit in the motion and dismissed the appeal of the
petitioners. 12 As a result, the petitioners filed a petition for
certiorari with the respondent Court of Appeals to nullify the
order of the trial court which dismissed their appeal. On
February 5, 1980, the said appellate court rendered judgment
sustaining the decision of the trial court. 13 Hence, the present
recourse.
Passing upon the propriety of the petitioners' appeal, the rule is
that a judgment rendered in accordance with a compromise
agreement is not appealable. It is immediately executory unless
a motion is filed to set aside the compromise agreement on the
ground of fraud, mistake or duress, in which case an appeal
may be taken from the order denying the motion. 14 It is also a
settled rule that an order of execution of judgment is not
appealable. However, where such order of execution in the
opinion of the defeated party varies the terms of the judgment
and does not conform to the essence thereof, or when the terms
of the judgment are not clear and there is room for interpretation
and the interpretation given by the trial court as contained in its
order of execution is wrong in the opinion of the defeated party,
the latter should be allowed to appeal from said order so that
the Appellate Tribunal may pass upon the legality and
correctness of the said order. 15
In the instant case, the legality or enforceability of the
compromise agreement or the decision of the trial court
approving the compromise agreement is not disputed. The
parties both want the said compromise agreement to be
implemented. The petitioners question the ruling of the trial
court that the private respondent had complied with the terms of
the compromise agreement. The issue raised, albeit one of fact,
is appealable.
As to the sufficiency of the record on appeal filed by the
petitioners, the rule is that the submission of a record on appeal,
for purposes of appeal, is no longer required as the original
record is elevated to the appellate court, except in appeals in
special proceedings in accordance with Rule 109 of the Rules of
Court and other cases wherein multiple appeals are
allowed. 16 Since the appeal of the petitioners is not one of
those mentioned above, the late filing or insufficiency of the
record on appeal filed by the petitioners is no longer a ground
for dismissing their appeal.
On the merits of the case, We agree with the findings of the trial
court that the private respondent had substantially complied with the
terms and conditions of the compromise agreement. Her failure to
deliver to the petitioners the full amount on January 27, 1978 was not
her fault. The blame lies with the petitioners. The record shows that the
private respondent went to the sala of Judge Bautista on the appointed
day to make payment, as agreed upon in their compromise agreement.
But, the petitioners were not there to receive it. Only the petitioners'
counsel appeared later, but, he informed the private respondent that he
had no authority to receive and accept payment. Instead, he invited the
private respondent and her companions to the house of the petitioners
to effect payment. But, the petitioners were not there either. They were
informed that the petitioner Pilar de Guzman would arrive late in the
afternoon, possibly at around 4:00 o'clock. The private respondent was
assured, however, that she would be informed as soon as the
petitioners arrived. The private respondent, in her eagerness to settle
her obligation, consented and waited for the call which did not come and
unwittingly let the period lapse. The next day, January 28, 1978, the
private respondent went to the office of the Clerk of the Court of First
Instance of Rizal, Pasay City Branch, to deposit the balance of the
purchase price. But, it being a Saturday, the cashier was not there to
receive it. So, on the next working day, Monday, January 30, 1978, the
private respondent deposited the amount of P30,000.00 with the cashier
of the Office of the Clerk of the Court of First Instance of Rizal, Pasay
City Branch, to complete the payment of the purchase price of
P250,000.00. Since the deposit of the balance of the purchase price
was made in good faith and that the failure of the private respondent to
deposit the purchase price on the date specified was due to the
petitioners who also make no claim that they had sustained damages
because of the two days delay, there was substantial compliance with
the terms and conditions of the compromise agreement.
WHEREFORE, the petition should be, as it is hereby DISMISSED. The
temporary restraining order heretofore issued is LIFTED and SET
ASIDE. With costs against the petitioners.
SO ORDERED.
Makasiar (Chairman), Abad Santos, Escolin and Cuevas, JJ., concur.
Separate Opinions
AQUINO, J., dissenting:
I dissent. On November 29, 1977 the trial court rendered a decision
approving a compromise between Pilar de Guzman, Rolando Gestuvo
and Minerva Gestuvo, as sellers, and Leonida P. Singh, buyer. Singh
agreed to pay de Guzman and the Gestuvos, now petitioners, P250,000
for two lots located at Cementina Street, Pasay City at ten o'clock in the
morning of January 27, 1978 in the courtroom of Judge Bautista of
Pasay City. In case no payment was made, then the petitioners would
be immediately entitled to a writ of execution for the possession of the
said lots.
Singh did not pay the P250,000. Ben Restrivera, in behalf of Singh,
on January 24, 1978 deposited P220,000 with the clerk of court.
Restrivera on January 27, 1978 tried to deliver to Antonio G. Barredo,
petitioners' counsel, P5,000 cash and P25,000 in postdated checks, or
P30,000 to complete the price of P250,000. Barredo refused to accept
that payment. On January 30, 1978 (3 days after the deadline) Singh
deposited with the clerk of court cash of P30,000.
On that same day, January 30, the petitioners filed a motion for
execution. It was opposed by Singh. Judge Bautista in his order of
March 27, 1978 denied the motion and ordered the petitioners to
execute the corresponding deed of sale. He ordered the clerk of court to
release the P250,000 to them.
The petitioners filed a motion for reconsideration which the trial court
denied in an order dated July 24, 1978, a copy of which was received by
the petitioners on July 31, 1978. The next day, August 1, the petitioners
filed a notice of appeal and an appeal bond and asked for an extension
of twenty days within which to file their record on appeal. They asked for
a second extension of five days. The record on appeal was filed
on August 26, 1978.
The trial court did not give due course to the appeal. The petitioners
filed a petition for mandamus with the Court of Appeals to compel the
trial court to elevate their appeal. The Court of Appeals in its decision
dated February 5, 1980 sustained the trial court. The petitioners
appealed to this Court.
The trial court erred in ordering the petitioners to execute the deed of
sale. Singh did not comply with the compromise agreement. She did not
pay the P250,000 on January 27, 1978. The petitioners were entitled to
a writ of execution
The appeal should have been given due course. It was filed on time.
The technicality that the petitioners did not comply with the "material
data" rule may be disregarded. That rule has been relaxed in later
cases. See Berkenkotter vs. Court of Appeals, L-36629, September 28,
1973, 53 SCRA 228 and later cases.
Instead of ordering the Pasay court to elevate the record of the case to
the Intermediate Appellate Court, we should now resolve the case or the
merits of the appeal.
It is indubitable that Singh violated the compromise agreement. She lost
the right to purchase the two lots. The petitioners are entitled to possess
them.
Footnotes
1 Rollo, p. 121.
2 Id, p. 89.
3 Id, p.91.
4 Id, p. 98.
5 Id, p. 52.
6 Id, p. 59.
7 Id, p. 56.
8 Id, p. 100.
9 Id, p. 101.
10 Id, p. 103,
11 Id, p. 110.
12 Id, p. 49.
13 Id, p. 40.
14 Periquet vs. Reyes, 129 Phil. 764.
15 Manaois-Salanga vs. Natividad, 107 Phil. 268.
16 Secs. 18, 19, 20, Interim Rules & Guidelines, Rules of Court.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-35381 October 31, 1972
TLG INTERNATIONAL CONTINENTAL ENTERPRISING,
INC., petitioner,
vs.
HON. DELFIN B. FLORES, Presiding Judge, Court of First
Instance of Rizal, Branch XI, respondent.
L. V. Simbulan, Tiongson and Associates for petitioner.
Respondent Judge in his own behalf.
RESOLUTION
ANTONIO, J.:p
Petition for certiorari to set aside the orders dated June 23,
1972 and July 15, 1972 in Civil Case No. 14880 of Respondent,
Hon. Delfin B. Flores as the Presiding Judge of the Court of
First Instance of Rizal, Branch XI, denying the motion of
petitioner to withdraw the sum of P3,750.00 deposited by it, by
way of consignation.
This Court after considering the allegations contained and the
issues raised in the petition and the "manifestation" of
Respondent admitting the facts therein alleged, resolved to give
due course to the petition, and treat the "manifestation" of
Respondent, as his answer. As the issue involved is of minor
importance, and the interest of the parties could be better
served by an expeditious resolution thereof ... We dispensed
with the filing of briefs or memoranda and considered the case
as submitted for decision.
Respondent in an order dated October 5, 1971, granted
petitioner's "Motion To Intervene" and admitted its "Complaint In
Intervention", in Civil Case No. 14880, (Bearcon Trading Co.,
Inc. vs. Juan Fabella Et Al) of the Court of First Instance of
Rizal, Branch XI. The aforecited case was an action for
declaratory relief involving the rights of Bearcon Trading Co.,
Inc. as lessee of the premises of the aforesaid defendants.
Petitioner intervened as sub-lessee of Bearcon over the
property, and the purpose of its intervention was to protect its
rights as such sub-lessee and to enable it, during pendency of
the case, to make a consignation of the monthly rentals as it
was "at a loss as to who is lawfully and rightfully entitled to
receive payments of the monthly" rentals.
As a consequence of the admission of the "Complaint In
Intervention", petitioner deposited with the Clerk of Court of the
Court of First Instance of Rizal, the following sums by way of
rentals: .
October 27, 1971 P900.00
November 29, 1971 600.00
January 19, 1972 750.00
March 8, 1972 1,500.00
or a total of P3,750.00, which deposits are properly covered by
official receipts.
On October 20, 1971, defendants in Civil Case No. 14880, filed
with said Court, an "Omnibus Motion" in which they prayed that
the complaint, as well as the Complaint In Intervention, be
dismissed on the ground that the subject matter thereof could
be better ventilated in the ejectment case filed by Juan Fabella
against Bearcon Trading Co., Inc. (Civil Case No. 3979) then
pending before the municipal court of Mandaluyong Rizal.
The court a quo under date of April 24, 1972 issued an
"Omnibus Order", dismissing both the complaint and the
complaint in intervention.
On May 27, 1972, petitioner filed its Motion to withdraw the
sums it deposited, as "the order dismissing the ... case as well
as the complaint in intervention without a resolution having been
made as to the right of the plaintiff or the defendants to the
rentals deposited by the intervenor, left the intervenor without
any recourse but to apply for authority to withdraw the ...
amount ... and turn over the same to the defendants in
accordance with the understanding arrived at between the
parties hereto". This was denied by Respondent in its order of
June 23, 1972. The motion for reconsideration of petitioner was
likewise denied by Respondent on July 15, 1972.
Hence this petition for certiorari.
The only issue is whether or not Respondent could authorize
the withdrawal of the deposits considering that according to
Respondent, the Court "has not ordered the intervenor to make
any deposit in connection" with the case.
There is no question that in cases of consignation the debtor is
entitled as a matter of right to withdraw the deposit made with
the court, before the consignation is accepted by the creditor or
prior to the judicial approval of such consignation. This is explicit
from the second paragraph of Article 1260 of the new Civil Code
which states that: "Before the creditor has accepted the
consignation, or before a judicial declaration that the
consignation has been properly made, the debtor may withdraw
the thing or the sum deposited, allowing the obligation to remain
in force".
In the case at bar, the case was dismissed before the amount
deposited was either accepted by the creditor or a declaration
made by the Court approving such consignation. Such dismissal
rendered the consignation ineffectual (Bravo v. Barreras, 92
Phil. 679, 681). Under such circumstances it was incumbent
upon Respondent to have allowed the withdrawal by petitioner
of the sums of money deposited by it with the Court.
Respondent nevertheless insists that the Court had no authority
to authorize its withdrawal since it "has not ordered intervenor to
make" the deposit. This contention ignores the fact that the
deposit was made by petitioner as a consequence of the
admission by the Court of its "Complaint In Intervention". It must
be noted that the aforesaid deposit was made with and officially
receipted by the Clerk of Court. The deposit was made pursuant
to Article 1258 of the new Civil Code which states that:
"Consignation shall be made by depositing the things due at the
disposal of judicial authority, before whom the tender of
payment shall be proved, in a proper case, ...". It was therefore
money received by the Clerk of Court pursuant to Section 6 of
the Judiciary Act. (Rep. Act 296 as Amended). From the
moment the deposit was made by petitioner, "the money
remained under the control and jurisdiction of the court and the
former could not recover it without an express order of
restitution" (Manajero v. Buyson Lampa, 61 Phil. 66, 69). In the
light of the aforecited statutory provisions and jurisprudence We
find no justification for Respondent's intransigent posture.
WHEREFORE, the orders dated June 23, 1972 and July 15,
1972 subject of the petition for certiorari are hereby set aside
and Respondent directed to grant the withdrawal of the deposit
in accordance with the foregoing. Without pronouncement as to
costs.
Concepcion, C.J., Zaldivar, Castro, Fernando, Teehankee,
Barredo, Makasiar and Esguerra, JJ., concur.
Makalintal, J., is on leave.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-57552 October 10, 1986
LUISA F. MCLAUGHLIN, petitioner,
vs.
THE COURT OF APPEALS AND RAMON
FLORES, respondents.
R.C. Domingo Jr. & Associates for private respondent.
FERIA, Actg. C.J.
This is an appeal by certiorari from the decision of the Court of
Appeals, the dispositive part of which reads as follows:
IN VIEW OF THE FOREGOING PREMISES, the petition for
certiorari and mandamus is hereby GRANTED and the Orders
of respondent court dated November 21 and 27 both 1980 are
hereby nullified and set aside and respondent Judge is ordered
to order private respondent to accept petitioner's Pacific
Banking Corporation certified manager's Check No. MC-A-
000311 dated November 17, 1980 in the amount of P76,059.71
in full settlement of petitioner's obligation, or another check of
equivalent kind and value, the earlier check having become
stale.
On February 28, 1977, petitioner Luisa F. McLaughlin and
private respondent Ramon Flores entered into a contract of
conditional sale of real property. Paragraph one of the deed of
conditional sale fixed the total purchase price of P140,000.00
payable as follows: a) P26,550.00 upon the execution of the
deed; and b) the balance of P113,450.00 to be paid not later
than May 31, 1977. The parties also agreed that the balance
shall bear interest at the rate of 1% per month to commence
from December 1, 1976, until the full purchase price was paid.
On June 19, 1979, petitioner filed a complaint in the then Court
of First Instance of Rizal (Civil Case No. 33573) for the
rescission of the deed of conditional sale due to the failure of
private respondent to pay the balance due on May 31, 1977.
On December 27, 1979, the parties submitted a Compromise
Agreement on the basis of which the court rendered a decision
on January 22, 1980. In said compromise agreement, private
respondent acknowledged his indebtedness to petitioner under
the deed of conditional sale in the amount of P119,050.71, and
the parties agreed that said amount would be payable as
follows: a) P50,000.00 upon signing of the agreement; and b)
the balance of P69,059.71 in two equal installments on June 30,
1980 and December 31, 1980.
As agreed upon, private respondent paid P50,000.00 upon the
signing of the agreement and in addition he also paid an
"escalation cost" of P25,000.00.
Under paragraph 3 of the Compromise Agreement, private
respondent agreed to pay one thousand (P l,000.00) pesos
monthly rental beginning December 5, 1979 until the obligation
is duly paid, for the use of the property subject matter of the
deed of conditional sale.
Paragraphs 6 and 7 of the Compromise Agreement further
state:
That the parties are agreed that in the event the defendant
(private respondent) fails to comply with his obligations herein
provided, the plaintiff (petitioner) will be entitled to the issuance
of a writ of execution rescinding the Deed of Conditional Sale of
Real Property. In such eventuality, defendant (private
respondent) hereby waives his right to appeal to (from) the
Order of Rescission and the Writ of Execution which the Court
shall render in accordance with the stipulations herein provided
for.
That in the event of execution all payments made by defendant
(private respondent) will be forfeited in favor of the plaintiff
(petitioner) as liquidated damages.
On October 15, 1980, petitioner wrote to private respondent
demanding that the latter pay the balance of P69,059.71 on or
before October 31, 1980. This demand included not only the
installment due on June 30, 1980 but also the installment due
on December 31, 1980.
On October 30, 1980, private respondent sent a letter to
petitioner signifying his willingness and intention to pay the full
balance of P69,059.71, and at the same time demanding to see
the certificate of title of the property and the tax payment
receipts.
Private respondent states on page 14 of his brief that on
November 3, 1980, the first working day of said month, he
tendered payment to petitioner but this was refused acceptance
by petitioner. However, this does not appear in the decision of
the Court of Appeals.
On November 7, 1980, petitioner filed a Motion for Writ of
Execution alleging that private respondent failed to pay the
installment due on June 1980 and that since June 1980 he had
failed to pay the monthly rental of P l,000.00. Petitioner prayed
that a) the deed of conditional sale of real property be declared
rescinded with forfeiture of all payments as liquidated damages;
and b) the court order the payment of Pl,000.00 back rentals
since June 1980 and the eviction of private respondent.
On November 14, 1980, the trial court granted the motion for
writ of execution.
On November 17, 1980, private respondent filed a motion for
reconsideration tendering at the same time a Pacific Banking
Corporation certified manager's check in the amount of
P76,059.71, payable to the order of petitioner and covering the
entire obligation including the installment due on December 31,
1980. However, the trial court denied the motion for
reconsideration in an order dated November 21, 1980 and
issued the writ of execution on November 25, 1980.
In an order dated November 27, 1980, the trial court granted
petitioner's ex-parte motion for clarification of the order of
execution rescinding the deed of conditional sale of real
property.
On November 28, 1980, private respondent filed with the Court
of Appeals a petition for certiorari and prohibition assailing the
orders dated November 21 and 27, 1980.
As initially stated above, the appellate court nullified and set
aside the disputed orders of the lower court. In its decision, the
appellate court ruled in part as follows:
The issue here is whether respondent court committed a grave
abuse of discretion in issuing the orders dated November 21,
1980 and November 27,1980.
The general rule is that rescission will not be permitted for a
slight or casual breach of the contract, but only for such
breaches as are substantial and fundamental as to defeat the
object of the parties in making the agreement. (Song Fo & Co.
vs. Hawaiian-Philippine Co., 47 Phil. 821)
In aforesaid case, it was held that a delay in payment for a small
quantity of molasses, for some twenty days is not such a
violation of an essential condition of the contract as warrants
rescission for non-performance.
In Universal Food Corp. vs. Court of Appeals, 33 SCRA 1, the
Song Fo ruling was reaffirmed.
In the case at bar, McLaughlin wrote Flores on October 15,
1980 demanding that Flores pay the balance of P69,059.71 on
or before October 31, 1980. Thus it is undeniable that despite
Flores' failure to make the payment which was due on June
1980, McLaughlin waived whatever right she had under the
compromise agreement as incorporated in the decision of
respondent court, to demand rescission.
xxx xxx xxx
It is significant to note that on November 17, 1980, or just
seventeen (17) days after October 31, 1980, the deadline set by
McLaughlin, Flores tendered the certified manager's check. We
hold that the Song Fo ruling is applicable herein considering that
in the latter case, there was a 20-day delay in the payment of
the obligation as compared to a 17-day delay in the instant
case.
Furthermore, as held in the recent case of New Pacific Timber &
Supply Co., Inc. vs. Hon. Alberto Seneris, L-41764, December
19, 1980, it is the accepted practice in business to consider a
cashier's or manager's check as cash and that upon certification
of a check, it is equivalent to its acceptance (Section 187,
Negotiable Instrument Law) and the funds are thereby
transferred to the credit of the creditor (Araneta v. Tuason, 49
O.G. p. 59).
In the New Pacific Timber & Supply Co., Inc. case, the Supreme
Court further held that the object of certifying a check is to
enable the holder thereof to use it as money, citing the ruling
in PNB vs. National City Bank of New York, 63 Phil. 711.
In the New Pacific Timber case, it was also ruled that the
exception in Section 63 of the Central Bank Act that the clearing
of a check and the subsequent crediting of the amount thereof
to the account of the creditor is equivalent to delivery of cash, is
applicable to a payment through a certified check.
Considering that Flores had already paid P101,550.00 under the
contract to sell, excluding the monthly rentals paid, certainly it
would be the height of inequity to have this amount forfeited in
favor McLaughlin. Under the questioned orders, McLaughlin
would get back the property and still keep P101,550.00.
Petitioner contends that the appellate court erred in not
observing the provisions of Article No. 1306 of the Civil Code of
the Philippines and in having arbitrarily abused its judicial
discretion by disregarding the penal clause stipulated by the
parties in the compromise agreement which was the basis of the
decision of the lower court.
We agree with the appellate court that it would be inequitable to
cancel the contract of conditional sale and to have the amount
of P101,550.00 (P l48,126.97 according to private respondent in
his brief) already paid by him under said contract, excluding the
monthly rentals paid, forfeited in favor of petitioner, particularly
after private respondent had tendered the amount of
P76,059.71 in full payment of his obligation.
In the analogous case of De Guzman vs. Court of Appeals, this
Court sustained the order of the respondent judge denying the
petitioners' motion for execution on the ground that the private
respondent had substantially complied with the terms and
conditions of the compromise agreement, and directing the
petitioners to immediately execute the necessary documents
transferring to the private respondent the title to the properties
(July 23, 1985, 137 SCRA 730). In the case at bar, there was
also substantial compliance with the compromise agreement.
Petitioner invokes the ruling of the Court in its Resolution of
November 16, 1978 in the case of Luzon Brokerage Co., Inc. vs.
Maritime Building Co., Inc., to the effect that Republic Act 6552
(the Maceda Law) "recognizes and reaffirms the vendor's right
to cancel the contract to sell upon breach and non-payment of
the stipulated installments but requires a grace period after at
least two years of regular installment payments ... . " (86 SCRA
305, 329)
On the other hand, private respondent also invokes said law as
an expression of public policy to protect buyers of real estate on
installments against onerous and oppressive conditions (Section
2 of Republic Act No. 6552).
Section 4 of Republic Act No. 6552 which took effect on
September 14, 1972 provides as follows:
In case where less than two years of installments were paid, the
seller shall give the buyer a grace period of not less than sixty
days from the date the installment became due. If the buyer fails
to pay the installments due at the expiration of the grace period,
the seller may cancel the contract after thirty days from receipt
by the buyer of the notice of the cancellation or the demand for
rescission of the contract by a notarial act.
Section 7 of said law provides as follows:
Any stipulation in any contract hereafter entered into contrary to
the provisions of Sections 3, 4, 5 and 6, shall be null and void.
The spirit of these provisions further supports the decision of the
appellate court. The record does not contain the complete text
of the compromise agreement dated December 20, 1979 and
the decision approving it. However, assuming that under the
terms of said agreement the December 31, 1980 installment
was due and payable when on October 15, 1980, petitioner
demanded payment of the balance of P69,059.71 on or before
October 31, 1980, petitioner could cancel the contract after thirty
days from receipt by private respondent of the notice of
cancellation. Considering petitioner's motion for execution filed
on November 7, 1980 as a notice of cancellation, petitioner
could cancel the contract of conditional sale after thirty days
from receipt by private respondent of said motion. Private
respondent's tender of payment of the amount of P76,059.71
together with his motion for reconsideration on November 17,
1980 was, therefore, well within the thirty-day period grants by
law..
The tender made by private respondent of a certified bank
manager's check payable to petitioner was a valid tender of
payment. The certified check covered not only the balance of
the purchase price in the amount of P69,059.71, but also the
arrears in the rental payments from June to December, 1980 in
the amount of P7,000.00, or a total of P76,059.71. On this point
the appellate court correctly applied the ruling in the case of
New Pacific Timber & Supply Co., Inc. vs. Seneris (101 SCRA
686, 692-694) to the case at bar.
Moreover, Section 49, Rule 130 of the Revised Rules of Court
provides that:
An offer in writing to pay a particular sum of money or to deliver
a written instrument or specific property is, if rejected, equivalent
to the actual production and tender of the money, instrument, or
property.
However, although private respondent had made a valid tender
of payment which preserved his rights as a vendee in the
contract of conditional sale of real property, he did not follow it
with a consignation or deposit of the sum due with the court. As
this Court has held:
The rule regarding payment of redemption prices is invoked.
True that consignation of the redemption price is not necessary
in order that the vendor may compel the vendee to allow the
repurchase within the time provided by law or by contract.
(Rosales vs. Reyes and Ordoveza, 25 Phil. 495.) We have held
that in such cases a mere tender of payment is enough, if made
on time, as a basis for action against the vendee to compel him
to resell. But that tender does not in itself relieve the vendor
from his obligation to pay the price when redemption is allowed
by the court. In other words, tender of payment is sufficient to
compel redemption but is not in itself a payment that relieves
the vendor from his liability to pay the redemption price. " (Paez
vs. Magno, 83 Phil. 403, 405)
On September 1, 1986, the Court issued the following resolution
Considering the allegation in petitioner's reply brief that the
Manager's Check tendered by private respondent on November
17, 1980 was subsequently cancelled and converted into cash,
the Court RESOLVED to REQUIRE the parties within ten (10)
days from notice to inform the Court whether or not the amount
thereof was deposited in court and whether or not private
respondent continued paying the monthly rental of P1,000.00
stipulated in the Compromise Agreement.
In compliance with this resolution, both parties submitted their
respective manifestations which confirm that the Manager's
Check in question was subsequently withdrawn and replaced by
cash, but the cash was not deposited with the court.
According to Article 1256 of the Civil Code of the Philippines, if
the creditor to whom tender of payment has been made refuses
without just cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing or sum due, and
that consignation alone shall produce the same effect in the five
cases enumerated therein; Article 1257 provides that in order
that the consignation of the thing (or sum) due may release the
obligor, it must first be announced to the persons interested in
the fulfillment of the obligation; and Article 1258 provides that
consignation shall be made by depositing the thing (or sum) due
at the disposal of the judicial authority and that the interested
parties shall also be notified thereof.
WHEREFORE, the decision of the Court of Appeals is
AFFIRMED with the following modifications:
(a) Petitioner is ordered to accept from private respondent the
Metrobank Cashier's Check No. CC 004233 in her favor in the
amount of P76,059.71 or another certified check of a reputable
bank drawn in her favor in the same amount;
(b) Private respondent is ordered to pay petitioner, within sixty
(60) days from the finality of this decision, the rentals in arrears
of P l,000.00 a month from January 1, 1981 until full payment
thereof; and
(c) Petitioner is ordered to execute a deed of absolute sale in
favor of private respondent over the real property in question
upon full payment of the amounts as provided in paragraphs (a)
and (b) above. No costs.
SO ORDERED.
Fernan, Alampay, Gutierrez, Jr. and Paras, JJ., concur.

As the Court held in the case of Soco vs. Militante, promulgated

on June 28, 1983, after examining the above-cited provisions of
the law and the jurisprudence on the matter:

Tender of payment must be distinguished from consignation.

Tender is the antecedent of consignation, that is, an act
preparatory to the consignation, which is the principal, and from
which are derived the immediate consequences which the
debtor desires or seeks to obtain. Tender of payment may be
extrajudicial, while consignation is necessarily judicial, and the
priority of the first is the attempt to make a private settlement
before proceeding to the solemnities of consignation. (8
Manresa 325). (123 SCRA 160,173)

In the above-cited case of De Guzman vs. Court of

Appeals (137 SCRA 730), the vendee was released from
responsibility because he had deposited with the court the
balance of the purchase price. Similarly, in the above-cited case
of New Pacific Timber & Supply Co., Inc. vs. Seneris (101
SCRA 686), the judgment debtor was released from
responsibility by depositing with the court the amount of the
judgment obligation.

In the case at bar, although as above stated private respondent

had preserved his rights as a vendee in the contract of
conditional sale of real property by a timely valid tender of
payment of the balance of his obligation which was not
accepted by petitioner, he remains liable for the payment of his
obligation because of his failure to deposit the amount due with
the court.

In his manifestation dated September 19, 1986, private

respondent states that on September 16, 1980, he purchased a
Metrobank Cashier's Check No. CC 004233 in favor of petitioner
Luisa F. McLaughlin in the amount of P76,059.71, a photocopy
of which was enclosed and marked as Annex "A- 1;" but that he
did not continue paying the monthly rental of Pl,000.00 because,
pursuant to the decision of the appellate court, petitioner herein
was ordered to accept the aforesaid amount in full payment of
herein respondent's obligation under the contract subject matter
thereof.

However, inasmuch as petitioner did not accept the aforesaid

amount, it was incumbent on private respondent to deposit the
same with the court in order to be released from responsibility.
Since private respondent did not deposit said amount with the
court, his obligation was not paid and he is liable in addition for
the payment of the monthly rental of Pl,000.00 from January 1,
1981 until said obligation is duly paid, in accordance with
paragraph 3 of the Compromise Agreement. Upon full payment
of the amount of P76,059.71 and the rentals in arrears, private
respondent shall be entitled to a deed of absolute sale in his
favor of the real property in question.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-58961 June 28, 1983
SOLEDAD SOCO, petitioner,
vs.
HON. FRANCIS MILITANTE, Incumbent Presiding Judge of
the Court of First Instance of Cebu, Branch XII, Cebu City
and REGINO FRANCISCO, JR., respondents.
Chua & Associates Law Office (collaborating counsel) and
Andales, Andales & Associates Law Office for petitioner.
Francis M. Zosa for private respondent.
GUERRERO, J.:
The decision subject of the present petition for review holds the
view that there was substantial compliance with the requisites of
consignation and so ruled in favor of private respondent, Regino
Francisco, Jr., lessee of the building owned by petitioner lessor,
Soledad Soco in the case for illegal detainer originally filed in
the City Court of Cebu City, declaring the payments of the
rentals valid and effective, dismissed the complaint and ordered
the lessor to pay the lessee moral and exemplary damages in
the amount of P10,000.00 and the further sum of P3,000.00 as
attorney's fees.
We do not agree with the questioned decision. We hold that the
essential requisites of a valid consignation must be complied
with fully and strictly in accordance with the law, Articles 1256 to
1261, New Civil Code. That these Articles must be accorded a
mandatory construction is clearly evident and plain from the
very language of the codal provisions themselves which require
absolute compliance with the essential requisites therein
provided. Substantial compliance is not enough for that would
render only a directory construction to the law. The use of the
words "shall" and "must" which are imperative, operating to
impose a duty which may be enforced, positively indicate that all
the essential requisites of a valid consignation must be complied
with. The Civil Code Articles expressly and explicitly direct what
must be essentially done in order that consignation shall be
valid and effectual. Thus, the law provides:
1257. In order that the consignation of the thing due may
release the obligor, it must first be announced to the persons
interested in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly in
consonance with the provisions which regulate payment.
Art. 1258. Consignation shall be made by depositing the things
due at the disposal of judicial authority, before whom the tender
of payment shall be proved, in a proper case, and the
announcement of the consignation in other cases.
The consignation having been made, the interested parties shall
also be notified thereof.
Art. 1249. The payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver such
currency, then in the currency which is legal tender in the
Philippines.
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation
shall be held in abeyance.
We have a long line of established precedents and doctrines
that sustain the mandatory nature of the above provisions. The
decision appealed from must, therefore, be reversed.
The antecedent facts are substantially recited in the decision
under review, as follows:
It appears from the evidence that the plaintiff-appellee-Soco, for
short-and the 'defendant-appellant-Francisco, for brevity-
entered into a contract of lease on January 17, 1973, whereby
Soco leased her commercial building and lot situated at Manalili
Street, Cebu City, to Francisco for a monthly rental of P 800.00
for a period of 10 years renewable for another 10 years at the
option of the lessee. The terms of the contract are embodied in
the Contract of Lease (Exhibit "A" for Soco and Exhibit "2" for
Francisco). It can readily be discerned from Exhibit "A" that
paragraphs 10 and 11 appear to have been cancelled while in
Exhibit "2" only paragraph 10 has been cancelled. Claiming that
paragraph 11 of the Contract of Lease was in fact not part of the
contract because it was cancelled, Soco filed Civil Case No. R-
16261 in the Court of First Instance of Cebu seeking the
annulment and/or reformation of the Contract of Lease. ...
Sometime before the filing of Civil Case No. R-16261 Francisco
noticed that Soco did not anymore send her collector for the
payment of rentals and at times there were payments made but
no receipts were issued. This situation prompted Francisco to
write Soco the letter dated February 7, 1975 (Exhibit "3") which
the latter received as shown in Exhibit "3-A". After writing this
letter, Francisco sent his payment for rentals by checks issued
by the Commercial Bank and Trust Company. Obviously, these
payments in checks were received because Soco admitted that
prior to May, 1977, defendant had been religiously paying the
rental. ....
1. The factual background setting of this case clearly indicates
that soon after Soco learned that Francisco sub-leased a portion
of the building to NACIDA, at a monthly rental of more than
P3,000.00 which is definitely very much higher than what
Francisco was paying to Soco under the Contract of Lease, the
latter felt that she was on the losing end of the lease agreement
so she tried to look for ways and means to terminate the
contract. ...
In view of this alleged non-payment of rental of the leased
premises beginning May, 1977, Soco through her lawyer sent a
letter dated November 23, 1978 (Exhibit "B") to Francisco
serving notice to the latter 'to vacate the premises leased.' In
answer to this letter, Francisco through his lawyer informed
Soco and her lawyer that all payments of rental due her were in
fact paid by Commercial Bank and Trust Company through the
Clerk of Court of the City Court of Cebu (Exhibit " 1 "). Despite
this explanation, Soco filed this instant case of Illegal Detainer
on January 8, 1979. ...
2. Pursuant to his letter dated February 7, 1975(Exhibit"3") and
for reasons stated therein, Francisco paid his monthly rentals to
Soco by issuing checks of the Commercial Bank and Trust
Company where he had a checking account. On May 13, 1975,
Francisco wrote the Vice-President of Comtrust, Cebu Branch
(Exhibit "4") requesting the latter to issue checks to Soco in the
amount of P 840.00 every 10th of the month, obviously for
payment of his monthly rentals. This request of Francisco was
complied with by Comtrust in its letter dated June 4, 1975
(Exhibit "5"). Obviously, these payments by checks through
Comtrust were received by Soco from June, 1975 to April, 1977
because Soco admitted that an rentals due her were paid
except the rentals beginning May, 1977. While Soco alleged in
her direct examination that 'since May, 1977 he (meaning
Francisco) stopped paying the monthly rentals' (TSN, Palicte, p.
6, Hearing of October 24, 1979), yet on cross examination she
admitted that before the filing of her complaint in the instant
case, she knew that payments for monthly rentals were
deposited with the Clerk of Court except rentals for the months
of May, June, July and August, 1977. ...
Pressing her point, Soco alleged that 'we personally demanded
from Engr. Francisco for the months of May, June, July and
August, but Engr. Francisco did not pay for the reason that he
had no funds available at that time.' (TSN-Palicte, p. 28, Hearing
October 24, 1979). This allegation of Soco is denied by
Francisco because per his instructions, the Commercial Bank
and Trust Company, Cebu Branch, in fact, issued checks in
favor of Soco representing payments for monthly rentals for the
months of May, June, July and August, 1977 as shown in Debit
Memorandum issued by Comtrust as follows:
(a) Exhibit "6"-Debit Memo dated May 11, 1977 for P926.10 as
payment for May, 1977;
(b) Exhibit"7"-Debit Memo dated June l5, 197 7for P926.10 as
payment for June, 1977;
(c) Exhibit "8"-Debit Memo dated July 11, 1977 for P1926.10 as
payment for July, 1977;
(d) Exhibit "9"-Debit Memo dated August 10, 1977 for P926. 10
as payment for August, 1977.
These payments are further bolstered by the certification issued
by Comtrust dated October 29, 1979 (Exhibit "13"). Indeed the
Court is convinced that payments for rentals for the months of
May, June, July and August, 1977 were made by Francisco to
Soco thru Comtrust and deposited with the Clerk of Court of the
City Court of Cebu. There is no need to determine whether
payments by consignation were made from September, 1977 up
to the filing of the complaint in January, 1979 because as earlier
stated Soco admitted that the rentals for these months were
deposited with the Clerk of Court. ...
Taking into account the factual background setting of this case,
the Court holds that there was in fact a tender of payment of the
rentals made by Francisco to Soco through Comtrust and since
these payments were not accepted by Soco evidently because
of her intention to evict Francisco, by all means, culminating in
the filing of Civil Case R-16261, Francisco was impelled to
deposit the rentals with the Clerk of Court of the City Court of
Cebu. Soco was notified of this deposit by virtue of the letter of
Atty. Pampio Abarientos dated June 9, 1977 (Exhibit "10") and
the letter of Atty. Pampio Abarientos dated July 6. 1977 (Exhibit
" 12") as well as in the answer of Francisco in Civil Case R-
16261 (Exhibit "14") particularly paragraph 7 of the Special and
Affirmative Defenses. She was further notified of these
payments by consignation in the letter of Atty. Menchavez dated
November 28, 1978 (Exhibit " 1 "). There was therefore
substantial compliance of the requisites of consignation, hence
his payments were valid and effective. Consequently, Francisco
cannot be ejected from the leased premises for non-payment of
rentals. ...
As indicated earlier, the above decision of the Court of First
Instance reversed the judgment of the City Court of Cebu,
Branch 11, the dispositive portion of the latter reading as
follows:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff, ordering the defendant, Regino Francisco, Jr.:
(1) To vacate immediately the premises in question, consisting
of a building located at Manalili St., Cebu City;
(2) To pay to the plaintiff the sum of P40,490.46 for the rentals,
covering the period from May, 1977 to August, 1980, and
starting with the month of September, 1980, to pay to the
plaintiff for one (1) year a monthly rental of P l,072.076 and an
additional amount of 5 per cent of said amount, and for so much
amount every month thereafter equivalent to the rental of the
month of every preceding year plus 5 percent of same monthly
rental until the defendant shall finally vacate said premises and
possession thereof wholly restored to the plaintiff-all plus legal
interest from date of filing of the complaint;
(3) To pay to the plaintiff the sum of P9,000.00 for attorney's
fee;
(4) To pay to the plaintiff the sum of P5,000.00 for damages and
incidental litigation expenses; and
(5) To pay the Costs.
SOORDERED.
Cebu City, Philippines, November 21, 1980.
According to the findings of fact made by the City Court, the
defendant Francisco had religiously paid to the plaintiff Soco the
corresponding rentals according to the terms of the Least
Contract while enjoying the leased premises until one day the
plaintiff had to demand upon the defendant for the payment of
the rentals for the month of May, 1977 and of the succeeding
months. The plaintiff also demanded upon the defendant to
vacate the premises and from that time he failed or refused to
vacate his possession thereof; that beginning with the month of
May, 1977 until at present, the defendant has not made valid
payments of rentals to the plaintiff who, as a consequence, has
not received any rental payment from the defendant or anybody
else; that for the months of May to August, 1977, evidence
shows that the plaintiff through her daughter, Teolita Soco and
salesgirl, Vilma Arong, went to the office or residence of
defendant at Sanciangko St., Cebu City, on various occasions
to effect payment of rentals but were unable to collect on
account of the defendant's refusal to pay; that defendant
contended that payments of rental thru checks for said four
months were made to the plaintiff but the latter refused to
accept them; that in 1975, defendant authorized the Commercial
Bank and Trust Company to issue checks to the plaintiff
chargeable against his bank account, for the payment of said
rentals, and the delivery of said checks was coursed by the
bank thru the messengerial services of the FAR Corporation,
but the plaintiff refused to accept them and because of such
refusal, defendant instructed said bank to make consignation
with the Clerk of Court of the City Court of Cebu as regard said
rentals for May to August, 1977 and for subsequent months.
The City Court further found that there is no showing that the
letter allegedly delivered to the plaintiff in May, 1977 by
Filomeno Soon, messenger of the FAR Corporation contained
cash money, check, money order, or any other form of note of
value, hence there could never be any tender of payment, and
even granting that there was, but plaintiff refused to accept it
without any reason, still no consignation for May, 1977 rental
could be considered in favor of the defendant unless evidence is
presented to establish that he actually made rental deposit with
the court in cash money and prior and subsequent to such
deposit, he notified the plaintiff thereof.
Notwithstanding the contradictory findings of fact and the
resulting opposite conclusions of law by the City Court and the
Court of First Instance, both are agreed, however, that the case
presents the issue of whether the lessee failed to pay the
monthly rentals beginning May, 1977 up to the time the
complaint for eviction was filed on January 8, 1979. This issue
in turn revolves on whether the consignation of the rentals was
valid or not to discharge effectively the lessee's obligation to pay
the same. The City Court ruled that the consignation was not
valid. The Court of First Instance, on the other hand, held that
there was substantial compliance with the requisites of the law
on consignation.
Let us examine the law and consider Our jurisprudence on the
matter, aside from the codal provisions already cited herein.
According to Article 1256, New Civil Code, if the creditor to
whom tender of payment has been made refuses without just
cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the
following cases: (1) When the creditor is absent or unknown, or
does not appear at the place of payment; (2) When he is
incapacitated to receive the payment at the time it is due; (3)
When, without just cause, he refuses to give a receipt; (4) When
two or more persons claim the same right to collect; (5) When
the title of the obligation has been lost.
Consignation is the act of depositing the thing due with the court
or judicial authorities whenever the creditor cannot accept or
refuses to accept payment and it generally requires a prior
tender of payment. (Limkako vs. Teodoro, 74 Phil. 313).
In order that consignation may be effective, the debtor must first
comply with certain requirements prescribed by law. The debtor
must show (1) that there was a debt due; (2) that the
consignation of the obligation had been made because the
creditor to whom tender of payment was made refused to
accept it, or because he was absent or incapacitated, or
because several persons claimed to be entitled to receive the
amount due (Art. 1176, Civil Code); (3) that previous notice of
the consignation had been given to the person interested in the
performance of the obligation (Art. 1177, Civil Code); (4) that the
amount due was placed at the disposal of the court (Art. 1178,
Civil Code); and (5) that after the consignation had been made
the person interested was notified thereof (Art. 1178, Civil
Code). Failure in any of these requirements is enough ground to
render a consignation ineffective. (Jose Ponce de Leon vs.
Santiago Syjuco, Inc., 90 Phil. 311).
Without the notice first announced to the persons interested in
the fulfillment of the obligation, the consignation as a payment is
void. (Limkako vs. Teodoro, 74 Phil. 313),
In order to be valid, the tender of payment must be made in
lawful currency. While payment in check by the debtor may be
acceptable as valid, if no prompt objection to said payment is
made (Desbarats vs. Vda. de Mortera, L-4915, May 25, 1956)
the fact that in previous years payment in check was accepted
does not place its creditor in estoppel from requiring the debtor
to pay his obligation in cash (Sy vs. Eufemio, L-10572, Sept. 30,
1958). Thus, the tender of a check to pay for an obligation is not
a valid tender of payment thereof (Desbarats vs. Vda. de
Mortera, supra). See Annotation, The Mechanics of
Consignation by Atty. S. Tabios, 104 SCRA 174-179.
Tender of payment must be distinguished from consignation.
Tender is the antecedent of consignation, that is, an act
preparatory to the consignation, which is the principal, and from
which are derived the immediate consequences which the
debtor desires or seeks to obtain. Tender of payment may be
extrajudicial, while consignation is necessarily judicial, and the
priority of the first is the attempt to make a private settlement
before proceeding to the solemnities of consignation. (8
Manresa 325).
Reviewing carefully the evidence presented by respondent
lessee at the trial of the case to prove his compliance with all
the requirements of a valid tender of payment and consignation
and from which the respondent Judge based his conclusion that
there was substantial compliance with the law on consignation,
We note from the assailed decision hereinbefore quoted that
these evidences are: Exhibit 10, the letter of Atty. Pampio
Abarintos dated June 9, 1977: Exhibit 12, letter of Atty. Pampio
Abarintos dated July 6, 1977; Exhibit 14, the Answer of
respondent Francisco in Civil Case R- 16261, particularly
paragraph 7 of the Special and Affirmative Defenses; and
Exhibit 1, letter of Atty. Eric Menchavez dated November 28,
1978. All these evidences, according to respondent Judge,
proved that petitioner lessor was notified of the deposit of the
monthly rentals.
We have analyzed and scrutinized closely the above exhibits
and We find that the respondent Judge's conclusion is
manifestly wrong and based on misapprehension of facts. Thus-
(1) Exhibit 10 reads: (see p. 17, Records)
Miss Soledad Soco
Soledad Soco Retazo
P. Gullas St., Cebu City
Dear Miss Soco:
This is in connection with the payment of rental of my client,
Engr. Regino Francisco, Jr., of your building situated at Manalili
St., Cebu City.
It appears that twice you refused acceptance of the said
payment made by my client.
It appears further that my client had called your office several
times and left a message for you to get this payment of rental
but until the present you have not sent somebody to get it.
In this connection, therefore, in behalf of my client, you are
hereby requested to please get and claim the rental payment
aforestated from the Office of my client at Tagalog Hotel and
Restaurant, Sanciangko St., Cebu City. within three (3) days
from receipt hereof otherwise we would be constrained to make
a consignation of the same with the Court in accordance with
law.
Hoping for your cooperation on this matter, we remain.
We may agree that the above exhibit proves tender of payment
of the particular monthly rental referred to (the letter does not,
however, indicate for what month and also the intention to
deposit the rental with the court, which is the first notice. But
certainly, it is no proof of tender of payment of other or
subsequent monthly rentals. Neither is it proof that notice of the
actual deposit or consignation was given to the lessor, which is
the second notice required by law.
(2) Exhibit 12 (see p. 237, Records) states:
Miss Soledad Soco
Soledad Soco Reta
P. Gullas St., Cebu City
Dear Miss Soco:
This is to advise and inform you that my client, Engr. Regino
Francisco, Jr., has consigned to you, through the Clerk of Court,
City Court of Cebu, Cebu City, the total amount of Pl,852.20, as
evidenced by cashier's checks No. 478439 and 47907 issued by
the Commercial Bank and Trust Company (CBTC) Cebu City
Branch, dated May 11, 1977 and June 15, 1977 respectively
and payable to your order, under Official Receipt No. 0436936
dated July 6,1977.
This amount represents payment of the rental of your building
situated at Manalili St., Cebu City which my client, Engr. Regino
Francisco, Jr., is renting. You can withdraw the said amount
from the Clerk of Court, City Court of Cebu, Cebu City at any
time.
Please be further notified that all subsequent monthly rentals
will be deposited to the Clerk of Court, City Court of Cebu, Cebu
City.
The above evidence is, of course, proof of notice to the lessor of
the deposit or consignation of only the two payments by
cashier's checks indicated therein. But surely, it does not prove
any other deposit nor the notice thereof to the lessor. It is not
even proof of the tender of payment that would have preceded
the consignation.
(3) Exhibit 14, paragraph 7 of the Answer (see p. 246, Records)
alleges:
7. That ever since, defendant had been religiously paying his
rentals without any delay which, however, the plaintiff had in so
many occasions refused to accept obviously in the hope that
she may declare non-payment of rentals and claim it as a
ground for the cancellation of the contract of lease. This, after
seeing the improvements in the area which were effected, at no
small expense by the defendant. To preserve defendant's rights
and to show good faith in up to date payment of rentals,
defendant had authorized his bank to issue regularly cashier's
check in favor of the plaintiff as payment of rentals which the
plaintiff had been accepting during the past years and even for
the months of January up to May of this year, 1977 way past
plaintiff's claim of lease expiration. For the months of June and
July, however, plaintiff again started refusing to accept the
payments in going back to her previous strategy which forced
the defendant to consign his monthly rental with the City Clerk
of Court and which is now the present state of affairs in so far as
payment of rentals is concerned. These events only goes to
show that the wily plaintiff had thought of this mischievous
scheme only very recently and filed herein malicious and
unfounded complaint.
The above exhibit which is lifted from Civil Case No. R-16261
between the parties for annulment of the lease contract, is self-
serving. The statements therein are mere allegations of
conclusions which are not evidentiary.
(4) Exhibit 1 (see p. 15, Records) is quoted thus:
Atty. Luis V. Diores
Suite 504, SSS Bldg.
Jones Avenue, Cebu City
Dear Compaero:
Your letter dated November 23, 1978 which was addressed to
my client, Engr. Regino Francisco, Jr. has been referred to me
for reply.
It is not true that my client has not paid the rentals as claimed in
your letter. As a matter of fact, he has been religiously paying
the rentals in advance. Payment was made by Commercial
Bank and Trust Company to the Clerk of Court, Cebu City.
Attached herewith is the receipt of payment made by him for the
month of November, 1978 which is dated November 16, 1978.
You can check this up with the City Clerk of Court for
satisfaction.
Regards.)
Again, Exhibit 1 merely proves rental deposit for the particular
month of November, 1978 and no other. It is no proof of tender
of payment to the lessor, not even proof of notice to consign.
We hold that the best evidence of the rental deposits with the
Clerk of Court are the official receipts issued by the Clerk of
Court. These the respondent lessee utterly failed to present and
produce during the trial of the case. As pointed out in petitioner's
Memorandum, no single official receipt was presented in the
trial court as nowhere in the formal offer of exhibits for lessee
Francisco can a single official receipt of any deposit made be
found (pp. 8-9, Memorandum for Petitioner; pp. 163-164,
Records).
Summing up Our review of the above four (4) exhibits, We hold
that the respondent lessee has utterly failed to prove the
following requisites of a valid consignation: First, tender of
payment of the monthly rentals to the lessor except that
indicated in the June 9, l977 Letter, Exhibit 10. In the original
records of the case, We note that the certification, Exhibit 11 of
Filemon Soon, messenger of the FAR Corporation, certifying
that the letter of Soledad Soco sent last May 10 by Commercial
Bank and Trust Co. was marked RTS (return to sender) for the
reason that the addressee refused to receive it, was rejected by
the court for being immaterial, irrelevant and impertinent per its
Order dated November 20, 1980. (See p. 117, CFI Records).
Second, respondent lessee also failed to prove the first notice to
the lessor prior to consignation, except the payment referred to
in Exhibit 10.
In this connection, the purpose of the notice is in order to give
the creditor an opportunity to reconsider his unjustified refusal
and to accept payment thereby avoiding consignation and the
subsequent litigation. This previous notice is essential to the
validity of the consignation and its lack invalidates the same.
(Cabanos vs. Calo, 104 Phil. 1058; Limkako vs. Teodoro, 74
Phil. 313).
There is no factual basis for the lower court's finding that the
lessee had tendered payment of the monthly rentals, thru his
bank, citing the lessee's letter (Exh. 4) requesting the bank to
issue checks in favor of Soco in the amount of P840.00 every
10th of each month and to deduct the full amount and service
fee from his current account, as well as Exhibit 5, letter of the
Vice President agreeing with the request. But scrutinizing
carefully Exhibit 4, this is what the lessee also wrote: "Please
immediately notify us everytime you have the check ready so
we may send somebody over to get it. " And this is exactly what
the bank agreed: "Please be advised that we are in conformity
to the above arrangement with the understanding that you shall
send somebody over to pick up the cashier's check from us."
(Exhibit 4, see p. 230, Original Records; Exhibit 5, p. 231,
Original Records)
Evidently, from this arrangement, it was the lessee's duty to
send someone to get the cashier's check from the bank and
logically, the lessee has the obligation to make and tender the
check to the lessor. This the lessee failed to do, which is fatal to
his defense.
Third, respondent lessee likewise failed to prove the second
notice, that is after consignation has been made, to the lessor
except the consignation referred to in Exhibit 12 which are the
cashier's check Nos. 478439 and 47907 CBTC dated May 11,
1977 and June 15, 1977 under Official Receipt No. 04369 dated
July 6, 1977.
Respondent lessee, attempting to prove compliance with the
requisites of valid consignation, presented the representative of
the Commercial Bank and Trust Co., Edgar Ocaada, Bank
Comptroller, who unfortunately belied respondent's claim. We
quote below excerpts from his testimony, as follows:
ATTY. LUIS DIORES:
Q What month did you say you made ,you started making the deposit? When
you first deposited the check to the Clerk of Court?
A The payment of cashier's check in favor of Miss Soledad Soco was coursed
thru the City Clerk of Court from the letter of request by our client Regino
Francisco, Jr., dated September 8, 1977. From that time on, based on his
request, we delivered the check direct to the City Clerk of Court.
Q What date, what month was that, you first delivered the check to the Clerk
of Court.?
A We started September 12, 1977.
Q September 1977 up to the present time, you delivered the cashier's check to
the City Clerk of Court?
A Yes.
Q You were issued the receipts of those checks?
A Well, we have an acknowledgment letter to be signed by the one who
received the check.
Q You mean you were issued, or you were not issued any official receipt? My
question is whether you were issued any official receipt? So, were you issued,
or you were not issued?
A We were not issued.
Q On September, 1977, after you deposited the manager's check for that
month with the Clerk of Court, did you serve notice upon Soledad Soco that
the deposit was made on such amount for the month of September, 1977 and
now to the Clerk of Court? Did you or did you not?
A Well, we only act on something upon the request of our client.
Q Please answer my question. I know that you are acting upon instruction of
your client. My question was-after you made the deposit of the manager's
check whether or not you notified Soledad Soco that such manager's check
was deposited in the Clerk of Court from the month of September, 1977?
A We are not bound to.
Q I am not asking whether you are bound to or not. I'masking whether you did
or you did not?
A I did not.
Q Alright, for October, 1977, after having made a deposit for that particular
month, did you notify Miss Soledad Soco that the deposit was in the Clerk of
Court?
A No, we did not.
Q Now, on November, 1977, did you notify Soledad Soco that you deposited
the manager's check to the City Clerk of Court for that month?
A I did not.
Q You did not also notify Soledad Soco for the month December, 1977, so also
from January, February, March, April, May, June, July until December, 1978,
you did not also notify Miss Soledad Soco all the deposits of the manager's
check which you said you deposited with the Clerk of Court in every end of the
month? So also from each and every month from January 1979 up to
December 1979, you did not also serve notice upon Soledad Socco of the
deposit in the Clerk of Court, is that correct?
A Yes.
Q So also in January 1980 up to this month 1980, you did not instructed by
your client Mr. and Mrs. Regino Francisco, jr. to make also serve notice upon
Soledad Soco of the Manager's check which you said you deposited to the
Clerk of Court?
A I did not.
Q Now, you did not make such notices because you were not such notices
after the deposits you made, is that correct?
A Yes, sir.
Q Now, from 1977, September up to the present time, before the deposit was
made with the Clerk of Court, did you serve notice to Soledad Soco that a
deposit was going to be made in each and every month?
A Not.
Q In other words, from September 1977 up to the present time, you did not
notify Soledad Soco that you were going to make the deposit with the Clerk of
Court, and you did not also notify Soledad Soco after the deposit was made,
that a deposit has been made in each and every month during that period, is
that correct?
A Yes
Q And the reason was because you were not instructed by Mr. and Mrs.
Regino Francisco, Jr. that such notification should be made before the deposit
and after the deposit was made, is that correct?
A No, I did not. (Testimony of Ocanada pp. 32-41, Hearing on June 3, 1980).
Recapitulating the above testimony of the Bank Comptroller, it is
clear that the bank did not send notice to Soco that the checks
will be deposited in consignation with the Clerk of Court (the first
notice) and also, the bank did not send notice to Soco that the
checks were in fact deposited (the second notice) because no
instructions were given by its depositor, the lessee, to this
effect, and this lack of notices started from September, 1977 to
the time of the trial, that is June 3, 1980.
The reason for the notification to the persons interested in the
fulfillment of the obligation after consignation had been made,
which is separate and distinct from the notification which is
made prior to the consignation, is stated in Cabanos vs. Calo,
G.R. No. L-10927, October 30, 1958, 104 Phil. 1058. thus:
"There should be notice to the creditor prior and after
consignation as required by the Civil Code. The reason for this
is obvious, namely, to enable the creditor to withdraw the goods
or money deposited. Indeed, it would be unjust to make him
suffer the risk for any deterioration, depreciation or loss of such
goods or money by reason of lack of knowledge of the
consignation."
And the fourth requisite that respondent lessee failed to prove is
the actual deposit or consignation of the monthly rentals except
the two cashier's checks referred to in Exhibit 12. As indicated
earlier, not a single copy of the official receipts issued by the
Clerk of Court was presented at the trial of the case to prove the
actual deposit or consignation. We find, however, reference to
some 45 copies of official receipts issued by the Clerk of Court
marked Annexes "B-1 " to "B-40" to the Motion for
Reconsideration of the Order granting execution pending appeal
filed by defendant Francisco in the City Court of Cebu (pp, 150-
194, CFI Original Records) as well as in the Motion for
Reconsideration of the CFI decision, filed by plaintiff lessor (pp.
39-50, Records, marked Annex "E ") the allegation that "there
was no receipt at all showing that defendant Francisco has
deposited with the Clerk of Court the monthly rentals
corresponding to the months of May and June, 1977. And for
the months of July and August, 1977, the rentals were only
deposited with the Clerk of Court on 20 November 1979 (or
more than two years later)."... The deposits of these monthly
rentals for July and August, 1977 on 20 November 1979, is very
significant because on 24 October 1979, plaintiff Soco had
testified before the trial court that defendant had not paid the
monthly rentals for these months. Thus, defendant had to make
a hurried deposit on the following month to repair his failure. "
(pp. 43-44, Records).
We have verified the truth of the above claim or allegation and We find
that indeed, under Official Receipt No. 1697161Z, the rental deposit for
August, 1977 in cashier's check No. 502782 dated 8-10-77 was
deposited on November 20, 1979 (Annex "B-15", p. 169, Original CFI
Records) and under Official Receipt No. 1697159Z, the rental deposit
for July under Check No. 479647 was deposited on November 20, 1979
(Annex "B-16", p. 170, Original CFI Records). Indeed, these two rental
deposits were made on November 20, 1979, two years late and after the
filing of the complaint for illegal detainer.
The decision under review cites Exhibits 6, 7, 8 and 9, the Debit
Memorandum issued by Comtrust Bank deducting the amounts of the
checks therein indicated from the account of the lessee, to prove
payment of the monthly rentals. But these Debit Memorandums are
merely internal banking practices or office procedures involving the bank
and its depositor which is not binding upon a third person such as the
lessor. What is important is whether the checks were picked up by the
lessee as per the arrangement indicated in Exhibits 4 and 5 wherein the
lessee had to pick up the checks issued by CBTC or to send somebody
to pick them up, and logically, for the lessee to tender the same to the
lessor. On this vital point, the lessee miserably failed to present any
proof that he complied with the arrangement.
We, therefore, find and rule that the lessee has failed to prove tender of
payment except that in Exh. 10; he has failed to prove the first notice to
the lessor prior to consignation except that given in Exh. 10; he has
failed to prove the second notice after consignation except the two
made in Exh. 12; and he has failed to pay the rentals for the months of
July and August, 1977 as of the time the complaint was filed for the
eviction of the lessee. We hold that the evidence is clear, competent
and convincing showing that the lessee has violated the terms of the
lease contract and he may, therefore, be judicially ejected.
The other matters raised in the appeal are of no moment. The motion to
dismiss filed by respondent on the ground of "want of specific
assignment of errors in the appellant's brief, or of page references to the
records as required in Section 16(d) of Rule 46," is without merit. The
petition itself has attached the decision sought to be reviewed. Both
Petition and Memorandum of the petitioner contain the summary
statement of facts; they discuss the essential requisites of a valid
consignation; the erroneous conclusion of the respondent Judge in
reversing the decision of the City Court, his grave abuse of discretion
which, the petitioner argues, "has so far departed from the accepted and
usual course of judicial proceeding in the matter of applying the law and
jurisprudence on the matter." The Memorandum further cites other basis
for petitioner's plea.
In Our mind, the errors in the appealed decision are sufficiently stated
and assigned. Moreover, under Our rulings, We have stated that:
This Court is clothed with ample authority to review matters, even if they
are not assigned as errors in the appeal, if it finds that their
consideration is necessary in arriving at a just decision of the case.
Also, an unassigned error closely related to an error properly assigned
or upon which the determination of the questioned raised by the error
properly assigned is dependent, will be considered by the appellate
court notwithstanding the failure to assign it as an error." (Ortigas, Jr. vs.
Lufthansa German Airlines, L-28773, June 30, 1975, 64 SCRA 610)
Under Section 5 of Rule 53, the appellate court is authorized to consider
a plain error, although it was not specifically assigned by appellants."
(Dilag vs. Heirs of Resurreccion, 76 Phil. 649)
Appellants need not make specific assignment of errors provided they
discuss at length and assail in their brief the correctness of the trial
court's findings regarding the matter. Said discussion warrants the
appellate court to rule upon the point because it substantially complies
with Section 7, Rule 51 of the Revised Rules of Court, intended merely
to compel the appellant to specify the questions which he wants to raise
and be disposed of in his appeal. A clear discussion regarding an error
allegedly committed by the trial court accomplishes the purpose of a
particular assignment of error." (Cabrera vs. Belen, 95 Phil. 54; Miguel
vs Court of Appeals, L- 20274, Oct. 30, 1969, 29 SCRA 760-773, cited
in Moran, Comments on the Rules of Court, Vol. 11, 1970 ed., p. 534).
Pleadings as well as remedial laws should be construed liberally in
order that the litigants may have ample opportunity to prove their
respective claims, and that a possible denial of substantial justice, due
to legal technicalities, may be avoided." (Concepcion, et al. vs. The
Payatas Estate Improvement Co., Inc., 103 Phil. 10 17).
WHEREFORE, IN VIEW OF ALL THE FOREGOING, the decision of the
Court of First Instance of Cebu, 14th Judicial District, Branch XII is
hereby REVERSED and SET ASIDE, and the derision of the City Court
of Cebu, Branch II is hereby reinstated, with costs in favor of the
petitioner.
SO ORDERED.
Makasiar (Chairman), Concepcion, Jr., Abad Santos, and De Castro,
JJ., concur.
Aquino and Escolin JJ., concurs in the result,
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-23563 May 8, 1969
CRISTINA SOTTO, plaintiff-appellee,
vs.
HERNANI MIJARES, ET AL., defendants-appellants.
Arboleda and Arboleda for plaintiff-appellee.
Eugenio T. Sanicas for defendants-appellants.
MAKALINTAL, J.:
This is an appeal taken by herein defendants from that portion
of the order of the Court of First Instance of Negros Occidental
dated March 20, 1963 in its Civil Case No. 6796 which requires
them to deposit with the Clerk of Court the amount of P5,106.00
within ten (10) days from receipt of said order. Originally
appealed to the Court of Appeals, this case was subsequently
certified to this Court, the only issue being one of law.
In the aforesaid Civil case 1 plaintiff filed a "Motion for Deposit"
on November 13, 1962, the pertinent portions of which read:
2. That in accordance with the contract including the allied
transactions as evidenced by other documents, the balance
indebtedness of the defendants in favor of the plaintiff is the
amount of P5,106.00 only, Philippine Currency ...;
3. That according to the answer of the defendants, the said
claim of P5,106.00 is admitted ..., with the defendants further
alleging that they have offered the said amount to the plaintiff
who refused to receive the said amount;
4. That in view of the admission of the defendants of the same
and in order to limit the other controversial issue ... it is fitting
and proper that the said amount of P5,106.00 be deposited in
the Office of the Clerk of Court of this province or to deliver the
same to the plaintiff and/or her counsel.
Defendants, in their "Opposition" dated November 23, 1962,
signified their willingness to deposit the requested amount
provided that the complaint be dismissed and that they be
absolved of all other liabilities, expenses and costs.
On November 26, 1962 the lower court issued the following
order:
It appearing that the defendants have admitted the
claim of the plaintiff in the sum of P5,106.00, as prayed
for by the counsel for the plaintiff the said defendants
are hereby ordered to deposit said amount to the Clerk
of Court pending the final termination of this case.
On November 28, 1962 plaintiff this time represented by new
counsel filed a motion for partial judgment on the pleadings
with respect to the amount of P5,106.00, modifying their
previous request for judicial deposit, which had already been
granted. On the other hand, defendants moved to reconsider
the order of November 26, explaining that through oversight
they failed to allege in their "Opposition" that the sum of
P5,106.00 was actually secured by a real estate mortgage.
They would thus premise their willingness to deposit said
amount upon the condition "... that the plaintiff will cancel the
mortgage abovementioned and that the plaintiff be ordered to
return to the defendants Transfer Certificate of Title No. 29326
covering Lot No. 327 of Pontevedra and Transfer Certificate of
Title No. 29327 covering Lot No. 882 of Hinigaran Cadastre,
Negros Occidental."
On March 20, 1963 the lower court resolved both motions, in
effect denying them and reiterating its previous order, as
follows:
WHEREFORE, the motion for partial judgment on the
pleadings dated November 28, 1962 is hereby denied
but in its stead the defendants are hereby ordered to
deposit with the Clerk of Court the amount of
P5,106.00 within ten (10) days from receipt of this
order subject to further disposition thereof in
accordance with the decision to be rendered after trial.
It is the foregoing order from which the present appeal has been
taken. Since this case was submitted upon the filing of the
briefs, there has been no showing as to the outcome of the main
case below for foreclosure of mortgage. The decision therein, if
one has been rendered, since no injunction was sought in or
granted by this Court, must have rendered this appeal moot and
academic, considering that the defendants admit their
indebtedness to the plaintiff but object merely to their being
compelled to deposit the amount thereof in court during the
pendency of the foreclosure case. However, no manifestation
having been received on the matter, we shall proceed to the
issues raised by the parties.lawphi1.et
The first of said issue is procedural, and has been set up by the
appellee as a roadblock to this appeal. She maintains that the
controverted order is interlocutory, since it does not dispose of
the case with finality but leaves something still to be done, and
hence is unappealable. The remedy, it is pointed out, should
have been by petition for certiorari. The point, strictly speaking,
is well taken; but this Court sees fit to disregard technicalities
and treat this appeal as such a petition and consider it on the
merits, limiting the issue, necessarily, to whether or not the court
below exceeded its jurisdiction or committed a grave abuse of
discretion in issuing the order complained of.
The defendants admit their indebtedness to the plaintiff, but only
in the sum of P5,106.00. It seems that the controversy refers to
the plaintiff's additional claim for interest, attorney's fees and
costs.
The defendants expressed their willingness to deposit the said
amount in court, subject to the condition that the mortgage they
had executed as security be cancelled. The question, then, is:
Did the court act with authority and in the judicious exercise of
its discretion in ordering the defendants to make the deposit but
without the condition they had stated? Whether or not to deposit
at all the amount of an admitted indebtedness, or to do so under
certain conditions, is a right which belongs to the debtor
exclusively. If he refuses he may not be compelled to do so, and
the creditor must fall back on the proper coercive processes
provided by law to secure or satisfy his credit, as by attachment,
judgment and execution. From the viewpoint of the debtor a
deposit such as the one involved here is in the nature of
consignation, and consignation is a facultative remedy which he
may or may not avail himself of. If made by the debtor, the
creditor merely accepts it, if he wishes; or the court declares
that it has been properly made, in either of which events the
obligation is ordered cancelled. Indeed, the law says that
"before the creditor has accepted the consignation or before a
judicial declaration that the consignation has been properly
made, the debtor may withdraw the thing or the sum deposited,
allowing the obligation to remain in force." 2 If the debtor has
such right of withdrawal, he surely has the right to refuse to
make the deposit in the first place. For the court to compel him
to do so was a grave abuse of discretion amounting to excess of
jurisdiction.
The order appealed from is set aside, without pronouncement
as to costs.
Reyes, J.B.L., Dizon, Zaldivar, Sanches, Fernando, Teehankee
and Barredo, JJ., concur.
Capistrano, J., took no part.
Concepcion, C.J., and Castro J., are on leave.
Footnotes
1Civil
Case No. 6796 is a proceeding to foreclose a real estate mortgage earlier
executed by defendants in favor of plaintiff in consideration of a P5,000.00
loan which the former had allegedly failed to pay.
2
Art. 1260, Civil Code.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 90359 June 9, 1992
JOHANNES RIESENBECK, petitioner,
vs.
THE HON. COURT OF APPEALS, and JUERGEN
MAILE, respondents.
GRIO-AQUINO, J.:
This is a petition for review on certiorari to annul the decision
dated April 21, 1989 of the Court of Appeals which dismissed for
lack of merit the petition for certiorari against two (2) orders of
Regional Trial Court Judge Teodoro K. Risos.
On July 25, 1988, petitioner Riesenbeck filed in the Regional
Trial Court of Cebu, Branch 27, a complaint for consignation
and damages against respondent Juergen Maile. On July 27,
1988, petitioner consigned and deposited with the Clerk of Court
of the Regional Trial Court of Cebu the sum of P113,750. The
private respondent subsequently filed a Manifestation Accepting
Consignation and Motion to Dismiss dated August 1, 1988,
wherein he stated, inter alia, that "without necessarily admitting
the correctness of obligation of plaintiff to defendant, the latter
hereby manifests to accept the said amount of P113,750 which
is consigned by plaintiff, provided that the present complaint be
dismissed outright with cost against plaintiff." (p. 14, CA Rollo.)
The petitioner opposed the manifestation, respondent Maile filed
an Answer with Special Defenses and Counterclaim. On August
23, 1988, petitioner filed his Answer to Counterclaim. Private
respondent filed a rejoinder/reply to the petitioner's opposition.
Thereafter, on September 28, 1988, respondent Judge issued
the first questioned order reading in part as follows:
After a thorough evaluation of the issues involved in the
manifestation and the opposition thereto, the Court is of the
opinion that there was a valid consignation, and defendant could
legally accept the payment by consignation with reservation to
prove damages and other claims as held by the Supreme Court
in the case of Sing Juco vs. Cuaycong, 46 Phil. 81.
WHEREFORE the Clerk of Court of this Court is hereby ordered
to deliver to defendant Juergen Maile the sum of P113,750.00
immediately, but the motion to dismiss is hereby in the
meantime DENIED. (p.31, CA, Rollo.)
On November 11. 1988, Judge Risos denied petitioner's motion
for reconsideration.
On November 18, 1988, petitioner filed a petition for certiorari in
the Court of Appeals to annul and set aside the two orders of
Judge Risos.
In a decision dated April 21, 1989, the Court of Appeals
dismissed the petition for certiorari.
Petitioner's motion for reconsideration was denied by the Court
of Appeals in a Resolution dated August 29, 1989.
In this petition for review, the petitioner raises the following
issue: What is the effect on the petitioner's obligation to the
private respondent of the latter's acceptance with reservation of
the amount consigned by the petitioner?
Private respondent's acceptance of the amount consigned by
the petitioner-debtor with a reservation or qualification as to the
correctness of the petitioner's obligation, is legally permissible.
There is authority for the view that before a consignation can be
judicially declared proper, the creditor may prevent the
withdrawal of the amount consigned by the debtor, by accepting
the consignation, even with reservations (Tolentino, Civil Code
of the Phil., Vol. IV, 1973 Ed., p. 317, citing 3 Llerena 263).
In ruling that there was a valid consignation and that the
respondent creditor could accept the same with a reservation of
his damages and other claims, the Court of Appeals relied on
the 1924 case of Sing Juco vs. Cuaycong, 46 Phil. 81. In that
case, the defendants consigned in court the amount which they
had received from the plaintiff as the price of sugar, the sale of
which did not materialize. The defendants were given the
alternative of delivering the sugar or returning the price per
stipulation in the contract. We ruled that plaintiff's acceptance of
the money consigned, unconditionally and without reservation,
was a waiver of his other claims under the contract.
A sensu contrario, when the creditor's acceptance of the money
consigned is conditional and with reservations, he is not
deemed to have waived the claims he reserved against his
debtor. Thus, when the amount consigned does not cover the
entire obligation, the creditor may accept it, reserving his right to
the balance (Tolentino, Civil Code of the Phil., Vol. IV, 1973 Ed.,
p. 317, citing 3 Llerena 263). The same factual milieu obtains
here because the respondent creditor accepted with reservation
the amount consigned in court by the petitioner-debtor.
Therefore, the creditor is not barred from raising his other
claims, as he did in his answer with special defenses and
counterclaim against the petitioner-debtor.
As respondent-creditor's acceptance of the amount consigned
was with reservations, it did not completely extinguish the entire
indebtedness of the petitioner-debtor. It is apposite to note here
that consignation is completed at the time the creditor accepts
the same without objections, or, if he objects, at the time the
court declares that it has been validly made in accordance with
law. (Tolentino, Civil Code of the Phil., Vol. IV, 1973 Ed., p.
315.)
Since the lower court in this case declared on September 28,
1988 that there was a valid consignation by the petitioner, the
latter cannot tenably argue that he is still the owner of the
amount consigned and that he can still withdraw it.
The consignation has retroactive effect. The payment is deemed
to have been made at the time of the deposit of the money in
court, or when it was placed at the disposal of the judicial
authority, supra. In this case, payment is considered made on
July 27, 1988 when petitioner consigned and deposited with the
respondent court the sum of P113,750.
WHEREFORE, the instant petition is hereby DISMISSED for
lack of merit.
SO ORDERED.
Cruz, Medialdea and Bellosillo, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-32116 April 2l, 1981
RURAL BANK OF CALOOCAN, INC. and JOSE O.
DESIDERIO, JR., petitioners,
vs.
THE COURT OF APPEALS and MAXIMA
CASTRO, respondents.
DE CASTRO, * J.:
This is a petition for review by way of certiorari of the
decision 1 of the Court of Appeals in CA-G.R. No. 39760-R
entitled "Maxima Castro, plaintiff-appellee, versus Severino
Valencia, et al., defendants; Rural Bank of Caloocan, Inc., Jose
Desiderio, Jr. and Arsenio Reyes, defendants-appellants," which
affirmed in toto the decision of the Court of First Instance of
Manila in favor of plaintiff- appellee, the herein private
respondent Maxima Castro.
On December 7, 1959, respondent Maxima Castro,
accompanied by Severino Valencia, went to the Rural Bank of
Caloocan to apply for an industrial loan. It was Severino
Valencia who arranged everything about the loan with the bank
and who supplied to the latter the personal data required for
Castro's loan application. On December 11, 1959, after the bank
approved the loan for the amount of P3,000.00, Castro,
accompanied by the Valencia spouses, signed a promissory
note corresponding to her loan in favor of the bank.
On the same day, December 11, 1959, the Valencia spouses
obtained from the bank an equal amount of loan for P3,000.00.
They signed a promissory note (Exhibit "2") corresponding to
their loan in favor of the bank and had Castro affixed thereon
her signature as co-maker.
The two loans were secured by a real-estate mortgage (Exhibit
"6") on Castro's house and lot of 150 square meters, covered by
Transfer Certificate of Title No. 7419 of the Office of the
Register of Deeds of Manila.
On February 13, 1961, the sheriff of Manila, thru Acting Chief
Deputy Sheriff Basilio Magsambol, sent a notice of sheriff's sale
addressed to Castro, announcing that her property covered by
T.C.T. No. 7419 would be sold at public auction on March 10,
1961 to satisfy the obligation covering the two promissory notes
plus interest and attorney's fees.
Upon request by Castro and the Valencias and with conformity
of the bank, the auction sale that was scheduled for March 10,
1961 was postponed for April 10, 1961. But when April 10, 1961
was subsequently declared a special holiday, the sheriff of
Manila sold the property covered by T.C.T. No. 7419 at a public
auction sale that was held on April 11, 1961, which was the next
succeeding business day following the special holiday.
Castro alleged that it was only when she received the letter from
the Acting Deputy Sheriff on February 13, 1961, when she
learned for the first time that the mortgage contract (Exhibit "6")
which was an encumbrance on her property was for P6.000.00
and not for P3,000.00 and that she was made to sign as co-
maker of the promissory note (Exhibit "2") without her being
informed of this.
On April 4, 1961, Castro filed a suit denominated "Re: Sum of
Money," against petitioners Bank and Desiderio, the Spouses
Valencia, Basilio Magsambol and Arsenio Reyes as defendants
in Civil Case No. 46698 before the Court of First Instance of
Manila upon the charge, amongst others, that thru mistake on
her part or fraud on the part of Valencias she was induced to
sign as co-maker of a promissory note (Exhibit "2") and to
constitute a mortgage on her house and lot to secure the
questioned note. At the time of filing her complaint, respondent
Castro deposited the amount of P3,383.00 with the court a
quo in full payment of her personal loan plus interest.
In her amended complaint, Castro prayed, amongst other, for
the annulment as far as she is concerned of the promissory note
(Exhibit "2") and mortgage (Exhibit "6") insofar as it exceeds
P3,000.00; for the discharge of her personal obligation with the
bank by reason of a deposit of P3,383.00 with the court a
quo upon the filing of her complaint; for the annulment of the
foreclosure sale of her property covered by T.C.T. No. 7419 in
favor of Arsenio Reyes; and for the award in her favor of
attorney's fees, damages and cost.
In their answers, petitioners interposed counterclaims and
prayed for the dismissal of said complaint, with damages,
attorney's fees and costs. 2
The pertinent facts arrived from the stipulation of facts entered
into by the parties as stated by respondent Court of Appeals are
as follows:
Spawning the present litigation are the facts contained in the
following stipulation of facts submitted by the parties themselves
1. That the capacity and addresses of all the parties in this case
are admitted .
2. That the plaintiff was the registered owner of a residential
house and lot located at Nos. 1268-1270 Carola Street,
Sampaloc, Manila, containing an area of one hundred fifty (150)
square meters, more or less, covered by T.C.T. No. 7419 of the
Office of the Register of Deeds of Manila;
3. That the signatures of the plaintiff appearing on the following
documents are genuine:
a) Application for Industrial Loan with the Rural Bank of
Caloocan, dated December 7, 1959 in the amount of P3,000.00
attached as Annex A of this partial stipulation of facts;
b) Promissory Note dated December 11, 1959 signed by the
plaintiff in favor of the Rural Bank of Caloocan for the amount of
P3,000.00 as per Annex B of this partial stipulation of facts;
c) Application for Industrial Loan with the Rural Bank of
Caloocan, dated December 11, 1959, signed only by the
defendants, Severino Valencia and Catalina Valencia, attached
as Annex C, of this partial stipulation of facts;
d) Promissory note in favor of the Rural Bank of Caloocan,
dated December 11, 1959 for the amount of P3000.00, signed
by the spouses Severino Valencia and Catalina Valencia as
borrowers, and plaintiff Maxima Castro, as a co-maker, attached
as Annex D of this partial stipulation of facts;
e) Real estate mortgage dated December 11, 1959 executed by
plaintiff Maxima Castro, in favor of the Rural Bank of Caloocan,
to secure the obligation of P6,000.00 attached herein as Annex
E of this partial stipulation of facts;
All the parties herein expressly reserved their right to present
any evidence they may desire on the circumstances regarding
the execution of the above-mentioned documents.
4. That the sheriff of Manila, thru Acting Chief Deputy Sheriff,
Basilio Magsambol, sent a notice of sheriff's sale, address to the
plaintiff, dated February 13, 1961, announcing that plaintiff's
property covered by TCT No. 7419 of the Register of Deeds of
the City of Manila, would be sold at public auction on March 10,
1961 to satisfy the total obligation of P5,728.50, plus interest,
attorney's fees, etc., as evidenced by the Notice of Sheriff's Sale
and Notice of Extrajudicial Auction Sale of the Mortgaged
property, attached herewith as Annexes F and F-1, respectively,
of this stipulation of facts;
5. That upon the request of the plaintiff and defendants-spouses
Severino Valencia and Catalina Valencia, and with the
conformity of the Rural Bank of Caloocan, the Sheriff of Manila
postponed the auction sale scheduled for March 10, 1961 for
thirty (30) days and the sheriff re-set the auction sale for April
10, 1961;
6. That April 10, 1961 was declared a special public holiday;
(Note: No. 7 is omitted upon agreement of the parties.)
8. That on April 11, 1961, the Sheriff of Manila, sold at public
auction plaintiff's property covered by T.C.T. No. 7419 and
defendant, Arsenio Reyes, was the highest bidder and the
corresponding certificate of sale was issued to him as per
Annex G of this partial stipulation of facts;
9. That on April 16, 1962, the defendant Arsenio Reyes,
executed an Affidavit of Consolidation of Ownership, a copy of
which is hereto attached as Annex H of this partial stipulation of
facts;
10. That on May 9, 1962, the Rural Bank of Caloocan
Incorporated executed the final deed of sale in favor of the
defendant, Arsenio Reyes, in the amount of P7,000.00, a copy
of which is attached as Annex I of this partial stipulation of facts;
11. That the Register of Deeds of the City of Manila issued the
Transfer Certificate of Title No. 67297 in favor of the defendant,
Arsenio Reyes, in lieu of Transfer Certificate of Title No. 7419
which was in the name of plaintiff, Maxima Castro, which was
cancelled;
12. That after defendant, Arsenio Reyes, had consolidated his
title to the property as per T.C.T. No. 67299, plaintiff filed a
notice of lis pendens with the Register of Deeds of Manila and
the same was annotated in the back of T.C.T. No. 67299 as per
Annex J of this partial stipulation of facts; and
13. That the parties hereby reserved their rights to present
additional evidence on matters not covered by this partial
stipulation of facts.
WHEREFORE, it is respectfully prayed that the foregoing partial
stipulation of facts be approved and admitted by this Honorable
Court.
As for the evidence presented during the trial, We quote from
the decision of the Court of Appeals the statement thereof, as
follows:
In addition to the foregoing stipulation of facts, plaintiff claims
she is a 70-year old widow who cannot read and write the
English language; that she can speak the Pampango dialect
only; that she has only finished second grade (t.s.n., p. 4,
December 11, 1964); that in December 1959, she needed
money in the amount of P3,000.00 to invest in the business of
the defendant spouses Valencia, who accompanied her to the
defendant bank for the purpose of securing a loan of P3,000.00;
that while at the defendant bank, an employee handed to her
several forms already prepared which she was asked to sign on
the places indicated, with no one explaining to her the nature
and contents of the documents; that she did not even receive a
copy thereof; that she was given a check in the amount of
P2,882.85 which she delivered to defendant spouses; that
sometime in February 1961, she received a letter from the
Acting Deputy Sheriff of Manila, regarding the extrajudicial
foreclosure sale of her property; that it was then when she
learned for the first time that the mortgage indebtedness
secured by the mortgage on her property was P6,000.00 and
not P3,000.00; that upon investigation of her lawyer, it was
found that the papers she was made to sign were:
(a) Application for a loan of P3,000.00 dated December 7, 1959
(Exh. B-1 and Exh. 1);
(b) Promissory note dated December 11, 1959 for the said loan
of P3,000.00 (Exh- B-2);
(c) Promissory note dated December 11, 1959 for P3,000.00
with the defendants Valencia spouses as borrowers and
appellee as co-maker (Exh. B-4 or Exh. 2).
The auction sale set for March 10, 1961 was postponed co April
10, 1961 upon the request of defendant spouses Valencia who
needed more time within which to pay their loan of P3,000.00
with the defendant bank; plaintiff claims that when she filed the
complaint she deposited with the Clerk of Court the sum of
P3,383.00 in full payment of her loan of P3,000.00 with the
defendant bank, plus interest at the rate of 12% per annum up
to April 3, 1961 (Exh. D).
As additional evidence for the defendant bank, its manager
declared that sometime in December, 1959, plaintiff was
brought to the Office of the Bank by an employee- (t.s.n., p 4,
January 27, 1966). She wept, there to inquire if she could get a
loan from the bank. The claims he asked the amount and the
purpose of the loan and the security to he given and plaintiff
said she would need P3.000.00 to be invested in a drugstore in
which she was a partner (t.s.n., p. 811. She offered as security
for the loan her lot and house at Carola St., Sampaloc, Manila,
which was promptly investigated by the defendant bank's
inspector. Then a few days later, plaintiff came back to the bank
with the wife of defendant Valencia A date was allegedly set for
plaintiff and the defendant spouses for the processing of their
application, but on the day fixed, plaintiff came without the
defendant spouses. She signed the application and the other
papers pertinent to the loan after she was interviewed by the
manager of the defendant. After the application of plaintiff was
made, defendant spouses had their application for a loan also
prepared and signed (see Exh. 13). In his interview of plaintiff
and defendant spouses, the manager of the bank was able to
gather that plaintiff was in joint venture with the defendant
spouses wherein she agreed to invest P3,000.00 as additional
capital in the laboratory owned by said spouses (t.s.n., pp. 16-
17) 3
The Court of Appeals, upon evaluation of the evidence,
affirmed in toto the decision of the Court of First Instance of
Manila, the dispositive portion of which reads:
FOR ALL THE FOREGOING CONSIDERATIONS, the Court
renders judgment and:
(1) Declares that the promissory note, Exhibit '2', is invalid as
against plaintiff herein;
(2) Declares that the contract of mortgage, Exhibit '6', is null and
void, in so far as the amount thereof exceeds the sum of
P3,000.00 representing the principal obligation of plaintiff, plus
the interest thereon at 12% per annum;
(3) Annuls the extrajudicial foreclosure sale at public auction of
the mortgaged property held on April 11, 1961, as well as all the
process and actuations made in pursuance of or in
implementation thereto;
(4) Holds that the total unpaid obligation of plaintiff to defendant
Rural Bank of Caloocan, Inc., is only the amount of P3,000.00,
plus the interest thereon at 12% per annum, as of April 3, 1961,
and orders that plaintiff's deposit of P3,383.00 in the Office of
the Clerk of Court be applied to the payment thereof;
(5) Orders defendant Rural Bank of Caloocan, Inc. to return to
defendant Arsenio Reyes the purchase price the latter paid for
the mortgaged property at the public auction, as well as
reimburse him of all the expenses he has incurred relative to the
sale thereof;
(6) Orders defendants spouses Severino D. Valencia and
Catalina Valencia to pay defendant Rural Bank of Caloocan,
Inc. the amount of P3,000.00 plus the corresponding 12%
interest thereon per annum from December 11, 1960 until fully
paid; and
Orders defendants Rural Bank of Caloocan, Inc., Jose
Desiderio, Jr. and spouses Severino D. Valencia and Catalina
Valencia to pay plaintiff, jointly and severally, the sum of
P600.00 by way of attorney's fees, as well as costs.
In view of the conclusion that the court has thus reached, the
counterclaims of defendant Rural Bank of Caloocan, Inc., Jose
Desiderio, Jr. and Arsenio Reyes are hereby dismissed, as a
corollary
The Court further denies the motion of defendant Arsenio Reyes
for an Order requiring Maxima Castro to deposit rentals filed on
November 16, 1963, resolution of which was held in abeyance
pending final determination of the case on the merits, also as a
consequence of the conclusion aforesaid. 4
Petitioners Bank and Jose Desiderio moved for the
reconsideration 5 of respondent court's decision. The motion
having been denied, 6 they now come before this Court in the
instant petition, with the following Assignment of Errors, to wit:
I
THE COURT OF APPEALS ERRED IN UPHOLDING THE
PARTIAL ANNULMENT OF THE PROMISSORY NOTE,
EXHIBIT 2, AND THE MORTGAGE, EXHIBIT 6, INSOFAR AS
THEY AFFECT RESPONDENT MAXIMA CASTRO VIS-A-VIS
PETITIONER BANK DESPITE THE TOTAL ABSENCE OF
EITHER ALLEGATION IN THE COMPLAINT OR COMPETENT
PROOF IN THE EVIDENCE OF ANY FRAUD OR OTHER
UNLAWFUL CONDUCT COMMITTED OR PARTICIPATED IN
BY PETITIONERS IN PROCURING THE EXECUTION OF
SAID CONTRACTS FROM RESPONDENT CASTRO.
II
THE COURT OF APPEALS ERRED IN IMPUTING UPON AND
CONSIDERING PREJUDICIALLY AGAINST PETITIONERS,
AS BASIS FOR THE PARTIAL ANNULMENT OF THE
CONTRACTS AFORESAID ITS FINDING OF FRAUD
PERPETRATED BY THE VALENCIA SPOUSES UPON
RESPONDENT CASTRO IN UTTER VIOLATION OF THE RES
INTER ALIOS ACTA RULE.
III
THE COURT OF APPEAL ERRED IN NOT HOLDING THAT,
UNDER THE FACTS FOUND BY IT, RESPONDENT CASTRO
IS UNDER ESTOPPEL TO IMPUGN THE REGULARITY AND
VALIDITY OF HER QUESTIONED TRANSACTION WITH
PETITIONER BANK.
IV
THE COURT OF APPEALS ERRED IN NOT FINDING THAT,
BETWEEN PETITIONERS AND RESPONDENT CASTRO,
THE LATTER SHOULD SUFFER THE CONSEQUENCES OF
THE FRAUD PERPETRATED BY THE VALENCIA SPOUSES,
IN AS MUCH AS IT WAS THRU RESPONDENT CASTRO'S
NEGLIGENCE OR ACQUIESCENSE IF NOT ACTUAL
CONNIVANCE THAT THE PERPETRATION OF SAID FRAUD
WAS MADE POSSIBLE.
V misrepresentation to the bank inflicted by the Valencias both
THE COURT OF APPEALS ERRED IN UPHOLDING THE
VALIDITY OF THE DEPOSIT BY RESPONDENT CASTRO OF
P3,383.00 WITH THE COURT BELOW AS A TENDER AND
CONSIGNATION OF PAYMENT SUFFICIENT TO
DISCHARGE SAID RESPONDENT FROM HER OBLIGATION
WITH PETITIONER BANK.
VI
THE COURT OF APPEALS ERRED IN NOT DECLARING AS
VALID AND BINDING UPON RESPONDENT CASTRO THE
HOLDING OF THE SALE ON FORECLOSURE ON THE
BUSINESS DAY NEXT FOLLOWING THE ORIGINALLY
SCHEDULED DATE THEREFOR WHICH WAS DECLARED A
HOLIDAY WITHOUT NECESSITY OF FURTHER NOTICE
THEREOF.
The issue raised in the first three (3) assignment of errors is
whether or not respondent court correctly affirmed the lower
court in declaring the promissory note (Exhibit 2) invalid insofar
as they affect respondent Castro vis-a-vis petitioner bank, and
the mortgage contract (Exhibit 6) valid up to the amount of
P3,000.00 only.
Respondent court declared that the consent of Castro to the
promissory note (Exhibit 2) where she signed as co-maker with
the Valencias as principal borrowers and her acquiescence to
the mortgage contract (Exhibit 6) where she encumbered her
property to secure the amount of P6,000.00 was obtained by
fraud perpetrated on her by the Valencias who had abused her
confidence, taking advantage of her old age and ignorance of
her financial need. Respondent court added that "the mandate
of fair play decrees that she should be relieved of her obligation
under the contract" pursuant to Articles 24 7 and 1332 8 of the
Civil Code.
The decision in effect relieved Castro of any liability to the
promissory note (Exhibit 2) and the mortgage contract (Exhibit
6) was deemed valid up to the amount of P3,000.00 only which
was equivalent to her personal loan to the bank.
Petitioners argued that since the Valencias were solely declared
in the decision to be responsible for the fraud against Castro, in
the light of the res inter alios acta rule, a finding of fraud
perpetrated by the spouses against Castro cannot be taken to
operate prejudicially against the bank. Petitioners concluded
that respondent court erred in not giving effect to the promissory
note (Exhibit 2) insofar as they affect Castro and the bank and
in declaring that the mortgage contract (Exhibit 6) was valid only
to the extent of Castro's personal loan of P3,000.00.
The records of the case reveal that respondent court's findings
of fraud against the Valencias is well supported by evidence.
Moreover, the findings of fact by respondent court in the matter
is deemed final. 9 The decision declared the Valencias solely
responsible for the defraudation of Castro. Petitioners'
contention that the decision was silent regarding the
participation of the bank in the fraud is, therefore, correct.
We cannot agree with the contention of petitioners that the bank
was defrauded by the Valencias. For one, no claim was made
on this in the lower court. For another, petitioners did not submit
proof to support its contention.
At any rate, We observe that while the Valencias defrauded
Castro by making her sign the promissory note (Exhibit 2) and
the mortgage contract (Exhibit 6), they also misrepresented to
the bank Castro's personal qualifications in order to secure its
consent to the loan. This must be the reason which prompted
the bank to contend that it was defrauded by the Valencias. But
to reiterate, We cannot agree with the contention for reasons
above-mentioned. However, if the contention deserves any
consideration at all, it is in indicating the admission of petitioners
that the bank committed mistake in giving its consent to the
contracts.
Thus, as a result of the fraud upon Castro and the
Castro and the bank committed mistake in giving their consents
to the contracts. In other words, substantial mistake vitiated their
consents given. For if Castro had been aware of what she
signed and the bank of the true qualifications of the loan
applicants, it is evident that they would not have given their
consents to the contracts.
Pursuant to Article 1342 of the Civil Code which provides:
Art. 1342. Misrepresentation by a third person does not vitiate
consent, unless such misrepresentation has created substantial
mistake and the same is mutual.
We cannot declare the promissory note (Exhibit 2) valid
between the bank and Castro and the mortgage contract
(Exhibit 6) binding on Castro beyond the amount of P3,000.00,
for while the contracts may not be invalidated insofar as they
affect the bank and Castro on the ground of fraud because the
bank was not a participant thereto, such may however be
invalidated on the ground of substantial mistake mutually
committed by them as a consequence of the fraud and
misrepresentation inflicted by the Valencias. Thus, in the case
of Hill vs. Veloso, 10 this Court declared that a contract may be
annulled on the ground of vitiated consent if deceit by a third
person, even without connivance or complicity with one of the
contracting parties, resulted in mutual error on the part of the
parties to the contract.
Petitioners argued that the amended complaint fails to contain
even a general averment of fraud or mistake, and its mention in
the prayer is definitely not a substantial compliance with the
requirement of Section 5, Rule 8 of the Rules of Court. The
records of the case, however, will show that the amended
complaint contained a particular averment of fraud against the
Valencias in full compliance with the provision of the Rules of
Court. Although, the amended complaint made no mention of
mistake being incurred in by the bank and Castro, such mention
is not essential in order that the promissory note (Exhibit 2) may
be declared of no binding effect between them and the
mortgage (Exhibit 6) valid up to the amount of P3,000.00 only.
The reason is that the mistake they mutually suffered was a
mere consequence of the fraud perpetrated by the Valencias
against them. Thus, the fraud particularly averred in the
complaint, having been proven, is deemed sufficient basis for
the declaration of the promissory note (Exhibit 2) invalid insofar
as it affects Castro vis-a-vis the bank, and the mortgage
contract (Exhibit 6) valid only up to the amount of P3,000.00.
The second issue raised in the fourth assignment of errors is
who between Castro and the bank should suffer the
consequences of the fraud perpetrated by the Valencias.
In attributing to Castro an consequences of the loss, petitioners
argue that it was her negligence or acquiescence if not her
actual connivance that made the fraud possible.
Petitioners' argument utterly disregards the findings of
respondent Court of Appeals wherein petitioners' negligence in
the contracts has been aptly demonstrated, to wit:
A witness for the defendant bank, Rodolfo Desiderio claims he
had subjected the plaintiff-appellee to several interviews. If this
were true why is it that her age was placed at 61 instead of 70;
why was she described in the application (Exh. B-1-9) as drug
manufacturer when in fact she was not; why was it placed in the
application that she has income of P20,000.00 when according
to plaintiff-appellee, she his not even given such kind of
information -the true fact being that she was being paid P1.20
per picul of the sugarcane production in her hacienda and 500
cavans on the palay production. 11
From the foregoing, it is evident that the bank was as much ,
guilty as Castro was, of negligence in giving its consent to the
contracts. It apparently relied on representations made by the
Valencia spouses when it should have directly obtained the
needed data from Castro who was the acknowledged owner of
the property offered as collateral. Moreover, considering
Castro's personal circumstances her lack of education,
ignorance and old age she cannot be considered utterly
neglectful for having been defrauded. On the contrary, it is
demanded of petitioners to exercise the highest order of care
and prudence in its business dealings with the Valencias
considering that it is engaged in a banking business a
business affected with public interest. It should have
ascertained Castro's awareness of what she was signing or
made her understand what obligations she was assuming,
considering that she was giving accommodation to, without any
consideration from the Valencia spouses.
Petitioners further argue that Castro's act of holding the
Valencias as her agent led the bank to believe that they were
authorized to speak and bind her. She cannot now be permitted
to deny the authority of the Valencias to act as her agent for one
who clothes another with apparent authority as her agent is not
permitted to deny such authority.
The authority of the Valencias was only to follow-up Castro's
loan application with the bank. They were not authorized to
borrow for her. This is apparent from the fact that Castro went to
the Bank to sign the promissory note for her loan of P3,000.00.
If her act had been understood by the Bank to be a grant of an
authority to the Valencia to borrow in her behalf, it should have
required a special power of attorney executed by Castro in their
favor. Since the bank did not, We can rightly assume that it did
not entertain the notion, that the Valencia spouses were in any
manner acting as an agent of Castro.
When the Valencias borrowed from the Bank a personal loan of
P3,000.00 evidenced by a promissory note (Exhibit 2) and
mortgaged (Exhibit 6) Castro's property to secure said loan, the
Valencias acted for their own behalf. Considering however that
for the loan in which the Valencias appeared as principal
borrowers, it was the property of Castro that was being
mortgaged to secure said loan, the Bank should have exercised
due care and prudence by making proper inquiry if Castro's
consent to the mortgage was without any taint or defect. The
possibility of her not knowing that she signed the promissory
note (Exhibit 2) as co-maker with the Valencias and that her
property was mortgaged to secure the two loans instead of her
own personal loan only, in view of her personal circumstances
ignorance, lack of education and old age should have placed
the Bank on prudent inquiry to protect its interest and that of the
public it serves. With the recent occurrence of events that have
supposedly affected adversely our banking system, attributable
to laxity in the conduct of bank business by its officials, the need
of extreme caution and prudence by said officials and
employees in the discharge of their functions cannot be over-
emphasized.
Question is, likewise, raised as to the propriety of respondent
court's decision which declared that Castro's consignation in
court of the amount of P3,383.00 was validly made. It is
contended that the consignation was made without prior offer or
tender of payment to the Bank, and it therefore, not valid. In
holding that there is a substantial compliance with the provision
of Article 1256 of the Civil Code, respondent court considered
the fact that the Bank was holding Castro liable for the sum of
P6,000.00 plus 12% interest per annum, while the amount
consigned was only P3,000.00 plus 12% interest; that at the
time of consignation, the Bank had long foreclosed the
mortgage extrajudicially and the sale of the mortgage property
had already been scheduled for April 10, 1961 for non-payment
of the obligation, and that despite the fact that the Bank already
knew of the deposit made by Castro because the receipt of the
deposit was attached to the record of the case, said Bank had
not made any claim of such deposit, and that therefore, Castro
was right in thinking that it was futile and useless for her to
make previous offer and tender of payment directly to the Bank
only in the aforesaid amount of P3,000.00 plus 12% interest.
Under the foregoing circumstances, the consignation made by
Castro was valid. if not under the strict provision of the law,
under the more liberal considerations of equity.
The final issue raised is the validity or invalidity of the
extrajudicial foreclosure sale at public auction of the mortgaged
property that was held on April 11, 1961.
Petitioners contended that the public auction sale that was held
on April 11, 1961 which was the next business day after the
scheduled date of the sale on April 10, 1961, a special public
holiday, was permissible and valid pursuant to the provisions of
Section 31 of the Revised Administrative Code which ordains:
Pretermission of holiday. Where the day, or the last day, for
doing any act required or permitted by law falls on a holiday, the
act may be done on the next succeeding business day.
Respondent court ruled that the aforesaid sale is null and void, it
not having been carried out in accordance with Section 9 of Act
No. 3135, which provides:
Section 9. Notice shall be given by posting notices of the sale
for not less than twenty days in at least three public places of
the municipality or city where the property is situated, and if
such property is worth more than four hundred pesos, such
notice shall also be published once a week for at least three
consecutive weeks in a newspaper of general circulation in the
municipality or city.
We agree with respondent court. The pretermission of a holiday
applies only "where the day, or the last day for doing any
act required or permitted by law falls on a holiday," or when the
last day of a given period for doing an act falls on a holiday. It
does not apply to a day fixed by an office or officer of the
government for an act to be done, as distinguished from a
period of time within which an act should be done, which may
be on any day within that specified period. For example, if a
party is required by law to file his answer to a complaint within
fifteen (15) days from receipt of the summons and the last day
falls on a holiday, the last day is deemed moved to the next
succeeding business day. But, if the court fixes the trial of a
case on a certain day but the said date is subsequently declared
a public holiday, the trial thereof is not automatically transferred
to the next succeeding business day. Since April 10, 1961 was
not the day or the last day set by law for the extrajudicial
foreclosure sale, nor the last day of a given period but a date
fixed by the deputy sheriff, the aforesaid sale cannot legally be
made on the next succeeding business day without the notices
of the sale on that day being posted as prescribed in Section 9,
Act No. 3135.

WHEREFORE, finding no reversible error in the judgment under

review, We affirm the same in toto. No pronouncement as to
cost.

SO ORDERED.

Teehankee (Acting, C.J.) Makasiar, Fernandez, Guerrero and

Melencio-Herrera, JJ., concur.

Footnotes

* Mr. Justice de Castro was designated to sit with the First Division under
Special Order No. 225.
1 Rollo, pp. 112-133.
2 Record on Appeal, pp. 84-89.
3 Rollo, pp. 112-117.
4 Rollo, pp. 117-118.
5 Motion for Reconsideration, Rollo, pp. 134-167.
6 Resolution of the Court of Appeals, dated May 25, 1970, Rollo, p. 168.
7 Art. 24. In all contractual property or other relations, when one of the
parties is at a disadvantage on account of his moral dependence, ignorance,
indigence, mental weakness, tender age or other handicap, the courts must be
vigilant for his protection.
8 Art. 1332. When one of the parties is unable to read or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully
explained to the former.
9 Guico vs. Mayuga 63 Phil. 328; Velasco vs. Court of Appeals, 90 Phil. 688;
Fonacier vs. Court of Appeals, 96 Phil. 417.
10 31 Phil. 160.
11 pp. 13-14, CA decision.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-59805 July 21, 1989
LEONILA J. LICUANAN, petitioner,
vs.
HON. RICARDO D. DIAZ, Judge, Branch XXVII Court of First
Instance of Manila, and AIDA PINEDA, respondents.
PARAS, J.:
This is a petition for review on certiorari of the October 15, 1981
Decision of the then Court of First Instance of Manila affirming
the August 8, 1979 Decision of the City Court of Manila.
Herein petitioner is the owner of an apartment situated at 3415
F. Aguilar St., Bo. Obrero, Tondo, Manila, being rented by
herein private respondent since March, 1973. On January 22,
1974, they executed a lease contract, and stipulated therein,
among others, that the monthly rental is One Hundred Eighty
Pesos (Pl80.00) to be paid within the first five (5) days of every
month.
On April 4, 1978, the law office of Amado E. Salalongos and
Associates sent private respondent a letter, the body of which,
reads:
Upon arrival of your lessor, Mrs. Leonila Licuanan from the
United States, she found out that you have occupied her garage
situated at 3415 F. Aguilar, Bo. Obrero, Tondo, Manila, which
portion is not included in your lease contract, and that despite
her request that you remove the aparador and other things
which you have placed there as your stockpile, you have failed
and refused to do so, and instead showed arrogance by telling
her that it will need a court order before she removes the same
and restores possession to you, in violation of the terms of your
contract.
In view thereof, we are giving you five (5) days from receipt
hereof within which to vacate the premises at 3415 F. Aguilar,
otherwise, we shall be constrained to file an ejectment suit
against you.
Private respondent, reacting to the said letter, on April 12, 1979,
wrote the Civil Relations Service, AFP, Camp Aguinaldo,
Quezon City, for help. A portion of her letter, reads:
May I have the honor to solicit the help of your good office with
regard to the letter I received from the law office of Amado C.
Sagalongos & Associates attached herein.
The accusations implied therein are not true and for your
information, Sir, I have faithfully paid my monthly rentals from
the time we occupied our apartment on March, 1973 up to
March, 1978.
On April 24, 1978, both petitioner and private respondent
appeared before Lt. Col. Antonio Penala, Hearing Officer of the
Civil Relations Service, but since the parties failed to reach any
agreement, Lt. Col. Penala placed the notation "HOLD" on the
pertinent document; and as precautionary measure, instructed
private respondent to deposit the amount of rental due for that
month so that she could not be charged with non-payment,
which directive private respondent readily complied with and
she was issued the corresponding receipt.
On August 30,1978, private respondent received a letter from
Atty. Manuel Melo, counsel for petitioner, demanding payment
of the April to August, 1978 rentals amounting to P900.00.
On September 13, 1978, petitioner filed Civil Case No. 037226-
V with the City Court of Manila, Branch VII, presided over by
Hon. Priscilla C. Mijares against private respondent for unlawful
detainer with damages (Rollo, pp. 11-13). In the same,
petitioner alleged, among others, that private respondent had
failed to pay her monthly rentals from April to September, 1978,
amounting to Pl,080.00; that a demand letter dated August 23,
1978, was sent and received by private respondent on August
30, 1978, wherein it is demanded that she pay her rentals in
arrears and to vacate the premises; and that despite repeated
demands, written and verbal, she refuses to pay her rentals in
arrears and to vacate the premises.
On September 27,1978, private respondent filed her answer
(Ibid., pp. 14-17). In the same, private respondent, among
others, denies that she failed in paying her monthly rentals,
claiming that petitioner has refused the rental being tendered
and that upon advice of the Office of the Civil Relations, AFP,
she deposited her monthly rentals with that office for the months
of April to September, 1978, inclusive at P80.00 a month; and
that she admits having received the letter of demand dated
August 23, 1978, and claims that upon receipt of the said letter,
she called up by telephone petitioner's counsel, Atty. Manuel
Melo, informing him that the rentals due for the months of April
to August, 1978 have been deposited with the Office of Civil
Relations, AFP, and that petitioner can withdraw the said
amount due from the said office.
The trial court, in a Decision dated August 8, 1979, ruled in
favor of private respondent (Ibid., pp. 37-42). The dispositive
portion of the said decision reads:
In view thereof, the complaint for unlawful detainer with
damages is hereby dismissed for lack of merit. The petition for
consignation having been rendered moot and academic, said
petition is also hereby dismissed.
Petitioner appealed the decision, but the then Court of First
Instance of Manila, presided over by herein respondent judge, in
a Decision dated October 15, 1981, affirmed the appealed
judgment (lbid., pp. 71-74). The decretal portion of the said
decision reads:
WHEREFORE, the decision of the lower Court dismissing the
instant cases for unlawful detainer with damages and for
consignation is hereby AFFIRMED.
Defendant-appellee, Aida Pineda, is hereby ordered to pay the
plaintiff the monthly rentals as provided for in the lease contract
for all the succeeding months from September, 1981.
A Motion for Reconsideration was filed (Ibid., pp. 75-77), but the
same was denied in an Order dated February 18, 1982 (Ibid.,
pp. 92-93). Hence, the instant petition.
Petitioner raised six (6) assignments of error to wit:
Error 1, the finding as valid and legal 'consignation' Pineda's
deposit with the Office of Civilian Relations of the Armed Forces
at Camp Aguinaldo, her rent due to Licuanan, instead of making
proper CONSIGNATION with a court or with a bank as provided
by law.
Error 2, the finding as sufficient and valid in the law the
testimony of Pineda one year after the alleged deposit with the
Army.
Error 3, in affirming the lower Court's grave legal error of
injecting a totally outlandish matter into the case and improperly
converting the same to form part of the ground for its erroneous
decision.
Error 4, in not finding as REASONABLE COMPENSATION for
illegally detained property the payments made by Pineda to
Licuanan which were delayed far beyond the three months at
any one time provided by the rental law.
Error 5, in finding as bona fide rent what Pineda paid which was PREMISES CONSIDERED, the October 15,1981, Decision of
delayed for sixteen months (16) from October of 1978 to the then Court of First Instance of Manila is REVERSED and
January of 1980, which was five times the three (3) months at SET ASIDE, and the respondent is ordered to vacate the
any one time provided by law. premises and to pay all accrued rentals.

Error 6, being germane to Error I supra, but earlier omitted by SO ORDERED.

inadvertence, is in finding that Pineda tendered her rent
payment to Licuanan but that Licuanan refused to accept the Melencio-Herrera, (Chairperson), Padilla, Sarmiento and
same. Regalado, JJ., concur.

The instant petition is impressed with merit.

The main issue in this case is whether or not private

respondent's deposit of the rentals due to petitioner with Civil
Relations Service, now Office for Civil Relations, AFP, is a valid
consignation. This issue was already answered in the negative
by this Court in the case of Landicho v. Tensuan (150 SCRA
410, 415 [1987]) wherein it stated-

Their protestation that they deposited the rentals due though

belatedly in the Office of then Presidential Assistant Ronaldo
Zamora does not help their cause at all. The law prescribes that
such consignation or deposit of rentals should be made with the
Court and/or under Batas Pambansa Blg. 25 in the bank and not
elsewhere.

In addition, it must be stated that in the case of Soco v. Militante

(123 SCRA 160, 166-167 [1983]), this Court ruled that the codal
provision of the Civil Code dealing with consignation (Articles
1252-1261) should be accorded a mandatory construction-

We do not agree with the questioned decision. We hold that the

essential requisites of a valid consignation must be complied
with fully and strictly in accordance with the law. Articles 1256 to
1261, New Civil Code. That these Articles must be accorded a
mandatory construction is clearly evident and plain from the
very language of the codal provisions themselves which require
absolute compliance with the essential requisites therein
provided. Substantial compliance is not enough for that would
render only directory construction to the law. The use of the
words 'shall' and 'must' which are imperative, operating to
impose a duty which may be enforced, positively indicated that
all the essential requisites of a valid consignation must be
complied with. The Civil Code Articles expressly and explicitly
direct what must be essentially done in order that consignation
shall be valid and effectual ...

Likewise, in the said Soco case, this Court enumerated the

requirements prescribed by law for a valid consignation (p. 173).
One of the given requirements is that after consignation had
been made, the person interested was notified thereof (Art.
1178, Civil Code). The reason for such a requirement was given
by this Court. lt stated-

The reason for the notification to the persons interested in the

fulfillment of the obligation after consignation had been made,
which is separate and distinct from the notification which is
made prior to the consignation, is stated in Cabanas v. Calo,
G.R. No. L-10927, October 30, 1958, 104 Phil. 1058, thus:
'There should be notice to the creditor prior and after
consignation as required by the Civil Code. The reason for this
is obvious, namely, to enable the creditor to withdraw the goods
or money deposited. Indeed, it would be unjust to make him
suffer the risk for any deterioration, depreciation or loss of such
goods or money by reason of lack of knowledge of the
consignation. (P. 181)

In the instant case, perusal of the records will readily show that
private respondent failed to comply with this requirement. Even
granting that petitioner was present when the hearing officer of
the Office for Civil Relations, AFP, instructed private respondent
to deposit the April rental, it will be noted that petitioner
thereafter was never notified that a deposit was made in the
said office; and in the succeeding monthly rentals, no tender of
payment was made to petitioner, nor was she given any notice
that consignation will be made or that consignation had been
made.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 109020 March 3, 1994
FELISA CHAN, petitioner,
vs.
HON. COURT OF APPEALS, and GRACE CU, respondents.
Arthur D. Lim Law Office for petitioner.
Nicolas V. Benedicto, Jr. for private respondent.
DAVIDE, JR., J.:
This is a petition for review on certiorari of the decision of the
Court of Appeals in CA-G.R. SP No. 28870 1 which reversed
and set aside the decision of the Regional Trial Court (RTC) of
Manila in Civil Case No. 91-55879. 2 The RTC had affirmed the
decision of the Metropolitan Trial Court (MTC) of Manila in civil
Case No. 131203-CV. 3
The antecedent facts are set forth in the challenged decision of
the public respondent Court of Appeals as follows:
It appears from the records that on February 1, 1983, Felisa
Chan and Grace Cu entered into a contract of lease whereby
the latter will occupy for residential purposes Room 401 and the
roof top of Room 442 of a building owned by the former located
at Elcano corner Urbistondo, Manila. The term of the lease is
one year or up to February 1, 1984 at a monthly rental of
P2,400.00. Said contract of lease was renewed every year for
two successive years or up to February 1, 1986. In the
contracts, it was agreed that the premises shall be used as a
learning center. After February 1, 1986, there was no written
contract of lease executed by the parties, but Grace has
continuously occupied the premises as a learning center.
The monthly rental was raised every year. In January, 1989, it
was increased to P3,484.80.
Sometime in November, 1989, Felisa padlock the way to the
roof top. Thereafter, there was an exchange of communications
between the parties. Grace insisted that she should be allowed
to use the roof top of Room 442, while Felisa maintained that
only Room 401 was leased and that the use of the roof top
which, according to her poses danger to the students, was
merely tolerated. Eventually, Felisa terminated the lease, giving
Grace until January 1, 1990 to vacate the premises.
Because of the dispute between the parties, Felisa did not
collect the rental for December, 1989. Whereupon, Grace
tendered to Felisa a check amounting to P3,310.56. The latter
refused to accept the check. So Grace's lawyer tendered the
payment in cash in the same amount of P3,310.56, with notice
to Felisa that if she will not accept the payment, the same will be
deposited in court by way of consignation. At this juncture,
Felisa allowed Grace to hold classes only up the March, 1990.
On January 15, 1990, Grace filed Civil Case No. 131203 for
consignation with the Metropolitan Trial Court of Manila, Branch
15, alleging in her complaint that Felisa refused to accept,
without justifiable cause, the rentals for the premises in
question. Felisa interposed in her answer a counterclaim for
ejectment, contending that the lease, being month to month,
had expired but that despite demand, Grace refused to vacate
the premises. 4
On 18 December 1990, the MTC rendered its decision, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered as follows:
1. The court declares that the roof top of the building at 442
Elcano corner Urbistondo Street, Manila is included in the lease;
2. The court fixes the term of the lease over the subject
premises until June 30, 1992 upon the expiration of which,
petitioner [Grace Cu] is ordered to vacate the said premises;
3. The court declares the consignation of rentals made by the
petitioner to be valid and legal and hereby release[s] the
petitioner from the obligation of paying the said rentals;
4. All the respective claims of the parties against each other for
damages and attorney's fees are hereby dismissed.
SO ORDERED. 5
Both parties appealed to the RTC of Manila. Grace Cu
maintained that the MTC should have fixed a longer period,
while Felisa Chan contended that the MTC erred in extending
the term of the lease and in upholding the validity of the
consignation. In its Decision of 27 March 1992, the RTC
affirmed the decision of the MTC.
Cu then went to the Court of Appeals on a petition for
review 6 alleging therein that the RTC erred "in not fixing a
longer period of extension of the lease" and "in extending the
duration of the lease to 30 June 1992 but subverting its factual
findings in justification of the extension as it concluded that the
period was intended by the parties for a longer duration." In its
challenged Decision of 20 January 1993, the Court of Appeals
reversed and set aside the decisions of the MTC and the RTC
and dismissed the complaint for consignation for lack of merit. It
likewise said that the MTC and the RTC erred in passing upon
the issue of ejectment raised in Chan's counterclaim since an
action for ejectment can only be initiated through a verified
complaint, not a counterclaim.
In dismissing the complaint for consignation, the Court of
Appeals ruled that under Article 1256 of the Civil Code,
consignation may only be resorted to by a debtor if the creditor
to whom tender of payment has been made refuses without just
cause to accept it. The court of Appeals held that Chan's refusal
to accept the rental was justified. It said:
Thus, the respondent [Chan] allowed the petitioner [Cu] to hold
classes in the premises only until March, 1981. 7 Obviously,
from respondent landlord's point of view, beyond March,
1989, 8 (1) the petitioner may no longer be considered as lessee
or debtor who may relieve herself of liability by tendering
payment of the rentals and if refused, by consigning them in
court; and that (2) the petitioner is a squatter or trespasser who
has occupied the premises not only without any agreement with
the respondent but against her will. So, as far as the respondent
is concerned, this consignation may not come under the
provisions of Article 1256 of the Civil Code cited above. Simply
put, respondent's refusal to accept petitioner['s] rental
payments was with just cause and that, therefore, the
respondent may not be compelled to accept such rental
payments. 9
On the issue of ejectment, the Court of Appeals made the
following observations:
Now, for a digression, We cannot see our way clear why the
MTC and the RTC passed upon the issue of ejectment raised in
respondent's counterclaim and fixed the term of the lease up to
June 10, 1992. Under Section 1, Rule 70 of the Revised Rules
of Court, an action for ejectment can only be initiated through a
verified complaint, not counterclaim. This is basic. Thus, the
said courts should not have fixed the terms of the lease. This
issue can only be decided in a case of ejectment filed pursuant
to the said rule. The supreme Court, in Ching Pue
vs. Gonzales [87 Phil. 81] held:
Consignation in court under article 1176 of the Civil Code, is not
the proper proceedings to determine the relation between
landlord and tenant, the period or life of the lease or tenancy,
the reasonableness of the rental, the right of the tenant to keep
the premises against the will of landlord, etc. These questions
should be decided in a case of ejectment or detainer like those
two cases brought by Gonzales against two of the petitioners
under the provisions of Rule 72 of the Rules of Court. In a case
of ejectment, the landlord claims either that the lease has ended
or been terminated or that the lessee has forfeited his right as
such because of his failure to pay the rents as agreed upon or
because he failed or refused to pay the new rentals fixed and
demanded by the lessor. The lessee in his turn may put up the
defense that according to law, the rental demanded of him is
unreasonable, exorbitant and illegal, or that the period of the
lease has not yet expired, or that if the rental law is applicable,
and that the premises are destined solely for dwelling, he may
not be ousted therefrom because the owner does not need them
for his own use, etc. We repeat that all these questions should
be submitted and decided in a case of ejectment and cannot be
decided in a case of consignation. 10
Chan's motion to reconsider the decision 11 having been denied
by the Court of Appeals in its Resolution of 23 February
1993, 12 she filed the instant petition wherein she alleges that:
1. THE HONORABLE COURT OF APPEALS HAS DECIDED
THE CASE IN A WAY PROBABLY NOT IN ACCORD WITH
THE LAW OR APPLICABLE JURISPRUDENCE OF THE
SUPREME COURT (SECTION 4 (A), RULE 45 OF THE RULES
OF COURT);
2. THE HONORABLE COURT OF APPEALS, WITH UTMOST
RESPECT, COMMITTED AN ERROR:
(A) IN HOLDING THAT THE COUNTERCLAIM FOR
UNLAWFUL DETAINER WAS IMPROPERLY INCLUDED IN
THE COMPLAINT FOR CONSIGNATION;
(B) IN RELYING ON THE CASE OF CHING PUE
VS. GONZALES (87 PHIL. 81) AS BASIS FOR NOT ACTING
UPON THE COUNTERCLAIM FOR UNLAWFUL DETAINER
AND IN IMPLIEDLY DISMISSING THE SAME;
(C) IN RENDERING A DECISION WHICH PROMOTES,
INSTEAD OF AVOID, A MULTIPLICITY OF SUITS;
(D) IN RENDERING A DECISION WHICH GAVE THE
PRIVATE RESPONDENT UNWARRANTED BENEFITS
BECAUSE SHE IS PRACTICALLY ALLOWED TO CONTINUE
OCCUPYING PETITIONER'S PREMISES WHILE
PETITIONER, WHOSE RIGHTS OVER THE PREMISES
WERE UPHELD, IS FORCED TO LITIGATE ANEW AND/OR
TO RE-COMMENCE UNLAWFUL DETAINER
PROCEEDINGS. 13
Chan maintains that the Court of Appeals erred in giving due
course to Cu's petition for review and in deciding upon issues
which Cu never raised in her petition. Chan contends that the
Court of Appeals should have limited itself to the matter of the
extension of the lease period and not on the jurisdiction over the
action or subject matter of the suit which was never raised, nor
on the propriety of the counterclaim for ejectment.
Chan submits that while it is true that her cause of action for
unlawful detainer was incorporated in her answer to the
complaint for consignation, the Rules of Court do not prohibit
such procedure, and in her case the MTC has exclusive original
jurisdiction on the counterclaim for ejectment. The summary
disposition of the complaint for consignation as determined by
the trial court was not affected by the filing of the counterclaim
since it is a counterclaim allowed under Section 1 of the Rule on
Summary Procedure as it did not involve any question of
ownership nor did it allege any claim in excess of P20,000.00.
She then concludes that what the Court of Appeals has
impliedly suggested was for her to file a separate complaint for
unlawful detainer, which would be laborious and would
encourage multiplicity of suits; hence, the counterclaim for
unlawful detainer should not have been dismissed.
Chan also contends that the case of Ching Pue
vs. Gonzales 14 is not applicable because in Ching Pue the
consignation cases were filed with the Court of First Instance of
Manila which did not have jurisdiction to pass upon the unlawful
detainer cases that were properly cognizable by the Municipal
Court. In the instant case, the consignation case was filed with
the MTC which also has jurisdiction over the counterclaim for
ejectment. The Court of Appeals should have ordered the
ejectment of Cu not only because it found that her refusal to
accept the payment was with just cause, thereby impliedly
holding that Cu has no right to stay in the premises in question,
but also because when it promulgated its decision on 20
January 1993, the extended period (until 30 June 1992) fixed by
the trial court and the Regional Trial Court had already expired.
Chan further asserts that the Court of Appeals' decision gives
Cu undue and unwarranted benefits since Cu was granted
much more than what she prayed for in her complaint for
consignation and Chan's counterclaim was dismissed. A new
ejectment suit may last for years, even beyond March 1995
which is the expiration date originally prayed for by Cu, for the
duration of which Chan would be precluded from increasing the
rentals.
In her Comment, 15 Cu claims that the Court of Appeals decided
the case properly and in accord with applicable law and
jurisprudence. As to the dismissal of the counterclaim for
ejectment, Cu cites Metals Engineering Resources
Corp. vs. Court of Appeals 16 which holds that where there is no
claim against the counterclaimant, the counterclaim is improper
and should be dismissed, and that a compulsary counterclaim is
auxiliary to the proceeding in the original suit and derives its
jurisdictional support therefrom inasmuch as it arises out of or is
necessarily connected with the transaction or occurrence that is
the subject matter of the complaint. It follows that if the court
does not have jurisdiction to entertain the main action of the
case and dismisses the same, then the compulsory
counterclaim, being ancillary to the principal controversy, must
likewise be dismissed since no jurisdiction remained for any
grant of relief under the counterclaim.
In her Reply to the Comment, 17 Chan maintains that the Court
of Appeals should not have dismissed the counterclaim because
such dismissal would deny her justice and give undue
advantage to Cu. She set up the counterclaim for ejectment to
avoid the effects of Section 4, Rule 9 of the Rules of Court
which bars a counterclaim not set up and Section 2(A) of the
Rules of Summary Procedure which states that a compulsory
counterclaim "must be asserted in the answer, or be considered
barred." The Metals case is not applicable to this case because
the issue therein was lack of jurisdiction by reason of non-
payment of docket fees.
Cu filled a Rejoinder to the Reply. 18
After deliberating on the allegations, issues, and arguments
raised by the parties in their pleadings, we find merit in the
petition.
It must be stressed that the validity of the consignation and the
propriety of the counterclaim for ejectment were not raised
before the Court of Appeals. As to the first, both the MTC and
the RTC ruled that the consignation was valid. The MTC
specifically stated in its decision:
On the validity of the consignation, both parties agree that the
controlling case is Ponce de Leon vs. Syjuco Inc., 90 Phil. 311.
The court believes that under the undisputed facts earlier
narrated, petitioner has complied with all the requisites laid
down in the said case, namely; "The debtor must show (1) that
there was a debt due; (2) that the consignation of the obligation
had been made because the creditor to whom tender of
payment was made refused to accept it, or because he was
absent or incapacitated, or because several persons claimed to
be entitled to receive the amount due (Art 1176, Civil Code); (3)
that previous notice of the consignation had been given to the
person interested in the performance of the obligation (Art.
1177, Civil Code); (4) that the amount due was placed at the
disposal of the court and (5) that after the consignation had
been made the person interested was notified thereof. 19
The RTC explicitly affirmed the MTC on this issue, thus:
3. With respect to the validity of the consignation, the Court
affirms the finding of the trial court that indeed plaintiff
substantially complied with all the requirements of consignation
and, therefore, the same was valid and effective. 20
Chan filed no petition for the review of the RTC decision and
had, therefore, accepted the said ruling. Cu did not, for obvious
reasons, raise the issue on consignation in her petition for
review in CA-G.R. SP No. 28870. Since the validity of the
consignation was not raised before it, the Court of Appeals
seriously erred when it dismissed the complaint for consignation
on the ground that it has no merit. Section 7, Rule 51 of the
Revised Rules of Court provides:
Sec. 7. Question that may be decided. No error which does
not effect the jurisdiction over the subject matter will be
considered unless stated in the assignment of errors and
properly argued in the brief, save as the court, at its option, may
notice plain errors not specified, and also clerical errors.
Jurisdiction is not involved in the consignation case, and no
plain errors with respect thereto are discernible from the MTC
and RTC decisions.
As to the counterclaim for ejectment, it must be emphasized that
the parties have conceded its propriety and accepted the MTC's
jurisdiction thereon. As a matter of fact, the consignation was
relegated to the background and the parties heatedly tangled on
the nagging issues on the duration of the lease after the
expiration of the last written contract, the power of the court to
extend the lease, and the length of the extension all of which
were provoked by and linked to the counterclaim for ejectment.
In her Position Paper for the Plaintiff filed with the MTC, 21 Cu
admitted having filed an answer to the counterclaim and even a
counterclaim to the counterclaim:
In answer to the counterclaim, plaintiff [Cu] asserted that the
lease is not on a month-to-month basis but for as long as the
premises is being used as a learning center. She contends that
it will be highly iniquitous that after undergoing so much
expenses, her occupancy of the premises will be abruptly
terminated. . . . that on the basis of justice and equity, the period
of plaintiff's lease should be fixed for at least five years from
February
1990 . . .
22
As counterclaim to the counterclaim, plaintiff alleged . . .
and assigned as one of the errors to be resolved by the court
the following:
2. Whether or not the plaintiff may be ejected from the subject
premises. 23
A counterclaim is any claim for money or other relief which a
defending party may have against an opposing party. It need
not diminish or defeat the recovery sought by the opposing
party, but may claim relief exceeding in amount or different in
kind from that sought by the opposing party's
claim. 24 Counterclaims are designed to enable the disposition
of a whole controversy of interested parties' conflicting claims, at
one time and in one action, provided all the parties can be
brought before the court and the matter decided without
prejudicing the rights of any party. 25 A counterclaim "is in itself a
distinct and independent cause of action, so that when properly
stated as such, the defendant becomes, in respect to the matter
stated by him, an actor, and there are two simultaneous actions
pending between the same parties, wherein each is at the same
time both a plaintiff and a defendant . . . A counterclaim stands
on the same footing and is to be tested by the same rules, as if
it were an independent action." 26 In short, the defendant is a
plaintiff with respect to his counterclaim.
Section 8, Rule 6 of the Rules of Court provides that the answer
may contain any counterclaim which a party may have against
the opposing party provided that the court has jurisdiction to
entertain the claim and can, if the presence of third parties is
essential for its adjudication, acquire jurisdiction of such parties.
Under Section 4 of Rule 9, a counterclaim not set up shall be
barred if it arises out of or is necessarily connected with the
transaction or occurrence that is the subject matter of the
opposing party's claim and does not require for its adjudication
the presence of third parties of whom the court cannot acquire
jurisdiction. A counterclaim may be compulsary or permissive.
The former is that covered by Section 4 of Rule 9.
Chan's counterclaim for ejectment is a compulsary counterclaim
because it is necessarily connected with the transaction or
occurrence which is the subject matter of Cu's complaint, viz.,
the lease contract between them. Consequently, the Court of
Appeals erred when it held that Chan's cause of action for
ejectment should not be set up in a counterclaim.
We agreed with Chan that Ching Pue vs. Gonzales is
inapplicable because in Ching Pue the consignation cases were
filed with the Court of First Instance which did not have
jurisdiction over ejectment cases; necessarily, no counterclaim
for ejectment could have been interposed therein. The ratio
decidendi of the said case is that consignation is not proper
where the refusal of the creditor to accept tender of payment is
with just cause. One will search therein in vain even for
an obiter dictum which suggests that an action for ejection
cannot be set up in a counterclaim. In the instant case, the
ejectment was set up as a counterclaim in the MTC which has
jurisdiction over it and Cu joined that issue and the incidents
thereto by her answer to the counterclaim and the counterclaim
to the counterclaim.
The Court of Appeals therefore should have confined itself to
the principal error raised in Cu's petition in CA-G.R. SP No.
28870, viz., the duration of the extended term of the lease fixed
in the decision of the MTC and affirmed by the RTC. As fixed,
the term of the lease was extended to 30 June 1992. That
period had expired six months before the Court of Appeals
promulgated its challenged decision. Considering that Chan did
not file any petition for the review of the RTC decision and was,
therefore, deemed to have agreed to the extension; and
considering further that Cu, as petitioner in CA-G.R. SP No.
28870 , did not come to us on a petition for review to seek
reversal of the decision therein and should thus be considered
to have agreed to the dismissal of her consignation case, the
parties must be deemed bound by the extended term, which
has, nevertheless, already lapsed.
We hold that the MTC had the authority to extend the period of
the lease. The parties started with a written contract of lease
with a term for one year from 1 February 1983 to 1 February
1984. This was renewed every year for two successive years, or
up to 1 February 1986. No written contract was made thereafter,
but Cu was allowed to occupy the premises at a monthly rental
which was increased every year. In November 1989, Chan
informed Cu of the termination of the lease and gave her until 1
January 1990 to vacate the premises. Articles 1670 and 1687 of
the Civil Code thus came into play:
Art. 1670. If at the end of the contract the lessee should
continue enjoying the thing leased for fifteen days with the
acquiescence of the lessor and unless a notice to the contrary
by either party has previously been given, it is understood that
there is an implied new lease, not for the period of the original
contract, but for the time established in Articles 1682 and 1687.
The other terms of the original contract shall be revived.
xxx xxx xxx
Art. 1687. If the period for the lease has not been fixed, it is
understood to be from year to year, if the rent agreed upon is
annual; from month to month, if it is monthly; from week to
week, if the rent is weekly; and from day to day, if the rent is to
be paid daily. However, even though a monthly rent is paid, and
no period for the lease has been set, the courts may fix a longer
term for the lease after the lessee has occupied the premises
for over one year. If the rent is weekly, the courts may likewise
determine a longer period after the lessee has been in
possession for over six months. In case of daily rent, the courts
may also fix a longer period after the lessee has stayed in the
place for over one month.
Article 1687 grants the court the authority to fix the term of the November 3, 1975, MPCP and the Philippine Integrated Meat
lease depending on how the rentals are paid and on the length Corporation (hereinafter, PIMECO) entered into an
of the lessee's occupancy of the leased premises. In the light of Agreement1 whereby MPCP leased to PIMECO, under a lease-
the special circumstances of this case, we find the extended purchase arrangement, its aforesaid property at an annual
term fixed by the MTC to be reasonable. rental rate of P1,375,563.92, payable over a period of twenty-
eight years commencing on the date of execution of the
WHEREFORE, the instant petition is GRANTED and the Agreement, or for a total consideration of P38,515,789.87. The
challenged Decision of 20 January 1993 of the Court of Appeals Agreement contained rescission clauses, to wit:
in CA-G.R. SP No. 28870 is hereby SET ASIDE, and the
Decisions of 27 March 1992 of Branch 11 of the Regional Trial 5. If for any reason whatsoever the LESSEE-VENDEE
Court of Manila in Civil Case No. 91-55879, and of 18 should fail or default in the payment of rentals
December 1990 of Branch 15 of the Metropolitan Trial Court of equivalent to the cumulative sum total of three (3)
Manila in Civil Case No. 131203- CV are REINSTATED. annual installments, this Agreement shall be deemed
automatically cancelled and forfeited without need of
Costs against the private respondent. judicial intervention, and LESSOR-VENDOR shall have
the complete and absolute power, authority, and
discretion, and without reservation by the LESSEE-
SO ORDERED. VENDEE, to dispose of, sell, transfer, convey, lease,
assign, or encumber the project to any person or
Cruz, Bellosillo, Quiason and Kapunan, JJ., concur. persons, natural or juridical, in the same manner as if
this lease-purchase arrangement was never entered
into. In the event of such cancellation or forfeiture, the
#Footnotes
LESSEE-VENDEE unconditionally agrees that all
1 Rollo, 114-120. Per Associate Justice Angelina S. Gutierrez, concurred in by forms of money paid or due from the LESSEE-
Associate Justices Fidel P. Purisima and Jesus M. Elbinias.
VENDEE shall be considered as rentals for the use
2 Annex "G" of Petition; Id., 88-96.
and occupancy of the project, and the LESSEE-
3 Annex "F" of Petition; Id., 82-87.
4 Rollo, 115-116.
VENDEE hereby waives and forfeits all rights to ask for
5 MTC Decision, 5-6; Rollo, 86-87. and demand the return or reimbursement thereof.2
6 Annex "I" of Petition; Id., 100-112.
7 Should be March 1990. xxx xxx xxx.
8 Id.,
9 Rollo, 118.
10 Rollo, 118-119 (emphasis supplied). 16. Violation of any of the terms and conditions of this
11 Annex "K" of Petition; Id., 121-129. Agreement shall be sufficient ground for the LESSOR-
12 Annex "L" of Petition; Id., 131. VENDOR to rescind and/or consider null and void this
13 Rollo, 15-16; Petition, 10-11. Agreement without need of judicial intervention by
14 87 Phil. 81 [1950]. giving the LESSEE-VENDEE one hundred eighty (180)
15 Rollo, 133-140. days written notice to that effect, which shall be final
16 203 SCRA 273 [1991]. and binding on the LESSEE-VENDEE, and the
17 Rollo, 144-148. LESSEE-VENDEE shall thereupon leave and vacate
18 Rollo, 151-154. the project, provided that if LESSEE-VENDEE has
19 Id., 86. subleased portions of the project, LESSEE-VENDEE
20 Id., 95. shall relinquish all its rights and/or interests over the
21 Annex "E" of Petition; Rollo, 68-77. sublease contracts in favor of the LESSOR-VENDOR.
22 Rollo, 71-72. LESSEE-VENDEE shall leave all improvements,
23 Id., 73. whether finished or unfinished, in good and serviceable
24 Section 6, Rule 6, Rules of Court.
condition immediately after the corresponding notice in
25 1 VICENTE J. FRANCISCO, THE REVISED RULES OF COURT IN THE
writing has been received by the LESSEE-VENDEE,
PHILIPPINES 463 (2D ed. 1973).
26 FRANCISCO, op. cit., at 464.
and all said improvements shall automatically belong to
and become the property of the LESSOR-VENDOR
without liability or obligation on the part of the
LESSOR-VENDOR to pay for the value thereof.
Republic of the Philippines LESSEE-VENDEE further holds the LESSOR-
SUPREME COURT VENDOR free and harmless from any and all liabilities
Manila arising from and/or connected with such sublease
contracts.3
EN BANC
Subsequently, on November 3, 1975, MPCP and PIMECO
entered into a Supplementary and Loan Agreement,4whereby,
G.R. No. 103068 June 22, 2001 in consideration of the additional expenditures incurred by
MPCP for rehabilitating and refurbishing the meat processing
MEAT PACKING CORPORATION OF THE PHILIPPINES, and packing plant, the total contract price of the lease-purchase
petitioner, agreement was increased to P93,695,552.59, payable over a
vs. period of twenty-eight years commencing on January 1, 1981, at
THE HONORABLE SANDIGANBAYAN, THE PRESIDENTIAL the annual rental rate of P3,346,269.70.
COMMISSION ON GOOD GOVERNMENT and PHILIPPINE
INTEGRATED MEAT CORPORATION, respondents. On March 17, 1986, the PCGG, in a letter signed by then
Commissioner Ramon A. Diaz, sequestered all the assets,
YNARES-SANTIAGO, J.: properties and records of PIMECO.5 The sequestration included
the meat packing plant and the lease-purchase agreement.
This is a petition for certiorari, mandamus and prohibition,
assailing the Resolutions of the Sandiganbayan in Civil Case MPCP wrote a letter on November 17, 1986 to PIMECO,6 giving
No. 0024, dated July 2, 1991 and November 29, 1991, directing notice of the rescission of the lease-purchase agreement on the
petitioner to accept the tender of payment of rentals by the ground, among others, of non-payment of rentals of more than
Presidential Commission on Good Government (hereinafter, P2,000,000.00 for the year 1986.
PCGG).
GSIS asked the PCGG to exclude the meat packing plant from
Petitioner Meat Packing Corporation of the Philippines the sequestered assets of PIMECO, inasmuch as the same is
(hereinafter, MPCP), is a corporation wholly owned by the owned by MPCP. However, PCGG denied the request.
Government Service Insurance System (GSIS). It is the owner Likewise, MPCP sought the turnover to it of the meat packing
of three (3) parcels of land situated in Barrio Ugong, Pasig City, plant on the ground that the lease-purchase agreement had
as well as the meat processing and packing plant thereon. On
already been rescinded. Acceding to this, PCGG passed on
January 24, 1989 a resolution stating thus:
WHEREAS, the Presidential Commission on Good
Government at its session en banc on September 20,
1988 ordered the transfer of subject property,
consisting of a meat packing complex including the
land located at Barrio Ugong, Pasig, Metro Manila, to
the GSIS under the condition then that the PCGG
management team might continue its operations for the
purpose of completing the outstanding orders up to
December 1988;
WHEREAS, the Government Service Insurance
System has shown, to the satisfaction of the
Commission, that it owns the said plant complex; that it
has the legal and equitable right to regain possession
and control thereof; that whatever claim PIMECO had
to the complex under its so-called agreement to
lease/purchase with GSIS/MPCP has been validly
rescinded by the GSIS; and that the projected turn-
over to the GSIS will not adversely affect the ill-gotten
wealth case pending against "crony" Peter Sabido
before the Sandiganbayan;
WHEREFORE, the turn-over to the GSIS of the said
property should be done forthwith upon compliance
with these conditions, to be implemented by the
Operations and Legal Departments: (a) joint PCGG-
COA audit; (b) approval by the Sandiganbayan; and (c)
execution of a Memorandum of Agreement to contain
these stipulations, among others: (a) that the shares of
Peter Sabido in PIMECO are subject to the
Sandiganbayan case; (b) that any disposition or
transfer by the GSIS of said property or any part
thereof shall be with the conformity of the PCGG; and
(c) that this Memorandum be annotated on the title of
the property.7
Meanwhile, PCGG instituted with the Sandiganbayan on July
29, 1987 a complaint for reconveyance, reversion, accounting,
restitution and damages, docketed as Civil Case No. 0024,
entitled, "Republic of the Philippines, Plaintiff versus Peter
Sabido, et al., Defendants."8 The complaint alleged, in pertinent
part, that Peter Sabido obtained, under favored and very liberal
terms, huge loans from the GSIS in favor of PIMECO, among
other corporations, which was beneficially held and controlled
by defendants Peter Sabido, Roberto S. Benedicto and Luis D.
Yulo; and that PIMECO was granted the monopoly to supply
meat products in the Greater Manila Area.
Defendant Peter Sabido filed his answer,9 alleging that the acts,
deeds, transactions and contracts referred to in the complaint
were negotiated and/or executed by his father, the late Roberto
M. Sabido, and not by him; and that, far from being illegal, the
acts performed or committed by the late Roberto M. Sabido as a
corporate officer of PIMECO were done in good faith, to the best
of his ability and in accordance with law, and whatever income
he received as an officer of PIMECO and whatever assets or
properties he acquired during his lifetime were the fruits of his
dedication to his profession, hard work, and honest labor.
On April 28, 1989, defendant Sabido filed with the
Sandiganbayan an Urgent Manifestation and Motion, 10 to the
effect that he has come across newspaper reports stating that
PCGG intends to turn over the management, control and
possession of PIMECO to the GSIS and MPCP. Sabido also
learned from a reliable source that the PCGG has passed a
resolution to implement the said turnover. Hence, Sabido
argued that inasmuch as PIMECO was a sequestered asset, the
projected turnover must be approved by the Sandiganbayan. He
prayed that PCGG be required to admit or deny these matters.
The Sandiganbayan, in a Resolution dated May 4,
1989,11 ordered the PCGG to submit its comment as to the
veracity of the alleged turnover of the management, control and
possession of PIMECO to the GSIS or MPCP, and if true, to
furnish movant Sabido a copy of the PCGG resolution approving
the same.
Meanwhile, on May 20, 1989, Sabido filed an Urgent
Manifestation and Motion,12 alleging that, according to
newspaper accounts, PCGG had in fact already turned over the
management and operation of PIMECO to the GSIS/MPCP.
Thus, he prayed that the transfer of the management, control
and possession of PIMECO to GSIS be declared null and
void ab initio for having been done without the approval of the
Sandiganbayan.
Sometime thereafter, the Sandiganbayan received a
letter13 from members of the PIMECO Labor Union, praying for
the maintenance of the status quo to enable PIMECO to
continue its business operations and to ensure their continuity of
work and security of tenure. Thus, on June 2, 1989, the
Sandiganbayan issued a Resolution, the dispositive portion of
which reads:
WHEREFORE, in the interest of justice, and
conformably with this Courts adherence to the rule of
law, to the end that undue prejudice and/or injury may
be avoided to any and all parties affected by these
proceedings, especially the avoidance of any cessation
in the operations of PIMECO, a temporary restraining
order is hereby issued commanding the Presidential
Commission on Good Government, their officers,
agents, representatives, monitors or persons acting in
their behalf or stead, to cease and desist from
enforcing the contemplated turnover of the
management, control and possession of PIMECO to
the Meat Packing Corporation of the Philippines until
further orders. In view of the serious issues involved,
let the instant incident be re-scheduled for hearing and
consideration on June 6, 1989, at 2:30 oclock p.m.
SO ORDERED.14
On June 22, 1989, Sabido filed with the Sandiganbayan a
Motion for the Issuance of a Writ of Preliminary Injunction,
alleging that the PCGG, in an Order dated May 11, 1989, had
ordered that the status quo as regards the management and
operations of PIMECO be maintained pending submission of
inventory and financial audit. However, at the hearings of this
incident, it was sufficiently shown that the transfer of PIMECO to
MPCP will result in the dissipation of assets which will cause
irreparable injury to Sabidos rights and interests in the company
in the event that the Sandiganbayan shall ultimately rule that the
same was not ill-gotten.
The Sandiganbayan, finding that the PCGG committed grave
abuse of authority, power and discretion in unilaterally
terminating the lease-purchase agreement of PIMECO with
MPCP and in turning over its management, control and
operation to the latter, ordered the issuance of a writ of
preliminary injunction, to wit:
WHEREFORE, finding the verified application for
issuance of a writ of preliminary injunction to be
sufficient in form and substance and that after due
hearing, it appears that great and irreparable injury will
be caused not only to defendant-applicant but also to
PIMECO should the acts sought to be enjoined be
allowed to be done or performed, accordingly, upon
defendant-applicants posting of a bond of P50,000.00,
let the corresponding writ of preliminary injunction
issue commanding the Presidential Commission on
Good Government, its officers, representatives,
nominees or agents from proceeding or consummating
the projected turnover of PIMECO to the GSIS-MPCP
or to interfere with its present management and
operations, until further orders of this Court.
SO ORDERED.15
Accordingly, upon the posting of the requisite bond, the Writ of
Preliminary Injunction was issued on July 10, 1989, enjoining
the Presidential Commission on Good Government, its officers,
representatives, nominees or agents, from proceeding or
consummating the projected turn-over of PIMECO to GSIS-
MPCP or to interfere with its present management and
operations, until further orders from this Court.16
PCGG filed a Motion for Reconsideration of the Resolution of
June 22, 1989. On August 3, 1989, the Sandiganbayan issued
its Resolution, viz:
WHEREFORE, premises considered, plaintiffs "Motion
for Reconsideration (Re: Resolution dated June 22,
1989)" dated July 3, 1989 is hereby GRANTED, and
the dispositive portion of Our Resolution of June 22,
1989, ordered amended to read as follows:
"WHEREFORE, finding the verified application for issuance of a
writ of preliminary injunction to be sufficient in form and
substance and that after due hearing, it appears that great and
irreparable injury will be caused not only to defendant-applicant
but also to PIMECO should the acts sought to be enjoined be
allowed to be done or performed, accordingly, upon defendant-
applicants posting of a bond of P50,000.00, let the
corresponding writ of preliminary injunction issue commanding
the Presidential Commission on Good Government, its officers,
representatives, nominees or agents from proceeding or
consummating the projected turnover of PIMECO to the GSIS-
MPCP until further orders of this Court and from replacing,
dismissing, demoting, reassigning, grounding, or otherwise
prejudicing the present members of the PCGG management
team in PIMECO, except for valid and serious reasons not
attributable to or arising from their objection or opposition to or
activities of statements against the said turnover."
SO ORDERED.17
Thereafter, the Sandiganbayan continued to conduct hearings
on the issue of the validity of the turn-over of the meat packing
plant to GSIS. On November 29, 1989, it issued a Resolution
disposing thus:
WHEREFORE, considering the attendant
circumstances of the present incident in light of the
standard laid down by the Supreme Court, this Court
finds and holds:
(1) That the PCGG gravely abused its discretion when
it passed the resolutions dated September 20, 1988,
and January 24, 1989, turning over the "meat packing
complex including the land located at Barrio Ugong,
Pasig, Metro Manila," to the GSIS/MPCP (Exh. E).
(2) That the PCGG commissioner concerned exceeded
his authority when he executed the Memorandum of
Agreement with MPCP on April 28, 1989, transferring
the management and operation of PIMECO to the
GSIS/MPCP (Record, pp. 1828-1832).
(3) That, accordingly, the said turnovers or transfers
are declared null and void ab initio, and
(4) That the PCGG, its commissioners, officers,
representatives, and agents are permanently enjoined
from implementing the same turnovers or transfers.
SO ORDERED.18
On August 30, 1990, PIMECO filed with the Sandiganbayan a
petition, docketed as Civil Case No. 0108, entitled, "Philippine
Integrated Meat Corporation (PIMECO), Petitioner versus Meat
Packing Corporation of the Philippines (MPCP) and Presidential
Commission on Good Government (PCGG),
Respondents," captioned as for "Declaratory Relief and Other
Similar Remedies (Related to PCGG Case No. 25 and Civil
Case No. 0024)."19
In its petition, PIMECO alleged that from 1981 to 1985, PIMECO
has been regularly paying the annual rentals in the amount of
P3,346,269.70; and that prior to its sequestration in January
1986, PIMECO was able to pay MPCP the amount of
P846,269.70. However, after its sequestration, the PCGG
Management Team that took over the plant became erratic and
irregular in its payments of the annual rentals to MPCP, thus
presenting the danger that PIMECO may be declared in default
in the payment of rentals equivalent to three (3) annual
installments and causing the cancellation of the lease-purchase
agreement. Hence, PIMECO prayed for a declaration that it is
no longer bound by the provisions of the above-quoted
paragraph 5 of the lease-purchase agreement.
In the meantime, PCGG tendered to MPCP two checks in the
amounts of P3,000,000.00 and P2,000,000.00, or a total of
P5,000,000.00, representing partial payment of accrued rentals
on the meat packing plant, which MPCP refused to accept on
the theory that the lease-purchase agreement had been
rescinded. Thus, the PCGG filed an Urgent Motion20 praying
that the Sandiganbayan order MPCP to accept the tendered
amount of P5,000,000.00.
The Sandiganbayan set the aforesaid Urgent Motion for
hearing. On April 3, 1991, MPCP, by special appearance, filed
its Comment,21 alleging that the Sandiganbayan had no
jurisdiction over MPCP since it was not a party in Civil Case No.
0024; that its lease-purchase agreement with PIMECO has
been rescinded as early as November 19, 1986; and that
PIMECO was in arrears in the payment of rentals in the amount
of P12,378,171.06, which is more than the equivalent of three
cumulative rentals at the annual rate of P3,346,269.70.
On July 2, 1991, the Sandiganbayan issued the first assailed
Resolution, as follows:
WHEREFORE, the Court declares that the tender of
payment and consignation of P5,000,000.00 in the
form of two checks, namely: China Banking
Corporation Check No. LIB M 003697 for
P3,000,000.00 and Far East Bank and Trust Company
Check No. 29A A 021341 for P2,000,000.00, both
dated January 30, 1991, and payable to GSIS-MPCP,
have been validly made in accordance with law and,
accordingly, orders Meat Packing Corporation of the
Philippines to accept the payment and issue the
corresponding receipt.
SO ORDERED.22
MPCP, still under a special appearance, filed a Motion for
Reconsideration of the above Resolution.23 On November 29,
1991, the Sandiganbayan issued the second assailed
Resolution,24 denying MPCPs Motion for Reconsideration. Said
the Sandiganbayan:
When the PCGG sequestered the assets and records
of PIMECO, including the lease-purchase agreement
over MPCPs meat packing plant, it assumed the duty
to preserve and conserve those assets and documents
while they remained in its possession and control. That
duty did not disappear when the writ was deemed ipso
facto lifted. On the contrary, it continued until the
sequestered assets and records where returned to
PIMECO. And in the performance of that duty in order
to prevent the cancellation of the lease-purchase
agreement by reason of the failure to pay three
accumulated yearly rentals-installments, the PCGG
made the timely tender of payment and consignation
which the Resolution sought to be reconsidered
sustained. To rule otherwise would be unfair and unjust
to PIMECO considering that during the time the PCGG
had possession and control of the sequestered assets
and records, PIMECO was not in the position to take
steps necessary for the preservation and conservation
of those assets and records.25
Meanwhile, on December 2, 1991, the Sandiganbayan
dismissed Civil Case No. 0108, i.e., the petition for declaratory
relief, it appearing that while the unpaid rentals as of January
27, 1991 have reached P7,530,036.21, PCGGs tender of
payment and consignation of the amount of P5,000,000.00,
which was upheld by the Sandiganbayan in Civil Case No.
0024, averted the accumulation of the unpaid rentals to three
yearly rentals-installments. Consequently, the petition for
declaratory relief has become moot and academic.26
Hence, MPCP brought this petition for certiorari, mandamus and
prohibition, arguing in fine that the Sandiganbayan did not have
jurisdiction over its person since it was not a party to Civil Case
No. 0024; that the Sandiganbayan likewise did not acquire
jurisdiction over the person of PIMECO since it has not been
served summons; and that the PCGG is in estoppel because it
has already admitted in its en banc resolutions that the lease-
purchase agreement between MPCP and PIMECO has been
rescinded. MPCP prays for injunctive relief and for judgment
setting aside the assailed Resolutions of the Sandiganbayan;
ordering the Sandiganbayan to deny the PCGGs motion for
consignation and to compel MPCP to accept the tendered
amount of P5,000,000.00; and prohibiting the Sandiganbayan
from accepting any papers or pleadings from PCGG or PIMECO
against MPCP in Civil Case No. 0024.
Counsel for Peter Sabido filed his Comment,27 with the
qualification that the same was being filed only on behalf of
Sabido, a stockholder of PIMECO, and not on behalf of the
corporation. He argued that the Sandiganbayan correctly held
that the MPCP voluntarily submitted itself to the courts
jurisdiction; that there was a valid consignation made by PCGG;
and that the Sandiganbayan did not commit grave abuse of
discretion in issuing the assailed resolutions.
PCGG filed its Comment,28 also contending that MPCP
voluntarily submitted itself to the jurisdiction of the
Sandiganbayan; and that the consignation was validly made.
Copies of this Courts resolutions were furnished PIMECO at its
principal office at 117 E. Rodriguez, Sr. Ave., Barrio Ugong,
Pasig City. However, all of these were returned unserved with
the notation, "RTS Closed."29 Thus, on June 19, 1995, this
Court resolved to dispense with the comment of PIMECO.30
The petition, being one for certiorari, mandamus and prohibition,
is mainly anchored on the alleged grave abuse of discretion
amounting to want of jurisdiction on the part of the
Sandiganbayan.
Grave abuse of discretion implies a capricious and whimsical
exercise of judgment as is equivalent to lack of jurisdiction, or,
when the power is exercised in an arbitrary or despotic manner
by reason of passion or personal hostility, and it must be so
patent and gross as to amount to an evasion of positive duty
enjoined or to act at all in contemplation of law. 31 It is not
sufficient that a tribunal, in the exercise of its power, abused its
discretion; such abuse must be grave.32
In the assailed resolutions, the Sandiganbayan approved the
consignation by PCGG of the amount of P5,000,000.00 as
payment for back rentals or accrued amortizations on the meat
packing plant, after the MPCP refused the tender of payment of
the same.
Consignation is the act of depositing the thing due with the court
or judicial authorities whenever the creditor cannot accept or
refuses to accept payment, and it generally requires a prior
tender of payment.33 It should be distinguished from tender of
payment. Tender is the antecedent of consignation, that is, an
act preparatory to the consignation, which is the principal, and
from which are derived the immediate consequences which the
debtor desires or seeks to obtain. Tender of payment may be
extrajudicial, while consignation is necessarily judicial, and the
priority of the first is the attempt to make a private settlement
before proceeding to the solemnities of consignation. 34 Tender
and consignation, where validly made, produces the effect of
payment and extinguishes the obligation.
If the creditor to whom tender of payment has been
made refuses without just cause to accept it, the debtor
shall be released from responsibility by the
consignation of the thing or sum due.
Consignation alone shall produce the same effect in
the following cases:
(1) When the creditor is absent or unknown, or does
not appear at the place of payment;
(2) When he is incapacitated to receive the payment at
the time it is due;
(3) When, without just cause, he refuses to give a
receipt;
(4) When two or more persons claim the same right to
collect;
(5) When the title of the obligation has been lost.35
In the case at bar, there was prior tender by PCGG of the
amount of P5,000,000.00 for payment of the rentals in arrears.
MPCPs refusal to accept the same, on the ground merely that
its lease-purchase agreement with PIMECO had been
rescinded, was unjustified. As found by the Sandiganbayan,
from January 29, 1986 to January 30, 1990, PIMECO paid, and
GSIS/MPCP received, several amounts due under the lease-
purchase agreement, such as annual amortizations or rentals,
advances, insurance, and taxes, in total sum of
P15,921,205.83.36 Surely, the acceptance by MPCP and GSIS
of such payments for rentals and amortizations negates any
rescission of the lease-purchase agreement. Parenthetically, the
factual findings of the Sandiganbayan are conclusive upon this
Court, subject to certain exceptions.37 The aforesaid factual
findings, moreover, have not been disputed by petitioner.
In support of its contention that the lease-purchase agreement
has been rescinded, MPCP makes reference to the resolutions
of the PCGG turning over to the GSIS the meat packing
complex and the land on which it is situated. MPCP argues that
PCGG was estopped from taking a contrary position. A closer
perusal of the resolutions, however, readily shows that the turn-
over was explicitly made dependent on certain conditions
precedent, among which was the approval by the
Sandiganbayan and the execution of a Memorandum of
Agreement between PCGG and MPCP.38 A Memorandum of
Agreement was in fact executed on April 28, 1989, although the
same suffers from formal and substantial infirmities. However,
no approval was sought from the Sandiganbayan. On the
contrary, the Sandiganbayan, in its Resolution declaring the
turn-over null and void, refused to honor the PCGG resolutions,
reasoning thus:
First, what was approved by the PCGG in its
resolutions of September 20, 1988, and January 24,
1989, is the transfer of the "meat packing complex
including the land located at Barrio Ugong, Pasig,
Metro Manila," and not "the management and
operation of PIMECO." It is, however, the latter that the
Memorandum of Agreement, executed on April 28,
1989, pursuant to the said resolutions, transferred to
the GSIS.
Second, the second resolution made the turnover of
the "meat packing complex including the land located
at Barrio Ugong, Pasig Metro Manila," "upon
compliance with these conditions, to be implemented
by the [PCGG] Operations and Legal Departments: . . .
(b) approval by the Sandiganbayan . . ." Until now,
however, no motion has been presented to secure that
approval, and none can be expected because the
same Memorandum of Agreement changed the
requirement of approval to "(t)he Sandiganbayan shall
be advised of this Agreement." Even the advice
stipulated has never been given by the PCGG.
Since the Memorandum of Agreement was executed
by one PCGG commissioner only, the same cannot
validly amend the resolutions passed by the PCGG
itself. Consequently, the turnover of the management
and operation of PIMECO, which, of course, include
the meat packing complex and the land of which it
stands, stipulated in the Memorandum of Agreement,
cannot be legally enforced. Needless to say, the
commissioners should be the first to abide by the
PCGGs resolutions.39
Under the terms of the lease-purchase agreement, the amount
of arrears in rentals or amortizations must be equivalent to the
cumulative sum of three annual installments, in order to warrant
the rescission of the contract. Therefore, it must be shown that
PIMECO failed to pay the aggregate amount of at least
P10,038,809.10 before the lease-purchase agreement can be
deemed automatically cancelled. Assuming in the extreme that,
as alleged by MPCP, the arrears at the time of tender on
January 30, 1991 amounted to P12,578,171.00,40 the tender
and consignation of the sum of P5,000,000.00, which had the
effect of payment, reduced the back rentals to only
P7,578,171.00, an amount less than the equivalent of three
annual installments. Thus, with the Sandiganbayans approval
of the consignation and directive for MPCP to accept the
tendered payment, the lease-purchase agreement could not be
said to have been rescinded.
affirmative relief. The Sandiganbayan did not commit grave
abuse of discretion in saying so.1wphi1.nt
WHEREFORE, in view of the foregoing, the instant petition
is DISMISSED for lack of merit.
SO ORDERED.
Davide, Jr., C.J., Bellosillo, Melo, Puno, Vitug, Kapunan,
Mendoza, Panganiban, Quisumbing, Pardo, Buena, Gonzaga-
Reyes, De Leon, Jr., Sandoval-Gutierrez, JJ., concur.
Footnote
1 Rollo, pp. 25-39.

MPCPs chief complaint in its present petition is that it was not a 2

Ibid., p. 29.
3 Id., p. 32.
party in Civil Case No. 0024. As such, it alleges that the
4 Id., pp. 40-46.
Sandiganbayan had no jurisdiction over its person and may not
5
direct it to accept the consigned amount of P5,000,000.00. In Id., p. 47.
6 Id., pp. 49-50.
rejecting this argument, the Sandiganbayan held that Civil Case 7 Id., pp. 95-96.
No. 0024, i.e., the sequestration case, on the one hand, and 8 Id., pp. 51-73.
Civil Case No. 0108, i.e., the petition for declaratory relief in 9 Record, Vol. II, pp. 598-617.
which it was the named respondent, on the other hand, were 10 Ibid., Vol. IV, pp. 1541-1543.
interrelated since they both involved the sequestered assets of 11 Id., p. 1545.
PIMECO. Thus, the titles of both cases appear on the caption of 12
Id., pp. 1565-1569.
the assailed Resolutions dated July 2, 1991. On this point, the 13 Id., pp. 1624-1625.

Sandiganbayan further ruled: 14 Id., pp. 1636-1637.

15 Id., pp. 1842-1847.
16 Ibid., Vol. V, p. 2037.
While MPCP is not a named party in Civil Case No. 17 Id., pp. 2054-2061.
0024, it is in Civil Case No. 0108. These two civil 18 Id., pp. 2447-2468.
actions are interrelated in the sense that they both 19
Record, Civil Case No. 0108, pp. 1-5.
involve the sequestered and taken-over assets of 20 Record, Civil Case No. 0024, Vol. VIII, pp. 3581-3586.
PIMECO, principal of which are the lease-purchase 21 Ibid., pp. 3648-3657.
agreement, the rights thereunder of PIMECO, and, 22 Id., pp. 3796-3797; penned by Associate Justice Jose S. Balajadia, concurred
since these rights can not be exercised without in by Associate Justices Romeo M. Escareal and Nathanael M. Grospe.
possession of the meat processing plant, the plant 23 Id., pp. 3848-3857.
itself. It is for this reason that the caption of the present 24
Ibid., Vol. IX, pp. 4066-4069.
Urgent Motion expressly indicates that Civil Case No. 25 Id., p. 4069.

0024 is "Related to Civil Case No. 0108." In view of 26

Record, Civil Case No. 0108, pp. 208-211.
these circumstances, the Court considers the Urgent 27
Rollo, pp. 225-231.
Motion as also filed in Case No. 0108. 28 Ibid., pp. 252-257.
29
Id., p. 446.
30 Id., p. 449.
Moreover, when the propriety of the turn-over of the 31 Akbayan-Youth, et al. v. Comelec, G.R. Nos. 147066 & 147179, March 26,
management and control of PIMECO, including the 2001.
meat packing plant, to MPCP was in issue in Civil 32 Benito v. Comelec, G.R. No. 134913, January 19, 2001.
Case No. 0024, MPCP, through its officers, appeared 33 Ascue v. Court of Appeals, 196 SCRA 804, 807-808 [1991]; Legaspi v. Court of
in all the proceedings and actively coordinated with Appeals, 142 SCRA 82, 88 [1986].
PCGG. To justify the turn-over, the Office of the 34 Soco v. Militante, 123 SCRA 160, 173 [1983].

Solicitor General echoed the stand of MPCP that the 35 CIVIL CODE, Article 1256.

lease-purchase agreement had already been 36 Rollo, p. 128.

rescinded. And in the present Urgent Motion, MPCP 37 (1) When the conclusion is a finding grounded entirely on speculation,

again appeared. In fact, it appeared in Case No. 0024
even if the matter at hand was not the said motion.
Although MPCPs lawyer entered a special appearance
in the present incident, he did not confine himself to
assailing the jurisdiction of this Court over MPCP, but
went to the extent of participating in the oral argument
on the merits of the motion,. Indeed, his Comment
devoted only one page on the issue of jurisdiction and
seven pages to the alleged untenability of the motion.
Although MPCP did not expressly pray for the denial of
the urgent motion, not even for lack of jurisdiction over
it, by setting forth therein arguments not only on the
jurisdictional issue, but more extensively on the alleged
lack of merit of the motion, it thereby impliedly prayed
for affirmative relief in its favor. Under these
circumstances, MPCP voluntarily submitted itself to the
jurisdiction of the Court.41
surmise and conjecture; (2) when the inference made is manifestly an error or
founded on a mistake; (3) when there is grave abuse of discretion; (4) when
the judgment is based on a misapprehension of facts; and (5) when the
findings of fact are premised on a want of evidence and/or contradicted by
evidence on record. (Espinosa v. Sandiganbayan, G.R. No. 119285, May 9,
2000; Diaz v. Sandiganbayan, 302 SCRA 118 [1999]).
38 Op. cit., note 7.
39 Record, Civil Case No. 0024, Vol. V, pp. 2463-2464.
40 Rollo, p. 132.
41 Ibid., pp. 130-131.
42 Ang Ping v. Court of Appeals, 310 SCRA 343, 349 [1999]; Avon Insurance PLC
v. Court of Appeals, 278 SCRA 312 [1997].
43 Melendres, Jr. v. Comelec, 319 SCRA 262, 282 [1999].

Jurisdiction over the person of the defendant in civil cases is

acquired either by his voluntary appearance in court and his
submission to its authority or by service of
summons.42 Furthermore, the active participation of a party in
the proceedings is tantamount to an invocation of the courts
jurisdiction and a willingness to abide by the resolution of the
case, and will bar said party from later on impugning the court or
bodys jurisdiction.43 In this case, petitioner MPCP is precluded
from questioning the jurisdiction of the Sandiganbayan over its
person in Civil Case No. 0024, considering that, as shown by
the records, it actively participated in the discussion of the
merits of the said case, even going to the extent of seeking
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 106467-68 October 19, 1999
DOLORES LIGAYA DE MESA, petitioner,
vs.
THE COURT OF APPEALS, OSSA HOUSE, INC. AND
DEVELOPMENT BANK OF THE
PHILIPPINES, respondents.
PURISIMA, J.:
At bar is a Petition for Review on Certiorari under Rule 45 of
the Revised Rules of Court questioning the Decision 1of the
Court of Appeals 2 dated March 31, 1992 in CA-G.R. Nos.
19145 and 19146, which modified the decision of Branch 138 of
the Regional Trial Court of Makati in Civil Case Nos. 41059 and
42381.
The antecedent facts are as follows:
Petitioner Dolores Ligaya de Mesa owns several parcels of
land in Makati, Pasay City, Cavite, and General Santos
City 3 which were mortgaged to the Development Bank of the
Philippines (DBP) as security for a loan she obtained from the
bank. Failing to pay her mortgage debt, all her mortgaged
properties were foreclosed and sold at public auction held on
different days. On April 30, 1977, the Makar property was sold
and the corresponding certificate of sale inscribed on March 10,
1978. On August 25, 1977, the Naic, Cavite property was sold
and the certificate of sale registered on the same day. On
August 30, 1977, the two (2) parcels of land in Makati were sold
at public auction and the certificate of sale was inscribed on
November 25, 1977. And on January 12, 1978, the three (3)
parcels of land in Pasay City were also sold and the certificate
of sale was recorded on the same date. In all the said auction
sales, DBP was the winning bidder.
In a letter dated May 29, 1978, petitioner de Mesa requested
DBP that she be allowed to repurchase her foreclosed
properties.1w phi1.nt
On October 23, 1978, Mrs. de Mesa, under a "Deed of Sale
with Assumption of Mortgage," 4 sold the foreclosed properties
to private respondent OSSA under the condition that the latter
was to assume the payment of the mortgage debt by the
repurchase of all properties mortgaged on installment basis,
with an initial payment of P90,000.00 representing 20% of the
total obligation.
On October 23, 1978, private respondent OSSA remitted to
DBP the initial payment of P90,000.00, in addition to the
amount of P10,000.00 previously paid to the petitioner.
On February 22, 1979, DBP granted petitioner's request to
repurchase the foreclosed properties such that in March
1979 a "Deed of Conditional Sale" was executed under
which DBP agreed to sell the said properties to the petitioner
for the sum of P363,408.20, P90,000.00 of which was to be
paid as initial payment and the balance in seven (7) years on
a quarterly amortization plan, with a first quarterly installment
of P15,475.17.
Private respondent OSSA paid DBP the first to eight
quarterly installments from April 11, 1979 to May 8, 1991, in
the total amount of P137,595.31, which installment
payments were applied to petitioner's obligation with DBP
pursuant to the Deed of Conditional Sale.
On March 11, 1981, petitioner de Mesa notified private
respondent OSSA that she was rescinding the Deed of Sale
with Assumption of Mortgage she executed in favor of the
latter on the ground that OSSA failed to comply with the
terms and conditions of their agreement, particularly the
payment of installments to the Development Bank of the
Philippines, the discharge and cancellation of the mortgage
on the property listed in item IV of the first whereas clause,
and the payment of the balance of more or less P45,000.00
to petitioner, representing the difference between the
purchase price of subject properties and the actual obligation
to the DBP.
On April 11, 1981, OSSA offered to pay the amount of
P34,363,08, which is the difference between the purchase
price of P500,000.00 and the mortgage obligation to DBP of
P455,636.92, after deducting the downpayment of
P10,000.00 stipulated in said Deed of Sale with Assumption
of Mortgage, but the petitioner refused to accept such
payment. So, on April 28, 1981, OSSA brought a Complaint
for Consignation against the petitioner, docketed as Civil
Case No. 41059 before the then Court of First Instance of
Rizal, Branch XV, and at the same time, deposited the
amount of P34,363.08 with said court.
On August 5, 1981, DBP refused to accept the 9th quarterly
installment paid by OSSA, prompting the latter to file against
DBP and the petitioner, on August 11, 1981, Civil Case No.
42381 for specific performance and consignation, with the
then Court of First Instance of Pasig, Rizal, depositing in
said case the amount of P15,824.92.
On October 21, 1981, upon petitioner de Mesa's motion,
Civil Case Nos. 41059 and 42381 were consolidated before
the then Court of First Instance of Rizal, Branch XV, Makati,
Metro Manila, now Regional Trial Court of Makati City, Brach
CXXXVIII (138).
In an Order dated July 23, 1982, the lower court allowed
OSSA to deposit with the Court a quo by way of
consignation, all future quarterly installments without need of
formal tenders of payment and service of notices of
consignation. Correspondingly and over the period of time
stipulated, OSSA deposited with the lower court the 10th to
the 20th installments in the aggregate amount of
P172,562.11.
After trial, the lower court came out with a Decision for the
private respondent OSSA, holding thus:
WHEREFORE premises considered, judgment is hereby
rendered (a) declaring the consignation made by plaintiff as
proper and valid and ordering defendants Dolores Ligaya de
Mesa and Development Bank of the Philippines to withdraw
and receive said payments due them which plaintiff has
consigned with the Court;
(b) Ordering defendant Development Bank of the Philippines
to furnish plaintiff with a statement of payments and balance,
if any, still due from defendant de Mesa after applying all
payments already received, including the amounts placed
under consignation;
(c) Upon payment by the plaintiff of the balance if any, still
due on the properties, defendant Development Bank of the
Philippines shall execute a Deed of Absolute Sale in favor of
the plaintiff over the properties subject matter of the Deed of
Absolute Sale with Assumption of Mortgage executed by and
between plaintiff and defendant de Mesa;
(d) Ordering plaintiff to pay defendant de Mesa the
difference, if any, between the agreed purchase price of
P500,000.00 and the payments made to the defendant
Development Bank of the Philippines, less the P10,000,00
down payment already paid and the P34,363.08 consigned
with the Court; and
(e) Ordering defendant de Mesa to pay plaintiff the sum of
P10,000.00 as attorneys fees.
SO ORDERED. 5
The petitioner appealed to the Court of Appeals which
handed down on March 31, 1992, its decision modifying the
challenged decision, as follows:
WHEREFORE, the decision appealed from is hereby
MODIFIED:
(a) declaring the consignation made by OSSA as proper and
valid as far as de Mesa is concerned, and ordering de Mesa
to receive the said amount consigned with the court and pay
DBP with the said amount;
(b) ordering DBP to furnish de Mesa with a statement of
payments and the balance, if any, still due from de Mesa
after applying all payments already received, including the
amounts paid under consignation;
(c) ordering de Mesa to furnish OSSA with a copy of the
statement of payments described in the preceding
paragraph, and the balance appearing therein, if any, shall
be paid by OSSA for the account of de Mesa;
(d) ordering DBP to execute a Deed of Absolute Sale in
favor of de Mesa over the properties subject of the Deed of
Conditional Sale;
(e) ordering Ossa to pay de Mesa the difference, if any,
between the agreed purchase price of P500,000.00 and the
payments made to DBP, less the P10,000.00 down payment
and the P34,363.08 consigned with the court;
(f) ordering de Mesa thereafter, to execute a Deed of
Absolute Sale in favor of OSSA over the properties subject
of the Deed of Sale with assumption of Mortgage; and
(g) ordering de Mesa to pay OSSA the sum of P10,000.00
as and for attorney's fees.
No pronouncement as to costs.
SO ORDERED. 6
On May 5, 1992, petitioner interposed a motion for
reconsideration of the aforesaid decision, theorizing that:
I themselves. On the contrary, the very words of the contract reveal that
THIS COURT ERRED WHEN IT HELD THAT WHAT WAS SOLD
UNDER THE "DEED OF SALE WITH ASSUMPTION OF MORTGAGE"
WERE THE PROPERTIES LISTED THEREIN AND NOT MERELY THE
RIGHT OF REDEMPTION DESPITE THE TESTIMONIES OF BOTH
CONTRACTING PARTIES THAT WHAT SOLD AND BOUGHT WAS
MERELY THE RIGHT OF REDEMPTION.
II
THIS COURT ERRED IN HOLDING THAT DE MESA'S REQUEST TO
REPURCHASE THE FORECLOSED PROPERTIES FROM DBP
REDOUNDED TO THE BENEFIT OF OSSA HOUSE, INC.
III
THIS COURT ERRED IN HOLDING DE MESA IN ESTOPPEL.
IV
THIS COURT ERRED IN RULING THAT THE MANDATORY
REQUIREMENTS OF THE CIVIL CODE ON CONSIGNATION CAN BE
WAIVED BY THE TRIAL COURT. 7
With the denial of her aforestated motion for reconsideration, petitioner
found her way to this Court via the present petition, raising the issues:
(i) Whether or not the requirements of Articles 1256 to 1261 can be
"relaxed" or "substantially complied with".
(ii) Whether or not the Court can supplant its own reading of an
ambiguous contract for the actual intention of the contracting parties as
testified to in open court and under oath.
(iii) Whether or not petitioner de Mesa can be held in estoppel for the
acts of the DBP.
Art. 1370 of the New Civil Code, reads:
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.
xxx xxx xxx
When the words of a contract are plain and readily understood, there is
no room for construction. As the agreement of the parties are reduced to
writing, such agreement is considered as containing all its terms and
there can be, between the parties and their successors-in-interest, no
evidence of the terms of the written agreement other than the contents
of the writing. 8
In the case under consideration, the terms of the "Deed of Sale with
Assumption of Mortgage Debt" are clear and leave no doubt as to what
were sold thereunder. It provided as follows:
WHEREAS, the VENDOR has agreed to sell to the VENDEE (plaintiff
Ossa House, Inc.), and the VENDEE has agreed to purchase form the
VENDOR, all the properties described in Items I, II, and III, of the First
Whereas Clause, for the price and under the terms hereinafter
contained;
NOW, THEREFORE, for and in consideration of the premises and the
sum of TEN THOUSAND PESOS (P10,000.00), the receipt whereof is
hereby acknowledged, and the assumption by the VENDEE of the total
mortgage obligation of the VENDOR has sold, transferred, and
conveyed, and by these presents does sell, transfer and convey, unto
the said VENDEE, its administrators and assigns, free from all liens and
encumbrances except as noted herein, the parcels of land hereinabove
described in Items I, II, and III, together with all the buildings and
improvements thereon;
The VENDEE does hereby assume the payment of the mortgage
obligations by repurchase of all the properties mortgaged on installment,
with an initial payment of P90,000.00 representing payment 20% of the
total obligation; and consequently, the within sale is subject to the
mortgage in favor of the Development Bank of the Philippines;
Nowhere is it provided in the aforequoted provisions, as the petitioner
insists, that what she sold to respondent OSSA was merely the right to
redeem the mortgaged properties and not the foreclosed properties
the subject of the sale were "all the properties described in items I, II, III
of the First Whereas Clause."
Indeed, the contract under scrutiny is so explicit and unambiguous that it
does not justify any attempt to read into it any supposed intention of the
parties, as the said contract is to be understood literally, just as they
appear on its
face. 9
Petitioner capitalizes on the following prefatory clause of the contract, to
wit:
WHEREAS, the VENDOR (defendant De Mesa) is the registered owner
with a preferential right of redemption of the following mortgaged
properties with the Development Bank of the Philippines, more
particularly described as follows:
However, not the slightest indication can be gleaned from the
abovequoted provision that the subject of the "Deed of Sale with
Assumption of Mortgage" was petitioner's right of redemption. The said
provision merely speaks of the preferential right of the latter to redeem
the real properties involved.
Furthermore, the court discerns no inconsistency between the contract's
recognition of the preferential right of petitioner to redeem the
mortgaged properties, and the sale of the said properties to respondent
OSSA. Petitioner can validly redeem subject properties and still
recognize the sale thereof to the respondent corporation because
nothing therein is contrary to law, morals, good customs, public order or
public policy. Besides, it is a well-settled doctrine that in the construction
of an instrument where there are several provisions, or particulars, such
a construction is, if possible, to be adopted as will give effect to
all. 10 Thus, the recognition of both the preferential right of the petitioner
to redeem the mortgaged properties and the sale of the same properties
to respondent OSSA is in order, as it would harmonize and give effect to
all the provisions of the "Deed of Sale with Assumption of Mortgage"
under controversy.
As aptly ruled by the respondent court, the grant by DBP of petitioner's
request to repurchase the mortgaged properties redounded to the
benefit of respondent OSSA, the sale of the said properties having been
previously agreed upon by the petitioner and respondent
OSSA.1wphi1.nt
Petitioner contends that she is not estopped from questioning DBP's
application to her account of OSSA's initial payment of P90,000.00 as
well as the first to eight quarterly installments. It bears stressing,
however, that the remittance of the said payment was made in
implementation of the provisions of their contract. The belated claim of
the petitioner, which was not given credence by the trial court, that she
objected to the application by DBP to her account of all the remittances
of OSSA is tainted with bad faith as this is an attempt to renegade
against her contract with respondent OSSA. Besides, the issue of
whether or not petitioner objected is a question of fact that has already
been settled by the trial court which best performs the matter of
assigning values to the testimony of witnesses, 11 and whose findings
are accorded great weight especially when affirmed by the Court of
Appeals 12, as in the case at bar.
Petitioner next argues that there was no notice to her regarding OSSA's
consignation of the amounts corresponding to the 12th up to the 20th
quarterly installments. The records, however, show that several tenders
of payment were consistently turned down by the petitioner, so much so
that the respondent OSSA found it pointless to keep on making formal
tenders of payment and serving notices of consignation to petitioner.
Moreover, in a motion dated May 7, 1987, OSSA prayed before the
lower court that it be allowed to deposit by way of consignation all the
quarterly installments, without making formal tenders of payment and
serving notice of consignation, which prayer was granted by the trial
court in the Order dated July 3, 1982. The motion and the subsequent
court order served on the petitioner in the consignation proceedings
sufficiently served as notice to petitioner of OSSA's willingness to pay
the quarterly installments and the consignation of such payments with
the court. For reasons of equity, the procedural requirements of
consignation are deemed substantially complied with in the present
case. 13
Petitioner also insists that there was no valid tender of payment
because the amount tendered was P34,363.08, not P51,243.26, and
assuming ex gratia argumenti that it was the correct amount, the tender
thereof was still not valid, the same having been made by check. This
claim, however, does not accord with the records on hand. Thus, the
Court of Appeals ratiocinated:
The "Deed of Sale with Assumption of Mortgage", was for a
consideration of P500,000.00, from which shall be deducted de Mesas's
outstanding obligation, with the DBP pegged as of May 10, 1978, by the
parties themselves, at P455,636,92. This amount of P455,636.92 owing
DBP, is what OSSA agreed to assume. What remained to be paid de
Mesa was P44,636.08, but OSSA made an advance payment of
P10,000.00, hence the remaining amount payable to de Mesa is
P34,363.08, which OSSA tendered in cash (Exhibits "X", "BB" and
"CC"). 14
It is thus beyond cavil that the respondent OSSA tendered the correct
amount, the tender of which was in cash and not by check, as theorized
by petitioner.
Premises studiedly considered, the Court is of the ineluctable
conclusion, and so holds, that the Court of Appeals erred not in affirming
the decision of the trial court of origin.
WHEREFORE, the petition is DENIED and the assailed Decision of the
Court of Appeals in CA-G.R. Nos. 19145 and 19156 dated March 31,
1992 AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Melo, Vitug, Panganiban and Gonzaga-Reyes, JJ., concur.
Footnotes
1 Rollo, pp. 36-51.
2 First Division, composed of Associate Justices: Cezar D. Francisco (ponente), Emeterio C.
Cui, and Antonio M. Martinez (Acting Chairman).
3 I. Two (2) parcels of land situated in Makati, Metro Manila, with TCT no. (232345) S-
60337 containing an area of 188 square meters and TCT No. (232344) S-50336 containing
an area of 236 square meters.
II. Three parcels of land situated in Pasay City, with TCT No. 14673 containing an area of
402 square meters and TCT No. 14672 containing an area of 35 square meters and 330
square meters.
III. A parcel of land situated in Naic, Cavite, with TCT No. T-3993 containing an area of
39,580 square meters.
IV. Two parcels of land situated in Makan, General Santos City, with TCT No. T-11067
containing an area of 837 square meters.
4 xxx xxx xxx
WHEREAS, the VENDOR (defendant De Mesa) is the registered owner with a preferential
right of redemption of the following mortgaged properties with the Development Bank of
the Philippines, more particularly described as follows:
I. Two (2) parcels of land situated in Makati, Metro Manila, with TCT no. (232345) S-60337
containing an area of 188 square meters and TCT No. (232344) S-50336 containing an
area of 236 square meters.
II. Three parcels of land situated in Pasay City, with TCT No. 14673 containing an area of
402 square * meters and TCT No. 14672 containing an area of 35 square meters and 330
square meters.
III. A parcel of land situated in Naic, Cavite, with TCT No. T-3993 containing an area of
39,580 square meters.
IV. Two parcels of land situated in Makan, General Santos City, with TCT No. T-11067
containing an area of 837 square meters.
* Approximately, One-Half (1/2) has been taken by public works improvements.
WHEREAS, the above-described parcels of land and buildings and improvements thereon
were mortgaged in favor of the Development Bank of the Philippines, and the total
amount of the VENDOR'S obligation amounting to P455,636.92 as of May 10, 1978;
WHEREAS, the VENDOR has agreed to sell to the VENDEE (plaintiff Ossa House, Inc.), and
the VENDEE has agreed to purchase form the VENDOR, all the properties described in
Items I, II, and III, of the First Whereas Clause, for the price and under the terms
hereinafter contained;
NOW, THEREFORE, for and in consideration of the premises and the sum of TEN
THOUSAND PESOS (P10,000.00), the receipt whereof is hereby acknowledged, and the
assumption by the VENDEE of the total mortgage obligation of the VENDOR has sold,
transferred, and conveyed, and by these presents does sell, transfer and convey, unto the
said VENDEE, its administrators and assigns, free from all liens and encumbrances except
as noted herein, the parcels of land hereinabove described in Items I, II, and III, together
with all the buildings and improvements thereon;
The VENDEE does hereby assume the payment of the mortgage obligations by repurchase
of all the properties mortgaged on installment, with an initial payment of P90,000.00
representing payment 20% of the total obligation; and consequently, the within sale is
subject to the mortgage in favor of the Development Bank of the Philippines;
The VENDEE does hereby undertake to obtain from the Development Bank of the
Philippines the release in favor of the VENDOR a discharge and cancellation of the
mortgage on the property listed in Item IV of the First Whereas Clause;
The total purchase price of the properties listed in Items I, II, and III is P500,0000.00 and
should the total obligation as of even date be less than P500,000.00 as the difference be
paid to the VENDOR minus the P10,000.00 representing P5,000.00 of the option money
previously paid to the VENDOR, and another P5,000.00 upon the execution of this
document;
It is further expressly understood and agreed that for the full transmission of rights in the
properties above-mentioned in Items I, II, and III, to herein VENDEE Corporation, VENDOR
shall sign any other document necessary therefor.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands at Manila,
Philippines, on this 23rd day of October, 1978 (Decision, Rollo, p. 38-41)
5 Id., p. 37.
6 Decision, Rollo, pp. 49-50.
7 Petition, Rollo, p. 19.
8 Dihiasan vs. Court of Appeal, 153 SCRA 712, p. 717, citing: Siasat vs. Intermediate
Appellate Court, 134 SCRA 238, p. 246.
9 Tolentino, p. 559, Volume IV, Civil Code of the Philippines, 1997 Reprinting, citing:
Alburo vs. Villanueva, 7 Phil. 277; Azarraga vs. Rodriguez, 9 Phil. 637; Palacios vs.
Municipality of Cavite, 12 Phil. 140; Nolan vs. Majinay, 12 Phil. 559; De Lizardi vs. Yaptico,
30 Phil. 211; Escario vs. Regis, 31 Phil. 618; Chinchilla vs. Rafael, 39 Phil. 888; Kasilag vs.
Rodriguez, Off. Gaz. Supp., August 16, 1941, p. 247; Jollye vs. Barcelon, Off. Gaz. Supp.,
July 19, 1941, p. 217; Puyat and Sons vs. Acro Amusement Company, Off. Gaz. August 16,
1941, p. 1434; Gonzales Mondragon vs. Santos, 48 Off. Gaz. 560, Feb. 1952; Victorias
Planters Assn. vs. Victorias Milling Co., G.R. No. L-6648, July 25, 1955; Pacific Oxygen and
Acetylene Co. vs. Central Bank, 22 SCRA 917; Commission of Internal Revenue vs.
Cadwallader Pacific Company, 73 SCRA 59-61; Phil. Air Lines, Inc. vs. Phil. Airlines
Employees Association, 70 SCRA 180-181; Cebu Portland Cement Company vs. Dumon, 61
SCRA 218; Piczon vs. Piczon, 61 SCRA 67-68; Philippine-American General Insurance Co.,
Inc. vs. Mutuc, 61 SCRA 22-23; San Mauricio Mining Co. vs. Ancheta, 105 SCRA 371; Pichel
vs. Alonzo, 111 SCRA 341; Ascalon vs. Court of Appeals, 158 SCRA 542; Bagadiong vs.
Abundo, 165 SCRA 459; Ramos vs. Court of Appeals, 180 SCRA 635.1wphi1.nt
10 Reparations Commission v. Northern Lines Inc., 34 SCRA 203, p. 211, citing: Mangila v.
Lantin, L-24735, Oct. 31, 1969; UP Board of Regents v. Auditor General, L-19617, Oct. 31,
1969, Asturias Sugar Central, Inc. v. Commissioners of Customs, L-19337, Sept. 30, 1969;
PNB v. Court of Appeals, L-27117, July 30, 1969; Neilson & Co., Inc. v. Lepanto Cosolidated
Mining Co., L-21601, Dec. 28, 1968; Rivera v. San Miguel Corp., L-26197, Aug. 30, 1968;
People v. Doriquez, L-24444, July 29, 1968; Alhambra Cigar and Cigarette Co. v. Securities
& Exchange Commission, L-23606, July 29, 1968; Andico vs. Judge Roan, L-26563, April 16,
1968; Le Hua Sia v. Hon. Reyes, L-21686, April 16, 1968; Bachrach Trans. Co. Inc. v. Rural
Transit Employees Assn., L-21768, Aug. 23, 1966; Republic v. Reyes, L-22550, May 19,
1966.
11 People vs. Fabro, 278 SCRA 304 p. 309, citing: People vs. Bondoc, 232 SCRA 478 [1994];
People vs. Nimo, 277 SCRA 69 [1993].
12 Meneses vs. Court of Appeals 246 SRCA 162, p. 171 [1995], citing Binalay vs. Manalo,
195 SCRA 374 [1994].
13 Rural Bank of Caloocan vs. Court of Appeals, 104 SCRA 151, p. 170.
14 Decision, Rollo, p. 48.
Republic of the Philippines
SUPREME COURT
Manila
 THIRD DIVISION
G.R. No. 112733 October 24, 1997
PEOPLE'S INDUSTRIAL AND COMMERCIAL
CORPORATION, petitioner,
vs.
COURT OF APPEALS and MAR-ICK INVESTMENT
CORPORATION, respondents.
ROMERO, J.:
This petition for review on certiorari of the Decision 1 of the
Court of Appeals arose from the complaint for accion publiciana
de posesion over several subdivision lots that was premised on
the automatic cancellation of the contracts to sell those lots.
Private respondent Mar-ick Investment Corporation is the
exclusive and registered owner of Mar-ick Subdivision in Barrio
Buli, Cainta, Rizal. On May 29, 1961, private respondent
entered into six (6) agreements with petitioner People's
Industrial and Commercial Corporation whereby it agreed to sell
to petitioner six (6) subdivision lots. 2Except for Lot No. 8 that
has an area of 253 square meters, all the lots measure 240
square meters each. Five of the agreements, involving Lots
Nos. 3, 4, 5, 6 and 7, similarly stipulate that the petitioner
agreed to pay private respondent for each lot, the amount of
P7,333.20 with a down payment of P480.00. The balance of
P6,853.20 shall be payable in 120 equal monthly installments of
P57.11 every 30th of the month, for a period of ten years. With
respect to Lot No. 8, the parties agreed to the purchase price of
P7,730.00 with a down payment of P506.00 and equal monthly
installments of P60.20.
All the agreements have the following provisions:
9. Should the PURCHASER fail to make the payment of any of
the monthly installments as agreed herein, within One Hundred
Twenty (120) days from its due date, this contract shall, by the
mere fact of nonpayment, expire by itself and become null and
void without necessity of notice to the PURCHASER or of any
judicial declaration to the effect, and any and all sums of money
paid under this contract shall be considered and become rentals
on the property, and in this event, the PURCHASER should
he/she be in possession of the property shall become a mere
intruder or unlawful detainer of the same and may be ejected
therefrom by the means provided by law for trespassers or
unlawful detainers. Immediately after the expiration of the 120
days provided for in this clause, the OWNER shall be at liberty
to dispose of and sell said parcel of land to any other person in
the same manner as if this contract had never been executed or
entered into.
The breach by the PURCHASER of any of the conditions
considered herein shall have the same effect as non-payment of
the installments of the purchase price.
In any of the above cases the PURCHASER authorizes the
OWNER or her representatives to enter into the property to take
possession of the same and take whatever action is necessary
or advisable to protect its rights and interests in the property,
and nothing that may be done or made by the PURCHASER
shall be considered as revoking this authority or a denial
thereof. 3
After the lapse of ten years, however, petitioner still had not fully
paid for the six lots; it had paid only the down payment and eight
(8) installments, even after private respondent had given
petitioner a grace period of four months to pay the arrears. 4 As
of May 1, 1980, the total amount due to private respondent
under the contract was P214,418.00. 5
In his letter of March 30, 1980 to Mr. Tomas Siatianum
(Siatianun) who signed the agreements for petitioner, private
respondent's counsel protested petitioner's encroachment upon
a portion of its subdivision particularly Lots Nos. 2, 3, 4, 5, 6, 7
and 8. A portion of the letter reads:
Examinations conducted on the records of said lots revealed
that you once contracted to purchase said lots but your
contracts were cancelled for non-payment of the stipulated
installments.
Desirous of maintaining good and neighborly relations with you,
we caused to send you this formal demand for you to remove
your said wall within fifteen (15) days from your receipt hereof,
otherwise, much to our regret, we shall be constrained to seek
redress before the Courts and at the same time charge you with
reasonable rentals for the use of said lots at the rate of One
(P1.00) Peso per square meter per month until you shall have
finally removed said wall. 6
Private respondent reiterated its protest against the
encroachment in a letter dated February 16, 1981. 7 It added
that petitioner had failed to abide by its promise to remove the
encroachment, or to purchase the lots involved "at the current
price or pay the rentals on the basis of the total area occupied,
all within a short period of time." It also demanded the removal
of the illegal constructions on the property that had prejudiced
the subdivision and its neighbors.
After a series of negotiations between the parties, they agreed
to enter into a new contract to sell 8 involving seven (7) lots,
namely, Lots Nos. 2, 3, 4, 5, 6, 7 and 8, with a total area of
1,693 square meters. The contract stipulates that the previous
contracts involving the same lots (actually minus Lot No. 2)
"have been cancelled due to the failure of the PURCHASER to
pay the stipulated installments." It states further that the new
contract was entered into "to avoid litigation, considering that
the PURCHASER has already made use of the premises since
1981 to the present without paying the stipulated installments."
The parties agreed that the contract price would be
P423,250.00 with a down payment of P42,325.00 payable upon
the signing of the contract and the balance of P380,925.00
payable in forty-eight (48) equal monthly amortization payments
of P7,935.94.
The new contract bears the date of October 11, 1983 but neither
of the parties signed it. Thereafter, Tomas Siatianum issued the
following checks in the total amount of P37,642.72 to private
respondent: (a) dated March 4, 1984 for P10,000.00; (b) dated
March 31, 1984 for P10,000.00; (c) dated April 30, 1984 for
P10,000.00; (d) dated May 31, 1984 for P7,079.00, and (e)
dated May 31, 1984 for P563.72. 9
Private respondent received but did not encash those checks.
Instead, on July 12, 1984 it filed in the Regional Trial Court of
Antipolo, Rizal, a complaint for accion publiciana de
posesion against petitioner and Tomas Siatianum, as president
and majority stockholder of petitioner. 10 It prayed that petitioner
be ordered to remove the wall on the premises and to surrender
possession of Lots Nos. 2 to 8 of Block 11 of the Mar-ick
Subdivision, and that petitioner and Tomas Siatianum be
ordered to pay: (a) P259,074.00 as reasonable rentals for the
use of the lots from 1961, "plus P1,680.00 per month from July
1, 1984 up to and until the premises shall have been vacated
and the wall demolished"; (b) P10,000.00 as attorney's fees; (c)
moral and exemplary damages, and (d) costs of suit. In the
alternative, the complaint prayed that should the agreements be
deemed not automatically cancelled, the same agreements
should be declared null and void.
In due course, the lower court 11 rendered a decision finding that
the original agreements of the parties were validly cancelled in
accordance with provision No. 9 of each agreement. The parties
did not enter into a new contract in accordance with Art. 1403
(2) of the Civil Code as the parties did not sign the draft
contract. Receipt by private respondent of the five checks could
not amount to perfection of the contract because private
respondent never encashed and benefited from those checks.
Furthermore, there was no meeting of the minds between the
parties because Art. 475 of the Civil Code should be read with
the Statute of Frauds that requires the embodiment of the
contract in a note or memorandum.
The lower court opined that the checks represented the deposit
under the new contract because petitioner failed to prove that
those were monthly installments that private respondent refused
to accept. What petitioner proved instead was the fact that it
was not able to pay the rest of the installments because of a
strike, fire and storm that affected its operations. Be that as it
may, what was clearly proven was that both parties negotiated a
new contract after the termination of the first. Thus, the fact that
the parties tried to negotiate a new contract indicated that they
considered the first contract as "already cancelled."
With respect to petitioner's allegation on a "free right-of-way"
constituted on Lot No. 2, the lower court found that the
agreement thereon was oral and not in writing. As such, it was
not in accordance with Art. 749 of the Civil Code requiring that,
to be valid, a donation must be in a public document.
Consequently, because of the principle against unjust
enrichment, petitioner must pay rentals for the occupancy of the
property. The lower court disposed of the case as follows:
IN VIEW OF ALL THE FOREGOING, defendant corporation is
hereby directed to return subject Lots Nos. 2, 3, 4, 5, 6, 7 and 8
to plaintiff corporation, and to pay to the latter the following
amounts:
1. reasonable rental of P1.00 per square meter per month from May 29, 1961,
for Lots Nos. 3, 4, 5, 6, 7 and 8, and from July 12, 1984, for Lot No. 2, up to the
date they will vacate said lots. The amount of P4,735.12 (Exhibit "R") already
paid by defendant corporation to plaintiff corporation for the six (6) lots under
the original contracts shall be deducted from the said rental;
2. attorney's fees in the amount of P10,000.00; and
3. costs of the suit.
SO ORDERED.
Petitioner elevated the case to the Court of Appeals. However,
on October 16, 1992, the Court of Appeals affirmed in toto the
lower court's decision. Petitioner's motion for reconsideration
having been denied, it instituted the instant petition for review
on certiorari raising the following issues for resolution:
(1) whether or not the lower court had jurisdiction over the
subject matter of the case in view of the provisions of Republic
Act No. 6552 and Presidential Decree No. 1344;
(2) whether or not there was a perfected and enforceable
contract of sale (sic) on October 11, 1983 which modified the
earlier contracts to sell which had not been validly rescinded;
(3) whether or not there was a valid grant of right of way
involving Lot No. 2 in favor of petitioner; and
(4) whether or not there was a justification for the grant of
rentals and the award of attorney's fees in favor of private
respondent. 12
The issue of jurisdiction has been precluded by the principle of
estoppel. It is settled that lack of jurisdiction may be assailed at
any stage of the proceedings. However, a party's participation
therein estops such party from raising the issue. 13 Petitioner
undoubtedly has actively participated in the proceedings from its
inception to date. In its answer to the complaint, petitioner did
not assail the lower court's jurisdiction; instead, it prayed for
"affirmative relief. 14 Even after the lower court had decided
against it, petitioner continued to affirm the lower court's
jurisdiction by elevating the decision to the appellate
court, 15 hoping to obtain a favorable decision but the Court of
Appeals affirmed the court a quo's ruling. Then and only then
did petitioner raise the issue of jurisdiction in its motion for
reconsideration of the appellate court's decision. Such a
practice, according to Tijam v. Sibonghanoy, 16 cannot be
countenanced for reasons of public policy.
Granting, however, that the issue was raised seasonably at the
first opportunity, still, petitioner has incorrectly considered as
legal bases for its position on the issue of jurisdiction the
provisions of P.D. Nos. 957 and 1344 and Republic Act No.
6552. P.D. No. 957, the "Subdivision and Condominium Buyers'
Protective Decree" which took effect upon its approval on July
12, 1976, vests upon the National Housing Authority (NHA)
"exclusive jurisdiction to regulate the real estate trade and
business" in accordance with the provisions of the same
decree. 17 P.D. No. 1344, issued on April 2, 1978, empowered
the National Housing Authority to issue a writ of execution in the
enforcement of its decisions under P.D. No. 957.
These decrees, however, were not yet in existence when private
respondent invoked provision No. 9 of the agreements or
contracts to sell and cancelled these in October 1971. 18 Article
4 of the Civil Code provides that laws shall have no retroactive
effect unless the contrary is provided. Thus, it is necessary that
an express provision for its retroactive application must be
made in the law. 19 There being no such provision in both P.D.
Nos. 957 and 1344, these decrees cannot be applied to a
situation that occurred years before their promulgation.
Moreover, granting that said decrees indeed provide for a
retroactive application, still, these may not be applied in this
case.
The contracts to sell of 1961 were cancelled in virtue of
provision No. 9 thereof to which the parties voluntarily bound
themselves. In Manila Bay Club Corp. v. Court of
Appeals, 20 this Court interpreted as requiring mandatory
compliance by the parties, a provision in a lease contract that
failure or neglect to perform or comply with any of the
covenants, conditions, agreements or restrictions stipulated
shall result in the automatic termination and cancellation of the
lease. The Court added:
. . . . Certainly, there is nothing wrong if the parties to the lease
contract agreed on certain mandatory provisions concerning
their respective rights and obligations, such as the procurement
of insurance and the rescission clause. For it is well to recall
that contracts are respected as the law between the contracting
parties, and they may establish such stipulations, clauses, terms
and conditions as they may want to include. As long as such
agreements are not contrary to law, morals, good customs,
public policy or public order they shall have the force of law
between them.
Consequently, when petitioner failed to abide by its obligation to
pay the installments in accordance with the contracts to sell,
provision No. 9 automatically took effect. That private
respondent failed to observe Section 4 of Republic Act No.
6552, the "Realty Installment Buyer Protection Act," is of no
moment. That section provides that "(I)f the buyer fails to pay
the installments due at the expiration of the grace period, the
seller may cancel the contract after thirty days from receipt by
the buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act. Private respondent's
cancellation of the agreements without a duly notarized demand
for rescission did not mean that it violated said provision of law.
Republic Act No. 6552 was approved on August 26, 1972, long
after provision No. 9 of the contracts to sell had become
automatically operational. As with P.D. Nos. 957 and 1344,
Republic Act No. 6552 does not expressly provide for its
retroactive application and, therefore, it could not have
encompassed the cancellation of the contracts to sell in this
case.
At this juncture, it is apropos to stress that the 1961 agreements
are contracts to sell and not contracts of sale. The distinction
between these contracts is graphically depicted in Adelfa
Properties, Inc. v. Court of
Appeals, 21 as follows:
. . . . The distinction between the two is important for in a
contract of sale, the title passes to the vendee upon the delivery
of the thing sold; whereas in a contract to sell, by agreement the
ownership is reserved in the vendor and is not to pass until the
full payment of the price. In a contract of sale, the vendor has
lost and cannot recover ownership until and unless the contract
is resolved or rescinded; whereas, in a contract to sell, title is
retained by the vendor until the full payment of the price, such
payment being a positive suspensive condition and failure of
which is not a breach but an event that prevents the obligation
of the vendor to convey title from becoming effective. Thus, a
deed of sale is considered absolute in nature where there is
neither a stipulation in the deed that title to the property sold is
reserved in the seller until the full payment of the price, nor one
giving the vendor the right to unilaterally resolve the contract the
moment the buyer fails to pay within a fixed period.
That the agreements of 1961 are contracts to sell is clear from
the following provisions thereof:
3. Title to said parcel of land shall remain in the name of the
OWNER until complete payment by the PURCHASER of all
obligations herein stipulated, at which time the OWNER agrees
to execute a final deed of sale in favor of the PURCHASER and
cause the issuance of a certificate of title in the name of the
latter, free from liens and encumbrances except those provided
in the Land Registration Act, those imposed by the authorities,
and those contained in Clauses Nos. Five (5) and Six (6) of this
agreement.
xxx xxx xxx
4. The PURCHASER shall be deemed for all legal purposes to
take possession of the parcel of land upon payment of the down
or first payment; provided, however, that his/her possession
under this section shall be only that of a tenant or lessee and
subject to ejectment proceedings during all the period of this
agreement.
5. The parcel of land subject of this agreement shall be used by
the PURCHASER exclusively for legal purposes, and he shall
not be entitled to take or remove soil, stones, or gravel from it or
any other lots belonging to the OWNER.
Hence, being contracts to sell, Article 1592 of the Civil Code
which requires rescission either by judicial action or notarial act
is not applicable. 22
Neither may petitioner claim ignorance of the cancellation of the
contracts. Aside from his letters of March 30, 1980 and
February 16, 1981, private respondent's counsel, Atty. Manuel
Villamayor, had sent petitioner other formal protests and
demands. 23 These letters adequately satisfied the notice
requirement stipulated in provision No. 9 of the contracts to sell.
If petitioner had not agreed to the automatic and extrajudicial
cancellation of the contracts, it could have gone to court to
impugn the same but it did not. Instead, it sought to enter into a
new contract to sell, thereby confirming its veracity and validity
of the extrajudicial rescission. 24 Had not private respondent filed
the accion publiciana de posesion, petitioner would have
remained silent about the whole situation. It is now estopped
from questioning the validity of the cancellation of the contracts.
An unopposed rescission of a contract has legal effects. 25
Petitioner's reliance on the portion of the Court of Appeals'
Decision stating that private respondent had not made known to
petitioner its supposed rescission of the contract, 26 is
misplaced. Moreover, it quoted only the portion that appears
favorable to its case. To be sure, the Court of Appeals quoted
provision No. 9 which requires that "actual cancellation shall
take place thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a
notarial act and upon full payment of the cash surrender value,"
and added that "R.A. 6552 even more underscored the
indispensability of such notice to the defaulting buyer."
However, the same appellate court continued:
The absence of the aforesaid notice in the case at bar in the
forms respectively deemed efficacious before and after the
passage of R.A. 6552 does not, however, necessarily impress
merit in the appellant's position. Extrajudicial rescission, after all,
has legal effect where the other party does not oppose
it (Zulueta vs. Mariano, 111 SCRA 206; Nera vs. Vacante, 3
SCRA 505; Magdalena Estate vs. Myrick, 71 Phil. 344). Where
it is objected to, a judicial determination of the issue is still
necessary. In other words, resolution of reciprocal contracts
may be made extrajudicially unless successfully impugned in
Court. If the debtor impugns the declaration, it shall be subject
to judicial determination (Jison vs. Court of Appeals, 164 SCRA
339, citing Palay Inc. vs. Clave, supra; Univ. of the Philippines
vs. Angeles, supra). In its July 5, 1984 complaint, the appellee
had, in fact, significantly prayed for the cancellation of the said
sales agreement in the alternative (p. 4, orig. rec.). 27 (Emphasis
supplied.)
Moreover, private respondent's act of cancelling the contracts to
sell was not done arbitrarily. The record shows that private
respondent dealt with petitioner with admirable patience,
probably in view of the strike, the fire in 1968 that burned
petitioner's factory, and the typhoon in 1970. 28 If exercised its
contractual authority to cancel the agreements only after
petitioner had reneged in its obligation after paying only eight (8)
installments. When the contracts matured, it still gave petitioner
a grace period of four (4) months within which to comply with its
obligations. It considered the contracts cancelled only as of
October 1971 or several years after petitioner's last installment
payment 29 and definitely more than ten years after the
agreements were entered into.
Because the contracts to sell had long been cancelled when
private respondent filed the accion publiciana de posesion on
July 12, 1984, it was the proper Regional Trial Court that had
jurisdiction over the case. By then, there was no more
installment buyer and seller relationship to speak of. It had been
recuded to a mere case of an owner claiming possession of its
property that had long been illegally withheld from it by another.
Petitioner alleges that there was a "new perfected and
enforceable contract of sale" between the parties in October
1983 for two reasons. First, it paid private respondent the down
payment or "deposit of Contract" 30 through the five checks.
Second, the receipt signed by private respondent's
representative satisfies the requirement of a "note or
memorandum" under Article 1403 (2) of the Civil Code because
it states the object of the contract (six lots of Mar-Ick Subdivision
measuring 1,453 square meters), the price (P250.00 per square
meter with a down payment of 10% or P37,542.72), and the
receipt itself opens with a statement referring to the "purchase"
of the six lots of Mar-Ick Subdivision. 31
The contract of October 1983 which private respondent offered
in evidence as Exhibit S, is entitled "CONTRACT TO SELL."
While the title of a contract is not controlling, its stipulations
confirm the nature of that contract. Thus, it provides:
5. Title to said parcels of land shall remain in the name of the
OWNER until complete payment by the PURCHASER of all
obligations herein stipulated, at which time, the OWNER agrees
to execute a final deed of sale in favor of the PURCHASER and
cause the issuance of certificates of title in the name of the
latter, free from all liens and encumbrances except those
provided in the Land Registration Act, those imposed by the
authorities, and those contained in the stipulations that follow.
Under the law, there is a binding contract between the parties whose
minds have met on a certain matter notwithstanding that they did not
affix their signatures to its written form.
In the case at bar, it was private respondent's company lawyer and sole
witness, Atty. Manuel Villamayor, who volunteered that after the
cancellation of the 1961 agreements, the parties should negotiate and
enter into "a new agreement based on the current price" or at P400.00
per square meter. However, there was a hitch in the negotiations
because after he had drafted the contract and sent it to petitioner, the
latter "deposited a check for downpayment" but its representative
refused to sign the prepared contract. 32 Private respondent even offered
the contract to sell as its Exhibit S. 33 In the absence of proof to the
contrary, this draft contract may be deemed to embody the agreement
of the parties. Moreover, when Tomas Siatianun, petitioner's president,
testified, private respondent cross-examined him as regards the October
1983 contract. 34 Private respondent did not and has not denied the
existence of that contract.
Under these facts, therefore, the parties may ideally be considered as
having perfected the contract of October 1983. Again in Adelfa
Properties, Inc. v. Court of Appeals, the Court said that
. . . a contract, like a contract to sell, involves a meeting of the minds
between two persons whereby one binds himself, with respect to the
other, to give something or to render some service. Contracts, in
general, are perfected by mere consent, which is manifested by the
meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must be certain and the
acceptance absolute. 35
Moreover, private respondent's offer to sell and petitioner's acceptance
thereof are manifest in the documentary evidence presented by the
parties. Thus, private respondent presented the five (5) checks 36 that,
through Atty. Villamayor, it admitted as the down payment under the
October 1983 contract. Private respondent's intentional non-
encashment of the check cannot serve to belie the fact of its tender as petitioner's rejection of private respondent's demands for rentals 45 and
down payment. For its part, petitioner presented Exhibit 10, a receipt its unjustified refusal to settle private respondent's claims, 46 the award
dated February 28, 1984, showing that private respondent's authorized of attorney's fees of P10,000.00 is more than just and reasonable. 47
representative received the total amount of P37,642.72 represented by
said five checks as "deposit of Contract (sic)." As this Court also held in
WHEREFORE, the instant petition for review on certiorari is hereby
the Adelfa Properties case, acceptance may be evidenced by some acts
denied and the questioned Decision of the Court of Appeals is
or conduct communicated to the offeror, either in a formal or an informal
AFFIRMED. This Decision is immediately executory. Costs against
manner, that clearly manifest the intention or determination to accept
petitioner.
the offer to buy or
sell. 37
Melo, Francisco and Panganiban, JJ., concur.
Justice and equity, however, will not be served by a positive ruling on
the perfection and performance of the contract to sell. There are facts Narvasa, C.J., is on leave.
on record proving that, after all, the parties had not arrived at a definite
agreement. By Atty. Villamayor's admission, the checks were not
Footnotes
encashed because Tomas Siatianun did not sign the draft contract that 1 Penned by Associate Justice Nathanael P. de Pano, Jr. and concurred in by Associate
he had prepared. 38 On his part, Tomas Siatianun explained that he did Justices Jesus M. Elbinias and Angelina S. Gutierrez.
not sign the contract because it covered seven (7) lots while their 2 Exhs. I, J, K, L, M & N.
agreement was only for six (6) lots. According to him, private 3 Exh. I-1.
respondent had conceded that Lot No. 2 was meant for petitioner's right 4 Exh. R.
of way 39 and, therefore, it could not have been part of the properties it 5 Exh. 9.
wanted to buy. It is on record, moreover, that the only agreement that 6 Exh. O.
the parties arrived at in a conference at the Silahis Hotel was the price 7 Exh. P.
indicated in the draft contract. 40 8 Exh. S.
9 Exhs, Q, Q-1, Q-2, Q-3 & Q-4.
10 Rollo, p. 33.
The number of lots to be sold is a material component of the contract to 11 Presided by Judge Ma. Cristina C. Estrada.
sell. Without an agreement on the matter, the parties may not in any 12 Petition, p. 7.
way be considered as having arrived at a contract under the law. The 13 Romualdez v. RTC, Br. 7, Tacloban City, G.R. No. 104960, September 14, 1993, 226
parties' failure to agree on a fundamental provision of the contract was SCRA 408, 414 citing Aquino v. Court of Appeals, G.R. No. 91896, November 21, 1991, 204
aggravated by petitioner's failure to deposit the installments agreed SCRA 240; Salen v. Dinglasan, G.R. No. 59082, June 28, 1991, 198 SCRA 623; Tijam v.
upon. Neither did it attempt to make a consignation of the installments. Sibonghanoy, 131 Phil. 556 (1968).
This Court's disquisition on the matter in the Adelfa Properties case is 14 Rollo, pp. 37-40.
15 Ibid., pp. 58-74.
relevant. Thus:
16 Supra, at p. 564-565 cited in Cloma v. Court of Appeals, G.R. No. 100153, August 2,
1994, 234 SCRA 665, 673 and Pilipinas Shell Petroleum Corporation v. Dumlao, L-44888,
The mere sending of a letter by the vendee expressing the intention to February 7, 1992, 206 SCRA 40, 50.
pay, without the accompanying payment, is not considered a valid 17 Sec. 3.
tender of payment. Besides, a mere tender of payment is not sufficient 18 Exh. R.
to compel private respondents to deliver the property and execute the 19 Nilo v. Court of Appeals, 213 Phil. 460, 467 (1984).
20 315 Phil. 805, 826 (1995).
deed of absolute sale. It is consignation which is essential in order to
21 310 Phil. 623, 637 (1995).
extinguish petitioner's obligation to pay the balance of the purchase
22 Ibid., at p. 650 citing Albea v. Inquimboy, 86 Phil. 477 (1950); Alfonso v. Court of
price. The rule is different in case of an option contract or in legal Appeals, G.R. No. 63745 June 8, 1990, 186 SCRA 400.
redemption or in a sale with right to repurchase, wherein consignation is 23 TSN, July 24, 1987, p. 28.
not necessary because these cases involve an exercise of a right or 24 TSN, October 9, 1987, p. 19.
privilege (to buy, redeem or repurchase) rather than the discharge of an 25 Adelfa Properties, Inc. v. Court of Appeals, supra, at p. 651.
obligation, hence tender of payment would be sufficient to preserve the 26 Petition, p. 14.
right or privilege. This is because the provisions on consignation are not 27 CA Decision, p. 11.
applicable when there is no obligation to pay. A contract to sell, as in the 28 TSN, January 5, 1989, pp. 4-5; March 9, 1989, p. 27.
case before us, involves the performance of an obligation, not merely 29 Exh. R.
the exercise of a privilege or a right. Consequently, performance or 30 Exh. 10.
payment may be effected not by tender of payment alone but by both 31 Petition, p. 16.
tender and consignation. 41 (Emphasis supplied.) 32 TSN, June 18, 1987, p. 18.
33 TSN, October 9, 1987, p. 31.
34 TSN, March 9, 1989, p. 29.
As earlier noted, petitioner did not lift a finger towards the performance 35 Supra, at p. 641.
of the contract other than the tender of down payment. There is no 36 Exhs. Q to Q-4.
record that it even bothered to tender payment of the installments or to 37 Supra, at p. 642.
amend the contract to reflect the true intention of the parties as regards 36 TSN, October 9, 1987, pp. 4-5.
the number of lots to be sold. Indeed, by petitioner's inaction, private 37 TSN, January 5, 1989, pp. 29-30.
40 TSN, October 9, 1987, pp. 9-12.
respondent may not be judicially enjoined to validate a contract that the
41 Supra, at pp. 649-650.
former appeared to have taken for granted. As in the earlier
42 Exh. 4.
agreements, petitioner ignored opportunities to resuscitate a contract to 43 Exh. 5.
sell that was rendered moribund and inoperative by its inaction. 44 Cited in Delta Motor Sales Corporation v. Niu Kim Duan, G.R. No. 61043, September 2,
1992, 213 SCRA 259, 263.
In view of the foregoing, there is no need to discuss the issue of whether 45 Rizal Surety & Insurance Company v. Court of Appeals, G.R. No. 96727, August 28,
1996, 261 SCRA 69, 88-89 citing Solid Homes, Inc. v. Court of Appeals, G.R. No. 97255,
or not there was a valid grant of right of way in favor of petitioners.
August 12, 1994, 235 SCRA 299, 303-304 and Universal Shipping Lines, Inc. v. IAC, G.R. No.
Suffice it to say that the documentary evidence offered by petitioner on 74125, July 31, 1990, 188 SCRA 170, 174.
the matter manifests that that right of way on an unidentified 46 Baliwag Transit, Inc. v. Court of Appeals, G.R. No. 116110, May 15, 1996, 256 SCRA
property was granted in April 1961 by private respondent's board of 746, 755.
directors to W. Ick & Sons, Inc. and Julian Martinez. 42 On May 12, 1961, 47 Heirs of Amparo de los Santos v. Court of Appeals, G.R. No. 51165, June 21, 1990, 186
Fritz Ick, the president of W. Ick & Sons, Inc., in turn indorsed the SCRA 649, 663.
unidentified property to petitioner. 43

What needs stressing is that the installments paid by the petitioner on

the land should be deemed rentals in accordance with provision No. 9,
as well as by law. Article 1486 of the Civil Code provides that a
stipulation that the installments or rents paid shall not be returned to the
vendee or lessee shall be valid insofar as the same may not be
unconscionable under the circumstances. 44 The down payment and the
eight (8) installments paid by petitioner on the six lots under the 1961
agreements amounted to P5,672.00. The lots, including Lot No. 2,
adjoins petitioner's Vetsin and oil factories constructed on a 20,000-
square-meter land that petitioner likewise bought from private
respondent. Obviously, petitioner made use of the lots not only during
the construction of the factories but also during its operations as an oil
factory. Petitioner enclosed the area with a fence and made
constructions thereon. It is, therefore, not unconscionable to allow
respondent rentals on the lots as correctly decreed by the lower court.

As to attorney's fees, Article 2208 of the Civil Code allows the award of
such fees when its claimant is compelled to litigate with third persons or
to incur expenses to protect its just and valid claim. In view of
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-20240 December 31, 1965
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
JOSE GRIJALDO, defendant-appellant.
Office of the Solicitor General for plaintiff-appellee.
Isabelo P. Samson for defendant-appellant.
ZALDIVAR, J.:
In the year 1943 appellant Jose Grijaldo obtained five loans
from the branch office of the Bank of Taiwan, Ltd. in Bacolod
City, in the total sum of P1,281.97 with interest at the rate of 6%
per annum, compounded quarterly. These loans are evidenced
by five promissory notes executed by the appellant in favor of
the Bank of Taiwan, Ltd., as follows: On June 1, 1943, P600.00;
on June 3, 1943, P159.11; on June 18, 1943, P22.86; on
August 9, 1943,P300.00; on August 13, 1943, P200.00, all
notes without due dates, but because the loans were due one
year after they were incurred. To secure the payment of the
loans the appellant executed a chattel mortgage on the standing
crops on his land, Lot No. 1494 known as Hacienda Campugas
in Hinigiran, Negros Occidental.
By virtue of Vesting Order No. P-4, dated January 21, 1946, and
under the authority provided for in the Trading with the Enemy
Act, as amended, the assets in the Philippines of the Bank of
Taiwan, Ltd. were vested in the Government of the United
States. Pursuant to the Philippine Property Act of 1946 of the
United States, these assets, including the loans in question,
were subsequently transferred to the Republic of the Philippines
by the Government of the United States under Transfer
Agreement dated July 20, 1954. These assets were among the
properties that were placed under the administration of the
Board of Liquidators created under Executive Order No. 372,
dated November 24, 1950, and in accordance with Republic
Acts Nos. 8 and 477 and other pertinent laws.
On September 29, 1954 the appellee, Republic of the
Philippines, represented by the Chairman of the Board of
Liquidators, made a written extrajudicial demand upon the
appellant for the payment of the account in question. The record
shows that the appellant had actually received the written
demand for payment, but he failed to pay.
The aggregate amount due as principal of the five loans in
question, computed under the Ballantyne scale of values as of
the time that the loans were incurred in 1943, was P889.64; and
the interest due thereon at the rate of 6% per annum
compounded quarterly, computed as of December 31, 1959 was
P2,377.23.
On January 17, 1961 the appellee filed a complaint in the
Justice of the Peace Court of Hinigaran, Negros Occidental, to
collect from the appellant the unpaid account in question. The
Justice of the Peace Of Hinigaran, after hearing, dismissed the
case on the ground that the action had prescribed. The appellee
appealed to the Court of First Instance of Negros Occidental
and on March 26, 1962 the court a quo rendered a decision
ordering the appellant to pay the appellee the sum of P2,377.23
as of December 31, 1959, plus interest at the rate of 6% per
annum compounded quarterly from the date of the filing of the
complaint until full payment was made. The appellant was also
ordered to pay the sum equivalent to 10% of the amount due as
attorney's fees and costs.
The appellant appealed directly to this Court. During the
pendency of this appeal the appellant Jose Grijaldo died. Upon
motion by the Solicitor General this Court, in a resolution of May
13, 1963, required Manuel Lagtapon, Jacinto Lagtapon, Ruben
Lagtapon and Anita L. Aguilar, who are the legal heirs of Jose
Grijaldo to appear and be substituted as appellants in
accordance with Section 17 of Rule 3 of the Rules of Court.
In the present appeal the appellant contends: (1) that the
appellee has no cause of action against the appellant; (2) that if
the appellee has a cause of action at all, that action had
prescribed; and (3) that the lower court erred in ordering the
appellant to pay the amount of P2,377.23.
In discussing the first point of contention, the appellant
maintains that the appellee has no privity of contract with the
appellant. It is claimed that the transaction between the Taiwan
Bank, Ltd. and the appellant, so that the appellee, Republic of
the Philippines, could not legally bring action against the
appellant for the enforcement of the obligation involved in said
transaction. This contention has no merit. It is true that the Bank
of Taiwan, Ltd. was the original creditor and the transaction
between the appellant and the Bank of Taiwan was a private
contract of loan. However, pursuant to the Trading with the
Enemy Act, as amended, and Executive Order No. 9095 of the
United States; and under Vesting Order No. P-4, dated January
21, 1946, the properties of the Bank of Taiwan, Ltd., an entity
which was declared to be under the jurisdiction of the enemy
country (Japan), were vested in the United States Government
and the Republic of the Philippines, the assets of the Bank of
Taiwan, Ltd. were transferred to and vested in the Republic of
the Philippines. The successive transfer of the rights over the
loans in question from the Bank of Taiwan, Ltd. to the United
States Government, and from the United States Government to
the government of the Republic of the Philippines, made the
Republic of the Philippines the successor of the rights, title and
interest in said loans, thereby creating a privity of contract
between the appellee and the appellant. In defining the word
"privy" this Court, in a case, said:
The word "privy" denotes the idea of succession ...
hence an assignee of a credit, and one subrogated to
it, etc. will be privies; in short, he who by succession is
placed in the position of one of those who contracted
the judicial relation and executed the private document
and appears to be substituting him in the personal
rights and obligation is a privy (Alpurto vs. Perez, 38
Phil. 785, 790).
The United States of America acting as a belligerent sovereign
power seized the assets of the Bank of Taiwan, Ltd. which
belonged to an enemy country. The confiscation of the assets of
the Bank of Taiwan, Ltd. being an involuntary act of war, and
sanctioned by international law, the United States succeeded to
the rights and interests of said Bank of Taiwan, Ltd. over the
assets of said bank. As successor in interest in, and transferee
of, the property rights of the United States of America over the
loans in question, the Republic of the Philippines had thereby
become a privy to the original contracts of loan between the
Bank of Taiwan, Ltd. and the appellant. It follows, therefore, that
the Republic of the Philippines has a legal right to bring the
present action against the appellant Jose Grijaldo.
The appellant likewise maintains, in support of his contention
that the appellee has no cause of action, that because the loans
were secured by a chattel mortgage on the standing crops on a
land owned by him and these crops were lost or destroyed
through enemy action his obligation to pay the loans was
thereby extinguished. This argument is untenable. The terms of
the promissory notes and the chattel mortgage that the
appellant executed in favor of the Bank of Taiwan, Ltd. do not
support the claim of appellant. The obligation of the appellant
under the five promissory notes was not to deliver a determinate
thing namely, the crops to be harvested from his land, or the
value of the crops that would be harvested from his land.
Rather, his obligation was to pay a generic thing the amount
of money representing the total sum of the five loans, with
interest. The transaction between the appellant and the Bank of
Taiwan, Ltd. was a series of five contracts of simple loan of
sums of money. "By a contract of (simple) loan, one of the
parties delivers to another ... money or other consumable thing
upon the condition that the same amount of the same kind and
quality shall be paid." (Article 1933, Civil Code) The obligation of
the appellant under the five promissory notes evidencing the
loans in questions is to pay the value thereof; that is, to deliver a
sum of money a clear case of an obligation to deliver, a time the loans became due, and that was in June 1944. This
generic thing. Article 1263 of the Civil Code provides: contention of the appellant is also without merit.

In an obligation to deliver a generic thing, the loss or The decision of the court a quo ordered the appellant to pay the
destruction of anything of the same kind does not sum of P2,377.23 as of December 31, 1959, plus interest rate of
extinguish the obligation. 6% per annum compounded quarterly from the date of the filing
of the complaint. The sum total of the five loans obtained by the
The chattel mortgage on the crops growing on appellant's land appellant from the Bank of Taiwan, Ltd. was P1,281.97 in
simply stood as a security for the fulfillment of appellant's Japanese war notes. Computed under the Ballantyne Scale of
obligation covered by the five promissory notes, and the loss of values as of June 1943, this sum of P1,281.97 in Japanese war
the crops did not extinguish his obligation to pay, because the notes in June 1943 is equivalent to P889.64 in genuine
account could still be paid from other sources aside from the Philippine currency which was considered the aggregate
mortgaged crops. amount due as principal of the five loans, and the amount of
P2,377.23 as of December 31, 1959 was arrived at after
computing the interest on the principal sum of P889.64
In his second point of contention, the appellant maintains that compounded quarterly from the time the obligations were
the action of the appellee had prescribed. The appellant points incurred in 1943.
out that the loans became due on June 1, 1944; and when the
complaint was filed on January 17,1961 a period of more than
16 years had already elapsed far beyond the period of ten It is the stand of the appellee that the Ballantyne scale of values
years when an action based on a written contract should be should be applied as of the time the obligation was incurred,
brought to court. and that was in June 1943. This stand of the appellee was
upheld by the lower court; and the decision of the lower court is
supported by the ruling of this Court in the case of Hilado vs. De
This contention of the appellant has no merit. Firstly, it should la Costa (G.R. No. L-150, April 30, 1949; 46 O.G. 5472), which
be considered that the complaint in the present case was states:
brought by the Republic of the Philippines not as a nominal
party but in the exercise of its sovereign functions, to protect the
interests of the State over a public property. Under paragraph 4 ... Contracts stipulating for payments presumably in
of Article 1108 of the Civil Code prescription, both acquisitive Japanese war notes may be enforced in our Courts
and extinctive, does not run against the State. This Court has after the liberation to the extent of the just obligation of
held that the statute of limitations does not run against the right the contracting parties and, as said notes have
of action of the Government of the Philippines (Government of become worthless, in order that justice may be done
the Philippine Islands vs. Monte de Piedad, etc., 35 Phil. 738- and the party entitled to be paid can recover their
751).Secondly, the running of the period of prescription of the actual value in Philippine Currency, what the debtor or
action to collect the loan from the appellant was interrupted by defendant bank should return or pay is the value of the
the moratorium laws (Executive Orders No. 25, dated November Japanese military notes in relation to the peso in
18, 1944; Executive Order No. 32. dated March 10, 1945; and Philippine Currency obtaining on the date when and at
Republic Act No. 342, approved on July 26, 1948). The loan in the place where the obligation was incurred unless the
question, as evidenced by the five promissory notes, were parties had agreed otherwise. ... . (italics supplied)
incurred in the year 1943, or during the period of Japanese
occupation of the Philippines. This case is squarely covered by IN VIEW OF THE FOREGOING, the decision appealed from is
Executive Order No. 25, which became effective on November affirmed, with costs against the appellant. Inasmuch as the
18, 1944, providing for the suspension of payments of debts appellant Jose Grijaldo died during the pendency of this appeal,
incurred after December 31, 1941. The period of prescription his estate must answer in the execution of the judgment in the
was, therefore, suspended beginning November 18, 1944. This present case.
Court, in the case of Rutter vs. Esteban (L-3708, May 18, 1953,
93 Phil. 68), declared on May 18, 1953 that the Moratorium Bengzon, C.J., Concepcion, Barrera, Regala, Bautista Angelo,
Laws, R.A. No. 342 and Executive Orders Nos. 25 and 32, are Reyes, J.B.L., Makalintal and Bengzon, J.P., JJ., concur.
unconstitutional; but in that case this Court ruled that the
moratorium laws had suspended the prescriptive period until
May 18, 1953. This ruling was categorically reiterated in the
decision in the case of Manila Motors vs. Flores, L-9396, August
16, 1956. It follows, therefore, that the prescriptive period in the
case now before US was suspended from November 18,1944,
when Executive Orders Nos. 25 and 32 were declared
unconstitutional by this Court. Computed accordingly, the
prescriptive period was suspended for 8 years and 6 months. By
the appellant's own admission, the cause of action on the five
promissory notes in question arose on June 1, 1944. The
complaint in the present case was filed on January 17, 1961, or
after a period of 16 years, 6 months and 16 days when the
cause of action arose. If the prescriptive period was not
interrupted by the moratorium laws, the action would have
prescribed already; but, as We have stated, the prescriptive
period was suspended by the moratorium laws for a period of 8
years and 6 months. If we deduct the period of suspension (8
years and 6 months) from the period that elapsed from the time
the cause of action arose to the time when the complaint was
filed (16 years, 6 months and 16 days) there remains a period of
8 years and 16 days. In other words, the prescriptive period ran
for only 8 years and 16 days. There still remained a period of
one year, 11 months and 14 days of the prescriptive period
when the complaint was filed.

In his third point of contention the appellant maintains that the

lower court erred in ordering him to pay the amount of
P2,377.23. It is claimed by the appellant that it was error on the
part of the lower court to apply the Ballantyne Scale of values in
evaluating the Japanese war notes as of June 1943 when the
loans were incurred, because what should be done is to
evaluate the loans on the basis of the Ballantyne Scale as of the
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 116896 May 5, 1997
PHILIPPINE NATIONAL CONSTRUCTION
CORPORATION, petitioner,
vs.
COURT OF APPEALS, MA. TERESA S. RAYMUNDO-
ABARRA, JOSE S. RAYMUNDO, ANTONIO S. RAYMUNDO,
RENE S. RAYMUNDO, and AMADOR S.
RAYMUNDO, respondents.
DAVIDE, JR., J.:
This petition for review on certiorari has its roots in Civil Case
No. 53444, which was sparked by petitioner's refusal to pay the
rentals as stipulated in the contract of lease 1 on an undivided
portion of 30,000 square meters of a parcel of land owned by
private respondents.
The lease contract, executed on 18 November 1985, reads in
part as follows:
1. TERM OF LEASE This lease shall be for a period of five
(5) years, commencing on the date of issuance of the industrial
clearance by the Ministry of Human Settlements, renewable for
a like or other period at the option of the LESSEE under the
same terms and conditions.
2. RATE OF RENT LESSEE shall pay to the LESSOR rent at
the monthly rate of TWENTY THOUSAND PESOS
(P20,000.00), Philippine Currency, in the manner set forth in
Paragraph 3 below. This rate shall be increased yearly by Five
Percent (5%) based on the agreed monthly rate of P20,000.00
as follows:
Monthly Rate Period Applicable
P21,000.00 Starting on the 2nd year
P22,000.00 Starting on the 3rd year
P23,000.00 Starting on the 4th year
P24,000.00 Starting on the 5th year
3. TERMS OF PAYMENT The rent stipulated in Paragraph 2
above shall be paid yearly in advance by the LESSEE. The first
annual rent in the amount of TWO HUNDRED FORTY
THOUSAND PESOS (P240,000.00), Philippine currency, shall
be due and payable upon the execution of this Agreement and
the succeeding annual rents shall be payable every twelve (12)
months thereafter during the effectivity of this Agreement.
4. USE OF LEASED PROPERTY It is understood that the
Property shall be used by the LESSEE as the site, grounds and
premises of a rock crushing plant and field office, sleeping
quarters and canteen/mess hall. The LESSORS hereby grant to
the LESSEE the right to erect on the Leased Property such
structure(s) and/or improvement(s) necessary for or incidental to
the LESSEE's purposes.
xxx xxx xxx
11. TERMINATION OF LEASE This Agreement may be
terminated by mutual agreement of the parties. Upon the
termination or expiration of the period of lease without the same
being renewed, the LESSEE shall vacate the Leased Property
at its expense.
On 7 January 1986, petitioner obtained from the Ministry of
Human Settlements a Temporary Use Permit 2 for the proposed
rock crushing project. The permit was to be valid for two years
unless sooner revoked by the Ministry.
On 16 January 1986, private respondents wrote petitioner
requesting payment of the first annual rental in the amount of
P240,000 which was due and payable upon the execution of the
contract. They also assured the latter that they had already
stopped considering the proposals of other aggregates plants to
lease the property because of the existing contract with
petitioner. 3
In its reply-letter, petitioner argued that under paragraph 1 of the
lease contract, payment of rental would commence on the date
of the issuance of an industrial clearance by the Ministry of
Human Settlements, and not from the date of signing of the
contract. It then expressed its intention to terminate the contract,
as it had decided to cancel or discontinue with the rock crushing
project "due to financial, as well as technical, difficulties." 4
Private respondents refused to accede to petitioner's request for
the pretermination of the lease contract. They insisted on the
performance of petitioner's obligation and reiterated their
demand for the payment of the first annual rental. 5
Petitioner objected to private respondents' claim and argued
that it was "only obligated to pay . . . the amount of P20,000.00
as rental payments for the one-month period of lease, counted
from 07 January 1986 when the Industrial Permit was issued by
the Ministry of Human Settlements up to 07 February 1986
when the Notice of Termination was served" 6 on private
respondents.
On 19 May 1986, private respondents instituted with the
Regional Trial Court of Pasig an action against petitioner for
Specific Performance with Damages. 7 The case was docketed
as Civil Case No. 53444 at Branch 160 of the said court. After
the filing by petitioner of its Answer with Counterclaim, the case
was set for trial on the merits.
What transpired next was summarized by the trial court in this
wise:
Plaintiffs rested their case on September 7, 1987 (p. 87 rec.).
Defendant asked for postponement of the reception of its
evidence scheduled on August 10, 1988 and as prayed for, was
reset to August 25, 1988 (p. 91 rec.) Counsel for defendant
again asked for postponement, through representative, as he
was presently indisposed. The case was reset, intransferable to
September 15 and 26, 1988 (p. 94 rec.) On September 2, 1988,
the office of the Government Corporate Counsel entered its
appearance for defendant (p. 95, rec.) and the original counsel
later withdrew his appearance. On September 15, 1988 the
Government Corporate Counsel asked for postponement,
represented by Atty. Elpidio de Vega, and with his conformity in
open court, the hearing was reset, intransferable to September
26 and October 17, 1988, (p. 98, rec.) On September 26, 1988
during the hearing, defendant's counsel filed a motion for
postponement (urgent) as he had "sore eyes", a medical
certificate attached.
Counsel for plaintiffs objected to the postponement and the
court considered the evidence of the government terminated or
waived. The case was deemed submitted for decision upon the
filing of the memorandum. Plaintiffs filed their memorandum on
October 26, 1988. (p. 111, rec.).
On October 18, 1988 in the meantime, the defendant filed a
motion for reconsideration of the order of the court on September
26, 1988 (p. 107, rec.) The motion was not asked to be set for
hearing (p. 110 rec.) There was also no proof of notice and service to
counsel for plaintiff . The court in the interest of justice set the hearing
on the motion on November 29, 1988. (p. 120, rec.) but despite notice,
again defendant's counsel was absent (p. 120-A, dorsal side,
rec.) without reason. The court reset the motion to December 16, 1988,
in the interest of justice. The motion for reconsideration was denied by
the court. A second motion for reconsideration was filed and counsel set
for hearing the motion on January 19, 1989. During the hearing, counsel
for the government was absent. The motion was deemed abandoned
but the court at any rate, after a review of the incidents and the grounds
relied upon in the earlier motion of defendant, found no reason to disturb
its previous order. 8
On 12 April 1989, the trial court rendered a decision ordering petitioner
to pay private respondents the amount of P492,000 which represented
the rentals for two years, with legal interest from 7 January 1986 until
the amount was fully paid, plus attorney's fees in the amount of P20,000
and costs. 9
Petitioner then appealed to the Court of Appeals alleging that the trial
court erred in ordering it to pay private respondent the amount of
P492,000 and in denying it the right to be heard.
Upon the affirmance of the trial court's decision 10 and the denial of its
motion for reconsideration, petitioner came to this Court ascribing to
respondent Court of Appeals the same alleged errors and reiterating
their arguments.
First. Petitioner invites the attention of this Court to paragraph 1 of the
lease contract, which reads: "This lease shall be for a period of five (5)
years, commencing on the date of issuance of the industrial clearance
by the Ministry of Human Settlements. . . ." It then submits that the
issuance of an industrial clearance is a suspensive condition without
which the rights under the contract would not be acquired. The
Temporary Use Permit is not the industrial clearance referred to in the
contract; for the said permit requires that a clearance from the National
Production Control Commission be first secured, and besides, there is a
finding in the permit that the proposed project does not conform to the
Zoning Ordinance of Rodriguez, (formerly Montalban), Rizal, where the
leased property is located. Without the industrial clearance the lease
contract could not become effective and petitioner could not be
compelled to perform its obligation under the contract.
Petitioner is now estopped from claiming that the Temporary Use Permit
was not the industrial clearance contemplated in the contract. In its letter
dated 24 April 1986, petitioner states:
We wish to reiterate PNCC Management's previous stand that it is only
obligated to pay your clients the amount of P20,000.00 as rental
payments for the one-month period of the lease, counted from 07
January 1986 when the Industrial Permit was issued by the Ministry of
Human Settlements up to 07 February 1986 when the Notice of
Termination was served on your clients. 11 (Emphasis Supplied).
The "Industrial Permit" mentioned in the said letter could only refer to
the Temporary Use Permit issued by the Ministry of Human Settlements
on 7 January 1986. And it can be gleaned from this letter that petitioner
has considered the permit as industrial clearance; otherwise, petitioner
could have simply told private respondents that its obligation to pay
rentals has not yet arisen because the Temporary Use Permit is not the
industrial clearance contemplated by them. Instead, petitioner
recognized its obligation to pay rentals counted from the date the permit
was issued.
Also worth noting is petitioner's earlier letter, thus:
[P]lease be advised of PNCC Management's decision to cancel or
discontinue with the rock crushing project due to financial as well as
technical difficulties. In view thereof, we would like to terminate our
Lease Contract dated 18 November, 1985. Should you agree to the
mutual termination of our Lease Contract, kindly indicate your
conformity hereto by affixing your signature on the space provided
below. May we likewise request Messrs. Rene, Jose and Antonio, all
surnamed Raymundo and Mrs. Socorro A. Raymundo as Attorney-in-
Fact of Amador S. Raymundo to sign on the spaces indicated below. 12
It can be deduced from this letter that the suspensive condition
issuance of industrial clearance has already been fulfilled and that
the lease contract has become operative. Otherwise, petitioner did not
have to solicit the conformity of private respondents to the termination of
the contract for the simple reason that no juridical relation was created
because of the non- fulfillment of the condition.
Moreover, the reason of petitioner in discontinuing with its project and in
consequently cancelling the lease contract was "financial as well as
technical difficulties," not the alleged insufficiency of the Temporary Use
Permit.
Second. Invoking Article 1266 and the principle of rebus sic stantibus,
petitioner asserts that it should be released from the obligatory force of
the contract of lease because the purpose of the contract did not
materialize due to unforeseen events and causes beyond its
control, i.e., due to the abrupt change in political climate after the EDSA
Revolution and financial difficulties.
It is a fundamental rule that contracts, once perfected, bind both
contracting parties, and obligations arising therefrom have the force of
law between the parties and should be complied with in good
faith. 13 But the law recognizes exceptions to the principle of the
obligatory force of contracts. One exception is laid down in Article 1266
of the Civil Code, which reads: "The debtor in obligations to do shall also
be released when the prestation becomes legally or physically
impossible without the fault of the obligor."
Petitioner cannot, however, successfully take refuge in the said article,
since it is applicable only to obligations "to do," and not to obligations "to
give." 14 An obligation "to do" includes all kinds of work or service; while
an obligation "to give" is a prestation which consists in the delivery of a
movable or an immovable thing in order to create a real right, or for the
use of the recipient, or for its simple possession, or in order to return it
to its owner. 15
The obligation to pay rentals 16 or deliver the thing in a contract of
lease 17 falls within the prestation "to give"; hence, it is not covered
within the scope of Article 1266. At any rate, the unforeseen event and
causes mentioned by petitioner are not the legal or physical
impossibilities contemplated in the said article. Besides, petitioner failed
to state specifically the circumstances brought about by "the abrupt
change in the political climate in the country" except the alleged
prevailing uncertainties in government policies on infrastructure projects.
The principle of rebus sic stantibus 18 neither fits in with the facts of the
case. Under this theory, the parties stipulate in the light of certain
prevailing conditions, and once these conditions cease to exist, the
contract also ceases to exist. 19 This theory is said to be the basis of
Article 1267 of the Civil Code, which provides:
Art. 1267. When the service has become so difficult as to be manifestly
beyond the contemplation of the parties, the obligor may also be
released therefrom, in whole or in part.
This article, which enunciates the doctrine of unforeseen events, is not,
however, an absolute application of the principle of rebus sic stantibus,
which would endanger the security of contractual relations. The parties
to the contract must be presumed to have assumed the risks of
unfavorable developments. It is therefore only in absolutely exceptional
changes of circumstances that equity demands assistance for the
debtor. 20
In this case, petitioner wants this Court to believe that the abrupt change
in the political climate of the country after the EDSA Revolution and its
poor financial condition "rendered the performance of the lease contract
impractical and inimical to the corporate survival of the petitioner."
This Court cannot subscribe to this argument. As pointed out by
private respondents: 21
It is a matter of record that petitioner PNCC entered into a
contract with private respondents on November 18, 1985. Prior
thereto, it is of judicial notice that after the assassination of
Senator Aquino on August 21, 1983, the country has
experienced political upheavals, turmoils, almost daily mass
demonstrations, unprecedented, inflation, peace and order
deterioration, the Aquino trial and many other things that
brought about the hatred of people even against crony
corporations. On November 3, 1985, Pres. Marcos, being
interviewed live on U.S. television announced that there would
be a snap election scheduled for February 7, 1986.
On November 18, 1985, notwithstanding the above, petitioner
PNCC entered into the contract of lease with private
respondents with open eyes of the deteriorating conditions of
the country.
Anent petitioner's alleged poor financial condition, the same will
neither release petitioner from the binding effect of the contract
of lease. As held in Central Bank v. Court of Appeals, 22 cited by
private respondents, mere pecuniary inability to fulfill an
engagement does not discharge a contractual obligation, nor
does it constitute a defense to an action for specific
performance.
With regard to the non-materialization of petitioner's particular
purpose in entering into the contract of lease, i.e., to use the
leased premises as a site of a rock crushing plant, the same will
not invalidate the contract. The cause or essential purpose in a
contract of lease is the use or enjoyment of a thing. 23 As a
general principle, the motive or particular purpose of a party in
entering into a contract does not affect the validity nor existence
of the contract; an exception is when the realization of such
motive or particular purpose has been made a condition upon
which the contract is made to depend. 24 The exception does
not apply here.
Third. According to petitioner, the award of P492,000.00 SO ORDERED.
representing the rent for two years is excessive, considering
that it did not benefit from the property. Besides, the temporary Narvasa, C.J., Melo, Francisco and Panganiban, JJ., concur.
permit, conformably with the express provision therein, was
deemed automatically revoked for failure of petitioner to use the
same within one year from the issuance thereof. Hence, the rent Footnotes
1 Exhibit "A," Original Record (OR), 68.
payable should only be for one year.
2 Exhibit "C," OR, 77; Rollo, 57.
3 Exhibit "B," OR, 76.
Petitioner cannot be heard to complain that the award is 4 Exhibit "D," OR, 78.
excessive. The temporary permit was valid for two years but 5 Exhibit "E," Id., 80.
was automatically revoked because of its non-use within one 6 Exhibit "F," Id., 81-82.
year from its issuance. The non-use of the permit and the non- 7 Id., 1-7.
entry into the property subject of the lease contract were both 8 Order of 19 January 1989, OR, 129-130; Decision, 2-3.
imputable to petitioner and cannot, therefore, be taken 9 OR 134-137; Rollo, 53-56. Per Judge Mariano M. Umali.
advantage of in order to evade or lessen petitioner's monetary 10 Rollo, 24-31. Per then Associate Justice Justo P. Torres, Jr. (now Associate
obligation. The damage or prejudice to private respondents is Justice of the Supreme Court), with the concurrence of then Associate Justice
Bernardo P. Pardo and Associate Justice Corona Ibay-Somera.
beyond dispute. They unquestionably suffered pecuniary losses
11 Exhibit "F-1," OR, 82.
because of their inability to use the leased premises. Thus, in
12 Exhibit "D," Id., 78-79.
accordance with Article 1659 of the Civil Code, 25 they are
13 Articles 1159, 1308, 1315, and 1356 of the Civil Code.
entitled to indemnification for damages; and the award of 14 DESIDERIO P. JURADO, Comments and Jurisprudence on Obligations and
P492,000.00 is fair and just under the circumstances of the Contracts 292 ( 10th revised ed. 1993) (hereafter JURADO).
case. 15 IV ARTURO M. TOLENTINO, Commentaries and Jurisprudence on the Civil
Code of the Philippines 57 (1991) (hereafter IV TOLENTINO).
Finally, petitioner submits that the trial court gravely abused its 16 JURADO, 283.
discretion in denying petitioner the right to be heard. 17 IV TOLENTINO 57.
18 At this point of affairs; in these circumstances. A name given to a tacit
condition, said to attach to all treaties, that they shall cease to be obligatory so
We disagree. The trial court was in fact liberal in granting soon as the state of facts and conditions upon which they were founded has
several postponements 26 to petitioner before it deemed substantially changed. (Black's Law Dictionary, 1139 [5th ed., 1979]).
terminated and waived the presentation of evidence in 19 Naga Telephone Co. v. Court of Appeals, 230 SCRA 351, 365 [1994] citing IV
petitioner's behalf. TOLENTINO 347.
20 IV TOLENTINO 347.
21 Memorandum for the Private Respondents, 17; Rollo, 160.
It must be recalled that private respondents rested their case on
22 139 SCRA 46 [1985], citing Repide v. Afzelius, 39 Phil. 190 [1918].
7 September 1987 yet. 27 Almost a year after, or on 10 August
23 V TOLENTINO 206 [1992]; V EDGARDO E. PARAS, Civil Code of the
1988 when it was petitioner's turn to present evidence, Philippines, 307 [1995].
petitioner's counsel asked for postponement of the hearing to 25 24 V TOLENTINO 535.
August 1988 due to conflict of schedules, 28 and this was 25 It provides:
granted. 29 At the rescheduled hearing, petitioner's counsel, Art. 1659. If the lessor or the lessee should not comply with the obligations set
through a representative, moved anew for postponement, as he forth in Articles 1654 and 1657, the aggrieved party may ask for rescission of
was allegedly the contract and indemnification for damages, or only the latter, allowing the
indisposed. 30 The case was then reset "intransferable" to contract to remain in force.
September 15 and 26, 1988. 31 On 2 September 1988, the 26 Ocampo v. Arboleda, 153 SCRA 374, 381 [1987].
Office of the Government Corporate Counsel, through Atty. 27 OR, 87.
Elpidio J. Vega, entered its appearance for the 28 OR, 89.
petitioner, 32 and later the original counsel withdrew his 29 Id., 91.
appearance. 33 On 15 September 1988, Atty. Vega requested 30 Id., 94.
for postponement to enable him to go over the records of the 31 Id.
case. 34 With his conformity, the hearing was reset 32 Id., 95.
"intransferable" to September 26 and October 17, 1988. 35 In the 33 Id., 99.
34 Id., 98.
morning of 26 September 1988, the court received Atty. Vega's
35 Id.
Urgent Motion for Postponement on the ground that he was
36 Id., 101.
afflicted with conjunctivitis or sore eyes. 36 This time, private 37 Id., 106.
respondents objected; and upon their motion, the court deemed 38 Id.
terminated and waived the presentation of evidence for the 39 Id., 120.
petitioner. 37 Nevertheless, before the court considered the case 40 Id., 128.
submitted for decision, it required the parties to submit their 41 Id., 127.
respective memoranda within thirty days. 38 But petitioner failed 42 Roces v. Aportadera, 243 SCRA 108, 114 [1995]; Vallende v. NLRC, 245 SCRA
to comply. 662, 666-667 [1995]; Navarro III v. Damasco, 246 SCRA 260, 265 [1995].
43 Mutuc v. Court of Appeals, 190 SCRA 43, 49 [1990].
Likewise, the court was liberal with respect to petitioner's motion
for reconsideration. Notwithstanding the lack of request for
hearing and proof of notice and service to private respondents,
the court set the hearing of the said motion on 29 November
1988. 39 Upon the denial of the said motion for lack of
merit, 40 petitioner filed a second motion for reconsideration. But
during the hearing of the motion on a date selected by him, Atty.
Vega was absent for no reason at all, despite due notice. 41

From the foregoing narration of procedural antecedents, it

cannot be said that petitioner was deprived of its day in court.
The essence of due process is simply an opportunity to he
heard. 42 To be heard does not only mean oral arguments in
court; one may be heard also through pleadings. Where
opportunity to be heard, either through oral arguments or
pleadings, is accorded, there is no denial of procedural due
process. 43

WHEREFORE, the instant petition is DENIED and the challenge

decision of the Court of Appeals is AFFIRMED in toto.

No pronouncements as to costs.
 Republic of the Philippines
SUPREME COURT
FIRST DIVISION
G.R. No. 124221 August 4, 2000
VICTORINO MAGAT, JR. substituted by heirs, OLIVIA D.
MAGAT, and minors MA. DULCE MAGAT, MA. MAGNOLIA
MAGAT, RONALD MAGAT and DENNIS MAGAT, petitioners,
vs.
COURT OF APPEALS and SANTIAGO A.
GUERRERO, respondents.
PARDO, J.:
The case is an appeal1 from the decision of the Court of
Appeals2 reversing the decision of the Regional Trial Court of
Makati, Metro Manila,3 ruling in favor of respondent Santiago A.
Guerrero and dismissing petitioners' complaint.
First, the facts.
Private respondent Santiago A. Guerrero (hereinafter referred to
as "Guerrero") was President and Chairman of4"Guerrero
Transport Services", a single proprietorship.5
Sometime in 1972, Guerrero Transport Services won a bid for
the operation of a fleet of taxicabs within the Subic Naval Base,
in Olongapo. As highest bidder, Guerrero was to "provide radio-
controlled taxi service within the U.S. Naval Base, Subic Bay,
utilizing as demand requires . . . 160 operational taxis consisting
of four wheel, four-door, four passenger, radio controlled, meter
controlled, sedans, not more than one year . . . " 6
On September 22, 1972, with the advent of martial law,
President Ferdinand E. Marcos issued Letter of Instruction No. 1
(hereinafter referred to as "the LOI"). We reproduce the text, as
follows:
"Letter of Instruction No. 1
"SUBJECT: SEIZURE AND CONTROL OF ALL PRIVATELY
OWNED NEWSPAPERS, MAGAZINES, RADIO AND
TELEVISION FACILITIES AND ALL OTHER MEDIA OF
COMMUNICATION.
"To: 1. The Press Secretary Office of the President
Manila
"2. The Secretary Department of National
Defense
Camp E. Aguinaldo, Q.C.
"In view of the present national emergency which has been
brought about by the activities of those who are actively
engaged in a criminal conspiracy to seize political and state
power in the Philippines and to take over the Government by
force and violence the extent of which has now assumed the
proportion of an actual war against our people and their
legitimate Government, and pursuant to Proclamation No. 1081
dated September 21, 1972, and in my capacity as commander
in chief of all the armed forces of the Philippines and in order to
prevent the use of privately owned newspapers, magazines,
radio and television facilities and all other media of
communications, for propaganda purposes against the
government and its duly constituted authorities or for any
purpose that tend to undermine the faith and confidence of the
people in our government and aggravate the present national
emergency, you are hereby ordered forthwith to take over and
control or cause the taking over and control of all such
newspapers, magazines, radio and television facilities and all
other media of communications, wherever they are, for the
duration of the present national emergency, or until otherwise
ordered by me or by my duly designated
representative.1wphi1.nt
"In carrying out the foregoing order you are hereby also
directed to see to it that reasonable means are
employed by you and your men and that injury to
persons and property must be carefully avoided."
On September 25, 1972, pursuant to the aforequoted Letter of
Instruction, the Radio Control Office issued Administrative
Circular No. 4 (hereinafter referred to as "the Admin. Circular"),
herein quoted in full:
"SUBJECT: SUSPENDING THE ACCEPTANCE AND
PROCESSING OF APPLICATIONS FOR RADIO STATION
CONSTRUCTION PERMITS AND FOR PERMITS TO OWN
AND/OR POSSESS RADIO TRANSMITTERS OR
TRANSCEIVERS.
"In view of the existence of a state of emergency and the
declaration by the President of martial law in the entire country
under Proclamation No. 1081 dated September 21, 1972,
effective immediately the acceptance and processing by the
radio control office of applications for radio stations
constructions permits and for permits to possess, own, transfer,
purchase and sale of radio transmitters and transreceivers as
well as manufacturers and dealer's permits of said equipment is
hereby suspended.
"Exempted from this circular are applications for radio station
construction permits and for permits to possess, own, transfer,
purchase and sell radio transmitters and transceivers for the
following radio stations:
"1. Aeronautical Stations;
"2. Aeronautical Fixed Stations;
"3. Aircraft Stations;
"4. Coastal Stations; and
"5. Ship Stations.
"This circular shall be strictly observed until lifted upon proper
instructions from higher authorities."
On September 25, 1972, Guerrero and Victorino D. Magat
(hereinafter referred to as Victorino), as General Manager of
Spectrum Electronic Laboratories, a single proprietorship,
executed a letter-contract for the purchase of transceivers at a
quoted price of US$77,620.59, FOB Yokohoma. Victorino was
to deliver the transceivers within 60 to 90 days after receiving
notice from Guerrero of the assigned radio frequency,7 "taking
note of Government Regulations."8
The contract was signed and Victorino contacted his Japanese
supplier, Koide & Co., Ltd. and placed an order for the
transceivers.
On September 29, 1972, Navy Exchange Officer, A. G. Mason
confirmed that Guerrero won the bid for the commercial
transportation contract.9
On October 4, 1972, middle man and broker10 Isidro Q. Aligada
of Reliance Group Engineers, Inc. (hereinafter referred to as
"Aligada"), wrote Victorino, informing him that a radio frequency
was not yet assigned to Guerrero and that government
regulations might complicate the importation of the transceivers.
However, in the same letter, Victorino was advised to advise his
supplier "to proceed (with) production pending frequency
information." Victorino was also assured of Guerrero's financial
capability to comply with the contract.11
On October 6, 1972, Guerrero informed Aligada of the
frequency number12 assigned by Subic Naval Base authorities.
Aligada was instructed to "proceed with the order thru Spectrum
Electronics Laboratories."13
On October 7, 1972, Aligada informed Magat of the assigned
frequency number. Aligada also advised Victorino to "proceed
with the order upon receipt of letter of credit."14
On January 10, 1973, Guerrero applied for a letter of credit with
the Metropolitan Bank and Trust Company.15 This application
was not pursued.16
On March 27, 1973, Victorino, represented by his lawyer, Atty.
Sinesio S. Vergara, informed Guererro that the order with the
Japanese supplier has not been canceled. Should the contract
be canceled, the Japanese firm would forfeit 30% of the deposit
and charge a cancellation fee in an amount not yet known,
Guerrero to bear the loss. Further, should the contract be
canceled, Victorino would demand an additional amount
equivalent to 10% of the contract price.17
Unable to get a letter of credit from the Central Bank due to the
refusal of the Philippine government18 to issue a permit to import
the transceivers,19 Guerrero commenced operation of the taxi
cabs within Subic Naval Base, using radio units borrowed from
the U.S. government (through the Subic Naval Base
authorities).20 Victorino thus canceled his order with his
Japanese supplier.
On May 22, 1973, Victorino filed with the Regional Trial Court,
Makati a complaint for damages arising from breach of contract
against Guerrero.21
On June 7, 1973, Guerrero moved to dismiss the complaint on
the ground that it did not state a cause of action.22
On June 16, 1973, the trial court23 granted the motion and
dismissed the complaint.24
On July 11, 1973, Victorino filed a petition for review on
certiorari with this Court assailing the dismissal of the
complaint.25
On April 20, 1983, this Court2 6 ruled that the complaint
sufficiently averred a cause of action. We set aside the order of
dismissal and remanded the case to the trial court for further
proceedings, to wit:27
"ACCORDINGLY, the questioned order of dismissal is hereby
set aside and the case ordered remanded to the court of origin
for further proceedings. No costs.
"SO ORDERED."
On November 27, 1984, the trial court28 ordered that the case
be archived for failure of Victorino to prosecute.29
On March 11, 1985, petitioners, Olivia, Dulce, Ma. Magnolia,
Ronald and Dennis Magat (hereinafter referred to as "heirs of
Victorino"), moved to reinstate the case and to substitute
Victorino in its prosecution. Apparently, Victorino died on
February 18, 1985.30
On April 29, 1985, the trial court granted the motion. 31
On July 12, 1991, the trial court decided in favor of the heirs of
Victorino and ordered Guerrero to pay temperate, moral and
exemplary damages, and attorney's fees, disposing of the case
in this wise:32
"WHEREFORE, judgment is rendered for the substituted
plaintiffs and against the defendant
"1. Ordering defendant to pay substituted plaintiffs the sum of P25,000.00 for
temperate damages for injury to plaintiff's business dealings with foreign and
local businessmen;
"2. P50,000.00 as moral damages;
"3. P25,000.00 as exemplary
damages; and
"4. P20,000.00 as attorney's fees.
"SO ORDERED."
On August 21, 1991, Guerrero appealed to the Court of
Appeals.33
On October 4, 1995, the Court of Appeals rendered the decision
appealed from, disposing as follows:34
"WHEREFORE, judgment is hereby rendered
DISMISSING the complaint.
"No pronouncements as to costs.
" SO ORDERED."
On October 26, 1995, the heirs of Victorino filed with the Court
of Appeals a motion for reconsideration.35
On March 12, 1996, the Court of Appeals denied the motion for
reconsideration.36
Hence, this appeal.37
The issue is whether the contract between Victorino and
Guerrero for the purchase of radio transceivers was void. Stated
differently, whether the transceivers subject of the contract were
banned contraband items prohibited by the LOI and the
Administrative Circular to import.
The contract was valid; the radio transceivers were not
contraband.
"Contraband" generally refers to "any property which is unlawful
to produce or possess." It refers to goods which are exported
and imported into a country against its laws.38
In declaring the contract void ab initio, the Court of Appeals
ruled that the importation of the transceivers meant the
inevitable passing of such goods through Philippine Ports,
where the LOI and the Administrative Circular have to be
observed and applied with full force and effect.39 The Court of
Appeals declared that the proposed importation of such goods
was contrary to law, hence, the nullity of the contract.40
We do not agree. The contract was not void ab initio. Nowhere
in the LOI and Admin. Circular is there an express ban on the
importation of transceivers.
The LOI and Administrative Circular did not render "radios and
transceivers" illegal per se. The Administrative Circular merely
ordered the Radio Control Office to suspend the "acceptance
and processing . . . . of applications . . . for permits to possess,
own, transfer, purchase and sell radio transmitters and
transceivers . . . "41 Therefore, possession and importation of
the radio transmitters and transceivers was legal provided one
had the necessary license for it.42 Transceivers were not
prohibited but merely regulated goods. The LOI and
Administrative Circular did not render the transceivers outside
the commerce of man. They were valid objects of the contract. 43
Affirming the validity of the contract, we next discuss whether
the contract was breached.
Guerrero testified that a permit to import the transceivers from
Japan was denied by the Radio Control Board. He stated that
he, together with Aligada, Victorino and a certain John Dauden
personally went to the Radio Control Office, and were denied a
permit to import. They also went to the Office of the President,
where Secretary Ronaldo B. Zamora explained that radios were
"banned like guns because of martial law."44 Guerrero testified
that this prevented him from securing a letter of credit from the
Central Bank.45 This testimony was not rebutted.
The law provides that "[w]hen the service (required by the
contract) has become so manifestly beyond the contemplation
of the parties, the obligor may also be released therefrom, in
whole or in part."46 Here, Guerrero's inability to secure a letter of
credit and to comply with his obligation was a direct
consequence of the denial of the permit to import. For this, he
cannot be faulted.
 8
Even if we assume that there was a breach of contract, Regional Trial Court Record, pp. 9-10.
9 Regional Trial Court Record, p. 338.
damages cannot be awarded. Damnum absque injuria.
10 Ibid., pp. 377-378.
11 Ibid., p. 11.
There was no bad faith.47 Bad faith does not simply connote bad 12 34.2 MHz.
judgment or negligence. It imports a dishonest purpose or some 13 Regional Trial Court Record, p. 12.
moral obliquity and conscious doing of wrong. It means a 14 Ibid., p. 13.

breach of a known duty through some motive or interest or ill will 15 Ibid., p. 14.

that partakes of the nature of fraud.48 Guerrero honestly relied 16 Ibid., p. 150.

on the representations of the Radio Control Office and the 17 Regional Trial Court Record, p. 15.

Office of the President. 18

Through the Radio Regulation Office.
19 As per the unrebutted testimony of Guerrero, it was Aligada and Victorino

True, Guerrero borrowed equipment from the Subic Naval Base
authorities at zero cost.49 This does not automatically translate
to bad faith. Guerrero was faced with the danger of the
cancellation of his contract with Subic Naval Base. He borrowed
equipment as a prudent and swift alternative. There was no
who had the responsibility of securing the required Letter of Credit from the
Central Bank (Regional Trial Court Record, p. 369).
20
Regional Trial Court Record, pp. 373-374.
21 Ibid., pp. 1-8.
22 Ibid., pp. 18-20.
23 Through the presiding Judge Leo D. Medialdea.

proof that he resorted to this option with a deliberate and 24 Regional Trial Court Record, p. 26.

malicious intent to dishonor his contract with Victorino. An 25 Ibid., pp. 27-33.

award of damages surely cannot be based on mere hypotheses, 26 G.R. No. L-37120, 121 SCRA 418 (1983), Justice Venicio Escolin, ponente,

conjectures and surmises. Good faith is presumed, the burden concurred in by Justices Felix Makasiar, Hermogenes Concepcion, Jr., Juvenal
of proving bad faith rests on the one alleging it. 50 Petitioners did K. Guerrero, and Vicente Abad Santos. Justice Ramon C. Aquino was on leave
not effectively discharge the burden in this case. and Justice Pacifico P. De Castro had no part (Second Division).
27
Regional Trial Court Record, p. 106.
28 Through presiding Judge Rosario R. Veloso.
To recover moral damages in an action for breach of contract, 29 Regional Trial Court Record, p. 107.
the breach must be palpably wanton, reckless, malicious, in bad 30 Ibid., pp. 114-116.
faith, oppressive or abusive.51 This is not the case here. 31 Regional Trial Court Record, p. 120.
32 Rollo, p. 111.
33 Docketed as CA-G. R. CV No. 34952.
Exemplary damages also cannot be awarded. Guerrero did not
34
act in a wanton, fraudulent, reckless, oppressive or malevolent Rollo, p. 23.
35 Rollo, p. 33.
manner.52 36 Rollo, p. 25.
37 Filed on April 26, 1996. On February 10, 1997, we resolved to give due

Neither can actual damages be awarded. True, indemnification course to the petition (Rollo, p. 177).
for damages contemplates not only actual loss suffered 38 Black's Law Dictionary, Abridged Fifth Edition, p. 170.

(damnum emergens) but unrealized profits (lucrum cessans) as 39 ;Rollo, p. 56.

well.53 However, to be entitled to adequate compensation for 40 Rollo, pp. 56-57.

pecuniary loss, the loss must be actually suffered and duly
proved.54 To recover actual damages, the amount of loss must
not only be capable of proof, but must be proven with a
reasonable degree of certainty. The claim must be premised
upon competent proof or upon the best evidence
obtainable,55 such as receipts56 or other documentary proof.
Only the testimony of Aligada was presented to substantiate
petitioners' claim for unrealized profits.57 Aligada testified that as
a result of the cancellation of the contract, Victorino had to
41 Adm. Circular No. 4.
42 A "license" is a right or permission granted by some competent authority to
carry on a business or to do an act which, without such license, would be
illegal (Corona v. United Harbor Pilots Association of the Philippines, 283 SCRA
31 [1997]).
43 Art. 1347 of the Civil Code of the Philippines provides, "All things which are
not outside the commerce of men, including future things may be the object
of the contract.
All rights which are not intransmissible may also be the object of contracts . . .
."
44 Regional Trial Court Record, p. 371.

suspend transactions with his Japanese supplier for six (6)
months. Aligada stated that the volume of Victorino's business
with Subic Naval Base also diminished significantly. Aligada
approximated that Victorino's unrealized business opportunities
amounted to P400,000.00.58 Being a witness for Victorino's
heirs and standing to gain from the contract's fulfillment,
Aligada's testimony is self-serving. It is also hearsay. We fail to
see how this "evidence" proves actual damages with a
"reasonable degree of certainty."59 If proof is "flimsy", we cannot
award actual damages.60
WHEREFORE, we AFFIRM the decision of the Court of Appeals
promulgated on October 11, 1995, in CA-G. R. CV No. 34952,
dismissing the complaint.1wphi1.nt
45 Ibid., p. 372.
46
Article 1267, Civil Code of the Philippines.
47 Claiming unrealized profits in the amount of P52,393.89, heirs of Victorino
bank on Article 2201 of the Civil Code and aver that Guerrero acted in bad
faith.
48 Ford Philippines, Inc. v. Court of Appeals, 267 SCRA 320, 328 (1997); Priscilla
L. Tan v. Northwest Airlines, Inc., G.R. No. 135802, March 3, 2000.
49 Regional Trial Court Record, p. 430.
50 AFP Mutual Benefit Association, Inc. v. Court of Appeals, G.R Nos. 104769-
135016, March 3, 2000.
51
Far East Bank and Trust Company v. Court of Appeals, 241 SCRA 671
(1995); Go v. Court of Appeals, 272 SCRA 752 (1997).
52 Philippine Air Lines v. Miano, 242 SCRA 235 (1995).
53
Integrated Packaging Corp. v. Court of Appeals, G.R. No. 115117, June 8,
2000.
54 Scott Consultants & Resource Development Corporation, Inc. v. Court of

Appeals, 242 SCRA 393 (1995); Kierulf v. Court of Appeals, 269 SCRA 433
No costs. (1997).
55 Bernardo v. Court of Appeals (Special Sixth Division), 275 SCRA 413 (1997).
56 People of the Philippines v. Carlito Ereno, G. R. No. 124706, February 22,
SO ORDERED.
2000.
57 Aligada testified that, "In the usual course of events, Mr. Magat could have
Davide, Jr., C .J ., Puno, Kapunan and Ynares-Santiago, JJ expected to net approximately ten per cent of that amount (contract price of
., concur. $77,809.19) or $7,780.00 as his profits from that transaction alone. (Regional
Trial Court Record, p. 152)."
58 Supra, Regional Trial Court Record, p. 152.
Footnotes:
1 Under Rule 45 of the 1964 Revised Rules of Court. 59 Del Mundo v. Court of Appeals, 240 SCRA 348 (1995).
60
2 In CA-G.R. CV No. 34952, promulgated on October 4, 1995, Justice Corona Sulpicio Lines, Inc. v. Court of Appeals, 246 SCRA 376 (1995); Central Bank of
Ibay-Somera, ponente, concurred in by Justices Nathanael P. de Pano, Jr. and the Philippines v. Spouses Alfonso, G.R. No. 131074, March 27, 2000.
Celia Lipana-Reyes, + sitting as Special Eleventh Division.
3
In Civil Case No. 17827, dated July 12, 1991, Judge Salvador S. Abad Santos,
presiding. The decision was actually signed by Judge Cecilio F. Balagot, as
"assisting judge" citing Supreme Court Adm. Order No. 65, dated September
25, 1989 (Rollo, p. 94) as basis for his authority to sign (Rollo, p. 111).
4
Regional Trial Court Record, p. 360.
5 Ibid., p. 310.
6 Ibid., pp. 321-337.
7 The radio frequency to be assigned by Subic Naval Base.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-44349 October 29, 1976
JESUS V. OCCENA and EFIGENIA C. OCCENA, petitioners,
vs.
HON. RAMON V. JABSON, Presiding Judge of the Court Of
First Instance of Rizal, Branch XXVI; COURT OF APPEALS
and TROPICAL HOMES, INC., respondents.
Occena Law Office for petitioners.
Serrano, Diokno & Serrano for respondents.
TEEHANKEE, J.:
The Court reverses the Court of Appeals appealed resolution.
The Civil Code authorizes the release of an obligor when the
service has become so difficult as to be manifestly beyond the
contemplation of the parties but does not authorize the courts to
modify or revise the subdivision contract between the parties or
fix a different sharing ratio from that contractually stipulated with
the force of law between the parties. Private respondent's
complaint for modification of the contract manifestly has no
basis in law and must therefore be dismissed for failure to state
a cause of action. On February 25, 1975 private respondent
Tropical Homes, Inc. filed a complaint for modification of the
terms and conditions of its subdivision contract with petitioners
(landowners of a 55,330 square meter parcel of land in Davao
City), making the following allegations:
"That due to the increase in price of oil and its derivatives and
the concomitant worldwide spiralling of prices, which are not
within the control of plaintiff, of all commodities including basis
raw materials required for such development work, the cost of
development has risen to levels which are unanticipated,
unimagined and not within the remotest contemplation of the
parties at the time said agreement was entered into and to such
a degree that the conditions and factors which formed the
original basis of said contract, Annex 'A', have been totally
changed; 'That further performance by the plaintiff under the
contract.
That further performance by the plaintiff under the
contract,Annex 'S', will result in situation where defendants
would be unustly enriched at the expense of the plaintiff; will
cause an inequitous distribution of proceeds from the sales of
subdivided lots in manifest actually result in the unjust and
intolerable exposure of plaintiff to implacable losses, all such
situations resulting in an unconscionable, unjust and immoral
situation contrary to and in violation of the primordial concepts
of good faith, fairness and equity which should pervade all
human relations.
Under the subdivision contract, respondent "guaranteed
(petitioners as landowners) as the latter's fixed and sole share
and participation an amount equivalent to forty (40%) percent of
all cash receifpts fromthe sale of the subdivision lots"
Respondent pray of the Rizal court of first instance that "after
due trial, this Honorable Court render judgment modifying the
terms and conditions of the contract ... by fixing the proer shares
that shouls pertain to the herein parties out of the gross
proceeds from the sales of subdivided lots of subjects
subdivision".
Petitioners moved to dismiss the complaint principally for lack of
cause of action, and upon denial thereof and of reconsideration
by the lower court elevated the matter on certiorari to
respondent Court of Appeals.
Respondent court in its questioned resolution of June 28, 1976
set aside the preliminary injunction previously issued by it and
dimissed petition on the ground that under Article 1267 of the
Civil Code which provides that
ART. 1267. When the service has become so difficult as to be
manifestly beyond the contemplation of the parties, the obligor
may also be released therefrom, in whole or in part. 1
... a positive right is created in favor of the obligor to be released
from the performance of an obligation in full or in part when its
performance 'has become so difficult as to be manifestly beyond
the contemplation of the parties.
Hence, the petition at abar wherein petitioners insist that the
worldwide increase inprices cited by respondent does not
constitute a sufficient casue of action for modification of the
subdivision contrct. After receipt of respondent's comment, the
Court in its Resolution of September 13, 1976 resolved to treat
the petition as special civil actionand declared the case
submitted for decision.
The petition must be granted.
While respondent court correctly cited in its decision the Code
Commission's report giving the rationale for Article 1267 of the
Civil Code, to wit;
The general rule is that impossibility of performance releases
the obligor. However, it is submitted that when the service has
become so difficult as to be manifestly beyond the
contemplation of the parties, the court should be authorized to
release the obligor in whole or in part. The intention of the
parties should govern and if it appears that the service turns out
to be so difficult as have been beyond their contemplation, it
would be doing violence to that intention to hold the obligor still
responsible. ... 2
It misapplied the same to respondent's complaint.
If respondent's complaint were to be released from having to
comply with the subdivision contract, assuming it could show at
the trial that the service undertaken contractually by it had
"become so difficult as to be manifestly beyond the
contemplation of the parties", then respondent court's upholding
of respondet's complaint and dismissal of the petition would be
justifiable under the cited codal article. Without said article,
respondent would remain bound by its contract under the
theretofore prevailing doctrine that performance therewith is ot
excused "by the fact that the contract turns out to be hard and
improvident, unprofitable, or unespectedly burdensome", 3 since
in case a party desires to be excuse from performance in the
event of such contingencies arising, it is his duty to provide
threfor in the contract.
But respondent's complaint seeks not release from the
subdivision contract but that the court "render judgment I
modifying the terms and Conditions of the Contract by fixing the
proper shares that should pertain to the herein parties out of the
gross proceed., from the sales of subdivided lots of subject
subdivision". The cited article does not grant the courts this
authority to remake, modify or revise the contract or to fix the
division of shares between the parties as contractually
stipulated with the force of law between the parties, so as to
substitute its own terms for those covenanted by the
partiesthemselves. Respondent's complaint for modification of
contract manifestly has no basis in law and therefore states no
cause of action. Under the particular allegations of respondent's
complaint and the circumstances therein averred, the courts
cannot even in equity grant the relief sought.
A final procedural note. Respondent cites the general rule that
an erroneous order denying a motion to dismiss is interlocutory
and should not be corrected by certiorari but by appeal in due
course. This case however manifestly falls within the recognized
exception that certiorari will lie when appeal would not prove to
be a speedy and adequate remedy.' Where the remedy of
appeal would not, as in this case, promptly relieve petitioners
from the injurious effects of the patently erroneous order
maintaining respondent's baseless action and compelling
petitioners needlessly to go through a protracted trial and
clogging the court dockets by one more futile case, certiorari will
issue as the plain, speedy and adequate remedy of an
aggrieved party.

ACCORDINGLY, the resolution of respondent appellate court is

reversed and the petition for certiorari is granted and private
respondent's complaint in the lower court is ordered dismissed
for failure to state a sufficient cause of action. With costs in all
instances against private respondent.

Makasiar, Muoz Palma, Concepcion, Jr., and Martin JJ.,

concur.

Footnotes

1 Other Civil Code articles cited by

respondent court as justifyng the complaint
were Articles 19 and 1159 which read:

ART. 19. Every person must, in the exercise

of his rights and in the performance of his
duties, act with justice, give everyone his due
and observe honesty and good faith.

xxx xxx xxx

ART. 1159. Obligations arising from contracts

have the force of law between the contracting
parties and should be complied with in good
faith.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 107112 February 24, 1994
NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO
M. MAGGAY, petitioners,
vs.
THE COURT OF APPEALS AND CAMARINES SUR II
ELECTRIC COOPERATIVE, INC. (CASURECO
II), respondents.
Ernesto P. Pangalangan for petitioners.
Luis General, Jr. for private respondent.
NOCON, J.:
The case of Reyes v. Caltex (Philippines), Inc. 1 enunciated
the doctrine that where a person by his contract charges himself
with an obligation possible to be performed, he must perform it,
unless its performance is rendered impossible by the act of
God, by the law, or by the other party, it being the rule that in
case the party desires to be excused from performance in the
event of contingencies arising thereto, it is his duty to provide
the basis therefor in his contract.
With the enactment of the New Civil Code, a new provision
was included therein, namely, Article 1267 which provides:
When the service has become so difficult as to be manifestly
beyond the contemplation of the parties, the obligor may
also be released therefrom, in whole or in part.
In the report of the Code Commission, the rationale behind
this innovation was explained, thus:
The general rule is that impossibility of performance releases
the obligor. However, it is submitted that when the service
has become so difficult as to be manifestly beyond the
contemplation of the parties, the court should be authorized
to release the obligor in whole or in part. The intention of the
parties should govern and if it appears that the service turns
out to be so difficult as to have been beyond their
contemplation, it would be doing violence to that intention to
hold their contemplation, it would be doing violence to that
intention to hold the obligor still responsible. 2
In other words, fair and square consideration underscores
the legal precept therein.
Naga Telephone Co., Inc. remonstrates mainly against the
application by the Court of Appeals of Article 1267 in favor of
Camarines Sur II Electric Cooperative, Inc. in the case
before us. Stated differently, the former insists that the
complaint should have been dismissed for failure to state a
cause of action.
The antecedent facts, as narrated by respondent Court of
Appeals are, as follows:
Petitioner Naga Telephone Co., Inc. (NATELCO) is a
telephone company rendering local as well as long distance
telephone service in Naga City while private respondent
Camarines Sur II Electric Cooperative, Inc. (CASURECO II)
is a private corporation established for the purpose of
operating an electric power service in the same city.
On November 1, 1977, the parties entered into a contract
(Exh. "A") for the use by petitioners in the operation of its
telephone service the electric light posts of private
respondent in Naga City. In consideration therefor,
petitioners agreed to install, free of charge, ten (10)
telephone connections for the use by private respondent in
the following places:
(a) 3 units The Main Office of (private respondent);
(b) 2 Units The Warehouse of (private respondent);
(c) 1 Unit The Sub-Station of (private respondent) at Concepcion
Pequea;
(d) 1 Unit The Residence of (private respondent's) President;
(e) 1 Unit The Residence of (private respondent's) Acting General
Manager; &
(f) 2 Units To be determined by the General Manager. 3
Said contract also provided:
(a) That the term or period of this contract shall be as long
as the party of the first part has need for the electric light
posts of the party of the second part it being understood that
this contract shall terminate when for any reason
whatsoever, the party of the second part is forced to stop,
abandoned [sic] its operation as a public service and it
becomes necessary to remove the electric lightpost; (sic) 4
It was prepared by or with the assistance of the other
petitioner, Atty. Luciano M. Maggay, then a member of the
Board of Directors of private respondent and at the same
time the legal counsel of petitioner.
After the contract had been enforced for over ten (10) years,
private respondent filed on January 2, 1989 with the
Regional Trial Court of Naga City (Br. 28) C.C. No. 89-1642
against petitioners for reformation of the contract with
damages, on the ground that it is too one-sided in favor of
petitioners; that it is not in conformity with the guidelines of
the National Electrification Administration (NEA) which direct
that the reasonable compensation for the use of the posts is
P10.00 per post, per month; that after eleven (11) years of
petitioners' use of the posts, the telephone cables strung by
them thereon have become much heavier with the increase
in the volume of their subscribers, worsened by the fact that
their linemen bore holes through the posts at which points
those posts were broken during typhoons; that a post now
costs as much as P2,630.00; so that justice and equity
demand that the contract be reformed to abolish the
inequities thereon.
As second cause of action, private respondent alleged that
starting with the year 1981, petitioners have used 319 posts
in the towns of Pili, Canaman, Magarao and Milaor,
Camarines Sur, all outside Naga City, without any contract
with it; that at the rate of P10.00 per post, petitioners should
pay private respondent for the use thereof the total amount
of P267,960.00 from 1981 up to the filing of its complaint;
and that petitioners had refused to pay private respondent
said amount despite demands.
And as third cause of action, private respondent complained
about the poor servicing by petitioners of the ten (10)
telephone units which had caused it great inconvenience
and damages to the tune of not less than P100,000.00
In petitioners' answer to the first cause of action, they
averred that it should be dismissed because (1) it does not
sufficiently state a cause of action for reformation of contract;
(2) it is barred by prescription, the same having been filed
more than ten (10) years after the execution of the contract;
and (3) it is barred by estoppel, since private respondent
seeks to enforce the contract in the same action. Petitioners
further alleged that their utilization of private respondent's
posts could not have caused their deterioration because they
have already been in use for eleven (11) years; and that the
value of their expenses for the ten (10) telephone lines long
enjoyed by private respondent free of charge are far in
excess of the amounts claimed by the latter for the use of
the posts, so that if there was any inequity, it was suffered by
them.
Regarding the second cause of action, petitioners claimed
that private respondent had asked for telephone lines in
areas outside Naga City for which its posts were used by
them; and that if petitioners had refused to comply with
private respondent's demands for payment for the use of the
posts outside Naga City, it was probably because what is
due to them from private respondent is more than its claim
against them.
And with respect to the third cause of action, petitioners
claimed, inter alia, that their telephone service had been
categorized by the National Telecommunication Corporation
(NTC) as "very high" and of "superior quality."
During the trial, private respondent presented the following
witnesses:
(1) Dioscoro Ragragio, one of the two officials who signed
the contract in its behalf, declared that it was petitioner
Maggay who prepared the contract; that the understanding
between private respondent and petitioners was that the
latter would only use the posts in Naga City because at that
time, petitioners' capability was very limited and they had no
expectation of expansion because of legal squabbles within
the company; that private respondent agreed to allow
petitioners to use its posts in Naga City because there were
many subscribers therein who could not be served by them
because of lack of facilities; and that while the telephone
lines strung to the posts were very light in 1977, said posts
have become heavily loaded in 1989.
(2) Engr. Antonio Borja, Chief of private respondent's Line
Operation and Maintenance Department, declared that the
posts being used by petitioners totalled 1,403 as of April 17,
1989, 192 of which were in the towns of Pili, Canaman, and
Magarao, all outside Naga City (Exhs. "B" and "B-1"); that
petitioners' cables strung to the posts in 1989 are much
bigger than those in November, 1977; that in 1987, almost
100 posts were destroyed by typhoon Sisang: around 20
posts were located between Naga City and the town of Pili
while the posts in barangay Concepcion, Naga City were
broken at the middle which had been bored by petitioner's
linemen to enable them to string bigger telephone lines; that
while the cost per post in 1977 was only from P700.00 to
P1,000.00, their costs in 1989 went up from P1,500.00 to
P2,000.00, depending on the size; that some lines that were
strung to the posts did not follow the minimum vertical
clearance required by the National Building Code, so that
there were cases in 1988 where, because of the low
clearance of the cables, passing trucks would accidentally
touch said cables causing the posts to fall and resulting in
brown-outs until the electric lines were repaired.
(3) Dario Bernardez, Project Supervisor and Acting General
Manager of private respondent and Manager of Region V of
NEA, declared that according to NEA guidelines in 1985
(Exh. "C"), for the use by private telephone systems of
electric cooperatives' posts, they should pay a minimum
monthly rental of P4.00 per post, and considering the
escalation of prices since 1985, electric cooperatives have
been charging from P10.00 to P15.00 per post, which is
what petitioners should pay for the use of the posts.
(4) Engineer Antonio Macandog, Department Head of the
Office of Services of private respondent, testified on the poor
service rendered by petitioner's telephone lines, like the
telephone in their Complaints Section which was usually out
of order such that they could not respond to the calls of their
customers. In case of disruption of their telephone lines, it
would take two to three hours for petitioners to reactivate
them notwithstanding their calls on the emergency line.
(5) Finally, Atty. Luis General, Jr., private respondent's
counsel, testified that the Board of Directors asked him to
study the contract sometime during the latter part of 1982 or
in 1983, as it had appeared very disadvantageous to private
respondent. Notwithstanding his recommendation for the
filing of a court action to reform the contract, the former
general managers of private respondent wanted to adopt a
soft approach with petitioners about the matter until the term
of General Manager Henry Pascual who, after failing to
settle the matter amicably with petitioners, finally agreed for
him to file the present action for reformation of contract.
On the other hand, petitioner Maggay testified to the
following effect:
(1) It is true that he was a member of the Board of Directors
of private respondent and at the same time the lawyer of
petitioner when the contract was executed, but Atty.
Gaudioso Tena, who was also a member of the Board of
Directors of private respondent, was the one who saw to it
that the contract was fair to both parties.
(2) With regard to the first cause of action:
(a) Private respondent has the right under the contract to
use ten (10) telephone units of petitioners for as long as it
wishes without paying anything therefor except for long
distance calls through PLDT out of which the latter get only
10% of the charges.
(b) In most cases, only drop wires and not telephone cables
have been strung to the posts, which posts have remained
erect up to the present;
(c) Petitioner's linemen have strung only small messenger
wires to many of the posts and they need only small holes to
pass through; and
(d) Documents existing in the NTC show that the stringing of
petitioners' cables in Naga City are according to standard
and comparable to those of PLDT. The accidents mentioned
by private respondent involved trucks that were either
overloaded or had loads that protruded upwards, causing
them to hit the cables.
(3) Concerning the second cause of action, the intention of
the parties when they entered into the contract was that the
coverage thereof would include the whole area serviced by
petitioners because at that time, they already had
subscribers outside Naga City. Private respondent, in fact,
had asked for telephone connections outside Naga City for
its officers and employees residing there in addition to the
ten (10) telephone units mentioned in the contract.
Petitioners have not been charging private respondent for
the installation, transfers and re-connections of said
telephones so that naturally, they use the posts for those
telephone lines.
(4) With respect to the third cause of action, the NTC has
found petitioners' cable installations to be in accordance with
engineering standards and practice and comparable to the
best in the country.
On the basis of the foregoing countervailing evidence of the
parties, the trial court found, as regards private respondent's
first cause of action, that while the contract appeared to be
fair to both parties when it was entered into by them during
the first year of private respondent's operation and when its
Board of Directors did not yet have any experience in that
business, it had become disadvantageous and unfair to
private respondent because of subsequent events and
conditions, particularly the increase in the volume of the
subscribers of petitioners for more than ten (10) years
without the corresponding increase in the number of
telephone connections to private respondent free of charge.
The trial court concluded that while in an action for
reformation of contract, it cannot make another contract for
the parties, it can, however, for reasons of justice and equity,
order that the contract be reformed to abolish the inequities
therein. Thus, said court ruled that the contract should be
reformed by ordering petitioners to pay private respondent
compensation for the use of their posts in Naga City, while
private respondent should also be ordered to pay the
monthly bills for the use of the telephones also in Naga City.
And taking into consideration the guidelines of the NEA on
the rental of posts by telephone companies and the increase
in the costs of such posts, the trial court opined that a
monthly rental of P10.00 for each post of private respondent
used by petitioners is reasonable, which rental it should pay
from the filing of the complaint in this case on January 2,
1989. And in like manner, private respondent should pay
petitioners from the same date its monthly bills for the use
and transfers of its telephones in Naga City at the same rate
that the public are paying.
On private respondent's second cause of action, the trial
court found that the contract does not mention anything
about the use by petitioners of private respondent's posts
outside Naga City. Therefore, the trial court held that for
reason of equity, the contract should be reformed by
including therein the provision that for the use of private
respondent's posts outside Naga City, petitioners should pay
a monthly rental of P10.00 per post, the payment to start on
the date this case was filed, or on January 2, 1989, and
private respondent should also pay petitioners the monthly
dues on its telephone connections located outside Naga City
beginning January, 1989.
And with respect to private respondent's third cause of
action, the trial court found the claim not sufficiently proved.
Thus, the following decretal portion of the trial court's
decision dated July 20, 1990:
WHEREFORE, in view of all the foregoing, decision is
hereby rendered ordering the reformation of the agreement
(Exh. A); ordering the defendants to pay plaintiff's electric
poles in Naga City and in the towns of Milaor, Canaman,
Magarao and Pili, Camarines Sur and in other places where
defendant NATELCO uses plaintiff's electric poles, the sum
of TEN (P10.00) PESOS per plaintiff's pole, per month
beginning January, 1989 and ordering also the plaintiff to
pay defendant NATELCO the monthly dues of all its
telephones including those installed at the residence of its
officers, namely; Engr. Joventino Cruz, Engr. Antonio Borja,
Engr. Antonio Macandog, Mr. Jesus Opiana and Atty. Luis
General, Jr. beginning January, 1989. Plaintiff's claim for
attorney's fees and expenses of litigation and defendants'
counterclaim are both hereby ordered dismissed. Without
pronouncement as to costs.
Disagreeing with the foregoing judgment, petitioners
appealed to respondent Court of Appeals. In the decision
dated May 28, 1992, respondent court affirmed the decision
of the trial court, 5 but based on different grounds to wit: (1) that
Article 1267 of the New Civil Code is applicable and (2) that the
contract was subject to a potestative condition which rendered
said condition void. The motion for reconsideration was denied
in the resolution dated September 10, 1992. 6Hence, the present
petition.
Petitioners assign the following pertinent errors committed
by respondent court:
1) in making a contract for the parties by invoking Article
1267 of the New Civil Code;
2) in ruling that prescription of the action for reformation of
the contract in this case commenced from the time it became
disadvantageous to private respondent; and
3) in ruling that the contract was subject to a potestative
condition in favor of petitioners.
Petitioners assert earnestly that Article 1267 of the New Civil
Code is not applicable primarily because the contract does
not involve the rendition of service or a personal prestation
and it is not for future service with future unusual change.
Instead, the ruling in the case of Occea, et al. v. Jabson,
etc., et al., 7 which interpreted the article, should be followed in
resolving this case. Besides, said article was never raised by
the parties in their pleadings and was never the subject of trial
and evidence.
In applying Article 1267, respondent court rationalized:
We agree with appellant that in order that an action for
reformation of contract would lie and may prosper, there
must be sufficient allegations as well as proof that the
contract in question failed to express the true intention of the
parties due to error or mistake, accident, or fraud. Indeed, in
embodying the equitable remedy of reformation of
instruments in the New Civil Code, the Code Commission
gave its reasons as follows:
Equity dictates the reformation of an instrument in order that
the true intention of the contracting parties may be
expressed. The courts by the reformation do not attempt to
make a new contract for the parties, but to make the
instrument express their real agreement. The rationale of the
doctrine is that it would be unjust and inequitable to allow the
enforcement of a written instrument which does not reflect or
disclose the real meeting of the minds of the parties. The
rigor of the legalistic rule that a written instrument should be
the final and inflexible criterion and measure of the rights
and obligations of the contracting parties is thus tempered to
forestall the effects of mistake, fraud, inequitable conduct, or
accident. (pp. 55-56, Report of Code Commission)
Thus, Articles 1359, 1361, 1362, 1363 and 1364 of the New
Civil Code provide in essence that where through mistake or
accident on the part of either or both of the parties or
mistake or fraud on the part of the clerk or typist who
prepared the instrument, the true intention of the parties is
not expressed therein, then the instrument may be reformed
at the instance of either party if there was mutual mistake on
their part, or by the injured party if only he was mistaken.
Here, plaintiff-appellee did not allege in its complaint, nor
does its evidence prove, that there was a mistake on its part
or mutual mistake on the part of both parties when they
entered into the agreement Exh. "A", and that because of his
mistake, said agreement failed to express their true
intention. Rather, plaintiff's evidence shows that said
agreement was prepared by Atty. Luciano Maggay, then a
member of plaintiff's Board of Directors and its legal counsel
at that time, who was also the legal counsel for defendant-
appellant, so that as legal counsel for both companies and
presumably with the interests of both companies in mind
when he prepared the aforesaid agreement, Atty. Maggay
must have considered the same fair and equitable to both
sides, and this was affirmed by the lower court when it found
said contract to have been fair to both parties at the time of
its execution. In fact, there were no complaints on the part of
both sides at the time of and after the execution of said
contract, and according to 73-year old Justino de Jesus,
Vice President and General manager of appellant at the time
who signed the agreement Exh. "A" in its behalf and who
was one of the witnesses for the plaintiff (sic), both parties
complied with said contract "from the very beginning" (p. 5,
tsn, April 17, 1989).
That the aforesaid contract has become inequitous or
unfavorable or disadvantageous to the plaintiff with the
expansion of the business of appellant and the increase in
the volume of its subscribers in Naga City and environs
through the years, necessitating the stringing of more and
bigger telephone cable wires by appellant to plaintiff's
electric posts without a corresponding increase in the ten
(10) telephone connections given by appellant to plaintiff free
of charge in the agreement Exh. "A" as consideration for its
use of the latter's electric posts in Naga City, appear,
however, undisputed from the totality of the evidence on
record and the lower court so found. And it was for this
reason that in the later (sic) part of 1982 or 1983 (or five or
six years after the subject agreement was entered into by
the parties), plaintiff's Board of Directors already asked Atty.
Luis General who had become their legal counsel in 1982, to
study said agreement which they believed had become
disadvantageous to their company and to make the proper
recommendation, which study Atty. General did, and
thereafter, he already recommended to the Board the filing
of a court action to reform said contract, but no action was
taken on Atty. General's recommendation because the
former general managers of plaintiff wanted to adopt a soft
approach in discussing the matter with appellant, until,
during the term of General Manager Henry Pascual, the
latter, after failing to settle the problem with Atty. Luciano
Maggay who had become the president and general
manager of appellant, already agreed for Atty. General's
filing of the present action. The fact that said contract has
become inequitous or disadvantageous to plaintiff as the
years went by did not, however, give plaintiff a cause of
action for reformation of said contract, for the reasons
already pointed out earlier. But this does not mean that
plaintiff is completely without a remedy, for we believe that
the allegations of its complaint herein and the evidence it
has presented sufficiently make out a cause of action under
Art. 1267 of the New Civil Code for its release from the
agreement in question.
xxx xxx xxx
The understanding of the parties when they entered into the
Agreement Exh. "A" on November 1, 1977 and the prevailing
circumstances and conditions at the time, were described by
Dioscoro Ragragio, the President of plaintiff in 1977 and one
of its two officials who signed said agreement in its behalf,
as follows:
Our understanding at that time is that we will allow
NATELCO to utilize the posts of CASURECO II only in the
City of Naga because at that time the capability of
NATELCO was very limited, as a matter of fact we do [sic]
not expect to be able to expand because of the legal
squabbles going on in the NATELCO. So, even at that time
there were so many subscribers in Naga City that cannot be
served by the NATELCO, so as a mater of public service we
allowed them to sue (sic) our posts within the Naga City. (p.
8, tsn April 3, 1989)
Ragragio also declared that while the telephone wires strung
to the electric posts of plaintiff were very light and that very
few telephone lines were attached to the posts of
CASURECO II in 1977, said posts have become "heavily
loaded" in 1989 (tsn, id.).
In truth, as also correctly found by the lower court, despite
the increase in the volume of appellant's subscribers and the
corresponding increase in the telephone cables and wires
strung by it to plaintiff's electric posts in Naga City for the
more 10 years that the agreement Exh. "A" of the parties has
been in effect, there has been no corresponding increase in
the ten (10) telephone units connected by appellant free of
charge to plaintiff's offices and other places chosen by
plaintiff's general manager which was the only consideration
provided for in said agreement for appellant's use of plaintiffs
electric posts. Not only that, appellant even started using
plaintiff's electric posts outside Naga City although this was
not provided for in the agreement Exh. "A" as it extended
and expanded its telephone services to towns outside said
city. Hence, while very few of plaintiff's electric posts were
being used by appellant in 1977 and they were all in the City
of Naga, the number of plaintiff's electric posts that appellant
was using in 1989 had jumped to 1,403,192 of which are
outside Naga City (Exh. "B"). Add to this the destruction of
some of plaintiff's poles during typhoons like the strong
typhoon Sisang in 1987 because of the heavy telephone
cables attached thereto, and the escalation of the costs of
electric poles from 1977 to 1989, and the conclusion is
indeed ineluctable that the agreement Exh. "A" has already
become too one-sided in favor of appellant to the great
disadvantage of plaintiff, in short, the continued enforcement
of said contract has manifestly gone far beyond the
contemplation of plaintiff, so much so that it should now be
released therefrom under Art. 1267 of the New Civil Code to
avoid appellant's unjust enrichment at its (plaintiff's)
expense. As stated by Tolentino in his commentaries on the
Civil Code citing foreign civilist Ruggiero, "equity demands a
certain economic equilibrium between the prestation and the
counter-prestation, and does not permit the unlimited
impoverishment of one party for the benefit of the other by
the excessive rigidity of the principle of the obligatory force
of contracts (IV Tolentino, Civil Code of the Philippines, 1986
ed.,
pp. 247-248).
We therefore, find nothing wrong with the ruling of the trial
court, although based on a different and wrong premise (i.e.,
reformation of contract), that from the date of the filing of this
case, appellant must pay for the use of plaintiff's electric
posts in Naga City at the reasonable monthly rental of
P10.00 per post, while plaintiff should pay appellant for the
telephones in the same City that it was formerly using free of
charge under the terms of the agreement Exh. "A" at the
same rate being paid by the general public. In affirming said
ruling, we are not making a new contract for the parties
herein, but we find it necessary to do so in order not to
disrupt the basic and essential services being rendered by
both parties herein to the public and to avoid unjust
enrichment by appellant at the expense of plaintiff, said
arrangement to continue only until such time as said parties
can re-negotiate another agreement over the same
subject-matter covered by the agreement Exh. "A". Once
said agreement is reached and executed by the parties, the
aforesaid ruling of the lower court and affirmed by us shall
cease to exist and shall be substituted and superseded by
their new agreement. . . .. 8
Article 1267 speaks of "service" which has become so
difficult. Taking into consideration the rationale behind this
provision, 9 the term "service" should be understood as referring
to the "performance" of the obligation. In the present case, the
obligation of private respondent consists in allowing petitioners
to use its posts in Naga City, which is the service contemplated
in said article. Furthermore, a bare reading of this article reveals
that it is not a requirement thereunder that the contract be for
future service with future unusual change. According to Senator
Arturo M. Tolentino, 10 Article 1267 states in our law the doctrine
of unforseen events. This is said to be based on the discredited
theory of rebus sic stantibus in public international law; under
this theory, the parties stipulate in the light of certain prevailing
conditions, and once these conditions cease to exist the
contract also ceases to exist. Considering practical needs and
the demands of equity and good faith, the disappearance of the
basis of a contract gives rise to a right to relief in favor of the
party prejudiced.
In a nutshell, private respondent in the Occea case filed a
complaint against petitioner before the trial court praying
for modification of the terms and conditions of the contract
that they entered into by fixing the proper shares that should
pertain to them out of the gross proceeds from the sales of
subdivided lots. We ordered the dismissal of the complaint
therein for failure to state a sufficient cause of action. We
rationalized that the Court of Appeals misapplied Article
1267 because:
. . . respondent's complaint seeks not release from the
subdivision contract but that the court "render
judgment modifying the terms and conditions of the contract
. . . by fixing the proper shares that should pertain to the
herein parties out of the gross proceeds from the sales of
subdivided lots of subject subdivision". The cited article
(Article 1267) does not grant the courts (the) authority to
remake, modify or revise the contract or to fix the division of
shares between the parties as contractually stipulated with
the force of law between the parties, so as to substitute its
own terms for those covenanted by the parties themselves.
Respondent's complaint for modification of contract
manifestly has no basis in law and therefore states no cause
of action. Under the particular allegations of respondent's
complaint and the circumstances therein averred, the courts
cannot even in equity grant the relief sought. 11
The ruling in the Occea case is not applicable because we
agree with respondent court that the allegations in private
respondent's complaint and the evidence it has presented
sufficiently made out a cause of action under Article 1267.
We, therefore, release the parties from their correlative
obligations under the contract. However, our disposition of
the present controversy does not end here. We have to take
into account the possible consequences of merely releasing
the parties therefrom: petitioners will remove the telephone
wires/cables in the posts of private respondent, resulting in
disruption of their service to the public; while private
respondent, in consonance with the contract 12 will return all
the telephone units to petitioners, causing prejudice to its
business. We shall not allow such eventuality. Rather, we
require, as ordered by the trial court: 1) petitioners to pay private
respondent for the use of its posts in Naga City and in the towns
of Milaor, Canaman, Magarao and Pili, Camarines Sur and in
other places where petitioners use private respondent's posts,
the sum of ten (P10.00) pesos per post, per month, beginning
January, 1989; and 2) private respondent to pay petitioner the
monthly dues of all its telephones at the same rate being paid
by the public beginning January, 1989. The peculiar
circumstances of the present case, as distinguished further from
the Occea case, necessitates exercise of our equity
jurisdiction. 13 By way of emphasis, we reiterate the
rationalization of respondent court that:
. . . In affirming said ruling, we are not making a new contract
for the parties herein, but we find it necessary to do so in
order not to disrupt the basic and essential services being
rendered by both parties herein to the public and to avoid
unjust enrichment by appellant at the expense of plaintiff . . .
.14
Petitioners' assertion that Article 1267 was never raised by
the parties in their pleadings and was never the subject of
trial and evidence has been passed upon by respondent
court in its well reasoned resolution, which we hereunder
quote as our own:
First, we do not agree with defendant-appellant that in
applying Art. 1267 of the New Civil Code to this case, we
have changed its theory and decided the same on an issue
not invoked by plaintiff in the lower court. For basically, the
main and pivotal issue in this case is whether the continued
enforcement of the contract Exh. "A" between the parties
has, through the years (since 1977), become too inequitous
or disadvantageous to the plaintiff and too one-sided in favor
of defendant-appellant, so that a solution must be found to
relieve plaintiff from the continued operation of said
agreement and to prevent defendant-appellant from further
unjustly enriching itself at plaintiff's expense. It is indeed
unfortunate that defendant had turned deaf ears to plaintiffs
requests for renegotiation, constraining the latter to go to
court. But although plaintiff cannot, as we have held,
correctly invoke reformation of contract as a proper remedy
(there having been no showing of a mistake or error in said
contract on the part of any of the parties so as to result in its
failure to express their true intent), this does not mean that
plaintiff is absolutely without a remedy in order to relieve
itself from a contract that has gone far beyond its
contemplation and has become so highly inequitous and
disadvantageous to it through the years because of the
expansion of defendant-appellant's business and the
increase in the volume of its subscribers. And as it is the
duty of the Court to administer justice, it must do so in this
case in the best way and manner it can in the light of the
proven facts and the law or laws applicable thereto.
It is settled that when the trial court decides a case in favor
of a party on a certain ground, the appellant court may
uphold the decision below upon some other point which was
ignored or erroneously decided by the trial court (Garcia
Valdez v. Tuazon, 40 Phil. 943; Relativo v. Castro, 76 Phil.
563; Carillo v. Salak de Paz, 18 SCRA 467). Furthermore,
the appellate court has the discretion to consider an
unassigned error that is closely related to an error properly
assigned (Paterno v. Jao Yan, 1 SCRA 631; Hernandez v.
Andal, 78 Phil. 196). It has also been held that the Supreme
Court (and this Court as well) has the authority to review
matters, even if they are not assigned as errors in the
appeal, if it is found that their consideration is necessary in
arriving at a just decision of the case (Saura Import & Export
Co., Inc. v. Phil. International Surety Co. and PNB, 8 SCRA
143). For it is the material allegations of fact in the complaint,
not the legal conclusion made therein or the prayer, that
determines the relief to which the plaintiff is entitled, and the
plaintiff is entitled to as much relief as the facts warrant
although that relief is not specifically prayed for in the
complaint (Rosales v. Reyes and Ordoveza, 25 Phil. 495;
Cabigao v. Lim, 50 Phil. 844; Baguioro v. Barrios, 77 Phil.
120). To quote an old but very illuminating decision of our
Supreme Court through the pen of American jurist Adam C.
Carson:
"Under our system of pleading it is the duty of the courts to
grant the relief to which the parties are shown to be entitled
by the allegations in their pleadings and the facts proven at
the trial, and the mere fact that they themselves misconstrue
the legal effect of the facts thus alleged and proven will not
prevent the court from placing the just construction thereon
and adjudicating the issues accordingly." (Alzua v. Johnson,
21 Phil. 308)
And in the fairly recent case of Caltex Phil., Inc. v IAC, 176
SCRA 741, the Honorable Supreme Court also held:
We rule that the respondent court did not commit any error in
taking cognizance of the aforesaid issues, although not
raised before the trial court. The presence of strong
consideration of substantial justice has led this Court to relax
the well-entrenched rule that, except questions on
jurisdiction, no question will be entertained on appeal unless
it has been raised in the court below and it is within the
issues made by the parties in their pleadings (Cordero v.
Cabral, L-36789, July 25, 1983, 123 SCRA 532). . . .
We believe that the above authorities suffice to show that
this Court did not err in applying Art. 1267 of the New Civil
Code to this case. Defendant-appellant stresses that the
applicability of said provision is a question of fact, and that it
should have been given the opportunity to present evidence
on said question. But defendant-appellant cannot honestly
and truthfully claim that it (did) not (have) the opportunity to
present evidence on the issue of whether the continued
operation of the contract Exh. "A" has now become too one-
sided in its favor and too inequitous, unfair, and
disadvantageous to plaintiff. As held in our decision, the
abundant and copious evidence presented by both parties in
this case and summarized in said decision established the
following essential and vital facts which led us to apply Art.
1267 of the New Civil Code to this case:
xxx xxx xxx 15
On the issue of prescription of private respondent's action for
reformation of contract, petitioners allege that respondent
court's ruling that the right of action "arose only after said
contract had already become disadvantageous and unfair to
it due to subsequent events and conditions, which must be
sometime during the latter part of 1982 or in 1983 . . ." 16 is
erroneous. In reformation of contracts, what is reformed is not
the contract itself, but the instrument embodying the contract. It
follows that whether the contract is disadvantageous or not is
irrelevant to reformation and therefore, cannot be an element in
the determination of the period for prescription of the action to
reform.
Article 1144 of the New Civil Code provides, inter alia, that
an action upon a written contract must be brought within ten
(10) years from the time the right of action accrues. Clearly,
the ten (10) year period is to be reckoned from the time the
right of action accrues which is not necessarily the date of
execution of the contract. As correctly ruled by respondent
court, private respondent's right of action arose "sometime
during the latter part of 1982 or in 1983 when according to
Atty. Luis General, Jr. . . ., he was asked by (private
respondent's) Board of Directors to study said contract as it
already appeared disadvantageous to (private respondent)
(p. 31, tsn, May 8, 1989). (Private respondent's) cause of
action to ask for reformation of said contract should thus be
considered to have arisen only in 1982 or 1983, and from
1982 to January 2, 1989 when the complaint in this case
was filed, ten (10) years had not yet elapsed." 17
Regarding the last issue, petitioners allege that there is
nothing purely potestative about the prestations of either
party because petitioner's permission for free use of
telephones is not made to depend purely on their will, neither
is private respondent's permission for free use of its posts
dependent purely on its will.
Apart from applying Article 1267, respondent court cited
another legal remedy available to private respondent under
the allegations of its complaint and the preponderant
evidence presented by it:
. . . we believe that the provision in said agreement
(a) That the term or period of this contract shall be as long
as the party of the first part [herein appellant] has need for
the electric light posts of the party of the second part [herein
plaintiff] it being understood that this contract shall terminate
when for any reason whatsoever, the party of the second
part is forced to stop, abandoned [sic] its operation as a
public service and it becomes necessary to remove the
electric light post [sic]"; (Emphasis supplied)
is invalid for being purely potestative on the
part of appellant as it leaves the continued
effectivity of the aforesaid agreement to the
latter's sole and exclusive will as long as
plaintiff is in operation. A similar provision in
a contract of lease wherein the parties
agreed that the lessee could stay on the
leased premises "for as long as the
defendant needed the premises and can
meet and pay said increases" was recently
held by the Supreme Court in Lim v. C.A.,
191 SCRA 150, citing the much earlier case
of Encarnacion v. Baldomar, 77 Phil. 470,
as invalid for being "a purely potestative
condition because it leaves the effectivity
and enjoyment of leasehold rights to the
sole and exclusive will of the lessee."
Further held the High Court in the Lim case:
The continuance, effectivity and fulfillment of a contract of
lease cannot be made to depend exclusively upon the free
and uncontrolled choice of the lessee between continuing
the payment of the rentals or not, completely depriving the
owner of any say in the matter. Mutuality does not obtain in
such a contract of lease of no equality exists between the
lessor and the lessee since the life of the contract is dictated
solely by the lessee.
The above can also be said of the agreement Exh. "A"
between the parties in this case. There is no mutuality and
equality between them under the afore-quoted provision
thereof since the life and continuity of said agreement is
made to depend as long as appellant needs plaintiff's electric
posts. And this is precisely why, since 1977 when said
agreement was executed and up to 1989 when this case
was finally filed by plaintiff, it could do nothing to be released
from or terminate said agreement notwithstanding that its
continued effectivity has become very disadvantageous and
inequitous to it due to the expansion and increase of
appellant's telephone services within Naga City and even
outside the same, without a corresponding increase in the
ten (10) telephone units being used by plaintiff free of
charge, as well as the bad and inefficient service of said
telephones to the prejudice and inconvenience of plaintiff
and its customers. . . . 18
Petitioners' allegations must be upheld in this regard. A
potestative condition is a condition, the fulfillment of which
depends upon the sole will of the debtor, in which case, the
conditional obligation is void. 19 Based on this definition,
respondent court's finding that the provision in the contract, to
wit:
(a) That the term or period of this contract shall be as long
as the party of the first part (petitioner) has need for the
electric light posts of the party of the second part (private
respondent) . . ..
is a potestative condition, is correct. However, it must have
overlooked the other conditions in the same provision, to wit:
. . . it being understood that this contract shall terminate
when for any reason whatsoever, the party of the second
part (private respondent) is forced to stop, abandoned (sic)
its operation as a public service and it becomes necessary to
remove the electric light post (sic);
which are casual conditions since they depend on chance,
hazard, or the will of a third person. 20 In sum, the contract is
subject to mixed conditions, that is, they depend partly on the
will of the debtor and partly on chance, hazard or the will of a
third person, which do not invalidate the aforementioned
provision. 21 Nevertheless, in view of our discussions under the
first and second issues raised by petitioners, there is no reason
to set aside the questioned decision and resolution of
respondent court.
WHEREFORE, the petition is hereby DENIED. The decision
of the Court of Appeals dated May 28, 1992 and its
resolution dated September 10, 1992 are AFFIRMED.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado and Puno, JJ., concur.
Footnotes
1 84 Phil. 654.
2 Report of the Code Commission, p. 133; cited in Rollo, p. 57.
3 Records, p. 6.
4 Ibid, pp. 6-7.
5 Rollo, p. 62.
6 Rollo, p. 71.
7 G.R. No. L-44349, October 29, 1976, 73 SCRA 637.
8 Rollo, pp. 54-59.
9 Supra.
10 Commentaries and Jurisprudence on the Civil Code of the Philippines, 1991
Edition p. 347.
11 At p. 641.
12 Records, p. 7.
13 Agne, et al. v. Director of Lands, et al., G.R. No. L-40399, February 9, 1990,
181 SCRA 793.
14 Rollo, p.59.
15 Rollo, pp. 66-69.
16 Rollo, pp. 53-54.
17 Rollo, pp. 53-54.
18 Rollo, pp. 59-61.
19 Article 1182 of the New Civil Code.
20 Civil Code of the Philippines Annotated by Edgardo L. Paras, 1985 Edition,
p. 171.
21 Ibid.