G.R. No.

109125 December 2, 1994

ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,

vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT
CORPORATION, respondents.

Antonio M. Albano for petitioners.

Umali, Soriano & Associates for private respondent.

VITUG, J.:

Assailed, in this petition for review, is the decision of the Court of Appeals, dated
04 December 1991, in CA-G.R. SP No. 26345 setting aside and declaring
without force and effect the orders of execution of the trial court, dated 30 August
1991 and 27 September 1991, in Civil Case No. 87-41058.

The antecedents are recited in good detail by the appellate court thusly:

On July 29, 1987 a Second Amended Complaint for Specific Performance was
filed by Ang Yu Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose
Cu Unjieng and Jose Tan before the Regional Trial Court, Branch 31, Manila in
Civil Case No. 87-41058, alleging, among others, that plaintiffs are tenants or
lessees of residential and commercial spaces owned by defendants described as
Nos. 630-638 Ongpin Street, Binondo, Manila; that they have occupied said
spaces since 1935 and have been religiously paying the rental and complying
with all the conditions of the lease contract; that on several occasions before
October 9, 1986, defendants informed plaintiffs that they are offering to sell the
premises and are giving them priority to acquire the same; that during the
negotiations, Bobby Cu Unjieng offered a price of P6-million while plaintiffs made
a counter offer of P5-million; that plaintiffs thereafter asked the defendants to put
their offer in writing to which request defendants acceded; that in reply to
defendant's letter, plaintiffs wrote them on October 24, 1986 asking that they
specify the terms and conditions of the offer to sell; that when plaintiffs did not
receive any reply, they sent another letter dated January 28, 1987 with the same
request; that since defendants failed to specify the terms and conditions of the
offer to sell and because of information received that defendants were about to
sell the property, plaintiffs were compelled to file the complaint to compel
defendants to sell the property to them.

Defendants filed their answer denying the material allegations of the complaint
and interposing a special defense of lack of cause of action.

After the issues were joined, defendants filed a motion for summary judgment
which was granted by the lower court. The trial court found that defendants' offer
to sell was never accepted by the plaintiffs for the reason that the parties did not
agree upon the terms and conditions of the proposed sale, hence, there was no
contract of sale at all. Nonetheless, the lower court ruled that should the
defendants subsequently offer their property for sale at a price of P11-million or
below, plaintiffs will have the right of first refusal. Thus the dispositive portion of
the decision states:

WHEREFORE, judgment is hereby rendered in favor of the

defendants and against the plaintiffs summarily dismissing the
complaint subject to the aforementioned condition that if the
defendants subsequently decide to offer their property for sale
for a purchase price of Eleven Million Pesos or lower, then the
plaintiffs has the option to purchase the property or of first
refusal, otherwise, defendants need not offer the property to the
plaintiffs if the purchase price is higher than Eleven Million
Pesos.

SO ORDERED.

Aggrieved by the decision, plaintiffs appealed to this Court in

CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990
(penned by Justice Segundino G. Chua and concurred in by Justices Vicente V.
Mendoza and Fernando A. Santiago), this Court affirmed with modification the
lower court's judgment, holding:

In resume, there was no meeting of the minds between the

parties concerning the sale of the property. Absent such
requirement, the claim for specific performance will not lie.
Appellants' demand for actual, moral and exemplary damages
will likewise fail as there exists no justifiable ground for its award.
Summary judgment for defendants was properly granted. Courts
may render summary judgment when there is no genuine issue
as to any material fact and the moving party is entitled to a
judgment as a matter of law (Garcia vs. Court of Appeals, 176
SCRA 815). All requisites obtaining, the decision of the court a
quo is legally justifiable.

WHEREFORE, finding the appeal unmeritorious, the judgment

appealed from is hereby AFFIRMED, but subject to the following
modification: The court a quo in the aforestated decision gave
the plaintiffs-appellants the right of first refusal only if the
property is sold for a purchase price of Eleven Million pesos or
lower; however, considering the mercurial and uncertain forces in
our market economy today. We find no reason not to grant the
same right of first refusal to herein appellants in the event that
the subject property is sold for a price in excess of Eleven Million
pesos. No pronouncement as to costs.

SO ORDERED.

The decision of this Court was brought to the Supreme Court by petition for
review on certiorari. The Supreme Court denied the appeal on May 6, 1991 "for
insufficiency in form and substances" (Annex H, Petition).

On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration
by this Court, the Cu Unjieng spouses executed a Deed of Sale (Annex D,
Petition) transferring the property in question to herein petitioner Buen Realty and
Development Corporation, subject to the following terms and conditions:

1. That for and in consideration of the sum of FIFTEEN MILLION

PESOS (P15,000,000.00), receipt of which in full is hereby
acknowledged, the VENDORS hereby sells, transfers and
conveys for and in favor of the VENDEE, his heirs, executors,
administrators or assigns, the above-described property with all
the improvements found therein including all the rights and
interest in the said property free from all liens and encumbrances
of whatever nature, except the pending ejectment proceeding;

2. That the VENDEE shall pay the Documentary Stamp Tax,

registration fees for the transfer of title in his favor and other
expenses incidental to the sale of above-described property
including capital gains tax and accrued real estate taxes.

As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu

Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816 was issued
in the name of petitioner on December 3, 1990.

On July 1, 1991, petitioner as the new owner of the subject property wrote a
letter to the lessees demanding that the latter vacate the premises.

On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner
brought the property subject to the notice of lis pendens regarding Civil Case No.
87-41058 annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs.

The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in
Civil Case No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV No.
21123.

On August 30, 1991, respondent Judge issued an order (Annex A, Petition)

quoted as follows:

Presented before the Court is a Motion for Execution filed by

plaintiff represented by Atty. Antonio Albano. Both defendants
Bobby Cu Unjieng and Rose Cu Unjieng represented by Atty.
Vicente Sison and Atty. Anacleto Magno respectively were duly
notified in today's consideration of the motion as evidenced by
the rubber stamp and signatures upon the copy of the Motion for
Execution.

The gist of the motion is that the Decision of the Court dated
September 21, 1990 as modified by the Court of Appeals in its
decision in CA G.R. CV-21123, and elevated to the Supreme
Court upon the petition for review and that the same was denied
by the highest tribunal in its resolution dated May 6, 1991 in G.R.
No.
L-97276, had now become final and executory. As a
consequence, there was an Entry of Judgment by the Supreme
Court as of June 6, 1991, stating that the aforesaid modified
decision had already become final and executory.
 It is the observation of the Court that this property in dispute was
the subject of the Notice of Lis Pendens and that the modified
decision of this Court promulgated by the Court of Appeals which
had become final to the effect that should the defendants decide
to offer the property for sale for a price of P11 Million or lower,
and considering the mercurial and uncertain forces in our market
economy today, the same right of first refusal to herein
plaintiffs/appellants in the event that the subject property is sold
for a price in excess of Eleven Million pesos or more.

WHEREFORE, defendants are hereby ordered to execute the

necessary Deed of Sale of the property in litigation in favor of
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15 Million pesos in recognition of plaintiffs'
right of first refusal and that a new Transfer Certificate of Title be
issued in favor of the buyer.

All previous transactions involving the same property

notwithstanding the issuance of another title to Buen Realty
Corporation, is hereby set aside as having been executed in bad
faith.

SO ORDERED.

On September 22, 1991 respondent Judge issued another order, the dispositive
portion of which reads:

WHEREFORE, let there be Writ of Execution issue in the above-

entitled case directing the Deputy Sheriff Ramon Enriquez of this
Court to implement said Writ of Execution ordering the
defendants among others to comply with the aforesaid Order of
this Court within a period of one (1) week from receipt of this
Order and for defendants to execute the necessary Deed of Sale
of the property in litigation in favor of the plaintiffs Ang Yu
Asuncion, Keh Tiong and Arthur Go for the consideration of
P15,000,000.00 and ordering the Register of Deeds of the City of
Manila, to cancel and set aside the title already issued in favor of
Buen Realty Corporation which was previously executed
between the latter and defendants and to register the new title in
favor of the aforesaid plaintiffs Ang Yu Asuncion, Keh Tiong and
Arthur Go.

SO ORDERED.

On the same day, September 27, 1991 the corresponding writ of execution
(Annex C, Petition) was issued. 1

On 04 December 1991, the appellate court, on appeal to it by private respondent,

set aside and declared without force and effect the above questioned orders of
the court a quo.

In this petition for review on certiorari, petitioners contend that Buen Realty can
be held bound by the writ of execution by virtue of the notice of lis pendens,
carried over on TCT No. 195816 issued in the name of Buen Realty, at the time
of the latter's purchase of the property on 15 November 1991 from the Cu
Unjiengs.

We affirm the decision of the appellate court.

A not too recent development in real estate transactions is the adoption of such
arrangements as the right of first refusal, a purchase option and a contract to sell.
For ready reference, we might point out some fundamental precepts that may
find some relevance to this discussion.

An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil

Code). The obligation is constituted upon the concurrence of the essential
elements thereof, viz: (a) The vinculum juris or juridical tie which is the efficient
cause established by the various sources of obligations (law, contracts, quasi-
contracts, delicts and quasi-delicts); (b) the object which is the prestation or
conduct; required to be observed (to give, to do or not to do); and (c) the subject-
persons who, viewed from the demandability of the obligation, are the active
(obligee) and the passive (obligor) subjects.

Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is
a meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service (Art. 1305, Civil
Code). A contract undergoes various stages that include its negotiation or
preparation, its perfection and, finally, its consummation. Negotiation covers the
period from the time the prospective contracting parties indicate interest in the
contract to the time the contract is concluded (perfected). The perfection of the
contract takes place upon the concurrence of the essential elements thereof. A
contract which is consensual as to perfection is so established upon a mere
meeting of minds, i.e., the concurrence of offer and acceptance, on the object
and on the cause thereof. A contract which requires, in addition to the above, the
delivery of the object of the agreement, as in a pledge or commodatum, is
commonly referred to as a real contract. In a solemn contract, compliance with
certain formalities prescribed by law, such as in a donation of real property, is
essential in order to make the act valid, the prescribed form being thereby an
essential element thereof. The stage of consummation begins when the parties
perform their respective undertakings under the contract culminating in the
extinguishment thereof.

Until the contract is perfected, it cannot, as an independent source of obligation,

serve as a binding juridical relation. In sales, particularly, to which the topic for
discussion about the case at bench belongs, the contract is perfected when a
person, called the seller, obligates himself, for a price certain, to deliver and to
transfer ownership of a thing or right to another, called the buyer, over which the
latter agrees. Article 1458 of the Civil Code provides:
 Art. 1458. By the contract of sale one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determinate thing, and the other to
pay therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional.

When the sale is not absolute but conditional, such as in a "Contract to Sell"
where invariably the ownership of the thing sold is retained until the fulfillment of
a positive suspensive condition (normally, the full payment of the purchase price),
the breach of the condition will prevent the obligation to convey title from
acquiring an obligatory force. 2 In Dignos vs. Court of Appeals (158 SCRA 375),
we have said that, although denominated a "Deed of Conditional Sale," a sale is
still absolute where the contract is devoid of any proviso that title is reserved or
the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid.
Ownership will then be transferred to the buyer upon actual or constructive
delivery (e.g., by the execution of a public document) of the property sold. Where
the condition is imposed upon the perfection of the contract itself, the failure of
the condition would prevent such perfection. 3 If the condition is imposed on the
obligation of a party which is not fulfilled, the other party may either waive the
condition or refuse to proceed with the sale (Art. 1545, Civil Code). 4

An unconditional mutual promise to buy and sell, as long as the object is made
determinate and the price is fixed, can be obligatory on the parties, and
compliance therewith may accordingly be exacted. 5

An accepted unilateral promise which specifies the thing to be sold and the price
to be paid, when coupled with a valuable consideration distinct and separate
from the price, is what may properly be termed a perfected contract of option.
This contract is legally binding, and in sales, it conforms with the second
paragraph of Article 1479 of the Civil Code, viz:

Art. 1479. . . .

An accepted unilateral promise to buy or to sell a determinate thing for a price

certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price. (1451a) 6

Observe, however, that the option is not the contract of sale itself. 7 The optionee
has the right, but not the obligation, to buy. Once the option is exercised timely,
i.e., the offer is accepted before a breach of the option, a bilateral promise to sell
and to buy ensues and both parties are then reciprocally bound to comply with
their respective undertakings. 8

Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect

promise (policitacion) is merely an offer. Public advertisements or solicitations
and the like are ordinarily construed as mere invitations to make offers or only as
proposals. These relations, until a contract is perfected, are not considered
binding commitments. Thus, at any time prior to the perfection of the contract,
either negotiating party may stop the negotiation. The offer, at this stage, may be
withdrawn; the withdrawal is effective immediately after its manifestation, such as
by its mailing and not necessarily when the offeree learns of the withdrawal
(Laudico vs. Arias, 43 Phil. 270). Where a period is given to the offeree within
which to accept the offer, the following rules generally govern:

(1) If the period is not itself founded upon or supported by a consideration, the
offeror is still free and has the right to withdraw the offer before its acceptance,
or, if an acceptance has been made, before the offeror's coming to know of such
fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code;
see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is
applicable to a unilateral promise to sell under Art. 1479, modifying the previous
decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art.
1319, Civil Code; Rural Bank of Parañaque, Inc., vs. Remolado, 135 SCRA 409;
Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw, however, must not be
exercised whimsically or arbitrarily; otherwise, it could give rise to a damage
claim under Article 19 of the Civil Code which ordains that "every person must, in
the exercise of his rights and in the performance of his duties, act with justice,
give everyone his due, and observe honesty and good faith."

(2) If the period has a separate consideration, a contract of "option" is deemed

perfected, and it would be a breach of that contract to withdraw the offer during
the agreed period. The option, however, is an independent contract by itself, and
it is to be distinguished from the projected main agreement (subject matter of the
option) which is obviously yet to be concluded. If, in fact, the optioner-offeror
withdraws the offer before its acceptance (exercise of the option) by the
optionee-offeree, the latter may not sue for specific performance on the proposed
contract ("object" of the option) since it has failed to reach its own stage of
perfection. The optioner-offeror, however, renders himself liable for damages for
breach of the option. In these cases, care should be taken of the real nature of
the consideration given, for if, in fact, it has been intended to be part of the
consideration for the main contract with a right of withdrawal on the part of the
optionee, the main contract could be deemed perfected; a similar instance would
be an "earnest money" in a contract of sale that can evidence its perfection (Art.
1482, Civil Code).

In the law on sales, the so-called "right of first refusal" is an innovative juridical
relation. Needless to point out, it cannot be deemed a perfected contract of sale
under Article 1458 of the Civil Code. Neither can the right of first refusal,
understood in its normal concept, per se be brought within the purview of an
option under the second paragraph of Article 1479, aforequoted, or possibly of an
offer under Article 1319 9 of the same Code. An option or an offer would require,
among other things, 10 a clear certainty on both the object and the cause or
consideration of the envisioned contract. In a right of first refusal, while the object
might be made determinate, the exercise of the right, however, would be
dependent not only on the grantor's eventual intention to enter into a binding
juridical relation with another but also on terms, including the price, that obviously
are yet to be later firmed up. Prior thereto, it can at best be so described as
merely belonging to a class of preparatory juridical relations governed not by
contracts (since the essential elements to establish the vinculum juris would still
be indefinite and inconclusive) but by, among other laws of general application,
the pertinent scattered provisions of the Civil Code on human conduct.

Even on the premise that such right of first refusal has been decreed under a
final judgment, like here, its breach cannot justify correspondingly an issuance of
a writ of execution under a judgment that merely recognizes its existence, nor
would it sanction an action for specific performance without thereby negating the
indispensable element of consensuality in the perfection of contracts. 11 It is not to
say, however, that the right of first refusal would be inconsequential for, such as
already intimated above, an unjustified disregard thereof, given, for instance, the
circumstances expressed in Article 19 12 of the Civil Code, can warrant a recovery
for damages.

The final judgment in Civil Case No. 87-41058, it must be stressed, has merely
accorded a "right of first refusal" in favor of petitioners. The consequence of such
a declaration entails no more than what has heretofore been said. In fine, if, as it
is here so conveyed to us, petitioners are aggrieved by the failure of private
respondents to honor the right of first refusal, the remedy is not a writ of
execution on the judgment, since there is none to execute, but an action for
damages in a proper forum for the purpose.

Furthermore, whether private respondent Buen Realty Development Corporation,

the alleged purchaser of the property, has acted in good faith or bad faith and
whether or not it should, in any case, be considered bound to respect the
registration of the lis pendens in Civil Case No. 87-41058 are matters that must
be independently addressed in appropriate proceedings. Buen Realty, not having
been impleaded in Civil Case No. 87-41058, cannot be held subject to the writ of
execution issued by respondent Judge, let alone ousted from the ownership and
possession of the property, without first being duly afforded its day in court.

We are also unable to agree with petitioners that the Court of Appeals has erred
in holding that the writ of execution varies the terms of the judgment in Civil Case
No. 87-41058, later affirmed in CA-G.R. CV-21123. The Court of Appeals, in this
regard, has observed:

Finally, the questioned writ of execution is in variance with the decision of the trial
court as modified by this Court. As already stated, there was nothing in said
decision 13 that decreed the execution of a deed of sale between the Cu Unjiengs
and respondent lessees, or the fixing of the price of the sale, or the cancellation
of title in the name of petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng
Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA
730; Pastor vs. CA, 122 SCRA 885).
It is likewise quite obvious to us that the decision in Civil Case No. 87-41058
could not have decreed at the time the execution of any deed of sale between
the Cu Unjiengs and petitioners.

WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the

questioned Orders, dated 30 August 1991 and 27 September 1991, of the court
a quo. Costs against petitioners.

SO ORDERED.

Narvasa, C.J., Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo,
Quiason, Puno and Mendoza, JJ., concur.

Kapunan, J., took no part.

Feliciano, J., is on leave.

# Footnotes

1 Rollo, pp. 32-38.

2 Roque vs. Lapuz, 96 SCRA 741; Agustin vs. CA, 186 SCRA 375.

3 See People's Homesite and Housing Corp. vs. Court of Appeals, 133 SCRA
777.

4 Delta Motor Corporation vs. Genuino, 170 SCRA 29.

5 See Art. 1459; Atkins, Kroll and Co., Inc. vs. Cua Hian Tek, 102 Phil. 948.

6 It is well to note that when the consideration given, for what otherwise would
have been an option, partakes the nature in reality of a part payment of the
purchase price (termed as "earnest money" and considered as an initial payment
thereof), an actual contract of sale is deemed entered into and enforceable as
such.

7 Enriquez de la Cavada vs. Diaz, 37 Phil. 982.

8 Atkins, Kroll & Co., Inc., vs. Cua Hian Tek, 102 Phil. 948.

9 Article 1319, Civil Code, provides:

Art. 1319. Consent 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. A qualified acceptance constitutes a
counter-offer. (Emphasis supplied.)
 10 It is also essential for an option to be binding that valuable consideration
distinct from the price should be given (see Montilla vs. Court of Appeals, 161
SCRA 167; Sps. Natino vs. IAC, 197 SCRA 323; Cronico vs. J.M. Tuason & Co.,
Inc., 78 SCRA 331).

11 See Article 1315 and 1318, Civil Code; Madrigal & Co. vs. Stevenson & Co.,
15 Phil. 38; Salonga vs. Ferrales, 105 SCRA 359).

12 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.

13 The decision referred to reads:

In resume, there was no meeting of the minds between the parties concerning
the sale of the property. Absent such requirement, the claim for specific
performance will not lie. Appellants' demand for actual, moral and exemplary
damages will likewise fail as there exists no justifiable ground for its award.
Summary judgment for defendants was properly granted. Courts may render
summary judgment when there is no genuine issue as to any material fact and
the moving party is entitled to a judgment as a matter of law (Garcia vs. Court of
Appeals, 176 SCRA 815). All requisites obtaining, the decision of the court a quo
is legally justifiable.

WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is

hereby AFFIRMED, but subject to the following modification: The court a quo in
the aforestated decision, gave the plaintiffs — considering the mercurial and
uncertain forces in our market economy today. We find no reason not to grant the
same right of first refusal to herein appellants in the event that the subject
property is sold for a price in excess of Eleven Million pesos. No pronouncement
as to costs.

OSE V. DELA RAMA, petitioner, vs. HON. FRANCISCO G. MENDIOLA, Judge, RTC
Pasay City, THE COURT OF APPEALS and TITAN CONSTRUCTION CORP.,
respondents.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for certiorari under Rule 65 of the Revised Rules of Court assailing the
orders [1] of the Regional Trial Court of Pasay City, Branch 115, in Civil Case No. 97-
1

0734 which denied petitioner’s Motion to Dismiss and Motion For Direct Contempt
based on Forum Shopping, as well as his Motion for Reconsideration.

On December 1, 1978, petitioner sold to the government on expropriation a parcel of land

consisting of 1,225 square meters, which was part of Lot 831-A, covered by Transfer
Certificate of Title No. 22066, for use in the construction of the EDSA Extension Project.

1[1] Rollo, pp. 146 & 155.

The sale was subject to the reconveyance to petitioner of any unused portion of the
property after the project is completed. [2]2

On June 17, 1988, petitioner entered into a “Contract to Sell”, whereby he undertook to
sell to respondent Titan Construction Corporation a parcel of land adjacent to the one
expropriated. [3] Subsequently, petitioner failed to comply with his obligations under the
3

“Contract to Sell”; thus respondent filed a complaint for rescission/annulment of contract

with the Regional Trial Court of Pasay City, Branch 116, which was docketed as Civil
Case No. 6020. The parties entered into a compromise agreement and, on May 19, 1989,
the trial court rendered judgment approving the parties’ compromise agreement. The
pertinent portion of the judgment reads:

1. That the parties shall execute a deed of absolute sale over the subject
property, including the improvements thereon in the total amount of TWO
MILLION FIVE HUNDRED THOUSAND PESOS (P2,500,000.00);

2. That relative to the parcel of land sold to the government, a separate

agreement is likewise to be executed by the parties;

3. That Atty. and Mrs. Dela Rama will be given a period of 60 days from the
signing of this document to fully vacate the premises sold;

4. That failure on their part to vacate within the said period, an ex-parte
ejectment writ of execution shall issue;

5. That the written agreement relative to the lease of houses in said premises
shall be respected. [4]
4

Pursuant to the compromise judgment, petitioner executed a deed of absolute sale of the
subject property in favor of respondent. Likewise, he executed an Agreement to Sell and
Buy, stating among others:

1. That in the event the Republic of the Philippines will return to the vendors
(Jose Dela Rama and Esperanza Belmonte) the area sold which is 1,224
sq. ms. or any portion therein, the Vendee (Titan Construction
Corporation) is given the exclusive option to buy any area returned at
P2,000.00 per square meter.

2[2] Id., p. 40.

3[3] Id., pp. 175-177.

4[4] Id., p. 174.

 2. That in consideration of said exclusive option granted to the said Vendee
by the Vendors, the Vendee upon registration of this instrument at the back
of T.C.T. No. 22066 shall pay P200,000.00 to the Vendors. [5]
5

After the execution of the Agreement to Sell and Buy, respondent paid petitioner the
amount of P200,000.00, for which the latter issued a receipt which contained the
inscription: “amount is not refundable & not deductible from the agreed price.” [6] 6

Meanwhile, petitioner sought the reconveyance of the unused portion of the property
from the government. On December 4, 1996, the Office of the President executed the
corresponding Deed of Reconveyance in favor of petitioner over 303 square meters of
unused land. [7]
7

On January 3, 1997, respondent filed with the Regional Trial Court of Pasay City, Branch
110, a Petition for Declaratory Relief, Prohibition, Mandamus and Preliminary Injunction
with Prayer for Restraining Order, [8] which was docketed as Civil Case No. 97-1275. It
8

prayed that the Deed of Reconveyance be declared void on the grounds that the same
violated its right of preemption under Article 1622 of the Civil Code; and that no public
bidding was conducted, resulting in a denial of respondent’s right to bid considering that
petitioners had waived any and all rights over the land by virtue of their Deed of
Agreement to Sell and Buy. Respondent also prayed that the Office of the President be
ordered to give due course to its application to purchase the subject land. The trial court
dismissed the case for lack of merit on March 5, 1997. [9] Thus, respondent instituted a
9

petition for certiorari before this Court on March 24, 1997 which, however, was referred
to the Court of Appeals, where it was docketed as CA-G.R. SP No. 44094. [10] 10

On June 4, 1997, respondent filed an action for specific performance based on the
compromise judgment with the Regional Trial Court of Pasay City, which was docketed
as Civil Case No. 97-0734. [11] Petitioner thus filed with the Court of Appeals, in CA-
11

G.R. SP No. 44094, a Motion for Direct Contempt and to Dismiss based on Forum

5[5] Id., p. 178.

6[6] Id., p. 240.

7[7] Id., pp. 53-59.

8[8] Id., pp. 60-73.

9[9] Id., pp. 78-83.

10[10] Id., pp. 84-110.

11[11] Id., pp. 166-173.

Shopping. [12] He also filed a similar motion with the Regional Trial Court of Pasay City
12

in Civil Case No. 97-0734. [13] 13

On July 18, 1997, respondent filed a motion to withdraw the petition in CA-G.R. SP No.
44094, [14] which the Court of Appeals, in its Resolution dated December 10, 1997,
14

granted. Thus, the case was dismissed with finality. [15]

15

Meanwhile, the Regional Trial Court of Pasay City denied the motion to dismiss and for
direct contempt based on forum shopping filed by petitioner. It held that the alleged
violation of Supreme Court Circular No. 04-94 was cured when CA-G.R. SP No. 44094
was dismissed by the Court of Appeals. Moreover, petitioner failed to show that the two
cases have the same causes of action. [16] Petitioner filed a motion for reconsideration,
16

which was denied. [17]17

Hence the instant petition based on the sole assigned error:

THE RESPONDENT COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION

IN NOT RESOLVING PETITIONER’S MOTION TO DISMISS AND FOR DIRECT
CONTEMPT BASED ON FORUM SHOPPING AND, BY REASON OF THAT
SERIOUS ABUSE OF DISCRETION, IT SANCTIONED THE CONTINUANCE OF
SAID ACTION BEFORE THE RESPONDENT RTC WHICH ITSELF GRAVELY AND
SERIOUSLY ABUSED ITS DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN REFUSING TO DISMISS THE CASE BASED ON AUTER
ACTION PENDANT AND RES JUDICATA, AND TO PUNISH FOR DIRECT
CONTEMPT THE PRIVATE RESPONDENT AND ITS LAWYERS BASED ON
FORUM SHOPPING. [18] 18

The decisive issue posed by petitioner is whether or not the specific performance case
(Civil Case No. 97-0734) is barred by the petition for declaratory relief case (Civil Case
No 96-1725 and CA-G.R. SP No. 44094) on the ground of res judicata.

There is res judicata where the following four essential conditions concur, viz: (1) there
must be a final judgment or order; (2) the court rendering it must have jurisdiction over

12[12] Id., pp. 130-138.

13[13] Id., pp. 142-145.

14[14] Id., pp. 139-140.

15[15] Id., p. 141.

16[16] Id., pp. 146-146.

17[17] Id., p. 155.

18[18] Id., p. 17.

the subject matter and the parties; (3) it must be a judgment or order on the merits; and
(4) there must be, between the two cases, identity of parties, subject matter and causes of
action. [19]
19

Reviewing the records of the case, there is no question that all the first three elements of
res judicata are present. The declaratory relief case, which was elevated by way of a
petition for certiorari to the Court of Appeals, has been dismissed with finality. The
decision was rendered by a court of competent jurisdiction and the case was resolved on
its merits.

As regards the fourth condition, it is clear that there is identity of parties in the two cases.
The declaratory relief case was filed by respondent Titan against Executive Secretary
Ruben D. Torres, DPWH Secretary Gregorio R. Vigilar, the Register of Deed of Pasay
City, petitioner Jose V. Dela Rama and Esperanza Belmonte (deceased). On the other
hand, the specific performance case was filed by respondent Titan against petitioner Dela
Rama and the heirs of Esperanza Belmonte. Although the public respondents in the
declaratory relief case were not impleaded in the specific performance case, only a
substantial identity is necessary to warrant the application of res judicata. [20] The
20

addition or elimination of some parties does not alter the situation. [21]
21

The subject matters and causes of action of the two cases are likewise identical. A
subject matter is the item with respect to which the controversy has arisen, or concerning
which the wrong has been done, and it is ordinarily the right, the thing, or the contract
under dispute. In the case at bar, both the first and second actions involve the same real
property. A cause of action, broadly defined, is an act or omission of one party in
violation of the legal right of the other. [22] Its elements are the following: (1) the legal
22

right of plaintiff; (2) the correlative obligation of the defendant, and (3) the act or
omission of the defendant in violation of said legal right. [23] Causes of action are
23

identical when there is an identity in the facts essential to the maintenance of the two
actions, or where the same evidence will sustain both actions. If the same facts or
evidence can sustain either, the two actions are considered the same, so that the judgment
in one is a bar to the other. [24]
24

19[19] Serrano v. Court of Appeals, G.R. No. 122930, February 6, 2002.

20[20] Id.

21[21] University Physicians Services, Inc. v. Court of Appeals, 381 Phil. 54, 67 [2000].

22[22] Bachrach Corporation v. Court of Appeals, 357 Phil. 483, 491 [1998].

23[23] Avisado v. Rumbaua, G.R. No. 137306, 12 March 2001, 354 SCRA 245, 256.

24[24] Stilianopulos v. City of Legaspi, G.R. No. 133913, 12 October 1999, 316 SCRA
523, 541.
It is true that the first case was a special civil action for declaratory relief while the
second case was a civil action for specific performance. However, the difference in form
and nature of the two actions is immaterial. The philosophy behind the rule on res
judicata prohibits the parties from litigating the same issue more than once. [25] The issue
25

involved in the declaratory relief case was whether respondent has rights over the
property which was reconveyed to petitioner considering that he waived all his rights by
executing the Agreement to Sell and Buy. In the specific performance case, the issue
involved was the same, that is, whether respondent was entitled to the property
reconveyed when the petitioner failed to comply with the terms of their agreement
embodied in the same Agreement to Sell and Buy. Respondent’s alleged right in both
cases depends on one and the same instrument, the Agreement to Sell and Buy. Clearly,
respondent’s ultimate objective in instituting the two actions was to have the property
reconveyed in its favor.

When material facts or questions in issue in a former action were conclusively settled by
a judgment rendered therein, such facts or questions constitute res judicata and may not
be again litigated in a subsequent action between the same parties or their privies
regardless of the form of the latter. This is the essence of res judicata or bar by prior
judgment. The parties are bound not only as regards every matter offered and received to
sustain or defeat their claims or demand but as to any other admissible matter which
might have been offered for that purpose and of all other matters that could have been
adjudged in that case. [26]
26

Assuming res judicata finds no application in the instant case, the action for specific
performance must nonetheless be dismissed. The Agreement to Sell and Buy, being one
of the prestations of the compromise agreement which was judicially confirmed and had
long become final and executory, cannot be enforced in a separate action. In the case of
Jose Dela Rama v. Hon. Aurora P. Navarrete-Recina, [27] where petitioner assailed the
27

validity of the Deed of Absolute Sale executed pursuant to the compromise agreement,
we held that:

Moreover, the Deed of Absolute Sale being impugned by the petitioners is but an offshoot
of the compromise agreement entered into, with judicial confirmation, by the parties
themselves. Thus, as observed by the respondent court, any further prestations left
undone, with regard to the provisions of the compromise judgment, should be the subject
of proceedings on execution, and not a separate action.

In the earlier case of Arkoncel v. Lagamon, 28

[28] we held:

25[25] Id., p. 542.

26[26] Carlet v. Court of Appeals, 341 Phil. 99, 111 [1997].

27[27] G.R. No. 116456, 19 August 1996, Unsigned Resolution; Rollo, pp. 264-269.

28[28] G.R. No. 50526, 4 December 1991, 204 SCRA 560, 567.
The rule is that a judgment rendered in accordance with a compromise agreement is
immediately executory unless a motion is filed to set aside the agreement on the ground
of fraud, mistake or duress in which case an appeal may be taken against the order
denying the motion. It then becomes ministerial for the lower court to order the
execution of its final executory judgment.

Even more than a contract which may be enforced by ordinary action for specific
performance, the compromise agreement is part and parcel of the judgment, and may
therefore be enforced as such by a writ of execution.

Finally, when the terms of an amicable settlement are violated, as in the case at bar, the
remedy of the aggrieved party is to move for its execution.

The principle of res judicata requires that stability be accorded to judgments.

Controversies once decided on the merits shall remain in repose for there should be an
end to litigation which, without the doctrine, would be endless. [29] Given the
29

circumstances in this case, we find that the trial court committed grave abuse of
discretion when it denied the motion to dismiss filed by petitioners.

WHEREFORE, in view of the foregoing, the petition is GRANTED. The Order of the
Regional Trial Court of Pasay City, Branch 115 in Civil Case No. 97-0734, denying
petitioner’s “Motion to Dismiss Complaint and For Direct Contempt Based on Forum
Shopping,” as well as the Order denying petitioner’s “Motion for Reconsideration,” are
REVERSED and SET ASIDE. The Regional Trial Court of Pasay City, Branch 115, is
ordered to DISMISS Civil Case No. 97-0734 on the ground of res judicata. Costs against
private respondents.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Vitug, Carpio, and Azcuna, JJ., concur.

G.R. No. 128349 September 25, 1998

BACHRACH CORPORATION, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and PHILIPPINE PORTS AUTHORITY,
respondents.

VITUG, J.:

29[29] Nacuray v. NLRC, 336 Phil. 749, 757 [1997].

Bachrach Corporation ("Bachrach"), in its petition for review on certiorari, questions the decision
of the Court of Appeals in CA-G.R. SP No. 38763, promulgated on 12 November 1996, the
dispositive part of which reading —

WHEREFORE, the petition is granted. The assailed RTC orders art hereby NULLIFIED and SET ASIDE and
public respondent is ordered to dismiss the subject action before him under Civil Case No. 95-73399. No
1
pronouncement as to costs. —

on several counts; viz:

I. THE COURT OF APPEALS GRAVELY ERRED IN NOT

DISMISSING CA-G.R. SP NO. 38673 DESPITE THE FACT
THAT A SIMILAR PETITION EARLIER FILED BY PPA WAS
DISMISSED FOR BEING INSUFFICIENT NOT ONLY IN FORM
BUT ALSO IN SUBSTANCE WHICH DISMISSAL
CONSTITUTES RES JUDICATA INSOFAR AS THE ISSUES
RAISED THEREIN ARE CONCERNED.

II. THE COURT OF APPEALS GRAVELY ERRED IN RULING

THAT THE DECISION IN THE UNLAWFUL DETAINER CASE
CONSTITUTES RES JUDICATA WHICH BARS THE SPECIFIC
PERFORMANCE CASE.

III. THE COURT CF APPEALS GRAVELY ERRED IN RULING

THAT THE FILING OF THE SPECIFIC PERFORMANCE CASE
VIOLATES THE RULE AGAINST FORUM SHOPPING.

IV. THE COURT OF APPEALS GRAVELY ERRED IN RULING

THAT THE WRIT OF PRELIMINARY INJUNCTION ISSUED BY
THE TRIAL COURT CONSTITUTES INTERFERENCE WITH
ITS JUDGMENT IN THE UNLAWFUL DETAINER CASE.

V. THE COURT OF APPEALS GRAVELY ERRED IN

ORDERING THE DISMISSAL OF CIVIL CASE NO. 95-73399
THEREBY RULING ON THE MERITS OF THE CASE WHEN IN
FACT, THE ONLY ISSUES FOR ITS RESOLUTION WERE THE
PROPRIETY OF THE WRIT OF PRELIMINARY INJUNCTION
ISSUED BY THE TRIAL COURT AND THE DENIAL OF PPA'S
MOTION FOR PRELIMINARY HEARING ON AFFIRMATIVE
2
DEFENSES.

It would appear that petitioner corporation entered into two lease contracts with the Philippine
government covering two specified areas, Block 180 and Block 185, located at the Manila Port
Area, then under the control and management of the Director of Lands, for a term of ninety-nine
years each, the first lease to expire on 19 June 2017 and the other on 14 February 2018. During
her tenure, President Corazon Aquino issued Executive Order No. 321 transferring the
management and administration of the entire Port Area to herein respondent Philippine Ports
Authority ("PPA"). Shortly alter its take-over, PPA issued a Memorandum increasing the rental
rates of Bachrach by 1,500%. Bachrach refused to pay the substantial increased rates demanded
by PPA.

On 23 March 1992, PPA initiated unlawful detainer proceedings, docketed Civil Case No. 138838
of the Metropolitan Trial Court ("MeTC") of Manila, against Bachrach for non-payment of rent. On
27 April 1993, MeTC rendered a decision ordering the eviction of Bachrach from the leased
premises. Bachrach appealed to the Regional Trial Court ("RTC") of Manila which, on 21
September 1993, affirmed the decision of the lower court in toto. 3

Bachrach elevated the case to the Court of Appeals by way of a petition for review. On 29 July
1994, the appellate court affirmed the decision of the RTC. A motion for reconsideration was filed
by Bachrach; however, the resolution of the motion was put on hold pending submission of a
compromise agreement. 4 When tile parties failed to submit the promised compromise agreement,
the Court of Appeals, on 15 May 1995, denied Bachrach's motion for reconsideration. The
decision of the appellate court in the ejectment suit became final and executory on 20 May 1995. 5

Meanwhile on 25 March 1995, while the motion for reconsideration was yet pending with the
appellate court, Bachrach filed a complaint against PPA with the Manila RTC, docketed Civil Case
No. 95-73399 (hereinafter referred to also as the specific performance case), for refusing to honor
a compromise agreement said to have been perfected between Bachrach and PPA during their
04 February 1994 conference that superseded the ejectment case. In its complaint, Bachrach
prayed for specific performance.

On 08 June 1995, PPA filed a motion for a writ of execution/garnishment in the ejectment case.
The next day, 09 June 1995, Bachrach filed an application in the specific performance case for
the issuance of a temporary restraining order and/or a writ of preliminary injunction to enjoin the
MeTC from issuing the writ of execution/garnishment. PPA countered by filling a motion for
preliminary hearing on its affirmative defenses along the same grounds mentioned in its motion to
dismiss the specific performance case, to wit: (a) the pendency of another action between the
same parties for the same cause; (b) the violation of the anti-forum-shopping rule; (c) the
complaint's lack of cause of action; and (d) the unenforceable character of the compromise
agreement invoked by Bachrach. On 13 July 1995, the trial court issued an omnibus order,
granting the application of Bachrach for a writ of preliminary injunction, in this tenor —

PREMISES CONSIDERED, this Court is of the opinion and so holds (1) that plaintiff (Bachrach) is entitled to
the injunctive relief prayed for and upon the posting of a bond in the amount of P300,000.00, let a writ of
preliminary injunction be issued enjoining the defendant (PPA), the Presiding Judge of the Metropolitan Trial
Court of Manila, Branch 2 from issuing a writ of execution/garnishment in Civil Case No. 238838-CV entitled
"Philippine Ports Authority vs. Bachrach Corporation"; (2) lifting/setting aside the order dated June 5, 1995
6
and (3) denying defendant's motion for a preliminary hearing on affirmative defenses.

PPA moved for reconsideration of the above order but the trial court denied the plea in its
order of 29 August 1995.

On 25 September 1995, PPA filed a petition for certiorari and prohibition, with application for the
issuance of a temporary restraining order and/or writ of preliminary injunction, docketed CA-G.R.
SP No. 36508, before the Court of Appeals. The petition was dismissed by resolution, dated 28
September 1995, of the appellate court for being insufficient in form and substance, i.e., the
failure of PPA to properly attach a certified true copy each of the assailed order of 13 July 1995
and 29 August 1995 of the trial court. PPA received on 05 October 1995 7 a copy of the resolution,
dated 28 September 1995, of the appellate court. Undaunted, PPA filed a new petition on 11
October 1995, now evidently in proper form, asseverating that since it had received a copy of the
assailed resolution of the trial court only on 07 September 1995, the refiling of the petition with the
Court of Appeals within a period of less than two months from the date of such receipt was well
within the reasonable time requirement under the Rules for a special civil action for certiorari. 8 In
the meantime, the resolution, dated 28 September 1995, of the Court of Appeals which dismissed
CA-G.R. No. 38508 became final on 21 October 1995. 9

In its newly filed petition, docketed CA-G.R. SP No. 38673, PPA invoked the following grounds for
its allowance:

I. That respondent judge acted without, or in excess of jurisdiction, or with grave abuse of discretion when it
issued a writ of preliminary injunction against the final and executory resolution of the Honorable Court of
Appeals Annex "I") inspite of the well-established rule that courts are allowed to interfere with each other's
judgment or decrees by injunction, and worse, in this case, against the execution of the judgment of a
superior or collegiate court which had already became final executory.

II. That respondent Judge acted without, or in excess of jurisdiction, or with grave abuse of discretion when it
also denied petitioner's motion for a preliminary hearing on its affirmative defenses or in failing to have the
 case below outrightly dismissed on the grounds stated in its affirmative defenses, when respondent Judge
pronounced there is no identity as to the causes of action between the case decided by the Court of Appeals
(CA-G.R. SP No. 32630) and the case below (Civil Case No. 95-73399) when clearly the causes or action in
both cases revolve on the same issue of possession of the subject leased premises.

III. That respondent Judge acted without, or in excess of jurisdiction, or with grave abuse of discretion in
refusing to take cognizance (of), abide (by) and acknowledge the final judgment of the Court of Appeals
which, on said ground alone, is enough justification for the dismissal of the case grounded on res judicata.
Moreover private respondent is guilty of forurn-shopping and the penalty therefor is the dismissal of its case.
10

On 12 November 1996, the Court of Appeals rendered the assailed decision nullifying
and setting aside the orders of the RTC and ordering the latter to dismiss the specific
performance case.

The Court finds merit in the instant appeal interposed by petitioner.

Verily, the decisive issue raised by the parties before the Court in the instant petition is whether or
not the specific performance case (Civil Case No. 73399) should be held barred by the unlawful
detainer case on the ground of res judicata. There are four (4) essential conditions which must
concur in order that res judicata may effectively apply, viz: (1) The judgment sought to bar the
new action must be final; (2) the decision must have been rendered by a court having jurisdiction
over the subject matter and the parties; (3) the disposition of the case must be a judgment or
order on the merits, and (4) there must be between the first and second action identity of parties,
identity of subject matter, and identity of causes of action." 11 There is no question about the fact
that all the first three elements of res judicata are here extant; it is the final condition requiring an
identity of parties, of subject matter and of causes of action, particularly the last two, i.e., subject
matter and cause of action, that presents a problem.

A cause of action, broadly defined, is an act or omission of one party in violation of the legal right
of the other. 12 The subject matter, on the other hand, is the item with respect to which the
controversy has arisen, or concerning which the wrong has been done, and it is ordinarily the
right, the thing, or the contract under dispute. 13 In a breach of contract, the contract violated is
the subject matter while the breach thereof by the obligor is the cause of action. It would appear
quite plain then that the RTC did act aptly in taking cognizance of the specific performance case.
In Civil Case No. 138838 of the MeTC, the unlawful detainer case, the subject matter is the
contract of lease between the parties while the breach thereof, arising from petitioner's non-
payment of rentals, constitutes the suit's cause of action. In Civil Case No. 73399 of the RTC, the
specific performance case, the subject matter is the compromise agreement allegedly perfected
between the same parties while the cause of action emanates from the averred refusal of PPA to
comply therewith. The ultimate test in ascertaining the identity of causes of action is said to be to
look into whether or not the same evidence fully supports and establishes both the present cause
of action and the former cause of action. In the affirmative, the former judgment would be a bar; if
otherwise, then that prior judgment would not serve as such a bar to the second. 14 The evidence
needed to establish the cause of action in the unlawful detainer case would be the lease contract
and the violation of that lease by Bachrach. In the specific performance case, what would be
consequential is evidence of the alleged compromise agreement and its breach by PPA.

The next thing to ask, of course, would be the question of whether or not the issuance by the trial
court of the writ of preliminary injunction was an improper interference with the judgment in the
unlawful detainer suit. It could be argued that, instead of filing a separate action for specific
performance. Bachrach should just have presented the alleged compromise agreement in the
unlawful detainer case. Unfortunately, the refusal of PPA to honor the agreement after its alleged
perfection effectively prevented Bachrach from seeking the coercive power of the court to enforce
the compromise in the unlawful detainer case. The situation virtually left Bachrach with but the
remedy of independently initiating the specific performance case in a court of competent
jurisdiction. In its challenged decision, the Court of Appeals, on its part, has said that respondent
PPA's prayer for the issuance of a writ of execution and garnishment is but the necessary and
legal consequence of its affirmance of the lower court's decision in the unlawful in the unlawful
detainer case which has by then become final and executory. 15 The rule indeed is, and has
almost invariably been, that after a judgment has gained finality, it becomes the ministerial duty of
the court to order its execution. 16 No court, perforce, should interfere by injunction or otherwise to
restrain such execution. The rule, however, concededly admits of exceptions; hence, when facts
and circumstances later transpire that would render execution inequitable or unjust, the interested
party may ask a competent court to stay its execution or prevent its enforcement. 17 So, also, a
change in the situation of the parties can warrant an injunctive relief. 18 Evidently, in issuing its
orders of 13 July 1995 and 29 August 1995 assailed by PPA in the latter's petition or certiorari and
prohibition before the Court of Appeals, the trial court in the case at bar would want to preserve
status quo pending its disposition of the specific performance case and to prevent the case from
being mooted by an early implementation of the ejectment writ. In holding differently and
ascribing to the trial court grave abuse of discretion amounting to lack or excess of jurisdiction,
the appellate court, in our considered view, has committed reversible error.

Having reached the above conclusions, other incidental issues raised by petitioner no longer
need to be passed upon.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals is reversed and
set aside; Civil Case No. 73399 along with the assailed orders of the Regional Trial Court,
aforedated, are hereby reinstated. No costs.

SO ORDERED.

Davide, Jr., Bellosillo, Panganiban and Quisumbing, JJ., concur.

Footnotes

1 Rollo, p. 59.

2 Rollo, p. 14.

3 Rollo, p. 47.

4 Court of Appeals Decision, Rollo, pp. 47-48.

5 Ibid.

6 Rollo, p. 145.

7 Per entry of judgment issued by the Court of Appeals, Rollo, pp. 286-287.

8 Rollo, p. 288.

9 Rollo, p. 264.

10 Rollo, pp. 51-52.

11 Mendiola vs. Court of Appeals, 258 SCRA 492; Blue Bar Coconut Phils., Inc. vs. National Labor Relations
Commission, 208 SCRA 371; Development Bank of the Philippines vs. Pundogar, 218 SCRA 118, Guevara
vs. Benito, 247 SCRA 570.

12 Development Bank of the Philippines vs. Pundogar, 218 SCRA 118; Racoma vs. Fortich, 39 SCRA 520;
Santos vs. IAC, 145 SCRA 238; Republic Planters Bank vs. IAC, 131 SCRA 631.
 13 Yusingco vs. Ong Hing Lian, 42 SCRA 590.

14 Mendiola vs. Court of Appeals, 258 SCRA 492; Development Bank of the Phils. vs. Pundogar, 218 SCRA
118.

15 Rollo, pp. 53-54.

16 Sec. 1, Rule 39, Rules of Court; Nique vs. Zapatos, 219 SCRA 639; Ortegas vs. Hidalgo, 198 SCRA 635;
Esquivel vs. Alegre, 172 SCRA 315; Rodriguez vs. Project 6 Market Service Cooperative, Inc., 247 SCRA
528.

17 Lee vs. De Guzman, Jr., 187 SCRA 276.

18 Luna vs. Court of Appeals, 137 SCRA 7; Heirs of Guminpin vs. Court of Appeals, 120 SCRA 687.

Pelayo v. Lauron, 12 Phil. 453(1909)

(sorry cannot find it 404 error lol)
De la Cruz vs Northern theatrical
Enterprises 95 Phil 739
(waah I can’t find it also)
[G.R. No. 174489 : April 07, 2012]

ANTONIO B. BALTAZAR, SEBASTIAN M. BALTAZAR, ANTONIO L.

MANGALINDAN, ROSIE M. MATEO, NENITA A. PACHECO, VIRGILIO
REGALA, JR., AND RAFAEL TITCO, PETITIONERS, VS. LORENZO LAXA,
RESPONDENT.

DECISION

DEL CASTILLO, J.:

It is incumbent upon those who oppose the probate of a will to clearly establish that the
decedent was not of sound and disposing mind at the time of the execution of said will.
Otherwise, the state is duty-bound to give full effect to the wishes of the testator to
distribute his estate in the manner provided in his will so long as it is legally tenable.[1] cralaw

Before us is a Petition for Review on Certiorari[2] of the June 15, 2006 Decision[3] of the
Court of Appeals (CA) in CA-G.R. CV No. 80979 which reversed the September 30,
2003 Decision[4] of the Regional Trial Court (RTC), Branch 52, Guagua, Pampanga in
Special Proceedings No. G-1186. The assailed CA Decision granted the petition for
probate of the notarial will of Paciencia Regala (Paciencia), to wit:

WHEREFORE, premises considered, finding the appeal to be impressed with merit, the
decision in SP. PROC. NO. G-1186 dated 30 September 2003, is hereby SET ASIDE and
a new one entered GRANTING the petition for the probate of the will of PACIENCIA
REGALA.

SO ORDERED.[5]

Also assailed herein is the August 31, 2006 CA Resolution[6] which denied the Motion
for Reconsideration thereto.

Petitioners call us to reverse the CA’s assailed Decision and instead affirm the Decision
of the RTC which disallowed the notarial will of Paciencia.

Factual Antecedents

Paciencia was a 78 year old spinster when she made her last will and testament entitled
“Tauli Nang Bilin o Testamento Miss Paciencia Regala”[7] (Will) in the Pampango dialect
on September 13, 1981. The Will, executed in the house of retired Judge Ernestino G.
Limpin (Judge Limpin), was read to Paciencia twice. After which, Paciencia expressed in
the presence of the instrumental witnesses that the document is her last will and
testament. She thereafter affixed her signature at the end of the said document on page
3[8] and then on the left margin of pages 1, 2 and 4 thereof.[9]

The witnesses to the Will were Dra. Maria Lioba A. Limpin (Dra. Limpin), Francisco
Garcia (Francisco) and Faustino R. Mercado (Faustino). The three attested to the Will’s
due execution by affixing their signatures below its attestation clause[10] and on the left
margin of pages 1, 2 and 4 thereof,[11] in the presence of Paciencia and of one another and
of Judge Limpin who acted as notary public.

Childless and without any brothers or sisters, Paciencia bequeathed all her properties to
respondent Lorenzo R. Laxa (Lorenzo) and his wife Corazon F. Laxa and their children
Luna Lorella Laxa and Katherine Ross Laxa, thus:

xxxx

Fourth - In consideration of their valuable services to me since then up to the present by

the spouses LORENZO LAXA and CORAZON F. LAXA, I hereby BEQUEATH,
CONVEY and GIVE all my properties enumerated in parcels 1 to 5 unto the spouses
LORENZO R. LAXA and CORAZON F. LAXA and their children, LUNA LORELLA
LAXA and KATHERINE LAXA, and the spouses Lorenzo R. Laxa and Corazon F. Laxa
both of legal age, Filipinos, presently residing at Barrio Sta. Monica, [Sasmuan],
Pampanga and their children, LUNA LORELLA and KATHERINE ROSS LAXA, who
are still not of legal age and living with their parents who would decide to bequeath since
they are the children of the spouses;

xxxx

[Sixth] - Should other properties of mine may be discovered aside from the properties
mentioned in this last will and testament, I am also bequeathing and giving the same to
the spouses Lorenzo R. Laxa and Corazon F. Laxa and their two children and I also
command them to offer masses yearly for the repose of my soul and that of D[ñ]a
Nicomeda Regala, Epifania Regala and their spouses and with respect to the fishpond
situated at San Antonio, I likewise command to fulfill the wishes of D[ñ]a Nicomeda
Regala in accordance with her testament as stated in my testament. x x x[12]

The filial relationship of Lorenzo with Paciencia remains undisputed. Lorenzo is

Paciencia’s nephew whom she treated as her own son. Conversely, Lorenzo came to
know and treated Paciencia as his own mother.[13] Paciencia lived with Lorenzo’s family
in Sasmuan, Pampanga and it was she who raised and cared for Lorenzo since his birth.
Six days after the execution of the Will or on September 19, 1981, Paciencia left for the
United States of America (USA). There, she resided with Lorenzo and his family until
her death on January 4, 1996.

In the interim, the Will remained in the custody of Judge Limpin.

More than four years after the death of Paciencia or on April 27, 2000, Lorenzo filed a
petition[14] with the RTC of Guagua, Pampanga for the probate of the Will of Paciencia
and for the issuance of Letters of Administration in his favor, docketed as Special
Proceedings No. G-1186.

There being no opposition to the petition after its due publication, the RTC issued an
Order on June 13, 2000[15] allowing Lorenzo to present evidence on June 22, 2000. On
said date, Dra. Limpin testified that she was one of the instrumental witnesses in the
execution of the last will and testament of Paciencia on September 13, 1981.[16] The Will
was executed in her father’s (Judge Limpin) home office, in her presence and of two
other witnesses, Francisco and Faustino.[17] Dra. Limpin positively identified the Will and
her signatures on all its four pages.[18] She likewise positively identified the signature of
her father appearing thereon.[19] Questioned by the prosecutor regarding Judge Limpin’s
present mental fitness, Dra. Limpin testified that her father had a stroke in 1991 and had
to undergo brain surgery.[20] The judge can walk but can no longer talk and remember her
name. Because of this, Dra. Limpin stated that her father can no longer testify in court.[21]

The following day or on June 23, 2000, petitioner Antonio Baltazar (Antonio) filed an
opposition[22] to Lorenzo’s petition. Antonio averred that the properties subject of
Paciencia’s Will belong to Nicomeda Regala Mangalindan, his predecessor-in-interest;
hence, Paciencia had no right to bequeath them to Lorenzo.[23]

Barely a month after or on July 20, 2000, Antonio, now joined by petitioners Sebastian
M. Baltazar, Virgilio Regala, Jr., Nenita A. Pacheco, Felix B. Flores, Rafael Titco, Rosie
M. Mateo (Rosie) and Antonio L. Mangalindan filed a Supplemental Opposition[24]
contending that Paciencia’s Will was null and void because ownership of the properties
had not been transferred and/or titled to Paciencia before her death pursuant to Article
1049, paragraph 3 of the Civil Code.[25] Petitioners also opposed the issuance of Letters
of Administration in Lorenzo’s favor arguing that Lorenzo was disqualified to be
appointed as such, he being a citizen and resident of the USA.[26] Petitioners prayed that
Letters of Administration be instead issued in favor of Antonio.[27]

Later still on September 26, 2000, petitioners filed an Amended Opposition[28] asking the
RTC to deny the probate of Paciencia’s Will on the following grounds: the Will was not
executed and attested to in accordance with the requirements of the law; that Paciencia
was mentally incapable to make a Will at the time of its execution; that she was forced to
execute the Will under duress or influence of fear or threats; that the execution of the Will
had been procured by undue and improper pressure and influence by Lorenzo or by some
other persons for his benefit; that the signature of Paciencia on the Will was forged; that
assuming the signature to be genuine, it was obtained through fraud or trickery; and, that
Paciencia did not intend the document to be her Will. Simultaneously, petitioners filed an
Opposition and Recommendation[29] reiterating their opposition to the appointment of
Lorenzo as administrator of the properties and requesting for the appointment of Antonio
in his stead.

On January 29, 2001, the RTC issued an Order[30] denying the requests of both Lorenzo
and Antonio to be appointed administrator since the former is a citizen and resident of the
USA while the latter’s claim as a co-owner of the properties subject of the Will has not
yet been established.

Meanwhile, proceedings on the petition for the probate of the Will continued. Dra.
Limpin was recalled for cross-examination by the petitioners. She testified as to the age
of her father at the time the latter notarized the Will of Paciencia; the living arrangements
of Paciencia at the time of the execution of the Will; and the lack of photographs when
the event took place. [31]

Aside from Dra. Limpin, Lorenzo and Monico Mercado (Monico) also took the witness
stand. Monico, son of Faustino, testified on his father’s condition. According to him his
father can no longer talk and express himself due to brain damage. A medical certificate
was presented to the court to support this allegation. [32]

For his part, Lorenzo testified that: from 1944 until his departure for the USA in April
1980, he lived in Sasmuan, Pampanga with his family and his aunt, Paciencia; in 1981
Paciencia went to the USA and lived with him and his family until her death in January
1996; the relationship between him and Paciencia was like that of a mother and child
since Paciencia took care of him since birth and took him in as an adopted son; Paciencia
was a spinster without children, and without brothers and sisters; at the time of
Paciencia’s death, she did not suffer from any mental disorder and was of sound mind,
was not blind, deaf or mute; the Will was in the custody of Judge Limpin and was only
given to him after Paciencia’s death through Faustino; and he was already residing in the
USA when the Will was executed.[33] Lorenzo positively identified the signature of
Paciencia in three different documents and in the Will itself and stated that he was
familiar with Paciencia’s signature because he accompanied her in her transactions.[34]
Further, Lorenzo belied and denied having used force, intimidation, violence, coercion or
trickery upon Paciencia to execute the Will as he was not in the Philippines when the
same was executed.[35] On cross-examination, Lorenzo clarified that Paciencia informed
him about the Will shortly after her arrival in the USA but that he saw a copy of the Will
only after her death.[36]

As to Francisco, he could no longer be presented in court as he already died on May 21,

2000.

For petitioners, Rosie testified that her mother and Paciencia were first cousins.[37] She
claimed to have helped in the household chores in the house of Paciencia thereby
allowing her to stay therein from morning until evening and that during the period of her
service in the said household, Lorenzo’s wife and his children were staying in the same
house.[38] She served in the said household from 1980 until Paciencia’s departure for the
USA on September 19, 1981.[39]

On September 13, 1981, Rosie claimed that she saw Faustino bring “something” for
Paciencia to sign at the latter’s house.[40] Rosie admitted, though, that she did not see
what that “something” was as same was placed inside an envelope.[41] However, she
remembered Paciencia instructing Faustino to first look for money before she signs them.
[42]
A few days after or on September 16, 1981, Paciencia went to the house of Antonio’s
mother and brought with her the said envelope.[43] Upon going home, however, the
envelope was no longer with Paciencia.[44] Rosie further testified that Paciencia was
referred to as “magulyan” or “forgetful” because she would sometimes leave her wallet in
the kitchen then start looking for it moments later.[45] On cross examination, it was
established that Rosie was neither a doctor nor a psychiatrist, that her conclusion that
Paciencia was “magulyan” was based on her personal assessment,[46] and that it was
Antonio who requested her to testify in court.[47]

In his direct examination, Antonio stated that Paciencia was his aunt.[48] He identified the
Will and testified that he had seen the said document before because Paciencia brought
the same to his mother’s house and showed it to him along with another document on
September 16, 1981.[49] Antonio alleged that when the documents were shown to him, the
same were still unsigned.[50] According to him, Paciencia thought that the documents
pertained to a lease of one of her rice lands,[51] and it was he who explained that the
documents were actually a special power of attorney to lease and sell her fishpond and
other properties upon her departure for the USA, and a Will which would transfer her
properties to Lorenzo and his family upon her death.[52] Upon hearing this, Paciencia
allegedly uttered the following words: “Why will I never [return], why will I sell all my
properties?” Who is Lorenzo? Is he the only [son] of God? I have other relatives [who
should] benefit from my properties. Why should I die already?”[53] Thereafter, Antonio
advised Paciencia not to sign the documents if she does not want to, to which the latter
purportedly replied, “I know nothing about those, throw them away or it is up to you. The
more I will not sign them.”[54] After which, Paciencia left the documents with Antonio.
Antonio kept the unsigned documents

and eventually turned them over to Faustino on September 18, 1981.[55]

Ruling of the Regional Trial Court

On September 30, 2003, the RTC rendered its Decision[56] denying the petition thus:

WHEREFORE, this court hereby (a) denies the petition dated April 24, 2000; and (b)
disallows the notarized will dated September 13, 1981 of Paciencia Regala.

SO ORDERED.[57]

The trial court gave considerable weight to the testimony of Rosie and concluded that at
the time Paciencia signed the Will, she was no longer possessed of sufficient reason or
strength of mind to have testamentary capacity.[58]

Ruling of the Court of Appeals

On appeal, the CA reversed the RTC Decision and granted the probate of the Will of
Paciencia. The appellate court did not agree with the RTC’s conclusion that Paciencia
was of unsound mind when she executed the Will. It ratiocinated that “the state of being
‘magulyan’ does not make a person mentally unsound so [as] to render [Paciencia] unfit
for executing a Will.”[59] Moreover, the oppositors in the probate proceedings were not
able to overcome the presumption that every person is of sound mind. Further, no
concrete circumstances or events were given to prove the allegation that Paciencia was
tricked or forced into signing the Will.[60]

Petitioners moved for reconsideration[61] but the motion was denied by the CA in its
Resolution[62] dated August 31, 2006.

Hence, this petition.

Issues

Petitioners come before this Court by way of Petition for Review on Certiorari ascribing
upon the CA the following errors:

I.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT

ALLOWED THE PROBATE OF PACIENCIA’S WILL DESPITE RESPONDENT’S
UTTER FAILURE TO COMPLY WITH SECTION 11, RULE 76 OF THE RULES OF
COURT;

II.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN MAKING

CONCLUSIONS NOT IN ACCORDANCE WITH THE EVIDENCE ON RECORD;

III.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT
PETITIONERS FAILED TO PROVE THAT PACIENCIA WAS NOT OF SOUND
MIND AT THE TIME THE WILL WAS ALLEGEDLY EXECUTED[63]

The pivotal issue is whether the authenticity and due execution of the notarial Will was
sufficiently established to warrant its allowance for probate.

Our Ruling

We deny the petition.

Faithful compliance with the formalities laid down

by law is apparent from the face of the Will.

Courts are tasked to determine nothing more than the extrinsic validity of a

Will in probate proceedings.[64] This is expressly provided for in Rule 75, Section 1 of the
Rules of Court, which states:

Rule 75
Production of Will. Allowance of Will Necessary.

Section 1. Allowance necessary. Conclusive as to execution. – No will shall pass either

real or personal estate unless it is proved and allowed in the proper court. Subject to the
right of appeal, such allowance of the will shall be conclusive as to its due execution.

Due execution of the will or its extrinsic validity pertains to whether the testator, being of
sound mind, freely executed the will in accordance with the formalities prescribed by
law.[65] These formalities are enshrined in Articles 805 and 806 of the New Civil Code, to
wit:

Art. 805. Every will, other than a holographic will, must be subscribed at the end thereof
by the testator himself or by the testator's name written by some other person in his
presence, and by his express direction, and attested and subscribed by three or more
credible witnesses in the presence of the testator and of one another.

The testator or the person requested by him to write his name and the instrumental
witnesses of the will, shall also sign, as aforesaid, each and every page thereof, except the
last, on the left margin, and all the pages shall be numbered correlatively in letters placed
on the upper part of each page.

The attestation shall state the number of pages used upon which the will is written, and
the fact that the testator signed the will and every page thereof, or caused some other
person to write his name, under his express direction, in the presence of the instrumental
witnesses, and that the latter witnessed and signed the will and all the pages thereof in the
presence of the testator and of one another.
If the attestation clause is in a language not known to the witnesses, it shall be interpreted
to them.

Art. 806. Every will must be acknowledged before a notary public by the testator and the
witnesses. The notary public shall not be required to retain a copy of the will, or file
another with the Office of the Clerk of Court.

Here, a careful examination of the face of the Will shows faithful compliance with the
formalities laid down by law. The signatures of the testatrix, Paciencia, her instrumental
witnesses and the notary public, are all present and evident on the Will. Further, the
attestation clause explicitly states the critical requirement that the testatrix and her
instrumental witnesses signed the Will in the presence of one another and that the
witnesses attested and subscribed to the Will in the presence of the testator and of one
another. In fact, even the petitioners acceded that the signature of Paciencia in the Will
may be authentic although they question her state of mind when she signed the same as
well as the voluntary nature of said act.

The burden to prove that Paciencia was of unsound

mind at the time of the execution of the will lies on
the shoulders of the petitioners.

Petitioners, through their witness Rosie, claim that Paciencia was “magulyan” or forgetful
so much so that it effectively stripped her of testamentary capacity. They likewise
claimed in their Motion for Reconsideration[66] filed with the CA that Paciencia was not
only “magulyan” but was actually suffering from paranoia.[67]

We are not convinced.

We agree with the position of the CA that the state of being forgetful does not necessarily
make a person mentally unsound so as to render him unfit to execute a Will.[68]
Forgetfulness is not equivalent to being of unsound mind. Besides, Article 799 of the
New Civil Code states:

Art. 799. To be of sound mind, it is not necessary that the testator be in full possession
of all his reasoning faculties, or that his mind be wholly unbroken, unimpaired, or
unshattered by disease, injury or other cause.

It shall be sufficient if the testator was able at the time of making the will to know the
nature of the estate to be disposed of, the proper objects of his bounty, and the character
of the testamentary act.

In this case, apart from the testimony of Rosie pertaining to Paciencia’s forgetfulness,
there is no substantial evidence, medical or otherwise, that would show that Paciencia
was of unsound mind at the time of the execution of the Will. On the other hand, we find
more worthy of credence Dra. Limpin’s testimony as to the soundness of mind of
Paciencia when the latter went to Judge Limpin’s house and voluntarily executed the
Will. “The testimony of subscribing witnesses to a Will concerning the testator’s mental
condition is entitled to great weight where they are truthful and intelligent.”[69] More
importantly, a testator is presumed to be of sound mind at the time of the execution of the
Will and the burden to prove otherwise lies on the oppositor. Article 800 of the New
Civil Code states:

Art. 800. The law presumes that every person is of sound mind, in the absence of proof to
the contrary.

The burden of proof that the testator was not of sound mind at the time of making his
dispositions is on the person who opposes the probate of the will; but if the testator, one
month, or less, before making his will was publicly known to be insane, the person who
maintains the validity of the will must prove that the testator made it during a lucid
interval.

Here, there was no showing that Paciencia was publicly known to be insane one month or
less before the making of the Will. Clearly, thus, the burden to prove that Paciencia was
of unsound mind lies upon the shoulders of petitioners. However and as earlier
mentioned, no substantial evidence was presented by them to prove the same, thereby
warranting the CA’s finding that petitioners failed to discharge such burden.

Furthermore, we are convinced that Paciencia was aware of the nature of her estate to be
disposed of, the proper objects of her bounty and the character of the testamentary act.
As aptly pointed out by the CA:

A scrutiny of the Will discloses that [Paciencia] was aware of the nature of the document
she executed. She specially requested that the customs of her faith be observed upon her
death. She was well aware of how she acquired the properties from her parents and the
properties she is bequeathing to LORENZO, to his wife CORAZON and to his two (2)
children. A third child was born after the execution of the will and was not included
therein as devisee.[70]

Bare allegations of duress or influence of fear

or threats, undue and improper influence and
pressure, fraud and trickery cannot be used as
basis to deny the probate of a will.

An essential element of the validity of the Will is the willingness of the testator or
testatrix to execute the document that will distribute his/her earthly possessions upon
his/her death. Petitioners claim that Paciencia was forced to execute the Will under
duress or influence of fear or threats; that the execution of the Will had been procured by
undue and improper pressure and influence by Lorenzo or by some other persons for his
benefit; and that assuming Paciencia’s signature to be genuine, it was obtained through
fraud or trickery. These are grounded on the alleged conversation between Paciencia and
Antonio on September 16, 1981 wherein the former purportedly repudiated the Will and
left it unsigned.
We are not persuaded.

We take into consideration the unrebutted fact that Paciencia loved and treated Lorenzo
as her own son and that love even extended to Lorenzo’s wife and children. This kind of
relationship is not unusual. It is in fact not unheard of in our culture for old maids or
spinsters to care for and raise their nephews and nieces and treat them as their own
children. Such is a prevalent and accepted cultural practice that has resulted in many
family discords between those favored by the testamentary disposition of a testator and
those who stand to benefit in case of intestacy.

In this case, evidence shows the acknowledged fact that Paciencia’s relationship with
Lorenzo and his family is different from her relationship with petitioners. The very fact
that she cared for and raised Lorenzo and lived with him both here and abroad, even if the
latter was already married and already has children, highlights the special bond between
them. This unquestioned relationship between Paciencia and the devisees tends to support
the authenticity of the said document as against petitioners’ allegations of duress,
influence of fear or threats, undue and improper influence, pressure, fraud, and trickery
which, aside from being factual in nature, are not supported by concrete, substantial and
credible evidence on record. It is worth stressing that bare arguments, no matter how
forceful, if not based on concrete and substantial evidence cannot suffice to move the
Court to uphold said allegations.[71] Furthermore, “a purported will is not [to be] denied
legalization on dubious grounds. Otherwise, the very institution of testamentary
succession will be shaken to its foundation, for even if a will has been duly executed in
fact, whether x x x it will be probated would have to depend largely on the attitude of
those interested in [the estate of the deceased].”[72]

Court should be convinced by the evidence

presented before it that the Will was duly
executed.

Petitioners dispute the authenticity of Paciencia’s Will on the ground that Section 11 of
Rule 76 of the Rules of Court was not complied with. It provides:

RULE 76
Allowance or Disallowance of Will

Section 11. Subscribing witnesses produced or accounted for where will contested. – If
the will is contested, all the subscribing witnesses, and the notary in the case of wills
executed under the Civil Code of the Philippines, if present in the Philippines and not
insane, must be produced and examined, and the death, absence, or insanity of any of
them must be satisfactorily shown to the court. If all or some of such witnesses are
present in the Philippines but outside the province where the will has been filed, their
deposition must be taken. If any or all of them testify against the due execution of the
will, or do not remember having attested to it, or are otherwise of doubtful credibility, the
will may nevertheless, be allowed if the court is satisfied from the testimony of other
witnesses and from all the evidence presented that the will was executed and attested in
the manner required by law.
If a holographic will is contested, the same shall be allowed if at least three (3) witnesses
who know the handwriting of the testator explicitly declare that the will and the signature
are in the handwriting of the testator; in the absence of any competent witnesses, and if
the court deem it necessary, expert testimony may be resorted to. (Emphasis supplied.)

They insist that all subscribing witnesses and the notary public should have been
presented in court since all but one witness, Francisco, are still living.

We cannot agree with petitioners.

We note that the inability of Faustino and Judge Limpin to appear and testify before the
court was satisfactorily explained during the probate proceedings. As testified to by his
son, Faustino had a heart attack, was already bedridden and could no longer talk and
express himself due to brain damage. To prove this, said witness presented the
corresponding medical certificate. For her part, Dra. Limpin testified that her father,
Judge Limpin, suffered a stroke in 1991 and had to undergo brain surgery. At that time,
Judge Limpin could no longer talk and could not even remember his daughter’s name so
that Dra. Limpin stated that given such condition, her father could no longer testify. It is
well to note that at that point, despite ample opportunity, petitioners neither interposed
any objections to the testimonies of said witnesses nor challenged the same on cross
examination. We thus hold that for all intents and purposes, Lorenzo was able to
satisfactorily account for the incapacity and failure of the said subscribing witness and of
the notary public to testify in court. Because of this the probate of Paciencia’s Will may
be allowed on the basis of Dra. Limpin’s testimony proving her sanity and the due
execution of the Will, as well as on the proof of her handwriting. It is an established rule
that “[a] testament may not be disallowed just because the attesting witnesses declare
against its due execution; neither does it have to be necessarily allowed just because all
the attesting witnesses declare in favor of its legalization; what is decisive is that the
court is convinced by evidence before it, not necessarily from the attesting witnesses,
although they must testify, that the will was or was not duly executed in the manner
required by law.”[73]

Moreover, it bears stressing that “[i]rrespective x x x of the posture of any of the parties
as regards the authenticity and due execution of the will x x x in question, it is the
mandate of the law that it is the evidence before the court and/or [evidence that] ought to
be before it that is controlling.”[74] “The very existence of [the Will] is in itself prima
facie proof that the supposed [testatrix] has willed that [her] estate be distributed in the
manner therein provided, and it is incumbent upon the state that, if legally tenable, such
desire be given full effect independent of the attitude of the parties affected thereby.”[75]
This, coupled with Lorenzo’s established relationship with Paciencia, the evidence and
the testimonies of disinterested witnesses, as opposed to the total lack of evidence
presented by petitioners apart from their self-serving testimonies, constrain us to tilt the
balance in favor of the authenticity of the Will and its allowance for probate. cralaw

WHEREFORE, the petition is DENIED. The Decision dated June 15, 2006 and the
Resolution dated August 31, 2006 of the Court of Appeals in CA-G.R. CV No. 80979 are
AFFIRMED.

SO ORDERED.

Corona, C.J., (Chairperson), Leonardo-De Castro, Bersamin, and Villarama, Jr., JJ.,
concur.

Endnotes:

[1]
Gonzales Vda. de Precilla v. Narciso, 150-B Phil. 437, 473 (1972).
[2]
Rollo, pp. 9-31.
[3]
CA rollo, pp. 177-192; penned by Associate Justice Andres B. Reyes, Jr. and concurred
in by Associate Justices Hakim S. Abdulwahid and Vicente Q. Roxas.
[4]
Records, pp. 220-246; penned by Judge Jonel S. Mercado.
[5]
CA rollo, p. 192.
[6]
Id. at 212.
[7]
Exhibit “G”, Folder of Exhibits, pp. 36-39.
[8]
Exhibit “G-11,” id. at 38.
[9]
Exhibits “G-9,” “G-10,” and “G-11,” id. at 36, 37 and 39.
[10]
Exhibit “G-6,” id at 38.
[11]
Exhibits “G-4,” “G-5,” and “G-7,” id. at 36, 37 and 39.
[12]
English Translation of the Last Will and Testament of Miss Paciencia Regala, Exhibits
“H-1” and “H-2,” id. at 41-42.
[13]
TSN dated April 18, 2001, pp. 2-6.
[14]
Records, pp. 1-3.
[15]
Id. at 13-14.
[16]
TSN dated June 22, 2000, p. 2.
[17]
Id. at 5.
[18]
Id. at 2-4.
[19]
Id. at 3.
[20]
Id. at 2.
[21]
Id. at 6.
[22]
Motion with Leave of Court to Admit Instant Opposition to Petition of Lorenzo Laxa;
records, pp. 17-18.
[23]
Id. at 17.
[24]
Id. at 25-28.
[25]
Article 1049. Acceptance may be express or tacit.

xxxx

Acts of mere preservation or provisional administration do not imply an acceptance of the

inheritance if, through such acts, the title or capacity of an heir has not been assumed.

[26]
Records, p. 26.
[27]
Id. at 27.
[28]
Id. at 42-43.
[29]
Id. at 44-45.
[30]
Id. at 52.
[31]
TSN dated January 18, 2001, pp. 2-4.
[32]
Id. at 5-6.
[33]
TSN dated April 18, 2001, pp. 1- 28.
[34]
Id. at 9-15.
[35]
Id. at 16-17.
[36]
Id. at 24-25.
[37]
TSN dated November 27, 2002, p. 4.
[38]
Id. at 5.
[39]
TSN dated December 4, 2002, p. 8
[40]
Id. pp. 2-3.
[41]
Id. at 4.
[42]
Id.
[43]
Id. at 7.
[44]
Id. at 8.
[45]
Id. at 9.
[46]
Id. at 10.
[47]
Id. at 11.
[48]
TSN dated January 7, 2003, p. 3.
[49]
Id. at 6-8.
[50]
Id. at 12.
[51]
Id. at 11.
[52]
Id. at 16.
[53]
Id. at 17.
[54]
Id.
[55]
Id at 18-19.
[56]
Records, pp. 220-246.
[57]
Id. at 246.
[58]
Id. at 245-246.
[59]
CA rollo, p. 185.
[60]
Id. at 188.
[61]
Id. at 193-199.
[62]
Id. at 212.
[63]
Rollo, p. 18.
[64]
Pastor, Jr. v. Court of Appeals, 207 Phil. 758, 766. (1983).
[65]
Id.
[66]
CA rollo, pp. 193-199.
[67]
Id. at 194-195.
[68]
Torres and Lopez de Bueno v. Lopez, 48 Phil. 772, 810 (1926); Sancho v. Abella, 58
Phil.728, 732-733 (1933).
[69]
Id. at 811.
[70]
CA rollo, pp. 185-186.
[71]
Gonzales Vda. de Precilla v. Narciso, supra note 1 at 445.
[72]
Id. at 474.
[73]
Id. at 452.
[74]
Id. at 453.
[75]
Id. at 473.

SECOND DIVISION

[G.R. No. 163582 : August 09, 2010]

WILLIAM GOLANGCO CONSTRUCTION CORPORATION, PETITIONER, VS.

RAY BURTON DEVELOPMENT CORPORATION, RESPONDENT.

DECISION

PERALTA, J.:

This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court,
praying that the Decision[1] of the Court of Appeals (CA) dated December 19, 2003,
holding that the Construction Industry Arbitration Commission (CIAC) had no
jurisdiction over the dispute between herein parties, and the CA Resolution[2] dated May
24, 2004, denying herein petitioner's motion for reconsideration, be reversed and set
aside.

The undisputed facts, as accurately narrated in the CA Decision, are as follows.

On July 20, 1995, petitioner Ray Burton Development Corporation [herein respondent]
(RBDC for brevity) and private respondent William Golangco Construction Corporation
[herein petitioner] (WGCC) entered into a Contract for the construction of the Elizabeth
Place (Office/Residential Condominium).

On March 18, 2002, private respondent WGCC filed a complaint with a request for
arbitration with the Construction Industry Arbitration Commission (hereinafter referred to
as CIAC). In its complaint, private respondent prayed that CIAC render judgment
ordering petitioner to pay private respondent the amount of, to wit:
1. P24,703,132.44 for the unpaid balance on the contract price;
2. P10,602,670.25 for the unpaid balance on the labor cost adjustment;
3. P9,264,503.70 for the unpaid balance of additive works;
4. P2,865,615.10 for extended overhead expenses;
5. P1,395,364.01 for materials cost adjustment and trade contractors' utilities
expenses;
6. P4,835,933.95 for interest charges on unpaid overdue billings on labor cost
adjustment and change orders.

or for a total of Fifty Three Million Six Hundred Sixty-Seven Thousand Two Hundred
Nineteen and 45/xx (P53,667,219.45) and interest charges based on the prevailing bank
rates on the foregoing amount from March 1, 2002 and until such time as the same shall
be fully paid.

On April 12, 2002, petitioner RBDC filed a Motion to Dismiss the aforesaid complaint on
the ground of lack of jurisdiction. It is petitioner's contention that the CIAC acquires
jurisdiction over disputes arising from or connected with construction contracts only
when the parties to the contract agree to submit the same to voluntary arbitration. In the
contract between petitioner and private respondent, petitioner claimed that only disputes
by reason of differences in interpretation of the contract documents shall be deemed
subject to arbitration.

Private respondent filed a Comment and Opposition to the aforesaid Motion dated April
15, 2002. Private respondent averred that the claims set forth in the complaint require
contract interpretation and are thus cognizable by the CIAC pursuant to the arbitration
clause in the construction contract between the parties. Moreover, even assuming that the
claims do not involve differing contract interpretation, they are still cognizable by the
CIAC as the arbitration clause mandates their direct filing therewith.
On May 6, 2002, the CIAC rendered an Order the pertinent portion of which reads as
follows:

The Commission has taken note of the foregoing arguments of the parties. After due
deliberations, the Commission resolved to DENY Respondent's motion on the following
grounds:
[1]
Clause 17.2 of Art. XVII of the Contract Agreement explicitly provides that "any
dispute" arising under the construction contract shall be submitted to "the Construction
Arbitration Authority created by the Government." Even without this provision, the bare
agreement to submit a construction dispute to arbitration vests in the Commission
original and exclusive jurisdiction by virtue of Sec. 4 of Executive Order No. 1008,
whether or not a dispute involves a collection of sum of money or contract interpretation
as long as the same arises from, or in connection with, contracts entered into by the
parties involved. The Supreme Court jurisprudence on Tesco vs. Vera case referred to by
respondent is no longer controlling as the same was based on the old provision of Article
III, Sec. 1 of the CIAC Rules which has long been amended.
[2]
The issue raised by Respondent in its Motion to Dismiss is similar to the issue set forth
in CA-G.R. Sp. No. 67367, Continental Cement Corporation vs. CIAC and EEI
Corporation, where the appellate court upheld the ruling of the CIAC thereon that since
the parties agreed to submit to arbitration any dispute, the same does not exclude disputes
relating to claims for payment in as much as the said dispute originates from execution of
the works. As such, the subject dispute falls within the original and exclusive jurisdiction
of the CIAC.

WHEREFORE, in view of the foregoing, Respondent's Motion to Dismiss is DENIED

for lack of merit. Respondent is given anew an inextendible period of ten (10) days from
receipt hereof within which to file its Answer and nominees for the Arbitral Tribunal. If
Respondent shall fail to comply within the prescribed period, the Commission shall
proceed with arbitration in accordance with its Rules. x x x

Thereafter, petitioner filed a Motion to Suspend Proceedings praying that the CIAC order
a suspension of the proceedings in Case No. 13-2002 until the resolution of the
negotiations between the parties, and consequently, that the period to file an Answer be
held in abeyance.

Private respondent filed an Opposition to the aforesaid Motion and a Counter-Motion to

Declare respondent to Have Refused to Arbitrate and to Proceed with Arbitration Ex
Parte.

On May 24, 2002 the CIAC issued an Order, the pertinent portion of which reads:

In view of the foregoing, Respondent's (petitioner's) Motion to Suspend Proceedings is

DENIED. Accordingly, respondent is hereby given a non-extendible period of five (5)
days from receipt thereof within which to submit its Answer and nominees for the
Arbitral Tribunal. In default thereof, claimant's (private respondent's) Counter-Motion is
deemed granted and arbitration shall proceed in accordance with the CIAC Rules
Governing Construction Arbitration.

SO ORDERED. x x x

On June 3, 2002, petitioner RBDC filed [with the Court of Appeals (CA)] a petition for
Certiorari and Prohibition with prayer for the issuance of a temporary restraining order
and a writ of preliminary injunction. Petitioner contended that CIAC acted without or in
excess of its jurisdiction when it issued the questioned order despite the clear showing
that there is lack of jurisdiction on the issue submitted by private respondent for
arbitration.[3]

On December 19, 2003, the CA rendered the assailed Decision granting the petition for
certiorari, ruling that the CIAC had no jurisdiction over the subject matter of the case
because the parties agreed that only disputes regarding differences in interpretation of the
contract documents shall be submitted for arbitration, while the allegations in the
complaint make out a case for collection of sum of money. Petitioner moved for
reconsideration of said ruling, but the same was denied in a Resolution dated May 24,
2004.

Hence, this petition where it is alleged that:

I.

THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION IN

FAILING TO DISMISS PRIVATE RESPONDENT RBDC'S PETITION IN CA-G.R. SP
NO. 70959 OUTRIGHT IN VIEW OF RBDC'S FAILURE TO FILE A MOTION FOR
RECONSIDERATION OF THE CIAC'S ORDER, AS WELL AS FOR RBDC'S
FAILURE TO ATTACH TO THE PETITION THE RELEVANT PLEADINGS IN CIAC
CASE NO. 13-2002, IN VIOLATION OF THE REQUIREMENT UNDER RULE 65,
SECTIONS 1 AND 2, PARAGRAPH 2 THEREOF, AND RULE 46, SECTION 3,
PARAGRAPH 2 THEREOF.

II.

THE COURT OF APPEALS ERRED GRAVELY IN NOT RULING THAT THE CIAC
HAS JURISDICTION OVER WGCC'S CLAIMS, WHICH ARE IN THE NATURE OF
ARBITRABLE DISPUTES COVERED BY CLAUSE 17.1 OF ARTICLE XVII
INVOLVING CONTRACT INTERPRETATION.

xxxx

III.

THE COURT OF APPEALS ERRED GRAVELY IN FAILING TO DISCERN THAT

CLAUSE 17.2 OF ARTICLE XVII CANNOT BE TREATED AS BEING "LIMITED TO
DISPUTES ARISING FROM INTERPRETATION OF THE CONTRACT."
xxxx

IV.

THE COURT OF APPEALS ERRED GRAVELY IN NOT RULING THAT RBDC IS

ESTOPPED FROM DISPUTING THE JURISDICTION OF THE CIAC.

xxxx

V.

FINALLY, THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF

DISCRETION IN REFUSING TO PAY HEED TO THE DECLARATION IN
EXECUTIVE ORDER NO. 1008 THAT THE POLICY OF THE STATE IS IN FAVOR
OF ARBITRATION OF CONSTRUCTION DISPUTES, WHICH POLICY HAS BEEN
REINFORCED FURTHER BY THE RECENT PASSAGE OF THE "ALTERNATIVE
DISPUTE RESOLUTION ACT OF 2004"(R.A. NO. 9285).[4]

The petition is meritorious.

The aforementioned issues boil down to (1) whether the CA acted with grave abuse of
discretion in failing to dismiss the petition for certiorari filed by herein respondent, in
view of the latter's failure to file a motion for reconsideration of the assailed CIAC Order
and for failure to attach to the petition the relevant pleadings in CIAC Case No. 13-2002;
and (2) whether the CA gravely erred in not upholding the jurisdiction of the CIAC over
the subject complaint.

Petitioner is correct that it was grave error for the CA to have given due course to
respondent's petition for certiorari despite its failure to attach copies of relevant
pleadings in CIAC Case No. 13-2002. In Tagle v. Equitable PCI Bank,[5] the party filing
the petition for certiorari before the CA failed to attach the Motion to Stop Writ of
Possession and the Order denying the same. On the ground of non-compliance with the
rules, the CA dismissed said petition for certiorari. When the case was elevated to this
Court via a petition for certiorari, the same was likewise dismissed. In said case, the
Court emphasized the importance of complying with the formal requirements for filing a
petition for certiorari and held as follows:

x x x Sec. 1, Rule 65, in relation to Sec. 3, Rule 46, of the Revised Rules of Court. Sec.
1 of Rule 65 reads:

SECTION 1. Petition for certiorari. - When any tribunal, board or officer exercising
judicial or quasi-judicial functions has acted without or in excess of its or his jurisdiction,
or with grave abuse of discretion amounting to lack or excess of [its or his] jurisdiction,
and there is no appeal, or any plain, speedy, and adequate remedy in the ordinary course
of law, a person aggrieved thereby may file a verified petition in the proper court,
alleging the facts with certainty and praying that judgment be rendered annulling or
modifying the proceedings of such tribunal, board or officer, and granting such incidental
reliefs as law and justice may require.

The petition shall be accompanied by a certified true copy of the judgment, order or
resolution subject thereof, copies of all pleadings and documents relevant and pertinent
thereto, and a sworn certification of non-forum shopping as provided in the third
paragraph of Section 3, Rule 46. (Emphasis supplied.)

And Sec. 3 of Rule 46 provides:

SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. - The
petition shall contain the full names and actual addresses of all the petitioners and
respondents, a concise statement of the matters involved, the factual background of the
case, and the grounds relied upon for the relief prayed for.

In actions filed under Rule 65, the petition shall further indicate the material dates
showing when notice of the judgment or final order or resolution subject thereof was
received, when a motion for new trial or reconsideration, if any, was filed and when
notice of the denial thereof was received.

It shall be filed in seven (7) clearly legible copies together with proof of service thereof
on the respondent with the original copy intended for the court indicated as such by the
petitioner and shall be accompanied by a clearly legible duplicate original or certified
true copy of the judgment, order, resolution, or ruling subject thereof, such material
portions of the record as are referred to therein, and other documents relevant or
pertinent thereto. The certification shall be accomplished by the proper clerk of court or
by his duly-authorized representative, or by the proper officer of the court, tribunal,
agency or office involved or by his duly authorized representative. The other requisite
number of copies of the petition shall be accompanied by clearly legible plain copies of
all documents attached to the original.

xxxx

The failure of the petitioner to comply with any of the foregoing requirements shall be
sufficient ground for the dismissal of the petition. (Emphasis supplied.)

The afore-quoted provisions are plain and unmistakable. Failure to comply with the
requirement that the petition be accompanied by a duplicate original or certified true copy
of the judgment, order, resolution or ruling being challenged is sufficient ground for the
dismissal of said petition. Consequently, it cannot be said that the Court of Appeals
acted with grave abuse of discretion amounting to lack or excess of jurisdiction in
dismissing the petition x x x for non-compliance with Sec. 1, Rule 65, in relation to
Sec. 3, Rule 46, of the Revised Rules of Court.[6]

In the present case, herein petitioner (private respondent below) strongly argued against
the CA's granting due course to the petition, pointing out that pertinent pleadings such as
the Complaint before the CIAC, herein respondent's Motion to Dismiss, herein
petitioner's Comment and Opposition (Re: Motion to Dismiss), and the Motion to
Suspend Proceedings, have not been attached to the petition. Herein respondent
(petitioner before the CA) argued in its Reply[7] before the CA that it did not deem such
pleadings or documents germane to the petition. However, in the CA Resolution[8] dated
July 4, 2002, the appellate court itself revealed the necessity of such documents by
ordering the submission of copies of pleadings relevant to the petition. Indeed, such
pleadings are necessary for a judicious resolution of the issues raised in the petition and
should have been attached thereto. As mandated by the rules, the failure to do so is
sufficient ground for the dismissal of the petition. The CA did not give any convincing
reason why the rule regarding requirements for filing a petition should be relaxed in favor
of herein respondent. Therefore, it was error for the CA to have given due course to the
petition for certiorari despite herein respondent's failure to comply with the requirements
set forth in Section 1, Rule 65, in relation to Section 3, Rule 46, of the Revised Rules of
Court.

Even on the main issue regarding the CIAC's jurisdiction, the CA erred in ruling that said
arbitration body had no jurisdiction over the complaint filed by herein petitioner. There is
no question that, as provided under Section 4 of Executive Order No. 1008, also known
as the "Construction Industry Arbitration Law," the CIAC has original and exclusive
jurisdiction over disputes arising from, or connected with, contracts entered into by
parties involved in construction in the Philippines and all that is needed for the CIAC to
acquire jurisdiction is for the parties to agree to submit the same to voluntary arbitration.
Nevertheless, respondent insists that the only disputes it agreed to submit to voluntary
arbitration are those arising from interpretation of contract documents. It argued that the
claims alleged in petitioner's complaint are not disputes arising from interpretation of
contract documents; hence, the CIAC cannot assume jurisdiction over the case.

Respondent's contention is tenuous.

The contract between herein parties contained an arbitration clause which reads as
follows:

17.1.1. Any dispute arising in the course of the execution of this Contract by reason of
differences in interpretation of the Contract Documents which the OWNER and the
CONTRACTOR are unable to resolve between themselves, shall be submitted by either
party for resolution or decision, x x x to a Board of Arbitrators composed of three (3)
members, to be chosen as follows:

One (1) member each shall be chosen by the OWNER and the CONTRACTOR. The said
two (2) members, in turn, shall select a third member acceptable to both of them. The
decision of the Board of Arbitrators shall be rendered within fifteen (15) days from the
first meeting of the Board. The decision of the Board of Arbitrators when reached
through the affirmative vote of at least two (2) of its members shall be final and binding
upon the OWNER and the CONTRACTOR.
17.2 Matters not otherwise provided for in this Contract or by special agreement of the
parties shall be governed by the provisions of the Construction Arbitration Law of the
Philippines. As a last resort, any dispute which is not resolved by the Board of
Arbitrators shall be submitted to the Construction Arbitration Authority created by the
government.[9]

In gist, the foregoing provisions mean that herein parties agreed to submit disputes
arising by reason of differences in interpretation of the contract to a Board of Arbitrators
the composition of which is mutually agreed upon by the parties, and, as a last resort, any
other dispute which had not been resolved by the Board of Arbitrators shall be submitted
to the Construction Arbitration Authority created by the government, which is no other
than the CIAC. Moreover, other matters not dealt with by provisions of the contract or by
special agreements shall be governed by provisions of the Construction Industry
Arbitration Law, or Executive Order No. 1008.

The Court finds that petitioner's claims that it is entitled to payment for several items
under their contract, which claims are, in turn, refuted by respondent, involves a "dispute
arising from differences in interpretation of the contract." Verily, the matter of
ascertaining the duties and obligations of the parties under their contract all involve
interpretation of the provisions of the contract. Therefore, if the parties cannot see eye to
eye regarding each other's obligations, i.e., the extent of work to be expected from each
of the parties and the valuation thereof, this is properly a dispute arising from differences
in the interpretation of the contract.

Note, further, that in respondent's letter[10] dated February 14, 2000, it stated that disputed
items of work such as Labor Cost Adjustment and interest charges, retention, processing
of payment on Cost Retained by WGCC, Determination of Cost of Deletion for
miscellaneous Finishing Works, are considered "unresolved dispute[s] as to the proper
interpretation of our respective obligations under the Contract," which should be referred
to the Board of Arbitrators. Even if the dispute subject matter of said letter had been
satisfactorily settled by herein parties, the contents of the letter evinces respondent's
frame of mind that the claims being made by petitioner in the complaint subject of this
petition, are indeed matters involving disputes arising from differences in interpretation.

Clearly, the subject matter of petitioner's claims arose from differences in interpretation
of the contract, and under the terms thereof, such disputes are subject to voluntary
arbitration. Since, under Section 4 of Executive Order No. 1008 the CIAC shall have
original and exclusive jurisdiction over disputes arising from, or connected with,
contracts entered into by parties involved in construction in the Philippines and all that is
needed for the CIAC to acquire jurisdiction is for the parties to agree to submit the same
to voluntary arbitration, there can be no other conclusion but that the CIAC had
jurisdiction over petitioner's complaint. Furthermore, Section 1, Article III of the CIAC
Rules of Procedure Governing Construction Arbitration (CIAC Rules) further provide
that "[a]n arbitration clause in a construction contract or a submission to arbitration of a
construction dispute shall be deemed an agreement to submit an existing or future
controversy to CIAC jurisdiction, notwithstanding the reference to a different arbitration
institution or arbitral body in such contract or submission." Thus, even if there is no
showing that petitioner previously brought its claims before a Board of Arbitrators
constituted under the terms of the contract, this circumstance would not divest the CIAC
of jurisdiction. In HUTAMA-RSEA Joint Operations, Inc. v. Citra Metro Manila Tollways
Corporation,[11] the Court held that:

Under Section 1, Article III of the CIAC Rules, an arbitration clause in a construction
contract shall be deemed as an agreement to submit an existing or future controversy to
CIAC jurisdiction, "notwithstanding the reference to a different arbitration institution or
arbitral body in such contract x x x." Elementary is the rule that when laws or rules are
clear, it is incumbent on the court to apply them. When the law (or rule) is unambiguous
and unequivocal, application, not interpretation thereof, is imperative.

Hence, the bare fact that the parties herein incorporated an arbitration clause in the EPCC
is sufficient to vest the CIAC with jurisdiction over any construction controversy or claim
between the parties. The arbitration clause in the construction contract ipso facto vested
the CIAC with jurisdiction. This rule applies, regardless of whether the parties
specifically choose another forum or make reference to another arbitral body. Since the
jurisdiction of CIAC is conferred by law, it cannot be subjected to any condition; nor can
it be waived or diminished by the stipulation, act or omission of the parties, as long as the
parties agreed to submit their construction contract dispute to arbitration, or if there is an
arbitration clause in the construction contract. The parties will not be precluded from
electing to submit their dispute to CIAC, because this right has been vested in each party
by law.

xxxx

It bears to emphasize that the mere existence of an arbitration clause in the

construction contract is considered by law as an agreement by the parties to submit
existing or future controversies between them to CIAC jurisdiction, without any
qualification or condition precedent. To affirm a condition precedent in the
construction contract, which would effectively suspend the jurisdiction of the CIAC until
compliance therewith, would be in conflict with the recognized intention of the law and
rules to automatically vest CIAC with jurisdiction over a dispute should the construction
contract contain an arbitration clause.

Moreover, the CIAC was created in recognition of the contribution of the construction
industry to national development goals. Realizing that delays in the resolution of
construction industry disputes would also hold up the development of the country,
Executive Order No. 1008 expressly mandates the CIAC to expeditiously settle
construction industry disputes and, for this purpose, vests in the CIAC original and
exclusive jurisdiction over disputes arising from, or connected with, contracts entered
into by the parties involved in construction in the Philippines.[12]

Thus, there is no question that in this case, the CIAC properly took cognizance of
petitioner's complaint as it had jurisdiction over the same.
IN VIEW OF THE FOREGOING, the Petition is GRANTED. The Decision of the
Court of Appeals, dated December 19, 2003, and its Resolution dated May 24, 2004 in
CA-G.R. SP No. 70959 are REVERSED and SET ASIDE. The Order of the
Construction Industry Arbitration Commission is REINSTATED.

SO ORDERED.

Carpio, (Chairperson), Nachura, Abad, and Mendoza, JJ., concur.

TERESITA DIO, G.R. No. 169578
Petitioner,
Present:

PANGANIBAN, C.J., Chairperson,

- versus - YNARES-SANTIAGO,
AUSTRIA-MARTINEZ,
CALLEJO, SR., and
CHICO-NAZARIO, JJ.
ST. FERDINAND MEMORIAL
PARK, INC. and MILDRED F. Promulgated:
TANTOCO,
Respondents. November 30, 2006

x--------------------------------------------------x

DECISION

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari assailing the Decision30[1] of the

Court of Appeals (CA) in CA-G.R. CV No. 52311 which affirmed the decision of the
Regional Trial Court (RTC), Branch 57 of Lucena City, in Civil Case No. 86-152.
Likewise sought to be reversed and set aside is the resolution of the appellate court
denying reconsideration of the assailed decision.

On December 11, 1973, Teresita Dio agreed to buy, on installment basis, a

memorial lot from the St. Ferdinand Memorial Park, Inc. (SFMPI) in Lucena City. The
36-square-meter memorial lot is particularly described as

30[1] Penned by Associate Justice Lucas P. Bersamin, with Associate Justices Andres B.
Reyes, Jr. and Celia C. Librea-Leagogo, concurring; rollo, pp. 48-60.
Block 2, Section F, Lot 15. The purchase was evidenced by a Pre-Need Purchase
Agreement31[2] dated December 11, 1973 and denominated as Contract No. 384. She
obliged herself to abide by all such rules and regulations governing the SFMPI dated May
25, 1972.

SFMPI issued a Deed of Sale and Certificate of Perpetual Care32[3] dated April 1,
1974 denominated as Contract No. 284. The ownership of Dio over the property was
made subject to the rules and regulations of SFMPI, as well as the government, including
all amendments, additions and modifications that may later be adopted. Rule 69 of the
Rules reads:

Rule 69. Mausoleum building and memorials should be constructed by the Park
Personnel. Lot Owners cannot contract other contractors for the construction of the said
buildings and memorial, however, the lot owner is free to give their own design for the
mausoleum to be constructed, as long as it is in accordance with the park standards. The
construction shall be under the close supervision of the Park Superintendent.

Meanwhile, the mortal remains of Dio’s husband and father were interred in the
lot at her own expense, without the knowledge and intervention of SFMPI. She engaged
the services of a private contractor for the fabrication of niches and improvements on her
lot. In August 1974, the remains of Dio’s daughter were likewise interred in the niche
constructed on the lot, again without the knowledge and intervention of SFMPI.

In 1986, Dio decided to build a mausoleum on the lot. In September that year, she
caused the preparation of a design-plan for the construction of a mausoleum and the
bidding out of the project.

In the early part of October 1986, Dio informed SFMPI, through its president and
controlling stockholder, Mildred F. Tantoco, that she was planning to build a mausoleum
on her lot and sought the approval thereof. Dio even showed to Tantoco the plans and
project specifications accomplished by her private contractor at an estimated cost of
P60,000.00. The plans and specifications were approved, but Tantoco insisted that the
mausoleum be built by it or its agents at a minimum cost of P100,000.00 as provided in
Rule 69 of the Rules and Regulations the SFMPI issued on May 25, 1972. The total
amount excluded certain specific designs in the approved plan which if included would
cost Dio much more. In a letter33[4] dated October 13, 1986, Dio, through counsel,
demanded that she be allowed to construct the mausoleum within 10 days, otherwise, she
would be impelled to file the necessary action/s against SFMPI and Tantoco.

On October 17, 1986, SFMPI wrote Dio informing her that under Rule 69 of
SFMPI Rules and Regulations, she was prohibited from engaging an outside contractor

31[2] Exhibit “A”; rollo, p. 76.

32[3] Exhibit “B”; id. at 77.

33[4] Rollo, pp. 199-200.

for the construction of buildings, improvements and memorials. A lot owner was only
allowed to submit a preferred design as long as it is in accordance with park standards.

On December 23, 1986, Dio filed a Complaint for Injunction with Damages34[5]
against SFMPI and Tantoco before the RTC of Lucena City. She averred that she was not
aware of Rule 69 of the SFMPI Rules and Regulations; the amount of P100,000.00 as
construction cost of the mausoleum was unconscionable and oppressive. She prayed that,
after trial, judgment be rendered in her favor, granting a final injunction perpetually
restraining defendants from enforcing the invalid Rule 69 of SFMPI’s “Rules for
Memorial Work in the Mausoleum of the Park” or from refusing or preventing the
construction of any improvement upon her property in the park.35[6] The court issued a
cease and desist order against defendants.

In their answer with counterclaim, defendants averred that the construction of a

mausoleum on plaintiff’s lot at a minimum cost of P100,000.00 was not oppressive and
unconscionable. They averred that the

34[5] Id. at 345-351.

35[6] Id. at 350.

estimated amount was commensurate to the plan and specified expensive materials to be
used in the construction from which defendants did not expect any unreasonable gain.
They stressed that Rule 69 was made in good faith and was adopted prior to plaintiff’s
purchase of the lot in question. They insisted that plaintiff was aware of the existence of
Rule 69 when the Pre-Need Purchase Agreement and Deed of Sale was executed, that
plaintiff made no protest thereto, and was therefore estopped from questioning its
application and enforcement.

Plaintiff testified that when she bought the memorial lot from defendant, she
transferred the remains of her father and husband on the said property. In August 1974,
her daughter Serconsicion died and was likewise buried in the memorial lot.36[7] She
narrated that she wanted a mausoleum to be constructed over the niches of her loved ones
to protect the remains of her dead relatives. She requested Engr. Alex Tan to prepare a
plan for a mausoleum. The blueprint for the mausoleum was estimated at P60,000.00.
Thereafter, plaintiff informed defendant Tantoco of her intention to build a mausoleum on
her lot. Tantoco retorted that plaintiff could not hire an outside contractor to build a
mausoleum.37[8] Plaintiff was initially surprised by Tantoco’s statement because she
knew that their contract did not provide for such stipulation. Tantoco then offered to
construct the mausoleum but at the lowest cost of P100,000.00, excluding the stainless
name and the Coloroof.38[9] She also testified that when she bought the lot on December
11, 1973, the agreement was that she would cause the construction of the niche and all
improvements necessary for the tombs. When asked by the court if the witness had read
the rules and regulations stated in the Pre-Need Purchase Agreement and the Deed of Sale
and Certificate of Perpetual Care, she answered in the negative.39[10]

36[7] TSN, January 30, 1987, pp. 11-12; rollo, pp. 88-89.

37[8] Id. at 27; id. at 103.

38[9] Id. at 28; id. at 104.

39[10] Id. at 42-45; id. at 117-120.

 Plaintiff presented National Bureau of Investigation (NBI) Document Examiner
Bienvenido Albacea to prove that the rules and regulations of SFMPI were not yet in
existence on May 25, 1972. The witness declared that, as a document examiner since
1976, he examines documents being questioned to determine their authenticity and
source. Papers are likewise examined to check if there is any forgery, and photographed
to compare the original from the photocopy. He declared that he conducted a laboratory
examination and analysis of the original of the rules and regulations of defendant and
subjected the same under stereoscopic microscope. He used measuring test plates to
calibrate the size of the typewriter, the horizontal and vertical pitch and slots of the
typewriter used in the document. He concluded that the date “May 25, 1972” was an
intercalation on page one of defendant’s rules and regulations and were not typed in one
and the same occasion as the other provisions on the document.40[11]

On cross-examination, Albacea admitted that it was possible that the date “May
25, 1972” was typed on the same day when the other entries in the rules and regulations
were typed. He also admitted that the date could have been typed after the whole page
one was removed from the typewriter.41[12] He produced test plates, a photograph
enlargement, and the laboratory analysis result of the original specimens, as well as the
carbon duplicate of SFMPI Rules and Regulations.

On August 3, 1995, the trial court rendered judgment in favor of defendants.42[13]

The dispositive portion of the decision reads:

WHEREFORE, premises considered, this Court hereby renders Judgment against

the plaintiff and in favor of the defendants. Consequently, [the] instant Complaint is
hereby DISMISSED.

40[11] TSN, January 22, 1991, p. 28; id. at 383.

41[12] TSN, February 26, 1991, p. 4.

42[13] Penned by Judge Federico A. Tañada; id. at 63-68.

 No pronouncement on award of damages could be made as the same has not been
sufficiently proven.

SO ORDERED.43[14]

The trial court rejected the claim of plaintiff that defendants failed to inform her
of the rules and regulations of SFMPI. The court declared that she even informed them
of her intention to construct a mausoleum. According to the court a quo, this was proof
that plaintiff was fully aware of the rules and regulations of the memorial park; otherwise,
she would not have sought the permission of defendants of her intention to build a
mausoleum. Plaintiff was obliged to abide by the terms and conditions of the Pre-Need
Purchase Agreement and the Deed of Sale and the rules and regulations issued by
defendant SFMPI.

On appeal, the CA affirmed the decision of the trial court.44[15] The appellate
court ratiocinated that when the parties executed the Pre-Need Purchase Agreement, Dio
agreed to be bound not only by the existing rules and regulations for the use and
governance of the cemetery, but also future ones.

Aggrieved, Dio, now petitioner, filed the present petition for review on certiorari,
alleging that:

I. THE APPELLATE COURT ERRED IN RULING THAT THE DATE “MAY 25,
1972” COULD NOT HAVE BEEN A BELATED ATTEMPT TO SHOW THAT RULE
69 WAS ADOPTED PRIOR TO PETITIONER’S PURCHASE OF THE MEMORIAL
LOT BECAUSE IT WAS POSSIBLE THAT SAID DATE COULD HAVE BEEN
TYPED RIGHT AFTER THE DOCUMENT CONTAINING RULE 69 WAS
PREPARED.

II. THE APPELLATE COURT ERRED IN RULING THAT PETITIONER WAS

BOUND NOT ONLY BY RULES EXISTING AT THE TIME OF THE PURCHASE OF
THE MEMORIAL LOT BUT ALSO BY THOSE THAT MAY BE ADOPTED BY
RESPONDENTS AFTER THE PURCHASE.

III. THE APPELLATE COURT ERRED IN RULING THAT PETITIONER WAS

BOUND BY THE RULES BECAUSE SHE VOLUNTARILY ENTERED INTO THE
SALE AND PURCHASE OF THE MEMORIAL LOT.

IV. THE APPELLATE COURT ERRED IN SUSTAINING THE VALIDITY OF

RULE 69 DESPITE THE FACT THAT IT WAS VOID FOR BEING CONTRARY TO
LAW, MORALS, PUBLIC ORDER, AND PUBLIC POLICY.

43[14] Rollo, p. 68.

44[15] Id. at 48-60.

V. THE APPELLATE COURT ERRED IN NOT ORDERING RESPONDENTS TO
PAY PETITIONER DAMAGES AS PRAYED FOR IN HER COMPLAINT AND
PROVED DURING THE TRIAL.45[16]

The issues are whether or not petitioner had knowledge of Rule 69 of SFMPI Rules and
Regulations for memorial works in the mausoleum areas of the park when the Pre-Need
Purchase Agreement and the Deed of Sale was executed; and whether the said rule is
valid and binding upon petitioner.

Petitioner argues that respondents failed to prove that respondent SFMPI approved the
rules and regulations on May 25, 1972, before she purchased the lot. Petitioner avers that
as testified to by NBI Document Examiner Albacea, the rules and regulations were not
drafted on May 25, 1972. In any event, she never consented to comply with the
memorial park rules and regulations, and all amendments, additions, and modifications
thereto. Petitioner further avers that the questioned Rule 69 is unreasonable and
oppressive, therefore, void for being contrary to law, morals, public order, and public
policy. Petitioner additionally denies being in estoppel as she never made any admission
or representation in the contracts she signed, which, according to petitioner, were both
contracts of adhesion.

Respondents, on the other hand, contend that petitioner’s plea for injunction had become
moot and academic because petitioner had already caused the completion of said
mausoleum as early as July 8, 1997, in patent violation of the trial and appellate courts’
orders to cease and desist construction. Moreover, petitioner presented NBI Document
Examiner Albacea as a witness, and is thus barred from assailing the probative weight
thereof. Respondents maintain that the Pre-Need Purchase Agreement as well as the
Deed of Sale and Certificate of Perpetual Care are not contracts of adhesion, and
petitioner could have easily refused to enter into said contracts if she truly had concerns
regarding any of the stipulations therein. Rule 69 of the SFMPI Rules and Regulations
does not permanently deprive the owners of their right to use their own property; hence,
the rule is not oppressive or unconscionable.

The petition is denied for lack of merit.

Time and again the Court has emphasized that findings of facts of lower courts,
particularly when affirmed by the appellate court, are deemed final and conclusive. The
Supreme Court cannot go over such findings on appeal, especially when they are borne
out by the records or are based on substantial evidence. It is not the function of this
Court to analyze or weigh the evidence all over again, unless there is a showing that the
findings of the lower court are entirely devoid of support or are glaringly erroneous as to
constitute palpable error or grave abuse of discretion.46[17]

45[16] Id. at 16-17.

46[17] FGU Insurance Corporation v. Court of Appeals, G.R. No. 137775 and G.R. No.
140704, March 31, 2005, 454 SCRA 337, 348-349.
The reason for the rule is that the trial court is in a better position to examine the
demeanor of the witnesses while testifying. Our jurisdiction is in principle limited to
reviewing errors of law that might have been committed by the CA. A fortiori, as in this
case, where the factual findings of the trial court are affirmed in toto by the CA, there is
great reason for not disturbing such findings and for regarding them as not reviewable by
this Court.47[18] There are also settled exceptions to this rule: (1) when the factual
findings of the CA and the trial court are contradictory; (2) when the conclusion is a
finding grounded entirely on speculation, surmises, or conjectures; (3) when the inference
made by the CA from its findings of fact is manifestly mistaken, absurd, or impossible;
(4) when there is a grave abuse of discretion in the appreciation of facts; (5) when the
appellate court, in making its findings, went beyond the issues of the case and such
findings are contrary to the admissions of both appellant and appellee; (6) when the
judgment of the CA is premised on a misapprehension of facts; (7) when the CA failed to
notice certain relevant facts which, if properly considered, would justify a different
conclusion; (8) when the findings of fact are themselves conflicting; (9) when the
findings of fact are conclusions without citation of the specific evidence on which they
are based; and (10) when the findings of fact of the CA are premised on the absence of
evidence but such findings are contradicted by the evidence on record.48[19] In the case
at bar, none of these exceptions is present which would warrant a review of the factual
findings of the courts below.

Under the Pre-Need Purchase Agreement executed by petitioner and respondents, the
parties covenanted that upon the completion of all payments by the purchaser, the seller
would convey to the purchaser a certificate of ownership to the aforesaid interment
property for the interment of human remains only. The certificate of SFMPI now existing
or which may hereafter be adopted for the government of said cemetery and said
certificate shall be in the form used by the seller, a copy of which petitioner
acknowledged she had examined and approved. Petitioner agreed to abide by all such
rules and regulations governing SFMPI,49[20] among them Rule 69 which prevents lot
owners from “contract[ing] other contractors for the construction of the said buildings
and memorial” but gives the owners free rein “to give their own design for the
mausoleum to be constructed, as long as it is in accordance with the park standards.”

Under the Deed of Sale and Certificate of Perpetual Care, petitioner agreed to be bound
not only by the existing rules but also by future rules and regulations that may be adopted
by respondent SFMPI. It is also stated in the said rules and regulations kept in the office
of respondent which could be inspected by petitioner at any time:

47[18] Local Superior of the Servants of Charity (Guanellians), Inc. v. Jody King
Construction & Development Corporation, G.R. No. 141715, October 12, 2005, 472
SCRA 445, 451.

48[19] Bank of the Philippine Islands v. Sarmiento, G.R. No. 146021, March 10, 2006,
484 SCRA 261, 268.

49[20] Rollo, p. 76.

2. The PURCHASER, his heirs, successors and assigns, shall have, hold and use the
property subject to the rules and regulations of SELLER for the government of the
cemetery now in force and those which may hereafter be adopted. A copy of said rules
and regulations and all amendments, additions and modifications thereto is kept in the
office of the SELLER and is subject to inspection by the PURCHASER at all times
during normal office hours. Said rules and regulations and all amendments, additions, and
modifications thereto are hereby incorporated herein and made integral parts hereof by
reference as if set forth herein in full.50[21]

Thus, when petitioner executed the Pre-Need Purchase Agreement and conformed to the
Deed of Sale, it was with full knowledge of the terms and conditions thereof, including
the rules and regulations issued by respondent SFMPI. Hence, petitioner is precluded
from asserting that she had no knowledge of said rules and regulations, and that she never
consented to comply with them. More importantly, petitioner cannot feign ignorance of
said rules. In law, whatever fairly puts a person on inquiry is sufficient notice, where the
means of knowledge are at hand, which if pursued by the proper inquiry, the full truth
might have been ascertained.51[22] In this case, the appellate court declared:

x x x [k]knowledge will be imputed and may be implied from circumstances where the
circumstances known to one concerning a matter in which he is interested are sufficient
to require him, as an honest and prudent person, to investigate concerning the rights of
others in the same matter, and diligent investigation will lead to discovery of any right
conflicting with his own.52[23]

For its part, the trial court made the following findings:

Plaintiff’s allegation that she was not aware of the said Rules and Regulations lacks
credence. Admittedly, in her Complaint and during the trial, plaintiff testified that she
informed the defendants of her intention to construct a mausoleum. Even counsel for the
plaintiff, who is the son of the plaintiff, informed the Court during the trial in this case
that her mother, the plaintiff herein, informed the defendants of her plan to construct and
erect a mausoleum. This act of the plaintiff clearly shows that she was fully aware of the
said rules and regulations otherwise she should not consult, inform and seek permission
from the defendants of her intention to build a mausoleum if she is not barred by the rules
and regulations to do the same. When she signed the contract between [sic] the
defendants, she is [sic] estopped to question and attack the legality of said contract later
on. (Emphasis supplied)53[24]

50[21] Id. at 77.

51[22] E.D. Systems Corporation v. Southwestern Bell Telephone Company, 674 F.2d 453
(1982).

52[23] Id. at 459.

53[24] Rollo, pp. 67-68.

Petitioner is obliged to abide by the terms and conditions of the Pre-Need Purchase
Agreement and the Deed of Sale, as well as said rules and regulations which formed
integral parts of said deeds.

Basic is the principle that contracts, once perfected, bind both contracting parties.54[25]
The parties may establish such stipulations, clauses, terms and conditions as they may
deem convenient, provided these are not contrary to law, morals, good customs, public
order, or public policy. It follows that obligations arising from contracts have the force of
law between the contracting parties and should be complied with in good faith.55[26]

We quote with approval the ruling of the trial court:

The appellant’s ownership of the memorial lot was subject to the rules and regulations
legally and validly restricting her enjoyment and use of the property. Art. 428, Civil
Code, states that the owner has the right to enjoy and dispose of a thing without other
limitations than those established by law. It is recognized that the limitations include
those that are imposed by the will of the transmitting owner, that is, the transmitting
owner transfers his property by whatever title and imposes on the acquirer whatever
limitations he wishes as long as the limitations are not contrary to the nature of ownership
and not prohibited by law (e.g., servitudes, encumbrances, prohibition against alienation).

Otherwise stated, the appellant should adhere to and comply with the terms and
conditions of the pre-need purchase agreement and the deed of sale and certificate of
perpetual care. Her perceived disadvantage does not amount to her deprivation of
property or other rights without due process of law considering that she had voluntarily
entered into the purchase and considering also that she remains free to exercise her right
as property owner, under which she can build a mausoleum provided she does so in
accordance with the memorial park’s standards and rules common to all owners of lots.56
[27]

Petitioner is an experienced businesswoman. She doubtlessly dealt with numerous

documents, and is therefore presumed to know the import thereof. It cannot be further
emphasized that it behooves every contracting party to learn and know the contents of an
instrument before signing and agreeing to it.57[28]

54[25] National Housing Authority v. Grace Baptist Church, G.R. No. 156437, March 1,
2004, 424 SCRA 147, 151.

55[26] Bortikey v. AFP Retirement and Separation Benefits System, G.R. No. 146708,
December 13, 2005, 477 SCRA 511, 514.

56[27] Rollo, p. 59.

57[28] Olbes v. China Banking Corporation, G.R. No. 152082, March 10, 2006, 484
SCRA 330, 338.
We are not persuaded by petitioner’s claim that Rule 69 of respondent’s rules and
regulations is unreasonable and oppressive because the provision unduly restricts her
right of ownership over the property. Rule 69 of the said rules and regulations is neither
excessive nor despotic. The rule itself specifies that the “lot owner is free to give their
own design for the mausoleum to be constructed, as long as it is in accordance with the
park standards.” Clearly, the rule allows the construction of a mausoleum but with
certain restrictions. Moreover, as the proprietor of the entire memorial park, the
formulation of a reasonable set of rules and regulations is within the power of the
management of respondent SFMPI. It is noteworthy that the same rule permits petitioner,
or any other buyer of memorial lot, to use the property for the purpose for which it was
contemplated.

A contract of adhesion, wherein one party imposes a readymade form of contract on the
other, is not strictly against the law.58[29] A contract of adhesion is as binding as ordinary
contracts, the reason being that the party who adheres to the contract is free to reject it
entirely.59[30] Contrary to petitioner’s contention, not every contract of adhesion is an
invalid agreement. As we had the occasion to state in Development Bank of the
Philippines v. Perez:60[31]

x x x In discussing the consequences of a contract of adhesion, we held in Rizal

Commercial Banking Corporation v. Court of Appeals:

It bears stressing that a contract of adhesion is just as binding as ordinary contracts. It is

true that we have, on occasion, struck down such contracts as void when the weaker party
is imposed upon in dealing with the dominant bargaining party and is reduced to the
alternative of taking it or leaving it, completely deprived of the opportunity to bargain on
equal footing, Nevertheless, contracts of adhesion are not invalid per se; they are not
entirely prohibited. The one who adheres to the contract is in reality free to reject it
entirely; if he adheres, he gives his consent.61[32]

The validity or enforceability of the impugned contracts will have to be determined by

the peculiar circumstances obtaining in each case and the situation of the parties
concerned. Indeed, Article 24 of the New Civil Code provides that “[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.”62[33] In this case, however, there is no
reason for the Court to apply the rule on stringent treatment towards contracts of
adhesion. To reiterate, not only is petitioner educated, she is likewise a well-known and

58[29] Republic v. David, G.R. No. 155634, August 16, 2004, 436 SCRA 577, 589.

59[30] Equitable Banking Corporation v. Calderon, G.R. No. 156168, December 14,
2004, 446 SCRA 271, 281.

60[31] G.R. No. 148541, November 11, 2004, 442 SCRA 238.

61[32] Id. at 249-250.

experienced businesswoman; thus, she cannot claim to be the weaker or disadvantaged
party in the subject contracts so as to call for a strict interpretation against respondents.
Moreover, she executed the Pre-Need Purchase Agreement and Deed of Sale without any
complaint or protest. She assailed Rule 69 of the Rules and Regulations of respondent
SFMPI only when respondents rejected her request to cause the construction of the
mausoleum.

WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals in
CA-G.R. CV No. 52311 dated May 10, 2005, and the Resolution dated September 6,
2005, are AFFIRMED. Costs against petitioner.

62[33] Paguyo v. Astorga, G.R. No. 130982, September 16, 2005, 470 SCRA 33, 52-53,
citing Litonjua v. L & R Corporation, 328 SCRA 796, 804-805 (2000); Ayala
Corporation v. Ray Burton Development Corp., 355 Phil. 475, 498-499 (1998).
G.R. NO. 150066 April 13, 2007

SPS. EMMANUEL (deceased) and EDNA CHUA and SPS. MANUEL and MARIA
CHUA, Petitioners,
vs.
MSGR. VIRGILIO SORIANO. Substituted by Sister Mary Virgilia Celestino
Soriano, Respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court assailing the Decision1 dated September 21, 2001 of the Court of Appeals (CA) in
CA-G.R. CV No. 56568 which affirmed with modification the Decision2 dated July 10,
1997 of the Regional Trial Court, Branch 81, Quezon City (RTC) in Civil Case No. Q-90-
6439.

The factual background of the case is as follows:

Msgr. Virgilio C. Soriano (Soriano) owned a 1,600 square meter parcel of land located in
Barangay Banlat, Quezon City, covered by Transfer Certificate of Title (TCT) No.
363471 of the Registry of Deeds of Quezon City.

Sometime in the early months of 1988, Soriano’s first cousin and godson, Emmanuel C.
Celestino, Sr. (Celestino) asked Soriano to lend him TCT No. 363471 as a security for a
loan to be used in the business operation of Celestino’s company, Digital Philippines,
Inc.3 Acceding to Celestino’s request, Soriano executed on March 29, 1988 a Special
Power of Attorney (SPA) authorizing Celestino to mortgage said property.4

Then came the June 11, 1988 fire that gutted a portion of the Quezon City Hall and
destroyed in the process the original copy of TCT No. 363471 on file with the Registry of
Deeds of Quezon City.

On August 22, 1988, Soriano executed a SPA authorizing Celestino and one Carlito
Castro to initiate administrative reconstitution proceedings of TCT No. 363471.5 On April
17, 1990, the reconstituted title, TCT No. RT-3611 (363471) PR 1686, was issued.6

During the pendency of the administrative reconstitution proceedings, Soriano asked

Celestino whether there was any truth to the spreading rumor that he had already sold the
subject property.7 Celestino denied the rumor but informed Soriano that the subject
property was mortgaged with a foreign bank.8 Dissatisfied with Celestino's explanation,
Soriano made inquiries with the Registry of Deeds of Quezon City9 and discovered, to his
dismay, that TCT No. 363471 had been canceled by TCT No. 1451410 in the name of
spouses Emmanuel and Edna Chua and spouses Manuel and Maria Chua (Chuas). By
virtue of a SPA11 dated March 9, 1989 with Soriano's purported signature, Celestino sold
to the Chuas the property in an Absolute Deed of Sale12 dated July 4, 1989 for
P500,000.00.

Claiming that his signature in the SPA is a forgery, Soriano filed on August 20, 1990 a
complaint against Celestino and the Chuas for annulment of deed of sale and special
power of attorney, cancellation of title and reconveyance with damages.13

The defense of Celestino is that he was duly authorized to sell the property14 while the
Chuas contend that they are purchasers in good faith since they bought the property from
Celestino by virtue of a SPA which was duly inscribed and annotated on the owner's
duplicate of the TCT and the tax declaration and that they have duly inspected the
property before purchasing it.15

Soriano died during the pendency of the trial.16 He was substituted by his sister, Florencia
Celestino Soriano, also known as Sister Mary Virgilia Celestino Soriano (Sis. Soriano).17

On July 10, 1997, the RTC rendered its Decision18 in favor of Soriano, the dispositive
portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Declaring the special power of attorney dated March 19, 1985 and the Deed of
Sale dated July 4, 1989 as without legal force and effect;

2. Declaring Transfer Certificate of Title No. 14514 in the name of the defendants
Chuas as null and void;

3. Directing defendants Chuas to reconvey the subject property to plaintiff

Soriano.

4. Ordering defendant Celestino to pay to the plaintiff the amounts of

P100,000.00 as moral damages, P20,000.00 as attorney’s fees and P10,000.00 as
litigation expenses;

5. Ordering defendant Celestino to pay to the defendants Chuas the amount of

P500,000.00 plus interest at the legal rate from July 4, 1989 until fully paid;

6. Ordering defendant Celestino to pay the defendants Chuas the amounts of

P20,000.00 as attorney’s fees and P10,000.00 as litigation expenses.

With costs against defendant Celestino.

SO ORDERED.19
The RTC held that Soriano's purported signature in the SPA dated March 9, 1989 is a
forgery based on the opinion of expert witness Arcadio A. Ramos, Chief of the
Questioned Documents Division of the National Bureau of Investigation (NBI), that a
comparison of Soriano's sample signature and the one appearing on the SPA dated March
9, 1989 revealed that they were "not written by one and the same person;"20 that the
Chuas are not purchasers in good faith since they did not personally verify the title of the
subject property but relied only upon its tax declaration; that the Chuas were placed on
guard to ascertain the authenticity of the authority of Celestino since they were not
dealing with Soriano, the registered owner.

Dissatisfied, Celestino and the Chuas filed separate appeals with the CA, docketed singly
as CA-G.R. No. 56568.21 On September 21, 2001, the CA rendered its Decision,22 the
dispositive portion of which reads:

WHEREFORE, for the lack of merit, this Court DISMISSES the appeal and AFFIRMS
the appealed Decision except paragraph number 3 of the dispositive part which is hereby
completely DELETED and replaced with the following: 3. The Register of Deeds of
Quezon City is ordered to reinstate and reactivate Transfer Certificate of Title No. RT-
3611 (363471) PR-1686 in the name of appellee Soriano.

SO ORDERED.23

The CA held that that there was no cogent reason to set aside the RTC’s reliance on the
testimony of the expert witness since there is no contrary evidence to rebut the same. The
CA also agreed with the RTC’s findings that the Chuas are not purchasers in good faith
since they failed to determine the veracity of Celestino’s alleged authority to sell the
property.

No appeal was filed by Celestino. The Chuas filed the present petition anchored on the
following grounds:

THE HONORABLE COURT OF APPEALS HAS DECIDED A QUESTION IN A WAY

NOT PROBABLY IN ACCORD WITH THE LAW AND WITH THE DECISIONS OF
THE HONORABLE SUPREME COURT; AND

THE HONORABLE COURT OF APPEALS HAS SO FAR DEPARTED FROM THE

ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS.24

The Chuas argue that they are purchasers in good faith since they dealt with Celestino
who had in his possession the owner's duplicate title and the SPA dated March 9, 1989
with Soriano’s purported signature; that the SPA was inscribed and annotated in the
owner's duplicate title; that since verification with the original title in the Registry of
Deeds of Quezon City was not possible, they checked the tax declaration of the property;
that the SPA dated March 9, 1989 was duly annotated in the tax declaration; that they
inspected the property and found three squatter occupants; that they paid off the two
squatters and appointed the third squatter occupant as caretaker of the property; that
Soriano was responsible for his predicament since he entrusted the owner’s duplicate title
to Celestino; that the fact that Soriano’s purported signature in the SPA dated March 9,
1989 was later declared by the NBI handwriting expert as a forgery is of no moment
since they are not handwriting experts and they had the right to assume that the SPA was
perfectly legal for otherwise, it could not have been annotated at the back of the title.

Sis. Soriano, on the other hand, avers that the Chuas are not purchasers in good faith
since they failed to check the veracity of Celestino's alleged authority to sell the property;
that had the Chuas conferred with Soriano about the sale transaction proposed by
Celestino, they would have readily discovered the fraud being then hatched by Celestino.

Emmanuel Chua died during the pendency of the present petition.25 He was substituted by
his surviving spouse and co-petitioner, Edna L. Chua, and his children, Erlyn, Ericson,
Emmanuel and Elise, all surnamed Chua.26

The sole issue to be resolved in the present petition is this: whether or not the Chuas are
purchasers in good faith.

The question of whether or not a person is a purchaser in good faith is a factual matter
that will generally be not delved into by this Court, since only questions of law may be
raised in petitions for review.27

The established rule is that in the exercise of the Supreme Court’s power of review, the
Court, not being a trier of facts, does not normally embark on a re-examination of the
evidence presented by the contending parties during the trial of the case considering that
the findings of facts of the CA are conclusive and binding on the Court.28 This rule,
however, has several well-recognized exceptions: (1) when the findings are grounded
entirely on speculation, surmises or conjectures; (2) when the inference made is
manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion;
(4) when the judgment is based on a misapprehension of facts; (5) when the findings
of fact are conflicting; (6) when in making its findings the Court of Appeals went beyond
the issues of the case, or its findings are contrary to the admissions of both the appellant
and the appellee; (7) when the findings are contrary to the trial court; (8) when the
findings are conclusions without citation of specific evidence on which they are based;
(9) when the facts set forth in the petition as well as in the petitioner’s main and reply
briefs are not disputed by the respondent; (10) when the findings of fact are premised on
the supposed absence of evidence and contradicted by the evidence on record; and (11)
when the Court of Appeals manifestly overlooked certain relevant facts not disputed by
the parties, which, if properly considered, would justify a different conclusion.29
Exception (4) is present in the instant case.

A purchaser in good faith is one who buys property without notice that some other person
has a right to or interest in such property and pays its fair price before he has notice of the
adverse claims and interest of another person in the same property. The honesty of
intention which constitutes good faith implies a freedom from knowledge of
circumstances which ought to put a person on inquiry.30 As the Court enunciated in Lim v.
Chuatoco:31

x x x good faith consists in the possessor’s belief that the person from whom he received
the thing was the owner of the same and could convey his title. Good faith, while it is
always to be presumed in the absence of proof to the contrary, requires a well founded
belief that the person from whom title was received was himself the owner of the land,
with the right to convey it. There is good faith where there is an honest intention to
abstain from taking any unconscientious advantage from another. Otherwise stated, good
faith is the opposite of fraud and it refers to the state of mind which is manifested by the
acts of the individual concerned.32

Consistently, this Court has ruled that every person dealing with registered land may
safely rely on the correctness of the certificate of title issued therefor and the law will in
no way oblige him to go beyond the certificate to determine the condition of the property.
Where there is nothing in the certificate of title to indicate any cloud or vice in the
ownership of the property, or any encumbrance thereon, the purchaser is not required to
explore further than what the Torrens Title upon its face indicates in quest for any hidden
defects or inchoate right that may subsequently defeat his right thereto.33

However, when a person who deals with registered land through someone who is not the
registered owner, he is expected to look behind the certificate of title and examine all the
factual circumstances, in order to determine if the vendor has the capacity to transfer any
interest in the land.34 He has the duty to ascertain the identity of the person with whom he
is dealing and the latter’s legal authority to convey.35

The law "requires a higher degree of prudence from one who buys from a person who is
not the registered owner, although the land object of the transaction is registered. While
one who buys from the registered owner does not need to look behind the certificate of
title, one who buys from one who is not the registered owner is expected to examine not
only the certificate of title but all factual circumstances necessary for him to determine if
there are any flaws in the title of the transferor, or in his capacity to transfer the land."36

The strength of buyer’s inquiry on the seller’s capacity or legal authority to sell depends
on the proof of capacity of the seller. If the proof of capacity consists of a special power
of attorney duly notarized, mere inspection of the face of such public document already
constitutes sufficient inquiry. If no such special power of attorney is provided or there is
one but there appear flaws in its notarial acknowledgment, mere inspection of the
document will not do; the buyer must show that his investigation went beyond the
document and into the circumstances of its execution.37

In the present case, the Chuas were dealing with Celestino, Soriano’s attorney-in-fact,
who presented Soriano’s duplicate title, a SPA dated March 9, 1989 with Soriano’s
purported signature, and tax declaration.
An examination of the assailed SPA shows that it is valid and regular on its face. It
contains a notarial seal.38 A notarial seal is a mark, image or impression on a document
which would indicate that the notary public has officially signed it.39 The long-standing
rule is that documents acknowledged before a notary public have the evidentiary weight
with respect to their due execution and regularity.40 The assailed SPA is a notarized
document and therefore, presumed to be valid and duly executed.

Thus, the reliance by the Chuas on the notarial acknowledgment found in the duly
notarized SPA presented by Celestino is sufficient evidence of good faith. The Chuas
need not prove anything more for it is already the function of the notarial
acknowledgment to establish the appearance of the parties to the document, its due
execution and authenticity.41

Moreover, the SPA was accepted by the Register of Deeds. It was registered with the
Registry of Deeds of Quezon City42 and inscribed and annotated in the owner's duplicate
title,43 further bolstering the appearance of due execution and regularity.

The fact that Soriano's purported signature in the SPA dated March 9, 1989 was declared
to be a forgery does not alter the Chuas’ status as purchasers in good faith. The Court's
recent pronouncements in Bautista v. Silva44 are enlightening to quote:

When the document under scrutiny is a special power of attorney that is duly notarized,
we know it to be a public document where the notarial acknowledgment is prima facie
evidence of the fact of its due execution. A purchaser presented with such a document
would have no choice between knowing and finding out whether a forger lurks beneath
the signature on it. The notarial acknowledgment has removed the choice from him and
replaced it with a presumption sanctioned by law that the affiant appeared before the
notary public and acknowledged that he executed the document, understood its import
and signed it. In reality, he is deprived of such choice not because he is incapable of
knowing and finding out but because, under our notarial system, he has been given the
luxury of merely relying on the presumption of regularity of a duly notarized SPA. And
he cannot be faulted for that because it is precisely that fiction of regularity which holds
together commercial transactions across borders and time.45

Thus, the fact that Soriano’s signature in the SPA dated March 9, 1989 was subsequently
declared by the trial court to have been falsified would not revoke the title subsequently
issued title in favor of the Chuas. With the property in question having already passed to
the hands of purchasers in good faith, it is now of no moment that some irregularity
attended the issuance of the SPA, consistent with our pronouncement in Heirs of Spouses
Benito Gavino and Juana Euste v. Court of Appeals,46 to wit:

x x x, the general rule that the direct result of a previous void contract cannot be valid,
is inapplicable in this case as it will directly contravene the Torrens system of
registration. Where innocent third persons, relying on the correctness of the certificate of
title thus issued, acquire rights over the property, the court cannot disregard such rights
and order the cancellation of the certificate. The effect of such outright cancellation
will be to impair public confidence in the certificate of title. The sanctity of the
Torrens system must be preserved; otherwise, everyone dealing with the property
registered under the system will have to inquire in every instance as to whether the
title had been regularly or irregularly issued, contrary to the evident purpose of the
law.47

Being purchasers in good faith, the Chuas already acquired valid title to the property. A
purchaser in good faith holds an indefeasible title to the property and he is entitled to the
protection of the law. Accordingly, TCT No. 14514 issued in the name of the Chuas is
valid. The amount of P500,000.00, representing the purchase price in the Absolute Deed
of Sale48 dated July 4, 1989, which the RTC directed Celestino to pay to the Chuas should
instead be paid to Soriano as part of the actual damages awarded to him. Such amount
shall earn interest rate of 6% from August 20, 1990, the time of the filing of the
complaint until its full payment before finality of judgment. After the judgment becomes
final and executory until the obligation is satisfied, the amount due shall earn interest at
12% per year, the interim period being deemed equivalent to a forbearance of credit.49

For the Court to uphold the effects of a SPA that is rooted in falsity may be disconcerting.
Yet whatever sympathies may be judicially appreciated for the deceived party must be
balanced in deference to the protection afforded by law to the purchaser in good faith. If
such innocence or good faith is established by the evidence, or insufficiently rebutted by
the disputant, then the corresponding duty of the Court is simply to affirm the rights of
the purchaser in good faith. It is mischief at worse, and error at least, for a court to
misread or inflate the facts to justify a ruling for the defrauded party, no matter how
wronged he or she may be.50

WHEREFORE, the petition is GRANTED. Petitioners are hereby declared purchasers

in good faith. Accordingly, the Decision of the Court of Appeals dated September 21,
2001 in CA-G.R. CV No. 56568 is PARTLY REVERSED and SET ASIDE insofar as it
affirms the Decision of the Regional Trial Court, Branch 81, Quezon City dated July 10,
1997 in Civil Case No. Q-90-6439 finding the Chuas as purchasers in bad faith.

The Decision dated July 10, 1997 of the Regional Trial Court, Branch 81, Quezon City
(RTC) in Civil Case No. Q-90-6439 is MODIFIED to read as follows:

1. Declaring the special power of attorney dated March 9, 1985 and the Deed of
Sale dated July 4, 1989 and the Transfer Certificate of Title No. 14514 in the
name of the defendants Chuas as valid;

2. Ordering Celestino to pay plaintiff the amount of P500,000.00 as actual

damages, with interest rate of 6% p.a. computed from the time of the filing of the
complaint until its full payment before finality of judgment; thereafter, if the
amount adjudged remains unpaid, the interest rate shall be 12% p.a. computed
from the time the judgment becomes final and executory until fully satisfied;
 3. Ordering defendant Celestino to pay to the plaintiff the amounts of
P100,000.00 as moral damages, P20,000.00 as attorney’s fees and P10,000.00 as
litigation expenses;

With costs against defendant Celestino.

SO ORDERED.

No costs.

SO ORDERED.

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

ROMEO J. CALLEJO, SR. MINITA V. CHICO-NAZARIO

Associate Justice Asscociate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice

Footnotes
1
Penned by Associate Justice Hilarion L. Aquino (now retired) and concurred in
by Associate Justices Cancio C. Garcia (now Associate Justice of this Court) and
Jose L. Sabio, Jr.; CA rollo, p. 160.
2
Penned by Judge Wenceslao I. Agnir, Jr. (later Associate Justice of the Court of
Appeals, now retired); Original Records, p. 378.
3
TSN, Testimony of Msgr. Virgilio Soriano, May 17, 1991, p. 6.
4
Exhibit "I", Folder of Exhibits, p. 14.
5
Exhibit "J", Folder of Exhibits, p. 16.
6
Exhibit "A-1", Original Records, p. 9.
7
TSN, Testimony of Msgr. Virgilio Soriano, July 3, 1991, p. 20.
8
Id.
9
TSN, Testimony of Msgr. Virgilio Soriano, May 17, 1991, pp. 8-9; and July 3,
1991, p. 20.
10
Exhibit "B", Original Records, p. 10.
11
Exhibit "D", Folder of Exhibits, p. 14.
12
Exhibit "C", id. at 12.
13
Original Records, p. 1.
14
Id. at 44.
15
Id. at 23.
16
Original Records, p. 331.
17
Id. at 347.
18
Supra note 2.
19
Id. at 400.
20
Exhibit "N-2-e", id. at 127.
21
CA rollo, pp. 36, 97.
22
Supra note 1.
23
Id. at 169.
24
Rollo, p. 14.
25
Id. at 296.
26
Id. at 297.
27
Sigaya v. Mayuga, G.R. No. 143254, August 18, 2005, 467 SCRA 341,352;
Centeno v. Spouses Viray, 440 Phil. 881, 887 (2002); Villarico v. Court of
Appeals, 424 Phil. 26, 32 (2002).
28
Heirs of Dicman v. Cariño, G.R. No. 146459, June 8, 2006, 490 SCRA 240,
261; Bank of the Philippine Islands v. Sarmiento, G.R. No. 146021, March 10,
2006, 484 SCRA 261, 267-268; Almendrala v. Ngo, G.R. No. 142408, September
30, 2005, 471 SCRA 311, 322.
29
Heirs of Dicman v. Cariño, supra at 261-262; Bank of the Philippine Islands v.
Sarmiento, supra; Almendrala v. Ngo, supra.
30
Sigaya v. Mayuga, supra note 27 at 354-355; Occeña v. Esponilla, G.R. No.
156973, June 4, 2004, 431 SCRA 116, 124.
31
G.R. No. 161861, March 11, 2005, 453 SCRA 308.
32
Id. at 317-318.
33
Sigaya v. Mayuga, supra note 27 at 355; Lim v. Chuatoco, supra note 31 at 318.
34
Abad v. Guimba, G.R. No. 157002, July 29, 2005, 465 SCRA 356, 368; De Lara
v. Ayroso, 95 Phil. 185, 189 (1954); Revilla and Fajardo v. Galindez, 107 Phil.
480, 485 (1960).
35
Abad v. Guimba, supra.
36
Abad v. Guimba, supra note 34; Bautista v. Court of Appeals, G.R. No. 106042,
February 28, 1994, 230 SCRA 446, 456; Revilla and Fajardo v. Galindez, supra.
37
Bautista v. Silva, G.R. No. 157434, September 19, 2006. See also Domingo v.
Reed, G.R. No. 157701, December 9, 2005, 477 SCRA 227, 242-244.
38
Exhibit "D", Folder of Exhibits, p. 6.
39
Bautista v. Silva, supra note 37; 2004 Rules of Notarial Practice, Rule II,
Section 13 and Rule VII, Section 2.
40
Penson v. Maranan, G.R. No. 148630, June 20, 2006, 491 SCRA 396, 408-409;
Bravo-Guerrero v. Bravo, G.R. No. 152658, July 29, 2005, 465 SCRA 244, 264;
Veloso v. Court of Appeals, 329 Phil. 398, 407 (1996).
41
Supra note 37; See 2004 Rules on Notarial Practice. See also Lim v. Chuatoco,
supra note 31, at 323.
42
Exhibit "D" (dorsal side), supra note 38.
43
Exhibit "A", Original Records, p. 8.
44
Supra note 37.
 45
Id.
46
353 Phil. 686 (1998); Peña, Peña and Peña, Registration of Land Titles and
Deeds, 1988 Rev. Ed., p. 143.
47
Id. at 700; 509; Section 39, Act 496, The Land Registration Act.
48
Exhibit "C", Original Records, p. 12.
49
Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, July 12,
1994, 234 SCRA 78, 96-97.
50
Lim v. Chuatoco, supra note 31, at 324.

November 16, 1903

G.R. No. 1299

VICENTE PEREZ, plaintiff-appellee,
vs.
EUGENIO POMAR, Agent of the Compañia General de Tabacos, defendant-
appellant.

Francisco Dominguez for appellant.

Ledesma, Sumulong and Quintos for appellee.

TORRES, J.:

In a decision dated February 9, 1903, the judge of the Sixth Judicial District, deciding a
case brought by the plaintiff against the defendant for the recovery of wages due and
unpaid, gave judgment against the latter for the sum of $600 and the costs of suit, less the
sum of $50, Mexican.

On August 27, 1902, Don Vicente Perez filed in the Court of First Instance of Laguna a
complaint, which was amended on the 17th of January of this year, asking that the court
determine the amount due the plaintiff, at the customary rate of compensation for
interpreting in these Islands, for services rendered in the Tabacalera Company, and that,
in view of the circumstances of the case, judgment be rendered in his favor for such sum.
The complaint also asked that the defendant be condemned to the payment of damages in
the sum of $3,200, gold, together with the costs of suit. In this complaint it was alleged
that Don Eugenio Pomar, as general agent of the Compañia General de Tabacos in the
said province, verbally requested the plaintiff on the 8th of December, 1901, to act as
interpreter between himself and the military authorities; that after the date mentioned the
plaintiff continued to render such services up to and including May 31, 1902; that he had
accompanied the defendant, Pomar, during that time at conferences between the latter and
the colonel commanding the local garrison, and with various officers and doctors residing
in the capital, and at conferences with Captain Lemen in the town of Pilar, and with the
major in command at the town of Pagsanjan, concerning the shipment of goods from
Manila, and with respect to Pagsanjan to this city; that the plaintiff during this period held
himself in readiness to render services whenever required; that on this account his private
business, and especially a soap factory established in the capital, was entirely abandoned;
that to the end that such services might be punctually rendered, the agent, Pomar, assured
him that the Tabacalera Company always generously repaid services rendered it, and that
he therefore did not trouble himself about his inability to devote the necessary amount of
time to his business, the defendant going so far as to make him flattering promises of
employment with the company, which he did not accept; that these statements were made
in the absence of witnesses and that therefore his only proof as to the same was Mr.
Pomar’s word as a gentleman; that the employees of the company did not understand
English, and by reason of the plaintiff’s mediation between the agent, and the military
authorities large profits were obtained, as would appear from the account and letterpress
books of the agency corresponding to those dates. In the amended complaint it was added
that the defendant, on behalf of the company, offered to renumerate the plaintiff for the
services rendered in the most advantageous manner in which such services are
compensated, in view of the circumstances under which they were requested; and that the
plaintiff, by rendering the company such services, was obliged to abandon his own
business, the manufacture of soap, and thereby suffered damages in the sum of $3,200,
United States currency.

The defendant, on the 25th of September, 1902, filed an answer asking for the dismissal
of the complaint, with costs to the plaintiff. In his answer the defendant denied the
allegation in the first paragraph of the complaint, stating that it was wholly untrue that the
company, and the defendant as its agent, had solicited the services of the plaintiff as
interpreter before the military authorities for the period stated, or for any other period, or
that the plaintiff had accompanied Pomar at the conferences mentioned, concerning
shipments from Manila and exports from some of the towns of the province to this
capital. He stated that he especially denied paragraphs 2 of the complaint, as it was
absolutely untrue that the plaintiff had been at the disposal of the defendant for the
purpose of rendering such services; that he therefore had not been obliged to abandon his
occupation or his soap factory, and that the statement that an offer of employment with
the company had been made to him was false. The defendant also denied that through the
mediation of the plaintiff the company and himself had obtained large profits. The
statements in paragraphs 6, 7, 8, and 9 of the complaint were also denied. The defendant
stated that, on account of the friendly relations which sprang up between the plaintiff and
himself, the former borrowed from him from time to time money amounting to $175 for
the purposes of his business, and that he had also delivered to the plaintiff 36 arrobas of
oil worth $106, and three packages of resin for use in coloring his soap; that the plaintiff
accompanied the defendant to Pagsanjan, Pilar, and other towns when the latter made
business trips to them for the purpose of extending his business and mercantile relations
therein; that on these excursions, as well as on private and official visits which he had to
make, the plaintiff occasionally accompanied him through motives of friendship, and
especially because of the free transportation given him, and not on behalf of the company
of which he was never interpreter and for which he rendered no services; that the plaintiff
in these conferences acted as interpreter of his own free will, without being requested to
do so by the defendant and without any offer of payment or compensation; that therefore
there existed no legal relation whatever between the company and the plaintiff, and that
the defendant, when accepting the spontaneous, voluntary and officious services of the
plaintiff, did so in his private capacity and not as agent of the company, and that it was
for this reason that he refused to enter into negotiations with the plaintiff, he being in no
way indebted to the latter. The defendant concluded by saying that he answered in his
individual capacity.

A complaint having been filed against the Compañia General de Tabacos and Don
Eugenio Pomar, its agent in the Province of Laguna, the latter, having been duly
summoned, replied to the complaint, which was subsequently amended, and stated that he
made such reply in his individual capacity and not as agent of the company, with which
the plaintiff had had no legal relations. The suit was instituted between the plaintiff and
Pomar, who, as such, accepted the issue and entered into the controversy without
objection, opposed the claim of the plaintiff, and concluded by asking that the complaint
be dismissed, with the costs to the plaintiff. Under these circumstances and construing the
statutes liberally, we think it proper to decide the case pending between both parties in
accordance with law and the strict principles of justice.

From the oral testimony introduced at the trial, it appears that the plaintiff, Perez, did on
various occasions render Don Eugenio Pomar services as interpreter of English; and that
he obtained passes and accompanied the defendant upon his journeys to some of the
towns in the Province of Laguna. It does not appear from the evidence, however, that the
plaintiff was constantly at the disposal of the defendant during the period of six months,
or that he rendered services as such interpreter continuously and daily during that period
of time.

It does not appear that any written contract was entered into between the parties for the
employment of the plaintiff as interpreter, or that any other innominate contract was
entered into; but whether the plaintiff’s services were solicited or whether they were
offered to the defendant for his assistance, inasmuch as these services were accepted and
made use of by the latter, we must consider that there was a tacit and mutual consent as to
the rendition of the services. This gives rise to the obligation upon the person benefited
by the services to make compensation therefor, since the bilateral obligation to render
services as interpreter, on the one hand, and on the other to pay for the services rendered,
is thereby incurred. (Arts. 1088, 1089, and 1262 of the Civil Code). The supreme court of
Spain in its decision of February 12, 1889, holds, among other things, “that not only is
there an express and tacit consent which produces real contract but there is also a
presumptive consent which is the basis of quasi contracts, this giving rise to the multiple
juridical relations which result in obligations for the delivery of a thing or the rendition of
a service.”

Notwithstanding the denial of that defendant, it is unquestionable that it was with his
consent that the plaintiff rendered him services as interpreter, thus aiding him at a time
when, owing to the existence of an insurrection in the province, the most disturbed
conditions prevailed. It follows, hence, that there was consent on the part of both in the
rendition of such services as interpreter. Such service not being contrary to law or to good
custom, it was a perfectly licit object of contract, and such a contract must necessarily
have existed between the parties, as alleged by the plaintiff. (Art. 1271, Civil Code.)

The consideration for the contract is also evident, it being clear that a mutual benefit was
derived in consequence of the service rendered. It is to be supposed that the defendant
accepted these services and that the plaintiff in turn rendered them with the expectation
that the benefit would be reciprocal. This shows the concurrence of the three elements
necessary under article 1261 of the Civil Code to constitute a contract of lease of service,
or other innominate contract, from which an obligation has arisen and whose fulfillment
is now demanded.

Article 1254 of the Civil Code provides that a contract exists the moment that one or
more persons consent to be bound, with respect to another or others, to deliver some
thing or to render some service. Article 1255 provides that the contracting parties may
establish such covenants, terms, and conditions as they deem convenient, provided they
are not contrary to law, morals or public policy. Whether the service was solicited or
offered, the fact remains that Perez rendered to Pomar services as interpreter. As it does
not appear that he did this gratuitously, the duty is imposed upon the defendant, having
accepted the benefit of the service, to pay a just compensation therefor, by virtue of the
innominate contract of facio ut des implicitly established.

The obligations arising from this contract are reciprocal, and, apart from the general
provisions with respect to contracts and obligations, the special provisions concerning
contracts for lease of services are applicable by analogy.

In this special contract, as determined by article 1544 of the Civil Code, one of the parties
undertakes to render the other a service for a price certain. The tacit agreement and
consent of both parties with respect to the service rendered by the plaintiff, and the
reciprocal benefits accruing to each, are the best evidence of the fact that there was an
implied contract sufficient to create a legal bond, from which arose enforceable rights and
obligations of a bilateral character.

In contracts the will of the contracting parties is law, this being a legal doctrine based
upon the provisions of articles 1254, 1258, 1262, 1278, 1281, 1282, and 1289 of the Civil
Code. If it is a fact sufficiently proven that the defendant, Pomar, on various occasions
consented to accept an interpreter’s services, rendered in his behalf and not gratuitously,
it is but just that he should pay a reasonable remuneration therefor, because it is a well-
known principle of law that no one should be permitted to enrich himself to the damage
of another.

With respect to the value of the services rendered on different occasions, the most
important of which was the first, as it does not appear that any salary was fixed upon by
the parties at the time the services were accepted, it devolves upon the court to determine,
upon the evidence presented, the value of such services, taking into consideration the few
occasions on which they were rendered. The fact that no fixed or determined
consideration for the rendition of the services was agreed upon does not necessarily
involve a violation of the provisions of article 1544 of the Civil Code, because at the time
of the agreement this consideration was capable of being made certain. The discretionary
power of the court, conferred upon it by the law, is also supported by the decisions of the
supreme court of Spain, among which may be cited that of October 18, 1899, which holds
as follows: “That as stated in the article of the Code cited, which follows the provisions
of law 1, title 8, of the fifth partida, the contract for lease of services is one in which one
of the parties undertakes to make some thing or to render some service to the other for a
certain price, the existence of such a price being understood, as this court has held not
only when the price has been expressly agreed upon but also when it may be determined
by the custom and frequent use of the place in which such services were rendered.”

No exception was taken to the judgment below by the plaintiff on account of the rejection
of his claim for damages. The decision upon this point is, furthermore, correct.

Upon the supposition that the recovery of the plaintiff should not exceed 200 Mexican
pesos, owing to the inconsiderable number of times he acted as interpreter, it is evident
that the contract thus implicitly entered into was not required to be in writing and that
therefore it does not fall within article 1280 of the Civil Code; nor is it included within
the provisions of section 335 of the Code of Civil Procedure, as this innominate contract
is not covered by that section. The contract of lease of services is not included in any of
the cases expressly designated by that section of the procedural law, as affirmed by the
appellant. The interpretation of the other articles of the Code alleged to have been
infringed has also been stated fully in this opinion.

For the reasons stated, we are of the opinion that judgment should be rendered against
Don Eugenio Pomar for the payment to the plaintiff of the sum of 200 Mexican pesos,
from which will be deducted the sum of 50 pesos is made as to the costs of this instance.
The judgment below is accordingly affirmed in so far as it agrees with this opinion, and
reversed in so far as it may be in conflict therewith. Judgment will be entered accordingly
twenty days after this decision is filed.

Arellano, C.J., Willard, and Mapa, JJ., concur.

Separate Opinions

MCDONOUGH, J., dissenting:

I dissent from the opinion of the majority. In my opinion there is no legal evidence in the
case from which the court may conclude that the recovery should be 200 Mexican pesos.
I am therefore in favor of affirming the judgment.

Cooper, J., concurs.

Johnson, J., did not sit in this case.
DAVID REYES (Substituted by Victoria R. Fabella), petitioner, vs. JOSE LIM, CHUY
CHENG KENG and HARRISON LUMBER, INC., respondents.

DECISION

CARPIO, J.:

The Case

This is a petition for review on certiorari of the Decision [1] dated 12 May 1998 of the
63

Court of Appeals in CA-G.R. SP No. 46224. The Court of Appeals dismissed the petition
for certiorari assailing the Orders dated 6 March 1997, 3 July 1997 and 3 October 1997 of
the Regional Trial Court of Paranaque, Branch 260 [2] (“trial court”) in Civil Case No.
64

95-032.

The Facts

On 23 March 1995, petitioner David Reyes (“Reyes”) filed before the trial court a
complaint for annulment of contract and damages against respondents Jose Lim (“Lim”),
Chuy Cheng Keng (“Keng”) and Harrison Lumber, Inc. (“Harrison Lumber”).

The complaint [3] alleged that on 7 November 1994, Reyes as seller and Lim as buyer
65

entered into a contract to sell (“Contract to Sell”) a parcel of land (“Property”) located
along F.B. Harrison Street, Pasay City. Harrison Lumber occupied the Property as lessee
with a monthly rental of P35,000. The Contract to Sell provided for the following terms
and conditions:

1. The total consideration for the purchase of the aforedescribed parcel of land
together with the perimeter walls found therein is TWENTY EIGHT MILLION
(P28,000,000.00) PESOS payable as follows:

(a) TEN MILLION (P10,000,000.00) PESOS upon signing of this Contract to Sell;

(b) The balance of EIGHTEEN MILLION (P18,000,000.00) PESOS shall be paid on

or before March 8, 1995 at 9:30 A.M. at a bank to be designated by the Buyer but upon
the complete vacation of all the tenants or occupants of the property and execution of the
Deed of Absolute Sale. However, if the tenants or occupants have vacated the premises
earlier than March 8, 1995, the VENDOR shall give the VENDEE at least one week
advance notice for the payment of the balance and execution of the Deed of Absolute
Sale.

63[1] Penned by Associate Justice Quirino D. Abad Santos, Jr., with Associate Justices
Ruben T. Reyes and Eloy R. Bello, Jr. concurring.

64[2] Presided by Judge Helen Bautista-Ricafort.

65[3] Rollo, pp. 47-52.

2. That in the event, the tenants or occupants of the premises subject of this sale
shall not vacate the premises on March 8, 1995 as stated above, the VENDEE shall
withhold the payment of the balance of P18,000,000.00 and the VENDOR agrees to pay a
penalty of Four percent (4%) per month to the herein VENDEE based on the amount of
the downpayment of TEN MILLION (P10,000,000.00) PESOS until the complete
vacation of the premises by the tenants therein. [4]
66

The complaint claimed that Reyes had informed Harrison Lumber to vacate the Property
before the end of January 1995. Reyes also informed Keng [5] and Harrison Lumber that
67

if they failed to vacate by 8 March 1995, he would hold them liable for the penalty of
P400,000 a month as provided in the Contract to Sell. The complaint further alleged that
Lim connived with Harrison Lumber not to vacate the Property until the P400,000
monthly penalty would have accumulated and equaled the unpaid purchase price of
P18,000,000.

On 3 May 1995, Keng and Harrison Lumber filed their Answer [6] denying they connived
68

with Lim to defraud Reyes. Keng and Harrison Lumber alleged that Reyes approved their
request for an extension of time to vacate the Property due to their difficulty in finding a
new location for their business. Harrison Lumber claimed that as of March 1995, it had
already started transferring some of its merchandise to its new business location in
Malabon. [7]
69

On 31 May 1995, Lim filed his Answer [8] stating that he was ready and willing to pay
70

the balance of the purchase price on or before 8 March 1995. Lim requested a meeting
with Reyes through the latter’s daughter on the signing of the Deed of Absolute Sale and
the payment of the balance but Reyes kept postponing their meeting. On 9 March 1995,
Reyes offered to return the P10 million down payment to Lim because Reyes was having
problems in removing the lessee from the Property. Lim rejected Reyes’ offer and
proceeded to verify the status of Reyes’ title to the Property. Lim learned that Reyes had
already sold the Property to Line One Foods Corporation (“Line One”) on 1 March 1995
for P16,782,840. After the registration of the Deed of Absolute Sale, the Register of
Deeds issued to Line One TCT No. 134767 covering the Property. Lim denied conniving
with Keng and Harrison Lumber to defraud Reyes.

On 2 November 1995, Reyes filed a Motion for Leave to File Amended Complaint due to
supervening facts. These included the filing by Lim of a complaint for estafa against

66[4] Ibid., pp. 53-54.

67[5] Chuy Cheng Keng is the General Manager of Harrison Lumber.

68[6] Rollo, pp. 56-65.

69[7] According to the Stipulation of Facts agreed upon by the parties, defendant Harrison
Lumber vacated the leased premises on 30 April 1995. Rollo, p. 119.

70[8] Rollo, pp. 66-81.

Reyes as well as an action for specific performance and nullification of sale and title plus
damages before another trial court. [9] The trial court granted the motion in an Order
71

dated 23 November 1995.

In his Amended Answer dated 18 January 1996, [10] Lim prayed for the cancellation of
72

the Contract to Sell and for the issuance of a writ of preliminary attachment against
Reyes. The trial court denied the prayer for a writ of preliminary attachment in an Order
dated 7 October 1996.

On 6 March 1997, Lim requested in open court that Reyes be ordered to deposit the P10
million down payment with the cashier of the Regional Trial Court of Parañaque. The
trial court granted this motion.

On 25 March 1997, Reyes filed a Motion to Set Aside the Order dated 6 March 1997 on
the ground the Order practically granted the reliefs Lim prayed for in his Amended
Answer. [11] The trial court denied Reyes’ motion in an Order [12] dated 3 July 1997.
73 74

Citing Article 1385 of the Civil Code, the trial court ruled that an action for rescission
could prosper only if the party demanding rescission can return whatever he may be
obliged to restore should the court grant the rescission.

The trial court denied Reyes’ Motion for Reconsideration in its Order [13] dated 3 October
75

1997. In the same order, the trial court directed Reyes to deposit the P10 million down
payment with the Clerk of Court on or before 30 October 1997.

On 8 December 1997, Reyes [14] filed a Petition for Certiorari [15] with the Court of
76 77

Appeals. Reyes prayed that the Orders of the trial court dated 6 March 1997, 3 July 1997
and 3 October 1997 be set aside for having been issued with grave abuse of discretion

71[9] Upon a joint motion to dismiss filed by Lim and Line One and a separate motion to
dismiss filed by Reyes, the Regional Trial Court of Pasay City dismissed on 17 January
1996 the action for specific performance and nullification of sale and title plus damages
filed by Lim. Rollo, pp. 144, 191-197.

72[10] Rollo, pp. 121-143.

73[11] Ibid., pp. 155-159.

74[12] Ibid. ,p. 165.

75[13] Ibid.,p. 166.

76[14] Reyes died on 4 November 1999. In a Resolution dated 14 June 2000, the Court
granted Lim’s petition to substitute deceased Reyes with his eldest daughter Victoria R.
Fabella. Rollo, pp. 406-426.

77[15] Rollo, pp. 177-203.

amounting to lack of jurisdiction. On 12 May 1998, the Court of Appeals dismissed the
petition for lack of merit.

Hence, this petition for review.

The Ruling of the Court of Appeals

The Court of Appeals ruled the trial court could validly issue the assailed orders in the
exercise of its equity jurisdiction. The court may grant equitable reliefs to breathe life and
force to substantive law such as Article 1385 [16] of the Civil Code since the provisional
78

remedies under the Rules of Court do not apply to this case.

The Court of Appeals held the assailed orders merely directed Reyes to deposit the P10
million to the custody of the trial court to protect the interest of Lim who paid the amount
to Reyes as down payment. This did not mean the money would be returned
automatically to Lim.

The Issues

Reyes raises the following issues:

1. Whether the Court of Appeals erred in holding the trial court could issue
the questioned Orders dated March 6, 1997, July 3, 1997 and October 3,
1997, requiring petitioner David Reyes to deposit the amount of Ten
Million Pesos (P10,000,000.00) during the pendency of the action, when
deposit is not among the provisional remedies enumerated in Rule 57 to 61
of the 1997 Rules on Civil Procedure.

2. Whether the Court of Appeals erred in finding the trial court could issue
the questioned Orders on grounds of equity when there is an applicable
law on the matter, that is, Rules 57 to 61 of the 1997 Rules on Civil
Procedure. [17]
79

The Court’s Ruling

Reyes’ contentions are without merit.

78[16] Art. 1385. Rescission creates the obligation to return the things which were the
object of the contract, together with their fruits, and the price with its interest;
consequently, it can be carried out only when he who demands rescission can return
whatever he may be obliged to restore.

xxx.

79[17] Rollo, p. 26.

Reyes points out that deposit is not among the provisional remedies enumerated in the
1997 Rules of Civil Procedure. Reyes stresses the enumeration in the Rules is exclusive.
Not one of the provisional remedies in Rules 57 to 61 [18] applies to this case. Reyes
80

argues that a court cannot apply equity and require deposit if the law already prescribes
the specific provisional remedies which do not include deposit. Reyes invokes the
principle that equity is “applied only in the absence of, and never against, statutory law or
x x x judicial rules of procedure.” [19] Reyes adds the fact that the provisional remedies
81

do not include deposit is a matter of dura lex sed lex. [20]

82

The instant case, however, is precisely one where there is a hiatus in the law and in the
Rules of Court. If left alone, the hiatus will result in unjust enrichment to Reyes at the
expense of Lim. The hiatus may also imperil restitution, which is a precondition to the
rescission of the Contract to Sell that Reyes himself seeks. This is not a case of equity
overruling a positive provision of law or judicial rule for there is none that governs this
particular case. This is a case of silence or insufficiency of the law and the Rules of
Court. In this case, Article 9 of the Civil Code expressly mandates the courts to make a
ruling despite the “silence, obscurity or insufficiency of the laws.” [21] This calls for the
83

application of equity, [22] which “fills the open spaces in the law.” [23]
84 85

Thus, the trial court in the exercise of its equity jurisdiction may validly order the deposit
of the P10 million down payment in court. The purpose of the exercise of equity
jurisdiction in this case is to prevent unjust enrichment and to ensure restitution. Equity
jurisdiction aims to do complete justice in cases where a court of law is unable to adapt
its judgments to the special circumstances of a case because of the inflexibility of its
statutory or legal jurisdiction. [24] Equity is the principle by which substantial justice may
86

80[18] These are preliminary attachment, preliminary injunction, receivership, replevin

and support pendente lite.

81[19] Zabat, Jr. v. CA, 226 Phil. 489 (1986).

82[20] Petition for Review, p. 17. Rollo, p. 24.

83[21] Article 9 of the Civil Code provides: “No judge or court shall decline to render
judgment by reason of the silence, obscurity or insufficiency of the laws.”

84[22] 1 ARTURO M. TOLENTINO, CIVIL CODE OF THE PHILIPPINES 43 (1990)

citing Camus.

85[23] JUSTICE BENJAMIN N. CARDOZO, THE NATURE OF THE JUDICIAL

PROCESS 113 (1921).

86[24] Agcaoili v. Government Service Insurance System, G.R. No. L-30056, 30 August
1988, 165 SCRA 1; Air Manila, Inc. v. Court of Industrial Relations, G.R. No. L-39742,
9 June 1978, 83 SCRA 579.
be attained in cases where the prescribed or customary forms of ordinary law are
inadequate. [25]
87

Reyes is seeking rescission of the Contract to Sell. In his amended answer, Lim is also
seeking cancellation of the Contract to Sell. The trial court then ordered Reyes to deposit
in court the P10 million down payment that Lim made under the Contract to Sell. Reyes
admits receipt of the P10 million down payment but opposes the order to deposit the
amount in court. Reyes contends that prior to a judgment annulling the Contract to Sell,
he has the “right to use, possess and enjoy” [26] the P10 million as its “owner” [27] unless
88 89

the court orders its preliminary attachment. [28]

90

To subscribe to Reyes’ contention will unjustly enrich Reyes at the expense of Lim.
Reyes sold to Line One the Property even before the balance of P18 million under the
Contract to Sell with Lim became due on 8 March 1995. On 1 March 1995, Reyes signed
a Deed of Absolute Sale [29] in favor of Line One. On 3 March 1995, the Register of
91

Deeds issued TCT No. 134767 [30] in the name of Line One. [31] Reyes cannot claim
92 93

ownership of the P10 million down payment because Reyes had already sold to another
buyer the Property for which Lim made the down payment. In fact, in his Comment [32] 94

dated 20 March 1996, Reyes reiterated his offer to return to Lim the P10 million down
payment.

On balance, it is unreasonable and unjust for Reyes to object to the deposit of the P10
million down payment. The application of equity always involves a balancing of the
equities in a particular case, a matter addressed to the sound discretion of the court. Here,
we find the equities weigh heavily in favor of Lim, who paid the P10 million down
payment in good faith only to discover later that Reyes had subsequently sold the
Property to another buyer.

87[25] American Life Ins. Co. v. Stewart, 300 U.S. 203, 81 L. Ed. 605 (1936); Davis v.
Wallace, 257 U.S. 478, 66 L. Ed. 325 (1921).

88[26] Petition for Review, pp. 32-33. Rollo, pp. 39-40.

89[27] Ibid.

90[28] Memorandum for Petitioner, p. 32. Rollo, p. 462.

91[29] Rollo, pp. 88-90.

92[30] CA Rollo, pp. 159-160.

93[31] In the Stipulation of Facts agreed upon by the parties to this case, the existence of
the Deed of Absolute Sale between David Reyes and Line One Foods Corporation and
the TCT No. 134767 in the name of One Line Foods Corporation (sic) was admitted.
Rollo, p. 119.

94[32] CA Rollo, pp. 206-211.

In Eternal Gardens Memorial Parks Corp. v. IAC, [33] this Court held the plaintiff could
95

not continue to benefit from the property or funds in litigation during the pendency of the
suit at the expense of whomever the court might ultimately adjudge as the lawful owner.
The Court declared:

In the case at bar, a careful analysis of the records will show that petitioner admitted
among others in its complaint in Interpleader that it is still obligated to pay certain
amounts to private respondent; that it claims no interest in such amounts due and is
willing to pay whoever is declared entitled to said amounts. x x x

Under the circumstances, there appears to be no plausible reason for petitioner’s

objections to the deposit of the amounts in litigation after having asked for the assistance
of the lower court by filing a complaint for interpleader where the deposit of aforesaid
amounts is not only required by the nature of the action but is a contractual obligation of
the petitioner under the Land Development Program (Rollo, p. 252).

There is also no plausible or justifiable reason for Reyes to object to the deposit of the
P10 million down payment in court. The Contract to Sell can no longer be enforced
because Reyes himself subsequently sold the Property to Line One. Both Reyes and Lim
are now seeking rescission of the Contract to Sell. Under Article 1385 of the Civil Code,
rescission creates the obligation to return the things that are the object of the contract.
Rescission is possible only when the person demanding rescission can return whatever he
may be obliged to restore. A court of equity will not rescind a contract unless there is
restitution, that is, the parties are restored to the status quo ante. [34]
96

Thus, since Reyes is demanding to rescind the Contract to Sell, he cannot refuse to
deposit the P10 million down payment in court. [35] Such deposit will ensure restitution of
97

the P10 million to its rightful owner. Lim, on the other hand, has nothing to refund, as he
has not received anything under the Contract to Sell. [36] 98

In Government of the Philippine Islands v. Wagner and Cleland Wagner, [37] the Court
99

ruled the refund of amounts received under a contract is a precondition to the rescission
of the contract. The Court declared:

The Government, having asked for rescission, must restore to the defendants whatever it
has received under the contract. It will only be just if, as a condition to rescission, the

95[33] G.R. No. L-73794, 19 September 1988, 165 SCRA 439.

96[34] Grymes v. Sanders, 93 U.S. 55, 23 L.Ed. 798 (1876).

97[35] See Spouses Velarde v. Court of Appeals, 413 Phil. 360 (2001). See also Binalbagan
Tech., Inc. v. Court of Appeals, G.R. No. 100594, 10 March 1993, 219 SCRA 777.

98[36] See Spouses Co v. Court of Appeals, 371 Phil. 445 (1999).

99[37] 49 Phil. 944 (1927).

Government be required to refund to the defendants an amount equal to the purchase
price, plus the sums expended by them in improving the land. (Civil Code, art. 1295.)

The principle that no person may unjustly enrich himself at the expense of another is
embodied in Article 22 [38] of the Civil Code. This principle applies not only to
100

substantive rights but also to procedural remedies. One condition for invoking this
principle is that the aggrieved party has no other action based on contract, quasi-contract,
crime, quasi-delict or any other provision of law. [39] Courts can extend this condition to
101

the hiatus in the Rules of Court where the aggrieved party, during the pendency of the
case, has no other recourse based on the provisional remedies of the Rules of Court.

Thus, a court may not permit a seller to retain, pendente lite, money paid by a buyer if the
seller himself seeks rescission of the sale because he has subsequently sold the same
property to another buyer. [40] By seeking rescission, a seller necessarily offers to return
102

what he has received from the buyer. Such a seller may not take back his offer if the court
deems it equitable, to prevent unjust enrichment and ensure restitution, to put the money
in judicial deposit.

There is unjust enrichment when a person unjustly retains a benefit to the loss of another,
or when a person retains money or property of another against the fundamental principles
of justice, equity and good conscience. [41] In this case, it was just, equitable and proper
103

for the trial court to order the deposit of the P10 million down payment to prevent unjust
enrichment by Reyes at the expense of Lim. [42]
104

WHEREFORE, we AFFIRM the Decision of the Court of Appeals.

SO ORDERED.

100[38] Article 22 of the Civil Code provides: “Every person who through an act of
performance by another, or any other means, acquires or comes into possession of
something at the expense of the latter without just or legal ground, shall return the same
to him.”

101[39] 1 TOLENTINO, supra note 22, at 77, 82.

102[40] See Bonzon v. Standard Oil Co. and Osorio, 27 Phil. 141 (1914), where the Court
held: “In this jurisdiction (even in the absence of the statute), under the general principle
that one person may not enrich himself at the expense of another, a judgment creditor
would not be permitted to retain the purchase price of land sold as the property of the
judgment debtor after it has been made to appear that the judgment debtor had no title to
the land and that the purchaser had failed to secure title thereto, and we find no difficulty
therefore in accepting a liberal construction of the statute which arrives at the same
equitable result.”

103[41] 66 Am. Jur. 2D Restitution and Implied Contracts § 3 (1973).

104[42] See Ong Yong v. Tiu, G.R. No. 144476, 1 February 2002, 375 SCRA 614.
Davide, Jr., C.J., (Chairman), Vitug, Ynares-Santiago, and Azcuna, JJ., concur.

[G.R. No. 109087 : May 9, 2001]

RODZSSEN SUPPLY CO. INC., Petitioner, v. FAR EAST BANK & TRUST CO.,
respondent.

DECISION

PANGANIBAN, J.:

When both parties to a transaction are mutually negligent in the performance of their obligations,
the fault of one cancels the negligence of the other. Thus, their rights and obligations may be
determined equitably. No one shall enrich oneself at the expense of another.

The Case

Before us is a Petition for Review on Certiorari [1 under Rule 45 of the Rules of Court, assailing
the January 21, 1993 Decision [2 of the Court of Appeals [3 (CA) in CA-GR CV No. 26045. The
challenged Decision affirmed with modification the ruling of the Regional Trial Court of Bacolod
City in Civil Case No. 2296. The CA ruled as follows:
WHEREFORE, the decision under appeal should be, as it is hereby affirmed in all its
aspects, except for the deletion of paragraph 2 of its dispositive portion, which paragraph
shall be replaced by a new paragraph which shall read as follows:

2. ordering the defendant to pay the plaintiff the sum equivalent to 10% of the total
amount due and collectible, as attorneys fees; and

No pronouncement as to costs. [4

On the other hand, the trial court had rendered this judgment:

1. Ordering the defendant to pay the plaintiff the sum of P76,000.00, representing the
principal amount being claimed in this action, plus interest thereon at the rate of 12%
per annum counted from October 1979 until fully paid;

2. Ordering the defendant to pay the plaintiff the sum equivalent to 25% of the total
amount due and collectible; and

3. Ordering the defendant to pay the costs of the suit.[5

The Facts

The factual and procedural antecedents of the case are summarized by the Court of Appeals as
follows:

In the complaint from which the present proceedings originated, it is alleged that on
January 15, 1979, defendant Rodzssen Supply, Inc. opened with plaintiff Far East Bank
and Trust Co. a 30-day domestic letter of credit, LC No. 52/0428/79-D, in the amount of
P190,000.00 in favor of Ekman and Company, Inc. (Ekman) for the purchase from the
latter of five units of hydraulic loaders, to expire on February 15, 1979; that subsequent
amendments extended the validity of said LC up to October 16, 1979; that on March 16,
1979, three units of the hydraulic loaders were delivered to defendant for which plaintiff
on March 26, 1979, paid Ekman the sum of P114,000.00, which amount defendant paid
plaintiff before the expiry date of the LC; that the shipment of the remaining two units of
hydraulic loaders valued at P76,000.00 sent by Ekman was readily received by the
defendant before the expiry date [of] subject LC; that upon Ekmans presentation of the
documents for the P76,000.00 representing final negotiation on the LC before the expiry
date, and after a series of negotiations, plaintiff paid to Ekman the amount of P76,000.00;
and that upon plaintiffs demand on defendant to pay for said amount (P76,000.00),
defendant refused to pay ... without any valid reason. Plaintiff prays for judgment
ordering defendant to pay the abovementioned P76,000.00 plus due interest thereon, plus
25% of the amount of the award as attorneys fees.

In the Answer, defendant interposed, inter alia, by way of special and affirmative
defenses that plaintiff ha[d] no cause of action against defendant; that there was a breach
of contract by plaintiff who in bad faith paid Ekman, knowing that the two units of
hydraulic loaders had been delivered to defendant after the expiry date of subject LC; and
that in view of the breach of contract, defendant offered to return to plaintiff the two units
of hydraulic loaders, presently still with the defendant but plaintiff refused to take
possession thereof.

The trial courts ruling that plaintiff [was] entitled to recover from defendant the amount
of P76,000.00 was based on its following findings/conclusions: (1) under the contract of
sale of the five loaders between Ekman and defendant, upon Ekmans delivery to, and
acceptance by, defendant of the two remaining units of the five loaders, defendant
became liable to Ekman for the payment of said two units. However, as defendant did not
pay Ekman, the latter pressed plaintiff for the payment of said two loaders in the amount
of P76,000.00. In the honest belief that it was still under obligation to Ekman for said
amount, considering that Ekman had presented all the necessary documents, plaintiff
voluntarily paid the said amount to Ekman. Plaintiffs x x x voluntary and lawful act of
payment g[a]ve rise to a quasi-contract between plaintiff and defendant; and if defendant
should escape liability for said amount, the result would be to allow defendant to enrich
itself at plaintiffs expense x x x.

x x x. While defendant, indeed offered to return the two loaders to plaintiff, x x x this
offer was made 3 years after defendants receipt of the goods, when plaintiff pressed for
payment. By said voluntary acceptance of the two loaders, estoppel works against
defendant who should have refused delivery of, and/or immediately offered to return, the
goods.

Accordingly, judgment was rendered in favor of the plaintiff and against the defendant x
x x.[6
The CA Ruling

The CA rejected petitioners imputation of bad faith and negligence to respondent bank for paying
for the two hydraulic loaders, which had been delivered after the expiration of the subject letter of
credit. The appellate court pointed out that petitioner received the equipment after the letter of
credit had expired. To absolve defendant from liability for the price of the same, the CA
explained, is to allow it to get away with its unjust enrichment at the expense of the plaintiff.

Hence, this Petition. [7

Issues

Petitioner presents the following issues for resolution:

1. Whether or not it is proper for a banking institution to pay a letter of credit which has
long expired or been cancelled.

2. Whether or not respondent courts were correct in their conclusion that there was a
consummated sale between petitioner and Ekman Co.
3. Whether or not Respondent Court of Appeals was correct in evading the issues raised
in the appeal that under the trust receipt, petitioner was merely the depositary of private
respondent with respect to the goods covered by the trust receipt.[8
The Courts Ruling

We affirm the Court of Appeals, but lower the interest rate to only 6 percent and delete the award
of attorneys fees.

First Issue:

Efficacy of Letter of Credit

Petitioner asserts that respondent bank was negligent in paying for the two hydraulic loaders,
when it no longer had any obligation to do so in view of the expiration and cancellation of the
Letter of Credit.

Petitioner Rodzssen Supply Inc. applied for and obtained an irrevocable 30-day domestic Letter
of Credit from Far East Bank and Trust Company Inc. on January 15, 1979, in favor of Ekman
and Company Inc., in order to finance the purchase of five units of hydraulic loaders in the
amount of P190,000. Originally set to expire on February 15, 1979, the subject Letter of Credit
was amended several times to extend its validity until October 16, 1979.

The Letter of Credit expressly restricted the negotiation to respondent bank and specifically
instructed Ekman and Company Inc. to tender the following documents: (1) delivery receipt duly
acknowledged by the buyer, (2) accepted draft, and (3) duly signed commercial invoices.
Likewise, the instrument contained a provision with regard to its expiration date. [9

For the first three hydraulic loaders that were delivered, the bank paid the amount specified in the
letter of credit. The present dispute pertains only to the last two hydraulic loaders.

Clearly, the bank paid Ekman when the former was no longer bound to do so under the subject
Letter of Credit. The records show that respondent paid the latter P76,000 for the last two
hydraulic loaders on March 14, 1980, [10 five months after the expiration of the Letter of Credit
on October 16, 1979. [11 In fact, on December 27, 1979, the bank had informed Rodzssen of the
cancellation of the commercial paper and credited P22,800 to the account of the latter. The
amount represented the marginal deposit, which petitioner had been required to put up for the
unnegotiated portion of the Letter of Credit -- P76,000 for the two hydraulic loaders. [12

The subject Letter of Credit had become invalid upon the lapse of the period fixed therein. [13
Thus, respondent should not have paid Ekman; it was not obliged to do so. In the same vein, of
no moment was Ekmans presentation, within the prescribed period, of all the documents
necessary for collection, as the Letter of Credit had already expired and had in fact been
cancelled.

Second Issue:

Was Petitioner Liable to Respondent?

Be that as it may, we agree with the CA that petitioner should pay respondent bank the amount
the latter expended for the equipment belatedly delivered by Ekman and voluntarily received and
kept by petitioner.

Respondent banks right to seek recovery from petitioner is anchored, not upon the inefficacious
Letter of Credit, but on Article 2142 of the Civil Code which reads as follows:

Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-
contract to the end that no one shall be unjustly enriched or benefited at the expense of
another.

Indeed, equitable considerations behoove us to allow recovery by respondent. True, it erred in

paying Ekman, but petitioner itself was not without fault in the transaction. It must be noted that
the latter had voluntarily received and kept the loaders since October 1979.

Petitioner claims that it accepted the late delivery of the equipment, only because it was bound to
accept it under the companys trust receipt arrangement with respondent bank.

Granting that petitioner was bound under such arrangement to accept the late delivery of the
equipment, we note its unexplained inaction for almost four years with regard to the status of the
ownership or possession of the loaders. Bewildering was its lack of action to validate the
ownership and possession of the loaders, as well as its stolidity over the purported failed sales
transaction. Significant too is the fact that it formalized its offer to return the two pieces of
equipment only after respondents demand for payment, which came more than three years after it
accepted delivery.

When both parties to a transaction are mutually negligent in the performance of their obligations,
the fault of one cancels the negligence of the other and, as in this case, their rights and obligations
may be determined equitably under the law proscribing unjust enrichment.

Payment of Interest

We, however, disagree with both the CA and the trial courts imposition of 12 percent interest on
the sum to be paid by petitioner. In Eastern Shipping Lines v. CA, [14 the Court laid down the
following guidelines in the imposition of interest:

xxx

2. When an obligation, not constituting a loan or forbearance of money, is breached, an

interest on the amount of damages awarded may be imposed at the discretion of the court
at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is made judicially or extrajudicially
(Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at
the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph
2, above, shall be 12% per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance of credit.

Although the sum of money involved in this case was payable to a bank, the present factual
milieu clearly shows that it was not a loan or forbearance of money. Thus, pursuant to established
jurisprudence and Article 2009 of the Civil Code, petitioner is bound to pay interest at 6 percent
per annum, computed from April 7, 1983, the time respondent bank demanded payment from
petitioner. From the finality of the judgment until its satisfaction, the interest shall be 12 percent
per annum.

Attorneys Fees

Considering that negligence is imputable to both parties, both should bear their respective costs of
the suit. We also delete the award of attorneys fees in favor of respondent bank. [15

WHEREFORE , the Petition is DENIEDand the assailed Decision of the Court of Appeals
AFFIRMED with the following MODIFICATIONS:

1. Petitioner Rodzssen Supply Co., Inc. is ORDERED to reimburse Respondent Far East
Bank and Trust Co., Inc. P76,000 plus interest thereon at the rate of 6 percent per annum
computed from April 7, 1983. After this judgment becomes final, the interest shall be 12
percent per annum.

2. The award of attorneys fees in favor of respondent is DELETED.

3. No pronouncement as to costs.

SO ORDERED.

Melo (Chairman), Vitug, Gonzaga-Reyes, and Sandoval-Gutierrez, JJ., concur.

Endnotes:
[1 Rollo, pp. 9-36.

[2 Rollo, pp. 38-44.

[3 First Division composed of Presiding Justice Lorna S. Lombos-de La Fuente (Division chairman and ponente) and Justices Jaime M. Lantin and Fortunato A.
Vailoces, both of whom concurred.

[4 Rollo, p. 44.

[5 RTC Decision, p. 7; RTC Records, pp. 246-252. The August 15, 1989 Decision was penned by Judge Romeo S. Habaradas.

[6 Rollo, pp. 38-40.

[7 To eliminate its backlog, the Court on February 27, 2001 resolved to redistribute long-pending cases to justices who had none, and who were thus tasked to
prioritize these old cases. Consequently, this case was raffled to the ponente for study and report.

[8 Petitioners Memorandum, p. 10; rollo, p. 120. Upper case used in the original.

[9 RTC Records, p. 5.

[10 RTC Records, p. 140.

[11 Ibid., p. 193.

[12 Ibid., p. 187.

[13 Vitug, Pandect of Commercial Law and Jurisprudence, revised edition, p. 17.

[14 234 SCRA 88, July 12, 1994, per Vitug, J. See also Keng Hua Paper Products Co., Inc. v. Court of Appeals, 286 SCRA 257, February 12, 1998; Eastern
Assurance and Surety Corporation v. CA, GR No. 127135, January 18, 2000; Crismina Garments v. CA, 304 SCRA 356, March 9, 1999.

[15 Art. 2208, Civil Code.

G.R. No. 137842 August 23, 2001

PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
DANILO CATUBIG y HORIO, accused-appellant.
VITUG, J.:

In an information, dated 29 January 1998, the accused, Danilo Catubig y Horio, was charged with the
crime of rape before the Regional Trial Court, Branch 78, of Malolos, Bulacan; viz:

"The undersigned Asst. Provincial Prosecutor on complaint of the offended party Dannilyn
Catubig y Lazaro accuses Danilo Catubig y Horio of the crime of rape, penalized under the
provisions of Art. 335 of the Revised Penal Code, committed as follows:

"That on or about the 27th day of November, 1997, in the municipality of San Jose del Monte,
province of Bulacan, Philippines, and within the jurisdiction of this Honorable Court, the
above-named accused, did then and there wilfully, unlawfully and feloniously, by means of
force, threats and intimidation and with lewd design have carnal knowledge of the said offended
party against her will."1

When arraigned on 16 July 1998, accused Catubig, represented by counsel de oficio, pleaded "not
guilty" to the offense charged; forthwith, trial ensued.

The case for the prosecution was laid bare in Appellee's Brief submitted by the Office of the Solicitor
General.

"On November 27, 1997, at around 4:00 o'clock in the afternoon, private complainant Dannilyn
Catubig, who was born on August 9, 1985, and her four (4) younger siblings were watching
television in the sala of their house located at Sunlife Subdivision, San Jose del Monte, Bulacan.

"After an hour, Dannilyn's father, herein appellant Danilo Catubig, arrived and told Dannilyn's
siblings to proceed, as in fact they did proceed, to her aunt's house which is just located nearby.
Thereafter, appellant told Dannilyn to go inside a room and to lie down on the bed. After
Dannilyn had complied, appellant removed Dannilyn's shorts and panty, while appellant, after
removing his brief and t-shirt, [laid] on top of Dannilyn. Afraid of appellant who beat and raped
her in the past, Dannilyn was not able to resist appellant who succeeded in inserting his penis
into Dannilyn's vagina.

"However, Dannilyn's aunt, who got suspicious of what appellant was doing to Dannilyn,
informed the latter's mother, Jocelyn Catubig, about the said suspicion. Thus, when confronted
by her mother, Dannilyn was forced to reveal that she was indeed raped by appellant. The
sexual assault was reported to the San Jose del Monte Police Station where Dannilyn's sworn
statement was subsequently taken on December 3, 1997.

"Upon the request of the police authorities, Dannilyn was examined on December 1, 1997 by
Dr. Wilfredo E. Tiera, Medico-Legal Officer of the National Bureau of Investigation, who found
out that Dannilyn's healed laceration in the hymen was caused by sexual intercourse."2

The accused denied the accusation against him. He claimed that the rape charge was brought about only
because of the ill-will between him, on the one hand, and his wife and daughter Dannilyn, on the other
hand, following a quarrel. On 27 November 1997, he asseverated, he had fought with his wife, hitting
her and his daughter. His wife then threatened him that it was the last time that she would allow him to
harm her and that he would regret what he did. True to her foreboding, the next day, he was arrested
and a complaint for rape was filed against him.

On 11 December 1998, the Regional Trial Court rendered a decision holding the accused guilty of the
crime of rape; it adjudged:

"WHEREFORE, in view of the foregoing, the Court hereby finds accused DANILO CATUBIG
Y HORIO GUILTY beyond reasonable doubt of the crime of Rape defined and penalized under
Article 335 of the Revised Penal Code, as amended by Republic Act No. 7659, and hereby
sentences him to suffer the penalty of DEATH, and to pay private complainant Dannilyn
Catubig the amount of Fifty Thousand Pesos (P50,000.00) as moral damages."3

With the imposition of the death penalty by the trial court, the records were elevated to this Court for
automatic review.

In his brief, appellant submitted thusly:

"1. The lower court erred in finding the accused guilty of the crime of rape in violation of
Article 335 of the Revised Penal Code as amended by Republic Act 7659.

"2. The lower court erred in not taking into consideration the fact that the information was
defective for failure to state that the accused is the father of the victim and that the victim was
under 18 years [of] age at the time of the commission of the alleged rape."4

Private complainant Dannilyn Catubig narrated how she was repeatedly abused by her own father; she
testified:

"Q Now, after your sisters and brother [went] to the house of your aunt, what did your
father do?

"A He instructed me to go inside the room.

"Q How many rooms were there in your house?

"A Only one.

"Q Did you go to the room per instruction?

"A Yes, sir.

"Q And what happened inside the room?

"A My father entered the room.

"Q And when your father entered the room, what did he do next?

"A He removed my short [pants] and my panty.

"Q What was your position at that time when your father removed your short pants and
panty?

"A I was lying.

"Q When you entered the room, did you lie immediately?

"A No, I just sat.

"Q How come as you claimed a while ago, you were lying when your father removed your
short pants and panty?

"A Once I entered the room, I was sitting then he removed my short [pants] and panty.

"Q You said upon entering the room, you sat and while sitting, all of a sudden your father
removed your short pants and panty while already lying at that time, how come you were lying
when according to you, you were sitting inside the room?

"A I was sitting first and he instructed me to lie down.

"Q While you were sitting inside the room and you were instructed by your father to lie,
what comes to your mind?

"A That he will rape me.

"Q How did you come to know that?

"A He was raping me before, doing that before.

"Q In other words, that was not the first time your father raped you on that particular date?

"A No, sir.

"Q When was the first time, if you remember?

"A When I was still in grade 1.

"Q How many times were you raped by your father?

"A I can no longer remember how many it was — several.

"Q When was the last time your father raped you?

"A November 27.

"Q Now, when your father removed your short pants and panty, what did he do next?
"A He removed his brief and shirt.

"Q After removing his brief and shirt, what did he do?

"A He [laid] on top me.

"Q When your father [laid] on top of you, what did he do?

"A He was inserting his penis to my vagina.

"Q At this juncture, may we make of record that witness starts to cry.

"Q How did you know your father inserted his penis to your vagina?

"A I can feel it and it is painful.

"Q That was the time when your father was already lying on top of you?

"A Yes, sir.

"Q And what was the movement of the body of your father while he was lying on top of
you?

"A Push and pull movement.

"Q For how long did your father stay on top of you doing that push and pull movement?

"A That must be about 1 hour, but my aunt arrived.

"Q Aside from the pain, what else did you feel?

"A Mahapdi at parang may pumipitik sa loob ng ari ko.

"Q Did you not try to resist?

"A No, because I am afraid of him.

"Q You are afraid of your father?

"A Yes, sir.

"Q Afraid of what?

"A Because he was beating us, hitting us.

"Q Why, what was the reason why your father was hitting you?
 "A To threaten us.

"Q For what purpose?

"A Whenever my mother sided with us, my father and mother engaged in a fight.

"Q In this case, you were raped and sexually abused by your father, what made you afraid
of him?

"A Because we were afraid of my father since childhood."5

Dannilyn has given her testimony in a plain, categorical, spontaneous and frank manner, remaining
consistent throughout, and there is hardly anything on record that can cast doubt on her sincerity. The
revelations of an innocent child whose chastity has been abused, coupled with her willingness to face
police investigation and to undergo the trouble and humiliation of a public trial, should merit credence
unless strong justifications dictate otherwise. Indeed, it would take a most senseless kind of depravity
for a young daughter to just make up a story which could put her own father to an undeserved
indictment and to even possibly face death in the hands of the law.6

When rape is committed against one's own daughter, the moral ascendancy and influence of the father,
that necessarily flows from his parental authority, can sufficiently cow the child to submission and can
rightly be held to substitute for the requisite "violence or intimidation" that, normally, would be
characterized by physical acts and uttered threats made on the victim.

The trite defenses of alibi and denial proferred by appellant cannot prevail over the positive and
categorical statements of private complainant. Alibi is often viewed with suspicion and received with
caution not only because it is inherently weak and unreliable but also because it is easy to fabricate. In
order that this defense can prosper, it must be convincing to preclude any doubt on the physical
impossibility of the presence of the accused at the locus criminis at the time of the incident. These
conditions have not been met in the case at bar.

The contention of appellant that his wife and daughter Dannilyn have accused him merely because of
his violent ways is much too flimsy to be believed. The mere resentment of a wife and daughter is not
so compelling as to have motivated them to wrongly lodge a complaint for a crime much more serious
than might, if at all, be expected.

It is likewise a settled doctrine that the assessment made by the trial court on the credibility of
witnesses deserves great regard and weight on appeal. The rule is not without reason; the trial judge has
a unique position of hearing first hand the witnesses and observing their deportment, conduct and
attitude during the course of the testimony in open court. There is no valid reason to now ignore this
long accepted jurisprudence in this instance.

This Court, however, finds the second assignment of error impressed with merit.

Article 335 of the Revised Penal Code, as amended by Section 11 of Republic Act No. 7659, at times
also referred to as the Death Penalty Law, states in part:
 "ARTICLE 335. When and how rape is committed. x x x .

"xxx xxx xxx

"The death penalty shall also be imposed if the crime of rape is committed with any of the
following attendant circumstances:

"1. When the victim is under eighteen (18) years of age and the offender is a parent, ascendant,
step-parent, guardian, relative by consanguinity or affinity within the third civil degree, or the
common-law spouse of the parent of the victim."

The concurrence of the minority of the victim and her relationship to the offender are special qualifying
circumstances that are needed to be alleged in the complaint or information for the penalty of death to
be decreed.7 The Constitution guarantees to be inviolable the right of an accused to be informed of the
nature and cause of the accusation against him.8 It is a requirement that renders it essential for every
element of the offense with which he is charged to be properly alleged in the complaint or information.

Here, the information failed to state the minority of the victim and her relationship with the offender,
both special qualifying circumstances under Republic Act No. 7659, and for want of such allegations,
the trial court erred in imposing the death penalty on the accused.9 Appellant could only thus be
convicted under Article 335 of the Revised Penal Code, as amended, of simple rape punishable by
reclusion perpetua.

Anent the award of damages, the trial court has correctly awarded P50,000.00 moral damages, an
award that rests on the jural foundation that the crime of rape necessarily brings with it shame, mental
anguish, besmirched reputation, moral shock and social humiliation to the offended party.10 In addition,
the offended party deserves to receive the amount of P50,000.00 civil indemnity,11 the equivalent of
compensatory damages, and exemplary damages in the amount of P25,000.00.

An apparent discord in the award of exemplary damages in simple and qualified rape cases perhaps
deserves more than just a passing remark.

The Civil Code of the Philippines provides, in respect to exemplary or corrective damages, thusly:

"ARTICLE 2229. Exemplary or corrective damages are imposed, by way of example or

correction for the public good, in addition to the moral, temperate, liquidated or compensatory
damages.

"ARTICLE 2230. In criminal offenses, exemplary damages as a part of the civil liability may be
imposed when the crime was committed with one or more aggravating circumstances. Such
damages are separate and distinct from fines and shall be paid to the offended party.

"ARTICLE 2231. In quasi-delicts, exemplary damages may be granted if the defendant acted
with gross negligence.

"ARTICLE 2232. In contracts and quasi-contracts, the court may award exemplary damages if
the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.
 "ARTICLE 2233. Exemplary damages cannot be recovered as a matter of right; the court will
decide whether or not they should be adjudicated.

"ARTICLE 2234. While the amount of the exemplary damages need not be proved, the plaintiff
must show that he is entitled to moral, temperate or compensatory damages before the court
may consider the question of whether or not exemplary damages should be awarded. In case
liquidated damages have been agreed upon, although no proof of loss is necessary in order that
such liquidated damages may be recovered, nevertheless, before the court may consider the
question of granting exemplary in addition to the liquidated damages, the plaintiff must show
that he would be entitled to moral, temperate or compensatory damages were it not for the
stipulation for liquidated damages.

"ARTICLE 2235. A stipulation whereby exemplary damages are renounced in advance shall be
null and void."

The attendance of aggravating circumstances in the perpetration of the crime serves to increase the
penalty (the criminal liability aspect),12 as well as to justify an award of exemplary or corrective
damages (the civil liability aspect),13 moored on the greater perversity of the offender manifested in the
commission of the felony such as may be shown by (1) the motivating power itself, (2) the place of
commission, (3) the means and ways employed, (4) the time, or (5) the personal circumstances of the
offender or the offended party or both. There are various types of aggravating circumstances, among
them, the ordinary and the qualifying. Relationship is an alternative circumstance under Article 15 of
the Revised Penal Code.

"ARTICLE 15. Their concept. — Alternative circumstances are those which must be taken into
consideration as aggravating or mitigating according to the nature and effects of the crime and
other conditions attending its commission. They are relationship, intoxication, and degree of
instruction and education of the offender.

"The alternative circumstance of relationship shall be taken into consideration when the
offended party is the spouse, ascendant, descendant, legitimate, natural, or adopted brother or
sister, or relative by affinity in the same degree of the offender."

As a rule, relationship is held to be aggravating in crimes against chastity, such as rape and acts of
lasciviousness, whether the offender is a higher or a lower degree relative of the offended party.14

Under Section 11 of Republic Act No. 7659, amending Article 335 of the Revised Penal Code, the
death penalty is to be imposed in rape cases "when the victim is under eighteen (18) years of age and
the offender is a parent, ascendant, step-parent, guardian, relative by consanguinity or affinity within
the third civil degree, or the common-law spouse of the parent of the victim." The Court has since held
that the circumstances enumerated by the amendatory law are to be regarded as special qualifying
(aggravating) circumstances. Somehow doubts linger on whether relationship may then be considered
to warrant an award for exemplary damages where it is used to qualify rape as a heinous crime, thereby
becoming an element thereof, as would subject the offender to the penalty of death. Heretofore, the
Court has not categorically laid down a specific rule, preferring instead to treat the issue on a case to
case basis.
In People vs. Fundano,15 People vs. Ramos,16 People vs. Medina,17 People vs. Dimapilis,18 People vs.
Calayca,19 People vs. Tabion,20 People vs. Bayona,21 People vs. Bayya,22 and People vs. Nuñez,23 along
with still other cases, the Court has almost invariably appreciated relationship as an ordinary
aggravating circumstance in simple rape and thereby imposed exemplary damages upon the offender
whether or not the offense has been committed prior to or after the effectivity of Republic Act No.
7659. Exceptionally, as in People vs. Decena,24 People vs. Perez,25 People vs. Perez,26 and People vs.
Ambray,27 the Court has denied the award of exemplary damages following the effectivity of that law.
In qualified rape cases, such as in People vs. Magdato,28 People vs. Arizapa,29 and People vs. Alicante,30
the Court decreed the payment of exemplary damages to the offended party but it did not do so as in
People vs. Alba,31 People vs. Mengote,32 and People vs. Maglente.33

It may be time for the Court to abandon its pro hac vice stance and provide, for the guidance of the bar
and the bench, a kind of standard on the matter.

Also known as "punitive" or "vindictive" damages, exemplary or corrective damages are intended to
serve as a deterrent to serious wrongdoings and as a vindication of undue sufferings and wanton
invasion of the rights of an injured or a punishment for those guilty of outrageous conduct. These terms
are generally, but not always, used interchangeably. In common law, there is preference in the use of
exemplary damages when the award is to account for injury to feelings and for the sense of indignity
and humiliation suffered by a person as a result of an injury that has been maliciously and wantonly
inflicted,34 the theory being that there should be compensation for the hurt caused by the highly
reprehensible conduct of the defendant — associated with such circumstances as willfulness,
wantonness, malice, gross negligence or recklessness, oppression, insult or fraud or gross fraud35 —
that intensifies the injury. The terms punitive or vindictive damages are often used to refer to those
species of damages that may be awarded against a person to punish him for his outrageous conduct. In
either case, these damages are intended in good measure to deter the wrongdoer and others like him
from similar conduct in the future.36

The term "aggravating circumstances" used by the Civil Code, the law not having specified otherwise,
is to be understood in its broad or generic sense. The commission of an offense has a two-pronged
effect, one on the public as it breaches the social order and the other upon the private victim as it causes
personal sufferings, each of which is addressed by, respectively, the prescription of heavier punishment
for the accused and by an award of additional damages to the victim. The increase of the penalty or a
shift to a graver felony underscores the exacerbation of the offense by the attendance of aggravating
circumstances, whether ordinary or qualifying, in its commission. Unlike the criminal which is
basically a State concern, the award of damages, however, is likewise, if not primarily, intended for the
offended party who suffers thereby. It would make little sense for an award of exemplary damages to be
due the private offended party when the aggravating circumstance is ordinary but to be withheld when
it is qualifying. Withal, the ordinary or qualifying nature of an aggravating circumstance is a distinction
that should only be of consequence to the criminal, rather than to the civil, liability of the offender. In
fine, relative to the civil aspect of the case, an aggravating circumstance, whether ordinary or
qualifying, should entitle the offended party to an award of exemplary damages within the unbridled
meaning of Article 2230 of the Civil Code.

Relevantly, the Revised Rules on Criminal Procedure, made effective on 01 December 2000, requires
aggravating circumstances, whether ordinary or qualifying, to be stated in the complaint or information.
Sections 8 and 9 of Rule 110 of the Rules of Court now provide:
 "SECTION 8. Designation of the offense. — The complaint or information shall state the
designation of the offense given by the statute, aver the acts or omissions constituting the
offense, and specify its qualifying and aggravating circumstances. If there is no designation of
the offense, reference shall be made to the section or subsection of the statute punishing it.

"SECTION 9. Cause of the accusation. — The acts or omissions complained of as constituting

the offense and the qualifying and aggravating circumstances must be stated in ordinary and
concise language and not necessarily in the language used in the statute but in terms sufficient
to enable a person of common understanding to know what offense is being charged as well as
its qualifying and aggravating circumstances and for the court to pronounce judgment."

A court would thus be precluded from considering in its judgment the attendance of "qualifying or
aggravating circumstances" if the complaint or information is bereft of any allegation on the presence
of such circumstances.

The retroactive application of procedural rules, nevertheless, cannot adversely affect the rights of the
private offended party that have become vested prior to the effectivity of said rules. Thus, in the case at
bar, although relationship has not been alleged in the information, the offense having been committed,
however, prior to the effectivity of the new rules, the civil liability already incurred by appellant
remains unaffected thereby.

WHEREFORE, the decision of the court a quo is AFFIRMED with MODIFICATION in that appellant
Danilo Catubig y Horio is found guilty only of simple rape and not in its qualified form, and he is
hereby sentenced to suffer the penalty of reclusion perpetua and to pay complainant Dannilyn Catubig
P50,000.00 civil indemnity, P50,000.00 moral damages and P25,000.00 exemplary damages. Costs de
oficio.

SO ORDERED.

Davide, Jr., C .J ., Bellosillo, Melo, Kapunan, Mendoza, Panganiban, Quisumbing, Pardo, Buena,
Gonzaga-Reyes, Ynares-Santiago, De Leon, Jr. and Sandoval-Gutierrez, JJ ., concur.
Puno, J ., concurs in the result.

Footnotes
1
Rollo, p. 5.
2
Rollo, pp. 61-62.
3
Rollo, p. 51.
4
Rollo, p. 35.
5
TSN, 16 March 1998, pp. 3-5.
6
People vs. Rivera, 318 SCRA 317.
7
People vs. Narido, 316 SCRA 131.
8
Sec. 1(2), Art III of the Constitution.
9
People vs. Panique, 316 SCRA 757.
10
People vs. Nuñez, 310 SCRA 168; People vs. Narido, 316 SCRA 131.
11
People vs. De la Cuesta, 304 SCRA 83; People vs. Narido, supra.
12
Idem, p. 312.
13
Art. 2230, Civil Code.
14
Reyes, Luis R. The Revised Penal Code, 14th Ed., 1998, p. 464; People vs. Porras, 58 Phil.
578; People vs. Lucas, 181 SCRA 316; People vs. Tan Jr., 264 SCRA 425; People vs. Perez, 270
SCRA 526; People vs. Perez, 296 SCRA 17; People vs. Mosqueda, 313 SCRA 694; People vs.
Tresballes, 314 SCRA 774; People vs. Docena, 322 SCRA 820; People vs. Sampior, 327 SCRA
31; People vs. Gajo, 327 SCRA 612; People vs. Alvero, 329 SCRA 737.
15
291 SCRA 356.
16
296 SCRA 559.
17
300 SCRA 98.
18
300 SCRA 279.
19
301 SCRA 192.
20
317 SCRA 126.
21
327 SCRA 190.
22
327 SCRA 771.
23
310 SCRA 168.
24
332 SCRA 618.
25
270 SCRA 526.
26
290 SCRA 17.
27
303 SCRA 697.
 28
324 SCRA 785.
29
328 SCRA 214.
30
332 SCRA 440.
31
305 SCRA 811.
32
305 SCRA 380.
33
303 SCRA 546.
34
American Cent. Corp. vs. Stevens Van Lines, Inc., 103 Mich App 507, 303 NW2d 234;
Morris vs. Duncan, 126 Ga 467, 54 SE 1045; Faircloth vs. Greiner, 174 Ga app 845, 332 SE 2d
905; §731, 22 Am Jur 2d, p. 784 American Surety Co. vs. Gold, 375 F 2d 523, 20 ALR 3d 335;
Elwin vs. Michigan, 188 Ark 658, 67 SW 2d 592.
35
§762 22 Am Jur 2d pp. 817-818.
36
§733, 22 Am Jur 2d, p. 785; Symposium: Punitive Damages, 56 So Cal LR 1, November
1982.

AIR FRANCE, petitioner,

vs.
RAFAEL CARRASCOSO and the HONORABLE COURT OF APPEALS, respondents.

Lichauco, Picazo and Agcaoili for petitioner.

Bengzon Villegas and Zarraga for respondent R. Carrascoso.

SANCHEZ, J.:

The Court of First Instance of Manila 1 sentenced petitioner to pay respondent Rafael Carrascoso
P25,000.00 by way of moral damages; P10,000.00 as exemplary damages; P393.20 representing the
difference in fare between first class and tourist class for the portion of the trip Bangkok-Rome, these
various amounts with interest at the legal rate, from the date of the filing of the complaint until paid;
plus P3,000.00 for attorneys' fees; and the costs of suit.

On appeal,2 the Court of Appeals slightly reduced the amount of refund on Carrascoso's plane
ticket from P393.20 to P383.10, and voted to affirm the appealed decision "in all other respects", with
costs against petitioner.

The case is now before us for review on certiorari.

The facts declared by the Court of Appeals as " fully supported by the evidence of record", are:
 Plaintiff, a civil engineer, was a member of a group of 48 Filipino pilgrims that left
Manila for Lourdes on March 30, 1958.

On March 28, 1958, the defendant, Air France, through its authorized agent, Philippine
Air Lines, Inc., issued to plaintiff a "first class" round trip airplane ticket from Manila to Rome.
From Manila to Bangkok, plaintiff travelled in "first class", but at Bangkok, the Manager of the
defendant airline forced plaintiff to vacate the "first class" seat that he was occupying because,
in the words of the witness Ernesto G. Cuento, there was a "white man", who, the Manager
alleged, had a "better right" to the seat. When asked to vacate his "first class" seat, the plaintiff,
as was to be expected, refused, and told defendant's Manager that his seat would be taken over
his dead body; a commotion ensued, and, according to said Ernesto G. Cuento, "many of the
Filipino passengers got nervous in the tourist class; when they found out that Mr. Carrascoso
was having a hot discussion with the white man [manager], they came all across to Mr.
Carrascoso and pacified Mr. Carrascoso to give his seat to the white man" (Transcript, p. 12,
Hearing of May 26, 1959); and plaintiff reluctantly gave his "first class" seat in the plane.3

1. The trust of the relief petitioner now seeks is that we review "all the findings" 4 of respondent
Court of Appeals. Petitioner charges that respondent court failed to make complete findings of fact on
all the issues properly laid before it. We are asked to consider facts favorable to petitioner, and then, to
overturn the appellate court's decision.

Coming into focus is the constitutional mandate that "No decision shall be rendered by any court
of record without expressing therein clearly and distinctly the facts and the law on which it is based". 5
This is echoed in the statutory demand that a judgment determining the merits of the case shall state
"clearly and distinctly the facts and the law on which it is based"; 6 and that "Every decision of the
Court of Appeals shall contain complete findings of fact on all issues properly raised before it". 7

A decision with absolutely nothing to support it is a nullity. It is open to direct attack. 8 The law,
however, solely insists that a decision state the "essential ultimate facts" upon which the court's
conclusion is drawn. 9 A court of justice is not hidebound to write in its decision every bit and piece of
evidence 10 presented by one party and the other upon the issues raised. Neither is it to be burdened
with the obligation "to specify in the sentence the facts" which a party "considered as proved". 11 This
is but a part of the mental process from which the Court draws the essential ultimate facts. A decision is
not to be so clogged with details such that prolixity, if not confusion, may result. So long as the
decision of the Court of Appeals contains the necessary facts to warrant its conclusions, it is no error
for said court to withhold therefrom "any specific finding of facts with respect to the evidence for the
defense". Because as this Court well observed, "There is no law that so requires". 12 Indeed, "the mere
failure to specify (in the decision) the contentions of the appellant and the reasons for refusing to
believe them is not sufficient to hold the same contrary to the requirements of the provisions of law and
the Constitution". It is in this setting that in Manigque, it was held that the mere fact that the findings
"were based entirely on the evidence for the prosecution without taking into consideration or even
mentioning the appellant's side in the controversy as shown by his own testimony", would not vitiate
the judgment. 13 If the court did not recite in the decision the testimony of each witness for, or each item
of evidence presented by, the defeated party, it does not mean that the court has overlooked such
testimony or such item of evidence. 14 At any rate, the legal presumptions are that official duty has been
regularly performed, and that all the matters within an issue in a case were laid before the court and
passed upon by it. 15
 Findings of fact, which the Court of Appeals is required to make, maybe defined as "the written
statement of the ultimate facts as found by the court ... and essential to support the decision and
judgment rendered thereon". 16 They consist of the court's "conclusions" with respect to the
determinative facts in issue". 17 A question of law, upon the other hand, has been declared as "one
which does not call for an examination of the probative value of the evidence presented by the parties."
18

2. By statute, "only questions of law may be raised" in an appeal by certiorari from a judgment of
the Court of Appeals. 19 That judgment is conclusive as to the facts. It is not appropriately the business
of this Court to alter the facts or to review the questions of fact. 20

With these guideposts, we now face the problem of whether the findings of fact of the Court of
Appeals support its judgment.

3. Was Carrascoso entitled to the first class seat he claims?

It is conceded in all quarters that on March 28, 1958 he paid to and received from petitioner a
first class ticket. But petitioner asserts that said ticket did not represent the true and complete intent and
agreement of the parties; that said respondent knew that he did not have confirmed reservations for first
class on any specific flight, although he had tourist class protection; that, accordingly, the issuance of a
first class ticket was no guarantee that he would have a first class ride, but that such would depend
upon the availability of first class seats.

These are matters which petitioner has thoroughly presented and discussed in its brief before the
Court of Appeals under its third assignment of error, which reads: "The trial court erred in finding that
plaintiff had confirmed reservations for, and a right to, first class seats on the "definite" segments of his
journey, particularly that from Saigon to Beirut". 21

And, the Court of Appeals disposed of this contention thus:

Defendant seems to capitalize on the argument that the issuance of a first-class ticket was
no guarantee that the passenger to whom the same had been issued, would be accommodated in
the first-class compartment, for as in the case of plaintiff he had yet to make arrangements upon
arrival at every station for the necessary first-class reservation. We are not impressed by such a
reasoning. We cannot understand how a reputable firm like defendant airplane company could
have the indiscretion to give out tickets it never meant to honor at all. It received the
corresponding amount in payment of first-class tickets and yet it allowed the passenger to be at
the mercy of its employees. It is more in keeping with the ordinary course of business that the
company should know whether or riot the tickets it issues are to be honored or not.22

Not that the Court of Appeals is alone. The trial court similarly disposed of petitioner's
contention, thus:

On the fact that plaintiff paid for, and was issued a "First class" ticket, there can be no question.
Apart from his testimony, see plaintiff's Exhibits "A", "A-1", "B", "B-1," "B-2", "C" and "C-1", and
defendant's own witness, Rafael Altonaga, confirmed plaintiff's testimony and testified as follows:

Q. In these tickets there are marks "O.K." From what you know, what does this OK mean?
 A. That the space is confirmed.

Q. Confirmed for first class?

A. Yes, "first class". (Transcript, p. 169)

xxx xxx xxx

Defendant tried to prove by the testimony of its witnesses Luis Zaldariaga and Rafael Altonaga
that although plaintiff paid for, and was issued a "first class" airplane ticket, the ticket was subject to
confirmation in Hongkong. The court cannot give credit to the testimony of said witnesses. Oral
evidence cannot prevail over written evidence, and plaintiff's Exhibits "A", "A-l", "B", "B-l", "C" and
"C-1" belie the testimony of said witnesses, and clearly show that the plaintiff was issued, and paid for,
a first class ticket without any reservation whatever.

Furthermore, as hereinabove shown, defendant's own witness Rafael Altonaga testified that the
reservation for a "first class" accommodation for the plaintiff was confirmed. The court cannot believe
that after such confirmation defendant had a verbal understanding with plaintiff that the "first class"
ticket issued to him by defendant would be subject to confirmation in Hongkong. 23

We have heretofore adverted to the fact that except for a slight difference of a few pesos in the
amount refunded on Carrascoso's ticket, the decision of the Court of First Instance was affirmed by the
Court of Appeals in all other respects. We hold the view that such a judgment of affirmance has merged
the judgment of the lower court. 24 Implicit in that affirmance is a determination by the Court of
Appeals that the proceeding in the Court of First Instance was free from prejudicial error and "all
questions raised by the assignments of error and all questions that might have been raised are to be
regarded as finally adjudicated against the appellant". So also, the judgment affirmed "must be
regarded as free from all error". 25 We reached this policy construction because nothing in the decision
of the Court of Appeals on this point would suggest that its findings of fact are in any way at war with
those of the trial court. Nor was said affirmance by the Court of Appeals upon a ground or grounds
different from those which were made the basis of the conclusions of the trial court. 26

If, as petitioner underscores, a first-class-ticket holder is not entitled to a first class seat,
notwithstanding the fact that seat availability in specific flights is therein confirmed, then an air
passenger is placed in the hollow of the hands of an airline. What security then can a passenger have? It
will always be an easy matter for an airline aided by its employees, to strike out the very stipulations in
the ticket, and say that there was a verbal agreement to the contrary. What if the passenger had a
schedule to fulfill? We have long learned that, as a rule, a written document speaks a uniform language;
that spoken word could be notoriously unreliable. If only to achieve stability in the relations between
passenger and air carrier, adherence to the ticket so issued is desirable. Such is the case here. The lower
courts refused to believe the oral evidence intended to defeat the covenants in the ticket.

The foregoing are the considerations which point to the conclusion that there are facts upon
which the Court of Appeals predicated the finding that respondent Carrascoso had a first class ticket
and was entitled to a first class seat at Bangkok, which is a stopover in the Saigon to Beirut leg of the
flight. 27 We perceive no "welter of distortions by the Court of Appeals of petitioner's statement of its
position", as charged by petitioner. 28 Nor do we subscribe to petitioner's accusation that respondent
Carrascoso "surreptitiously took a first class seat to provoke an issue". 29 And this because, as petitioner
states, Carrascoso went to see the Manager at his office in Bangkok "to confirm my seat and because
from Saigon I was told again to see the Manager". 30 Why, then, was he allowed to take a first class seat
in the plane at Bangkok, if he had no seat? Or, if another had a better right to the seat?

4. Petitioner assails respondent court's award of moral damages. Petitioner's trenchant claim is
that Carrascoso's action is planted upon breach of contract; that to authorize an award for moral
damages there must be an averment of fraud or bad faith;31 and that the decision of the Court of
Appeals fails to make a finding of bad faith. The pivotal allegations in the complaint bearing on this
issue are:

3. That ... plaintiff entered into a contract of air carriage with the Philippine Air Lines for a
valuable consideration, the latter acting as general agents for and in behalf of the defendant,
under which said contract, plaintiff was entitled to, as defendant agreed to furnish plaintiff, First
Class passage on defendant's plane during the entire duration of plaintiff's tour of Europe with
Hongkong as starting point up to and until plaintiff's return trip to Manila, ... .

4. That, during the first two legs of the trip from Hongkong to Saigon and from Saigon to
Bangkok, defendant furnished to the plaintiff First Class accommodation but only after
protestations, arguments and/or insistence were made by the plaintiff with defendant's
employees.

5. That finally, defendant failed to provide First Class passage, but instead furnished plaintiff
only Tourist Class accommodations from Bangkok to Teheran and/or Casablanca, ... the
plaintiff has been compelled by defendant's employees to leave the First Class accommodation
berths at Bangkok after he was already seated.

6. That consequently, the plaintiff, desiring no repetition of the inconvenience and

embarrassments brought by defendant's breach of contract was forced to take a Pan American
World Airways plane on his return trip from Madrid to Manila.32

xxx xxx xxx

2. That likewise, as a result of defendant's failure to furnish First Class accommodations

aforesaid, plaintiff suffered inconveniences, embarrassments, and humiliations, thereby causing
plaintiff mental anguish, serious anxiety, wounded feelings, social humiliation, and the like injury,
resulting in moral damages in the amount of P30,000.00. 33

xxx xxx xxx

The foregoing, in our opinion, substantially aver: First, That there was a contract to furnish
plaintiff a first class passage covering, amongst others, the Bangkok-Teheran leg; Second, That said
contract was breached when petitioner failed to furnish first class transportation at Bangkok; and Third,
that there was bad faith when petitioner's employee compelled Carrascoso to leave his first class
accommodation berth "after he was already, seated" and to take a seat in the tourist class, by reason of
which he suffered inconvenience, embarrassments and humiliations, thereby causing him mental
anguish, serious anxiety, wounded feelings and social humiliation, resulting in moral damages. It is true
that there is no specific mention of the term bad faith in the complaint. But, the inference of bad faith is
there, it may be drawn from the facts and circumstances set forth therein. 34 The contract was averred to
establish the relation between the parties. But the stress of the action is put on wrongful expulsion.

Quite apart from the foregoing is that (a) right the start of the trial, respondent's counsel placed
petitioner on guard on what Carrascoso intended to prove: That while sitting in the plane in Bangkok,
Carrascoso was ousted by petitioner's manager who gave his seat to a white man; 35 and (b) evidence of
bad faith in the fulfillment of the contract was presented without objection on the part of the petitioner.
It is, therefore, unnecessary to inquire as to whether or not there is sufficient averment in the complaint
to justify an award for moral damages. Deficiency in the complaint, if any, was cured by the evidence.
An amendment thereof to conform to the evidence is not even required. 36 On the question of bad faith,
the Court of Appeals declared:

That the plaintiff was forced out of his seat in the first class compartment of the plane
belonging to the defendant Air France while at Bangkok, and was transferred to the tourist class
not only without his consent but against his will, has been sufficiently established by plaintiff in
his testimony before the court, corroborated by the corresponding entry made by the purser of
the plane in his notebook which notation reads as follows:

"First-class passenger was forced to go to the tourist class against his will, and
that the captain refused to intervene",

and by the testimony of an eye-witness, Ernesto G. Cuento, who was a co-passenger. The
captain of the plane who was asked by the manager of defendant company at Bangkok to
intervene even refused to do so. It is noteworthy that no one on behalf of defendant ever
contradicted or denied this evidence for the plaintiff. It could have been easy for defendant to
present its manager at Bangkok to testify at the trial of the case, or yet to secure his disposition;
but defendant did neither. 37

The Court of appeals further stated —

Neither is there evidence as to whether or not a prior reservation was made by the white
man. Hence, if the employees of the defendant at Bangkok sold a first-class ticket to him when
all the seats had already been taken, surely the plaintiff should not have been picked out as the
one to suffer the consequences and to be subjected to the humiliation and indignity of being
ejected from his seat in the presence of others. Instead of explaining to the white man the
improvidence committed by defendant's employees, the manager adopted the more drastic step
of ousting the plaintiff who was then safely ensconsced in his rightful seat. We are strengthened
in our belief that this probably was what happened there, by the testimony of defendant's
witness Rafael Altonaga who, when asked to explain the meaning of the letters "O.K."
appearing on the tickets of plaintiff, said "that the space is confirmed for first class. Likewise,
Zenaida Faustino, another witness for defendant, who was the chief of the Reservation Office of
defendant, testified as follows:

"Q How does the person in the ticket-issuing office know what reservation the passenger
has arranged with you?

A They call us up by phone and ask for the confirmation." (t.s.n., p. 247, June 19, 1959)

In this connection, we quote with approval what the trial Judge has said on this point:
 Why did the, using the words of witness Ernesto G. Cuento, "white man" have a
"better right" to the seat occupied by Mr. Carrascoso? The record is silent. The
defendant airline did not prove "any better", nay, any right on the part of the "white
man" to the "First class" seat that the plaintiff was occupying and for which he paid and
was issued a corresponding "first class" ticket.

If there was a justified reason for the action of the defendant's Manager in
Bangkok, the defendant could have easily proven it by having taken the testimony of the
said Manager by deposition, but defendant did not do so; the presumption is that
evidence willfully suppressed would be adverse if produced [Sec. 69, par (e), Rules of
Court]; and, under the circumstances, the Court is constrained to find, as it does find,
that the Manager of the defendant airline in Bangkok not merely asked but threatened
the plaintiff to throw him out of the plane if he did not give up his "first class" seat
because the said Manager wanted to accommodate, using the words of the witness
Ernesto G. Cuento, the "white man".38

It is really correct to say that the Court of Appeals in the quoted portion first transcribed
did not use the term "bad faith". But can it be doubted that the recital of facts therein points to
bad faith? The manager not only prevented Carrascoso from enjoying his right to a first class
seat; worse, he imposed his arbitrary will; he forcibly ejected him from his seat, made him
suffer the humiliation of having to go to the tourist class compartment - just to give way to
another passenger whose right thereto has not been established. Certainly, this is bad faith.
Unless, of course, bad faith has assumed a meaning different from what is understood in law.
For, "bad faith" contemplates a "state of mind affirmatively operating with furtive design or
with some motive of self-interest or will or for ulterior purpose." 39

And if the foregoing were not yet sufficient, there is the express finding of bad faith in the
judgment of the Court of First Instance, thus:

The evidence shows that the defendant violated its contract of transportation with
plaintiff in bad faith, with the aggravating circumstances that defendant's Manager in
Bangkok went to the extent of threatening the plaintiff in the presence of many
passengers to have him thrown out of the airplane to give the "first class" seat that he
was occupying to, again using the words of the witness Ernesto G. Cuento, a "white
man" whom he (defendant's Manager) wished to accommodate, and the defendant has
not proven that this "white man" had any "better right" to occupy the "first class" seat
that the plaintiff was occupying, duly paid for, and for which the corresponding "first
class" ticket was issued by the defendant to him.40

5. The responsibility of an employer for the tortious act of its employees need not be essayed. It
is well settled in law. 41 For the willful malevolent act of petitioner's manager, petitioner, his employer,
must answer. Article 21 of the Civil Code says:

ART. 21. Any person who willfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for the damage.

In parallel circumstances, we applied the foregoing legal precept; and, we held that upon the
provisions of Article 2219 (10), Civil Code, moral damages are recoverable. 42
 6. A contract to transport passengers is quite different in kind and degree from any other
contractual relation. 43 And this, because of the relation which an air-carrier sustains with the public. Its
business is mainly with the travelling public. It invites people to avail of the comforts and advantages it
offers. The contract of air carriage, therefore, generates a relation attended with a public duty. Neglect
or malfeasance of the carrier's employees, naturally, could give ground for an action for damages.

Passengers do not contract merely for transportation. They have a right to be treated by the
carrier's employees with kindness, respect, courtesy and due consideration. They are entitled to be
protected against personal misconduct, injurious language, indignities and abuses from such
employees. So it is, that any rule or discourteous conduct on the part of employees towards a passenger
gives the latter an action for damages against the carrier. 44

Thus, "Where a steamship company 45 had accepted a passenger's check, it was a breach of
contract and a tort, giving a right of action for its agent in the presence of third persons to falsely notify
her that the check was worthless and demand payment under threat of ejection, though the language
used was not insulting and she was not ejected." 46 And this, because, although the relation of passenger
and carrier is "contractual both in origin and nature" nevertheless "the act that breaks the contract may
be also a tort". 47 And in another case, "Where a passenger on a railroad train, when the conductor came
to collect his fare tendered him the cash fare to a point where the train was scheduled not to stop, and
told him that as soon as the train reached such point he would pay the cash fare from that point to
destination, there was nothing in the conduct of the passenger which justified the conductor in using
insulting language to him, as by calling him a lunatic," 48 and the Supreme Court of South Carolina
there held the carrier liable for the mental suffering of said passenger.1awphîl.nèt

Petitioner's contract with Carrascoso is one attended with public duty. The stress of Carrascoso's
action as we have said, is placed upon his wrongful expulsion. This is a violation of public duty by the
petitioner air carrier — a case of quasi-delict. Damages are proper.

7. Petitioner draws our attention to respondent Carrascoso's testimony, thus —

Q You mentioned about an attendant. Who is that attendant and purser?

A When we left already — that was already in the trip — I could not help it. So one of the flight
attendants approached me and requested from me my ticket and I said, What for? and she said,
"We will note that you transferred to the tourist class". I said, "Nothing of that kind. That is
tantamount to accepting my transfer." And I also said, "You are not going to note anything there
because I am protesting to this transfer".

Q Was she able to note it?

A No, because I did not give my ticket.

Q About that purser?

A Well, the seats there are so close that you feel uncomfortable and you don't have enough leg
room, I stood up and I went to the pantry that was next to me and the purser was there. He told
me, "I have recorded the incident in my notebook." He read it and translated it to me — because
it was recorded in French — "First class passenger was forced to go to the tourist class against
 his will, and that the captain refused to intervene."

Mr. VALTE —

I move to strike out the last part of the testimony of the witness because the best evidence
would be the notes. Your Honor.

COURT —

I will allow that as part of his testimony. 49

Petitioner charges that the finding of the Court of Appeals that the purser made an entry in his
notebook reading "First class passenger was forced to go to the tourist class against his will, and that
the captain refused to intervene" is predicated upon evidence [Carrascoso's testimony above] which is
incompetent. We do not think so. The subject of inquiry is not the entry, but the ouster incident.
Testimony on the entry does not come within the proscription of the best evidence rule. Such testimony
is admissible. 49a

Besides, from a reading of the transcript just quoted, when the dialogue happened, the impact of
the startling occurrence was still fresh and continued to be felt. The excitement had not as yet died
down. Statements then, in this environment, are admissible as part of the res gestae. 50 For, they grow
"out of the nervous excitement and mental and physical condition of the declarant". 51 The utterance of
the purser regarding his entry in the notebook was spontaneous, and related to the circumstances of the
ouster incident. Its trustworthiness has been guaranteed. 52 It thus escapes the operation of the hearsay
rule. It forms part of the res gestae.

At all events, the entry was made outside the Philippines. And, by an employee of petitioner. It
would have been an easy matter for petitioner to have contradicted Carrascoso's testimony. If it were
really true that no such entry was made, the deposition of the purser could have cleared up the matter.

We, therefore, hold that the transcribed testimony of Carrascoso is admissible in evidence.

8. Exemplary damages are well awarded. The Civil Code gives the court ample power to grant
exemplary damages — in contracts and quasi- contracts. The only condition is that defendant should
have "acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner." 53 The manner of
ejectment of respondent Carrascoso from his first class seat fits into this legal precept. And this, in
addition to moral damages.54

9. The right to attorney's fees is fully established. The grant of exemplary damages justifies a
similar judgment for attorneys' fees. The least that can be said is that the courts below felt that it is but
just and equitable that attorneys' fees be given. 55 We do not intend to break faith with the tradition that
discretion well exercised — as it was here — should not be disturbed.

10. Questioned as excessive are the amounts decreed by both the trial court and the Court of
Appeals, thus: P25,000.00 as moral damages; P10,000.00, by way of exemplary damages, and
P3,000.00 as attorneys' fees. The task of fixing these amounts is primarily with the trial court. 56 The
Court of Appeals did not interfere with the same. The dictates of good sense suggest that we give our
imprimatur thereto. Because, the facts and circumstances point to the reasonableness thereof.57
 On balance, we say that the judgment of the Court of Appeals does not suffer from reversible
error. We accordingly vote to affirm the same. Costs against petitioner. So ordered.

Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Zaldivar and Castro, JJ., concur.
Bengzon, J.P., J., took no part.

Footnotes
1
Civil Case No. 38810, "Rafael Carrascoso, plaintiff, vs. Air France, defendant," R.A., pp. 79-
80.
2
C.A.-G.R. No. 26522-R, "Rafael Carrascoso, plaintiff-appellee, vs. Air France, defendant-
appellant."
3
Appendix A, petitioner's brief, pp 146-147. See also R.A., pp. 66-67.
4
Petitioner's brief, p. 142.
5
Section 12, Article VIII, Constitution.
6
Section 1, Rule 36, Rules of Court. See also Section 2, Rule 120, in reference to judgments in
criminal cases.
7
Sec. 4. Rule 51; Sec. 33(2), Judiciary Act of 1948, as amended.
8
Edwards vs. McCoy, 22 Phil. 598, 601; Yangco vs. Court of First Instance of Manila, et al., 29
Phil. 183, 191.
9
Braga vs. Millora, 3 Phil. 458, 465.
10
Id.
11
Aringo vs. Arena 14 Phil. 263, 266; emphasis supplied.
12
Reyes vs. People. 71 Phil. 598, 600.
13
People vs. Manigque 35 O.G., No. 94, pp. 1682, 1683, citing Section 133 of the Code of Civil
Procedure and Section 12, Art. VIII, Constitution, supra.
14
Badger et al. vs. Boyd, 65 S.W. (2d), pp. 601, 610.
15
Section 5, (m) and (o), Rule 131, Rules of Court.
16
In re Good's Estate, 266 P. (2d), pp. 719, 729.
17
Badger et al. vs. Boyd, supra.
18
Goduco vs. Court of Appeals, et al., L-17647, February 28, 1964.
19
Section 2, Rule 45, Rules of Court, formerly Section 2, Rule 46 of the Rules of Court.
20
Medel, et al. vs. Calasanz, et al. L-14835, August 31, 1960; Astraquillo, et al. vs. Javier, et al.,
L-20034, January 30, 1965.
21
Petitioner's brief in the Court of Appeals, pp. 82-98.
22
Decision of the Court of Appeals, Appendix A, petitioner's brief, pp. 148-149.
23
R.A., pp. 67, 73.
24
5 B C.J.S., p. 295; 3 Am. Jur. p. 678.
25
3 Am. Jur., pp. 677-678.
26
See Garcia Valdez vs. Seterana Tuason, 40 Phil, 943, 951.
27
Carrascoso's ticket, according to petitioner (brief, pp. 7-8), shows:

Segment or legCarrierFlight No.Date of Departure1. Manila to HongkongPAL300AMarch 302.

Hongkong to SaigonVN(Air Vietnam)693March 313. Saigon to BeirutAF(Air
France)245March 3128Petitioner's brief, p. 50; see also id., pp. 37 and 46.
29
Id., p. 103.
30
Ibid., p. 102.
31
Article 2220, Civil Code reads: "Willful injury to property may be a legal ground for awarding
moral damages if the court should find that, under the circumstances, such damages are justly
due. The same rule applies to breaches of contract where the defendant acted fraudulently or in
bad faith."
32
R.A., p. 2-4; emphasis supplied.
33
R.A., P. 5; second cause of action.
34
Copeland vs. Dunehoo et al., 138 S.E., 267, 270. See also 25 C.J.S., pp. 758-759; 15 Am. Jur.,
pp. 766-767.
35
Statement of Attorney Villegas for respondent Carrascoso in open court. Respondent's brief, p.
33.
36
Section 5, Rule 10, Rules of Court, in part reads: "SEC. 5. Amendment to conform to or
authorize presentation of evidence.—When issues not raised by the pleadings are tried by
express or implied consent of the parties, they shall be treated in all respects, as if they had been
raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to
conform to the evidence and to raise these issues may be made upon motion of any party at any
time, even after judgment; but failure so to amend does not affect the result of the trial of these
issues ..."; Co Tiamco vs. Diaz, etc., et al., 75 Phil. 672, 679; J.M. Tuason & Co., Inc., etc. vs.
Bolanos, 95 Phil. 106, 110.
37
Decision, Court of Appeals, Appendix A of petitioner's brief, pp. 147-148.
38
Decision of the Court of Appeals, Appendix A of petitioner's brief, pp. 147-151.
39
Words & Phrases, Perm. Ed., Vol. 5, p. 13, citing Warfield Natural Gas Co. vs. Allen, 59 S.W.
(2d) 534, 538.
40
R.A., p.74; emphasis supplied.
41
Article 2180, Civil Code.
42
Philippine Refining Co. vs. Garcia, et al., L-21871 and L-21962, September 27, 1966.
43
See Section 4, Chapter 3, Title VIII, Civil Code.
44
4 R.C.L., pp. 1174-1175.
45
An air carrier is a common carrier; and air transportation is similar or analogous to land and
water transportation. Mendoza vs. Philippine Air Lines, Inc., 90 Phil. 836, 841-842.
46
Austro-American S.S. Co. vs. Thomas, 248 F. 231.
47
Id., p. 233.
48
Lipman vs. Atlantic Coast Line R. Co., 93 S.E. 714, 716.
49
Petitioner's brief, pp, 104-105.
49a
V Moran, Comments on the Rules of Court, 1963 ed., p. 76.
50
Section 36, Rule 130, Rules of Court.
51
IV Martin, Rules of Court in the Philippines, 1963 ed., p. 324.
52
Ibid.
53
Article 2232, Civil Code.
54
Article 2229, Civil Code.
55
Article 2208, (1) and (11), Civil Code.
 56
Coleongco vs. Claparols, L-18616, March 31, 1964; Corpus vs. Cuaderno, et al., L-23721,
March 31, 1965.
57
Cf. Yutuk vs. Manila Electric Company, L-13016, May 31, 1961; Lopez et al. vs. Pan
American World Airways, L-22415, March 30, 1966.

MAKATI STOCK EXCHANGE, INC., MA. VIVIAN YUCHENGCO, ADOLFO

M. DUARTE, MYRON C. PAPA, NORBERTO C. NAZARENO, GEORGE UY-
TIOCO, ANTONIO A. LOPA, RAMON B. ARNAIZ, LUIS J.L. VIRATA, and
ANTONIO GARCIA, JR.

Petitioners,

- versus -

MIGUEL V. CAMPOS, substituted by JULIA ORTIGAS VDA. DE CAMPOS,[1]

Respondent. G.R. No. 138814

Present:

YNARES-SANTIAGO, J.,

Chairperson,

AUSTRIA-MARTINEZ,

CHICO-NAZARIO,
NACHURA, and

PERALTA, JJ.

Promulgated:

April 16, 2009x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

-x

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 seeking the reversal of
the Decision[2] dated 11 February 1997 and Resolution dated 18 May 1999 of the Court
of Appeals in CA-G.R. SP No. 38455.

The facts of the case are as follows:

 SEC Case No. 02-94-4678 was instituted on 10 February 1994 by respondent
Miguel V. Campos, who filed with the Securities, Investigation and Clearing Department
(SICD) of the Securities and Exchange Commission (SEC), a Petition against herein
petitioners Makati Stock Exchange, Inc. (MKSE) and MKSE directors, Ma. Vivian
Yuchengco, Adolfo M. Duarte, Myron C. Papa, Norberto C. Nazareno, George Uy-
Tioco, Antonio A, Lopa, Ramon B. Arnaiz, Luis J.L. Virata, and Antonio Garcia, Jr.
Respondent, in said Petition, sought: (1) the nullification of the Resolution dated 3 June
1993 of the MKSE Board of Directors, which allegedly deprived him of his right to
participate equally in the allocation of Initial Public Offerings (IPO) of corporations
registered with MKSE; (2) the delivery of the IPO shares he was allegedly deprived of,
for which he would pay IPO prices; and (3) the payment of P2 million as moral
damages, P1 million as exemplary damages, and P500,000.00 as attorney’s fees and
litigation expenses.

On 14 February 1994, the SICD issued an Order granting respondent’s prayer for
the issuance of a Temporary Restraining Order to enjoin petitioners from implementing
or enforcing the 3 June 1993 Resolution of the MKSE Board of Directors.

The SICD subsequently issued another Order on 10 March 1994 granting

respondent’s application for a Writ of Preliminary Injunction, to continuously enjoin,
during the pendency of SEC Case No. 02-94-4678, the implementation or enforcement
of the MKSE Board Resolution in question. Petitioners assailed this SICD Order dated
10 March 1994 in a Petition for Certiorari filed with the SEC en banc, docketed as
SEC-EB No. 393.
 On 11 March 1994, petitioners filed a Motion to Dismiss respondent’s Petition in
SEC Case No. 02-94-4678, based on the following grounds: (1) the Petition became
moot due to the cancellation of the license of MKSE; (2) the SICD had no jurisdiction
over the Petition; and (3) the Petition failed to state a cause of action.

The SICD denied petitioner’s Motion to Dismiss in an Order dated 4 May 1994.
Petitioners again challenged the 4 May 1994 Order of SICD before the SEC en banc
through another Petition for Certiorari, docketed as SEC-EB No. 403.

In an Order dated 31 May 1995 in SEC-EB No. 393, the SEC en banc nullified
the 10 March 1994 Order of SICD in SEC Case No. 02-94-4678 granting a Writ of
Preliminary Injunction in favor of respondent. Likewise, in an Order dated 14 August
1995 in SEC-EB No. 403, the SEC en banc annulled the 4 May 1994 Order of SICD in
SEC Case No. 02-94-4678 denying petitioners’ Motion to Dismiss, and accordingly
ordered the dismissal of respondent’s Petition before the SICD.

Respondent filed a Petition for Certiorari with the Court of Appeals assailing the
Orders of the SEC en banc dated 31 May 1995 and 14 August 1995 in SEC-EB No. 393
and SEC-EB No. 403, respectively. Respondent’s Petition before the appellate court
was docketed as CA-G.R. SP No. 38455.
 On 11 February 1997, the Court of Appeals promulgated its Decision in CA-G.R.
SP No. 38455, granting respondent’s Petition for Certiorari, thus:

WHEREFORE, the petition in so far as it prays for annulment of the Orders

dated May 31, 1995 and August 14, 1995 in SEC-EB Case Nos. 393 and 403 is
GRANTED. The said orders are hereby rendered null and void and set aside.

Petitioners filed a Motion for Reconsideration of the foregoing Decision but it

was denied by the Court of Appeals in a Resolution dated 18 May 1999.

Hence, the present Petition for Review raising the following arguments:

I.

THE SEC EN BANC DID NOT COMMIT GRAVE ABUSE OF DISCRETION

AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT DISMISSED
THE PETITION FILED BY RESPONDENT BECAUSE ON ITS FACE, IT FAILED
TO STATE A CAUSE OF ACTION.

II.

THE GRANT OF THE IPO ALLOCATIONS IN FAVOR OF RESPONDENT WAS A

MERE ACCOMMODATION GIVEN TO HIM BY THE BOARD OF [DIRECTORS]
OF THE MAKATI STOCK EXCHANGE, INC.

III.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE SEC EN BANC

COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION WHEN IT MADE AN EXTENDED INQUIRY AND
PROCEEDED TO MAKE A DETERMINATION AS TO THE TRUTH OF
RESPONDENT’S ALLEGATIONS IN HIS PETITION AND USED AS BASIS THE
EVIDENCE ADDUCED DURING THE HEARING ON THE APPLICATION FOR
THE WRIT OF PRELIMINARY INJUNCTION TO DETERMINE THE EXISTENCE
OR VALIDITY OF A STATED CAUSE OF ACTION.
 IV.

IPO ALLOCATIONS GRANTED TO BROKERS ARE NOT TO BE BOUGHT BY

THE BROKERS FOR THEMSELVES BUT ARE TO BE DISTRIBUTED TO THE
INVESTING PUBLIC. HENCE, RESPONDENT’S CLAIM FOR DAMAGES IS
ILLUSORY AND HIS PETITION A NUISANCE SUIT.[3]

On 18 September 2001, counsel for respondent manifested to this Court that his
client died on 7 May 2001. In a Resolution dated 24 October 2001, the Court directed
the substitution of respondent by his surviving spouse, Julia Ortigas vda. de Campos.

Petitioners want this Court to affirm the dismissal by the SEC en banc of
respondent’s Petition in SEC Case No. 02-94-4678 for failure to state a cause of action.
On the other hand, respondent insists on the sufficiency of his Petition and seeks the
continuation of the proceedings before the SICD.

A cause of action is the act or omission by which a party violates a right of

another.[4] A complaint states a cause of action where it contains three essential
elements of a cause of action, namely: (1) the legal right of the plaintiff, (2) the
correlative obligation of the defendant, and (3) the act or omission of the defendant in
violation of said legal right. If these elements are absent, the complaint becomes
vulnerable to dismissal on the ground of failure to state a cause of action.

If a defendant moves to dismiss the complaint on the ground of lack of cause of

action, he is regarded as having hypothetically admitted all the averments thereof. The
test of sufficiency of the facts found in a complaint as constituting a cause of action is
whether or not admitting the facts alleged, the court can render a valid judgment upon
the same in accordance with the prayer thereof. The hypothetical admission extends to
the relevant and material facts well pleaded in the complaint and inferences fairly
deducible therefrom. Hence, if the allegations in the complaint furnish sufficient basis
by which the complaint can be maintained, the same should not be dismissed regardless
of the defense that may be assessed by the defendant.[5]

Given the foregoing, the issue of whether respondent’s Petition in SEC Case No.
02-94-4678 sufficiently states a cause of action may be alternatively stated as whether,
hypothetically admitting to be true the allegations in respondent’s Petition in SEC Case
No. 02-94-4678, the SICD may render a valid judgment in accordance with the prayer of
said Petition.

A reading of the exact text of respondent’s Petition in SEC Case No. 02-94-4678
is, therefore, unavoidable. Pertinent portions of the said Petition reads:

7. In recognition of petitioner’s invaluable services, the general membership of

respondent corporation [MKSE] passed a resolution sometime in 1989 amending its
Articles of Incorporation, to include the following provision therein:

“ELEVENTH – WHEREAS, Mr. Miguel Campos is the only

surviving incorporator of the Makati Stock Exchange, Inc. who has
maintained his membership;

“WHEREAS, he has unselfishly served the Exchange in various

capacities, as governor from 1977 to the present and as President from
1972 to 1976 and again as President from 1988 to the present;

“WHEREAS, such dedicated service and leadership which has

contributed to the advancement and well being not only of the Exchange
and its members but also to the Securities industry, needs to be
 recognized and appreciated;

“WHEREAS, as such, the Board of Governors in its meeting held

on February 09, 1989 has correspondingly adopted a resolution
recognizing his valuable service to the Exchange, reward the same, and
preserve for posterity such recognition by proposing a resolution to the
membership body which would make him as Chairman Emeritus for life
and install in the Exchange premises a commemorative bronze plaque in
his honor;

“NOW, THEREFORE, for and in consideration of the above

premises, the position of the “Chairman Emeritus” to be occupied by Mr.
Miguel Campos during his lifetime and irregardless of his continued
membership in the Exchange with the Privilege to attend all membership
meetings as well as the meetings of the Board of Governors of the
Exchange, is hereby created.”

8. Hence, to this day, petitioner is not only an active member of the respondent
corporation, but its Chairman Emeritus as well.

9. Correspondingly, at all times material to this petition, as an active member and

Chairman Emeritus of respondent corporation, petitioner has always enjoyed the right
given to all the other members to participate equally in the Initial Public Offerings (IPOs
for brevity) of corporations.

10. IPOs are shares of corporations offered for sale to the public, prior to the
listing in the trading floor of the country’s two stock exchanges. Normally, Twenty Five
Percent (25%) of these shares are divided equally between the two stock exchanges
which in turn divide these equally among their members, who pay therefor at the offering
price.

11. However, on June 3, 1993, during a meeting of the Board of Directors of

respondent-corporation, individual respondents passed a resolution to stop giving
petitioner the IPOs he is entitled to, based on the ground that these shares were allegedly
benefiting Gerardo O. Lanuza, Jr., who these individual respondents wanted to get even
with, for having filed cases before the Securities and Exchange (SEC) for their
disqualification as member of the Board of Directors of respondent corporation.

12. Hence, from June 3, 1993 up to the present time, petitioner has been deprived
of his right to subscribe to the IPOs of corporations listing in the stock market at their
offering prices.

13. The collective act of the individual respondents in depriving petitioner of his
right to a share in the IPOs for the aforementioned reason, is unjust, dishonest and done
in bad faith, causing petitioner substantial financial damage.[6]
 There is no question that the Petition in SEC Case No. 02-94-4678 asserts a right
in favor of respondent, particularly, respondent’s alleged right to subscribe to the IPOs
of corporations listed in the stock market at their offering prices; and stipulates the
correlative obligation of petitioners to respect respondent’s right, specifically, by
continuing to allow respondent to subscribe to the IPOs of corporations listed in the
stock market at their offering prices.

However, the terms right and obligation in respondent’s Petition are not magic
words that would automatically lead to the conclusion that such Petition sufficiently
states a cause of action. Right and obligation are legal terms with specific legal
meaning. A right is a claim or title to an interest in anything whatsoever that is
enforceable by law.[7] An obligation is defined in the Civil Code as a juridical necessity
to give, to do or not to do.[8] For every right enjoyed by any person, there is a
corresponding obligation on the part of another person to respect such right. Thus,
Justice J.B.L. Reyes offers[9] the definition given by Arias Ramos as a more complete
definition:

An obligation is a juridical relation whereby a person (called the creditor) may

demand from another (called the debtor) the observance of a determinative conduct (the
giving, doing or not doing), and in case of breach, may demand satisfaction from the
assets of the latter.

The Civil Code enumerates the sources of obligations:

Art. 1157. Obligations arise from:

(1) Law;
 (2) Contracts;

(3) Quasi-contracts;

(4) Acts or omissions punished by law; and

(5) Quasi-delicts.

Therefore, an obligation imposed on a person, and the corresponding right granted

to another, must be rooted in at least one of these five sources. The mere assertion of a
right and claim of an obligation in an initiatory pleading, whether a Complaint or
Petition, without identifying the basis or source thereof, is merely a conclusion of fact
and law. A pleading should state the ultimate facts essential to the rights of action or
defense asserted, as distinguished from mere conclusions of fact or conclusions of law.
[10] Thus, a Complaint or Petition filed by a person claiming a right to the Office of the
President of this Republic, but without stating the source of his purported right, cannot
be said to have sufficiently stated a cause of action. Also, a person claiming to be the
owner of a parcel of land cannot merely state that he has a right to the ownership
thereof, but must likewise assert in the Complaint either a mode of acquisition of
ownership or at least a certificate of title in his name.

In the case at bar, although the Petition in SEC Case No. 02-94-4678 does allege
respondent’s right to subscribe to the IPOs of corporations listed in the stock market at
their offering prices, and petitioners’ obligation to continue respecting and observing
such right, the Petition utterly failed to lay down the source or basis of respondent’s right
and/or petitioners’ obligation.
 Respondent merely quoted in his Petition the MKSE Board Resolution, passed
sometime in 1989, granting him the position of Chairman Emeritus of MKSE for life.
However, there is nothing in the said Petition from which the Court can deduce that
respondent, by virtue of his position as Chairman Emeritus of MKSE, was granted by
law, contract, or any other legal source, the right to subscribe to the IPOs of corporations
listed in the stock market at their offering prices.

A meticulous review of the Petition reveals that the allocation of IPO shares was
merely alleged to have been done in accord with a practice normally observed by the
members of the stock exchange, to wit:

IPOs are shares of corporations offered for sale to the public, prior to their listing in the
trading floor of the country’s two stock exchanges. Normally, Twenty-Five Percent
(25%) of these shares are divided equally between the two stock exchanges which
in turn divide these equally among their members, who pay therefor at the offering
price.[11] (Emphasis supplied)

A practice or custom is, as a general rule, not a source of a legally demandable or

enforceable right.[12] Indeed, in labor cases, benefits which were voluntarily given by
the employer, and which have ripened into company practice, are considered as rights
that cannot be diminished by the employer.[13] Nevertheless, even in such cases, the
source of the employees’ right is not custom, but ultimately, the law, since Article 100 of
the Labor Code explicitly prohibits elimination or diminution of benefits.
 There is no such law in this case that converts the practice of allocating IPO
shares to MKSE members, for subscription at their offering prices, into an enforceable
or demandable right. Thus, even if it is hypothetically admitted that normally, twenty
five percent (25%) of the IPOs are divided equally between the two stock exchanges --
which, in turn, divide their respective allocation equally among their members, including
the Chairman Emeritus, who pay for IPO shares at the offering price -- the Court cannot
grant respondent’s prayer for damages which allegedly resulted from the MKSE Board
Resolution dated 3 June 1993 deviating from said practice by no longer allocating any
shares to respondent.

Accordingly, the instant Petition should be granted. The Petition in SEC Case No.
02-94-4678 should be dismissed for failure to state a cause of action. It does not matter
that the SEC en banc, in its Order dated 14 August 1995 in SEC-EB No. 403,
overstepped its bounds by not limiting itself to the issue of whether respondent’s Petition
before the SICD sufficiently stated a cause of action. The SEC en banc may have been
mistaken in considering extraneous evidence in granting petitioners’ Motion to Dismiss,
but its discussion thereof are merely superfluous and obiter dictum. In the main, the
SEC en banc did correctly dismiss the Petition in SEC Case No. 02-94-4678 for its
failure to state the basis for respondent’s alleged right, to wit:

Private respondent Campos has failed to establish the basis or authority for his
alleged right to participate equally in the IPO allocations of the Exchange. He cited
paragraph 11 of the amended articles of incorporation of the Exchange in support of his
position but a careful reading of the said provision shows nothing therein that would
bear out his claim. The provision merely created the position of chairman emeritus of
the Exchange but it mentioned nothing about conferring upon the occupant thereof the
right to receive IPO allocations.[14]
 With the dismissal of respondent’s Petition in SEC Case No. 02-94-4678, there is
no more need for this Court to resolve the propriety of the issuance by SCID of a writ of
preliminary injunction in said case.

WHEREFORE, the Petition is GRANTED. The Decision of the Court of

Appeals dated 11 February 1997 and its Resolution dated 18 May 1999 in CA-G.R. SP
No. 38455 are REVERSED and SET ASIDE. The Orders dated 31 May 1995 and 14
August 1995 of the Securities and Exchange Commission en banc in SEC-EB Case No.
393 and No. 403, respectively, are hereby reinstated. No pronouncement as to costs.

SO ORDERED.