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an option in which salmon, instead of king prawns, would be in the menu at P950.00 per person.

They in
THIRD DIVISION fact partook of the salmon.

Three days before the event, a final food tasting took place. Petitioners aver that the salmon served was
SPOUSES LUIGI M. GUANIO and G.R. No. 190601
ANNA HERNANDEZ-GUANIO, half the size of what they were served during the initial food tasting; and when queried about it, the hotel
Petitioners, quoted a much higher price (P1,200.00) for the size that was initially served to them. The parties
Present:
eventually agreed on a final price ─ P1,150 per person.
CARPIO MORALES,
- versus - Chairperson, J.,
BRION, A day before the event or on July 27, 2001, the parties finalized and forged their contract.[1]
BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ. Petitioners claim that during the reception, respondents representatives, Catering Director Bea
MAKATI SHANGRI-LA HOTEL
and RESORT, INC., also doing Marquez and Sales Manager Tessa Alvarez, did not show up despite their assurance that they
business under the name of Promulgated: would; their guests complained of the delay in the service of the dinner; certain items listed in the
SHANGRI-LA HOTEL MANILA,
Respondent. February 7, 2011 published menu were unavailable; the hotels waiters were rude and unapologetic when confronted about
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
the delay; and despite Alvarezs promise that there would be no charge for the extension of the reception
beyond 12:00 midnight, they were billed and paid P8,000 per hour for the three-hour extension of the
DECISION
event up to 4:00 A.M. the next day.

CARPIO MORALES, J.
Petitioners further claim that they brought wine and liquor in accordance with their open bar
arrangement, but these were not served to the guests who were forced to pay for their drinks.
For their wedding reception on July 28, 2001, spouses Luigi M. Guanio and Anna Hernandez-
Guanio (petitioners) booked at the Shangri-la Hotel Makati (the hotel). Petitioners thus sent a letter-complaint to the Makati Shangri-la Hotel and Resort, Inc. (respondent) and
received an apologetic reply from Krister Svensson, the hotels Executive Assistant Manager in charge of
Prior to the event, Makati Shangri-La Hotel & Resort, Inc. (respondent) scheduled an initial food Food and Beverage. They nevertheless filed a complaint for breach of contract and damages before the
tasting. Petitioners claim that they requested the hotel to prepare for seven persons ─ the two of them, Regional Trial Court (RTC) of Makati City.
their respective parents, and the wedding coordinator. At the scheduled food tasting, however, respondent
prepared for only six. In its Answer, respondent claimed that petitioners requested a combination of king prawns and
salmon, hence, the price was increased to P1,200.00 per person, but discounted at P1,150.00; that
Petitioners initially chose a set menu which included black cod, king prawns and angel hair pasta with contrary to petitioners claim, Marquez and Alvarez were present during the event, albeit they were not
wild mushroom sauce for the main course which cost P1,000.00 per person. They were, however, given permanently stationed thereat as there were three other hotel functions; that while there was a delay in the
major one slow service, rude and arrogant waiters, we have disappointed you in all
service of the meals, the same was occasioned by the sudden increase of guests to 470 from the means.
guaranteed expected minimum number of guests of 350 to a maximum of 380, as stated in the Banquet
Indeed, we feel as strongly as you do that the services you received were unacceptable
Event Order (BEO);[2] and that Isaac Albacea, Banquet Service Director, in fact relayed the delay in the and definitely not up to our standards. We understand that it is our job to provide
service of the meals to petitioner Luigis father, Gil Guanio. excellent service and in this instance, we have fallen short of your expectations. We ask
you please to accept our profound apologies for causing such discomfort and
annoyance. [4](underscoring supplied)
Respecting the belated service of meals to some guests, respondent attributed it to the insistence of
petitioners wedding coordinator that certain guests be served first.
The trial court observed that from the tenor of the letter . . . the defendant[-herein respondent] admits that
On Svenssons letter, respondent, denying it as an admission of liability, claimed that it was meant to the services the plaintiff[-herein petitioners] received were unacceptable and definitely not up to their
maintain goodwill to its customers. standards.[5]

On appeal, the Court of Appeals, by Decision of July 27, 2009,[6] reversed the trial courts decision, it
holding that the proximate cause of petitioners injury was an unexpected increase in their guests:
By Decision of August 17, 2006, Branch 148 of the Makati RTC rendered judgment in favor of
petitioners, disposing as follows: x x x Hence, the alleged damage or injury brought about by the confusion,
inconvenience and disarray during the wedding reception may not be attributed to
WHEREFORE, premises considered, judgment is hereby rendered in favor of the defendant-appellant Shangri-la.
plaintiffs and against the defendant ordering the defendants to pay the plaintiff the
following: We find that the said proximate cause, which is entirely attributable to plaintiffs-
appellants, set the chain of events which resulted in the alleged inconveniences, to the
1) The amount of P350,000.00 by way of actual damages; plaintiffs-appellants. Given the circumstances that obtained, only the Sps. Guanio may
2) The amount of P250,000.00 for and as moral damages; bear whatever consequential damages that they may have allegedly
3) The amount of P100,000.00 as exemplary damages; suffered.[7] (underscoring supplied)
4) The amount of P100,000.00 for and as attorneys fees.

With costs against the defendant.


Petitioners motion for reconsideration having been denied by Resolution of November 18, 2009, the
[3]
SO ORDERED. present petition for review was filed.

In finding for petitioners, the trial court relied heavily on the letter of Svensson which is partly quoted The Court finds that since petitioners complaint arose from a contract, the doctrine of proximate cause

below: finds no application to it:


The doctrine of proximate cause is applicable only in actions for quasi-
Upon receiving your comments on our service rendered during your reception here delicts, not in actions involving breach of contract. x x x The doctrine is a device for
with us, we are in fact, very distressed. Right from minor issues pappadums served in imputing liability to a person where there is no relation between him and another party.
the soup instead of the creutons, lack of valet parkers, hard rolls being too hard till a In such a case, the obligation is created by law itself. But, where there is a pre-existing
contractual relation between the parties, it is the parties themselves who create the
obligation, and the function of the law is merely to regulate the relation thus the HOTEL. Should the attendance exceed the minimum guaranteed attendance, the
created.[8] (emphasis and underscoring supplied) ENGAGER shall also be billed at the actual rate per cover in excess of the minimum
guaranteed attendance.

What applies in the present case is Article 1170 of the Civil Code which reads: xxxx

Art. 1170. Those who in the performance of their obligations are guilty of 4.5. The ENGAGER must inform the HOTEL at least forty eight (48) hours
fraud, negligence or delay, and those who in any manner contravene the tenor thereof, before the scheduled date and time of the Function of any change in the minimum
are liable for damages. guaranteed covers. In the absence of such notice, paragraph 4.3 shall apply in the event
of under attendance. In case the actual number of attendees exceed the minimum
guaranteed number

RCPI v. Verchez, et al. [9] enlightens: by ten percent (10%), the HOTEL shall not in any way be held liable for
any damage or inconvenience which may be caused thereby. The ENGAGER shall
also undertake to advise the guests of the situation and take positive steps to
In culpa contractual x x x the mere proof of the existence of the contract and remedy the same.[10] (emphasis, italics and underscoring supplied)
the failure of its compliance justify, prima facie, a corresponding right of relief. The
law, recognizing the obligatory force of contracts, will not permit a party to be set free
from liability for any kind of misperformance of the contractual undertaking or a
contravention of the tenor thereof. A breach upon the contract confers upon the injured Breach of contract is defined as the failure without legal reason to comply with the terms of a
party a valid cause for recovering that which may have been lost or suffered. The
contract. It is also defined as the [f]ailure, without legal excuse, to perform any promise which forms the
remedy serves to preserve the interests of the promissee that may include
his expectation interest, which is his interest in having the benefit of his bargain by whole or part of the contract.[11]
being put in as good a position as he would have been in had the contract been
performed, or his reliance interest, which is his interest in being reimbursed for loss
caused by reliance on the contract by being put in as good a position as he would have
been in had the contract not been made; or his restitution interest, which is his interest The appellate court, and even the trial court, observed that petitioners were remiss in their
in having restored to him any benefit that he has conferred on the other party. Indeed, obligation to inform respondent of the change in the expected number of guests. The observation is
agreements can accomplish little, either for their makers or for society, unless they are
made the basis for action. The effect of every infraction is to create a new duty, that is, reflected in the records of the case. Petitioners failure to discharge such obligation thus excused, as the
to make RECOMPENSE to the one who has been injured by the failure of another to above-quoted paragraph 4.5 of the parties contract provide, respondent from liability for any damage or
observe his contractual obligation unless he can show extenuating circumstances,
like proof of his exercise of due diligence x x x or of the attendance of fortuitous inconvenience occasioned thereby.
event, to excuse him from his ensuing liability. (emphasis and underscoring in the
original; capitalization supplied)
As for petitioners claim that respondent departed from its verbal agreement with petitioners, the
same fails, given that the written contract which the parties entered into the day before the event, being
The pertinent provisions of the Banquet and Meeting Services Contract between the the law between them.
parties read:
Respecting the letter of Svensson on which the trial court heavily relied as admission of
4.3 The ENGAGER shall be billed in accordance with the prescribed rate for
respondents liability but which the appellate court brushed aside, the Court finds the appellate courts
the minimum guaranteed number of persons contracted for, regardless of under
attendance or non-appearance of the expected number of guests, except where the stance in order. It is not uncommon in the hotel industry to receive comments, criticisms or feedback on
ENGAGER cancels the Function in accordance with its Letter of Confirmation with
Q In your opinion, you just mentioned that there is a procedure that the hotel follows
the service it delivers. It is also customary for hotel management to try to smooth ruffled feathers to with respect to the complaint, in your opinion was this procedure followed in
preserve goodwill among its clientele. this particular concern?
A Yes, maam.
Q What makes you say that this procedure was followed?
A As I mentioned earlier, we proved that we did acknowledge the concern of the client
in this case and we did emphatize from the client and apologized, and at the
same time got back to them in whatever investigation we have.
Kalalo v. Luz holds:[12] Q You said that you apologized, what did you apologize for?
A Well, first of all it is a standard that we apologize, right? Being in the service
Statements which are not estoppels nor judicial admissions have no quality of industry, it is a practice that we apologize if there is any inconvenience, so the
conclusiveness, and an opponent whose admissions have been offered against him may purpose for apologizing is mainly to show empathy and to ensure the client
offer any evidence which serves as an explanation for his former assertion of what he that we are hearing them out and that we will do a better investigation and it is
now denies as a fact. not in any way that we are admitting any fault.[14] (underscoring supplied)

Respondents Catering Director, Bea Marquez, explained the hotels procedure on


To the Court, the foregoing explanation of the hotels Banquet Director overcomes any
receiving and processing complaints, viz:
presumption of admission of breach which Svenssons letter might have conveyed.
ATTY. CALMA:
Q You mentioned that the letter indicates an acknowledgement of the concern and that The exculpatory clause notwithstanding, the Court notes that respondent could have managed
there was-the first letter there was an acknowledgment of the concern and an the situation better, it being held in high esteem in the hotel and service industry. Given respondents vast
apology, not necessarily indicating that such or admitting fault?
experience, it is safe to presume that this is not its first encounter with booked events exceeding the
A Yes.
Q Is this the letter that you are referring to? guaranteed cover. It is not audacious to expect that certain measures have been placed in case this

If I may, Your Honor, that was the letter dated August 4, 2001, previously marked as predicament crops up. That regardless of these measures, respondent still received complaints as in the
plaintiffs exhibits, Your Honor. What is the procedure of the hotel with present case, does not amuse.
respect to customer concern?
A Upon receipt of the concern from the guest or client, we acknowledge receipt of such
concern, and as part of procedure in service industry particularly Makati Respondent admitted that three hotel functions coincided with petitioners reception. To the
Shangri-la we apologize for whatever inconvenience but at the same time Court, the delay in service might have been avoided or minimized if respondent exercised prescience in
saying, that of course, we would go through certain investigation and get back
to them for the feedback with whatever concern they may have. scheduling events. No less than quality service should be delivered especially in events which possibility
Q Your Honor, I just like at this point mark the exhibits, Your Honor, the letter dated of repetition is close to nil. Petitioners are not expected to get married twice in their lifetimes.
August 4, 2001 identified by the witness, Your Honor, to be marked as
Exhibit 14 and the signature of Mr. Krister Svensson be marked as Exhibit 14-
A.[13] In the present petition, under considerations of equity, the Court deems it just to award the

xxxx amount of P50,000.00 by way of nominal damages to petitioners, for the discomfiture that they were
subjected to during to the event.[15] The Court recognizes that every person is entitled to respect of his
COMULLO,[3] MARIE ANN DELOS
dignity, personality, privacy and peace of mind.[16] Respondents lack of prudence is an affront to this SANTOS,[4] JUANITA YANA, and Promulgated:
right. SUZETTE DULAY,
Respondents. February 13, 2008
x-----------------------------------------------------------------------------------------x
WHEREFORE, the Court of Appeals Decision dated July 27, 2009
DECISION
is PARTIALLY REVERSED. Respondent is, in light of the foregoing discussion, ORDERED to pay
the amount of P50,000.00 to petitioners by way of nominal damages. VELASCO, JR., J.:

The path towards industrial peace is a two-way street. Fundamental fairness and protection to labor
SO ORDERED.
should always govern dealings between labor and management. Seemingly conflicting provisions should
be harmonized to arrive at an interpretation that is within the parameters of the law, compassionate to
labor, yet, fair to management.
Republic of the Philippines
SUPREME COURT
Manila In this Petition for Review on Certiorari under Rule 45, petitioner TSPIC Corporation (TSPIC) seeks to

SECOND DIVISION annul and set aside the October 22, 2003 Decision[5] and April 23, 2004 Resolution[6] of the Court of
Appeals (CA) in CA-G.R. SP No. 68616, which affirmed the September 13, 2001 Decision[7] of
TSPIC CORPORATION, G.R. No. 163419 Accredited Voluntary Arbitrator Josephus B. Jimenez in National Conciliation and Mediation Board
Petitioner,
Case No. JBJ-AVA-2001-07-57.
Present:
QUISUMBING, J., Chairperson,
- versus - CARPIO,
CARPIO MORALES, TSPIC is engaged in the business of designing, manufacturing, and marketing integrated circuits to serve
TINGA, and the communication, automotive, data processing, and aerospace industries. Respondent TSPIC
VELASCO, JR., JJ.
TSPIC EMPLOYEES UNION (FFW), Employees Union (FFW) (Union), on the other hand, is the registered bargaining agent of the rank-and-
representing MARIA FE FLORES, file employees of TSPIC. The respondents, Maria Fe Flores, Fe Capistrano, Amy Durias, Claire Evelyn
FE CAPISTRANO, AMY DURIAS,[1]
CLAIRE EVELYN VELEZ, JANICE Velez, Janice Olaguir, Jerico Alipit, Glen Batula, Ser John Hernandez, Rachel Novillas, Nimfa Anilao,
OLAGUIR, JERICO ALIPIT, GLEN Rose Subardiaga, Valerie Carbon, Olivia Edroso, Maricris Donaire, Analyn Azarcon, Rosalie Ramirez,
BATULA, SER JOHN HERNANDEZ,
RACHEL NOVILLAS, NIMFA ANILAO, Julieta Rosete, Janice Nebre, Nia Andrade, Catherine Yaba, Diomedisa Erni, Mario Salmorin, Loida
ROSE SUBARDIAGA, VALERIE
Comullo, Marie Ann Delos Santos, Juanita Yana, and Suzette Dulay, are all members of the Union.
CARBON, OLIVIA EDROSO, MARICRIS
DONAIRE, ANALYN AZARCON,
ROSALIE RAMIREZ, JULIETA ROSETE,
JANICE NEBRE, NIA ANDRADE,
CATHERINE YABA, DIOMEDISA
ERNI,[2] MARIO SALMORIN, LOIDA
In 1999, TSPIC and the Union entered into a Collective Bargaining Agreement (CBA)[8] for the years The CBA also provided that employees who acquire regular employment status within the year
2000 to 2004. The CBA included a provision on yearly salary increases starting January 2000 until but after the effectivity of a particular salary increase shall receive a proportionate part of the increase
January 2002. Section 1, Article X of the CBA provides, as follows: upon attainment of their regular status. Sec. 2 of the CBA provides:

Section 1. Salary/ Wage Increases.Employees covered by this Agreement shall be SECTION 2. Regularization Increase.A covered daily paid employee who acquires
granted salary/wage increases as follows: regular status within the year subsequent to the effectivity of a particular salary/wage
increase mentioned in Section 1 above shall be granted a salary/wage increase in
a) Effective January 1, 2000, all employees on regular status and within the proportionate basis as follows:
bargaining unit on or before said date shall be granted a salary increase
equivalent to ten percent (10%) of their basic monthly salary as of Regularization Period Equivalent Increase
December 31, 1999. - 1st Quarter 100%
b) Effective January 1, 2001, all employees on regular status and within the - 2nd Quarter 75%
bargaining unit on or before said date shall be granted a salary increase - 3rd Quarter 50%
equivalent to twelve (12%) of their basic monthly salary as of December - 4th Quarter 25%
31, 2000.
c) Effective January 1, 2002, all employees on regular status and within the Thus, a daily paid employee who becomes a regular employee covered by this
bargaining unit on or before said date shall be granted a salary increase Agreement only on May 1, 2000, i.e., during the second quarter and subsequent to the
equivalent to eleven percent (11%) of their basic monthly salary as of January 1, 2000 wage increase under this Agreement, will be entitled to a wage
December 31, 2001. increase equivalent to seventy-five percent (75%) of ten percent (10%) of his basic pay.
In the same manner, an employee who acquires regular status on December 1,
The wage salary increase of the first year of this Agreement shall be over and above the 2000 will be entitled to a salary increase equivalent to twenty-five percent (25%) of ten
wage/salary increase, including the wage distortion adjustment, granted by the percent (10%) of his last basic pay.
COMPANY on November 1, 1999 as per Wage Order No. NCR-07.
On the other hand, any monthly-paid employee who acquires regular status within the
The wage/salary increases for the years 2001 and 2002 shall be deemed inclusive of the term of the Agreement shall be granted regularization increase equivalent to 10% of his
mandated minimum wage increases under future Wage Orders, that may be issued after regular basic salary.
Wage Order No. NCR-07, and shall be considered as correction of any wage distortion
that may have been brought about by the said future Wage Orders. Thus the
wage/salary increases in 2001 and 2002 shall be deemed as compliance to future wage Then on October 6, 2000, the Regional Tripartite Wage and Productivity Board, National
orders after Wage Order No. NCR-07.
Capital Region, issued Wage Order No. NCR-08[10] (WO No. 8) which raised the daily minimum wage
from PhP 223.50 to PhP 250 effective November 1, 2000. Conformably, the wages of 17 probationary
Consequently, on January 1, 2000, all the regular rank-and-file employees of TSPIC received a
employees, namely: Nimfa Anilao, Rose Subardiaga, Valerie Carbon, Olivia Edroso, Maricris
10% increase in their salary. Accordingly, the following nine (9) respondents (first group) who were
Donaire, Analyn Azarcon, Rosalie Ramirez, Julieta Rosete, Janice Nebre, Nia Andrade, Catherine Yaba,
already regular employees received the said increase in their salary: Maria Fe Flores, Fe Capistrano, Amy
Diomedisa Erni, Mario Salmorin, Loida Comullo, Marie Ann Delos Santos, Juanita Yana, and Suzette
Durias, Claire Evelyn Velez, Janice Olaguir, Jerico Alipit, Glen Batula, Ser John Hernandez, and Rachel
Dulay (second group), were increased to PhP 250.00 effective November 1, 2000.
Novillas.[9]
individual employees and against the company, thereby ordering the [TSPIC] to pay as
On various dates during the last quarter of 2000, the above named 17 employees attained regular follows:
employment[11] and received 25% of 10% of their salaries as granted under the provision on
1) to the sixteen (16) newly regularized employees named above, the amount of
regularization increase under Article X, Sec. 2 of the CBA. P12,642.24 a month or a total of P113,780.16 for nine (9) months or
P7,111.26 for each of them as well as an additional P12,642.24 (for all), or
P790.14 (for each), for every month after 30 September 2001, until full
In January 2001, TSPIC implemented the new wage rates as mandated by the CBA. As a result, payment, with legal interests for every month of delay;
the nine employees (first group), who were senior to the above-listed recently regularized employees,
2) to the nine (9) who were hired earlier than the sixteen (16); also named
received less wages. above, their respective amount of entitlements, according to the Unions
correct computation, ranging from P110.22 per month (or P991.98 for nine
months) to P450.58 a month (or P4,055.22 for nine months), as well as
On January 19, 2001, a few weeks after the salary increase for the year 2001 became effective, TSPICs corresponding monthly entitlements after 30 September 2001, plus legal
interests until full payment,
Human Resources Department notified 24 employees,[12]namely: Maria Fe Flores, Janice Olaguir, Rachel
Novillas, Fe Capistrano, Jerico Alipit, Amy Durias, Glen Batula, Claire Evelyn Velez, Ser John 3) to Suzette Dulay, the amount of P608.14 a month (or P5,473.26), as well as
corresponding monthly entitlements after 30 September 2001, plus legal
Hernandez, Nimfa Anilao, Rose Subardiaga, Valerie Carbon, Olivia Edroso, Maricris Donaire, Analyn interest until full payment,
Azarcon, Rosalie Ramirez, Julieta Rosete, Janice Nebre, Nia Andrade, Catherine Yaba, Diomedisa Erni,
4) Attorneys fees equal to 10% of all the above monetary awards.
Mario Salmorin, Loida Comullo, and Marie Ann Delos Santos, that due to an error in the automated
The claim for exemplary damages is denied for want of factual basis.
payroll system, they were overpaid and the overpayment would be deducted from their salaries in a
staggered basis, starting February 2001. TSPIC explained that the correction of the erroneous The parties are hereby directed to comply with their joint voluntary
commitment to abide by this Award and thus, submit to this Office jointly, a written
computation was based on the crediting provision of Sec. 1, Art. X of the CBA. proof of voluntary compliance with this DECISION within ten (10) days after the
The Union, on the other hand, asserted that there was no error and the deduction of the alleged finality hereof.

overpayment from employees constituted diminution of pay. The issue was brought to the grievance SO ORDERED.[14]
machinery, but TSPIC and the Union failed to reach an agreement.

TSPIC filed a Motion for Reconsideration which was denied in a Resolution dated November 21, 2001.
Consequently, TSPIC and the Union agreed to undergo voluntary arbitration on the solitary
issue of whether or not the acts of the management in making deductions from the salaries of the affected
Aggrieved, TSPIC filed before the CA a petition for review under Rule 43 docketed as CA-G.R.
employees constituted diminution of pay.
SP No. 68616. The appellate court, through its October 22, 2003 Decision, dismissed the petition and
affirmed in toto the decision of the voluntary arbitrator. The CA declared TSPICs computation allowing
On September 13, 2001, Arbitrator Jimenez rendered a Decision, holding that the unilateral deduction
PhP 287 as daily wages to the newly regularized employees to be correct, noting that the computation
made by TSPIC violated Art. 100[13] of the Labor Code. The fallo reads:
conformed to WO No. 8 and the provisions of the CBA. According to the CA, TSPIC failed to convince
WHEREFORE, in the light of the law on the matter and on the facts adduced the appellate court that the deduction was a result of a system error in the automated payroll system. The
in evidence, judgment is hereby rendered in favor of the Union and the named
CA explained that when WO No. 8 took effect on November 1, 2000, the concerned employees were still
probationary employees who were receiving the minimum wage of PhP 223.50. The CA said that
effective November 1, 2000, said employees should have received the minimum wage of PhP 250. The Moreover, if the terms of a contract, as in a CBA, are clear and leave no doubt upon the
CA held that when respondents became regular employees on November 29, 2000, they should be intention of the contracting parties, the literal meaning of their stipulations shall control.[18] However,
allowed the salary increase granted them under the CBA at the rate of 25% of 10% of their basic salary sometimes, as in this case, though the provisions of the CBA seem clear and unambiguous, the parties
for the year 2000; thereafter, the 12% increase for the year 2001 and the 10% increase for the year 2002 sometimes arrive at conflicting interpretations. Here, TSPIC wants to credit the increase granted by WO
should also be made applicable to them.[15] No. 8 to the increase granted under the CBA. According to TSPIC, it is specifically provided in the CBA
TSPIC filed a Motion for Reconsideration which was denied by the CA in its April 23, 2004 Resolution. that the salary/wage increase for the year 2001 shall be deemed inclusive of the mandated minimum
wage increases under future wage orders that may be issued after Wage Order No. 7. The Union, on the
TSPIC filed the instant petition which raises this sole issue for our resolution: Does the TSPICs decision other hand, insists that the crediting provision of the CBA finds no application in the present case, since
to deduct the alleged overpayment from the salaries of the affected members of the Union constitute at the time WO No. 8 was issued, the probationary employees (second group) were not yet covered by
diminution of benefits in violation of the Labor Code? the CBA, particularly by its crediting provision.
As a general rule, in the interpretation of a contract, the intention of the parties is to be
TSPIC maintains that the formula proposed by the Union, adopted by the arbitrator and affirmed by the pursued.[19] Littera necat spiritus vivificat. An instrument must be interpreted according to the intention
CA, was flawed, inasmuch as it completely disregarded the crediting provision contained in the last of the parties. It is the duty of the courts to place a practical and realistic construction upon it, giving due
paragraph of Sec. 1, Art. X of the CBA. consideration to the context in which it is negotiated and the purpose which it is intended to
serve.[20] Absurd and illogical interpretations should also be avoided. Considering that the parties have
unequivocally agreed to substitute the benefits granted under the CBA with those granted under wage
We find TSPICs contention meritorious.
orders, the agreement must prevail and be given full effect.
Paragraph (b) of Sec. 1 of Art. X of the CBA provides for the general agreement that, effective January 1,
A Collective Bargaining Agreement is the law between the parties
2001, all employees on regular status and within the bargaining unit on or before said date shall be
granted a salary increase equivalent to twelve (12%) of their basic monthly salary as of December 31,
It is familiar and fundamental doctrine in labor law that the CBA is the law between the parties
2000. The 12% salary increase is granted to all employees who (1) are regular employees and (2) are
and they are obliged to comply with its provisions. [16] We said so in Honda Phils., Inc. v. Samahan ng
within the bargaining unit.
Malayang Manggagawa sa Honda:

A collective bargaining agreement or CBA refers to the negotiated contract


between a legitimate labor organization and the employer concerning wages, hours of Second paragraph of (c) provides that the salary increase for the year 2000 shall not include the increase
work and all other terms and conditions of employment in a bargaining unit. As in all in salary granted under WO No. 7 and the correction of the wage distortion for November 1999.
contracts, the parties in a CBA may establish such stipulations, clauses, terms and
conditions as they may deem convenient provided these are not contrary to law, The last paragraph, on the other hand, states the specific condition that the wage/salary increases for the
morals, good customs, public order or public policy. Thus, where the CBA is clear and years 2001 and 2002 shall be deemed inclusive of the mandated minimum wage increases under future
unambiguous, it becomes the law between the parties and compliance therewith is
mandated by the express policy of the law. [17] wage orders, that may be issued after WO No. 7, and shall be considered as correction of the wage
distortions that may be brought about by the said future wage orders. Thus, the wage/salary increases in (1) With regard to the first group of respondents who attained regular employment status before
2001 and 2002 shall be deemed as compliance to future wage orders after WO No. 7. the effectivity of WO No. 8, the computation is as follows:

Paragraph (b) is a general provision which allows a salary increase to all those who are For respondents Jerico Alipit and Glen Batula:[23]
qualified. It, however, clashes with the last paragraph which specifically states that the salary increases
Wage rate before WO No. 8... PhP 234.67
for the years 2001 and 2002 shall be deemed inclusive of wage increases subsequent to those granted Increase due to WO No. 8
under WO No. 7. It is a familiar rule in interpretation of contracts that conflicting provisions should be setting the minimum wage at PhP 250. 15.33
Total Salary upon effectivity of WO No. 8. PhP 250.00
harmonized to give effect to all.[21] Likewise, when general and specific provisions are inconsistent, the
specific provision shall be paramount to and govern the general provision.[22] Thus, it may be reasonably Increase for 2001 (12% of 2000 salary)........... PhP 30.00
Less the wage increase under WO No. 8. 15.33
concluded that TSPIC granted the salary increases under the condition that any wage order that may be Total difference between the wage increase
subsequently issued shall be credited against the previously granted increase. The intention of the parties for 2001 and the increase granted under WO No. 8.. PhP 14.67
Wage rate by December 2000..... PhP 250.00
is clear: As long as an employee is qualified to receive the 12% increase in salary, the employee shall be Plus total difference between the wage increase for 2001
and the increase granted under WO No. 8.. 14.67
granted the increase; and as long as an employee is granted the 12% increase, the amount shall be
Total (Wage rate range beginning January 1, 2001) PhP 264.67
credited against any wage order issued after WO No. 7.
For respondents Ser John Hernandez and Rachel Novillas:[24]

Respondents should not be allowed to receive benefits from the CBA while avoiding the counterpart Wage rate range before WO No. 8.PhP 234.68
Increase due to WO No. 8
crediting provision. They have received their regularization increases under Art. X, Sec. 2 of the CBA setting the minimum wage at PhP 250.. 15.32
and the yearly increase for the year 2001. They should not then be allowed to avoid the crediting Total Salary upon effectivity of WO No. 8... PhP 250.00

provision which is an accompanying condition. Increase for 2001 (12% of 2000 salary) PhP 30.00
Less the wage increase under WO No. 8.. 15.32
Total difference between the wage increase
Respondents attained regular employment status before January 1, 2001. WO No. 8, increasing for 2001 and the increase granted under WO No. 8. PhP 14.68
the minimum wage, was issued after WO No. 7. Thus, respondents rightfully received the 12% salary
Wage rate by December 2000......... PhP 250.00
increase for the year 2001 granted in the CBA; and consequently, TSPIC rightfully credited that 12% Plus total difference between the wage increase for 2001
and the increase granted under WO No. 8.. 14.68
increase against the increase granted by WO No. 8. Total (Wage rate range beginning January 1, 2001) .. PhP 264.68

For respondents Amy Durias, Claire Evelyn Velez, and Janice Olaguir:[25]
Proper formula for computing the salaries for the year 2001
Wage rate range before WO No. 8.. PhP 240.26
Increase due to WO No. 8
Thus, the proper computation of the salaries of individual respondents is as follows: setting the minimum wage at PhP 250 9.74
Total Salary upon effectivity of WO No. 8. PhP 250.00
Increase for 2001 (12% of 2000 salary). PhP 30.00
Minimum Wage per Wage Order.. PhP 250.00
Less the wage increase under WO No. 8 9.74
Total difference between the wage increase for 2001 Wage rate before Wage Order.. 223.50
and the increase granted under WO No. 8.. PhP 20.26 Wage Increase. PhP 26.50

Wage rate by December 2000. PhP 250.00


Plus total difference between the wage increase for 2001 Upon attainment of regular employment status, the employees salaries were increased by 25%
and the increase granted under WO No. 8.. 20.26 of 10% of their basic salaries, as provided for in Sec. 2, Art. X of the CBA, thus resulting in a further
Total (Wage rate range beginning January 1, 2001).. PhP 270.26
increase of PhP 6.25, for a total of PhP 256.25, computed as follows:

Wage rate after WO No. 8. PhP 250.00


Regularization increase (25 % of 10% of basic salary). 6.25
For respondents Ma. Fe Flores and Fe Capistrano:[26]
Total (Salary for the end of year 2000).. PhP 256.25
Wage rate range before WO No. 8 PhP 245.85
Increase due to WO No. 8
setting the minimum wage at PhP 250.. 4.15 To compute for the increase in wage rates for the year 2001, get the increase of 12% of the
Total Salary upon effectivity of WO No. 8... PhP 250.00 employees salaries as of December 31, 2000; then subtract from that amount, the amount increased in
Increase for 2001 (12% of 2000 salary). PhP 30.00
Less the wage increase under WO No. 8........... 4.15 salaries as granted under WO No. 8 in accordance with the crediting provision of the CBA, to arrive at
Total difference between the wage increase for 2001
the increase in salaries for the year 2001 of the recently regularized employees. Add the result to their
and the increase granted under WO No. 8. PhP 25.85
salaries as of December 31, 2000 to get the proper salary beginning January 1, 2001, thus:
Wage rate by December 2000. PhP 250.00
Plus total difference between the wage increase for 2001
and the increase granted under WO No. 8.. 25.85 Increase for 2001 (12% of 2000 salary)... PhP 30.75
Less the wage increase under WO No. 8. 26.50
Total (Wage rate range beginning January 1, 2001).. PhP 275.85 Difference between the wage increase
for 2001 and the increase granted under WO No. 8.... PhP 4.25

Wage rate after regularization increase... PhP 256.25


Plus total difference between the wage increase and
(2) With regard to the second group of employees, who attained regular employment status after the increase granted under WO No. 8. 4.25
Total (Wage rate beginning January 1, 2001). PhP 260.50
the implementation of WO No. 8, namely: Nimfa Anilao, Rose Subardiaga, Valerie Carbon, Olivia
With these computations, the crediting provision of the CBA is put in effect, and the wage distortion
Edroso, Maricris Donaire, Analyn Azarcon, Rosalie Ramirez, Julieta Rosete, Janice Nebre, Nia Andrade,
between the first and second group of employees is cured. The first group of employees who attained
Catherine Yaba, Diomedisa Erni, Mario Salmorin, Loida Comullo, Marie Ann Delos Santos, Juanita
regular employment status before the implementation of WO No. 8 is entitled to receive, starting January
Yana, and Suzette Dulay, the proper computation of the salaries for the year 2001, in accordance with the
1, 2001, a daily wage rate within the range of PhP 264.67 to PhP 275.85, depending on their wage rate
CBA, is as follows:
before the implementation of WO No. 8. The second group that attained regular employment status after
the implementation of WO No. 8 is entitled to receive a daily wage rate of PhP 260.50 starting January 1,
Compute the increase in salary after the implementation of WO No. 8 by subtracting the minimum wage
2001.
before WO No. 8 from the minimum wage per the wage order to arrive at the wage increase, thus:
Hence, any amount given to the employees in excess of what they were entitled to, as computed
Diminution of benefits above, may be legally deducted by TSPIC from the employees salaries. It was also compassionate and
fair that TSPIC deducted the overpayment in installments over a period of 12 months starting from the
TSPIC also maintains that charging the overpayments made to the 16 respondents through date of the initial deduction to lessen the burden on the overpaid employees. TSPIC, in turn, must refund
staggered deductions from their salaries does not constitute diminution of benefits. to individual respondents any amount deducted from their salaries which was in excess of what TSPIC is
legally allowed to deduct from the salaries based on the computations discussed in this Decision.
We agree with TSPIC.
As a last word, it should be reiterated that though it is the states responsibility to afford
Diminution of benefits is the unilateral withdrawal by the employer of benefits already enjoyed protection to labor, this policy should not be used as an instrument to oppress management and
by the employees. There is diminution of benefits when it is shown that: (1) the grant or benefit is capital.[29] In resolving disputes between labor and capital, fairness and justice should always prevail. We
founded on a policy or has ripened into a practice over a long period; (2) the practice is consistent and ruled in Norkis Union v. Norkis Trading that in the resolution of labor cases, we have always been guided
deliberate; (3) the practice is not due to error in the construction or application of a doubtful or difficult by the State policy enshrined in the Constitution: social justice and protection of the working
question of law; and (4) the diminution or discontinuance is done unilaterally by the employer. [27] class. Social justice does not, however, mandate that every dispute should be automatically decided in
favor of labor. In any case, justice is to be granted to the deserving and dispensed in the light of the
As correctly pointed out by TSPIC, the overpayment of its employees was a result of an error. This error established facts and the applicable law and doctrine.[30]
was immediately rectified by TSPIC upon its discovery. We have ruled before that an erroneously
granted benefit may be withdrawn without violating the prohibition against non-diminution of benefits. WHEREFORE, premises considered, the September 13, 2001 Decision of the Labor Arbitrator in
We ruled in Globe-Mackay Cable and Radio Corp. v. NLRC: National Conciliation and Mediation Board Case No. JBJ-AVA-2001-07-57 and the October 22,
2003 CA Decision in CA-G.R. SP No. 68616 are hereby AFFIRMED with MODIFICATION. TSPIC
Absent clear administrative guidelines, Petitioner Corporation cannot be faulted for
erroneous application of the law. Payment may be said to have been made by reason of is hereby ORDERED to pay respondents their salary increases in accordance with this Decision, as
a mistake in the construction or application of a doubtful or difficult question of law. follows:
(Article 2155, in relation to Article 2154 of the Civil Code). Since it is a past error that
is being corrected, no vested right may be said to have arisen nor any diminution of
benefit under Article 100 of the Labor Code may be said to have resulted by virtue of No. of Working No. of
the correction.[28] Name of Employee Daily Wage Days in a Months in a Total Salary for
Rate Month Year 2001
Nimfa Anilao 260.5 26 12 81,276.00
Rose Subardiaga 260.5 26 12 81,276.00
Here, no vested right accrued to individual respondents when TSPIC corrected its error by Valerie Carbon 260.5 26 12 81,276.00
Olivia Edroso 260.5 26 12 81,276.00
crediting the salary increase for the year 2001 against the salary increase granted under WO No. 8, all in
Maricris Donaire 260.5 26 12 81,276.00
accordance with the CBA. Analyn Azarcon 260.5 26 12 81,276.00
Rosalie Ramirez 260.5 26 12 81,276.00
Julieta Rosete 260.5 26 12 81,276.00
Janice Nebre 260.5 26 12 81,276.00 manuals that are distributed to the enrollees at the start of the school term. Further, the school informs
Nia Andrade 260.5 26 12 81,276.00 them of the itemized fees they are expected to pay. Consequently, it cannot, after the enrolment of a
Catherine Yaba 260.5 26 12 81,276.00 student, vary the terms of the contract. It cannot require fees other than those it specified upon enrolment.
Diomedisa Erni 260.5 26 12 81,276.00
Mario Salmorin 260.5 26 12 81,276.00
Loida Camullo 260.5 26 12 81,276.00 The Case
Marie Ann Delos Santos 260.5 26 12 81,276.00
Juanita Yana 260.5 26 12 81,276.00
Suzette Dulay 260.5 26 12 81,276.00 Before the Court is a Petition for Review under Rule 45, [1] seeking to nullify the July 12,
Jerico Alipit 264.67 26 12 82,577.04 2002 and the November 22, 2002[3] Orders of the Regional Trial Court (RTC) of Urdaneta City,
[2]

Pangasinan (Branch 48) in Civil Case No. U-7541. The decretal portion of the first assailed Order reads:
Glen Batula 264.67 26 12 82,577.04
Ser John Hernandez 264.68 26 12 82,580.16 WHEREFORE, the Court GRANTS the instant motion to dismiss for lack
Rachel Novillas 264.68 26 12 82,580.16 of cause of action.[4]
Amy Durias 270.26 26 12 84,321.12
The second challenged Order denied petitioners Motion for Reconsideration.
Claire Evelyn Velez 270.26 26 12 84,321.12
Janice Olaguir 270.26 26 12 84,321.12
Maria Fe Flores 275.85 26 12 86,065.20
Fe Capistrano 275.85 26 12 86,065.20 The Facts

Petitioner Khristine Rea M. Regino was a first year computer science student at Respondent
Pangasinan Colleges of Science and Technology (PCST). Reared in a poor family, Regino went to
The award for attorneys fees of ten percent (10%) of the total award is MAINTAINED. college mainly through the financial support of her relatives. During the second semester of school year
2001-2002, she enrolled in logic and statistics subjects under Respondents Rachelle A. Gamurot and
Elissa Baladad, respectively, as teachers.
SO ORDERED. In February 2002, PCST held a fund raising campaign dubbed the Rave Party and Dance
Revolution, the proceeds of which were to go to the construction of the schools tennis and volleyball
courts. Each student was required to pay for two tickets at the price of P100 each. The project was
allegedly implemented by recompensing students who purchased tickets with additional points in their
test scores; those who refused to pay were denied the opportunity to take the final examinations.

[G.R. No. 156109. November 18, 2004] Financially strapped and prohibited by her religion from attending dance parties and celebrations,
Regino refused to pay for the tickets. On March 14 and March 15, 2002, the scheduled dates of the final
examinations in logic and statistics, her teachers -- Respondents Rachelle A. Gamurot and Elissa Baladad
-- allegedly disallowed her from taking the tests. According to petitioner, Gamurot made her sit out her
KHRISTINE REA M. REGINO, Assisted and Represented by ARMANDO REGINO, petitioner, logic class while her classmates were taking their examinations. The next day, Baladad, after announcing
vs. PANGASINAN COLLEGES OF SCIENCE AND TECHNOLOGY, RACHELLE A. to the entire class that she was not permitting petitioner and another student to take their statistics
GAMUROT and ELISSA BALADAD, respondents. examinations for failing to pay for their tickets, allegedly ejected them from the classroom. Petitioners
pleas ostensibly went unheeded by Gamurot and Baladad, who unrelentingly defended their positions as
compliance with PCSTs policy.
DECISION
On April 25, 2002, petitioner filed, as a pauper litigant, a Complaint [5] for damages against PCST,
PANGANIBAN, J.: Gamurot and Baladad. In her Complaint, she prayed for P500,000 as nominal damages; P500,000 as
moral damages; at least P1,000,000 as exemplary damages; P250,000 as actual damages; plus the costs
Upon enrolment, students and their school enter upon a reciprocal contract. The students agree to of litigation and attorneys fees.
abide by the standards of academic performance and codes of conduct, issued usually in the form of
On May 30, 2002, respondents filed a Motion to Dismiss[6] on the ground of petitioners failure to All of the foregoing point to one issue -- whether the doctrine of exhaustion of administrative
exhaust administrative remedies. According to respondents, the question raised involved the remedies is applicable. The Court, however, sees a second issue which, though not expressly raised by
determination of the wisdom of an administrative policy of the PCST; hence, the case should have been petitioner, was impliedly contained in her Petition: whether the Complaint stated sufficient cause(s) of
initiated before the proper administrative body, the Commission of Higher Education (CHED). action.
In her Comment to respondents Motion, petitioner argued that prior exhaustion of administrative
remedies was unnecessary, because her action was not administrative in nature, but one purely for
damages arising from respondents breach of the laws on human relations. As such, jurisdiction lay with The Courts Ruling
the courts.
On July 12, 2002, the RTC dismissed the Complaint for lack of cause of action. The Petition is meritorious.

Ruling of the Regional Trial Court First Issue:


Exhaustion of Administrative Remedies
In granting respondents Motion to Dismiss, the trial court noted that the instant controversy
involved a higher institution of learning, two of its faculty members and one of its students. It added that Respondents anchored their Motion to Dismiss on petitioners alleged failure to exhaust
Section 54 of the Education Act of 1982 vested in the Commission on Higher Education (CHED) the administrative remedies before resorting to the RTC. According to them, the determination of the
supervision and regulation of tertiary schools. Thus, it ruled that the CHED, not the courts, had controversy hinge on the validity, the wisdom and the propriety of PCSTs academic policy. Thus, the
jurisdiction over the controversy.[7] Complaint should have been lodged in the CHED, the administrative body tasked under Republic Act
No. 7722 to implement the state policy to protect, foster and promote the right of all citizens to
In its dispositive portion, the assailed Order dismissed the Complaint for lack of cause of action
affordable quality education at all levels and to take appropriate steps to ensure that education is
without, however, explaining this ground.
accessible to all.[10]
Aggrieved, petitioner filed the present Petition on pure questions of law. [8]
Petitioner counters that the doctrine finds no relevance to the present case since she is praying for
damages, a remedy beyond the domain of the CHED and well within the jurisdiction of the courts. [11]

Issues Petitioner is correct. First, the doctrine of exhaustion of administrative remedies has no bearing on
the present case. In Factoran Jr. v. CA,[12] the Court had occasion to elucidate on the rationale behind this
doctrine:
In her Memorandum, petitioner raises the following issues for our consideration: The doctrine of exhaustion of administrative remedies is basic. Courts, for
reasons of law, comity, and convenience, should not entertain suits unless the available
Whether or not the principle of exhaustion of administrative remedies applies in a civil action exclusively administrative remedies have first been resorted to and the proper authorities have been
for damages based on violation of the human relation provisions of the Civil Code, filed by a student given the appropriate opportunity to act and correct their alleged errors, if any,
against her former school. committed in the administrative forum. x x x.[13]

Whether or not there is a need for prior declaration of invalidity of a certain school administrative policy Petitioner is not asking for the reversal of the policies of PCST. Neither is she demanding it to allow
her to take her final examinations; she was already enrolled in another educational institution. A reversal
by the Commission on Higher Education (CHED) before a former student can successfully maintain an
of the acts complained of would not adequately redress her grievances; under the circumstances, the
action exclusively for damages in regular courts.
consequences of respondents acts could no longer be undone or rectified.
Whether or not the Commission on Higher Education (CHED) has exclusive original jurisdiction over Second, exhaustion of administrative remedies is applicable when there is competence on the part of
actions for damages based upon violation of the Civil Code provisions on human relations filed by a the administrative body to act upon the matter complained of.[14]Administrative agencies are not courts;
student against the school.[9] they are neither part of the judicial system, nor are they deemed judicial tribunals. [15] Specifically, the
CHED does not have the power to award damages.[16] Hence, petitioner could not have commenced her
case before the Commission.
Third, the exhaustion doctrine admits of exceptions, one of which arises when the issue is purely member of a certain religious congregation to be attending dance parties and
legal and well within the jurisdiction of the trial court.[17] Petitioners action for damages inevitably calls celebrations;
for the application and the interpretation of the Civil Code, a function that falls within the jurisdiction of
the courts.[18] 15. On March 14, 2002, before defendant Rachelle A. Gamurot gave her class its final
examination in the subject Logic she warned that students who had not paid the
tickets would not be allowed to participate in the examination, for which threat
and intimidation many students were eventually forced to make payments:
Second Issue:
Cause of Action 16. Because plaintiff could not afford to pay, defendant Rachelle A. Gamurot inhumanly made
plaintiff sit out the class but the defendant did not allow her to take her final
examination in Logic;

Sufficient Causes of Action Stated 17. On March 15, 2002 just before the giving of the final examination in the subject Statistics,
in the Allegations in the Complaint defendant Elissa Baladad, in connivance with defendants Rachelle A. Gamurot
and PCST, announced in the classroom that she was not allowing plaintiff and
another student to take the examination for their failure and refusal to pay the
As a rule, every complaint must sufficiently allege a cause of action; failure to do so warrants its price of the tickets, and thenceforth she ejected plaintiff and the other student
dismissal.[19] A complaint is said to assert a sufficient cause of action if, admitting what appears solely on from the classroom;
its face to be correct, the plaintiff would be entitled to the relief prayed for. Assuming the facts that are
alleged to be true, the court should be able to render a valid judgment in accordance with the prayer in 18. Plaintiff pleaded for a chance to take the examination but all defendants could say was that
the complaint.[20] the prohibition to give the examinations to non-paying students was an
administrative decision;
A motion to dismiss based on lack of cause of action hypothetically admits the truth of the alleged
facts. In their Motion to Dismiss, respondents did not dispute any of petitioners allegations, and they 19. Plaintiff has already paid her tuition fees and other obligations in the school;
admitted that x x x the crux of plaintiffs cause of action is the determination of whether or not the 20. That the above-cited incident was not a first since PCST also did another forced
assessment of P100 per ticket is excessive or oppressive.[21] They thereby premised their prayer for distribution of tickets to its students in the first semester of school year 2001-
dismissal on the Complaints alleged failure to state a cause of action. Thus, a reexamination of the 2002; x x x [22]
Complaint is in order.
The foregoing allegations show two causes of action; first, breach of contract; and second, liability
The Complaint contains the following factual allegations: for tort.
10. In the second week of February 2002, defendant Rachelle A. Gamurot, in connivance with
PCST, forced plaintiff and her classmates to buy or take two tickets each, x x x;
Reciprocity of the
11. Plaintiff and many of her classmates objected to the forced distribution and selling of
School-Student Contract
tickets to them but the said defendant warned them that if they refused [to] take or
pay the price of the two tickets they would not be allowed at all to take the final
examinations; In Alcuaz v. PSBA,[23] the Court characterized the relationship between the school and the student as
12. As if to add insult to injury, defendant Rachelle A. Gamurot bribed students with a contract, in which a student, once admitted by the school is considered enrolled for one
additional fifty points or so in their test score in her subject just to unjustly semester.[24] Two years later, in Non v. Dames II,[25] the Court modified the termination of contract theory
influence and compel them into taking the tickets; in Alcuaz by holding that the contractual relationship between the school and the student is not only
semestral in duration, but for the entire period the latter are expected to complete it.[26] Except for the
13. Despite the students refusal, they were forced to take the tickets because [of] defendant variance in the period during which the contractual relationship is considered to subsist, both Alcuaz and
Rachelle A. Gamurots coercion and act of intimidation, but still many of them Non were unanimous in characterizing the school-student relationship as contractual in nature.
including the plaintiff did not attend the dance party imposed upon them by
defendants PCST and Rachelle A. Gamurot; The school-student relationship is also reciprocal. Thus, it has consequences appurtenant to and
inherent in all contracts of such kind -- it gives rise to bilateral or reciprocal rights and obligations. The
14. Plaintiff was not able to pay the price of her own two tickets because aside form the fact school undertakes to provide students with education sufficient to enable them to pursue higher education
that she could not afford to pay them it is also against her religious practice as a
or a profession. On the other hand, the students agree to abide by the academic requirements of the and ultimately for its recognition of their ability to finish a course. The fee, however, was not part of the
school and to observe its rules and regulations.[27] school-student contract entered into at the start of the school year. Hence, it could not be unilaterally
imposed to the prejudice of the enrollees.
The terms of the school-student contract are defined at the moment of its inception -- upon
enrolment of the student. Standards of academic performance and the code of behavior and discipline are Such contract is by no means an ordinary one. In Non, we stressed that the school-student contract
usually set forth in manuals distributed to new students at the start of every school year. Further, schools is imbued with public interest, considering the high priority given by the Constitution to education and
inform prospective enrollees the amount of fees and the terms of payment. the grant to the State of supervisory and regulatory powers over all educational institutions.[32] Sections 5
(1) and (3) of Article XIV of the 1987 Constitution provide:
In practice, students are normally required to make a down payment upon enrollment, with the
balance to be paid before every preliminary, midterm and final examination. Their failure to pay their The State shall protect and promote the right of all citizens to quality
financial obligation is regarded as a valid ground for the school to deny them the opportunity to take education at all levels and shall take appropriate steps to make such declaration
these examinations. accessible to all.
The foregoing practice does not merely ensure compliance with financial obligations; it also Every student has a right to select a profession or course of study, subject to
underlines the importance of major examinations. Failure to take a major examination is usually fatal to fair, reasonable and equitable admission and academic requirements.
the students promotion to the next grade or to graduation. Examination results form a significant basis for
their final grades. These tests are usually a primary and an indispensable requisite to their elevation to the The same state policy resonates in Section 9(2) of BP 232, otherwise known as the Education Act
next educational level and, ultimately, to their completion of a course. of 1982:

Education is not a measurable commodity. It is not possible to determine who is better educated Section 9. Rights of Students in School. In addition to other rights, and
than another. Nevertheless, a students grades are an accepted approximation of what would otherwise be subject to the limitations prescribed by law and regulations, students and pupils in all
an intangible product of countless hours of study. The importance of grades cannot be discounted in a schools shall enjoy the following rights:
setting where education is generally the gate pass to employment opportunities and better life; such
grades are often the means by which a prospective employer measures whether a job applicant has xxxxxxxxx
acquired the necessary tools or skills for a particular profession or trade.
(2) The right to freely choose their field of study subject
Thus, students expect that upon their payment of tuition fees, satisfaction of the set academic
to existing curricula and to continue their course therein up to
standards, completion of academic requirements and observance of school rules and regulations, the
graduation, except in cases of academic deficiency, or violation
school would reward them by recognizing their completion of the course enrolled in.
of disciplinary regulations.
The obligation on the part of the school has been established in Magtibay v. Garcia,[28] Licup v.
University of San Carlos[29] and Ateneo de Manila University v. Garcia,[30]in which the Court held that, Liability for Tort
barring any violation of the rules on the part of the students, an institution of higher learning has
a contractual obligation to afford its students a fair opportunity to complete the course they seek to
pursue. In her Complaint, petitioner also charged that private respondents inhumanly punish students x x x
We recognize the need of a school to fund its facilities and to meet astronomical operating costs; by reason only of their poverty, religious practice or lowly station in life, which inculcated upon
this is a reality in running it. Crystal v. Cebu International School[31]upheld the imposition by respondent [petitioner] the feelings of guilt, disgrace and unworthiness; [33] as a result of such punishment, she was
school of a land purchase deposit in the amount of P50,000 per student to be used for the purchase of a allegedly unable to finish any of her subjects for the second semester of that school year and had to lag
piece of land and for the construction of new buildings and other facilities x x x which the school would behind in her studies by a full year. The acts of respondents supposedly caused her extreme humiliation,
transfer [to] and occupy after the expiration of its lease contract over its present site. mental agony and demoralization of unimaginable proportions in violation of Articles 19, 21 and 26 of
the Civil Code. These provisions of the law state thus:
The amount was refundable after the student graduated or left the school. After noting that the
imposition of the fee was made only after prior consultation and approval by the parents of the students, Article 19. Every person must, in the exercise of his rights and in the performance of his duties, act with
the Court held that the school committed no actionable wrong in refusing to admit the children of the justice, give everyone his due, and observe honesty and good faith.
petitioners therein for their failure to pay the land purchase deposit and the 2.5 percent monthly surcharge
thereon.
Article 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to
In the present case, PCST imposed the assailed revenue-raising measure belatedly, in the middle of morals, good customs or public policy shall compensate the latter for the damage.
the semester. It exacted the dance party fee as a condition for the students taking the final examinations,
Article 26. Every person shall respect the dignity, personality, privacy and peace of mind of his In Tangonan v. Pao,[39] the Court upheld, in the name of academic freedom, the right of the school
neighbors and other persons. The following and similar acts, though they may not constitute a criminal to refuse readmission of a nursing student who had been enrolled on probation, and who had failed her
offense, shall produce a cause of action for damages, prevention and other relief: nursing subjects. These instances notwithstanding, the Court has emphasized that once a school has, in
the name of academic freedom, set its standards, these should be meticulously observed and should not
(1) Prying into the privacy of anothers residence; be used to discriminate against certain students.[40] After accepting them upon enrollment, the school
(2) Meddling with or disturbing the private life or family relations of another; cannot renege on its contractual obligation on grounds other than those made known to, and accepted by,
(3) Intriguing to cause another to be alienated from his friends; students at the start of the school year.
(4) Vexing or humiliating another on account of his beliefs, lowly station in life, In sum, the Court holds that the Complaint alleges sufficient causes of action against respondents,
place of birth, physical defect, or other personal condition. and that it should not have been summarily dismissed. Needless to say, the Court is not holding
Generally, liability for tort arises only between parties not otherwise bound by a contract. An respondents liable for the acts complained of. That will have to be ruled upon in due course by the
academic institution, however, may be held liable for tort even if it has an existing contract with its court a quo.
students, since the act that violated the contract may also be a tort. We ruled thus in PSBA vs. WHEREFORE, the Petition is hereby GRANTED, and the assailed Orders REVERSED. The trial
CA,[34] from which we quote: court is DIRECTED to reinstate the Complaint and, with all deliberate speed, to continue the proceedings
in Civil Case No. U-7541. No costs.
x x x A perusal of Article 2176 [of the Civil Code] shows that obligations arising from quasi-
delicts or tort, also known as extra-contractual obligations, arise only between parties not SO ORDERED.
otherwise bound by contract, whether express or implied. However, this impression has not
prevented this Court from determining the existence of a tort even when there obtains a contract.
In Air France v. Carrascoso (124 Phil. 722), the private respondent was awarded damages for
his unwarranted expulsion from a first-class seat aboard the petitioner airline. It is noted,
however, that the Court referred to the petitioner-airlines liability as one arising from tort, not
one arising form a contract of carriage. In effect, Air France is authority for the view that
liability from tort may exist even if there is a contract, for the act that breaks the contract may be G.R. No. 84698 February 4, 1992
also a tort. x x x This view was not all that revolutionary, for even as early as 1918, this Court
was already of a similar mind. In Cangco v. Manila Railroad (38 Phil. 780), Mr. Justice Fisher PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION, JUAN D. LIM, BENJAMIN P.
elucidated thus: x x x. When such a contractual relation exists the obligor may break the PAULINO, ANTONIO M. MAGTALAS, COL. PEDRO SACRO and LT. M.
contract under such conditions that the same act which constitutes a breach of the contract SORIANO, petitioners,
would have constituted the source of an extra-contractual obligation had no contract existed vs.
between the parties. COURT OF APPEALS, HON. REGINA ORDOÑEZ-BENITEZ, in her capacity as Presiding
Judge of Branch 47, Regional Trial Court, Manila, SEGUNDA R. BAUTISTA and ARSENIA D.
Immediately what comes to mind is the chapter of the Civil Code on Human Relations, BAUTISTA, respondents.
particularly Article 21 x x x.[35]
Balgos and Perez for petitioners.
Academic Freedom
Collantes, Ramirez & Associates for private respondents.

In their Memorandum, respondents harp on their right to academic freedom. We are not impressed.
According to present jurisprudence, academic freedom encompasses the independence of an academic
institution to determine for itself (1) who may teach, (2) what may be taught, (3) how it shall teach, and PADILLA, J.:
(4) who may be admitted to study.[36]In Garcia v. the Faculty Admission Committee, Loyola School of
Theology,[37] the Court upheld the respondent therein when it denied a female students admission to
A stabbing incident on 30 August 1985 which caused the death of Carlitos Bautista while on the second-
theological studies in a seminary for prospective priests. The Court defined the freedom of an academic
floor premises of the Philippine School of Business Administration (PSBA) prompted the parents of the
institution thus: to decide for itself aims and objectives and how best to attain them x x x free from
deceased to file suit in the Regional Trial Court of Manila (Branch 47) presided over by Judge (now
outside coercion or interference save possibly when overriding public welfare calls for some restraint. [38]
Court of Appeals justice) Regina Ordoñez-Benitez, for damages against the said PSBA and its corporate
officers. At the time of his death, Carlitos was enrolled in the third year commerce course at the PSBA. It While we agree with the respondent appellate court that the motion to dismiss the complaint was
was established that his assailants were not members of the school's academic community but were correctly denied and the complaint should be tried on the merits, we do not however agree with the
elements from outside the school. premises of the appellate court's ruling.

Specifically, the suit impleaded the PSBA and the following school authorities: Juan D. Lim (President), Article 2180, in conjunction with Article 2176 of the Civil Code, establishes the rule of in loco parentis.
Benjamin P. Paulino (Vice-President), Antonio M. Magtalas (Treasurer/Cashier), Col. Pedro Sacro This Court discussed this doctrine in the afore-cited cases of Exconde, Mendoza, Palisoc and, more
(Chief of Security) and a Lt. M. Soriano (Assistant Chief of Security). Substantially, the plaintiffs (now recently, in Amadora vs.Court of Appeals. 6 In all such cases, it had been stressed that the law (Article
private respondents) sought to adjudge them liable for the victim's untimely demise due to their alleged 2180) plainly provides that the damage should have been caused or inflicted by pupils or students of he
negligence, recklessness and lack of security precautions, means and methods before, during and after the educational institution sought to be held liable for the acts of its pupils or students while in its custody.
attack on the victim. During the proceedings a quo, Lt. M. Soriano terminated his relationship with the However, this material situation does not exist in the present case for, as earlier indicated, the assailants
other petitioners by resigning from his position in the school. of Carlitos were not students of the PSBA, for whose acts the school could be made liable.

Defendants a quo (now petitioners) sought to have the suit dismissed, alleging that since they are However, does the appellate court's failure to consider such material facts mean the exculpation of the
presumably sued under Article 2180 of the Civil Code, the complaint states no cause of action against petitioners from liability? It does not necessarily follow.
them, as jurisprudence on the subject is to the effect that academic institutions, such as the PSBA, are
beyond the ambit of the rule in the afore-stated article. When an academic institution accepts students for enrollment, there is established a contract between
them, resulting in bilateral obligations which both parties are bound to comply with. 7 For its part, the
The respondent trial court, however, overruled petitioners' contention and thru an order dated 8 school undertakes to provide the student with an education that would presumably suffice to equip him
December 1987, denied their motion to dismiss. A subsequent motion for reconsideration was similarly with the necessary tools and skills to pursue higher education or a profession. On the other hand, the
dealt with by an order dated 25 January 1988. Petitioners then assailed the trial court's disposition before student covenants to abide by the school's academic requirements and observe its rules and regulations.
the respondent appellate court which, in a decision * promulgated on 10 June 1988, affirmed the trial
court's orders. On 22 August 1988, the respondent appellate court resolved to deny the petitioners' Institutions of learning must also meet the implicit or "built-in" obligation of providing their students
motion for reconsideration. Hence, this petition. with an atmosphere that promotes or assists in attaining its primary undertaking of imparting knowledge.
Certainly, no student can absorb the intricacies of physics or higher mathematics or explore the realm of
At the outset, it is to be observed that the respondent appellate court primarily anchored its decision on the arts and other sciences when bullets are flying or grenades exploding in the air or where there looms
the law of quasi-delicts, as enunciated in Articles 2176 and 2180 of the Civil Code. 1 Pertinent portions around the school premises a constant threat to life and limb. Necessarily, the school must ensure that
of the appellate court's now assailed ruling state: adequate steps are taken to maintain peace and order within the campus premises and to prevent the
breakdown thereof.
Article 2180 (formerly Article 1903) of the Civil Code is an adoption from the old
Spanish Civil Code. The comments of Manresa and learned authorities on its meaning Because the circumstances of the present case evince a contractual relation between the PSBA and
should give way to present day changes. The law is not fixed and flexible (sic); it must Carlitos Bautista, the rules on quasi-delict do not really govern. 8 A perusal of Article 2176 shows that
be dynamic. In fact, the greatest value and significance of law as a rule of conduct in obligations arising from quasi-delicts or tort, also known as extra-contractual obligations, arise only
(sic) its flexibility to adopt to changing social conditions and its capacity to meet the between parties not otherwise bound by contract, whether express or implied. However, this impression
new challenges of progress. has not prevented this Court from determining the existence of a tort even when there obtains a contract.
In Air France vs. Carrascoso (124 Phil. 722), the private respondent was awarded damages for his
Construed in the light of modern day educational system, Article 2180 cannot be unwarranted expulsion from a first-class seat aboard the petitioner airline. It is noted, however, that the
construed in its narrow concept as held in the old case of Exconde Court referred to the petitioner-airline's liability as one arising from tort, not one arising from a contract
vs. Capuno 2 and Mercado vs. Court of Appeals; 3hence, the ruling in the Palisoc 4 case of carriage. In effect, Air France is authority for the view that liability from tort may exist even if there is
that it should apply to all kinds of educational institutions, academic or vocational. a contract, for the act that breaks the contract may be also a tort. (Austro-America S.S. Co. vs. Thomas,
248 Fed. 231).
At any rate, the law holds the teachers and heads of the school staff liable unless they
relieve themselves of such liability pursuant to the last paragraph of Article 2180 by This view was not all that revolutionary, for even as early as 1918, this Court was already of a similar
"proving that they observed all the diligence to prevent damage." This can only be mind. In Cangco vs. Manila Railroad (38 Phil. 780), Mr. Justice Fisher elucidated thus:
done at a trial on the merits of the case. 5
The field of non-contractual obligation is much broader than that of contractual As the proceedings a quo have yet to commence on the substance of the private respondents' complaint,
obligation, comprising, as it does, the whole extent of juridical human relations. These the record is bereft of all the material facts. Obviously, at this stage, only the trial court can make such a
two fields, figuratively speaking, concentric; that is to say, the mere fact that a person determination from the evidence still to unfold.
is bound to another by contract does not relieve him from extra-contractual liability to
such person. When such a contractual relation exists the obligor may break the contract WHEREFORE, the foregoing premises considered, the petition is DENIED. The court of origin (RTC,
under such conditions that the same act which constitutes a breach of the contract Manila, Br. 47) is hereby ordered to continue proceedings consistent with this ruling of the Court. Costs
would have constituted the source of an extra-contractual obligation had no contract against the petitioners.
existed between the parties.
SO ORDERED.
Immediately what comes to mind is the chapter of the Civil Code on Human Relations, particularly
Article 21, which provides:

Any person who wilfully causes loss or injury to another in a manner that is contrary to
morals, good custom or public policy shall compensate the latter for the damage. SECOND DIVISION
(emphasis supplied).

Air France penalized the racist policy of the airline which emboldened the petitioner's employee to
forcibly oust the private respondent to cater to the comfort of a white man who allegedly "had a better [G.R. No. 134284. December 1, 2000]
right to the seat." In Austro-American, supra, the public embarrassment caused to the passenger was the
justification for the Circuit Court of Appeals, (Second Circuit), to award damages to the latter. From the
foregoing, it can be concluded that should the act which breaches a contract be done in bad faith and be
violative of Article 21, then there is a cause to view the act as constituting a quasi-delict. AYALA CORPORATION, petitioner, vs. ROSA-DIANA REALTY AND
DEVELOPMENT CORPORATION, respondent.
In the circumstances obtaining in the case at bar, however, there is, as yet, no finding that the contract
between the school and Bautista had been breached thru the former's negligence in providing proper DECISION
security measures. This would be for the trial court to determine. And, even if there be a finding of
negligence, the same could give rise generally to a breach of contractual obligation only. Using the test DE LEON, JR., J.:
of Cangco, supra, the negligence of the school would not be relevant absent a contract. In fact, that
negligence becomes material only because of the contractual relation between PSBA and Bautista. In Before us is a petition for review on certiorari seeking the reversal of a decision rendered by the
other words, a contractual relation is a condition sine qua non to the school's liability. The negligence of Court of Appeals in C.A. G.R. C.V. No. 4598 entitled, Ayala Corporation vs. Rosa-Diana Realty and
the school cannot exist independently of the contract, unless the negligence occurs under the Development Corporation, dismissing Ayala Corporations petition for lack of merit.
circumstances set out in Article 21 of the Civil Code.
The facts of the case are not in dispute:
This Court is not unmindful of the attendant difficulties posed by the obligation of schools, above- Petitioner Ayala Corporation (hereinafter referred to as Ayala) was the registered owner of a parcel
mentioned, for conceptually a school, like a common carrier, cannot be an insurer of its students of land located in Alfaro Street, Salcedo Village, Makati City with an area of 840 square meters, more or
against all risks. This is specially true in the populous student communities of the so-called "university less and covered by Transfer Certificate of Title (TCT) No. 233435 of the Register of Deeds of Rizal.
belt" in Manila where there have been reported several incidents ranging from gang wars to other forms
On April 20, 1976, Ayala sold the lot to Manuel Sy married to Vilma Po and Sy Ka Kieng married
of hooliganism. It would not be equitable to expect of schools to anticipate all types of violent trespass
to Rosa Chan. The Deed of Sale executed between Ayala and the buyers contained Special Conditions of
upon their premises, for notwithstanding the security measures installed, the same may still fail against
Sale and Deed Restrictions. Among the Special Conditions of Sale were:
an individual or group determined to carry out a nefarious deed inside school premises and environs.
Should this be the case, the school may still avoid liability by proving that the breach of its contractual a) the vendees shall build on the lot and submit the building plans to the vendor before
obligation to the students was not due to its negligence, here statutorily defined to be the omission of that September 30, 1976 for the latters approval
degree of diligence which is required by the nature of the obligation and corresponding to the
circumstances of persons, time and place. 9 b) the construction of the building shall start on or before March 30, 1977 and completed
before 1979. Before such completion, neither the deed of sale shall be registered nor the
title released even if the purchase price shall have been fully paid
c) there shall be no resale of the property We agree with respondent court that the notice of lis pendens is not proper in this instance. The case
before the trial court is a personal action since the cause of action thereof arises primarily from the
The Deed Restrictions, on the other hand, contained the stipulation that the gross floor area of the alleged violation of the Deed of Restrictions.
building to be constructed shall not be more than five (5) times the lot area and the total height shall not
exceed forty two (42) meters. The restrictions were to expire in the year 2025.
In the meantime, Ayala completed its presentation of evidence before the trial court. Rosa-Diana
Manuel Sy and Sy Ka Kieng failed to construct the building in violation of the Special Conditions filed a Demurrer to Evidence averring that Ayala failed to establish its right to the relief sought inasmuch
of Sale. Notwithstanding the violation, Manuel Sy and Sy Ka Kieng, in April 1989, were able to sell the as (a) Ayala admittedly does not enforce the deed restrictions uniformly and strictly (b) Ayala has lost its
lot to respondent Rosa-Diana Realty and Development Corporation (hereinafter referred to as Rosa- right/power to enforce the restrictions due to its own acts and omissions; and (c) the deed restrictions are
Diana) with Ayalas approval. As a consideration for Ayala to release the Certificate of Title of the no longer valid and effective against lot buyers in Ayalas controlled subdivision.
subject property, Rosa-Diana, on July 27, 1989 executed an Undertaking promising to abide by said
special conditions of sale executed between Ayala and the original vendees. Upon the submission of the The trial court sustained Rosa-Dianas Demurrer to Evidence saying that Ayala was guilty of
Undertaking, together with the building plans for a condominium project, known as The Peak,Ayala abandonment and/or estoppel due to its failure to enforce the terms of deed of restrictions and special
released title to the lot, thereby enabling Rosa-Diana to register the deed of sale in its favor and obtain conditions of sale against Manuel Sy and Sy Ka Kieng. The trial court noted that notwithstanding the
Certificate of Title No. 165720 in its name. The title carried as encumbrances the special conditions of violation of the special conditions of sale, Manuel Sy and Sy Ka Kieng were able to transfer the title to
sale and the deed restrictions. Rosa-Dianas building plans as approved by Ayala were subject to strict Rosa-Diana with the approval of Ayala. The trial court added that Ayalas failure to enforce the
compliance of cautionary notices appearing on the building plans and to the restrictions encumbering the restrictions with respect to Trafalgar, Shellhouse, Eurovilla, LPL Plaza, Parc Regent, LPL Mansion and
Lot regarding the use and occupancy of the same. Leronville which are located within Salcedo Village, shows that Ayala discriminated against those which
it wants to have the obligation enforced. The trial court then concluded that for Ayala to discriminately
Thereafter, Rosa-Diana submitted to the building official of Makati another set of building plans for choose which obligor would be made to follow certain conditions and which should not, did not seem
The Peak which were substantially different from those that it earlier submitted to Ayala for fair and legal.
approval. While the building plans which Rosa-Diana submitted to Ayala for approval envisioned a 24-
meter high, seven (7) storey condominium project with a gross floor area of 3,968.56 square meters, the The Court of Appeals affirmed the ruling of the trial court saying that the appeal is sealed by the
building plans which Rosa-Diana submitted to the building official of Makati, contemplated a 91.65 doctrine of the law of the case in C.A. G.R. S.P. No. 29157 where it was stated that
meter high, 38 storey condominium building with a gross floor area of 23,305.09 square
meters.[1] Needless to say, while the first set of building plans complied with the deed restrictions, the ]x x x Ayala is barred from enforcing the Deed of Restrictions in question pursuant to the doctrine of
latter set exceeded the same. waiver and estoppel. Under the terms of the deed of sale, the vendee Sy Ka Kieng assumed faithful
compliance with the special conditions of sale and with the Salcedo Village Deed of Restrictions. One of
During the construction of Rosa-Dianas condominium project, Ayala filed an action with the the conditions was that a building would be constructed within one year. However, Sy Ka Kieng failed to
Regional Trial Court (RTC) of Makati, Branch 139 for specific performance, with application for a writ construct the building as required under the Deed of Sale. Ayala did nothing to enforce the terms of the
of preliminary injunction/temporary restraining order against Rosa-Diana Realty seeking to compel the contract. In fact, it even agreed to the sale of the lot by Sy Ka Kieng in favor of petitioner Realty in 1989
latter to comply with the contractual obligations under the deed of restrictions annotated on its title as or thirteen (13) years later. We, therefore, see no justifiable reason for Ayala to attempt to enforce the
well as with the building plans it submitted to the latter. In the alternative, Ayala prayed for rescission of terms of the conditions of sale against the petitioner.
the sale of the subject lot to Rosa- Diana Realty.
The lower court denied Ayalas prayer for injunctive relief, thus enabling Rosa-Diana to complete xxx
the construction of the building. Undeterred, Ayala tried to cause the annotation of a notice of lis
pendens on Rosa-Dianas title. The Register of Deeds of Makati, however, refused registration of the The Court of Appeals also cited C.A. G.R. C.V. No. 46488 entitled, Ayala Corporation vs. Ray
notice of lis pendens on the ground that the case pending before the trial court, being an action for Burton Development Corporation which relied on C.A. G.R. S.P. No. 29157 in ruling that Ayala is
specific performance and/or rescission, is an action in personam which does not involve the title, use or barred from enforcing the deed restrictions in dispute. Upon a motion for reconsideration filed by herein
possession of the property.[2] The Land Registration Authority (LRA) reversed the ruling of the Register petitioner, the Court of Appeals clarified that the citation of the decision in Ayala Corporation vs. Ray
of Deeds saying that an action for specific performance or rescission may be classified as a proceeding of Burton Development Corporation, C.A. G.R. C.V. No. 46488, February 27, 1996, was made not because
any kind in court directly affecting title to the land or the use or occupation thereof for which a notice said decision is res judicata to the case at bar but rather because it is precedential under the doctrine
of lis pendens may be held proper.[3] The decision of the LRA, however, was overturned by the Court of of stare decisis.
Appeals in C.A. G.R. S.P. No. 29157. In G.R. No. 112774, We affirmed the ruling of the CA on
February 16, 1994 saying Upon denial of said motion for reconsideration, Ayala filed the present appeal.
Ayala contends that the pronouncement of the Court of Appeals in C.A. G.R. S.P. No. 29157 that it regarding the violation of the deed of restrictions, without unduly curtailing the right of the petitioner to
is estopped from enforcing the deed restrictions is merely obiter dictainasmuch as the only issue raised in fully enjoy its property in the meantime that there is as yet no decision by the trial court.[9]
the aforesaid case was the propriety of a lis pendens annotation on Rosa-Dianas certificate of title.
From the foregoing, it is clear that the Court of Appeals was aware that the issue as to whether
Ayala avers that Rosa-Diana presented no evidence whatsoever on Ayalas supposed waiver or petitioner is estopped from enforcing the deed of restrictions has yet to be resolved by the trial
estoppel in C.A. G.R. S.P. No. 29157. Ayala likewise pointed out that at the time C.A. G.R. S.P. No. court. Though it did make a pronouncement that the petitioner is estopped from enforcing the deed of
29157 was on appeal, the issues of the validity and continued viability of the deed of restrictions and restrictions, it also mentioned at the same time that this particular issue has yet to be resolved by the trial
their enforceability by Ayala were joined and then being tried before the trial court. court. Notably, upon appeal to this Court, We have affirmed the ruling of the Court of Appeals only as
regards the particular issue of the propriety of the cancellation of the notice of lis pendens.
Petitioners assignment of errors in the present appeal may essentially be summarized as follows:
We see no reason then, how the law of the case or stare decisis can be held to be applicable in the
I. The Court of Appeals acted in a manner not in accord with law and the applicable decisions case at bench. If at all, the pronouncement made by the Court of Appeals that petitioner Ayala is barred
of the Supreme Court in holding that the doctrine of the law of the case, or stare decisis, from enforcing the deed of restrictions can only be considered as obiter dicta. As earlier mentioned, the
operated to dismiss Ayalas appeal. only issue before the Court of Appeals at the time was the propriety of the annotation of the lis
II. The Court of Appeals erred as a matter of law and departed from the accepted and usual pendens. The additional pronouncement of the Court of Appeals that Ayala is estopped from enforcing
course of judicial proceedings when it failed to expressly pass upon the specific errors the deed of restrictions even as it recognized that this said issue is being tried before the trial court was
assigned in Ayalas appeal. not necessary to dispose of the issue as to the propriety of the annotation of the lis pendens. A dictum is
an opinion of a judge which does not embody the resolution or determination of the court, and made
A discussion on the distinctions between law of the case, stare decisis and obiter dicta is in order. without argument, or full consideration of the point, not the proffered deliberate opinion of the judge
himself.[10] It is not necessarily limited to issues essential to the decision but may also include
The doctrine of the law of the case has certain affinities with, but is clearly distinguishable from, the
expressions of opinion which are not necessary to support the decision reached by the
doctrines of res judicata and stare decisis, principally on the ground that the rule of the law of the
court. Mere dicta are not binding under the doctrine of stare decisis.[11]
case operates only in the particular case and only as a rule of policy and not as one of law. [4] At
variance with the doctrine of stare decisis, the ruling adhered to in the particular case under the doctrine While the Court of Appeals did not err in ruling that the present petition is not barred by C.A. G.R.
of the law of the case need not be followed as a precedent in subsequent litigation between other parties, C.V. No. 46488 entitled Ayala Corporation vs. Ray Burton Development Inc. under the doctrine of res
neither by the appellate court which made the decision followed on a subsequent appeal in the same case, judicata, neither, however, can the latter case be cited as precedential under the doctrine of stare
nor by any other court. The ruling covered by the doctrine of the law of the case is adhered to in the decisis. It must be pointed out that at the time the assailed decision was rendered, C.A. G.R. C.V. No.
single case where it arises, but is not carried into other cases as a precedent.[5] On the other hand, under 46488 was on appeal with this Court. Significantly, in the decision We have rendered in Ayala
the doctrine of stare decisis, once a point of law has been established by the court, that point of law will, Corporation vs. Ray Burton Development Corporation[12] which became final and executory on July 5,
generally, be followed by the same court and by all courts of lower rank in subsequent cases where the 1999 we have clearly stated that An examination of the decision in the said Rosa-Diana case reveals that
same legal issue is raised.[6] Stare decisis proceeds from the first principle of justice that, absent powerful the sole issue raised before the appellate court was the propriety of the lis pendens annotation. However,
countervailing considerations, like cases ought to be decided alike. [7] the appellate court went beyond the sole issue and made factual findings bereft of any basis in the record
to inappropriately rule that AYALA is in estoppel and has waived its right to enforce the subject
The Court of Appeals, in ruling against petitioner Ayala Corporation stated that the appeal is sealed
restrictions. Such ruling was immaterial to the resolution of the issue of the propriety of the annotation of
by the doctrine of the law of the case, referring to G.R. No. 112774 entitled Ayala
the lis pendens. The finding of estoppel was thus improper and made in excess of jurisdiction.
Corporation, petitioner vs. Court of Appeals, et al., respondents. The Court of Appeals likewise made
reference to C.A. G.R. C.V. No. 46488 entitled, Ayala Corporation vs. Ray Burton Development Coming now to the merits of the case, petitioner avers that the Court of Appeals departed from the
Corporation, Inc. in ruling against petitioner saying that it is jurisprudential under the doctrine of stare usual course of judicial proceedings when it failed to expressly pass upon the specific errors assigned in
decisis. its appeal. Petitioner reiterates its contention that the trial courts findings that Ayala has waived its right
to enforce the deed of restrictions is not supported by law and evidence.
It must be pointed out that the only issue that was raised before the Court of Appeals in C.A. G.R.
S.P. No. 29157 was whether or not the annotation of lis pendens is proper. The Court of Appeals, in its We find merit in the petition.
decision, in fact stated the principal issue to be resolved is: whether or not an action for specific
performance, or in the alternative, rescission of deed of sale to enforce the deed of restrictions governing It is basic that findings of fact of the trial court and the Court of Appeals are conclusive upon the
the use of property, is a real or personal action, or one that affects title thereto and its use or occupation Supreme Court when supported by substantial evidence. [13] We are constrained, however, to review the
thereof."[8] trial courts findings of fact, which the Court of Appeals chose not to pass upon, inasmuch as there is
ample evidence on record to show that certain facts were overlooked which would affect the disposition
In the aforesaid decision, the Court of Appeals even justified the cancellation of the notice of lis of the case.
pendens on the ground that Ayala had ample protection should it succeed in proving its allegations
In its assailed decision of February 4, 1994, the trial court, ruled in favor of respondent Rosa-Diana the special condition of sale. Respondent likewise bound itself to abide and comply with x x x the
Realty on the ground that Ayala had not acted fairly when it did not institute an action against the condition of the rescission of the sale by Ayala Land, Inc. on the grounds therein stated x x x.
original vendees despite the latters violation of the Special Conditions of Sale but chose instead to file an
action against herein respondent Rosa-Diana. The trial court added that although the 38 storey building Contractual obligations between parties have the force of law between them and absent any
of Rosa-Diana is beyond the total height restriction, it was not violative of the National Building allegation that the same are contrary to law, morals, good customs, public order or public policy, they
Code.According to the trial court the construction of the 38 storey building known as The Peak has not must be complied with in good faith. Hence, Article 1159 of the New Civil Code provides
been shown to have been prohibited by law and neither is it against public policy.
Obligations arising from contracts have the force of law between the contracting parties and should be
It bears emphasis that as complainant, Ayala had the prerogative to initiate an action against complied with in good faith.
violators of the deed restrictions. That Rosa-Diana had acted in bad faith is manifested by the fact that it
submitted two sets of building plans, one which was in conformity with the deed restrictions submitted to
Respondent Rosa-Diana insists that the trial court had already ruled that the Undertaking executed
Ayala and MACEA, and the other, which exceeded the height requirement in the deed restrictions to the
by its Chairman and President cannot validly bind Rosa-Diana and hence, it should not be held bound by
Makati building official for the purpose of procuring a building permit from the latter. Moreover, the
the deed restrictions.
violation of the deed restrictions committed by respondent can hardly be denominated as a minor
violation. It should be pointed out that the original building plan which was submitted to and approved We agree with petitioner Ayalas observation that respondent Rosa-Dianas special and affirmative
by petitioner Ayala Corporation, envisioned a twenty four (24) meter high, seven (7) storey defenses before the trial court never mentioned any allegation that its president and chairman were not
condominium whereas the respondents building plan which was submitted to and approved by the authorized to execute the Undertaking. It was inappropriate therefore for the trial court to rule that in the
building official of Makati is that of a thirty eight (38) storey, 91.65 meters high, building. At present, the absence of any authority or confirmation from the Board of Directors of respondent Rosa-Diana, its
Peak building of respondent which actually stands at 133.65 meters with a total gross floor area of Chairman and the President cannot validly enter into an undertaking relative to the construction of the
23,305.09 square meters, seriously violates the dimensions indicated in the building plans submitted by building on the lot within one year from July 27, 1989 and in accordance with the deed
Rosa-Diana to petitioner Ayala for approval inasmuch as the Peak building exceeds the approved height restrictions. Curiously, while the trial court stated that it cannot be presumed that the Chairman and the
limit by about 109 meters and the allowable gross floor area under the applicable deed restrictions by President can validly bind respondent Rosa-Diana to enter into the aforesaid Undertaking in the absence
about 19,105 square meters. Clearly, there was a gross violation of the deed restrictions and evident bad of any authority or confirmation from the Board of Directors, the trial court held that the ordinary
faith by the respondent. presumption of regularity of business transactions is applicable as regards the Deed of Sale which was
executed by Manuel Sy and Sy Ka Kieng and respondent Rosa-Diana. In the light of the fact that
It may not be amiss to mention that the deed restrictions were revised in a general membership
respondent Rosa-Diana never alleged in its Answer that its president and chairman were not authorized to
meeting of the association of lot owners in Makati Central Business District the Makati Commercial execute the Undertaking, the aforesaid ruling of the trial court is without factual and legal basis and
Estate Association, Inc. (MACEA) whereby direct height restrictions were abolished in lieu of floor area surprising to say the least.
limits. Respondent, however, did not vote for the approval of this revision during the General
Membership meeting which was held on July 11, 1990 at the Manila Polo Club Pavilion, Makati, Metro The fact alone that respondent Rosa-Diana conveniently prepared two sets of building plans - with
Manila and again on July 12, 1990 at the Hotel Mandarin Oriental, Makati, Metro Manila. Hence, one set which fully conformed to the Deed Restrictions and another in gross violation of the same -
respondent continues to be bound by the original deed restrictions applicable to Lot 7, Block 1 and should have cautioned the trial court to conclude that respondent Rosa-Diana was under the erroneous
annotated on its title to said lot. In any event, assuming arguendo that respondent voted for the approval impression that the Deed Restrictions were no longer enforceable and that it never intended to be bound
of direct height restrictions in lieu of floor area limits, the total floor area of its Peak building would still by the Undertaking signed by its President and Chairman. We reiterate that contractual obligations have
be violative of the floor area limits to the extent of about 9,865 square meters of allowable floor area the force of law between parties and unless the same are contrary to public policy morals and good
under the MACEA revised restrictions. customs, they must be complied by the parties in good faith.
Respondent Rosa-Diana avers that there is nothing illegal or unlawful in the building plans which it Petitioner, in its Petition, prays that judgment be rendered:
used in the construction of the Peak condominium inasmuch as it bears the imprimatur of the building
official of Makati, who is tasked to determine whether building and construction plans are in accordance a) ordering Rosa-Diana Realty and Development Corporation to comply with its contractual
with the law, notably, the National Building Code. obligations in the construction of the Peak by removing, or closing down and prohibiting
Rosa-Diana from using, selling, leasing or otherwise disposing of, the portions of areas
Respondent Rosa-Diana, however, misses the point inasmuch as it has freely consented to be bound thereof constructed beyond or in excess of the approved height, as shown by the building
by the deed restrictions when it entered into a contract of sale with spouses Manuel Sy and Sy Ka plans submitted to, and approved by, Ayala, including any other portion of the building
Kieng. While respondent claims that it was under the impression that the deed restrictions were no longer constructed not in accordance with the said building plans, during the effectivity of the
being enforced by Ayala, the Undertaking[14] it executed belies this same claim. In said Undertaking, Deed Restrictions;
respondent agreed to construct and complete the construction of the house on said lot as required under
b) Alternatively, in the event specific performance has become impossible:
(1)Ordering the cancellation and rescission of the April 20, 1976 Deed of Sale by where:
Ayala in favor of the original vendees thereof as well as the subsequent Deed of
Sale executed by such original vendees in favor of Rosa-Diana, and ordering A is equal to the Area Assessment which shall be set at Five Hundred Pesos (P500.00) until December
Rosa-Diana to return to Ayala Lot 7, Block 1 of Salcedo Village; 31,1990. Each January 1st thereafter, such amount shall increase by ten percent (10%) over the Area
(2)ordering the cancellation of Transfer Certificate of Title No. 165720 (in the name Assessment charged in the immediately preceding year; provided that beginning 1995 and at the end of
of Rosa-Diana) and directing the office of the Register of Deeds of Makati to every successive five-year period thereafter, the increase in the Area Assessment shall be reviewed and
issue a new title over the lot in the name of Ayala; and adjusted by the VENDOR to correspond to the accumulated increase in the construction cost index
during the immediately preceding five years as based on the weighted average of wholesale price and
(3)ordering Rosa-Diana to pay Ayala attorneys fees in the amount of P500,000.00, wage indices of the National Census and Statistics Office and the Bureau of Labor Statistics.
exemplary damages in the amount of P5,000,000.00 and the costs of suit.
B - is equal to the Gross Floor Area of the completed or expanded building in square meters.
It must be noted that during the trial respondent Rosa-Diana was able to complete the construction
of The Peak as a building with a height of thirty eight (38) floors or 133.65 meters and with a total gross
floor area of 23,305.09 square meters. Having been completed for a number of years already, it would be C - is equal to the estimated Gross Floor Area permitted under the original deed restrictions, derived by
reasonable to assume that it is now fully tenanted. Consequently, the remedy of specific performance by multiplying the lot area by the effective original FAR shown below for each location.
respondent is no longer feasible. However, neither can we grant petitioners prayer for the cancellation
and rescission of the April 20, 1976 Deed of Sale by petitioner Ayala in favor of the original vendees We then ruled in the aforesaid case that the development charges are a fair measure of
thereof as well as the subsequent Deed of Sale executed by the original vendees in favor of respondent compensatory damages which therein respondent Ray Burton Development Inc. is liable to Ayala
Rosa-Diana inasmuch as the original vendees were not even made parties in the case at bar. Moreover, Corporation. The dispositive portion of the decision in the said case which is squarely applicable to the
petitioner Ayala, having agreed to the resale of the property by the original vendees, spouses Manuel Sy case at bar, reads as follows:
and Sy Ka Kieng, to respondent Rosa-Diana despite the failure of Manuel Sy and Sy Ka Kieng to comply
with their obligation to construct a building within one year from April 20, 1976, has effectively waived WHEREFORE, premises considered, the assailed Decision of the Court of Appeals dated February 27,
its right to rescind the sale of the subject lot to the original vendees. 1996, in CA-G.R. C.V. No. 46488, and its Resolution dated October 7, 1996 are hereby REVERSED and
Faced with the same question as to the proper remedy available to petitioner in the case of Ayala SET ASIDE, and in lieu thereof, judgment is hereby rendered finding that:
Corporation vs. Ray Burton Development Inc., a case which is on all fours with the case at bench, we
ruled therein that the party guilty of violating the deed restrictions may only be held alternatively liable (1) The Deed Restrictions are valid and petitioner AYALA is not estopped from enforcing them
for substitute performance of its obligation, that is, for the payment of damages. In the aforesaid case it against lot owners who have not yet adopted the Consolidated and Revised Deed
was observed that the Consolidated and Revised Deed Restrictions (CRDR) imposed development Restrictions.
charges on constructions which exceed the estimated Gross Limits permitted under the original Deed
Restrictions but which are within the limits of the CRDRs. (2) Having admitted that the Consolidated and Revised Deed Restrictions are the applicable
Deed Restrictions to Ray Burton Development Corporation, RBDC should be, and is
The pertinent portion of the Deed of Restrictions reads: bound by the same.

3. DEVELOPMENT CHARGE (3) Considering that Ray Burton Development Corporations Trafalgar plaza exceeds the floor
area limits of the Deed Restrictions, RBDC is hereby ordered to pay development
For any building construction within the Gross Floor Area limits defined under Paragraphs C-2.1 to C- charges as computed under the provisions of the consolidated and Revised Deed
2.4 above, but which will result in a Gross Floor Area exceeding certain standards defined in Restrictions currently in force.
Paragraphs C-3.1-C below, the OWNER shall pay MACEA, prior to the construction of any new
building, a DEVELOPMENT CHARGE as a contribution to a trust fund to be administered by MACEA. (4) Ray Burton Development corporation is further ordered to pay AYALA exemplary
This trust fund shall be used to improve facilities and utilities in Makati Central District. damages in the amount of P2,500,000.00 attorneys fees in the amount of P250,000.00.

3.1. The amount of the development charge that shall be due from the OWNER shall be computed as SO ORDERED.
follows:
There is no reason why the same rule should not be followed in the case at bar, the remedies of
DEVELOPMENT CHARGE = A x (B-C-D) specific performance and/or rescission prayed for by petitioner no longer being feasible. In accordance
with the peculiar circumstances of the case at bar, the development charges would certainly be a fair policy. The standard norm in the performance of their respective covenants in the contract, as well as in
measure of compensatory damages to petitioner Ayala. the exercise of their rights thereunder, is expressed in the cardinal principle that the parties in that
juridical relation must act with justice, honesty and good faith.
Exemplary damages in the sum of P2,500,000.00 as prayed for by petitioner are also in order
inasmuch as respondent Rosa-Diana was in evident bad faith when it submitted a set of building plans in
conformity with the deed restrictions to petitioner Ayala for the sole purpose of obtaining title to the These basic tenets, once again, take the lead in the instant controversy.
property, but only to prepare and later on submit another set of building plans which are in gross
violation of the Deed Restrictions. Petitioner Ayala is likewise entitled to an award of attorneys fees in Private respondent reminds us that the factual findings of the trial court, sustained by the Court of
the sum of P250,000.00. Appeals, should be considered binding on this Court in this petition. We concede to this reminder since,
indeed, there appears to be no valid justification in the case at bench for us to take an exception from the
WHEREFORE, the assailed Decision of the Court of Appeals dated December 4, 1997 and its rule. We shall, therefore, momentarily paraphrase these findings.
Resolution dated June 19, 1998 , C.A. G.R. C.V. No. 4598, are REVERSED and SET ASIDE. In lieu
thereof, judgment is rendered On 31 March 1981, Bricktown Development Corporation (herein petitioner corporation), represented by
a) ordering respondent Rosa-Diana Realty and Development Corporation to pay development its President and co-petitioner Mariano Z. Velarde, executed two Contracts to Sell (Exhs. "A" and "B") in
charges as computed under the provisions of the consolidated and Revised Deed favor of Amor Tierra Development Corporation (herein private respondent), represented in these acts by
Restrictions currently in force; and its Vice-President, Moises G. Petilla, covering a total of 96 residential lots, situated at the Multinational
Village Subdivision, La Huerta, Parañaque, Metro Manila, with an aggregate area of 82,888 square
b) ordering respondent Rosa-Diana Realty and Development Corporation to pay petitioner meters. The total price of P21,639,875.00 was stipulated to be paid by private respondent in such
Ayala Corporation exemplary damages in the sum of P2,500,000.00, attorneys fees in the amounts and maturity dates, as follows: P2,200,000.00 on 31 March 1981; P3,209,968.75 on 30 June
sum of P250,000.00 and the costs of the suit. 1981; P4,729,906.25 on 31 December 1981; and the balance of P11,500,000.00 to be paid by means of
an assumption by private respondent of petitioner corporation's mortgage liability to the Philippine
SO ORDERED.
Savings Bank or, alternatively, to be made payable in cash. On even date, 31 March 1981, the parties
executed a Supplemental Agreement (Exh. "C"), providing that private respondent would additionally
pay to petitioner corporation the amounts of P55,364.68, or 21% interest on the balance of downpayment
for the period from 31 March to 30 June 1981, and of P390,369.37 representing interest paid by
petitioner corporation to the Philippine Savings Bank in updating the bank loan for the period from 01
G.R. No. 112182 December 12, 1994
February to 31 March 1981.
BRICKTOWN DEVELOPMENT CORP. (its new corporate name MULTINATIONAL REALTY
DEVELOPMENT CORPORATION) and MARIANO Z. VERALDE, petitioners, Private respondent was only able to pay petitioner corporation the sum of P1,334,443.21 (Exhs. "A" to
vs. "K"). In the meanwhile, however, the parties continued to negotiate for a possible modification of their
AMOR TIERRA DEVELOPMENT CORPORATION and the HON. COURT OF agreement, although nothing conclusive would appear to have ultimately been arrived at.
APPEALS, respondents.
Finally, on 12 October 1981, petitioner corporation, through its legal counsel, sent private respondent a
Tabaquero, Dela Torre, Simando & Associates for petitioners. "Notice of Cancellation of Contract" (Exh. "D") on account of the latter's continued failure to pay the
installment due 30 June 1981 and the interest on the unpaid balance of the stipulated initial payment.
Petitioner corporation advised private respondent, however, that it (private respondent) still had the right
Robles, Ricafrente & Aguirre Law Firm for private respondent. to pay its arrearages within 30 days from receipt of the notice "otherwise the actual cancellation of the
contract (would) take place."

Several months later, or on 26 September 1983, private respondent, through counsel, demanded (Exh.
VITUG, J.: "E") the refund of private respondent's various payments to petitioner corporation, allegedly "amounting
to P2,455,497.71," with interest within fifteen days from receipt of said letter, or, in lieu of a cash
A contract, once perfected, has the force of law between the parties with which they are bound to comply payment, to assign to private respondent an equivalent number of unencumbered lots at the same price
in good faith and from which neither one may renege without the consent of the other. The autonomy of fixed in the contracts. The demand, not having been heeded, private respondent commenced, on 18
contracts allows the parties to establish such stipulations, clauses, terms and conditions as they may deem November 1983, its action with the court a quo.1
appropriate provided only that they are not contrary to law, morals, good customs, public order or public
Following the reception of evidence, the trial court rendered its decision, the dispositive portion of which The core issues would really come down to (a) whether or not the contracts to sell were validly rescinded
read: or cancelled by petitioner corporation and, in the affirmative, (b) whether or not the amounts already
remitted by private respondent under said contracts were rightly forfeited by petitioner corporation.
In view of all the foregoing, judgment is hereby rendered as follows:
Admittedly, the terms of payment agreed upon by the parties were not met by private respondent. Of a
1. Declaring the Contracts to Sell and the Supplemental Agreement (Exhibits "A", "B" total selling price of P21,639,875.00, private respondent was only able to remit the sum of P1,334,443.21
and "C") rescinded; which was even short of the stipulated initial payment of P2,200,000.00. No additional payments, it
would seem, were made. A notice of cancellation was ultimately made months after the lapse of the
contracted grace period. Paragraph 15 of the Contracts to Sell provided thusly:
2. Ordering the [petitioner] corporation, Bricktown Development Corporation, also
known as Multinational Realty Development Corporation, to return to the [private
respondent] the amount of One Million Three Hundred Thirty Four Thousand Four 15. Should the PURCHASER fail to pay when due any of the installments mentioned
Hundred Forty-Three Pesos and Twenty-One Centavos (P1,334,443.21) with interest at in stipulation No. 1 above, the OWNER shall grant the purchaser a sixty (60)-day grace
the rate of Twelve (12%) percent per annum, starting November 18, 1983, the date period within which to pay the amount/s due, and should the PURCHASER still fail to
when the complaint was filed, until the amount is fully paid; pay the due amount/s within the 60-day grace period, the PURCHASER shall have the
right to ex-parte cancel or rescind this contract, provided, however, that the actual
cancellation or rescission shall take effect only after the lapse of thirty (30) days from
3. Ordering the [petitioner] corporation to pay the [private respondent] the amount of
the date of receipt by the PURCHASER of the notice of cancellation of this contract or
Twenty-five Thousand (P25,000.00) Pesos, representing attorney's fees;
the demand for its rescission by a notarial act, and thereafter, the OWNER shall have
the right to resell the lot/s subject hereof to another buyer and all payments made,
4. Dismissing [petitioner's] counterclaim for lack of merit; and together with all improvements introduced on the aforementioned lot/s shall be
forfeited in favor of the OWNER as liquidated damages, and in this connection, the
5. With costs against the [petitioner] corporation. PURCHASER obligates itself to peacefully vacate the aforesaid lot/s without necessity
of notice or demand by the OWNER.3
SO ORDERED.2
A grace period is a right, not an obligation, of the debtor. When unconditionally conferred, such as in this
On appeal, the appellate court affirmed in toto the trial court's findings and judgment. case, the grace period is effective without further need of demand either calling for the payment of the
obligation or for honoring the right. The grace period must not be likened to an obligation, the non-
In their instant petition, petitioners contend that the Court of Appeals has erred in ruling that — payment of which, under Article 1169 of the Civil Code, would generally still require judicial or
extrajudicial demand before "default" can be said to arise.4
(1) By petitioners' acts, conduct and representation, they themselves delayed or
prevented the performance of the contracts to sell and the supplemental agreement and Verily, in the case at bench, the sixty-day grace period under the terms of the contracts to sell
were thus estopped from cancelling the same. became ipso factooperative from the moment the due payments were not met at their stated maturities.
On this score, the provisions of Article 1169 of the Civil Code would find no relevance whatsoever.
(2) Petitioners were no justified in resolving the contracts to sell and the supplemental
agreement. The cancellation of the contracts to sell by petitioner corporation accords with the contractual covenants
of the parties, and such cancellation must be respected. It may be noteworthy to add that in a contract to
sell, the
(3) The cancellation of the contract required a positive act on the part of petitioners
non-payment of the purchase price (which is normally the condition for the final sale) can prevent the
giving private respondent the sixty (60) day grace period provided in the contracts to
obligation to convey title from acquiring any obligatory force (Roque vs. Lapuz, 96 SCRA 741; Agustin
sell; and
vs. Court of Appeals, 186 SCRA 375).

(4) In not holding that the forfeiture of the P1,378,197.48 was warranted under the
The forfeiture of the payments thus far remitted under the cancelled contracts in question, given the
liquidated damages provisions of the contracts to sell and the supplemental agreement
factual findings of both the trial court and the appellate court, must be viewed differently. While clearly
and was not iniquitous nor unconscionable.
insufficient to justify a foreclosure of the right of petitioner corporation to rescind or cancel its contracts
with private respondent, the series of events and circumstances described by said courts to have prevailed what the courts below have said, petitioners did fall well behind that standard. We do not find it
in the interim between the parties, however, warrant some favorable consideration by this Court. equitable, however, to adjudge any interest payment by petitioners on the amount to be thus refunded,
computed from judicial demand, for, indeed, private respondent should not be allowed to totally free
Petitioners do not deny the fact that there has indeed been a constant dialogue between the parties during itself from its own breach.
the period of their juridical relation. Concededly, the negotiations that they have pursued strictly did not
result in the novation, either extinctive or modificatory, of the contracts to sell; nevertheless, this Court is WHEREFORE, the appealed decision is AFFIRMED insofar as it declares valid the cancellation of the
unable to completely disregard the following findings of both the trial court and the appellate court. Said contracts in question but MODIFIED by ordering the refund by petitioner corporation of P1,334,443.21
the trial court: with 12% interest per annum to commence only, however, from the date of finality of this decision until
such refund is effected. No costs.
It has been duly established through the testimony of plaintiff's witnesses Marcosa
Sanchez and Vicente Casas that there were negotiations to enter into another agreement SO ORDERED.
between the parties, after March 31, 1981. The first negotiation took place before June
30, 1981, when Moises Petilla and Renato Dragon, Vice-President and president,
respectively, of the plaintiff corporation, together with Marcosa Sanchez, went to the
office of the defendant corporation and made some proposals to the latter, thru its
president, the defendant Mariano Velarde. They told the defendant Velarde of the
plaintiff's request for the division of the lots to be purchased into smaller lots and the
building of town houses or smaller houses therein as these kinds of houses can be sold
easily than big ones. Velarde replied that subdivision owners would not consent to the
building of small houses. He, however, made two counter-proposals, to wit: that the
defendant corporation would assign to the plaintiff a number of lots corresponding to
the amounts the latter had already paid, or that the defendant corporation may sell the
corporation itself, together with the Multinational Village Subdivision, and its other
properties, to the plaintiff and the latter's sister companies engaged in the real estate
business. The negotiations between the parties went on for sometime but nothing
definite was accomplished.5

For its part, the Court of Appeals observed:

We agree with the court a quo that there is, therefore, reasonable ground to believe that
because of the negotiations between the parties, coupled with the fact that the plaintiff
never took actual possession of the properties and the defendants did not also dispose
of the same during the pendency of said negotiations, the plaintiff was led to believe
that the parties may ultimately enter into another agreement in place of the "contracts
to sell." There was, evidently, no malice or bad faith on the part of the plaintiff in
suspending payments. On the contrary, the defendants not only contributed, but had
consented to the delay or suspension of payments. They did not give the plaintiff a
categorical answer that their counter-proposals will not materialize.6

In fine, while we must conclude that petitioner corporation still acted within its legal right to declare the
contracts to sell rescinded or cancelled, considering, nevertheless, the peculiar circumstances found to be
extant by the trial court, confirmed by the Court of Appeals, it would be unconscionable, in our view, to
likewise sanction the forfeiture by petitioner corporation of payments made to it by private respondent.
Indeed, in the opening statement of thisponencia, we have intimated that the relationship between parties
in any contract must always be characterized and punctuated by good faith and fair dealing. Judging from

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