Вы находитесь на странице: 1из 96

Philippine Transmarine Carriers, Inc v. Legaspi ------------------------------------------------------------------------- 2 Limitless Potentials Inc. v. The Hon.

Quilala --------------------------------------------------------------------------- 82

Mendiola v. Commerz Trading International. Inc,. ---------------------------------------------------------------------- 5 XYST Corporation v.DMC Urban Properties Development --------------------------------------------------------- 86

Philippine Bank of Communications v. Echiverri ----------------------------------------------------------------------- 7 Fule v. CA ------------------------------------------------------------------------------------------------------------------ 89

Liong v. Lee ----------------------------------------------------------------------------------------------------------------- 13 Veluz v. Veluz -------------------------------------------------------------------------------------------------------------- 94

Perez v. Pomar -------------------------------------------------------------------------------------------------------------- 17

Chan, Jr. v. Iglesia ni Cristo ----------------------------------------------------------------------------------------------- 19

Picart v. Smith -------------------------------------------------------------------------------------------------------------- 21

Aneco v. Balen -------------------------------------------------------------------------------------------------------------- 23

Arco Pulp v. Lim ------------------------------------------------------------------------------------------------------------ 27

Quizana v. Redugerio ------------------------------------------------------------------------------------------------------ 34

Jereos v. Court of Appeals ------------------------------------------------------------------------------------------------- 35

Republic Planters Bank v. Court of Appeals ---------------------------------------------------------------------------- 37

Crystal v. BPI --------------------------------------------------------------------------------------------------------------- 40

Inchausti & Co. v. Yulo ---------------------------------------------------------------------------------------------------- 43

Republic Glass Corporation v. Qua -------------------------------------------------------------------------------------- 47

Bagnot v. RRI Lending ---------------------------------------------------------------------------------------------------- 53

Papa v. Valencia and Co., ------------------------------------------------------------------------------------------------- 58

Traders Insurance and Surety Compsny v. Giok ----------------------------------------------------------------------- 61

Pasricha v. Don Luis Realty, Inc., ---------------------------------------------------------------------------------------- 63

Far East Bank And Trust Company v. Diaz Reality, Inc., ------------------------------------------------------------ 70

Corpuz v. CA ---------------------------------------------------------------------------------------------------------------- 74

Cui v. Arellano University ------------------------------------------------------------------------------------------------- 81

1
[ G.R. No. 202791, June 10, 2013 ] Not satisfied, petitioner appealed the LA decision before the National Labor Relations Commission (NLRC).

The NLRC's Ruling


PHILIPPINE TRANSMARINE CARRIERS, INC., PETITIONER, VS. LEANDRO LEGASPI,
RESPONDENT. In its May 28, 2010 Decision, the NLRC affirmed the decision of the LA. Petitioner timely filed its motion for
reconsideration but it was denied by the NLRC in its July 30, 2010 Resolution. On September 5, 2010, the
DECISION NLRC issued the Entry of Judgment stating that its resolution affirming the LA decision had become final and
executory.
MENDOZA, J.:
On October 22, 2010, during the hearing on the motion for execution before the NLRC, petitioner agreed to
This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the January 5, 2012 pay respondent US$81,320.00. The terms and conditions of said payment were embodied in the Receipt of
Resolution[1] and July 20, 2012 Resolution[2] of the Court of Appeals (CA), in CA-G.R. SP No. 116686, which Judgment Award with Undertaking,[4]wherein respondent acknowledged receipt of the said amount and
denied the petitioner's motion to amend the dispositive portion of the June 29, 2011 CA Decision. undertook to return it to petitioner in the event the latter's petition for certiorari would be granted, without
prejudice to respondent's right to appeal. It was also agreed upon that the remaining balance would be given on
The Factual and Procedural Antecedents the next scheduled conference. Pertinent portions of the said undertaking provide:

Respondent Leandro Legaspi (respondent) was employed as Utility Pastry on board the vessel "Azamara
Journey" under the employment of petitioner Philippine Transmarine Carriers, Inc. (petitioner). Respondent's xxxx
employment was covered by a Collective Bargaining Agreement (CBA) wherein it was agreed that the
company shall pay a maximum disability compensation of up to US$60,000.00 only. 3. That counsel (of the petitioner) manifested their willingness to tender the judgment award without
prejudice to the respondent's (now petitioner) right to file a Petition for Certiorari and provided,
While on board the vessel, respondent suffered "Cardiac Arrest S/P ICD Insertation." He was checked by the complainant (now respondent) undertakes to return the full amount without need of demand or a
ship's doctor and was prescribed medications. On November 14, 2008, respondent was repatriated to receive separate action in the event that the Petition for Certiorariis granted;
further medical treatment and examination. On May 23, 2009, the company- designated physician assessed his
condition to be Disability Grade 2. 4. That complainant's counsel was amenable to the arrangement and accepted the offer. NOW THEREFORE
complainant and his counsel hereby acknowledge RECEIPT of the sum of EIGHTY-ONE THOUSAND
Not satisfied, respondent filed a complaint for full and permanent disability compensation against petitioner THREE HUNDRED TWENTY AND 0/100 (US$81,320.00) covered by CITIBANK CHECK with No.
before the Labor Arbiter (LA). 1000001161 dated October 21, 2010 payable to the order of LEANDRO V. LEGASPI and UNDERTAKES
to RETURN the entire amount to respondent PHILIPPINE TRANSMARINE CARRIERS, INC. in the
The Labor Arbiter's Ruling event that the Petition for Certiorari is granted without prejudice to complainant's right to appeal. Such
undertaking shall be ENFORCEABLE by mere motion before this Honorable office without need of separate
In its January 25, 2010 Decision,[3] the LA ruled in favor of respondent, the dispositive portion of which reads: action.[5][Emphases and underscoring supplied]

On November 8, 2010, petitioner timely filed a petition for certiorari with the CA.[6]
WHEREFORE, respondents (now petitioner) are hereby ordered to pay complainant jointly and severally, the
following: In the meantime, on March 2, 2011, the LA issued a writ of execution which noted petitioner's payment of the
amount of US$81,320.00. On March 16, 2011, in compliance with the said writ, petitioner tendered to the
1. US$80,000.00 or its peso equivalent at the time of payment as permanent disability compensation; NLRC Cashier the additional amounts of US$8,132.00 as attorney's fees and P3,042.95 as execution fee. In its
Order, dated March 31, 2011, the LA ordered the release of the aforementioned amounts to respondent.
2. US$1,320.00 or its peso equivalent as sick wages;
The CA's Ruling
3. Attorney's fees equivalent to 10% of the total award.
Unaware of a) the September 5, 2010 entry of judgment of the NLRC, b) the October 22, 2010 payment of
SO ORDERED. US$81,320.00, and c) the writ of execution issued by the LA, the CA rendered its Decision, dated June 29,
2011. The CA partially granted the petition for certiorari and modified the assailed resolutions of the NLRC,
Notably, the LA awarded US$80,000.00 based on the ITF Cruise Ship Model Agreement for Catering awarding only US$60,000.00 pursuant to the CBA between Celebrity Cruise Lines and Federazione Italianaa
Personnel, not on the CBA. Transporti CISL.

2
been persuaded by the judiciousness and merits of the award for disability compensation. He also avers that
Petitioner then filed its Manifestation with Motion to Amend the Dispositive Portion, submitting to the CA the this petition is merely pro-forma as it is a reiteration of petitioner's previous issues and arguments already
writ of execution issued by the LA in support of its motion. Petitioner contended that since it had already paid resolved by the CA.
the total amount of US$89,452.00, it was entitled to the return of the excess payment in the amount of
US$29,452.00.
The Court's Ruling
In its assailed January 5, 2012 Resolution, the CA denied the motion and ruled that the petition should have
been dismissed for being moot and academic not only because the assailed decision of the NLRC had become Petition for Certiorari, Not Moot
final and executory on September 5, 2010, but also because the said judgment had been satisfied on October
22, 2010, even before the filing of the petition for certiorari on November 8, 2010. In so ruling, the CA cited Section 14, Rule VII of the 2011 NLRC Rules of Procedure provides that decisions, resolutions or orders of
the pronouncement in Career Philippines Ship Management v. Geronimo Madjus [7] where it was stated that the the NLRC shall become final and executory after ten (10) calendar days from receipt thereof by the parties,
satisfaction of the monetary award rendered the petition for certiorari moot. and entry of judgment shall be made upon the expiration of the said period. [10] In St. Martin Funeral Home v.
NLRC,[11] however, it was ruled that judicial review of decisions of the NLRC may be sought via a petition
Petitioner filed a motion for reconsideration but it was denied by the CA in its assailed July 20, 2012 for certiorari before the CA under Rule 65 of the Rules of Court; and under Section 4 thereof, petitioners are
Resolution. allowed sixty (60) days from notice of the assailed order or resolution within which to file the petition. Hence,
in cases where a petition for certiorari is filed after the expiration of the 10-day period under the 2011 NLRC
Hence, this petition. Rules of Procedure but within the 60-day period under Rule 65 of the Rules of Court, the CA can grant the
petition and modify, nullify and reverse a decision or resolution of the NLRC.

ISSUES Accordingly, in this case, although the petition for certiorari was not filed within the 10-day period, petitioner
timely filed it before the CA within the 60-day reglementary period under Rule 65. It has, thus, been held that
the CA's review of the decisions or resolutions of the NLRC under Rule 65, particularly those which have
already been executed, does not affect their statutory finality, considering that Section 4, [12] Rule XI of the
2011 NLRC Rules of Procedure, provides that a petition for certiorari filed with the CA shall not stay the
I. WHETHER THE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE ERROR OF
LAW IN RULING THAT PETITIONER IS ESTOPPED IN COLLECTING THE EXCESS execution of the assailed decision unless a restraining order is issued. In Leonis Navigation, it was further
written:
PAYMENT IT MADE TO THE RESPONDENT NOTWITHSTANDING THE RECEIPT OF
JUDGMENT AWARD SIGNED BY THE RESPONDENT

II. WHETHER THE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE ERROR IN The CA, therefore, could grant the petition for certiorari if it finds that the NLRC, in its assailed decision or
INVOKING THE RULING OF CAREER V. MADJUS resolution, committed grave abuse of discretion by capriciously, whimsically, or arbitrarily disregarding
evidence that is material to or decisive of the controversy; and it cannot make this determination without
looking into the evidence of the parties. Necessarily, the appellate court can only evaluate the materiality or
significance of the evidence, which is alleged to have been capriciously, whimsically, or arbitrarily
Petitioner argues that it clearly filed its petition for certiorari within the 60-day reglementary period and, thus, disregarded by the NLRC, in relation to all other evidence on record.[13] Notably, if the CA grants the petition
the NLRC resolutions could not have attained finality. Citing Delima v. Gois,[8] petitioner avers that the NLRC and nullifies the decision or resolution of the NLRC on the ground of grave abuse of discretion amounting to
cannot declare that a decision has become final and executory because the period to file the petition has not yet excess or lack of jurisdiction, the decision or resolution of the NLRC is, in contemplation of law, null and void
expired. Petitioner, thus, contends that the finality of the NLRC judgment did not render the petition moot and ab initio; hence, the decision or resolution never became final and executory. [14]
academic because such is null and void ab initio.
Career Philippines not applicable
Petitioner also argues that the Receipt of the Judgment Award with Undertaking, which was never refuted by
respondent, clearly stated that the payment of the judgment award was without prejudice to its right to file a In Career Philippines, believing that the execution of the LA Decision was imminent after its petition for
petition for certiorari with the CA. Petitioner asserts that the case relied upon by the CA, Career Philippines, injunctive relief was denied, the employer filed before the LA a pleading embodying a conditional satisfaction
is not applicable as it is not on all fours with this case. Instead, it asserts that the applicable case should of judgment before the CA and, accordingly, paid the employee the monetary award in the LA decision. In the
be Leonis Navigation Co., Inc. v. Villamater,[9] where it was held that the satisfaction of the monetary award said pleading, the employer stated that the conditional satisfaction of the judgment award was without
by the employer does not render the petition for certiorari moot before the CA. prejudice to its pending appeal before the CA and that it was being made only to prevent the imminent
execution.[15]
On the other hand, respondent reiterates the CA ruling, asserting that the voluntary satisfaction by petitioner of
the full judgment award rendered the case moot, and insists that it was a clear indication that it had already

3
The CA later dismissed the employer's petition for being moot and academic, noting that the decision of the
LA had attained finality with the satisfaction of the judgment award. This Court affirmed the ruling of the CA, Unjust enrichment is a term used to depict result or effect of failure to make remuneration of or for property or
interpreting the "conditional settlement" to be tantamount to an amicable settlement of the case resulting in the benefits received under circumstances that give rise to legal or equitable obligation to account for them. To be
mootness of the petition for certiorari, considering (i) that the employee could no longer pursue other entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or request. Unjust enrichment is
claims,[16] and (ii) that the employer could not have been compelled to immediately pay because it had filed an not itself a theory of reconveyance. Rather, it is a prerequisite for the enforcement of the doctrine of
appeal bond to ensure payment to the employee. restitution.[19] There is unjust enrichment when:

Stated differently, the Court ruled against the employer because the conditional satisfaction of judgment
signed by the parties was highly prejudicial to the employee. The agreement stated that the payment of the 1. A person is unjustly benefited; and
monetary award was without prejudice to the right of the employer to file a petition for certiorari and appeal, 2. Such benefit is derived at the expense of or with damages to another.[20]
while the employee agreed that she would no longer file any complaint or prosecute any suit of action against
the employer after receiving the payment. In the case at bench, petitioner paid respondent US$81,320.00 in the pre-execution conference plus attorney's
fees of US$8,132.00 pursuant to the writ of execution. The June 29, 2011 CA Decision, however, modified the
In contrast, in Leonis Navigation, after the NLRC resolution awarding disability benefits became final and final resolution of the NLRC and awarded only US$60,000.00 to respondent. If allowed to return the excess,
executory, the employer paid the monetary award to the employee. The CA dismissed the employer's petition the respondent would have been unjustly benefited to the prejudice and expense of petitioner.
for certiorari, ruling that the final and executory decisions or resolutions of the NLRC rendered appeals to
superior courts moot and academic. This Court disagreed with the CA and held that final and executed Petitioner's claim of excess payment is further buttressed by, and in.' line with, Section 14, Rule XI of the 2011
decisions of the NLRC did not prevent the CA from reviewing the same under Rule 65 of the Rules of Court. NLRC Rules of Procedure which provides:
It was further ruled that the employee was estopped from claiming that the case was closed and terminated,
considering that the employee's Acknowledgment Receipt stated that such was without prejudice to the final
outcome of the petition for certiorari pending before the CA. EFFECT OF REVERSAL OF EXECUTED .JUDGMENT. Where the executed judgment is totally or
partially reversed or annulled by the Court of Appeals or the Supreme Court, the Labor Arbiter shall, on
In the present case, the Receipt of the Judgment Award with Undertaking was fair to both the employer and motion, issue such orders of restitution of the executed award, except wages paid during reinstatement
the employee. As in Leonis Navigation, the said agreement stipulated that respondent should return the amount pending appeal. [Emphases supplied]
to petitioner if the petition for certiorari would be granted but without prejudice to respondent's right to
appeal. The agreement, thus, provided available remedies to both parties. Although the Court has, more often than not, been inclined towards the plight of the workers and has upheld
their cause in their conflicts with the employers, such inclination has not blinded it to the rule that justice is in
It is clear that petitioner paid respondent subject to the terms and conditions stated in the Receipt of the every case for the deserving, to be dispensed in the light of the established facts and applicable law and
Judgment Award with Undertaking.[17] doctrine.[21]

Both parties signed the agreement. Respondent neither refuted the agreement nor claimed that he was forced to WHEREFORE, the petition is GRANTED. The Court of Appeals Resolutions, dated January 5, 2012 and
sign it against his will. July 20, 2012, are hereby REVERSED and SET ASIDE. Respondent Leandro Legaspi is ORDERED to
return the excess amount of payment in the sum of US$29,452.00 to petitioner Philippine Transmarine
Therefore, the petition for certiorari was not rendered moot despite petitioner's satisfaction of the judgment Carriers, Inc. The amount shall earn interest at the rate of 12% per annum from the finality of this judgment.
award, as the respondent had obliged himself to return the payment if the petition would be granted.
SO ORDERED.
Return of Excess Payment

As the agreement was voluntarily entered into and represented a reasonable settlement, it is binding on the
parties and may not later be disowned simply because of a change of mind. [18] Respondent agreed to the
stipulation that he would return the amount paid to him in the event that the petition for certiorari would be
granted. Since the petition was indeed granted by the CA, albeit partially, respondent must comply with the
condition to return the excess amount.

The Court finds that the Receipt of the Judgment Award with Undertaking was a fair and binding agreement. It
was executed by the parties subject to outcome of the petition. To allow now respondent to retain the excess
money judgment would amount to his unjust enrichment to the prejudice of petitioner.

4
G.R. No. 200895 July 31, 2013 Despite petitioner’s repeated demands, respondent failed to remit the remaining balance of ₱70,000.00 from
the proceeds of the sale of the laparoscopic instrument. Consequently, petitioner filed a collection suit against
ROLANDO M. MENDIOLA, Petitioner, respondent with the Metropolitan Trial Court, Branch 79, Las Piñas City (MeTC).
vs.
COMMERZ TRADING INT'L., INC., Respondent. In its Answer, respondent countered that petitioner had no cause of action because it did not owe petitioner any
amount. Respondent alleged that the case was a pre-emptive measure taken by petitioner in anticipation of the
DECISION collection suit respondent would file for over payment of the purchase price of the laparoscopic instrument.
Respondent claimed that the unremitted amount of ₱70,000.00 represented a portion of the ₱267,857.14
Expanded Value Added Tax (EVAT) which was erroneously and inadvertently credited or remitted by
CARPIO, J.: respondent to petitioner’s account.

The Case The MeTC rendered its Decision of 6 October 2008 in favor of petitioner. The MeTC held that "respondent
has no right to retain the ₱70,000.00 x x x. Respondent had been duly compensated for its work done. It is not
This petition for review1 assails the 30 January 2012 Decision2 of the Court of Appeals in CA-G.R. SP No. its duty to pay any government taxes in whatever form because it is clearly a responsibility of the buyer."9
110491. The Court of Appeals reversed the 27 May 2009 Decision3 of the Regional Trial Court, Branch 255,
Las Pifias City, which affirmed the 6 October 2008 Decision4 of the Metropolitan Trial Court, Branch 79, Las The dispositive portion of the MeTC decision reads:
Pifias City, in a collection suit filed by petitioner Rolando M. I'vfendiola against respondent Commerz Trading
Int'l., Inc.
WHEREFORE, the Court hereby renders judgment in favor of the plaintiff ordering the defendant to pay
plaintiff the sum of ₱70,000.00 as actual damages plus 12% per annum beginning June, 2007 until the amount
The Facts is fully paid. The defendant is also ordered to pay plaintiff reasonable attorney’s fees of ₱20,000.00 and costs
of suit.
Genicon, Inc. (Genicon) is a foreign corporation based in Florida, United States of America, which designs,
produces, and distributes "patented surgical instrumentation focused exclusively on laparoscopic SO ORDERED.10
surgery."5Petitioner, a physician by profession, entered into a contract with Genicon to be its exclusive
distributor of Genicon laparoscopic instruments in the Philippines, as evidenced by a Distribution Agreement
dated 18 July 2007.6Petitioner, in turn, entered into a Memorandum of Agreement (MOA)7 with respondent to Respondent appealed to the Regional Trial Court, Branch 255, Las Piñas City (RTC). In its 27 May 2009
facilitate the marketing and sale of Genicon laparoscopic instruments in the Philippines. Under the MOA, Decision, the RTC sustained the MeTC, holding that the MOA is the law between the parties. Under the
respondent would be compensated for ₱100,000.00 "for the use of respondent’s name, office, secretary, MOA, "there was no right or authority given to respondent to retain a portion of the proceeds of any sale
coursed through or obtained by it for taxation purposes."11
invoices, official receipts and facilities x x x for every sale of a complete set of Genicon laparoscopic
instruments x x x."8
The dispositive portion of the RTC decision reads:
Respondent sent a price quotation to Pampanga Medical Specialist Hospital, Inc. (PMSHI), which thereafter
agreed to purchase a Genicon laparoscopic instrument for Two Million Six Hundred Thousand Pesos WHEREFORE, the foregoing considered, the herein appeal of the defendant-appellant Commerz Trading
(₱2,600,000.00). Then, petitioner ordered the laparoscopic instrument from Genicon, which in turn shipped the International, Inc. is DENIED for lack of merit. Accordingly, the DECISION dated 06 October 2008 rendered
medical equipment to the Philippines. Respondent undertook the release of the laparoscopic instrument from by the Metropolitan Trial Court of Las Piñas City, Branch 79 in Civil Case No. 7645 is affirmed in toto.
the Bureau of Customs and subsequently delivered the same to PMSHI.
SO ORDERED.12
PMSHI made the following payments to respondent: (1) ₱520,000.00 per PMSHI Check Voucher No. 2448
dated 1 February 2007, and to which respondent issued Official Receipt No. 11148; and (2) ₱2,080,000.00 per Respondent appealed to the Court of Appeals, which reversed the RTC in its Decision of 30 January 2012.
PMSHI Check Voucher No. 2419 dated 6 February 2007. From the total amount of ₱2,600,000.00 paid by
PMSHI to respondent, the latter’s president Joaquin Ortega deducted ₱100,000.00 as respondent’s
compensation for its services pursuant to the MOA. Respondent remitted to petitioner ₱2,430,000.00 only, Hence, this petition.
instead of ₱2,500,000.00.
The Ruling of the Court of Appeals

5
The Court of Appeals reversed the RTC and ruled in favor of respondent. The Court of Appeals found Respondent, however, claims that the ₱70,000.00 represents a portion of the total VAT due 16 from the Genicon
respondent, a VAT-registered entity, as the seller/importer of the laparoscopic instrument and thus, is the transaction which is allegedly petitioner’s obligation under paragraph V of the MOA which states: "All
person liable for the payment of the VAT. The Court of Appeals held that respondent "made the sale to taxes/expenses and expenses related to Genicon transactions shall be the responsibility of petitioner." 17
PMSHI, x x x and thus is liable for the payment of EVAT albeit respondent is, per the Memorandum of
Agreement, only the marketer of the medical product."13 Assuming that the importation of the laparoscopic Basic is the principle that a contract is the law between the parties, 18 and its stipulations are binding on them,
instrument was the taxable transaction, "it was not disputed x x x that it was respondent which arranged the unless the contract is contrary to law, morals, good customs, public order or public policy. 19 Indeed, paragraph
importation of the medical equipment from Genicon in the U.S.A. and undertook the processing and release of V of the MOA obligates petitioner to pay the taxes due from the sale of the Genicon laparoscopic instrument.
the same before the Bureau of Customs."14 Petitioner admits that he is the one "responsible in the payment of the EVAT and not the respondent, who
merely acted as the marketer"20 of the Genicon laparoscopic instrument. Hence, as between petitioner and
The Court of Appeals likewise reversed the RTC’s award of interest and attorney’s fees.1âwphi1 The respondent, petitioner bears the burden for the payment of VAT.
dispositive portion of the Court of Appeals’ decision reads:
The question now is whether respondent is authorized under the MOA to withhold a specific amount from the
WHEREFORE, the instant Petition is GRANTED. The Decision dated 27 May 2009 of the Regional Trial proceeds of the sale of the Genicon laparoscopic instrument as tax due from petitioner.
Court is REVERSED and SET ASIDE.
The MOA is silent on this matter. The MOA does not expressly allow respondent to collect or withhold from
Respondent Rolando M. Mendiola is hereby ORDERED to reimburse the Petitioner the sum of ₱197,857.14 petitioner any amount from the sale of the Genicon laparoscopic instrument for taxation purposes.
within five (5) days from receipt of finality of this decision. Petitioner is thereafter ORDERED to reflect the
reimbursement in its EVAT Return for the current quarter to be submitted to the Bureau of Internal Revenue
However, the same agreement (1) allows respondent to issue official receipts on which VAT should have been
and pay the same to the latter’s authorized collecting agency immediately within the next monthly pay period computed and included in the purchase price, and (2) obligates petitioner to pay any tax due on the sale.
as provided under the NIRC.

Under the MOA, petitioner requested respondent "to use the latter’s name, office, secretary, invoice, official
Petitioner and Respondent are ORDERED to submit their compliance thereto within fifteen (15) days from
receipts and its facilities for the distribution and sale of Genicon products in the Philippines." 21 Petitioner, who
receipt of finality of this decision. is a physician, made such request "solely for ethical and personal reasons." 22 Accommodating and agreeing to
petitioner’s request, respondent, a VAT-registered entity, issued Official Receipt No. 11148 to evidence the
SO ORDERED.15 sale of the Genicon laparoscopic instrument to PMSHI, and the payment by the latter of the purchase price.
PMSHI, in turn, issued two checks in favor of respondent totaling ₱2,600,000.00. 23
The Issues
Clearly, based on respondent's records, it would appear that (1) it received ₱2,600,000.00 from PMSHI, which
Petitioner raises the following issues: amount is subject to VAT as found by its external auditor and (2) it is the seller of the Genicon laparoscopic
instrument. Therefore, petitioner should pay the VAT due on the sale, which would be computed based on the
official receipt issued by respondent. To hold otherwise clearly operates to defraud the. government of the
1. Whether respondent has the right to retain the balance of the proceeds of the sale in the amount of correct amount of taxes due on the sale, and contravenes the Civil Code provision mandating "every person x
₱70,000.00; and x x to act with justice, give everyone his due, and observe honesty and good faith."24 While by agreement of
the parties petitioner bears the economic burden for paying the VAT, the legal liability to pay the same to the
2. Whether petitioner is entitled to the award of interest and attorney’s fees. BIR falls on respondent.

The Ruling of the Court Thus, since respondent, as the seller on record, will be liable for the payment of the VAT based on the official
receipt it issued, we shall allow respondent to retain the ₱70,000.00 only for the purpose of paying forthwith,
if it has not done so yet, this amount to the BIR as the estimated tax due on the subject sale. There remains a
We deny the petition. dispute on the computation of the correct amount of VAT because respondent allegedly issued an official
receipt25 only in the amount of ₱520,000.00, instead of the ₱2,600,000.00 purchase price. Considering this,
There is no dispute that the ₱70,000.00 respondent withheld from petitioner formed part of the proceeds of the and the foregoing findings, the BIR must be informed of this Decision for its appropriate action.
sale of the Genicon laparoscopic instrument.
We find the resolution of the other issue unnecessary.

6
WHEREFORE, we DENY the petition. Months later, or on March 10, 1975, the parties executed a compromise agreement, the substantial provisions
of which read:
Let a copy of this Decision be forwarded to the Bureau of Internal Revenue for its appropriate action.
WHEREAS, in said civil action, plaintiff BANK has asserted a claim against the
SO ORDERED. PARTIES OF THE SECOND PART in the total

posting "phony" or non-existing deposits on accounts opened with PBCOM under various names and later
G.R. No. L-41795 August 29, 1980
withdrawing the amounts represented b), such phony deposits, thereby creating unauthorized and unapproved
overdrafts which were, through the concerted action of the defendants, concealed from the management of
PHILIPPINE BANK OF COMMUNICATIONS, petitioner, PBCOM; and b) making withdrawals on uncollected deposits. Defendants' schemes are more particularly
vs. described by them in their sworn statements attached as annexes to this complaint.
HON. JUAN F. ECHIVERRI, in his capacity as Presiding Judge of Branch XIV of the Court of First
Instance of Manila, ENRIQUE LORENZO y JIONGCO, CONRADO GALVEZ y CERVANTES,
5. It was only on April 7, 1974 that this embezzlement was discovered by PBCOM when
FAUSTINO CARLOS y RAMOS, ARSENIO LORENZO y VILLALUZ, ILDEFONSO CARIÑO y
MARASIGAN, FELIZARDO ALBAIRA and RICARDO CARLOS. respondents. defendant Yu Chiao Chin confessed the fraud to the officials of the bank and at the same
Lime made an offer to restore the amount embezzled provided that he and the other
herein defendants would not be prosecuted by the bank.

6. On various dates also, all the herein defendants gave sworn statements to the
TEEHANKEE, J.: Philippine Constabulary ...

The Court sets aside the decision of respondent court insofar as it modifies and alters the compromise 7. PBCOM's own investigation disclosed the loss of P25,278,780.93 and the evidence on
agreement freely entered into between petitioner bank and private respondents by deleting the concessions hand established the accountability of the herein defendants for the said amount.
made by respondents. The validity of the compromise agreement in toto is upheld, since its provisions are not
prohibited by law nor condemned by judicial decision nor contrary to morals, good customs and public policy.
By virtue of the fundamental precept that a compromise agreement is a contract between the parties and has 8. PBCOM demanded from the herein defendants full restitution of the amount of
upon them the effect and authority of res judicata, the courts cannot impose upon them a judgment different P25,278,780.93 but defendants failed and continue to fail to comply with such demands
from their real agreement or against the very terms and conditions thereof. of PBCOM, to the damage and prejudice of PBCOM.

On May 29, 1974, the Philippine Bank of Communications (PBCOM for short), a banking corporation duly xxx xxx xxx
organized and existing under the laws of the Philippines that has been engaged in normal commercial banking
transactions since 1939, filed a complaint for the recovery, jointly and severally from therein defendants, of (Record, pp. 60-61; Emphasis supplied) amount of P25,278,780.93, exclusive of
over P25 million allegedly embezzled from it over a period of 16 years by its said employees defendants, Yu interests, attorney's fees and costs of suit;
Chiao Chin, alias Nelson Yu, assistant manager, in-charge of the Auditing Department; Paulino How, manager
of the Business Development Department; Faustino Carlos, Ildefonso Carino, Conrado Galvez, Arsenic WHEREAS, the parties hereto are most desirous and interested that the aforesaid
Lorenzo, Enrique Lorenzo, Ricardo Carlos, Victoriano Salvador and Felizardo Albaira, bookkeepers. 1 litigations be terminated and by this Agreement it is their intention that all claims therein
and au disputes and differences between the parties thereto be settled and compromised
PBCOM prayed for full restitution of the amount embezzled, and payment of attorney's fees and exemplary to their mutual satisfaction;
damages. Upon its application, the trial court issued writs of attachment and, through the City Sheriff of
Manila, attached various real and personal properties of the. defendants. WHEREAS, in consideration of the agreement on the part of the BANK to dismiss with
prejudice the above-mentioned civil action and to waive all its rights and causes of action
Separately, each of the defendants, except Victoriano Salvador who died in the meantime, filed responsive against all the defendants therein, the PARTIES OF THE SECOND PART are willing
pleadings, either an answer or a motion to dismiss, the last of which was filed on August 15, 1974. to acknowledge and assume certain obligations, make certain concessions and undertake
to perform certain acts for the benefit of the BANK under such terms and conditions as
hereafter specified.

7
NOW, THEREFORE. for and in consideration of the foregoing premises and the mutual the corresponding quitclaims waiving whatever rights they may have against the BANK
covenants and agreements to be performed, one for the other, as hereinafter set forth, the arising from their employment and/or in connection with the case and criminal charge
parties hereto do hereby stipulate and agree as follows: hereinabove mentioned Said quitclaims shall include a waiver of all the benefits,
interests, participation, contributions and any other rights that they may have under both
1. Yu Chiao Chin, one of the PARTIES OF THE SECOND PART, hereby acknowledges the Staff Provident Fund and the Retirement Plan of the PARTY OF THE FIRST PART.
that he is indebted and liable to the BANK in the total sum of P6,610,000.00.
8. In consideration of the foregoing undertaking assumed by the PARTIES OF THE
SECOND PART, the BANK hereby discharges forever the defendants from any and all
2. Paulino L. How, also one of the PARTIES OF THE SECOND PART, likewise hereby
acknowledges that he is indebted and liable to the BANK in the total amount of obligations and liabilities arising from the aforementioned civil case.
P600,000.00.
9. The parties shall file the appropriate motions in Court praying for the rendition of a
judgment in the aforementioned civil case based on the terms and conditions of this
3. Yu Chiao Chin hereby binds himself to pay to the BANK, without need of further
demand, the aforesaid sum of P6,610,000.00 under the following terms and conditions: Agreement.

xxx xxx xxx 10. The PARTIES OF THE SECOND PART hereby represent and warrant that
they have not participated, singly or collectively, in any transaction or dealings which
may be prejudicial to the BANK other than those related to or included in the afore-
4. Paulino L. How hereby binds himself to pay to the BANK, without reed of further mentioned civil case and criminal charge and which have already been disclosed or
demand, the aforesaid sum of P600,000.00 under the following terms and conditions: are already known to the BANK. It is expressly agreed that this 'Compromise Agreement'
shall not in any manner bar or preclude the BANK from asserting its rights against the
xxx xxx xxx PARTIES OF THE SECOND PART in the event that the BANK subsequently
discoverssuch other transactions or dealings in which any or all the PARTIES OF THE
SECOND PART are directly or indirectly involved and which are prejudicial to the
5. Yu Chiao Chin and Paulino L. How agree to nominate and submit to the satisfaction of BANK's interest." 2
the Bank such persons of reputable name and character who shall, together with them and
upon the execution of this Agreement, jointly and severally, execute and sign, such
promissory notes, deeds, documents or instruments as may be necessary to insure and/or The Agreement was signed by the PBCOM represented by its president, Edward S. Go, as PARTY OF THE
secure the payment of the remaining balance of their obligation to the BANK as FIRST PART and each of the defendants in his own behalf as PARTIES OF THE SECOND PART.
hereinabove set forth and thus give effect to and fully implement the terms and conditions
of this Agreement. On March 17, 1975, the counsel for the PBCOM on one hand, and the counsels for each of the defendants on
the other, jointly filed a "Motion for Judgment on the Basis of Attached Compromise Agreement."
6. The parties hereto agree that all such promissory notes, deeds, documents or
instruments which shall be executed under and by virtue of the preceding paragraph shall On April 17, 1975, respondent judge issued an order resetting the hearing or the motion for judgment on the
form part of this Compromise Agreement and that whatever Judgment which may be basis of the compromise agreement and at the same time making the observation motu proprio that "there are
rendered by the CFI of Manila on the basis of the Compromise Agreement shall be certain objectionable features concerning the compromise agreement, as submitted, such as matters pertaining
deemed to extend to and include any and all undertakings and commitments made by the to a proposed compromise involving the criminal aspect of the case, 'Which is contrary to law. Therefore, the
signatories thereto as part of the judgment, it being expressly understood and agreed by parties who have already signed the said compromise agreement are hereby instructed to go over the same and
the parties hereto, that the undertaking to be done and the promises to be made by the see how it could be properly approved by the Court, taking into consideration the provisions of law as well as
third persons referred to above constitute an essential consideration for the promises, public morals and policy."
covenants and undertaking by the BANK under and by virtue of this Agreement.
On April 26, 1975, tile parties — the PBCOM, thru its president, and the defendants in their own behalf and
7. THE PARTIES OF THE SECOND PART, namely, Yu Chiao Chin alias Nelson Yu, each assisted by counsel 3 submitted a manifestation and motion in order to have the phrase "and criminal
Enrique Lorenzo y Jiongco, Conrado Galvez y Cervantes, Faustino Carlos y Ramos, charge hereinabove mentioned" (contained in paragraph 7 of the Compromise Agreement) and "and criminal
Arsenio Lorenzo y Villaluz, Ildefonso Carino y Marasigan, Felizardo Albaira, Ricardo charge" (contained in paragraph 10 of the Compromise Agreement), supra, deleted and — praying that
Carlos, Paulino L. How, hereby agree to voluntarily resign from the BANK and to execute judgment be rendered on the basis of the Compromise Agreement as thus modified.

8
On May 12, 1975, the defendant Conrado Galvez thru his counsel filed a Manifestation pointing out two While Compromises are encouraged and normally courts approve compromise
alleged objectionable features in the compromise agreement signed by him, which he claimed to be "contrary agreements as a matter of course, nonetheless, courts are not rubber stamps mechanically
to law, public policy and decency," namely, the provision thereof to the effect that said agreement even after approving whatever litigants submit to them labelled as a' compromise agreement'. They
its approval by the court shall be without prejudice to charging anew the same defendants on the basis of other must examine if it is not contrary to law, public order, public policy, morals and good
anomalies which might be discovered in the bank thereafter, contrary to his expectation that the dismissal of customs.
the present criminal and civil cases would terminate with finality any and all litigations between the parties;
and the provision regarding quitclaim where said defendant would be considered as having voluntarily Respondent judge further advanced his own appraisal that the compromise agreement was "unfair" and "one-
resigned, waiving his right to reinstatement in the service, his right to retirement with the corresponding sided", and directed the parties once more to "reconsider ... and reform" the waiver and quitclaim provisions of
gratuity or compensation and his right to receive the benefits under the Staff Provident Fund. But said paragraph 7 thereof, as follows:
defendant made no claim that he did not voluntarily sign the compromise or that Ws consent had been
obtained through mistake, violence or fraud. 4 In fact, he based his objection on his claim that "it was the
plaintiff, from the outset, who persuaded Galvez to turn state witness and promised him reciprocal benefits It will be noted that of the several defendants, Yu Chiao Chin and Paulino L. How both
should he agree to become such, and to which Galvez agreed and had done his part, but plaintiff had reneged acknowledged their liability to plaintiff, the former in the sum of P5,610,000.00 and the
on its promise and commitment. ... 5 latter in the sum of P600,000.00. (Paragraphs I to 6 of the compromise agreement) As to
them, there would appear to be sufficient basis for the waiver.
Countering the manifestation of Conrado Galvez, PBCOM thru counsel maintained the legality and validity of'
the quitclaim duly signed by said Galvez. As to the terms of the, Agreement, viz. that it "shall not in any There is no such acknowledgment on the part of the other defendants. On the other hand,
manner bar or preclude the Bank from asserting the rights against the PARTIES OF THE SECOND PART in defendants Yu Chiao Chin and Paulino L. How admitted sole and exclusive liability for
the event that the Bank subsequently discovers such other transactions on, dealings ill which any or all the the misdeeds, and absolved the other defendants (all minor employees then under them)
PARTIES OF THE SECOND PART are directly or indirectly involved and which are prejudicial to the Bank's of any responsibility thereon. There is no reason on the basis of the record why the
interest," said counsel explained that the agreement was intended by the bank to cover only such matters of benefits owing to such other defendants-employees should be waived under paragraph 7
transactions which were known or disclosed to it by the defendants and not those of which it had no of the Compromise Agreement.
knowledge at the time of execution thereof.
The Court cannot close its eyes either to the fact that there is no concession at all
On July 3, 1975, respondent judge issued an order setting the case for hearing "at which all the parties will be appearing to move to the defendants. An examination of the record, including the
afforded the opportunity to individually show whether or not there is sufficient basis for the quitclaims in numerous statements attached to the complaint, shows how unfair the one-sided
question viewed from the standpoint of law, public policy and morals vis-a-vis employer-employee relations compromise agreement is to the defendants specially to those who appear to have a very
...", citing as grounds therefor the following. tenuous to the irregularities in question.

We note the laudable objectives of the parties herein in entering into the Compromise xxx xxx xxx
Agreement under consideration: i.e., to terminate the above- captioned case and by this
agreement to settle and compromise to their mutual satisfaction, all claims therein, and all Dropping the complaint is not enough, at least in this case, for all compromises are
disputes and differences between the parties. (Par. 3, page 2, Compromise Agreement) supposed to terminate litigation; it is only when the parties make reciprocal concessions
that a litigation already commenced can be put to an end by means of a compromise.
We observe, however, that aside from the foregoing latent infirmities of the Compromise Here there is no premise satisfactorily articulated to justify the compromise from the
Agreement, there obviously was an imbalance of the treatment of the defendants, standpoint of the defendants-employees save possibly Yu Chiao Chin alias Nelson Yu
Faustino Carlos, Ildefonso Carino, Conrado Galvez, Ricardo Carlos and Arsenio and Paulino How.
Lorenzo, in contrast to principal defendants Yu Chiao Chin alias Nelson Yu, who had
reiterated his admission made in his sworn statement taken at Camp Crame, Quezon City The Court shall endeavor to persuade the litigants in a civil case to agree upon
that he was responsible and liable to the plaintiff-bank for the loss/defraudation of at least some fair compromise.' Article 2029, Civil Code. (emphasis supplied.) It is hard to see
P5,610,000.00, or a portion only of the P14 million he admitted in his Sworn Statement at how the subject compromise can be considered fair. The Court has given the parties time
Camp Crame, Quezon City. In the same manner, defendant Paulino How, admitted to re-examine the agreement but is not persuaded that the agreement is indeed fair insofar
responsibility for P600,000.00. as paragraph 7 thereof is concerned, said clause not having been affected in said
reexamination. Unfortunately, only the objectionable feature on compounding a criminal
xxx xxx xxx offense was addressed by the parties in response to the court's directives of April 17,

9
1975 and May 8, 1975. The portion on waiver of the employees' benefits remains in its Invoking his earlier Order of July 3, 1975 wherein he had prejudged the compromise agreement to be "unfair"
unsatisfactory and troubling condition. and "one-sided", despite which the parties had not heeded his directive therein "to reconsider and reform" the
waiver and quitclaim provisions in paragraph 7 thereof, respondent judge ordered the deleting and striking out
of said provisions insofar as herein respondents-defendants were concerned declaring them to be "contrary to
The parties must be directed once more to reconsider said paragraph 7 of the compromise
agreement and reform or supplement it, for, as it is written, it is hard to see how the court law, morals, good customs, public policy and public order" and "considered inexistent and void from the
can approve it. A compromise agreement 'will not be set aside where the rights of the beginning," yet approving the very same compromise agreement in toto without any deletion or modification
parties may be protected by a reformation,' 15 C.J.S. 243. as to the defendant Yu Chiao Chin alias Nelson Yu (in the same manner that he had approved in toto the same
compromise agreement as to the defendant Paulino How in his earlier "partial decision" of July 25, 1975, as
follows:
Thereafter, PBCOM filed its written comments on July 24, 1975, reiterating its stand on the validity of the
compromise agreement. Only two of the defendants, Ricardo Carlos and Conrado Galvez, filed their replies.
Ricardo Carlos manifested that he signed the compromise "so as to show pakikisama to his co-defendants and After a careful study of the records, as well as the oral and written manifestations made
to get the matter over and done with. He is by no means repudiating his signature ..." and while admitting that by the parties, thru their respective counsel, the Court is of the opinion that paragraph 7
he received certain small amounts from Mr. How and Mr. Yu. that he was leaving the matter to the discretion of the Compromise Agreement, insofar as it refers and includes the names of defendants-
of the court, as summarized by respondent judge himself in his appealed decision. 6 The position of Conrado bookkeepers, Enrique Lorenzo y Jiongco, Conrado Galvez y Cervantes, Faustino Carlos y
Galvez who had agreed to be a state witness has already been stated hereinabove. Ramos, Arsenio Lorenzo Villaluz, Ildefonso Carino y Marasigan, Felizardo Albaira, and
Ricardo Carlos, transgresses the law, its cause, object and purpose is contrary to law,
morals good customs public policy and public order and, therefore, is considered
On July 25, 1975, respondent court handed down its "partial decision" approving in toto (without modification inexistent and void from the beginning.
and alteration) the compromise agreement as to defendant Paulino L. How and finding therein "nothing
contrary to law, morals and public policy, as follows:
Except, therefore, with this modification, which even if included in said Compromise
Agreement, but being considered inexistent and void from the beginning, the
In the light of all the foregoing, the Court finds nothing in the above-quoted provisions of Compromise Agreement could be approved and made the basis of judgment of the above-
the Compromise Agreement pertaining to defendant Paulino L. How, to be contrary to entitled case. being, as thus modified, not contrary to law, morals, good customs, public
law, morals, and public policy, hence, same is hereby granted and approved. policy and public order.

Judgment is hereby rendered approving the above-quoted Compromise Agreement WHEREFORE, judgment is hereby, rendered approving the above- quoted Compromise
between the plaintiff and defendant Paulino L. How and ordering the parties to comply Agreement, as modified thusly, to wit:
strictly with the terms and conditions thereof without pronouncement as to costs.
(a) delete the phrase 'and criminal charge herein abovementioned' found in paragraph 7,
The attachment on the properties of defendant Paulino L. How is hereby lifted. 7 page 5 and the phrase land criminal charge' found in paragraph 10, page 6, and

On September 30, 1975, respondent judge rendered a 68 page decision as to au the other defendants, repeating (b) delete the names of all the defendants-bookkeepers appearing in paragraph 7, page 5
the observations he made in his earlier order dated July 3, 1975, although along a more lengthy and ramified of the Compromise Agreement, namely, Enrique Lorenzo y Jiongco, Conrado Galvez y
vein. 7-a Cervantes, Faustino Carlos y Ramos, Arsenio Lorenzo y Villaluz, Ildefonso Carino y
Marasigan, Felizardo Albairra, and Ricardo Carlos,
Although the issues had not been completely joined, and without any trial or reception of evidence, respondent
judge made in his decision extensive "findings" and conclusions of fact on the basis of the controverted as entered into between the plaintiff-bank and the defendants hereto. (with the exception of principal defendant
allegations in the parties' pleadings. Nevertheless, respondent judge could not avoid stating in his decision that Paulino L. How, whose case had been disposed of in a separate partial decision previously) and ordering the
"(T)he findings of the independent auditors, SYCIP, GORRES, VELAYO & CO. indicated the defrauded parties to comply strictly with the terms and conditions thereof without pronouncement as to costs.
loss was about P25 million The admissions of the several defendants-bookkeepers approximated this finding,
i.e. P21 million alone by Nelson Yu," 8 after recounting the defraudation schemes of those who he called the
"principal defendants" who connivedwith herein respondents-defendants who as bookkeepers covered up in The attachments on the properties of all the defendants are hereby dissolved, discharged and lifted. 9
their respective books the amounts defrauded.
Hence, the present petition which we find to be meritorious.

10
1. Contrary to the bare conclusion of respondent judge ordering the deletion of the names of herein 3. The parties therefore have every freedom to enter into a compromise agreement, as in any other contract, the
respondents-defendants from the above-quoted Paragraph 7 of the compromise agreement, whereby he would only exceptions being certain prohibited subjects of compromise such as the civil status of persons as provided
free them from their agreement of voluntarily resigning from petitioner bank and waiving whatever rights they in Article 2035 of the Civil Code (none of which is applicable here) 14 and the general restriction in Article
may have against petitioner arising from their employment or the case, including all benefits and rights under 1306 of the Civil Code that 'The contracting parties may establish such stipulations, clauses, terms and
petitioner's Staff Provident Fund and retirement plan in consideration of petitioner's agreement to dismiss the conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public
P25 million case against them and discharging them from all obligations and liabilities thereunder, there is order, or public policy.
nothing in said resignation and waiver undertakings of respondents that "transgresses the law" or is "contrary
to law, morals, good customs, public policy and public order and, therefore is considered inexistent and void The law and the precepts of morals or good customs need no definition. They need only to be cited and none
from the beginning" — and no such law or authority was cited by respondent judge or respondents to justify or has or can be cited as being transgressed by the cited provisions in question. As to the remaining fields of
support his erroneous assertion. public order and public policy, the Court has since the early case of Ferrazzini vs. Gsell 15 pointed out that the
two terms are practically equivalent, citing Manresa that "Public policy (order publico) — which does not here
Respondent judge's "finding" that herein respondents-bookkeepers "all occupied an inferior position in the signify the material keeping of public order — represents in the law of persons the public, social and legal
negotiations on the Compromise Agreement in question, with respect to the plaintiff-bank and/or together with interest, that which is permanent and essential of the institutions, that which. even in favoring an individual in
principal defendants Yu Chiao Chin alias Nelson Yu and Paulino L. How. Be it remembered that these whom the right lies, cannot be left to his own will." The Code Commission however in drafting our present
principal defendants as early- as the year 1970, long before the Complaint herein was filed, had admitted in Code included the two terms, stating ill its report that "Public order, which is found in the Spanish Civil Code,
writing and 'assumed full responsibility for whatever consequences may arise and that we declare the is not as broad as public policy, as the latter may refer not only to public safety but also, to considerations
bookkeepers free from all responsibility, 10 or even his pre-judged subjective perception in his earlier Order of which are moved by the common good. 16
July 3, 1975 hereinabove quoted that "there was obviously an imbalance in [their] treatment" in the "unfair"
and "one-sided compromise agreement" do not at all warrant his rash deletion of the respondents' reciprocal
In Gabriel vs. Monte de Piedad 17, the Court enjoined that "courts should not rashly extend the rule which
undertaking in exchange of petitioner's dismissal of the case and waiver of its claims as "contrary to law, holds that a contract is void as against public policy" and laid down the following criteria: "The term 'public
morals, good customs, public policy and public order." This is so, particularly considering that respondent policy' is vague and uncertain in meaning, floating and changeable in connotation. It may be said, however,
judge approved the very same compromise agreement in toto without any deletion of the provisions in that, in general, a contract which is neither prohibited by law nor condemned by judicial decision, nor contrary
question as to defendants How and Yu, who were charged in the complaint below together with herein to public morals, contravenes no public policy. In the absence of express legislation or constitutional
respondents-defendants as having connived and acted in concert with each other to defraud petitioner of some prohibition, a court, in order to declare a contract void as against public policy, must find that the contract as to
P25 million and respondent judge in his above-quoted "findings" found that "the admissions of the several the consideration or thing to be done, has a tendency to injure the public, is against the public good, or
defendants-bookkeepers I herein respondents] approximated this finding [of P25 million defrauded loss found contravenes some established interests of society, or is inconsistent with sound policy and good morals, or
by Sycip, Gorres, Velayo & Co., the independent auditors]; i.e. P21 million alone by Nelson Yu." All of them tends clearly to undermine the security of individual rights, whether of personal liability or of private property.
being similarly situated and having been charged with connivance and conspiracy .n carrying out through the
Examining the contract at bar, we are of the opinion that it does not in any way militate against the public
years the huge defraudation of petitioner, respondent judge could not arbitrarily declare the provisions in good. Neither does it contravene the policy of the law nor the established interests of society.
question void as to the herein seven respondents-conspirators and valid as t6 the two others above named.

Thus, the provisions in question which are neither prohibited by law nor condemned by judicial decision nor
2. Far from being "one-sided" and "unfair", it thus appears that in exchange of herein respondents' voluntary
contrary to morals and good customs cannot be said to contravene any public policy or to militate against the
resignation (which employment they could not have clung to anyway considering the huge defraudation of public good.
over P25 million carried out with their connivance and covered by their admissions, as per respondent judge's
own "findings" in his decision, supra, 11 which certainly would warrant their dismissal even on the mere
ground of total loss of trust and confidence) and waiver of any dubious rights arising from their employment 4. The Civil Code in fact contains salutary provisions that encourage and favor compromises and does not
and the case below, including all benefits and rights under petitioner's Staff Provident Fund and retirement even require judicial approval. As the Court held in Cochingyan vs. Cloribel 18 "Pursuant to Article 2037 of
plan (which they would nevertheless have lost and forfeited upon separation from the service 12 all of which the Civil Code, 'A compromise has upon the parties the effect and authority of res judicata ...' and this is true
involved petty amounts compared to the over P25 million sought to be recovered by petitioner, herein even if the compromise is not judicially approved." Article 2032 of the Civil Code provides only that "the
respondents got a pretty good deal. Petitioner in consideration thereof and probably realizing the futility of court's approval is necessary in compromises entered into by guardians, parents, absentee's representatives,
collecting any amount from them, agreed to dismiss the case against them and discharge them from all liability and administrators or executors of decedents' estates," and in no other case. Thus, parties-litigants who have
and required no assumption of monetary liability from them contenting itself with the much lesser amounts of arrived at a compromise have many times simply asked for and obtained the courts' dismissal of their suit
P600,000.00 and P6,610,000.00 undertaken to be paid it by the defendants Paulino How and Yu Chiao Chin without submitting their compromise agreement for judicial approval. Procedurally, it is preferable that such
alias Nelson Yu, respectively. This is the whole essence of a compromise as provided in Article 2028 of the approval be obtained, since as was held in Piano vs. Cayanong, 19 "The agreement ha(s) upon the parties the
Civil Code whereby the parties, by making reciprocal concessions, whether of greater benefit or not to one or effect and authority of res judicata (Art. 2037, New Civil Code; Yboleon v. Sison, 59 Phil. 281, 290;
the other party, avoid a litigation or put an end to one already commenced. 13 Hernandez vs. Barcelon, 23 Phil. 599, 607; De Jesus v. Go Quiolay, 65 Phil. 476, 482; Meneses v. De la Rosa,
77 Phil. 34, 38; Salazar v. Jarabe, 48 O.G. 2708, 2712; Morales v. Fontanos, 64 Phil. 19, 21), and the judgment

11
rendered thereon ha(s) the authority of res judicatafrom the moment it (is) rendered ... and such judgment is 6. As held in the case of Gonzales vs Gonzales, 23 the court cannot deny their approval to a compromise
more than a mere contract binding the parties because having the sanction of the court, and entered as its agreement, voluntarily entered into by the parties, where there is no valid serious objection, since "(T)he
determination of the controversy, it has all the force and effect of any other judgment, it being conclusive upon agreement, therefore, partaking of the nature of a contract, is subject to the same legal provision providing for
the parties and their privies (Marquez vs. Marquez, 73 Phil. 74)" and as provided by Article 2037, execution the validity, enforcement, rescission or annulment of ordinary contracts. In entering in said compromise, the
lies to exact compliance only with a judicial compromise. Article 2029 of the Civil Code provides further that parties were free to make any stipulation not contrary to law, public interest, or principles of morality, as much
"The court shall endeavor to persuade the litigants in a civil case to agree upon some fair compromise," and as in any other contract."
Articles 2039 and 2031 thereof provide for the suspension of pending actions and mitigation of damages to the
losing party who has shown a sincere desire for a Compromise, in line with the Code's policy of encouraging As stated above, supra, 24 only two of herein respondent's, namely, Conrado Galvez and Ricardo Carlos, had
amicable settlements. presented manifestations as to the "objectionable features" of the compromise agreement signed by them both
following respondent judge's telegraphed but baseless observations in his Orders of April 17, 1975 and July 3,
5. It is settled jurisprudence that neither the courts nor quasi-judicial bodies can impose upon the parties a 1975 as to the waiver and quitclaim provisions being "contrary to law, morals and public policy," with Galvez
judgment different from their compromise agreement (which as a valid contract is the law between the parties complaining about petitioner having reneged on its alleged promise to give him reciprocal benefits in
themselves) or against the very terms and conditions of their agreement. exchange of his agreement to turn state witness.

We thus held in Municipal Board of Cabanatuan City vs. Samahang Magsasaka, Inc. 20 that "a judicial or Aside from the totally untenable position in which respondent judge placed himself by declaring the provisions
quasi-judicial body cannot impose upon the parties a judgment different from their real agreement or against of paragraph 7 of the compromise agreement void as to herein respondents but valid in toto as to the
the very terms and conditions of the amicable settlement entered into by them, without running the risk of defendants Paulino How and Yu Chiao Chin alias Nelson Yu, his decision would arbitrarily substitute his own
contravening the universally established principle that a contract is the law between the parties." terms for that agreed upon by the parties to the compromise agreement and baselessly free herein respondents
from their undertaking thereunder. With their names ordered deleted from paragraph 7 of the compromise,
We stressed therein that "(T)his Court, time and again, has ruled that a compromise agreement entered into by they would be bound to no concession nor obligation (notwithstanding that pursuant thereto they had in fact
executed the corresponding waiver and quitclaim therein provided), while petitioner had complied with its part
party-litigants, when not contrary to law, public order, public policy, morals, or good custom is a valid
contract which is the law between the parties themselves. (Juan-Marcelo, et al. vs. Go Kim Pah, et al., 22 and discharged them from all obligations and liabilities, despite their admission of complicity, pursuant to
paragraph 8 of the same agreement (subject only to the express exception that petitioner was not waiving its
SCRA 309). It follows, therefore, that a compromise agreement, not tainted with infirmity, irregularity, fraud
or illegality, is the law between the parties who are duty bound to abide by it and observe strictly its terms and rights as to any other anomalies which might subsequently be discovered, notwithstanding respondents'
conditions. It is incumbent upon the courts of justice to help develop and inculcate in the minds of the parties- warranty that they had not participated in any such prejudicial transactions other than those related to or
litigants proper respect for, and obedience to, the terms and conditions of this kind of mutual agreement included in the civil case and criminal charge).
whenever it does not exhibit any feature or taint of illegality or fraud. Thus we would be enhancing the
salutary provisions of Section 1, Rule 20, of the 7. There can be no question that the parties voluntarily executed and entered into the compromise agreement.
The record shows that all of the parties personally signed the agreement. 25 Respondents' voluntary consent to
Revised Rules of Court and Article 2029, New Civil Code, which entrust to the courts the function of enabling said agreement and its due execution with assistance of counsel was confirmed when a week thereafter, their
party-litigants in a civil suit to reach an amicable settlement of their disputes," and cited our previous ruling in respective-counsels all signed the "Motion for Judgment on the Basis of the Attached Compromise
Castro vs Castro 21 that Agreement. 26 The signatures of the parties, petitioner and respondents, and those of their respective counsels,
were again affixed on the Manifestation and Motion dated April 26, 1975, reiterating their prayer for approval
of the compromise agreement as modified pursuant to respondent judge's Order of April 17, 1978. 27 Thus, not
... Es principio universalmente establecido que el convenio es ley entre las partes. No one of herein respondents had ever assailed the compromise agreement as not having been freely or
debe imponerse un criterio por mas acertado que fuese sobre el verdadero contrato de las voluntarily entered into.
Partes. Que utilidad puede proporcionar la disposicion del articulo 2029 del nuevo codigo
civil que encomienda al Juzgado la funcion de persuader a los litigantes en un asunto
civil a que procuren illegar a un arreglo si, despues de todo, el criterio del tribunal se ha When respondent judge issued his Order for hearing of April 26, 1975 advancing his own observation as to
de imponer sobre su convenio? "certain objectionable features" and mentioning that the compromise referred to compounding a felony, which
is contrary to law and directing the parties to go over the same again so that he could approve the same "taking
into consideration the provisions of law, as well as public morals and policy," supra, 28 the parties deferred
The only case where the court may validly intervene is "ff the parties and their counsel are to do it ... to assist thereto by filing their said Manifestation and Motion of April 26, 1975, wherein they prayed that "The phrase
them in attaining precision and accuracy of language that would more or less make it certain that any dispute 'and criminal charge herein above mentioned' found in paragraph 7, page 5 and the phrase land criminal
as to the matters being settled would not recur, much less give rise to a new controversy. 22 charge' found in paragraph 10, page 6 of the Compromise Agreement be deleted from the said Compromise
Agreement dated March 10, 1975," and reiterated the prayer for judgment on the basis of the compromise
agreement, as thus modified. They made of record, though, that respondent judge's view was in error, thus:

12
5. The parties wish to state that the reference to a criminal charge in the said paragraphs is pure oversight on exclusion of a private prosecutor in the two criminal cases for perjury pending before the MeTC, and (b) the
inadvertence inasmuch as there is no criminal charge mentioned in the paragraphs preceding paragraphs 7 and Motion for Reconsideration6 of the said order denying the Omnibus Motion, respectively.
10 of the Compromise Agreement and consequently the phrase 'criminal charge hereinabove mentioned' is
meaningless. Besides, it has not been the intention of the parties to compromise 'the criminal aspect of the The facts follow:cralawlibrary
case', not only because it would be contrary to law to do so but principally because the defendants are fully
aware that such a compromise may be taken as an admission of guilt and the defendants entered into the Petitioner Lee Pue Liong, a.k.a. Paul Lee, is the President of Centillion Holdings, Inc. (CHI), a company
'Compromise Agreement' dated March 10, 1975 with the clear understanding that by so entering into such affiliated with the CKC Group of Companies (CKC Group) which includes the pioneer company Clothman
agreement, they are not admitting nor are they deemed to admit the commission of any criminal act. Knitting Corporation (CKC). The CKC Group is the subject of intra-corporate disputes between petitioner and
his siblings, including herein respondent Chua Pue Chin Lee, a majority stockholder and Treasurer of CHI.
Notwithstanding respondent judge's said Order and subsequent Order of July 3, 1975 setting the case anew for
hearing and directing the parties once more "to reconsider ... and reform" the waiver and quitclaim provisions On July 19, 1999, petitioner’s siblings including respondent and some unidentified persons took over and
of paragraph 7 of the compromise agreement and flatly announcing that the modification deleting all reference barricaded themselves inside the premises of a factory owned by CKC. Petitioner and other factory employees
were unable to enter the factory premises. This incident led to the filing of Criminal Case Nos. 971-V-99,
to the criminal charge was "unsatisfactory" and that "dropping the complaint is not enough" concession for
herein respondents, the stark fact remains that not one of respondents ever repudiated the compromise 55503 to 55505 against Nixon Lee and 972-V-99 against Nixon Lee, Andy Lee, Chua Kipsi a.k.a. Jensen Chua
and respondent, which are now pending in different courts in Valenzuela City. 7cralaw virtualaw library
agreement nor moved to set aside or annul the same because of alleged fraud, violence or vitiated consent -
which is the remedy available in such cases under Article 2038 of the Civil Code. 29
On June 14, 1999, petitioner on behalf of CHI (as per the Secretary’s Certificate8 issued by Virginia Lee on
even date) caused the filing of a verified Petition9 for the Issuance of an Owner’s Duplicate Copy of Transfer
All that respondents ever asserted, following respondent judge's line, was that the waiver and quitclaim Certificate of Title (TCT) No. 23223810 which covers a property owned by CHI. The case was docketed as
provisions constituting their reciprocal concession was "contrary to law, morals, good customs, public policy LRC Record No. 4004 of the Regional Trial Court (RTC) of Manila, Branch 4. Petitioner submitted before the
and public order" — which we have held to be totally untenable. said court an Affidavit of Loss11 stating that: (1) by virtue of his position as President of CHI, he had in his
custody and possession the owner’s duplicate copy of TCT No. 232238 issued by the Register of Deeds for
ACCORDINGLY, the modification of and deletions from the compromise agreement ordered in respondent Manila; (2) that said owner’s copy of TCT No. 232238 was inadvertently lost or misplaced from his files and
judge's decision are hereby set aside as null and void, and in lieu thereof, judgment is hereby rendered he discovered such loss in May 1999; (3) he exerted diligent efforts in locating the said title but it had not been
approving the compromise agreement in toto. Without pronouncement as to costs. found and is already beyond recovery; and (4) said title had not been the subject of mortgage or used as
collateral for the payment of any obligation with any person, credit or banking institution. Petitioner likewise
testified in support of the foregoing averments during an ex-parte proceeding. In its Order12 dated September
SO ORDERED. 17, 1999, the RTC granted the petition and directed the Register of Deeds of Manila to issue a new Owner’s
Duplicate Copy of TCT No. 232238 in lieu of the lost one.

Respondent, joined by her brother Nixon Lee, filed an Omnibus Motion praying, among others, that the
September 17, 1999 Order be set aside claiming that petitioner knew fully well that respondent was in
G.R. No. 181658, August 07, 2013 possession of the said Owner’s Duplicate Copy, the latter being the Corporate Treasurer and custodian of vital
documents of CHI. Respondent added that petitioner merely needs to have another copy of the title because he
LEE PUE LIONG A.K.A. PAUL LEE, Petitioner, v. CHUA PUE CHIN LEE, Respondent. planned to mortgage the same with the Planters Development Bank. Respondent even produced the Owner’s
Duplicate Copy of TCT No. 232238 in open court. Thus, on November 12, 1999, the RTC recalled and set
aside its September 17, 1999 Order.13cralaw virtualaw library
DECISION
In a Complaint-Affidavit14 dated May 9, 2000 filed before the City Prosecutor of Manila, respondent alleged
VILLARAMA, JR., J.: the following:
1. I am a stockholder, Board Member, and duly elected treasurer of Centillion Holdings, Inc. (CHI), which
corporation is duly organized and existing under Philippine laws.

2. As duly elected treasurer of CHI, I was tasked with the custody and safekeeping of all vital financial
Before this Court is a petition1 for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as documents including bank accounts, securities, and land titles.
amended, seeking the reversal of the May 31, 2007 Decision2 and the January 31, 2008 Resolution3 of the
Court of Appeals (CA) in CA-G.R. SP No. 81510. The CA affirmed the Orders4 dated August 15, 2003 and 3. Among the land titles in my custody was the Owner’s Duplicate copy of Transfer Certificate of Title No.
November 5, 2003 of the Metropolitan Trial Court (MeTC) of Manila denying (a) the Omnibus Motion 5for the

13
232238 registered in the name of CHI. the Revised Penal Code, as amended, against petitioner before the MeTC of Manila, Branch 28.

4. On June 14, 1999, Lee Pue Liong, a.k.a. Paul Lee, filed a VERIFIED PETITION for the issuance of a new At the trial, Atty. Augusto M. Macam appeared as counsel for respondent and as private prosecutor with the
owner’s duplicate copy of the aforementioned certificate claiming under oath that said duplicate copy was in consent and under the control and supervision of the public prosecutor. After the prosecution’s presentation of
his custody but was lost. its first witness in the person of Atty. Ronaldo Viesca, Jr., 20 a lawyer from the Land Registration Authority,
petitioner’s counsel moved in open court that respondent and her lawyer in this case should be excluded from
xxxx participating in the case since perjury is a public offense. Said motion was vehemently opposed by Atty.
Macam.21 In its Order22 dated May 7, 2003, the MeTC gave both the defense and the prosecution the
5. Paul Lee likewise executed an affidavit of loss stating the same fact of loss, which affidavit he used and opportunity to submit their motion and comment respectively as regards the issue raised by petitioner’s
presented as exhibit “D”. counsel.

xxxx Complying with the MeTC’s directive, petitioner filed the aforementioned Omnibus Motion23 asserting that in
the crime of perjury punishable under Article 183 of the Revised Penal Code, as amended, there is no mention
6. On August 18, 1999, Paul Lee testified under oath that TCT No. 232238 was inadvertently lost and of any private offended party. As such, a private prosecutor cannot intervene for the prosecution in this case.
misplaced from his files. Petitioner argued that perjury is a crime against public interest as provided under Section 2, Chapter 2, Title
IV, Book 2 of the Revised Penal Code, as amended, where the offended party is the State alone. Petitioner
xxxx posited that there being no allegation of damage to private interests, a private prosecutor is not needed. On the
other hand, the Prosecution filed its Opposition24 to petitioner’s Omnibus Motion.
7. Paul Lee made a willful and deliberate assertion of falsehood in his verified petition, affidavit and
testimony, as he perfectly knew that I was in possession of the owner’s duplicate copy of TCT No. 232238. The MeTC denied the Omnibus Motion in the Order25 dated August 15, 2003, as follows:
[W]hile criminal actions, as a rule, are prosecuted under the direction and control of the public prosecutor,
8. I and my brother Nixon Lee opposed the petition of Paul Lee and even produced in open court the owner’s however, an offended party may intervene in the proceeding, personally or by attorney, especially in cases of
duplicate copy of TCT No. 232238. offenses which cannot be prosecuted except at the instance of the offended party. The only exception to this
rule is when the offended party waives his right to [file the] civil action or expressly reserves his right to
Such fact was contained in the Order of Branch 4, RTC, Manila, dated November 12, 1999, x x x. institute it after the termination of the case, in which case he loses his right to intervene upon the theory that he
is deemed to have lost his interest in its prosecution. And, in any event, whenever an offended party intervenes
9. I and Paul Lee are involved in an intra-corporate dispute, which dispute is now pending with the SEC. in the prosecution of a criminal action, his intervention must always be subject to the direction and control of
the public prosecutor. (Lim Tek Goan vs. Yatco, 94 Phil. 197).
10. Paul Lee needed to have a new owner’s duplicate of the aforementioned TCT so that he could mortgage
the property covered thereby with the Planters Development Bank, even without my knowledge and consent as Apparently, the law makes no distinction between cases that are public in nature and those that can only be
well as the consent and knowledge of my brother Nixon Lee who is likewise a shareholder, board member and prosecuted at the instance of the offended party. In either case, the law gives to the offended party the right to
officer of CHI. intervene, personally or by counsel, and he is deprived of such right only when he waives the civil action or
reserves his right to institute one. Such is not the situation in this case. The case at bar involves a public crime
11. If not for the timely discovery of the petition of Paul Lee, with his perjurious misrepresentation, a new and the private prosecution has asserted its right to intervene in the proceedings, subject to the direction and
owner’s duplicate could have been issued. control of the public prosecutor.26cralaw virtualaw library
The MeTC also denied petitioner’s motion for reconsideration.27cralaw virtualaw library
x x x x15 (Italics supplied.)
On June 7, 2000, respondent executed a Supplemental Affidavit 16 to clarify that she was accusing petitioner of Petitioner sought relief from the CA via a petition28 for certiorari with a prayer for the issuance of a writ of
perjury allegedly committed on the following occasions: (1) by declaring in the VERIFICATION the veracity preliminary injunction and temporary restraining order. Petitioner prayed, among others, for the CA to enjoin
of the contents in his petition filed with the RTC of Manila concerning his claim that TCT No. 232238 was in the MeTC and respondent from enforcing the MeTC Orders dated August 15, 2003 and November 5, 2003,
his possession but was lost; (2) by declaring under oath in his affidavit of loss that said TCT was lost; and (3) and likewise to enjoin the MeTC and respondent from further allowing the private prosecutor to participate in
by testifying under oath that the said TCT was inadvertently lost from his files. the proceedings below while the instant case is pending.

The Investigating Prosecutor recommended the dismissal of the case. However, in the Review By Decision29 dated May 31, 2007, the CA ruled in favor of respondent, holding that the presence of the
Resolution17 dated December 1, 2000 issued by First Assistant City Prosecutor Eufrosino A. Sulla, the private prosecutor who was under the control and supervision of the public prosecutor during the criminal
recommendation to dismiss the case was set aside. Thereafter, said City Prosecutor filed the proceedings of the two perjury cases is not proscribed by the rules. The CA ratiocinated that respondent is no
Informations18 docketed as Criminal Case Nos. 352270-71 CR for perjury, punishable under Article 18319of stranger to the perjury cases as she is the private complainant therein, hence, an aggrieved party.30 Reiterating

14
the MeTC’s invocation of our ruling in Lim Tek Goan v. Yatco31 as cited by former Supreme Court Associate any private prosecutor for that matter be excluded from the prosecution of the criminal cases, and that all
Justice Florenz D. Regalado in his Remedial Law Compendium,32 the CA ruled that “the offended party, who proceedings undertaken wherein Atty. Macam intervened be set aside and that the same be taken anew by the
has neither reserved, waived, nor instituted the civil action may intervene, and such right to intervene exists public prosecutor alone.40cralaw virtualaw library
even when no civil liability is involved.”33cralaw virtualaw library
On the other hand, respondent counters that the presence and intervention of the private prosecutor in the
Without passing upon the merits of the perjury cases, the CA declared that respondent’s property rights and perjury cases are not prohibited by the rules, stressing that she is, in fact, an aggrieved party, being a
interests as the treasurer and a stockholder of CHI were disturbed and/or threatened by the alleged acts of stockholder, an officer and the treasurer of CHI and the private complainant. Thus, she submits that pursuant
petitioner. Further, the CA opined that petitioner’s right to a fair trial is not violated because the presence of to our ruling in Lim Tek Goan she has the right to intervene even if no civil liability exists in this case.41cralaw
the private prosecutor in these cases does not exclude the presence of the public prosecutor who remains to virtualaw library
have the prosecuting authority, subjecting the private prosecutor to his control and supervision.
The petition has no merit.
Petitioner filed a Motion for Reconsideration34 but the CA denied it under Resolution35 dated January 31,
2008. Generally, the basis of civil liability arising from crime is the fundamental postulate of our law that “[e]very
person criminally liable x x x is also civilly liable.”42 Underlying this legal principle is the traditional theory
Hence, this petition raising the following issues: that when a person commits a crime, he offends two entities, namely (1) the society in which he lives in or the
I political entity, called the State, whose law he has violated; and (2) the individual member of that society
whose person, right, honor, chastity or property was actually or directly injured or damaged by the same
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ERROR punishable act or omission.43cralaw virtualaw library
WHEN IT UPHELD THE RESOLUTION OF THE METROPOLITAN TRIAL COURT THAT THERE IS A
PRIVATE OFFENDED PARTY IN THE CRIME OF PERJURY, A CRIME AGAINST PUBLIC Section 1, Rule 111 of the Revised Rules of Criminal Procedure, as amended, provides:
INTEREST; AND SECTION 1. Institution of criminal and civil actions.—(a) When a criminal action is instituted, the civil action
for the recovery of civil liability arising from the offense charged shall be deemed instituted with the
II criminal action unless the offended party waives the civil action, reserves the right to institute it separately or
institutes the civil action prior to the criminal action.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED WHEN IT UPHELD THE
RESOLUTIONS OF THE LOWER COURT WHICH IN TURN UPHELD THE RIGHT OF RESPONDENT, x x x x (Emphasis supplied)
AN ALLEGED STOCKHOLDER OF CHI, TO INTERVENE IN THE CRIMINAL CASE FOR PERJURY For the recovery of civil liability in the criminal action, the appearance of a private prosecutor is allowed under
AS PRIVATE COMPLAINANT ON BEHALF OF THE CORPORATION WITHOUT ITS Section 16 of Rule 110:
AUTHORITY.36cralaw virtualaw library SEC. 16. Intervention of the offended party in criminal action.—Where the civil action for recovery of civil
Petitioner claims that the crime of perjury, a crime against public interest, does not offend any private party liability is instituted in the criminal action pursuant to Rule 111, the offended party may intervene by
but is a crime which only offends the public interest in the fair and orderly administration of laws. He opines counsel in the prosecution of the offense. (Emphasis supplied.)
that perjury is a felony where no civil liability arises on the part of the offender because there are no damages Section 12, Rule 110 of the Revised Rules of Criminal Procedure, as amended, defines an offended party as
to be compensated and that there is no private person injured by the crime. “the person against whom or against whose property the offense was committed.” In Garcia v. Court of
Appeals,44 this Court rejected petitioner’s theory that it is only the State which is the offended party in public
Petitioner argues that the CA’s invocation of our pronouncement in Lim Tek Goan, cited by Justice Regalado offenses like bigamy. We explained that from the language of Section 12, Rule 10 of the Rules of Court, it is
in his book, is inaccurate since the private offended party must have a civil interest in the criminal case in reasonable to assume that the offended party in the commission of a crime, public or private, is the party to
order to intervene through a private prosecutor. Dissecting Lim Tek Goan, petitioner points out that said case whom the offender is civilly liable, and therefore the private individual to whom the offender is civilly liable is
involved the crime of grave threats where Lim Tek Goan himself was one of the offended parties. Thus, even the offended party.
if the crime of grave threats did not have any civil liability to be satisfied, petitioner claims that Lim Tek
Goan, as a matter of right, may still intervene because he was one of the offended parties. In Ramiscal, Jr. v. Hon. Sandiganbayan,45 we also held that
Under Section 16, Rule 110 of the Revised Rules of Criminal Procedure, the offended party may also be a
Petitioner submits that the MeTC erred in allowing the private prosecutor to represent respondent in this case private individual whose person, right, house, liberty or property was actually or directly injured by the
despite the fact that the latter was not the offended party and did not suffer any damage as she herself did not same punishable act or omission of the accused, or that corporate entity which is damaged or injured by
allege nor claim in her Complaint-Affidavit and Supplemental Affidavit that she or CHI suffered any damage the delictual acts complained of. Such party must be one who has a legal right; a substantial interest in the
that may be satisfied through restitution,37 reparation for the damage caused38and indemnification for subject matter of the action as will entitle him to recourse under the substantive law, to recourse if the
consequential damages.39 Lastly, petitioner asserts that respondent is not the proper offended party that may evidence is sufficient or that he has the legal right to the demand and the accused will be protected by the
intervene in this case as she was not authorized by CHI. Thus, he prayed, among others, that Atty. Macam or satisfaction of his civil liabilities. Such interest must not be a mere expectancy, subordinate or inconsequential.

15
The interest of the party must be personal; and not one based on a desire to vindicate the constitutional right of Under the Rules, where the civil action for recovery of civil liability is instituted in the criminal action
some third and unrelated party.46 (Emphasis supplied.) pursuant to Rule 111, the offended party may intervene by counsel in the prosecution of the offense. Rule
In this case, the statement of petitioner regarding his custody of TCT No. 232238 covering CHI’s property and 111(a) of the Rules of Criminal Procedure provides that, “[w]hen a criminal action is instituted, the civil action
its loss through inadvertence, if found to be perjured is, without doubt, injurious to respondent’s personal arising from the offense charged shall be deemed instituted with the criminal action unless the offended party
credibility and reputation insofar as her faithful performance of the duties and responsibilities of a Board waives the civil action, reserves the right to institute it separately, or institutes the civil action prior to the
Member and Treasurer of CHI. The potential injury to the corporation itself is likewise undeniable as the criminal action.”
court-ordered issuance of a new owner’s duplicate of TCT No. 232238 was only averted by respondent’s
timely discovery of the case filed by petitioner in the RTC. Private respondent did not waive the civil action, nor did she reserve the right to institute it separately,
nor institute the civil action for damages arising from the offense charged. Thus, we find that the private
Even assuming that no civil liability was alleged or proved in the perjury case being tried in the MeTC, this prosecutors can intervene in the trial of the criminal action.
Court declared in the early case of Lim Tek Goan v. Yatco,47 cited by both MeTC and CA, that whether public
or private crimes are involved, it is erroneous for the trial court to consider the intervention of the offended Petitioner avers, however, that respondent’s testimony in the inferior court did not establish nor prove any
party by counsel as merely a matter of tolerance. Thus, where the private prosecution has asserted its right to damages personally sustained by her as a result of petitioner’s alleged acts of falsification. Petitioner adds
intervene in the proceedings, that right must be respected. The right reserved by the Rules to the offended that since no personal damages were proven therein, then the participation of her counsel as private
party is that of intervening for the sole purpose of enforcing the civil liability born of the criminal act and not prosecutors, who were supposed to pursue the civil aspect of a criminal case, is not necessary and is
of demanding punishment of the accused. Such intervention, moreover, is always subject to the direction and without basis.
control of the public prosecutor.48cralaw virtualaw library
When the civil action is instituted with the criminal action, evidence should be taken of the damages claimed
In Chua v. Court of Appeals,49 as a result of the complaint-affidavit filed by private respondent who is also the and the court should determine who are the persons entitled to such indemnity. The civil liability arising from
corporation’s Treasurer, four counts of falsification of public documents (Minutes of Annual Stockholder’s the crime may be determined in the criminal proceedings if the offended party does not waive to have it
Meeting) was instituted by the City Prosecutor against petitioner and his wife. After private respondent’s adjudged or does not reserve the right to institute a separate civil action against the defendant. Accordingly, if
testimony was heard during the trial, petitioner moved to exclude her counsels as private prosecutors on the there is no waiver or reservation of civil liability, evidence should be allowed to establish the extent of
ground that she failed to allege and prove any civil liability in the case. The MeTC granted the motion and injuries suffered.
ordered the exclusion of said private prosecutors. On certiorari to the RTC, said court reversed the MeTC and
ordered the latter to allow the private prosecutors in the prosecution of the civil aspect of the criminal case. In the case before us, there was neither a waiver nor a reservation made; nor did the offended party institute a
Petitioner filed a petition for certiorari in the CA which dismissed his petition and affirmed the assailed RTC separate civil action. It follows that evidence should be allowed in the criminal proceedings to establish the
ruling. civil liability arising from the offense committed, and the private offended party has the right to
intervene through the private prosecutors.50 (Emphasis supplied; citations omitted.)
When the case was elevated to this Court, we sustained the CA in allowing the private prosecutors to actively In the light of the foregoing, we hold that the CA did not err in holding that the MeTC committed no grave
participate in the trial of the criminal case. Thus: abuse of discretion when it denied petitioner’s motion to exclude Atty. Macam as private prosecutor in Crim.
Petitioner cites the case of Tan, Jr. v. Gallardo, holding that where from the nature of the offense or where the Case Nos. 352270-71 CR.
law defining and punishing the offense charged does not provide for an indemnity, the offended party may not
intervene in the prosecution of the offense. WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated May 31, 2007 and the
Resolution dated January 31, 2008 of the Court of Appeals in CA-G.R. SP No. 81510 are hereby AFFIRMED
Petitioner’s contention lacks merit. Generally, the basis of civil liability arising from crime is the fundamental and UPHELD.
postulate that every man criminally liable is also civilly liable. When a person commits a crime he offends two
entities namely (1) the society in which he lives in or the political entity called the State whose law he has With costs against the petitioner.
violated; and (2) the individual member of the society whose person, right, honor, chastity or property has
been actually or directly injured or damaged by the same punishable act or omission. An act or omission is SO ORDERED.
felonious because it is punishable by law, it gives rise to civil liability not so much because it is a crime
but because it caused damage to another.Additionally, what gives rise to the civil liability is really the
obligation and the moral duty of everyone to repair or make whole the damage caused to another by reason of
his own act or omission, whether done intentionally or negligently. The indemnity which a person is sentenced
to pay forms an integral part of the penalty imposed by law for the commission of the crime. The civil action
involves the civil liability arising from the offense charged which includes restitution, reparation of the
damage caused, and indemnification for consequential damages.

16
G.R. No. L-1299 November 16, 1903 services, was obliged to abandon his own business, the manufacture of soap, and thereby suffered damages in
the sum of $3,200, United States currency.
VICENTE PEREZ, plaintiff-appellee,
vs. The defendant, on the 25th of September, 1902, filed an answer asking for the dismissal of the complaint, with
EUGENIO POMAR, Agent of the Compañia General de Tabacos, defendant-appellant. costs to the plaintiff. In his answer the defendant denied the allegation in the first paragraph of the complaint,
stating that it was wholly untrue that the company, and the defendant as its agent, had solicited the services of
Francisco Dominguez for appellant. the plaintiff as interpreter before the military authorities for the period stated, or for any other period, or that
the plaintiff had accompanied Pomar at the conferences mentioned, concerning shipments from Manila and
Ledesma, Sumulong and Quintos for appellee.
exports from some of the towns of the province to this capital. He stated that he especially denied paragraphs 2
of the complaint, as it was absolutely untrue that the plaintiff had been at the disposal of the defendant for the
purpose of rendering such services; that he therefore had not been obliged to abandon his occupation or his
soap factory, and that the statement that an offer of employment with the company had been made to him was
false. The defendant also denied that through the mediation of the plaintiff the company and himself had
TORRES, J.: obtained large profits. The statements in paragraphs 6, 7, 8, and 9 of the complaint were also denied. The
defendant stated that, on account of the friendly relations which sprang up between the plaintiff and himself,
the former borrowed from him from time to time money amounting to $175 for the purposes of his business,
In a decision dated February 9, 1903, the judge of the Sixth Judicial District, deciding a case brought by the and that he had also delivered to the plaintiff 36 arrobas of oil worth $106, and three packages of resin for use
plaintiff against the defendant for the recovery of wages due and unpaid, gave judgment against the latter for in coloring his soap; that the plaintiff accompanied the defendant to Pagsanjan, Pilar, and other towns when
the sum of $600 and the costs of suit, less the sum of $50, Mexican. the latter made business trips to them for the purpose of extending his business and mercantile relations
therein; that on these excursions, as well as on private and official visits which he had to make, the plaintiff
On August 27, 1902, Don Vicente Perez filed in the Court of First Instance of Laguna a complaint, which was occasionally accompanied him through motives of friendship, and especially because of the free transportation
amended on the 17th of January of this year, asking that the court determine the amount due the plaintiff, at given him, and not on behalf of the company of which he was never interpreter and for which he rendered no
the customary rate of compensation for interpreting in these Islands, for services rendered in the Tabacalera services; that the plaintiff in these conferences acted as interpreter of his own free will, without being
Company, and that, in view of the circumstances of the case, judgment be rendered in his favor for such sum. requested to do so by the defendant and without any offer of payment or compensation; that therefore there
The complaint also asked that the defendant be condemned to the payment of damages in the sum of $3,200, existed no legal relation whatever between the company and the plaintiff, and that the defendant, when
gold, together with the costs of suit. In this complaint it was alleged that Don Eugenio Pomar, as general agent accepting the spontaneous, voluntary and officious services of the plaintiff, did so in his private capacity and
of the Compañia General de Tabacos in the said province, verbally requested the plaintiff on the 8th of not as agent of the company, and that it was for this reason that he refused to enter into negotiations with the
December, 1901, to act as interpreter between himself and the military authorities; that after the date plaintiff, he being in no way indebted to the latter. The defendant concluded by saying that he answered in his
mentioned the plaintiff continued to render such services up to and including May 31, 1902; that he had individual capacity.
accompanied the defendant, Pomar, during that time at conferences between the latter and the colonel
commanding the local garrison, and with various officers and doctors residing in the capital, and at A complaint having been filed against the Compañia General de Tabacos and Don Eugenio Pomar, its agent in
conferences with Captain Lemen in the town of Pilar, and with the major in command at the town of the Province of Laguna, the latter, having been duly summoned, replied to the complaint, which was
Pagsanjan, concerning the shipment of goods from Manila, and with respect to Pagsanjan to this city; that the subsequently amended, and stated that he made such reply in his individual capacity and not as agent of the
plaintiff during this period held himself in readiness to render services whenever required; that on this account company, with which the plaintiff had had no legal relations. The suit was instituted between the plaintiff and
his private business, and especially a soap factory established in the capital, was entirely abandoned; that to the Pomar, who, as such, accepted the issue and entered into the controversy without objection, opposed the claim
end that such services might be punctually rendered, the agent, Pomar, assured him that the Tabacalera of the plaintiff, and concluded by asking that the complaint be dismissed, with the costs to the plaintiff. Under
Company always generously repaid services rendered it, and that he therefore did not trouble himself about his these circumstances and construing the statutes liberally, we think it proper to decide the case pending between
inability to devote the necessary amount of time to his business, the defendant going so far as to make him both parties in accordance with law and the strict principles of justice.
flattering promises of employment with the company, which he did not accept; that these statements were
made in the absence of witnesses and that therefore his only proof as to the same was Mr. Pomar's word as a
gentleman; that the employees of the company did not understand English, and by reason of the plaintiff's From the oral testimony introduced at the trial, it appears that the plaintiff, Perez, did on various occasions
mediation between the agent, and the military authorities large profits were obtained, as would appear from the render Don Eugenio Pomar services as interpreter of English; and that he obtained passes and accompanied the
account and letterpress books of the agency corresponding to those dates. In the amended complaint it was defendant upon his journeys to some of the towns in the Province of Laguna. It does not appear from the
added that the defendant, on behalf of the company, offered to renumerate the plaintiff for the services evidence, however, that the plaintiff was constantly at the disposal of the defendant during the period of six
rendered in the most advantageous manner in which such services are compensated, in view of the months, or that he rendered services as such interpreter continuously and daily during that period of time.
circumstances under which they were requested; and that the plaintiff, by rendering the company such

17
It does not appear that any written contract was entered into between the parties for the employment of the In contracts the will of the contracting parties is law, this being a legal doctrine based upon the provisions of
plaintiff as interpreter, or that any other innominate contract was entered into; but whether the plaintiff's articles 1254, 1258, 1262, 1278, 1281, 1282, and 1289 of the Civil Code. If it is a fact sufficiently proven that
services were solicited or whether they were offered to the defendant for his assistance, inasmuch as these the defendant, Pomar, on various occasions consented to accept an interpreter's services, rendered in his behalf
services were accepted and made use of by the latter, we must consider that there was a tacit and mutual and not gratuitously, it is but just that he should pay a reasonable remuneration therefor, because it is a well-
consent as to the rendition of the services. This gives rise to the obligation upon the person benefited by the known principle of law that no one should be permitted to enrich himself to the damage of another.
services to make compensation therefor, since the bilateral obligation to render services as interpreter, on the
one hand, and on the other to pay for the services rendered, is thereby incurred. (Arts. 1088, 1089, and 1262 of With respect to the value of the services rendered on different occasions, the most important of which was the
the Civil Code). The supreme court of Spain in its decision of February 12, 1889, holds, among other things, first, as it does not appear that any salary was fixed upon by the parties at the time the services were accepted,
"that not only is there an express and tacit consent which produces real contract but there is also a presumptive it devolves upon the court to determine, upon the evidence presented, the value of such services, taking into
consent which is the basis of quasi contracts, this giving rise to the multiple juridical relations which result in consideration the few occasions on which they were rendered. The fact that no fixed or determined
obligations for the delivery of a thing or the rendition of a service." consideration for the rendition of the services was agreed upon does not necessarily involve a violation of the
provisions of article 1544 of the Civil Code, because at the time of the agreement this consideration was
Notwithstanding the denial of that defendant, it is unquestionable that it was with his consent that the plaintiff capable of being made certain. The discretionary power of the court, conferred upon it by the law, is also
rendered him services as interpreter, thus aiding him at a time when, owing to the existence of an insurrection supported by the decisions of the supreme court of Spain, among which may be cited that of October 18, 1899,
in the province, the most disturbed conditions prevailed. It follows, hence, that there was consent on the part of which holds as follows: "That as stated in the article of the Code cited, which follows the provisions of law 1,
both in the rendition of such services as interpreter. Such service not being contrary to law or to good custom, title 8, of the fifth partida, the contract for lease of services is one in which one of the parties undertakes to
it was a perfectly licit object of contract, and such a contract must necessarily have existed between the parties, make some thing or to render some service to the other for a certain price, the existence of such a price being
as alleged by the plaintiff. (Art. 1271, Civil Code.) understood, as this court has held not only when the price has been expressly agreed upon but also when it
may be determined by the custom and frequent use of the place in which such services were rendered."
The consideration for the contract is also evident, it being clear that a mutual benefit was derived in
consequence of the service rendered. It is to be supposed that the defendant accepted these services and that No exception was taken to the judgment below by the plaintiff on account of the rejection of his claim for
the plaintiff in turn rendered them with the expectation that the benefit would be reciprocal. This shows the damages. The decision upon this point is, furthermore, correct.
concurrence of the three elements necessary under article 1261 of the Civil Code to constitute a contract of
lease of service, or other innominate contract, from which an obligation has arisen and whose fulfillment is Upon the supposition that the recovery of the plaintiff should not exceed 200 Mexican pesos, owing to the
now demanded. inconsiderable number of times he acted as interpreter, it is evident that the contract thus implicitly entered
into was not required to be in writing and that therefore it does not fall within article 1280 of the Civil Code;
Article 1254 of the Civil Code provides that a contract exists the moment that one or more persons consent to nor is it included within the provisions of section 335 of the Code of Civil Procedure, as this innominate
be bound, with respect to another or others, to deliver some thing or to render some service. Article 1255 contract is not covered by that section. The contract of lease of services is not included in any of the cases
provides that the contracting parties may establish such covenants, terms, and conditions as they deem expressly designated by that section of the procedural law, as affirmed by the appellant. The interpretation of
convenient, provided they are not contrary to law, morals or public policy. Whether the service was solicited the other articles of the Code alleged to have been infringed has also been stated fully in this opinion.
or offered, the fact remains that Perez rendered to Pomar services as interpreter. As it does not appear that he
did this gratuitously, the duty is imposed upon the defendant, having accepted the benefit of the service, to pay For the reasons stated, we are of the opinion that judgment should be rendered against Don Eugenio Pomar for
a just compensation therefor, by virtue of the innominate contract of facio ut des implicitly established. the payment to the plaintiff of the sum of 200 Mexican pesos, from which will be deducted the sum of 50
pesos is made as to the costs of this instance. The judgment below is accordingly affirmed in so far as it agrees
The obligations arising from this contract are reciprocal, and, apart from the general provisions with respect to with this opinion, and reversed in so far as it may be in conflict therewith. Judgment will be entered
contracts and obligations, the special provisions concerning contracts for lease of services are applicable by accordingly twenty days after this decision is filed.
analogy.
Arellano, C.J., Willard, and Mapa, JJ., concur
In this special contract, as determined by article 1544 of the Civil Code, one of the parties undertakes to render
the other a service for a price certain. The tacit agreement and consent of both parties with respect to the
service rendered by the plaintiff, and the reciprocal benefits accruing to each, are the best evidence of the fact
that there was an implied contract sufficient to create a legal bond, from which arose enforceable rights and
obligations of a bilateral character.lawphi1.net Separate Opinions

MCDONOUGH, J., dissenting:

18
I dissent from the opinion of the majority. In my opinion there is no legal evidence in the case from which the 2. The FIRST PARTY shall have complete control over the number of personnel who will be entering the
court may conclude that the recovery should be 200 Mexican pesos. I am therefore in favor of affirming the property for said contract;
judgment. 3. The digging shall be allowed for a period of three (3) weeks only, commencing on March 28, 1995, unless
extended by agreement of the parties;
Cooper, J., concurs. 4. Any damage within or outside the property of the FIRST PARTY incurred during the digging shall be borne
Johnson, J., did not sit in this case. by the SECOND PARTY;
5. In the event that valuable objects are found on the property, the same shall be divided among the parties as
follows:
G.R. No. 160283 FIRST PARTY - 60%
Chan, Jr. v. Iglesia ni Cristo SECOND PARTY - 40%
CHICO-NAZARIO, J.: 6. In the event that valuable objects are found outside the property line during the said digging, the same shall
Before Us is a petition for review on certiorari[1] assailing the Decision[2] of the Court of Appeals in CA- be divided among the parties as follows:
G.R. CV No. 65976, dated 25 September 2003. Said Decision denied the petitioners appeal from the decision FIRST PARTY - 35%
of the Regional Trial Court (RTC), La Union, Branch 31, in Civil Case No. A-1646. SECOND PARTY - 65%
THE FACTS 7. In case government or military interference or outside intervention is imminent, the FIRST PARTY hereby
The antecedents of the instant case are quite simple. reserves the option to stop the digging at any stage thereof.
The Aringay Shell Gasoline Station is owned by the petitioner. It is located in Sta. Rita East, Aringay, La IN WITNESS WHEREOF, We have hereunto set our hands on the day and year first above-written at
Union, and bounded on the south by a chapel of the respondent. Aringay, La Union.[4]
The gasoline station supposedly needed additional sewerage and septic tanks for its washrooms. In view of Diggings thereafter commenced. After some time, petitioner was informed by the members of the respondent
this, the services of Dioscoro Ely Yoro (Yoro), a retired general of the Armed Forces of the Philippines, was that the digging traversed and penetrated a portion of the land belonging to the latter. The foundation of the
procured by petitioner, as the former was allegedly a construction contractor in the locality. chapel was affected as a tunnel was dug directly under it to the damage and prejudice of the respondent.
Petitioner and Yoro executed a Memorandum of Agreement[3] (MOA) on 28 February 1995 which is On 18 April 1995, a Complaint[5] against petitioner and a certain Teofilo Oller, petitioners engineer, was filed
reproduced hereunder: by the respondent before the RTC, La Union, Branch 31, docketed therein as Civil Case No. A-1646.
MEMORANDUM OF AGREEMENT Petitioner and Oller filed an Answer with Third-Party Complaint[6] impleading Yoro as third-party defendant.
KNOW ALL MEN BY THESE PRESENTS:
This MEMORANDUM OF AGREEMENT, executed this 28th day of February, 1995, by and between: Yoro filed an Answer to the Third-Party Complaint[7] dated 13 July 1995. An Amended and Supplemental
Complaint[8] dated 30 August 1995 was later filed by the respondent already naming Yoro as a party-
defendant, to which the petitioner and Oller filed an Answer.[9] Yoro filed his own Answer.[10]
JOHN Y. CHAN, of legal age, single, and a resident of Aringay, La Union, now and hereinafter called the
FIRST PARTY; After four years of hearing the case, the trial court promulgated its Decision[11] holding that the diggings
were not intended for the construction of sewerage and septic tanks but were made to construct tunnels to find
GEN. ELY E. YORO, Jr., of legal age, married, and a resident of Damortis, Sto. Tomas, La Union, hereinafter hidden treasure.[12] The trial court adjudged the petitioner and Yoro solidarily liable to the respondent on a
referred to as the SECOND PARTY: 35%-65% basis (the petitioner liable for the 35%), and absolving Oller from any liability, viz:
WITNESSETH that:
WHEREAS, the FIRST PARTY is the owner of a parcel of land located at Sta. Rita, Aringay, La Union.
WHEREAS, the FIRST PARTY, desires to dig a septic tank for its perusal in the property bordering Iglesia ni
Cristo. WHEREFORE, this Court renders judgment in favor of plaintiff IGLESIA NI CRISTO and against defendants
WHEREAS, the SECOND PARTY is willing to contract the intended digging of septic tank for the first JOHN KAMBIAK CHAN and DIOSCORO ELY YORO, JR. who are respectively solidarily liable to
party. PLAINTIFF on a 35%-65% basis, with JOHN CHAN taking the 35% tab, Ordering the two (2) aforesaid
WHEREAS, the FIRST PARTY and SECOND PARTY has (sic) agreed verbally as to the compensation of DEFENDANTS to pay PLAINTIFF the following amounts:
the said digging of septic tank.
WHEREFORE, for and in consideration of the terms and covenants hereinbelow set forth, the FIRST PARTY 1. SIX HUNDRED THIRTY-THREE THOUSAND FIVE HUNDRED NINETY-FIVE PESOS AND FIFTY
hereby AGREES and ALLOWS the SECOND PARTY to undertake the digging of the parcel of land for the CENTAVOS (P633,595.50); representing ACTUAL DAMAGES;
exclusive purpose of having a septic tank. 2. FIVE HUNDRED THOUSAND PESOS (P500,000.00) representing MORAL DAMAGES;
3. TEN MILLION PESOS (P10,000,000.00) as EXEMPLARY DAMAGES;
TERMS AND COVENANTS 4. FIFTY THOUSAND PESOS (P50,000.00) as plaintiffs attorneys fees; and
5. TWENTY THOUSAND PESOS (P20,000.00) as litigation expenses.
1. The SECOND PARTY shall contract the said digging;

19
Defendant TEOFILO OLLER is absolved of any civil liability. WHETHER OR NOT THE MEMORANDUM OF AGREEMENT ENTERED INTO BY THE PETITIONER
Any counterclaim filed against PLAINTIFF IGLESIA NI CRISTO is dismissed.[13] AND YORO HAS THE EFFECT OF MAKING THE LATTER SOLELY RESPONSIBLE FOR DAMAGES
Petitioner filed a Notice of Appeal[14] dated 18 August 1999. Yoro filed his own Notice of Appeal[15] dated TO THE RESPONDENT.
20 August 1999.
In a Resolution[16] dated 19 November 1999, the trial court disallowed Yoros appeal for failure to pay the
appellate court docket and other lawful fees within the reglementary period for taking an appeal.[17] In view THE RULINGS OF THE COURT
of Yoros failure to appropriately file an appeal, an order was issued for the issuance of a Writ of Execution as
against him only, the dispositive portion of which reads: Petitioner avers that no liability should attach to him by laying the blame solely on Yoro. He argues that the
WHEREFORE, premises considered, this Court GRANTS the motion of plaintiff Iglesia ni Cristo for the MOA executed between him and Yoro is the law between them and must be given weight by the courts. Since
issuance of a Writ of Execution as against Dioscoro Ely Yoro, Jr. only.[18] nothing in the MOA goes against the law, morals, good customs and public policy, it must govern to absolve
The petitioners appeal to the Court of Appeals, on the other hand, was given due course.[19] On 25 September him from any liability.[23] Petitioner relies heavily in Paragraph 4 of the MOA, which is again reproduced
2003, the Court of Appeals rendered its Decision denying the appeal. It affirmed the trial court but with hereunder:
modifications. The decretal portion of the decision states:
WHEREFORE, the appeal is hereby DENIED. The assailed decision in Civil Case No. A-1646 is hereby 4. Any damage within or outside the property of the FIRST PARTY incurred during the digging shall be borne
AFFIRMED with MODIFICATIONS as follows: by the SECOND PARTY.
(a) The award of moral damages in the amount of P500,000.00 is hereby deleted.
(b) The award of exemplary damages is hereby reduced to P50,000.00. In answer to this, the respondent asserts that the MOA should not absolve petitioner from any liability. This
(c) The award of attorneys fees and litigation expenses is hereby reduced to P30,000.00.[20] written contract, according to the respondent, clearly shows that the intention of the parties therein was to
search for hidden treasure. The alleged digging for a septic tank was just a cover-up of their real intention.[24]
Undeterred, petitioner instituted the instant case before this Court. On 15 December 2004, the instant petition The aim of the petitioner and Yoro to intrude and surreptitiously hunt for hidden treasure in the respondents
was given due course.[21] premises should make both parties liable.[25]
ASSIGNMENT OF ERRORS
At this juncture, it is vital to underscore the findings of the trial court and the Court of Appeals as to what was
Petitioner assigns as errors the following: the real intention of the petitioner and Yoro in undertaking the excavations. The findings of the trial court and
the Court of Appeals on this point are in complete unison. Petitioner and Yoro were in quest for hidden
I treasure[26] and, undoubtedly, they were partners in this endeavor.

THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE REGIONAL TRIAL
COURT (BRANCH 31, AGOO, LA UNION) PARTICULARLY IN SAYING THAT THE BASIS OF THE The Court of Appeals, in its Decision, held in part:
SOLIDARY OBLIGATION OF PETITIONER AND YORO VIS--VIS PLAINTIFF IS BASED NOT ON
THE MOA BUT ON TORT The basis of their solidarity is not the Memorandum of Agreement but the fact that they have become joint
tortfeasors. There is solidary liability only when the obligation expressly so states, or when the law or the
II nature of the obligation requires solidarity.[27]

THE COURT OF APPEALS ERRED IN NOT GIVING EFFECT TO THE MOA WHICH SHOULD We find no compelling reason to disturb this particular conclusion reached by the Court of Appeals. The issue,
EXONERATE THE PETITIONER FROM ALL LIABILITIES TO THE PRIVATE RESPONDENT therefore, must be ruled in the negative.

Article 2176 of the New Civil Code provides:


III
ART. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged
THE COURT OF APPEALS ERRED IN NOT APPRECIATING THE THIRD-PARTY COMPLAINT AS to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between
CROSS-CLAIM OF THE PETITIONER AGAINST YORO.[22] the parties, is called a quasi-delict and is governed by the provisions of this Chapter.

ISSUE
Based on this provision of law, the requisites of quasi-delict are the following:
Drawn from the above assignment of errors, the solitary issue that needs to be resolved is:

20
(a) there must be an act or omission; The modification made by this Court to the judgment of the Court of Appeals must operate as against Yoro,
(b) such act or omission causes damage to another; for as fittingly held by the court a quo:
(c) such act or commission is caused by fault or negligence; and While it is settled that a party who did not appeal from the decision cannot seek any relief other than what is
(d) there is no pre-existing contractual relation between the parties. provided in the judgment appealed from, nevertheless, when the rights and liability of the defendants are so
interwoven and dependent as to be inseparable, in which case, the modification of the appealed judgment in
All the requisites are attendant in the instant case. The tortious act was the excavation which caused damage favor of appellant operates as a modification to Gen. Yoro who did not appeal. In this case, the liabilities of
to the respondent because it was done surreptitiously within its premises and it may have affected the Gen. Yoro and appellant being solidary, the above exception applies.[34]
foundation of the chapel. The excavation on respondents premises was caused by fault. Finally, there was no WHEREFORE, the Decision of the Court of Appeals dated 25 September 2003 is AFFIRMED with
pre-existing contractual relation between the petitioner and Yoro on the one hand, and the respondent on the MODIFICATION as to the award of exemplary damages, which is hereby increased to P100,000.00. Costs
other. against petitioner.
SO ORDERED.
For the damage caused to respondent, petitioner and Yoro are jointly liable as they are joint tortfeasors.
Verily, the responsibility of two or more persons who are liable for a quasi-delict is solidary.[28]

The heavy reliance of petitioner in paragraph 4 of the MOA cited earlier cannot steer him clear of any
Republic of the Philippines
liability.
SUPREME COURT
Manila
As a general rule, joint tortfeasors are all the persons who command, instigate, promote, encourage, advise,
countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done
for their benefit.[29] EN BANC

G.R. No. L-12219 March 15, 1918


Indubitably, petitioner and Yoro cooperated in committing the tort. They even had provisions in their MOA as
to how they would divide the treasure if any is found within or outside petitioners property line. Thus, the AMADO PICART, plaintiff-appellant,
MOA, instead of exculpating petitioner from liability, is the very noose that insures that he be so declared as vs.
liable. FRANK SMITH, JR., defendant-appellee.
Besides, petitioner cannot claim that he did not know that the excavation traversed the respondents property.
In fact, he had two (2) of his employees actually observe the diggings, his security guard and his engineer Alejo Mabanag for appellant.
Teofilo Oller.[30] G. E. Campbell for appellee.
Coming now to the matter on damages, the respondent questions the drastic reduction of the exemplary
damages awarded to it. It may be recalled that the trial court awarded exemplary damages in the amount of
P10,000,000.00 but same was reduced by the Court of Appeals to P50,000.00. STREET, J.:

In this action the plaintiff, Amado Picart, seeks to recover of the defendant, Frank Smith, jr., the sum of
P31,000, as damages alleged to have been caused by an automobile driven by the defendant. From a judgment
Exemplary or corrective damages are imposed by way of example or correction for the public good.[31] In of the Court of First Instance of the Province of La Union absolving the defendant from liability the plaintiff
quasi-delicts, exemplary damages may be granted if the defendant acted with gross negligence.[32] By gross has appealed.
negligence is meant such entire want of care as to raise a presumption that the person in fault is conscious of
the probable consequences of carelessness, and is indifferent, or worse, to the danger of injury to person or
The occurrence which gave rise to the institution of this action took place on December 12, 1912, on the
property of others.[33]
Carlatan Bridge, at San Fernando, La Union. It appears that upon the occasion in question the plaintiff was
Surreptitiously digging under the respondents chapel which may weaken the foundation thereof, thereby
riding on his pony over said bridge. Before he had gotten half way across, the defendant approached from the
endangering the lives and limbs of the people in worship, unquestionably amounts to gross negligence. Not to
opposite direction in an automobile, going at the rate of about ten or twelve miles per hour. As the defendant
mention the damage that may be caused to the structure itself. The respondent may indeed be awarded
neared the bridge he saw a horseman on it and blew his horn to give warning of his approach. He continued his
exemplary damages.
course and after he had taken the bridge he gave two more successive blasts, as it appeared to him that the man
For such tortious act done with gross negligence, the Court feels that the amount awarded by the Court of
on horseback before him was not observing the rule of the road.
Appeals is inadequate. The exemplary damages must correspondingly be increased to P100,000.00.

21
The plaintiff, it appears, saw the automobile coming and heard the warning signals. However, being perturbed The question as to what would constitute the conduct of a prudent man in a given situation must of course be
by the novelty of the apparition or the rapidity of the approach, he pulled the pony closely up against the always determined in the light of human experience and in view of the facts involved in the particular case.
railing on the right side of the bridge instead of going to the left. He says that the reason he did this was that he Abstract speculations cannot here be of much value but this much can be profitably said: Reasonable men
thought he did not have sufficient time to get over to the other side. The bridge is shown to have a length of govern their conduct by the circumstances which are before them or known to them. They are not, and are not
about 75 meters and a width of 4.80 meters. As the automobile approached, the defendant guided it toward his supposed to be, omniscient of the future. Hence they can be expected to take care only when there is
left, that being the proper side of the road for the machine. In so doing the defendant assumed that the something before them to suggest or warn of danger. Could a prudent man, in the case under consideration,
horseman would move to the other side. The pony had not as yet exhibited fright, and the rider had made no foresee harm as a result of the course actually pursued? If so, it was the duty of the actor to take precautions to
sign for the automobile to stop. Seeing that the pony was apparently quiet, the defendant, instead of veering to guard against that harm. Reasonable foresight of harm, followed by ignoring of the suggestion born of this
the right while yet some distance away or slowing down, continued to approach directly toward the horse prevision, is always necessary before negligence can be held to exist. Stated in these terms, the proper criterion
without diminution of speed. When he had gotten quite near, there being then no possibility of the horse for determining the existence of negligence in a given case is this: Conduct is said to be negligent when a
getting across to the other side, the defendant quickly turned his car sufficiently to the right to escape hitting prudent man in the position of the tortfeasor would have foreseen that an effect harmful to another was
the horse alongside of the railing where it as then standing; but in so doing the automobile passed in such close sufficiently probable to warrant his foregoing conduct or guarding against its consequences.
proximity to the animal that it became frightened and turned its body across the bridge with its head toward the
railing. In so doing, it as struck on the hock of the left hind leg by the flange of the car and the limb was Applying this test to the conduct of the defendant in the present case we think that negligence is clearly
broken. The horse fell and its rider was thrown off with some violence. From the evidence adduced in the case
established. A prudent man, placed in the position of the defendant, would in our opinion, have recognized that
we believe that when the accident occurred the free space where the pony stood between the automobile and the course which he was pursuing was fraught with risk, and would therefore have foreseen harm to the horse
the railing of the bridge was probably less than one and one half meters. As a result of its injuries the horse and the rider as reasonable consequence of that course. Under these circumstances the law imposed on the
died. The plaintiff received contusions which caused temporary unconsciousness and required medical defendant the duty to guard against the threatened harm.
attention for several days.

It goes without saying that the plaintiff himself was not free from fault, for he was guilty of antecedent
The question presented for decision is whether or not the defendant in maneuvering his car in the manner negligence in planting himself on the wrong side of the road. But as we have already stated, the defendant was
above described was guilty of negligence such as gives rise to a civil obligation to repair the damage done; and also negligent; and in such case the problem always is to discover which agent is immediately and directly
we are of the opinion that he is so liable. As the defendant started across the bridge, he had the right to assume responsible. It will be noted that the negligent acts of the two parties were not contemporaneous, since the
that the horse and the rider would pass over to the proper side; but as he moved toward the center of the bridge negligence of the defendant succeeded the negligence of the plaintiff by an appreciable interval. Under these
it was demonstrated to his eyes that this would not be done; and he must in a moment have perceived that it circumstances the law is that the person who has the last fair chance to avoid the impending harm and fails to
was too late for the horse to cross with safety in front of the moving vehicle. In the nature of things this change do so is chargeable with the consequences, without reference to the prior negligence of the other party.
of situation occurred while the automobile was yet some distance away; and from this moment it was not
longer within the power of the plaintiff to escape being run down by going to a place of greater safety. The
control of the situation had then passed entirely to the defendant; and it was his duty either to bring his car to The decision in the case of Rkes vs. Atlantic, Gulf and Pacific Co. (7 Phil. Rep., 359) should perhaps be
an immediate stop or, seeing that there were no other persons on the bridge, to take the other side and pass mentioned in this connection. This Court there held that while contributory negligence on the part of the
sufficiently far away from the horse to avoid the danger of collision. Instead of doing this, the defendant ran person injured did not constitute a bar to recovery, it could be received in evidence to reduce the damages
straight on until he was almost upon the horse. He was, we think, deceived into doing this by the fact that the which would otherwise have been assessed wholly against the other party. The defendant company had there
horse had not yet exhibited fright. But in view of the known nature of horses, there was an appreciable risk employed the plaintiff, as a laborer, to assist in transporting iron rails from a barge in Manila harbor to the
that, if the animal in question was unacquainted with automobiles, he might get exited and jump under the company's yards located not far away. The rails were conveyed upon cars which were hauled along a narrow
conditions which here confronted him. When the defendant exposed the horse and rider to this danger he was, track. At certain spot near the water's edge the track gave way by reason of the combined effect of the weight
in our opinion, negligent in the eye of the law. of the car and the insecurity of the road bed. The car was in consequence upset; the rails slid off; and the
plaintiff's leg was caught and broken. It appeared in evidence that the accident was due to the effects of the
typhoon which had dislodged one of the supports of the track. The court found that the defendant company
The test by which to determine the existence of negligence in a particular case may be stated as follows: Did was negligent in having failed to repair the bed of the track and also that the plaintiff was, at the moment of the
the defendant in doing the alleged negligent act use that person would have used in the same situation? If not, accident, guilty of contributory negligence in walking at the side of the car instead of being in front or behind.
then he is guilty of negligence. The law here in effect adopts the standard supposed to be supplied by the It was held that while the defendant was liable to the plaintiff by reason of its negligence in having failed to
imaginary conduct of the discreet paterfamilias of the Roman law. The existence of negligence in a given case
keep the track in proper repair nevertheless the amount of the damages should be reduced on account of the
is not determined by reference to the personal judgment of the actor in the situation before him. The law contributory negligence in the plaintiff. As will be seen the defendant's negligence in that case consisted in an
considers what would be reckless, blameworthy, or negligent in the man of ordinary intelligence and prudence
omission only. The liability of the company arose from its responsibility for the dangerous condition of its
and determines liability by that. track. In a case like the one now before us, where the defendant was actually present and operating the
automobile which caused the damage, we do not feel constrained to attempt to weigh the negligence of the
respective parties in order to apportion the damage according to the degree of their relative fault. It is enough

22
to say that the negligence of the defendant was in this case the immediate and determining cause of the
accident and that the antecedent negligence of the plaintiff was a more remote factor in the case. CORONA, J.,
- versus - Chairperson,
CHICO-NAZARIO,
A point of minor importance in the case is indicated in the special defense pleaded in the defendant's answer,
to the effect that the subject matter of the action had been previously adjudicated in the court of a justice of the VELASCO, JR.,
peace. In this connection it appears that soon after the accident in question occurred, the plaintiff caused NACHURA, and
criminal proceedings to be instituted before a justice of the peace charging the defendant with the infliction of ANGELITA BALEN and SPOUSES HERCULES and RHEA LARIOSA, PERALTA, JJ.
serious injuries (lesiones graves). At the preliminary investigation the defendant was discharged by the Respondents.
magistrate and the proceedings were dismissed. Conceding that the acquittal of the defendant at the trial upon Promulgated:
the merits in a criminal prosecution for the offense mentioned would be res adjudicata upon the question of his
civil liability arising from negligence -- a point upon which it is unnecessary to express an opinion -- the action November 25, 2009
of the justice of the peace in dismissing the criminal proceeding upon the preliminary hearing can have no
x------------------------------------------------------------------------------------x
effect. (See U. S. vs. Banzuela and Banzuela, 31 Phil. Rep., 564.)

From what has been said it results that the judgment of the lower court must be reversed, and judgment is her
rendered that the plaintiff recover of the defendant the sum of two hundred pesos (P200), with costs of other DECISION
instances. The sum here awarded is estimated to include the value of the horse, medical expenses of the
plaintiff, the loss or damage occasioned to articles of his apparel, and lawful interest on the whole to the date
of this recovery. The other damages claimed by the plaintiff are remote or otherwise of such character as not to
be recoverable. So ordered.
NACHURA, J.:

Arellano, C.J., Torres, Carson, Araullo, Avanceña, and Fisher, JJ., concur.
Johnson, J., reserves his vote.

Separate Opinions On appeal is the February 21, 2006 Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No.

66153, affirming the December 2, 1999 Decision[2] of the Regional Trial Court (RTC) of Butuan City, Branch
MALCOLM, J., concurring:
2, as well as its subsequent Resolution,[3] denying petitioners motion for reconsideration.
After mature deliberation, I have finally decided to concur with the judgment in this case. I do so because of
my understanding of the "last clear chance" rule of the law of negligence as particularly applied to automobile
accidents. This rule cannot be invoked where the negligence of the plaintiff is concurrent with that of the
defendant. Again, if a traveler when he reaches the point of collision is in a situation to extricate himself and
avoid injury, his negligence at that point will prevent a recovery. But Justice Street finds as a fact that the
Petitioner Agusan del Norte Electric Cooperative, Inc. (ANECO) is a duly organized and registered
negligent act of the interval of time, and that at the moment the plaintiff had no opportunity to avoid the
accident. Consequently, the "last clear chance" rule is applicable. In other words, when a traveler has reached a consumers cooperative, engaged in supplying electricity in the provinceof Agusan del Norte and
point where he cannot extricate himself and vigilance on his part will not avert the injury, his negligence in
reaching that position becomes the condition and not the proximate cause of the injury and will not preclude a in Butuan City. In 1981, ANECO installed an electric post in Purok 4, Ata-atahon, Nasipit, Agusan del Norte,
recovery.
with its main distribution line of 13,000 kilovolts traversing Angelita Balens (Balens) residence. Balens father,
THIRD DIVISION
Miguel, protested the installation with the District Engineers Office and with ANECO, but his protest just fell
AGUSAN DEL NORTE ELECTRIC COOPERATIVE, INC. (ANECO), G.R. No. 173146 on deaf ears.
represented by its Manager ROMEO O. DAGANI,
Petitioner, Present:

23
On July 25, 1992, Balen, Hercules Lariosa (Lariosa) and Celestino Exclamado (Exclamado) were
c) That [ANECO] pay [respondent] Angelita E. Balen the
electrocuted while removing the television antenna (TV antenna) from Balens residence. The antenna pole
sum of Fifteen Thousand Pesos (PHP15,000.00) and another Fifteen
touched ANECOs main distribution line which resulted in their electrocution. Exclamado died instantly, while Thousand Pesos (PHP15,000.00) to [respondent] Hercules A.
Lariosa as moral damages, or a total of Thirty Thousand Pesos
Balen and Lariosa suffered extensive third degree burns. (PHP30,000.00);

Balen and Lariosa (respondents) then lodged a complaint[4] for damages against ANECO with the

RTC of Butuan City. d) That [ANECO] pay [respondents] Angelita E. Balen


and Hercules A. Lariosa Two Thousand Pesos (PHP2,000.00) each
or a total of Four Thousand Pesos (PHP4,000.00) as exemplary
ANECO filed its answer[5] denying the material averments in the complaint, and raising lack of
damages;
cause of action as a defense. It posited that the complaint did not allege any wrongful act on the part of

ANECO, and that respondents acted with gross negligence and evident bad faith. ANECO, thus, prayed for the
e) That [ANECO] pay [respondents] Angelita E. Balen
dismissal of the complaint.
and Hercules A. Lariosa Eight Thousand Pesos (PHP8,000.00) each
or a total of Sixteen Thousand Pesos [(PHP 16,000.00)] as attorneys
After trial, the RTC rendered a Decision,[6] disposing that: fees and the sum of Two Thousand Pesos (PHP2,000.00) each or a
total of Four Thousand Pesos (PHP4,000.00) for expense of
litigation;

WHEREFORE, judgment is hereby rendered in favor of [respondents] and


against [ANECO], directing, ordaining and ordering
f) That [ANECO] pay the costs of this suit;

a) That [ANECO] pay [respondent] Angelita E. Balen the


g) The dismissal of [ANECOs] counterclaim; [and]
sum of One Hundred Thousand Pesos (PHP100,000.00)
and [respondent] Hercules A. Lariosa the sum of Seventy Thousand
Pesos (PHP70,000.00) as reimbursement of their expenses for
hospitalization, medicines, doctors professional fees, transportation h) That the amount of Thirteen Thousand Pesos
and miscellaneous expenses; (PHP13,000.00) given by ANECO to [respondent] Angelita E.
Balen and acknowledged by the latter to have been received (pre-
trial order, record[s,] pp. 36-37) must be deducted from the herein
judgment debt.
b) That [ANECO] pay [respondent] Angelita E. Balen the
sum of Seventy Two Thousand Pesos (PHP72,000.00) for loss of
income for three (3) years;
SO ORDERED.[7]

24
On appeal, the CA affirmed in toto the RTC ruling. It declared that the proximate cause of the Negligence is defined as the failure to observe for the protection of the interests of another person

accident could not have been the act or omission of respondents, who were not negligent in taking down the that degree of care, precaution, and vigilance which the circumstances justly demand, by reason of which such

antenna. The proximate cause of the injury sustained by respondents was ANECOs negligence in installing its other person suffers injury. The test to determine the existence of negligence in a particular case may be stated

main distribution line over Balens residence. ANECO should have exercised caution, care and prudence in as follows: Did the defendant in the performance of the alleged negligent act use reasonable care and caution

installing a high-voltage line over a populated area, or it should have sought an unpopulated area for the said which an ordinary person would have used in the same situation? If not, then he is guilty of negligence. The

line to traverse. The CA further noted that ANECO failed to put a precautionary sign for installation of wires existence of negligence in a given case is not determined by reference to the personal judgment of the actor in

over 600 volts, which is required by the Philippine Electrical Code. [8] the situation before him. The law considers what would be reckless, blameworthy, or negligent in the man of

ordinary intelligence and prudence and determines liability by that norm.[11]


The CA disposed, thus:

The issue of who, between the parties, was negligent is a factual issue that this Court cannot pass
WHEREFORE, premises considered, the assailed Decision is hereby AFFIRMED in toto.
upon, absent any whimsical or capricious exercise of judgment by the lower courts or an ample showing that
SO ORDERED.[9]
they lacked any basis for their conclusions.[12] The unanimity of the CA and the trial court in their

factual ascertainment that ANECOs negligence was the proximate cause of the injuries sustained by
ANECO filed a motion for reconsideration, but the CA denied it on May 26, 2006. [10]
respondents bars us from supplanting their findings and substituting them with our own. The function of this
Hence, this appeal. Court is limited to the review of the appellate courts alleged errors of law. We are not required to weigh all

over again the factual evidence already considered in the proceedings below.[13] ANECO has not shown that it
Indisputably, Exclamado died and respondents sustained injuries from being electrocuted by ANECOs high-
is entitled to be excepted from this rule. It has not sufficiently demonstrated any special circumstances to
tension wire. These facts are borne out by the records and conceded by the parties.
justify a factual review.

ANECO, however, denied liability, arguing that the mere presence of the high-tension wires over
That ANECOs negligence was the proximate cause of the injuries sustained by
Balens residence did not cause respondents injuries. The proximate cause of the accident, it claims, was
respondents was aptly discussed by the CA, which we quote:
respondents negligence in removing the TV antenna and in allowing the pole to touch the high-tension wires.

The findings of the RTC, it argues, patently run counter to the facts clearly established by the
The evidence extant in the record shows that the house of MIGUEL BALEN already existed before
records. ANECO, thus, contends that the CA committed reversible error in sustaining the findings of the RTC.
the high voltage wires were installed by ANECO above it. ANECO had to follow the minimum clearance

The argument lacks merit. requirement of 3,050 under Part II of the Philippine Electrical Code for the installation of its main distribution

lines above the roofs of buildings or houses. Although ANECO followed said clearance requirement, the

25
time of his misconduct are legally caused by his breach of duty x x
installed lines were high voltage, consisting of open wires, i.e., not covered with insulators, like rubber, and x.

charged with 13, 200 volts. Knowing that it was installing a main distribution line of high voltage over a

populated area, ANECO should have practiced caution, care and prudence by installing insulated wires, or else Thus applying aforecited test, ANECO should have reasonably foreseen that, even
if it complied with the clearance requirements under the Philippine Electrical Code in
found an unpopulated area for the said line to traverse. The court a quo correctly observed that ANECO failed installing the subject high tension wires above MIGUEL BALENs house, still a potential
risk existed that people would get electrocuted, considering that the wires were not
to show any compelling reason for the installation of the questioned wires over MIGUEL BALENs house.That insulated.

the clearance requirements for the installation of said line were met by ANECO does not suffice to exonerate it Above conclusion is further strengthened by the verity that MIGUEL BALEN
had complained about the installation of said line, but ANECO did not do anything about
from liability. Besides, there is scarcity of evidence in the records showing that ANECO put up the
it. Moreover, there is scant evidence showing that [respondents] knew beforehand that the
lines installed by ANECO were live wires.
precautionary sign: WARNING-HIGH VOLTAGE-KEEP OUT at or near the house of MIGUEL BALEN as
Otherwise stated, the proximate cause of the electrocution of [respondents]
required by the Philippine Electrical Code for installation of wires over 600 volts.
was ANECOs installation of its main distribution line of high voltage over the house of
MIGUEL BALEN, without which the accident would not have occurred.
Contrary to its stance, it is in fact ANECO which provided the proximate cause
of the injuries of [respondents]. xxxx

x x x the taking down by [respondents] of the antenna in MIGUEL BALENs


house would not have caused their electrocution were it not for the negligence of
One of the tests for determining the existence of proximate cause is the ANECO in installing live wires over the roof of the said house. [14]
foreseeability test, viz.:
Clearly, ANECOs act of leaving unprotected and uninsulated the main distribution line over Balens

residence was the proximate cause of the incident which claimed Exclamados life and injured respondents
x x x Where the particular harm was reasonably
foreseeable at the time of the defendants misconduct, his act or Balen and Lariosa. Proximate cause is defined as any cause that produces injury in a natural and continuous
omission is the legal cause thereof. Foreseeability is the
sequence, unbroken by any efficient intervening cause, such that the result would not have occurred
fundamental test of the law of negligence. To be negligent, the
defendant must have acted or failed to act in such a way that an otherwise.[15]
ordinary reasonable man would have realized that certain interests
of certain persons were unreasonably subjected to a general but
definite class of risk which made the actors conduct negligent, it is
obviously the consequence for the actor must be held legally
responsible. Otherwise, the legal duty is entirely
defeated. Accordingly, the generalization may be formulated that all
particular consequences, that is, consequences which occur in a
manner which was reasonably foreseeable by the defendant at the

26
Republic of the Philippines
ANECOs contention that the accident happened only eleven (11) years after the installation of the SUPREME COURT
Manila
high-voltage wire cannot serve to absolve or mitigate ANECOs liability. As we held in Benguet Electric

Cooperative, Inc. v. Court of Appeals:[16] THIRD DIVISION

G.R. No. 206806 June 25, 2014


[A]s an electric cooperative holding the exclusive franchise in supplying electric power to the

towns of Benguet province, its primordial concern is not only to distribute electricity to its subscribers but also ARCO PULP AND PAPER CO., INC. and CANDIDA A. SANTOS, Petitioners,
vs.
to ensure the safety of the public by the proper maintenance and upkeep of its facilities. It is clear to us then DAN T. LIM, doing business under the name and style of QUALITY PAPERS & PLASTIC
PRODUCTS ENTERPRISES, Respondent.
that BENECO was grossly negligent in leaving unprotected and uninsulated the splicing point between the

service drop line and the service entrance conductor, which connection was only eight (8) feet from the ground DECISION

level, in violation of the Philippine Electrical Code. BENECO's contention that the accident happened only on
LEONEN, J.:
January 14, 1985, around seven (7) years after the open wire was found existing in 1978, far from mitigating
Novation must be stated in clear and unequivocal terms to extinguish an obligation. It cannot be presumed and
its culpability, betrays its gross neglect in performing its duty to the public. By leaving an open live wire may be implied only if the old and new contracts are incompatible on every point.
unattended for years, BENECO demonstrated its utter disregard for the safety of the public.Indeed, Jose
Before us is a petition for review on certiorari1 assailing the Court of Appeals’ decision2 in CA-G.R. CV No.
Bernardo's death was an accident that was bound to happen in view of the gross negligence of BENECO. 95709, which stemmed from a complaint3 filed in the Regional Trial Court of Valenzuela City, Branch 171,
for collection of sum of money.

Indeed, both the trial and the appellate courts findings, which are amply substantiated by the
The facts are as follows:
evidence on record, clearly point to ANECOs negligence as the proximate causeof the damages suffered by
Dan T. Lim works in the business of supplying scrap papers, cartons, and other raw materials, under the name
respondents Balen and Lariosa. No adequate reason has been given to overturn this factual conclusion. In fine, Quality Paper and Plastic Products, Enterprises, to factories engaged in the paper mill business. 4 From
February 2007 to March 2007, he delivered scrap papers worth 7,220,968.31 to Arco Pulp and Paper
the CA committed no reversible error in sustaining the RTC.
Company, Inc. (Arco Pulp and Paper) through its Chief Executive Officer and President, Candida A.
Santos.5 The parties allegedly agreed that Arco Pulp and Paper would either pay Dan T. Lim the value of the
WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of raw materials or deliver to him their finished products of equivalent value. 6

Appeals in CA-G.R. CV No. 66153 are AFFIRMED. Costs against petitioner. Dan T. Lim alleged that when he delivered the raw materials, Arco Pulp and Paper issued a post-dated check
dated April 18, 20077 in the amount of 1,487,766.68 as partial payment, with the assurance that the check
would not bounce.8 When he deposited the check on April 18, 2007, it was dishonored for being drawn against
SO ORDERED. a closed account.9

On the same day, Arco Pulp and Paper and a certain Eric Sy executed a memorandum of agreement 10 where
Arco Pulp and Paper bound themselves to deliver their finished products to Megapack Container Corporation,
owned by Eric Sy, for his account. According to the memorandum, the raw materials would be supplied by
Dan T. Lim, through his company, Quality Paper and Plastic Products. The memorandum of agreement reads
as follows:

27
Per meeting held at ARCO, April 18, 2007, it has been mutually agreed between Mrs. Candida A. Santos and entered into with respondent. The Court of Appeals, they allege, also erred in awarding moral and exemplary
Mr. Eric Sy that ARCO will deliver 600 tons Test Liner 150/175 GSM, full width 76 inches at the price of damages and attorney’s fees to respondent who did not show proof that he was entitled to damages. 27
₱18.50 per kg. to Megapack Container for Mr. Eric Sy’s account. Schedule of deliveries are as follows:
Respondent, on the other hand, argues that the Court of Appeals was correct in ruling that there was no proper
.... novation in this case. He argues that the Court of Appeals was correct in ordering the payment of 7,220,968.31
with damages since the debt of petitioners remains unpaid.28 He also argues that the Court of Appeals was
It has been agreed further that the Local OCC materials to be used for the production of the above Test Liners correct in holding petitioners solidarily liable since petitioner Candida A. Santos was "the prime mover for
such outstanding corporate liability."29 In their reply, petitioners reiterate that novation took place since there
will be supplied by Quality Paper & Plastic Products Ent., total of 600 Metric Tons at ₱6.50 per kg. (price
subject to change per advance notice). Quantity of Local OCC delivery will be based on the quantity of Test was nothing in the memorandum of agreement showing that the obligation was alternative. They also argue
Liner delivered to Megapack Container Corp. based on the above production schedule.11 that when respondent allowed them to deliver the finished products to Eric Sy, the original obligation was
novated.30

On May 5, 2007, Dan T.Lim sent a letter12 to Arco Pulp and Paper demanding payment of the amount of
7,220,968.31, but no payment was made to him.13 A rejoinder was submitted by respondent, but it was noted without action in view of A.M. No. 99-2-04-SC
dated November 21, 2000.31

Dan T. Lim filed a complaint14 for collection of sum of money with prayer for attachment with the Regional
The issues to be resolved by this court are as follows:
Trial Court, Branch 171, Valenzuela City, on May 28, 2007. Arco Pulp and Paper filed its answer15 but failed
to have its representatives attend the pre-trial hearing. Hence, the trial court allowed Dan T. Lim to present his
evidence ex parte.16 1. Whether the obligation between the parties was extinguished by novation

On September 19, 2008, the trial court rendered a judgment in favor of Arco Pulp and Paper and dismissed the 2. Whether Candida A. Santos was solidarily liable with Arco Pulp and Paper Co., Inc.
complaint, holding that when Arco Pulp and Paper and Eric Sy entered into the memorandum of agreement,
novation took place, which extinguished Arco Pulp and Paper’s obligation to Dan T. Lim. 17 3. Whether moral damages, exemplary damages, and attorney’s fees can be awarded

Dan T. Lim appealed18 the judgment with the Court of Appeals. According to him, novation did not take place The petition is denied.
since the memorandum of agreement between Arco Pulp and Paper and Eric Sy was an exclusive and private
agreement between them. He argued that if his name was mentioned in the contract, it was only for supplying
the parties their required scrap papers, where his conformity through a separate contract was indispensable.19 The obligation between the
parties was an alternative
obligation
On January 11, 2013, the Court of Appeals20 rendered a decision21 reversing and setting aside the judgment
dated September 19, 2008 and ordering Arco Pulp and Paper to jointly and severally pay Dan T. Lim the
amount of ₱7,220,968.31 with interest at 12% per annum from the time of demand; ₱50,000.00 moral The rule on alternative obligations is governed by Article 1199 of the Civil Code, which states:
damages; ₱50,000.00 exemplary damages; and ₱50,000.00 attorney’s fees. 22
Article 1199. A person alternatively bound by different prestations shall completely perform one of them.
The appellate court ruled that the facts and circumstances in this case clearly showed the existence of an
alternative obligation.23 It also ruled that Dan T. Lim was entitled to damages and attorney’s fees due to the The creditor cannot be compelled to receive part of one and part of the other undertaking.
bad faith exhibited by Arco Pulp and Paper in not honoring its undertaking. 24
"In an alternative obligation, there is more than one object, and the fulfillment of one is sufficient, determined
Its motion for reconsideration25 having been denied,26 Arco Pulp and Paper and its President and Chief by the choice of the debtor who generally has the right of election."32 The right of election is extinguished
Executive Officer, Candida A. Santos, bring this petition for review on certiorari. when the party who may exercise that option categorically and unequivocally makes his or her choice
known.33
On one hand, petitioners argue that the execution of the memorandum of agreement constituted a novation of
the original obligation since Eric Sy became the new debtor of respondent. They also argue that there is no The choice of the debtor must also be communicated to the creditor who must receive notice of it since: The
legal basis to hold petitioner Candida A. Santos personally liable for the transaction that petitioner corporation object of this notice is to give the creditor . . . opportunity to express his consent, or to impugn the election

28
made by the debtor, and only after said notice shall the election take legal effect when consented by the Article 1292. In order that an obligation may be extinguished by another which substitute the same, it is
creditor, or if impugned by the latter, when declared proper by a competent court. 34 imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every
point incompatible with each other. (1204)
According to the factual findings of the trial court and the appellate court, the original contract between the
parties was for respondent to deliver scrap papers worth ₱7,220,968.31 to petitioner Arco Pulp and Paper. The Article 1293. Novation which consists in substituting a new debtor in the place of the original one, may be
payment for this delivery became petitioner Arco Pulp and Paper’s obligation. By agreement, petitioner Arco made even without the knowledge or against the will of the latter, but not without the consent of the creditor.
Pulp and Paper, as the debtor, had the option to either (1) pay the price or(2) deliver the finished products of Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237. (1205a)
equivalent value to respondent.35
Novation extinguishes an obligation between two parties when there is a substitution of objects or debtors or
The appellate court, therefore, correctly identified the obligation between the parties as an alternative when there is subrogation of the creditor. It occurs only when the new contract declares so "in unequivocal
obligation, whereby petitioner Arco Pulp and Paper, after receiving the raw materials from respondent, would terms" or that "the old and the new obligations be on every point incompatible with each other." 36
either pay him the price of the raw materials or, in the alternative, deliver to him the finished products of
equivalent value. Novation was extensively discussed by this court in Garcia v. Llamas: 37

When petitioner Arco Pulp and Paper tendered a check to respondent in partial payment for the scrap papers, Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by
they exercised their option to pay the price. Respondent’s receipt of the check and his subsequent act of
substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor.
depositing it constituted his notice of petitioner Arco Pulp and Paper’s option to pay. Article 1293 of the Civil Code defines novation as follows:

This choice was also shown by the terms of the memorandum of agreement, which was executed on the same "Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made
day. The memorandum declared in clear terms that the delivery of petitioner Arco Pulp and Paper’s finished
even without the knowledge or against the will of the latter, but not without the consent of the creditor.
products would be to a third person, thereby extinguishing the option to deliver the finished products of Payment by the new debtor gives him rights mentioned in articles 1236 and 1237."
equivalent value to respondent.

In general, there are two modes of substituting the person of the debtor: (1) expromision and (2) delegacion. In
The memorandum of
expromision, the initiative for the change does not come from — and may even be made without the
agreement did not constitute knowledge of — the debtor, since it consists of a third person’s assumption of the obligation. As such, it
a novation of the original
logically requires the consent of the third person and the creditor. In delegacion, the debtor offers, and the
contract creditor accepts, a third person who consents to the substitution and assumes the obligation; thus, the consent
of these three persons are necessary. Both modes of substitution by the debtor require the consent of the
The trial court erroneously ruled that the execution of the memorandum of agreement constituted a novation of creditor.
the contract between the parties. When petitioner Arco Pulp and Paper opted instead to deliver the finished
products to a third person, it did not novate the original obligation between the parties. Novation may also be extinctive or modificatory. It is extinctive when an old obligation is terminated by the
creation of a new one that takes the place of the former. It is merely modificatory when the old obligation
The rules on novation are outlined in the Civil Code, thus: subsists to the extent that it remains compatible with the amendatory agreement. Whether extinctive or
modificatory, novation is made either by changing the object or the principal conditions, referred to as
Article 1291. Obligations may be modified by: objective or real novation; or by substituting the person of the debtor or subrogating a third person to the rights
of the creditor, an act known as subjective or personal novation. For novation to take place, the following
requisites must concur:
(1) Changing their object or principal conditions;
1) There must be a previous valid obligation.
(2) Substituting the person of the debtor;
2) The parties concerned must agree to a new contract.
(3) Subrogating a third person in the rights of the creditor. (1203)
3) The old contract must be extinguished.

29
4) There must be a valid new contract. Petitioners are liable for
damages
Novation may also be express or implied. It is express when the new obligation declares in unequivocal terms
that the old obligation is extinguished. It is implied when the new obligation is incompatible with the old one Under Article 2220 of the Civil Code, moral damages may be awarded in case of breach of contract where the
on every point. The test of incompatibility is whether the two obligations can stand together, each one with its breach is due to fraud or bad faith:
own independent existence.38 (Emphasis supplied)
Art. 2220. Willfull injury to property may be a legal ground for awarding moral damages if the court should
Because novation requires that it be clear and unequivocal, it is never presumed, thus: find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract
where the defendant acted fraudulently or in bad faith. (Emphasis supplied)
In the civil law setting, novatio is literally construed as to make new. So it is deeply rooted in the Roman Law
jurisprudence, the principle — novatio non praesumitur —that novation is never presumed.At bottom, for Moral damages are not awarded as a matter of right but only after the party claiming it proved that the breach
novation tobe a jural reality, its animus must be ever present, debitum pro debito — basically extinguishing the was due to fraud or bad faith. As this court stated:
old obligation for the new one.39 (Emphasis supplied) There is nothing in the memorandum of agreement that
states that with its execution, the obligation of petitioner Arco Pulp and Paper to respondent would be Moral damages are not recoverable simply because a contract has been breached. They are recoverable only if
extinguished. It also does not state that Eric Sy somehow substituted petitioner Arco Pulp and Paper as the party from whom it is claimed acted fraudulently or in bad faith or in wanton disregard of his contractual
respondent’s debtor. It merely shows that petitioner Arco Pulp and Paper opted to deliver the finished products
obligations. The breach must be wanton, reckless, malicious or in bad faith, and oppressive or abusive.42
to a third person instead.

Further, the following requisites must be proven for the recovery of moral damages:
The consent of the creditor must also be secured for the novation to be valid:

An award of moral damages would require certain conditions to be met, to wit: (1)first, there must be an
Novation must be expressly consented to. Moreover, the conflicting intention and acts of the parties injury, whether physical, mental or psychological, clearly sustained by the claimant; (2) second, there must be
underscore the absence of any express disclosure or circumstances with which to deduce a clear and culpable act or omission factually established; (3) third, the wrongful act or omission of the defendant is the
unequivocal intent by the parties to novate the old agreement.40 (Emphasis supplied) proximate cause of the injury sustained by the claimant; and (4) fourth, the award of damages is predicated on
any of the cases stated in Article 2219 of the Civil Code.43
In this case, respondent was not privy to the memorandum of agreement, thus, his conformity to the contract
need not be secured. This is clear from the first line of the memorandum, which states: Here, the injury suffered by respondent is the loss of ₱7,220,968.31 from his business. This has remained
unpaid since 2007. This injury undoubtedly was caused by petitioner Arco Pulp and Paper’s act of refusing to
Per meeting held at ARCO, April 18, 2007, it has been mutually agreed between Mrs. Candida A. Santos and pay its obligations.
Mr. Eric Sy. . . .41
When the obligation became due and demandable, petitioner Arco Pulp and Paper not only issued an unfunded
If the memorandum of agreement was intended to novate the original agreement between the parties, check but also entered into a contract with a third person in an effort to evade its liability. This proves the third
respondent must have first agreed to the substitution of Eric Sy as his new debtor. The memorandum of requirement.
agreement must also state in clear and unequivocal terms that it has replaced the original obligation of
petitioner Arco Pulp and Paper to respondent. Neither of these circumstances is present in this case. As to the fourth requisite, Article 2219 of the Civil Code provides that moral damages may be awarded in the
following instances:
Petitioner Arco Pulp and Paper’s act of tendering partial payment to respondent also conflicts with their
alleged intent to pass on their obligation to Eric Sy. When respondent sent his letter of demand to petitioner Article 2219. Moral damages may be recovered in the following and analogous cases:
Arco Pulp and Paper, and not to Eric Sy, it showed that the former neither acknowledged nor consented to the
latter as his new debtor. These acts, when taken together, clearly show that novation did not take place. Since
there was no novation, petitioner Arco Pulp and Paper’s obligation to respondent remains valid and existing. (1) A criminal offense resulting in physical injuries;
Petitioner Arco Pulp and Paper, therefore, must still pay respondent the full amount of ₱7,220,968.31.
(2) Quasi-delicts causing physical injuries;

30
(3) Seduction, abduction, rape, or other lascivious acts; Article 20 concerns violations of existing law as basis for an injury. It allows recovery should the act have
been willful or negligent. Willful may refer to the intention to do the act and the desire to achieve the outcome
(4) Adultery or concubinage; which is considered by the plaintiff in tort action as injurious. Negligence may refer to a situation where the
act was consciously done but without intending the result which the plaintiff considers as injurious.

(5) Illegal or arbitrary detention or arrest;


Article 21, on the other hand, concerns injuries that may be caused by acts which are not necessarily
proscribed by law. This article requires that the act be willful, that is, that there was an intention to do the act
(6) Illegal search; and a desire to achieve the outcome. In cases under Article 21, the legal issues revolve around whether such
outcome should be considered a legal injury on the part of the plaintiff or whether the commission of the act
(7) Libel, slander or any other form of defamation; was done in violation of the standards of care required in Article 19. 45

(8) Malicious prosecution; When parties act in bad faith and do not faithfully comply with their obligations under contract, they run the
risk of violating Article 1159 of the Civil Code:
(9) Acts mentioned in Article 309;
Article 1159. Obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith.
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
Article 2219, therefore, is not an exhaustive list of the instances where moral damages may be recovered since
Breaches of contract done in bad faith, however, are not specified within this enumeration. When a party it only specifies, among others, Article 21. When a party reneges on his or her obligations arising from
breaches a contract, he or she goes against Article 19 of the Civil Code, which states: Article 19. Every person contracts in bad faith, the act is not only contrary to morals, good customs, and public policy; it is also a
must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, violation of Article 1159. Breaches of contract become the basis of moral damages, not only under Article
and observe honesty and good faith. 2220, but also under Articles 19 and 20 in relation to Article 1159.

Persons who have the right to enter into contractual relations must exercise that right with honesty and good Moral damages, however, are not recoverable on the mere breach of the contract. Article 2220 requires that the
faith. Failure to do so results in an abuse of that right, which may become the basis of an action for damages. breach be done fraudulently or in bad faith. In Adriano v. Lasala:46
Article 19, however, cannot be its sole basis:
To recover moral damages in an action for breach of contract, the breach must be palpably wanton, reckless
Article 19 is the general rule which governs the conduct of human relations. By itself, it is not the basis of an and malicious, in bad faith, oppressive, or abusive. Hence, the person claiming bad faith must prove its
actionable tort. Article 19 describes the degree of care required so that an actionable tort may arise when it is existence by clear and convincing evidence for the law always presumes good faith.
alleged together with Article 20 or Article 21.44
Bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral
Article 20 and 21 of the Civil Code are as follows: obliquity and conscious doing of a wrong, a breach of known duty through some motive or interest or ill will
that partakes of the nature of fraud. It is, therefore, a question of intention, which can be inferred from one’s
Article 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall conduct and/or contemporaneous statements.47 (Emphasis supplied)
indemnify the latter for the same.
Since a finding of bad faith is generally premised on the intent of the doer, it requires an examination of the
Article 21.Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, circumstances in each case.
good customs or public policy shall compensate the latter for the damage.
When petitioner Arco Pulp and Paper issued a check in partial payment of its obligation to respondent, it was
To be actionable, Article 20 requires a violation of law, while Article 21 only concerns with lawful acts that presumably with the knowledge that it was being drawn against a closed account. Worse, it attempted to shift
are contrary to morals, good customs, and public policy: their obligations to a third person without the consent of respondent.

31
Petitioner Arco Pulp and Paper’s actions clearly show "a dishonest purpose or some moral obliquity and (3) the act must be accompanied by bad faith or done in a wanton, fraudulent, oppressive or
conscious doing of a wrong, a breach of known duty through some motive or interest or ill will that partakes of malevolent manner.51
the nature of fraud."48 Moral damages may, therefore, be awarded.
Business owners must always be forthright in their dealings. They cannot be allowed to renege on their
Exemplary damages may also be awarded. Under the Civil Code, exemplary damages are due in the following obligations, considering that these obligations were freely entered into by them. Exemplary damages may also
circumstances: be awarded in this case to serve as a deterrent to those who use fraudulent means to evade their liabilities.

Article 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted Since the award of exemplary damages is proper, attorney’s fees and cost of the suit may also be recovered.
in a wanton, fraudulent, reckless, oppressive, or malevolent manner.
Article 2208 of the Civil Code states:
Article 2233. Exemplary damages cannot be recovered as a matter of right; the court will decide whether or
not they should be adjudicated. Article 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs,
cannot be recovered, except:
Article 2234. While the amount of the exemplary damages need not be proven, the plaintiff must show that he
is entitled to moral, temperate or compensatory damages before the court may consider the question of (1) When exemplary damages are awarded[.]
whether or not exemplary damages should be awarded. Petitioner Candida A. Santos
is solidarily liable with
In Tankeh v. Development Bank of the Philippines,49 we stated that: petitioner corporation

The purpose of exemplary damages is to serve as a deterrent to future and subsequent parties from the Petitioners argue that the finding of solidary liability was erroneous since no evidence was adduced to prove
commission of a similar offense. The case of People v. Ranteciting People v. Dalisay held that: that the transaction was also a personal undertaking of petitioner Santos. We disagree.

Also known as ‘punitive’ or ‘vindictive’ damages, exemplary or corrective damages are intended to serve as a In Heirs of Fe Tan Uy v. International Exchange Bank,52 we stated that:
deterrent to serious wrong doings, and as a vindication of undue sufferings and wanton invasion of the rights
of an injured or a punishment for those guilty of outrageous conduct. These terms are generally, but not
Basic is the rule in corporation law that a corporation is a juridical entity which is vested with a legal
always, used interchangeably. In common law, there is preference in the use of exemplary damages when the personality separate and distinct from those acting for and in its behalf and, in general, from the people
award is to account for injury to feelings and for the sense of indignity and humiliation suffered by a person as comprising it. Following this principle, obligations incurred by the corporation, acting through its directors,
a result of an injury that has been maliciously and wantonly inflicted, the theory being that there should be officers and employees, are its sole liabilities. A director, officer or employee of a corporation is generally not
compensation for the hurt caused by the highly reprehensible conduct of the defendant—associated with such held personally liable for obligations incurred by the corporation. Nevertheless, this legal fiction may be
circumstances as willfulness, wantonness, malice, gross negligence or recklessness, oppression, insult or fraud disregarded if it is used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an
or gross fraud—that intensifies the injury. The terms punitive or vindictive damages are often used to refer to existing obligation, the circumvention of statutes, or to confuse legitimate issues.
those species of damages that may be awarded against a person to punish him for his outrageous conduct. In
either case, these damages are intended in good measure to deter the wrongdoer and others like him from
similar conduct in the future.50 (Emphasis supplied; citations omitted) ....

The requisites for the award of exemplary damages are as follows: Before a director or officer of a corporation can be held personally liable for corporate obligations, however,
the following requisites must concur: (1) the complainant must allege in the complaint that the director or
officer assented to patently unlawful acts of the corporation, or that the officer was guilty of gross negligence
(1) they may be imposed by way of example in addition to compensatory damages, and only after or bad faith; and (2) the complainant must clearly and convincingly prove such unlawful acts, negligence or
the claimant's right to them has been established; bad faith.

(2) that they cannot be recovered as a matter of right, their determination depending upon the While it is true that the determination of the existence of any of the circumstances that would warrant the
amount of compensatory damages that may be awarded to the claimant; and piercing of the veil of corporate fiction is a question of fact which cannot be the subject of a petition for review

32
on certiorari under Rule 45, this Court can take cognizance of factual issues if the findings of the lower court reduced in view of Nacar v.
are not supported by the evidence on record or are based on a misapprehension of facts. 53 (Emphasis supplied) Gallery Frames58

As a general rule, directors, officers, or employees of a corporation cannot be held personally liable for In view, however, of the promulgation by this court of the decision dated August 13, 2013 in Nacar v. Gallery
obligations incurred by the corporation. However, this veil of corporate fiction may be pierced if complainant Frames,59 the rate of interest due on the obligation must be modified from 12% per annum to 6% per annum
is able to prove, as in this case, that (1) the officer is guilty of negligence or bad faith, and (2) such negligence from the time of demand.
or bad faith was clearly and convincingly proven.
Nacar effectively amended the guidelines stated in Eastern Shipping v. Court of Appeals, 60 and we have laid
Here, petitioner Santos entered into a contract with respondent in her capacity as the President and Chief down the following guidelines with regard to the rate of legal interest:
Executive Officer of Arco Pulp and Paper. She also issued the check in partial payment of petitioner
corporation’s obligations to respondent on behalf of petitioner Arco Pulp and Paper. This is clear on the face To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Linesare
of the check bearing the account name, "Arco Pulp & Paper, Co., Inc."54 Any obligation arising from these
accordingly modified to embody BSP-MB Circular No. 799, as follows:
acts would not, ordinarily, be petitioner Santos’ personal undertaking for which she would be solidarily liable
with petitioner Arco Pulp and Paper.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is
55 breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of
We find, however, that the corporate veil must be pierced. In Livesey v. Binswanger Philippines:
the Civil Code govern in determining the measure of recoverable damages.

Piercing the veil of corporate fiction is an equitable doctrine developed to address situations where the II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate
separate corporate personality of a corporation is abused or used for wrongful purposes. Under the doctrine, of interest, as well as the accrual thereof, is imposed, as follows:
the corporate existence may be disregarded where the entity is formed or used for non-legitimate purposes,
such as to evade a just and due obligation, or to justify a wrong, to shield or perpetrate fraud or to carry out
similar or inequitable considerations, other unjustifiable aims or intentions, in which case, the fiction will be 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
disregarded and the individuals composing it and the two corporations will be treated as identical. 56 (Emphasis forbearance of money, the interest due should be that which may have been stipulated in writing.
supplied) Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded.
In the absence of stipulation, the rate of interest shall be 6% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article
According to the Court of Appeals, petitioner Santos was solidarily liable with petitioner Arco Pulp and Paper,
1169 of the Civil Code.
stating that:

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


In the present case, We find bad faith on the part of the [petitioners] when they unjustifiably refused to honor the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
their undertaking in favor of the [respondent]. After the check in the amount of 1,487,766.68 issued by
annum. No interest, however, shall be adjudged on unliquidated claims or damages, except when or
[petitioner] Santos was dishonored for being drawn against a closed account, [petitioner] corporation denied until the demand can be established with reasonable certainty. Accordingly, where the demand is
any privity with [respondent]. These acts prompted the [respondent] to avail of the remedies provided by law
established with reasonable certainty, the interest shall begin to run from the time the claim is made
in order to protect his rights.57 judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run only from the
We agree with the Court of Appeals. Petitioner Santos cannot be allowed to hide behind the corporate date the judgment of the court is made (at which time the quantification of damages may be deemed
veil.1âwphi1 When petitioner Arco Pulp and Paper’s obligation to respondent became due and demandable, to have been reasonably ascertained). The actual base for the computation of legal interest shall, in
she not only issued an unfunded check but also contracted with a third party in an effort to shift petitioner any case, be on the amount finally adjudged.
Arco Pulp and Paper’s liability. She unjustifiably refused to honor petitioner corporation’s obligations to
respondent. These acts clearly amount to bad faith. In this instance, the corporate veil may be pierced, and 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate
petitioner Santos may be held solidarily liable with petitioner Arco Pulp and Paper. of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
The rate of interest due on equivalent to a forbearance of credit.
the obligation must be

33
And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not This is an appeal to this Court from a decision rendered by the Court of First Instance of Marinduque, wherein
be disturbed and shall continue to be implemented applying the rate of interest fixed therein. 61 (Emphasis the defendants-appellants are ordered to pay the plaintiff-appellee the sum of P550, with interest from the time
supplied; citations omitted.) of the filing of the complaint, and from an order of the same court denying a motion of the defendants-
appellants for the reconsideration of the judgment on the ground that they were deprived of their day in court.
According to these guidelines, the interest due on the obligation of ₱7,220,968.31 should now be at 6% per The action was originally instituted in the justice of the peace court of Sta. Cruz, Marinduque, and the same is
annum, computed from May 5, 2007, when respondent sent his letter of demand to petitioners. This interest based on an actionable document attached to the complaint, signed by the defendants-appellants on October 4,
shall continue to be due from the finality of this decision until its full satisfaction. 1948, and containing the following pertinent provisions:

"Na alang-alang sa aming mahigpit na pangangailangan ay kaming magasawa ay lumapit kay Ginang Martina
WHEREFORE, the petition is DENIED in part. The decision in CA-G.R. CV No. 95709 is AFFIRMED. Quizana, balo, at naninirahan sa Hupi, Sta. Cruz, Marinduque, at kami ay urautang sa kanya ng halagang
Limang Daan at Limang Pung Piso (P550.00), Salaping umiiral dito sa Filipinas na aming tinanggap na husto
at walang kulang sa kanya sa condicion na ang halagang aming inutang ay ibabalik o babayaran namin sa
Petitioners Arco Pulp & Paper Co., Inc. and Candida A. Santos are hereby ordered solidarily to pay respondent
kanya sa katapusan ng buwan ng Enero, taong 1949.
Dan T. Lim the amount of ₱7,220,968.31 with interest of 6% per annum at the time of demand until finality of
judgment and its full satisfaction, with moral damages in the amount of ₱50,000.00, exemplary damages in the "Pinagkasunduan din naming magasawa sa sakaling hindi kami makabayad sa taning na panahon ay aming
amount of ₱50,000.00, and attorney's fees in the amount of ₱50,000.00. ipifrenda o isasangla sa kanya ang isa naming palagay na niogan sa lugar nang Cororocho, barrio ng Balogo,
municipio ng Santa Cruz, lalawigang MaYinduque, Kapuluang Filipinas at ito ay nalilibot ng mga
SO ORDERED. kahanganang sumusunod:

"Sa Norte, Dalmacio Constantino; sa este, Catalina Reforma; sa sur, Dionisio Ariola; at sa Oeste, Reodoro
[G.R. No. L-6220. May 7, 1954.] Ricamora. na natatala sa gobierno sa ilalim ng Declaration No......... na nasa pangalan ko, Josefa Postrado."

MARTINA QUIZANA, Plaintiff-Appellee, v. GAUDENCIO REDUGERIO and JOSEFA The defendants-appellants admit the execution of the document, but claim, as special defense, that since the
POSTRADO, Defendants-Appellants. 31st of January, 1949, they offered to pledge the land specified in the agreement and transfer possession
thereof to the plaintiff-appellee, but that the latter refused said offer. Judgment having been rendered by the
Samson and Amante for Appellants. justice of the peace court of Sta. Cruz, the defendants-appellants appealed to the Court of First Instance. In that
court they reiterated the defenses that they presented in the justice of the peace court. The case was set for
Sabino Palomares for Appellee. hearing in the Court of First Instance on August 16, 1951. As early as July 30 counsel for the defendants-
appellants presented an "Urgent Motion for Continuance," alleging that on the day set for the hearing (August
16, 1951), they would appear in the hearing of two criminal cases previously set for trial before they received
SYLLABUS notice of the hearing on the aforesaid date. The motion was submitted on August 2, and was set for hearing on
August 4. This motion was not acted upon until the day of the trial. On the date of the trial the court denied the
defendants-appellants' motion for continuance, and after hearing the evidence for the plaintiff, in the absence
1. OBLIGATION AND CONTRACTS; ACTIONABLE DOCUMENT; ABSENCE OF LEGAL PROVISION of the defendants-appellants and their counsel, rendered the decision appealed from. Defendants-appellants,
GOVERNING IT. — An agreement whereby the obligors bound themselves to pay their indebtedness on a upon receiving copy of the decision, filed a motion for reconsideration, praying that the decision be set aside
day stipulated, and to deliver a mortgage on a property of theirs in case they failed to pay the debt on the day on the ground that sufficient time in advance was given to the court to pass upon their motion for continuance,
fixed, is valid and binding and effective upon the parties. It is not contrary to law or public morals or public but that the same was not passed upon. This motion for reconsideration was denied.
policy, and notwithstanding the absence of any legal provision at the time it was entered into governing it, as
the parties had freely and voluntarily entered into it, there is no ground or reason why it should not be given The main question raised in this appeal is the nature and effect of the actionable document mentioned above.
effect. The trial court evidently ignored the second part of defendants-appellants' written obligation, and enforced its
last first part, which fixed payment on January 31, 1949. The plaintiff-appellee, for his part, claims that this
2. ID.; FACULTATIVE OBLIGATION, ENFORCEABLE IMMEDIATELY. — The obligations entered into part of the written obligation is not binding upon him for the reason that he did not sign the agreement, and
by the parties is what is known as a facultative obligation. It is not provided by the old Spanish Civil Code; it that even if it were so, the defendants-appellants did not execute the document as agreed upon, but, according
is a new right which should be declared effective at once, in consonance with the provisions of article 2253 of to their answer, demanded the plaintiff-appellee to do so. This last contention of the plaintiff-appellee is due to
the Civil Code of the Philippines. a loose language in the answer filed with the Court of First Instance. But upon careful scrutiny, it will be seen
LABRADOR, J.: that what the defendants-appellants wanted to allege is that they themselves had offered to execute the
document of mortgage and deliver the same to the plaintiff-appellee, but that the latter refused to have it
executed unless, an additional security was furnished. Thus the answer reads:

34
5. That immediately after the due date of the loan Annex "A" of the complaint, the defendants made efforts to SECOND DIVISION
execute the necessary documents of mortgage and to deliver the same to the plaintiff, in compliance with the
terms and conditions thereof, but the plaintiff refused to execute the proper documents and insisted on another
G.R. No. L-48747 September 30, 1982
portion of defendants' as additional security for the said loan; (Italics ours.)

In our opinion it is not true that defendants-appellants had not offered to execute the deed of mortgage. ANGEL JEREOS, petitioner,
vs.
The other reasons adduced by the plaintiff-appellee for claiming that the agreement was not binding upon him HON. COURT OF APPEALS, SOLEDAD RODRIGUEZ, FELICIA R. REYES, JOSE RODRIGUEZ,
also deserves scant consideration. When plaintiff-appellee received the document, without any objection on his JESUS RODRIGUEZ, Jr., ROBERTO RODRIGUEZ, FRANCISCO RODRIGUEZ, TERESITA
part to the paragraph thereof in which the obligors offered to deliver a mortgage on a property of theirs in case RODRIGUEZ, MANUEL RODRIGUEZ, ANTONIO RODRIGUEZ, DOMINGO PARDORLA, Jr.,
they failed to pay the debt on the day stipulated, he thereby accepted the said condition of the agreement. The and NARCISO JARAVILLA, respondents.
acceptance by him of the written obligation without objection and protest, and the fact that he kept it and based
his action thereon, are concrete and positive proof that he agreed and consented to all its terms, including the
paragraph on the constitution of the mortgage.

The decisive question at issue, therefore, is whether the second part of the written obligation, in which the CONCEPCION JR., J.:
obligors agreed and promised to deliver a mortgage over the parcel of land described therein, upon their
failure, to pay the debt on a date specified in the preceding paragraph, is valid and binding and effective upon
Review on certiorari of the decision rendered by the respondent Court of Appeals in case CA-G.R. & No.
the plaintiff-appellee, the creditor. This second part of the obligation in question is what is known in law as a
60232-R, entitled: "Soledad Rodriguez, et al., plaintiffs-appellants, versus Narciso Jaravilla, et al., defendants;
facultative obligation, defined in article 1206 of Civil Code of the Philippines, which provides:
Narciso Jaravilla and Domingo Pardorla, Jr., defendants-appellants; Angel Jereos, defendant-appellee."
ART. 1206. When only one presentation has been agreed upon, but the obligor may render another in
substitution, the obligation is called facultative. This is a new provision and is not found in the old Spanish Private respondent, Domingo Pardorla, Jr. is the holder of a certificate of public convenience for the operation
Civil Code, which was the one in force at the time of the execution of the agreement. of a jeepney line in Iloilo City. On February 23, 1971, one of his jeepneys, driven by Narciso Jaravilla, hit
Judge Jesus S. Rodriguez and his wife, Soledad, while they were crossing Bonifacio Drive, Iloilo City, causing
There is nothing in the agreement which would argue against its enforcement. It is not contrary to law or injuries to them, which resulted in the death of Judge Rodriguez. Narciso Jaravilla was prosecuted and, on his
public morals or public policy, and notwithstanding the absence of any legal provision at the time it was plea of guilty, was convicted of the crime of Homicide and Physical Injuries through Reckless Imprudence and
entered into governing it, as the parties had freely and voluntarily entered into it, there is no ground or reason sentenced accordingly. Thereafter, Soledad Rodriguez and her children filed with the Court of First Instance of
why it should not be given effect. It is a new right which should be declared effective at once, in consonance Iloilo an action for damages against Narciso Jaravilla, Domingo Pardorla, Jr., and Angel Jereos, the actual
with the provisions of article 2253 of the Civil Code of the Philippines, thus: owner of the jeepney. 1
ART. 2253. * * * But if a right should be declared for the first time in this Code, it shall be effective at once,
even though the act or event which gives rise thereto may have been done or may have occurred under the Angel Jereos denied ownership of the jeepney in question and claimed that the plaintiffs have no cause of
prior legislation, provided said new right does not prejudice or impair any vested or acquired right, of the same action against him. 2
origin.
Domingo Pardorla, Jr., upon the other hand, claimed that he was only the franchise owner and has nothing to
In view of our favorable resolution on the important question raised by the defendants-appellants on this do with the actual operation and supervision of the passenger jeepney in question which is under the actual
appeal, it becomes unnecessary to consider the other question of procedure raised by them. control, operation and supervision of Angel Jereos who operates the same under the "kabit system." 3
For the foregoing considerations, the judgment appealed from is hereby reversed, and in accordance with the
provisions of the written obligation, the case is hereby remanded to the Court of First Instance, in which court After appropriate proceedings, the Court of First Instance of Iloilo rendered judgment on October 24, 1978,
the defendants-appellants shall present a duly executed deed of mortgage over the property described in the ordering Narciso Jaravilla and Doming Pardorla, Jr. to pay, jointly and severally, damages to the plaintiffs.
written obligation, with a period of payment to be agreed upon by the parties with the approval of the court. Angel Jereos was exonerated for the reason that the Court found no credible evidence to support plaintiffs' as
Without costs. well as defendant Pardorla's contention that defendant Jereos was the operator of the passenger jeepney in
question at the time of the accident which happened on February 3, 1971, defendant Jereos sold on November
19, 1970 the said passenger jeepney to Flaviana Tanoy as shown in the notarized deed of sale (Exh. 1-Jereos)
Republic of the Philippines who later transferred ownership thereof to defendant Pardorla, Jr., whose registration certificate thereof is
SUPREME COURT marked Exh. 3-B-Jereos was issued by the Land Transportation Commission on November 24, 1970. 4
Manila

35
Both plaintiffs and the defendants Narciso Jaravilla and Domingo Pardorla, Jr., appealed to the Court of on his jeep might be attached since there is a pending case against Mirasol. Now
Appeals. The plaintiffs contended that the trial court erred in not finding the defendant Angel Jereos jointly according to Angel Jereos he went to see Imelda Mirasol and asked her to execute a deed
and severally liable with the their defendants for the damages incurred by them. The defendants Narciso of sale in favor of Angel Jeroes. Now, when Angel Jereos came to me and asked if there
Jaravilla and Domingo Pardorla, Jr., however, did not file their brief. is still vacancy in my line I told him there is. He told me that his jeep will be transferred
under my line. I told him yes, prepare the papers. Now, after he has prepared the papers
On July 10, 1978, the Court of Appeals rendered a decision, modifying the decision of the trial court, and and he came back to me he told me he will just put it under the name of Flaviana Tanoy,
holding that Angel Jereos is jointly and severally liable with the other defendants for the damages awarded by his sister-in-law but I asked him that cannot be, what is your reason. According to him so
the trial court to the plaintiffs, for the reason that the rule stated in the case of Vargas vs. Langcay (6 SCRA that later on it can be hardly traced when something wrong with the case of Imelda
174) that it is the registered owner of a passenger vehicle who is jointly and severally liable with the driver for Mirasol comes, then I will just put it under the name of Flaviana Tanoy, my sister-in-law
damages incurred by passengers or third persons as a consequence of injuries or death sustained in the but the jeep is still mine that is why I am the one who is paying you.
operation of said motor vehicle, which is invoked by Angel Jereos, cannot be applied in this case since the sale
of the jeepney by Angel Jereos to his own sister-in-law, Flaviana Panoy, and its registration in the name of His testimony is corroborated by Adriano Saladero, an employee of Pardorla, Jr., to whom Angel Jereos pays
Domingo Pardorla, Jr., were simulated, fictitious transactions, parts and parcel of a strategem, to place Angel the monthly dues for the registration of his jeepneys under the certificate of public convenience issued to
Jereos beyond the reach of his creditors past or future. 5 Pardorla, Jr., and by Flora Jaravilla, the wife of the driver of the jeepney, who categorically stated that the
jeepney driven by her husband, Narciso Jaravilla, was owned by Angel Jereos to whom they pay a daily
Angel Jereos appeals from this decision. He contends that the respondent Court, of Appeals erred in holding "boundary" of P16.80; and that they park the said jeepney near the house of Angel Jereos after returning it at
night.
that the sale of the jeep to Flaviana Tanoy was simulated and fictitious and hence, it erred in finding him the
actual or real owner of the illfated jeepney.
Finally, the petitioner, citing the case of Vargas vs. Langcay, 7 contends that it is the registered owner of the
The respondents claim, however, that the issue of whether or not the sale of the vehicle in question to Flaviana vehicle, rather than the actual owner, who must be jointly and severally liable with the driver of the passenger
vehicle for damages incurred by third persons as a consequence of injuries or death sustained in the operation
Tanoy and 'hereafter, to Domingo Pardorla, Jr. is simulated or fictitious, is one of fact and may not be
reviewed by this Court on appeal. of said vehicle.

But, the petitioner counters that the findings of fact of the respondent appellate court is reviewable because the The contention is devoid of merit. While the Court therein ruled that the registered owner or operator of a
passenger vehicle is jointly and severally liable with the driver of the said vehicle for damages incurred by
said findings are contrary to those of the trial court which were based upon an evaluation of the credibility of
witnesses and should not have been disturbed by the appellate court, following the rule that trial courts are in a passengers or third persons as a consequence of injuries or death sustained in the operation of the said vehicle,
the Court did so to correct the erroneous findings of the Court of Appeals that the liability of the registered
better position to judge and evaluate the evidence presented in the course of the trial.
owner or operator of a passenger vehicle is merely subsidiary, as contemplated in Art. 103 of the Revised
Penal Code. In no case did the Court exempt the actual owner of the passenger vehicle from liability. On the
The established rule in this jurisdiction is that findings of fact of the Court of Appeals, when supported by contrary, it adhered to the rule followed in the cases of Erezo vs. Jepte, 8 Tamayo vs. Aquino, 9 and De Peralta
substantial evidence, is not reviewable on appeal by certiorari. Said findings of the appellate court are final and vs. Mangusang, 10 among others, that the registered owner or operator has the right to be indemnified by the
cannot be disturbed by the Supreme Court. However, where the findings of the Court of Appeals are contrary real or actual owner of the amount that he may be required to pay as damage for the injury caused.
to those of the trial court, a minute scrutiny by the Supreme Court is in order and resort to duly proven
evidence becomes necessary. 6
The right to be indemnified being recognized, recovery by the registered owner or operator may be made in
any form-either by a cross-claim, third-party complaint, or an independent action. The result is the same.
In the instant case, the Court of Appeals found that the trial court, in exempting Angel Jereos from liability,
"relied solely on the deed of sale (Exh. 1-Jereos)- ignoring altogether the testimony of Flora Jaravilla (wife of
WHEREFORE, the petition should be, as it is hereby, DENIED. With costs against the petitioner.
the driver) and of appellee Domingo Pardorla, Jr. " Hence, it had reason to exercise its appellate jurisdiction
over the lower courts and modify the findings of fact of the trial court.
SO ORDERED.
The respondent Domingo Pardorla, Jr., in whose line the jeepney in question was registered under the "kabit
system" declared that:

... this jeep was formerly attached to Imelda Mirasol then one of the units of Imelda
Mirasol met an accident which cost many lives. Now, Angel Jereos was afraid that later

36
G.R. No. 93073 December 21, 1992 Defendant Pinch (formely Worldwide) is hereby ordered to pay the plaintiff the sum of
P231,120.81 with interest at 12% per annum from July 1, 1981, until fully paid and the
REPUBLIC PLANTERS BANK, petitioner, sum of P331,870.97 with interest from March 28, 1981, until fully paid.
vs.
COURT OF APPEALS and FERMIN CANLAS, respondents. All the defendants are also ordered to pay, jointly and severally, the plaintiff the sum of
P100,000.00 as and for reasonable attorney's fee and the further sum equivalent to 3% per
annum of the respective principal sums from the dates above stated as penalty charge
until fully paid, plus one percent (1%) of the principal sums as service charge.

CAMPOS, JR., J.: With costs against the defendants.

This is an appeal by way of a Petition for Review on Certiorari from the decision * of the Court of Appeals in SO ORDERED. 1
CA G.R. CV No. 07302, entitled "Republic Planters Bank.Plaintiff-Appellee vs. Pinch Manufacturing
Corporation, et al., Defendants, and Fermin Canlas, Defendant-Appellant", which affirmed the decision ** in
Civil Case No. 82-5448 except that it completely absolved Fermin Canlas from liability under the promissory From the above decision only defendant Fermin Canlas appealed to the then Intermediate Court (now the
notes and reduced the award for damages and attorney's fees. The RTC decision, rendered on June 20, 1985, is Court Appeals). His contention was that inasmuch as he signed the promissory notes in his capacity as officer
quoted hereunder: of the defunct Worldwide Garment Manufacturing, Inc, he should not be held personally liable for such
authorized corporate acts that he performed. It is now the contention of the petitioner Republic Planters Bank
that having unconditionally signed the nine (9) promissory notes with Shozo Yamaguchi, jointly and severally,
WHEREFORE, premises considered, judgment is hereby rendered in favor of the defendant Fermin Canlas is solidarity liable with Shozo Yamaguchi on each of the nine notes.
plaintiff Republic Planters Bank, ordering defendant Pinch Manufacturing Corporation
(formerly Worldwide Garment Manufacturing, Inc.) and defendants Shozo Yamaguchi
and Fermin Canlas to pay, jointly and severally, the plaintiff bank the following sums We find merit in this appeal.
with interest thereon at 16% per annum from the dates indicated, to wit:
From the records, these facts are established: Defendant Shozo Yamaguchi and private respondent Fermin
Under the promissory note (Exhibit "A"), the sum of P300,000.00 with interest from Canlas were President/Chief Operating Officer and Treasurer respectively, of Worldwide Garment
January 29, 1981 until fully paid; under promissory note (Exhibit "B"), the sum of Manufacturing, Inc.. By virtue of Board Resolution No.1 dated August 1, 1979, defendant Shozo Yamaguchi
P40,000.00 with interest from November 27, 1980; under the promissory note (Exhibit and private respondent Fermin Canlas were authorized to apply for credit facilities with the petitioner Republic
"C"), the sum of P166,466.00 which interest from January 29, 1981; under the Planters Bank in the forms of export advances and letters of credit/trust receipts accommodations. Petitioner
promissory note (Exhibit "E"), the sum of P86,130.31 with interest from January 29, bank issued nine promissory notes, marked as Exhibits A to I inclusive, each of which were uniformly worded
1981; under the promissory note (Exhibit "G"), the sum of P12,703.70 with interest from in the following manner:
November 27, 1980; under the promissory note (Exhibit "H"), the sum of P281,875.91
with interest from January 29, 1981; and under the promissory note (Exhibit "I"), the sum ___________, after date, for value received, I/we, jointly and severaIly promise to pay to
of P200,000.00 with interest from January 29, 1981. the ORDER of the REPUBLIC PLANTERS BANK, at its office in Manila, Philippines,
the sum of ___________ PESOS(....) Philippine Currency...
Under the promissory note (Exhibit "D") defendants Pinch Manufacturing Corporation
(formerly named Worldwide Garment Manufacturing, Inc.), and Shozo Yamaguchi are On the right bottom margin of the promissory notes appeared the signatures of Shozo Yamaguchi and Fermin
ordered to pay jointly and severally, the plaintiff bank the sum of P367,000.00 with Canlas above their printed names with the phrase "and (in) his personal capacity" typewritten below. At the
interest of 16% per annum from January 29, 1980 until fully paid bottom of the promissory notes appeared: "Please credit proceeds of this note to:

Under the promissory note (Exhibit "F") defendant corporation Pinch (formerly ________ Savings Account ______XX Current Account
Worldwide) is ordered to pay the plaintiff bank the sum of P140,000.00 with interest at
16% per annum from November 27, 1980 until fully paid.
No. 1372-00257-6

of WORLDWIDE GARMENT MFG. CORP.

37
These entries were separated from the text of the notes with a bold line which ran horizontally across the In the case at bar, the solidary liability of private respondent Fermin Canlas is made clearer and certain,
pages. without reason for ambiguity, by the presence of the phrase "joint and several" as describing the unconditional
promise to pay to the order of Republic Planters Bank. A joint and several note is one in which the makers
bind themselves both jointly and individually to the payee so that all may be sued together for its enforcement,
In the promissory notes marked as Exhibits C, D and F, the name Worldwide Garment Manufacturing, Inc.
was apparently rubber stamped above the signatures of defendant and private respondent. or the creditor may select one or more as the object of the suit. 8 A joint and several obligation in common law
corresponds to a civil law solidary obligation; that is, one of several debtors bound in such wise that each is
liable for the entire amount, and not merely for his proportionate share. 9 By making a joint and several
On December 20, 1982, Worldwide Garment Manufacturing, Inc. noted to change its corporate name to Pinch promise to pay to the order of Republic Planters Bank, private respondent Fermin Canlas assumed the solidary
Manufacturing Corporation. liability of a debtor and the payee may choose to enforce the notes against him alone or jointly with
Yamaguchi and Pinch Manufacturing Corporation as solidary debtors.
On February 5, 1982, petitioner bank filed a complaint for the recovery of sums of money covered among
others, by the nine promissory notes with interest thereon, plus attorney's fees and penalty charges. The As to whether the interpolation of the phrase "and (in) his personal capacity" below the signatures of the
complainant was originally brought against Worldwide Garment Manufacturing, Inc. inter alia, but it was later makers in the notes will affect the liability of the makers, We do not find it necessary to resolve and decide,
amended to drop Worldwide Manufacturing, Inc. as defendant and substitute Pinch Manufacturing because it is immaterial and will not affect to the liability of private respondent Fermin Canlas as a joint and
Corporation it its place. Defendants Pinch Manufacturing Corporation and Shozo Yamaguchi did not file an several debtor of the notes. With or without the presence of said phrase, private respondent Fermin Canlas is
Amended Answer and failed to appear at the scheduled pre-trial conference despite due notice. Only private primarily liable as a co-maker of each of the notes and his liability is that of a solidary debtor.
respondent Fermin Canlas filed an Amended Answer wherein he, denied having issued the promissory notes in
question since according to him, he was not an officer of Pinch Manufacturing Corporation, but instead of
Worldwide Garment Manufacturing, Inc., and that when he issued said promissory notes in behalf of Finally, the respondent Court made a grave error in holding that an amendment in a corporation's Articles of
Worldwide Garment Manufacturing, Inc., the same were in blank, the typewritten entries not appearing therein Incorporation effecting a change of corporate name, in this case from Worldwide Garment manufacturing Inc
prior to the time he affixed his signature. to Pinch Manufacturing Corporation extinguished the personality of the original corporation.

In the mind of this Court, the only issue material to the resolution of this appeal is whether private respondent The corporation, upon such change in its name, is in no sense a new corporation, nor the successor of the
Fermin Canlas is solidarily liable with the other defendants, namely Pinch Manufacturing Corporation and original corporation. It is the same corporation with a different name, and its character is in no respect
Shozo Yamaguchi, on the nine promissory notes. changed.10

We hold that private respondent Fermin Canlas is solidarily liable on each of the promissory notes bearing his A change in the corporate name does not make a new corporation, and whether effected by special act or under
signature for the following reasons: a general law, has no affect on the identity of the corporation, or on its property, rights, or liabilities. 11

The promissory motes are negotiable instruments and must be governed by the Negotiable Instruments Law. 2 The corporation continues, as before, responsible in its new name for all debts or other liabilities which it had
previously contracted or incurred.12

Under the Negotiable lnstruments Law, persons who write their names on the face of promissory notes are
As a general rule, officers or directors under the old corporate name bear no personal liability for acts done or
makers and are liable as such.3 By signing the notes, the maker promises to pay to the order of the payee or
any holder 4according to the tenor thereof.5 Based on the above provisions of law, there is no denying that contracts entered into by officers of the corporation, if duly authorized. Inasmuch as such officers acted in
private respondent Fermin Canlas is one of the co-makers of the promissory notes. As such, he cannot escape their capacity as agent of the old corporation and the change of name meant only the continuation of the old
liability arising therefrom. juridical entity, the corporation bearing the same name is still bound by the acts of its agents if authorized by
the Board. Under the Negotiable Instruments Law, the liability of a person signing as an agent is specifically
provided for as follows:
Where an instrument containing the words "I promise to pay" is signed by two or more persons, they are
deemed to be jointly and severally liable thereon.6 An instrument which begins" with "I" ,We" , or "Either of
us" promise to, pay, when signed by two or more persons, makes them solidarily liable. 7 The fact that the Sec. 20. Liability of a person signing as agent and so forth. Where the instrument
singular pronoun is used indicates that the promise is individual as to each other; meaning that each of the co- contains or a person adds to his signature words indicating that he signs for or on behalf
signers is deemed to have made an independent singular promise to pay the notes in full. of a principal , or in a representative capacity, he is not liable on the instrument if he was
duly authorized; but the mere addition of words describing him as an agent, or as filling a
representative character, without disclosing his principal, does not exempt him from
personal liability.

38
Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is acting in a This Court has held that the rates under the Usury Law, as amended by Presidential Decree No. 116, are
representative capacity or the name of the third party for whom he might have acted as agent, the agent is applicable only to interests by way of compensation for the use or forebearance of money. Article 2209 of the
personally liable to take holder of the instrument and cannot be permitted to prove that he was merely acting as Civil Code, on the other hand, governs interests by way of damages. 15 This fine distinction was not taken into
agent of another and parol or extrinsic evidence is not admissible to avoid the agent's personal liability. 13 consideration by the appellate court, which instead made a general statement that the interest rate be at 12%
per annum.
On the private respondent's contention that the promissory notes were delivered to him in blank for his
signature, we rule otherwise. A careful examination of the notes in question shows that they are the stereotype Inasmuch as this Court had declared that increases in interest rates are not subject to any ceiling prescribed by
printed form of promissory notes generally used by commercial banking institutions to be signed by their the Usury Law, the appellate court erred in limiting the interest rates at 12% per annum. Central Bank Circular
clients in obtaining loans. Such printed notes are incomplete because there are blank spaces to be filled up on No. 905, Series of 1982 removed the Usury Law ceiling on interest rates. 16
material particulars such as payee's name, amount of the loan, rate of interest, date of issue and the maturity
date. The terms and conditions of the loan are printed on the note for the borrower-debtor 's perusal. An In the 1ight of the foregoing analysis and under the plain language of the statute and jurisprudence on the
incomplete instrument which has been delivered to the borrower for his signature is governed by Section 14 of matter, the decision of the respondent: Court of Appeals absolving private respondent Fermin Canlas is
the Negotiable Instruments Law which provides, in so far as relevant to this case, thus: REVERSED and SET ASIDE. Judgement is hereby rendered declaring private respondent Fermin Canlas
jointly and severally liable on all the nine promissory notes with the following sums and at 16% interest per
Sec. 14. Blanks: when may be filled. — Where the instrument is wanting in any material annum from the dates indicated, to wit:
particular, the person in possesion thereof has a prima facie authority to complete it by
filling up the blanks therein. ... In order, however, that any such instrument when Under the promissory note marked as exhibit A, the sum of P300,000.00 with interest from January 29, 1981
completed may be enforced against any person who became a party thereto prior to its until fully paid; under promissory note marked as Exhibit B, the sum of P40,000.00 with interest from
completion, it must be filled up strictly in accordance with the authority given and within November 27, 1980: under the promissory note denominated as Exhibit C, the amount of P166,466.00 with
a reasonable time... interest from January 29, 1981; under the promissory note denominated as Exhibit D, the amount of
P367,000.00 with interest from January 29, 1981 until fully paid; under the promissory note marked as Exhibit
Proof that the notes were signed in blank was only the self-serving testimony of private respondent Fermin E, the amount of P86,130.31 with interest from January 29, 1981; under the promissory note marked as
Canlas, as determined by the trial court, so that the trial court ''doubts the defendant (Canlas) signed in blank Exhibit F, the sum of P140,000.00 with interest from November 27, 1980 until fully paid; under the
the promissory notes". We chose to believe the bank's testimony that the notes were filled up before they were promissory note marked as Exhibit G, the amount of P12,703.70 with interest from November 27, 1980; the
given to private respondent Fermin Canlas and defendant Shozo Yamaguchi for their signatures as joint and promissory note marked as Exhibit H, the sum of P281,875.91 with interest from January 29, 1981; and the
several promissors. For signing the notes above their typewritten names, they bound themselves as promissory note marked as Exhibit I, the sum of P200,000.00 with interest on January 29, 1981.
unconditional makers. We take judicial notice of the customary procedure of commercial banks of requiring
their clientele to sign promissory notes prepared by the banks in printed form with blank spaces already filled The liabilities of defendants Pinch Manufacturing Corporation (formerly Worldwide Garment Manufacturing,
up as per agreed terms of the loan, leaving the borrowers-debtors to do nothing but read the terms and
Inc.) and Shozo Yamaguchi, for not having appealed from the decision of the trial court, shall be adjudged in
conditions therein printed and to sign as makers or co-makers. When the notes were given to private accordance with the judgment rendered by the Court a quo.
respondent Fermin Canlas for his signature, the notes were complete in the sense that the spaces for the
material particular had been filled up by the bank as per agreement. The notes were not incomplete
instruments; neither were they given to private respondent Fermin Canlas in blank as he claims. Thus, Section With respect to attorney's fees, and penalty and service charges, the private respondent Fermin Canlas is
14 of the NegotiabIe Instruments Law is not applicable. hereby held jointly and solidarity liable with defendants for the amounts found, by the Court a quo. With costs
against private respondent.
The ruling in case of Reformina vs. Tomol relied upon by the appellate court in reducing the interest rate on the
promissory notes from 16% to 12% per annum does not squarely apply to the instant petition. In the SO ORDERED.
abovecited case, the rate of 12% was applied to forebearances of money, goods or credit and court judgemets
thereon, only in the absence of any stipulation between the parties.

In the case at bar however , it was found by the trial court that the rate of interest is 9% per annum, which
interest rate the plaintiff may at any time without notice, raise within the limits allowed law. And so, as of
February 16, 1984 , the plaintiff had fixed the interest at 16% per annum.

39
HERMAN C. CRYSTAL, LAMBERTO G.R. No. 172428
C. CRYSTAL, ANN GEORGIA C. Sometime in August 1979, CCCC renewed a previous loan, this time from BPI, Cebu City branch (BPI-
SOLANTE, and DORIS C. Present:
MAGLASANG, as Heirs of Cebu City). The renewal was evidenced by a promissory note[7] dated 13 August 1979, signed by the spouses
Deceased SPOUSES RAYMUNDO QUISUMBING, J.,
in their personal capacities and as managing partners of CCCC. The promissory note states that the spouses are
I. CRYSTAL and DESAMPARADOS Chairperson,
C. CRYSTAL, CARPIO MORALES, jointly and severally liable with CCCC. It appears that before the original loan could be granted, BPI-
Petitioners, TINGA,
VELASCO, JR., and Cebu City required CCCC to put up a security.
BRION, JJ.
- versus -
Promulgated: However, CCCC had no real property to offer as security for the loan; hence, the spouses executed a real
November 28, 2008
BANK OF THE PHILIPPINE ISLANDS, estate mortgage[8] over their own real property on 22 September 1977.[9] On 3 October 1977, they executed
Respondent.
another real estate mortgage over the same lot in favor of BPI-Cebu City, to secure an additional loan
x----------------------------------------------------------------------------x
of P20,000.00 of CCCC.[10]

DECISION CCCC failed to pay its loans to both BPI-Butuan and BPI-Cebu City when they became due. CCCC, as well
as the spouses, failed to pay their obligations despite demands. Thus, BPI resorted to the foreclosure of
TINGA, J.: the chattel mortgage and the real estate mortgage. The foreclosure sale on the chattel mortgage was initially
stalled with the issuance of a restraining order against BPI. [11] However, following BPIs compliance with the
necessary requisites of extrajudicial foreclosure, the foreclosure sale on the chattel mortgage was
consummated on 28 February 1988, with the proceeds amounting to P240,000.00 applied to the loan from
BPI-Butuan which had then reached P707,393.90.[12] Meanwhile, on 7 July 1981, Insular Bank of Asia and
Before us is a Petition for Review[1] of the Decision[2] and Resolution[3] of the Court of Appeals dated 24
America (IBAA), through its Vice-President for Legal and Corporate Affairs, offered to buy the lot subject of
October 2005 and 31 March 2006, respectively, in CA G.R. CV No. 72886, which affirmed the 8 June the two (2) real estate mortgages and to pay directly the spouses indebtedness in exchange for the release of
the mortgages. BPI rejected IBAAs offer to pay.[13]
2001 decision of the Regional Trial Court, Branch 5, of Cebu City.[4]

BPI filed a complaint for sum of money against CCCC and the spouses before
The facts, as culled from the records, follow.
the Regional Trial Court of Butuan City (RTC Butuan), seeking to recover the deficiency of the loan of CCCC
On 28 March 1978, spouses Raymundo and Desamparados Crystal obtained a P300,000.00 loan in behalf
of the Cebu Contractors Consortium Co. (CCCC) from the Bank of the Philippine Islands-Butuan branch and the spouses with BPI-Butuan. The trial court ruled in favor of BPI. Pursuant to the decision, BPI instituted
(BPI-Butuan). The loan was secured by a chattel mortgage on heavy equipment and machinery of CCCC. On
extrajudicial foreclosure of the spouses mortgaged property. [14]
the same date, the spouses executed in favor of BPI-Butuan a Continuing Suretyship[5] where they bound
themselves as surety of CCCC in the aggregate principal sum of not exceeding P300,000.00.Thereafter, or
on 29 March 1979, Raymundo Crystal executed a promissory note[6] for the amount of P300,000.00, also in On 10 April 1985, the spouses filed an action for Injunction With Damages, With A Prayer For A
favor of BPI-Butuan.
Restraining Order and/ or Writ of Preliminary Injunction.[15] The spouses claimed that the foreclosure of the

real estate mortgages is illegal because BPI should have exhausted CCCCs properties first, stressing that they

are mere guarantors of the renewed loans. They also prayed that they be awarded moral and exemplary

40
damages, attorneys fees, litigation expenses and cost of suit. Subsequently, the spouses filed an amended

complaint,[16] additionally alleging that CCCC had opened and maintained a foreign currency savings account
The contention has no merit. Petitioners rely on IBAAs offer to purchase the mortgaged lot from them and to
(FCSA-197) with bpi, Makati branch (BPI-Makati), and that said FCSA was used as security
directly pay BPI out of the proceeds thereof to settle the loan.[20]BPIs refusal to agree to such payment scheme
for a P450,000.00 loan also extended by BPI-Makati. The P450,000.00 loan was allegedly paid, and thereafter
cannot extinguish the spouses loan obligation. In the first place, IBAA is not privy to the loan agreement or the
the spouses demanded the return of the FCSA passbook. BPI rejected the demand; thus, the spouses were
promissory note between the spouses and BPI. Contracts, after all, take effect only between the parties, their
unable to withdraw from the said account to pay for their other obligations to BPI.
successors in interest, heirs

The trial court dismissed the spouses complaint and ordered them to pay moral and exemplary damages and
and assigns.[21] Besides, under Art. 1236 of the Civil Code, the creditor is not bound to accept payment or
attorneys fees to BPI.[17] It ruled that since the spouses agreed to bind themselves jointly and severally, they
performance by a third person who has no interest in the fulfillment of the obligation, unless there is a
are solidarily liable for the loans; hence, BPI can validly foreclose the two real estate mortgages. Moreover,
stipulation to the contrary. We see no stipulation in the promissory note which states that a third person may
being guarantors-mortgagors, the spouses are not entitled to the benefit of exhaustion. Anent the FCSA, the
fulfill the spouses obligation. Thus, it is clear that the spouses alone bear responsibility for the same.
trial court found that CCCC originally had FCDU SA No. 197 with BPI, Dewey Boulevard branch, which was

transferred to BPI-Makati as FCDU SA 76/0035, at the request of Desamparados Crystal. FCDU SA 76/0035

was thus closed, but DesamparadosCrystal failed to surrender the passbook because it was lost. The transferred
In any event, the promissory note is the controlling repository of the obligation of the spouses. Under the
FCSA in BPI-Makati was the one used as security for CCCCs P450,000.00 loan from BPI-Makati. CCCC was
promissory note, the spouses defined the parameters of their obligation as follows:
no longer allowed to withdraw from FCDU SA No. 197 because it was already closed.
On or before June 29, 1980 on demand, for value received, I/we promise to pay, jointly
The spouses appealed the decision of the trial court to the Court of Appeals, but their appeal was and severally, to the BANK OF THE PHILIPPINE ISLANDS, at its office in the city of
Cebu Philippines, the sum of ONE HUNDRED TWENTY THOUSAND
dismissed.[18] The spouses moved for the reconsideration of the decision, but the Court of Appeals also denied PESOS (P120,0000.00), Philippine Currency, subject to periodic installments on the
principal as follows: P30,000.00 quarterly amortization starting September 28, 1979.
their motion for reconsideration.[19] Hence, the present petition.
x x x [22]

Before the Court, petitioners who are the heirs of the spouses argue that the failure of the spouses to pay the

BPI-Cebu City loan of P120,000.00 was due to BPIs illegal refusal to accept payment for the loan unless

the P300,000.00 loan from BPI-Butuan would also be paid. Consequently, in view of BPIs unjust refusal to A solidary obligation is one in which each of the debtors is liable for the entire obligation, and each of the

accept payment of the BPI-Cebu City loan, the loan obligation of the spouses was extinguished, petitioners creditors is entitled to demand the satisfaction of the whole obligation from any or all of the debtors. [23] A

contend. liability is solidary only when the obligation expressly

so states, when the law so provides or when the nature of the obligation so requires.[24] Thus, when the obligor

41
undertakes to be jointly and severally liable, it means that the obligation is solidary,[25] such as in this case. By seeking the foreclosure of the chattel and real estate mortgages, there is no lawful basis for award of damages

stating I/we promise to pay, jointly and severally, to the BANK OF THE PHILIPPINE ISLANDS, the in favor of the spouses.

spouses agreed to be sought out and be demanded payment from, by BPI. BPI did demand payment from
Neither is BPI entitled to moral damages. A juridical person is generally not entitled to moral damages
them, but they failed to comply with their obligation, prompting BPIs valid resort to the foreclosure of the
because, unlike a natural person, it cannot experience physical suffering or such sentiments as wounded
chattel mortgage and the real estate mortgages.
feelings, serious anxiety, mental anguish or moral shock. [32] The Court of Appeals found BPI as being famous

More importantly, the promissory note, wherein the spouses undertook to be solidarily liable for the principal and having gained its familiarity and respect not only in the Philippines but also in the whole world because of

loan, partakes the nature of a suretyship and therefore is an additional security for the loan. Thus we held in its good will and good reputation must protect and defend the same against any unwarranted suit such as the

one case that if solidary liability was instituted to guarantee a principal obligation, the law deems the contract case at bench.[33] In holding that BPI is entitled to moral damages, the Court of Appeals relied on the case

to be one of suretyship.[26] And while a contract of a surety is in essence secondary only to a valid principal of People v. Manero,[34] wherein the Court ruled that [i]t is only when a juridical person has a good reputation

obligation, the suretys liability to the creditor or promisee of the principal is said to be direct, primary, and that is debased, resulting in social humiliation, that moral damages may be awarded.[35]

absolute; in other words, the surety is directly and equally bound with the principal. The surety therefore
We do not agree with the Court of Appeals. A statement similar to that made by the Court in Manero can be
becomes liable for the debt or duty of another even if he possesses no direct or personal interest over the
found in the case of Mambulao Lumber Co. v. PNB, et al.,[36] thus:
obligations nor does he receive any benefit therefrom.[27]

Petitioners contend that the Court of Appeals erred in not granting their counterclaims, considering that they
x x x Obviously, an artificial person like herein appellant corporation cannot
suffered moral damages in view of the unjust refusal of BPI to accept the payment scheme proposed by IBAA experience physical sufferings, mental anguish, fright, serious anxiety, wounded feelings,
moral shock or social humiliation which are basis of moral damages. A corporation may
and the allegedly unjust and illegal foreclosure of the real estate mortgages on their property. [28] Conversely, have good reputation which, if besmirched may also be a ground for the award of
they argue that the Court of Appeals erred in awarding moral damages to BPI, which is a corporation, as well moral damages. x x x (Emphasis supplied)

as exemplary damages, attorneys fees and expenses of litigation. [29]

We do not agree. Moral damages are meant to compensate the claimant for any physical suffering, mental
Nevertheless, in the more recent cases of ABS-CBN Corp. v. Court of Appeals, et al.,[37] and Filipinas
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and
Broadcasting Network, Inc. v. Ago Medical and Educational Center-Bicol Christian College of Medicine
similar injuries unjustly caused.[30] Such damages, to be recoverable, must be the proximate result of a
(AMEC-BCCM),[38] the Court held that the statements in Manero and Mambulao were mere obiter
wrongful act or omission the factual basis for which is satisfactorily established by the aggrieved
dicta, implying that the award of moral damages to corporations is not a hard and fast rule. Indeed, while the
party.[31] There being no wrongful or unjust act on the part of BPI in demanding payment from them and in
Court may allow the grant of moral damages to corporations, it is not automatically granted; there must still be

42
G.R. No. L-7721 March 25, 1914
proof of the existence of the factual basis of the damage and its causal relation to the defendants acts. This is

so because moral damages, though incapable of pecuniary estimation, are in the category of an award designed INCHAUSTI & CO., plaintiff-appellant,
vs.
to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer.[39] GREGORIO YULO, defendant-appellee.

Hausserman, Cohn and Fisher for appellant.


The spouses complaint against BPI proved to be unfounded, but it does not automatically entitle BPI to moral
Rohde and Wright for appellee.
damages. Although the institution of a clearly unfounded civil suit can at times be a legal Bruce, Lawrence, Ross and Block, Amici Curiae, for Manuel, Francisco and Carmen Yulo.

ARELLANO, C.J.:
justification for an award of attorney's fees, such filing, however, has almost invariably been held not to be a
ground for an award of moral damages. The rationale for the rule is that the law could not have meant to This suit is brought for the recovery of a certain sum of money, the balance of a current account opened by the
impose a penalty on the right to litigate. Otherwise, moral damages must every time be awarded in favor of the firm of Inchausti & Company with Teodoro Yulo and after his death continued with his widow and children,
prevailing defendant against an unsuccessful plaintiff.[40] BPI may have been inconvenienced by the suit, but whose principal representative is Gregorio Yulo. Teodoro Yulo, a property owner of Iloilo, for the exploitation
we do not see how it could have possibly suffered besmirched reputation on account of the single suit and cultivation of his numerous haciendas in the province of Occidental Negros, had been borrowing money
from the firm of Inchausti & Company under specific conditions. On April 9, 1903; Teodoro Yulo died testate
alone. Hence, the award of moral damages should be deleted.
and for the execution of the provisions of his will he had appointed as administrators his widow and five of his
sons, Gregorio Yulo being one of the latter. He thus left a widow, Gregoria Regalado, who died on October
22d of the following year, 1904, there remaining of the marriage the following legitimate children: Pedro,
The awards of exemplary damages and attorneys fees, however, are proper. Exemplary damages, on the other
Francisco, Teodoro, Manuel, Gregorio, Mariano, Carmen, Concepcion, and Jose Yulo y Regalado. Of these
hand, are imposed by way of example or correction for the public good, when the party to a contract acts in a children Concepcion and Jose were minors, while Teodoro was mentally incompetent. At the death of their
predecessor in interest, Teodoro Yulo, his widow and children held the conjugal property in common and at
wanton, fraudulent, oppressive or malevolent manner, while attorneys fees are allowed when exemplary the death of this said widow, Gregoria Regalado, these children preserved the same relations under the name
of Hijos de T. Yulo continuing their current account with Inchausti & Company in the best and most
damages are awarded and when the party to a suit is compelled to incur expenses to protect his interest. [41] The harmonious reciprocity until said balance amounted to two hundred thousand pesos. In for the payment of the
disbursements of money which until that time it had been making in favor of its debtors, the Yulos.
spouses instituted their complaint against BPI notwithstanding the fact that they were the ones who failed to

pay their obligations. Consequently, BPI was forced to litigate and defend its interest. For these reasons, BPI is First. Gregorio Yulo, for himself and in representation of his brothers Pedro Francisco, Manuel, Mariano, and
Carmen, executed on June 26, 1908, a notarial document (Exhibit S) whereby all admitted their indebtedness
entitled to the awards of exemplary damages and attorneys fees. to Inchausti & Company in the sum of P203,221.27 and, in order to secure the same with interest thereon at 10
per cent per annum, they especially mortgaged an undivided six-ninth of their thirty-eight rural properties,
their remaining urban properties, lorchas, and family credits which were listed, obligating themselves to make
WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals dated 24 a forma inventory and to describe in due form all the said properties, as well as to cure all the defects which
might prevent the inscription of the said instrument in the registry of property and finally to extend by the
October 2005 and 31 March 2006, respectively, are hereby AFFIRMED, with the MODIFICATION that the necessary formalities the aforesaid mortgage over the remaining three-ninths part of all the property and rights
belonging to their other brothers, the incompetent Teodoro, and the minors Concepcion and Jose.
award of moral damages to Bank of the Philippine Islands is DELETED.

Second. On January 11, 1909, Gregorio Yulo in representation of Hijos de T. Yulo answered a letter of the
Costs against the petitioners. firm of Inchausti & Company in these terms: "With your favor of the 2d inst. we have received an abstract of
our current account with your important firm, closed on the 31st of last December, with which we desire to
express our entire conformity as also with the balance in your favor of P271,863.12." On July 17, 1909,
SO ORDERED. Inchausti & Company informed Hijos de T. Yulo of the reduction of the said balance to P253,445.42, with
which balance Hijos de T. Yulo expressed its conformity by means of a letter of the 19th of the same month
and year. Regarding this conformity a new document evidencing the mortgage credit was formalized.

43
Third. On August 12, 1909, Gregorio Yulo, for himself and in representation of his brother Manuel Yulo, and increase to eight, the first of P20,000, beginning on June 30, 1911, and the rest of P30,000 each on the same
in their own behalf Pedro Yulo, Francisco Yulo, Carmen Yulo, and Concepcion Yulo, the latter being of age at date of each successive year until the total obligation shall be finally and satisfactorily paid on June 30, 1919,"
the time, executed the notarial instrument (Exhibit X). Through this, the said persons, including Concepcion it being expressly agreed "that if any of the partial payments specified in the foregoing clause be not paid at its
Yulo ratified all the contents of the prior document of June 26, 1908, severally and jointly acknowledged and maturity, the amount of the said partial payment together with its interest shall bear interest at the rate of 15
admitted their indebtedness to Inchausti & Company for the net amount of two hundred fifty-three thousand per cent per annum from the date of said maturity, without the necessity of demand until its complete
four hundred forty-five pesos and forty-two centavos (P253,445.42) which they obligated themselves to pay, payment;" that "if during two consecutive years the partial payments agreed upon be not made, they shall lose
with interest at ten per cent per annum, in five installments at the rate of fifty thousand pesos (P50,000), except the right to make use of the period granted to them for the payment of the debt or the part thereof which
the last, this being fifty-three thousand four hundred forty-five pesos and forty-two centavos (P53,445.42), remains unpaid, and that Messrs. Inchausti & Company may consider the total obligation due and demandable,
beginning June 30, 1910, continuing successively on the 30th of each June until the last payment on June 30, and proceed to collect the same together with the interest for the delay above stipulated through all legal
1914. Among other clauses, they expressly stipulated the following: means." (4th clause.)

Fifth. The default in payment of any of the installments established in clause 3, or the Thus was it stipulated between Inchausti & Company and the said three Yulos, brothers and sisters — by way
noncompliance of any of the other obligations which by the present document and that of June 26, of compromise so that Inchausti & Company might, as it did, withdraw the claims pending in the special
1908, we, the Yulos, brothers and sisters, have assumed, will result in the maturity of all the said proceedings for the probate of the will of Don Teodoro Yulo and of the intestacy of Doña Gregoria Regalado
installments, and as a consequence thereof, if they so deem expedient Messrs. Inchausti & Company — stipulating expressly however in the sixth clause that "Inchausti & Company should include in their suit
may exercise at once all the rights and actions which to them appertain in order to obtain the brought in the Court of First Instance of Iloilo against Don Gregorio Yulo, his brother and joint co-obligee,
immediate and total payment of our debt, in the same manner that they would have so done at the Don Pedro Yulo, and they will procure by all legal means and in the least time possible a judgment in their
maturity of the said installments. favor against the said Don Gregorio and Don Pedro, sentencing the later to pay the total amount of the
obligation acknowledged by them in the aforementioned instrument of August 12, 1909; with the
Fifteenth. All the obligations which by this, as well as by the document of June 26, 1908, concern understanding that if they should deem it convenient for their interests, Don Francisco, Don Manuel, and Doña
us, will be understood as having been contradicted in solidum by all of us, the Yulos, brothers and Carmen Yulo may appoint an attorney to cooperate with the lawyers of Inchausti & Company in the
sisters. proceedings of the said case."

Sixteenth. It is also agreed that this instrument shall be confirmed and ratified in all its parts, within Eighth. Matters being thus on July 10, 1911, Gregorio Yulo answered the complaint and alleged as defenses;
the present week, by our brother Don Mariano Yulo y Regalado who resides in Bacolod, otherwise first, that an accumulation of interest had taken place and that compound interest was asked for the Philippine
it will not be binding on Messrs. Inchausti & Company who can make use of their rights to demand currency at par with Mexican; second, that in the instrument of August 21, 1909, two conditions were agreed
and obtain immediate payment of their credit without any further extension or delay, in accordance one of which ought to be approved by the Court of First Instance, and the other ratified and confirmed by the
with what we have agreed. other brother Mariano Yulo, neither of which was complied with; third , that with regard to the same debt
claims were presented before the commissioners in the special proceedings over the inheritances of Teodoro
Yulo and Gregoria Regalado, though later they were dismissed, pending the present suit; fourth and finally,
Fourth. This instrument was neither ratified nor confirmed by Mariano Yulo. that the instrument of August 12, 1909, was novated by that of May 12, 1911, executed by Manuel, Francisco
and Carmen Yulo.
Fifth. The Yulos, brothers and sisters, who executed the preceding instrument, did not pay the first installment
of the obligation. Ninth. The Court of First Instance of Iloilo decided the case "in favor of the defendant without prejudice to the
plaintiff's bringing within the proper time another suit for his proportional part of the joint debt, and that the
Sixth. Therefore, on March 27, 1911, Inchausti & Company brought an ordinary action in the Court of First plaintiff pay the costs." (B. of E., 21.)
Instance of Iloilo, against Gregorio Yulo for the payment of the said balance due of two hundred fifty-three
thousand, four hundred forty-five pesos and forty-two centavos P253,445.42) with interest at ten per cent per The plaintiff appealed from this judgment by bill of exceptions and before this court made the following
annum, on that date aggregating forty-two thousand, nine hundred forty-four pesos and seventy-six centavos assignment of errors:
(P42,944.76)
I. That the court erred in considering the contract of May 12, 1911, as constituting a novation of that of August
Seventh. But, on May 12, 1911, Francisco, Manuel, and Carmen Yulo y Regalado executed in favor Inchausti 12, 1909.
& Company another notarial instrument in recognition of the debt and obligation of payment in the following
terms: "First, the debt is reduce for them to two hundred twenty-five thousand pesos (P225,000); second, the
interest is likewise reduced for them to 6 percent per annum, from March 15, 1911; third, the installments are II. That the court erred in rendering judgment in favor of the defendant.

44
III. And that the court erred n denying the motion for a new trial. With respect to the third, there can also be no doubt that the contract of May 12, 1911, does not constitute a
novation of the former one of August 12, 1909, with respect to the other debtors who executed this contract, or
"No one denies in this case," says the trial judge, "that the estate of Teodoro Yulo or his heirs owe Inchausti & more concretely, with respect to the defendant Gregorio Yulo: First, because "in order that an obligation may
be extinguished by another which substitutes it, it is necessary that it should be so expressly declared or that
Company an amount of money, the object of this action, namely, P253,445.42" (B. of E. 18). "The fact is
admitted," says the defendant, "that the plaintiff has not collected the debt, and that the same is owing" (Brief, the old and the new be incompatible in all points" (Civil Code, article 1204); and the instrument of May 12,
33). "In the arguments of the attorneys," the judge goes on, "it was really admitted that the plaintiff had a right 1911, far from expressly declaring that the obligation of the three who executed it substitutes the former
to bring an action against Gregorio Yulo, as one of the conjoint and solidary obligors in the contract of August signed by Gregorio Yulo and the other debtors, expressly and clearly stated that the said obligation of
12, 1909; but the defendant says that the plaintiff has no right to sue him alone, since after the present suit was Gregorio Yulo to pay the two hundred and fifty-three thousand and odd pesos sued for exists, stipulating that
brought, the plaintiff entered into a compromise with the other conjoint and solidary debtors, the result being the suit must continue its course and, if necessary, these three parties who executed the contract of May 12,
the new contract of May 12, 1911, by virtue of which the payments were extended, the same constituting a 1911, would cooperate in order that the action against Gregorio Yulo might prosper (7th point in the statement
novation of the contract which gave him the same privileges that were given his conjoint and solidary of facts), with other undertakings concerning the execution of the judgment which might be rendered against
codebtors. This (the judge concludes) is the only question brought up by the parties." (B. of E., 19.) Gregorio Yulo in this same suit. "It is always necessary to state that it is the intention of the contracting parties
to extinguish the former obligation by the new one" (Judgment in cassation, July 8, 1909). There exist no
incompatibility between the old and the new obligation as will be demonstrated in the resolution of the last
And this is the only one which the Supreme Court has to solve by virtue of the assignments of errors alleged. point, and for the present we will merely reiterate the legal doctrine that an obligation to pay a sum of money
Consequently, there is no need of saying anything regarding the first three defenses of the answer, nor is not novated in a new instrument wherein the old is ratified, by changing only the term of payment and
regarding the lack of the signature of Mariano Yulo ratifying and confirming the instrument of August 12, adding other obligations not incompatible with the old one. (Judgments in cassation of June 28, 1904 and of
1909, upon which the appellee still insists in his brief for this appeal; although it will not be superfluous to July 8, 1909.)
state the doctrine that a condition, such as is contained in the sixteenth clause of the said contract (third point
in the statement of facts), is by no means of suspensive but a resolutory condition; the effect of the failure of
compliance with the said clause, that is to say, the lack of the ratification and confirmance by Mariano Yulo With respect to the last point, the following must be borne in mind:
being not to suspend but to resolve the contract, leaving Inchausti & Company at liberty, as stipulated, "to
make use of its rights to demand and obtain the immediate payment of its credit." Facts. — First. Of the nine children of T. Yulo, six executed the mortgage of August 12, 1909, namely,
Gregorio, Pedro, Francisco, Manuel, Carmen, and Concepcion, admitting a debt of P253,445.42 at 10 per cent
The only question indicated in the decision of the inferior court involves, however, these others: First, whether per annum and mortgaging six-ninths of their hereditary properties. Second. Of those six children, Francisco,
the plaintiff can sue Gregorio Yulo alone, there being other obligors; second, if so, whether it lost this right by Manuel and Carmen executed the instrument of May 12, 1911, wherein was obtained a reduction of the capital
the fact of its having agreed with the other obligors in the reduction of the debt, the proroguing of the to 225,000 pesos and of the interest to 6 per cent from the 15th of March of the same year of 1911. Third. The
obligation and the extension of the time for payment, in accordance with the instrument of May 12, 1911; other children of T. Yulo named Mariano, Teodoro, and Jose have not taken part in these instruments and have
third, whether this contract with the said three obligors constitutes a novation of that of August 12, 1909, not mortgaged their hereditary portions. Fourth. By the first instrument the maturity of the first installment was
entered into with the six debtors who assumed the payment of two hundred fifty-three thousand and some odd June 30, 1910, whereas by the second instrument, Francisco, Manuel, and Carmen had in their favor as the
pesos, the subject matter of the suit; and fourth, if not so, whether it does have any effect at all in the action maturity of the first installment of their debt, June 30, 1912, and Fifth, on March 27, 1911, the action against
brought, and in this present suit. Gregorio Yulo was already filed and judgment was pronounced on December 22, 1911, when the whole debt
was not yet due nor even the first installment of the same respective the three aforesaid debtors, Francisco,
Manuel, and Carmen.
With respect to the first it cannot be doubted that, the debtors having obligated themselves in solidum, the
creditor can bring its action in toto against any one of them, inasmuch as this was surely its purpose in
demanding that the obligation contracted in its favor should be solidary having in mind the principle of law In jure it would follow that by sentencing Gregorio Yulo to pay 253,445 pesos and 42 centavos of August 12,
1909, this debtor, if he should pay all this sum, could not recover from his joint debtors Francisco, Manuel,
that, "when the obligation is constituted as a conjoint and solidary obligation each one of the debtors is bound
to perform in full the undertaking which is the subject matter of such obligation." (Civil Code, articles 1137 and Carmen their proportional parts of the P253,445.42 which he had paid, inasmuch as the three were not
obligated by virtue of the instrument of May 12, 1911, to pay only 225,000 pesos, thus constituting a violation
and 1144.)
of Gregorio Yulo's right under such hypothesis, of being reimbursed for the sum paid by him, with the interest
of the amounts advanced at the rate of one-sixth part from each of his five codebtors. (Civ. Code, article 1145,
And even though the creditor may have stipulated with some of the solidary debtors diverse installments and par. 2). This result would have been a ponderous obstacle against the prospering of the suit as it had been
conditions, as in this case, Inchausti & Company did with its debtors Manuel, Francisco, and Carmen Yulo brought. It would have been very just then to have absolved the solidary debtor who having to pay the debt in
through the instrument of May 12, 1911, this does not lead to the conclusion that the solidarity stipulated in the its entirety would not be able to demand contribution from his codebtors in order that they might reimburse
instrument of August 12, 1909 is broken, as we already know the law provides that "solidarity may exist even him pro rata for the amount advanced for them by him. But such hypothesis must be put out of consideration
though the debtors are not bound in the same manner and for the same periods and under the same conditions." by reason of the fact that occurred during the pendency of the action, which fact the judge states in his
(Ibid, article 1140.) Whereby the second point is resolved. decision. "In this contract of May last," he says, "the amount of the debt was reduced to P225,000 and the

45
attorney of the plaintiff admits in his plea that Gregorio Yulo has a right to the benefit of this reduction." (B. of demand the immediate payment of the whole debt upon the expiration of the stipulated term of one week
E., 19.) This is a fact which this Supreme Court must hold as firmly established, considering that the plaintiff allowed to secure from Mariano Yulo the ratification and confirmation of the contract of August 12, 1909.
in its brief, on page 27, corroborates the same in these words: "What effect," it says, "could this contract have
over the rights and obligations of the defendant Gregorio Yulo with respect to the plaintiff company? In the
Neither could he invoke a like exception for the shares of his solidary codebtors Pedro and Concepcion Yulo,
first place, we are the first to realize that it benefits him with respect to the reduction of the amount of the debt. they being in identical condition as he.
The obligation being solidary, the remission of any part of the debt made by a creditor in favor of one or more
of the solidary debtors necessarily benefits the others, and therefore there can be no doubt that, in accordance
with the provision of article 1143 of the Civil Code, the defendant has the right to enjoy the benefits of the But as regards Francisco, Manuel, and Carmen Yulo, none of the installments payable under their obligation,
partial remission of the debt granted by the creditor." contracted later, had as yet matured. The first payment, as already stated, was to mature on June 30, 1912. This
exception or personal defense of Francisco, Manuel, and Carmen Yulo "as to the part of the debt for which
they were responsible" can be sent up by Gregorio Yulo as a partial defense to the action. The part of the debt
Wherefore we hold that although the contract of May 12, 1911, has not novated that of August 12, 1909, it has for which these three are responsible is three-sixths of P225,000 or P112,500, so that Gregorio Yulo may
affected that contract and the outcome of the suit brought against Gregorio Yulo alone for the sum of claim that, even acknowledging that the debt for which he is liable is P225,000, nevertheless not all of it can
P253,445.42; and in consequence thereof, the amount stated in the contract of August 12, 1909, cannot be now be demanded of him, for that part of it which pertained to his codebtors is not yet due, a state of affairs
recovered but only that stated in the contract of May 12, 1911, by virtue of the remission granted to the three which not only prevents any action against the persons who were granted the term which has not yet matured,
of the solidary debtors in this instrument, in conformity with what is provided in article 1143 of the Civil but also against the other solidary debtors who being ordered to pay could not now sue for a contribution, and
Code, cited by the creditor itself. for this reason the action will be only as to the P112,500.

If the efficacy of the later instrument over the former touching the amount of the debt had been recognized, Against the propriety and legality of a judgment against Gregorio Yulo for this sum, to wit, the three-sixths
should such efficacy not likewise be recognized concerning the maturity of the same? If Francisco, Manuel, part of the debt which forms the subject matter of the suit, we do not think that there was any reason or
and Carmen had been included in the suit, they could have alleged the defense of the nonmaturity of the argument offered which sustains an opinion that for the present it is not proper to order him to pay all or part
installments since the first installment did not mature until June 30, 1912, and without the least doubt the
of the debt, the object of the action.
defense would have prospered, and the three would have been absolved from the suit. Cannot this defense of
the prematurity of the action, which is implied in the last special defense set up in the answer of the defendant
Gregorio Yulo be made available to him in this proceeding? It has been said in the brief of the appellee that the prematurity of the action is one of the defenses derived
from the nature of the obligation, according to the opinion of the commentator of the Civil Code, Mucius
Scaevola, and consequently the defendant Gregorio Yulo may make use of it in accordance with article 1148
The following commentary on article 1140 of the Civil Code sufficiently answers this question: ". . . . Before of the said Code. It may be so and yet, taken in that light, the effect would not be different from that already
the performance of the condition, or before the execution of a term which affects one debtor alone proceedings
stated in this decision; Gregorio Yulo could not be freed from making any payment whatever but only from
may be had against him or against any of the others for the remainder which may be already demandable but the payment of that part of the debt which corresponds to his codebtors Francisco, Manuel, and Carmen. The
the conditional obligation or that which has not yet matured cannot be demanded from any one of them.
same author, considering the case of the opposing contention of two solidary debtors as to one of whom the
Article 1148 confirms the rule which we now enunciate inasmuch as in case the total claim is made by one obligation is pure and unconditional and as to the other it is conditional and is not yet demandable, and
creditor, which we believe improper if directed against the debtor affected by the condition or the term, the comparing the disadvantages which must flow from holding that the obligation is demandable with these
latter can make use of such exceptions as are peculiarly personal to his own obligation; and if against the other which must follow if the contrary view is adopted, favors this solution of the problem:
debtors, they might make use of those exceptions, even though they are personal to the other, inasmuch as they
alleged they are personal to the other, inasmuch as they alleged them in connection with that part of the
responsibility attaching in a special manner to the other." (8 Manresa, Sp. Civil Code, 196.) There is a middle ground, (he says), from which we can safely set out, to wit, that the creditor may
of course, demand the payment of his credit against the debtor not favored by any condition or
extension of time." And further on, he decides the question as to whether the whole debt may be
Article 1148 of the Civil Code. — "The solidary debtor may utilize against the claims of the creditor of the recovered or only that part unconditionally owing or which has already matured, saying, "Without
defenses arising from the nature of the obligation and those which are personal to him. Those personally failing to proceed with juridical rigor, but without falling into extravagances or monstrosities, we
pertaining to the others may be employed by him only with regard to the share of the debt for which the latter believe that the solution of the difficulty is perfectly possible. How? By limiting the right of the
may be liable."
creditor to the recovery of the amount owed by the debtors bound unconditionally or as to whom the
obligation has matured, and leaving in suspense the right to demand the payment of the remainder
Gregorio Yulo cannot allege as a defense to the action that it is premature. When the suit was brought on until the expiration of the term of the fulfillment of the condition. But what then is the effect of
March 27, 1911, the first installment of the obligation had already matured of June 30, 1910, and with the solidarity? How can this restriction of right be reconciled with the duty imposed upon each one of
maturity of this installment, the first not having been paid, the whole debt had become mature, according to the the debtors to answer for the whole obligation? Simply this, by recognizing in the creditor the
express agreement of the parties, independently of the resolutory condition which gave the creditor the right to power, upon the performance of the condition or the expiration of the term of claiming from any

46
one or all of the debtors that part of the obligation affected by those conditions. (Scaevola, Civil But, as it cannot be enforced against the defendant except as to the three-sixths part which is what he can
Code, 19, 800 and 801.) recover from his joint codebtors Francisco, Manuel, and Carmen, at present, judgment can be rendered only as
to the P112,500.
It has been said also by the trial judge in his decision that if a judgment be entered against Gregorio Yulo for
the whole debt of P253,445.42, he cannot recover from Francisco, Manuel, and Carmen Yulo that part of the We therefore sentence the defendant Gregorio Yulo to pay the plaintiff Inchausti & Company P112,500, with
amount which is owed by them because they are obliged to pay only 225,000 pesos and this is eight the interest stipulated in the instrument of May 12, 1911, from March 15, 1911, and the legal interest on this
installments none of which was due. For this reason he was of the opinion that he (Gregorio Yulo) cannot be interest due, from the time that it was claimed judicially in accordance with article 1109 of the Civil Code,
obliged to pay his part of the debt before the contract of May 12, 1911, may be enforced, and "consequently he without any special finding as to costs. The judgment appealed from is reversed. So ordered.
decided the case in favor of the defendant, without prejudice to the plaintiff proceeding in due time against
him for his proportional part of the joint debt." (B. of E., 21 and 22.) Carson, Trent, and Araullo, JJ., concur.

But in the first place, taking into consideration the conformity of the plaintiff and the provision of article 1143
of the Civil Code, it is no longer possible to sentence the defendant to pay the P253,445.42 of the instrument
Separate Opinions
of August 12, 1909, but, if anything, the 225,000 of the instrument of May 12, 1911.

MORELAND, J., dissenting:


In the second place, neither is it possible to curtail the defendant's right of recovery from the signers of the
instrument of May 12, 1911, for he was justly exonerated from the payment of that part of the debt
corresponding to them by reason of there having been upheld in his favor the exception of an unmatured In my judgment the action must be dismissed, as it was brought prematurely. The defendant was entitled to all
installment which pertains to them. of the benefits of the contract of May 12, 1911, between the plaintiff and Francisco, Manuel, and Carmen. One
of these provisions was that the first payment need not be made until June 30, 1912. The action was
commenced on the 27t of March, 1911, and although this date was prior to the date of the second contract, that
In the third place, it does not seem just, Mucius Scaevola considers it "absurd," that, there being a debtor who is, the contract with Francisco, Manuel, and Carmen, said contract was executed before the trial of the action,
is unconditionally obligated as to when the debt has matured, the creditor should be forced to await the
and some of the beneficial provisions therein contained were to produce their effects from March 15, 1911, a
realization of the condition (or the expiration of the term.) Not only is there no reason for this, as stated by the date prior to the commencement of the action. At the time of the trial the defendant could, in my judgment,
author, but the court would even fail to consider the special law of the contract, neither repealed nor novated, have interposed, under the allegations of the amended answer, any of the defenses which could have been
which cannot be omitted without violating article 1091 of the Civil Code according to which "the obligations made use of by Francisco, Manuel, or Carmen if they had been the defendant. That being the case, nothing was
arising from contracts have the force of law between the contracting parties and must be complied with in due the plaintiff at the time it sued and accordingly its action must be dismissed with costs.
accordance with the tenor of the same." Certain it is that the trial court, in holding that this action was
premature but might be brought in the time, regarded the contract of August 12, 1909, as having been
expressly novated; but it is absolutely impossible in law to sustain such supposed novation, in accordance with For these reasons I vote to affirm.
the legal principles already stated, and nevertheless the obligation of the contract of May 12, 1911, must
likewise be complied with in accordance with its tenor, which is contrary in all respects to the supposed REPUBLIC GLASS CORPORATION G.R. No. 144413
novation, by obliging the parties who signed the contract to carry on the suit brought against Gregorio Yulo. and GERVEL, INC.,
The contract of May 12, 1911, has affected the action and the suit, to the extent that Gregorio Yulo has been Petitioners, Present:
able to make in his favor the defense of remission of part of the debt, thanks to the provision of article 1148, Davide, Jr., C.J., Chairman,
because it is a defense derived from the nature of the obligation, so that although the said defendant was not Quisumbing,
party to the contract in question, yet because of the principle of solidarity he was benefited by it. Ynares-Santiago, - versus - Carpio, and
Azcuna, JJ.
The defendant Gregorio Yulo cannot be ordered to pay the P253,445.42 claimed from him in the suit here,
because he has been benefited by the remission made by the plaintiff to three of his codebtors, many times
named above. Promulgated:
LAWRENCE C. QUA,
Respondent. July 30, 2004
Consequently, the debt is reduced to 225,000 pesos.
CARPIO, J.:

47
to Metrobank and PDCP. Qua refused to reimburse the amount to RGC and Gervel. Subsequently, RGC and
Gervel furnished Qua with notices of foreclosure of Quas pledged shares.
The Case Qua filed a complaint for injunction and damages with application for a temporary restraining order, docketed
as Civil Case No. 88-2643 (Foreclosure Case No. 88-2643), with RTC-Branch 63 to prevent RGC and Gervel
from foreclosing the pledged shares. Although it issued a temporary restraining order on 9 December 1988,
Before the Court is a petition for review[1] assailing the 6 March 2000 Decision[2] and the 26 July 2000 RTC-Branch 63 denied on 2 January 1989 Quas Urgent Petition to Suspend Foreclosure Sale. RGC and Gervel
Resolution of the Court of Appeals in CA-G.R. CV No. 54737. The Court of Appeals set aside the Order[3] of eventually foreclosed all the pledged shares of stock at public auction. Thus, Quas application for the issuance
3 May 1996 of the Regional Trial Court of Makati, Branch 63 (RTC-Branch 63), in Civil Case No. 88-2643 of a preliminary injunction became moot.[12]
and reinstated the Decision[4] of 12 January 1996 in respondents favor.
The Facts Trial in Foreclosure Case No. 88-2643 ensued. RGC and Gervel offered Quas Motion to Dismiss[13] in
Collection Case No. 8364 as basis for the foreclosure of Quas pledged shares. Quas Motion to Dismiss states:

8. The foregoing facts show that the payment of defendants Republic Glass Corporation and
Petitioners Republic Glass Corporation (RGC) and Gervel, Inc. (Gervel) together with respondent Lawrence Gervel, Inc. was for the entire obligation covered by the Continuing Surety Agreements which were
C. Qua (Qua) were stockholders of Ladtek, Inc. (Ladtek). Ladtek obtained loans from Metropolitan Bank and Annexes B and C of the Complaint, and that the same naturally redound[ed] to the benefit of defendant Qua
Trust Company (Metrobank)[5] and Private Development Corporation of the Philippines[6] (PDCP) with RGC, herein, as provided for by law, specifically Article 1217 of the Civil Code, which states that:
Gervel and Qua as sureties. Among themselves, RGC, Gervel and Qua executed Agreements for Contribution,
Indemnity and Pledge of Shares of Stocks (Agreements).[7] xxx

The Agreements all state that in case of default in the payment of Ladteks loans, the parties would reimburse 10. It is very clear that the payment of defendants Republic Glass Corporation and Gervel, Inc. was much
each other the proportionate share of any sum that any might pay to the creditors. [8] Thus, a common provision more than the amount stipulated in the Continuing Surety Agreement which is the basis for the action against
appears in the Agreements: them and defendant Qua, which was just SIX MILLION TWO HUNDRED [THOUSAND] PESOS
(P6,200,000.00), hence, logically the said alleged obligation must now be considered as fully paid and
RGC, GERVEL and QUA each covenant that each will respectively reimburse the party made to pay the extinguished.
Lenders to the extent and subject to the limitations set forth herein, all sums of money which the party made to
pay the Lenders shall pay or become liable to pay by reason of any of the foregoing, and will make such RGC and Gervel likewise offered as evidence in Foreclosure Case No. 88-2643 the Order dismissing
payments within five (5) days from the date that the party made to pay the Lenders gives written notice to the Collection Case No. 8364,[14] which RTC-Branch 149 subsequently reversed on Metrobanks motion for
parties hereto that it shall have become liable therefor and has advised the Lenders of its willingness to pay reconsideration. Thus, RTC-Branch 149 reinstated Collection Case No. 8364 against Qua.
whether or not it shall have already paid out such sum or any part thereof to the Lenders or to the persons
entitled thereto. (Emphasis supplied) On 12 January 1996, RTC-Branch 63 rendered a Decision in Foreclosure Case No. 88-2643 (12 January 1996
Decision) ordering RGC and Gervel to return the foreclosed shares of stock to Qua. The dispositive portion of
the 12 January 1996 Decision reads:
Under the same Agreements, Qua pledged 1,892,360 common shares of stock of General Milling Corporation
(GMC) in favor of RGC and Gervel. The pledged shares of stock served as security for the payment of any WHEREFORE, premises considered, this Court hereby renders judgment ordering defendants jointly and
sum which RGC and Gervel may be held liable under the Agreements. severally liable to return to plaintiff the 1,892,360 shares of common stock of General Milling Corporation
which they foreclosed on December 9, 1988, or should the return of these shares be no longer possible then to
Ladtek defaulted on its loan obligations to Metrobank and PDCP. Hence, Metrobank filed a collection case pay to plaintiff the amount of P3,860,646.00 with interest at 6% per annum from December 9, 1988 until fully
against Ladtek, RGC, Gervel and Qua docketed as Civil Case No. 8364 (Collection Case No. 8364) which was paid and to pay plaintiff P100,000.00 as and for attorneys fees. The costs will be for defendants account.
raffled to the Regional Trial Court of Makati, Branch 149 (RTC-Branch 149). During the pendency of
Collection Case No. 8364,RGC and Gervel paid Metrobank P7 million. Later, Metrobank executed a waiver SO ORDERED.[15]
and quitclaim dated 7 September 1988 in favor of RGC and Gervel. Based on this waiver and
quitclaim,[9] Metrobank, RGC and Gervel filed on 16 September 1988 a joint motion to dismiss Collection
Case No. 8364 against RGC and Gervel. Accordingly, RTC-Branch 149 dismissed the case against RGC and
Gervel, leaving Ladtek and Qua as defendants.[10] However, on RGC and Gervels Motion for Reconsideration, RTC-Branch 63 issued its Order of 3 May 1996
(3 May 1996 Order) reconsidering and setting aside the 12 January 1996 Decision. The 3 May 1996 Order
In a letter dated 7 November 1988, RGC and Gervels counsel, Atty. Antonio C. Pastelero, demanded that Qua states:
pay P3,860,646, or 42.22% of P8,730,543.55,[11] as reimbursement of the total amount RGC and Gervel paid

48
After a thorough review of the records of the case, and an evaluation of the evidence adduced by the parties as WHEREFORE, premises considered, the decision dated January 12, 1996 is reconsidered and set aside. The
well as their contentions, the issues to be resolved boil down to the following: above-entitled complaint against defendants is DISMISSED.

1. Whether or not the parties obligation to reimburse, under the Indemnity Agreements was premised on the Likewise, defendants counterclaim is also dismissed.
payment by any of them of the entire obligation;
SO ORDERED.[16] (Emphasis supplied)
2. Whether or not there is basis to plaintiffs apprehension that he would be made to pay twice for the single
obligation; and

3. Whether or not plaintiff was benefited by the payments made by defendants. Qua filed a motion for reconsideration of the 3 May 1996 Order which RTC-Branch 63 denied.

Regarding the first issue, a closer scrutiny of the pertinent provisions of the Indemnity Agreements executed Aggrieved, Qua appealed to the Court of Appeals. During the pendency of the appeal, Qua filed a
by the parties would not reveal any significant indication that the parties liabilities are indeed premised on the Manifestation[17] with the Court of Appeals attaching the Decision[18]of 21 November 1996 rendered in
payment by any of them of the entire obligation. These agreements clearly provide that the parties obligation Collection Case No. 8364. The dispositive portion of the decision reads:
to reimburse accrues upon mere advice that one of them has paid or will so pay the obligation. It is not WHEREFORE, premises considered, judgment is hereby rendered ordering defendants Ladtek, Inc. and
specified whether the payment is for the entire obligation or not. Lawrence C. Qua:

Accordingly, the Court stands corrected in this regard. The obvious conclusion that can be seen now is that 1. To pay, jointly and severally, the plaintiff the amount of P44,552,738.34 as of October 31, 1987
payment of the entire obligation is not a condition sine qua non for the paying party to demand plus the stipulated interest of 30.73% per annum and penalty charges of 12% per annum from November 1,
reimbursement. The parties have expressly contracted that each will reimburse whoever is made to pay the 1987 until the whole amount is fully paid, less P7,000,000.00 paid by defendants Republic Glass Corporation
obligation whether entirely or just a portion thereof. and Gervel, Inc., but the liability of defendant Lawrence C. Qua should be limited only to P5,000,000.00
and P1,200,000.00, the amount stated in the Continuing Suretyship dated June 15, 1983, Exh. D and
On the second issue, plaintiffs apprehension that he would be made to pay twice for the single obligation is Continuing Suretyship dated December 14, 1981, Exh. D-1, respectively, plus the stipulated interest and
unfounded. Under the above-mentioned Indemnity Agreements, in the event that the creditors are able to expenses incurred by the plaintiff.
collect from him, he has the right to ask defendants to pay their proportionate share, in the same way
defendants had collected from the plaintiff, by foreclosing his pledged shares of stock, his proportionate share, 2. To pay, jointly and severally, the plaintiff an amount equivalent to ten (10%) percent of the total
after they had made payments. From all indications, the provisions of the Indemnity Agreements have amount due as and by way of attorneys fees;
remained binding between the parties.
3. To pay the cost of suit.
On the third issue, there is merit to defendants assertion that plaintiff has benefited from the payments made by
defendants. As alleged by defendants, and this has not been denied by plaintiff, in Civil Case No. 8364 The Counterclaims of the defendants Ladtek, Inc. and Lawrence C. Qua against the plaintiff are hereby
filed before Branch 149 of this Court, where the creditors were enforcing the parties liabilities as dismissed.
sureties, plaintiff succeeded in having the case dismissed by arguing that defendants payments [were]
for the entire obligation, hence, the obligation should be considered fully paid and extinguished. With the Likewise, the cross-claims of the defendants are dismissed.
dismissal of the case, the indications are that the creditors are no longer running after plaintiff to enforce his
liabilities as surety of Ladtek. SO ORDERED.[19] (Emphasis supplied)

Whether or not the surety agreements signed by the parties and the creditors were novated is not material in
this controversy. The fact is that there was payment of the obligation. Hence, the Indemnity Agreements On 6 March 2000, the Court of Appeals rendered the questioned Decision setting aside the 3 May 1996 Order
govern. of RTC-Branch 63 and reinstating the 12 January 1996 Decision ordering RGC and Gervel to return the
foreclosed shares of stock to Qua.[20]
In the final analysis, defendants payments gave rise to plaintiffs obligation to reimburse the former. Having
failed to do so, upon demand, defendants were justified in foreclosing the pledged shares of stocks. Hence, this petition.

xxx The Ruling of the Court of Appeals

49
answerable for the unpaid balance of the obligations by virtue of the quitclaims executed by Metrobank and
In reversing the 3 May 1996 Order and reinstating the 12 January 1996 Decision, the appellate court quoted PDCP in favor of RGC and Gervel. RGC and Gervel ceased to be solidarily liable for Ladteks loan
the RTC-Branch 63s 12 January 1996 Decision: obligations.[22]

The liability of each party under the indemnity agreements therefore is premised on the payment by any of
them of the entire obligation. Without such payment, there would be no corresponding share to
reimburse. Payment of the entire obligation naturally redounds to the benefit of the other solidary debtors who The Issues
must then reimburse the paying co-debtors to the extent of his corresponding share.
In the case at bar, Republic Glass and Gervel made partial payments only, and so they did not extinguish the
entire obligation. But Republic Glass and Gervel nevertheless obtained quitclaims in their favor and so they
ceased to be solidarily liable with plaintiff for the balance of the debt (Exhs. D, E, and I). Plaintiff thus became RGC and Gervel raise the following issues for resolution:
solely liable for the unpaid portion of the debt even as he is being held liable for reimbursement on the said
portion.
I.
What happened therefore, was that Metrobank and PDCP in effect enforced the Suretyship Agreements jointly WHETHER THE PRINCIPLE OF ESTOPPEL APPLIES TO QUAS JUDICIAL STATEMENTS THAT
as against plaintiff and defendants. Consequently, the solidary obligation under the Suretyship Agreements RGC AND GERVEL PAID THE ENTIRE OBLIGATION.
was novated by the substantial modification of its principal conditions. xxx The resulting change was from one
with three solidary debtors to one in which Lawrence Qua became the sole solidary co-debtor of Ladtek. II.
WHETHER PAYMENT OF THE ENTIRE OBLIGATION IS A CONDITION SINE QUA NON FOR RGC
Defendants cannot simply pay off a portion of the debt and then absolve themselves from any further liability AND GERVEL TO DEMAND REIMBURSEMENT FROM QUA UNDER THE INDEMNITY
when the obligation has not been totally extinguished. AGREEMENTS EXECUTED BY THEM AFTER RGC AND GERVEL PAID METROBANK UNDER THE
SURETY AGREEMENT.
xxx
III.
In the final reckoning, this Court finds that the foreclosure and sale of the shares pledged by plaintiff was ASSUMING ARGUENDO THAT THERE WAS NOVATION OF THE SURETY AGREEMENTS SIGNED
totally unjustified and without basis because the obligation secured by the underlying pledge had been BY THE PARTIES AND THE CREDITORS, WHETHER THE NOVATION IS MATERIAL IN THIS
extinguished by novation. xxx[21] CASE.[23]

The Court of Appeals further held that there was an implied novation or substantial incompatibility in the
suretys mode or manner of payment from one for the entire obligation to one merely of proportionate share. The Courts Ruling
The appellate court ruled that RGC and Gervels payment to the creditors only amounted to their proportionate
shares of the obligation, considering the following evidence:
The letter of the Republic to the appellant, Exhibit G, dated June 25, 1987, which mentioned the letter from
PDCP confirming its willingness to release the joint and solidary obligation of the Republic and Gervel subject We deny the petition.
to some terms and conditions, one of which is the appellants acceptable repayment plan of his pro-rata share;
and the letter of PDCP to the Republic, Exhibit H, mentioning full payment of the pro rata share of the
Republic and Gervel, and the need of the appellant to submit an acceptable repayment plan covering his pro- Whether Qua was in estoppel
rata share, the release from solidary liability by PDCP, Exhibit J, mentioning full payment by the Republic and
Gervel of their pro rata share in the loan, as solidary obligors, subject however to the terms and conditions of
the hold out agreement; and the non-payment in full of the loan, subject of the May 10, 1984 Promissory Note, RGC and Gervel contend that Qua is in estoppel for making conflicting statements in two different and
except the 7 million payment by both Republic and Gervel, as mentioned in the Decision (Case No. 8364, separate cases. Qua cannot now claim that the payment made to Metrobank was not for the entire obligation
Metrobank vs. Ladtek, et al). Precisely, Ladtek and the appellant, in said Decision were directed to pay because of his Motion to Dismiss Collection Case No. 8364 where he stated that RGC and Gervels payment
Metrobank the balance of P9,560,798, supposedly due and unpaid. was for the entireobligation.

Thus, the payment did not extinguish the entire obligation and did not benefit Qua. Accordingly, RGC and The essential elements of estoppel in pais are considered in relation to the party to be estopped, and to the
Gervel cannot demand reimbursement. The Court of Appeals also held that Qua even became solely party invoking the estoppel in his favor. On the party to be estopped, such party (1) commits conduct

50
amounting to false representation or concealment of material facts or at least calculated to convey the subsequent facts indisputably show that RGC and Gervels payment was not for the entire
impression that the facts are inconsistent with those which the party subsequently attempts to assert; (2) has obligation. RTC-Branch 149 reinstated Collection Case No. 8364 against Qua and ruled in Metrobanks
the intent, or at least expectation that his conduct shall at least influence the other party; and (3) has favor, ordering Qua to pay P6.2 million.
knowledge, actual or constructive, of the real facts. On the party claiming the estoppel, such party (1)
has lack of knowledge and of the means of knowledge of the truth on the facts in question; (2) has relied, in
good faith, on the conduct or statements of the party to be estopped; (3) has acted or refrained from acting
based on such conduct or statements as to change the position or status of the party claiming the estoppel, to Whether payment of the entire obligation is an
his injury, detriment or prejudice.[24] essential condition for reimbursement

In this case, the essential elements of estoppel are inexistent.


RGC and Gervel assail the Court of Appeals ruling that the parties liabilities under the Agreements depend on
While Quas statements in Collection Case No. 8364 conflict with his statements in Foreclosure Case No. 88- the full payment of the obligation. RGC and Gervel insist that it is not an essential condition that the entire
2643, RGC and Gervel miserably failed to show that Qua, in making those statements, intended to falsely obligation must first be paid before they can seek reimbursement from Qua. RGC and Gervel contend that Qua
represent or conceal the material facts. Both parties undeniably know the real facts. should pay 42.22% of any amount which they paid or would pay Metrobank and PDCP.

Nothing in the records shows that RGC and Gervel relied on Quas statements in Collection Case No. 8364 RGC and Gervels contention is partly meritorious.
such that they changed their position or status, to their injury, detriment or prejudice. RGC and Gervel
repeatedly point out that it was the presiding judge[25] in Collection Case No. 8364 who relied on Quas Payment of the entire obligation by one or some of the solidary debtors results in a corresponding obligation of
statements in Collection Case No. 8364. RGC and Gervel claim that Qua deliberately led the Presiding Judge the other debtors to reimburse the paying debtor.[30]However, we agree with RGC and Gervels contention that
to believe that their payment to Metrobank was for the entire obligation. As a result, the presiding judge in this case payment of the entire obligation is not an essential condition before they can seek reimbursement
ordered the dismissal of Collection Case No. 8364 against Qua. [26] from Qua. The words of the Agreements are clear.

RGC and Gervel further invoke Section 4 of Rule 129 of the Rules of Court to support their stance:
RGC, GERVEL and QUA each covenant that each will respectively reimburse the party made to pay the
Sec. 4. Judicial admissions. An admission, verbal or written, made by a party in the course of the proceedings Lenders to the extent and subject to the limitations set forth herein, all sums of money which the party made
in the same case, does not require proof. The admission may be contradicted only by showing that it was made to pay the Lenders shall pay or become liable to pay by reason of any of the foregoing, and will make such
through palpable mistake or that no such admission was made. payments within five (5) days from the date that the party made to pay the Lenders gives written notice to the
parties hereto that it shall have become liable therefor and has advised the Lenders of its willingness to pay
A party may make judicial admissions in (a) the pleadings filed by the parties, (b) during the trial either by whether or not it shall have already paid out such sum or any part thereof to the Lenders or to the persons
verbal or written manifestations or stipulations, or (c) in other stages of the judicial proceeding. [27] entitled thereto. (Emphasis supplied)

The elements of judicial admissions are absent in this case. Qua made conflicting statements in
Collection Case No. 8364 and in Foreclosure Case No. 88-2643, and not in the same case as required in The Agreements are contracts of indemnity not only against actual loss but against liability as well.
Section 4 of Rule 129. To constitute judicial admission, the admission must be made in the same case in In Associated Insurance & Surety Co., Inc. v. Chua,[31] we distinguished between a contract of indemnity
which it is offered. If made in another case or in another court, the fact of such admission must be against loss and a contract of indemnity against liability, thus: [32]
proved as in the case of any other fact, although if made in a judicial proceeding it is entitled to greater
weight.[28] The agreement here sued upon is not only one of indemnity against loss but of indemnity against
liability. While the first does not render the indemnitor liable until the person to be indemnified makes
RGC and Gervel introduced Quas Motion to Dismiss and the Order dismissing Collection Case No. payment or sustains loss, the second becomes operative as soon as the liability of the person indemnified
8364 to prove Quas claim that the payment was for the entire obligation. Qua does not deny making arises irrespective of whether or not he has suffered actual loss. (Emphasis supplied)
such statement but explained that he honestly believed and pleaded in the lower court and in CA-G.R.
CV No. 58550 that the entire debt was fully extinguished when the petitioners paid P7 million to
Metrobank.[29] Therefore, whether the solidary debtor has paid the creditor, the other solidary debtors should indemnify the
former once his liability becomes absolute. However, in this case, the liability of RGC, Gervel and Qua
We find Quas explanation substantiated by the evidence on record. As stated in the Agreements, became absolute simultaneously when Ladtek defaulted in its loan payment. As a result, RGC, Gervel and Qua
Ladteks original loan from Metrobank was only P6.2 million. Therefore, Qua reasonably believed that all became directly liable at the same time to Metrobank and PDCP. Thus, RGC and Gervel cannot
RGC and Gervels P7 million payment to Metrobank pertained to the entire obligation. However, automatically claim for indemnity from Qua because Qua himself is liable directly to Metrobank and PDCP.

51
payments exceeded their shares in the obligations. Consequently, RGC and Gervel cannot validly seek
If we allow RGC and Gervel to collect from Qua his proportionate share, then Qua would pay much more than reimbursement from Qua.
his stipulated liability under the Agreements. In addition to the P3,860,646 claimed by RGC and Gervel, Qua
would have to pay his liability of P6.2 million to Metrobank and more than P1 million to PDCP. Since Qua
would surely exceed his proportionate share, he would then recover from RGC and Gervel the excess Whether there was novation of the Agreements
payment. This situation is absurd and circuitous.

Contrary to RGC and Gervels claim, payment of any amount will not automatically result in RGC and Gervel contend that there was no novation of the Agreements. RGC and Gervel further
reimbursement. If a solidary debtor pays the obligation in part, he can recover reimbursement from the co- contend that any novation of the Agreements is immaterial to this case. RGC and Gervel disagreed with
debtors only in so far as his payment exceeded his share in the obligation.[33] This is precisely because if a the Court of Appeals on the effect of the implied novation which supposedly transpired in this case. The
solidary debtor pays an amount equal to his proportionate share in the obligation, then he in effect pays only Court of Appeals found that there was an implied novation or substantial incompatibility in the mode or
what is due from him. If the debtor pays less than his share in the obligation, he cannot demand reimbursement manner of payment by the surety from the entire obligation, to one merely of proportionate share. RGC
because his payment is less than his actual debt. and Gervel claim that if it is true that an implied novation occurred, then the effect would be to release
respondent (Qua) as the entire obligation is considered extinguished by operation of law. Thus, Qua
To determine whether RGC and Gervel have a right to reimbursement, it is indispensable to ascertain the total should now reimburse RGC and Gervel his proportionate share under the surety agreements.
obligation of the parties. At this point, it becomes necessary to consider the decision in Collection Case No.
8364 on the parties obligation to Metrobank. To repeat, Metrobank filed Collection Case No. 8364 against Novation extinguishes an obligation by (1) changing its object or principal conditions; (2) substituting the
Ladtek, RGC, Gervel and Qua to collect Ladteks unpaid loan. person of the debtor; and (3) subrogating a third person in the rights of the creditor. Article 1292 of the Civil
Code clearly provides that in order that an obligation may be extinguished by another which substitutes the
RGC and Gervel assail the Court of Appeals consideration of the decision in Collection Case No. same, it should be declared in unequivocal terms, or that the old and new obligations be on every point
8364[34] because Qua did not offer the decision in evidence during the trial in Foreclosure Case No. 88-2643 incompatible with each other.[41] Novation may either be extinctive or modificatory.Novation is extinctive
subject of this petition. RTC-Branch 62[35] rendered the decision in Collection Case No. 8364 on 21 November when an old obligation is terminated by the creation of a new obligation that takes the place of the former.
1996 while Qua filed his Notice of Appeal of the 3 May 1996 Order on 19 June 1996. Qua could not have Novation is merely modificatory when the old obligation subsists to the extent it remains compatible with the
possibly offered in evidence the decision in Collection Case No. 8364 because RTC-Branch 62 rendered the amendatory agreement.[42]
decision only after Qua elevated the present case to the Court of Appeals. Hence, Qua submitted the decision
in Collection Case No. 8364 during the pendency of the appeal of Foreclosure Case No. 88-2643 in the Court We find that there was no novation of the Agreements. The parties did not constitute a new obligation to
of Appeals. substitute the Agreements. The terms and conditions of the Agreements remain the same. There was also no
showing of complete incompatibility in the manner of payment of the parties obligations. Contrary to the
As found by RTC-Branch 62, RGC, Gervel and Quas total obligation was P14,200,854.37 as of 31 October Court of Appeals ruling, the mode or manner of payment by the parties did not change from one for the entire
1987.[36] During the pendency of Collection Case No. 8364, RGC and Gervel paid Metrobank P7 million. obligation to one merely of proportionate share. The creditors, namely Metrobank and PDCP, merely
Because of the payment, Metrobank executed a quitclaim[37] in favor of RGC and Gervel. By virtue of proceeded against RGC and Gervel for their proportionate shares only.[43] This preference is within the
Metrobanks quitclaim, RTC-Branch 62 dismissed Collection Case No. 8364 against RGC and Gervel, leaving creditors discretion which did not necessarily affect the nature of the obligations as well as the terms and
Ladtek and Qua as defendants. Considering that RGC and Gervel paid only P7 million out of the total conditions of the Agreements. A creditor may choose to proceed only against some and not all of the solidary
obligation of P14,200,854.37, which payment was less than RGC and Gervels combined shares in the debtors. The creditor may also choose to collect part of the debt from some of the solidary debtors, and the
obligation,[38] it was clearly partial payment. Moreover, if it were full payment, then the obligation would have remaining debt from the other solidary debtors.
been extinguished. Metrobank would have also released Qua from his obligation.
In sum, RGC and Gervel have no legal basis to seek reimbursement from Qua. Consequently, RGC and Gervel
RGC and Gervel also made partial payment to PDCP. Proof of this is the Release from Solidary Liability that cannot validly foreclose the pledge of Quas GMC shares of stock which secured his obligation to
PDCP executed in RGC and Gervels favor which stated that their payment of P1,730,543.55 served as full reimburse.[44] Therefore, the foreclosure of the pledged shares of stock has no leg to stand on.
payment of their corresponding proportionate share in Ladteks foreign currency loan. [39] Moreover, PDCP
filed a collection case against Qua alone, docketed as Civil Case No. 2259, in the Regional Trial Court of WHEREFORE, we DENY the petition. The Decision dated 6 March 2000 of the Court of Appeals in CA-
Makati, Branch 150.[40] G.R. CV No. 54737 is AFFIRMED. Costs against petitioners.

Since they only made partial payments, RGC and Gervel should clearly and convincingly show that their SO ORDERED.
payments to Metrobank and PDCP exceeded their proportionate shares in the obligations before they can seek
reimbursement from Qua. This RGC and Gervel failed to do. RGC and Gervel, in fact, never claimed that their

52
G.R. No. 180144 September 24, 2014 Promissory Note No. 97-051, and International Bank Exchange (IBE) Check No. 00012522, dated July 30,
1997, in the amount of ₱54,600.00 as renewal fee.
LEONARDO BOGNOT, Petitioner,
vs. On the excuse that she needs to bring home the loan documents for the Bognot siblings’ signatures and
RRI LENDING CORPORATION, represented by its General Manager, DARIO J. replacement, Mrs. Bognot asked the respondent’s clerk to release to her the promissory note, the disclosure
BERNARDEZ, Respondent. statement, and the check dated July 30, 1997. Mrs. Bognot, however, never returned these documents nor
issued a new post-dated check. Consequently, the respondent sent the petitioner follow-up letters demanding
payment of the loan, plus interest and penalty charges. These demands went unheeded.
DECISION

On November 27, 1997, the respondent, through Bernardez, filed a complaint for sum of money before the
BRION, J.:
Regional Trial Court (RTC) against the Bognot siblings. The respondent mainly alleged that the loan renewal
payable on June 30, 1997 which the Bognot siblings applied for remained unpaid; that before June30, 1997,
Before the Court is the petition for review on certiorari1 filed by Leonardo Bognot (petitioner) assailing the Mrs. Bognot applied for another loan extension and issued IBE Check No. 00012522 as payment for the
March 28, 2007 decision2 and the October 15, 2007 resolution3 of the Court of Appeals (CA) in CA-G.R. CV renewal fee; that Mrs. Bognot convinced the respondent’s clerk to release to her the promissory note and the
No. 66915. other loan documents; that since Mrs. Bognot never issued any replacement check, no loanextension took
place and the loan, originally payable on June 30, 1997, became due on this date; and despite repeated
Background Facts demands, the Bognot siblings failed to pay their joint and solidary obligation.

RRI Lending Corporation (respondent) is an entity engaged in the business of lending money to its borrowers Summons were served on the Bognotsiblings. However, only the petitioner filed his answer.
within Metro Manila. It is duly represented by its General Manager, Mr. Dario J. Bernardez (Bernardez).
In his Answer,10 the petitioner claimed that the complaint states no cause of action because the respondent’s
Sometime in September 1996, the petitioner and his younger brother, Rolando A. Bognot (collectively referred claim had been paid, waived, abandoned or otherwise extinguished. He denied being a party to any loan
to as the "Bognot siblings"), applied for and obtained a loan of Five Hundred Thousand Pesos (₱500,000.00) application and/or renewal in May 1997. He also denied having issued the BPI check post-dated to June 30,
from the respondent, payable on November 30, 1996.4 The loan was evidenced by a promissory note and was 1997, as well as the promissory note dated June 30, 1997, claiming that this note had been tampered. He
secured by a post dated check5 dated November 30, 1996. claimed that the one (1) month loan contracted by Rolando and his wife in November 1996 which was lastly
renewed in March 1997 had already been fully paid and extinguished in April 1997.11
Evidence on record shows that the petitioner renewed the loan several times on a monthly basis. He paid a
renewal fee of ₱54,600.00 for each renewal, issued a new post-dated checkas security, and executed and/or Trial on the merits thereafter ensued.
renewed the promissory note previouslyissued. The respondent on the other hand, cancelled and returned to
the petitioner the post-dated checks issued prior to their renewal. The Regional Trial Court Ruling

Sometime in March 1997, the petitioner applied for another loan renewal. He again executed as principal and In a decision12 dated January 17, 2000,the RTC ruled in the respondent’s favor and ordered the Bognot
signed Promissory Note No. 97-0356 payable on April 1, 1997; his co-maker was again Rolando. As security siblings to pay the amount of the loan, plus interest and penalty charges. It considered the wordings of the
for the loan, the petitioner also issued BPI Check No. 0595236,7 post dated to April 1, 1997.8 promissory note and found that the loan they contracted was joint and solidary. It also noted that the petitioner
signed the promissory note as a principal (and not merely as a guarantor), while Rolando was the co-maker. It
Subsequently, the loan was again renewed on a monthly basis (until June 30, 1997), as shown by the Official brushed the petitioner’s defense of full payment aside, ruling that the respondent had successfully proven, by
Receipt No. 7979 dated May 5, 1997, and the Disclosure Statement dated May 30, 1997 duly signed by preponderance of evidence, the nonpayment of the loan. The trial court said:
Bernardez. The petitioner purportedly paid the renewal fees and issued a post-dated check dated June 30, 1997
as security. As had been done in the past, the respondent superimposed the date "June 30, 1997" on the upper Records likewise reveal that while he claims that the obligation had been fully paid in his Answer, he did not,
right portion of Promissory Note No. 97-035 to make it appear that it would mature on the said date. in order to protect his right filed (sic) a cross-claim against his co-defendant Rolando Bognot despite the fact
that the latter did not file any responsive pleading.
Several days before the loan’s maturity, Rolando’s wife, Julieta Bognot (Mrs. Bognot), went to the
respondent’s office and applied for another renewal of the loan. She issued in favor of the respondent

53
In fine, defendants are liable solidarily to plaintiff and must pay the loan of ₱500,000.00 plus 5% interest The Case for the Respondents
monthly as well as 10% monthly penalty charges from the filing of the complaint on December 3, 1997 until
fully paid. As plaintiff was constrained to engage the services of counsel in order to protect his The respondent submits that the issues the petitioner raised hinge on the appreciation of the adduced evidence
right,defendants are directed to pay the former jointly and severally the amount of ₱50,000.00 as and by way
and of the factual lower courts’ findings that, as a rule, are notreviewable by this Court.
of attorney’s fee.

The Issues
The petitioner appealed the decision to the Court of Appeals.

The case presents to us the following issues:


The Court of Appeals Ruling

1. Whether the CA committed a reversible error in holding the petitioner solidarily liable with
In its decision dated March 28, 2007, the CA affirmed the RTC’s findings. It found the petitioner’s defense of Rolando;
payment untenable and unsupported by clear and convincing evidence. It observed that the petitioner did not
present any evidence showing that the check dated June 30, 1997 had, in fact, been encashed by the respondent
and the proceeds applied to the loan, or any official receipt evidencing the payment of the loan. It further 2. Whether the petitioner is relieved from liability by reason of the material alteration in the
stated that the only document relied uponby the petitioner to substantiate his defense was the April 1, 1997 promissory note; and
checkhe issued which was cancelled and returned to him by the respondent.
3. Whether the parties’ obligation was extinguished by: (i) payment; and (ii) novation by
The CA, however, noted the respondent’s established policy of cancelling and returning the post-dated checks substitution of debtors.
previously issued, as well as the subsequent loan renewals applied for by the petitioner, as manifested by the
official receipts under his name. The CA thus ruled that the petitioner failed to discharge the burden of proving Our Ruling
payment.
We find the petition partly meritorious.
The petitioner moved for the reconsideration of the decision, but the CA denied his motion in its resolution of
October 15, 2007, hence, the present recourse to us pursuant toRule 45 of the Rules of Court.
As a rule, the Court’s jurisdiction in a Rule 45 petition is limited to the review of pure questions of
law.14 Appreciation of evidence and inquiry on the correctness of the appellate court's factual findings are not
The Petition the functions of this Court; we are not a trier of facts.15

The petitioner submits that the CA erred in holding him solidarily liable with Rolando and his wife. Heclaimed A question of law exists when the doubt or dispute relates to the application of the law on given facts. On the
that based on the legal presumption provided by Article 1271 of the Civil Code,13 his obligation had been other hand, a question of fact exists when the doubt or dispute relates to the truth or falsity of the parties’
discharged by virtue of his possession of the post-dated check (stamped "CANCELLED") that evidenced his factual allegations.16
indebtedness. He argued that it was Mrs. Bognot who subsequently assumed the obligation by renewing the
loan, paying the fees and charges, and issuing a check. Thus, there is an entirely new obligation whose
payment is her sole responsibility. As the respondent correctly pointedout, the petitioner’s allegations are factual issuesthat are not proper for the
petition he filed. In the absence of compelling reasons, the Court cannot re-examine, review or re-evaluate the
evidence and the lower courts’ factual conclusions. This is especially true when the CA affirmed the lower
The petitioner also argued that as a result of the alteration of the promissory note without his consent (e.g., the court’s findings, as in this case. Since the CA’s findings of facts affirmed those of the trial court, they are
superimposition of the date "June 30, 1997" on the upper right portion of Promissory Note No. 97-035 to make binding on this Court, rendering any further factual review unnecessary.
it appear that it would mature on this date), the respondent can no longer collect on the tampered note, let
alone, hold him solidarily liable with Rolando for the payment of the loan. He maintained that even without
the proof of payment, the material alteration of the promissory note is sufficient to extinguish his liability. If only to lay the issues raised - both factual and legal – to rest, we shall proceed to discuss their merits and
demerits.
Lastly, he claimed that he had been released from his indebtedness by novation when Mrs. Bognot renewed
the loan and assumed the indebtedness. No Evidence Was Presented to Establish the Fact of Payment

54
Jurisprudence tells us that one who pleads payment has the burden of proving it; 17 the burden rests on the check previously issued whenever the loan is renewed. We trace whatwould amount to a practice under the
defendant to prove payment, rather than on the plaintiff to prove non-payment.18 Indeed, once the existence of facts of this case, to the following testimonial exchanges:
an indebtedness is duly established by evidence, the burden of showing with legal certainty that the obligation
has been discharged by payment rests on the debtor.19
Civil Case No. 97-0572

In the present case, the petitioner failed to satisfactorily prove that his obligation had already been
TSN December 14, 1998, Page 13.
extinguished by payment. As the CA correctly noted, the petitioner failed to present any evidence that the
respondent had in fact encashed his check and applied the proceeds to the payment of the loan. Neither did he
present official receipts evidencing payment, nor any proof that the check had been dishonored. Atty. Almeda:

We note that the petitioner merely relied on the respondent’s cancellation and return to him of the check dated Q: In the case of the renewal of the loan you admitted that a renewal fee is charged to the debtor which he or
April 1, 1997. The evidence shows that this check was issued to secure the indebtedness. The acts imputed on she must pay before a renewal is allowed. I show you Exhibit "3" official receipt of plaintiff dated July 3,
the respondent, standing alone, do not constitute sufficient evidence of payment. 1997, would this be your official receipt which you issued to your client which they make renewal of the loan?

Article 1249, paragraph 2 of the Civil Code provides: A: Yes, sir.

xxxx xxx xxx xxx

The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall Q: And naturally when a loan has been renewed, the old one which is replaced by the renewal has already been
produce the effect of payment only when they have been cashed, or when through the fault of the creditor they cancelled, is that correct?
have been impaired. (Emphasis supplied)
A: Yes, sir.
Also, we held in Bank of the Philippine Islands v. Spouses Royeca:20
Q: It is also true to say that all promissory notes and all postdated checks covered by the old loan which have
Settled is the rule that payment must be made in legal tender. A check is not legal tender and, therefore, cannot been the subject of the renewal are deemed cancelled and replaced is that correct?
constitute a valid tender of payment. Since a negotiable instrument is only a substitute for money and not
money, the delivery of such an instrument does not, by itself, operate as payment. Mere delivery of checks A: Yes, sir. xxx22
does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended
until the payment by commercial document is actually realized.(Emphasis supplied)
Civil Case No. 97-0572
Although Article 1271 of the Civil Code provides for a legal presumption of renunciation of action (in cases
where a private document evidencing a credit was voluntarily returned by the creditor to the debtor), this TSN November 27, 1998, Page 27.
presumption is merely prima facieand is not conclusive; the presumption loses efficacy when faced with
evidence to the contrary. Q: What happened to the check that Mr. Bognot issued?

Moreover, the cited provision merely raises a presumption, not of payment, but of the renunciation of the Court: There are two Bognots. Who in particular?
credit where more convincing evidence would be required than what normally would be called for to prove
payment.21Thus, reliance by the petitioner on the legal presumption to prove payment is misplaced.
Q: Leonardo Bognot, Your Honor.

To reiterate, no cash payment was proven by the petitioner. The cancellation and return of the check dated
April 1, 1997, simply established his renewal of the loan – not the fact of payment. Furthermore, it has been A: Every month, they were renewed, he issued a new check, sir.
established during trial, through repeated acts, that the respondent cancelled and surrendered the post-dated
Q: Do you have a copy of the checks?

55
A: We returned the check upon renewing the loan.23 Based on the records, the Bognot Siblings had applied for and were granted a loan of ₱500,000.00 by the
respondent. The loan was evidenced by a promissory note and secured by a post-dated check27 dated
In light of these exchanges, wefind that the petitioner failed to discharge his burden ofproving payment. November 30, 1996. In fact, the petitioner himself admitted his loan application was evidenced by the
Promissory Note dated April 1, 1997.28 This loan was renewed several times by the petitioner, after paying the
renewal fees, as shown by the Official Receipt Nos. 79729 and 58730 dated May 5 and July 3, 1997,
The Alteration of the Promissory Note respectively. These official receipts were issued in the name of the petitioner. Although the petitioner had
insisted that the loan had been extinguished, no other evidence was presented to prove payment other than the
Did Not Relieve the Petitioner From Liability cancelled and returnedpost-dated check.

We now come to the issue of material alteration. The petitioner raised as defense the alleged material Under this evidentiary situation, the petitioner cannot validly deny his obligation and liability to the
alteration of Promissory Note No. 97-035 as basis to claim release from his loan. He alleged that the respondent solely on the ground that the Promissory Note in question was tampered. Notably, the existence of
respondent’s superimposition of the due date "June 30, 1997" on the promissory note without his consent the obligation, as well as its subsequent renewals, have been duly established by: first, the petitioner’s
effectively relieved him of liability. application for the loan; second, his admission that the loan had been obtained from the respondent; third, the
post-dated checks issued by the petitioner to secure the loan; fourth, the testimony of Mr. Bernardez on the
grant, renewal and non-payment of the loan; fifth, proof of non-payment of the loan; sixth, the loan renewals;
We find this defense untenable. and seventh, the approval and receipt of the loan renewals.

Although the respondent did not dispute the fact of alteration, he nevertheless denied that the alteration was In Guinsatao v. Court of Appeals,31 this Court pointed out that while a promissory note is evidence of an
done without the petitioner’s consent. The parties’ Pre-Trial Order dated November 3, 199824 states that: indebtedness, it is not the only evidence, for the existence of the obligation can be proven by other
documentary evidence such as a written memorandum signed by the parties. In Pacheco v. Court of
xxx There being no possibility of a possible compromise agreement, stipulations, admissions, and denials were Appeals,32 this Court likewise expressly recognized that a check constitutes anevidence of indebtedness and is
made, to wit: a veritable proof of an obligation. It canbe used in lieu of and for the same purpose as a promissory note and
can therefore be presented to establish the existence of indebtedness. 33
FOR DEFENDANT LEONARDO BOGNOT
In the present petition, we find that the totality of the evidence on record sufficiently established the existence
of the petitioner’s indebtedness (and liability) based on the contract ofloan. Even with the tampered
13. That the promissory note subject of this case marked as Annex "A" of the complaint was originally dated promissory note, we hold that the petitioner can still be held liable for the unpaid loan.
April 1, 1997 with a superimposed rubber stamp mark "June 30, 1997" to which the plaintiff admitted the
superimposition.
The Petitioner’s BelatedClaim of Novation by Substitution May no Longer be Entertained
14. The superimposition was done without the knowledge, consent or prior consultation with Leonardo Bognot
which was denied by plaintiff."25 (Emphasis supplied) It has not escaped the Court’s attention that the petitioner raised the argument that the obligation had been
extinguished by novation. The petitioner never raised this issue before the lower courts.
Significantly, the respondent also admitted in the Pre-Trial Order that part of its company practice is to rubber
stamp, or make a superimposition through a rubber stamp, the old promissory note which has been renewed to It is a settled principle of law thatno issue may be raised on appeal unless it has been brought before the lower
make it appear that there is a new loan obligation. The petitioner did not rebut this statement. To our mind, the tribunal for its consideration.34 Matters neither alleged in the pleadingsnor raised during the proceedings below
failure to rebut is tantamount to an admission of the respondent’s allegations: cannot be ventilated for the first time on appeal before the Supreme Court. 35

"22. That it is the practice of plaintiff to just rubber stamp or make superimposition through a rubber stamp on In any event, we find no merit in the defense of novation as we discuss at length below. Novation cannot be
old promissory note which has been renewed to make it appear that there is a new loan obligation to which the presumed and must be clearly and unequivocably proven.
plaintiff admitted." (Emphasis Supplied).26
Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by
Even assuming that the note had indeed been tampered without the petitioner’s consent, the latter cannot substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor.36
totally avoid payment of his obligation to the respondent based on the contract of loan.

56
Article 1293 of the Civil Code defines novation as follows: Moreover, in the absence of showing that Mrs. Bognot and the respondent had agreed to release the petitioner,
the respondent can still enforce the payment of the obligation against the original debtor. Mere acquiescence to
"Art. 1293. Novation which consists insubstituting a new debtor in the place of the originalone, may be made the renewal of the loan, when there is clearly no agreement to release the petitioner from his responsibility,
does not constitute novation.
even without the knowledge or against the will of the latter, but not without the consent of the creditor.
Payment by the new debtor gives him rights mentioned in Articles 1236 and 1237."
The Nature of the Petitioner’s Liability
To give novation legal effect, the original debtor must be expressly released from the obligation, and the new
debtor must assume the original debtor’s place in the contractual relationship. Depending on who took the On the nature of the petitioner’s liability, we rule however, that the CA erred in holding the petitioner
initiative, novation by substitution of debtor has two forms – substitution by expromision and substitution by solidarily liable with Rolando.
delegacion. The difference between these two was explained in Garcia v. Llamas: 37
A solidary obligation is one in which each of the debtors is liable for the entire obligation, and each of the
"In expromision, the initiative for the change does not come from -- and may even be made without the creditors is entitled to demand the satisfaction of the whole obligation from any or all of the debtors. 42 There is
knowledge of -- the debtor, since it consists of a third person’s assumption of the obligation. As such, it solidary liability when the obligation expressly so states, when the law so provides, or when the nature of the
logically requires the consent of the third person and the creditor. In delegacion, the debtor offers, and the obligation so requires.43 Thus, when the obligor undertakes to be "jointly and severally" liable, the obligation
creditor accepts, a third person who consents to the substitution and assumes the obligation; thus, the consent is solidary,
of these three persons are necessary."
In this case, both the RTC and the CA found the petitioner solidarily liable with Rolando based on Promissory
In both cases, the original debtor must be released from the obligation; otherwise, there can be no valid Note No. 97-035 dated June 30, 1997. Under the promissory note, the Bognot Siblings defined the parameters
novation.38Furthermore, novation by substitution of debtor must alwaysbe made with the consent of the of their obligation as follows:
creditor.39
"FOR VALUE RECEIVED, I/WE, jointly and severally, promise to pay to READY RESOURCES
The petitioner contends thatnovation took place through a substitution of debtors when Mrs. Bognot renewed INVESTORS RRI LENDING CORPO. or Order, its office at Paranaque, M.M. the principal sum of Five
the loan and assumed the debt. He alleged that Mrs. Bognot assumed the obligation by paying the renewal fees Hundred Thousand PESOS (₱500,000.00), PhilippineCurrency, with interest thereon at the rate of Five percent
and charges, and by executing a new promissory note. He further claimed that she issued her own check 40 to (5%) per month/annum, payable in One Installment (01) equal daily/weekly/semi-monthly/monthly of PESOS
cover the renewal fees, which fact, according to the petitioner, was done with the respondent’s consent. Five Hundred Thousand Pesos (₱500,000.00), first installment to become due on June 30, 1997.
xxx"44 (Emphasis Ours).
Contrary to the petitioner’s contention, Mrs. Bognot did not substitute the petitioner as debtor. She merely
attempted to renew the original loan by executing a new promissory note41 and check. The purported one Although the phrase "jointly and severally" in the promissory note clearly and unmistakably provided for the
month renewal of the loan, however, did not push through, as Mrs. Bognot did not return the documents or solidary liability of the parties, we note and stress that the promissory note is merely a photocopyof the
issue a new post dated check. Since the loan was not renewed for another month, the originaldue date, June original, which was never produced.
30,1997, continued to stand.
Under the best evidence rule, whenthe subject of inquiry is the contents of a document, no evidence
More importantly, the respondent never agreed to release the petitioner from his obligation. That the isadmissible other than the original document itself except in the instances mentioned in Section 3, Rule 130
respondent initially allowed Mrs. Bognot to bring home the promissory note, disclosure statement and the of the Revised Rules of Court.45
petitioner’s previous check dated June 30, 1997, does not ipso factoresult in novation. Neither will this
acquiescence constitute an implied acceptance of the substitution of the debtor.
The records show that the respondenthad the custody of the original promissory note dated April 1, 1997, with
a superimposed rubber stamp mark "June 30, 1997", and that it had been given every opportunity to present it.
In order to give novation legal effect, the creditor should consent to the substitution of a new debtor. Novation The respondent even admitted during pre-trial that it could not present the original promissory note because it
must be clearly and unequivocally shown, and cannot be presumed. is in the custody of its cashier who is stranded in Bicol.46 Since the respondent never produced the original of
the promissory note, much less offered to produce it, the photocopy of the promissory note cannot be admitted
Since the petitioner failed to show thatthe respondent assented to the substitution, no valid novation took place as evidence. Other than the promissory note in question, the respondent has not presented any other evidence
with the effect of releasing the petitioner from his obligation to the respondent. to support a finding of solidary liability. As we earlier noted, both lower courts completely relied on the note
when they found the Bognot siblingssolidarily liable.

57
The well-entrenched rule is that solidary obligation cannot be inferred lightly. It must be positively and clearly [G.R. No. 105188. January 23, 1998]
expressed and cannot be presumed.47

In view of the inadmissibility of the promissory note, and in the absence of evidence showing that the
petitioner had bound himself solidarily with Rolando for the payment of the loan, we cannot but conclude that MYRON C. PAPA, Administrator of the Testate Estate of Angela M. Butte, petitioner, vs. A. U.
the obligation to pay is only joint.48 VALENCIA and CO. INC., FELIX PEARROYO, SPS. ARSENIO B. REYES & AMANDA SANTOS,
and DELFIN JAO, respondents.
The 5% Monthly Interest Stipulated in the Promissory Note is Unconscionable and Should be Equitably
Reduced

Finally, on the issue of interest, while we agree with the CA that the petitioner is liable to the respondentfor DECISION
the unpaid loan, we find the imposition of the 5% monthly interest to be excessive, iniquitous, unconscionable
and exorbitant, and hence, contrary to morals and jurisprudence. Although parties to a loan agreement have KAPUNAN, J.:
wide latitude to stipulate on the applicable interest rate under Central Bank Circular No. 905 s. 1982 (which
suspended the Usury Law ceiling on interest effective January 1, 1983), we stress that unconscionable interest In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Myron C. Papa
rates may still be declared illegal.49 seeks to reverse and set aside 1) the Decision dated 27 January 1992 of the Court of Appeals which affirmed
with modification the decision of the trial court; and, 2) the Resolution dated 22 April 1992 of the same court,
In several cases, we haveruled that stipulations authorizing iniquitous or unconscionable interests are contrary which denied petitioners motion for reconsideration of the above decision.
to morals and are illegal. In Medel v. Court of Appeals,50 we annulled a stipulated 5.5% per month or 66% per
annum interest on a ₱500,000.00 loan, and a 6% per month or 72% per annum interest on a ₱60,000.00 loan, The antecedent facts of this case are as follows:
respectively, for being excessive, iniquitous, unconscionableand exorbitant.1âwphi1 Sometime in June 1982, herein private respondents A.U. Valencia and Co., Inc. (hereinafter referred to
as respondent Valencia, for brevity) and Felix Pearroyo (hereinafter called respondent Pearroyo), filed with the
We reiterated this ruling in Chua v. Timan,51 where we held that the stipulated interest rates of 3% per month Regional Trial Court of Pasig, Branch 151, a complaint for specific performance against herein petitioner
and higher are excessive, iniquitous, unconscionable and exorbitant, and must therefore be reduced to 12% per Myron C. Papa, in his capacity as administrator of the Testate Estate of one Angela M. Butte.
annum.
The complaint alleged that on 15 June 1973, petitioner Myron C. Papa, acting as attorney-in-fact of
Angela M. Butte, sold to respondent Pearroyo, through respondent Valencia, a parcel of land, consisting of
Applying these cited rulings, we now accordingly hold that the stipulated interest rate of 5% per month, (or 286.60 square meters, located at corner Retiro and Cadiz Streets, La Loma, Quezon City, and covered by
60% per annum) in the promissory note is excessive, unconscionable, contrary to morals and is thus illegal. It Transfer Certificate of Title No. 28993 of the Register of Deeds of Quezon City; that prior to the alleged sale,
is void ab initiofor violating Article 130652 of the Civil Code.1âwphi1 We accordingly find it equitable to the said property, together with several other parcels of land likewise owned by Angela M. Butte, had been
reduce the interest rate from 5% per month to 1% per month or 12% per annum in line with the prevailing mortgaged by her to the Associated Banking Corporation (now Associated Citizens Bank); that after the
jurisprudence. alleged sale, but before the title to the subject property had been released, Angela M. Butte passed away; that
despite representations made by herein respondents to the bank to release the title to the property sold to
WHEREFORE, premises considered, the Decision dated March 28, 2007 of the Court of Appeals in CA-G.R. respondent Pearroyo, the bank refused to release it unless and until all the mortgaged properties of the late
CV No. 66915 is hereby AFFIRMED with MODIFICATION, as follows: Angela M. Butte were also redeemed; that in order to protect his rights and interests over the property,
respondent Pearroyo caused the annotation on the title of an adverse claim as evidenced by Entry No. P.E. -
6118/T-28993, inscribed on 18 January 1977.
1. The petitioner Leonardo A. Bognotand his brother, Rolando A. Bognot are JOINTLY LIABLE to
pay the sum of ₱500,000.00 plus 12% interest per annum from December 3, 1997 until fully paid. The complaint further alleged that it was only upon the release of the title to the property, sometime in
April 1977, that respondents Valencia and Pearroyo discovered that the mortgage rights of the bank had been
2. The rest of the Court of Appeals' dispositions are hereby AFFIRMED. assigned to one Tomas L. Parpana (now deceased), as special administrator of the Estate of Ramon Papa, Jr.,
on 12 April 1977; that since then, herein petitioner had been collecting monthly rentals in the amount
of P800.00 from the tenants of the property, knowing that said property had already been sold to private
Costs against petitioner Leonardo A. Bognot. respondents on 15 June 1973; that despite repeated demands from said respondents, petitioner refused and
failed to deliver the title to the property. Thereupon, respondents Valencia and Pearroyo filed a complaint for
SO ORDERED. specific performance, praying that petitioner be ordered to deliver to respondent Pearroyo the title to the

58
subject property (TCT 28993); to turn over to the latter the sum of P72,000.00 as accrued rentals as of April Respondent Reyes spouses in their Answer raised the defense of prescription of petitioners right to
1982, and the monthly rental of P800.00 until the property is delivered to respondent Pearroyo; to pay redeem the property.
respondents the sum of P20,000.00 as attorneys fees; and to pay the costs of the suit.
At the trial, only respondent Pearroyo testified. All the other parties only submitted documentary proof.
In his Answer, petitioner admitted that the lot had been mortgaged to the Associated Banking
Corporation (now Associated Citizens Bank). He contended, however, that the complaint did not state a cause On 29 June 1987, the trial court rendered a decision, the dispositive portion of which reads:
of action; that the real property in interest was the Testate Estate of Angela M. Butte, which should have been
joined as a party defendant; that the case amounted to a claim against the Estate of Angela M. Butte and WHEREUPON, judgment is hereby rendered as follows:
should have been filed in Special Proceedings No. A-17910 before the Probate Court in Quezon City; and that,
if as alleged in the complaint, the property had been assigned to Tomas L. Parpana, as special administrator of
the Estate of Ramon Papa, Jr., said estate should be impleaded. Petitioner, likewise, claimed that he could not 1) Allowing defendant to redeem from third-party defendants and ordering the latter to allow the former to
recall in detail the transaction which allegedly occurred in 1973; that he did not have TCT No. 28993 in his redeem the property in question, by paying the sum of P14,000.00 plus legal interest of 12% thereon from
possession; that he could not be held personally liable as he signed the deed merely as attorney-in-fact of said January 21, 1980;
Angela M. Butte. Finally, petitioner asseverated that as a result of the filing of the case, he was compelled to
hire the services of counsel for a fee of P20,000.00, for which respondents should be held liable. 2) Ordering defendant to execute a Deed of Absolute Sale in favor of plaintiff Felix Pearroyo covering the
property in question and to deliver peaceful possession and enjoyment of the said property to the said plaintiff,
Upon his motion, herein private respondent Delfin Jao was allowed to intervene in the case. Making free from any liens and encumbrances;
common cause with respondents Valencia and Pearroyo, respondent Jao alleged that the subject lot which had
been sold to respondent Pearroyo through respondent Valencia was in turn sold to him on 20 August 1973 for
the sum of P71,500.00, upon his paying earnest money in the amount of P5,000.00. He, therefore, prayed that Should this not be possible, for any reason not attributable to defendant, said defendant is ordered to pay to
judgment be rendered in favor of respondents Valencia and Pearroyo; and, that after the delivery of the title to plaintiff Felix Pearroyo the sum of P45,000.00 plus legal interest of 12% from June 15, 1973;
said respondents, the latter in turn be ordered to execute in his favor the appropriate deed of conveyance
covering the property in question and to turn over to him the rentals which aforesaid respondents sought to 3) Ordering plaintiff Felix Pearroyo to execute and deliver to intervenor a deed of absolute sale over the same
collect from petitioner Myron C. Papa. property, upon the latters payment to the former of the balance of the purchase price of P71,500.00;
Respondent Jao, likewise, averred that as a result of petitioners refusal to deliver the title to the property
to respondents Valencia and Pearroyo, who in turn failed to deliver the said title to him, he suffered mental Should this not be possible, plaintiff Felix Pearroyo is ordered to pay intervenor the sum of P5,000.00 plus
anguish and serious anxiety for which he sought payment of moral damages; and, additionally, the payment of legal interest of 12% from August 23, 1973; and
attorneys fees and costs.
4) Ordering defendant to pay plaintiffs the amount of P5,000.00 for and as attorneys fees and litigation
For his part, petitioner, as administrator of the Testate Estate of Angela M. Butte, filed a third-party
expenses.
complaint against herein private respondents, spouses Arsenio B. Reyes and Amanda Santos (respondent
Reyes spouses, for short). He averred, among others, that the late Angela M. Butte was the owner of the
subject property; that due to non-payment of real estate tax said property was sold at public auction by the City SO ORDERED.[1]
Treasurer of Quezon City to the respondent Reyes spouses on 21 January 1980 for the sum of P14,000.00; that
the one-year period of redemption had expired; that respondents Valencia and Pearroyo had sued petitioner Petitioner appealed the aforesaid decision of the trial court to the Court of Appeals, alleging among
Papa as administrator of the estate of Angela M. Butte, for the delivery of the title to the property; that the others that the sale was never consummated as he did not encash the check (in the amount of P40,000.00)
same aforenamed respondents had acknowledged that the price paid by them was insufficient, and that they given by respondents Valencia and Pearroyo in payment of the full purchase price of the subject lot. He
were willing to add a reasonable amount or a minimum of P55,000.00 to the price upon delivery of the maintained that what said respondents had actually paid was only the amount of P5,000.00 (in cash) as earnest
property, considering that the same was estimated to be worth P143,000.00; that petitioner was willing to money.
reimburse respondent Reyes spouses whatever amount they might have paid for taxes and other charges, since
the subject property was still registered in the name of the late Angela M. Butte; that it was inequitable to Respondent Reyes spouses, likewise, appealed the above decision. However, their appeal was dismissed
allow respondent Reyes spouses to acquire property estimated to be worth P143,000.00, for a measly sum because of failure to file their appellants brief.
of P14,000.00. Petitioner prayed that judgment be rendered cancelling the tax sale to respondent Reyes
spouses; restoring the subject property to him upon payment by him to said respondent Reyes spouses of the On 27 January 1992, the Court of Appeals rendered a decision, affirming with modification the trial
amount of P14,000.00, plus legal interest; and, ordering respondents Valencia and Pearroyo to pay him at courts decision, thus:
least P55,000.00 plus everything they might have to pay the Reyes spouses in recovering the property.

59
WHEREFORE, the second paragraph of the dispositive portion of the appealed decision is MODIFIED, by III. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ESTATE OF
ordering the defendant-appellant to deliver to plaintiff-appellees the owners duplicate of TCT No. 28993 of ANGELA M. BUTTE AND THE ESTATE OF RAMON PAPA, JR. ARE INDISPENSABLE
Angela M. Butte and the peaceful possession and enjoyment of the lot in question or, if the owners duplicate PARTIES IN THIS CASE.[6]
certificate cannot be produced, to authorize the Register of Deeds to cancel it and issue a certificate of title in
the name of Felix Pearroyo. In all other respects, the decision appealed from is AFFIRMED. Costs against Petitioner argues that respondent Court of Appeals erred in concluding that the alleged sale of the
defendant-appellant Myron C. Papa. subject property had been consummated. He contends that such a conclusion is based on the erroneous
presumption that the check (in the amount of P40,000.00) had been cashed, citing Art. 1249 of the Civil Code,
which provides, in part, that payment by checks shall produce the effect of payment only when they have been
SO ORDERED.[2] cashed or when through the fault of the creditor they have been impaired.[7] Petitioner insists that he never
cashed said check; and, such being the case, its delivery never produced the effect of payment. Petitioner,
In affirming the trial courts decision, respondent court held that contrary to petitioners claim that he did while admitting that he had issued receipts for the payments, asserts that said receipts, particularly the receipt
not encash the aforesaid check, and therefore, the sale was not consummated, there was no evidence at all that of PCIB Check No. 761025 in the amount of P40,000.00, do not prove payment. He avers that there must be a
petitioner did not, in fact, encash said check. On the other hand, respondent Pearroyo testified in court that showing that said check had been encashed. If, according to petitioner, the check had been encashed,
petitioner Papa had received the amount of P45,000.00 and issued receipts therefor. According to respondent respondent Pearroyo should have presented PCIB Check No. 761025 duly stamped received by the payee, or
court, the presumption is that the check was encashed, especially since the payment by check was not denied at least its microfilm copy.
by defendant-appellant (herein petitioner) who, in his Answer, merely alleged that he can no longer recall the
transaction which is supposed to have happened 10 years ago. [3] Petitioner finally avers that, in fact, the consideration for the sale was still in the hands of respondents
Valencia and Pearroyo, as evidenced by a letter addressed to him in which saidrespondents wrote, in part:
On petitioners claim that he cannot be held personally liable as he had acted merely as attorney-in-fact
of the owner, Angela M. Butte, respondent court held that such contention is without merit. This action was x x x. Please be informed that I had been authorized by Dr. Ramon Papa, Jr., heir of Mrs. Angela M. Butte to
not brought against him in his personal capacity, but in his capacity as the administrator of the Testate Estate pay you the aforementioned amount of P75,000.00 for the release and cancellation of subject propertys
of Angela M. Butte.[4] mortgage. The money is with me and if it is alright with you, I would like to tender the payment as soon as
On petitioners contention that the estate of Angela M. Butte should have been joined in the action as the possible. x x x.[8]
real party in interest, respondent court held that pursuant to Rule 3, Section 3 of the Rules of Court, the estate
of Angela M. Butte does not have to be joined in the action. Likewise, the estate of Ramon Papa, Jr., is not an We find no merit in petitioners arguments.
indispensable party under Rule 3, Section 7 of the same Rules. For the fact is that Ramon Papa, Jr., or his
estate, was not a party to the Deed of Absolute Sale, and it is basic law that contracts bind only those who are It is an undisputed fact that respondents Valencia and Pearroyo had given petitioner Myron C. Papa the
parties thereto.[5] amounts of Five Thousand Pesos (P5,000.00) in cash on 24 May 1973, and Forty Thousand Pesos
(P40,000.00) in check on 15 June 1973, in payment of the purchase price of the subject lot. Petitioner himself
Respondent court observed that the conditions under which the mortgage rights of the bank were admits having received said amounts,[9] and having issued receipts therefor.[10] Petitioners assertion that he
assigned are not clear. In any case, any obligation which the estate of Angela M. Butte might have to the estate never encashed the aforesaid check is not subtantiated and is at odds with his statement in his answer that he
of Ramon Papa, Jr. is strictly between them. Respondents Valencia and Pearroyo are not bound by any such can no longer recall the transaction which is supposed to have happened 10 years ago. After more than ten (10)
obligation. years from the payment in part by cash and in part by check, the presumption is that the check had been
encashed. As already stated, he even waived the presentation of oral evidence.
Petitioner filed a motion for reconsideration of the above decision, which motion was denied by
respondent Court of Appeals. Granting that petitioner had never encashed the check, his failure to do so for more than ten (10) years
undoubtedly resulted in the impairment of the check through his unreasonable and unexplained delay.
Hence, this petition wherein petitioner raises the following issues:
While it is true that the delivery of a check produces the effect of payment only when it is cashed,
I. THE CONCLUSION OR FINDING OF THE COURT OF APPEALS THAT THE SALE IN pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the creditors
QUESTION WAS CONSUMMATED IS GROUNDED ON SPECULATION OR CONJECTURE, unreasonable delay in presentment. The acceptance of a check implies an undertaking of due diligence in
AND IS CONTRARY TO THE APPLICABLE LEGAL PRINCIPLE. presenting it for payment, and if he from whom it is received sustains loss by want of such diligence, it will be
held to operate as actual payment of the debt or obligation for which it was given.[11] It has, likewise, been held
II. THE COURT OF APPEALS, IN MODIFYING THE DECISION OF THE TRIAL COURT,
that if no presentment is made at all, the drawer cannot be held liable irrespective of loss or injury[12] unless
ERRED BECAUSE IT, IN EFFECT, CANCELLED OR NULLIFIED AN ASSIGNMENT OF THE
presentment is otherwise excused. This is in harmony with Article 1249 of the Civil Code under which
SUBJECT PROPERTY IN FAVOR OF THE ESTATE OF RAMON PAPA, JR. WHICH IS NOT A
payment by way of check or other negotiable instrument is conditioned on its being cashed, except when
PARTY IN THIS CASE.
through the fault of the creditor, the instrument is impaired. The payee of a check would be a creditor under

60
this provision and if its non-payment is caused by his negligence, payment will be deemed effected and the Sycip, Salazar, Atienza, Luna and Caparas for appellant.
obligation for which the check was given as conditional payment will be discharged. [13] Emigdio V. Arcilla for appellee, Dy Eng Giok.
Cezar Miraflor for appellee Pedro Lopez Dee.
Considering that respondents Valencia and Pearroyo had fulfilled their part of the contract of sale by Pascual G. Mier for appellee Pedro E. Dy-Liacco.
delivering the payment of the purchase price, said respondents, therefore, had the right to compel petitioner to
deliver to them the owners duplicate of TCT No. 28993 of Angela M. Butte and the peaceful possession and
enjoyment of the lot in question. REYES J.B.L., J.:

With regard to the alleged assignment of mortgage rights, respondent Court of Appeals has found that Appeal interposed against that part of the decision of the Court of First Instance of Manila (in its civil case No.
the conditions under which said mortgage rights of the bank were assigned are not clear. Indeed, a perusal of 20305) absolving Pedro Lopez Dee and Pedro E. Dy-Liacco from the obligation to reimburse the plaintiff
the original records of the case would show that there is nothing there that could shed light on the transactions Traders Insurance and Surety Co.
leading to the said assignment of rights; nor is there any evidence on record of the conditions under which said
mortgage rights were assigned. What is certain is that despite the said assignment of mortgage rights, the title
to the subject property has remained in the name of the late Angela M. Butte.[14] This much is admitted by From the stipulation of facts made by the parties in the court below, it appears that from 1948 to 1952 the
petitioner himself in his answer to respondents complaint as well as in the third-party complaint that corporation "Destilleria Lim Tuaco & Co., Inc." had one Dy Eng Giok as its provincial sales agent, with the
petitioner filed against respondent-spouses Arsenio B. Reyes and Amanda Santos.[15] Assuming arquendo that duty of turning over the proceeds of his sales to the principal, the distillery company. As of August 3, 1951,
the mortgage rights of the Associated Citizens Bank had been assigned to the estate of Ramon Papa, Jr., and the agent Dy Eng Giok had an outstanding running account in favor of his principal in the sum of P12,898.61.
granting that the assigned mortgage rights validly exist and constitute a lien on the property, the estate may file
the appropriate action toenforce such lien. The cause of action for specific performance which respondents On August 4, 1951, a surety bond (Annex A, complaint) was executed by Dy Eng Giok, as principal and
Valencia and Pearroyo have against petitioner is different from the cause of action which the estate of Ramon appellant Traders Insurance and Surety Co., as solidary guarantor, whereby they bound themselves, jointly and
Papa, Jr. may have to enforce whatever rights or liens it has on the property by reason of its being an alleged severally, in the sum of P10,000.00 in favor of the Destilleria Lim Tuaco & Co., Inc., under the following
assignee of the banks rights of mortgage. terms:
Finally, the estate of Angela M. Butte is not an indispensable party. Under Section 3 of Rule 3 of the
Rules of Court, an executor or administrator may sue or be sued without joining the party for whose benefit THE CONDITION OF THIS OBLIGATION Is SUCH THAT: Whereas, the above bounden
the action is presented or defended, thus: principal has entered in to a contract with the aforementioned Company to act as their provincial
sales agent and to receive goods or their products under the said Principal's credit account. The
proceeds of the sales are to be turned over to the Company.
Sec. 3. Representative parties. - A trustee of an express trust, a guardian, executor or administrator, or a party
authorized by statute, may sue or be sued without joining the party for whose benefit the action is presented or
defended; but the court may, at any stage of the proceedings, order such beneficiary to be made a party. An WHEREAS, the contract requires the above bounden principal to give a good and sufficient bond in
agent acting in his own name and for the benefit of an undisclosed principal may sue or be sued without the above stated sum to secure the full and faithful fulfillment on its part of said contract; namely, to
joining the principal except when the contract involves things belonging to the principal.[16] guarantee the full payment of the Principal's obligation not to exceed the above stated sum.

Neither is the estate of Ramon Papa, Jr. an indispensable party without whom, no final determination of NOW THEREFORE, if the above bounden principal shall in all respects duly and fully observe and
the action can be had. Whatever prior and subsisting mortgage rights the estate of Ramon Papa, Jr. has over perform all and singular the aforesaid covenants, conditions, and agreements to the true intent and
the property may still be enforced regardless of the change in ownership thereof. meaning thereof, then this obligation shall be null and void; otherwise, to remain in full force and
effect.
WHEREFORE, the petition for review is hereby DENIED and the Decision of the Court of Appeals,
dated 27 January 1992 is AFFIRMED.
LIABILITY of surety on this bond will expire on August 4, 1952 and said bond will be cancelled
SO ORDERED. TEN DAYS after its expiration, unless surety is notified in writing of any existing obligations
thereunder or otherwise extended by the surety in writing. (Rec. App., pp. 7-8) (Emphasis supplied)
G.R. No. L-9073 November 17, 1958
On the same date, by Eng Giok, as principal, with Pedro Lopez Dee and Pedro Dy-Liacco, as
counterboundsmen, subscribed an indemnity agreement (Annex B. of the complaint) in favor of appellant
TRADERS INSURANCE and SURETY COMPANY, plaintiff-appellant,
Surety Company, whereby, in consideration of its surety bond (Annex A), the three agreed to be obligated to
vs.
the surety company —
DY ENG GIOK, PEDRO LOPEZ DEE and PEDRO E. DY-LIACCO, defendants-appellees.

61
INDEMNITY: — To indemnify the COMPANY for any damage, prejudice, loss, costs, payments, A similar situation was dealt with in our decision in the case of Municipality of Lemery vs. Mendoza, 48 Phil.
advances and expenses of whatever kind and nature, including counsel or attorney's fees, which the 415, wherein we said (pp. 422-423):
Company may, at any time, sustain or incur, as a consequence of having executed the
abovementioned bond, its renewals, extensions or substitutions, and said attorney's fee shall not be
As we have previously stated Mendoza has paid to the municipality the full sum of P23,000. In our
less than (15%) per cent of the amount claimed by the Company in each action, the same to be due opinion this discharged the sureties from all further liability. The circumstance that the sum of
and payable, irrespective of whether the case is settled judicially or extrajudicially. (Rec. App. pp. P23,000 which Mendoza paid may have been applied by the municipality to Mendoza's
9-10) indebtedness for the first year of the lease is without significance as against the sureties, since the
sureties were not parties to the contract of lease (Exhibit D) and are liable only upon the contract of
From August 4, 1951 to August 3, 1952, agent Dy Eng Giok contracted obligations in favor of the Destilleria suretyship (Exhibit E), which calls for the payments of only P23,000 by the principal. It is, just rule
Lim Tuaco & Co., in the total amount of P41,449.93; and during the same period, he made remittances of jurisprudence, recognized in article 1827 of the Civil Code, that the obligation of a surety must
amounting to P41,864.49. The distillary company, however, applied said remittances first to Dy Eng Giok's be express and cannot be extended by implication beyond its specified limits.
outstanding balance prior to August 4, 1951 (before the suretyship agreement was executed) in the sum of
P12,898.61; and the balance of P28,965.88 to Dy's obligations between August 4, 1951 and August 3, 1952. It We do not overlook the fact that the obligating clause in Exhibit E binds the sureties in the amount
then demanded payment of the remainder (P12,484.05) from the agent, and later, from the appellant Surety of P46,000, but, as in all bonds, that obligation was intended as an assurance of the performance of
Company. The latter paid P10,000.00 (the maximum of its bond) on July 17, 1953, apparently, without the principal obligation and when the principal obligation was discharged, the larger obligation
questioning the demand; and then sought reimbursement from Dy Eng Giok and his counter guarantors, expressed in the contract of suretyship ceased to have any vitality.
appellees herein. Upon their failure to pay, it began the present action to enforce collection.

The second reason is that, since the obligations of Dy Eng Giok between August 4, 1951 to August 4, 1952,
After trial, the Court of First Instance of Manila absolved the counter-guarantors Pedro Lopez Dee and Pedro were guaranteed, while his indebtedness prior to that period was not secured, then in the absence of express
Dy-Liacco, on the theory that in so far as they are concerned, the payments made by Dy Eng Giok from application by the debtor, or of any receipt issued by the creditor specifying a particular imputation of the
August 4, 1951 to August 3, 1952, in the sum of P41,864.49, should have been applied to his obligations
payment (New Civil Code, Art. 1252), any partial payments made by him should be imputed or applied to the
during that period, which were the ones covered by the surety bond and the counter-guaranty; and as these debts that were guaranteed, since they are regarded as the more onerous debts from the standpoint of the
obligations only amounted to P41,449.93, so that the payments exceeded the obligations, the court concluded
debtor (New Civil Code, Art. 1254).
that the Surety Company incurred no liability and the counterbondsmen in turn had nothing to answer for. The
trial court, however, sentenced Dy Eng Giok to repay to the Surety Company P10,000 with interest at 12% per
annum, plus P1,500 attorneys' fee and the costs of the suit. ART. 1254. When the payment cannot be applied in accordance with the preceding rules, or if
application can not be inferred from other circumstances, the debt which is most onerous to the
debtor, among those due, shall be deemed to have been satisfied.
Not satisfied with the decision, the Traders Insurance & Surety Company appealed to this Court on points of
law.
If the debts due are of the same nature and burden, the payment shall be applied to all of them
proportionately.
We find the decision appealed from to be correct. There are two reasons why the remittances by Dy Eng Giok
in the sum of P41,864.49 should be applied to the obligation of P41,449.93 contracted by him during the
period covered by the suretyship agreement, Annex A. The first is that, in the absence of express stipulation, a Debts covered by a guaranty are deemed more onerous to the debtor than the simple obligations because, in
guaranty or suretyship operates prospectively and not retroactively; that is to say, it secures only the debts their case, the debtor may be subjected to action not only by the creditor, but also by the guarantor, and this
contracted after the guaranty takes effect (El Vencedor vs. Canlas, 44 Phil. 699). This rule is a consequence of even before the guaranteed debt is paid by the guarantor (Art. 2071, New Civil Code); hence, the payment of
the statutory directive that a guaranty is not presumed, but must be express, and can not extend to more than the guaranteed debt liberates the debtor from liability to the creditor as well as to the guarantor, while payment
what is stipulated. (New Civil Code, Art. 2055). To apply the payments made by the principal debtor to the of the unsecured obligation only discharges him from possible action by only one party, the unsecured
obligations he contracted prior to the guaranty is, in effect, to make the surety answer for debts incurred creditor.
outside of the guaranteed period, and this can not be done without the express consent of the guarantor. Note
that the suretyship agreement, Annex A, did not guarantee the payment of any outstanding balance due from The rule that guaranteed debts are to be deemed more onerous to the debtor than those not guaranteed, and
the principal debtor, Dy Eng Giok; but only that he would turn over the proceeds of the sales to the "Destilleria entitled to priority in the application of the debtor's payments, was already recognized in the Roman Law
Lim Tuaco & Co., Inc.", and this he has done, since his remittances during the period of the guaranty exceed (Ulpian, fr. ad Sabinum, Digest, Lib. 46, Tit 3, Law 4, in fine), and has passed to us through the Spanish Civil
the value of his sales. There is no evidence that these remittances did not come from his sales. Code. Manresa in his Commentaries to Art. 1174 of that Code (8 Manresa, Vol. 1, 5th Ed., p. 603) expressly
says:

62
Atendiendo al gravamen, la deuda garantida es mas onerosa que la simple. INCONTESTABILITY OF PAYMENTS MADE BY THE COMPANY: Any payment of
disbursement made by the COMPANY on account of the abovementioned Bond, its renewals,
And this is also the rule in Civil law countries, like France (Dalloz, Jurisprudence General Vo. obligation, sec. extensions or substitutions, either in the belief that the Company was obligated to make such
payment or in the belief that said payment was necessary in order to avoid greater losses or
2033; Planiol, Traite Elem. (2d Ed). Vol. 2, No. 454) and Louisiana (Caltex Oil & Gas, Co. vs. Smith, 175 La.
678, 144 So. 243; Everett vs. Graye, 3 La. App. 136): also Italy (7 Giorgi, Teoria delle Obbl. p. 167). obligations for which the Company might be liable by virtue of the terms of the abovementioned
Bond, its renewals, extensions or substitutions shall be final and will not be disputed by the
undersigned who jointly and severally bind themselves to indemnify the COMPANY for any and all
It is thus clear that the payment voluntarily made by appellant was improper since it was not liable under its such payments as stated in the preceding clauses. (Rec. App., p. 11)
bond; consequently, it can not demand reimbursement from the counterbondsmen but only from Dy Eng Giok,
who was anyway benefited pro tanto by the Surety Company's payment.
We agree with the appellee that this kind of clauses are void and unenforceable, as against public policy,
"because they enlarge the field for fraud, because in these instruments the promissor bargains away his right to
The present case is to be clearly distinguished from Hongkong Shanghai Bank vs. Aldanese, 48 Phil., 990, a day in court and because the effect of the instrument is to strike down the right of appeal accorded by the
and Commonwealth vs. Far Eastern Surety & Insurance Co., 83 Phil., 305, 46 Off. Gaz. 4879 and similar statute." (see National Bank vs. Manila Oil Refining Co., 43 Phil. 467)
rulings, wherein the debt in each case owned the creditor one single debt of which only a portion was
guaranteed. In those cases, we have ruled that the guarantors had no right to demand that the partial payments
made by the principal debtor should be applied precisely to the portion guaranteed. The reason is apparent: the Finding no error in the judgment appealed from, the same is affirmed. Costs against appellant. So ordered.
legal rules of imputation of payments presuppose that the debtor owes several distinct debts of the same
nature; and does not distinguish between portions of the same debt. Hence, where the debtor only owes one SUBHASH C. PASRICHA and JOSEPHINE A. G.R. No. 136409
debt, all partial payments must necessarily be applied to that debt, and the guarantor answers for any unpaid PASRICHA,
balance, provided it does not exceed the limits of the guaranty. Any other solution would defeat the purpose of
the security. In the case before us, however, the guaranty secured the performance by the debtor of his Petitioners, Present:
obligation to remit to the distillery company the proceeds of his sales during the period of the guaranty
(August 4, 1951 to August 4, 1952). This obligation is entirely distinct and separate from his obligation to
YNARES-SANTIAGO, J.,
remit the proceeds of his sales during a different period, say before August 4, 1951. The debtor, therefore,
actually owed two distinct debts: for the value of his sales before August 4, 1951 and for the import of the
sales between that date and August 4, 1952. There being two debts, his partial payments had necessarily to be Chairperson,
applied (in the absence of express imputation) first to the obligation that was more onerous for him, which was
the one secured by the guaranty. QUISUMBING,*

It is legally unimportant that the creditor should have applied the payment to the prior indebtedness. Where the - versus - AUSTRIA-MARTINEZ,
debtor has not expressly elected any particular obligation to which the payment should be applied, the
application by the creditor, in order to be valid and lawful, depends: (1) upon his expressing such application CHICO-NAZARIO, and
in the corresponding receipt and (2) upon the debtor's assent, shown by his acceptance of the receipt without
protest. This is the import of paragraph 2 of Art. 1252 of the New Civil Code: NACHURA, JJ.

If the debtor accepts from the creditor a receipt in which an application of the payment is made, the
former cannot complain of the same, unless there is a cause for invalidating the contract.
Promulgated:
Ultimately, therefore, the application by a creditor depends upon the debtor acquiescence thereto. In the
present case, as already noted, there is no evidence that the receipts for payment expressed any imputation, or DON LUIS DISON REALTY, INC.,
that the debtor agreed to the same.
Respondent. March 14, 2008
The appellant Surety Company avers that the counterbondsmen can not question the payment made by it to
Destilleria Lim Tuaco on the debt of Dy Eng Giok, because their counterbond or indemnity agreement (Annex
B, par. 7) provided that:
x------------------------------------------------------------------------------------x

63
DECISION From March 1, 1999 to February 28, 2000 P11,789.75/P23,579.48[4]

NACHURA, J.: For Rooms 22 and 24:

Effective July 1, 1992 P10,000.00 with an increment of 10% every two years.[5]
This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking the reversal
For Rooms 33 and 34:
of the Decision[1] of the Court of Appeals (CA) dated May 26, 1998 and its Resolution[2] dated December 10,
Effective April 1, 1992 P5,000.00 with an increment of 10% every two years.[6]
1998 in CA-G.R. SP No. 37739 dismissing the petition filed by petitioners Josephine and Subhash Pasricha.
For Rooms 36, 37 and 38:

The facts of the case, as culled from the records, are as follows: Effective when tenants vacate said premises P10,000.00 with an increment of 10% every
two years.[7]

Respondent Don Luis Dison Realty, Inc. and petitioners executed two Contracts of Lease[3] whereby
Petitioners were, likewise, required to pay for the cost of electric consumption, water bills and the use of
the former, as lessor, agreed to lease to the latter Units 22, 24, 32, 33, 34, 35, 36, 37 and 38 of the San Luis
telephone cables.[8]
Building, located at 1006 M.Y. Orosa cor. T.M. Kalaw Streets, Ermita, Manila. Petitioners, in turn, agreed to

pay monthly rentals, as follows: The lease of Rooms 36, 37 and 38 did not materialize leaving only Rooms 22, 24, 32, 33, 34 and 35 as subjects

of the lease contracts.[9] While the contracts were in effect, petitioners dealt with Francis Pacheco (Pacheco),

For Rooms 32/35: then General Manager of private respondent. Thereafter, Pacheco was replaced by Roswinda Bautista (Ms.

From March 1, 1991 to August 31, 1991 P5,000.00/P10,000.00 Bautista).[10]Petitioners religiously paid the monthly rentals until May 1992. [11] After that, however, despite

From September 1, 1991 to February 29, 1992 P5,500.00/P11,000.00 repeated demands, petitioners continuously refused to pay the stipulated rent.Consequently, respondent was

From March 1, 1992 to February 28, 1993 P6,050.00/P12,100.00 constrained to refer the matter to its lawyer who, in turn, made a final demand on petitioners for the payment

From March 1, 1993 to February 28, 1994 P6,655.00/P13,310.00 of the accrued rentals amounting to P916,585.58.[12] Because petitioners still refused to comply, a complaint

From March 1, 1994 to February 28, 1995 P7,320.50/P14,641.00 for ejectment was filed by private respondent through its representative, Ms. Bautista, before the Metropolitan

From March 1, 1995 to February 28, 1996 P8,052.55/P16,105.10 Trial Court (MeTC) of Manila.[13] The case was raffled to Branch XIX and was docketed as Civil Case No.

From March 1, 1996 to February 29, 1997 P8,857.81/P17,715.61 143058-CV.

From March 1, 1997 to February 28, 1998 P9,743.59/P19,487.17

From March 1, 1998 to February 28, 1999 P10,717.95/P21,435.89

64
Petitioners admitted their failure to pay the stipulated rent for the leased premises starting July until November Deciding the case on appeal, the Regional Trial Court (RTC) of Manila, Branch 1, in Civil Case No. 94-72515,

1992, but claimed that such refusal was justified because of the internal squabble in respondent company as to reversed and set aside the MeTC Decision in this wise:

the person authorized to receive payment.[14] To further justify their non-payment of rent, petitioners alleged WHEREFORE, the appealed decision is hereby reversed and set aside and another one is
rendered ordering defendants-appellees and all persons claiming rights under them, as
that they were prevented from using the units (rooms) subject matter of the lease contract, except Room follows:

35. Petitioners eventually paid their monthly rent for December 1992 in the amount of P30,000.00, and

claimed that respondent waived its right to collect the rents for the months of July to November 1992 since (1) to vacate the leased premised (sic) and restore possession thereof to
plaintiff-appellant;
petitioners were prevented from using Rooms 22, 24, 32, 33, and 34. [15] However, they again withheld
(2) to pay plaintiff-appellant the sum of P967,915.80 representing the
payment of rents starting January 1993 because of respondents refusal to turn over Rooms 36, 37 and 38. [16] To accrued rents in arrears as of November 1993, and the rents on the leased
premises for the succeeding months in the amounts stated in paragraph 5
show good faith and willingness to pay the rents, petitioners alleged that they prepared the check vouchers for of the complaint until fully paid; and

their monthly rentals from January 1993 to January 1994. [17] Petitioners further averred in their Amended (3) to pay an additional sum equivalent to 25% of the rent accounts as and
[18] for attorneys fees plus the costs of this suit.
Answer that the complaint for ejectment was prematurely filed, as the controversy was not referred to

the barangay for conciliation.


SO ORDERED.[20]
For failure of the parties to reach an amicable settlement, the pre-trial conference was terminated. Thereafter,

they submitted their respective position papers. The court adopted the MeTCs finding on petitioners unjustified refusal to pay the rent, which is a valid ground

for ejectment. It, however, faulted the MeTC in dismissing the case on the ground of lack of capacity to
[19]
On November 24, 1994, the MeTC rendered a Decision dismissing the complaint for ejectment. It
sue. Instead, it upheld Ms. Bautistas authority to represent respondent notwithstanding the absence of a board
considered petitioners non-payment of rentals as unjustified. The court held that mere willingness to pay the
resolution to that effect, since her authority was implied from her power as a general manager/treasurer of the
rent did not amount to payment of the obligation; petitioners should have deposited their payment in the name
company.[21]
of respondent company. On the matter of possession of the subject premises, the court did not give credence to

petitioners claim that private respondent failed to turn over possession of the premises. The court, however,

dismissed the complaint because of Ms. Bautistas alleged lack of authority to sue on behalf of the corporation. Aggrieved, petitioners elevated the matter to the Court of Appeals in a petition for review

on certiorari.[22] On March 18, 1998, petitioners filed an Omnibus Motion[23] to cite Ms. Bautista for contempt;

65
on their face by reason of the complete abdication by the RTC and the Honorable
to strike down the MeTC and RTC Decisions as legal nullities; and to conduct hearings and ocular inspections Justice Ruben Reyes of their constitutional duty not only to clearly and distinctly state
the facts and the law on which a decision is based but also to resolve the decisive factual
or delegate the reception of evidence. Without resolving the aforesaid motion, on May 26, 1998, the CA issues in any given case.

affirmed[24] the RTC Decision but deleted the award of attorneys fees.[25] III.

Whether the (1) failure and refusal of Honorable Justice Ruben Reyes to inhibit himself,
Petitioners moved for the reconsideration of the aforesaid decision. [26] Thereafter, they filed several despite his admission by reason of his silence of petitioners accusation that the said
Justice enjoyed a $7,000.00 scholarship grant courtesy of the uncle-in-law of respondent
motions asking the Honorable Justice Ruben T. Reyes to inhibit from further proceeding with the case
corporations purported general manager and (2), worse, his act of ruling against the
petitioners and in favor of the respondent corporation constitute an unconstitutional
allegedly because of his close association with Ms. Bautistas uncle-in-law.[27]
deprivation of petitioners property without due process of law. [32]

In a Resolution[28] dated December 10, 1998, the CA denied the motions for lack of merit. The appellate court
In addition to Ms. Bautistas lack of capacity to sue, petitioners insist that respondent company has no standing
considered said motions as repetitive of their previous arguments, irrelevant and obviously dilatory. [29] As to
to sue as a juridical person in view of the suspension and eventual revocation of its certificate of
the motion for inhibition of the Honorable Justice Reyes, the same was denied, as the appellate court justice
registration.[33] They likewise question the factual findings of the court on the bases of their ejectment from the
stressed that the decision and the resolution were not affected by extraneous matters. [30] Lastly, the appellate
subject premises. Specifically, they fault the appellate court for not finding that: 1) their non-payment of
court granted respondents motion for execution and directed the RTC to issue a new writ of execution of its
rentals was justified; 2) they were deprived of possession of all the units subject of the lease contract except
decision, with the exception of the award of attorneys fees which the CA deleted. [31]
Room 35; and 3) respondent violated the terms of the contract by its continued refusal to turn over possession

Petitioners now come before this Court in this petition for review on certiorari raising the following issues: of Rooms 36, 37 and 38. Petitioners further prayed that a Temporary Restraining Order (TRO) be issued

I. enjoining the CA from enforcing its Resolution directing the issuance of a Writ of Execution. Thus, in a

Whether this ejectment suit should be dismissed and whether petitioners are Resolution[34] dated January 18, 1999, this Court directed the parties to maintain the status quo effective
entitled to damages for the unauthorized and malicious filing by Rosario (sic) Bautista of
this ejectment case, it being clear that [Roswinda] whether as general manager or by immediately until further orders.
virtue of her subsequent designation by the Board of Directors as the corporations
attorney-in-fact had no legal capacity to institute the ejectment suit, independently of
The petition lacks merit.
whether Director Pacanas Order setting aside the SEC revocation Order is a mere scrap of
paper.
We uphold the capacity of respondent company to institute the ejectment case. Although the Securities and
II.
Exchange Commission (SEC) suspended and eventually revoked respondents certificate of registration
Whether the RTCs and the Honorable Court of Appeals failure and refusal to resolve the
most fundamental factual issues in the instant ejectment case render said decisions void on February 16, 1995, records show that it instituted the action for ejectment on December 15,

66
1993. Accordingly, when the case was commenced, its registration was not yet revoked. [35] Besides, as technicalities in the interest of justice. This is not to say that we disregard the requirement of prior authority to

correctly held by the appellate court, the SEC later set aside its earlier orders of suspension and revocation of act in the name of a corporation. The relaxation of the rules applies only to highly meritorious cases, and when

respondents certificate, rendering the issue moot and academic.[36] there is substantial compliance. While it is true that rules of procedure are intended to promote rather than

frustrate the ends of justice, and while the swift unclogging of court dockets is a laudable objective, we should
We likewise affirm Ms. Bautistas capacity to sue on behalf of the company despite lack of proof of authority
not insist on strict adherence to the rules at the expense of substantial justice.[43] Technical and procedural rules
to so represent it. A corporation has no powers except those expressly conferred on it by the Corporation Code
are intended to help secure, not suppress, the cause of justice; and a deviation from the rigid enforcement of
and those that are implied from or are incidental to its existence. In turn, a corporation exercises said powers
the rules may be allowed to attain that prime objective, for, after all, the dispensation of justice is the core
through its board of directors and/or its duly authorized officers and agents. Physical acts, like the signing of
reason for the existence of courts.[44]
documents, can be performed only by natural persons duly authorized for the purpose by corporate by-laws or

by a specific act of the board of directors.[37] Thus, any person suing on behalf of the corporation should As to the denial of the motion to inhibit Justice Reyes, we find the same to be in order. First, the motion to

present proof of such authority. Although Ms. Bautista initially failed to show that she had the capacity to sign inhibit came after the appellate court rendered the assailed decision, that is, after Justice Reyes had already

the verification and institute the ejectment case on behalf of the company, when confronted with such rendered his opinion on the merits of the case. It is settled that a motion to inhibit shall be denied if filed after

question, she immediately presented the Secretarys Certificate[38] confirming her authority to represent the a member of the court had already given an opinion on the merits of the case, the rationale being that a litigant

company. cannot be permitted to speculate on the action of the court x x x (only to) raise an objection of this sort after

the decision has been rendered.[45] Second, it is settled that mere suspicion that a judge is partial to one of the
There is ample jurisprudence holding that subsequent and substantial compliance may call for the
parties is not enough; there should be evidence to substantiate the suspicion. Bias and prejudice cannot be
relaxation of the rules of procedure in the interest of justice. [39] In Novelty Phils., Inc. v. Court of
presumed, especially when weighed against a judges sacred pledge under his oath of office to administer
Appeals,[40] the Court faulted the appellate court for dismissing a petition solely on petitioners failure to timely
justice without regard for any person and to do right equally to the poor and the rich. There must be a showing
submit proof of authority to sue on behalf of the corporation. In Pfizer, Inc. v. Galan,[41] we upheld the
of bias and prejudice stemming from an extrajudicial source, resulting in an opinion on the merits based on
sufficiency of a petition verified by an employment specialist despite the total absence of a board resolution
something other than what the judge learned from his participation in the case.[46] We would like to reiterate, at
authorizing her to act for and on behalf of the corporation. Lastly, in China Banking Corporation v.
this point, the policy of the Court not to tolerate acts of litigants who, for just about any conceivable reason,
Mondragon International Philippines, Inc,[42] we relaxed the rules of procedure because the corporation

ratified the managers status as an authorized signatory. In all of the above cases, we brushed aside

67
seek to disqualify a judge (or justice) for their own purpose, under a plea of bias, hostility, prejudice or when affirmed by the Court of Appeals, are final and conclusive, and cannot be reviewed on appeal by the

prejudgment.[47] Supreme Court.[50] Albeit the rule admits of exceptions, not one of them obtains in this case.[51]

We now come to the more substantive issue of whether or not the petitioners may be validly ejected from the To settle this issue once and for all, we deem it proper to assess the array of factual findings supporting the

leased premises. courts conclusion.

Unlawful detainer cases are summary in nature. In such cases, the elements to be proved and resolved are the The evidence of petitioners non-payment of the stipulated rent is overwhelming. Petitioners,

fact of lease and the expiration or violation of its terms.[48]Specifically, the essential requisites of unlawful however, claim that such non-payment is justified by the following: 1) the refusal of respondent to allow

detainer are: 1) the fact of lease by virtue of a contract, express or implied; 2) the expiration or termination of petitioners to use the leased properties, except room 35; 2) respondents refusal to turn over Rooms 36, 37 and

the possessors right to hold possession; 3) withholding by the lessee of possession of the land or building after 38; and 3) respondents refusal to accept payment tendered by petitioners.

the expiration or termination of the right to possess; 4) letter of demand upon lessee to pay the rental or
Petitioners justifications are belied by the evidence on record. As correctly held by the CA, petitioners
comply with the terms of the lease and vacate the premises; and 5) the filing of the action within one year from
communications to respondent prior to the filing of the complaint never mentioned their alleged inability to
the date of the last demand received by the defendant.[49]
use the rooms.[52] What they pointed out in their letters is that they did not know to whom payment should be

It is undisputed that petitioners and respondent entered into two separate contracts of lease involving nine (9) made, whether to Ms. Bautista or to Pacheco.[53] In their July 26 and October 30, 1993 letters, petitioners only

rooms of the San Luis Building. Records, likewise, show that respondent repeatedly demanded that petitioners questioned the method of computing their electric billings without, however, raising a complaint about their

vacate the premises, but the latter refused to heed the demand; thus, they remained in possession of the failure to use the rooms.[54] Although petitioners stated in their December 30, 1993 letter that respondent failed

premises. The only contentious issue is whether there was indeed a violation of the terms of the contract: on to fulfill its part of the contract,[55] nowhere did they specifically refer to their inability to use the leased

the part of petitioners, whether they failed to pay the stipulated rent without justifiable cause; while on the part rooms. Besides, at that time, they were already in default on their rentals for more than a year.

of respondent, whether it prevented petitioners from occupying the leased premises except Room 35.
If it were true that they were allowed to use only one of the nine (9) rooms subject of the contract of

This issue involves questions of fact, the resolution of which requires the evaluation of the evidence lease, and considering that the rooms were intended for a business purpose, we cannot understand why they

presented. The MeTC, the RTC and the CA all found that petitioners failed to perform their obligation to pay did not specifically assert their right. If we believe petitioners contention that they had been prevented from

the stipulated rent. It is settled doctrine that in a civil case, the conclusions of fact of the trial court, especially using the rooms for more than a year before the complaint for ejectment was filed, they should have demanded

68
specific performance from the lessor and commenced an action in court. With the execution of the contract, Consignation shall be made by depositing the things due at the disposal of a judicial authority,

petitioners were already in a position to exercise their right to the use and enjoyment of the property according before whom the tender of payment shall be proved in a proper case, and the announcement of the

to the terms of the lease contract.[56] As borne out by the records, the fact is that respondent turned over to consignation in other cases.[57]

petitioners the keys to the leased premises and petitioners, in fact, renovated the rooms. Thus, they were placed
In the instant case, consignation alone would have produced the effect of payment of the
in possession of the premises and they had the right to the use and enjoyment of the same. They, likewise, had
rentals. The rationale for consignation is to avoid the performance of an obligation becoming more onerous to
the right to resist any act of intrusion into their peaceful possession of the property, even as against the lessor
the debtor by reason of causes not imputable to him. [58] Petitioners claim that they made a written tender of
itself. Yet, they did not lift a finger to protect their right if, indeed, there was a violation of the contract by the
payment and actually prepared vouchers for their monthly rentals. But that was insufficient to constitute a
lessor.
valid tender of payment. Even assuming that it was valid tender, still, it would not constitute payment for want

What was, instead, clearly established by the evidence was petitioners non-payment of rentals of consignation of the amount. Well-settled is the rule that tender of payment must be accompanied by

because ostensibly they did not know to whom payment should be made.However, this did not justify their consignation in order that the effects of payment may be produced.[59]

failure to pay, because if such were the case, they were not without any remedy. They should have availed of
Moreover, Section 1, Rule 62 of the Rules of Court provides:
the provisions of the Civil Code of the Philippines on the consignation of payment and of the Rules of Court

on interpleader.
Section 1. When interpleader proper. Whenever conflicting claims upon the same subject
matter are or may be made against a person who claims no interest whatever in the
Article 1256 of the Civil Code provides: subject matter, or an interest which in whole or in part is not disputed by the claimants,
he may bring an action against the conflicting claimants to compel them to interplead and
Article 1256. If the creditor to whom tender of payment has been made refuses litigate their several claims among themselves.
without just cause to accept it, the debtor shall be released from responsibility by the
consignation of the thing or sum due.
Otherwise stated, an action for interpleader is proper when the lessee does not know to whom payment of
Consignation alone shall produce the same effect in the following cases:
rentals should be made due to conflicting claims on the property (or on the right to collect). [60] The remedy is
xxxx
afforded not to protect a person against double liability but to protect him against double vexation in respect of
(4) When two or more persons claim the same right to collect;
one liability.[61]
x x x x.

69
[G.R. No. 138588. August 23, 2001]
Notably, instead of availing of the above remedies, petitioners opted to refrain from making

payments.
FAR EAST BANK & TRUST COMPANY, petitioner, vs. DIAZ REALTY INC., respondent.
Neither can petitioners validly invoke the non-delivery of Rooms 36, 37 and 38 as a justification
for non-payment of rentals. Although the two contracts embraced the lease of nine (9) rooms, the terms of the
DECISION
contracts - with their particular reference to specific rooms and the monthly rental for each - easily raise the
inference that the parties intended the lease of each room separate from that of the others. There is nothing in PANGANIBAN, J.:
the contract which would lead to the conclusion that the lease of one or more rooms was to be made dependent
upon the lease of all the nine (9) rooms. Accordingly, the use of each room by the lessee gave rise to the For a valid tender of payment, it is necessary that there be a fusion of intent, ability and capability to
corresponding obligation to pay the monthly rental for the same. Notably, respondent demanded payment of make good such offer, which must be absolute and must cover the amount due. Though a check is not legal
rentals only for the rooms actually delivered to, and used by, petitioners. tender, and a creditor may validly refuse to accept it if tendered as payment, one who in fact accepted a fully
funded check after the debtors manifestation that it had been given to settle an obligation is estopped from
It may also be mentioned that the contract specifically provides that the lease of Rooms 36, 37 and later on denouncing the efficacy of such tender of payment.
38 was to take effect only when the tenants thereof would vacate the premises.Absent a clear showing that the
previous tenants had vacated the premises, respondent had no obligation to deliver possession of the subject
rooms to petitioners. Thus, petitioners cannot use the non-delivery of Rooms 36, 37 and 38 as an excuse for The Case
their failure to pay the rentals due on the other rooms they occupied.

In light of the foregoing disquisition, respondent has every right to exercise his right to eject the erring The foregoing principle is used by this Court in resolving the Petition for Review [1] on Certiorari before
lessees. The parties contracts of lease contain identical provisions, to wit: us, challenging the January 26, 1999 Decision[2] of the Court of Appeals[3] (CA) in CA-GR CV No.
45349. The dispositive portion of the assailed Decision reads as follows:
In case of default by the LESSEE in the payment of rental on the fifth (5 th) day of each
month, the amount owing shall as penalty bear interest at the rate of FOUR percent (4%) WHEREFORE, the judgment appealed from is hereby MODIFIED, to read as follows:
per month, to be paid, without prejudice to the right of the LESSOR to terminate his
contract, enter the premises, and/or eject the LESSEE as hereinafter set forth; [62] WHEREFORE, JUDGMENT IS HEREBY RENDERED, ORDERING:

1. The plaintiffs to pay Far East Bank & Trust Company the principal sum of P1,067,000.00 plus interests
Moreover, Article 1673[63] of the Civil Code gives the lessor the right to judicially eject the lessees in case of thereon computed at 12% per annum from July 9, 1988 until fully paid;
non-payment of the monthly rentals. A contract of lease is a consensual, bilateral, onerous and commutative
2. The parties to negotiate for a new lease over the subject premises; and
contract by which the owner temporarily grants the use of his property to another, who undertakes to pay the
3. The defendant to pay the plaintiff the sum of fifteen thousand (P15,000.00) pesos as and for attorneys fees
rent therefor.[64] For failure to pay the rent, petitioners have no right to remain in the leased premises. plus the costs of litigation.

WHEREFORE, premises considered, the petition is DENIED and the Status Quo Order All other claims of the parties against each other are DENIED.[4]
dated January 18, 1999 is hereby LIFTED. The Decision of the Court of Appeals dated May 26, 1998 and its
Resolution dated December 10, 1998 in CA-G.R. SP No. 37739 are AFFIRMED. Likewise assailed is the May 4, 1999 CA Resolution, [5] which denied petitioners Motion for
Reconsideration.
SO ORDERED.

70
The Facts After trial, the court a quo rendered judgment on August 6, 1993, the dispositive portion of which reads as
follows:

The court a quo summarized the antecedents of the case as follows: WHEREFORE, judgment is hereby rendered as follows:

Sometime in August 1973, Diaz and Company got a loan from the former PaBC [Pacific Banking 1. The plaintiff and defendant shall jointly compute the interest due on the P1,057,000.00 loan from April 18,
Corporation] in the amount of P720,000.00, with interest at 12% per annum, later increased to 14%, 16%, 18% 1985 until November 14, 1988 at 12% per annum (IBAA Salazar Case Supra).
and 20%. The loan was secured by a real estate mortgage over two parcels of land owned by the plaintiff Diaz
Realty, both located in Davao City. In 1981, Allied Banking Corporation rented an office space in the building
constructed on the properties covered by the mortgage contract, with the conformity of mortgagee PaBC, 2. That the parties shall then add the result of the joint computation mentioned in paragraph one of the
whereby the parties agreed that the monthly rentals shall be paid directly to the mortgagee for the lessors dispositive portion to the P1,057,000.00 principal.
account, either to partly or fully pay off the aforesaid mortgage indebtedness. Pursuant to such contract, Allied
Bank paid the monthly rentals to PaBC instead of to the plaintiffs. On July 5, 1985, the Central Bank closed 3. The result of the addition of the P1,057,000.00 principal and the interests arrived at shall then be compared
PaBC, placed it under receivership, and appointed Renan Santos as its liquidator. Sometime in December with the P1,450,000.00 deposit and if P1,450,000.00 is not enough, then the plaintiff shall pay the
1986, appellant FEBTC purchased the credit of Diaz & Company in favor of PaBC, but it was not until March difference/deficiency between the P1,450,000.00 deposit and what the parties jointly computed[;] conversely,
23, 1988 that Diaz was informed about it. if the P1,450,000.00 is more than what the parties have arrived [at] after the computation, the defendant shall
return the difference or the excess to the plaintiffs.
According to the plaintiff as alleged in the complaint and testified to by Antonio Diaz (President of Diaz &
Company and Vice-President of Diaz Realty), on March 23, 1988, he went to office of PaBC which by then 4. The defendant shall cancel the mortgage.
housed FEBTC and was told that the latter had acquired PaBC; that Cashier Ramon Lim told him that as of
such date, his loan was P1,447,142.03; that he (Diaz) asked the defendant to make an accounting of the
5. Paragraph eight of the Lease Contract between Allied Bank and the plaintiffs in which the defendants
monthly rental payments made by Allied Bank; that on December 14, 1988,[6] Diaz tendered to FEBTC the
predecessor, Pacific Banking gave its conformity (Exh. H) is hereby cancelled, so that the rental should now
amount of P1,450,000.00 through an Interbank check, in order to prevent the imposition of additional interests,
be paid to the plaintiffs.
penalties and surcharges on its loan; that FEBTC did not accept it as payment; that instead, Diaz was asked to
deposit the amount with the defendants Davao City Branch Office, allegedly pending the approval of Central
Bank Liquidator Renan Santos; that in the meantime, Diaz wrote the defendant, asking that the interest rate be 6. The defendant shall pay the plaintiffs the sums:
reduced from 20% to 12% per annum, but no reply was ever made; that subsequently, the defendant told him
to change the P1,450,000.00 deposit into a money market placement, which he did; that the money market 6-A. Fifteen thousand pesos as attorneys fees.
placement expired on April 14, 1989; that when there was still no news from the defendant whether or not it
[would] accept his tender of payment, he filed this case at the Regional Trial Court of Davao City.
6-B. Three [h]undred [t]housand [p]esos (P300,000.00) as exemplary damages.
In its responsive pleading, the defendant set up the following special/affirmative defenses: that sometime in
December 1986, FEBTC purchased from the PaBC the account of the plaintiffs for a total consideration 6-C. The cost of suit.
of P1,828,875.00; that despite such purchase, PaBC Davao Branch continued to collect interests and penalty
charges on the loan from January 6, 1987 to July 8, 1988; that it was therefore not FEBTC which collected the SO ORDERED.
interest rates mentioned in the complaint, but PaBC; that it is not true that FEBTC was trying to impose
[exorbitant] rates of interest; that as a matter of fact, after the transfer of plaintiffs account, it sought to
negotiate with the plaintiffs, and in fact, negotiations were made for a settlement and possible reduction of Upon a motion for reconsideration filed by defendant FEBTC and after due notice and hearing, the court a quo
charges; that FEBTC has no knowledge of the rates of interest imposed and collected by PaBC prior to the issued an order on October 12, 1993, modifying the aforequoted decision, such that its dispositive portion as
purchase of the account from the latter, hence it could not be held responsible for those transactions which amended would now read as follows:
transpired prior to the purchase; and that the defendant acted at the opportune time for the settlement of the
account, albeit exercising prudence in the handling of such account. The rest of the affirmative defenses are IN VIEW WHEREOF, the decision rendered last August 6, is modified, accordingly, to wit:
bare denials.
1. The plaintiff and defendant shall jointly compute the interest due on the P1,167,000.00 loan from April 18,
1985 until November 14, 1988 at 12% per annum.

71
2. That the parties shall then add the result of the joint computation mentioned in paragraph one above to Issues
the P1,067,000.00 principal.

3. The result of the addition of the P1,067,000.00 principal and the interests arrived at shall then be compared Petitioner submits for our resolution the following issues:
with the P1,450,000.00 money market placement put up by the plaintiff with the defendant bank if the same is
A.
still existing or has not yet matured.

Whether or not the Court of Appeals correctly ruled that the validity of the tender of payment was not properly
4. The defendant shall cancel the mortgage.
raised in the trial court and could not thus be raised in the appeal.

5. Paragraph eight of the lease contract between Allied Bank and the plaintiff in which the defendant[s
B.
predecessor], Pacific Banking gave its conformity (Exh. H) is hereby cancelled and deleted, so that the rental
should now be paid to the plaintiff.
Whether or not the Court of Appeals erred in failing to apply settled jurisprudential principles militating
against the private respondents contention that a valid tender of payment had been made by it.
6. The defendant shall pay the plaintiff the sums:

C.
6.A Fifteen [t]housand [p]esos as attorneys fees;

Whether or not the Court of Appeals correctly found that the transaction between petitioner and PaBC was an
6.B Cost of suit.[7]
ineffective novation and that the consent of private respondent was necessary therefor.

D.
The CA Ruling
Whether or not the Court of Appeals erred in refusing to apply the rate of interest freely stipulated upon by the
parties to the respondents obligation.
The CA sustained the trial courts finding that there was a valid tender of payment in the sum
of P1,450,000, made by Diaz Realty Inc. in favor of Far East Bank and Trust Company. The appellate court
reasoned that petitioner failed to effectively rebut respondents evidence that it so tendered the check to E.
liquidate its indebtedness, and that petitioner had unilaterally treated the same as a deposit instead.
Whether or not the Court of Appeals committed an irreconcilable error in ordering the parties to re-negotiate
The CA further ruled that in the computation of interest charges, the legal rate of 12 percent per annum the terms of the contract while finding at the same time that the mortgage contract containing the lease was
should apply, reckoned from July 9, 1988, until full and final payment of the whole indebtedness. It explained valid.
that while petitioners purchase of respondents account from Pacific Banking Corporation (PaBC) was valid,
the 20 percent interest stipulated in the Promissory Note should not apply, because the account transfer was
without the knowledge and the consent of respondent-obligor. F.

The appellate court, however, sustained petitioners assertion that the trial court should not have
Whether or not the petition, as argued by private respondent, raises questions of fact not reviewable by
cancelled the real estate mortgage contract, inasmuch as the principal obligation upon which it was anchored
certiorari.[8]
was yet to be extinguished. As to the lease contract, the CA held that the same was subject to renegotiation by
the parties.
In the main, the Court will determine (1) the efficacy of the alleged tender of payment made by
Lastly, the court a quo upheld the trial courts award of attorneys fees, pointing to petitioners negligence respondent, (2) the effect of the transfer to petitioner of respondents account with PaBC, (3) the interest rate
in not immediately informing respondent of the purchase and transfer of its credit, and in failing to negotiate in applicable, and (4) the status of the Real Estate Mortgage.
order to avoid litigation.

72
The Courts Ruling In other words, tender of payment is the definitive act of offering the creditor what is due him or her,
together with the demand that the creditor accept the same. More important, there must be a fusion
of intent, ability and capability to make good such offer, which must be absolute and must cover the amount
The Petition[9] is not meritorious. due.[14]

That respondent intended to settle its obligation with petitioner is evident from the records of the
case. After learning that its loan balance was P1,447,142.03, it presented to petitioner a check in the amount
First Issue: Tender of Payment of P1,450,000, with the specific notation that it was for full payment of its Pacific Bank account that had been
purchased by petitioner. The latter accepted the check, even if it now insists that it considered the same as a
mere deposit. The check was sufficiently funded, as in fact it was honored by the drawee bank. When
petitioner refused to release the mortgage, respondent instituted the present case to compel the bank to
Petitioner resolutely argues that the CA erred in upholding the validity of the tender of payment made acknowledge the tender of payment, accept payment and cancel the mortgage. These acts demonstrate
by respondent. What the latter had tendered to settle its outstanding obligation, it points out, was a check respondents intent, ability and capability to fully settle and extinguish its obligation to petitioner.
which could not be considered legal tender.
That respondent subsequently withdrew the money from petitioner-bank is of no moment, because such
We disagree. The records show that petitioner bank purchased respondents account from PaBC in withdrawal would not affect the efficacy or the legal ramifications of the tender of payment made on
December 1986, and that the latter was notified of the transaction only on March 23, 1988. Thereafter, November 14, 1988. As already discussed, the tender of payment to settle respondents obligation as computed
Antonio Diaz, president of respondent corporation, inquired from petitioner on the status and the amount of its by petitioner was accepted, the check given in payment thereof converted into money, and the money kept in
obligation. He was informed that the obligation summed up to P1,447,142.03. On November 14, 1988, petitioners possession for several months.
petitioner received from respondent Interbank Check No. 81399841 dated November 13, 1988, bearing the
amount of P1,450,000, with the notation Re: Full Payment of Pacific Bank Account now turn[ed] over to Far Finally, petitioner points out that, in any case, tender of payment extinguishes the obligation only after
East Bank.[10] The check was subsequently cleared and honored by Interbank, as shown by the Certification it proper consignation, which respondent did not do.
issued on January 20, 1992.[11]
The argument does not persuade. For a consignation to be necessary, the creditor must have refused,
True, jurisprudence holds that, in general, a check does not constitute legal tender, and that a creditor without just cause, to accept the debtors payment. [15] However, as pointed out earlier,
may validly refuse it.[12] It must be emphasized, however, that this dictum does not prevent a creditor from petitioner accepted respondents check.
accepting a check as payment. In other words, the creditor has the option and the discretion of refusing or
accepting it. To iterate, the tender was made by respondent for the purpose of settling its obligation. It was incumbent
upon petitioner to refuse, or accept it as payment. The latter did not have the right or the option to accept and
In the present case, petitioner bank did not refuse respondents check. On the contrary, it accepted the treat it as a deposit. Thus, by accepting the tendered check and converting it into money, petitioner is
check which, it insisted, was a deposit. As earlier stated, the check proved to be fully funded and was in fact presumed to have accepted it as payment. To hold otherwise would be inequitable and unfair to the obligor.
honored by the drawee bank. Moreover, petitioner was in possession of the money for several months.
In further contending that there was no valid tender of payment, petitioner emphasizes our
pronouncement in Roman Catholic Bishop of Malolos, Inc. v. Intermediate Appellate Court,[13] as follows: Second Issue: Nature of the Transfer of Respondents Account

Tender of payment involves a positive and unconditional act by the obligor of offering legal tender currency as
payment to the obligee for the formers obligation and demanding that the latter accept the same. Petitioner bewails the CAs characterization of the transfer of respondents account from Pacific Banking
Corporation to petitioner as an ineffective novation. Petitioner contends that the transfer was an assignment of
xxxxxxxxx credit.
Indeed, the transfer of respondents credit from PaBC to petitioner was an assignment of
Thus, tender of payment cannot be presumed by a mere inference from surrounding circumstances. At most, credit. Petitioners acquisition of respondents credit did not involve any changes in the original agreement
sufficiency of available funds is only affirmative of the capacity or ability of the obligor to fulfill his part of between PaBC and respondent; neither did it vary the rights and the obligations of the parties. Thus, no
the bargain. But whether or not the obligor avails himself of such funds to settle his outstanding account novation by conventional subrogation could have taken place.
remains to be proven by independent and credible evidence. Tender of payment presupposes not only that the
obligor is able, ready, and willing, but more so, in the act of performing his obligation. Ab posse ad actu non An assignment of credit is an agreement by virtue of which the owner of a credit (known as the
vale illatio. A proof that an act could have been done is no proof that it was actually done. assignor), by a legal cause -- such as sale, dation in payment, exchange or donation -- and without the need of

73
the debtors consent, transfers that credit and its accessory rights to another (known as the assignee), who R. MARINO CORPUS, petitioner,
acquires the power to enforce it, to the same extent as the assignor could have enforced it against the debtor. [16] vs.
COURT OF APPEALS and JUAN T. DAVID, respondents
In the present case, it is undisputed that petitioner purchased respondents loan from PaBC. In doing so,
the former acquired all of the latters rights against respondent. Thus, petitioner had the right to collect the full
value of the credit from respondent, subject to the terms as originally agreed upon in the Promissory Note.

MAKASIAR, J.:

Third Issue: Applicable Interest Rate


This is a petition for review on certiorari of the decision of the Court of Appeals promulgated on February 14,
1975 in CA-G.R. No. 40583-R, affirming the decision of the court of Instance of Manila, Branch V. dated
september 4, 1967, in Civil Case no. 61802 entitled "Juan T. David,plaintiff, versus R. Mariano Corpus,
Petitioner bank, as assignee of respondents credit, is entitled to the interest rate of 20 percent in the defendant', for the recovery of attorneys fees for professional services rendered by the plaintiff, private
computation of the debt of private respondent, as stipulated in the August 26, 1983 Promissory Note executed respondent herein, to defendant, petitioner herein.
by the latter in favor of PaBC.[17]
However, because there was a valid tender of payment made on November 14, 1988, the accrual of A
interest based on the stipulated rate should stop on that date. Thus, respondent should pay petitioner-bank its
principal obligation in the amount of P1,067,000 plus accrued interest thereon at 20 percent per annum until
Having been close friends, aside from being membres Civil Liberties Union, petitioner Corpus intimately calls
November 14, 1988, less interest payments given to PaBC from December 1986 to July 8, 1988.[18] Thereafter,
respondent David by his nickname "Juaning" and the latter addresses the former simply as "Marino".
the interest shall be computed at 12 percent per annum until full payment.

The factual setting of this case is stated in the decision of the lower court, thus:

Fourth Issue: Status of Mortgage Contract


It appears that in March, 1958, the defendant was charged administratively by several
employee of the Central Bank Export Department of which the defendant is the director.
The defendant was represented by Atty. Rosauro Alvarez. Pending the investigation and
The Real Estate Mortgage executed between respondent and PaBC to secure the formers principal effective March 18, 1958, he defendant was suspended from office. After the
obligation, as well as the provision in the Contract of Lease between respondent and Allied Bank with regard investigating committee found the administrative charges to be without merit, and
to the application of rent payment to the formers indebtedness, should subsist until full and final settlement of subsequently recommended the immediate reinstatement of the defendant, the then
such obligation pursuant to the guidelines set forth in this Decision. Thereafter, the parties are free to negotiate Governor of Central Bank, Miguel Cuaderno, Sr., recommended that the defendant be
a renewal of either or both contracts, or to end any and all of their contractual relations. considered resigned as on the ground that he had lost confidence in him. The Monetary
Board, by a resolution of July 20, 1959, declared the defendant as resigned as of the date
WHEREFORE, the Petition is hereby DENIED. The assailed Decision of the Court of Appeals
of suspension.
is AFFIRMED with the following modifications: Respondent Diaz Realty Inc. is ORDERED to pay Far East
Bank and Trust Co. its principal loan obligation in the amount of P1,067,000, with interest thereon computed
at 20 percent per annum until November 14, 1988, less any interest payments made to PaBC, petitioners On August 18, 1959, the defendant, thru Atty. Alvarez, filed the Court of First Instance of
assignor. Thereafter, interest shall be computed at 12 percent per annum until fully paid. Manila a petition for certiorari, mandamus and quo warranto with preliminary mandatory
injuction and damages against Miguel Cuaderno, Sr., the Central Bank and Mario Marcos
SO ORDERED. who was appointed to the position of the defendant, said case having been docketed as
Civil Case No. 41226 and assigned to Branch VII presided over by Judge Gregorio T.
Lantin. On September 7, 1959, the respondent filed a motion to dismiss the petition,
alleging among other grounds, the failure of the defendant to exhaust, available
G.R. No. L-40424 June 30, 1980 administrative remedies (Exh. X). On September 25, 1959, the defendant, thru Atty.
Alvarez, filed his opposition to the said motion. On March 17, 1960, during the course of
the presentation of the evidence for the petition for a writ of preliminary mandatory
injunction, Atty. Alvarez manifested that the defendant was abandoning his prayer for a
writ of preliminary mandatory injunction and asked for a ruling on the motion to dismiss.

74
On June 14, 1960, Judge Lantin dismissed Civil Case No. 41226 for failure to exhaust On November 15, 1960, Judge Lantin denied the motion for reconsideration. On
she administrative remedies available to the herein defendant. November 19, 1960, the plaintiff perfected the appeal from the order of dismissal dated
June 14, 1960. For purposes of said appeal the plaintiff prepared a 232-page brief and
submitted the same before the Supreme Court in Baguio City on April 20, 1961. The
On June 24, 1960, Atty. Alverez received a copy of the order of dismissal It was at this
state that the plaintiff entered into the case under circumstances about which the parties plaintiff was the one who orally argued the case before the Supreme Court. In connection
herein have given divergent versions. with the trip to Baguio for the said oral argument, the plaintiff used his car hich broke
down and necessitated extensive repairs paid for by the plaintiff himself.

According to the plaintiff, six or seven days prior to the expiration of the period for
appeal from the order of dismissal, he chanced to meet the late Rafael Corpus, father of On March 30, 1962, the Supreme Court promulgated its decision reversing the order of
the defendant, at the Taza de Oro coffee shop. After they talked about the defendant's dismissal and remanding the case for further proceedings. On April 18, 1962, after the
having lost his case before Judge Lantin, and knowing that the plaintiff and the defendant promulgation of the decision of the Supreme Court reversing the dismissal of the case the
were both members of the Civil Liberties Union, Rafael Corpus requested the plaintiff to defendant wrote the plaintiff the following letter, Exhibit 'Q'. .
go over the case and further said that he would send his son, the herein defendant, to the
plaintiff to find out what could be done about the case. The defendant called up the xxxxxxxxx
plaintiff the following morning for an appointment, and the plaintiff agreed to am him in
the latter's office. At said conference, the defendant requested the plaintiff to handle the Dear Juaning
case because Atty. Alvarez had already been disenchanted and wanted to give up the
case. Although at first reluctant to handle the case, the plaintiff finally agreed on
condition that he and Atty. Alverez would collaborate in the case. Will you please accept the attached check in the amount of TWO THOUSAND P2,000.00)
PESOS for legal services in the handling of L-17860 recently decided by the Court? I
wish I could give more but as y•u know we were banking on a SC decision reinstating
The defendant's version of how the plaintiff came into the case is as follows: me and reimburse my backstage I had been wanting to offer some token of my
appreciation of your legal fight for and in my behalf, and it was only last week that I
After the order of dismissal issued by Judge Lantin was published in the newspapers, the received something on account of a pending claim.
plaintiff sought a conference with the defendant at Taza de Oro, but the defendant told
him that he would rather meet the plaintiff at the Swiss Inn. Even before the case was Looking forward to a continuation of the case in the lower court, I remain
dismissed the plaintiff had shown interest in the same by being present during the
hearings of said case in the sala of Judge Lantin When the plaintiff and the defendant met
at the Swiss Inn, the plaintiff handed the defendant a memorandum prepared by him on Sincerely yours, Illegible
how he can secure the reversal of the order of dismissal by means of a formula stated in
said memorandum. During the said occasion the plaintiff scribbled some notes on a paper xxxxxxxxx
napkin (Exhibit 19). On June 28, 1960, the defendant wrote the plaintiff, sending with it a
copy of the order of Judge Lantin dated June 14, 1960 (Exhibit S Inasmuch as said letter,
Exhibit S already mentions the 'memorandum' of the plaintiff, the defendant contends that In a reply letter dated April 25, 1962, the plaintiff returned the check, explaining said act
it was not six or seven days prior to the expiration of the period of appeal (which should as follows:
be on or about July 2 or 3, 1960) but on a date even earlier than June 28, 1960 that the
plaintiff and the defendant met together to discuss the latter's case. April 25, 1962

Laying aside for the moment the true circumstances under which the plaintiff started My dear Marino:
rendering professional services to the defendant, the undisputed evidence shows that on
July 7, 1960, the plaintiff filed a motion for reconsideration of the order of dismissal
under the joint signatures of the plaintiff and Atty. Alverez (Exhibit B). The plaintiff Yesterday, I received your letter of April 18th with its enclosure. I wished thank you for
argued the said motion during the hearing thereof On August 8, 1960, he file a 13-page your kind thoughts, however, please don't take offense if I have to return the check. I will
'Memorandum of Authorities in support of said motion for reconsideration (Exhibit C). A explain.
3-page supplemental memorandum of authorities was filed by the plaintiff on September
6, 1960 (Exhibit D)

75
When I decided to render professional services in your case, I was motivated by the value back salaries was around P90,000.00, and that he expected to net only around
to me of the very intimate relations which you and I have enjoyed during the past many P10,000.00 after deducting all expenses and taxes.
years. It was nor primarily, for a professional fee.
On the same date, April 19,1965 the plaintiff wrote the Governor for of Central Bank
Although we were not fortunate to have obtained a decision in your case which should requesting that the amount representing the sack salaries of the defendant be made out in
have put an end to it. I feel that we have reason to be jubilant over the outcome, because, two one in favor of the defendant and the other representing the professional fees
the final favorable outcome of the case seems certain irrespective of the length of time equivalent to 50% of the said back salaries being claimed by the plaintiff (Exhibit 8). F to
required to terminate the same. obtain the relief from the Governor of Central Bank, the plaintiff instituted this action
before this Court on July 20, 1965 (Emphasis supplied).
Your appreciation of the efforts I have invested in your case is enough compensation
therefor, however, when you shall have obtained a decision which would have finally As therein defendant, herein petitioner Marino Corpus filed in August 5, 1965 an answer with counter-claim.
resolved the case in your favor, remembering me then will make me happy. In the On August 30, 1965, private respondent Atty. Juan T. David, plaintiff therein, filed a reply with answer to the
meantime, you will make me happier by just keeping the check. counterclaim of petitioner.

Sincerely yours, After due trial, the lower court rendered judgment on September 4, 1967, the dispositive portion of which
reads:
JUANING
WHEREFORE, judgment is hereby rendered, ordering the defendant to pay plaintiff the
xxxxxxxxx sum of P30,000.00 in the concept of professional fees, and to pay the costs (pp. 112-113,
CA Record on Appeal p. 54, rec.)

When the case was remanded for further proceedings before Judge Lantin, the evidence
for the defendant was presented by Atty. 'Alvarez with the plaintiff cooperating in the After receipt on September 7, 1967 of a copy of the aforequoted judgment, petitioner Marino Corpus,
same-'On June 24, 1963, Judge Lantin rendered his decision in favor of the defendant defendant therein, filed on October 7, 1967 a notice of appeal from said judgment to the Court of Appeals. In
his appeal, he alleged that the lower court erred:
declaring illegal the resolution of the Monetary Board of July 20, 1959, and ordering the
defendant's reinstatement and the payment of his back salaries and allowances - The
respondents in said Civil Case No. 41226 filed a motion for reconsideration which was 1. In not holding that the plaintiff's professional services were offered and rendered
opposed by the herein plaintiff. The said decision was appealed by the respondents, as gratuitously;
well as by the herein defendant with respect to the award of P5, 000. 00 attorney's feed
The plaintiff prepared two briefs for submission to the Court of Appeals one as appellee 2. Assuming that plaintiff is entitled to compensation — in holding that he was entitled to
(Exhibit H) and the other as appellant (Exhibit H-1). The Court of Appeal however,
attorney's fees in the amount of P30,000.00 when at most he would be entitled to only
certified the case to the Supreme Court in 1964. P2,500.00;

On March 31, 1965, the Supreme Court rendered a decision affirming the judgment of 3. In not dismissing plaintiff's complaint; and
the Court of first Instance of Manila.

4. In not awarding damages and attorney's fees to the defendant (p. 2, CA Decision, p. 26,
On April 19, 1965 the plaintiffs law office made a formal de command upon the rec.)
defendant for collection of 50% of the amount recovered by the defendant as back
salaries and other emoluments from the Central Bank (Exhibit N). This letter was written
after the defendant failed to appear at an appointment with the plaintiff so that they could Likewise, private respondent Atty. Juan T. David, plaintiff therein, appealed to the Court of Appeals on
go together to the Central Bank to claim the possession of the office to which the October 9, 1967 assigning one error, to wit:
defendant was reinstated and after a confrontation in the office of the plaintiff wherein
the plaintiff was remanding 50% of the back salaries and other emoluments amounting to The lower court erred in ordering the defendant to pay the plaintiff only the sum of
P203,000.00 recoverable by the defendant. The defendant demurred to this demand P30,000.00 in the concept of attorney's fees (p. 1, CA Decision, p. 25, rec.).
inasmuch as he had plenty of outstanding obligations and that his tax liability for said

76
On February 14, 1975, respondent Court of Appeals promulgated its decision affirming in toto the decision of On November 27, 1978, the Commercial Bank and Trust Company filed its comment which was noted in the
the lower court, with costs against petitioner Marino Corpus (Annex A, Petition for Certiorari, p. 25, rec.) Court's resolution of December 4, 1978. In said resolution, the Court also required Judge Jose H. Tecson to
comply with the resolution of November 3, 1978, inquiring as to whether he had issued any garnishment order,
and to explain why a writ of execution was issued despite the pendency of the present case before the Supreme
Hence, the instant petition for review on certiorari, petitioner — contending that the respondent Court of
Appeals erred in finding that petitioner accepted private respondent's services "with the understanding of both Court.
that he (private respondent) was to be compensated" in money; and that the fee of private respondent was
contingent (pp. 3 & 5, Petition for Certiorari, pp. 17 & 19, rec.). Further, WE required private respondent Atty. Juan T. David Lo explain his failure to file his comment, and to
file the same as directed by the resolution of the Court dated November 3, 1978. Private respondent's
On October 1, 1975, the case was deemed submitted for decision (p. 177, rec.), after the parties filed their compliance came on December 13, 1978, requesting to be excused from the filing of his comment because
respective memoranda. herein petitioner's letter was unverified. Judge Tecson's compliance was filed on December 15, 1978, to which
herein petitioner replied on January 11, 1979.

B
In OUR resolution dated January 3, 1979, WE set aside the order of Judge Jose H. Tecson dated September 19,
1978, the writ of execution as well as the notice of garnishment, and required private respondent Atty. Juan T.
On January 31, 1978, private respondent Atty. Juan T. David filed a petition to remand the case to the court a David to show cause why he should not be cited for contempt for his failure to file his comment as directed by
quo for execution of the latter's decision in Civil Case No. 61802, dated September 4, 1967, alleging that said the resolution of the Court dated December 4, 1978, and for filing a motion for execution knowing that the
decision is already deemed affirmed pursuant to Section 11(2), Article X of the New Constitution by reason of case is pending appeal and review before this Court Likewise, the Court required Judge Jose H. Tecson to
the failure of this Tribunal to decide the case within 18 months. Then on July 7, 1978, another petition to show cause why he should not be cited for contempt for issuing an order directing the issuance of a writ of
remand the case to the lower court to execution was filed by herein private respondent. execution and for issuing such writ despite the pendency of the present case in the Supreme Court.

Subsequently, private respondent Atty. Juan T. David filed with The court a quo a motion dated September 13, On January 12, 1979, Judge Jose H. Tecson filed his compliance explanation as directed by the aforesaid
1978 for the issuance of a writ of execution of the lower court's decision in the aforesaid civil case, also resolution of January 3, 1979, while private respondent Atty. Juan T. David filed on January 30, 19 79 his
invoking Section 11 (2), Article X of the 1973 Constitution. In an order dated September 19, 1978, the lower compliance and motion for reconsideration after the Court has granted him an extension of time to file his
court, through Judge Jose H. Tecson, directed the issuance of a writ of execution. The writ of execution was compliance.
issued on October 2, 1978 and a notice of garnishment was also issued n October 13, 1978 to garnish the bank
deposits of herein petitioner Marino Corpus in the Commercial Bank and Trust Company, Makati Branch.
Private respondent Atty. Juan T. David filed on February 28, 1979, a petition praying that the merits of his
compliance be resolved by the Court en banc. Subsequently, on March 26, 1979, another petition was filed by
It appears that on October 13, 1978, herein petitioner filed a motion for reconsideration of the September 19, herein private respondent asking the Chief
1978 order. Private respondent Atty. Juan T. David filed on October 19, 1978 an opposition to said motion and
herein petitioner filed a reply on October 30, 1978. The lower court denied said motion for reconsideration in
its over dated November 7, 1978. Justice and the members of the First Division to inhibit themselves from participating in the determination of
the merits of his compliance and for its merits to be resolved by the Court en banc.

It appears also that in a letter dated October 18, 1978, herein petitioner Marino Corpus requested this Court to
inquire into what appears to be an irregularity in the issuance of the aforesaid garnishment notice to the C
Commercial Bank and Trust Company, by virtue of which his bank deposits were garnished and he was
prevented from making withdrawals from his bank account. The main thrust of this petition for review is whether or not private respondent Atty. Juan T. David is entitled
to attorney's fees.
In OUR resolution of November 3, 1978, WE required private respondent Atty. Juan T. David and the
Commercial Bank and Trust Company to comment on petitioner's letter, and for the bank to explain why it did Petitioner Marino Corpus contends that respondent David is not entitled to attorney's fees because there was
not honor petitioner's withdrawals from his bank deposits when no garnishment order has been issued by the no contract to that effect. On the other hand, respondent David contends that the absence of a formal contract
Supreme Court. This Court further inquired from the lower court whether it has issued any garnishment order for the payment of the attorney's fees will not negate the payment thereof because the contract may be express
during the pendency of the present case. or implied, and there was an implied understanding between the petitioner and private respondent that the
former will pay the latter attorney's fees when a final decision shall have been rendered in favor of the
petitioner reinstating him to -his former position in the Central Bank and paying his back salaries.

77
I It is further shown by the records that in the motion filed on March 5, 1975 by petitioner Corpus before the
Court of Appeals for the reconsideration of its decision the order of the lower court granting P30,000.00
WE find respondent David's position meritorious. While there was express agreement between petitioner attorney's fee's to respondent David, he admitted that he was the first to acknowledge that respondent David
was entitled to tion for legal services rendered when he sent the chock for P2,000.00 in his letter of April 18,
Corpus and respondent David as regards attorney's fees, the facts of the case support the position of respondent
David that there was at least an implied agreement for the payment of attorney's fees. 1962, and he is still to compensate the respondent but only to the extent of P10,000.00 (p. 44, rec.). This
admission serves only to further emphasize the fact that petitioner Corpus was aware all the time that he was
liable to pay attorney's fees to respondent David which is therefore inconsistent with his position that the
Petitioner's act of giving the check for P2,000.00 through his aforestated April 18, 1962 letter to respondent services of respondent David were gratuitous, which did not entitle said respondent to compensation.
David indicates petitioner's commitment to pay the former attorney's fees, which is stressed by expressing that
"I wish I could give more but as you know we were banking on a SC decision reinstating me and reimbursing
my back salaries This last sentiment constitutes a promise to pay more upon his reinstatement and payment of It may be advanced that respondent David may be faulted for not reducing the agreement for attorney's fees
his back salaries. Petitioner ended his letter that he was "looking forward to a continuation of the case in the with petitioner Corpus in writing. However, this should be viewed from their special relationship. It appears
lower court, ... to which the certiorari-mandamus-quo warranto case was remanded by the Supreme Court for that both have been friends for several years and were co-members of the Civil Liberties Union. In addition,
further proceedings. respondent David and petitioner's father, the late Rafael Corpus, were also close friends. Thus, the absence of
an express contract for attorney's fees between respondent David and petitioner Corpus is no argument against
the payment of attorney's fees, considering their close relationship which signifies mutual trust and confidence
Moreover, respondent David's letter-reply of April 25, 1962 confirms the promise of petitioner Corpus to pay between them.
attorney's fees upon his reinstatement and payment of back salaries. Said reply states that respondent David
decided to be his counsel in the case because of the value to him of their intimate relationship over the years
and "not, primarily, for a professional fee." It is patent then, that respondent David agreed to render II
professional services to petitioner Corpus secondarily for a professional fee. This is stressed by the last
paragraph of said reply which states that "however, when you shall have obtained a decision which would Moreover, the payment of attorney's fees to respondent David may also be justified by virtue of the innominate
have finally resolved the case in your favor, remembering me then will make me happy. In the meantime, you contract of facio ut des (I do and you give which is based on the principle that "no one shall unjustly enrich
will make me happier by just keeping the check." Thereafter, respondent David continued to render legal himself at the expense of another." innominate contracts have been elevated to a codal provision in the New
services to petitioner Corpus, in collaboration with Atty. Alverez until he and Atty. Alvarez secured the Civil Code by providing under Article 1307 that such contracts shall be regulated by the stipulations of the
decision directing petitioner's reinstatement with back salaries, which legal services were undisputedly parties, by the general provisions or principles of obligations and contracts, by the rules governing the most
accepted by, and benefited petitioner. analogous nominate contracts, and by the customs of the people. The rationale of this article was stated in the
1903 case of Perez vs. Pomar (2 Phil. 982). In that case, the Court sustained the claim of plaintiff Perez for
payment of services rendered against defendant Pomar despite the absence of an express contract to that effect,
Moreover, there is no reason to doubt respondent David's assertion that Don Rafael Corpus, the late father of
petitioner Corpus, requested respondent to help his son, whose suit for reinstatement was dismissed by the thus:
lower court; that pursuant to such request, respondent conferred in his office with petitioner, who requested
respondent to handle the case as his lawyer, Atty. Alvarez, was already disenchanted and wanted to give up the It does not appear that any written contract was entered into between the parties for the
case; and that respondent agreed on the case. It would have been unethical for respondent to even offer his employment of the plaintiff as interpreter, or that any other innominate contract was
services when petitioner had a competent counsel in the person of Atty. Alvarez, who has been teaching entered into but whethertheplaintiffsservicesweresolicitedorwhethertheywereoffered to
political, constitutional and administrative law for over twenty years. the defendant for his assistance, inasmuch as these services were accepted and made use
of by the latter, we must consider that there was a tacit and mutual consent as to the
Likewise, it appears that after the Supreme Court affirmed on March 31, 1965 the order of the lower court rendition of the services. This gives rise to the obligation upon the person benefited by
reinstating petitioner Corpus with back salaries and awarding attorney's fees of P5,000.00, respondent David the services to make compensation therefor, since the bilateral obligation to render
made a written demand on April 19, 1965 upon petitioner Corpus for the payment of his attorney's fees in an service as interpreter, on the one hand, and on the other to pay for the service rendered, is
amount equivalent to 50% of what was paid as back salaries (Exh. N p. 75, Folder of Exhibits, Civil Case No. thereby incurred. (Arts. 1088, 1089, and 1262 of the Civil Code).
61802). Petitioner Corpus, in his reply dated May 7, 1965 to the aforesaid written demand, while disagreeing
as to the amount of attorney's fees demanded, did not categorically deny the right of respondent David to xxxxxxxxx
attorney's fees but on the contrary gave the latter the amount of P2,500.00, which is one-half (½) of the court-
awarded attorney's fees of P5,000.00, thus impliedly admitting the right of respondent David to attorney's fees ... Whether the service was solicited or offered, the fact remains that Perez rendered to
(Exh. K, p. 57, Folder of Exhibits, Civil Case No. 61802). Pomar services as interpreter. As it does not appear that he did this gratuitously, the duty
is imposed upon the defendant, he having accepted the benefit of the service, to pay a just

78
compensation therefor, by virtue of the innominate contract of facio ut des implicitly In determining a reasonable fee to be paid to respondent David as compensation for his services, on a quantum
established. meruit basis, it is proper to consider all the facts and circumstances obtaining in this case particularly the
following:
xxxxxxxxx
The extent of the services rendered by respondent David should be considered together with the extent of the
services of Petitioner's other counsel, Atty. Rosauro Alvarez, It is undisputed that Atty. Rosauro Alvarez had
... because it is a well-known principle of law that no one should permitted to enrich
himself to the damage of another" (emphasis supplied; see also Tolentino, Civil Code of rendered legal services as principal counsel for more shall six (6) years while respondent David has rendered
legal services as collaborating counsel for almost four (4) years. It appears that Atty. Alvarez started to render
the Philippines, p. 388, Vol. IV 119621, citing Estate of Reguera vs. Tandra 81 Phil. 404
[1948]; Arroyo vs. Azur 76 Phil. 493119461; and Perez vs. Pomar. 2 Phil. 682 [1903]). legal services after the administrative case was filed on March 7, 1958 against petitioner Corpus. He
represented petitioner Corpus in the hearing of said case which was conducted from May 5, 1958 to October 8,
1958, involving 56 sessions, and this resulted in the complete exoneration by the Investigating Committee of
WE reiterated this rule in Pacific Merchandising Corp. vs. Consolacion Insurance & Surety Co., Inc. (73 all the charges against the petitioner. It appears further that after the Monetary Board, in its resolution of July
SCRA 564 [1976]) citing the case of Perez v. Pomar, supra thus: 20, 1959, declared petitioner Corpus as being considered resigned from the service, Atty. Alvarez instituted on
August 18, 1958 Civil Case No. 41126 in the Court of First Instance of Manila for the setting aside of the
Where one has rendered services to another, and these services are accepted by the latter, aforestated resolution and for the reinstatement of petitioner Corpus. Atty. Alvarez actively participated in the
in the absence of proof that the service was rendered gratuitously, it is but just that proceedings.
he should pay a reasonable remuneration therefor because 'it is a well-known principle
of law, that no one should be permitted to enrich himself to the damage of another On the other hand, respondent David entered his appearance as counsel for petitioner Corpus sometime after
(emphasis supplied). the dismissal on June 14, 1960 of the aforesaid civil case. From the time he entered his appearance, both he
and Atty. Alvarez rendered legal services to petitioner Corpus in connection with the appeals of the
Likewise, under American law, the same rule obtains (7 CJS 1079; FL Still & Co. v. Powell, 114 So 375). aforementioned civil case to the Court of Appeals and to the Supreme Court. The records disclose that in
connection with the appeal from the June 14, 1960 order of dismissal, respondent David prepared and signed
pleadings although the same were made for and on behalf of Atty. Alvarez and himself And it is not far-
III fetched to conclude that all appearances were made by both counsels considering that Atty. Alverez was the
principal counsel and respondent David was the collaborating counsel. Thus, when the case was called for oral
There was no contract for contingent fee between Corpus and respondent David. Contingent fees depend on an argument on April 20, 1961 before the Supreme Court, respondent David and Atty. Alverez appeared for
express contract therefor. Thus, "an attorney is not entitled to a percentage of the amount recovered by his petitioner Corpus although it was David who orally argued the case.
client in the absence of an express contract to that effect" (7 C.J.S. 1063 citing Thurston v. Travelers Ins. Co.,
258 N.W. 66, 128 Neb. 141). When the Supreme Court, in its decision of March 30, 1962, remanded the case to the lower court for further it
was Atty. Alverez who conducted the presentation of evidence while respondent David assisted him The
Where services were rendered without any agreement whatever as to the amount or terms records also review that respondent David prepared and signed for Atty. Alverez and himself. certain
of compensation, the attorney is not acting under a contract for a contingent fee, and a pleadings, including a memorandum. Moreover, after the lower court rendered judgment on June 2 4, 1963
letter by the attorney to the client stating that a certain sum would be a reasonable amount ordering the reinstatement and payment of back salaries to petitioner Corpus and awarding him P5,000.00 by
to charge for his services and adding that a rate of not less than five percent nor more way of attorney's fees, both petitioner Corpus and the respondents in said case appealed the judgment. At that
than ten would be reasonable and customary does not convert the original agreement into stage, respondent David again prepared and signed for Atty. Alvarez and himself, the necessary pleadings,
a contract for a contingent fee (7 C.J.S. 1063 citing Fleming v. Phinizy 134 S.E. 814). including two appeal briefs. And in addition, he made oral arguments in the hearings of motions filed in the
lower court before the records of the case were forwarded to the appellate court. Furthermore, while it appears
that it was Atty. Alvarez who laid down the basic theory and foundation of the case of petitioner Corpus in the
While there was no express contract between the parties for the payment of attorney's fees, the fact remains administrative case and later in the civil case, respondent David also advanced legal propositions. Petitioner
that respondent David rendered legal services to petitioner Corpus and therefore as aforestated, is entitled to Corpus contends that said legal propositions were invariably rejected by the courts. This is, however, of no
compensation under the innominate contract of facio lit des And such being the case, respondent David is moment because the fact remains that respondent David faithfully rendered legal services for the success of
entitled to a reasonable compensation. petitioner's case.

IV The benefits secured for petitioner Corpus may also be considered in ascertaining what should be the
compensation of respondent David. It cannot be denied that both Atty. Alvarez and respondent David were
instrumental in obtaining substantial benefits for petitioner Corpus which consisted primarily of his

79
reinstatement, recovery of back salaries and the vindication of his honor and reputation. But, note should also Moreover, this Court takes judicial notice of the fact that herein respondent David, in the previous case of
be taken of the fact that respondent David came at the crucial stage when the case of petitioner Corpus was Integrated Construction Services, Inc. and Engineering Construction, Inc. v. Relova (65 SCRA 638 [1975]),
dismissed by the lower court. had sent letters addressed to the then Chief Justice Querube C. Makalintal and later to the late Chief Justice
Fred Ruiz Castro, requesting for the issuance of certification on the basis of the aforementioned provision of
Atty. Rosauro Alvarez admittedly was paid by petitioner Corpus the sum of P20,000.00 or at most P22,500.00 the New Constitution which were not given due consideration. And knowing this, respondent David should
(T.s.n., Jan. 11, 1967, pp. 34-35; T.s.n., Feb. 10, 1967, pp. 48-49). On the other hand, petitioner Corpus, after have been more prudent and cautious in g with the court a quo any motion for execution.
WE suggested on August 15, 1975 that they settle the case amicably has, in his September 15, 1975 pleading
filed before this Court (p. 166, rec.), manifested his willingness to pay P10,000.00 for the services of Furthermore, there was even a taint of arrogance and defiance on the part of respondent David in not filing his
respondent David. However, respondent David has not manifested his intention to accept the offer. comment to the letter- complaint dated October 18, 1978 of petitioner Corpus, as required by this Court in its
November 3, 1978 and December 4,1978 resolutions which were duly received by him, and instead, he sent on
In his complaint in the instant case, he asked for P75,000.00 as his attorney's fees. The records reveal that December 13, 1978 a letter requesting to be excused from the filing of his comment on the lame excuse that
petitioner Corpus actually received only P150,158.50 as back salaries and emoluments after deducting taxes as petitioner's letter-complaint was not verified.
well as retirement and life insurance premiums due to the GSIS. The amount thus claimed by respondent
David represents 50% of the amount actually received by petitioner Corpus. The lower court, however, On the part of Judge Jose H. Tecson, his presumptuous and precipitate act of granting the motion for execution
awarded only P30,000.00 and it was affirmed by the Court of Appeals. of dent David likewise constitutes disrespect to, as well as of, the authority of this Court because he know for a
that the case was still pending apply as the had not yet been remanded to it and that no certification has been
Considering the aforestated circumstances, WE are of the opinion that the reasonable compensation of issued by this Court. As a judicial officer, Judge Tecson is charged with the knowledge of the fact that this
respondent David should be P20,000.00. Court has yet to make a definite pronouncement on Section 11, paragraph 2, Article X of the New
Constitution. Judge Tecson should know that only the Supreme Court can authoritatively interpret Section 11
(2) of Article X of the 1973 Constitution. Yet, Judge Tecson assumed the role of the Highest Court of the
V Land. He should be reminded of what Justice Laurel speaking for the Court, has said in People v. Vera (65
Phil 56, 82 [1937]):
WE find private respondent Juan T. David and Judge Jose H. Tecson, Presiding Judge of the Court of First
Instance of Manila, Branch V, guilty of contempt of court. A becoming modesty of inferior courts demands conscious realization of the position that
they occupy in the interrelation and operation of the integrated judged system of the
Respondent David filed on or about September 13, 1978 a motion with the court a quo for the issuance of a nation.
writ of execution to enforce its decision in Civil Case No 61802, subject of the present petition, knowing fully
well that it was then still pending appeal before this Court. In addition, no certification that the aforesaid It may also be added that the improvident act of respondent David in firing the motion for execution and the
decision is already deemed affirmed had as yet been issued by the Chief Justice pursuant to Section 11, precipitate act of Judge Tecson in issuing the writ of execution are intriguing as they invite suspicion that there
paragraph 2, Article X of the New Constitution; because respondent David's petitions filed with the Supreme was connivance between the two. Respondent David would seem to imply that his claim for attorney's fees
Court on January 31, 1978 and on July 7, 1978 to remand the case to the trial court for execution and for the should be given preference over the other cams now pending in this Court. Certainly, such should not be the
issuance of such certification had not yet been acted upon as the same were still pending consideration by this case because there are cases which by their nature require immediate or preferential attention by this Tribunal
Court. In fact, this Court has not as of this time made any pronouncement on the aforesaid provision of the like habeas corpus cases, labor cases and c cases involving death sentence, let alone cases involving properties
New Constitution. and property rights of poor litigants pending decision or resolution long before the New Constitution of 1973.
Nobility and exempt forbearance were expected of Atty. David, who is old and experienced in the practice of
This act of respondent David constitutes disrespect to, as well as disregard of, the authority of this Court as the the legal profession, from which he has derived a great measure. of economic well-being and independence
final arbiter of all cases duly appealed to it, especially constitutional questions. It must be emphasized that as a
member of the Philippine Bar he is required "to observe and maintain the respect due to the court of justice Consequently, the filing of the motion for immediate tion and the issuance of the writ of execution constitute a
and judicial officers" (Section 20 (b), 138 of the Revised Rules of Court). Likewise, Canon 1 of. the Canons of defiance and usurpation of the jurisdiction of the Supreme Court. As a disciplinary measure for the
Professional Ethic expressly provide that: "It is the duty of the lawyer to maintain towards the Courts a preservation and vindication of the dignity of this Supreme Tribunal respondent Atty. Juan T. David should be
respectful attitude, not for the sake of the temporary incumbent of the judgement office, but for the REPRIMANDED for his precipitate action of filing a motion for execution as well as Judge Jose H. Tecson
maintenance of its supreme importance." And this Court had stressed that "the duty of an attorney to the courts for his improvident issuance of a writ of execution while the case is pending appeal before the Supreme Court,
'can only be maintained by rendering no service involving any disrespect to the judicial office which he is and a repetition of said acts would be dealt with more severely.
bound to uphold'" (Rheem of the Philippines v. Ferrer, 20 SCRA 441, 444 [1967] citing the case of Lualhati v.
Albert, 67 Phil. 86, 92 [1932]).

80
WHEREFORE, PETITIONER R. MARINO CORPUS IS HEREBY DIRECTED TO PAY RESPONDENT graduating from the college of law of the latter university. Plaintiff, during all the time he was
ATTY. JUAN T. DAVID THE SUM OF TWENTY THOUSAND (P20,000.00) PESOS AS ATTORNEY'S studying law in defendant university was awarded scholarship grants, for scholastic merit, so that
FEES. his semestral tuition fees were returned to him after the ends of semester and when his scholarship
grants were awarded to him. The whole amount of tuition fees paid by plaintiff to defendant and
RESPONDENT ATTY. JUAN T. DAVID AND JUDGE JOSE H. TECSON OF THE COURT OF FIRST refunded to him by the latter from the first semester up to and including the first semester of his last
INSTANCE OF MANILA, BRANCH V, ARE HEREBY DECLARED GUILTY OF CONTEMPT AND year in the college of law or the fourth year, is in total P1,033.87. After graduating in law from
ARE HEREBY REPRIMANDED, WITH A WARNING THAT REPETITION TION OF THE SAME OR Abad Santos University he applied to take the bar examination. To secure permission to take the bar
SIMILAR ACTS WILL BE DEALT WITH MORE SEVERELY. he needed the transcripts of his records in defendant Arellano University. Plaintiff petitioned the
latter to issue to him the needed transcripts. The defendant refused until after he had paid back the
P1,033 87 which defendant refunded to him as above stated. As he could not take the bar
COSTS AGAINST PETITIONER. examination without those transcripts, plaintiff paid to defendant the said sum under protest. This is
the sum which plaintiff seeks to recover from defendant in this case.
SO ORDERED.
Before defendant awarded to plaintiff the scholarship grants as above stated, he was made to sign
G.R. No. L-15127 May 30, 1961 the following contract covenant and agreement:

EMETERIO CUI, plaintiff-appellant, "In consideration of the scholarship granted to me by the University, I hereby waive my right to
vs. transfer to another school without having refunded to the University (defendant) the equivalent of
ARELLANO UNIVERSITY, defendant-appellee. my scholarship cash.

G.A.S. Sipin, Jr., for plaintiff-appellant. (Sgd.) Emeterio Cui".


E. Voltaire Garcia for defendant-appellee.

CONCEPCION, J.: It is admitted that, on August 16, 1949, the Director of Private Schools issued Memorandum No. 38, series of
1949, on the subject of "Scholarship," addressed to "All heads of private schools, colleges and universities,"
Appeal by plaintiff Emeterio Cui from a decision of the Court of First Instance of Manila, absolving defendant reading:
Arellano University from plaintiff's complaint, with costs against the plaintiff, and dismissing defendant's
counter claim, for insufficiency of proof thereon. 1. School catalogs and prospectuses submitted to this, Bureau show that some schools offer full or
partial scholarships to deserving students — for excellence in scholarship or for leadership in extra-
In the language of the decision appealed from: curricular activities. Such inducements to poor but gifted students should be encouraged. But to
stipulate the condition that such scholarships are good only if the students concerned continue in the
same school nullifies the principle of merit in the award of these scholarships.
The essential facts of this case are short and undisputed. As established by the agreement of facts
Exhibits X and by the respective oral and documentary evidence introduced by the parties, it
appears conclusive that plaintiff, before the school year 1948-1949 took up preparatory law course 2. When students are given full or partial scholarships, it is understood that such scholarships are
in the defendant University. After finishing his preparatory law course plaintiff enrolled in the merited and earned. The amount in tuition and other fees corresponding to these scholarships should
College of Law of the defendant from the school year 1948-1949. Plaintiff finished his law studies not be subsequently charged to the recipient students when they decide to quit school or to transfer
in the defendant university up to and including the first semester of the fourth year. During all the to another institution. Scholarships should not be offered merely to attract and keep students in a
school years in which plaintiff was studying law in defendant law college, Francisco R. Capistrano, school.
brother of the mother of plaintiff, was the dean of the College of Law and legal counsel of the
defendant university. Plaintiff enrolled for the last semester of his law studies in the defendant 3. Several complaints have actually been received from students who have enjoyed scholarships,
university but failed to pay his tuition fees because his uncle Dean Francisco R. Capistrano having full or partial, to the effect that they could not transfer to other schools since their credentials would
severed his connection with defendant and having accepted the deanship and chancellorship of the not be released unless they would pay the fees corresponding to the period of the scholarships.
College of Law of Abad Santos University, plaintiff left the defendant's law college and enrolled for Where the Bureau believes that the right of the student to transfer is being denied on this ground, it
the last semester of his fourth year law in the college of law of the Abad Santos University reserves the right to authorize such transfer.

81
that defendant herein received a copy of this memorandum; that plaintiff asked the Bureau of Private Schools Mutual Life Ins. Co., 169 U.S. 139; Heding vs. Gallaghere 64 L.R.A. 811; Veazy vs. Allen, 173
to pass upon the issue on his right to secure the transcript of his record in defendant University, without being N.Y. 359). If Arellano University understood clearly the real essence of scholarships and the
required to refund the sum of P1,033.87; that the Bureau of Private Schools upheld the position taken by the motives which prompted this office to issue Memorandum No. 38, s. 1949, it should have not
plaintiff and so advised the defendant; and that, this notwithstanding, the latter refused to issue said transcript entered into a contract of waiver with Cui on September 10, 1951, which is a direct violation of our
of records, unless said refund were made, and even recommended to said Bureau that it issue a written order Memorandum and an open challenge to the authority of the Director of Private Schools because the
directing the defendant to release said transcript of record, "so that the case may be presented to the court for contract was repugnant to sound morality and civic honesty. And finally, in Gabriel vs. Monte de
judicial action." As above stated, plaintiff was, accordingly, constrained to pay, and did pay under protest, said Piedad, Off. Gazette Supp. Dec. 6, 1941, p. 67 we read: 'In order to declare a contract void as
sum of P1,033.87, in order that he could take the bar examination in 1953. Subsequently, he brought this against public policy, a court must find that the contract as to consideration or the thing to be done,
action for the recovery of said amount, aside from P2,000 as moral damages, P500 as exemplary damages, contravenes some established interest of society, or is inconsistent with sound policy and good
P2,000 as attorney's fees, and P500 as expenses of litigation. moralsor tends clearly to undermine the security of individual rights. The policy enunciated in
Memorandum No. 38, s. 1949 is sound policy. Scholarship are awarded in recognition of merit not
In its answer, defendant reiterated the stand it took, vis-a-vis the Bureau of Private Schools, namely, that the to keep outstanding students in school to bolster its prestige. In the understanding of that university
scholarships award is a business scheme designed to increase the business potential of an education
provisions of its contract with plaintiff are valid and binding and that the memorandum above-referred to is
null and void. It, likewise, set up a counterclaim for P10,000.00 as damages, and P3,000 as attorney's fees. institution. Thus conceived it is not only inconsistent with sound policy but also good morals. But
what is morals? Manresa has this definition. It is good customs; those generally accepted principles
of morality which have received some kind of social and practical confirmation. The practice of
The issue in this case is whether the above quoted provision of the contract between plaintiff and the awarding scholarships to attract students and keep them in school is not good customs nor has it
defendant, whereby the former waived his right to transfer to another school without refunding to the latter the received some kind of social and practical confirmation except in some private institutions as in
equivalent of his scholarships in cash, is valid or not. The lower court resolved this question in the affirmative, Arellano University. The University of the Philippines which implements Section 5 of Article XIV
upon the ground that the aforementioned memorandum of the Director of Private Schools is not a law; that the of the Constitution with reference to the giving of free scholarships to gifted children, does not
provisions thereof are advisory, not mandatory in nature; and that, although the contractual provision "may be require scholars to reimburse the corresponding value of the scholarships if they transfer to other
unethical, yet it was more unethical for plaintiff to quit studying with the defendant without good reasons and schools. So also with the leading colleges and universities of the United States after which our
simply because he wanted to follow the example of his uncle." Moreover, defendant maintains in its brief that educational practices or policies are patterned. In these institutions scholarships are granted not to
the aforementioned memorandum of the Director of Private Schools is null and void because said officer had attract and to keep brilliant students in school for their propaganda mine but to reward merit or
no authority to issue it, and because it had been neither approved by the corresponding department head nor help gifted students in whom society has an established interest or a first lien. (Emphasis supplied.)
published in the official gazette.
WHEREFORE, the decision appealed from is hereby reversed and another one shall be entered sentencing the
We do not deem it necessary or advisable to consider as the lower court did, the question whether plaintiff had defendant to pay to the plaintiff the sum of P1,033.87, with interest thereon at the legal rate from September 1,
sufficient reasons or not to transfer from defendant University to the Abad Santos University. The nature of 1954, date of the institution of this case, as well as the costs, and dismissing defendant's counterclaim. It is so
the issue before us, and its far reaching effects, transcend personal equations and demand a determination of ordered.
the case from a high impersonal plane. Neither do we deem it essential to pass upon the validity of said
Memorandum No. 38, for, regardless of the same, we are of the opinion that the stipulation in question is
contrary to public policy and, hence, null and void. The aforesaid memorandum merely incorporates a sound [G.R. No. 157391. June 21, 2006]
principle of public policy. As the Director of Private Schools correctly pointed, out in his letter, Exhibit B, to
the defendant, LIMITLESS POTENTIALS, INC. v. HON. RENATO G. QUILALA

There is one more point that merits refutation and that is whether or not the contract entered into Special Second Division
between Cui and Arellano University on September 10, 1951 was void as against public policy. In
the case of Zeigel vs. Illinois Trust and Savings Bank, 245 Ill. 180, 19 Ann. Case 127, the court Sirs/Mesdames:
said: 'In determining a public policy of the state, courts are limited to a consideration of the
Constitution, the judicial decisions, the statutes, and the practice of government officers.' It might
take more than a government bureau or office to lay down or establish a public policy, as alleged in Quoted hereunder, for your information, is a resolution of this Court dated JUNE 21, 2006
your communication, but courts consider the practices of government officials as one of the four
factors in determining a public policy of the state. It has been consistently held in America that G.R. No. 157391 (Limitless Potentials, Inc. v. Hon. Renato G. Quilala),
under the principles relating to the doctrine of public policy, as applied to the law of contracts,
courts of justice will not recognize or uphold a transaction which its object, operation, or tendency
is calculated to be prejudicial to the public welfare, to sound morality or to civic honesty (Ritter vs.

82
G.R. No. 160749 (Roman Catholic Archbishop of em>Manila, Represented by Reverend Msgr. Relando dela (b)an Amendment To An Agreement[3]cralaw dated November 14, 1989, pursuant to which RCAM and LPI
Cruz v. Limitless Potentials, Inc.) and extended the lease period for five years, with a total duration of seven years from February 1, 1990 to March 1,
1997 and wherein the monthly rental was increased to PI2,000.00, subject to a 10% annual increase.
G.R. No. 160816 (Limitless Potentials, Inc. v. Roman Catholic Archbishop of em>Manila, Represented by
Reverend Msgr. Relando dela Cruz) On January 18, 1990, a Sublease Agreement[4]cralaw was entered into by LPI and Astro Advertising, Inc.
(Astro) in which the former sublet Lot 28-B to the latter for five years commencing February 1, 1990 up
Before the Court are two separate motions for partial reconsideration filed by the Roman Catholic Archbishop to February 1, 1995. Under the agreement, the monthly rentals were to be paid directly by Astro to the office
of the RCAM.
of Manila (RCAM) and Limitless Potentials, Inc. (LPI), assailing the Decision dated July 15, 2005, the
dispositive portion of which reads:
To clarify and consolidate the various agreements previously executed by RCAM and LPI, the parties entered
IN LIGHT OF ALL THE FOREGOING, the Court renders judgment as follows: into a Memorandum of Agreement[5]cralaw (MOA) dated September 28, 1993, whereby they disregarded all
prior contracts and considered them of no further force and effect. In the MOA, RCAM leased to LPI specific
advertising spaces, including those earlier subleased to Astro, for a period of four years, to commence
1) The Petition in G.R. No. 157391 is DENIED for lack of merit. on August 1, 1993 and ending on July 31, 1997, at a monthly rental of P60,783.96 and subject to a 10% annual
increment.
2.) The Petitions in G.R. Nos. 160749 and 160816 are PARTIALLY GRANTED. The Decision of the Court
of Appeals is SET ASIDE. The Decision and Amended Decision of the RTC are AFFIRMED WITH When the sublease to Astro expired in February 1995, RCAM did not turn over to LPI the possession of the
MODIFICATIONS, thus: sublet advertising areas. Instead, the said areas were leased to Macgraphics Carranz International Corporation
(MCIC) which erected its own advertising signs thereon.
a) The records are REMANDED to the MTC for it to determine, after hearing the parties, the precise amount
to be refunded by the Roman Catholic Archbishop of Manila to Limitless Potentials, Inc., if any, in light of the On October 12, 1995, RCAM, through counsel, sent a letter[6]cralaw to LPI informing its Vice-President for
Court's decision; Finance of LPI's delinquency in settling the rental obligations, including the nonpayment of rentals since
March 1995, and declaring the MOA rescinded as of October 31, 1995. A final demand letter[7]cralaw was sent
b) The Roman Catholic Archbishop of Manila is ORDERED to deliver possession of the areas/spaces leased to LPI for the arrears in rental payments amounting to P1,021,219.15, which included the rentals due from
to Limitless Potentials. Inc., covered by the Memorandum of Agreement dated September 28, 1993, except Astro.
those areas now leased to MCIC; Limitless Potentials, Inc. shall be entitled to remain in possession of the
property for the remaining period of the lease, with the corresponding rental rate as provided for in the When LPI failed to comply with the final demand letter, RCAM filed a Complaint for Unlawful Detainer
Memorandum of Agreement dated September 28, 1993. against LPI on November 13, 1995 with the Metropolitan Trial Court (MTC) of Makati City, docketed as Civil
Case No. 50450.
No costs.
On October 5, 1996, RCAM dismantled the billboards of LPI in the leased advertising spaces.
SO ORDERED.[1]cralaw
On May 25, 2000, the MTC rendered a Decision declaring LPI's possession of the leased premises as lawful,
The factual antecedents are as follows: but ordered the same to pay the rentals due from September 1995 until it ceased occupying the leased
premises. The MTC declared that since the rentals due from the period of February 1, 1990 to March 1,
1995 amounted to P1,239,635.00, LPI made an overpayment of P344,550.33. The court further pronounced
RCAM is the owner of advertising spaces located within the compounds of the Our Lady of Guadalupe Minor that the payments made directly to RCAM during the first period of the sublease, which was from February 1,
Seminary and San Carlos Seminary in Guadalupe, Makati City. RCAM, as lessor, and LPI, as lessee, entered 1990 until July 31, 1993, in the amount of P832,920.00, should not be credited to LPI because the latter had
into the following agreements for the lease of promotional areas: donated the amount to RCAM. The MTC maintained that the stipulation contained in the sublease agreement
was a stipulation pour autrui under Article 1311 of the New Civil Code. However, the court also maintained
(a)Lease Agreement[2]cralaw dated October 20, 1987, wherein RCAM leased to LPI certain advertising spaces that LPI should be credited for the payments made by Astro during the second period, from August 1993, after
from January 31, 1988 until January 31, 1992, at a monthly rental of P11,000.00. The rentals were subject to the MOA took effect, to March 1995. Finally, the MTC held that LPI was obliged to pay rentals in the amount
15% increase every two years; and of P414,486.50 from March until October 1995 when the complaint was filed.

83
LPI appealed the case to the Regional Trial Court (RTC) of Makati City where it was docketed as Civil Case RCAM to deliver possession of the areas leased to LPI for the remaining period of the lease agreement
No. 00-1347. On October 10, 2001, the RTC affirmed the decision of the MTC with modification and declared embodied in the MOA.
that LPI overpaid RCAM in the amount of P796,421.44. The RTC ruled that LPI should be credited for the
rental payments of Astro during the first period of the lease. The RTC rejected the MTC's finding that a
Thereupon, LPI also filed a Motion for Partial Reconsideration[10]cralaw dated September 15, 2005, praying
stipulation pour autrui was provided in the sublease agreement in favor of RCAM, and discarded the latter's that the decision be partially reconsidered by rectifying the supposed inaccurate findings of facts and law: (a)
claim that the rentals due from Astro during the said period were LPI's donations to RCAM. the sublease contract between LPI and Astro does not contain a stipulation pour autrui, and said matter may
not be raised and entertained for the first time on appeal; (b) the correct amount of rentals paid by Astro to
Unsatisfied with the decision, LPI filed a motion for partial reconsideration seeking its reinstatement to the RCAM is the sum of P1,255,889.55 not P832,920.00, which former amount should be credited in favor of LPI;
leased premises for the unexpired period of the MOA. (c) LPI has no obligation to pay rentals from March 1995 to October 5, 1996 because it was evicted, deprived
and disallowed to make use of the leased premises within said period; (d) LPI is entitled to possession of the
On May 24, 2002, the RTC issued an Order granting the motion of LPI. When LPI filed a motion for leased premises for the remaining or unexpired lease period of 21 months, not only 10 months; and (e) MCIC
execution, the RTC denied the same. is bound by the judgment of the MTC, hence, should be ordered to vacate the premises and surrender peaceful
possession thereof to LPI.

RCAM then filed a Petition for Review on Certiorari with the Court of Appeals (CA). In the CA's Decision
promulgated on June 30, 2003, the appellate court set aside the Decision of the RTC and affirmed the MTC On October 14, 2005, LPI filed an Opposition to RCAM's motion for partial reconsideration, stating that the
Decision. The CA declared that the RTC erred in ordering LPI to be placed in possession of the leased spaces motion has no merit.
considering that the MOA had long expired; hence, LPI could no longer regain possession of the property as
lessee. In the Comment filed by RCAM to LPIs motion for partial reconsideration, it averred that LPI advanced no
new arguments and dealt with issues which the Court had already ruled upon in its decision.
Thereafter, RCAM filed a Petition for Review on Certiorari of the Decision of the CA docketed as G.R. No.
160749; LPI filed a similar petition docketed as G.R. No. 160816. Earlier, a petition The Court notes that the parties' contentions are mere reiterations of the arguments raised in their antecedent
for certiorari and mandamus had also been filed by LPI assailing certain orders of the RTC; this case was pleadings. The merits of the case have already been extensively reviewed in the contested decision and to
docketed as G.R. No. 157391. dawdle longer on them would be extravagantly futile. No new substantial arguments were advanced to warrant
the reversal or modification of our Decision. Thus, we find no convincing reason to depart from the ruling
In a Resolution[8]cralaw dated March 30, 2005, this Court ordered the consolidation of G.R. No. 157391 with subject of this recourse.
G.R. Nos. 160749 and 160816.
RCAM asserts that the Court's ruling, which directed it to deliver to LPI the possession of the areas covered by
On July 15, 2005, the Court rendered the partly assailed decision. The Court settled that LPI must pay RCAM the MOA for the remaining period of the lease, is not in accord with the applicable laws and prevailing
the rentals for the leased premises from March 1995 until LPI's eviction therefrom on October 5, 1996, with jurisprudence. It further insists that the MOA stipulated a fixed lease period which had long before expired,
the exception of the rentals due from the spaces sublet to Astro after February 1995, inasmuch as RCAM did and that the implementation of the court's ruling would in effect create a lease relation between the parties that
not turn over the said areas to LPI. In fact, RCAM even leased the spaces vacated by Astro to MCIC, in would commence beyond the lapse of the lease period provided for in the MOA.
violation of its MOA with LPI. The Court added that the sublease contract between LPI and Astro contains a
stipulation pour autrui in favor of RCAM. Next, the Court affirmed that RCAM unlawfully evicted LPI, which RCAM's avowal is imprecise. We reproduce herein what we stated in our earlier decision, to wit:
is thus entitled to be restored to the possession of the property leased for the unused period of the lease
contract. The Court also ruled that the unexpired portion of the contract cannot be affected by the lapse of the A lessee unlawfully evicted by the lessor is entitled to be restored to the possession of the property leased for
period pending the final resolution of the complaint for ejectment filed by the lessor. Lastly, it was decided the "unused period" of the lease contract, counted from his eviction; such "unexpired portion'' of the contract
that the RTC did not commit any grave abuse of discretion in denying LPI's motion for execution of the cannot be affected by the lapse of the period pending the final resolution of the complaint for ejectment filed
portion of the RTC's amended decision ordering RCAM to place it in possession of the subject areas. The by the lessor.
Court explained that the execution of the judgment pending appeal is proper only if the judgment is in favor of
the plaintiff and against the defendant, and not vice versa.
It bears stressing that in a reciprocal contract, like a lease, the period of the lease must be deemed to have been
[9] agreed upon for the benefit of both parties, absent any language therein showing that the term was deliberately
RCAM filed a Motion for Partial Reconsideration cralaw on September 14, 2005 praying that (a) the instant fixed for the benefit of either the lessor or the lessee alone. Its continuance, effectivity or fulfillment cannot be
case be referred to the Court en banc; and (b) the decision be partially reconsidered insofar as it ordered
made to depend exclusively upon the free and uncontrolled choice of just one party to a lease contract.

84
In this case, RCAM unilaterally rescinded the contract; it had the billboards of LPI on the spaces/areas leased Meanwhile, LPI asseverates that there was no stipulation pour autrui in the sublease contract between Astro
by the latter dismantled on October 5, 1996, without wailing for the final outcome of the ejectment case. The and LPI and that the matter was never raised in the trial court, hence, could not be raised and entertained for
MTC, RTC and the CA found this unilateral recission of the MOA unlawful. Indisputably, RCAM was obliged the first time on appeal. Again, we cannot sustain this restated issue for no new substantial arguments were
lo deliver to LPI the premises which it forcibly took over on the said dale. presented to sanction a reversal of our decision, where we likewise stated:

It bears stressing that LPI had occupied the leased properly from August 1, 1993 to October 6, 1996, or only We agree with the ruling of the CA that the sublease contract between LPI and ASTRO contains a
three (3) years, two months and two days. Thus, LPI is entitled to remain in the property, as lessee, for the stipulation pour autrui in favor of RCAM, which the latter had accepted long before LPI filed its complaint in
unused portion of the four-year period provided for in the MOA. By so ruling, the Court would thereby be Civil Case No. 96-949.
merely enforcing the same. As covenanted, LPI must remain in possession of the property, as lessee, for
a period of four (4) years - not a day less. For the Court to do otherwise would be to enrich RCAM at xxxx
the expense of LPI, allowing the former to profit by its misdeeds. [11]cralaw

The definition of stipulation pour autrui is set forth in the second paragraph of the above provision. The
It must be stressed that eviction suspends the running of the lease contract during the period of the eviction. requisites for such stipulation are the following: (a) the stipulation in favor of a third person, the third party
When, therefore, the use or possession ceased by reason of an act of the lessor, the right to stay in the premises
beneficiary which should be a part, not the whole, of the contract; (b) the contracting parties must have clearly
is interrupted. But where the lessee is given the chance to return and occupy the premises, even after the actual and deliberately conferred a favor upon the third person, not a mere incidental benefit or interest; (c) the
ouster, then the right to take over the leased area is restored. In this case, when RCAM unilaterally rescinded favorable stipulations should not be conditioned or compensated by any kind of obligation whatsoever; (d) the
the contract and had the billboards of LPI on the leased spaces dismantled, it in fact made a case of unlawful third person must have communicated his acceptance to the obligor before its revocation; and (e) neither of the
eviction as aptly found by the lower courts. The landlord's deprivation of the tenant's beneficial use of the contracting parties bear the legal representation or authorization of the third party.
property may be such as to constitute an actual eviction from the demised premises. [12]cralaw

The third party may be (a) a donee beneficiary; (b) a creditor beneficiary; or (c) an incidental beneficiary. A
RCAM repeatedly insists that the lessee would have no cause of action against the lessor to compel the latter donee beneficiary is regarded as such only if it appears from the terms of the promisee, in view of the
to maintain it in its peaceful enjoyment of the thing rented. Again, RCAM's reliance on the rulings accompanying circumstances, that the purpose of the promisee in obtaining the promise of and/or part of the
of Goldstein v. Roces[13]cralaw and Chua Tee Dee v. Court of Appeals, et al.[14]cralaw is misplaced for these performance thereof is to make a gift to the beneficiary or to confer upon him a right against the promisee to
cases involve deprivation of use in the leased premises by persons other than the lessor. secure performance neither due nor supposed or asserted to be due from the promisee to the beneficiary.

In the absence of reservations in the lease, the tenant is entitled to exclusive possession as against the landlord, The intent of the promisee to benefit a third person as a primary party-in-interest is generally said to be
and the landlord has no authority to disturb or interfere with the tenant's occupancy or controlling. It is not enough that the contract may operate to the benefit of a third party. It must appear that the
possession.[15]cralaw Accordingly, an invasion of the tenant's right of possession by the parties' intent to recognize him as the primary party-in-interest and privy to the promise. Such intent may be
landlord,[16]cralaw including the landlord's unauthorized removal of the tenant's billboard advertisements, gleaned from the construction of the contract in the light of the surrounding circumstances. Intent, in the legal
constitutes a trespass, for which the landlord is liable in damages to the tenant. The landlord, in general, has no sense, is defined as the purpose to use a particular manner to effect a certain result. Otherwise stated, if the
right to interfere with the possession of the leased premises while the MOA is still in effect; otherwise, RCAM
performance of a promise will satisfy an actual or supposed or asserted duty of the promisee to the beneficiary,
may be held liable for the obstruction of the lessee's enjoyment of the areas leased. he is creditor beneficiary and may enforce the promise. The right of recovery of a third-party beneficiary is
upon the theory that the contracting parties intended to create a cause of action in his favor. The right of the
A wrongful interference by a landlord with its tenant's possession of the leased premises gives the tenant a beneficiary is, however, limited by the terms of the promise.
right of action against the landlord.[17]cralaw The tenant may have an election of remedies.[18]cralaw Thus, a
tenant may elect to sue the landlord for damages suffered by reason of wrongful disturbance of its possession Absent the intent to benefit a third party, such party is merely an incidental beneficiary. Such party is one who
by the landlord.[19]cralaw However, a tenant is not limited to an action for damages;[20]cralaw at least where
benefits from the contract of another but whose benefit was not the intent of the contracting parties. An
the lessee has been wrongfully deprived of the possession of the premises, he may also maintain an incidental beneficiary has no right or obligation under the contract. If, indeed, there is an intent of the parties
action to recover possession.[21]cralaw to a contract to benefit a third person, it matters not whether the stipulation is in the nature of a gift or whether
there is an obligation owing from the promisee to the third person.
What is clearly undeniable then, from the combination of the circumstances surrounding the arbitrary
dismounting of LPI's poster boards, is that such actions are patently unlawful and against the written xxxx
stipulations of the MOA, and so RCAM must now answer for its hostile behavior.

85
In the present case, a careful study of the surrounding circumstances of the agreement has revealed that justification, arguing that the spaces were leased to MCIC after the complaint for ejectment was filed and
RCAM is a third party beneficiary under the sublease agreement between LPI and ASTRO. x x x[22]cralaw during its pendency. Contrary to the contentions of LPI, MCIC was not a transferee pendente lite because it
leased the spaces after the sublease to Astro expired in February 1995. A party who was not impleaded in the
complaint cannot be bound by the decision rendered therein, for no man shall be affected by a proceeding in
Moreover, the Court is not persuaded with LPl's contention that the issue was not raised in the trial court and
therefore could not be entertained for the first time on appeal. As earlier stated in the impugned decision, which he is a stranger.[28]cralaw Accordingly, since MCIC was not a party to Civil Case No. 50450, the
RCAM never insisted that there was a stipulation pour autrui in its favor. Rather, it was the MTC which judgment therein is not binding on it for the trial court did not acquire jurisdiction over such party. Otherwise,
declared that the stipulation in the sublease agreement was a stipulation pour autrui under Article 1311 of the MCIC will be deprived of the right to due process.[29]cralaw However, LPI is not bereft of other legal
New Civil Code. remedies. Furthermore, the decretal portion of the assailed decision ordered RCAM to deliver to LPI the
possession of the areas leased covered by the MOA with the exception of those areas now leased to MCIC.

Another contention of LPI in its motion for partial reconsideration is that the correct amount of rentals paid by
Astro to RCAM is the sum of P1,255,889.55 not P832,920.00. It likewise insists that the former amount be WHEREFORE, premises considered, the motions for partial reconsideration filed by the Roman Catholic
credited in its favor, and that it has no obligation to pay rentals from March 1995 to October 5, 1996 because it Archbishop of Manila and Limitless Potentials, Inc. are DENIED. The assailed Decision is AFFIRMED
was evicted, deprived and disallowed to make use of the leased premises within said period. WITH FINALITY.

We do not agree with LPI. Suffice it to say that these claims are factual in nature and were already decided by [G.R. NO. 171968 : July 31, 2009]
the MTC in its decision, where it held that payments made directly to RCAM by Astro in the amount of
P832,920.00 during the first period should not be credited to LPI because the latter had donated the amount to XYST CORPORATION, Petitioner, v. DMC URBAN PROPERTIES DEVELOPMENT
RCAM. The RTC affirmed the amount (P832,920.00) paid by Astro to RCAM although it stated that the rental INC., Respondent,
payments should be credited to LPI. The CA, as well as this Court, affirmed this part of the MTC's decision. FE AURORA C. CASTRO, Intervenor.
Likewise, the MTC decreed that LPI was obliged to pay rentals from March 1995 to October 1995 when the
complaint was filed or only from September 1995 until it stopped occupying the leased premises, considering
DECISION
the MTC's finding that LPI had made an overpayment. Again, this finding was ratified by all the appellate
court, including this Court. Besides, the MTC was correct in ruling that LPI continued to occupy the areas
leased even after the filing of the complaint for ejectment until its billboards and neon signs erected thereon QUISUMBING, J.:
were dismantled on October 5, 1996 by RCAM.[23]cralaw
Before us is a Petition for Review assailing the September 26, 2005 Decision1 and the March 13, 2006
Next, LPI asserts that it must be reinstated to the leased premises for the remaining 21 months of the term of Order2 of the Regional Trial Court (RTC) of Makati City, Branch 64 in Civil Case No. 95-063.
the lease and not just for 10 months. In view of the immediately preceding conclusions, we find it nugatory to
still advance this issue. It must be sufficiently emphasized that questions of fact are best left to the The facts are as follows:
determination of the lower courts. There is a question of fact when the query necessarily invites calibration of
the whole evidence considering mainly the credibility of witnesses, existence and relevance of specific
surrounding circumstances, and their relation to each other and to the whole and the probabilities of the DMC Urban Properties Development, Inc. and Citibank N.A. entered into an agreement whereby they agreed
situation;[24]cralawor when the doubt or controversy arises as to the truth or falsity of the alleged to take part in the construction of the Citibank Tower, an office condominium building located at Villar corner
facts.[25]cralaw Valero Streets, Makati City. In said agreement, DMC was allocated the 18th floor of the Citibank Tower
subject to the condition that DMC shall not transfer any portion of its allocated floor or rights or interests
thereto prior to the completion of the building without the written consent of Citibank N.A.
Findings of fact of the CA and even of the lower courts are final, binding or conclusive on the parties and upon
this Court, which will not be ordinarily reviewed or disturbed on appeal. This is in accordance with the
elementary rule that the Supreme Court is not a trier of facts. Thus, the findings of fact of the trial court, when Subsequently, DMC gave authority to sell to several brokers, one of which is herein intervenor, Fe Aurora
supported by substantial evidence, are final and non-reviewable,[26]cralaw and are accorded finality unless Castro. Through her effort, Castro found a prospective buyer, Saint Agen Et Fils Limited (SAEFL for brevity),
there appears in the record some fact or circumstance of weight which might have been overlooked, a foreign corporation represented by William Seitz. Notwithstanding the fact that the construction of the
misunderstood or misappreciated and which, if properly considered, would alter the results of the Citibank Tower was not yet completed, DMC negotiated with Seitz for the sale of its allocated floor to
case.[27]cralaw No such fact or circumstance obtains in the case at bar. SAEFL.

Lastly, we do not subscribe to LPl's asseveration that MCIC is bound by the judgment in the present case even In a letter dated September 14, 1994,3 SAEFL accepted DMC's offer to sell. The terms of said letter are
if it is not a party herein and that there is no need to file a separate action against it. LPI tries to defend this reproduced below:

86
(1) Property Description of the 28th of September 1994.

Location : 18th Floor, Citibank Tower 24% - Due on 31 October 1994 : P23,959,440/ -
Paseo de Roxas, Makati (via post-dated check)
Metro Manila18th Floor,

50% - Due on 30 November 1994 : P43,092,947.03


Gross Floor Area : 2,034 sq m (via post-dated check)

Net Saleable Area : 1,866 sq m * For the Account of the Seller : Expanded Withholding Tax
with BIR clearance to the buyer
stating that the seller has paid
Net Usable Area : 1,678 sq m
capital gains tax.

Selling Price : P53,500/ - psm of saleable area


For the Account of the Buyer : Doc stamps; registration; and
notarial and all other [similar] fees.
Total Price : P99,831,000/ - *

Parking Slots : 22 On September 16, 1994,4 SAEFL, knowing that the consent of Citibank N.A. must first be obtained, sent
another letter obliging DMC to cause Citibank N.A. to enter into a Contract to Sell with SAEFL as an
additional condition to the payment of the P1,000,000.00 reservation fee.

* VAT tax for the account of the buyer, except that if payment of 26% of the total price is made before 30 Soon after, Seitz was informed that the 18th floor is not available for foreign acquisition, so Seitz told DMC
September 1994, then VAT, if any, shall be for the account of the seller. that he would instead use XYST Corporation, a domestic corporation of which he is a director and
shareholder, to purchase the subject property. XYST then paid the reservation fee. However, DMC advised
The balance of P6,822,552.97 due to Citibank is included and, hence, is to be deducted from the amount due to XYST that the signing of the formal document will not take place since Citibank N.A. opted to exercise its
DMC-UPDI. right of first refusal. Hence, the parties agreed that should Citibank N.A. fail to purchase the 18th floor on the
agreed date, the same should be sold to XYST.

(2) Payment Terms Eventually, Citibank N.A. did not exercise its right of first refusal, but it reminded DMC that should the sale of
the floor to any party materialize, it should be consistent with the documents adopted by the co-founders of the
project. Hence, a copy of a pro-forma Contract to Sell was given to DMC, a copy of which was then forwarded
Reservation Fee : P1,000,000/ - good [until]
to XYST.
26 September 1994
Non-refundable but applicable to the down payment.
DMC then undertook to obtain the conformity of Citibank N.A. to the intended sale but DMC encountered
problems getting Citibank N.A. to accept the amendments that XYST wanted on the pro-forma
26% - Upon signing of : P24,956,060/ - contract.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
agreement but not later
than first banking hour For such failure, DMC allowed XYST and Citibank N.A. to negotiate directly with one another to facilitate the
transaction, but to no avail. Citibank N.A. refused to concur with the amendments imposed by XYST on the

87
pro-forma contract. Hence, DMC decided to call off the deal and return the reservation fee of P1,000,000.00 to XYST argues that there exists a perfected contract of sale between the parties. This was perfected from the
XYST. moment there was a meeting of the minds upon the thing which is object of the contract and upon the price as
manifested by the September 14, 1994 letter. Hence, upon the perfection of the contract, the parties may
reciprocally demand performance. Further, XYST avers that the P1,000,000.00 reservation fee it paid is
A complaint for specific performance with damages was then filed by XYST against DMC. Trial ensued and
on September 26, 2005, the RTC dismissed XYST's complaint. The dispositive portion of said decision reads: actually in the nature of earnest money or down payment and shall be considered as part of the price and as
proof of the perfection of the contract.

WHEREFORE, in view of the foregoing, judgment is rendered as follows:


Conversely, DMC insists that a contract to sell was entered into by the parties. It avers that in the contract to
sell, the element of consent is lacking, and since the acceptance made by XYST is not absolute, no contract of
1. The Complaint for Specific Performance and Damages filed by plaintiff XYST CORPORATION against sale existed between the parties. It claims that the terms, conditions and amendments which XYST tried to
defendant DMC-URBAN PROPERTIES DEVELOPMENT, INC., is DISMISSED. Plaintiff XYST impose upon DMC and Citibank N.A. were proof that indeed XYST had qualifiedly accepted DMC's offer.
CORPORATION is hereby ordered to pay defendant DMC-URBAN PROPERTIES DEVELOPMENT, INC.
the amount of P1,000,000.00 as attorney's fees; andcralawlibrary
We find the petition of XYST Corporation bereft of merit.

2. The counterclaim of defendant DMC-URBAN PROPERTIES DEVELOPMENT, INC. against the


Intervenor Fe Aurora Castro is DISMISSED. It is a fundamental rule that, being consensual, a contract is perfected by mere consent.7 From the moment of a
meeting of the offer and the acceptance upon the object and the cause that would constitute the contract,
consent arises.8 The essence of consent is the conformity of the parties on the terms of the contract, that is, the
SO ORDERED.5 acceptance by one of the offer made by the other.9 However, the acceptance must be absolute; otherwise, the
same constitutes a counter-offer10 and has the effect of rejecting the offer.11
XYST's motion for reconsideration was likewise denied. Hence, the instant petition where XYST raises the
following issues: Equally important are the three stages of a contract: (1) preparation or negotiation, (2) perfection, and (3)
consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in
I. the contract and ends at the moment of agreement of the parties. The perfection or birth of the contract takes
place when the parties agree upon the essential elements of the contract. The last stage is the consummation of
the contract wherein the parties fulfill or perform the terms agreed upon in the contract, culminating in the
DID THE TRIAL COURT ERR IN FINDING THAT THERE WAS NO PERFECTED CONTRACT TO extinguishment thereof.12
SELL BETWEEN XYST AND DEFENDANT DMC BASED ON THE SEPTEMBER 14 AND 16, 1994
LETTER AGREEMENTS, AND THAT DMC CANNOT BE COMPELLED TO PERFORM ITS
OBLIGATIONS UNDER THE AGREEMENT? XYST and DMC were still in the negotiation stage of the contract when the latter called off the deal. The facts
show that DMC as agreed undertook to obtain the conformity of Citibank N.A. However, Citibank N.A.'s
consent to the intended sale cannot be obtained since it does not conform to the amendments made by XYST
II. on the pro-forma Contract to Sell. By introducing amendments to the contract, XYST presented a counter-
offer to which DMC did not agree. Clearly, there was only an offer and a counter-offer that did not sum up to
DID THE TRIAL COURT ERR IN ORDERING XYST TO PAY DMC ATTORNEY'S FEES? any final arrangement containing the elements of a contract. No meeting of the minds was established. The
rule on the concurrence of the offer and its acceptance did not apply because other matters or details'in
addition to the subject matter and the consideration would still be stipulated and agreed upon by the parties.13
III.

Therefore, since the element of consent is absent, there is no contract to speak of. Where the parties merely
IS XYST ENTITLED TO ATTORNEY'S FEES AND EXEMPLARY DAMAGES.6 exchanged offers and counter-offers, no agreement or contract is perfected.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

Simply stated, in our view, there is one major legal issue for our resolution: whether there is a perfected As to XYST's claim that the P1,000,000.00 reservation fee it paid is earnest money, we hold that it is not.
contract between DMC and XYST. This issue of a legal nature assumes primordial significance because it Earnest money applies to a perfected sale. Here, no contract whatsoever was perfected since the element of
justified direct resort by petitioner to this Court in a Petition for Review . consent was lacking. Therefore, the reservation fee paid by XYST could not be earnest money.

88
Coming now to the issue of whether DMC is entitled to attorney's fees, the Court finds that the award of GREGORIO FULE, petitioner, vs. COURT OF APPEALS, NINEVETCH CRUZ and JUAN
attorney's fees to DMC is not proper. Article 2208 of the Civil Code states that in the absence of a stipulation, BELARMINO, respondents.
attorney's fees cannot be recovered, except in any of the following circumstances:
DECISION
(1) When exemplary damages are awarded;
ROMERO, J.:
(2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur
expenses to protect his interest; This petition for review on certiorari questions the affirmance by the Court of Appeals of the
decision[1] of the Regional Trial Court of San Pablo City, Branch 30, dismissing the complaint that prayed for
the nullification of a contract of sale of a 10-hectare property in Tanay, Rizal in consideration of the amount
(3) In criminal cases of malicious prosecution against the plaintiff; of P40,000.00 and a 2.5 carat emerald-cut diamond (Civil Case No. SP-2455). The lower courts decision
disposed of the case as follows:
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
WHEREFORE, premises considered, the Court hereby renders judgment dismissing the complaint for lack of
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, merit and ordering plaintiff to pay:
just and demandable claim;
1. Defendant Dra. Ninevetch M. Cruz the sum of P300,000.00 as and for moral damages and the sum
(6) In actions for legal support; of P100,000.00 as and for exemplary damages;

(7) In actions for the recovery of wages of household helpers, laborers and skilled workers; 2. Defendant Atty. Juan Belarmino the sum of P250,000.00 as and for moral damages and the sum
of P150,000.00 as and for exemplary damages;
(8) In actions for indemnity under workmen's compensation and employer's liability laws;
3. Defendant Dra. Cruz and Atty. Belarmino the sum of P25,000.00 each as and for attorneys fees and
litigation expenses; and
(9) In a separate civil action to recover civil liability arising from a crime;

4. The costs of suit.


(10) When at least double judicial costs are awarded;

SO ORDERED.
(11) In any other case where the court deems it just and equitable that attorney's fees and expenses of litigation
should be recovered.
As found by the Court of Appeals and the lower court, the antecedent facts of this case are as follows:
In the instant case, none of the enumerated grounds for recovery of attorney's fees is present.
Petitioner Gregorio Fule, a banker by profession and a jeweler at the same time, acquired a 10-hectare property
in Tanay, Rizal (hereinafter Tanay property), covered by Transfer Certificate of Title No. 320725 which used
WHEREFORE, this petition is DENIED. The September 26, 2005 Decision and March 13, 2006 Order of
to be under the name of Fr. Antonio Jacobe. The latter had mortgaged it earlier to the Rural Bank of Alaminos
the Regional Trial Court of Makati City, Branch 64 in Civil Case No. 95-063 are hereby AFFIRMED with
(the Bank), Laguna, Inc. to secure a loan in the amount of P10,000.00, but the mortgage was later foreclosed
the modification that the award of attorney's fees in favor of DMC is deleted. Costs against petitioner.
and the property offered for public auction upon his default.

SO ORDERED.
In July 1984, petitioner, as corporate secretary of the bank, asked Remelia Dichoso and Oliva Mendoza
to look for a buyer who might be interested in the Tanay property. The two found one in the person of herein
private respondent Dr. Ninevetch Cruz. It so happened that at the time, petitioner had shown interest in buying
a pair of emerald-cut diamond earrings owned by Dr. Cruz which he had seen in January of the same year
[G.R. No. 112212. March 2, 1998] when his mother examined and appraised them as genuine. Dr. Cruz, however, declined petitioners offer to
buy the jewelry for P100,000.00. Petitioner then made another bid to buy them for US$6,000.00 at the

89
exchange rate of $1.00 to P25.00. At this point, petitioner inspected said jewelry at the lobby of the Prudential that, with Atty. Belarmino, they could register the Tanay property. After Dr. Cruz had agreed to lend her car,
Bank branch in San Pablo City and then made a sketch thereof. Having sketched the jewelry for twenty to Dichoso called up Atty. Belarmino. The latter, however, instructed Dichoso to proceed immediately to his
thirty minutes, petitioner gave them back to Dr. Cruz who again refused to sell them since the exchange rate of residence because petitioner was there. Believing that petitioner had finally agreed to give them half of the pair
the peso at the time appreciated to P19.00 to a dollar. of earrings, Dichoso went posthaste to the residence of Atty. Belarmino only to find petitioner already
demonstrating with a tester that the earrings were fake. Petitioner then accused Dichoso and Mendoza of
Subsequently, however, negotiations for the barter of the jewelry and the Tanay property ensued. Dr. deceiving him which they, however, denied. They countered that petitioner could not have been fooled
Cruz requested herein private respondent Atty. Juan Belarmino to check the property who, in turn, found out because he had vast experience regarding jewelry. Petitioner nonetheless took back the US$300.00 and
that no sale or barter was feasible because the one-year period for redemption of the said property had not yet jewelry he had given them.
expired at the time.
Thereafter, the group decided to go to the house of a certain Macario Dimayuga, a jeweler, to have the
In an effort to cut through any legal impediment, petitioner executed on October 19, 1984, a deed of earrings tested. Dimayuga, after taking one look at the earrings, immediately declared them counterfeit. At
redemption on behalf of Fr. Jacobe purportedly in the amount of P15,987.78, and on even date, Fr. Jacobe sold around 9:30 p.m., petitioner went to one Atty. Reynaldo Alcantara residing at Lakeside Subdivision in San
the property to petitioner for P75,000.00. The haste with which the two deeds were executed is shown by the Pablo City, complaining about the fake jewelry. Upon being advised by the latter, petitioner reported the
fact that the deed of sale was notarized ahead of the deed of redemption. As Dr. Cruz had already agreed to the matter to the police station where Dichoso and Mendoza likewise executed sworn statements.
proposed barter, petitioner went to Prudential Bank once again to take a look at the jewelry.
On October 26, 1984, petitioner filed a complaint before the Regional Trial Court of San Pablo City
In the afternoon of October 23, 1984, petitioner met Atty. Belarmino at the latters residence to prepare against private respondents praying, among other things, that the contract of sale over the Tanay property be
the documents of sale.[2] Dr. Cruz herself was not around but Atty. Belarmino was aware that she and declared null and void on the ground of fraud and deceit.
petitioner had previously agreed to exchange a pair of emerald-cut diamond earrings for the Tanay
property. Atty. Belarmino accordingly caused the preparation of a deed of absolute sale while petitioner and On October 30, 1984, the lower court issued a temporary restraining order directing the Register of
Dr. Cruz attended to the safekeeping of the jewelry. Deeds of Rizal to refrain from acting on the pertinent documents involved in the transaction. On November 20,
1984, however, the same court lifted its previous order and denied the prayer for a writ of preliminary
The following day, petitioner, together with Dichoso and Mendoza, arrived at the residence of Atty. injunction.
Belarmino to finally execute a deed of absolute sale. Petitioner signed the deed and gave Atty. Belarmino the
amount of P13,700.00 for necessary expenses in the transfer of title over the Tanay property. Petitioner also After trial, the lower court rendered its decision on March 7, 1989. Confronting the issue of whether or
issued a certification to the effect that the actual consideration of the sale was P200,000.00 and not P80,000.00 not the genuine pair of earrings used as consideration for the sale was delivered by Dr. Cruz to petitioner, the
as indicated in the deed of absolute sale. The disparity between the actual contract price and the one indicated lower court said:
on the deed of absolute sale was purportedly aimed at minimizing the amount of the capital gains tax that
petitioner would have to shoulder. Since the jewelry was appraised only at P160,000.00, the parties agreed that The Court finds that the answer is definitely in the affirmative. Indeed, Dra. Cruz delivered (the) subject
the balance of P40,000.00 would just be paid later in cash. jewelries (sic) into the hands of plaintiff who even raised the same nearer to the lights of the lobby of the bank
As pre-arranged, petitioner left Atty. Belarminos residence with Dichoso and Mendoza and headed for near the door. When asked by Dra. Cruz if everything was in order, plaintiff even nodded his satisfaction
the bank, arriving there at past 5:00 p.m. Dr. Cruz also arrived shortly thereafter, but the cashier who kept the (Hearing of Feb. 24, 1988). At that instance, plaintiff did not protest, complain or beg for additional time to
other key to the deposit box had already left the bank. Dr. Cruz and Dichoso, therefore, looked for said cashier examine further the jewelries (sic). Being a professional banker and engaged in the jewelry business plaintiff is
and found him having a haircut. As soon as his haircut was finished, the cashier returned to the bank and conversant and competent to detect a fake diamond from the real thing. Plaintiff was accorded the reasonable
arrived there at 5:48 p.m., ahead of Dr. Cruz and Dichoso who arrived at 5:55 p.m. Dr. Cruz and the cashier time and opportunity to ascertain and inspect the jewelries (sic) in accordance with Article 1584 of the Civil
then opened the safety deposit box, the former retrieving a transparent plastic or cellophane bag with the Code. Plaintiff took delivery of the subject jewelries (sic) before 6:00 p.m. of October 24, 1984. When he went
jewelry inside and handing over the same to petitioner. The latter took the jewelry from the bag, went near the at 8:00 p.m. that same day to the residence of Atty. Belarmino already with a tester complaining about some
electric light at the banks lobby, held the jewelry against the light and examined it for ten to fake jewelries (sic), there was already undue delay because of the lapse of a considerable length of time since
fifteen minutes. After a while, Dr. Cruz asked, Okay na ba iyan? Petitioner expressed his satisfaction by he got hold of subject jewelries (sic). The lapse of two (2) hours more or less before plaintiff complained is
nodding his head. considered by the Court as unreasonable delay.[3]

For services rendered, petitioner paid the agents, Dichoso and Mendoza, the amount of US$300.00 and The lower court further ruled that all the elements of a valid contract under Article 1458 of the Civil
some pieces of jewelry. He did not, however, give them half of the pair of earrings in question which he had Code were present, namely: (a) consent or meeting of the minds; (b) determinate subject matter, and (c) price
earlier promised. certain in money or its equivalent. The same elements, according to the lower court, were present despite the
Later, at about 8:00 oclock in the evening of the same day, petitioner arrived at the residence of Atty. fact that the agreement between petitioner and Dr. Cruz was principally a barter contract. The lower court
Belarmino complaining that the jewelry given to him was fake. He then used a tester to prove the alleged explained thus:
fakery. Meanwhile, at 8:30 p.m., Dichoso and Mendoza went to the residence of Dr. Cruz to borrow her car so

90
x x x. Plaintiffs ownership over the Tanay property passed unto Dra. Cruz upon the constructive delivery hands dragging the defendants and soiling their clean and good name in the process. Both of them are near the
thereof by virtue of the Deed of Absolute Sale (Exh. D). On the other hand, the ownership of Dra. Cruz over twilight of their lives after maintaining and nurturing their good reputation in the community only to be
the subject jewelries (sic) transferred to the plaintiff upon her actual personal delivery to him at the lobby of stunned with a court case. Since the filing of this case on October 26, 1984 up to the present they were living
the Prudential Bank. It is expressly provided by law that the thing sold shall be understood as delivered, when under a pall of doubt. Surely, this affected not only their earning capacity in their practice of their respective
it is placed in the control and possession of the vendee (Art. 1497, Civil Code; Kuenzle & Straff vs. Watson & professions, but also they suffered besmirched reputations. Dra. Cruz runs her own hospital and defendant
Co. 13 Phil. 26). The ownership and/or title over the jewelries (sic) was transmitted immediately before 6:00 Belarmino is a well respected legal practitioner.
p.m. of October 24, 1984. Plaintiff signified his approval by nodding his head. Delivery or tradition, is one of
the modes of acquiring ownership (Art. 712, Civil Code). The length of time this case dragged on during which period their reputation were (sic) tarnished and
their names maligned by the pendency of the case, the Court is of the belief that some of the damages they
Similarly, when Exhibit D was executed, it was equivalent to the delivery of the Tanay property in favor prayed for in their answers to the complaint are reasonably proportionate to the sufferings they underwent
of Dra. Cruz. The execution of the public instrument (Exh. D) operates as a formal or symbolic delivery of the (Art. 2219, New Civil Code). Moreover, because of the falsity, malice and baseless nature of the complaint
Tanay property and authorizes the buyer, Dra. Cruz to use the document as proof of ownership (Florendo v. defendants were compelled to litigate. Hence, the award of attorneys fees is warranted under the circumstances
Foz, 20 Phil. 399). More so, since Exhibit D does not contain any proviso or stipulation to the effect that title (Art. 2208, New Civil Code).[6]
to the property is reserved with the vendor until full payment of the purchase price, nor is there a stipulation
giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a From the trial courts adverse decision, petitioner elevated the matter to the Court of Appeals. On
fixed period (Taguba v. Vda. De Leon, 132 SCRA 722; Luzon Brokerage Co. Inc. vs. Maritime Building Co. October 20, 1992, the Court of Appeals, however, rendered a decision[7]affirming in toto the lower courts
Inc. 86 SCRA 305; Froilan v. Pan Oriental Shipping Co. et al. 12 SCRA 276).[4] decision. His motion for reconsideration having been denied on October 19, 1993, petitioner now files the
instant petition alleging that:
Aside from concluding that the contract of barter or sale had in fact been consummated when petitioner
and Dr. Cruz parted ways at the bank, the trial court likewise dwelt on the unexplained delay with which I. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFFS COMPLAINT AND IN
petitioner complained about the alleged fakery. Thus: HOLDING THAT THE PLAINTIFF ACTUALLY RECEIVED A GENUINE PAIR OF
EMERALD CUT DIAMOND EARRING(S) FROM DEFENDANT CRUZ x x x;
x x x. Verily, plaintiff is already estopped to come back after the lapse of considerable length of time to
claim that what he got was fake. He is a Business Management graduate of La Salle University, Class 1978- II. THE TRIAL COURT ERRED IN AWARDING MORAL AND EXEMPLARY DAMAGES
79, a professional banker as well as a jeweler in his own right. Two hours is more than enough time to make a AND ATTORNEYS FEES IN FAVOR OF DEFENDANTS AND AGAINST THE
switch of a Russian diamond with the real diamond. It must be remembered that in July 1984 plaintiff made a PLAINTIFF IN THIS CASE; and
sketch of the subject jewelries (sic) at the Prudential Bank. Plaintiff had a tester at 8:00 p.m. at the residence of
III.THE TRIAL COURT ERRED IN NOT DECLARING THE DEED OF SALE OF THE
Atty. Belarmino. Why then did he not bring it out when he was examining the subject jewelries (sic) at about
TANAY PROPERTY (EXH. `D) AS NULL AND VOID OR IN NOT ANNULLING THE
6:00 p.m. in the banks lobby? Obviously, he had no need for it after being satisfied of the genuineness of the
SAME, AND IN FAILING TO GRANT REASONABLE DAMAGES IN FAVOR OF THE
subject jewelries (sic). When Dra. Cruz and plaintiff left the bank both of them had fully performed their
PLAINTIFF.[8]
respective prestations. Once a contract is shown to have been consummated or fully performed by the parties
thereto, its existence and binding effect can no longer be disputed. It is irrelevant and immaterial to dispute the As to the first allegation, the Court observes that petitioner is essentially raising a factual issue as it
due execution of a contract if both of them have in fact performed their obligations thereunder and their invites us to examine and weigh anew the facts regarding the genuineness of the earrings bartered in exchange
respective signatures and those of their witnesses appear upon the face of the document (Weldon Construction for the Tanay property. This, of course, we cannot do without unduly transcending the limits of our review
v. CA G.R. No. L-35721, Oct. 12, 1987).[5] power in petitions of this nature which are confined merely to pure questions of law. We accord, as a general
rule, conclusiveness to a lower courts findings of fact unless it is shown, inter alia, that: (1) the conclusion is a
Finally, in awarding damages to the defendants, the lower court remarked:
finding grounded on speculations, surmises or conjectures; (2) the inference is manifestly mistaken, absurd
and impossible; (3) when there is a grave abuse of discretion; (4) when the judgment is based on a
The Court finds that plaintiff acted in wanton bad faith. Exhibit 2-Belarmino purports to show that the Tanay misapprehension of facts; (5) when the findings of fact are conflicting; and (6) when the Court of Appeals, in
property is worth P25,000.00. However, also on that same day it was executed, the propertys worth was making its findings, went beyond the issues of the case and the same is contrary to the admission of both
magnified at P75,000.00 (Exh. 3-Belarmino). How could in less than a day (Oct. 19, 1984) the value would parties.[9] We find nothing, however, that warrants the application of any of these exceptions.
(sic) triple under normal circumstances? Plaintiff, with the assistance of his agents, was able to exchange the
Tanay property which his bank valued only at P25,000.00 in exchange for a genuine pair of emerald cut Consequently, this Court upholds the appellate courts findings of fact especially because these concur
diamond worth P200,000.00 belonging to Dra. Cruz. He also retrieved the US$300.00 and jewelries (sic) from with those of the trial court which, upon a thorough scrutiny of the records, are firmly grounded on evidence
his agents. But he was not satisfied in being able to get subject jewelries for a song. He had to file a malicious presented at the trial.[10] To reiterate, this Courts jurisdiction is only limited to reviewing errors of law in the
and unfounded case against Dra. Cruz and Atty. Belarmino who are well known, respected and held in high absence of any showing that the findings complained of are totally devoid of support in the record or that they
esteem in San Pablo City where everybody practically knows everybody. Plaintiff came to Court with unclean are glaringly erroneous as to constitute serious abuse of discretion. [11]

91
Nonetheless, this Court has to closely delve into petitioners allegation that the lower courts decision of nullification. Hence, the problem that should be addressed in this case is whether or not under the facts duly
March 7, 1989 is a ready-made one because it was handed down a day after the last date of the trial of the established herein, the contract can be voided in accordance with law so as to compel the parties to restore to
case.[12] Petitioner, in this regard, finds it incredible that Judge J. Ausberto Jaramillo was able to write a 12- each other the things that have been the subject of the contract with their fruits, and the price with interest. [21]
page single-spaced decision, type it and release it on March 7, 1989, less than a day after the last hearing on
March 6, 1989. He stressed that Judge Jaramillo replaced Judge Salvador de Guzman and heard only his Contracts that are voidable or annullable, even though there may have been no damage to the
rebuttal testimony. contracting parties are: (1) those where one of the parties is incapable of giving consent to a contract; and (2)
those where the consent is vitiated by mistake, violence, intimidation, undue influence or
This allegation is obviously no more than a desperate effort on the part of petitioner to disparage the fraud.[22] Accordingly, petitioner now stresses before this Court that he entered into the contract in the belief
lower courts findings of fact in order to convince this Court to review the same. It is noteworthy that Atty. that the pair of emerald-cut diamond earrings was genuine. On the pretext that those pieces of jewelry turned
Belarmino clarified that Judge Jaramillo had issued the first order in the case as early as March 9, 1987 or two out to be counterfeit, however, petitioner subsequently sought the nullification of said contract on the ground
years before the rendition of the decision. In fact, Atty. Belarmino terminated presentation of evidence on that it was, in fact, tainted with fraud[23] such that his consent was vitiated.
October 13, 1987, while Dr. Cruz finished hers on February 4, 1989, or more than a month prior to the
rendition of the judgment. The March 6, 1989 hearing was conducted solely for the presentation of petitioner's There is fraud when, through the insidious words or machinations of one of the contracting parties, the
rebuttal testimony.[13] In other words, Judge Jaramillo had ample time to study the case and write the decision other is induced to enter into a contract which, without them, he would not have agreed to.[24] The records,
because the rebuttal evidence would only serve to confirm or verify the facts already presented by the parties. however, are bare of any evidence manifesting that private respondents employed such insidious words or
machinations to entice petitioner into entering the contract of barter. Neither is there any evidence showing
The Court finds nothing anomalous in the said situation. No proof has been adduced that Judge that Dr. Cruz induced petitioner to sell his Tanay property or that she cajoled him to take the earrings in
Jaramillo was motivated by a malicious or sinister intent in disposing of the case with dispatch. Neither is exchange for said property.On the contrary, Dr. Cruz did not initially accede to petitioners proposal to buy the
there proof that someone else wrote the decision for him. The immediate rendition of the decision was no more said jewelry. Rather, it appears that it was petitioner, through his agents, who led Dr. Cruz to believe that the
than Judge Jaramillos compliance with his duty as a judge to dispose of the courts business promptly and Tanay property was worth exchanging for her jewelry as he represented that its value was P400,000.00 or
decide cases within the required periods.[14] The two-year period within which Judge Jaramillo handled the more than double that of the jewelry which was valued only at P160,000.00. If indeed petitioners property was
case provided him with all the time to study it and even write down its facts as soon as these were presented to truly worth that much, it was certainly contrary to the nature of a businessman-banker like him to have parted
court. In fact, this Court does not see anything wrong in the practice of writing a decision days before the with his real estate for half its price. In short, it was in fact petitioner who resorted to machinations to convince
scheduled promulgation of judgment and leaving the dispositive portion for typing at a time close to the date Dr. Cruz to exchange her jewelry for the Tanay property.
of promulgation, provided that no malice or any wrongful conduct attends its adoption. [15] The practice serves
the dual purposes of safeguarding the confidentiality of draft decisions and rendering decisions with Moreover, petitioner did not clearly allege mistake as a ground for nullification of the contract of
promptness. Neither can Judge Jaramillo be made administratively answerable for the immediate rendition of sale. Even assuming that he did, petitioner cannot successfully invoke the same. To invalidate a contract,
the decision. The acts of a judge which pertain to his judicial functions are not subject to disciplinary power mistake must refer to the substance of the thing that is the object of the contract, or to those conditions which
unless they are committed with fraud, dishonesty, corruption or bad faith. [16] Hence, in the absence of have principally moved one or both parties to enter into the contract.[25] An example of mistake as to the object
sufficient proof to the contrary, Judge Jaramillo is presumed to have performed his job in accordance with law of the contract is the substitution of a specific thing contemplated by the parties with another.[26] In his
and should instead be commended for his close attention to duty. allegations in the complaint, petitioner insinuated that an inferior one or one that had only Russian diamonds
was substituted for the jewelry he wanted to exchange with his 10-hectare land. He, however, failed to prove
Having disposed of petitioners first contention, we now come to the core issue of this petition which is the fact that prior to the delivery of the jewelry to him, private respondents endeavored to make such
whether the Court of Appeals erred in upholding the validity of the contract of barter or sale under the substitution.
circumstances of this case.
Likewise, the facts as proven do not support the allegation that petitioner himself could be excused for
The Civil Code provides that contracts are perfected by mere consent. From this moment, the parties are the mistake. On account of his work as a banker-jeweler, it can be rightfully assumed that he was an expert on
bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, matters regarding gems. He had the intellectual capacity and the business acumen as a banker to take
according to their nature, may be in keeping with good faith, usage and law. [17] A contract of sale is perfected precautionary measures to avert such a mistake, considering the value of both the jewelry and his land. The
at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the fact that he had seen the jewelry before October 24, 1984 should not have precluded him from having its
price.[18] Being consensual, a contract of sale has the force of law between the contracting parties and they are genuineness tested in the presence of Dr. Cruz. Had he done so, he could have avoided the present situation
expected to abide in good faith by their respective contractual commitments. Article 1358 of the Civil Code that he himself brought about. Indeed, the finger of suspicion of switching the genuine jewelry for a fake
which requires the embodiment of certain contracts in a public instrument, is only for convenience, [19] and inevitably points to him. Such a mistake caused by manifest negligence cannot invalidate a juridical act.[27] As
registration of the instrument only adversely affects third parties. [20] Formal requirements are, therefore, for the the Civil Code provides, (t)here is no mistake if the party alleging it knew the doubt, contingency or risk
benefit of third parties. Non-compliance therewith does not adversely affect the validity of the contract nor the affecting the object of the contract.[28]
contractual rights and obligations of the parties thereunder.
Furthermore, petitioner was afforded the reasonable opportunity required in Article 1584 of the Civil
It is evident from the facts of the case that there was a meeting of the minds between petitioner and Dr. Code within which to examine the jewelry as he in fact accepted them when asked by Dr. Cruz if he was
Cruz. As such, they are bound by the contract unless there are reasons or circumstances that warrant its satisfied with the same.[29] By taking the jewelry outside the bank, petitioner executed an act which was more

92
consistent with his exercise of ownership over it. This gains credence when it is borne in mind that he himself rights of both parties. Moreover, petitioner asserts that there was no firm basis for damages except for Atty.
had earlier delivered the Tanay property to Dr. Cruz by affixing his signature to the contract of sale. That after Belarminos uncorroborated testimony.[34]
two hours he later claimed that the jewelry was not the one he intended in exchange for his Tanay property,
could not sever the juridical tie that now bound him and Dr. Cruz. The nature and value of the thing he had Moral and exemplary damages may be awarded without proof of pecuniary loss. In awarding such
taken preclude its return after that supervening period within which anything could have happened, not damages, the court shall take into account the circumstances obtaining in the case and assess damages
excluding the alteration of the jewelry or its being switched with an inferior kind. according to its discretion.[35] To warrant the award of damages, it must be shown that the person to whom
these are awarded has sustained injury. He must likewise establish sufficient data upon which the court can
Both the trial and appellate courts, therefore, correctly ruled that there were no legal bases for the properly base its estimate of the amount of damages.[36] Statements of facts should establish such data rather
nullification of the contract of sale. Ownership over the parcel of land and the pair of emerald-cut diamond than mere conclusions or opinions of witnesses.[37] Thus:
earrings had been transferred to Dr. Cruz and petitioner, respectively, upon the actual and constructive
delivery thereof.[30] Said contract of sale being absolute in nature, title passed to the vendee upon delivery of x x x. For moral damages to be awarded, it is essential that the claimant must have satisfactorily
the thing sold since there was no stipulation in the contract that title to the property sold has been reserved in proved during the trial the existence of the factual basis of the damages and its causal connection
the seller until full payment of the price or that the vendor has the right to unilaterally resolve the contract the with the adverse partys acts. If the court has no proof or evidence upon which the claim for moral
moment the buyer fails to pay within a fixed period. [31] Such stipulations are not manifest in the contract of damages could be based, such indemnity could not be outrightly awarded. The same holds true
sale. with respect to the award of exemplary damages where it must be shown that the party acted in a
wanton, oppressive or malevolent manner.[38]
While it is true that the amount of P40,000.00 forming part of the consideration was still payable to
petitioner, its nonpayment by Dr. Cruz is not a sufficient cause to invalidate the contract or bar the transfer of In this regard, the lower court appeared to have awarded damages on a ground analogous to malicious
ownership and possession of the things exchanged considering the fact that their contract is silent as to when it prosecution under Article 2219(8) of the Civil Code[39] as shown by (1) petitioners wanton bad faith in
becomes due and demandable.[32] bloating the value of the Tanay property which he exchanged for a genuine pair of emerald-cut diamond
worth P200,000.00; and (2) his filing of a malicious and unfounded case against private respondents who were
Neither may such failure to pay the balance of the purchase price result in the payment of interest well known, respected and held in high esteem in San Pablo City where everybody practically knows
thereon. Article 1589 of the Civil Code prescribes the payment of interest by the vendee for the period everybody and whose good names in the twilight of their lives were soiled by petitioners coming to court with
between the delivery of the thing and the payment of the price in the following cases: unclean hands, thereby affecting their earning capacity in the exercise of their respective professions and
besmirching their reputation.
(1) Should it have been so stipulated;
For its part, the Court of Appeals affirmed the award of damages to private respondents for these
(2) Should the thing sold and delivered produce fruits or income; reasons:
(3) Should he be in default, from the time of judicial or extrajudicial demand for the payment of The malice with which Fule filed this case is apparent. Having taken possession of the genuine
the price. jewelry of Dra. Cruz, Fule now wishes to return a fake jewelry to Dra. Cruz and, more than that,
get back the real property, which his bank owns. Fule has obtained a genuine jewelry which he
Not one of these cases obtains here. This case should, of course, be distinguished from De la Cruz v.
could sell anytime, anywhere and to anybody, without the same being traced to the original owner
Legaspi,[33] where the court held that failure to pay the consideration after the notarization of the contract as
for practically nothing. This is plain and simple, unjust enrichment.[40]
previously promised resulted in the vendees liability for payment of interest. In the case at bar, there is no
stipulation for the payment of interest in the contract of sale nor proof that the Tanay property produced fruits While, as a rule, moral damages cannot be recovered from a person who has filed a complaint against
or income. Neither did petitioner demand payment of the price as in fact he filed an action to nullify the another in good faith because it is not sound policy to place a penalty on the right to litigate, [41] the same,
contract of sale. however, cannot apply in the case at bar. The factual findings of the courts a quo to the effect that petitioner
filed this case because he was the victim of fraud; that he could not have been such a victim because he should
All told, petitioner appears to have elevated this case to this Court for the principal reason of mitigating
have examined the jewelry in question before accepting delivery thereof, considering his exposure to the
the amount of damages awarded to both private respondents which petitioner considers as exorbitant. He
banking and jewelry businesses; and that he filed the action for the nullification of the contract of sale with
contends that private respondents do not deserve at all the award of damages. In fact, he pleads for the total
unclean hands, all deserve full faith and credit to support the conclusion that petitioner was motivated more by
deletion of the award as regards private respondent Belarmino whom he considers a mere nominal party
ill will than a sincere attempt to protect his rights in commencing suit against respondents.
because no specific claim for damages against him was alleged in the complaint. When he filed the case, all
that petitioner wanted was that Atty. Belarmino should return to him the owners duplicate copy of TCT No. As pointed out earlier, a closer scrutiny of the chain of events immediately prior to and on October 24,
320725, the deed of sale executed by Fr. Antonio Jacobe, the deed of redemption and the check alloted for 1984 itself would amply demonstrate that petitioner was not simply negligent in failing to exercise due
expenses. Petitioner alleges further that Atty. Belarmino should not have delivered all those documents to Dr. diligence to assure himself that what he was taking in exchange for his property were genuine diamonds. He
Cruz because as the lawyer for both the seller and the buyer in the sale contract, he should have protected the had rather placed himself in a situation from which it preponderantly appears that his seeming ignorance was
actually just a ruse. Indeed, he had unnecessarily dragged respondents to face the travails of litigation in

93
speculating at the possible favorable outcome of his complaint when he should have realized that his supposed
predicament was his own making. We, therefore, see here no semblance of an honest and sincere belief on his
part that he was swindled by respondents which would entitle him to redress in court. It must be noted that SYLLABUS
before petitioner was able to convince Dr. Cruz to exchange her jewelry for the Tanay property, petitioner took
pains to thoroughly examine said jewelry, even going to the extent of sketching their appearance. Why at the
precise moment when he was about to take physical possession thereof he failed to exert extra efforts to check 1. REMEDIAL LAW; ACTIONS; NATURE OF ACTION DETERMINED BY PLEADINGS;
their genuineness despite the large consideration involved has never been explained at all by petitioner.His REFORMATION OF CONTRACT. — The purpose of an action and the law that should govern it, including
acts thus failed to accord with what an ordinary prudent man would have done in the same situation. Being an the period of prescription, are determined by the allegations and relief prayed for in the complaint itself.
experienced banker and a businessman himself who deliberately skirted a legal impediment in the sale of the Where the complaint, as in the case at bar, specifically alleges that the instrument in question does not express
Tanay property and to minimize the capital gains tax for its exchange, it was actually gross recklessness for the true intention of the parties and prays that judgment be issued ordering its reformation, on the ground that
him to have merely conducted a cursory examination of the jewelry when every opportunity for doing so was the agreement of the parties was that the land of the plaintiff was to be mortgaged, but the defendants caused
not denied him. Apparently, he carried on his person a tester which he later used to prove the alleged fakery to be prepared a deed of absolute sale, the action is clearly one for reformation of an instrument as
but which he did not use at the time when it was most needed. Furthermore, it took him two more hours of contemplated in Articles 1359 and 1365 of the Civil Code of the Philippines.
unexplained delay before he complained that the jewelry he received were counterfeit.Hence, we stated earlier
that anything could have happened during all the time that petitioner was in complete possession and control 2. ID.; ID.; REFORMATION AND ANNULMENT OF CONTRACTS, DISTINGUISHED. — Reformation
of the jewelry, including the possibility of substituting them with fake ones, against which respondents would of instrument presupposes a valid existing contract, in which there had been a meeting of the minds of the
have a great deal of difficulty defending themselves. The truth is that petitioner even failed to successfully parties but the instrument drawn up and signed by them does not correctly express the terms of their
prove during trial that the jewelry he received from Dr. Cruz were not genuine. Add to that the fact that he had agreement. Annulment of a contract, on the other hand, presupposes a defective contract in which the minds of
been shrewd enough to bloat the Tanay propertys price only a few days after he purchased it at a much lower the parties did not meet, or the consent of one was vitiated. The equity of reformation is ordinarily limited to
value. Thus, it is our considered view that if this slew of circumstances were connected, like pieces of fabric written agreements, and its purpose is to establish and perpetuate the true agreement; annulment, on the other
sewn into a quilt, they would sufficiently demonstrate that his acts were not merely negligent but rather hand, is intended to declare the inefficiency which the contract already carries in itself and to render the
studied and deliberate. contract inefficacious.

We do not have here, therefore, a situation where petitioners complaint was simply found later to be 3. ID.; ID.; PRESCRIPTION OF ACTION; REFORMATION OF INSTRUMENTS. — An action for
based on an erroneous ground which, under settled jurisprudence, would not have been a reason for awarding reformation of an instrument under Article 1365 of the Civil Code, prescribes in ten years as provided for in
moral and exemplary damages.[42] Instead, the cause of action of the instant case appears to have been Article 1144 of the Civil Code (Conde, Et. Al. v. Cuenca, Et Al., G.R. No. L-9405, July 21, 1956).
contrived by petitioner himself. In other words, he was placed in a situation where he could not honestly
evaluate whether his cause of action has a semblance of merit, such that it would require the expertise of the
courts to put it to a test. His insistent pursuit of such case then coupled with circumstances showing that he DECISION
himself was guilty in bringing about the supposed wrongdoing on which he anchored his cause of action
would render him answerable for all damages the defendant may suffer because of it. This is precisely what
took place in the petition at bar and we find no cogent reason to disturb the findings of the courts below that ZALDIVAR, J.:
respondents in this case suffered considerable damages due to petitioners unwarranted action.
WHEREFORE, the decision of the Court of Appeals dated October 20, 1992 is hereby AFFIRMED in
Appeal from the order of the Court of First Instance of Quezon, in its Civil Case No. 6103, dismissing
toto. Dr. Cruz, however, is ordered to pay petitioner the balance of the purchase price of P40,000.00 within ten
plaintiff’s complaint.
(10) days from the finality of this decision. Costs against petitioner.

SO ORDERED. There was no trial in this case. Instead of an answer, the defendants filed a motion to dismiss upon the grounds
of prescription and want of cause of action. The facts as alleged in the complaint must, therefore, be
[G.R. No. L-23261. July 31, 1968.] considered hypothetically admitted.

ERNESTO VELUZ, Plaintiff-Appellant, v. SOCORRO VELUZ, ET AL., Defendants-Appellees. Original plaintiff Ernesto Veluz 1 filed a complaint before the Court of First Instance of Quezon on July 30,
1958. On a motion for bill of particulars by defendants, the court ordered plaintiff to file an amended
Lucio B. Bondad, for Plaintiff-Appellant. complaint, which plaintiff did. In the amended complaint plaintiff alleged that on January 2, 1953 he asked
defendants for a loan of five thousand pesos, to secure the payment of which he proposed to mortgage his
De Mesa & De Mesa for Defendants-Appellees. share on a parcel of land covered by TCT No. 27247 of the Registry of Deeds of Quezon; that the defendants
agreed and caused forthwith the preparation of a deed, a copy of which is attached to the complaint as Annex

94
A; that when defendants asked plaintiff to sign the deed as prepared, the latter noticed that the deed was an determined by the complaint itself — its allegations and prayer for relief. 5 The complaint in the instant case
absolute sale instead of a mortgage, and so he asked defendants why the document was couched that way, to alleges that the agreement of the parties was that the land of plaintiff Ernesto Veluz was to be mortgaged, but
which query defendants answered that it had to be so in order that defendants could take possession and enjoy the defendants caused to be prepared a deed of absolute sale and assured said plaintiff that he had nothing to
the fruits of the land and that plaintiff had nothing to worry about the document as defendants, being his fear and worry about the document because he could redeem the property any time. The complaint specifically
brothers and sisters, would not take advantage of the deed of sale, and that plaintiff could redeem the property alleges that the instrument does not express the true intention of the parties. The complaint prayed, among
anytime; that because of the assurance of his brothers and sisters, plaintiff affixed his signature on the others, that judgment be issued:jgc:chanrobles.com.ph
document; that said document did not express the real intention of the parties; that in May 1956 plaintiff
wanted to redeem the property but the defendants refused, claiming that what plaintiff had executed was a "(b) ordering the reformation of the deed of sale attached hereto as Annex ‘A’ to express the true intention of
deed of sale; that several days later, plaintiff came to know that the property had been registered already in the parties, to wit: the same to be made as a deed of mortgage executed by the plaintiff in favor of the
defendants’ name; that the value of the land with its improvements would be no less than P80,000.00 yielding defendants for and in consideration of Five Thousand Pesos (P5,000.00) which plaintiff may redeem at any
a monthly produce valued at no less than P1,000.00. Plaintiff prayed that judgment be issued "ordering the time he desires or to such period as this Court may fix and that if this Honorable Court should fix a period to
reformation of the deed of sale attached hereto as Annex ‘A’ to express the true intention of the parties, to wit: order in the meantime the return of the possession of the premises in question to the plaintiff." (Italics
the same be made as a deed of mortgage . . ." and that defendants be ordered to pay actual and moral damages supplied).
and attorney’s fees.
It is our considered view, based upon the allegations, and the relief prayed for, in the complaint, that the action
Defendants moved for the dismissal of the complaint upon the grounds that the cause of action has prescribed is clearly one for the reformation of an instrument as contemplated in Articles 1359 and 1365 of the Civil
and that the complaint states no cause of action, to which motion plaintiff filed his opposition. Code of the Philippines.

The trial court issued its order, dated June 28, 1960, dismissing the complaint, upon the ground that plaintiff’s In the order appealed from the lower court starts with the statement "This is an action for reformation of
action was for annulment of contract based on fraud (although ultimately it was for recovery of title and contract with damages . . .", but later declared "that the plaintiff’s action in the case at bar is for annulment of
possession), which under Article 1391 had to be brought within four years from the discovery of the fraud; that contract based on fraud (although ultimately it is for recovery of title and possession) which, under Article
from January 2, 1953 when the fraud was discovered to the date of institution of the action on July 30, 1958, 1391 of the new Civil Code shall be brought within four years from the discovery of the fraud." 6
more than four years had elapsed. Plaintiff moved for the reconsideration of the order of dismissal, but the
motion was denied. Hence this appeal. The lower court is in error. The action for reformation of instrument should not be confused with the action for
annulment of contract. Reformation of instrument presupposes a valid existing contract, in which there had
The plaintiff having died in the meantime, the trial court ordered the substitution of plaintiff by his wife been a meeting of the minds of the parties but the instrument drawn up and signed by them does not correctly
Encarnacion Veluz; and by his children: Sonia Veluz, wife of Antonio Villador; Julia Veluz, wife of Antonio express the terms of their agreement. Annulment of a contract on the other hand, presupposes a defective
Peleñio, and Ramon Veluz. contract in which the minds of the parties did not meet, or the consent of one was vitiated. The equity of
reformation is ordinarily limited to written agreements, and its purpose is to establish and perpetuate the true
In their appeal brief the appellants made a lone assignment of error, to wit: that the trial court erred in finding agreement; annulment, on the other hand, is intended to declare the inefficiency which the contract already
that the cause of action had already prescribed. In support thereof appellants argue that the allegations, as well carries in itself and to render the contract inefficacious.
as the relief sought, in the complaint, clearly show that the action is for reformation of instrument under
Articles 1365 and 1605 of the Civil Code, which action prescribes in ten years 2 , and not for annulment of The legal question to be resolved in the instant case, therefore, is: When does an action for the reformation of
contract which prescribes in four years; that assuming that the action was for annulment, it could be said that instrument prescribe? Chapter 4, Title II of Book IV of the Civil Code, which treats of "Reformation of
original plaintiff Ernesto Veluz discovered the fraud only in 1958 when his brothers and sisters, taking Instruments" carries no provision regarding the period when the action for reformation of instrument shall be
advantage of the deed of sale, refused to allow him to redeem the property:chanrob1es virtual 1aw library brought. In two decisions of this Court we find conflicting pronouncements. In the case of Heirs of Carlota v.
Benares, G.R. No. L-6438, June 30, 1955, relied upon by the trial court, this Court said that the action
The defendants-appellees rely principally on Article 1391 of the Civil Code which provides that the action for prescribes in four years, and We quote:jgc:chanrobles.com.ph
the annulment of a contract on the ground of fraud must be brought within four years from the date of the
discovery of the fraud. The appellees urge that the four-year period of prescription of the action began on "The fact that Benares, through fraud and deceit, made them sign absolute sales instead, does not render the
January 2, 1953 when the deed in question was signed by original plaintiff Ernesto Veluz who already knew of sales absolutely void, but merely voidable, and the remedy of plaintiffs is either annulment on the ground of
the fraud. The appellees cite the cases of Rone, Et Al., v. Claro and Baquiring 3 and Heirs of Carlota v. fraud, or reformation of the contracts to make them express the parties’ true intention and agreement. In either
Benares, 4 to support their stand. case, the action should be filed within four years from the time the cause of action accrues, i.e. from the
discovery of the fraud."cralaw virtua1aw library
We find merit in this appeal.
However, in the subsequent case of Conde, Et Al., v. Cuenca and Malaga, G.R. No. L-9405, July 31, 1956,
The purpose of an action and the law that should govern it, including the period of prescription, should be relied upon by the appellants, therein the action was precisely for the reformation of the instrument of sale to

95
make it conform with the intention of the parties to execute a deed of mortgage, under Article 1365 of the
Civil Code, this Court applied Article 1144 of the Civil Code and held that plaintiff had a period of 10 years
within which to bring the action. We quote:jgc:chanrobles.com.ph

"As defendants themselves allege in their motion, plaintiff’s remedy is one for the reformation of an
instrument under article 1365 of the new Civil Code. That article reads:chanrob1es virtual 1aw library

‘ART. 1365. If two parties agree upon the mortgage or pledge of real or personal property, but the instrument
states that the property is sold absolutely or with a right of repurchase, reformation of the instrument is
proper.’

Plaintiff’s case comes squarely under the article, and it is precisely the remedy therein prescribed that he wants
when in his complaint he prays for judgment ‘declaring the deed of sale Annex ‘A’ null and void ab-initio but
one of mortgage." Stated more explicitly, the prayer is to have the deed declared void as a sale and construed
or given the effect of a mere mortgage so as to make it conform to the real intention of the parties. In other
words, what is sought is ‘reformation’, which is defined as ‘that remedy in equity by means of which a written
instrument is made or construed so as to express or conform to the real intention of the parties when some
error or mistake has been committed.’ (53 C.J. 906, cited in Padilla’s Civil Code Annotated, Vol. II, p. 431.)
Moreover, the complaint also prays for such remedy as in justice and equity plaintiff may be entitled to in the
premises, and it is clear that upon the facts pleaded reformation is proper in accordance with article 1365 of
the new Civil Code.

"As an action for reformation, plaintiff had 10 years within which to bring it from the time the right of action
accrued. (Art. 1144, new Civil Code.) . . ."cralaw virtua1aw library

We believe that the decision in the Conde case should prevail, not only because it is of a later date but also
because the issue decided therein refers to the period of prescription in an action for reformation of
instruments; whereas, in the Carlota case, the issue decided refers to the annulment of contracts. The ruling in
the Conde case is squarely applicable to the case now before Us because, as in the Conde case, the question
involved is the reformation of an instrument which appears to be a deed of absolute sale when the real
intention of the parties was to execute a deed of mortgage.

Hence, in the case at bar, even if the ten-year period of prescription be computed from the date of the
execution of the instrument on January 2, 1953, or from May, 1958 when defendants refused to allow
redemption — evincing thus their intent not to live up to the true agreement and thereby giving rise to the right
of action, 7 — until July 30, 1958 when the instant case was commenced, the ten-year period for prescription
of the action had not yet elapsed.

IN VIEW OF THE FOREGOING, the appealed order of the lower court, dated June 28, 1960, dismissing
plaintiff’s complaint, should be, as it is hereby, set aside; and this case is remanded to the court a quo for
further proceedings. Costs against defendants-appellees. It is so ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Angeles and Fernando, JJ., concur.

Castro, J., took no part.

96