PRIMITIVO ANSAY, ETC., ET AL.

, plaintiffs-appellants,
vs.
THE BOARD OF DIRECTORS OF THE NATIONAL DEVELOPMENT COMPANY, ET
AL., defendants-appellees.

Celso A. Fernandez for appellants.

Juan C. Jimenez, for appellees.

PARAS, C. J.:

On July 25, 1956, appellants filed against appellees in the Court of First Instance of Manila a
complaint praying for a 20% Christmas bonus for the years 1954 and 1955. The court a quo on
appellees' motion to dismiss, issued the following order:

Considering the motion to dismiss filed on 15 August, 1956, set for this morning; considering
that at the hearing thereof, only respondents appeared thru counsel and there was no
appearance for the plaintiffs although the court waited for sometime for them; considering,
however, that petitioners have submitted an opposition which the court will consider together
with the arguments presented by respondents and the Exhibits marked and presented,
namely, Exhibits 1 to 5, at the hearing of the motion to dismiss; considering that the action in
brief is one to compel respondents to declare a Christmas bonus for petitioners workers in
the National Development Company; considering that the Court does not see how petitioners
may have a cause of action to secure such bonus because:

(a) A bonus is an act of liberality and the court takes it that it is not within its judicial powers
to command respondents to be liberal;

(b) Petitioners admit that respondents are not under legal duty to give such bonus but that
they had only ask that such bonus be given to them because it is a moral obligation of
respondents to give that but as this Court understands, it has no power to compel a party to
comply with a moral obligation (Art. 142, New Civil Code.).

IN VIEW WHEREOF, dismissed. No pronouncement as to costs.

A motion for reconsideration of the afore-quoted order was denied. Hence this appeal.

Appellants contend that there exists a cause of action in their complaint because their claim rests on
moral grounds or what in brief is defined by law as a natural obligation.

Since appellants admit that appellees are not under legal obligation to give such claimed bonus; that
the grant arises only from a moral obligation or the natural obligation that they discussed in their
brief, this Court feels it urgent to reproduce at this point, the definition and meaning of natural
obligation.

Article 1423 of the New Civil Code classifies obligations into civil or natural. "Civil obligations are a
right of action to compel their performance. Natural obligations, not being based on positive law but
on equity and natural law, do not grant a right of action to enforce their performance, but after
voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or
rendered by reason thereof".
It is thus readily seen that an element of natural obligation before it can be cognizable by the court is
voluntary fulfillment by the obligor. Certainly retention can be ordered but only after there has been
voluntary performance. But here there has been no voluntary performance. In fact, the court cannot
order the performance.

At this point, we would like to reiterate what we said in the case of Philippine Education Co. vs. CIR
and the Union of Philippine Education Co., Employees (NUL) (92 Phil., 381; 48 Off. Gaz., 5278) —

xxx xxx xxx

From the legal point of view a bonus is not a demandable and enforceable obligation. It is so
when it is made a part of the wage or salary compensation.

And while it is true that the subsequent case of H. E. Heacock vs. National Labor Union, et al., 95
Phil., 553; 50 Off. Gaz., 4253, we stated that:

Even if a bonus is not demandable for not forming part of the wage, salary or compensation
of an employee, the same may nevertheless, be granted on equitable consideration as when
it was given in the past, though withheld in succeeding two years from low salaried
employees due to salary increases.

still the facts in said Heacock case are not the same as in the instant one, and hence the ruling
applied in said case cannot be considered in the present action.

Premises considered, the order appealed from is hereby affirmed, without pronouncement as to
costs.
 [G.R. No. 176868 : July 26, 2010]

SOLAR HARVEST, INC., PETITIONER, VS. DAVAO CORRUGATED CARTON CORPORATION,

RESPONDENT.

DECISION

NACHURA, J.:

Petitioner seeks a review of the Court of Appeals (CA) Decision[1] dated September 21, 2006 and
Resolution[2] dated February 23, 2007, which denied petitioner's motion for reconsideration. The assailed
Decision denied petitioner's claim for reimbursement for the amount it paid to respondent for the
manufacture of corrugated carton boxes.

The case arose from the following antecedents:

In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered into an agreement with respondent,
Davao Corrugated Carton Corporation, for the purchase of corrugated carton boxes, specifically designed for
petitioner's business of exporting fresh bananas, at US$1.10 each. The agreement was not reduced into
writing. To get the production underway, petitioner deposited, on March 31, 1998, US$40,150.00 in
respondent's US Dollar Savings Account with Westmont Bank, as full payment for the ordered boxes.

Despite such payment, petitioner did not receive any boxes from respondent. On January 3, 2001, petitioner
wrote a demand letter for reimbursement of the amount paid.[3] On February 19, 2001, respondent replied
that the boxes had been completed as early as April 3, 1998 and that petitioner failed to pick them up from
the former's warehouse 30 days from completion, as agreed upon. Respondent mentioned that petitioner
even placed an additional order of 24,000 boxes, out of which, 14,000 had been manufactured without any
advanced payment from petitioner. Respondent then demanded petitioner to remove the boxes from the
factory and to pay the balance of US$15,400.00 for the additional boxes and P132,000.00 as storage fee.

On August 17, 2001, petitioner filed a Complaint for sum of money and damages against respondent. The
Complaint averred that the parties agreed that the boxes will be delivered within 30 days from payment but
respondent failed to manufacture and deliver the boxes within such time. It further alleged

6. That repeated follow-up was made by the plaintiff for the immediate production of the ordered boxes, but
every time, defendant [would] only show samples of boxes and ma[k]e repeated promises to deliver the
said ordered boxes.

7. That because of the failure of the defendant to deliver the ordered boxes, plaintiff ha[d] to cancel the same
and demand payment and/or refund from the defendant but the latter refused to pay and/or refund the
US$40,150.00 payment made by the former for the ordered boxes.[4]

In its Answer with Counterclaim,[5] respondent insisted that, as early as April 3, 1998, it had already
completed production of the 36,500 boxes, contrary to petitioner's allegation. According to respondent,
petitioner, in fact, made an additional order of 24,000 boxes, out of which, 14,000 had been completed
without waiting for petitioner's payment. Respondent stated that petitioner was to pick up the boxes at the
factory as agreed upon, but petitioner failed to do so. Respondent averred that, on October 8, 1998,
petitioner's representative, Bobby Que (Que), went to the factory and saw that the boxes were ready for
pick up. On February 20, 1999, Que visited the factory again and supposedly advised respondent to sell the
boxes as rejects to recoup the cost of the unpaid 14,000 boxes, because petitioner's transaction to ship
bananas to China did not materialize. Respondent claimed that the boxes were occupying warehouse space
and that petitioner should be made to pay storage fee at P60.00 per square meter for every month from
April 1998. As counterclaim, respondent prayed that judgment be rendered ordering petitioner to pay
$15,400.00, plus interest, moral and exemplary damages, attorney's fees, and costs of the suit.

In reply, petitioner denied that it made a second order of 24,000 boxes and that respondent already
completed the initial order of 36,500 boxes and 14,000 boxes out of the second order. It maintained that

respondent only manufactured a sample of the ordered boxes and that respondent could not have produced
14,000 boxes without the required pre-payments.[6]
During trial, petitioner presented Que as its sole witness. Que testified that he ordered the boxes from
respondent and deposited the money in respondent's account.[7] He specifically stated that, when he visited
respondent's factory, he saw that the boxes had no print of petitioner's logo.[8] A few months later, he
followed-up the order and was told that the company had full production, and thus, was promised that
production of the order would be rushed. He told respondent that it should indeed rush production because
the need for the boxes was urgent. Thereafter, he asked his partner, Alfred Ong, to cancel the order
because it was already late for them to meet their commitment to ship the bananas to China.[9] On cross-
examination, Que further testified that China Zero Food, the Chinese company that ordered the bananas,
was sending a ship to Davao to get the bananas, but since there were no cartons, the ship could not
proceed. He said that, at that time, bananas from Tagum Agricultural Development Corporation (TADECO)
were already there. He denied that petitioner made an additional order of 24,000 boxes. He explained that it
took three years to refer the matter to counsel because respondent promised to pay.[10]

For respondent, Bienvenido Estanislao (Estanislao) testified that he met Que in Davao in October 1998 to
inspect the boxes and that the latter got samples of them. In February 2000, they inspected the boxes
again and Que got more samples. Estanislao said that petitioner did not pick up the boxes because the ship
did not arrive.[11] Jaime Tan (Tan), president of respondent, also testified that his company finished
production of the 36,500 boxes on April 3, 1998 and that petitioner made a second order of 24,000
boxes. He said that the agreement was for respondent to produce the boxes and for petitioner to pick them
up from the warehouse.[12] He also said that the reason why petitioner did not pick up the boxes was that
the ship that was to carry the bananas did not arrive.[13] According to him, during the last visit of Que and
Estanislao, he asked them to withdraw the boxes immediately because they were occupying a big space in
his plant, but they, instead, told him to sell the cartons as rejects. He was able to sell 5,000 boxes at P20.00
each for a total of P100,000.00. They then told him to apply the said amount to the unpaid balance.

In its March 2, 2004 Decision, the Regional Trial Court (RTC) ruled that respondent did not commit any
breach of faith that would justify rescission of the contract and the consequent reimbursement of the
amount paid by petitioner. The RTC said that respondent was able to produce the ordered boxes but
petitioner failed to obtain possession thereof because its ship did not arrive. It thus dismissed the complaint
and respondent's counterclaims, disposing as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of defendant and against the
plaintiff and, accordingly, plaintiff's complaint is hereby ordered DISMISSED without pronouncement as to
cost. Defendant's counterclaims are similarly dismissed for lack of merit.

SO ORDERED.[14]

Petitioner filed a notice of appeal with the CA.

On September 21, 2006, the CA denied the appeal for lack of merit.[15] The appellate court held that
petitioner failed to discharge its burden of proving what it claimed to be the parties' agreement with respect
to the delivery of the boxes. According to the CA, it was unthinkable that, over a period of more than two
years, petitioner did not even demand for the delivery of the boxes. The CA added that even assuming that
the agreement was for respondent to deliver the boxes, respondent would not be liable for breach of
contract as petitioner had not yet demanded from it the delivery of the boxes.[16]

Petitioner moved for reconsideration,[17] but the motion was denied by the CA in its Resolution of February
23, 2007.[18]

In this petition, petitioner insists that respondent did not completely manufacture the boxes and that it was
respondent which was obliged to deliver the boxes to TADECO.

We find no reversible error in the assailed Decision that would justify the grant of this petition.

Petitioner's claim for reimbursement is actually one for rescission (or resolution) of contract under Article
1191 of the Civil Code, which reads:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment
of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter
should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the Mortgage Law.

The right to rescind a contract arises once the other party defaults in the performance of his obligation. In
determining when default occurs, Art. 1191 should be taken in conjunction with Art. 1169 of the same law,
which provides:

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declares; or

(2) When from the nature and the circumstances of the obligation it appears that the designation of the time
when the thing is to be delivered or the service is to be rendered was a controlling motive for the
establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply
in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his
obligation, delay by the other begins.

In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of the parties'
respective obligations should be simultaneous. Hence, no demand is generally necessary because, once a
party fulfills his obligation and the other party does not fulfill his, the latter automatically incurs in
delay. But when different dates for performance of the obligations are fixed, the default for each obligation
must be determined by the rules given in the first paragraph of the present article,[19] that is, the other
party would incur in delay only from the moment the other party demands fulfillment of the former's
obligation. Thus, even in reciprocal obligations, if the period for the fulfillment of the obligation is fixed,
demand upon the obligee is still necessary before the obligor can be considered in default and before a
cause of action for rescission will accrue.

Evident from the records and even from the allegations in the complaint was the lack of demand by
petitioner upon respondent to fulfill its obligation to manufacture and deliver the boxes. The Complaint only
alleged that petitioner made a "follow-up" upon respondent, which, however, would not qualify as a demand
for the fulfillment of the obligation. Petitioner's witness also testified that they made a follow-up of the
boxes, but not a demand. Note is taken of the fact that, with respect to their claim for reimbursement, the
Complaint alleged and the witness testified that a demand letter was sent to respondent. Without a
previous demand for the fulfillment of the obligation, petitioner would not have a cause of action for
rescission against respondent as the latter would not yet be considered in breach of its contractual
obligation.

Even assuming that a demand had been previously made before filing the present case, petitioner's claim for
reimbursement would still fail, as the circumstances would show that respondent was not guilty of breach of
contract.

The existence of a breach of contract is a factual matter not usually reviewed in a petition for review under
Rule 45.[20] The Court, in petitions for review, limits its inquiry only to questions of law. After all, it is not a
trier of facts, and findings of fact made by the trial court, especially when reiterated by the CA, must be
given great respect if not considered as final.[21] In dealing with this petition, we will not veer away from
this doctrine and will thus sustain the factual findings of the CA, which we find to be adequately supported
by the evidence on record.

As correctly observed by the CA, aside from the pictures of the finished boxes and the production report
thereof, there is ample showing that the boxes had already been manufactured by respondent. There is the
testimony of Estanislao who accompanied Que to the factory, attesting that, during their first visit to the
company, they saw the pile of petitioner's boxes and Que took samples thereof. Que, petitioner's witness,
himself confirmed this incident. He testified that Tan pointed the boxes to him and that he got a sample and
saw that it was blank. Que's absolute assertion that the boxes were not manufactured is, therefore,
implausible and suspicious.

In fact, we note that respondent's counsel manifested in court, during trial, that his client was willing to
shoulder expenses for a representative of the court to visit the plant and see the boxes.[22] Had it been true
that the boxes were not yet completed, respondent would not have been so bold as to challenge the court to
conduct an ocular inspection of their warehouse. Even in its Comment to this petition, respondent prays
that petitioner be ordered to remove the boxes from its factory site,[23] which could only mean that the
boxes are, up to the present, still in respondent's premises.

We also believe that the agreement between the parties was for petitioner to pick up the boxes from
respondent's warehouse, contrary to petitioner's allegation. Thus, it was due to petitioner's fault that the
boxes were not delivered to TADECO.

Petitioner had the burden to prove that the agreement was, in fact, for respondent to deliver the boxes
within 30 days from payment, as alleged in the Complaint. Its sole witness, Que, was not even competent to
testify on the terms of the agreement and, therefore, we cannot give much credence to his testimony. It
appeared from the testimony of Que that he did not personally place the order with Tan, thus:

Q. No, my question is, you went to Davao City and placed your order
there?
A. I made a phone call.

Q. You made a phone call to Mr. Tan?

A. The first time, the first call to Mr. Alf[re]d Ong. Alfred Ong has a
contact with Mr. Tan.

Q. So, your first statement that you were the one who placed the order
is not true?
A. That's true. The Solar Harvest made a contact with Mr. Tan and I
deposited the money in the bank.

Q. You said a while ago [t]hat you were the one who called Mr. Tan and
placed the order for 36,500 boxes, isn't it?
A. First time it was Mr. Alfred Ong.

Q. It was Mr. Ong who placed the order[,] not you?

A. Yes, sir.[24]
Q. Is it not a fact that the cartons were ordered through Mr. Bienvenido
Estanislao?
A. Yes, sir.[25]
Moreover, assuming that respondent was obliged to deliver the boxes, it could not have complied with such
obligation. Que, insisting that the boxes had not been manufactured, admitted that he did not give
respondent the authority to deliver the boxes to TADECO:

Q. Did you give authority to Mr. Tan to deliver these boxes to TADECO?
A. No, sir. As I have said, before the delivery, we must have to check
the carton, the quantity and quality. But I have not seen a single
carton.

Q. Are you trying to impress upon the [c]ourt that it is only after the
boxes are completed, will you give authority to Mr. Tan to deliver the
boxes to TADECO[?]
A. Sir, because when I checked the plant, I have not seen any carton. I
asked Mr. Tan to rush the carton but not...[26]

Q. Did you give any authority for Mr. Tan to deliver these boxes to
TADECO?
A. Because I have not seen any of my carton.

Q. You don't have any authority yet given to Mr. Tan?

A. None, your Honor.[27]
Surely, without such authority, TADECO would not have allowed respondent to deposit the boxes within its
premises.

In sum, the Court finds that petitioner failed to establish a cause of action for rescission, the evidence
having shown that respondent did not commit any breach of its contractual obligation. As previously stated,
the subject boxes are still within respondent's premises. To put a rest to this dispute, we therefore relieve
respondent from the burden of having to keep the boxes within its premises and, consequently, give it the
right to dispose of them, after petitioner is given a period of time within which to remove them from the
premises.

WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated
September 21, 2006 and Resolution dated February 23, 2007 are AFFIRMED. In addition, petitioner is
given a period of 30 days from notice within which to cause the removal of the 36,500

boxes from respondent's warehouse. After the lapse of said period and petitioner fails to effect such
removal, respondent shall have the right to dispose of the boxes in any manner it may deem fit.

SO ORDERED.
FILINVEST CREDIT CORPORATION, plaintiff-appellee,
vs.
PHILIPPINE ACETYLENE, CO., INC., defendant-appellant.

DE CASTRO, J.:

This case is certified to Us by the Court of Appeals in its Resolution 1 dated March 22, 1979 on the
ground that it involves purely questions of law, as raised in the appeal of the decision of the Court of First
Instance of Manila, Branch XII in Civil Case No. 91932, the dispositive portion of which reads as follows:

In view of the foregoing consideration, the court hereby renders judgment -

l) directing defendant to pay plaintiff:

a) the sum of P22,227.81 which is the outstanding unpaid obligation

of the defendant under the assigned credit, with 12 %interest from the
date of the firing of the complaint in this suit until the same is fully
paid;

b) the sum equivalent to l5% of P22,227.81 as and for attorney's

fees; and

2) directing plaintiff to deliver to, and defendant to accept, the motor vehicle, subject
of the chattel may have been changed by the result of ordinary wear and tear of the
vehicle.

Defendant to pay the cost of suit.

SO ORDERED.

The facts, as found in the decision 2 subject of the instant appeal, are undisputed.

On October 30, 1971, the Philippine Acetylene Co., Inc., defendant-appellant herein, purchased from
one Alexander Lim, as evidenced by a Deed of Sale marked as Exhibit G, a motor vehicle described
as Chevorlet, 1969 model with Serial No. 136699Z303652 for P55,247.80 with a down payment of
P20,000.00 and the balance of P35,247.80 payable, under the terms and conditions of the
promissory note (Exh. B), at a monthly installment of P1,036.70 for thirty-four (34) months, due and
payable on the first day of each month starting December 1971 through and inclusive September 1,
1974 with 12 % interest per annum on each unpaid installment, and attorney's fees in the amount
equivalent to 25% of the total of the outstanding unpaid amount.

As security for the payment of said promissory note, the appellant executed a chattel mortgage (Exh.
C) over the same motor vehicle in favor of said Alexander Lim. Subsequently, on November 2, 1971.
Alexander Lim assigned to the Filinvest Finance Corporation all his rights, title, and interests in the
promissory note and chattel mortgage by virtue of a Deed of Assignment (Exh. D).

Thereafter, the Filinvest Finance Corporation, as a consequence of its merger with the Credit and
Development Corporation assigned to the new corporation, the herein plaintiff-appellee Filinvest
Credit Corporation, all its rights, title, and interests on the aforesaid promissory note and chattel
mortgage (Exh. A) which, in effect, the payment of the unpaid balance owed by defendant-appellant
to Alexander Lim was financed by plaintiff-appellee such that Lim became fully paid.

Appellant failed to comply with the terms and conditions set forth in the promissory note and chattel
mortgage since it had defaulted in the payment of nine successive installments. Appellee then sent a
demand letter (Exh. 1) whereby its counsel demanded "that you (appellant) remit the aforesaid
amount in full in addition to stipulated interest and charges or return the mortgaged property to my
client at its office at 2133 Taft Avenue, Malate, Manila within five (5) days from date of this letter
during office hours. " Replying thereto, appellant, thru its assistant general- manager, wrote back
(Exh. 2) advising appellee of its decision to "return the mortgaged property, which return shall be in
full satisfaction of its indebtedness pursuant to Article 1484 of the New Civil Code." Accordingly, the
mortgaged vehicle was returned to the appellee together with the document "Voluntary Surrender
with Special Power of Attorney To Sell" 3 executed by appellant on March 12, 1973 and confirmed to by
appellee's vice-president.

On April 4, 1973, appellee wrote a letter (Exh. H) to appellant informing the latter that appellee
cannot sell the motor vehicle as there were unpaid taxes on the said vehicle in the sum of
P70,122.00. On the last portion of the said letter, appellee requested the appellant to update its
account by paying the installments in arrears and accruing interest in the amount of P4,232.21 on or
before April 9, 1973.

On May 8, 1973, appellee, in a letter (Exh. 1), offered to deliver back the motor vehicle to the
appellant but the latter refused to accept it, so appellee instituted an action for collection of a sum of
money with damages in the Court of First Instance of Manila on September 14, 1973.

In its answer, appellant, while admitting the material allegations of the appellee's complaint, avers
that appellee has no cause of action against it since its obligation towards the appellee was
extinguished when in compliance with the appellee's demand letter, it returned the mortgaged
property to the appellee, and that assuming arguendo that the return of the property did not
extinguish its obligation, it was nonetheless justified in refusing payment since the appellee is not
entitled to recover the same due to the breach of warranty committed by the original vendor-assignor
Alexander Lim.

After the case was submitted for decision, the Court of First Instance of Manila, Branch XII rendered
its decision dated February 25, 1974 which is the subject of the instant appeal in this Court.

Appellant's five assignment of errors may be reduced to, or said to revolve around two issues: first,
whether or not the return of the mortgaged motor vehicle to the appellee by virtue of its voluntary
surrender by the appellant totally extinguished and/or cancelled its obligation to the appellee;
second, whether or not the warranty for the unpaid taxes on the mortgaged motor vehicle may be
properly raised and imputed to or passed over to the appellee.

Consistent with its stand in the court a quo, appellant now reiterates its main contention that
appellee, after giving appellant an option either to remit payment in full plus stipulated interests and
charges or return the mortgaged motor vehicle, had elected the alternative remedy of exacting
fulfillment of the obligation, thus, precluding the exercise of any other remedy provided for under
Article 1484 of the Civil Code of the Philippines which reads:

Article 1484. Civil Code. - In a contract of sale of personal property the price of which
is payable in installments, the vendor may exercise any of the following remedies:
 1) Exact fulfillment of the obligation, should the vendee fail to pay;

2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

3) Foreclose the chattel mortgage on the thing sold, if one has been constituted,
should the vendee's failure to pay cover two or more installments. In this case, he
shall have no further action against the purchaser to recover any unpaid balance of
the price. Any agreement to the contrary shall be void.

In support of the above contention, appellant maintains that when it opted to return, as in fact it did
return, the mortgaged motor vehicle to the appellee, said return necessarily had the effect of
extinguishing appellant's obligation for the unpaid price to the appellee, construing the return to and
acceptance by the appellee of the mortgaged motor vehicle as a mode of payment, specifically,
dation in payment or dacion en pago which according to appellant, virtually made appellee the owner
of the mortgaged motor vehicle by the mere delivery thereof, citing Articles 1232, 1245, and 1497 of
the Civil Code, to wit:

Article 1232. Payment means not only the delivery of money but also the
performance, in any manner, of an obligation.

xxx xxx xxx

Article 1245. Dation in payment, whereby property is alienated to the creditor in

satisfaction of a debt in money, shall be governed by the law of sales.

xxx xxx xxx

Article 1497. The thing sold shall be understood as delivered, when it is placed in the
control and possession of the vendee.

Passing at once on the relevant issue raised in this appeal, We find appellant's contention devoid of
persuasive force. The mere return of the mortgaged motor vehicle by the mortgagor, the herein
appellant, to the mortgagee, the herein appellee, does not constitute dation in payment or dacion en
pago in the absence, express or implied of the true intention of the parties. Dacion en pago,
according to Manresa, is the transmission of the ownership of a thing by the debtor to the creditor as
an accepted equivalent of the performance of obligation. 4 In dacion en pago, as a special mode of
payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an
outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is, the creditor
is really buying the thing or property of the debtor, payment for which is to be charged against the debtor's
debt. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or
consideration must be present. In its modern concept, what actually takes place in dacion en pago is an
objective novation of the obligation where the thing offered as an accepted equivalent of the performance
of an obligation is considered as the object of the contract of sale, while the debt is considered as the
purchase price. 5 In any case, common consent is an essential prerequisite, be it sale or innovation to
have the effect of totally extinguishing the debt or obligation.

The evidence on the record fails to show that the mortgagee, the herein appellee, consented, or at
least intended, that the mere delivery to, and acceptance by him, of the mortgaged motor vehicle be
construed as actual payment, more specifically dation in payment or dacion en pago. The fact that
the mortgaged motor vehicle was delivered to him does not necessarily mean that ownership
thereof, as juridically contemplated by dacion en pago, was transferred from appellant to appellee. In
the absence of clear consent of appellee to the proferred special mode of payment, there can be no
transfer of ownership of the mortgaged motor vehicle from appellant to appellee. If at all, only
transfer of possession of the mortgaged motor vehicle took place, for it is quite possible that
appellee, as mortgagee, merely wanted to secure possession to forestall the loss, destruction,
fraudulent transfer of the vehicle to third persons, or its being rendered valueless if left in the hands
of the appellant.

A more solid basis of the true intention of the parties is furnished by the document executed by
appellant captioned "Voluntary Surrender with Special Power of Attorney To Sell" dated March 12,
1973, attached as Annex "C" of the appellant's answer to the complaint. An examination of the
language of the document reveals that the possession of the mortgaged motor vehicle was
voluntarily surrendered by the appellant to the appellee authorizing the latter to look for a buyer and
sell the vehicle in behalf of the appellant who retains ownership thereof, and to apply the proceeds of
the sale to the mortgage indebtedness, with the undertaking of the appellant to pay the difference, if
any, between the selling price and the mortgage obligation. With the stipulated conditions as stated,
the appellee, in essence was constituted as a mere agent to sell the motor vehicle which was
delivered to the appellee, not as its property, for if it were, he would have full power of disposition of
the property, not only to sell it as is the limited authority given him in the special power of attorney.
Had appellee intended to completely release appellant of its mortgage obligation, there would be no
necessity of executing the document captioned "Voluntary Surrender with Special Power of Attorney
To Sell." Nowhere in the said document can We find that the mere surrender of the mortgaged motor
vehicle to the appellee extinguished appellant's obligation for the unpaid price.

Appellant would also argue that by accepting the delivery of the mortgaged motor vehicle, appellee
is estopped from demanding payment of the unpaid obligation. Estoppel would not he since, as
clearly set forth above, appellee never accepted the mortgaged motor vehicle in full satisfaction of
the mortgaged debt.

Under the law, the delivery of possession of the mortgaged property to the mortgagee, the herein
appellee, can only operate to extinguish appellant's liability if the appellee had actually caused the
foreclosure sale of the mortgaged property when it recovered possession thereof. 6 It is worth noting
that it is the fact of foreclosure and actual sale of the mortgaged chattel that bar the recovery by the
vendor of any balance of the purchaser's outstanding obligation not satisfied by the sale. 7 As held by this
Court, if the vendor desisted, on his own initiative, from consummating the auction sale, such desistance
was a timely disavowal of the remedy of foreclosure, and the vendor can still sue for specific
performance. 8 This is exactly what happened in the instant case.

On the second issue, there is no dispute that there is an unpaid taxes of P70,122.00 due on the
mortgaged motor vehicle which, according to appellant, liability for the breach of warranty under the
Deed of Sale is shifted to the appellee who merely stepped into the shoes of the assignor Alexander
Lim by virtue of the Deed of Assignment in favor of appellee. The Deed of Sale between Alexander
Lim and appellant and the Deed of Assignment between Alexander Lim and appellee are very clear
on this point. There is a specific provision in the Deed of Sale that the seller Alexander Lim warrants
the sale of the motor vehicle to the buyer, the herein appellant, to be free from liens and
encumbrances. When appellee accepted the assignment of credit from the seller Alexander Lim,
there is a specific agreement that Lim continued to be bound by the warranties he had given to the
buyer, the herein appellant, and that if it appears subsequently that "there are such counterclaims,
offsets or defenses that may be interposed by the debtor at the time of the assignment, such
counterclaims, offsets or defenses shall not prejudice the FILINVEST FINANCE CORPORATION
and I (Alexander Lim) further warrant and hold the said corporation free and harmless from any such
claims, offsets, or defenses that may be availed of." 9

It must be noted that the unpaid taxes on the motor vehicle is a burden on the property. Since as earlier
shown, the ownership of the mortgaged property never left the mortgagor, the herein appellant, the
burden of the unpaid taxes should be home by him, who, in any case, may not be said to be without
remedy under the law, but definitely not against appellee to whom were transferred only rights, title and
interest, as such is the essence of assignment of credit. 10

WHEREFORE, the judgment appealed from is hereby affirmed in toto with costs against defendant-
appellant.

SO ORDERED.
R. MARINO CORPUS, petitioner,
vs.
COURT OF APPEALS and JUAN T. DAVID, respondents

MAKASIAR, J.:

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, defendant', for the recovery of attorneys fees for professional services rendered
by the plaintiff, private respondent herein, to defendant, petitioner herein.

Having been close friends, aside from being membres Civil Liberties Union, petitioner Corpus
intimately calls respondent David by his nickname "Juaning" and the latter addresses the former
simply as "Marino".

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

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 effective March 18, 1958, he defendant was suspended from office.
After the investigating committee found the administrative charges to be without
merit, and subsequently recommended the immediate reinstatement of the
defendant, the then Governor of Central Bank, Miguel Cuaderno, Sr., recommended
that the defendant be 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 of suspension.

On August 18, 1959, the defendant, thru Atty. Alvarez, filed the Court of First
Instance of 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 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 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. On June 14, 1960, Judge Lantin
dismissed Civil Case No. 41226 for failure to exhaust she administrative remedies
available to the herein defendant.
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 herein have given divergent versions.

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 the defendant, at the Taza de Oro coffee shop. After they talked about the
defendant's having lost his case before Judge Lantin, and knowing that the plaintiff
and the defendant were both members of the Civil Liberties Union, Rafael Corpus
requested the plaintiff to 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 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 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.

The defendant's version of how the plaintiff came into the case is as follows:

After the order of dismissal issued by Judge Lantin was published in the newspapers,
the 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 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 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 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 it
was not six or seven days prior to the expiration of the period of appeal (which
should 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.

Laying aside for the moment the true circumstances under which the plaintiff started
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 argued the said motion during the hearing thereof On August 8, 1960, he file
a 13-page 'Memorandum of Authorities in support of said motion for reconsideration
(Exhibit C). A 3-page supplemental memorandum of authorities was filed by the
plaintiff on September 6, 1960 (Exhibit D)

On November 15, 1960, Judge Lantin denied the motion for reconsideration. On
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 plaintiff was the one who orally argued the case before the Supreme
Court. In connection 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.

On March 30, 1962, the Supreme Court promulgated its decision reversing the order
of dismissal and remanding the case for further proceedings. On April 18, 1962, after
the promulgation of the decision of the Supreme Court reversing the dismissal of the
case the defendant wrote the plaintiff the following letter, Exhibit 'Q'. .

xxxxxxxxx

Dear Juaning

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 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 received something on account of a pending claim.

Looking forward to a continuation of the case in the lower court, I remain

Sincerely yours, Illegible

xxxxxxxxx

In a reply letter dated April 25, 1962, the plaintiff returned the check, explaining said
act as follows:

April 25, 1962

My dear Marino:

Yesterday, I received your letter of April 18th with its enclosure. I wished thank you
for your kind thoughts, however, please don't take offense if I have to return the
check. I will explain.

When I decided to render professional services in your case, I was motivated by the
value to me of the very intimate relations which you and I have enjoyed during the
past many years. It was nor primarily, for a professional fee.

Although we were not fortunate to have obtained a decision in your case which
should have put an end to it. I feel that we have reason to be jubilant over the
outcome, because, the final favorable outcome of the case seems
certain irrespective of the length of time required to terminate the same.

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
resolved the case in your favor, remembering me then will make me happy. In the
meantime, you will make me happier by just keeping the check.

Sincerely yours,
 JUANING

xxxxxxxxx

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 same-'On June 24, 1963, Judge Lantin rendered his decision in
favor of the defendant 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 opposed by the herein plaintiff. The said
decision was appealed by the respondents, as 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 (Exhibit H) and the other as
appellant (Exhibit H-1). The Court of Appeal however, certified the case to the
Supreme Court in 1964.

On March 31, 1965, the Supreme Court rendered a decision affirming the judgment
of the Court of first Instance of Manila.

On April 19, 1965 the plaintiffs law office made a formal de command upon the
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 go together to the Central Bank to claim the possession of the office to
which the 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 P203,000.00 recoverable by the defendant. The defendant
demurred to this demand inasmuch as he had plenty of outstanding obligations and
that his tax liability for said back salaries was around P90,000.00, and that he
expected to net only around P10,000.00 after deducting all expenses and taxes.

On the same date, April 19,1965 the plaintiff wrote the Governor for of Central Bank
requesting that the amount representing the sack salaries of the defendant be made
out in two one in favor of the defendant and the other representing the professional
fees equivalent to 50% of the said back salaries being claimed by the plaintiff (Exhibit
8). F to obtain the relief from the Governor of Central Bank, the plaintiff instituted this
action before this Court on July 20, 1965 (Emphasis supplied).

As therein defendant, herein petitioner Marino Corpus filed in August 5, 1965 an answer with
counter-claim. On August 30, 1965, private respondent Atty. Juan T. David, plaintiff therein, filed a
reply with answer to the counterclaim of petitioner.

After due trial, the lower court rendered judgment on September 4, 1967, the dispositive portion of
which reads:

WHEREFORE, judgment is hereby rendered, ordering the defendant to pay plaintiff

the 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.)
After receipt on September 7, 1967 of a copy of the aforequoted judgment, petitioner Marino Corpus,
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:

1. In not holding that the plaintiff's professional services were offered and rendered
gratuitously;

2. Assuming that plaintiff is entitled to compensation — in holding that he was

entitled to attorney's fees in the amount of P30,000.00 when at most he would be
entitled to only P2,500.00;

3. In not dismissing plaintiff's complaint; and

4. In not awarding damages and attorney's fees to the defendant (p. 2, CA Decision,
p. 26, rec.)

Likewise, private respondent Atty. Juan T. David, plaintiff therein, appealed to the Court of Appeals
on October 9, 1967 assigning one error, to wit:

The lower court erred in ordering the defendant to pay the plaintiff only the sum of
P30,000.00 in the concept of attorney's fees (p. 1, CA Decision, p. 25, rec.).

On February 14, 1975, respondent Court of Appeals promulgated its decision affirming in toto the
decision of the lower court, with costs against petitioner Marino Corpus (Annex A, Petition for
Certiorari, p. 25, rec.)

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 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.).

On October 1, 1975, the case was deemed submitted for decision (p. 177, rec.), after the parties
filed their respective memoranda.

On January 31, 1978, private respondent Atty. Juan T. David filed a petition to remand the case to
the court a quo for execution of the latter's decision in Civil Case No. 61802, dated September 4,
1967, alleging that said decision is already deemed affirmed pursuant to Section 11(2), Article X of
the New Constitution by reason of the failure of this Tribunal to decide the case within 18 months.
Then on July 7, 1978, another petition to remand the case to the lower court to execution was filed
by herein private respondent.

Subsequently, private respondent Atty. Juan T. David filed with The court a quo a motion dated
September 13, 1978 for the issuance of a writ of execution of the lower court's decision in the
aforesaid civil case, also invoking Section 11 (2), Article X of the 1973 Constitution. In an order
dated September 19, 1978, the lower court, through Judge Jose H. Tecson, directed the issuance of
a writ of execution. The writ of execution was 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.
It appears that on October 13, 1978, herein petitioner filed a motion for reconsideration of the
September 19, 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.

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 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.

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 not honor petitioner's withdrawals from his bank deposits when no garnishment
order has been issued by the Supreme Court. This Court further inquired from the lower court
whether it has issued any garnishment order during the pendency of the present case.

On November 27, 1978, the Commercial Bank and Trust Company filed its comment which was
noted in the 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 Court.

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 compliance came on December 13, 1978, requesting to be excused from the
filing of his comment because 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.

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. David to show cause why he should not be cited for contempt for his failure
to file his comment as directed by the resolution of the Court dated December 4, 1978, and for filing
a motion for execution knowing that the case is pending appeal and review before this Court
Likewise, the Court required Judge Jose H. Tecson to show cause why he should not be cited for
contempt for issuing an order directing the issuance of a writ of execution and for issuing such writ
despite the pendency of the present case in the Supreme Court.

On January 12, 1979, Judge Jose H. Tecson filed his compliance explanation as directed by the
aforesaid resolution of January 3, 1979, while private respondent Atty. Juan T. David filed on
January 30, 19 79 his compliance and motion for reconsideration after the Court has granted him an
extension of time to file his compliance.

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 herein private respondent asking the Chief

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.

C
The main thrust of this petition for review is whether or not private respondent Atty. Juan T. David is
entitled to attorney's fees.

Petitioner Marino Corpus contends that respondent David is not entitled to attorney's fees because
there was no contract to that effect. On the other hand, respondent David contends that the absence
of a formal contract for the payment of the attorney's fees will not negate the payment thereof
because the contract may be express 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.

WE find respondent David's position meritorious. While there was express agreement between
petitioner 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.

Petitioner's act of giving the check for P2,000.00 through his aforestated April 18, 1962 letter to
respondent 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 his back salaries. Petitioner ended his letter that
he was "looking forward to a continuation of the case in the lower court, ... to which the certiorari-
mandamus-quo warranto case was remanded by the Supreme Court for further proceedings.

Moreover, respondent David's letter-reply of April 25, 1962 confirms the promise of petitioner Corpus
to pay 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 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 have finally resolved the case in your favor,
remembering me then will make me happy. In the meantime, you will make me happier by just
keeping the check." Thereafter, respondent David continued to render legal services to petitioner
Corpus, in collaboration with Atty. Alverez until he and Atty. Alvarez secured the decision directing
petitioner's reinstatement with back salaries, which legal services were undisputedly accepted by,
and benefited petitioner.

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 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 case; and that respondent agreed on the case. It would
have been unethical for respondent to even offer his services when petitioner had a competent
counsel in the person of Atty. Alvarez, who has been teaching political, constitutional and
administrative law for over twenty years.

Likewise, it appears that after the Supreme Court affirmed on March 31, 1965 the order of the lower
court reinstating petitioner Corpus with back salaries and awarding attorney's fees of P5,000.00,
respondent David made a written demand on April 19, 1965 upon petitioner Corpus for the payment
of his attorney's fees in an amount equivalent to 50% of what was paid as back salaries (Exh. N p.
75, Folder of Exhibits, Civil Case No. 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 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 (Exh. K, p. 57,
Folder of Exhibits, Civil Case No. 61802).

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 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, 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 services of respondent
David were gratuitous, which did not entitle said respondent to compensation.

It may be advanced that respondent David may be faulted for not reducing the agreement for
attorney's fees with petitioner Corpus in writing. However, this should be viewed from their special
relationship. It appears that both have been friends for several years and were co-members of the
Civil Liberties Union. In addition, 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 between them.

II

Moreover, the payment of attorney's fees to respondent David may also be justified by virtue of the
innominate contract of facio ut des (I do and you give which is based on the principle that "no one
shall unjustly enrich himself at the expense of another." innominate contracts have been elevated to
a codal provision in the New Civil Code by providing under Article 1307 that such contracts shall be
regulated by the stipulations of the parties, by the general provisions or principles of obligations and
contracts, by the rules governing the most 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, thus:

It does not appear that any written contract was entered into between the parties for
the employment of the plaintiff as interpreter, or that any other innominate contract
was entered into but
whethertheplaintiffsservicesweresolicitedorwhethertheywereoffered to the defendant
for his assistance, inasmuch as these services were accepted and made use of by
the latter, we must consider that there was a tacit and mutual consent as to the
rendition of the services. This gives rise to the obligation upon the person benefited
by the services to make compensation therefor, since the bilateral obligation to
render service as interpreter, on the one hand, and on the other to pay for the service
rendered, is thereby incurred. (Arts. 1088, 1089, and 1262 of the Civil Code).

xxxxxxxxx

... Whether the service was solicited or offered, the fact remains that Perez rendered
to Pomar services as interpreter. As it does not appear that he did this gratuitously,
 the duty is imposed upon the defendant, he having accepted the benefit of the
service, to pay a just compensation therefor, by virtue of the innominate contract of
facio ut des implicitly established.

xxxxxxxxx

... 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 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]).

WE reiterated this rule in Pacific Merchandising Corp. vs. Consolacion Insurance & Surety Co., Inc.
(73 SCRA 564 [1976]) citing the case of Perez v. Pomar, supra thus:

Where one has rendered services to another, and these services are accepted by
the latter, in the absence of proof that the service was rendered gratuitously, it is but
just that he should pay a reasonable remuneration therefor because 'it is a well-
known principle of law, that no one should be permitted to enrich himself to the
damage of another (emphasis supplied).

Likewise, under American law, the same rule obtains (7 CJS 1079; FL Still & Co. v. Powell, 114 So
375).

III

There was no contract for contingent fee between Corpus and respondent David. Contingent fees
depend on an express contract therefor. Thus, "an attorney is not entitled to a percentage of the
amount recovered by his 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).

Where services were rendered without any agreement whatever as to the amount or
terms of compensation, the attorney is not acting under a contract for a contingent
fee, and a letter by the attorney to the client stating that a certain sum would be a
reasonable amount to charge for his services and adding that a rate of not less than
five percent nor more than ten would be reasonable and customary does not convert
the original agreement into a contract for a contingent fee (7 C.J.S. 1063 citing
Fleming v. Phinizy 134 S.E. 814).

While there was no express contract between the parties for the payment of attorney's fees, the fact
remains that respondent David rendered legal services to petitioner Corpus and therefore as
aforestated, is entitled to compensation under the innominate contract of facio lit des And such being
the case, respondent David is entitled to a reasonable compensation.

IV

In determining a reasonable fee to be paid to respondent David as compensation for his services, on
a quantum meruit basis, it is proper to consider all the facts and circumstances obtaining in this case
particularly the following:
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 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 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 all the charges against the
petitioner. It appears further that after the Monetary Board, in its resolution of July 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
aforestated resolution and for the reinstatement of petitioner Corpus. Atty. Alvarez actively
participated in the proceedings.

On the other hand, respondent David entered his appearance as counsel for petitioner Corpus
sometime after 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 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-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 argument on April 20, 1961
before the Supreme Court, respondent David and Atty. Alverez appeared for petitioner Corpus
although it was David who orally argued the case.

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 records also review that respondent David prepared and signed for Atty. Alverez
and himself. certain pleadings, including a memorandum. Moreover, after the lower court rendered
judgment on June 2 4, 1963 ordering the reinstatement and payment of back salaries to petitioner
Corpus and awarding him P5,000.00 by way of attorney's fees, both petitioner Corpus and the
respondents in said case appealed the judgment. At that stage, respondent David again prepared
and signed for Atty. Alvarez and himself, the necessary pleadings, 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
administrative case and later in the civil case, respondent David also advanced legal propositions.
Petitioner Corpus contends that said legal propositions were invariably rejected by the courts. This
is, however, of no moment because the fact remains that respondent David faithfully rendered legal
services for the success of petitioner's case.

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 reinstatement, recovery of back salaries and the vindication of his honor and
reputation. But, note should also be taken of the fact that respondent David came at the crucial
stage when the case of petitioner Corpus was dismissed by the lower court.

Atty. Rosauro Alvarez admittedly was paid by petitioner Corpus the sum of P20,000.00 or at most
P22,500.00 (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 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 respondent David. However, respondent David has not
manifested his intention to accept the offer.

In his complaint in the instant case, he asked for P75,000.00 as his attorney's fees. The records
reveal that petitioner Corpus actually received only P150,158.50 as back salaries and emoluments
after deducting taxes as 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, awarded only P30,000.00 and it was affirmed by the
Court of Appeals.

Considering the aforestated circumstances, WE are of the opinion that the reasonable compensation
of respondent David should be P20,000.00.

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.

Respondent David filed on or about September 13, 1978 a motion with the court a quo for the
issuance of a 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 decision is already deemed affirmed had as yet been issued by the
Chief Justice pursuant to Section 11, paragraph 2, Article X of the New Constitution; because
respondent David's petitions filed with the Supreme Court on January 31, 1978 and on July 7, 1978
to remand the case to the trial court for execution and for the issuance of such certification had not
yet been acted upon as the same were still pending consideration by this Court. In fact, this Court
has not as of this time made any pronouncement on the aforesaid provision of the New Constitution.

This act of respondent David constitutes disrespect to, as well as disregard of, the authority of this
Court as the 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 and judicial officers" (Section 20 (b), 138 of the Revised Rules of
Court). Likewise, Canon 1 of. the Canons of Professional Ethic expressly provide that: "It is the duty
of the lawyer to maintain towards the Courts a respectful attitude, not for the sake of the temporary
incumbent of the judgement office, but for the maintenance of its supreme importance." And this
Court had stressed that "the duty of an attorney to the courts 'can only be maintained by rendering
no service involving any disrespect to the judicial office which he is 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]).

Moreover, this Court takes judicial notice of the fact that herein respondent David, in the previous
case of Integrated Construction Services, Inc. and Engineering Construction, Inc. v. Relova (65
SCRA 638 [1975]), 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 the New Constitution which were not given due
consideration. And knowing this, respondent David should have been more prudent and cautious in
g with the court a quo any motion for execution.

Furthermore, there was even a taint of arrogance and defiance on the part of respondent David in
not filing his 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 December 13, 1978 a letter requesting to be excused from
the filing of his comment on the lame excuse that petitioner's letter-complaint was not verified.

On the part of Judge Jose H. Tecson, his presumptuous and precipitate act of granting the motion
for execution 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 issued by this Court. As a judicial officer, Judge Tecson is charged
with the knowledge of the fact that this 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 Land. He should be reminded of what
Justice Laurel speaking for the Court, has said in People v. Vera (65 Phil 56, 82 [1937]):

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 nation.

It may also be added that the improvident act of respondent David in firing the motion for execution
and the precipitate act of Judge Tecson in issuing the writ of execution are intriguing as they invite
suspicion that there was connivance between the two. Respondent David would seem to imply that
his claim for attorney's fees should be given preference over the other cams now pending in this
Court. Certainly, such should not be the case because there are cases which by their nature require
immediate or preferential attention by this Tribunal like habeas corpus cases, labor cases and c
cases involving death sentence, let alone cases involving properties 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 the
legal profession, from which he has derived a great measure. of economic well-being and
independence

Consequently, the filing of the motion for immediate tion and the issuance of the writ of execution
constitute a defiance and usurpation of the jurisdiction of the Supreme Court. As a disciplinary
measure for the preservation and vindication of the dignity of this Supreme Tribunal respondent Atty.
Juan T. David should be REPRIMANDED for his precipitate action of filing a motion for execution as
well as Judge Jose H. Tecson for his improvident issuance of a writ of execution while the case is
pending appeal before the Supreme Court, and a repetition of said acts would be dealt with more
severely.

WHEREFORE, PETITIONER R. MARINO CORPUS IS HEREBY DIRECTED TO PAY

RESPONDENT ATTY. JUAN T. DAVID THE SUM OF TWENTY THOUSAND (P20,000.00) PESOS
AS ATTORNEY'S FEES.

RESPONDENT ATTY. JUAN T. DAVID AND JUDGE JOSE H. TECSON OF THE COURT OF
FIRST INSTANCE OF MANILA, BRANCH V, ARE HEREBY DECLARED GUILTY OF CONTEMPT
AND ARE HEREBY REPRIMANDED, WITH A WARNING THAT REPETITION TION OF THE SAME
OR SIMILAR ACTS WILL BE DEALT WITH MORE SEVERELY.

COSTS AGAINST PETITIONER.

SO ORDERED.
LIAM LAW, plaintiff-appellee,
vs.
OLYMPIC SAWMILL CO. and ELINO LEE CHI, defendants-appellants.

Felizardo S.M. de Guzman for plaintiff-appellee.

Mariano M. de Joya for defendants-appellants.

MELENCIO-HERRERA, J.:

This is an appeal by defendants from a Decision rendered by the then Court of First Instance of
Bulacan. The appeal was originally taken to the then Court of Appeals, which endorsed it to this
instance stating that the issue involved was one of law.

It appears that on or about September 7, 1957, plaintiff loaned P10,000.00, without interest, to
defendant partnership and defendant Elino Lee Chi, as the managing partner. The loan became
ultimately due on January 31, 1960, but was not paid on that date, with the debtors asking for an
extension of three months, or up to April 30, 1960.

On March 17, 1960, the parties executed another loan document. Payment of the P10,000.00 was
extended to April 30, 1960, but the obligation was increased by P6,000.00 as follows:

That the sum of SIX THOUSAND PESOS (P6,000.00), Philippine currency shall form
part of the principal obligation to answer for attorney's fees, legal interest, and other
cost incident thereto to be paid unto the creditor and his successors in interest upon
the termination of this agreement.

Defendants again failed to pay their obligation by April 30, 1960 and, on September 23, 1960,
plaintiff instituted this collection case. Defendants admitted the P10,000.00 principal obligation, but
claimed that the additional P6,000.00 constituted usurious interest.

Upon application of plaintiff, the Trial Court issued, on the same date of September 23, 1960, a writ
of Attachment on real and personal properties of defendants located at Karanglan, Nueva Ecija.
After the Writ of Attachment was implemented, proceedings before the Trial Court versed principally
in regards to the attachment.

On January 18, 1961, an Order was issued by the Trial Court stating that "after considering the
manifestation of both counsel in Chambers, the Court hereby allows both parties to simultaneously
submit a Motion for Summary Judgment. 1 The plaintiff filed his Motion for Summary Judgment on January 31, 1961, while
defendants filed theirs on February 2, 196l. 2

On June 26, 1961, the Trial Court rendered decision ordering defendants to pay plaintiff "the amount
of P10,000.00 plus the further sum of P6,000.00 by way of liquidated damages . . . with legal rate of
interest on both amounts from April 30, 1960." It is from this judgment that defendants have
appealed.

We have decided to affirm.

Under Article 1354 of the Civil Code, in regards to the agreement of the parties relative to the
P6,000.00 obligation, "it is presumed that it exists and is lawful, unless the debtor proves the
contrary". No evidentiary hearing having been held, it has to be concluded that defendants had not
proven that the P6,000.00 obligation was illegal. Confirming the Trial Court's finding, we view the
P6,000.00 obligation as liquidated damages suffered by plaintiff, as of March 17, 1960, representing
loss of interest income, attorney's fees and incidentals.

The main thrust of defendants' appeal is the allegation in their Answer that the P6,000.00 constituted
usurious interest. They insist the claim of usury should have been deemed admitted by plaintiff as it
was "not denied specifically and under oath". 3

Section 9 of the Usury Law (Act 2655) provided:

SEC. 9. The person or corporation sued shall file its answer in writing under oath to
any complaint brought or filed against said person or corporation before a competent
court to recover the money or other personal or real property, seeds or agricultural
products, charged or received in violation of the provisions of this Act. The lack of
taking an oath to an answer to a complaint will mean the admission of the facts
contained in the latter.

The foregoing provision envisages a complaint filed against an entity which has committed usury, for
the recovery of the usurious interest paid. In that case, if the entity sued shall not file its answer
under oath denying the allegation of usury, the defendant shall be deemed to have admitted the
usury. The provision does not apply to a case, as in the present, where it is the defendant, not the
plaintiff, who is alleging usury.

Moreover, for sometime now, usury has been legally non-existent. Interest can now be charged as
lender and borrower may agree upon. 4 The Rules of Court in regards to allegations of usury,
procedural in nature, should be considered repealed with retroactive effect.

Statutes regulating the procedure of the courts will be construed as applicable to

actions pending and undetermined at the time of their passage. Procedural laws are
retrospective in that sense and to that extent. 5

... Section 24(d), Republic Act No. 876, known as the Arbitration Law, which took
effect on 19 December 1953, and may be retroactively applied to the case at bar
because it is procedural in nature. ... 6

WHEREFORE, the appealed judgment is hereby affirmed, without pronouncement as to costs.

SO ORDERED.
JESUS PINEDA, petitioner,
vs.
JOSE V. DELA RAMA and COURT OF APPEALS, respondents.

Rosauro Alvarez for petitioner.

Arturo Zialcita for respondents.

GUTIERREZ, JR., J.:

This is a petition to review on certiorari a decision of the Court of Appeals which declared petitioner
Jesus Pineda liable on his promissory note for P9,300.00 and directed him to pay attorney's fees of
P400.00 to private respondent, Jose V. dela Rama.

Dela Rama is a practising lawyer whose services were retained by Pineda for the purpose of making
representations with the chairman and general manager of the National Rice and Corn
Administration (NARIC) to stop or delay the institution of criminal charges against Pineda who
allegedly misappropriated 11,000 cavans of palay deposited at his ricemill in Concepcion, Tarlac.
The NARIC general manager was allegedly an intimate friend of Dela Rama.

According to Dela Rama, petitioner Pineda has used up all his funds to buy a big hacienda in
Mindoro and, therefore, borrowed the P9,300.00 subject of his complaint for collection. In addition to
filling the suit to collect the loan evidenced by the matured promissory note, Dela Rama also sued to
collect P5,000.00 attorney's fees for legal services rendered as Pineda's counsel in the case being
investigated by NARIC.

The Court of First Instance of Manila decided Civil Case No. 45762 in favor of petitioner Pineda. The
court believed the evidence of Pineda that he signed the promissory note for P9,300.00 only
because Dela Rama had told him that this amount had already been advanced to grease the palms
of the 'Chairman and General Manager of NARIC in order to save Pineda from criminal prosecution.

The court stated:

xxx xxx xxx

... The Court, after hearing the testimonies of the witness and examining the exhibits
in question, finds that Exhibit A proves that the defendant himself did not receive the
amount stated therein, because according to said exhibit that amount was advanced
by the plaintiff in connection with the defendant's case, entirely contradicting the
testimony of the plaintiff himself, who stated in open Court that he gave the amount
in cash in two installments to the defendant. The Court is more inclined to believe the
contents of Exhibit A, than the testimony of the plaintiff. On this particular matter, the
defendant has established that the plaintiff made him believe that he was giving
money to the authorities of the NARIC to grease their palms to suspend the
prosecution of the defendant, but the defendant, upon inquiry, found out that none of
the authorities has received that amount, and there was no case that was ever
contemplated to be filed against him. It clearly follows, therefore, that the amount
involved in this Exhibit A was imaginary. It was given to the defendant, not to
somebody else. The purpose for which the amount was intended was illegal.
 However, the Court believes that plaintiff was able to get from the defendant the
amount of P3,000.00 on October 7, as shown by the check issued by the defendant,
Exhibit 2, and the letter, Exhibit 7, was antedated October 6, as per plaintiff's wishes
to show that defendant was indebted for P3,000.00 when, as a matter of fact, such
amount was produced in order to grease the palms of the NARIC officials for
withholding an imaginary criminal case. Such amount was never given to such
officials nor was there any contemplated case against the defendant. The purpose
for which such amount was intended was indeed illegal.

The trial court rendered judgment as follows:

WHEREFORE, the Court finds by a preponderance of evidence that the amount of

P9,300.00 evidenced by Exhibit A was not received by the defendant, nor given to
any party for the defendant's benefit.Consequently, the plaintiff has no right to
recover said amount. The amount of P3,000.00 was given by the defendant to
grease the palms of the NARIC officials. The purpose was illegal, null and void.
Besides, it was not given at all, nor was it true that there was a contemplated case
against the defendant. Such amount should be returned to the defendant. The
services rendered by the plaintiff to the defendant is worth only P400.00, taking into
consideration that the plaintiff received an air-conditioner and six sacks of rice. The
court orders that the plaintiff should return to the defendant the amount of P3,000.00,
minus P400.00 plus costs.

The Court of Appeals reversed the decision of the trial court on a finding that Pineda, being a person
of more than average intelligence, astute in business, and wise in the ways of men would not "sign
any document or paper with his name unless he was fully aware of the contents and important
thereof, knowing as he must have known that the language and practices of business and of trade
and commerce call to account every careless or thoughtless word or deed."

The appellate court stated:

No rule is more fundamental and by men of honor and goodwill more dearly
cherished, than that which declares that obligations arising from contracts have the
force of law between the contracting parties and should be complied with in good
faith. Corollary to and in furtherance of this principle, Section 24 of the Negotiable
instruments Law (Act No. 2031) explicitly provides that every negotiable instrument is
deemed prima facie to have been issued for a valuable consideration, and every
person whose signature appears thereon to have become a party thereto for value.

We find this petition meritorious.

The Court of Appeals relied on the efficacy of the promissory note for its decision, citing Section 24
of the Negotiable Instruments Law which reads:

SECTION 24. Presumption of consideration.—Every negotiable instrument is

deemed prima facie to have been issued for a valuable consideration; and every
person whose signature appears thereon to have become a party thereto for value.

The Court of Appeals' reliance on the above provision is misplaced. The presumption that a
negotiable instrument is issued for a valuable consideration is only puma facie. It can be rebutted by
proof to the contrary. (Bank of the Philippine Islands v. Laguna Coconut Oil Co. et al., 48 Phil. 5).
According to Dela Rama, he loaned the P9,300.00 to Pineda in two installments on two occasions
five days apart - first loan for P5,000.00 and second loan for P4,300.00, both given in cash. He also
alleged that previously he loaned P3,000.00 but Pineda paid this other loan two days afterward.

These allegations of Dela Rama are belied by the promissory note itself. The second sentence of the
note reads - "This represents the cash advances made by him in connection with my case for which
he is my attorney-in- law."

The terms of the note sustain the version of Pineda that he signed the P9,300.00 promissory note
because he believed Dela Rama's story that these amounts had already been advanced by Dela
Rama and given as gifts for NARIC officials.

Dela Rama himself admits that Pineda engaged his services to delay by one month the filing of the
NARIC case against Pineda while the latter was trying to work out an amicable settlement. There is
no question that Dela Rama was indeed a close friend of then NARIC Administrator Jose Rodriquez
having worked with him in the Philippine consulate at Hongkong and that Dela Rama made what he
calls "proper representations" with Rodriguez and with other NARIC officials in connection with the
investigation of the criminal charges against Pineda.

We agree with the trial court which believed Pineda. It is indeed unusual for a lawyer to lend money
to his client whom he had known for only three months, with no security for the loan and on interest.
Dela Rama testified that he did not even know what Pineda was going to do with the money he
borrowed from him. The petitioner had just purchased a hacienda in Mindoro for P210,000.00,
owned sugar and rice lands in Tarlac of around 800 hectares, and had P60,000.00 deposits in three
banks when he executed the note. It is more logical to believe that Pineda would not borrow
P5,000.00 and P4,300.00 five days apart from a man whom he calls a "fixer" and whom he had
known for only three months.

There is no dispute that an air-conditioning unit valued at P1,250.00 was purchased by Pineda's son
and given to Dela Rama although the latter claims he paid P1,250.00 for the unit when he received
it. Pineda, however, alleged that he gave the air-conditioning unit because Dela Rama told him that
Dr. Rodriguez was asking for one air-conditioning machine of 1.5 horsepower for the latter's NARIC
office. Pineda further testified that six cavans of first class rice also intended for the NARIC
Chairman and General Manager, together with the airconditioning unit, never reached Dr. Rodriguez
but were kept by the lawyer.

Considering the foregoing, we agree with the trial court that the promissory note was executed for an
illegal consideration. Articles 1409 and 1412 of the Civil Code in part, provide:

Art. 1409. The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs,
public order and public policy;

xxx xxx xxx

Art. 1412. If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed:
 (1) When the fault is on the part of both contracting parties, neither may recover what
he has given by virtue of the contract, or demand the performance of the other's
undertaking.

xxx xxx xxx

Whether or not the supposed cash advances reached their destination is of no moment. The
consideration for the promissory note - to influence public officers in the performance of their duties -
is contrary to law and public policy. The promissory note is void ab initio and no cause of action for
the collection cases can arise from it.

WHEREFORE, the decision of the Court of Appeals is SET ASIDE. The complaint and the
counterclaim in Civil Case No. 45762 are both DISMISSED.

SO ORDERED.
MARIANO C. PAMINTUAN, petitioner-appellant,
vs.
COURT OF APPEALS and YU PING KUN CO., INC., respondent-appellees.

V. E. del Rosario & Associates for appellant.

Sangco & Sangalang for private respondent.

AQUINO, J.:

This case is about the recovery compensatory, damages for breach of a contract of sale in addition
to liquidated damages.

Mariano C. Pamintuan appealed from the judgment of the Court of Appeals wherein he was ordered
to deliver to Yu Ping Kun Co., Inc. certain plastic sheetings and, if he could not do so, to pay the
latter P100,559.28 as damages with six percent interest from the date of the filing of the complaint.
The facts and the findings of the Court of Appeals are as follows:

In 1960, Pamintuan was the holder of a barter license wherein he was authorized to export to Japan
one thousand metric tons of white flint corn valued at forty-seven thousand United States dollars in
exchange for a collateral importation of plastic sheetings of an equivalent value.

By virtue of that license, he entered into an agreement to ship his corn to Tokyo Menka Kaisha, Ltd.
of Osaka, Japan in exchange for plastic sheetings. He contracted to sell the plastic sheetings to Yu
Ping Kun Co., Inc. for two hundred sixty-five thousand five hundred fifty pesos. The company
undertook to open an irrevocable domestic letter of credit for that amount in favor of Pamintuan.

It was further agreed that Pamintuan would deliver the plastic sheetings to the company at its
bodegas in Manila or suburbs directly from the piers "within one month upon arrival of" the carrying
vessels. Any violation of the contract of sale would entitle the aggreived party to collect from the
offending party liquidated damages in the sum of ten thousand pesos (Exh. A).

On July 28, 1960, the company received a copy of the letter from the Manila branch of Toyo Menka
Kaisha, Ltd. confirming the acceptance by Japanese suppliers of firm offers for the consignment to
Pamintuan of plastic sheetings valued at forty-seven thousand dollars. Acting on that information,
the company lost no time in securing in favor of Pamintuan an irrevocable letter of credit for two
hundred sixty-five thousand five hundred fifty pesos.

Pamintuan was apprised by the bank on August 1, 1960 of that letter of credit which made reference
to the delivery to Yu Ping Kun Co., Inc. on or before October 31, 1960 of 336, 360 yards of plastic
sheetings (p. 21, Record on Appeal).

On September 27 and 30 and October 4, 1960, the Japanese suppliers shipped to Pamintuan,
through Toyo Menka Kaisha, Ltd., the plastic sheetings in four shipments to wit: (1) Firm Offer No.
327 for 50,000 yards valued at $9,000; (2) Firm Offer No. 328 for 70,000 yards valued at $8,050; (3)
Firm Offers Nos. 329 and 343 for 175,000 and 18,440 yards valued at $22,445 and $2,305,
respectively, and (4) Firm Offer No. 330 for 26,000 yards valued at $5,200, or a total of 339,440
yards with an aggregate value of $47,000 (pp. 4-5 and 239-40, Record on Appeal).
The plastic sheetings arrived in Manila and were received by Pamintuan. Out of the shipments,
Pamintuan delivered to the company's warehouse only the following quantities of plastic sheetings:

November 11, 1960 — 140 cases, size 48 inches by 50 yards. November 14, 1960
— 258 cases out of 352 cases. November 15, 1960 — 11 cases out of 352 cases.
November 15, 1960 — 10 cases out of 100 cases. November 15, 1960 — 30 cases
out of 100 cases.

Pamintuan withheld delivery of (1) 50 cases of plastic sheetings containing 26,000 yards valued at
$5,200; (2) 37 cases containing 18,440 yards valued at $2,305; (3) 60 cases containing 30,000
yards valued at $5,400 and (4) 83 cases containing 40,850 yards valued at $5,236.97. While the
plastic sheetings were arriving in Manila, Pamintuan informed the president of Yu Ping Kun Co., Inc.
that he was in dire need of cash with which to pay his obligations to the Philippine National Bank.
Inasmuch as the computation of the prices of each delivery would allegedly be a long process,
Pamintuan requested that he be paid immediately.

Consequently, Pamintuan and the president of the company, Benito Y.C. Espiritu, agreed to fix the
price of the plastic sheetings at P0.782 a yard, regardless of the kind, quality or actual invoice value
thereof. The parties arrived at that figure by dividing the total price of P265,550 by 339,440 yards,
the aggregate quantity of the shipments.

After Pamintuan had delivered 224,150 yards of sheetings of interior quality valued at P163,.047.87,
he refused to deliver the remainder of the shipments with a total value of P102,502.13 which were
covered by (i) Firm Offer No. 330, containing 26,000 yards valued at P29,380; (2) Firm Offer No.
343, containing 18,440 yards valued at P13,023.25; (3) Firm Offer No. 217, containing 30,000 yards
valued at P30,510 and (4) Firm Offer No. 329 containing 40,850 yards valued at P29,588.88 (See
pp. 243-2, Record on Appeal).

As justification for his refusal, Pamintuan said that the company failed to comply with the conditions
of the contract and that it was novated with respect to the price.

On December 2, 1960, the company filed its amended complaint for damages against Pamintuan.
After trial, the lower court rendered the judgment mentioned above but including moral damages.

The unrealized profits awarded as damages in the trial court's decision were computed as follows
(pp. 248-9, Record on Appeal):

(1) 26,000 yards with a contract price of Pl.13 per yard and a selling price at the time
of delivery of Pl.75 a yard........................................................... P16,120.00

(2) 18,000 yards with a contract price of P0.7062 per yard and selling price of Pl.20
per yard at the time of delivery......................................... 9,105.67

(3) 30,000 yards with a contract price of Pl.017 per yard and a selling price of Pl.70
per yard. 20,490.00

(4) 40,850 yards with a contract price of P0.7247 per yard and a selling price of
P1.25 a yard at the time of delivery.............................................. 21,458.50 Total
unrealized profits....................... P67,174.17
The overpayment of P12,282.26 made to Pamintuan by Yu Ping Kun Co., Inc. for the 224,150 yards,
which the trial court regarded as an item of damages suffered by the company, was computed as
follows (p. 71, Record on Appeal):

Liquidation value of 224,150 yards at P0.7822 a yard

.............................................................................. P175,330.13

Actual peso value of 224,150 yards as per firm offers or as per

contract............................................ 163,047.87

Overpayment................................................................ P 12,282.26

To these two items of damages (P67,174.17 as unrealized profits and P12,282.26 as overpayment),
the trial court added (a) P10,000 as stipulated liquidated damages, (b) P10,000 as moral damages,
(c) Pl,102.85 as premium paid by the company on the bond of P102,502.13 for the issuance of the
writ of preliminary attachment and (d) P10,000 as attorney's fees, or total damages of P110,559.28)
p. 250, Record on Appeal). The Court of Appeals affirmed that judgment with the modification that
the moral damages were disallowed (Resolution of June 29, 1966).

Pamintuan appealed. The Court of Appeals in its decision of March 18, 1966 found that the contract
of sale between Pamintuan and the company was partly consummated. The company fulfilled its
obligation to obtain the Japanese suppliers' confirmation of their acceptance of firm offers totalling
$47,000. Pamintuan reaped certain benefits from the contract. Hence, he is estopped to repudiate it;
otherwise, he would unjustly enrich himself at the expense of the company.

The Court of Appeals found that the writ of attachment was properly issued. It also found that
Pamintuan was guilty of fraud because (1) he was able to make the company agree to change the
manner of paying the price by falsely alleging that there was a delay in obtaining confirmation of the
suppliers' acceptance of the offer to buy; (2) he caused the plastic sheetings to be deposited in the
bonded warehouse of his brother and then required his brother to make him Pamintuan), his
attorney-in-fact so that he could control the disposal of the goods; (3) Pamintuan, as attorney-in-fact
of the warehouseman, endorsed to the customs broker the warehouse receipts covering the plastic
sheetings withheld by him and (4) he overpriced the plastic sheetings which he delivered to the
company.

The Court of Appeals described Pamintuan as a man "who, after having succeeded in getting
another to accommodate him by agreeing to liquidate his deliveries on the basis of P0.7822 per
yard, irrespective of invoice value, on the pretense that he would deliver what in the first place he
ought to deliver anyway, when he knew all the while that he had no such intention, and in the
process delivered only the poorer or cheaper kind or those which he had predetermined to deliver
and did not conceal in his brother's name and thus deceived the unwary party into overpaying him
the sum of P 1 2,282.26 for the said deliveries, and would thereafter refuse to make any further
delivery in flagrant violation of his plighted word, would now ask us to sanction his actuation" (pp. 61-
62, Rollo).

The main contention of appellant Pamintuan is that the buyer, Yu Ping Kun Co., Inc., is entitled to
recover only liquidated damages. That contention is based on the stipulation "that any violation of
the provisions of this contract (of sale) shall entitle the aggrieved party to collect from the offending
party liquidated damages in the sum of P10,000 ".

Pamintuan relies on the rule that a penalty and liquidated damages are the same (Lambert vs. Fox
26 Phil. 588); that "in obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of non-compliance, if there is no stipulation to the
contrary " (1st sentence of Art. 1226, Civil Code) and, it is argued, there is no such stipulation to the
contrary in this case and that "liquidated damages are those agreed upon by the parties to a
contract, to be paid in case of breach thereof" (Art. 2226, Civil Code).

We hold that appellant's contention cannot be sustained because the second sentence of article
1226 itself provides that I nevertheless, damages shall be paid if the obligor ... is guilty of fraud in the
fulfillment of the obligation". "Responsibility arising from fraud is demandable in all obligations" (Art.
1171, Civil Code). "In case of fraud, bad faith, malice or wanton attitude, the obligor shall be
responsible for an damages which may be reasonably attributed to the non-performance of the
obligation" (Ibid, art. 2201).

The trial court and the Court of Appeals found that Pamintuan was guilty of fraud because he did not
make a complete delivery of the plastic sheetings and he overpriced the same. That factual finding is
conclusive upon this Court.

There is no justification for the Civil Code to make an apparent distinction between penalty and
liquidated damages because the settled rule is that there is no difference between penalty and
liquidated damages insofar as legal results are concerned and that either may be recovered without
the necessity of proving actual damages and both may be reduced when proper (Arts. 1229, 2216
and 2227, Civil Code. See observations of Justice J.B.L. Reyes, cited in 4 Tolentino's Civil Code, p.
251).

Castan Tobeñas notes that the penal clause in an obligation has three functions: "1. Una funcion
coercitiva o de garantia, consistente en estimular al deudor al complimiento de la obligacion
principal, ante la amenaza de tener que pagar la pena. 2. Una funcion liquidadora del daño, o sea la
de evaluar por anticipado los perjuicios que habria de ocasionar al acreedor el incumplimiento o
cumplimiento inadecuado de la obligacion. 3. Una funcion estrictamente penal, consistente en
sancionar o castigar dicho incumplimiento o cumplimiento inadecuado, atribuyendole consecuencias
mas onerosas para el deudor que las que normalmente lleva aparejadas la infraccion contractual. "
(3 Derecho Civil Espanol, 9th Ed., p. 128).

The penalty clause is strictly penal or cumulative in character and does not partake of the nature of
liquidated damages (pena sustitutiva) when the parties agree "que el acreedor podra pedir, en el
supuesto incumplimiento o mero retardo de la obligacion principal, ademas de la pena, los danos y
perjuicios. Se habla en este caso de pena cumulativa, a differencia de aquellos otros ordinarios, en
que la pena es sustitutiva de la reparacion ordinaria." (Ibid, Castan Tobenas, p. 130).

After a conscientious consideration of the facts of the case, as found by Court of Appeals and the
trial court, and after reflecting on the/tenor of the stipulation for liquidated damages herein, the true
nature of which is not easy to categorize, we further hold that justice would be adequately done in
this case by allowing Yu Ping Kun Co., Inc. to recover only the actual damages proven and not to
award to it the stipulated liquidated damages of ten thousand pesos for any breach of the
contract. The proven damages supersede the stipulated liquidated damages.

This view finds support in the opinion of Manresa (whose comments were the bases of the new
matter found in article 1226, not found in article 1152 of the old Civil Code) that in case of fraud the
difference between the proven damages and the stipulated penalty may be recovered (Vol. 8, part.
1, Codigo Civil, 5th Ed., 1950, p. 483).
Hence, the damages recoverable by the firm would amount to ninety thousand five hundred fifty-nine
pesos and twenty-eight centavos (P90,559.28), with six percent interest a year from the filing of the
complaint.

With that modification the judgment of the Court of Appeals is affirmed in all respects. No costs in
this instance.

SO ORDERED.
G.R. No. L-45255 November 14, 1986

HEIRS OF MARCIANA G. AVILA, petitioners,

vs.
HON. COURT OF APPEALS, and ALADINO CH. BACARRISAS, respondents.

Ruben M. Orteza for petitioner.

Abeto D. Salcedo for private respondent.

PARAS, J.:

This is a petition for review on certiorari of the October 6, 1976 Decision of the Court of Appeals in
CA-G.R. No. SP-05598 (Aladino Ch. Bacarrisas vs. Hon. Benjamin K. Gorospe, et al), granting
certiorari and setting aside the Order of respondent Judge dated May 24, 1976.

In 1939, the Court of First Instance of Misamis Oriental, as a cadastral court, adjudicated Lots 594
and 828 of the Cadastral Survey of Cagayan to Paz Chavez. But because Paz Chavez failed to pay
the property taxes of Lot 594, the government offered the same for sale at a public auction.
Marciana G. Avila, a teacher, wife of Leonardo Avila and the mother of the herein petitioners,
participated in and won the bidding. Despite the provision of Section 579 of the Revised
Administrative Code prohibiting public school teachers from buying delinquent properties, nobody,
not even the government questioned her participation in said auction sale. In fact on February 20,
1940, after the expiration of the redemption period, the Provincial Treasurer executed in her favor
the final bill of sale. (Rollo, pp. 10-11).

Sometime in 1947, OCT Nos. 100 and 101, covering said Lots 594 and 828, were issued in favor of
Paz Chavez. In opposition thereto, private respondents filed a petition for review of the decrees on
August 25, 1947 at the Court of First Instance of Misamis Oriental, Branch II, in Cadastral Case No.
17, Lot No. 594 entitled "The Director of Lands, Applicant v. Atanacia Abalde, et al., Claimants in Re:
Petition for Review of Decree, Marciana G. Avila, Petitioner vs. Paz Chavez, Respondents." After
hearing on the merits, the Cadastral Court promulgated a Decision, the dispositive portion of which
reads:

WHEREFORE, judgment is hereby rendered SETTING ASIDE the decision of this

Court of December 13, 1940, which adjudicated the lots in question in favor of
respondent Paz Chavez, and declaring NULL and VOID Decrees Nos. 433 and 434
issued by the Chief of Land Registration Office on June 19, 1947 as well as the
certification of title covering Lots Nos. 594 and 828 of the Cadastral Survey of
Cagayan issued by the Register of Deeds. Judgment is also hereby rendered
adjudicating said Lot No. 594 to the heirs of the late Marciana G. Avila, namely: ..., all
residents of Malaybalay, Bukidnon, and Lot 828 of the same cadastre to Leonardo
Avila, Sr., also of Malaybalay, subject to whatever RIGHTS OF WAY or
EASEMENTS which the government of the Philippines or any of its instrumentalities
may have acquire over said Lots.

The Clerk of Court is hereby directed to send copies of this decision to the Chief of
the Land Registration Commission, the Provincial Fiscal the Provincial Treasurer,
 and the Director of Lands. Once this decision has become final, the Chief of Land
Registration Commission shall issue the corresponding decrees and certificate of title
in favor of the above-mentioned heirs of Marciana G. Avila and in favor of Leonardo
Avila, Sr.

Paz Chavez appealed the said decision with the Court of Appeals, docketed therein as CA-G.R. No.
38129-R. The Court of Appeals rendered a Decision on March 20, 1974, the pertinent portion of
which, reads:

The legal prohibition cited, therefore, would taint the title of Marciana G. Avila over
Lot 594, with a flaw sufficient to make said title not proper for registration, specially
as against the government, who has not (sic) impleaded in the proceedings, on the
petition for review of the decree, to be heard as to whether it would resist the
registration of said lot in favor of Marciana G. Avila.

In view of the foregoing, judgment is hereby rendered modifying the decision

appealed from by disallowing the registration of Lot No. 594 in the name of Marciana
G. Avila, but affirming said decision in all other respects, with costs against appellant.
Let a copy of this decision be furnished the Solicitor General and the Provincial
Fiscal of Misamis Oriental for their information and guidance. (Rollo, pp. 11-12).

Upon remand of the records to the Court below, Avila moved for execution, and a writ of possession
which was opposed by Paz Chavez, who was succeeded by the herein private respondent Aladino
Ch. Bacarrisas on the alleged ground that he has the actual and physical possession of Lot 594
where his residential house has stood since 1946.

Private respondent's Urgent Motion for Correction of Writ of Execution having been denied, a
certiorari and mandamus with preliminary injunction suit was filed with the Court of Appeals, which
was docketed therein as CA-SP-05598, alleging, among other things, that inasmuch as the Court of
Appeals in CA-G.R. No. 38129-R modified the trial court's decision by disallowing the registration of
Lot 594 in favor of the Avilas, the latter have no interest, right, claims, title or participation in Lot No.
594 to which they could claim possession. (Petitioner's Brief, Rollo, pp. 61-63). On said petition, the
Court of Appeals, in a Decision dated October 6, 1976, declared:

CONSIDERING: That decision of cadastral court adjudicating Lot 594 was

"disallowed" by this Court of Appeals, the fact that said decision had also annulled
the decree and title of Chavez to the same in the petition for review, in the mind of
tills Court, did not produce the effect of adjudicating, in categorical terms, the
possession of Lot 594 in favor of Avila, there is nothing in the dispositive part nor
even in the body of the decision of this CA-G.R. No. 38129-R that says that, and
since the question here presented is whether or not cadastral court should place
Avila in possession thru a writ of execution, and since the writ of execution is nothing
more, nothing less, than a writ of possession, and since that writ is given only to the
party in the land registration or cadastral case in whose favor decree had been
issued, Manlapas v. Liorente, 48 Phil. 298, or if not a decree, at least, a judgment of
confirmation of title, Director of Lands v. CFI of Tarlac, 51 Phil. 806,-this must mean
that when respondent Court herein issued the writ of execution as to Lot 594, there
really was no legal basis for the same; for Avila had not secured a decree, nor a
judgment of confirmation of title over said Lot 594, since from the fact that this Court
of Appeals had affirmed the decision of cadastral court annulling Chavez
(Bacarrisas) to Lot 594, it would not follow that this Court of Appeals had decreed, or
in the least, adjudged, that it was Avila who was the owner entitled to its possession,
 the conclusion can not follow from the premise; therefore the writ of execution as to
Lot 594 has to be ruled to have been improvidently issued, and there being no other
adequate relief available unto Bacarrisas, the remedy of certiorari by him chosen was
correct.

IN VIEW WHEREOF, this Court is constrained to grant as it now grants certiorari,

order sought to be annulled is set aside, with costs against respondent Avila. (Rollo,
pp. 27-28).

Petitioners filed a motion for reconsideration but the same was denied by the Court of Appeals in a
Resolution dated November 29, 1976.

Hence, this petition (Rollo, pp. 9-22).

Respondent filed his Comment on February 28, 1977 (Ibid, pp. 34-37) in compliance with the
resolution of the First Division of this Court dated January 31, 1977 (Ibid., p. 33).

In a Resolution dated March 7, 1977, the First Division of this Court resolved to give due course to
the petition (Ibid., p. 43).

On March 20, 1977, petitioners filed their Brief (Ibid., pp. 58-72) while respondent filed his Brief on
July 6, 1977 (Ibid., pp. 83-92) and petitioners their Reply Brief on August 17, 1977 (Ibid., pp. 100-
107).

In a Resolution dated August 29, 1977, the First Division of this Court resolved to declare this case
submitted for decision (Ibid., p. 110.)

The petitioners assigned the following alleged errors of the Court of Appeals-

1. THE HON. COURT OF APPEALS IN CA-G.R. SP-05598, OCTOBER 6, 1976,

THE QUESTIONED DECISION, ERRED BECAUSE, WHEREAS SAID COURT
PREVIOUSLY IN CA-G.R. No. L-38129-R, MARCH, 1974, MODIFIED THE
DECISION OF THE COURT OF FIRST INSTANCE OF MISAMIS ORIENTAL BY
DISALLOWING ONLY THE REGISTRATION OF LOT 594 BUT AFFIRMED THE
ADJUDICATION THEREOF TO THE PETITIONERS, IN THE PRESENT
QUESTIONED DECISION SAID COURT VIRTUALLY MODIFIED FURTHER THE
PREVIOUS DECISION WHICH HAD LONG BECOME FINAL BY DISALLOWING
BOTH THE REGISTRATION AND ADJUDICATION OF LOT 594;

2. THE HON. COURT OF APPEALS ERRED IN HOLDING THAT THE

PETITIONERS ARE NOT ENTITLED TO POSSESSION OF LOT 594 BECAUSE,
SINCE PETITIONERS' TITLE WAS RECOGNIZED BY SAID COURT PREVIOUSLY
IN CA-G.R. NO. L-38129-R, MARCH, 1974, IT FOLLOWS THAT THEY ARE
ENTITLED TO POSSESS LOT 594;

3. THE HON. COURT OF APPEALS ERRED IN THAT TO DENY POSSESSION OF

LOT 594 TO THE PETITIONERS WHO WON IN CADASTRAL CASE NO. 17 OF
THE COURT OF FIRST INSTANCE OF MISAMIS ORIENTAL, IS TO MAKE THE
LOSERS IN SAID CASE-THE PREDECESSOR-IN-INTEREST OF PRIVATE
RESPONDENT WHOSE DECREES NOS. 433 and 434 COVERING LOTS 594 AND
 828 WERE ORDERED CANCELLED FOR BEING NULL AND VOID, AS THE
WINNER, A SITUATION MOST UNJUST AND UNFAIR; AND

4. THE HON COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE

RESPONDENT CORRECTLY CHOSE THE REMEDY OF certiorari FOR THE
REASON THAT THERE IS NOTHING AT ALL IN THE RECORDS TO SHOW AN
EXERCISE OF GRAVE ABUSE OF DISCRETION OR WHIMSICAL AND
ARBITRARY EXERCISE THEREOF.

The pivotal issue in this case is who has the right of possession of the land in question.

Petitioners seek to distinguish between registration and adjudication of land under the Torrens
System, claiming that in the March 20, 1974 Decision of the Court of Appeals in CA-G.R. No. 38129-
R, registration of Lot No. 594 in favor of the late Marciana G. Avila was disallowed, but the
adjudication thereof in her favor, was affirmed. In effect, it is their view that ownership and
possession are separated in aforesaid decision, so that they assert that they are entitled to the
possession of Lot 594, although they are not entitled to its registration in their names.

Such contention is without merit.

While it is true that Marciana Avila, their mother and predecessor-in-interest, purchased the
questioned property at a public auction conducted by the government; paid the purchase price; and
was issued a final bill of sale after the expiration of the redemption period, it is however undisputed
that such purchase was prohibited under Section 579 of the Revised Administrative Code, as
amended, which provides:

Section 579. Inhibition against purchase of property at tax sale.-Official and

employees of the Government of the Republic of the Philippines are prohibited from
purchasing, directly or indirectly, from the Government, any property sold by the
Government for the non-payment of any public tax. Any such purchase by a public
official or employee shall be void.

Thus, the sale to her of Lot 594 is void.

On the other hand, under Article 1409 of the Civil Code, a void contract is inexistent from the
beginning. It cannot be ratified neither can the right to set up the defense of its illegality be waived.
(Arsenal, et al. vs, The Intermediate Appellate Court. et al., G.R. No. 66696, July 14, 1986).
Moreover, Marciana Avila was a party to an illegal transaction, and therefore, under Art. 1412 of the
Civil Code, she cannot recover what she has given by reason of the contract or ask for the fulfillment
of what has been promised her.

Furthermore, in a registration case, the judgment confirming the title of the applicant and ordering its
registration in his name necessarily carries with it the delivery of possession which is an inherent
element of the right of ownership. (Abulocion et al. v. CFI of Iloilo, et al., 100 Phil. 553 [1956]).
Hence, a writ of possession may be issued not only against the person who has been defeated in a
registration case but also against anyone unlawfully and adversely occupying the land or any portion
thereof during the land registration proceedings up to the issuance of the final decree. It is the duty
of the registration court to issue said writ when asked for by the successful claimant. (Demorar v.
Ibañez, etc., et al., 97 Phil. 72 [1955]; Abulocion et al v. CFI of Iloilo, et al., supra).

Under the circumstances, possession cannot be claimed by petitioners, because their predecessor-
in-interest besides being at fault is not the successful claimant in the registration proceedings and
hence not entitled to a writ of possession. As correctly stated by the Court of Appeals when
respondent Court issued the writ of execution as to Lot 594, there really was no legal basis for the
same, for Avila had not secured a decree, nor a judgment of confirmation of title over said lot.

Much less can possession be claimed by private respondents as it is undisputed that the land in
question has been the subject of a tax sale of delinquent property with a final bill of sale.

Neither did the government file any claim for possession; nor appear to be impleaded in any of the
actions or petitions before the Courts, Its only interest in the land in question appears to be in the
collection of taxes.

Consequently, the situation is evidently one of failure of ownership because of the violation of
Section 579 of the Administrative Code. Otherwise stated, the property apparently has no owner.

Under the principle that the State is the ultimate proprietor of land within its jurisdiction, subject land
may be escheated in favor of the government upon filing of appropriate actions for reversion or
escheat under Section 5, Rule 91 of the Rules of Court relative to properties alienated in violation of
any statute.

As to the last issue, it has already been ruled that certiorari is proper where the trial court has
already issued a writ of execution of the questioned judgment, the issuance being a question of law.
(Vda. de Sayman vs. Court of Appeals, 121 SCRA 650).

PREMISES CONSIDERED, the October 6,1976 Decision of the Court of Appeals is hereby
AFFIRMED.

SO ORDERED.