[G.R. NO.
149756 : February 11, 2005] or to exercise the right to repurchase within the stipulated
MYRNA RAMOS, Petitioner, v. SUSANA S. SARAO and
JONAS RAMOS, Respondents.
DECISION
PANGANIBAN, J.:
Although the parties in the instant case denominated their
contract as a "DEED OF SALE UNDER PACTO DE RETRO,"
the "sellers" have continued to possess and to reside at
the subject house and lot up to the present. This evident
factual circumstance was plainly overlooked by the trial
and the appellate courts, thereby justifying a review of
this case. This overlooked fact clearly shows that the
petitioner intended merely to secure a loan, not to sell the
property. Thus, the contract should be deemed an
equitable mortgage.
The Case
Before us is a Petition for Review1 under Rule 45 of the
Rules of Court, assailing the August 31, 2001 Decision 2 of
the Court of Appeals (CA) in CA-GR CV No. 50095, which
disposed as follows:
"WHEREFORE, the instant appeal is DISMISSED for
lack of merit. The decision dated January 19, 1995 of the
Regional Trial Court, Branch 145, Makati City
is AFFIRMEDin toto."3
The Facts
On February 21, 1991, Spouses Jonas Ramos and Myrna
Ramos executed a contract over their conjugal house and
lot in favor of Susana S. Sarao for and in consideration
of P1,310,430.4 Entitled "DEED OF SALE UNDER PACTO
DE RETRO," the contract, inter alia, granted the Ramos
spouses the option to repurchase the property within six
months from February 21, 1991, for P1,310,430 plus an
interest of 4.5 percent a month.5 It was further agreed
that should the spouses fail to pay the monthly interest
in advance the compounded interest. She also stated that
period, the conveyance would be deemed an absolute
sale.6
On July 30, 1991, Myrna Ramos tendered to Sarao the
amount of P1,633,034.20 in the form of two manager's
checks, which the latter refused to accept for being
allegedly insufficient.7 On August 8, 1991, Myrna filed a
Complaint for the redemption of the property and moral
damages plus attorney's fees.8 The suit was docketed as
Civil Case No. 91-2188 and raffled to Branch 145 of the
Regional Trial Court (RTC) of Makati City. On August 13,
1991, she deposited with the RTC two checks that Sarao
refused to accept.9
On December 21, 1991, Sarao filed against the Ramos
spouses a Petition "for consolidation of ownership in pacto
de retro sale" docketed as Civil Case No. 91-3434 and
raffled to Branch 61 of the RTC of Makati City.10 Civil Case
Nos. 91-2188 and 91-3434 were later consolidated and
jointly tried before Branch 145 of the said Makati RTC.11
The two lower courts narrated the trial in this manner:
"x x x Myrna [Ramos] testified as follows: On February
21, 1991, she and her husband borrowed from Sarao the
amount of P1,234,000.00, payable within six (6) months,
with an interest thereon at 4.5% compounded monthly
from said date until August 21, 1991, in order for them to
pay [the] mortgage on their house. For and in
consideration of the said amount, they executed a deed
of sale under a [pacto de retro] in favor of Sarao over
their conjugal house and lot registered under TCT No.
151784 of the Registry of Deeds of Makati (Exhibit A).
She further claimed that Sarao will keep the torrens title
until the lapse of the 6-month period, in which case she
will redeem [the] subject property and the torrens title
covering it. When asked why it was the amount
of P1,310,430 instead of the aforestated amount which
appeared in the deed, she explained that upon signing of
the deed in question, the sum of P20,000.00 representing
attorney's fees was added, and its total amount was
multiplied with 4.5% interest rate, so that they could pay
although the market value of the subject property as of
February 1991 [was] calculated to [be] more or less P10
million, it was offered [for] only P1,310,430.00 for the
reason that they intended nothing but to redeem the
same. In May 1991, she wrote a letter to Atty. Mario
Aguinaldo requesting him to give a computation of the
loan obligation, and [expressed] her intention to redeem
the subject property, but she received no reply to her
letter. Instead, she, through her husband, secured
directly from Sarao a handwritten computation of their
loan obligation, the total of which amount[ed]
to P1,562,712.14. Later, she sent several letters to
Sarao, [furnishing] Atty. Aguinaldo with copies, asking
them for the updated computation of their loan obligation
as of July 1991, but [no reply was again received]. During
the hearing of February 17, 1992, she admitted receiving
a letter dated July 23, 1991 from Atty. Aguinaldo which
show[ed] the computation of their loan obligation
[totaling] to P2,911,579.22 (Exhs. 6, 6-A). On July 30,
1991, she claimed that she offered the redemption price
in the form of two (2) manager's checks amounting
to P1,633,034.20 (Exhs. H-1 & H-2) to Atty. Aguinaldo,
but the latter refused to accept them because they [were]
not enough to pay the loan obligation. Having refused
acceptance of the said checks covering the redemption
price, on August 13, 1991 she came to Court to consign
the checks (Exhs. L-4 and L-5). Subsequently, she
proceeded to the Register of Deeds to cause the
annotation of lis pendens on TCT No. 151784 (Exh. B-1-
A). Hence, she filed the x x x civil case against Sarao.
"On the other hand, Sarao testified as follows: On
February 21, 1991, spouses Ramos together with a
certain Linda Tolentino and her husband, Nestor Tolentino
approached her and offered transaction involv[ing a] sale
of property[. S]he consulted her lawyer, Atty. Aguinaldo,
and on the same date a corresponding deed of sale
under pacto de retro was executed and signed (Exh. 1) .
Later on, she sent, through her lawyer, a demand letter
dated June 10, 1991 (Exh. 6) in view of Myrna's failure to
pay the monthly interest of 4.5% as agreed upon under
the deed[. O]n June 14, 1991 Jonas replied to said
demand letter (Exh. 8); in the reply Jonas admitted that
he no longer ha[d] the capacity to redeem the property
and to pay the interest. In view of the said reply of Jonas,
[Sarao] filed the corresponding consolidation
proceedings. She [further claimed] that before filing said
action she incurred expenses including payment of real
estate taxes in arrears, x x x transfer tax and capital
[gains] tax, and [expenses] for [the] consolidated
proceedings, for which these expenses were accordingly
receipted (Exhs. 6, 6-1 to 6-0). She also presented a
modified computation of the expenses she had incurred
in connection with the execution of the subject deed (Exh.
9). She also testified that Myrna did not tender payment
of the correct and sufficient price for said real property
within the 6-month period as stipulated in the contract,
despite her having been shown the computation of the
loan obligation, inclusive of capital gains tax, real estate
tax, transfer tax and other expenses. She admitted
though that Myrna has tendered payment amounting
to P1,633,034.20 in the form of two manager's checks,
but these were refused acceptance for being insufficient.
She also claimed that several letters (Exhs. 2, 4 and 5)
were sent to Myrna and her lawyer, informing them of the
computation of the loan obligation inclusive of said
expenses. Finally, she denied the allegations made in the
complaint that she allied herself with Jonas, and claimed
that she ha[d] no knowledge about said allegation."12
After trial, the RTC dismissed the Complaint and granted
the prayer of Sarao to consolidate the title of the property
in her favor.13 Aggrieved, Myrna elevated the case to the
CA.
Ruling of the Court of Appeals
The appellate court sustained the RTC's finding that the
disputed contract was a bonafide pacto de retro sale, not
a mortgage to secure a loan.14 It ruled that Myrna Ramos
had failed to exercise the right of repurchase, as the
consignation of the two manager's checks was deemed
invalid. She allegedly failed (1) to deposit the correct
repurchase price and (2) to comply with the required
notice of consignation.15
Hence, this Petition.16
The Issues
Petitioner raises the following issues for our
consideration:
"1. Whether or not the honorable appellate court erred in
ruling the subject Deed of Sale under Pacto de Retro was,
and is in reality and under the law an equitable mortgage;
"2. Whether or not the honorable appellate court erred in
affirming the ruling of the court a quo that there was no
valid tender of payment of the redemption price neither
[sic] a valid consignation in the instant case;
andcralawlibrary
"3. Whether or not [the] honorable appellate court erred
in affirming the ruling of the court a quo denying the claim
of petitioner for damages and attorney's fees."17
The Court's Ruling
The Petition is meritorious in regard to Issues 1 and 2.
First Issue:
A Pacto de Retro Sale
or an Equitable Mortgage?
Respondent Sarao avers that the herein Petition should
have been dismissed outright, because petitioner (1)
failed to show proof that she had served a copy of it to
the Court of Appeals and (2) raised questions of fact that
were not proper issues in a petition under Rule 45 of the
Rules of Court.18 This Court, however, disregarded the
first ground; otherwise, substantial injustice would have
been inflicted on petitioner. Since the Court of Appeals is
not a party here, failure to serve it a copy of the Petition
would not violate any right of respondent. Service to the
CA is indeed mentioned in the Rules, but only to inform it
of the pendency of the appeal before this Court.
As regards Item 2, there are exceptions to the general
rule barring a review of questions of fact.19 The Court
reviewed the factual findings in the present case, because
the CA had manifestly overlooked certain relevant and
undisputed facts which, after being considered, justified a
different conclusion.20
Pacto de Retro Sale Distinguished
from Equitable Mortgage
The pivotal issue in the instant case is whether the parties
intended the contract to be a bona fide pacto de retro sale
or an equitable mortgage.
In a pacto de retro, ownership of the property sold is
immediately transferred to the vendee a retro, subject
only to the repurchase by the vendor a retro within the
stipulated period.21 The vendor a retro's failure to
exercise the right of repurchase within the agreed time
vests upon the vendee a retro, by operation of law,
absolute title to the property.22 Such title is not impaired
even if the vendee a retro fails to consolidate title under
Article 1607 of the Civil Code.23
On the other hand, an equitable mortgage is a contract
that - - although lacking the formality, the form or words,
or other requisites demanded by a statute - - nevertheless
reveals the intention of the parties to burden a piece or
pieces of real property as security for a debt.24 The
essential requisites of such a contract are as follows: (1)
the parties enter into what appears to be a contract of
sale, but (2) their intention is to secure an existing debt
by way of a mortgage.25 The nonpayment of the debt
when due gives the mortgagee the right to foreclose the
mortgage, sell the property, and apply the proceeds of
the sale to the satisfaction of the loan obligation.26
This Court has consistently decreed that the
nomenclature used by the contracting parties to describe
a contract does not determine its nature.27 The decisive
factor is their intention - - as shown by their conduct,
words, actions and deeds - - prior to, during, and after
executing the agreement.28 This juristic principle is
supported by the following provision of law:
Article 1371. In order to judge the intention of the
contracting parties, their contemporaneous and
subsequent acts shall be principally considered. 29
Even if a contract is denominated as a pacto de retro, the
owner of the property may still disprove it by means of
parol evidence,30 provided that the nature of the
agreement is placed in issue by the pleadings filed with
the trial court.31
There is no single conclusive test to determine whether a
deed absolute on its face is really a simple loan
accommodation secured by a mortgage.32 However, the
law enumerates several instances that show when a
contract is presumed to be an equitable mortgage, as
follows:
Article 1602. The contract shall be presumed to be an
equitable mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase is
unusually inadequate;
(2) When the vendor remains in possession as lessee or
otherwise;
(3) When upon or after the expiration of the right to
repurchase another instrument extending the period of
redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the
purchase price;
(5) When the vendor binds himself to pay the taxes on
the thing sold;
(6) In any other case where it may be fairly inferred that
the real intention of the parties is that the transaction
shall secure the payment of a debt or the performance of
any other obligation.
In any of the foregoing cases, any money, fruits, or other
benefit to be received by the vendee as rent or otherwise
shall be considered as interest which shall be subject to
the usury laws.33
Furthermore, a contract purporting to be a pacto de
retro is construed as an equitable mortgage when the
terms of the document and the surrounding
circumstances so require.34 The law discourages the use
of a pacto de retro, because this scheme is frequently
used to circumvent a contract known as a pactum
commissorium. The Court has frequently noted that
a pacto de retro is used to conceal a contract of loan
secured by a mortgage.35 Such construction is consistent
with the doctrine that the law favors the least
transmission of rights.36
Equitable Mortgage Presumed
to be Favored by Law
Jurisprudence has consistently declared that the presence
of even just one of the circumstances set forth in the
forgoing Civil Code provision suffices to convert a contract
to an equitable mortgage.37 Article 1602 specifically
states that the equitable presumption applies to any of
the cases therein enumerated.
In the present factual milieu, the vendor retained
possession of the property allegedly sold.38 Petitioner and
her children continued to use it as their residence, even
after Jonas Ramos had abandoned them.39 In fact, it
remained as her address for the service of court orders
and copies of Respondent Sarao's pleadings.40
The presumption of equitable mortgage imposes a burden
on Sarao to present clear evidence to rebut it. Corollary
to this principle, the favored party need not introduce
proof to establish such presumption; the party
challenging it must overthrow it, lest it persist.41 To
overturn that prima facie fact that operated against her,
Sarao needed to adduce substantial and credible evidence
to prove that the contract was a bona fide pacto de retro.
This evidentiary burden she miserably failed to discharge.
Contrary to Sarao's bare assertions, a meticulous review
of the evidence reveals that the alleged contract was
executed merely as security for a loan.
The July 23, 1991 letter of Respondent Sarao's lawyer had
required petitioner to pay a computed amount - - under
the heading "House and Lot Loan"42 - - to enable the latter
to repurchase the property. In effect, respondent would
resell the property to petitioner, once the latter's loan
obligation would have been paid. This explicit requirement
was a clear indication that the property was to be used as
security for a loan.
The loan obligation was clear from Sarao's evidence as
found by the trial court, which we quote:
"x x x [Sarao] also testified that Myrna did not tender
payment of the correct and sufficient price for said real
property within the 6-month period as stipulated in the
contract, despite her having been shown the computation
of the loan obligation, inclusive of capital gains tax, real
estate tax, transfer tax and other expenses. She admitted
though that Myrna has tendered payment amounting
to P1,633,034.20 in the form of two manager's checks,
but these were refused acceptance for being insufficient.
She also claimed that several letters (Exhs. 2, 4 and 5)
were sent to Myrna and her lawyer, informing them of the
computation of the loan obligation inclusive of said
expenses. x x x."43
Respondent herself stressed that the pacto de retro had
been entered into on the very same day that the property
was to be foreclosed by a commercial bank.44 Such
circumstance proves that the spouses direly needed funds
to avert a foreclosure sale. Had they intended to sell the
property just to realize some profit, as Sarao
suggests,45 they would not have retained possession of
the house and continued to live there. Clearly, the
spouses had entered into the alleged pacto de retro sale
to secure a loan obligation, not to transfer ownership of
the property.
Sarao contends that Jonas Ramos admitted in his June
14, 1991 letter to her lawyer that the contract was a pacto
de retro.46 That letter, however, cannot override the
finding that the pacto de retro was executed merely as
security for a loan obligation. Moreover, on May 17, 1991,
prior to the transmittal of the letter, petitioner had
already sent a letter to Sarao's lawyer expressing the
former's desire to settle the mortgage on the
property.47 Considering that she had already
denominated the transaction with Sarao as a mortgage,
petitioner cannot be prejudiced by her husband's alleged
admission, especially at a time when they were already
estranged.48
Inasmuch as the contract between the parties was an
equitable mortgage, Respondent Sarao's remedy was to
recover the loan amount from petitioner by filing an action
for the amount due or by foreclosing the property.49
Second Issue:
Propriety of Tender of
Payment and Consignation
Tender of payment is the manifestation by debtors of their
desire to comply with or to pay their obligation. 50 If the
creditor refuses the tender of payment without just cause,
the debtors are discharged from the obligation by the
consignation of the sum due.51 Consignation is made by
depositing the proper amount to the judicial authority,
before whom the tender of payment and the
announcement of the consignation shall be proved.52 All
interested parties are to be notified of the
consignation.53 Compliance with these requisites is
mandatory.54
The trial and the appellate courts held that there was no
valid consignation, because petitioner had failed to offer
the correct amount and to provide ample consignation
notice to Sarao.55 This conclusion is incorrect.
Note that the principal loan was P1,310,430 plus 4.5 per
cent monthly interest compounded for six months.
Expressing her desire to pay in the fifth month, petitioner
averred that the total amount due was P1,633,034.19,
based on the computation of Sarao herself.56 The amount
of P2,911,579.22 that the latter demanded from her to
settle the loan obligation was plainly exorbitant, since this
sum included other items not covered by the agreement.
The property had been used solely as secure ty for
the P1,310,430 loan; it was therefore improper to include
in that amount payments for gasoline and miscellaneous
expenses, taxes, attorney's fees, and other alleged loans.
When Sarao unjustly refused the tender of payment in the
amount of P1,633,034.20, petitioner correctly filed suit
and consigned the amount in order to be released from
the latter's obligation.
The two lower courts cited Article 1257 of the Civil Code
to justify their ruling that petitioner had failed to notify
Respondent Sarao of the consignation. This provision of
law states that the obligor may be released, provided the
consignation is first announced to the parties interested
in the fulfillment of the obligation.
The facts show that the notice requirement was complied
with. In her August 1, 1991 letter, petitioner said that
should the respondent fail to accept payment, the former
would consign the amount.57 This statement was an
unequivocal announcement of consignation. Concededly,
sending to the creditor a tender of payment and notice of
consignation - - which was precisely what petitioner did -
- may be done in the same act.58
Because petitioners' consignation of the amount
of P1,633,034.20 was valid, it produced the effect of
payment.59 "The consignation, however, has a retroactive
effect, and the payment is deemed to have been made at
the time of the deposit of the thing in court or when it was
placed at the disposal of the judicial authority."60 "The
rationale for consignation is to avoid making the
performance of an obligation more onerous to the debtor
by reason of causes not imputable to him."61
Third Issue:
Moral Damages and Attorney's Fees
Petitioner seeks moral damages in the amount
of P500,000 for alleged sleepless nights and anxiety over
being homeless.62 Her bare assertions are insufficient to
prove the legal basis for granting any award under Article
2219 of the Civil Code.63 Verily, an award of moral
damages is uncalled for, considering that it was
Respondent Sarao's accommodation that settled the
earlier obligation of the spouses with the commercial bank
and allowed them to retain ownership of the property.
Neither have attorney's fees been shown to be
proper.64 As a general rule, in the absence of a
contractual or statutory liability therefor, sound public
policy frowns on penalizing the right to litigate. 65 This
policy applies especially to the present case, because
there is a need to determine whether the disputed
contract was a pacto de retro sale or an equitable
mortgage.
Other Matters
In a belated Manifestation filed on October 19, 2004,
Sarao declared that she was the "owner of the one-half
share of Jonas Ramos in the conjugal property," because
of his alleged failure to file a timely appeal with the
CA.66 Such declaration of ownership has no basis in law,
considering that the present suit being pursued by
petitioner pertains to a mortgage covering the whole
property.
Besides, it is basic that defenses and issues not raised
below cannot be considered on appeal.67
The Court, however, observes that Respondent Sarao
paid real property taxes amounting to P67,567.10 to halt
the auction sale scheduled for October 8, 2004, by the
City of Muntinlupa.68 Her payment was made in good faith
and benefited petitioner. Accordingly, Sarao should be
reimbursed; otherwise, petitioner would be unjustly
enriched,69 under Article 2175 of the Civil Code which
provides:
Art. 2175. Any person who is constrained to pay the taxes
of another shall be entitled to reimbursement from the
latter.
WHEREFORE, the Petition is partly GRANTED and the
assailed Decision SET ASIDE. Judgment is hereby
rendered:
(1) DECLARING (a) the disputed contract as an
equitable mortgage, (b) petitioner's loan to Respondent
Sarao to be in the amount of P1,633,034.19 as of July 30,
1991; and (c) the mortgage on the property - - covered
by TCT No. 151784 in the name of the Ramos spouses
and issued by the Register of Deeds of Makati City - -as
discharged
(2) ORDERING the RTC to release to Sarao the
consigned amount of P1,633,034.19
(3) COMMANDING Respondent Sarao to return to
petitioner the owner's copy of TCT No. 151784 in the
name of the Ramos spouses and issued by the Register of
Deeds of Makati City
(4) DIRECTING the Register of Deeds of Makati City to
cancel Entry No. 24057, the annotation appearing on TCT
No. 151784
(5) ORDERING petitioner to pay Sarao in the amount
of P67,567.10 as reimbursement for real property taxes
No pronouncement as to costs.
SO ORDERED.
FILINVEST LAND, INC.,
Petitioner
vs.
HON. COURT OF APPEALS, PHILIPPINE AMERICAN
GENERAL INSURANCE COMPANY, and PACIFIC
EQUIPMENT CORPORATION,
Respondents
G.R. No.138980
Present:
PUNO,
Chairman,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA and
'CHICO-NAZARIO, JJ .
Promulgated:
September 20, 2005
x-----------------------------------
---------------x
DECISION
CHICO-NAZARIO, J .:
This is a petition for review on certiorari of the
Decision [1] of the Court of Appeals dated 27 May
1999 affirming the dismissal by the Regional Trial Court
of Makati, Branch 65, [2] of the complaint for damages
filed by Filinvest Land, Inc. (Filinvest) against herein
private respondents Pacific Equipment Corporation
(Pecorp) and Philippine American General Insurance
Company.
The essential facts of the case, as recounted by the trial
court, are as follows:
On 26 April 1978, Filinvest Land, Inc.
(FILINVEST', for brevity), a corporation
engaged in the development and sale of
residential subdivisions, awarded to
defendant Pacific Equipment Corporation
(PACIFIC', for brevity) the development of
its residential subdivisions consisting of two
(2) parcels of land located at Payatas,
Quezon City, the terms and conditions of
which are contained in an 'Agreement.
(Annex A, Complaint). To guarantee its
faithful compliance and pursuant to the
agreement, defendant Pacific posted two
(2) Surety Bonds in favor of plaintiff which
were issued by defendant Philippine
American General Insurance (PHILAMGEN',
for brevity). (Annexes B and C, Complaint).
Notwithstanding three extensions granted
by plaintiff to defendant Pacific, the latter
failed to finish the contracted works.
(Annexes G, I and K, Complaint). On 16
October 1979, plaintiff wrote defendant
Pacific advising the latter of its intention to
takeover the project and to hold said
defendant liable for all damages which it
had incurred and will incur to finish the
project. (Annex 'L', Complaint).
On 26 October 1979, plaintiff submitted its
claim against defendant Philamgen under
its performance and guarantee bond
(Annex M, Complaint) but Philamgen
refused to acknowledge its liability for the
simple reason that its principal, defendant
Pacific, refused to acknowledge liability
therefore. Hence, this action.
In defense, defendant Pacific claims that its
failure to finish the contracted work was
due to inclement weather and the fact that
several items of finished work and change
order which plaintiff refused to accept and
pay for caused the disruption of work.
Since the contractual relation between
plaintiff and defendant Pacific created a
reciprocal obligation, the failure of the
plaintiff to pay its progressing bills estops it
from demanding fulfillment of what is
incumbent upon defendant Pacific. The
acquiescence by plaintiff in granting three
extensions to defendant Pacific is likewise
a waiver of the former's right to claim any
damages for the delay. Further, the
unilateral and voluntary action of plaintiff in
preventing defendant Pacific from
completing the work has relieved the latter
from the obligation of completing the same.
On the other hand, Philamgen contends
that the various amendments made on the
principal contract and the deviations in the
implementation thereof which were
resorted to by plaintiff and co-defendant
Pacific without its (defendant Philamgen's )
written consent thereto, have
automatically released the latter from any
or all liability within the purview and
contemplation of the coverage of the surety
bonds it has issued. Upon agreement of the
parties to appoint a commissioner to assist
the court in resolving the issues confronting
the parties, on 7 July 1981, an order was
issued by then Presiding Judge Segundo M.
Zosa naming Architect Antonio Dimalanta
as Court Commissioner from among the
nominees submitted by the parties to
conduct an ocular inspection and to
determine the amount of work
accomplished by the defendant Pacific and
the amount of work done by plaintiff to
complete the project.
On 28 November 1984, the Court received
the findings made by the Court
Commissioner. In arriving at his findings,
the Commissioner used the construction
documents pertaining to the project as
basis. According to him, no better basis in
the work done or undone could be made
other than the contract billings and
payments made by both parties as there
was no proper procedure followed in
terminating the contract, lack of inventory
of work accomplished, absence of
appropriate record of work progress
(logbook) and inadequate documentation
and system of construction management.
Based on the billings of defendant Pacific
and the payments made by plaintiff, the
work accomplished by the former
amounted to P 11,788,282.40 with the
exception of the last billing (which was not
acted upon or processed by plaintiff) in the
amount of P 844,396.42. The total amount
of work left to be accomplished by plaintiff
was based on the original contract amount
less value of work accomplished by
defendant Pacific in the amount
of P 681,717.58 (12,470,000-
11,788,282.42).
As regards the alleged repairs made by
plaintiff on the construction deficiencies,
the Court Commissioner found no sufficient
basis to justify the same. On the other
hand, he found the additional work done by
defendant Pacific in the amount
of P 477,000.00 to be in order.
On 01 April 1985, plaintiff filed its
objections to the Commissioner's
Resolution on the following grounds:
a) Failure of the commissioner to conduct a
joint survey which according to the latter is
indispensable to arrive at an equitable and
fair resolution of the issues between the
parties;
b) The cost estimates of the commissioner
were based on pure conjectures and
contrary to the evidence; and,
c) The commissioner made conclusions of
law which were beyond his assignment or
capabilities.
In its comment, defendant Pacific alleged
that the failure to conduct joint survey was
due to plaintiff's refusal to cooperate. In
fact, it was defendant Pacific who initiated
the idea of conducting a joint survey and
inventory dating back 27 November 1983.
And even assuming that a joint survey
were conducted, it would have been an
exercise in futility because all physical
traces of the actual conditions then
obtaining at the time relevant to the case
had already been obliterated by plaintiff.
On 15 August 1990, a Motion for Judgment
Based on the Commissioner's Resolution
was filed by defendant Pacific.
On 11 October 1990, plaintiff filed its
opposition thereto which was but a rehash
of objections to the commissioner's report
earlier filed by said plaintiff. [3]
On the basis of the commissioner's report,
the trial court dismissed Filinvest's
complaint as well as Pecorp's counterclaim.
It held:
In resolving this case, the court observes
that the appointment of a Commissioner
was a joint undertaking among the parties.
The findings of facts of the Commissioner
should therefore not only be conclusive but
final among the parties. The court therefore
agrees with the commissioner's findings
with respect to
1. Cost to repair deficiency or defect
' P 532,324.02
2. Unpaid balance of work done by
defendant - P1,939,191.67
3. Additional work/change order (due to
defendant) ' P475,000.00
The unpaid balance due defendant
therefore is P1,939,191.67. To this amount
should be added additional work performed
by defendant at plaintiff's instance in the
sum of P475,000.00. And from this total
of P2,414,191.67 should be deducted the
sum of P532,324.01 which is the cost to
repair the deficiency or defect in the work
done by defendant. The commissioner
arrived at the figure of P532,324.01 by
getting the average between plaintiff's
claim of P758,080.37 and defendant's
allegation of P306,567.67. The amount due
to defendant per the commissioner's report
is therefore P1,881,867.66.
Although the said amount
of P1,881,867.66 would be owing to
defendant Pacific, the fact remains that
said defendant was in delay since April 25,
1979. The third extension agreement of
September 15, 1979 is very clear in this
regard. The pertinent paragraphs read:
a) You will complete all the
unfinished works not later
than Oct. 15, 1979 . It is agreed
and understood that this date
shall DEFINITELY be the LAST
and FINAL extension & there
will be no further extension
for any cause whatsoever.
b) We are willing to waive all
penalties for delay which have
accrued since April 25,
1979 provided that you are
able to finish all the items of the
contracted works as per revised
CPM; otherwise you shall
continue to be liable to pay the
penalty up to the time that all
the contracted works shall have
been actually finished, in
addition to other damages
which we may suffer by reason
of the delays incurred.
Defendant Pacific therefore became liable
for delay when it did not finish the project
on the date agreed on October 15, 1979.
The court however, finds the claim
of P3,990,000.00 in the form of penalty by
reason of delay (P15,000.00/day from April
25, 1979 to Jan. 15, 1980) to be excessive.
A forfeiture of the amount due defendant
from plaintiff appears to be a reasonable
penalty for the delay in finishing the project
considering the amount of work already
performed and the fact that plaintiff
consented to three prior extensions.
The foregoing considered, this case is
dismissed. The counterclaim is likewise
dismissed.
No Costs. [4]
The Court of Appeals, finding no reversible error in the
appealed decision, affirmed the same.
Hence, the instant petition grounded solely on the issue
of whether or not the liquidated damages agreed upon by
the parties should be reduced considering that: (a) time
is of the essence of the contract; (b) the liquidated
damages was fixed by the parties to serve not only as
penalty in case Pecorp fails to fulfill its obligation on time,
but also as indemnity for actual and anticipated damages
which Filinvest may suffer by reason of such failure; and
(c) the total liquidated damages sought is only 32% of the
total contract price, and the same was freely and
voluntarily agreed upon by the parties.
At the outset, it should be stressed that as only the issue
of liquidated damages has been elevated to this Court,
petitioner Filinvest is deemed to have acquiesced to the
other matters taken up by the courts below. Section 1,
Rule 45 of the 1997 Rules of Court states in no uncertain
terms that this Court's jurisdiction in petitions for review
on certiorari is limited to 'questions of law which must be
distinctly set forth. [5] By assigning only one legal issue,
Filinvest has effectively cordoned off any discussion into
the factual issue raised before the Court of Appeals. [6] In
effect, Filinvest has yielded to the decision of the Court of
Appeals, affirming that of the trial court, in deferring to
the factual findings of the commissioner assigned to the
parties' case. Besides, as a general rule, factual matters
cannot be raised in a petition for review on certiorari. This
Court at this stage is limited to reviewing errors of law
that may have been committed by the lower
courts. [7] We do not perceive here any of the exceptions
to this rule; hence, we are restrained from conducting
further scrutiny of the findings of fact made by the trial
court which have been affirmed by the Court of Appeals.
Verily, factual findings of the trial court, especially when
affirmed by the Court of Appeals, are binding and
conclusive on the Supreme Court. [8] Thus, it is settled
that:
(a) Based on Pecorp's billings and the
payments made by Filinvest, the
balance of work to be accomplished
by Pecorp amounts to P681,717.58
representing 5.47% of the contract
work. This means to say that
Pecorp, at the time of the
termination of its contract,
accomplished 94.53% of the
contract work;
(b) The unpaid balance of work done by
Pecorp amounts to P1,939,191.67;
(c) The additional work/change order due
Pecorp amounts to P475,000.00;
(d) The cost to repair deficiency or defect,
which is for the account of Pecorp,
is P532,324.02; and
(e) The total amount due Pecorp
is P1,881,867.66.

Coming now to the main matter, Filinvest argues that the
penalty in its entirety should be respected as it was a
product of mutual agreement and it represents only 32%
of the P 12,470,000.00 contract price, thus, not shocking
and unconscionable under the circumstances. Moreover,
the penalty was fixed to provide for actual or anticipated
liquidated damages and not simply to ensure compliance
with the terms of the contract; hence, pursuant
to Laureano v. Kilayco, [9] courts should be slow in
exercising the authority conferred by Art. 1229 of the Civil
Code.
We are not swayed.
There is no question that the penalty of P15,000.00 per
day of delay was mutually agreed upon by the parties and
that the same is sanctioned by law. A penal clause is an
accessory undertaking to assume greater liability in case
of breach. [10] It is attached to an obligation in order to
insure performance [11] and has a double function: (1)
to provide for liquidated damages, and (2) to strengthen
the coercive force of the obligation by the threat of
greater responsibility in the event of breach. [12] Article
1226 of the Civil Code states:
Art. 1226. In obligations with a penal
clause, the penalty shall substitute the
indemnity for damages and the payment of
interests in case of noncompliance, if there
is no stipulation to the contrary.
Nevertheless, damages shall be paid if the
obligor refuses to pay the penalty or is
guilty of fraud in the fulfillment of the
obligation.
The penalty may be enforced only when it
is demandable in accordance with the
provisions of this Code.
As a general rule, courts are not at liberty to ignore the
freedom of the parties to agree on such terms and
conditions as they see fit as long as they are not contrary
to law, morals, good customs, public order or public
policy. [13] Nevertheless, courts may equitably reduce a
stipulated penalty in the contract in two instances: (1) if
the principal obligation has been partly or irregularly
complied; and (2) even if there has been no compliance
if the penalty is iniquitous or unconscionable in
accordance with Article 1229 of the Civil Code which
provides:
Art. 1229. The judge shall equitably reduce
the penalty when the principal obligation
has been partly or irregularly complied with
by the debtor. Even if there has been no
performance, the penalty may also be
reduced by the courts if it is iniquitous or
unconscionable.
In herein case, the trial court ruled that the penalty
charge for delay ' pegged at P15,000.00 per day of delay
in the aggregate amount of P 3,990,000.00 -- was
excessive and accordingly reduced it to P 1,881,867.66
considering the amount of work already performed and
the fact that [Filinvest] consented to three (3) prior
extensions. The Court of Appeals affirmed the ruling but
added as well that the penalty was unconscionable 'as the
construction was already not far from completion. Said
the Court of Appeals:
Turning now to plaintiff's appeal, We
likewise agree with the trial court that a
penalty interest of P 15,000.00 per day of
delay as liquidated damages
or P 3,990,000.00 (representing 32%
penalty of the P12,470,000.00 contract
price) is unconscionable considering that
the construction was already not far from
completion. Penalty interests are in the
nature of liquidated damages and may be
equitably reduced by the courts if they are
iniquitous or unconscionable (Garcia v.
Court of Appeals, 167 SCRA 815, Lambert
v. Fox, 26 Phil. 588). The judge shall
equitably reduce the penalty when the
principal obligation has been partly or
irregularly complied with by the debtor.
Even if there has been no performance, the
penalty may also be reduced by the courts
if it is iniquitous or unconscionable (Art.
1229, New Civil Code). Moreover, plaintiff's
right to indemnity due to defendant's delay
has been cancelled by its obligations to the
latter consisting of unpaid works.
This Court finds no fault in the cost
estimates of the court-appointed
commissioner as to the cost to repair
deficiency or defect in the works which was
based on the average between plaintiff's
claim of P 758,080.37 and
defendant's P 306,567.67 considering the
following factors: that plaintiff did not
follow the standard practice of joint survey
upon take over to establish work already
accomplished, balance of work per contract
still to be done, and estimate and inventory
of repair (Exhibit 'H'). As for the cost to
finish the remaining works, plaintiff's
estimates were brushed aside by the
commissioner on the reasoned observation
that 'plaintiff's cost estimate for work (to
be) done by the plaintiff to complete the
project is based on a contract awarded to
another contractor (JPT), the nature and
magnitude of which appears to be
inconsistent with the basic contract
between defendant PECORP and plaintiff
FILINVEST. [14]
We are hamstrung to reverse the Court of Appeals as it is
rudimentary that the application of Article 1229 is
essentially addressed to the sound discretion of the
court. [15] As it is settled that the project was
already 94.53% complete and that Filinvest did agree to
extend the period for completion of the project, which
extensions Filinvest included in computing the amount of
the penalty, the reduction thereof is clearly warranted.
Filinvest, however, hammers on the case of Laureano v.
Kilayco, [16] decided in 1915, which cautions courts to
distinguish between two kinds of penalty clauses in order
to better apply their authority in reducing the amount
recoverable. We held therein that:
. . . [I]n any case wherein there has been
a partial or irregular compliance with the
provisions in a contract for special
indemnification in the event of failure to
comply with its terms, courts will rigidly
apply the doctrine of strict
construction against the enforcement
in its entirety of the indemnification,
where it is clear from the terms of the
contract that the amount or character of
the indemnity is fixed without regard to the
probable damages which might be
anticipated as a result of a breach of the
terms of the contract; or, in other words,
where the indemnity provided for is
essentially a mere penalty having for its
principal object the enforcement of
compliance with the contract. But the
courts will be slow in exercising the
jurisdiction conferred upon them in
article 1154 [17] so as to modify the
terms of an agreed upon indemnification
where it appears that in fixing such
indemnification the parties had in mind a
fair and reasonable compensation for
actual damages anticipated as a result of a
breach of the contract, or, in other words,
where the principal purpose of the
indemnification agreed upon appears to
have been to provide for the payment of
actual anticipated and liquidated damages
rather than the penalization of a breach of
the contract. (Emphases supplied)
Filinvest contends that the subject penalty clause falls
under the second type, i.e., the principal purpose for its
inclusion was to provide for payment of actual anticipated
and liquidated damages rather than the penalization of a
breach of the contract. Thus, Filinvest argues that had
Pecorp completed the project on time, it (Filinvest) could
have sold the lots sooner and earned its projected income
that would have been used for its other projects.
Unfortunately for Filinvest, the above-quoted doctrine is
inapplicable to herein case. The Supreme Court
in Laureano instructed that a distinction between a
penalty clause imposed essentially as penalty in case of
breach and a penalty clause imposed as indemnity for
damages should be made in cases where there has been
neither partial nor irregular compliance with the terms of
the contract. In cases where there has been partial or
irregular compliance, as in this case, there will be no
substantial difference between a penalty and liquidated
damages insofar as legal results are concerned. [18] The
distinction is thus more apparent than real especially in
the light of certain provisions of the Civil Code of
the Philippines which provides in Articles 2226 and Article
2227 thereof:
Art. 2226. Liquidated damages are those
agreed upon by the parties to a contract to
be paid in case of breach thereof.
Art. 2227. Liquidated damages, whether
intended as an indemnity or a penalty, shall
be equitably reduced if they are iniquitous
or unconscionable.
Thus, we lamented in one case that '(t)here is no
justification for the Civil Code to make an apparent
distinction between a 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. [19]
Finally, Filinvest advances the argument that while it may
be true that courts may mitigate the amount of liquidated
damages agreed upon by the parties on the basis of the
extent of the work done, this contemplates a situation
where the full amount of damages is payable in case of
total breach of contract. In the instant case, as the
penalty clause was agreed upon to answer for delay in the
completion of the project considering that time is of the
essence, 'the parties thus clearly contemplated the
payment of accumulated liquidated damages despite, and
precisely because of, partial performance. [20] In effect,
it is Filinvest's position that the first part of Article 1229
on partial performance should not apply precisely
because, in all likelihood, the penalty clause would kick in
in situations where Pecorp had already begun work but
could not finish it on time, thus, it is being penalized for
delay in its completion.
The above argument, albeit sound, [21] is insufficient to
reverse the ruling of the Court of Appeals. It must be
remembered that the Court of Appeals not only held that
the penalty should be reduced because there was partial
compliance but categorically stated as well that the
penalty was unconscionable. Otherwise stated, the Court
of Appeals affirmed the reduction of the penalty not
simply because there was partial compliance per se on
the part of Pecorp with what was incumbent upon it but,
more fundamentally, because it deemed the penalty
unconscionable in the light of
Pecorp's 94.53% completion rate.
In Ligutan v. Court of Appeals, [22] we pointed out that
the question of whether a penalty is reasonable or
iniquitous can be partly subjective and partly objective as
its 'resolution would depend on such factors as, but not
necessarily confined to, the type, extent and purpose of
the penalty, the nature of the obligation, the mode of
breach and its consequences, the supervening realities,
the standing and relationship of the parties, and the like,
the application of which, by and large, is addressed to the
sound discretion of the court. [23]
In herein case, there has been substantial compliance in
good faith on the part of Pecorp which renders
unconscionable the application of the full force of the
penalty especially if we consider that in 1979 the amount
of P 15,000.00 as penalty for delay per day was quite
steep indeed. Nothing in the records suggests that
Pecorp's delay in the performance of 5.47% of the
contract was due to it having acted negligently or in bad
faith. Finally, we factor in the fact that Filinvest is not free
of blame either as it likewise failed to do that which was
incumbent upon it, i.e., it failed to pay Pecorp for work
actually performed by the latter in the total amount
of P 1,881,867.66. Thus, all things considered, we find no
reversible error in the Court of Appeals' exercise of
discretion in the instant case.
Before we write finis to this legal contest that had
spanned across two and a half decades, we take note of
Pecorp's own grievance. From its Comment and
Memorandum, Pecorp, likewise, seeks affirmative relief
from this Court by praying that not only should the instant
case be dismissed for lack of merit, but that Filinvest
should likewise be made to pay 'what the Court
Commissioner found was due defendant in the total
amount of P 2,976,663.65 plus 12% interest from 1979
until full payment thereof plus attorneys
fees. [24] Pecorp, however, cannot recover that which it
seeks as we had already denied, in a Resolution dated 21
June 2000, its own petition for review of the 27 May
1999 decision of the Court of Appeals. Thus, as far as
Pecorp is concerned, the ruling of the Court of Appeals
has already attained finality and can no longer be
disturbed.
WHEREFORE, premises considered, the Decision of the
Court of Appeals dated 27 May 1999 is AFFIRMED. No
pronouncement as to costs.
G.R. No. 121940 December 4, 2001
JESUS SAN AGUSTIN, petitioner,
vs.
HON. COURT OF APPEALS and MAXIMO MENEZ,
JR., respondents.
QUISUMBING, J.:
This petition for review on certiorari seeks the reversal of
the decision 1 of the Court of Appeals dated May 19,
1995, affirming that of the Regional Trial Court in LRC
Case No. R-4659.
The relevant facts, as summarized by the CA, are as
follows:
On February 11, 1974, the Government Service Insurance
System (GSIS) sold to a certain Macaria Vda. de Caiquep,
a parcel of residential land with an area of 168 square
meters located in Rosario, Pasig City and denominated as
Lot 13, Block 7, Pcs-5816 of the Government Service and
Insurance System Low Cost Housing Project (GSIS-
LCHP). The sale is evidenced by a Deed of Absolute Sale.
2 On February 19, 1974, the Register of Deeds of Rizal
issued in the name of Macaria Vda. de Caiquep. Transfer
Certificate of Title (TCT) No. 436465 with the following
encumbrance annotated at the back of the title:
This Deed of Absolute Sale is subject to the
conditions enumerated below which shall be
permanent encumbrances on the property, the
violation of any of which shall entitle the vendor to
cancel x x x. this Deed of Absolute Sale and
reenter the property;
The purpose of the sale be to aid the vendee in
acquiring a lot for himself/themselves and not to
provide him/them with a means for speculation or
profit by a future assignment of his/their right
herein acquired or the resale of the lot through
rent, lease or subletting to others of the lot and
subject of this deed, and therefore, the vendee
shall not sell, convey, lease or sublease, or
otherwise encumber the property in favor of any
other party within five (5) years from the dates
final and absolute ownership thereof becomes
vested in the vendee, except in cases of hereditary
succession or resale in favor of the vendor:
x x x (emphasis supplied).3
A day after We issuance of TCT No. 436465, or on
February 20, 1974, Macaria Vda. de Caiquep sold the
subject lot to private respondent, Maximo Menez, Jr., as
evidenced by a Deed of Absolute Sale (Exhibit "D").4 This
deed was notarized but was not registered immediately
upon its execution in 1974 because GSIS prohibited him
from registering the same in view of the five-year
prohibition to sell during the period ending in 1979.
Sometime in 1979, for being suspected as a subversive,
an Arrest, Search and Seizure Order (ASSO) was issued
against private respondent. Military men ransacked his
house in Cainta, Rizal. Upon learning that he was wanted
by the military, he voluntarily surrendered and was
detained for two (2) years. When released, another order
for his re-arrest was issued so he hid in Mindanao for
another four (4) years or until March 1984. In December
of 1990, he discovered that the subject TCT was missing.
He consulted a lawyer but the latter did not act
immediately on the matter. Upon consulting a new
counsel, an Affidavit of Loss5 was filed with the Register
of Deeds of Pasig and a certified copy6 of TCT No. 436465
was issued. Private respondent also declared the property
for tax purposes and obtained a certification thereof from
the Assessor's Office.7
Private respondent sent notices to the registered owner
at her address appearing in the title and in the Deed of
Sale. And, with his counsel, he searched for the
,registered owner in Metro Manila and Rizal and as far as
Samar, Leyte, Calbayog City, Tacloban City, and in
Eastern and Northern Samar. However, their search
proved futile.
On July 8, 1992 private respondent filed a petition
docketed as LRC Case No. R-4659 with the RTC, Branch
154, Pasig, Metro Manila for the issuance of owner's
duplicate copy of TCT No. 436465 to replace the lost one.
To show he was the owner of the contested lot, he showed
the Deed of Absolute Sale, Exhibit "D". The petition was
set for hearing and the court's order dated July 10, 1992
was published once in Malaya, a nationally circulated
newspaper in the Philippines.8
During the hearing on September 3, 1992, only Menez
and his counsel appeared. The Register of Deeds who was
not served notice, and the Office of the Solicitor General
and the Provincial Prosecutor who were notified did not
attend.
On September 18, 1992, there being no opposition,
Menez presented his evidence ex-parte. The trial court
granted his petition in its decision9 dated September 30,
1992, the dispositive portion of which reads:
WHEREFORE, the petition is hereby GRANTED and
the Registry of Deeds of Pasig, Metro Manila, is
hereby directed to issue a new Owner's Duplicate
Copy of Transfer Certificate of Title No. 436465
based on the original thereon filed in his office
which shall contain the memorandum of
encumbrance and an additional memorandum of
the fact that it was issued in place of the lost
duplicate and which shall, in all respect, be entitled
to like faith and credit as the original duplicate, for
all legal intents and purposes.
Issuance of new owner's duplicate copy shall be
made only after this decision shall have become
final and executory. The said lost owner's duplicate
is hereby declared null and void.
Petitioner shall pay all legal fees in connection with
the issuance of the new owner's copy.
Let copies of this Order be furnished the petitioner,
the registered owner of his given address in the
title, in the deed of sale, and in the tax declaration;
the Registry of Deeds of Pasig, the Office of the
Solicitor General; and the Provincial Fiscal of
Pasig, Metro Manila.
SO ORDERED.10
On October 13, 1992, herein petitioner, Jesus San
Agustin, received a copy of the abovecited decision. He-
claimed this was the first time he became aware of the
case of her aunt, Macaria Vda. de Caiquep who, according
to him, died sometime in 1974. Claiming that he was the
present occupant of the property and the heir of Macaria,
he filed his "Motion to Reopen Reconstitution
Proceedings''11 on October 27, 1992. On December 3,
1992, RTC issued an order denying said motion.12
Petitioner filed an appeal with the Court of Appeals, which,
as earlier stated, was denied in its decision of May 19,
1995. Petitioner moved for a reconsideration, but it was
denied in a resolution dated September 11, 1995.13
Thus, the present petition, attributing the following errors
to the court a quo:
A.
THE RESPONDENT COURT GRAVELY ERRED IN HOLDING
THAT LRC CASE NO. R-4659 BEING ONLY A PETITION FOR
THE ISSUANCE OF A NEW OWNER'S DUPLICATE OF
TITLE, THERE IS NO NEED OF PERSONAL NOTICE TO THE
PETITIONER, THE ACTUAL POSSESSOR [WHO HAS] AND
ACTUALLY BEEN PAYING THE REAL ESTATE TAX, DESPITE
PRIVATE RESPONDENT'S KNOWLEDGE OF ACTUAL
POSSESSION OF AND INTEREST OVER THE PROPERTY
COVERED BY TCT NO. 436465.14
B.
RESPONDENT COURT GRAVELY ERRED IN HOLDING THAT
THE SALE BETWEEN THE PRIVATE RESPONDENT AND
MACARIA VDA. DE CAIQUEP IS NOT NULL AND VOID AND
UNDER ARTICLE 1409 OF THE CIVIL CODE SPECIFICALLY
PARAGRAPH (7) THEREOF WHICH REFERS TO
CONTRACTS EXPRESSLY PROHIBITED OR DECLARED
VOID BY LAW.15
Considering the above assignment of errors, let us resolve
the corresponding issues raised by petitioner.
The first issue involves private respondent's alleged
failure to send notice to petitioner who is the actual
possessor of the disputed lot. Stated briefly, is petitioner
entitled to notice? Our finding is in the negative.
Presidential Decree No. 1529, otherwise known as the
"Property Registration Decree" is decisive. It provides:
Sec. 109. Notice and replacement of lost duplicate
certificate. — In case of loss or theft of an owner's
duplicate certificate of title, due notice under oath
shall be sent by the owner or by someone in his
behalf to the Register of Deeds of the province or
city where the land lies as soon as the loss or theft
is discovered. If a duplicate certificate is lost or
destroyed, or cannot be produced by a person
applying for the entry of a new certificate to him
or for :the registration of any instrument, a sworn
statement of the fact of such loss or destruction
may be filed by the registered owner or other
person it interest and registered.
Upon the petition of the registered owner or other
person in interest, the court may, after notice and
due hearing, direct the issuance of a new duplicate
certificate, which shall contain a memorandum of
the fact that it is issued in place of the lost
duplicate certificate, but shall in all respects be
entitled to like faith and credit as the original
duplicate, and shall thereafter be regarded as such
for all purposes of this decree.
In Office of Court Administrator vs. Matas, A.M. No. RTJ-
92-836, 247 SCRA 9, 16-17 (1995), we held:
In the case at bar, the respective certificate of title
of the properties in question on file with the
 Register of Deeds are existing, and it is the
owner's copy of the certificate of title that was
alleged to have been lost or destroyed. Thus, it is
Section 109 of P.D. 1529 which was approved on
June 11, 1978 that becomes effective and is
applicable, a reading of which shows that it is
practically the same as Section 109 of Act No. 496,
governing reconstitution of a duplicate certificate
of title lost or destroyed. Consequently, it is
sufficient that the notice under Section 109 is sent
to the Register of Deeds and to those persons who
are known to have, or appear to have, an interest
in the property as shown in the Memorandum of
encumbrances at the back of the original or
transfer certificate of title on file in the office of the
Register of Deeds. From a legal standpoint, there
are no other interested parties who should be
notified, except those abovementioned since they
are the only ones who may be deemed to have a
claim to the property involved. A person dealing
with registered is not charged with notice of
encumbrances not annotated on the back of the
title. (Emphasis supplied.)
Here, petitioner does not appear to have an interest in the
property based on the memorandum of encumbrances
annotated at the back of the title. His claim, that he is an
heir (nephew) of the original owner of the lot covered by
the disputed lot and the present occupant thereof is not
annotated in the said memorandum of encumbrances.
Neither was his claim entered on the Certificate of Titles
in the name of their original/former owners on file with
the Register of Deeds at the time of the filing or pendency
of LRC Case No. R-4659. Clearly, petitioner is not entitled
to notice.
Noteworthy is the fact that there was compliance by
private respondent of the RTC's order of publication of the
petition in a newspaper of general circulation. This is
sufficient notice of the petition to the public at large.
Petitioner contends that as possessor or actual occupant
of the lot in controversy, he is entitled under the law to
be notified. He relies on Alabang Development
Corporation vs. Valenzuela, G.R. No. L-54094, 116 SCRA
261, 277 (1982)) which held that in reconstitution
proceedings, courts must make sure that indispensable
parties, i.e.. the actual owners and possessors of the
lands involved, are duly served with actual and personal
notice of the petition. As pointed out by the appellate
court, his reliance on Alabang is misplaced because the
cause of action in that case is based on Republic Act i No.
26, entitled "An Act Providing A Special Procedure for the
Reconstitution of Torrens Certificate of Title Lost or
Destroyed," while the present case is based on Section
109 of P.D. 1529 as above explained.
Under Republic Act No. 26, reconstitution is validly made
only in case the original copy of the certificate of title with
the Register of Deeds is lost or destroyed. And if no notice
of the date of hearing of a reconstitution case is served
on a possessor or one having interest in the property
involved, he is deprived of his day in court and the order
of reconstitution is null and void.16 The case at bar is not
for reconstitution, but merely for replacement of lost
duplicate certificate.
On the second assigned error, petitioner contends that
Exhibit "D" is null and void under Article 1409 of the Civil
Code, specifically paragraph (7),17 because the deed of
sale was executed within the five-year prohibitory period
under Commonwealth Act No. 141, as amended,
otherwise known as "The Public Land Act."18
We find petitioner's contention less than meritorious. We
agree with respondent court that the proscription under
Com. Act No. 141 on sale within the 5-year restrictive
period refers to homestead lands only. Here the lot in
dispute is not a homestead land, as found by the trial and
appellate courts. Said lot is owned by GSIS, under TCT
No. 10028 in its proprietary capacity.
Moreover, as far as the violation of the 5-year restrictive
condition imposed by GSIS in its contract with petitioner's
predecessor-in-interest is concerned, it is the GSIS and
not petitioner who had a cause of action against private
respondent. Vide the instructive case of Sarmiento vs.
Salud:
The condition that the appellees Sarmiento
spouses could not resell the property except to the
People's Homesite and Housing Corporation (PHHC
for short) within the next 25 years after appellees'
purchasing the lot is manifestly a condition in favor
of the PHHC, and not one in favor of the Sarmiento
spouses. The condition conferred no actionable
right on appellees herein, since it operated as a
restriction upon their jus disponendi of the
property they bought, and thus limited their right
of ownership. It follows that on the assumption
that the mortgage to appellee Salud and the
foreclosure sale violated the condition in the
Sarmiento contract, only the PHHC was entitled to
invoke the condition aforementioned, and not the
Sarmientos. The validity or invalidity of the
sheriff's foreclosure sale to appellant Salud thus
violative of its right of exclusive reacquisition; but
it (PHHC) also could waive the condition and treat
the sale as good, in which event, the sale can not
be assailed for breach of the condition
aforestated.19
In this case, the GSIS has not filed any action for the
annulment of Exhibit "D", nor for the forfeiture of the lot
in question. In our view, the contract of sale remains valid
between the parties, unless and until annulled in the
proper suit filed by the rightful party, the GSIS. For now,
the said contract of sale is binding upon the heirs of
Macaria Vda. de Caiquep, including petitioner who alleges
to be one of her heirs, in line with the rule that heirs are
bound by contracts entered into by their predecessors-in-
interest.20
We are not unmindful of the social justice policy of R.A.
8291 otherwise known as "Government Service Insurance
Act of 1997" in granting housing assistance to the less-
privileged GSIS members and their dependents payable
at an affordable payment scheme.21 This is the same
policy which the 5-year restrictive clause in the contract
seeks to implement by stating in the encumbrance itself
annotated at the back of TCT No. 436465 that, "The
purpose of the sale is to aid the vendee in acquiring a lot
for himself/themselves and not to provide him/them with
a means for speculation or profit by a future assignment
of his/their right herein acquired or the resale of the lot
through rent, lease or subletting to others of the lot and
subject of this deed, . . . within five (5) years from the
date final and absolute ownership thereof becomes vested
in the vendee, except in cases of hereditary succession or
resale in favor of the vendor."22 However, absent the
proper action taken by the GSIS as the original vendor
referred to, the contract between petitioner's
predecessor-in-interest and private respondent deserves
to be upheld. For as pointed out by said private
respondent, it is protected by the Constitution under
Section 10, Article III, of the Bill of Rights stating that,
"No law impairing the obligation of contracts shall be
passed." Much as we would like to see a salutary policy
triumph, that provision of the Constitution duly calls for
compliance.
More in point, however, is the fact that,
following Sarmiento v. Salud,23 "Even if the transaction
between the original awardee and herein petitioner were
wrongful, still, as between themselves, the purchaser and
the seller were both in pari delicto, being participes
criminis as it were." As in Sarmiento, in this case both
were aware of the existence of the stipulated condition in
favor of the original seller, GSIS, yet both entered into an
agreement violating said condition and nullifying its
effects. Similarly, as Acting Chief Justice JBL Reyes
concluded in Sarmiento, "Both parties being equally
guilty, neither is entitled to complain against the other.
Having entered into the transaction with open eyes, and
having benefited from it, said parties should be held in
estoppel to assail and annul their own deliberate acts."
WHEREFORE, the appeal is DENIED, and the decision of
the respondent court is AFFIRMED.
G.R. No. 150843 March 14, 2003
CATHAY PACIFIC AIRWAYS, LTD., petitioner,
vs.
SPOUSES DANIEL VAZQUEZ and MARIA LUISA
MADRIGAL VAZQUEZ, respondents.
DAVIDE, JR., C.J.:
Is an involuntary upgrading of an airline passenger’s
accommodation from one class to a more superior class
at no extra cost a breach of contract of carriage that
would entitle the passenger to an award of damages? This
is a novel question that has to be resolved in this case.
The facts in this case, as found by the Court of Appeals
and adopted by petitioner Cathay Pacific Airways, Ltd.,
(hereinafter Cathay) are as follows:
Cathay is a common carrier engaged in the business of
transporting passengers and goods by air. Among the
many routes it services is the Manila-Hongkong-Manila
course. As part of its marketing strategy, Cathay accords
its frequent flyers membership in its Marco Polo Club. The
members enjoy several privileges, such as priority
for upgrading of booking without any extra charge
whenever an opportunity arises. Thus, a frequent flyer
booked in the Business Class has priority for upgrading to
First Class if the Business Class Section is fully booked.
Respondents-spouses Dr. Daniel Earnshaw Vazquez and
Maria Luisa Madrigal Vazquez are frequent flyers of
Cathay and are Gold Card members of its Marco Polo Club.
On 24 September 1996, the Vazquezes, together with
their maid and two friends Pacita Cruz and Josefina Vergel
de Dios, went to Hongkong for pleasure and business.
For their return flight to Manila on 28 September 1996,
they were booked on Cathay’s Flight CX-905, with
departure time at 9:20 p.m. Two hours before their time
of departure, the Vazquezes and their companions
checked in their luggage at Cathay’s check-in counter at
Kai Tak Airport and were given their respective boarding
passes, to wit, Business Class boarding passes for the
Vazquezes and their two friends, and Economy Class for
their maid. They then proceeded to the Business Class
passenger lounge.
When boarding time was announced, the Vazquezes and
their two friends went to Departure Gate No. 28, which
was designated for Business Class passengers. Dr.
Vazquez presented his boarding pass to the ground
stewardess, who in turn inserted it into an electronic
machine reader or computer at the gate. The ground
stewardess was assisted by a ground attendant by the
name of Clara Lai Han Chiu. When Ms. Chiu glanced at
the computer monitor, she saw a message that there was
a "seat change" from Business Class to First Class for the
Vazquezes.
Ms. Chiu approached Dr. Vazquez and told him that the
Vazquezes’ accommodations were upgraded to First
Class. Dr. Vazquez refused the upgrade, reasoning that it
would not look nice for them as hosts to travel in First
Class and their guests, in the Business Class; and
moreover, they were going to discuss business matters
during the flight. He also told Ms. Chiu that she could have
other passengers instead transferred to the First Class
Section. Taken aback by the refusal for upgrading, Ms.
Chiu consulted her supervisor, who told her to handle the
situation and convince the Vazquezes to accept the
upgrading. Ms. Chiu informed the latter that the Business
Class was fully booked, and that since they were Marco
Polo Club members they had the priority to be upgraded
to the First Class. Dr. Vazquez continued to refuse, so Ms.
Chiu told them that if they would not avail themselves of
the privilege, they would not be allowed to take the flight.
Eventually, after talking to his two friends, Dr. Vazquez
gave in. He and Mrs. Vazquez then proceeded to the First
Class Cabin.
Upon their return to Manila, the Vazquezes, in a letter of
2 October 1996 addressed to Cathay’s Country Manager,
demanded that they be indemnified in the amount of
P1million for the "humiliation and embarrassment"
caused by its employees. They also demanded "a written
apology from the management of Cathay, preferably a
responsible person with a rank of no less than the Country
Manager, as well as the apology from Ms. Chiu" within
fifteen days from receipt of the letter.
In his reply of 14 October 1996, Mr. Larry Yuen, the
assistant to Cathay’s Country Manager Argus Guy
Robson, informed the Vazquezes that Cathay would
investigate the incident and get back to them within a
week’s time.
On 8 November 1996, after Cathay’s failure to give them
any feedback within its self-imposed deadline, the
Vazquezes instituted before the Regional Trial Court of
Makati City an action for damages against Cathay,
praying for the payment to each of them the amounts of
P250,000 as temperate damages; P500,000 as moral
damages; P500,000 as exemplary or corrective damages;
and P250,000 as attorney’s fees.
In their complaint, the Vazquezes alleged that when they
informed Ms. Chiu that they preferred to stay in Business
Class, Ms. Chiu "obstinately, uncompromisingly and in a
loud, discourteous and harsh voice threatened" that they
could not board and leave with the flight unless they go
to First Class, since the Business Class was overbooked.
Ms. Chiu’s loud and stringent shouting annoyed,
embarrassed, and humiliated them because the incident
was witnessed by all the other passengers waiting for
boarding. They also claimed that they were unjustifiably
delayed to board the plane, and when they were finally
permitted to get into the aircraft, the forward storage
compartment was already full. A flight stewardess
instructed Dr. Vazquez to put his roll-on luggage in the
overhead storage compartment. Because he was not
assisted by any of the crew in putting up his luggage, his
bilateral carpal tunnel syndrome was aggravated, causing
him extreme pain on his arm and wrist. The Vazquezes
also averred that they "belong to the uppermost and
absolutely top elite of both Philippine Society and the
Philippine financial community, [and that] they were
among the wealthiest persons in the Philippine[s]."
In its answer, Cathay alleged that it is a practice among
commercial airlines to upgrade passengers to the next
better class of accommodation, whenever an opportunity
arises, such as when a certain section is fully booked.
Priority in upgrading is given to its frequent flyers, who
are considered favored passengers like the Vazquezes.
Thus, when the Business Class Section of Flight CX-905
was fully booked, Cathay’s computer sorted out the
names of favored passengers for involuntary upgrading to
First Class. When Ms. Chiu informed the Vazquezes that
they were upgraded to First Class, Dr. Vazquez refused.
He then stood at the entrance of the boarding apron,
blocking the queue of passengers from boarding the
plane, which inconvenienced other passengers. He
shouted that it was impossible for him and his wife to be
upgraded without his two friends who were traveling with
them. Because of Dr. Vazquez’s outburst, Ms. Chiu
thought of upgrading the traveling companions of the
Vazquezes. But when she checked the computer, she
learned that the Vazquezes’ companions did not have
priority for upgrading. She then tried to book the
Vazquezes again to their original seats. However, since
the Business Class Section was already fully booked, she
politely informed Dr. Vazquez of such fact and explained
that the upgrading was in recognition of their status as
Cathay’s valued passengers. Finally, after talking to their
guests, the Vazquezes eventually decided to take the First
Class accommodation.
Cathay also asserted that its employees at the Hong Kong
airport acted in good faith in dealing with the Vazquezes;
none of them shouted, humiliated, embarrassed, or
committed any act of disrespect against them (the
Vazquezes). Assuming that there was indeed a breach of
contractual obligation, Cathay acted in good faith, which
negates any basis for their claim for temperate, moral,
and exemplary damages and attorney’s fees. Hence, it
prayed for the dismissal of the complaint and for payment
of P100,000 for exemplary damages and P300,000 as
attorney’s fees and litigation expenses.
During the trial, Dr. Vazquez testified to support the
allegations in the complaint. His testimony was
corroborated by his two friends who were with him at the
time of the incident, namely, Pacita G. Cruz and Josefina
Vergel de Dios.
For its part, Cathay presented documentary evidence and
the testimonies of Mr. Yuen; Ms. Chiu; Norma Barrientos,
Comptroller of its retained counsel; and Mr. Robson. Yuen
and Robson testified on Cathay’s policy of upgrading the
seat accommodation of its Marco Polo Club members
when an opportunity arises. The upgrading of the
Vazquezes to First Class was done in good faith; in fact,
the First Class Section is definitely much better than the
Business Class in terms of comfort, quality of food, and
service from the cabin crew. They also testified that
overbooking is a widely accepted practice in the airline
industry and is in accordance with the International Air
Transport Association (IATA) regulations. Airlines
overbook because a lot of passengers do not show up for
their flight. With respect to Flight CX-905, there was no
overall overbooking to a degree that a passenger was
bumped off or downgraded. Yuen and Robson also stated
that the demand letter of the Vazquezes was immediately
acted upon. Reports were gathered from their office in
Hong Kong and immediately forwarded to their counsel
Atty. Remollo for legal advice. However, Atty. Remollo
begged off because his services were likewise retained by
the Vazquezes; nonetheless, he undertook to solve the
problem in behalf of Cathay. But nothing happened until
Cathay received a copy of the complaint in this case. For
her part, Ms. Chiu denied that she shouted or used foul or
impolite language against the Vazquezes. Ms. Barrientos
testified on the amount of attorney’s fees and other
litigation expenses, such as those for the taking of the
depositions of Yuen and Chiu.
In its decision1 of 19 October 1998, the trial court found
for the Vazquezes and decreed as follows:
WHEREFORE, finding preponderance of evidence
to sustain the instant complaint, judgment is
hereby rendered in favor of plaintiffs Vazquez
spouses and against defendant Cathay Pacific
Airways, Ltd., ordering the latter to pay each
plaintiff the following:
 a) Nominal damages in the amount of
P100,000.00 for each plaintiff;
b) Moral damages in the amount of
P2,000,000.00 for each plaintiff;
c) Exemplary damages in the amount of
P5,000,000.00 for each plaintiff;
d) Attorney’s fees and expenses of
litigation in the amount of P1,000,000.00
for each plaintiff; and
e) Costs of suit.
SO ORDERED.
According to the trial court, Cathay offers various classes
of seats from which passengers are allowed to choose
regardless of their reasons or motives, whether it be due
to budgetary constraints or whim. The choice imposes a
clear obligation on Cathay to transport the passengers in
the class chosen by them. The carrier cannot, without
exposing itself to liability, force a passenger to
involuntarily change his choice. The upgrading of the
Vazquezes’ accommodation over and above their
vehement objections was due to the overbooking of the
Business Class. It was a pretext to pack as many
passengers as possible into the plane to maximize
Cathay’s revenues. Cathay’s actuations in this case
displayed deceit, gross negligence, and bad faith, which
entitled the Vazquezes to awards for damages.
On appeal by the petitioners, the Court of Appeals, in its
decision of 24 July 2001,2 deleted the award for
exemplary damages; and it reduced the awards for moral
and nominal damages for each of the Vazquezes to
P250,000 and P50,000, respectively, and the attorney’s
fees and litigation expenses to P50,000 for both of them.
The Court of Appeals ratiocinated that by upgrading the
Vazquezes to First Class, Cathay novated the contract of
carriage without the former’s consent. There was a breach
of contract not because Cathay overbooked the Business
Class Section of Flight CX-905 but because the latter
pushed through with the upgrading despite the objections
of the Vazquezes.
However, the Court of Appeals was not convinced that Ms.
Chiu shouted at, or meant to be discourteous to, Dr.
Vazquez, although it might seemed that way to the latter,
who was a member of the elite in Philippine society and
was not therefore used to being harangued by anybody.
Ms. Chiu was a Hong Kong Chinese whose fractured
Chinese was difficult to understand and whose manner of
speaking might sound harsh or shrill to Filipinos because
of cultural differences. But the Court of Appeals did not
find her to have acted with deliberate malice, deceit,
gross negligence, or bad faith. If at all, she was negligent
in not offering the First Class accommodations to other
passengers. Neither can the flight stewardess in the First
Class Cabin be said to have been in bad faith when she
failed to assist Dr. Vazquez in lifting his baggage into the
overhead storage bin. There is no proof that he asked for
help and was refused even after saying that he was
suffering from "bilateral carpal tunnel syndrome." Anent
the delay of Yuen in responding to the demand letter of
the Vazquezes, the Court of Appeals found it to have been
sufficiently explained.
The Vazquezes and Cathay separately filed motions for a
reconsideration of the decision, both of which were denied
by the Court of Appeals.
Cathay seasonably filed with us this petition in this case.
Cathay maintains that the award for moral damages has
no basis, since the Court of Appeals found that there was
no "wanton, fraudulent, reckless and oppressive" display
of manners on the part of its personnel; and that the
breach of contract was not attended by fraud, malice, or
bad faith. If any damage had been suffered by the
Vazquezes, it was damnum absque injuria, which is
damage without injury, damage or injury inflicted without
injustice, loss or damage without violation of a legal right,
or a wrong done to a man for which the law provides no
remedy. Cathay also invokes our decision in United
Airlines, Inc. v. Court of Appeals 3 where we recognized
that, in accordance with the Civil Aeronautics Board’s
Economic Regulation No. 7, as amended, an overbooking
that does not exceed ten percent cannot be considered
deliberate and done in bad faith. We thus deleted in that
case the awards for moral and exemplary damages, as
well as attorney’s fees, for lack of proof of overbooking
exceeding ten percent or of bad faith on the part of the
airline carrier.
On the other hand, the Vazquezes assert that the Court
of Appeals was correct in granting awards for moral and
nominal damages and attorney’s fees in view of the
breach of contract committed by Cathay for transferring
them from the Business Class to First Class Section
without prior notice or consent and over their vigorous
objection. They likewise argue that the issuance of
passenger tickets more than the seating capacity of each
section of the plane is in itself fraudulent, malicious and
tainted with bad faith.
The key issues for our consideration are whether (1) by
upgrading the seat accommodation of the Vazquezes from
Business Class to First Class Cathay breached its contract
of carriage with the Vazquezes; (2) the upgrading was
tainted with fraud or bad faith; and (3) the Vazquezes are
entitled to damages.
We resolve the first issue in the affirmative.
A contract is a meeting of minds between two persons
whereby one agrees to give something or render some
service to another for a consideration. There is no
contract unless the following requisites concur: (1)
consent of the contracting parties; (2) an object certain
which is the subject of the contract; and (3) the cause of
the obligation which is established.4 Undoubtedly, a
contract of carriage existed between Cathay and the
Vazquezes. They voluntarily and freely gave their consent
to an agreement whose object was the transportation of
the Vazquezes from Manila to Hong Kong and back to
Manila, with seats in the Business Class Section of the
aircraft, and whose cause or consideration was the fare
paid by the Vazquezes to Cathay.
The only problem is the legal effect of the upgrading of
the seat accommodation of the Vazquezes. Did it
constitute a breach of contract?
Breach of contract is defined as the "failure without legal
reason to comply with the terms of a contract."5 It is also
defined as the "[f]ailure, without legal excuse, to perform
any promise which forms the whole or part of the
contract."6
In previous cases, the breach of contract of carriage
consisted in either the bumping off of a passenger with
confirmed reservation or the downgrading of a
passenger’s seat accommodation from one class to a
lower class. In this case, what happened was the reverse.
The contract between the parties was for Cathay to
transport the Vazquezes to Manila on a Business Class
accommodation in Flight CX-905. After checking-in their
luggage at the Kai Tak Airport in Hong Kong, the
Vazquezes were given boarding cards indicating their seat
assignments in the Business Class Section. However,
during the boarding time, when the Vazquezes presented
their boarding passes, they were informed that they had
a seat change from Business Class to First Class. It turned
out that the Business Class was overbooked in that there
were more passengers than the number of seats. Thus,
the seat assignments of the Vazquezes were given to
waitlisted passengers, and the Vazquezes, being
members of the Marco Polo Club, were upgraded from
Business Class to First Class.
We note that in all their pleadings, the Vazquezes never
denied that they were members of Cathay’s Marco Polo
Club. They knew that as members of the Club, they had
priority for upgrading of their seat accommodation at no
extra cost when an opportunity arises. But, just like other
privileges, such priority could be waived. The Vazquezes
should have been consulted first whether they wanted to
avail themselves of the privilege or would consent to a
change of seat accommodation before their seat
assignments were given to other passengers. Normally,
one would appreciate and accept an upgrading, for it
would mean a better accommodation. But, whatever their
reason was and however odd it might be, the Vazquezes
had every right to decline the upgrade and insist on the
Business Class accommodation they had booked for and
which was designated in their boarding passes. They
clearly waived their priority or preference when they
asked that other passengers be given the upgrade. It
should not have been imposed on them over their
vehement objection. By insisting on the upgrade, Cathay
breached its contract of carriage with the Vazquezes.
We are not, however, convinced that the upgrading or the
breach of contract was attended by fraud or bad faith.
Thus, we resolve the second issue in the negative.
Bad faith and fraud are allegations of fact that demand
clear and convincing proof. They are serious accusations
that can be so conveniently and casually invoked, and
that is why they are never presumed. They amount to
mere slogans or mudslinging unless convincingly
substantiated by whoever is alleging them.
Fraud has been defined to include an inducement through
insidious machination. Insidious machination refers to a
deceitful scheme or plot with an evil or devious purpose.
Deceit exists where the party, with intent to deceive,
conceals or omits to state material facts and, by reason
of such omission or concealment, the other party was
induced to give consent that would not otherwise have
been given.7
Bad faith does not simply connote bad judgment or
negligence; it imports a dishonest purpose or some moral
obliquity and conscious doing of a wrong, a breach of a
known duty through some motive or interest or ill will that
partakes of the nature of fraud.8
We find no persuasive proof of fraud or bad faith in this
case. The Vazquezes were not induced to agree to the
upgrading through insidious words or deceitful
machination or through willful concealment of material
facts. Upon boarding, Ms. Chiu told the Vazquezes that
their accommodations were upgraded to First Class in
view of their being Gold Card members of Cathay’s Marco
Polo Club. She was honest in telling them that their seats
were already given to other passengers and the Business
Class Section was fully booked. Ms. Chiu might have failed
to consider the remedy of offering the First Class seats to
other passengers. But, we find no bad faith in her failure
to do so, even if that amounted to an exercise of poor
judgment.
Neither was the transfer of the Vazquezes effected for
some evil or devious purpose. As testified to by Mr.
Robson, the First Class Section is better than the Business
Class Section in terms of comfort, quality of food, and
service from the cabin crew; thus, the difference in fare
between the First Class and Business Class at that time
was $250.9 Needless to state, an upgrading is for the
better condition and, definitely, for the benefit of the
passenger.
We are not persuaded by the Vazquezes’ argument that
the overbooking of the Business Class Section constituted
bad faith on the part of Cathay. Section 3 of the Economic
Regulation No. 7 of the Civil Aeronautics Board, as
amended, provides:
Sec 3. Scope. – This regulation shall apply to every
Philippine and foreign air carrier with respect to its
operation of flights or portions of flights originating
from or terminating at, or serving a point within
the territory of the Republic of the Philippines
insofar as it denies boarding to a passenger on a
flight, or portion of a flight inside or outside the
Philippines, for which he holds confirmed reserved
space. Furthermore, this Regulation is designed to
cover only honest mistakes on the part of the
carriers and excludes deliberate and willful acts of
non-accommodation. Provided, however, that
overbooking not exceeding 10% of the seating
capacity of the aircraft shall not be considered as
a deliberate and willful act of non-accommodation.
It is clear from this section that an overbooking that does
not exceed ten percent is not considered deliberate and
therefore does not amount to bad faith.10 Here, while
there was admittedly an overbooking of the Business
Class, there was no evidence of overbooking of the plane
beyond ten percent, and no passenger was ever bumped
off or was refused to board the aircraft.
Now we come to the third issue on damages.
The Court of Appeals awarded each of the Vazquezes
moral damages in the amount of P250,000. Article 2220
of the Civil Code provides:
Article 2220. Willful injury to property may be a
legal ground for awarding moral damages if the
court should find that, under the circumstances,
such damages are justly due. The same rule
applies to breaches of contract where the
defendant acted fraudulently or in bad faith.
Moral damages include physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and
similar injury. Although incapable of pecuniary
computation, moral damages may be recovered if they
are the proximate result of the defendant’s wrongful act
or omission.11 Thus, case law establishes the following
requisites for the award of moral damages: (1) there
must be an injury clearly sustained by the claimant,
whether physical, mental or psychological; (2) there must
be a culpable act or omission factually established; (3)
the wrongful act or omission of the defendant is the
proximate cause of the injury sustained by the claimant;
and (4) the award for damages is predicated on any of
the cases stated in Article 2219 of the Civil Code.12
Moral damages predicated upon a breach of contract of
carriage may only be recoverable in instances where the
carrier is guilty of fraud or bad faith or where the mishap
resulted in the death of a passenger.13 Where in
breaching the contract of carriage the airline is not shown
to have acted fraudulently or in bad faith, liability for
damages is limited to the natural and probable
consequences of the breach of the obligation which the
parties had foreseen or could have reasonably foreseen.
In such a case the liability does not include moral and
exemplary damages.14
In this case, we have ruled that the breach of contract of
carriage, which consisted in the involuntary upgrading of
the Vazquezes’ seat accommodation, was not attended by
fraud or bad faith. The Court of Appeals’ award of moral
damages has, therefore, no leg to stand on.
The deletion of the award for exemplary damages by the
Court of Appeals is correct. It is a requisite in the grant of
exemplary damages that the act of the offender must be
accompanied by bad faith or done in wanton, fraudulent
or malevolent manner.15 Such requisite is absent in this
case. Moreover, to be entitled thereto the claimant must
first establish his right to moral, temperate, or
compensatory damages.16 Since the Vazquezes are not
entitled to any of these damages, the award for
exemplary damages has no legal basis. And where the
awards for moral and exemplary damages are eliminated,
so must the award for attorney’s fees.17
The most that can be adjudged in favor of the Vazquezes
for Cathay’s breach of contract is an award for nominal
damages under Article 2221 of the Civil Code, which reads
as follows:
Article 2221 of the Civil Code provides:
Article 2221. Nominal damages are adjudicated in
order that a right of the plaintiff, which has been
violated or invaded by the defendant, may be
vindicated or recognized, and not for the purpose
of indemnifying the plaintiff for any loss suffered
by him.
Worth noting is the fact that in Cathay’s Memorandum
filed with this Court, it prayed only for the deletion of the
award for moral damages. It deferred to the Court of
Appeals’ discretion in awarding nominal damages; thus:
As far as the award of nominal damages is
concerned, petitioner respectfully defers to the
Honorable Court of Appeals’ discretion. Aware as
it is that somehow, due to the resistance of
respondents-spouses to the normally-appreciated
gesture of petitioner to upgrade their
accommodations, petitioner may have disturbed
the respondents-spouses’ wish to be with their
companions (who traveled to Hong Kong with
them) at the Business Class on their flight to
Manila. Petitioner regrets that in its desire to
provide the respondents-spouses with additional
amenities for the one and one-half (1 1/2) hour
flight to Manila, unintended tension ensued.18
Nonetheless, considering that the breach was intended to
give more benefit and advantage to the Vazquezes by
upgrading their Business Class accommodation to First
Class because of their valued status as Marco Polo
members, we reduce the award for nominal damages to
P5,000.
Before writing finis to this decision, we find it well-worth
to quote the apt observation of the Court of Appeals
regarding the awards adjudged by the trial court:
We are not amused but alarmed at the lower court’s
unbelievable alacrity, bordering on the scandalous, to
award excessive amounts as damages. In their complaint,
appellees asked for P1 million as moral damages but the
lower court awarded P4 million; they asked for
P500,000.00 as exemplary damages but the lower court
cavalierly awarded a whooping P10 million; they asked for
P250,000.00 as attorney’s fees but were awarded P2
million; they did not ask for nominal damages but were
awarded P200,000.00. It is as if the lower court went on
a rampage, and why it acted that way is beyond all tests
of reason. In fact the excessiveness of the total award
invites the suspicion that it was the result of "prejudice or
corruption on the part of the trial court."
The presiding judge of the lower court is enjoined
to hearken to the Supreme Court’s admonition
 in Singson vs. CA (282 SCRA 149 [1997]), where
it said:
The well-entrenched principle is that the
grant of moral damages depends upon the
discretion of the court based on the
circumstances of each case. This discretion
is limited by the principle that the amount
awarded should not be palpably and
scandalously excessive as to indicate that
it was the result of prejudice or corruption
on the part of the trial court….
and in Alitalia Airways vs. CA (187 SCRA 763
[1990], where it was held:
Nonetheless, we agree with the injunction
expressed by the Court of Appeals that
passengers must not prey on international
airlines for damage awards, like "trophies
in a safari." After all neither the social
standing nor prestige of the passenger
should determine the extent to which he
would suffer because of a wrong done,
since the dignity affronted in the individual
is a quality inherent in him and not
conferred by these social indicators. 19
We adopt as our own this observation of the Court of
Appeals.
WHEREFORE, the instant petition is hereby partly
GRANTED. The Decision of the Court of Appeals of 24 July
2001 in CA-G.R. CV No. 63339 is hereby MODIFIED, and
as modified, the awards for moral damages and attorney’s
fees are set aside and deleted, and the award for nominal
damages is reduced to P5,000.
No pronouncement on costs.
G.R. No. 116710 June 25, 2001
DANILO D. MENDOZA, also doing business under
the name and style of ATLANTIC EXCHANGE
PHILIPPINES, petitioner,
vs.
COURT OF APPEALS, PHILIPPINE NATIONAL BANK,
FERNANDO MARAMAG, JR., RICARDO G. DECEPIDA
and BAYANI A. BAUTISTA, respondents.
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the
Decision1 dated August 8, 1994 of the respondent Court
of Appeals (Tenth Division) in CA-G.R. CV No. 38036
reversing the judgment2 of the Regional Trial Court (RTC)
and dismissing the complaint therein.
Petitioner Danilo D. Mendoza is engaged in the domestic
and international trading of raw materials and chemicals.
He operates under the business name Atlantic Exchange
Philippines (Atlantic), a single proprietorship registered
with the Department of Trade and Industry (DTI).
Sometime in 1978 he was granted by respondent
Philippine National Bank (PNB) a Five Hundred Thousand
Pesos (P500,000.00) credit line and a One Million Pesos
(P1,000,000.00) Letter of Credit/Trust Receipt (LC/TR)
line.
As security for the credit accommodations and for those
which may thereinafter be granted, petitioner mortgaged
to respondent PNB the following: 1) three (3) parcels of
land3 with improvements in F. Pasco Avenue, Santolan,
Pasig; 2) his house and lot in Quezon City; and 3) several
pieces of machinery and equipment in his Pasig coco-
chemical plant.
The real estate mortgage4 provided the following
escalation clause:
(f) The rate of interest charged on the obligation
secured by this mortgage as well as the interest
on the amount which may have been advanced by
the Mortgagee in accordance with paragraph (d) of
the conditions herein stipulated shall be subject
during the life of this contract to such increase
within the rates allowed by law, as the Board of
Directors of the Mortgagee may prescribe for its
debtors.
Petitioner executed in favor of respondent PNB three (3)
promissory notes covering the Five Hundred Thousand
Pesos (P500,000.00) credit line, one dated March 8, 1979
for Three Hundred Ten Thousand Pesos (P310,000.00);
another dated March 30, 1979 for Forty Thousand Pesos
(P40,000.00); and the last dated September 27, 1979 for
One Hundred Fifty Thousand Pesos (P150,000.00). The
said 1979 promissory notes uniformly stipulated: "with
interest thereon at the rate of 12% per annum, until paid,
which interest rate the Bank may, at any time, without
notice, raise within the limits allowed by law xxx."5
Petitioner made use of his LC/TR line to purchase raw
materials from foreign importers. He signed a total of
eleven (11) documents denominated as "Application and
Agreement for Commercial Letter of Credit,"6 on various
dates from February 8 to September 11, 1979, which
uniformly contained the following clause: "Interest shall
be at the rate of 9% per annum from the date(s) of the
draft(s) to the date(s) of arrival of payment therefor in
New York. The Bank, however, reserves the right to raise
the interest charges at any time depending on whatever
policy it may follow in the future."7
In a letter dated January 3, 1980 and signed by Branch
Manager Fil S. Carreon Jr., respondent PNB advised
petitioner Mendoza that effective December 1, 1979, the
bank raised its interest rates to 14% per annum, in line
with Central Bank's Monetary Board Resolution No. 2126
dated November 29, 1979.
On March 9, 1981, he wrote a letter to respondent PNB
requesting for the restructuring of his past due accounts
into a five-year term loan and for an additional LC/TR line
of Two Million Pesos (P2,000,000.00).8 According to the
letter, because of the shut-down of his end-user
companies and the huge amount spent for the expansion
of his business, petitioner failed to pay to respondent
bank his LC/TR accounts as they became due and
demandable.
Ceferino D. Cura, Branch Manager of PNB Mandaluyong
replied on behalf of the respondent bank and required
petitioner to submit the following documents before the
bank would act on his request: 1) Audited Financial
Statements for 1979 and 1980; 2) Projected cash flow
(cash in - cash out) for five (5) years detailed yearly; and
3) List of additional machinery and equipment and proof
of ownership thereof. Cura also suggested that petitioner
reduce his total loan obligations to Three Million Pesos
(P3,000,000.00) "to give us more justification in
recommending a plan of payment or restructuring of your
accounts to higher authorities of the Bank."9
On September 25, 1981, petitioner sent another letter
addressed to PNB Vice-President Jose Salvador, regarding
his request for restructuring of his loans. He offered
respondent PNB the following proposals: 1) the disposal
of some of the mortgaged properties, more particularly,
his house and lot and a vacant lot in order to pay the
overdue trust receipts; 2) capitalization and conversion of
the balance into a 5-year term loan payable semi-
annually or on annual installments; 3) a new Two Million
Pesos (P2,000,000.00) LC/TR line in order to enable
Atlantic Exchange Philippines to operate at full capacity;
4) assignment of all his receivables to PNB from all
domestic and export sales generated by the LC/TR line;
and 5) maintenance of the existing Five Hundred
Thousand Pesos (P500,000.00) credit line.
The petitioner testified that respondent PNB Mandaluyong
Branch found his proposal favorable and recommended
the implementation of the agreement. However,
Fernando Maramag, PNB Executive Vice-President,
disapproved the proposed release of the mortgaged
properties and reduced the proposed new LC/TR line to
One Million Pesos (P1,000,000.00).10 Petitioner claimed
he was forced to agree to these changes and that he was
required to submit a new formal proposal and to sign two
(2) blank promissory notes.
In a letter dated July 2, 1982, petitioner offered the
following revised proposals to respondent bank: 1) the
restructuring of past due accounts including interests and
penalties into a 5-year term loan, payable semi-annually
with one year grace period on the principal; 2) payment
of Four Hundred Thousand Pesos (P400,000.00) upon the
approval of the proposal; 3) reduction of penalty from 3%
to 1%; 4) capitalization of the interest component with
interest rate at 16% per annum; 5) establishment of a
One Million Pesos (P1,000,000.00) LC/TR line against the
mortgaged properties; 6) assignment of all his export
proceeds to respondent bank to guarantee payment of his
loans.
According to petitioner, respondent PNB approved his
proposal. He further claimed that he and his wife were
asked to sign two (2) blank promissory note forms.
According to petitioner, they were made to believe that
the blank promissory notes were to be filled out by
respondent PNB to conform with the 5-year restructuring
plan allegedly agreed upon. The first Promissory
Note,11 No. 127/82, covered the principal while the
second Promissory Note,12 No. 128/82, represented the
accrued interest.
Petitioner testified that respondent PNB allegedly
contravened their verbal agreement by 1) affixing dates
on the two (2) subject promissory notes to make them
mature in two (2) years instead of five (5) years as
supposedly agreed upon; 2) inserting in the first
Promissory Note No. 127/82 an interest rate of 21%
instead of 18%; 3) inserting in the second Promissory
Note No. 128/82, the amount stated therein representing
the accrued interest as One Million Five Hundred Thirty
Six Thousand Four Hundred Ninety Eight Pesos and
Seventy Three Centavos (P1,536,498.73) when it should
only be Seven Hundred Sixty Thousand Three Hundred
Ninety Eight Pesos and Twenty Three Centavos
(P760,398.23) and pegging the interest rate thereon at
18% instead of 12%.
The subject Promissory Notes Nos. 127/82 and 128/82
both dated December 29, 1982 in the principal amounts
of Two Million Six Hundred Fifty One Thousand One
Hundred Eighteen Pesos and Eighty Six Centavos
(P 2,651,118.86) and One Million Five Hundred Thirty Six
Thousand Seven Hundred Ninety Eight and Seventy Three
Centavos (P1,536,798.73) respectively and marked
Exhibits "BB" and "CC" respectively, were payable on
equal semi-annual amortization and contained the
following escalation clause:
x x x which interest rate the BANK may increase
within the limits allowed by law at any time
depending on whatever policy it may adopt in the
future; Provided, that, the interest rate on this
note shall be correspondingly decreased in the
event that the applicable maximum interest rate is
reduced by law or by the Monetary Board. In either
case, the adjustment in the interest rate agreed
upon shall take effect on the effectivity date of the
increase or decrease in the maximum interest
rate. x x x
It appears from the record that the subject Promissory
Notes Nos. 127/82 and 128/82 superseded and novated
the three (3) 1979 promissory notes and the eleven (11)
1979 "Application and Agreement for Commercial Letter
of Credit" which the petitioner executed in favor of
respondent PNB.
According to the petitioner, sometime in June 1983 the
new PNB Mandaluyong Branch Manager Bayani A.
Bautista suggested that he sell the coco-chemical plant so
that he could keep up with the semi-annual amortizations.
On three (3) occasions, Bautista even showed up at the
plant with some unidentified persons who claimed that
they were interested in buying the plant.
Petitioner testified that when he confronted the PNB
management about the two (2) Promissory Notes Nos.
127/82 and 128/82 (marked Exhibits "BB" and "CC"
respectively) which he claimed were improperly filled out,
Bautista and Maramag assured him that the five-year
restructuring agreement would be implemented on the
condition that he assigns 10% of his export earnings to
the Bank.13 In a letter dated August 22, 1983, petitioner
Mendoza consented to assign 10% of the net export
proceeds of a Letter of Credit covering goods amounting
to One Hundred Fourteen Thousand Dollars
($114,000.00).14 However, petitioner claimed that
respondent PNB subsequently debited 14% instead of
10% from his export proceeds.15
Pursuant to the escalation clauses of the subject two (2)
promissory notes, the interest rate on the principal
amount in Promissory Note No. 127/82 was increased
from 21% to 29% on May 28, 1984, and to 32% on July
3, 1984 while the interest rate on the accrued interest per
Promissory Note No. 128/82 was increased from 18% to
29% on May 28, 1984, and to 32% on July 3, 1984.
Petitioner failed to pay the subject two (2) Promissory
Notes Nos. 127/82 and 128/82 (Exhibits "BB" and "CC")
as they fell due. Respondent PNB extra-judicially
foreclosed the real and chattel mortgages, and the
mortgaged properties were sold at public auction to
respondent PNB, as highest bidder, for a total of Three
Million Seven Hundred Ninety Eight Thousand Seven
Hundred Nineteen Pesos and Fifty Centavos
(P3,798,719.50).
The petitioner filed in the RTC in Pasig, Rizal a complaint
for specific performance, nullification of the extra-judicial
foreclosure and damages against respondents PNB,
Fernando Maramag Jr., Ricardo C. Decepida, Vice-
President for Metropolitan Branches, and Bayani A.
Bautista. He alleged that the Extrajudicial Foreclosure
Sale of the mortgaged properties was null and void since
his loans were restructured to a five-year term loan;
hence, it was not yet due and demandable; that the
escalation clauses in the subject two (2) Promissory Notes
Nos. 127/82 and 128/82 were null and void, that the total
amount presented by PNB as basis of the foreclosure sale
did not reflect the actual loan obligations of the plaintiff
to PNB; that Bautista purposely delayed payments on his
exports and caused delays in the shipment of materials;
that PNB withheld certain personal properties not covered
by the chattel mortgage; and that the foreclosure of his
mortgages was premature so that he was unable to
service his foreign clients, resulting in actual damages
amounting to Two Million Four Thousand Four Hundred
Sixty One Pesos (P 2,004,461.00).
On March 16, 1992, the trial court rendered judgment in
favor of the petitioner and ordered the nullification of the
extrajudicial foreclosure of the real estate mortgage, the
Sheriff’s sale of the mortgaged real properties by virtue
of consolidation thereof and the cancellation of the new
titles issued to PNB; that PNB vacate the subject premises
in Pasig and turn the same over to the petitioner; and also
the nullification of the extrajudicial foreclosure and
sheriff's sale of the mortgaged chattels, and that the
chattels be returned to petitioner Mendoza if they were
removed from his Pasig premises or be paid for if they
were lost or rendered unserviceable.
The trial court also ordered respondent PNB to restructure
to five-years petitioner's principal loan of Two Million Six
Hundred Fifty One Thousand One Hundred Eighteen Pesos
and Eighty Six Centavos (P2,651,118.86) and the
accumulated capitalized interest on the same in the
amount of Seven Hundred Sixty Thousand Three Hundred
Eighty Nine Pesos and Twenty Three Centavos
(P760,389.23) as of December 1982, and that respondent
PNB should compute the additional interest from January
1983 up to October 15, 1984 only when respondent PNB
took possession of the said properties, at the rate of 12%
and 9% respectively.
The trial court also ordered respondent PNB to grant
petitioner Mendoza an additional Two Million Pesos
(P2,000,000.00) loan in order for him to have the
necessary capital to resume operation. It also ordered
respondents PNB, Bayani A. Bautista and Ricardo C.
Decepida to pay to petitioner actual damages in the
amount of Two Million One Hundred Thirteen Thousand
Nine Hundred Sixty One Pesos (P2,113,961.00) and the
peso equivalent of Six Thousand Two Hundred Fifteen
Dollars ($6,215.00) at the prevailing foreign exchange
rate on October 11, 1983; and exemplary damages in the
amount of Two Hundred Thousand Pesos (P200,000.00).
Respondent PNB appealed this decision of the trial court
to the Court of Appeals. And the Court of Appeals reversed
the decision of the trial court and dismissed the
complaint. Hence, this petition.
It is the petitioner’s contention that the PNB management
restructured his existing loan obligations to a five-year
term loan and granted him another Two Million Pesos
(P2,000,000.00) LC/TR line; that the Promissory Notes
Nos. 127/82 and 128/82 evidencing a 2-year
restructuring period or with the due maturity date
"December 29, 1984" were filled out fraudulently by
respondent PNB, and contrary to his verbal agreement
with respondent PNB; hence, his indebtedness to
respondent PNB was not yet due and the extrajudicial
foreclosure of his real estate and chattel mortgages was
premature. On the other hand, respondent PNB denies
that petitioner's loan obligations were restructured to five
(5) years and maintains that the subject two (2)
Promissory Notes Nos. 127/82 and 128/82 were filled out
regularly and became due as of December 29, 1984 as
shown on the face thereof.
Respondent Court of Appeals held that there is no
evidence of a promise from respondent PNB, admittedly a
banking corporation, that it had accepted the proposals of
the petitioner to have a five-year restructuring of his
overdue loan obligations. It found and held, on the basis
of the evidence adduced, that "appellee's (Mendoza)
communications were mere proposals while the bank's
responses were not categorical that the appellee's request
had been favorably accepted by the bank."
Contending that respondent PNB had allegedly approved
his proposed five-year restructuring plan, petitioner
presented three (3) documents executed by respondent
PNB officials. The first document is a letter dated March
16, 1981 addressed to the petitioner and signed by
Ceferino D. Cura, Branch Manager of PNB Mandaluyong,
which states:
 x x x In order to study intelligently the feasibility
of your above request, please submit the following
documents/papers within thirty (30) days from the
date thereof, viz:
1. Audited Financial Statements for 1979
and 1980;
2. Projected cash flow (cash in - cash out)
for five years detailed yearly; and
3. List of additional machinery and
equipment and proof of ownership thereof.
We would strongly suggest, however, that you
reduce your total obligations to at least P3 million
(principal and interest and other charges) to give
us more justification in recommending a plan of
payment or restructuring of your accounts to
higher authorities of this bank.
The second document is a letter dated May 11, 1981
addressed to Mr. S. Pe Benito, Jr., Managing Director of
the Technological Resources Center and signed by said
PNB Branch Manager, Ceferino D. Cura. According to
petitioner, this letter showed that respondent PNB
seriously considered the restructuring of his loan
obligations to a five-year term loan, to wit:
xxx
At the request of our client, we would like to
furnish you with the following information
pertinent to his accounts with us:
xxx
We are currently evaluating the proposal of
the client to re-structure his accounts with
us into a five-year plan.
We hope that the above information will guide you
in evaluating the proposals of Mr. Danilo Mendoza.
xxx
The third document is a letter dated July 8, 1981
addressed to petitioner and signed by PNB Assistant Vice-
President Apolonio B. Francisco.
xxx
Considering that your accounts/accommodations
were granted and carried in the books of our
Mandaluyong Branch, we would suggest that your
requests and proposals be directed to Ceferino
Cura, Manager of our said Branch.
We feel certain that Mr. Cura will be pleased to
discuss matters of mutual interest with you.
xxx
Petitioner also presented a letter which he addressed to
Mr. Jose Salvador, Vice-President of the Metropolitan
Branches of PNB, dated September 24, 1981, which
reads:
Re: Restructuring of our Account into a 5-year
Term Loan and Request for the Establishment of a
P2.0 Million LC/TR Line
Dear Sir:
In compliance with our discussion last September
17, we would like to formalize our proposal to
support our above requested assistance from the
Philippine National Bank.
xxx
Again we wish to express our sincere appreciation
for your open-minded approach towards the
solution of this problem which we know and will be
beneficial and to the best interest of the bank and
mutually advantageous to your client.
xxx
Petitioner argues that he submitted the requirements
according to the instructions given to him and that upon
submission thereof, his proposed five-year restructuring
plan was deemed automatically approved by respondent
PNB.
We disagree.
Nowhere in those letters is there a categorical statement
that respondent PNB had approved the petitioner’s
proposed five-year restructuring plan. It is stretching the
imagination to construe them as evidence that his
proposed five-year restructuring plan has been approved
by the respondent PNB which is admittedly a banking
corporation. Only an absolute and unqualified acceptance
of a definite offer manifests the consent necessary to
perfect a contract.16 If anything, those correspondences
only prove that the parties had not gone beyond the
preparation stage, which is the period from the start of
the negotiations until the moment just before the
agreement of the parties.17
There is nothing in the record that even suggests that
respondent PNB assented to the alleged five-year
restructure of petitioner’s overdue loan obligations to
PNB. However, the trial court ruled in favor of petitioner
Mendoza, holding that since petitioner has complied with
the conditions of the alleged oral contract, the latter may
not renege on its obligation to honor the five-year
restructuring period, under the rule of promissory
estoppel. Citing Ramos v. Central Bank,18 the trial court
said:
The broad general rule to the effect that a promise
to do or not to do something in the future does not
work an estoppel must be qualified, since there are
numerous cases in which an estoppel has been
 predicated on promises or assurances as to future
conduct. The doctrine of ‘promissory estoppel’ is
by no means new, although the name has been
adopted only in comparatively recent years.
According to that doctrine, an estoppel may arise
from the making of a promise, even though
without consideration, if it was intended that the
promise should be relied upon and in fact it was
relied upon, and if a refusal to enforce it would be
virtually to sanction the perpetration of fraud or
would result in other injustice. In this respect, the
reliance by the promisee is generally evidenced by
action or forbearance on his part, and the idea has
been expressed that such action or forbearance
would reasonably have been expected by the
promissor. xxx
The doctrine of promissory estoppel is an exception to the
general rule that a promise of future conduct does not
constitute an estoppel. In some jurisdictions, in order to
make out a claim of promissory estoppel, a party bears
the burden of establishing the following elements: (1) a
promise reasonably expected to induce action or
forebearance; (2) such promise did in fact induce such
action or forebearance, and (3) the party suffered
detriment as a result.19
It is clear from the forgoing that the doctrine of
promissory estoppel presupposes the existence of a
promise on the part of one against whom estoppel is
claimed. The promise must be plain and unambiguous and
sufficiently specific so that the Judiciary can understand
the obligation assumed and enforce the promise
according to its terms.20 For petitioner to claim that
respondent PNB is estopped to deny the five-year
restructuring plan, he must first prove that respondent
PNB had promised to approve the plan in exchange for
the submission of the proposal. As discussed earlier, no
such promise was proven, therefore, the doctrine does
not apply to the case at bar. A cause of action for
promissory estoppel does not lie where an alleged oral
promise was conditional, so that reliance upon it was not
reasonable.21 It does not operate to create liability where
it does not otherwise exist.22
Since there is no basis to rule that petitioner's overdue
loan obligations were restructured to mature in a period
of five (5) years, we see no other option but to respect
the two-year period as contained in the two (2) subject
Promissory Notes Nos. 127/82 and 128/82, marked as
Exhibits "BB" and "CC" respectively which superseded and
novated all prior loan documents signed by petitioner in
favor of respondent PNB. Petitioner argues, in his
memorandum, that "respondent Court of Appeals had no
basis in saying that the acceptance of the five-year
restructuring is totally absent from the record." 23 On the
contrary, the subject Promissory Notes Nos. 127/82 and
128/82 are clear on their face that they were due on
December 29, 1984 or two (2) years from the date of the
signing of the said notes on December 29, 1982.
Petitioner claims that the two (2) subject Promissory
Notes Nos. 127/82 and 128/82 were signed by him in
blank with the understanding that they were to be
subsequently filled out to conform with his alleged oral
agreements with PNB officials, among which is that they
were to become due only after five (5) years. If petitioner
were to be believed, the PNB officials concerned
committed a fraudulent act in filling out the subject two
(2) promissory notes in question. Private transactions are
presumed to be fair and regular.24 The burden of
presenting evidence to overcome this presumption falls
upon petitioner. Considering that petitioner imputes a
serious act of fraud on respondent PNB, which is a
banking corporation, this court will not be satisfied with
anything but the most convincing evidence. However,
apart from petitioner's self-serving verbal declarations,
we find no sufficient proof that the subject two (2)
Promissory Notes Nos. 127/82 and 128/82 were
completed irregularly. Therefore, we rule that the
presumption has not been rebutted.
Besides, it could be gleaned from the record that the
petitioner is an astute businessman who took care to
reduce in writing his business proposals to the respondent
bank. It is unthinkable that the same person would
commit the careless mistake of leaving his subject two (2)
promissory notes in blank in the hands of other persons.
As the respondent Court of Appeals correctly pointed out:
Surely, plaintiff-appellee who is a C.P.A and a Tax
Consultant (p. 3 TSN, January 9, 1990) will insist
that the details of the two promissory notes he and
his wife executed in 1982 should be specific to
enable them to make the precise computation in
the event of default as in the case at bench. In
fact, his alleged omission as a C.P.A. and a Tax
Consultant to insist that the two promissory notes
be filled up on important details like the rates of
interest is inconsistent with the legal presumption
of a person who takes ordinary care of his
concerns (Section 3 (c), Rule 131, Revised Rules
on Evidence).
As pointed out by the Court of Appeals, Orlando
Montecillo, Chief, Loans and Discounts, PNB Mandaluyong
Branch, testified that the said Promissory Notes Nos.
127/82 and 128/82 were completely filled out when
Danilo Mendoza signed them (Rollo, p. 14).
In a last-ditch effort to save his five-year loan
restructuring theory, petitioner contends that respondent
PNB's action of withholding 10% from his export proceeds
is proof that his proposal had been accepted and the
contract had been partially executed. He claims that he
would not have consented to the additional burden if there
were no corresponding benefit. This contention is not well
taken. There is no credible proof that the 10% assignment
of his export proceeds was not part of the conditions of
the two-year restructuring deal. Considering that the
resulting amount obtained from this assignment of export
proceeds was not even enough to cover the interest for
the corresponding month,25 we are hard-pressed to
construe it as the required proof that respondent PNB
allegedly approved the proposed five-year restructuring
of petitioner’s overdue loan obligations.
It is interesting to note that in his Complaint, petitioner
made no mention that the assignment of his export
proceeds was a condition for the alleged approval of his
proposed five-year loan restructuring plan. The Complaint
merely alleged that "plaintiff in a sincere effort to make
payments on his obligations agreed to assign 10% of his
export proceeds to defendant PNB." This curious omission
leads the court to believe that the alleged link between
the petitioner’s assignment of export proceeds and the
alleged five-year restructuring of his overdue loans was
more contrived than real.
It appears that respondent bank increased the interest
rates on the two (2) subject Promissory Notes Nos.
127/82 and 128/82 without the prior consent of the
petitioner. The petitioner did not agree to the increase in
the stipulated interest rate of 21% per annum on
Promissory Note No. 127/82 and 18% per annum on
Promissory Note No. 128/82. As held in several cases, the
unilateral determination and imposition of increased
interest rates by respondent bank is violative of
the principle of mutuality of contracts ordained in Article
1308 of the Civil Code.26 As held in one case:27
It is basic that there can be no contract in the true
sense in the absence of the element of agreement,
or of mutual assent of the parties. If this assent is
wanting on the part of one who contracts, his act
has no more efficacy than if it had been done
under duress or by a person of unsound mind.
Similarly, contract changes must be made with the
consent of the contracting parties. The minds of all
the parties must meet as to the proposed
modification, especially when it affects an
important aspect of the agreement. In the case of
loan contracts, it cannot be gainsaid that the rate
of interest is always a vital component, for it can
make or break a capital venture.
It has been held that no one receiving a proposal to
change a contract to which he is a party is obliged to
answer the proposal, and his silence per se cannot be
construed as an acceptance.28 Estoppel will not lie against
the petitioner regarding the increase in the stipulated
interest on the subject Promissory Notes Nos. 127/82 and
128/82 inasmuch as he was not even informed
beforehand by respondent bank of the change in the
stipulated interest rates. However, we also note that the
said two (2) subject Promissory Notes Nos. 127/82 and
128/82 expressly provide for a penalty charge of 3% per
annum to be imposed on any unpaid amount when due.
Petitioner prays for the release of some of his
movables29 being withheld by respondent PNB, alleging
that they were not included among the chattels he
mortgaged to respondent bank. However, petitioner did
not present any proof as to when he acquired the subject
movables and hence, we are not disposed to believe that
the same were "after-acquired" chattels not covered by
the chattel and real estate mortgages.
In asserting its rights over the subject movables,
respondent PNB relies on a common provision in the two
(2) subject Promissory Notes Nos. 127/82 and 128/82
which states:
In the event that this note is not paid at maturity
or when the same becomes due under any of the
provisions hereof, we hereby authorized the BANK
at its option and without notice, to apply to the
payment of this note, any and all moneys,
securities and things of value which may be in its
hands on deposit or otherwise belonging to me/us
and for this purpose. We hereby, jointly and
severally, irrevocably constitute and appoint the
BANK to be our true Attorney-in-Fact with full
power and authority for us in our name and behalf
and without prior notice to negotiate, sell and
transfer any moneys securities and things of value
which it may hold, by public or private sale and
apply the proceeds thereof to the payment of this
note.
It is clear, however, from the above-quoted provision of
the said promissory notes that respondent bank is
authorized, in case of default, to sell "things of value"
belonging to the mortgagor "which may be on its hands
for deposit or otherwise belonging to me/us and for this
purpose." Besides the petitioner executed not only a
chattel mortgage but also a real estate mortgage to
secure his loan obligations to respondent bank.
A stipulation in the mortgage, extending its scope and
effect to after-acquired property is valid and binding
where the after-acquired property is in renewal of, or in
substitution for, goods on hand when the mortgage was
executed, or is purchased with the proceeds of the sale of
such goods.30 As earlier pointed out, the petitioner did not
present any proof as to when the subject movables were
acquired.
More importantly, respondent bank makes a valid
argument for the retention of the subject movables.
Respondent PNB asserts that those movables were in fact
"immovables by destination" under Art. 415 (5) of the
Civil Code.31 It is an established rule that a mortgage
constituted on an immovable includes not only the land
but also the buildings, machinery and accessories
installed at the time the mortgage was constituted as well
as the buildings, machinery and accessories belonging to
the mortgagor, installed after the constitution thereof.32
Petitioner also contends that respondent PNB’s bid prices
for this foreclosed properties in the total amount of Three
Million Seven Hundred Ninety Eight Thousand Seven
Hundred Nineteen Pesos and Fifty Centavos
(P3,798,719.50), were allegedly "unconscionable and
shocking to the conscience of men". He claims that the
fair market appraisal of his foreclosed plant site together
with the improvements thereon located in Pasig, Metro
Manila amounted to Five Million Four Hundred Forty One
Thousand Six Hundred Fifty Pesos (P5,441,650.00) while
that of his house and lot in Quezon City amounted to
Seven Hundred Twenty Two Thousand Pesos
(P722,000.00) per the appraisal report dated September
20, 1990 of Cuervo Appraisers, Inc.33 That contention is
not well taken considering that:
1. The total of the principal amounts alone of
petitioner’s subject Promissory Notes Nos. 127/82
and 128/82 which are both overdue amounted to
Four Million One Hundred Eighty Seven Thousand
Nine Hundred Seventeen Pesos and Fifty Nine
Centavos (P 4,187,917.59).
 2. While the appraisal of Cuervo Appraisers, Inc.
was undertaken in September 1990, the
extrajudicial foreclosure of petitioner’s real estate
and chattel mortgages have been effected way
back on October 15, 1984, October 23, 1984 and
December 21, 1984.34 Common experience shows
that real estate values especially in Metro Manila
tend to go upward due to developments in the
locality.1âwphi1.nêt
3. In the public auction/foreclosure sales,
respondent PNB, as mortgagee, was not obliged to
bid more than its claims or more than the amount
of petitioner’s loan obligations which are all
overdue. The foreclosed real estate and chattel
mortgages which petitioner earlier executed are
accessory contracts covering the collaterals or
security of his loans with respondent PNB. The
principal contracts are the Promissory Notes Nos.
127/82 and 128/82 which superseded and
novated the 1979 promissory notes and the 1979
eleven (11) Applications and Agreements for
Commercial Letter of Credit.
Finally, the record shows that petitioner did not even
attempt to tender any redemption price to respondent
PNB, as highest bidder of the said foreclosed real estate
properties, during the one-year redemption period.
In view of all the foregoing, it is our view and we hold that
the extrajudicial foreclosure of petitioner’s real estate and
chattel mortgages was not premature and that it was in
fact legal and valid.
WHEREFORE, the petition is hereby DENIED. The
challenged Decision of the Court of Appeals in CA-G.R. CV
No. 38036 is AFFIRMED with modification that the
increase in the stipulated interest rates of 21% per annum
and 18% per annum appearing on Promissory Notes Nos.
127/82 and 128/82 respectively is hereby declared null
and void.
G.R. No. 131086 December 14, 2001
BPI EXPRESS CARD CORPORATION, petitioner,
vs.
EDDIE C. OLALIA, respondent.
QUISUMBING, J.:
This petition for review seeks to annul the decision1 of the
Court of Appeals in CA-G.R. CV No. 49618, reversing the
order2 of the Regional Trial Court, Branch 145, of Makati
City which held Eddie C. Olalia liable to BPI Express Card
Corporation (BECC) in the amount of P136,290.97. The
CA found only the amount of P13,883.27 to be due and
owing to BECC. Petitioner’s motion for reconsideration
was denied through a resolution,3 also before us on
review.
The factual antecedents of this case are as follows:
Petitioner operates a credit card system under the name
of BPI Express Card Corporation (BECC) through which it
extends credit accommodations to its cardholders for the
purchase of goods and other services from member
establishments of petitioner to be reimbursed later on by
the cardholder upon proper billing.
Respondent Eddie C. Olalia applied4 for and was granted
membership and credit accommodation with BECC. BECC
Card No. 020100-3-00-0281667 was issued in his name
with a credit limit of P5,000.
In January 1991, Olalia’s card expired and a renewal card
was issued. BECC also issued Card No. 020100-2-01-
0281667 in the name of Cristina G. Olalia, respondent’s
ex-wife. This second card was an extension of Olalia’s
credit card. BECC alleges that the extension card was
delivered and received by Olalia at the same time as the
renewal card. However, Olalia denies ever having applied
for, much less receiving, the extension card.
As evidenced by charge slips presented and identified in
court, it was found that the extension card in the name of
Cristina G. Olalia was used for purchases made from
March to April 1991, particularly in the province of Iloilo
and the City of Bacolod. Total unpaid charges from the
use of this card amounted to P101,844.54.1âwphi1.nêt
BECC sent a demand letter to Olalia, to which the latter
denied liability saying that said purchases were not made
under his own credit card and that he did not apply for
nor receive the extension card in the name of his wife. He
has likewise not used or allowed anybody in his family to
receive or use the extension card. Moreover, his wife,
from whom he was already divorced, left for the States in
1986 and has since resided there. In addition, neither he
nor Cristina was in Bacolod or Iloilo at the time the
questioned purchases were made. She was dropped as
defendant by the trial court, in an Order dated September
29, 1995.5
A case for collection was filed by BECC before the RTC but
Olalia only admits responsibility for the amount of
P13,883.27, representing purchases made under his own
credit card. After trial on the merits, a decision was
rendered as follows:
WHEREFORE, judgment is rendered ordering
defendant Eddie C. Olalia to pay plaintiff the sum
of Thirteen Thousand Eight Hundred Eighty-Three
Pesos and Twenty-seven Centavos (P13,883.27),
Philippine Currency with interest thereon at the
legal rate from June 18, 1991, until fully paid; and
to pay the costs.
SO ORDERED.6
From the aforesaid decision, a Motion for Reconsideration
was filed, alleging that Olalia should also be held liable for
the purchases arising from the use of the extension card
since he allegedly received the same, as evidenced by his
signature appearing in the Renewal Card
Acknowledgement Receipt7 and by the express provision
of paragraph 2 of the terms and conditions governing the
use and issuance of a BPI Express Card, making the
cardholder and his extension jointly and severally liable
for all purchases and availments made through the use of
the card.
On April 28, 1995, the Motion for Reconsideration was
granted and an Order was issued, stating:
Defendant Eddie C. Olalia has not filed any
reaction paper up to the present relative to
plaintiff’s MOTION FOR RECONSIDERATION dated
December 20, 1994.
Finding the allegations in said motion to be
meritorious, the same is hereby granted.
WHEREFORE, the dispositive portion of the
decision dated November 25, 1994, is
reconsidered and accordingly amended/corrected
to read as follows:
WHEREFORE, judgment is rendered
ordering defendant Eddie C. Olalia to pay
plaintiff the sum of One Hundred Thirty Six
Thousand Two Hundred Ninety Pesos and
Ninety-seven Centavos (P136,290.97)
Philippine Currency, as of October 27,
1991.
SO ORDERED.8
Olalia appealed to the Court of Appeals and was there
sustained in a decision dated November 28, 1996. The CA
ruled as follows:
THE FOREGOING CONSIDERED, the contested
Decision, while affirmed, is hereby modified by
limiting appellant’s liability only to P13,883.27, but
with interest at 3% per month in addition to
penalty fee of 3% of the amount due every month,
until full payment.9
BECC filed a Motion for Reconsideration but the CA denied
the same through a Resolution dated October 17, 1997.
Hence, this petition wherein BECC contends, as its lone
assignment of error,10 that the Court of Appeals erred in
limiting the liability of respondent to only P13,883.27
exclusive of interest and penalty fee notwithstanding
receipt and availment of the extension card.
More precisely, the issues are: 1) Whether or not an
extension card in the name of Cristina G. Olalia was
validly issued and in fact received by respondent Eddie C.
Olalia; and 2) Whether or not Eddie C. Olalia can be held
liable for the purchases made using the extension card.
We discuss the issues jointly.
Under stipulation No. 10 of the terms and conditions
governing the issuance and use of the BPI Express Credit
Card, the following is stated:
10. EXTENSIONS/SUPPLEMENTARY CARDS –
Extension of the CARD issued to the Cardholder
may be given to the latter’s spouse or
children upon payment of the necessary fee
thereof, and the submission of an application for
the purpose; and the use of such CARD, as well as
the extensions, thereof, shall be governed by this
Agreement, and secured by the Surety
Undertaking hereto. Any reference to the CARD
issued to the Cardholder hereafter shall also apply
to extensions and/or renewals. Should a CARD be
issued to the spouse/children of a Cardholder upon
the Cardholder’s request, the Cardholder shall be
responsible for all charges including all fees,
interest and other charges made through the
CARD. In the event of separation, legal or
otherwise, the Cardholder shall continue to be
responsible for all such charges to be made
through the extension CARD unless Cardholder
request in writing that the privileges of such
extension Cardholder under this Agreement be
terminated, provided all charges incurred shall
have been fully paid and satisfied. (Emphasis
ours)11
From the foregoing stipulation, it is clear that there are
two requirements before an extension/supplementary
card is issued. They are: 1) payment of the necessary fee,
and 2) submission of an application for the purpose. None
of these requirements were shown to have been complied
with by Olalia. Both the trial and appellate courts have
found that in Olalia’s applications for the original as well
as the renewal card, he never applied for an extension
card in the name of his wife. BECC also failed to show any
receipt for any fee given in payment for the purpose of
securing an extension card.
BECC supports its allegation that Eddie C. Olalia received
the extension card in the name of his wife, by presenting
the Renewal Card Acknowledgement Receipt wherein
Olalia affixed his signature. Such will not suffice to prove
to this Court that the requirements for the issuance of the
extension card have been complied with, especially in the
face of respondent’s firm denial.
We have previously held that contracts of this nature are
contracts of adhesion, so-called because their terms are
prepared by only one party while the other merely affixes
his signature signifying his adhesion thereto. 12 As such,
their terms are construed strictly against the party who
drafted it.13 In this case, it was BECC who made the
foregoing stipulation, thus, they are now tasked to show
vigilance for its compliance.
BECC failed to explain who a card was issued without
accomplishment of the requirements. Moreover, BECC did
not even secure the specimen signature of the purported
extension cardholder, such that it cannot now counter
Eddie C. Olalia’s contention that the signatures appearing
on the charge slips of the questioned transactions were
not that of his former wife, Cristina G. Olalia.
We note too that respondent Eddie C. Olalia did not
indicate nor declare that he had a spouse when he applied
for a credit card with BECC. In fact, at the time the
extension card was issued and allegedly received by
respondent, Cristina had long left the Philippines.
BECC’s negligence absolves respondent Olalia from
liability.
In sum, we agree with the Court of Appeals that
respondent Olalia should not be held liable for the
purchases made under the so-called extension card
irregularly issued by petitioner and used for purchases
made by an unauthorized party for whose actions the
respondent could not be legally made answerable. This
being the case, respondent Olalia could only be held liable
for P13,883.27 representing purchases made under his
own credit card, exclusive of interest and penalty thereon,
if any.1âwphi1.nêt
WHEREFORE, the instant petition is DENIED, and the
decision of the Court of Appeals is hereby AFFIRMED.
G.R. No. 130982 September 16, 2005
SPOUSES DOMINGO and LOURDES PAGUYO, Petitioners,
vs.
Pierre astorga and St. Andrew Realty, Inc., Respondent.
DECISION
CHICO-NAZARIO, J.:
. . . Men may do foolish things, make ridiculous contracts,
use miserable judgment, and lose money by them –
indeed, all they have in the world; but not for that alone
can the law intervene and restore. There must be, in
addition, a violation of the law, the commission of what
the law knows as an actionable wrong, before the courts
are authorized to lay hold of the situation and remedy it. 1
The case at bar demonstrates a long drawn-out litigation
between parties who already entered into a valid contract
that has subsisted for almost twenty (20) years but one
of them later balks from being bound by it, alleging fraud,
gross inadequacy of consideration, mistake, and undue
influence.
This is a petition for review on certiorari where petitioner
Spouses Domingo and Lourdes Paguyo seek the reversal
of the Decision2 and the Resolution,3 dated 30 April 1997
and 12 September 1997, respectively, of the Court of
Appeals in CA-G.R. CV No. 47034, affirming in toto the
Decision4 dated 21 April 1994 of the Regional Trial Court
(RTC), Branch 142 of Makati City.
The Antecedents
The undisputed facts, per summary of the Court of
Appeals, follow.
Herein petitioners, Spouses Domingo Paguyo and Lourdes
Paguyo, were the owners of a small five-storey building
known as the Paguyo Building located at Makati Avenue,
corner Valdez Street, Makati City. With one (1) unit per
floor, the building has an average area of 100 square
meters per floor and is constructed on a land belonging to
the Armas family.5
This lot on which the Paguyo Building stands was the
subject of Civil Case No. 5715 entitled, Armas, et al., v.
Paguyo, et al., wherein the RTC of Makati City, Branch 57,
rendered a decision on 20 January 1988 approving a
Compromise Agreement made between the Armases and
the petitioners. The compromise agreement provided that
in consideration of the total sum of One Million Seven
Hundred Thousand Pesos (₱1,700,000.00), the Armases
committed to execute in favor of petitioners a deed of sale
and/or conveyance assigning and transferring unto said
petitioners all their rights and interests over the parcel of
land containing an area of 299 square meters.6
In order for the petitioners to complete their title and
ownership over the lot in question, there was an urgent
need to make complete payment to the Armases, which
at that time stood at ₱917,470.00 considering that
petitioners had previously made partial payments to the
Armases.
On 29 November 1988, in order to raise the much needed
amount, petitioner Lourdes Paguyo entered into an
agreement captioned as Receipt of Earnest Money with
respondent Pierre Astorga, for the sale of the former’s
property consisting of the lot which was to be purchased
from the Armases, together with the improvements
thereon, particularly, the existing building known as the
Paguyo Building, under the following terms and conditions
as stated in the document, to wit:
RECEIVED from MR. PIERRE M. ASTORGA the sum of
FIFTY THOUSAND (₱50,000.00) PESOS (U.C.P.B.
Manager’s Check No. 013085 dated November 29, 1988)
as earnest money for the sale of our property consisting
of a parcel of land designated as Lot 12 located at Makati
Avenue, Makati, Metro Manila, covered by and described
in T.C.T. No. 154806 together with the improvements
thereon particularly the existing building known as the
Paguyo Bldg. under the following terms and conditions:
1. The earnest money (Exh. "D") shall be good for fifteen
(15) days from date of this document during which period
the owner is bound to sell the property to the buyer;
2. Should the buyer decide not to buy the subject
property within the earnest/option period, the seller has
the right to forfeit Fifteen Thousand (₱15,000.00) pesos,
and return the difference to the buyer;
3. The agreed total purchase price is seven million
(₱7,000,000.00) pesos Philippine Currency;
4. Within fifteen (15) days from execution of this
document, the buyer shall pay Fifty (50%) percent of the
total purchase price less the aforesaid earnest money,
upon payment of which the following documents shall be
executed or caused to be executed as the case may be,
namely:
a. Deed of Absolute Sale of the Paguyo Bldg., in favor of
the buyer.
b. Deed of Absolute Sale to be executed by the Armases
who still appear as the registered owners of the lot in
favor of the buyer.
c. Deed of Real Estate Mortgage of the same subject lot
and Bldg. to secure the 50% balance of the total purchase
price to be executed by the buyer in favor of the herein
seller.
5. The Deed of Real Estate Mortgage shall contain the
following provisions, namely:
a. payment of the 50% balance of the purchase price shall
be payable within fifteen (15) days from actual vacating
of the Armases from the subject lot.
b. During the period commencing from the execution of
the documents mentioned under paragraph 4 (which
should be done simultaneously) the buyer is entitled to
one-half (1/2) of the rental due and actually received
from the tenants of the Paguyo Bldg. plus the use of the
penthouse while the seller shall retain possession and use
of the basement free of rent until the balance of the
purchase price is fully paid in accordance with the herein
terms and conditions. The one-half (1/2) of the tenants’
deposits shall be credited in favor of the buyer. 7
However, contrary to their express representation with
respect to the subject lot, petitioners failed to comply with
their obligation to acquire the lot from the Armas family
despite the full financial support of respondents.
Nevertheless, the parties maintained their business
relationship under the terms and conditions of the above-
mentioned Receipt of Earnest Money.8
On 12 December 1988, petitioners asked for and were
given by respondents an additional ₱50,000.00 to meet
the former’s urgent need for money in connection with
their construction business. Due also to the urgent
necessity of obtaining money to finance their construction
business, petitioner Lourdes Paguyo, who was also the
attorney-in-fact of her husband, proposed to the
respondents the separate sale of the building in question
while she continued to work on the acquisition of the lot
from the Armas family, assuring the respondents that she
would succeed in doing so.9
Aware of the risk of buying an improvement on the lot of
a third party who appeared ambivalent on whether to
dispose their property in favor of the respondents,
respondents took a big business gamble and, relying on
the assurance of petitioners that they would eventually
acquire the lot and transfer the same to respondents in
accordance with their undertaking in the Receipt of
Earnest Money, respondents agreed to petitioner Lourdes
Paguyo’s proposal to buy the building first. Thus, on 5
January 1989, the parties executed the four documents
in question namely, the Deed of Absolute Sale of the
Paguyo Building, the Mutual Undertaking, the Deed of
Real Estate Mortgage, and the Deed of Assignment of
Rights and Interest.10 Simultaneously with the signing of
the four documents, respondents paid petitioners the
additional amount of ₱500,000.00.11 Thereafter, the
respondents renamed the Paguyo Building into GINZA
Bldg. and registered the same in the name of respondent
St. Andrew Realty, Inc. at the Makati Assessor’s Office
after paying accrued real estate taxes in the total amount
of ₱169,174.95. Since 1990, respondents paid the real
estate taxes on subject building as registered owners
thereof. Further, respondents obtained fire insurance and
applied for the conversion of Paguyo Building into a
condominium. All of these acts of ownership exercised by
respondents over the building were with the express
knowledge and consent of the petitioners.12
Pursuant to their agreement contained in the aforecited
documents, particularly in the Mutual
Undertaking,13 respondent company filed an ejectment
case and obtained a favorable decision against petitioners
in the Metropolitan Trial Court (MeTC) of Makati in Civil
Case No. 40050. The case reached this Court which
affirmed the decision of the MeTC in favor of respondent
company. This decision had already been executed and
the respondent company is now in possession of the
building. Accordingly, respondents continued to exercise
acts of full ownership, possession and use over the
building.14
On 06 October 1989, petitioners filed a Complaint for the
rescission of the Receipt of Earnest Money15 with the
undertaking to return the sum of ₱763,890.50. They also
sought the rescission of the Deed of Real Estate
Mortgage,16 the Mutual Undertaking, the Deed of
Absolute Sale of Building,17 and the Deed of
Assignment of Rights and Interest.18
In their complaint, petitioners alleged that respondents
Astorga and St. Andrew Realty, Inc., led them to believe
that they would advance the ₱917,470.00, which was
needed by petitioners to complete payment with the
Armases, with the understanding that said amount would
simply be deducted from the ₱7 Million total consideration
due them for the sale of the lot and the building as agreed
upon in their Receipt of Earnest Money. The same,
however, did not materialize because instead of making
available the check for the said amount, respondents did
not produce the amount and even ordered the "stop
payment" of the same before it could be deposited in
court.19
Respondents, in their Answer, however, interjected that
as gleaned from the Receipt of Earnest Money,
the Mutual Undertaking, the Deed of Assignment of
Rights and Interest, their original intention was to
purchase the Paguyo Building and the lot on which it
stands simultaneously. Respondents interposed that at
the time the decision on the compromise agreement
between petitioners and Armases was rendered,
petitioners were badly in need of money because they
were financing their construction business and, with the
balance payable to the Armases, the former were in a huff
to produce an amount sufficient to cover both
transactions. Thus, petitioners prevailed upon
respondents to purchase the Paguyo Building first with
the lot to follow after petitioners have successfully
acquired it from the Armas family.
Respondents, likewise, stated in their Answer that
sometime in July of 1989, petitioners asked respondent
corporation to execute a check in the amount of
₱917,470.0020 for the final execution of the Deed of
Conveyance of the lot, saying that they were finally able
to negotiate the purchase of the lot owned by the
Armases. To settle the transaction, respondent
corporation again complied. After investigation, however,
respondents learned that petitioners were not in the
position to deliver the land, all the rights and interest
thereof having allegedly been transferred already to
spouses Rodolfo and Aurora Bacani. They were able to
confirm this after obtaining a copy of a letter dated 22
September 1989 of petitioners’ counsel (same counsel
representing them presently) to the Register of Deeds of
Makati a month prior to the filing of the instant case. The
letter stated:
Ms. Mila Flores
Register of Deeds
Makati, Metro Manila
Dear Ms. Flores:
We represent the spouses Rodolfo and Aurora Bacani,
who happen to be the assignees of all the rights and
interests that the couple Domingo and Lourdes Paguyo
have over that parcel of land located along Makati
Avenue, the particulars and description of which are
indicated on TCT No. 154806 which, for reasons we
perceive to be not legitimate, was cancelled.
...
(SGD.) HECTOR B. ALMEYDA
For the Firm21
(Emphasis supplied.)
Respondents further explained in their Answer that
because of this development, they were constrained to
order "stop payment" of the ₱917,470.00 check, which
was duly communicated to petitioners in a letter dated 14
July 1989, to wit:
I am very sorry to inform you that I have to stop payment
on Philtrust Check No. 006759 because I was just reliably
informed that you are no longer in a position to deliver
the lot subject of our agreement. While the financier had
already advanced half million pesos which was already
placed in my account, I discouraged her from putting
another million pesos to cover my check with you. I
therefore find myself with no alternative but to order stop
payment on my check to protect my rights and
interests.22
The Ruling of the Trial Court
After trial, the RTC ruled in favor of respondents in a
Decision23 dated 21 April 1994, the dispositive portion of
which reads:
Judgment is hereby rendered dismissing the complaint for
lack of cause of action, the petition for preliminary
injunction is hereby denied, judgment is rendered in favor
of the defendants and ordering the plaintiff spouses
Domingo and Lourdes Paguyo to pay the defendants
Pierre Astorga and St. Andrew Realty, Inc. on their
counterclaim.
1. P400,000.00 for moral damages;
2. P200,000.00 as exemplary damages;
3. P100,00.00 for attorney’s fees and litigation expenses
and pay the cost of suit.24
The Ruling of the Court of Appeals
On appeal, the Court of Appeals promulgated its
Decision25 dated 30 April 1997 in CA-G.R. CV No. 47034
affirming the decision of the trial court, the dispositive
portion of which reads as follows:
WHEREFORE, We find the lower court’s decision in full
accord with the facts and the law. Judgment is hereby
rendered affirming the assailed decision dated April 21,
1994 in toto.26
Aggrieved by the ruling, petitioners elevated the matter
to us via the instant petition, contending that the Court of
Appeals erred:
1. In concluding that the supposed acts of ownership and
possession of respondents preclude petitioners from
seeking rescission and declaration of nullity of documents
signed and executed under mistaken premises that were
not all true and accurate;
2. IN FAILING to find that fraud, mistake and undue
influence had been exerted on petitioner Lourdes Paguyo
to make her a party to the assailed documents;
3. In reading the documents involved without regard to
the contemporaneous acts of the parties prior, during and
immediately after the signing process;
4. In affirming the dismissal of the complaint; and
5. In awarding damages and attorney’s fees in favor of
the respondents.27
The questions the Court is now tasked to answer are: (1)
Did the Court of Appeals err in upholding the trial court’s
decision denying petitioners’ complaint for rescission? (2)
Was the award of damages and attorney’s fees to
respondents proper?
On the first issue, petitioners claim that the 05 January
1989 documents, particularly the Deed of Absolute Sale
of Building, Mutual Undertaking, Real Estate Mortgage,
and Assignment of Rights and Interests read together
with the 29 November 1988 Receipt of Earnest Money,
were all designed, per the respondents’ representations,
to secure their exposure in the total sum of ₱763,890.50
which constituted their outlay in the projected purchase
of the Paguyo lot and building.
Respondents dispute petitioners' line of reasoning. They
say that the Deed of Absolute Sale over the building was
absolute and unconditional.
Our Ruling
Petitioners’ contentions lack merit.
The right to rescind a contract involving reciprocal
obligations is provided for in Article 1191 of the Civil Code.
Article 1191 states: M
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 law speaks of the right of the "injured party" to
choose between rescission or fulfillment of the obligation,
with the payment of damages in either case.28
Here, petitioners claim to be the injured party and
consequently seek the rescission of the Deed of Absolute
Sale of the Building and the other documents in question.
Petitioners aver that they are entitled to cancel the Deed
of Sale altogether in view of fraud, gross inadequacy of
price, mistake, and undue influence.
To boost their claim that the Deed of Absolute Sale was
intended merely to document the cash outlays of
respondents, petitioners say that the ₱600,000.00
consideration as contained in the Deed of Absolute Sale
of the 5-storey Paguyo building is a far cry from the ₱3
Million valuation attached to it by respondent Astorga
himself and the building’s fair market value of
₱2,848,000.00 assessed by the Cuervo Appraisers, Inc.
We find no such inadequacy of consideration in the case
at bar. For one, on top of the ₱600,000.00 which
petitioners received, respondents had to shoulder the
accrued real estate taxes of ₱169,174.95. For another,
respondent Pierre Astorga explained that said price was
what St. Andrew Realty, Inc., believed as value for their
money inasmuch as the building stands on the lot owned
by another and there were separate owners of the land,
who appear reluctant to sell it. For a third, said amount
was arrived at considering the depreciated value of the
building and in view of the economic and political
uncertainties in the country at that time, marked by a
series of coup d’etat, which caused real estate prices to
plummet. Respondent Astorga was explicit on this score
– expert realtor?
ATTY. JOSE
Q: There was statement here by Mrs. Paguyo that this
document entitled the deed of absolute sale of a building
marked Exhibit "9" was not expressive of the intention of
the parties meaning to say that she did not intend to sell
the said building and one of the reasons she tried to raise
was the fact that the building was only sold for
P500,000.00, what can you say to that?
A: Well, the P500,000.00 amount that she would want to
impress to be an inadequate amount is what we in St.
Andrew’s end believed as value for money for the
reason that the building stands on the lot she does
not own and there were separate owners and
apparent conflict between them even the seeming
impossibility of getting the lot …
Q: By the way, before the plaintiffs decided to dispose the
building or sell the building by virtue of this deed of sale
marked Exhibit "98" was your company ever interested in
acquiring the said building?
A: The building alone, no. In fact, on December 21 when
we had the problem as to acquiring the lot, we did not
part with any payment to Mrs. Paguyo demonstrating that
we had really and truly intended a simultaneous buy of
the building and the lot to acquire the property
simultaneously the building and as well as the lot.
Q: Now, you mentioned that you are a realtor, I will ask
you the same question, which Atty. Almeyda asked me
when I was on the witness stand, as a realtor will you
please tell the court what would be your appraisal of the
value of the building?
ATTY. COLOMA
- Objection, your Honor. May we know if the witness is
going to express an opinion or is he testifying now as an
COURT
- As an opinion but it would not bind the Court.
WITNESS
- I can explain to you.
ATTY. JOSE
- Yes, please explain.
WITNESS
A: Okay, appraisal can take many forms if its appraised
value based on the construction cost it could be different
from appraising per se the building. That is now existing
in that address also appraisal will depend on where the
building is and there is only one owner of the building and
the lot. As the case here is, the building in a manner of
speaking stands on thin air. That is so including
depreciation and timing that we were doing in this
transaction which was 1989, my appraisal will be in the
range of a Million may be.
Q: You made mentioned the word timing in 1989, why did
you mention that?
A: Well, ‘89 was not the best real estate year. In fact, we
have a boom in 1988 but prices were already deep during
this year such that it is in 1988 when it could have been
another price. But this transaction happened or entered
into in 1989, there were no interested buyers during that
time, sir.
Q: Why?
A: coup de etat was one, and many other issue on hand
that causes value to take deep.
Q: You mentioned that word depreciation, will you please
explain to us what that depreciation has got to do with
that building?
A: In appraisal terms the building is in an economic line
in every year of which a certain value is allocated as
depreciation for wear and tear for breakdowns and all that
is depreciation. This is deductible from the amount of the
building (sic).
Q: Before you went into this agreement with the plaintiff
Paguyo have you inspected the building?
A: Yes, sir. Thoroughly, sir.
Q: Will you please explain to the court the size of the
building and the description of the building?
A: That building is five (5) storey it has only one (1) unit
per floor, sir. There is a narrow stairway that leads up to
the penthouse. It is, I would say, in an advance
deteriorating stage, it needed some renovations here and
there.29 (Emphasis supplied.)
Moreover, Articles 1355 and 1470 of the Civil Code state:
Art. 1355. Except in cases specified by law, lesion or
inadequacy of cause shall not invalidate a
contract, unless there has been fraud, mistake or undue
influence. (Emphasis supplied)
Art. 1470. Gross inadequacy of price does not affect
a contract of sale, except as may indicate a defect in
the consent, or that the parties really intended a donation
or some other act or contract. (Emphasis supplied)
Petitioners herein failed to prove any of the instances
mentioned in Articles 1355 and 1470 of the Civil Code,
which would invalidate, or even affect, the Deed of Sale
of the Building and the related documents. Indeed, there
is no requirement that the price be equal to the exact
value of the subject matter of sale.30
In Sps. Buenaventura v. Court of Appeals,31 the Court
was unequivocal:
Courts cannot follow one every step of his life and
extricate him from bad bargains, protect him from unwise
investments, relieve him from one-sided contracts, or
annul the effects of foolish acts. Courts cannot constitute
themselves guardians of persons who are not legally
incompetent. Courts operate not because one person has
been defeated or overcome by another, but because he
has been defeated or overcome illegally. Men may do
foolish things, make ridiculous contracts, use miserable
judgment, and lose money by them – indeed, all they
have in the world; but not for that alone can the law
intervene and restore. There must be, in addition,
a violation of the law, the commission of what the law
knows as an actionable wrong, before the courts are
authorized to lay hold of the situation and remedy it.
(Emphases in the original)
What is more, petitioners would wish to convince this
Court that petitioner Lourdes Paguyo was naïve enough
to accept at face value the assurance of respondent
Astorga that the Deed of Sale was merely to document
respondents’ cash outlay.
Far from being the naïve and easy to fleece lady that she
wants this Court to perceive her to be, evidence on record
reveals that petitioner Lourdes Paguyo is in reality an
astute businesswoman, having insured that legal minds
would be available at her disposal at the time she entered
into the transactions she now impugns. As she herself
admitted in her testimony before the trial court, during
her receipt of the earnest money and during the
transactions subject of the instant case, her lawyers, one
Atty. Lalin and a certain Atty. Cariño, assisted her. She
testified as follows:
ATTY. JOSE
Wait, wait, your Honor. I have one question. Now, madam
witness, you mentioned that you were accompanied by a
certain Atty. Molina when you executed the receipt of the
earnest money with me. Now, during the transaction of
this subject matter, you will also recall that at times you
were represented in dealing with me as counsel for
defendant corporation by Atty. Lalin and Atty. Carino?
A Yes, sir.32
Neither does the fact that the subject contracts have been
prepared by respondents ipso facto entail that their
validity and legality be strictly interpreted against them.
Petitioner Lourdes Paguyo’s insinuation that she was
disadvantaged will not hold. True, Article 24 of the New
Civil Code provides that "(i)n all contractual, property or
other relations, when one of the parties is at a
disadvantage on account of his moral dependence,
ignorance, indigence, mental weakness, tender age or
other handicap, the courts must be vigilant for his
protection."33 Thus, the validity and/or enforceability of
the impugned contracts will have to be determined by the
peculiar circumstances obtaining in each case and the
situation of the parties concerned.
Here, petitioner Lourdes Paguyo, being not only cultured
but a person with great business acumen as well, cannot
claim to be the weaker or disadvantaged party in the
subject contract so as to call for a strict interpretation
against respondents. More importantly, the parties herein
went through a series of negotiations before the
documents were signed and executed.34
Further, we find the stipulations in the subject documents
plain and unambiguous. For instance, the Deed of Sale
provides in no uncertain terms-
WHEREAS, the VENDOR is the true and absolute owner,
free from any lien or encumbrance, of a concrete building
presently known as the Paguyo Building, constructed on
Lot 12, Blk. 4 (described in T.C.T No. 154806-Makati)
located at No. 7856 Makati Ave. corner Valdez St., Makati,
Metro Manila, covered by and described in Tax Declaration
No. 93762 for the year 1984, and more particularly
described as follows:
… ₱200,000 as exemplary damages, ₱100,000 as attorney’s
WHEREAS, the VENDOR is desirous of selling and the
VENDEE is willing to buy the aforedescribed building;
NOW THEREFORE, for and in consideration of the
foregoing premises and of the sum of SIX HUNDRED
THOUSAND (P600,000.00) PESOS, Philippine currency,
the receipt of which is hereby acknowledged, the VENDOR
hereby cedes, transfers, and conveys, by way of absolute
sale, unto and in favor of the VENDEE, his successors and
assigns, the aforementioned building with all the
improvements therein.
The Municipal Assessor of Makati is therefore hereby
authorized to register this sale in the new Tax Declaration
in the name of the VENDEE.
IN WITNESS WHEREOF, the VENDOR hereby affixed his
signature by his wife and attorney-in-fact, LOURDES S.
Paguyo, this 5th day of January, 1989, in Pasay City.35
Inasmuch as the stipulations in the aforesaid contract and
in the other contracts being questioned leave no room for
interpretation, there was no cause for applying Article 24
of the New Civil Code.
In sum, in the case at bar, petitioners pray for rescission
of the Deed of Sale of the building and offer to repay the
purchase price after their liquidity position would have
improved and after respondents would have refurbished
the building, updated the real property taxes, and turned
the building into a profitable business venture. This Court,
however, will not allow itself to be an instrument to the
dissolution of contract validly entered into. A party should
not, after its opportunity to enjoy the benefits of an
agreement, be allowed to later disown the arrangement
when the terms thereof ultimately would prove to operate
against its hopeful expectations.36
On the matter of damages, the Court of Appeals affirmed
the trial court’s award of damages and attorney’s fees to
respondents, namely ₱400,000 as moral damages,
fees and the costs of suit.
We have held that moral damages may be recovered in
cases where one willfully causes injury to property, or in
cases of breach of contract where the other party acts
fraudulently or in bad faith.37 There is no hard and fast
rule in the determination of what would be a fair amount
of moral damages, since each case must be governed by
its own peculiar circumstances.38 Exemplary damages, on
the other hand, are imposed by way of example or
correction for the public good, when the party to a
contract acts in a wanton, fraudulent, oppressive or
malevolent manner.39 Attorney’s fees are allowed when
exemplary damages are awarded and when the party to
a suit is compelled to incur expenses to protect his
interest.40
While it has been sufficiently proven that the respondents
are entitled to damages, the actual amounts awarded by
the lower court must be reduced because damages are
not intended for a litigant’s enrichment, at the expense of
the petitioners.41 Judicial discretion granted to the courts
in the assessment of damages must always be exercised
with balanced restraint and measured objectivity.42
Thus, the amount of moral damages should be set at only
₱30,000.00, and the award of exemplary damages at only
₱20,000.00. The award of attorney’s fees should also be
reduced to ₱20,000.00 which, under the circumstances of
this case, appears justified and reasonable.
All told, we find no reason to reverse the assailed decision
of respondent court. The factual findings of the appellate
court are conclusive on the parties and carry greater
weight when they coincide with the factual findings of the
trial court.43 This Court will not weigh the evidence anew
lest there is a showing that the findings of the lower court
are totally devoid of support or are clearly erroneous so
as to constitute serious abuse of discretion. In the instant
case, the trial court found that the documents, which
petitioners seek to rescind, were entered into as a result
of an arms-length transaction. These are factual findings
that are now conclusive upon us.44
WHEREFORE, the Decision and the Resolution dated 30
April 1997 and 12 September 1997, respectively, of the
Court of Appeals in CA-G.R. CV No. 47034, are hereby
AFFIRMED with MODIFICATION as to the amount of
damages and attorney’s fees recoverable, as follows: (1)
moral
damages is reduced to ₱30,000.00, (2) exemplary
damages is reduced to ₱20,000.00, and (3) attorney’s
fees is reduced to ₱20,000.00. Costs against petitioners.
G.R. No. 149252. April 28, 2005
DONALD KWOK, Petitioners,
vs.
PHILIPPINE CARPET MANUFACTURING
CORPORATION, Respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review of the Decision 1 of the Court
of Appeals (CA) in CA-G.R. SP No. 60232 dismissing
Donald Kwok’s petition for review on certiorari and
affirming the majority Decision of the National Labor
Relations Commission (NLRC), as well as its resolution in
NLRC NCR Case No. 00-12-07454-96 dismissing the
motion for reconsideration of the said decision.
The Antecedents
In 1965, petitioner Donald Kwok and his father-in-law
Patricio L. Lim, along with some other stockholders,
established a corporation, the respondent Philippine
Carpet Manufacturing Corporation (PCMC). The petitioner
became its general manager, executive vice-president
and chief operations officer. Lim, on the other hand, was
its president and chairman of the board of directors. When
the petitioner retired 36 years later or on October 31,
1996, he was receiving a monthly salary of
₱160,000.00.2 He demanded the cash equivalent of what
he believed to be his accumulated vacation and sick leave
credits during the entire length of his service with the
respondent corporation, i.e., from November 16, 1965 to
October 31, 1996, in the total amount of ₱7,080,546.00
plus interest.3 However, the respondent corporation
refused to accede to the petitioner’s demands, claiming
that the latter was not entitled thereto.4
The petitioner filed a complaint against the respondent
corporation for the payment of his accumulated vacation
and sick leave credits before the NLRC. He claimed that
Lim made a verbal promise to give him unlimited sick
leave and vacation leave benefits and its cash conversion
upon his retirement or resignation without the need for
any application therefor. In addition, Lim also promised
to grant him other benefits, such as golf and country club
membership; the privilege to charge the respondent
corporation’s account; 6% profit-sharing in the net
income of the respondent corporation (while Lim got 4%);
and other corporate perquisites. According to the
petitioner, all of these promises were complied with,
except for the grant of the cash equivalent of his
accumulated vacation and sick leave credits upon his
retirement.5
The respondent corporation denied all these, claiming
that upon the petitioner’s retirement, he received the
amount of ₱6,902,387.19 representing all the benefits
due him. Despite this, the petitioner again demanded
₱7,080,546.00, which demand was without factual and
legal basis. The respondent corporation asserted that the
chairman of its board of directors and its president/vice-
president had unlimited discretion in the use of their time,
and had never been required to file applications for
vacation and sick leaves; as such, the said officers were
not entitled to vacation and sick leave benefits. The
respondent corporation, likewise, pointed out that even if
the petitioner was entitled to the said additional benefits,
his claim had already prescribed. It further averred that
it had no policy to grant vacation and sick leave credits to
the petitioner.6
In his Affidavit7 dated May 19, 1998, Lim denied making
any such verbal promise to his son-in-law on the grant of
unlimited vacation and sick leave credits and the cash
conversion thereof. Lim averred that the petitioner had
received vacation and sick leave benefits from 1994 to
1996. Moreover, assuming that he did make such promise
to the petitioner, the same had not been confirmed or
approved via resolution of the respondent corporation’s
board of directors.
It was further pointed out that as per the Memorandum
dated November 6, 1981, only regular employees and
managerial and confidential employees falling under
Category I were entitled to vacation and sick leave
credits. The petitioner, whose position did not fall under
Category I, was, thus, not entitled to the benefits under
the said memorandum. The respondent corporation
alleged that this was admitted by the petitioner himself
and affirmed by Raoul Rodrigo, its incumbent executive
vice-president and general manager.
In a Decision8 dated November 27, 1998, the Labor
Arbiter ruled in favor of the petitioner. The fallo of the
decision reads:
WHEREFORE, all the foregoing premises being
considered, judgment is hereby rendered ordering the
respondent company to pay complainant the sum of
₱7,080,546.00, plus ten percent (10%) thereof as and for
attorney’s fees.
SO ORDERED.9
Undaunted, the respondent corporation appealed the
decision to the NLRC, alleging that:
I. THE LABOR ARBITER ERRED IN CONCLUDING THAT
KWOK WAS COVERED BY THE NOVEMBER 6, 1981
MEMORANDUM ON VACATION AND SICK LEAVE
CREDITS.10
II. THE LABOR ARBITER ERRED IN CONCLUDING THAT IT
WAS DISCRIMINATORY NOT TO GRANT KWOK THESE
BENEFITS.11
III. KWOK’S CLAIMS ARE BASELESS.12
IV. KWOK’S CLAIMS FOR BENEFITS ACCRUING FROM
1966 ARE BARRED BY PRESCRIPTION.13
V. THERE IS NO BASIS FOR THE AWARD OF
₱7,080,546.00.14
The respondent corporation averred that based on the
petitioner’s memorandum, his admissions and the
contract of employment, the petitioner was not entitled to
the cash conversion of his sick and vacation leave credits.
While the respondent corporation conceded that the
petitioner may have been entitled to unlimited sick and
vacation leave benefits during his employment, it
maintained that no such promise was made by Lim to
convert the same; even assuming that such verbal
promise was made, the respondent corporation was not
bound thereby since the petitioner failed to adduce the
written conformity of its board of directors. The
respondent corporation insisted that the claims of the
petitioner were barred under Article 291 of the Labor
Code.
For his part, the petitioner made the following averments
in his memorandum:
The non-performance by PCMC of this particular promise
to convert in cash all of his unused cash (sic) and sick
leave credits was precipitated by the falling out of the
marriage between Mr. Kwok and his wife, the daughter of
Mr. Lim. In fact, even while Mr. Kwok was still the
Executive Vice-President and General Manager of PCMC,
when the falling out of the said marriage became
apparent, the other benefits or perquisites which Mr.
Kwok used to enjoy were immediately curtailed by Mr.
Lim to the prejudice of Mr. Kwok.15
On November 29, 1999, the NLRC, by majority vote,
rendered judgment granting the appeal, reversing and
setting aside the decision of the Labor Arbiter.16 The NLRC
ordered the dismissal of the complaint. Commissioner
Angelita A. Gacutan filed a dissenting opinion.17
Aggrieved, the petitioner filed a petition for review with
the CA, on the following grounds:
I THE COMMISSION ACTED WITHOUT OR IN EXCESS OF
THE COMMISSION ACTED WITHOUT OR IN EXCESS OF
ITS JURISDICTION OR WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WHEN IT DECLARED THAT THE VERBAL
PROMISE OF MR. LIM TO PETITIONER WAS
UNENFORCEABLE.
II
THE COMMISSION ACTED WITHOUT OR IN EXCESS OF
ITS JURISDICTION OR WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WHEN IT RULED THAT THE VERBAL
PROMISE BY MR. LIM TO PETITIONER WAS NOT BINDING
AS IT WAS NOT APPROVED BY THE BOARD OF
DIRECTORS.
III
THE COMMISSION ACTED WITHOUT OR IN EXCESS OF
ITS JURISDICTION OR WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WHEN IT IGNORED STRONG EVIDENCE
THAT PCMC CLOTHED MR. LIM WITH AWESOME POWERS
TO GRANT BENEFITS TO ITS EMPLOYEES INCLUDING
PETITIONER AND RATIFIED THE SAME BY ITS SILENCE
AND WHEN IT IGNORED TOO EXISTING JURISPRUDENCE
ON THE MATTER.
IV
THE COMMISSION ACTED WITHOUT OR IN EXCESS OF
ITS JURISDICTION OR WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WHEN IT IGNORED STRONG AND CLEAR
EVIDENCE THAT IN PCMC THE GIVING OF BENEFITS TO
PETITIONER, THOUGH NOT IN WRITING, WAS A
PREVALENT PRACTICE.
V
ITS JURISDICTION OR WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WHEN IT RULED THAT THE MEMORANDUM
DATED APRIL 26, 1997 APPLICABLE TO MR. RAOUL
RODRIGO WAS ALSO APPLICABLE TO PETITIONER.18
On February 28, 2001, the CA rendered judgment
affirming the decision of the NLRC and dismissing the
petition.19 The petitioner’s motion for reconsideration
thereof was denied by the appellate court, per its
Resolution20 dated July 17, 2001.
The petitioner, thus, filed the instant petition for review
on certiorari with this Court, assailing the decision and
resolution of the CA on the following claims:
I
The Hon. Court of Appeals, contrary to law, gravely erred
and disregarded established jurisprudence in ruling that
petitioner has not adduced sufficient evidence to support
his claim that he was, indeed, promised the cash
conversion of his unused vacation and sick leave credits
upon retirement.21
II
The Hon. Court of Appeals gravely erred in ruling that
even if private respondent’s (sic) Mr. Lim did make him
such promise, the same cannot be enforced.22
III
The Hon. Court of Appeals gravely erred and disregarded
clear jurisprudence on the matter when it ruled that there
is no showing that private respondent, thru its board of
directors either recognized, approved or ratified the
promise made by Mr. Lim to petitioner.23
As gleaned from his Memorandum, the petitioner posits
that he had adduced substantial evidence to prove that
Lim, as president and chairman of the respondent
corporation’s board of directors, made a verbal promise
to give him the cash conversion of his accumulated
vacation and sick leave credits upon his retirement (that
is, benefits at par with the number of days to which the
officer next in rank to him was entitled). According to the
petitioner, his claim is fortified by the fact that his
successor, Raoul Rodrigo, has unlimited vacation and sick
leave credits. The petitioner further asserts that he would
not have accepted the positions in the respondent
corporation without such benefit, especially since his
subordinates were also enjoying the same. He posits that
he was entitled to the said privilege because of his rank.
He, likewise, claims that, in contrast to the evidence he
has presented, the respondent corporation failed to
adduce proof of its affirmative allegations.
The petitioner further argues that his complaint was not
time-barred since he filed it on December 5, 1996. Even
if this were so, he is, nevertheless, entitled to the cash
value of his vacation and sick leave credits for three years
before his retirement. Moreover, the evidence on record
shows that officers belonging to Category I had been
granted the cash conversion of their earned leave credits
after the lapse of three years.
The respondent corporation, for its part, asserts that the
petitioner failed to adduce substantial evidence to the
claims in his complaint. Even if Lim had made such verbal
promise to the petitioner, the same is not binding on the
respondent corporation absent its conformity through
board resolution. Moreover, the petitioner is not covered
by the Memorandum dated November 6, 1981 because he
had unlimited leave credits; hence, it cannot be gainsaid
that he still had unused leave credits to be converted.
According to the respondent corporation, the petitioner
himself admitted that he was not included in the
Memorandum dated November 6, 1981; and even
assuming that he was covered by the said memorandum,
the fact that his complaint was filed only in 1996
precludes him from claiming the cash conversion of such
leave credits for the years 1966 to 1993.
The Court’s Ruling
The petition has no merit.
The threshold issue in this case is factual – whether or not
the petitioner is entitled, based on the documentary and
testimonial evidence on record, to the cash value of his
vacation and sick leave credits in the total amount of
₱7,080,546.00. The resolution of the issue is riveted to
our resolution of whether the petitioner’s mainly
testimonial evidence of an alleged verbal promise made
by a corporate officer to grant him the privilege of
converting accumulated vacation and sick leave credits
after retirement or separation from employment is
entitled to probative weight.
Under Rule 45 of the Rules of Court, only questions of law
may be raised under a petition for review on certiorari.
The Court, not being a trier of facts, is not wont to
reexamine and reevaluate the evidence of the parties,
whether testimonial or documentary. Moreover, the
findings of facts of the CA on appeal from the NLRC are,
more often than not, given conclusive effect by the Court.
The Court may delve into and resolve factual issues only
in exceptional circumstances, such as when the findings
of facts of the Labor Arbiter, on one hand, and those of
the NLRC and the CA, on the other, are capricious and
arbitrary; or when the CA has reached an erroneous
conclusion based on arbitrary findings of fact; and when
substantial justice so requires. In this case, however, the
petitioner failed to convince the Court that the factual
findings of the CA which affirmed the findings of the NLRC
on appeal, as well as its conclusions based on the said
findings, are capricious and arbitrary.
While the petitioner was unequivocal in claiming that the
respondent corporation, through its president and
chairman of the board of directors, obliged itself, as a
matter of policy, to grant him the cash value of his
vacation and sick leave credits upon his retirement, he
was burdened to prove his claim by substantial
evidence.24 The petitioner failed to discharge this burden.
We agree with the petitioner’s contention that for a
contract to be binding on the parties thereto, it need not
be in writing unless the law requires that such contract be
in some form in order that it may be valid or enforceable
or that it be executed in a certain way, in which case that
requirement is absolute and independent. 25 Indeed,
corporate policies need not be in writing. Contracts
entered into by a corporate officer or obligations or
prestations assumed by such officer for and in behalf of
such corporation are binding on the said corporation only
if such officer acted within the scope of his authority or if
such officer exceeded the limits of his authority, the
corporation has ratified such contracts or obligations.
In the present case, the petitioner relied principally on his
testimony to prove that Lim made a verbal promise to
give him vacation and sick leave credits, as well as the
privilege of converting the same into cash upon
retirement. The Court agrees that those who belong to
the upper corporate echelons would have more privileges.
However, the Court cannot presume the existence of such
privileges or benefits. The petitioner was burdened to
prove not only the existence of such benefits but also that
he is entitled to the same, especially considering that such
privileges are not inherent to the positions occupied by
the petitioner in the respondent corporation, son-in-law
of its president or not.
In dismissing the petition before it, the CA disbelieved the
petitioner’s testimony and gave credence and probative
weight to the collective testimonies of the respondent
corporation’s witnesses, who were its employees and
officers, including Lim, whom the petitioner presented as
a hostile witness. We agree with the appellate court’s
encompassing synthesis and analysis of the evidence on
record:
Except for his bare assertions, petitioner has not adduced
sufficient evidence to support his claim that he was,
indeed, promised the cash conversion of his unused
vacation and sick leaves upon retirement. Petitioner harps
on what he calls the prevalent practice in PCMC of giving
him benefits, such as the use of golf and country club
facilities, salary increases, the use of the company vehicle
and driver, and sharing in PCMC’s annual net income,
without either a written contract or a Board resolution to
back it up. Respondent PCMC denies all these, however.
According to respondent, petitioner’s share in the income
of the company is actually part of the consultancy fee
which PCMC pays DK Management Services, Inc., a firm
owned by petitioner’s company. PCMC adds that the
yearly salary increases of corporate officers were always
with the prior approval of the Board.
Nevertheless, assuming that petitioner was, indeed, given
the benefits which he so claimed, it does not necessarily
follow that among those is the cash conversion of his
accumulated leaves. It is a basic rule in evidence that
each party must prove his affirmative allegation. Since
the burden of proof lies with the party who asserts an
affirmative allegation, the plaintiff or complainant has to
prove his affirmative allegations in the complaint and the
defendant or respondent has to prove the affirmative
allegations in his affirmative defenses and counterclaim.
Petitioner, in the case at bar, has failed to discharge this
burden.26
The CA made short shift of the claim of the petitioner that
per Memorandum dated November 6, 1981, he was not
entitled to the benefits of the company policy of
commutation of leave credits. Indeed, the company policy
of conversion into equivalent cash of unused vacation and
sick leave credits applied only to its regular employees.
The petitioner failed to offer evidence to rebut the
testimony of Nel Gopez, Chief Accountant of the
respondent, that the petitioner was not among the regular
employees covered by the policy for the simple reason
that he had unlimited vacation leave benefits. As stated
by the CA, the petitioner no less corroborated the
testimony of Gopez, thus:
ATTY. PIMENTEL
And, so you mention[ed] earlier that … the policy on
vacation leave benefits apply for category one
employee(s) and rank-and-file employee(s)?
WITNESS (Mr. Nel Gopez)
Yes.
ATTY. PIMENTEL
And who are considered category one employee(s)?
WITNESS
Category One employees are from the rank and of Senior
Vice-President and Assistant General Manager and below,
up to the level of department managers.
ATTY. PIMENTEL
How about the complainant, Mr. Kwok, does he falling
(sic) to the category one?
WITNESS
As far as I can remember, he is (sic) not belong to
category one employee.
ATTY. PIMENTEL
Therefore, he is not entitled to the lump sum benefit?
WITNESS
Yes, Ma’am.
ATTY. PIMENTEL
And would you know, Mr. Witness, why he is (sic) not
given the conversion of the vacation leave benefits at the
time category one employees sectors (sic) are given?
WITNESS
Because he has, as far as I can remember, he has
unlimited vacation leave."
This was corroborated by petitioner himself when he
testified in this wise:
ATTY. PIMENTEL
Mr. Witness, you occupied the position of Executive Vice-
President and General Manager. You agree with me that
this position or this office of Executive Vice-President and
General Manager are not covered by this policy.
WITNESS (Donald Kwok)
Yes, it is not covered by this policy.
…
ATTY. PIMENTEL
So this policy applies to persons below you and your
father-in-law?
WITNESS
Yes, right.
ATTY. PIMENTEL
And this policy does not apply to you?
WITNESS
As far as I’m concerned, it does not apply for (sic) me.
In all respects, therefore, petitioner, by virtue of his
position as Executive Vice-President, is not covered by the
November 6, 1981 Memorandum granting PCMC
employees the conversion of their unused vacation and
sick leaves into cash.27
We have reviewed the records and found no evidence to
controvert the following findings of the CA and its
ratiocinations on its resolution of the petitioner’s
submissions:
Second, even assuming that petitioner is included among
the "regular employees" of PCMC referred to in said
memorandum, there is no evidence that he complied with
the cut-off dates for the filing of the cash conversion of
vacation and sick leaves. This being so, we find merit in
respondent’s argument that petitioner’s money claims
have already been barred by the three-year prescriptive
period under Article 291 of the Labor Code, as amended.
Third, and this is of primordial importance, there is no
proof that petitioner has filed vacation and sick leaves
with PCMC’s personnel department. Without a record of
petitioner’s absences, there is no way to determine the
actual number of leave credits he is entitled to. The
₱7,080,546.00 figure arrived at by petitioner supposedly
representing the cash equivalent of his earned sick and
vacation leaves is thus totally baseless.
And, fourth, even assuming that PCMC President Patricio
Lim did promise petitioner the cash conversion of his
leaves, we agree with respondent that this cannot bind
the company in the absence of any Board resolution to
that effect. We must stress that the personal act of the
company president cannot bind the corporation. As
explicitly stated by the Supreme Court in People’s
Aircargo and Warehousing Co., Inc. v. Court of Appeals:
"The general rule is that, in the absence of authority from
the board of directors, no person, not even its officers,
can validly bind a corporation. A corporation is a juridical
person, separate and distinct from its stockholders and
members, ‘having xxx powers, attributes and properties
expressly authorized by law or incident to its existence.’
… PHILIPPINES, MA. CORAZON M. AKOL, MIGUEL UY,
"… the power and the responsibility to decide whether the
corporation should enter into a contract that will bind the
corporation is lodged in the board, subject to the articles
of incorporation, by-laws, or relevant provisions of law."
Anent the third assigned error, petitioner maintains that
the PCMC Board of Directors has granted its President,
Patricio Lim, awesome powers to grant benefits to its
employees, adding that the Board has always given its
consent to the way Lim ran the affairs of the company
especially on matters relating to the benefits that its
corporate officers enjoyed.
True, jurisprudence holds that the president of a
corporation possesses the power to enter into a contract
for the corporation when "the conduct on the part of both
the president and corporation [shows] that he had been
in the habit of acting in similar matters on behalf of the
company and that the company had authorized him so to
act and had recognized, approved and ratified his former
and similar actions."
In the case at bar, however, there is no showing that
PCMC had either recognized, approved or ratified the cash
conversion of petitioner’s leave credits as purportedly
promised to him by Lim. On the contrary, PCMC has
steadfastly maintained that "the Company, through the
Board, has long adopted the policy of granting its earlier
mentioned corporate officers unlimited leave benefits
denying them the privilege of converting their unused
vacation or sick leave benefits into their cash equivalent."
As to the last assigned error, petitioner faults the NLRC
for holding as applicable to petitioner, the April 26, 1997
Memorandum issued by PCMC to Raoul Rodrigo, Donald
Kwok’s successor as company executive vice-president.
The said memo granted Rodrigo unlimited sick and
vacation leave credits but disallowed the cash conversion
thereof. Before he became executive vice-president,
Rodrigo was senior vice-president and enjoyed the
commutation of his unused vacation and sick leaves.
We note that the April 26, 1997 memo was issued to
Rodrigo when petitioner was already retired from PCMC.
While said memorandum was particularly directed to
Rodrigo, however, this does not necessarily mean that
petitioner, as former executive vice-president, was then
not prohibited from converting his earned vacation and
sick leaves into cash since he was not issued a similar
memo. On the contrary, the memo simply affirms the
long-standing company practice of excluding PCMC’s top
two positions, that of president and executive vice-
president, from the commutation of leaves. As heretofore
discussed, among the perks of those occupying these
posts is the privilege of having unlimited leaves, which is
totally incompatible with the concept of converting
unused leave credits into their cash equivalents.28
We are not convinced by the petitioner’s claim that Lim
capriciously deprived him of his entitlement to the cash
conversion of his accumulated vacation and sick leave
credits simply because of his estrangement from his wife,
who happens to be Lim’s daughter. The petitioner did not
adduce any evidence to show that he appealed to the
respondent corporation’s board of directors for the
implementation of the said privilege which was allegedly
granted to him. Even if Lim was the president and
chairman of the respondent corporation’s board of
directors, the rest of the membership of the board could
have overruled him and granted to the petitioner his claim
if, indeed, the latter was entitled thereto. Indeed, even
the petitioner admitted that, after his retirement, the
board of directors granted to him salary increase for two
years prior to his retirement. If the claim of the petitioner
had been approved by the board of directors, for sure, it
would have approved the same despite his falling out with
the daughter of Lim.
IN LIGHT OF ALL THE FOREGOING, the petition is
DENIED for lack of merit. Costs against the petitioner.
G.R. No. 159139, June 06, 2017
INFORMATION TECHNOLOGY FOUNDATION OF THE
EDUARDO H. LOPEZ, AUGUSTO C. LAGMAN, REX C.
DRILON, MIGUEL HILADO, LEY SALCEDO, AND
MANUEL ALCUAZ, JR., Petitioners, v. COMMISSION
ON ELECTIONS, COMELEC CHAIRMAN BENJAMIN
ABALOS, SR., COMELEC BIDDING AND AWARDS
COMMITTEE CHAIRMAN EDUARDO D. MEJOS AND
MEMBERS GIDEON DE GUZMAN, JOSE F.
BALBUENA, LAMBERTO P. LLAMAS, AND
BARTOLOME SINOCRUZ, JR., Respondents.
G.R. NO. 174777
AQUILINO Q. PIMENTEL, JR., SERGIO R. OSMEÑA
III, PANFILO M. LACSON, ALFREDO S. LIM, JAMBY
A.S. MADRIGAL, LUISA P. EJERCITO-ESTRADA,
JINGGOY E. ESTRADA, RODOLFO G. BIAZON, AND
RICHARD J. GORDON, Petitioners, v. MA.
MERCEDITAS NAVARRO-GUTIERREZ, IN HER
CAPACITY AS OMBUDSMAN, Respondent.
 DECISION
JARDELEZA, J.:
In Information Technology Foundation of the Philippines
(Infotech) v. Commission on Elections (COMELEC), 1 we
nullified the COMELEC's award to Mega Pacific Consortium
of the procurement contract involving the automated
counting machines (ACMs) for the 2004 national
elections. We found that the COMELEC gravely abused its
discretion when it awarded the contract to an entity which
failed to establish itself as a proper consortium, and
despite the ACMs' failure to meet certain technical
requirements. This case presents the question of whether
our conclusion in Infotech that the COMELEC committed
grave abuse of discretion is tantamount to a finding of
probable cause that the COMELEC officials violated penal
laws, thereby making it the ministerial duty of the
respondent Ombudsman to file the appropriate criminal
complaints.
I initiated a fact-finding investigation docketed as CPL-C-
On January 13, 2004, we promulgated the Decision
in Infotech declaring as null and void: (a) COMELEC
Resolution No. 6074 which awarded the contract for Phase
II of the Comprehensive Automated Electoral System to
Mega Pacific Consortium (MPC); and (b) the procurement
contract for ACMs executed betZween the COMELEC and
Mega Pacific eSolutions, Inc. (MPEI).2 We found that the
COMELEC's failure to follow its own rules, policies, and
guidelines in respect of the bidding process, and to
adequately check and observe financial, technical and
legal requirements constituted grave abuse of discretion.
In particular, we found that the winning bidder, MPC,
failed to include in its bid documents any joint venture or
consortium agreement between MPEI, Election.com, Ltd.,
WeSolv Open Computing, Inc., SK C&C, ePLDT and Oracle
System (Philippines), Inc. that would prove that MPC is a
proper consortium. Thus, we concluded that there was no
documentary basis for the COMELEC to determine that
the alleged consotium really existed and was eligible and
qualified to bid.3 Furthermore, we found that the ACMs
from MPC failed to meet the 99.9995% accuracy rating
required in the COMELEC's own Request for Proposal
(RFP). Based on a 27-point test conducted by the
Department of Science and Technology (DOST), MPC
failed in eight mostly software-related items—which
result should have warranted the rejection of MPC's
bid.4 Finally, we also found that it was grave abuse for the
COMELEC to evaluate the demo version of the software
instead of the final version which would be run during the
national elections. And because the final version was still
to be developed when the ACM contract was awarded, the
COMELEC practically permitted the winning bidder to
change and alter the subject of the contract, particularly
the software, thus effectively allowing a substantive
amendment without public bidding.5 As a result of the
foregoing lapses of the COMELEC, we also directed the
Ombudsman to determine the criminal liability, if any, of
the public officials and private individuals involved in the
nullified resolution and contract.6
As mandated by the Infotech Decision, the Ombudsman
04-0060. On January 21, 2004, Senator Aquilino
Pimentel, Jr. also filed criminal and administrative
complaints against COMELEC Chairman Benjamin S.
Abalos, Sr. and other COMELEC officials with the
Ombudsman, docketed as OMB-C-C-04-0011-A and OMB-
C-A-04-0015-A.7 Kilosbayan Foundation and Bantay
Katarungan Foundation later filed a related complaint with
the Ombudsman against COMELEC officials and
stockholders of MPEI on September 19, 2004, docketed
as OMB-L-C-02-0922-J.8 The Field Investigation Office
(FIO) of the Ombudsman filed a supplemental complaint
on October 6, 2004. These cases were later on
consolidated by the Ombudsman.9
In the meantime, the petitioners in the Infotech case
(docketed as G.R. No. 159139) filed a Manifestation and
Motion10 dated December 22, 2005, as well as a
Supplemental Motion11 dated January 20, 2006, alleging
that the Ombudsman has yet to comply with our directive
in the Infotech Decision. Thus, on February 14, 2006, we
issued a Resolution12 directing the Ombudsman to show
cause why it should not be held in contempt for its failure
to comply with the Court's directive. In compliance with
the foregoing Resolution, the Ombudsman filed its
Comment13 contending that it should not be held in
contempt of court because it has "long acted on the
referral, or complied with this x x x Court's directive' in
this case, to its full extent."14 In a Resolution15 dated
March 28, 2006, we directed the Ombudsman, under pain
of contempt, to submit quarterly reports to the Court
starting June 30, 2006.16
Consequently, the Ombudsman issued a
Resolution17 dated June 28, 2006 recommending: (a) the
filing of an information with the Sandiganbayan against
Eduardo Mejos, Gideon G. De Guzman, Jose P. Balbuena,
Lamberto P. Llamas, Bartolome J. Sinocruz, Jr., Willy U.
Yu, Bonnie Yu, Enrique Tansipek, Rosita Y. Tansipek,
Pedro O. Tan, Johnson W. Fong, Bernardo L. Fong, and
Lauriano Barrios; (b) the dismissal of the complaint
against Jose Tolentino, Jaime Paz, Zita Buena-Castillon,
and Rolando Viloria; (c) the referral of the findings against
COMELEC Commissioner Resureccion Z. Borra to the
House of Representatives; (d) the dismissal of Eduardo
Mejos, Gideon G. De Guzman, Jose P. Balbuena, Lamberto
P. Llamas, and Batiolome J. Sinocruz, Jr. from service;
and (e) the conduct of further fact-finding investigation
by the Ombudsman.18 The respondents in the
Ombudsman cases filed a Motion for Reconsideration of
the aforementioned Resolution on July 10, 2006.19
On July 13, 2006, the investigating panel of the Office of
the Ombudsman reconvened to carry out further
investigation and clarificatory hearings. They invited
resource persons and witnesses to testify and present
relevant documents and papers in order to determine
criminal liability of the public and private respondents in
the Ombudsman cases. In all, the investigating panel
conducted a total of 12 public hearings between July 13,
2006 and August 23, 2006, interviewed 10 witnesses, and
received no less than 198 documents. 20
Following these public hearings, the Ombudsman issued
a Supplemental Resolution21 dated September 27, 2006
which reversed and set aside the June 28, 2006
Resolution, and dismissed the administrative and criminal
complaints against both public and private respondents
for lack of probable cause. The Supplemental Resolution
stated that the Investigating Panel "cannot find an iota of
evidence to show that the acts of [the Bids and Awards
Committee (BAC)] in allowing MPC to bid and its
subsequent recommendation to award [the] Phase II
Contract to MPC constitute manifest [] partiality, evident
bad faith or gross inexcusable negligence" and that it
cannot establish that any "unwarranted benefit,
advantage or preference was extended to MPC or MP[E]I
by [the] BAC in the exercise of its administrative function
in the determination [of] MPC's eligibility and subsequent
recommendation made to [the] COMELEC."22 In sum, the
Ombudsman opined that a finding of grave abuse of
discretion in the Infotech case cannot be considered
criminal in nature in the absence of evidence showing bad
faith, malice or bribery in the bidding process. 23
Aggrieved by the Ombudsman's reversal, the petitioners
filed the present special civil action for certiorari docketed
as G.R. No. 174777 seeking to nullify the Ombudsman's
Supplemental Resolution and to cite the Ombudsman in
contempt. On the other hand, petitioners in G.R. No.
159139 filed a Motion24 dated October 17, 2006 praying
for the Court to: (1) reject the Ombudsman's
Supplemental Resolution as compliance with the Court's
directive in the Infotech decision; and (2) order the
Ombudsman to file an information with the
Sandiganbayan against the COMELEC officials and other
private individuals. On the same date, we resolved to
consolidate the two cases.25
II
As a preliminary procedural matter, we observe that while
the petition asks this Court to set aside the Supplemental
Resolution, which dismissed both administrative and
criminal complaints, it is clear from the allegations therein
that what petitioners are questioning is the criminal
aspect of the assailed resolution, i.e., the Ombudsman's
finding that there is no probable cause to indict the
respondents in the Ombudsman cases.26 Movants in G.R.
No. 159139 similarly question this conclusion by the
Ombudsman and accordingly pray that the Ombudsman
be directed to file an information with the Sandiganbayan
against the responsible COMELEC officials and conspiring
private individuals.27
In Kuizon v. Desierto28 and Mendoza-Arce v. Office of the
Ombudsman,29 we held that this Court has jurisdiction
over petitions for certiorari questioning resolutions or
orders of the Ombudsman in criminal cases. For
administrative cases, however, we declared in the case
of Dagan v. Office of the Ombudsman (Visayas)30 that the
petition should be filed with the Court of Appeals in
observance of the doctrine of hierarchy of courts.
The Dagan ruling homogenized the procedural rule with
respect to administrative cases falling within the
jurisdiction of the Ombudsman—first enunciated in Fabian
v. Desierto31 —that is, all remedies involving the orders,
directives, or decisions of the Ombudsman in
administrative cases, whether by an appeal under Rule 43
or a petition for certiorari under Rule 65, must be filed
with the Court of Appeals.
Accordingly, we shall limit our resolution to the criminal
aspect of the Ombudsman's Supplemental Resolution
dated September 27, 2006.
III
The dispositive portion of the Infotech decision reads:
WHEREFORE, the Petition is GRANTED. The Court hereby
declares NULL and VOID Comelec Resolution No. 6074
awarding the contract for Phase II of the AES to Mega
Pacific Consortium (MPC). Also declared null and void is
the subject Contract executed between Comelec and
Mega Pacific eSolutions (MPEI). Comelec is further
ORDERED to refrain from implementing any other
contract or agreement entered into with regard to this
project.
Let a copy of this Decision be furnished the Office
of the Ombudsman which shall determine the
criminal liability, if any, of the public officials (and
conspiring private individuals, if any) involved in
the subject Resolution and Contract. Let the Office of
the Solicitor General also take measures to protect the
government and vindicate public interest from the ill
effects of the illegal disbursements of public funds made
by reason of the void Resolution and Contract.32 (Citation
omitted, emphasis supplied.)
The Ombudsman maintains that it has the discretion to
determine whether a criminal case, given the facts of the
case and the applicable laws and jurisprudence, should be
filed.33 The respondents in G.R. No. 159139, the
COMELEC and MPEI, support the Ombudsman's position.
They point to the plain text of the dispositive
portion, i.e., the use of the phrase "if any," which clearly
demonstrates the Court's intent for the Ombudsman to
conduct its own investigation and render an independent
assessment based on whatever evidence the Ombudsman
gathers.34
Against this straightforward interpretation, the petitioners
in G.R. No. 174777 and movants in G.R. No. 159139 insist
that "[t]he Supreme Court in the Infotech case has
already established that a crime has been committed and
endorsed the case to the Ombudsman to determine the
specific personalities who are 'probably guilty'
thereof."35 They allege that, by issuing the Supplemental
Resolution, the Ombudsman reversed the findings of the
Supreme Court.36 Consequently, they argue that the
Ombudsman should also be held in indirect contempt
because she failed to comply with our directive
in Infotech. We take their arguments in turn.
A
The Court is mindful that the directive in
the Infotech Decision may have been susceptible to
misinterpretation, particularly when taken in conjunction
with the oftentimes strong language used in the body of
the ponencia. However, such statements were made only
to emphasize the critical role of the COMELEC in the
electoral process and to sternly remind the COMELEC that
it cannot afford to be lackadaisical in the implementation
of the bidding laws and rules, particularly when what is
involved is no less than the national elections. Thus, to
allay any fear that we are arrogating unto ourselves the
powers of the Ombudsman, we deemed it proper to clarify
the nature of our directive in a Resolution 37 dated June
13, 2006, the relevant portion of which provides:
The Court emphatically stresses that its directive to the
OMB to render a report on a regular basis, pursuant to
this Court's Decision promulgated on January 13, 2004,
does not in any way impinge upon, much less rob it of
its independence as provided under the Constitution.
Nowhere in the questioned Resolutions did the Court
demand the OMB to decide or make a specific
determination—one way or the other—of the culpability of
any of the parties. Our directive was for the OMB to report
on its "final determination of whether a probable cause
exists against any of the public officials (and conspiring
private individuals, if any) x x x." Surely, these
emphasized words indicate that the Court in no way
intends to intrude upon the discretionary powers of the
OMB. x x x38 (Emphasis in the original.)
Our pronouncements in the June 13, 2006 Resolution are
consistent with the Court's policy of non-interference with
the Ombudsman's conduct of preliminary investigations,
and to leave the Ombudsman sufficient latitude of
discretion in the determination of what constitutes
sufficient evidence to establish probable cause. 39 As a
general rule, the Court does not intervene with the
Ombudsman's exercise of its investigative and
prosecutorial powers, and respects the initiative and
independence inherent in the Office of the Ombudsman
which, beholden to no one, acts as the champion of the
people and the preserver of the integrity of the public
service.40 This policy rests on the fundamental doctrine of
separation of powers, which is one of the foundations of
our republican government.
The 1987 Constitution clothed the Ombudsman with
authority to investigate offenses committed by public
officers and employees.41 In Casing v. Ombudsman,42 we
stated that:
The Constitution and R.A. No. 6770 endowed the Office of
the Ombudsman with wide latitude, in the exercise of its
investigatory and prosecutory powers, to pass upon
criminal complaints involving public officials and
employees. Specifically, the determination of whether
probable cause exists is a function that belongs to the
Office of the Ombudsman. Whether a criminal case, given
its attendant facts and circumstances, should be filed or
not is basically its call.43
The determination of probable cause—that is, one made
for the purpose of filing an information in court—is
essentially an executive function and not a judicial one.
The State's self-preserving power to prosecute violators
of its penal laws is a necessary component of the
Executive's power and responsibility to faithfully execute
the laws of the land.44
On the other hand, the Constitution vests the Supreme
Court with judicial power, defined under Section 1, Article
VIII as "the duty of the courts of justice to settle actual
controversies involving rights which are legally
demandable and enforceable, and to determine whether
or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of
any branch or instrumentality of the government."
Conspicuously absent in the provision is the power of the
judiciary to prosecute crimes—much less the broader
power to execute laws from which it can be inferred. As
early as 1932, we held that: "It is judicial power and
judicial power only which is exercised by the Supreme
Court. Just as the Supreme Court, as the guardian of
constitutional rights, should not sanction usurpations by
any other department of the government, so should it as
strictly confine its own sphere of influence to the powers
expressly or by implication conferred on it by the Organic
Act."45
In view of the constitutional delineation of powers, we
reject the petitioners' contention that we already made a
determination in the Infotech case that a crime has been
committed. We could not have made such determination
without going beyond the limits of our judicial power and
thereby unlawfully impinging the prerogative of the
constitutionally created Office of the Ombudsman.
In Infotech, we only exercised our mandate to determine
whether or not there was grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of
the COMELEC. Ultimately, we found that the COMELEC
committed grave abuse of discretion when it: (a) awarded
the project to MPC, an entity that did not participate in
the bidding; (b) accepted and paid for MPEI's ACMs that
failed the 99.9995% accuracy requirement stated in the
COMELEC's own bidding rule, including the software's
failure to detect previously downloaded precinct results
and the ACMs' inability to print audit trails without loss of
data; and (c) accepted and awarded the contract based
on a mere demo version of the software. However, a
finding of grave abuse of discretion is not necessarily
indicative of probable cause. To determine the latter, the
constitutive elements of the crime must first be
considered.46 In the exercise of our certiorari jurisdiction
in Infotech, we only resolved whether the COMELEC acted
in a capricious, whimsical, arbitrary or despotic
manner.47 We never decided whether the facts were
sufficient to engender a well-founded belief that a crime
has been committed and that the respondents were
probably guilty thereof.48
Under our constitutional structure, courts of law have no
right to directly decide matters over which full
discretionary authority has been delegated to another
office or branch of government.49 We confine ourselves to
the exercise of judicial power and are careful not to
encroach upon the functions of the other branches of the
government. Lest it be forgotten, separation of powers is
not merely a hollow doctrine in constitutional law; rather,
it serves a very important purpose in our democratic
republic government, that is, to prevent tyranny by
prohibiting the concentration of the sovereign powers of
state in one body. The power to prosecute and the power
to adjudicate must remain separate; otherwise, as James
Madison warned, "[the judge] might behave with all the
violence of [an oppressor]."50
B
Apart from constitutionally founded limitations, there are
also practical reasons why the Court does not interfere
with the Ombudsman's determination of the existence or
absence of probable cause. These reasons are briefly, but
concisely, stated in Galario v. Office of the Ombudsman
(Mindanao):51
It is not sound practice to depart from the policy of
noninterference in the Ombudsman's exercise of
discretion to determine whether or not to file information
against an accused. As cited in a long line of cases, this
Court has pronounced that it cannot pass upon the
sufficiency or insufficiency of evidence to determine the
existence of probable cause. The rule is based not only
upon respect for the investigatory and prosecutory
powers granted by the Constitution to the Office of the
Ombudsman but upon practicality as well. If it were
otherwise, this Court will be clogged with an
innumerable list of cases assailing investigatory
proceedings conducted by the Office of the
Ombudsman with regard to complaints filed before
it, to determine if there is probable cause.
[T]he Court does not interfere with the Ombudsman's
discretion in the finding of probable cause resulting in its
investigations. The Ombudsman's findings are
essentially factual in nature, and the Supreme Court
is NOT a trier of facts.52 (Citation omitted, emphasis
supplied.)
In his separate opinion in Roberts, Jr. v. Court of
Appeals,53 Chief Justice Narvasa succinctly stated his
objection to the idea of the Court making a determination
of probable cause:
In this special civil action, this Court is being asked to
assume the function of a public prosecutor. It is being
asked to determine whether probable cause exists as
regards petitioners. More concretely, the Court is being
asked to examine and assess such evidence as has thus
far been submitted by the parties and, on the basis
thereof, make a conclusion as to whether or not it suffices
"to engender a well[-]founded belief that a crime has
been committed and that the respondent is probably
guilty thereof and should be held for trial."
It is a function that this Court should not be called
upon to perform. It is a function that properly
pertains to the public prosecutor, one that, as far as
crimes cognizable by a Regional Trial Court are
concerned, and notwithstanding that it involves an
adjudicative process of a sort, exclusively pertains,
by law, to said executive officer, the public
prosecutor. It is moreover a function that in the
established scheme of things, is supposed to be
performed at the very genesis of, indeed,
prefatorily to, the formal commencement of a
criminal action. The proceedings before a public
prosecutor, it may well be stressed, are essentially
preliminary, prefatory, and cannot lead to a final, definite
and authoritative adjudgment of the guilt or innocence of
the persons charged with a felony or crime.54 (Citations
omitted, emphasis supplied.)
For cases cognizable by the Sandiganbayan, the function
of determining probable cause primarily lies with the
Office of the Ombudsman, which has the presumed
expertise in the laws it is entrusted to enforce.
C recapitulate, these facts were: (a) MPC did not present
The Ombudsman's determination of probable cause may
only be assailed through certiorari proceedings before
this Court on the ground that such determination is
tainted with grave abuse of discretion. Not every error in
the proceedings or every erroneous conclusion of law or
fact, however, constitutes grave abuse of discretion. It
has been stated that the Ombudsman may err or even
abuse the discretion lodged in her by law, but such error
or abuse alone does not render her act amenable to
correction and annulment by the extraordinary remedy
of certiorari. To justify judicial intrusion into what is
fundamentally the domain of another constitutional body,
the petitioner must clearly show that the Ombudsman
committed grave abuse of discretion amounting to lack or
excess of jurisdiction in making her determination and in
arriving at the conclusion she reached.55 For there to be
a finding of grave abuse of discretion, it must be shown
that the discretionary power was exercised in an arbitrary
or despotic manner by reason of passion or personal
hostility, and the abuse of discretion must be so patent
and gross as to amount to an evasion of a positive duty
or to a virtual refusal to perform the duty enjoined or to
act in contemplation of law.56
In a special civil action for certiorari, the burden of
proving that the public officer acted with grave abuse of
discretion, in accordance with the definition and standards
stated above, lies with the person filing the
petition.57 Here, the petitioners solely rely on
the Infotech Decision to support their contention that the
Ombudsman gravely abused her discretion when she
issued the assailed Supplemental Resolution. They argue
that the Ombudsman's decision to dismiss the criminal
complaints is tantamount to a reversal of a final decision
by the Supreme Court.
However, a close scrutiny of the Supplemental Resolution
reveals that the Ombudsman did not reverse the Court's
findings in the Infotech case. Preliminarily, we reiterate
the rule that the Supreme Court is not a trier of facts.
Hence, the findings made in Infotech were not exhaustive
insofar as they only represent undisputed facts.58 To
any joint venture or consortium agreement between
MPEI, Election.com, Ltd., WeSolv Open Computing, Inc.,
SK C&C, ePLDT, and Oracle System (Philippines), Inc. in
any of its bid documents; (b) the ACMs provided by MPC
failed in eight mostly software-related items out of the
27-point test conducted by the DOST; (c) the COMELEC
only evaluated a demo version of the software instead of
the final version to be run in the national elections; and
(d) notwithstanding the foregoing deficiencies, the
COMELEC still awarded the contract and made partial
payments to MPC. From these facts, we concluded that
the COMELEC disregarded its own bidding rules and
procedure by entertaining the bid of an entity with no
legal personality and by tolerating deviations from
financial, technical and legal requirements—all of which
amounted to grave abuse of discretion. Nonetheless, we
did not make any determination, preliminary or
otherwise, that the COMELEC acted with evident bad
faith, manifest partiality or gross inexcusable negligence,
or that MPC received any unwarranted benefit or undue
advantage. Instead, we directed the Ombudsman to
conduct its own investigation. To reiterate, we could not
have made such determination because the power to do
so falls squarely within the constitutional authority of the
Ombudsman.
In the Supplemental Resolution, the Ombudsman found
that when the COMELEC-BAC allowed MPC to bid, the
public officials considered the numerous
documents59 submitted by MPC to arrive at the
conclusion, albeit erroneous, that MPC was eligible. The
Ombudsman also found that the COMELEC had intended
to test the final version of the software, 60 but this plan
was overtaken by the filing and subsequent resolution of
the Infotech case. With respect to the bid itself, the
Ombudsman found that MPC's bid was the lowest and
most responsive.61 The Ombudsman based these findings
on the 12 public hearings conducted between July 13,
2006 and August 23, 2006. In the course of those
hearings, the investigating panel heard 10 witnesses,
received counter-affidavits, and gathered voluminous
documents. Based on its independent investigation, the
Ombudsman did not find that all the essential elements of
the crimes punished under Sections 3(e) and (g) of
Republic Act No. 301962 are present. In particular, the
Ombudsman was of the opinion that there was nothing to
show "that the acts of BAC in allowing MPC to bid and its
subsequent recommendation to award [the] Phase II
Contract to MPC constitute manifest [] partiality, evident
bad faith or gross inexcusable negligence"63 and
"[n]either was it established that an unwarranted benefit,
advantage or preference was extended to MPC or MP[E]I
by BAC in the exercise of its administrative function in the
determination [of] MPC's eligibility and subsequent
recommendation x x x to [the] COMELEC." 64 In the end,
the Ombudsman concluded that the COMELEC made
errors of judgment but did not necessarily violate the anti-
graft law.
Based on the foregoing, we find that the action taken by
the Ombudsman cannot be characterized as arbitrary,
capricious, whimsical or despotic. The Ombudsman found
no evidence to prove probable cause. Probable cause
refers to facts and circumstances sufficient to engender a
well-founded belief that a crime has been committed and
that the respondents probably committed it.65 It signifies
a reasonable ground of suspicion supported by
circumstances sufficiently strong in themselves to warrant
a cautious man's belief that the person accused is guilty
of the offense with which he is charged. 66 To engender a
well-founded belief that a crime has been committed, and
to determine if the suspect is probably guilty of the same,
the elements of the crime charged should, in all
reasonable likelihood, be present.67 Here, the
Ombudsman determined the non-existence of probable
cause only after conducting numerous hearings,
reviewing copious documents, and evaluating these
against the constitutive elements of the crimes punished
under the anti-graft law—it was not as if the decision to
dismiss the complaints was pulled out of thin air. The
issuance of the Supplemental Resolution is clearly a valid
exercise of the Ombudsman's discretion.
The problem for the petitioners is that they relied solely
on the Infotech Decision and did not actively participate
in the investigation conducted by the Ombudsman. They
did not submit any evidence to substantiate any claim of
malice, bad faith, or bribery. In this regard, it bears
emphasis that the petitioners do not ascribe grave abuse
with regard to the conduct of the hearings. And they could
not have; after all, they were duly notified by the
Ombudsman and had every opportunity to participate in
the preliminary investigation. Their misplaced reliance
on Infotech now leaves them with nothing to anchor their
petition on.
IV
We are not unaware of our Decision dated June 27, 2016
in Republic v. Mega Pacific eSolutions, Inc.,68 where the
Court's First Division relied on the same Infotech case to
establish that MPEI committed fraud against the Republic
which entitled the latter to a writ of preliminary
attachment. To dispel any misconception, we deem it
proper to clarify that our holding in Republic, much like
in Infotech, was never intended to intrude into the
Ombudsman's constitutional authority to determine
probable cause.
To give a brief background, Republic involved an action
for damages filed by MPEI with the Regional Trial Court of
Makati City. MPEI claimed that notwithstanding the
nullification of the contract, the COMELEC was still
obligated to pay the amount of P200,165,681.89
representing the unpaid value of the ACMs and the
support services delivered. COMELEC filed a counterclaim
for the return of the payments made pursuant to the
automation contract with a prayer for the issuance of a
writ of preliminary attachment. The application for
preliminary attachment was grounded upon the alleged
fraudulent misrepresentation of MPEI and its
incorporators as to the former's eligibility to participate in
the bidding for the COMELEC automation project and the
failure of the ACMs to comply with mandatory technical
requirements. The Court's First Division ruled in favor of
the Republic and held that a writ of preliminary
attachment should issue against the properties of therein
respondents MPEI, Willy U. Yu, Bonnie S. Yu, Enrique T.
Tansipek, Rosita Y. Tansipek, Pedro O. Tan, Johnson W.
Fong, Bernard I. Fong, and Lauriano A. Barrios. Relying
on portions of the Infotech case, the Court ruled that: (1)
"MPEI committed fraud by securing the election
automation contract[] and x x x by misrepresenting that
the actual bidder was MPC and not MPEI, which was only
acting on behalf of MPC;"69 (2) "MPEI has defrauded
petitioner, since the former still executed the automation
contract despite knowing that it was not qualified to bid
for the same;"70 and (3) "[d]espite its failure to meet the
mandatory requirements set forth in the bidding
procedure, [MPEI] still acceded to being awarded the
contract."71
At the outset, it must be clarified that fraud has no
technical legal meaning in our laws.72 In its general sense,
fraud is deemed to comprise anything calculated to
deceive, including all acts, omissions, and concealment
involving a breach of legal or equitable duty, trust, or
confidence justly reposed, resulting in damage to
another, or by which an undue and unconscientious
advantage is taken of another. It is a generic term
embracing all multifarious means which human ingenuity
can devise, and which are resorted to by one individual to
secure an advantage over another by false suggestions or
by suppression of truth and includes all surprise, trick,
cunning, dissembling and any unfair way by which
another is cheated.73 While the generic concept of fraud
is similar for both civil and criminal cases, the term is
descriptive rather than substantive. In its specific and
substantive sense, a right of action occasioned by fraud
is dependent on the law upon which the action is based.
Based on its nature, actionable fraud may be civil or
criminal.
There are two broad classes of actionable civil fraud in
this jurisdiction. First is fraud that gives rise to an action
for damages, generally in case of contravention of the
normal fulfillment of obligations74 or as a tort under the
human relations provisions of the Civil Code,75 as well as
in specific instances mentioned by law.76 To be actionable,
the fraudulent act must cause loss or injury to another.
Second is fraud that creates a vice in the intent of one or
more parties in juridical transactions, such as
wills,77 marriages,78 and contracts, among others. With
respect to the latter, fraud may render the contract
defective in varying degrees: voidable, when consent is
obtained through fraud;79 rescissible, when the contract
ts undertaken in fraud of creditors;80 and "reformable,"
when by reason of fraud, the parties' true intention is not
expressed in the instrument.81
Criminal fraud, on the other hand, may pertain to the
means of committing a crime or the classes of crimes
under Chapter Three, Title Four, Book Two and Chapter
Three, Title Seven, Book Two of the Revised Penal Code.
As a means, fraud may be an essential element of the
crime (e.g., estafa by means of false pretenses or
fraudulent acts or through fraudulent means82) or a
generic aggravating circumstance.83 Meanwhile, the
crimes classified as frauds under the penal code punish
specific types of fraud: machinations in public
auctions;84 monopolies and combinations in restraint of
trade;85 importation and disposition of falsely marked
articles or merchandise made of gold, silver, or other
precious metals or their alloys;86 subsisting and altering
trade-mark, trade-names, or service marks;87 unfair
competition, fraudulent registration of trade-mark, trade-
name or service mark, fraudulent designation of origin,
and false description;88 frauds against the public treasury
and similar offenses;89 and frauds committed by public
officers.90 As with other criminal offenses, liability for
these punishable frauds depends on the concurrence of
the essential elements of each type of crime.
It is immediately apparent that Republic involved a civil
case, whereas the present case, although in the nature of
a special civil action, originated from the preliminary
investigation of a criminal case. We recognized this
distinction in Republic itself:
The main issue in the instant case is whether respondents
are guilty of fraud in obtaining and executing the
automation contract, to justify the issuance of a writ of
preliminary attachment in petitioner's favor. Meanwhile,
the issue relating to the proceedings before the
Ombudsman (and this Court in G.R. No. 174777) pertains
to the finding of lack of probable cause for the possible
criminal liability of respondents under the Anti-Graft and
Corrupt Practices Act.
The matter before Us involves petitioner's application for
a writ of preliminary attachment in relation to its recovery
of the expended amount under the voided contract, and
not the determination of whether there is probable cause
to hold respondents liable for possible criminal liability
due to the nullification of the automation contract.
Whether or not the Ombudsman has found probable
cause for possible criminal liability on the part of
respondents is not controlling in the instant case.91
The distinction is a significant one in view of the legal
nuances between civil fraud and criminal fraud. To
recall, Republic originated from the government's
application for a writ of preliminary attachment in a civil
case pending before the trial court. Under Rule 57 of the
Rules of Civil Procedure, one of the grounds for the
issuance of a writ of preliminary attachment is when the
party against whom attachment is sought is guilty of fraud
in "contracting the debt or incurring the obligation upon
which the action is brought."92 The type of fraud referred
to by this rule is civil in nature; in the law of contracts, it
is commonly referred to as dolo causante or causal fraud,
or those deceptions or misrepresentations of a serious
character employed by one party and without which the
other party would not have entered into the
contract.93 The finding of fraud in Republic, inasmuch as
it involved fraud committed by MPEI in the execution of
the procurement contract with COMELEC, pertains to
causal fraud, which falls under the broad classification of
civil fraud rather than criminal fraud. The issue of criminal
fraud was not considered in Republic and no
determination about the commission of any particular
crime was made.
While we are not saying that the same act which
constitutes civil fraud cannot serve as basis for criminal
fraud and vice versa, the essential elements that create
civil liability and those that give rise to criminal liability
are neither identical nor legally interchangeable. We
therefore find no conflict between our ruling
in Republic and the Ombudsman's findings below.94 We
reiterate that it is not our function to determine at the
first instance whether criminal fraud has been committed.
That task properly lies with the prosecutorial arm of
government, either with the Department of Justice or, as
in this case, the Ombudsman.
V
Having ruled that the Ombudsman did not commit grave
abuse of discretion, it is no longer necessary to belabor
the issue on contempt. Suffice it to say that our directive
to the Ombudsman was simply to determine if there was
any criminal liability on the part of the public and private
respondents in G.R. No. 159139. The Ombudsman
sufficiently complied with this directive when she found
that, based on the hearings conducted and documents
gathered, probable cause did not exist.
***
The Court respects the relative autonomy of the
Ombudsman to investigate and prosecute, and refrains
from interfering when the latter exercises such powers,
except when there is grave abuse of discretion. The
Ombudsman's determination of probable cause may only
be assailed before this Court through the extraordinary
remedy of certiorari. The requirement for judicial
intrusion, however, is still for the petitioners to
demonstrate clearly that the Ombudsman acted
arbitrarily or despotically. Absent such clear
demonstration, the intervention must be disallowed in
deference to the doctrine of non-interference.
WHEREFORE, the petition docketed as G.R. No. 174777
is DISMISSED. The Motion dated October 17, 2006 filed
by the petitioners in G.R. No. 159139 is DENIED.
G.R. No. 138739 July 6, 2000
RADIOWEALTH FINANCE COMPANY, petitioner,
vs.
Spouses VICENTE and MA. SUMILANG DEL
ROSARIO, respondents.
DECISION
PANGANIBAN, J.:
When a demurrer to evidence granted by a trial court is
reversed on appeal, the reviewing court cannot remand
the case for further proceedings. Rather, it should render
judgment on the basis of the evidence proffered by the
plaintiff. Inasmuch as defendants in the present case
admitted the due execution of the Promissory Note both
in their Answer and during the pretrial, the appellate court
should have rendered judgment on the bases of that Note
and on the other pieces of evidence adduced during the
trial.
The Case
Before us is a Petition for Review on Certiorari of the
December 9, 1997 Decision1 and the May 3, 1999
Resolution2 of the Court of Appeals in CA-GR CV No.
47737. The assailed Decision disposed as follows:
"WHEREFORE, premises considered, the appealed order
(dated November 4, 1994) of the Regional Trial Court
(Branch XIV) in the City of Manila in Civil Case No. 93-
66507 is hereby REVERSED and SET ASIDE. Let the
records of this case be remanded to the court a quo for
further proceedings. No pronouncement as to costs."3
The assailed Resolution denied the petitioner’s Partial
Motion for Reconsideration.4
The Facts
The facts of this case are undisputed. On March 2, 1991,
Spouses Vicente and Maria Sumilang del Rosario (herein
respondents), jointly and severally executed, signed and
delivered in favor of Radiowealth Finance Company
(herein petitioner), a Promissory Note5 for ₱138,948.
Pertinent provisions of the Promissory Note read:
"FOR VALUE RECEIVED, on or before the date listed
below, I/We promise to pay jointly and
severally Radiowealth Finance Co. or order the sum
of ONE HUNDRED THIRTY EIGHT THOUSAND NINE
HUNDRED FORTY EIGHT Pesos (₱138,948.00) without
need of notice or demand, in installments as follows:
₱11,579.00 payable for 12 consecutive months starting
on ________ 19__ until the amount of ₱11,579.00 is fully
paid. Each installment shall be due every ____ day of
each month. A late payment penalty charge of two and a
half (2.5%) percent per month shall be added to each
unpaid installment from due date thereof until fully paid.
xxx xxx xxx
It is hereby agreed that if default be made in the payment
of any of the installments or late payment charges
thereon as and when the same becomes due and payable
as specified above, the total principal sum then remaining
unpaid, together with the agreed late payment charges
thereon, shall at once become due and payable without
need of notice or demand.
xxx xxx xxx
If any amount due on this Note is not paid at its maturity
and this Note is placed in the hands of an attorney or
collection agency for collection, I/We jointly and severally
agree to pay, in addition to the aggregate of the principal
amount and interest due, a sum equivalent to ten (10%)
per cent thereof as attorney’s and/or collection fees, in
case no legal action is filed, otherwise, the sum will be
equivalent to twenty-five (25%) percent of the amount
due which shall not in any case be less than FIVE
HUNDRED PESOS (P500.00) plus the cost of suit and
other litigation expenses and, in addition, a further sum
of ten per cent (10%) of said amount which in no case
shall be less than FIVE HUNDRED PESOS (P500.00), as
and for liquidated damages."6
Thereafter, respondents defaulted on the monthly
installments. Despite repeated demands, they failed to
pay their obligations under their Promissory Note.
On June 7, 1993, petitioner filed a Complaint7 for the
collection of a sum of money before the Regional Trial
Court of Manila, Branch 14.8 During the trial, Jasmer
Famatico, the credit and collection officer of petitioner,
presented in evidence the respondents’ check payments,
the demand letter dated July 12, 1991, the customer’s
ledger card for the respondents, another demand letter
and Metropolitan Bank dishonor slips. Famatico admitted
that he did not have personal knowledge of the
transaction or the execution of any of these pieces of
documentary evidence, which had merely been endorsed
to him.
On July 4, 1994, the trial court issued an Order
terminating the presentation of evidence for the
petitioner.9 Thus, the latter formally offered its evidence
and exhibits and rested its case on July 5, 1994.
Respondents filed on July 29, 1994 a Demurrer to
Evidence10 for alleged lack of cause of action. On
November 4, 1994, the trial court dismissed11 the
complaint for failure of petitioner to substantiate its
claims, the evidence it had presented being merely
hearsay.
On appeal, the Court of Appeals (CA) reversed the trial
court and remanded the case for further proceedings.
Hence, this recourse.12
Ruling of the Court of Appeals
According to the appellate court, the judicial admissions
of respondents established their indebtedness to the
petitioner, on the grounds that they admitted the due
execution of the Promissory Note, and that their only
defense was the absence of an agreement on when the
installment payments were to begin. Indeed, during the
pretrial, they admitted the genuineness not only of the
Promissory Note, but also of the demand letter dated July
12, 1991. Even if the petitioner’s witness had no personal
knowledge of these documents, they would still be
admissible "if the purpose for which [they are] produced
is merely to establish the fact that the statement or
document was in fact made or to show its tenor[,] and
such fact or tenor is of independent relevance."
Besides, Articles 19 and 22 of the Civil Code require that
every person must -- in the exercise of rights and in the
performance of duties -- act with justice, give all else their
due, and observe honesty and good faith. Further, the
rules on evidence are to be liberally construed in order to
promote their objective and to assist the parties in
obtaining just, speedy and inexpensive determination of
an action.
Issue
The petitioner raises this lone issue:
"The Honorable Court of Appeals patently erred in
ordering the remand of this case to the trial court instead
of rendering judgment on the basis of petitioner’s
evidence."13
For an orderly discussion, we shall divide the issue into
two parts: (a) legal effect of the Demurrer to Evidence,
and (b) the date when the obligation became due and
demandable.
The Court’s Ruling
The Petition has merit. While the CA correctly reversed
the trial court, it erred in remanding the case "for further
proceedings."
Consequences of a Reversal, on Appeal, of a Demurrer to
Evidence
Petitioner contends that if a demurrer to evidence is
reversed on appeal, the defendant should be deemed to
have waived the right to present evidence, and the
appellate court should render judgment on the basis of
the evidence submitted by the plaintiff. A remand to the
trial court "for further proceedings" would be an outright
defiance of Rule 33, Section 1 of the 1997 Rules of Court.
On the other hand, respondents argue that the petitioner
was not necessarily entitled to its claim, simply on the
ground that they lost their right to present evidence in
support of their defense when the Demurrer to Evidence
was reversed on appeal. They stress that the CA merely
found them indebted to petitioner, but was silent on when
their obligation became due and demandable.
The old Rule 35 of the Rules of Court was reworded under
Rule 33 of the 1997 Rules, but the consequence on appeal
of a demurrer to evidence was not changed. As amended,
the pertinent provision of Rule 33 reads as follows:
"SECTION 1. Demurrer to evidence.—After the plaintiff
has completed the presentation of his evidence, the
defendant may move for dismissal on the ground that
upon the facts and the law the plaintiff has shown no right
to relief. If his motion is denied, he shall have the right to
present evidence. If the motion is granted but on appeal
the order of dismissal is reversed he shall be deemed to
have waived the right to present evidence."14
Explaining the consequence of a demurrer to evidence,
the Court in Villanueva Transit v. Javellana15 pronounced:
"The rationale behind the rule and doctrine is simple and
logical. The defendant is permitted, without waiving his
right to offer evidence in the event that his motion is not
granted, to move for a dismissal (i.e., demur to the
plaintiff’s evidence) on the ground that upon the facts as
thus established and the applicable law, the plaintiff has
shown no right to relief. If the trial court denies the
dismissal motion, i.e., finds that plaintiff’s evidence is
sufficient for an award of judgment in the absence of
contrary evidence, the case still remains before the trial
court which should then proceed to hear and receive the
defendant’s evidence so that all the facts and evidence of
the contending parties may be properly placed before it
for adjudication as well as before the appellate courts, in
case of appeal. Nothing is lost. The doctrine is but in line
with the established procedural precepts in the conduct of
trials that the trial court liberally receive all proffered
evidence at the trial to enable it to render its decision with
all possibly relevant proofs in the record, thus assuring
that the appellate courts upon appeal have all the
material before them necessary to make a correct
judgment, and avoiding the need of remanding the case
for retrial or reception of improperly excluded evidence,
with the possibility thereafter of still another appeal, with
all the concomitant delays. The rule, however, imposes
the condition by the same token that if his demurrer
is granted by the trial court, and the order of dismissal
is reversed on appeal, the movant losses his right to
present evidence in his behalf and he shall have been
deemed to have elected to stand on the insufficiency of
plaintiff’s case and evidence. In such event, the appellate
court which reverses the order of dismissal shall proceed
to render judgment on the merits on the basis of plaintiff’s
evidence." (Underscoring supplied)
In other words, defendants who present a demurrer to
the plaintiff’s evidence retain the right to present their
own evidence, if the trial court disagrees with them; if the
trial court agrees with them, but on appeal, the appellate
court disagrees with both of them and reverses the
dismissal order, the defendants lose the right to present
their own evidence.16 The appellate court shall, in
addition, resolve the case and render judgment on the
merits, inasmuch as a demurrer aims to discourage
prolonged litigations.17
In the case at bar, the trial court, acting on respondents’
demurrer to evidence, dismissed the Complaint on the
ground that the plaintiff had adduced mere hearsay
evidence. However, on appeal, the appellate court
reversed the trial court because the genuineness and the
due execution of the disputed pieces of evidence had in
fact been admitted by defendants.
Applying Rule 33, Section 1 of the 1997 Rules of Court,
the CA should have rendered judgment on the basis of
the evidence submitted by the petitioner. While the
appellate court correctly ruled that "the documentary
evidence submitted by the [petitioner] should have been
allowed and appreciated xxx," and that "the petitioner
presented quite a number of documentary exhibits xxx
enumerated in the appealed order,"18 we agree with
petitioner that the CA had sufficient evidence on record to
decide the collection suit. A remand is not only frowned
upon by the Rules, it is also logically unnecessary on the
basis of the facts on record.
Due and Demandable Obligation
Petitioner claims that respondents are liable for the whole
amount of their debt and the interest thereon, after they
defaulted on the monthly installments.
Respondents, on the other hand, counter that the
installments were not yet due and demandable. Petitioner
had allegedly allowed them to apply their promotion
services for its financing business as payment of the
Promissory Note. This was supposedly evidenced by the
blank space left for the date on which the installments
should have commenced.19 In other words, respondents
theorize that the action for immediate enforcement of
their obligation is premature because its fulfillment is
dependent on the sole will of the debtor. Hence, they
consider that the proper court should first fix a period for
payment, pursuant to Articles 1180 and 1197 of the Civil
Code.
This contention is untenable. The act of leaving blank the
due date of the first installment did not necessarily mean
that the debtors were allowed to pay as and when they
could. If this was the intention of the parties, they should
have so indicated in the Promissory Note. However, it did
not reflect any such intention.
On the contrary, the Note expressly stipulated that the
debt should be amortized monthly in installments of
₱11,579 for twelve consecutive months. While the specific
date on which each installment would be due was left
blank, the Note clearly provided that each installment
should be payable each month.
Furthermore, it also provided for an acceleration clause
and a late payment penalty, both of which showed the
intention of the parties that the installments should be
paid at a definite date. Had they intended that the debtors
could pay as and when they could, there would have been
no need for these two clauses.
Verily, the contemporaneous and subsequent acts of the
parties manifest their intention and knowledge that the
monthly installments would be due and demandable each
month.20 In this case, the conclusion that the installments
had already became due and demandable is bolstered by
the fact that respondents started paying installments on
the Promissory Note, even if the checks were dishonored
by their drawee bank. We are convinced neither by their
avowals that the obligation had not yet matured nor by
their claim that a period for payment should be fixed by a
court.
Convincingly, petitioner has established not only a cause
of action against the respondents, but also a due and
demandable obligation. The obligation of the respondents
had matured and they clearly defaulted when their checks
bounced. Per the acceleration clause, the whole debt
became due one month (April 2, 1991) after the date of
the Note because the check representing their first
installment bounced.
As for the disputed documents submitted by the
petitioner, the CA ruling in favor of their admissibility,
which was not challenged by the respondents, stands. A
party who did not appeal cannot obtain affirmative relief
other than that granted in the appealed decision.21
It should be stressed that respondents do not contest the
amount of the principal obligation.1âwphi1 Their liability
as expressly stated in the Promissory Note and found by
the CA is "₱13[8],948.0022 which is payable in twelve (12)
installments at ₱11,579.00 a month for twelve (12)
consecutive months." As correctly found by the CA, the
"ambiguity" in the Promissory Note is clearly attributable
to human error.23
Petitioner, in its Complaint, prayed for "14% interest per
annum from May 6, 1993 until fully paid." We
disagree.1âwphi1 The Note already stipulated a late
payment penalty of 2.5 percent monthly to be added to
each unpaid installment until fully paid. Payment of
interest was not expressly stipulated in the Note. Thus, it
should be deemed included in such penalty.
In addition, the Note also provided that the debtors would
be liable for attorney’s fees equivalent to 25 percent of
the amount due in case a legal action was instituted and
10 percent of the same amount as liquidated damages.
Liquidated damages, however, should no longer be
imposed for being unconscionable.24 Such damages
should also be deemed included in the 2.5 percent
monthly penalty. Furthermore, we hold that petitioner is
entitled to attorney’s fees, but only in a sum equal to 10
percent of the amount due which we deem reasonable
under the proven facts.25
The Court deems it improper to discuss respondents'
claim for moral and other damages. Not having appealed
the CA Decision, they are not entitled to affirmative relief,
as already explained earlier.26
WHEREFORE, the Petition is GRANTED. The appealed
Decision is MODIFIED in that the remand is SET ASIDE
and respondents are ordered TO PAY ₱138,948, plus 2.5
percent penalty charge per month beginning April 2, 1991
until fully paid, and 10 percent of the amount due as
attorney’s fees. No costs.
SO ORDERED.