Determinate/Specific Thing (specific real obligation)

JOSE DE LEON, CECILIO DE LEON, in their individual capacity, and JOSE DE

LEON and CECILIO DE LEON , as administrators of the intestate estate of Felix de
Leon, petitioner,
vs.
ASUNCION SORIANO, respondent.

Lorenzo Sumulong and Jose Santos for petitioners.

Vicente J. Francisco for respondent.

TUASON, J.:

This is an appeal by certiorari from a decision of the Court of Appeals affirming a

judgment of the Court of First Instance of Bulacan.

Jose de Leon, Cecilio de Leon and Albina de Leon, petitioners herein and defendants in
the court below, were natural children of Felix de Leon, deceased, while Asuncion Soriano,
respondent herein and plaintiff below, is his widow. In the administration and settlement
of the decedent's estate then pending in the Court of First Instance, the said widow, on the
one hand, and the natural children, on the other, reached on March 23, 1943 an agreement,
approved by the probate court, whereby the natural children obligated themselves, among
other things, as follows:

2. At the end of each of agricultural year, by which shall understood for the purposes
of this agreement the month of March of every year, the following amounts of palay
shall be given to the party of the FIRST PART (Asuncion Soriano) by the parties of
the SECOND PART (De Leons): in the month of March of the current year 1943;
one thousand two hundred (1,200) cavanes of palay (macan); in the month of March
1944, one thousand four hundred (1,400) cavanes of palay (macan); in the month
March of 1945, one thousand five hundred (1,500) cavanes of palay (macan); and
in the month of March 1946 and every succeeding year thereafter, one thousand six
hundred (1,600) cavanes of palay (macan). Delivery of the palay shall be made in
the warehouse required by the government, or if there be none such, at the
warehouse to be selected by the party of the FIRST PART, in San Miguel, Bulacan,
free from the cost of hauling, transportation, and from any all taxes or charges.

It is expressly stipulated that this annual payment of palay shall cease upon the death
of the party of the FIRST PART and shall not be transmissible to her heirs or to any
other person, but during her lifetime this obligation for the annual payment of the
palay hereinabove mentioned shall constitute a first lien upon all the rice lands of
the estate of Dr. Felix de Leon in San Miguel, Bulacan.
The defendants made deliveries to the plaintiff of 1,200 cavanes of palay in 1934, 700 in
1944, 200 in 1945, and another 200 in 1946, a total of 2,300 cavanes which was 3,400
cavanes short of the 5,700 cavanes which should have been delivered up to and including
1946. It was to recover this shortage or its value that this action was commenced.

For answer, the defendants averred that their failure to pay the exact quantities of palay
promised for 1944, 1945 and 1946 was due to "the Huk troubles in Central Luzon which
rendered impossible full compliance with the terms of the agreement;" and it was
contended that "inasmuch as the obligations of the defendants to deliver the full amount of
the palay is depending upon the produce as this is in the nature of an annuity, . . . the
obligations of the defendants have been fully fulfilled by delivering in good faith all that
could be possible under the circumstances."

The court gave judgment for the plaintiff for 3,400 cavanes of palay or its equivalent in
cash, which was found to be 24,900, and legal interest. As above stated, that judgment was
affirmed by the appellate court.

Article 1182 of the Civil Code which was in force at the time agreement in question was
entered into, provide that "Any obligation which consists in the delivery of a determinate
thing shall be extinguished if such thing should be lost or destroyed without fault on the
part of the debtor and before he is in default. Inversely, the obligation is not extinguished
if the thing that perishes is indeterminate.

Manresa explains the distinction between determinate and generic thing in his comment on
article 1096 of the Civil Code of Spain, saying that the first is a concrete, particularized
object, indicated by its own individuality, while a generic thing is one of whose
determination is confined to that of its nature, to the genus (genero) to which it pertains,
such as a horse, a chair. These definitions are in accord with the popular meaning of the
terms defined.

Except as to quality and quantity, the first of which is itself generic, the contract sets no
bounds or limits to the palay to be paid, nor was there even any stipulation that the cereal
was to be the produce of any particular land. Any palay of the quality stipulated regardless
of origin on however acquired (lawfully) would be obligatory on the part of the obligee to
receive and would discharge the obligation. It seems therefore plain that the alleged failure
of crops through alleged fortuitous cause did not excuse performance.

As Escriche, in his Diccionario Razonado de Legislacion y Jurisprudencia, puts it,

speaking of the effects of the loss of a thing:

Extingue la obligacion del deudor cuando la cosa debida es un cuerpo cierto y

determinado; pero si fuese generica o no estuviese determinada sino en cuanto a la
especie, como por ejemplo, unaonza de oro, 50 panegas de trigo o 3 toneladas de
 vino, siempre se perderia, para el deudor, el cual, por consiguiente, no se libraria de
la deuda, ya que se supone que el genero por su naturaleza nunca parece, "nun quan
genusperit", ya porque aunque se diga que parece no puede parecer, sino para su
dueño, que es el deudor "res domino suo perit". (Libro 18 y su glosa La Titulo 11,
Partida 5.a)

And he gives this example:

Si prestais, pues, a Pedro una onza de oro que luego le roban, tendra que pagartela,
porque su obligacion no consistia en haberte de dar aquella misma onza, sino
generalmente una onza.

In the case of Yu Tek & Co., vs. Gonzales (29 Phil., 384), it appeared that the plaintiff
advanced P3,000 to defendant in payment of 600 piculs of sugar. The contract in writing
did not specify that the sugar was to come from the crop on defendant's land which was
destroyed. It was held that the sugar to be sold not having been segregated, the sale was
not perfected and the loss of the crop, even though through force majeure did not
extinguish defendant's obligation to deliver the sugar.

In the more recent decision of this Court, in the case of Reyes vs. Caltex (Phil.) Inc. (47
Off. Gaz., 1193; 84 Phil., 654), a question similar to that at bar arose. There, we ruled that
the inability of the lessee of a commercial property to pay the stipulated rent because of
war and because the premises had been occupied by Japanese forces did not affect the
lessee's liability to fulfill its commitments. Shifting to American authorities, we cited
Pollard vs. Shaefer (1 Dall. [Pa.], 210), where the Court said that, "since by the lease, the
lessee was to have the advantage of casual profits of the leased premises, he should run the
hazard of casual losses during the term and not lay the whole burden of them upon the
lessor." This court went on to say:

The general rule on performance of contracts is graphically set forth in American

treatises, which is also the rule, in our opinion, obtaining under the Civil Code.

Where a person by a contract charges himself with an obligation possible to be

performed, he must perform it, unless its performance is rendered impossible by the
act of God, by the law, or by the other party, it being the rule that in case the party
desires to be excused from performance in the event of contingencies arising, it is
his duty to provide therefor in his contract. Hence, performance is not excused by
subsequent" inability to perform, by unforseen difficulties, by unusual or
unexpected expenses, by danger, by inevitable accident, by the breaking of
machinery, by strikes, by sickness, by failure of a party to avail himself of the
benefits to be had under the contract, by weather conditions, by financial stringency,
or by stagnation of business. Neither is performance excused by the fact that the
contract turns out to be hard and improvident, unprofitable or impracticable, ill
advised, or even foolish, or less profitable, or unexpectedly burdensome. (17 C. J.
S. 946 - 948).

In the absence of a statute to the contrary, conditions arising from a state of war in
which the country is engaged, will not ordinarily constitute an excuse for non-
performance of contract; and impossibility of performance arising from the acts of
the legislature and the executive branch of government in war time does not, without
more, constitute an excuse for non-performance. (17 C.J.S., 953, 954.)

A few words are in order to straighten out the apparent confusion (of ideas) that
exists regarding the influence of fortuitous events in contracts; when they excuse
performance and when not.

In considering the effect of impossibility of performance on the rights of the parties,

it is necessary to keep in mind the distinction between: (1) Natural impossibility
preventing performance from the nature of the things and (2) impossibility in
fact, in the absence of inherent impossibility in the nature of the thing stipulated to
be performed. (17 C.J.S., 951.) In the words of one Court impossibility must consist
in the nature of thing to be done and not in the inability of the party to do it. (City
of Montpelier vs. National Surety Co., 122 A., 484; 97 Vt., Ill; 33 A.L.R., 489.) As
others have put it, to bring the case within the rule of impossibility, it must appear
that the thing to be done cannot by any means be accomplished, for if it is only
improbable or out of the power of the obligor, it is not in law deemed impossible.
(17 C.J.S., 442). The first class of impossibility goes to the consideration and
renders the contract void. The second, which is the class of impossibility that we
have to do here, does not. (17 C.J.S., 951, 952.)

For illustration, where the entire product of a manufacturer was taken by the
government under orders pursuant to a commandeering statute during the World
War, it was held that such action excused non-performance of a contract to supply
civilian trade. (40 S. Ct., 5; U.S., 493; 64 Law. ed., 1031.) Another example: where
a party obligates himself to deliver certain (determinate) things and the things perish
through war or in a shipwreck performance is excused, the destruction operating as
a rescission or dissolution of the covenant. But if the promisor is unable to deliver
the goods promised and his inability arises, not from their destruction but from, say,
his inability to raise money to buy them due to sickness, typhoons, or the like, his
liability is not discharged. In the first case the doing of the thing which the obligor
finds impossible is the foundation of the undertaking. (C.J.S., 951, note.) In the
second, the impossibility partakes of the nature of the risk which the promisor took
within the limits of his undertaking of being able to perform. (C.J.S., supra,
946, note). It is a contingency which he could have taken due precaution to guard
against in the contract.
 Summoning the above principles to our aid, and by way of hypothesis the defendant-
appellee here would be relieved from the obligation to pay rent if the subject matter
of the lease, were this possible had disappeared, for the personal occupation of the
premises is the foundation of the contract, the consideration that induced it (lessee)
to enter into the agreement. But a mere trespass with which the landlord had nothing
to do is a casual disturbance not going to the essence of the undertaking. It is a
collateral incident which might have been provided for by a proper stipulation.

LETTY HAHN, petitioner,

vs.
COURT OF APPEALS, JOSIE M. SANTOS and FRANCISCO
SANTOS, respondents.

Raymundo A. Armovit for petitioner.

Mary Concepcion Bautista for respondents.

CRUZ, J.:

It is said that diamonds are a girl's best friend, but private respondent Josie M. Santos may
have her doubts about this. The fact is that they have caused her not a little difficulty, and
her troubles are not yet over. This case was decided against her by the trial court and later
by the respondent court which, however, mitigated the judgment of the former. The
petitioner does not like this and wants the earlier decision reinstated. That is why she is
now before this Court.

The basic facts as determined by the trial court 1 and affirmed by the respondent court 2 are
no longer in issue. It has been established that Santos received two diamond rings with a
total value of P47,000.00 in 1966 from the petitioner. She issued separate receipts therefor
in which she acknowledged that they had been delivered by Letty Hahn to her for sale on
commission and that they would be returned upon demand if unsold. 3 The rings were not
sold nor were they returned when demanded by Hahn.

Hahn sued for recovery of the rings or their value. While the civil case was pending, she
also filed a criminal action for estafa against Santos. Santos was acquitted on reasonable
doubt. 4 In the civil action, however, where she also pleaded that the contracts between her
and Hahn were not of agency but of sale, Santos did not fare as well.

The trial court ordered her to return the two rings or pay the plaintiff their value, which
was increased to P65,000.00, with legal interest, plus P10,000 moral damages, P5,000
exemplary damages, and P6,000.00 attorney's fees. 5 The increase on the original value of
the rings was based on Article 1250 of the Civil Code calling for an adjustment of the
payment due in case of extraordinary inflation or deflation. The moral and exemplary
damages were imposed because of the defendant's "seeming lack of scruples and
conscientiousness."

On appeal, this decision was modified. The Court of Appeals found that Article 1250 was
not applicable and that the appellant had not acted in bad faith or with malice. Accordingly,
it rendered judgment:

A. Ordering the defendants to return to the plaintiff the two

rings in question; to pay plaintiff legal interest on the value of
the ring, P47,000.00, from the time of the filing of the
complaint until restitution in made; and attorney's fees in the
amount of P6,000.00.

B. Sentencing the defendants, in case return of the rings is no

longer feasible, to pay to the plaintiff the value thereof, which
is P47,000.00, with interest at the legal rate from the time of
the filing of the complaint until full payment and P6,000.00
attorney's fees. 6

In challenging this decision, the petitioner contends that the respondent erred in not
allowing an upward adjustment of the original price of the two rings and in disallowing the
moral and exemplary damages granted by the trial court. These are the issues in this
petition.

On the first question, the petitioner cites Central Bank figures to show that the amount of
P47,000.00 in 1966, when the obligation to return it or the rings fell due, was equivalent to
about P235,000.00 in 1980 (and necessarily to an even higher amount now in view of the
continued reduction in the purchasing power of the peso). As the increase ordered by the
trial court (to P65,000.00 on August 7, 1971) was a finding of fact based on official figures,
the Court of Appeals was not justified in reversing the same.

The petitioner also argues that the award of moral and exemplary damages by the trial court
was entirely justified and should not have been disallowed by the respondent court. The
reason is that there was sufficient showing that the private respondent had acted with
malice and in bad faith toward the petitioner who had trusted her.

Thus, Santos misrepresented her agreements with the petitioner as contracts of sale when
the very language of the receipts she herself had written and signed clearly shows that she
was receiving the rings in trust from the petitioner, as later found in both the criminal and
civil cases. 7 Second, she claimed she had made installment payments directly and
personally to the petitioner during the period from August 14 to November 20, 1966, and
when this lie was exposed with evidence that the petitioner was abroad during that period,
changed her testimony to make it appear that the alleged payments had been made when
Hahn was in the country. 8 In fact, the finding of the trial court as sustained by the
respondent court was that she had made no payment at all at any time. 9 Third, when Santos
offered to return the solitaire ring to the petitioner, the latter readily saw that it was not the
same ring she had entrusted to the private respondent, who evidently wanted to foist
another deception upon her. 10

For her part, the private respondent dismisses the claim for upward adjustment of the
amount due and says Article 1250 of the Civil Code is not applicable, there being no
inflation or deflation. The Central Bank statistics Hahn invokes are hearsay and immaterial.
Not in point either is the case of Zulueta v. Pan-American World Airways," 11 as cited by
the petitioner, where the issue of inflation was not even raised. Moreover, the delay in the
payment of the amount due was imputable not to her but to the petitioner, who had
unreasonably prevented her from discharging her obligation.

As early as December of 1966, she says she had offered to return the marquisette ring to
the petitioner but the petitioner's lawyer, acting on her instructions, refused to accept it and
demanded the return also of the P35,000.00 solitaire ring. 12 She offered to pay for this
other ring on installment but this offer was also rejected. 13 At the trial of the criminal case
against her, she brought the solitaire ring to prove that she had not disposed of it, but the
petitioner denied it was the ring she had delivered to the accused.14 Still later, she offered
to pay for both rings on installment, but the offer was also rejected without reason by the
petitioner. 15 In sum, it is the petitioner who has delayed payment of the amount due and
not the private respondent, who was ready to settle her obligation.

The trial court cited no legal basis for the upward adjustment of the original amount due
although the reason was presumably Article 1250 of the Civil Code. We agree with the
respondent court that such adjustment was erroneous for, as explained by Justice Serafin
M. Cuevas (later a member of this Court):

We, however, find the contention of appellant under her fifth assignment of
error — that the lower court erred in applying the floating rate to the purely
peso transaction — to be meritorious.

In this regard, Article 1250 of the Civil Code provides —

In case an extraordinary inflation or deflation of the currency

stipulated should supervene, the value of the currency at the
time of the establishment of the obligation should be the basis
of payment, unless there is an agreement to the contrary.
 By extraordinary inflation or deflation of currency is understood to be any
uncommon decrease or increase in the purchasing power of currency which
the parties could not have reasonably foreseen and which has been due to war
and the effects thereof, or any unusual force majeure or fortuitous event.
(Civil Code of the Philippines, Dean Capistrano, Vol. III, p. 186.)

Under the circumstances, we do not find any legal justification in applying

the so-called 'floating rate," since there has been no 'extraordinary inflation"
of currency within the meaning of the aforequoted Art. 1250 of the Civil
Code. 16

The Court holds that, in determining the accountability of the private respondent, the trial
judge should have applied the following provisions of the Civil Code, as the respondent
court apparently did:

Art. 2209. If the obligation consists in the payment of a sum of money, and
the debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of the interest agreed upon,
and in the absence of stipulation, the legal interest, which is six per cent per
annum.

Art. 2210. Interest may, in the discretion of the court, be allowed upon
damages awarded for breach of contract.

Art. 2212. Interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent upon this point.

The Court notes, however, that the respondent court should also have imposed interest on
the interest due on the principal amount of P47,000.00, conformably to Article 2212. The
interest due started to earn interest from the date it was judicially demanded with the filing
of the complaint on January 6,1967.

As to the delay in the performance of the private respondent's obligation, our ruling is that
it was caused by the private respondent herself and not the petitioner who had the right to
demand performance in full of the former's obligation she had assumed under their written
agreement.

The receipts composed and signed by Santos, which were offered as Exhibits A and B, read
as follows:

June 2, 1966
Received from Mrs. Letty Hahn 1 ring solo diamond worth P12,000 to be
sold on commission or to be return upon demand.
June 7,1966

Received from Mrs. Letty Hahn 1 ring solo diamond worth P35,000 to be
sold on commission basis or to be return upon demand.
From the moment demand was made upon Santos and she did not or could not comply, she
has already incurred in delay. The meaning of the receipts is unmistakable. Her contention
that it was the private respondent who had prevented her from fulfilling her obligation is
simply untenable and unacceptable.

There is no doubt that the petitioner could validly reject the private respondent's offer to
pay for the rings on installment because Hahn was entitled to payment in full. If such
payment could not be made, Santos was obligated to return both of the rings — and not
one or the other only at her option — "upon demand," under the separate receipts she had
signed. According to Article 1233 of the Civil Code, "a debt shall not be understood to
have been paid unless the thing or service in which the obligation consists has been
completely delivered or rendered as the case may be."

As for the private respondent's offer to return the solitaire ring, which was also refused, the
pertinent rule is Article 1244, providing that "the debtor of a thing cannot compel the
creditor to receive a different one, although the latter may be of the same value as, or more
valuable than that which is due." More so then in the case at bar if, as averred by the
petitioner, the ring offered was less valuable than the one that was due . 17

We cannot sustain the respondent court, however, on the moral and exemplary damages
which it disallowed on the ground that "there was no clear showing of malice and bad faith
on the part of the defendant." The Court thinks otherwise. We hold that the moral and
exemplary damages should be restored in light of her dubious conduct as recounted in the
petitioner's brief and the following findings of the trial court which we have no reason to
disturb:

The Court cannot but take note of the relative ease with which i Josie M.
Santos says one thing at one given time and another altogether i n
subsequently afterwards, even if the statements different version are both
under the sanction of an oath. This seeming lack of scruples and
conscientiousness on her part do not place her in a favorable light under the
painstaking scrutiny of the Court. There is so much deviousness and
complexity in her testimony that does not invite the confidence of the
Court. 18

WHEREFORE, the petition is partly GRANTED. The decision of the respondent court
dated August 29, 1980, is MODIFIED as follows: a) the award of moral damages in the
sum of I P10,000.00 and exemplary damages in the sum of P5,000.00 is i added to the other
amounts to be paid by the private respondent to the petitioner in accordance with the said
decision; and b) I interest on the principal amount of P47,00.00 shall earn interest also at
the legal rate, from January 6, 1967, and until full payment is made. Costs against the
private respondent.

Kinds/Modes of delivery

NORKIS DISTRIBUTORS, INC., petitioner,

vs.
THE COURT OF APPEALS & ALBERTO NEPALES, respondents.

Jose D. Palma for petitioner.

Public Attorney's Office for private respondent.

GRIÑO-AQUINO, J.:
Subject of this petition for review is the decision of the Court of Appeals (Seventeenth
Division) in CA-G.R. No. 09149, affirming with modification the judgment of the Regional
Trial Court, Sixth (6th) Judicial Region, Branch LVI. Himamaylan, Negros Occidental, in
Civil Case No. 1272, which was private respondent Alberto Nepales' action for specific
performance of a contract of sale with damages against petitioner Norkis Distributors, Inc.

The facts borne out by the record are as follows:

Petitioner Norkis Distributors, Inc. (Norkis for brevity), is the distributor of Yamaha
motorcycles in Negros Occidental with office in Bacolod City with Avelino Labajo as its
Branch Manager. On September 20, 1979, private respondent Alberto Nepales bought from
the Norkis-Bacolod branch a brand new Yamaha Wonderbike motorcycle Model YL2DX
with Engine No. L2-329401K Frame No. NL2-0329401, Color Maroon, then displayed in
the Norkis showroom. The price of P7,500.00 was payable by means of a Letter of
Guaranty from the Development Bank of the Philippines (DBP), Kabankalan Branch,
which Norkis' Branch Manager Labajo agreed to accept. Hence, credit was extended to
Nepales for the price of the motorcycle payable by DBP upon release of his motorcycle
loan. As security for the loan, Nepales would execute a chattel mortgage on the motorcycle
in favor of DBP. Branch Manager Labajo issued Norkis Sales Invoice No. 0120 (Exh.1)
showing that the contract of sale of the motorcycle had been perfected. Nepales signed the
sales invoice to signify his conformity with the terms of the sale. In the meantime, however,
the motorcycle remained in Norkis' possession.

On November 6, 1979, the motorcycle was registered in the Land Transportation

Commission in the name of Alberto Nepales. A registration certificate (Exh. 2) in his name
was issued by the Land Transportation Commission on November 6, 1979 (Exh. 2-b). The
registration fees were paid by him, evidenced by an official receipt, Exhibit 3.

On January 22, 1980, the motorcycle was delivered to a certain Julian Nepales who was
allegedly the agent of Alberto Nepales but the latter denies it (p. 15, t.s.n., August 2, 1984).
The record shows that Alberto and Julian Nepales presented the unit to DBP's Appraiser-
Investigator Ernesto Arriesta at the DBP offices in Kabankalan, Negros Occidental Branch
(p. 12, Rollo). The motorcycle met an accident on February 3, 1980 at Binalbagan, Negros
Occidental. An investigation conducted by the DBP revealed that the unit was being driven
by a certain Zacarias Payba at the time of the accident (p. 33, Rollo). The unit was a total
wreck (p. 36, t.s.n., August 2,1984; p. 13, Rollo), was returned, and stored inside Norkis'
warehouse.

On March 20, 1980, DBP released the proceeds of private respondent's motorcycle loan to
Norkis in the total sum of P7,500. As the price of the motorcycle later increased to P7,828
in March, 1980, Nepales paid the difference of P328 (p. 13, Rollo) and demanded the
delivery of the motorcycle. When Norkis could not deliver, he filed an action for specific
performance with damages against Norkis in the Regional Trial Court of Himamaylan,
Negros Occidental, Sixth (6th) Judicial Region, Branch LVI, where it was docketed as
Civil Case No. 1272. He alleged that Norkis failed to deliver the motorcycle which he
purchased, thereby causing him damages.

Norkis answered that the motorcycle had already been delivered to private respondent
before the accident, hence, the risk of loss or damage had to be borne by him as owner of
the unit.

After trial on the merits, the lower court rendered a decision dated August 27, 1985 ruling
in favor of private respondent (p. 28, Rollo.) thus:

WHEREFORE, judgment is rendered in favor of the plaintiff and against the

defendants. The defendants are ordered to pay solidarity to the plaintiff the present
value of the motorcycle which was totally destroyed, plus interest equivalent to what
the Kabankalan Sub-Branch of the Development Bank of the Philippines will have
to charge the plaintiff on fits account, plus P50.00 per day from February 3, 1980
until full payment of the said present value of the motorcycle, plus P1,000.00 as
exemplary damages, and costs of the litigation. In lieu of paying the present value
of the motorcycle, the defendants can deliver to the plaintiff a brand-new motorcycle
of the same brand, kind, and quality as the one which was totally destroyed in their
possession last February 3, 1980. (pp. 28-29, Rollo.)

On appeal, the Court of appeals affirmed the appealed judgment on August 21, 1989, but
deleted the award of damages "in the amount of Fifty (P50.00) Pesos a day from February
3, 1980 until payment of the present value of the damaged vehicle" (p35, Rollo). The Court
of Appeals denied Norkis' motion for reconsideration. Hence, this Petition for Review.

The principal issue in this case is who should bear the loss of the motorcycle. The answer
to this question would depend on whether there had already been a transfer of ownership
of the motorcycle to private respondent at the time it was destroyed.

Norkis' theory is that:

. . . After the contract of sale has been perfected (Art. 1475) and even before
delivery, that is, even before the ownership is transferred to the vendee, the risk of
loss is shifted from the vendor to the vendee. Under Art. 1262, the obligation of the
vendor to deliver a determinate thing becomes extinguished if the thing is lost by
fortuitous event (Art. 1174), that is, without the fault or fraud of the vendor and
before he has incurred in delay (Art. 11 65, par. 3). If the thing sold is generic, the
loss or destruction does not extinguish the obligation (Art. 1263). A thing is
determinate when it is particularly designated or physically segregated from all
others of the same class (Art. 1460). Thus, the vendor becomes released from his
obligation to deliver the determinate thing sold while the vendee's obligation to pay
 the price subsists. If the vendee had paid the price in advance the vendor may retain
the same. The legal effect, therefore, is that the vendee assumes the risk of loss by
fortuitous event (Art. 1262) after the perfection of the contract to the time of
delivery. (Civil Code of the Philippines, Ambrosio Padilla, Vol. 5,1987 Ed., p. 87.)

Norkis concedes that there was no "actual" delivery of the vehicle. However, it insists that
there was constructive delivery of the unit upon: (1) the issuance of the Sales Invoice No.
0120 (Exh. 1) in the name of the private respondent and the affixing of his signature
thereon; (2) the registration of the vehicle on November 6, 1979 with the Land
Transportation Commission in private respondent's name (Exh. 2); and (3) the issuance of
official receipt (Exh. 3) for payment of registration fees (p. 33, Rollo).

That argument is not well taken. As pointed out by the private respondent, the issuance of
a sales invoice does not prove transfer of ownership of the thing sold to the buyer. An
invoice is nothing more than a detailed statement of the nature, quantity and cost of the
thing sold and has been considered not a bill of sale (Am. Jur. 2nd Ed., Vol. 67, p. 378).

In all forms of delivery, it is necessary that the act of delivery whether constructive or
actual, be coupled with the intention of delivering the thing. The act, without the intention,
is insufficient (De Leon, Comments and Cases on Sales, 1978 Ed., citing Manresa, p. 94).

When the motorcycle was registered by Norkis in the name of private respondent, Norkis
did not intend yet to transfer the title or ownership to Nepales, but only to facilitate the
execution of a chattel mortgage in favor of the DBP for the release of the buyer's
motorcycle loan. The Letter of Guarantee (Exh. 5) issued by the DBP, reveals that the
execution in its favor of a chattel mortgage over the purchased vehicle is a pre-requisite for
the approval of the buyer's loan. If Norkis would not accede to that arrangement, DBP
would not approve private respondent's loan application and, consequently, there would be
no sale.

In other words, the critical factor in the different modes of effecting delivery, which gives
legal effect to the act, is the actual intention of the vendor to deliver, and its acceptance by
the vendee. Without that intention, there is no tradition (Abuan vs. Garcia, 14 SCRA 759).

In the case of Addison vs. Felix and Tioco (38 Phil. 404, 408), this Court held:

The Code imposes upon the vendor the obligation to deliver the thing sold. The
thing is considered to be delivered when it is "placed in the hands and possession of
the vendee." (Civil Code, Art. 1462). It is true that the same article declares that the
execution of a public instrument is equivalent to the delivery of the thing which is
the object of the contract, but, in order that this symbolic delivery may produce the
effect of tradition, it is necessary that the vendor shall have had such control over
the thing sold that, at the moment of the sale, its material delivery could have been
 made. It is not enough to confer upon the purchaser the ownership and the right of
possession. The thing sold must be placed in his control. When there is no
impediment whatever to prevent the thing sold passing into the tenancy of the
purchaser by the sole will of the vendor, symbolic delivery through the execution of
a public instrument is sufficient. But if notwithstanding the execution of the
instrument, the purchaser cannot have the enjoyment and material tenancy of the
thing and make use of it himself or through another in his name, because such
tenancy and enjoyment are opposed by the interposition of another will, then fiction
yields to reality-the delivery has riot been effects .(Emphasis supplied.)

The Court of Appeals correctly ruled that the purpose of the execution of the sales invoice
dated September 20, 1979 (Exh. B) and the registration of the vehicle in the name of
plaintiff-appellee (private respondent) with the Land Registration Commission (Exhibit C)
was not to transfer to Nepales the ownership and dominion over the motorcycle, but only
to comply with the requirements of the Development Bank of the Philippines for processing
private respondent's motorcycle loan. On March 20, 1980, before private respondent's loan
was released and before he even paid Norkis, the motorcycle had already figured in an
accident while driven by one Zacarias Payba. Payba was not shown by Norkis to be a
representative or relative of private respondent. The latter's supposed relative, who
allegedly took possession of the vehicle from Norkis did not explain how Payba got hold
of the vehicle on February 3, 1980. Norkis' claim that Julian Nepales was acting as
Alberto's agent when he allegedly took delivery of the motorcycle (p. 20, Appellants'
Brief), is controverted by the latter. Alberto denied having authorized Julian Nepales to get
the motorcycle from Norkis Distributors or to enter into any transaction with Norkis
relative to said motorcycle. (p. 5, t.s.n., February 6, 1985). This circumstances more than
amply rebut the disputable presumption of delivery upon which Norkis anchors its defense
to Nepales' action (pp. 33-34, Rollo).

Article 1496 of the Civil Code which provides that "in the absence of an express
assumption of risk by the buyer, the things sold remain at seller's risk until the ownership
thereof is transferred to the buyer," is applicable to this case, for there was neither an actual
nor constructive delivery of the thing sold, hence, the risk of loss should be borne by the
seller, Norkis, which was still the owner and possessor of the motorcycle when it was
wrecked. This is in accordance with the well-known doctrine of res perit domino.

WHEREFORE, finding no reversible error in the decision of the Court of Appeals in CA-
G.R. No. 09149, we deny the petition for review and hereby affirm the appealed decision,
with costs against the petitioner.

JOSE V. LAGON, petitioner,

vs.
HOOVEN COMALCO INDUSTRIES, INC., respondent.
BELLOSILLO, J.:

This petition for review on certiorari seeks to set aside the Decision of the Court of
Appeals of 28 April 1997 which in turn set aside the decision of the Regional Trial Court
of Davao City and ordered petitioner Jose V. Lagon to pay respondent Hooven Comalco
Industries, Inc. (HOOVEN) the amount of P 69,329.00 with interest at twelve percent
(12%) per annum computed from the filing of the complaint until fully paid, plus attorney's
fees and costs,1 as well as the Resolution of the appellate court denying reconsideration
thereof.2

Petitioner Jose V. Lagon is a businessman and owner of a commercial building in

Tacurong, Sultan Kudarat. Respondent HOOVEN on the other hand is a domestic
corporation known to be the biggest manufacturer and installer of aluminum materials in
the country with branch office at E. Quirino Avenue, Davao City.

Sometime in April 1981 Lagon and HOOVEN entered into two (2) contracts, both
denominated Proposal, whereby for a total consideration of P104,870.00 HOOVEN
agreed to sell and install various aluminum materials in Lagon's commercial building in
Tacurong, Sultan Kudarat.3 Upon execution of the contracts, Lagon paid HOOVEN
P48,00.00 in advance.4

On 24 February 1987 respondent HOOVEN commenced an action for sum of money with
damages and attorney's fees against petitioner Lagon before the Regional Trial Court of
Davao City. HOOVEN alleged in its complaint that on different occasions, it delivered and
installed several construction materials in the commercial building of Lagon pursuant to
their contracts; that the total cost of the labor and materials amounted to P117,329.00 out
of which P69,329.00 remained unpaid even after the completion of the project; and, despite
repeated demands, Lagon failed and refused to liquidate his indebtedness. HOOVEN also
prayed for attorney's fees and litigation expenses, and in support thereof, presented its OIC,
Alberto Villanueva, and its employee, Ernesto Argente, and other witnesses, as well as
several documentary evidence consisting mainly of the two (2) proposals, invoices and
delivery receipts.1âwphi1.nêt

Lagon, in his answer, denied liability and averred that HOOVEN was the party guilty of
breach of contract by failing to deliver and install some of the materials specified in the
proposals; that as a consequence he was compelled to procure the undelivered materials
from other sources; that as regards the materials duly delivered and installed by HOOVEN,
they were fully paid. He counterclaimed for actual, moral, exemplary, temperate and
nominal damages, as well as for attorney's fees and expenses of litigation.

On 9 October 1987, upon request of both parties, the trial court conducted an ocular
inspection of Lagon's commercial building to determine whether the items alleged in the
complaint and appearing in the invoices and delivery receipts had been delivered and
installed on the premises. The result of the ocular inspection was -

1) with respect to the items covered by Exhibit "A" and submarkings that there are
only seventeen (17) light diffusers, 13 in the ceiling of the ground and 4 on the
mezzanine (Ocular Inspection, TSN, pp. 5 to 6); 2) on Exhibit "B" and submarkings,
there are only twenty-three (23) light aluminum boxes, 14 aluminum boxes in the
ceiling of the mezzanine and 9 on the ceiling of the ground floor (Ocular Inspection,
TSN, p. 7); 3) on Exhibit "C-1," the items are missing in the area where they were
supposed to be installed; 4) on Exhibit "C-2," admitted by defendant Lagon when
he stated that "I will admit that these were installed by the plaintiff but I do not know
exactly the materials, but I really accept that these were installed sometime in 1981,
before the occupation of the DBP. But I have paid that already in 1981. I could not
identify the materials delivered in 1981 because I do not know the exact names of
those materials." (Ocular Inspection, TSN, p. 12); 5) on Exhibit "C-2," the glasses
are not tinted but plain white; on Exhibit "C-3," the materials cannot be formed (sic)
in the place where they are supposed to be (Ocular Inspection, TSN, p.7); 6) Exhibit
"D" and "D-1," that the materials were supplied by plaintiff but they did not install
them. It was the defendant who caused the installation thereof (Ocular Inspection,
TSN, p. 13.); and 7) Exhibit "E-1," as NU- Main and Cross-Runners and supplied
by plaintiff but plaintiff did not install. They had it installed (Ocular Inspection,
TSN, p. 14).

In due course the trial court rendered a decision partly on the basis of the result of the ocular
inspection finding that the total actual deliveries and installations made by HOOVEN cost
P 87,140.00. Deducting therefrom P 48,000.00 which Lagon paid in advance upon
execution of their contracts with no further payments appearing to have been made
thereafter, only P 39,140.00 remained unpaid and where Lagon incurred in delay. The trial
court also awarded HOOVEN P 3,255.00 as attorney's fees, but sustained Lagon's
counterclaims and awarded him P26,120.00 as actual damages representing the value of
the undelivered and uninstalled materials, and P30,000.00 as attorney's fees in addition to
litigation expenses of P 45,534.50. According to the court a quo5 –

As a result of the partial breach of contract on plaintiff's (Hooven Comalco) part,

the defendant is entitled to actual damages only to the extent of the undelivered
materials and undone labor or to the amount of P26,120.00. This P26,120.00 will
be partially offsetted (sic) to the P 39,140.00 unpaid balance of the defendant
(Lagon), so that the difference that remain (sic) payable to plaintiff is P13,020.00.
Evidence is insufficient to show that bad faith existed in the filing of the instant
complaint for collection against the defendant. Plaintiff's obstinate conduct in
prosecuting its claim spending for litigation expenses and for its lawyers negate the
existence of bad faith. The fact alone that the findings of fact show an unpaid
account of the defendant is proof that the complaint is not completely unfounded
 though evidence shows also that plaintiff is guilty of partial breach of contract by
reason of failure to completely deliver and install the materials defendant ordered
pursuant to the contract so that plaintiff is liable for damages. As plaintiff acted in
good faith in the filing of the instant complaint in the belief that it has a valid cause
of action against the defendant to enforce its claim, engaging a lawyer to prosecute
it, plaintiff is entitled to a reasonable attorney's fees equivalent to 25% of the
collectible amount of P13,020.00 or the amount of P3,225.00. Defendant's claim of
attorney's fees in the amount of P152,629.15 is in the opinion of the court clearly
unreasonable and unconscionable considering the nature of the action and the
amount involved. The court has the power to reduce it to render it reasonable and
conscionable whether the contract for attorney's fees is written or oral. The
attorney's fees is fixed at P30,000.00. The defendant presented evidence of litigation
expenses incurred in the course of the trial for plane fare of its lawyer in coming to
Davao City from Manila from 1987 up to July 1990 in the total amount of
P34,730.50 as evidenced by Exhibit "11" to "11-E." The records show that the
defendant's counsel came to Davao City from Manila to attend eleven (11) hearings
of the case and the plane fare from 1987 up to August, 1989 is P2,524.50 and from
August 1989 to June 1990 is P3,007.50. Hotel expenses of defendant's counsel at
the Maguindanao Hotel where he was billeted everytime he came to Davao City to
attend the trial amounted to P11,824.00 as evidenced by Exhibit "17," the
certification issued by the said hotel management. So that the total amount of the
actual damage suffered by defendant is P45,534.50. Said amount of P45,534.50 is
partially offsetted (sic) by the amount of P13,020.00 representing the unpaid
obligation of the defendant to the plaintiff so that the plaintiff is still liable to pay
the defendant the difference in the amount of P32,514.50.

Both parties appealed to the Court of Appeals. In its Decision of 28 April 1997, the
appellate court set aside the judgment of the trial court and resolved the case in favor of
HOOVEN. It held that the trial court erred in relying solely on the results of the ocular
inspection since the delivery and installation of the materials in question started as early as
1981, while the ocular inspection was conducted only in 1987 or six (6) years later, after
the entire mezzanine was altered and the whole building renovated. The appellate court
also stressed that the testimonies of HOOVEN's witnesses were straightforward,
categorical and supported by documentary evidence of the disputed transactions, and that
all Lagon could offer was a mere denial, uncorroborated and self-serving statements
regarding his transactions with HOOVEN. The decretal portion of the assailed decision of
the Court of Appeals reads -

ACCORDINGLY, finding the decision of August 26, 1991 appealed from afflicted
by reversible errors, the same is hereby SET ASIDE, and a new one entered ordering
the defendant-appellant (Lagon) to pay plaintiff-appellant (Hooven Comalco):
 The amount of P69,329.00 plus interest of 12% per annum computed from the date
of the filing of the complaint, until fully paid.

Fifteen percent (15%) of the amount due, as and by way of attorney's fees.

Defendant-appellant to pay costs.

Petitioner's motion for reconsideration having been denied he now hopes to secure relief
from this Court by contending that: (a) The Court of Appeals erred in holding that the trial
court could not rely on the results of the ocular inspection conducted on his commercial
building in Tacurong, Sultan Kudarat; and, (b) The assailed decision of the appellate court
is based on speculations and contrary to the evidence adduced during the trial.

The arguments in the petition ultimately boil down to the sole issue of whether all the
materials specified in the contracts had been delivered and installed by respondent in
petitioner's commercial building in Tacurong, Sultan Kudarat. The question is basically
factual involving as it does an evaluation of the conflicting evidence presented by the
contending parties, including the existence and relevance of specific surrounding
circumstances, to determine the truth or falsity of alleged facts.

While factual issues are not within the province of this Court, as it is not a trier of facts and
is not required to examine or contrast the oral and documentary evidence de
novo,6 nevertheless, the Court has the authority to review and, in proper cases, reverse the
factual findings of lower courts in these instances: (a) when the findings of fact of the trial
court are in conflict with those of the appellate court; (b) when the judgment of the appellate
court is based on misapprehension of facts; and, (c) when the appellate court manifestly
overlooked certain relevant facts which, if properly considered, would justify a different
conclusion.7 This case falls squarely within the foregoing exceptions.

Before delving into the merits of this case, we find it necessary to describe and detail the
nature and contents of the vital documentary exhibits upon which respondent HOOVEN
based its claims, thus -

We have carefully and diligently considered the foregoing exhibits and we are fully
convinced that the mass of documentary evidence adduced by respondent suffers from
patent irregularities and material inconsistencies on their faces, raising serious questions
requiring cogent explanations. These flaws inevitably deplete the weight of its evidence,
with the result that for lack of the requisite quantum of evidence, respondent dismally failed
in the lower court to discharge its burden necessary to prevail in this case.

Firstly, the quantity of materials and the amounts stated in the delivery receipts do not tally
with those in the invoices covering them, notwithstanding that, according to HOOVEN
OIC Alberto Villanueva, the invoices were based merely on the delivery receipts.8 For
instance, only eleven (11) items were listed in Exhs. "C-2" and "C-3" with a total worth of
P77,163.50. But in Exh. "C," which was the invoice for Exhs. "C-2" and "C-3," there were
thirteen (13) items enumerated for a total worth of P85,803.50. If Exh. "C" is supposed to
be based on Exhs. "C-2" and "C-3," we cannot understand the apparent discrepancy in the
items listed in those documents when they all referred to the same materials.

Secondly, the total value of the materials as reflected in all the invoices is P117,329.00
while under the delivery receipts it is only P112,870.50, or a difference of P4,458.00.
Moreover, the materials listed in the two (2) Proposals, upon which HOOVEN based its
claims, is only for the total sum of P104,870.00. Curiously then, why would the materials
supposedly delivered by HOOVEN be more than what was contracted and purchased by
Lagon? This circumstance underscores the need to reexamine the strength, if not weakness,
of respondent's cause.

Thirdly, under the Proposals HOOVEN bound itself to invoice the materials "when
complete and ready for shipment." Oddly, the records show that the invoices were prepared
several years after the materials were allegedly delivered and installed completely on
petitioner's building. Alberto Villanueva testified that their project with petitioner was
completed sometime in August 1981 and that thereafter no further installation was done in
the building.9 But the disputed invoices marked Exhs. "A" and "B" were prepared only on
29 December 1982; Exhs. "C" and "D" were prepared only on 29 December 1984; and,
Exh. "E" was prepared only on 29 November 1984. As for the delivery receipts, Exhs. "C-
1," "C-2," "C-3" and "E-1" were prepared only on 25 August 1983 or two (2) years after
the completion of the project, while Exh. "A-3" was prepared only on 8 December 1981 or
some four (4) months after the date of completion.

Even more strange is the fact that HOOVEN instituted the present action for collection of
sum of money against Lagon only on 24 February 1987, or more than five (5) years after
the supposed completion of the project. Indeed, it is contrary to common experience that a
creditor would take its own sweet time in collecting its credit, more so in this case when
the amount involved is not miniscule but substantial.

Fourthly, the demand letter of 25 August 198310 sent to petitioner by respondent further
betrays the falsity of its claims -

Dear Mr. Lagon:

The bearer, Mr. Fermin Piñero, is an authorized representative of this company. He

will arrange for your acceptance of the complete aluminum and glass installation
we have undertaken for your building. He has with him the delivery receipts for
your signature so with a statement of account showing your balance. Kindly favor
us with a partial payment to cover our operation costs. Also kindly relay to him all
other installations you wish us to undertake.
 Hoping for your favorable action, we shall remain.

Very Truly Yours,

Hooven Comalco Industries, Inc.

Davao Branch

(Sgd.) Alberto P. Villanueva

If, as claimed by HOOVEN, all the materials were completely delivered and installed in
petitioner's building as early as August 1981, why then would it demand partial payment
only two (2) years later? This circumstance is very significant especially considering that
under the Proposals the terms of payment should be 50% down "and the balance to be paid
in full" upon completion. Moreover, it is surprising that the partial payment demanded was
only "to cover operation costs." As correctly observed by petitioner, demand for payment
of operation costs is typical of a still on-going project where the contractor needs funds to
defray his expenses. If there was complete installation, why would respondent demand
payment for operation costs only? Why not enforce the whole amount of indebtedness? All
these clearly suggest that there was no full and complete delivery and installation of
materials ordered by petitioner.

Fifthly, all the delivery receipts did not appear to have been signed by petitioner or his duly
authorized representative acknowledging receipt of the materials listed therein. A closer
examination of the receipts clearly showed that the deliveries were made to a certain Jose
Rubin, claimed to be petitioner's driver, Armando Lagon, and a certain bookkeeper.
Unfortunately for HOOVEN, the identities of these persons were never been established,
and there is no way of determining now whether they were indeed authorized
representatives of petitioner. Paragraph 3 of each Proposal is explicit on this point -

3. x x x the seller's responsibility ends with delivery of the merchandise to carrier in

good condition, to buyer, or to buyer's authorized "Receiver/Depository" named on
the face of this proposal (underscoring supplied).

As above specifically stated, deliveries must be made to the buyer or his duly authorized
representative named in the contracts. In other words, unless the buyer specifically
designated someone to receive the delivery of materials and his name is written on
the Proposals opposite the words "Authorized Receiver/Depository," the seller is under
obligation to deliver to the buyer only and to no other person; otherwise, the delivery would
be invalid and the seller would not be discharged from liability. In the present case,
petitioner did not name any person in the Proposals who would receive the deliveries in
his behalf, which meant that HOOVEN was bound to deliver exclusively to petitioner.
Sixthly, it is also obvious from the contested delivery receipts that some important details
were not supplied or were left in blank, i.e., truck numbers, persons who delivered the
materials, invoice and s. o. numbers. The persons who delivered the materials were
potential witnesses who could shed light on the circumstances surrounding the alleged
deliveries of the materials to petitioner. Moreover, it could have been easier for HOOVEN
to pinpoint responsibility to any of its employees for the non-delivery of the materials.

We are not unaware of the slipshod manner of preparing receipts, order slips and invoices,
which unfortunately has become a common business practice of traders and businessmen.
In most cases, these commercial forms are not always fully accomplished to contain all the
necessary information describing the whole business transaction. The sales clerks merely
indicate a description and the price of each item sold without bothering to fill up all the
available spaces in the particular receipt or invoice, and without proper regard for any legal
repercussion for such neglect. Certainly, it would not hurt if businessmen and traders would
strive to make the receipts and invoices they issue complete, as far as practicable, in
material particulars. These documents are not mere scraps of paper bereft of probative
value but vital pieces of evidence of commercial transactions. They are written memorials
of the details of the consummation of contracts.

Given this pathetic state of respondent's evidence, how could it be said that respondent had
satisfactorily proved its case? Essentially, respondent has the burden of establishing its
affirmative allegations of complete delivery and installation of the materials, and
petitioner's failure to pay therefor. In this regard, its evidence on its discharge of that duty
is grossly anemic. We emphasize that litigations cannot be properly resolved by
suppositions, deductions, or even presumptions, with no basis in evidence, for the truth
must have to be determined by the hard rules of admissibility and proof.

The Court of Appeals however faulted the trial court for supposedly relying solely on the
results of the ocular inspection on the premises, which were not conclusive since the
inspection was conducted several years after the disputed materials were allegedly installed
therein.

We disagree. The ocular inspection was made by the judge himself, at the request of both
petitioner and respondent, for the exclusive purpose of determining whether the materials
subject of this case were actually delivered and installed. There is therefore no basis to give
little evidentiary value on the results of the ocular inspection, as the Court of Appeals
would, and charge the trial court with error for relying thereon. It is now rather late for any
of the parties to disclaim them, especially when they are not in his or its favor. Furthermore,
a cursory reading of the decision of the court a quo will at once show that it was not
premised solely on the results of the ocular inspection but was likewise predicated on other
evidence presented by the parties and well-considered facts and circumstances discussed
by the trial court in its ratio decidendi. We cannot ignore the factual findings of the trial
court, which must carry great weight in the evaluation of evidentiary facts, and in the
absence of any indication showing grave error committed by trial court, the appellate court
is bound to respect such findings of fact.1âwphi1.nêt

We hasten to add however that petitioner is not entirely free from any liability to
respondent. Petitioner admitted the delivery of materials under Exhs. "A" and its
submarkings, "B" and its submarkings, "D," "D-1" and "E." With respect to Exh. "C-2,"
petitioner acknowledged his obligation under the first heading, Items Nos. 3, 4 and 5, and
the second heading, and denied the rest. Consequently, he should be made liable therefor
in the total amount of P58,786.65. From this amount, petitioner's down payment of
P48,000.00 should be deducted.

It is insisted by petitioner in his appeal brief filed before the Court of Appeals that the
second item under the second heading of Exh. "C-2" should be excluded in the computation
since he never admitted liability therefor.

We are not persuaded. The transcript of stenographic notes shows that during the ocular
inspection counsel for respondent manifested in effect that petitioner admitted the delivery
and installation of the second item in his building, and petitioner did not interpose any
objection to respondent's manifestation -

ATTY. QUIÑONES: We would like to make of record that defendant (Lagon)

admits that plaintiff (Hooven Comalco) delivered and installed Item No. 1 under the
second column of Exhibit "C-2" which is the front door of the ground floor.

ATTY. RICO: Defendant however adds that these were installed in 1981 and had
already paid for the said item.

ATTY. QUIÑONES: I would like to make of record also that defendant admits the
delivery and installation of Item No. 2 under the second column of Exhibit "C-2" as
having been delivered and installed by the plaintiff in 1981 with the qualification,
however, that he had already paid the same.

COURT: Are you stating that all these installed items on the ground floor were all
paid by you?

MR. LAGON: Yes, Your Honor.11

Petitioner cannot now be heard to complain against its inclusion in the computation of his
liability since his silence virtually amounted to acquiescence. The silence of one of the
contracting parties and his failure to protest against the claims of the other party, when he
is chargeable with the duty to do so, strongly suggest an admission of the veracity and
validity of the other party's claims.
In sum, petitioner's total liability to respondent may be computed as follows:

(1) Items under Exh. "A," consisting of 17 light diffusers at P 680.00

P40.00 each
(2) Items under Exh. "B," consisting of 23 light boxes at 3,220.00
P40.00 each
(3) Third, fourth and fifth items under the first heading of 14,176.65
Exh. "C-2" which on the basis of their measurements
constitute only 1/3 of the total costs of materials listed
therein
(4) Items under the second heading of Exh. "C-2" 21,740.00
(5) Items under Exhs. "D" and "D-1" 4,860.00
(6) Items under Exh. "E-1" 14,110.00 P58,786.65
Less: Stipulated 7% discount 4,408.99
P54,377.66
Less: Advance payment made by petitioner to Hooven 48,000.00
Comalco
Unpaid Balance of petitioner P6,377.66

Notwithstanding the breach of contract by respondent in failing to deliver and install in the
premises of petitioner all the stipulated materials, we nevertheless accede to the right of
respondent to recover the unpaid balance from petitioner for the materials actually
delivered.

The next point of inquiry is the propriety of awarding damages, attorney's fees and
litigation expenses.

We are not in accord with the trial court's ruling that petitioner is entitled to actual damages
to the extent of the undelivered materials and undone labor in the amount of P26,120.00.
There is no proof that petitioner already paid for the value of the undelivered and
uninstalled materials to respondent. Therefore, petitioner may not be deemed to have
suffered any such damage. We have declared in no uncertain terms that actual or
compensatory damages cannot be presumed but must be proved with reasonable degree of
certainty.12 A court cannot rely on speculations, conjectures or guesswork as to the fact of
damage but must depend upon competent proof that they have indeed been suffered by the
injured party and on the basis of the best evidence obtainable as to the actual amount
thereof.13 It must point out specific facts that could provide the gauge for measuring
whatever compensatory or actual damages were borne.

But we agree with petitioner that he is entitled to moral damages. HOOVEN's bad faith lies
not so much on its breach of contract - as there was no showing that its failure to comply
with its part of the bargain was motivated by ill will or done with fraudulent intent - but
rather on its appalling temerity to sue petitioner for payment of an alleged unpaid balance
of the purchase price notwithstanding knowledge of its failure to make complete delivery
and installation of all the materials under their contracts. It is immaterial that, after the trial,
petitioner was found to be liable to respondent to the extent of P6,377.66. Petitioner's right
to withhold full payment of the purchase price prior to the delivery and installation of all
the merchandise cannot be denied since under the contracts the balance of the purchase
price became due and demandable only upon the completion of the project. Consequently,
the resulting social humiliation and damage to petitioner's reputation as a respected
businessman in the community, occasioned by the filing of this suit provide sufficient
grounds for the award of P50,000.00 as moral damages.

Moreover, considering the fact that petitioner was drawn into this litigation by respondent
and was compelled to hire an attorney to protect and defend his interest, and taking into
account the work done by said attorney throughout the proceedings, as reflected in the
record, we deem it just and equitable to award attorney's fees for petitioner in the amount
of P30,000.00.14 In addition, we agree with the trial court that petitioner is entitled to
recover P46,554.50 as actual damages including litigation expenses as this amount is
sufficiently supported by the evidence.15

WHEREFORE, the assailed Decision of the Court of Appeals dated 28 April 1997
is MODIFIED. Petitioner Jose V. Lagon is ordered to pay respondent Hooven Comalco
Industries, Inc., P6,377.66 representing the value of the unpaid materials admittedly
delivered to him. On the other hand, respondent is ordered to pay petitioner P50,000.00 as
moral damages, P30,000.00 as attorney's fees and P46,554.50 as actual damages and
litigation expenses.

SO ORDERED.

Diligence of a good father of a family/ paterfamilias

DURBAN APARTMENTS CORPORATION, doing business under the name and

style of City Garden Hotel,Petitioner,
vs.
PIONEER INSURANCE AND SURETY CORPORATION, Respondent.
DECISION

NACHURA, J.:

For review is the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 86869, which
affirmed the decision2 of the Regional Trial Court (RTC), Branch 66, Makati City, in Civil
Case No. 03-857, holding petitioner Durban Apartments Corporation solely liable to
respondent Pioneer Insurance and Surety Corporation for the loss of Jeffrey See’s (See’s)
vehicle.

The facts, as found by the CA, are simple.

On July 22, 2003, [respondent] Pioneer Insurance and Surety Corporation x x x, by right
of subrogation, filed [with the RTC of Makati City] a Complaint for Recovery of Damages
against [petitioner] Durban Apartments Corporation, doing business under the name and
style of City Garden Hotel, and [defendant before the RTC] Vicente Justimbaste x x x.
[Respondent averred] that: it is the insurer for loss and damage of Jeffrey S. See’s [the
insured’s] 2001 Suzuki Grand Vitara x x x with Plate No. XBH-510 under Policy No. MC-
CV-HO-01-0003846-00-D in the amount of ₱1,175,000.00; on April 30, 2002, See arrived
and checked in at the City Garden Hotel in Makati corner Kalayaan Avenues, Makati City
before midnight, and its parking attendant, defendant x x x Justimbaste got the key to said
Vitara from See to park it[. O]n May 1, 2002, at about 1:00 o’clock in the morning, See
was awakened in his room by [a] telephone call from the Hotel Chief Security Officer who
informed him that his Vitara was carnapped while it was parked unattended at the parking
area of Equitable PCI Bank along Makati Avenue between the hours of 12:00 [a.m.] and
1:00 [a.m.]; See went to see the Hotel Chief Security Officer, thereafter reported the
incident to the Operations Division of the Makati City Police Anti-Carnapping Unit, and a
flash alarm was issued; the Makati City Police Anti-Carnapping Unit investigated Hotel
Security Officer, Ernesto T. Horlador, Jr. x x x and defendant x x x Justimbaste; See gave
his Sinumpaang Salaysay to the police investigator, and filed a Complaint Sheet with the
PNP Traffic Management Group in Camp Crame, Quezon City; the Vitara has not yet been
recovered since July 23, 2002 as evidenced by a Certification of Non- Recovery issued by
the PNP TMG; it paid the ₱1,163,250.00 money claim of See and mortgagee ABN AMRO
Savings Bank, Inc. as indemnity for the loss of the Vitara; the Vitara was lost due to the
negligence of [petitioner] Durban Apartments and [defendant] Justimbaste because it was
discovered during the investigation that this was the second time that a similar incident of
carnapping happened in the valet parking service of [petitioner] Durban Apartments and
no necessary precautions were taken to prevent its repetition; [petitioner] Durban
Apartments was wanting in due diligence in the selection and supervision of its employees
particularly defendant x x x Justimbaste; and defendant x x x Justimbaste and [petitioner]
Durban Apartments failed and refused to pay its valid, just, and lawful claim despite written
demands.
Upon service of Summons, [petitioner] Durban Apartments and [defendant] Justimbaste
filed their Answer with Compulsory Counterclaim alleging that: See did not check in at its
hotel, on the contrary, he was a guest of a certain Ching Montero x x x; defendant x x x
Justimbaste did not get the ignition key of See’s Vitara, on the contrary, it was See who
requested a parking attendant to park the Vitara at any available parking space, and it was
parked at the Equitable Bank parking area, which was within See’s view, while he and
Montero were waiting in front of the hotel; they made a written denial of the demand of
[respondent] Pioneer Insurance for want of legal basis; valet parking services are provided
by the hotel for the convenience of its customers looking for a parking space near the hotel
premises; it is a special privilege that it gave to Montero and See; it does not include
responsibility for any losses or damages to motor vehicles and its accessories in the parking
area; and the same holds true even if it was See himself who parked his Vitara within the
premises of the hotel as evidenced by the valet parking customer’s claim stub issued to
him; the carnapper was able to open the Vitara without using the key given earlier to the
parking attendant and subsequently turned over to See after the Vitara was stolen;
defendant x x x Justimbaste saw the Vitara speeding away from the place where it was
parked; he tried to run after it, and blocked its possible path but to no avail; and See was
duly and immediately informed of the carnapping of his Vitara; the matter was reported to
the nearest police precinct; and defendant x x x Justimbaste, and Horlador submitted
themselves to police investigation.

During the pre-trial conference on November 28, 2003, counsel for [respondent] Pioneer
Insurance was present. Atty. Monina Lee x x x, counsel of record of [petitioner] Durban
Apartments and Justimbaste was absent, instead, a certain Atty. Nestor Mejia appeared for
[petitioner] Durban Apartments and Justimbaste, but did not file their pre-trial brief.

On November 5, 2004, the lower court granted the motion of [respondent] Pioneer
Insurance, despite the opposition of [petitioner] Durban Apartments and Justimbaste, and
allowed [respondent] Pioneer Insurance to present its evidence ex parte before the Branch
Clerk of Court.

See testified that: on April 30, 2002, at about 11:30 in the evening, he drove his Vitara and
stopped in front of City Garden Hotel in Makati Avenue, Makati City; a parking attendant,
whom he had later known to be defendant x x x Justimbaste, approached and asked for his
ignition key, told him that the latter would park the Vitara for him in front of the hotel, and
issued him a valet parking customer’s claim stub; he and Montero, thereafter, checked in
at the said hotel; on May 1, 2002, at around 1:00 in the morning, the Hotel Security Officer
whom he later knew to be Horlador called his attention to the fact that his Vitara was
carnapped while it was parked at the parking lot of Equitable PCI Bank which is in front
of the hotel; his Vitara was insured with [respondent] Pioneer Insurance; he together with
Horlador and defendant x x x Justimbaste went to Precinct 19 of the Makati City Police to
report the carnapping incident, and a police officer came accompanied them to the Anti-
Carnapping Unit of the said station for investigation, taking of their sworn statements, and
flashing of a voice alarm; he likewise reported the said incident in PNP TMG in Camp
Crame where another alarm was issued; he filed his claim with [respondent] Pioneer
Insurance, and a representative of the latter, who is also an adjuster of Vesper Insurance
Adjusters-Appraisers [Vesper], investigated the incident; and [respondent] Pioneer
Insurance required him to sign a Release of Claim and Subrogation Receipt, and finally
paid him the sum of ₱1,163,250.00 for his claim.

Ricardo F. Red testified that: he is a claims evaluator of [petitioner] Pioneer Insurance

tasked, among others, with the receipt of claims and documents from the insured,
investigation of the said claim, inspection of damages, taking of pictures of insured unit,
and monitoring of the processing of the claim until its payment; he monitored the
processing of See’s claim when the latter reported the incident to [respondent] Pioneer
Insurance; [respondent] Pioneer Insurance assigned the case to Vesper who verified See’s
report, conducted an investigation, obtained the necessary documents for the processing of
the claim, and tendered a settlement check to See; they evaluated the case upon receipt of
the subrogation documents and the adjuster’s report, and eventually recommended for its
settlement for the sum of ₱1,163,250.00 which was accepted by See; the matter was
referred and forwarded to their counsel, R.B. Sarajan & Associates, who prepared and sent
demand letters to [petitioner] Durban Apartments and [defendant] Justimbaste, who did
not pay [respondent] Pioneer Insurance notwithstanding their receipt of the demand letters;
and the services of R.B. Sarajan & Associates were engaged, for ₱100,000.00 as attorney’s
fees plus ₱3,000.00 per court appearance, to prosecute the claims of [respondent] Pioneer
Insurance against [petitioner] Durban Apartments and Justimbaste before the lower court.

Ferdinand Cacnio testified that: he is an adjuster of Vesper; [respondent] Pioneer Insurance

assigned to Vesper the investigation of See’s case, and he was the one actually assigned to
investigate it; he conducted his investigation of the matter by interviewing See, going to
the City Garden Hotel, required subrogation documents from See, and verified the
authenticity of the same; he learned that it is the standard procedure of the said hotel as
regards its valet parking service to assist their guests as soon as they get to the lobby
entrance, park the cars for their guests, and place the ignition keys in their safety key box;
considering that the hotel has only twelve (12) available parking slots, it has an agreement
with Equitable PCI Bank permitting the hotel to use the parking space of the bank at night;
he also learned that a Hyundai Starex van was carnapped at the said place barely a month
before the occurrence of this incident because Liberty Insurance assigned the said incident
to Vespers, and Horlador and defendant x x x Justimbaste admitted the occurrence of the
same in their sworn statements before the Anti-Carnapping Unit of the Makati City Police;
upon verification with the PNP TMG [Unit] in Camp Crame, he learned that See’s Vitara
has not yet been recovered; upon evaluation, Vesper recommended to [respondent] Pioneer
Insurance to settle See’s claim for ₱1,045,750.00; See contested the recommendation of
Vesper by reasoning out that the 10% depreciation should not be applied in this case
considering the fact that the Vitara was used for barely eight (8) months prior to its loss;
and [respondent] Pioneer Insurance acceded to See’s contention, tendered the sum of
₱1,163,250.00 as settlement, the former accepted it, and signed a release of claim and
subrogation receipt.

The lower court denied the Motion to Admit Pre-Trial Brief and Motion for
Reconsideration field by [petitioner] Durban Apartments and Justimbaste in its Orders
dated May 4, 2005 and October 20, 2005, respectively, for being devoid of merit.3

Thereafter, on January 27, 2006, the RTC rendered a decision, disposing, as follows:

WHEREFORE, judgment is hereby rendered ordering [petitioner Durban Apartments

Corporation] to pay [respondent Pioneer Insurance and Surety Corporation] the sum of
₱1,163,250.00 with legal interest thereon from July 22, 2003 until the obligation is fully
paid and attorney’s fees and litigation expenses amounting to ₱120,000.00.

SO ORDERED.4

On appeal, the appellate court affirmed the decision of the trial court, viz.:

WHEREFORE, premises considered, the Decision dated January 27, 2006 of the RTC,
Branch 66, Makati City in Civil Case No. 03-857 is hereby AFFIRMED insofar as it holds
[petitioner] Durban Apartments Corporation solely liable to [respondent] Pioneer
Insurance and Surety Corporation for the loss of Jeffrey See’s Suzuki Grand Vitara.

SO ORDERED.5

Hence, this recourse by petitioner.

The issues for our resolution are:

1. Whether the lower courts erred in declaring petitioner as in default for failure to
appear at the pre-trial conference and to file a pre-trial brief;

2. Corollary thereto, whether the trial court correctly allowed respondent to present
evidence ex-parte;

3. Whether petitioner is liable to respondent for attorney’s fees in the amount of

₱120,000.00; and

4. Ultimately, whether petitioner is liable to respondent for the loss of See’s vehicle.

The petition must fail.

We are in complete accord with the common ruling of the lower courts that petitioner was
in default for failure to appear at the pre-trial conference and to file a pre-trial brief, and
thus, correctly allowed respondent to present evidence ex-parte. Likewise, the lower courts
did not err in holding petitioner liable for the loss of See’s vehicle.

Well-entrenched in jurisprudence is the rule that factual findings of the trial court,
especially when affirmed by the appellate court, are accorded the highest degree of respect
and are considered conclusive between the parties.6 A review of such findings by this Court
is not warranted except upon a showing of highly meritorious circumstances, such as: (1)
when the findings of a trial court are grounded entirely on speculation, surmises, or
conjectures; (2) when a lower court’s inference from its factual findings is manifestly
mistaken, absurd, or impossible; (3) when there is grave abuse of discretion in the
appreciation of facts; (4) when the findings of the appellate court go beyond the issues of
the case, or fail to notice certain relevant facts which, if properly considered, will justify a
different conclusion; (5) when there is a misappreciation of facts; (6) when the findings of
fact are conclusions without mention of the specific evidence on which they are based, are
premised on the absence of evidence, or are contradicted by evidence on record.7 None of
the foregoing exceptions permitting a reversal of the assailed decision exists in this
instance.

Petitioner urges us, however, that "strong [and] compelling reason[s]" such as the
prevention of miscarriage of justice warrant a suspension of the rules and excuse its and its
counsel’s non-appearance during the pre-trial conference and their failure to file a pre-trial
brief.

We are not persuaded.

Rule 18 of the Rules of Court leaves no room for equivocation; appearance of parties and
their counsel at the pre-trial conference, along with the filing of a corresponding pre-trial
brief, is mandatory, nay, their duty. Thus, Section 4 and Section 6 thereof provide:

SEC. 4. Appearance of parties.–It shall be the duty of the parties and their counsel to appear
at the pre-trial. The non-appearance of a party may be excused only if a valid cause is
shown therefor or if a representative shall appear in his behalf fully authorized in writing
to enter into an amicable settlement, to submit to alternative modes of dispute resolution,
and to enter into stipulations or admissions of facts and documents.

SEC. 6. Pre-trial brief.–The parties shall file with the court and serve on the adverse party,
in such manner as shall ensure their receipt thereof at least three (3) days before the date
of the pre-trial, their respective pre-trial briefs which shall contain, among others:

xxxx

Failure to file the pre-trial brief shall have the same effect as failure to appear at the pre-
trial.
Contrary to the foregoing rules, petitioner and its counsel of record were not present at the
scheduled pre-trial conference. Worse, they did not file a pre-trial brief. Their non-
appearance cannot be excused as Section 4, in relation to Section 6, allows only two
exceptions: (1) a valid excuse; and (2) appearance of a representative on behalf of a party
who is fully authorized in writing to enter into an amicable settlement, to submit to
alternative modes of dispute resolution, and to enter into stipulations or admissions of facts
and documents.

Petitioner is adamant and harps on the fact that November 28, 2003 was merely the first
scheduled date for the pre-trial conference, and a certain Atty. Mejia appeared on its behalf.
However, its assertion is belied by its own admission that, on said date, this Atty. Mejia
"did not have in his possession the Special Power of Attorney issued by petitioner’s Board
of Directors."

As pointed out by the CA, petitioner, through Atty. Lee, received the notice of pre-trial on
October 27, 2003, thirty-two (32) days prior to the scheduled conference. In that span of
time, Atty. Lee, who was charged with the duty of notifying petitioner of the scheduled
pre-trial conference,8 petitioner, and Atty. Mejia should have discussed which lawyer
would appear at the pre-trial conference with petitioner, armed with the appropriate
authority therefor. Sadly, petitioner failed to comply with not just one rule; it also did not
proffer a reason why it likewise failed to file a pre-trial brief. In all, petitioner has not
shown any persuasive reason why it should be exempt from abiding by the rules.

The appearance of Atty. Mejia at the pre-trial conference, without a pre-trial brief and with
only his bare allegation that he is counsel for petitioner, was correctly rejected by the trial
court. Accordingly, the trial court, as affirmed by the appellate court, did not err in allowing
respondent to present evidence ex-parte.

Former Chief Justice Andres R. Narvasa’s words continue to resonate, thus:

Everyone knows that a pre-trial in civil actions is mandatory, and has been so since January
1, 1964. Yet to this day its place in the scheme of things is not fully appreciated, and it
receives but perfunctory treatment in many courts. Some courts consider it a mere
technicality, serving no useful purpose save perhaps, occasionally to furnish ground for
non-suiting the plaintiff, or declaring a defendant in default, or, wistfully, to bring about a
compromise. The pre-trial device is not thus put to full use. Hence, it has failed in the main
to accomplish the chief objective for it: the simplification, abbreviation and expedition of
the trial, if not indeed its dispensation. This is a great pity, because the objective is
attainable, and with not much difficulty, if the device were more intelligently and
extensively handled.

xxxx
Consistently with the mandatory character of the pre-trial, the Rules oblige not only the
lawyers but the parties as well to appear for this purpose before the Court, and when a party
"fails to appear at a pre-trial conference (he) may be non-suited or considered as in default."
The obligation "to appear" denotes not simply the personal appearance, or the mere
physical presentation by a party of one’s self, but connotes as importantly, preparedness to
go into the different subject assigned by law to a pre-trial. And in those instances where a
party may not himself be present at the pre-trial, and another person substitutes for him, or
his lawyer undertakes to appear not only as an attorney but in substitution of the client’s
person, it is imperative for that representative of the lawyer to have "special authority" to
make such substantive agreements as only the client otherwise has capacity to make. That
"special authority" should ordinarily be in writing or at the very least be "duly established
by evidence other than the self-serving assertion of counsel (or the proclaimed
representative) himself." Without that special authority, the lawyer or representative cannot
be deemed capacitated to appear in place of the party; hence, it will be considered that the
latter has failed to put in an appearance at all, and he [must] therefore "be non-suited or
considered as in default," notwithstanding his lawyer’s or delegate’s presence.9

We are not unmindful that defendant’s (petitioner’s) preclusion from presenting evidence
during trial does not automatically result in a judgment in favor of plaintiff (respondent).
The plaintiff must still substantiate the allegations in its complaint.10 Otherwise, it would
be inutile to continue with the plaintiff’s presentation of evidence each time the defendant
is declared in default.

In this case, respondent substantiated the allegations in its complaint, i.e., a contract of
necessary deposit existed between the insured See and petitioner. On this score, we find no
error in the following disquisition of the appellate court:

[The] records also reveal that upon arrival at the City Garden Hotel, See gave notice to the
doorman and parking attendant of the said hotel, x x x Justimbaste, about his Vitara when
he entrusted its ignition key to the latter. x x x Justimbaste issued a valet parking customer
claim stub to See, parked the Vitara at the Equitable PCI Bank parking area, and placed the
ignition key inside a safety key box while See proceeded to the hotel lobby to check in.
The Equitable PCI Bank parking area became an annex of City Garden Hotel when the
management of the said bank allowed the parking of the vehicles of hotel guests thereat in
the evening after banking hours.11

Article 1962, in relation to Article 1998, of the Civil Code defines a contract of deposit and
a necessary deposit made by persons in hotels or inns:

Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to
another, with the obligation of safely keeping it and returning the same. If the safekeeping
of the thing delivered is not the principal purpose of the contract, there is no deposit but
some other contract.
Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be regarded
as necessary.1avvphi1 The keepers of hotels or inns shall be responsible for them as
depositaries, provided that notice was given to them, or to their employees, of the effects
brought by the guests and that, on the part of the latter, they take the precautions which
said hotel-keepers or their substitutes advised relative to the care and vigilance of their
effects.

Plainly, from the facts found by the lower courts, the insured See deposited his vehicle for
safekeeping with petitioner, through the latter’s employee, Justimbaste. In turn,
Justimbaste issued a claim stub to See. Thus, the contract of deposit was perfected from
See’s delivery, when he handed over to Justimbaste the keys to his vehicle, which
Justimbaste received with the obligation of safely keeping and returning it. Ultimately,
petitioner is liable for the loss of See’s vehicle.

Lastly, petitioner assails the lower courts’ award of attorney’s fees to respondent in the
amount of ₱120,000.00. Petitioner claims that the award is not substantiated by the
evidence on record.

We disagree.

While it is a sound policy not to set a premium on the right to litigate,12 we find that
respondent is entitled to reasonable attorney’s fees. Attorney’s fees may be awarded when
a party is compelled to litigate or incur expenses to protect its interest,13 or when the court
deems it just and equitable.14 In this case, petitioner refused to answer for the loss of See’s
vehicle, which was deposited with it for safekeeping. This refusal constrained respondent,
the insurer of See, and subrogated to the latter’s right, to litigate and incur expenses.
However, we reduce the award of ₱120,000.00 to ₱60,000.00 in view of the simplicity of
the issues involved in this case.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R.
CV No. 86869 is AFFIRMED with the MODIFICATION that the award of attorney’s fees
is reduced to ₱60,000.00. Costs against petitioner.

Art. 1164

PHILIPPINE NATIONAL BANK, Petitioner,

vs.
SPOUSES BERNARD and CRESENCIA MARANON, Respondents.

RESOLUTION

REYES, J.:
This is a petition for review on certiorari1 under Rule 45 of the Rules of Court, assailing
the Decision2 dated June 18, 2008 and Resolution3 dated August 10, 2009 of the Court of
Appeals (CA) in CA-G.R. SP No. 02513, which affirmed in toto the Orders dated
September 8, 20064 and December 6, 20065 of the Regional Trial Court (RTC) of Bacolod
City, Branch 54, directing petitioner Philippine National Bank (PNB) to release in favor of
Spouses Bernard and Cresencia Marafion (Spouses Marafion) the rental fees it received
amounting to Thirty Thousand Pesos (₱30,000.00).

The Facts

The controversy at bar involves a 152-square meter parcel of land located at Cuadra-Smith
Streets, Downtown, Bacolod (subject lot) erected with a building leased by various tenants.
The subject lot was among the properties mortgaged by Spouses Rodolfo and Emilie
Montealegre (Spouses Montealegre) to PNB as a security for a loan. In their transactions
with PNB, Spouses Montealegre used Transfer Certificate of Title (TCT) No. T-156512
over the subject lot purportedly registered in the name of Emilie Montealegre (Emilie).6

When Spouses Montealegre failed to pay the loan, PNB initiated foreclosure proceedings
on the mortgaged properties, including the subject lot. In the auction sale held on August
16, 1991, PNB emerged as the highest bidder. It was issued the corresponding Certificate
of Sale dated December 17, 19917 which was subsequently registered on February 4,
1992.8

Before the expiration of the redemption period or on July 29, 1992, Spouses Marañon filed
before the RTC a complaint for Annulment of Title, Reconveyance and Damages9 against
Spouses Montealegre, PNB, the Register of Deeds of Bacolod City and the Ex-Officio
Provincial Sheriff of Negros Occidental. The complaint, docketed as Civil Case No. 7213,
alleged that Spouses Marañon are the true registered owners of the subject lot by virtue of
TCT No. T-129577 which was illegally cancelled by TCT No. T-156512 under the name
of Emilie who used a falsified Deed of Sale bearing the forged signatures of Spouse
Marañon10 to effect the transfer of title to the property in her name.

In its Answer,11 PNB averred that it is a mortgagee in good faith and for value and that its
mortgage lien on the property was registered thus valid and binding against the whole
world.

As reflected in the Pre-trial Order12 dated March 12, 1996, the parties stipulated, among
others, that the period for legal redemption of the subject lot has already expired.

While the trial proceedings were ongoing, Paterio Tolete (Tolete), one of the tenants of the
building erected on the subject lot deposited his rental payments with the Clerk of Court of
Bacolod City which, as of October 24, 2002, amounted to ₱144,000.00.
On June 2, 2006, the RTC rendered its Decision13 in favor of the respondents after finding,
based on the expert testimony of Colonel Rodolfo Castillo, Head of the Forensic
Technology Section of Bacolod City Philippine National Police, that the signatures of
Spouses Marañon in the Deed of Sale presented by Spouses Montealegre before the
Register of Deeds to cause the cancellation of TCT No. T-129577 were forged. Hence, the
RTC concluded the sale to be null and void and as such it did not transfer any right or title
in law. PNB was adjudged to be a mortgagee in good faith whose lien on the subject lot
must be respected. Accordingly, the Decision disposed as follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs herein respondents:

1. The cancellation of TCT No. 129577 over Lot 177-A-1 Bacolod Cadastre in the
name of Bernard Marañon and the issuance of new TCT No. 156512 in the name of
defendant Emilie Montealegre are hereby declared null and void;

2. The defendant Emilie Montealegre is ordered to reconvey the title over Lot No.
177-A-1, Bacolod Cadastre back to the plaintiffs Marañon herein respondents;

3. The Real Estate Mortgage lien of the Philippine National Bank registered on the
title of Lot No. 177-A-1 Bacolod Cadastre shall stay and be respected; and

4. The defendants - Emilie Montealegre and spouse are ordered to pay attorney’s
fees in the sum of Php50,000.00, and to pay the costs of the suit.

SO ORDERED.14

Neither of the parties sought a reconsideration of the above decision or any portion thereof
nor did they elevate the same for appellate review.

What precipitated the controversy at hand were the subsequent motions filed by Spouses
Marañon for release of the rental payments deposited with the Clerk of Court and paid to
PNB by Tolete.

On June 13, 2006, Spouses Marañon filed an Urgent Motion for the Withdrawal of
Deposited Rentals15 praying that the ₱144,000.00 rental fees deposited by Tolete with the
Clerk of Court be released in their favor for having been adjudged as the real owner of the
subject lot. The RTC granted the motion in its Order16 dated June 28, 2006.

On September 5, 2006, Spouses Marañon again filed with the RTC an Urgent Ex-Parte
Motion for Withdrawal of Deposited Rentals17 praying that the ₱30,000.00 rental fees paid
to PNB by Tolete on December 12, 1999 be released in their favor. The said lease payments
were for the five (5)-month period from August 1999 to December 1999 at the monthly
lease rate of ₱6,000.00.
The RTC granted the motion in its Order18 dated September 8, 2006 reasoning that pursuant
to its Decision dated June 2, 2006 declaring Spouses Marañon to be the true registered
owners of the subject lot, they are entitled to its fruits.

The PNB differed with the RTC’s ruling and moved for reconsideration averring that as
declared by the RTC in its Decision dated June 2, 2006, its mortgage lien should be carried
over to the new title reconveying the lot to Spouses Marañon. PNB further argued that with
the expiration of the redemption period on February 4, 1993, or one (1) year from the
registration of the certificate of sale, PNB is now the owner of the subject lot hence, entitled
to its fruits. PNB prayed that (1) the Order dated September 8, 2006 be set aside, and (2)
an order be issued directing Spouses Marañon to turn over to PNB the amount of
₱144,000.00 released in their favor by the Clerk of Court.19

On November 20, 2006, the RTC issued an Order again directing PNB to release to Spouses
Marañon the ₱30,000.00 rental payments considering that they were adjudged to have
retained ownership over the property.20

On December 6, 2006, the RTC issued another Order denying PNB’s motion for
reconsideration and reiterating the directives in its Order dated September 8, 2006.21

Aggrieved, PNB sought recourse with the CA via a petition for certiorari and
mandamus22 claiming that as the lawful owner of the subject lot per the RTC’s judgment
dated June 2, 2006, it is entitled to the fruits of the same such as rentals paid by tenants
hence, the ruling that "the real estate mortgage lien of the PNB registered on the title of Lot
No. 177-A-1 Bacolod Cadastre shall stay and be respected." PNB also contended that it is
an innocent mortgagee.

In its Decision23 dated June 18, 2008, the CA denied the petition and affirmed the RTC’s
judgment ratiocinating that not being parties to the mortgage transaction between PNB and
Spouses Montealegre, Spouses Marañon cannot be deprived of the fruits of the subject lot
as the same will amount to deprivation of property without due process of law. The RTC
further held that PNB is not a mortgagee in good faith because as a financial institution
imbued with public interest, it should have looked beyond the certificate of title presented
by Spouses Montealegre and conducted an inspection on the circumstances surrounding
the transfer to Spouses Montealegre. The decretal portion of the Decision thus read:

WHEREFORE, in view of the foregoing, the petition is hereby DISMISSED. The Orders
dated September 8, 2006 and December 6, 2006, rendered by the respondent Presiding
Judge of the Regional Trial Court, Branch 54, Bacolod City, in Civil Case NO. 7213
directing the release of the deposited rental in the amount of THIRTY THOUSAND
PESOS ([P]30,000.00) to private respondents are hereby AFFIRMED.

SO ORDERED.24
PNB moved for reconsideration25 but the motion was denied in the CA Resolution dated
August 10, 2009.26 Hence, the present recourse whereby PNB argues that the RTC
Decision dated June 2, 2006 lapsed into finality when it was not appealed or submitted for
reconsideration. As such, all conclusions therein are immutable and can no longer be
modified by any court even by the RTC that rendered the same. The CA however
erroneously altered the RTC Decision by reversing the pronouncement that PNB is a
mortgagee-in-good-faith.

PNB further asseverates that its mortgage lien was carried over to the new title issued to
Spouses Marañon and thus it retained the right to foreclose the subject lot upon non-
payment of the secured debt. PNB asserts that it is entitled to the rent because it became
the subject lot’s new owner when the redemption period expired without the property being
redeemed.

Ruling of the Court

We deny the petition.

It is readily apparent from the facts at hand that the status of PNB’s lien on the subject lot
has already been settled by the RTC in its Decision dated June 2, 2006 where it was
adjudged as a mortgagee in good faith whose lien shall subsist and be respected. The
decision lapsed into finality when neither of the parties moved for its reconsideration or
appealed.

Being a final judgment, the dispositions and conclusions therein have become immutable
and unalterable not only as against the parties but even the courts. This is known as the
doctrine of immutability of judgments which espouses that a judgment that has acquired
finality becomes immutable and unalterable, and may no longer be modified in any respect
even if the modification is meant to correct erroneous conclusions of fact or law and
whether it will be made by the court that rendered it or by the highest court of the
land.27 The significance of this rule was emphasized in Apo Fruits Corporation v. Court of
Appeals,28 to wit:

The reason for the rule is that if, on the application of one party, the court could change its
judgment to the prejudice of the other, it could thereafter, on application of the latter, again
change the judgment and continue this practice indefinitely. The equity of a particular case
must yield to the overmastering need of certainty and unalterability of judicial
pronouncements.

The doctrine of immutability and inalterability of a final judgment has a two-fold purpose:
(1) to avoid delay in the administration of justice and thus, procedurally, to make orderly
the discharge of judicial business and (2) to put an end to judicial controversies, at the risk
of occasional errors, which is precisely why courts exist. Controversies cannot drag on
indefinitely. The rights and obligations of every litigant must not hang in suspense for an
indefinite period of time. The doctrine is not a mere technicality to be easily brushed aside,
but a matter of public policy as well as a time-honored principle of procedural
law.29 (Citations omitted)

Hence, as correctly argued by PNB, the issue on its status as a mortgagee in good faith
have been adjudged with finality and it was error for the CA to still delve into and, worse,
overturn, the same. The CA had no other recourse but to uphold the status of PNB as a
mortgagee in good faith regardless of its defects for the sake of maintaining stability of
judicial pronouncements. "The main role of the courts of justice is to assist in the
enforcement of the law and in the maintenance of peace and order by putting an end to
judiciable controversies with finality. Nothing better serves this role than the long
established doctrine of immutability of judgments."30

Further, it must be remembered that what reached the CA on certiorari were RTC
resolutions issued long after the finality of the Decision dated June 2, 2006. The RTC
Orders dated September 8, 2006 and December 6, 2006 were implements of the
pronouncement that Spouses Marañon are still the rightful owners of the subject lot, a
matter that has been settled with finality as well. This notwithstanding, the Court agrees
with the ultimate outcome of the CA’s assailed resolutions.

Rent is a civil fruit31 that belongs to the owner of the property32 producing it by right of
accession33.34 The rightful recipient of the disputed rent in this case should thus be the
owner of the subject lot at the time the rent accrued. It is beyond question that Spouses
Marañon never lost ownership over the subject lot. This is the precise consequence of the
final and executory judgment in Civil Case No. 7213 rendered by the RTC on June 3, 2006
whereby the title to the subject lot was reconveyed to them and the cloud thereon consisting
of Emilie’s fraudulently obtained title was removed. Ideally, the present dispute can be
simply resolved on the basis of such pronouncement. However, the application of related
legal principles ought to be clarified in order to settle the intervening right of PNB as a
mortgagee in good faith.

The protection afforded to PNB as a mortgagee in good faith refers to the right to have its
mortgage lien carried over and annotated on the new certificate of title issued to Spouses
Marañon35 as so adjudged by the RTC. Thereafter, to enforce such lien thru foreclosure
proceedings in case of non-payment of the secured debt,36 as PNB did so pursue. The
principle, however, is not the singular rule that governs real estate mortgages and
foreclosures attended by fraudulent transfers to the mortgagor.

Rent, as an accessory follow the principal.37 In fact, when the principal property is
mortgaged, the mortgage shall include all natural or civil fruits and improvements found
thereon when the secured obligation becomes due as provided in Article 2127 of the Civil
Code, viz:
Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing
fruits, and the rents or income not yet received when the obligation becomes due, and to
the amount of the indemnity granted or owing to the proprietor from the insurers of the
property mortgaged, or in virtue of expropriation for public use, with the declarations,
amplifications and limitations established by law, whether the estate remains in the
possession of the mortgagor, or it passes into the hands of a third person.

Consequently, in case of non-payment of the secured debt, foreclosure proceedings shall

cover not only the hypothecated property but all its accessions and accessories as well. This
was illustrated in the early case of Cu Unjieng e Hijos v. Mabalacat Sugar Co.38 where the
Court held:

That a mortgage constituted on a sugar central includes not only the land on which it is
built 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 x x x .39

Applying such pronouncement in the subsequent case of Spouses Paderes v. Court of

Appeals,40 the Court declared that the improvements constructed by the mortgagor on the
subject lot are covered by the real estate mortgage contract with the mortgagee bank and
thus included in the foreclosure proceedings instituted by the latter.41

However, the rule is not without qualifications. In Castro, Jr. v. CA42 the Court explained
that Article 2127 is predicated on the presumption that the ownership of accessions and
accessories also belongs to the mortgagor as the owner of the principal. After all, it is an
indispensable requisite of a valid real estate mortgage that the mortgagor be the absolute
owner of the encumbered property, thus:

All improvements subsequently introduced or owned by the mortgagor on the encumbered

property are deemed to form part of the mortgage. That the improvements are to be
considered so incorporated only if so owned by the mortgagor is a rule that can hardly be
debated since a contract of security, whether, real or personal, needs as an indispensable
element thereof the ownership by the pledgor or mortgagor of the property pledged or
mortgaged. x x x.43 (Citation omitted)

Otherwise stated, absent an adverse claimant or any evidence to the contrary, all
accessories and accessions accruing or attached to the mortgaged property are included in
the mortgage contract and may thus also be foreclosed together with the principal property
in case of non-payment of the debt secured.

Corollary, any evidence sufficiently overthrowing the presumption that the mortgagor
owns the mortgaged property precludes the application of Article 2127. Otherwise stated,
the provision is irrelevant and inapplicable to mortgages and their resultant foreclosures if
the mortgagor is later on found or declared to be not the true owner of the property, as in
the instant case.1âwphi1

It is beyond question that PNB’s mortgagors, Spouses Montealegre, are not the true owners
of the subject lot much less of the building which produced the disputed rent. The
foreclosure proceedings on August 16, 1991 caused by PNB could not have, thus, included
the building found on the subject lot and the rent it yields. PNB’s lien as a mortgagee in
good faith pertains to the subject lot alone because the rule that improvements shall follow
the principal in a mortgage under Article 2127 of the Civil Code does not apply under the
premises. Accordingly, since the building was not foreclosed, it remains a property of
Spouses Marañon; it is not affected by non-redemption and is excluded from any
consolidation of title made by PNB over the subject lot. Thus, PNB’s claim for the rent
paid by Tolete has no basis.

It must be remembered that there is technically no juridical tie created by a valid mortgage
contract that binds PNB to the subject lot because its mortgagor was not the true owner.
But by virtue of the mortgagee in good faith principle, the law allows PNB to enforce its
lien. We cannot, however, extend such principle so as to create a juridical tie between PNB
and the improvements attached to the subject lot despite clear and undeniable evidence
showing that no such juridical tie exists.

Lastly, it is worthy to note that the effects of the foreclosure of the subject lot is in fact still
contentious considering that as a purchaser in the public sale, PNB was only substituted to
and acquired the right, title, interest and claim of the mortgagor to the property as of the
time of the levy.44 There being already a final judgment reconveying the subject lot to
Spouses Marañon and declaring as null and void Emilie's purported claim of ownership,
the legal consequences of the foreclosure sale, expiration of the redemption period and
even the consolidation of the subject lot's title in PNB's name shall be subjected to such
final judgment. This is the clear import of the ruling in Unionbank of the Philippines v.
Court of Appeals:45

This is because as purchaser at a public auction, UNIONBANK is only substituted to and

acquires the right, title, interest and claim of the judgment debtors or mortgagors to the
property at the time of levy. Perforce, the judgment in the main action for reconveyance
will not be rendered ineffectual by the consolidation of ownership and the issuance of title
in the name of UNIONBANK.46 (Citation omitted)

Nonetheless, since the present recourse stemmed from a mere motion claiming ownership
of rent and not from a main action for annulment of the foreclosure sale or of its succeeding
incidents, the Court cannot proceed to make a ruling on the bearing of the CA's Decision
dated June 18, 2008 to PNB's standing as a purchaser in the public auction. Such matter
will have to be threshed out in the proper forum.
All told, albeit the dispositive portions of the assailed CA decision and resolution are
differently premised, they ought to be upheld as they convey the similar conclusion that
Spouses Marañon are the rightful owners of the rent earned by the building on the subject
lot.

WHEREFORE, foregoing considered, the petition is hereby DENIED. The Decision dated
June 18, 2008 and Resolution dated August 10, 2009 of the Court of Appeals in CA-G.R.
SP No. 02513 are AFFIRMED.

effect of loss – Art. 1263

BUNGE CORPORATION and UNIVERSAL COMMERCIAL

AGENCIES, plaintiffs-appellees,
vs.
ELENA CAMENFORTE and COMPANY, doing business or trading under the name
and style of Visayan Products Company, ET AL., defendants-appellants.

Juan E. Yap and J.P. Garcia for appellants.

Vicente L. Faelnar for appellees.

BAUTISTA ANGELO, J.:

Plaintiffs brought action against the defendants to recover certain damages they have
allegedly sustained in view of the failure of the latter to deliver to the former the amount
of Philippine copra which they had agreed to deliver within the time and under the
conditions specified in the contract celebrated between them on October 22, 1947.

Plaintiffs claim that on October 22, 1947, in the City of Cebu a contract was entered into
between the Visayan Products Company and Bunge Corporation (represented by the
Universal Commercial Agencies) whereby the former sold to the latter 500 long tons of
merchantable Philippine copra in bulk at the prices of $188.80, U.S. currency, per ton, less
1 per cent brokerage per short ton of 2,000 pounds, C & F Pacific Coast, U.S.A.; that,
according to the terms and conditions of the contract, the vendor should ship the stipulated
copra during the month of November or December 1947, to San Francisco, California,
U.S.A. for delivery to the vendee; that, notwithstanding repeated demands made by the
vendee, the vendor failed to ship and deliver the copra during the period agreed upon; that
believing in good faith that the vendor would ship and deliver the copra on time, the vendee
sold to El Dorado Oil Works the quantity of copra it had purchased at the same price agreed
upon; and that because of the failure of the vendor to fulfill its contract to ship and deliver
the quantity of copra agreed upon within the period stipulated, the vendee has suffered
damages in the amount of P180,00.
Defendants answered separately the allegations set forth in the complaint and, with the
exception of Vicente Kho, denied that the Visayan Products Company has ever entered
into a contract of sale of copra with the plaintiffs, as mentioned in the complaint. They aver
that if a contract of that tenor has ever been entered into between said company and the
plaintiffs, the truth is that Vicente Kho who signed for and in behalf of the company never
had any authority to act for that company either expressly or impliedly, inasmuch as the
only ones who had the authority to do so are Elena Camenforte, the general manager, Tan
Se Chong, the manager, and Tiu Kee, the assistant manager.

Vicente Kho, on his part, after admitting that the commercial transaction mentioned in the
complaint had actually taken place, avers that the contract was concluded with the Visayan
Products Company which had its office in Tacloban, Leyte, and not with the Visayan
Products Company established in Cebu, which is not a party to the transaction; that the
Visayan Products Company organized in organized in Tacloban is the one that was
presented by him in the transaction, of which he is the manager and controlling stockholder,
which fact was clearly known to the plaintiffs when the contract was entered into believing
that the company he was representing was the one recently organized in Cebu; that he,
Vicente Kho, did his best to comply with the contract, but he failed because offorce
majeure as follows: he informed the plaintiffs sometime in December, 1947, that he would
have all the copra covered by the contract ready for shipment somewhere in the port of San
Ramon, Samar, in order that they may make an arrangement for the booking of a ship, but
before the arrival of the ship, a strong storm visited the place causing the bodega where the
copra was stored to be destroyed and the copra washed away into the sea; and that, because
of this force majeure, he cannot now be held liable for damages.

After trial, art which both parties presented their respective evidence, the court rendered
decision ordering defendant Elena Camenforte & Company to pay to the plaintiffs the sum
of P79,744, with legal interest thereon from the filing of the complaint, and the costs of
action. The court ordered that, in case said company be unable to pay the judgment because
of total or partial insolvency, the same be paid by its co-defendants, jointly and severally,
either in full or such part thereof as may be left unpaid. Defendants interposed the present
appeal.

At the outset, it should be stated that while in the lower court there was a dispute between
plaintiffs and defendants as regards the real contract that was entered into between the
parties and which he was given rise to this litigation, that defense apparently has been
abandoned in this appeal, for the only issue now raised by appellants is one of law. Thus,
appellants now admit, contrary to their stand in the lower court, that a contract of purchase
and sale of copra was in effect entered into between the plaintiffs and the defendants under
the terms and conditions embodied in the contract quoted in the complaint, and the only
defense on which they now rely is that the copra they had gathered and stored for delivery
to the appellees in Samar was destroyed by force majeure which under the law has the
effect of exempting them from liability for damages. Consequently, appellants now
contend that the lower court erred in condemning them for damages despite the fact that
their failure to fulfill the contract is due to force majeure.

A perusal of the contract is necessary to see the feasibility of this contention. The contract
is embodied in Exhibit C. A perusal of this contract shows that the subject matter is
Philippine copra. The sale is to be made by weight, — 500 long tons. It does not refer to
any particular or specific lot of copra, nor does it mention the place where the copra is to
be acquired. No portion of the copra has been earmarked or segregated. The vendor was at
liberty to acquire the copra from any part of the Philippines. The sale simply refers to 500
long tons of the Philippine copra. The subject-matter is, therefore, generic, not specific.

Having this view in mind, it is apparent that the copra which appellants claim to have
gathered and stored in a bodega at San Ramon, Samar, sometime in December, 1947, in
fulfillment of their contract, and which they claim was later destroyed by storm, in the
supposition that the claim is true, cannot be deemed to be the one contemplated in the
contract. It may be the one chosen by appellants in the exercise of the discretion given to
them under the contract, which they could exercise in a manner suitable to their interest
and convenience, but it cannot certainly be considered as the copra contemplated by the
parties in the contract. And this must be so because the copra contemplated in the contract
is generic and not specific.

It appearing that the obligation of appellant is to deliver copra in a generic sense, the
obligation cannot be deemed extinguised by the destruction or disappearance of the copra
stored in San Ramon, Samar. Their obligation subsists as long as that commodity is
available. A generic obligation is not extinguished by the loss of a thing belonging to a
particular genus. Genus nunquan perit.

Manresa explains the distinction between determinate and generic thing in his
comment on article 1096 of the Civil Code of Spain, saying that the first is a
concrete, particularized object, indicated by its own individuality, while a generic
thing is one whose determination is confined to that of its nature, to the genus
(genero) to which it pertains, such as a horse, a chair. These definition are in accord
with the popular meaning of the terms defined.

Except as to qualify and quantity, the first of which is itself generic, the contract
sets no bounds or limits to the palay to be paid, nor was there even any stipulation
that the cereal was to be the produce of any particular land. Any palay of the quality
stipulated regardless of origin or however acquired (lawfully) would be obligatory
on the part of the obligee to receive and would discharged the obligation. It seems
therefore plain that the alleged failure of crops through alleged fortuitos cause did
not excuse performance." (De Leon vs. Soriano, 87 Phil., 193; 47 Off Gaz.,
Supplement No. 12, pp. 377, 379-380.)
 In binding himself to deliver centrifugal sugar, the defendant promised a generic
thing. It could be any centrifugal sugar without regard to origin or how he secured
it. Hence, his inability to produce sugar, irrespective of the cause, did not relieve
him from his commitment. War, like floods and other catastrophies, was a
contingency, a collateral incident, which he could have provided for by proper
stipulation. (Reyes vs. Caltex, 84 Phil., 654; 47 Off, Gaz., 1193; Vda.-Lacson vs.
Diaz, 87 Phil., 150; 47 Off. Gaz., Supp. to No. 12, p. 337.)

If appellants are not relieved of civil liability under the contract, what are then the damages
for which they stand liable to the appellees? Appellees claim that, immediately after they
had concluded their agreement to buy copra with the appellants, they agreed to sell to El
Dorado Oil Works the 500 long tons of copra subject matter of the agreement, together
with another lot of 500 tons, confident in their belief that the Visayan Products Company
would comply with its agreement. The copra was to delivered by Bunge Corporation to El
Dorado Oil Works not later than December 31, 1947. Because of the failure of the
appellants to fulfill their aforementioned agreement, appellees failed to deliver the copra it
sold with the result that they had to pay damages in the sum of $84,630.86 (or
P169,461.72).

The lower court, however, did not sustain this claim in view of the discrepancy of one day
it note in the dates of execution of the contracts of sale of the copra in question. The court
found that the contract signed by El Dorado Oil Works is dated October 21, 1947, (Exhibit
O), whereas the contract signed by the Visayan Products Company is dated contract had
been executed one day latter than the former, which gives rise to the belief that the copra
that was sold to the El Dorado Oil Works could not have been the one purchased from the
appellants. Nevertheless, the court awarded damages to the appellees taking into account
the highest price of copra in the market during the month of December, 1947, as per
statement Exhibit P, even though the appellees had made no allegation in their complaint
of any offer or transaction they might have had with other copra dealers during the period
contemplated in the contract in question.

We are of the opinion that the lower court erred in disregarding the transaction with the El
Dorado Oil Works simply because it found an apparent discrepancy in the dates appearing
in the contracts Exhibits O and C. Exhibit C appears dated on October 22, 1947, and was
executed in Cebu, Philippines, whereas Exhibit O appears dated on October 21, 1947, and
was executed in New York City. the difference of one day in the execution of these
documents is merely nominal because New York time is several hours behind Cebu time.
In fact both transactions have been practically executed on the same day. Even supposing
that the contract with the El Dorado Oil Works calls for future and not present deliveries.
There is nothing improbable for the appellees to sell copra which they expect to acquire
sometime in the future for purposes of speculation. But this error cannot now materially
change the result of this case considering that plaintiffs-appellees did not appeal from the
decision. "It has been held that appellee, who is not appellant, may also assign errors in his
brief where his purpose is to maintain the judgment on other grounds, but he may not do
so if his purpose is to have the judgment modified or reversed, for, in such case, he must
appeal." (Saenz vs. Mitchell, 60 Phil., 69, 80; see Mendoza vs. Mendiola, 53 Phil., 267;
Villavert vs. Lim, 62 Phil., 178; Bajaladia vs. Eusala, G. R. No. 42579). Wherefore, the
decision appealed from is affirmed, with costs against appellants.

Remedies available to the creditor

Art. 1167, 1244 par. 2
ROSENDO O. CHAVES, Plaintiff-Appellant, v. FRUCTUOSO
GONZALES, Defendant-Appellee.
This is a direct appeal by the party who prevailed in a suit for breach of oral contract and
recovery of damages but was unsatisfied with the decision rendered by the Court of First
Instance of Manila, in its Civil Case No. 65138, because it awarded him only P31.10 out
of his total claim of P690 00 for actual, temperate and moral damages and attorney’s fees.

The appealed judgment, which is brief, is hereunder quoted in full:jgc:chanrobles.com.ph

"In the early part of July, 1963, the plaintiff delivered to the defendant, who is a typewriter
repairer, a portable typewriter for routine cleaning and servicing. The defendant was not
able to finish the job after some time despite repeated reminders made by the plaintiff. The
defendant merely gave assurances, but failed to comply with the same. In October, 1963,
the defendant asked from the plaintiff the sum of P6.00 for the purchase of spare parts,
which amount the plaintiff gave to the defendant. On October 26, 1963, after getting
exasperated with the delay of the repair of the typewriter, the plaintiff went to the house of
the defendant and asked for the return of the typewriter. The defendant delivered the
typewriter in a wrapped package. On reaching home, the plaintiff examined the typewriter
returned to him by the defendant and found out that the same was in shambles, with the
interior cover and some parts and screws missing. On October 29, 1963. the plaintiff sent
a letter to the defendant formally demanding the return of the missing parts, the interior
cover and the sum of P6.00 (Exhibit D). The following day, the defendant returned to the
plaintiff some of the missing parts, the interior cover and the P6.00.

"On August 29, 1964, the plaintiff had his typewriter repaired by Freixas Business
Machines, and the repair job cost him a total of P89.85, including labor and materials
(Exhibit C).

"On August 23, 1965, the plaintiff commenced this action before the City Court of Manila,
demanding from the defendant the payment of P90.00 as actual and compensatory
damages, P100.00 for temperate damages, P500.00 for moral damages, and P500.00 as
attorney’s fees.

"In his answer as well as in his testimony given before this court, the defendant made no
denials of the facts narrated above, except the claim of the plaintiff that the typewriter was
delivered to the defendant through a certain Julio Bocalin, which the defendant denied
allegedly because the typewriter was delivered to him personally by the plaintiff.

"The repair done on the typewriter by Freixas Business Machines with the total cost of
P89.85 should not, however, be fully chargeable against the defendant. The repair invoice,
Exhibit C, shows that the missing parts had a total value of only P31.10.

"WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff
the sum of P31.10, and the costs of suit.

"SO ORDERED."cralaw virtua1aw library

The error of the court a quo, according to the plaintiff-appellant, Rosendo O. Chaves, is
that it awarded only the value of the missing parts of the typewriter, instead of the whole
cost of labor and materials that went into the repair of the machine, as provided for in
Article 1167 of the Civil Code, reading as follows:jgc:chanrobles.com.ph

"ART. 1167. If a person obliged to do something fails to do it, the same shall be executed
at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation.
Furthermore it may be decreed that what has been poorly done he undone."cralaw
virtua1aw library

On the other hand, the position of the defendant-appellee, Fructuoso Gonzales, is that he is
not liable at all, not even for the sum of P31.10, because his contract with plaintiff-appellant
did not contain a period, so that plaintiff-appellant should have first filed a petition for the
court to fix the period, under Article 1197 of the Civil Code, within which the defendant
appellee was to comply with the contract before said defendant-appellee could be held
liable for breach of contract.

Because the plaintiff appealed directly to the Supreme Court and the appellee did not
interpose any appeal, the facts, as found by the trial court, are now conclusive and non-
reviewable. 1

The appealed judgment states that the "plaintiff delivered to the defendant . . . a portable
typewriter for routine cleaning and servicing" ; that the defendant was not able to finish the
job after some time despite repeated reminders made by the plaintiff" ; that the "defendant
merely gave assurances, but failed to comply with the same" ; and that "after getting
exasperated with the delay of the repair of the typewriter", the plaintiff went to the house
of the defendant and asked for its return, which was done. The inferences derivable from
these findings of fact are that the appellant and the appellee had a perfected contract for
cleaning and servicing a typewriter; that they intended that the defendant was to finish it at
some future time although such time was not specified; and that such time had passed
without the work having been accomplished, far the defendant returned the typewriter
cannibalized and unrepaired, which in itself is a breach of his obligation, without
demanding that he should be given more time to finish the job, or compensation for the
work he had already done. The time for compliance having evidently expired, and there
being a breach of contract by non-performance, it was academic for the plaintiff to have
first petitioned the court to fix a period for the performance of the contract before filing his
complaint in this case. Defendant cannot invoke Article 1197 of the Civil Code for he
virtually admitted non-performance by returning the typewriter that he was obliged to
repair in a non-working condition, with essential parts missing. The fixing of a period
would thus be a mere formality and would serve no purpose than to delay (cf. Tiglao. Et.
Al. V. Manila Railroad Co. 98 Phil. 18l).

It is clear that the defendant-appellee contravened the tenor of his obligation because he
not only did not repair the typewriter but returned it "in shambles", according to the
appealed decision. For such contravention, as appellant contends, he is liable under Article
1167 of the Civil Code. jam quot, for the cost of executing the obligation in a proper
manner. The cost of the execution of the obligation in this case should be the cost of the
labor or service expended in the repair of the typewriter, which is in the amount of P58.75.
because the obligation or contract was to repair it.

In addition, the defendant-appellee is likewise liable, under Article 1170 of the Code, for
the cost of the missing parts, in the amount of P31.10, for in his obligation to repair the
typewriter he was bound, but failed or neglected, to return it in the same condition it was
when he received it.

Appellant’s claims for moral and temperate damages and attorney’s fees were, however,
correctly rejected by the trial court, for these were not alleged in his complaint (Record on
Appeal, pages 1-5). Claims for damages and attorney’s fees must be pleaded, and the
existence of the actual basis thereof must be proved. 2 The appealed judgment thus made
no findings on these claims, nor on the fraud or malice charged to the appellee. As no
findings of fact were made on the claims for damages and attorney’s fees, there is no factual
basis upon which to make an award therefor. Appellant is bound by such judgment of the
court, a quo, by reason of his having resorted directly to the Supreme Court on questions
of law.

IN VIEW OF THE FOREGOING REASONS, the appealed judgment is hereby modified,

by ordering the defendant-appellee to pay, as he is hereby ordered to pay, the plaintiff-
appellant the sum of P89.85, with interest at the legal rate from the filing of the complaint.
Costs in all instances against appellee Fructuoso Gonzales.

JESUS V. OCCENA and EFIGENIA C. OCCENA, petitioners,

vs.
HON. RAMON V. JABSON, Presiding Judge of the Court Of First Instance of Rizal,
Branch XXVI; COURT OF APPEALS and TROPICAL HOMES, INC., respondents.

Occena Law Office for petitioners.

Serrano, Diokno & Serrano for respondents.

TEEHANKEE, J.:

The Court reverses the Court of Appeals appealed resolution. The Civil Code authorizes
the release of an obligor when the service has become so difficult as to be manifestly
beyond the contemplation of the parties but does not authorize the courts to modify or
revise the subdivision contract between the parties or fix a different sharing ratio from that
contractually stipulated with the force of law between the parties. Private respondent's
complaint for modification of the contract manifestly has no basis in law and must therefore
be dismissed for failure to state a cause of action. On February 25, 1975 private respondent
Tropical Homes, Inc. filed a complaint for modification of the terms and conditions of its
subdivision contract with petitioners (landowners of a 55,330 square meter parcel of land
in Davao City), making the following allegations:

"That due to the increase in price of oil and its derivatives and the concomitant worldwide
spiralling of prices, which are not within the control of plaintiff, of all commodities
including basis raw materials required for such development work, the cost of development
has risen to levels which are unanticipated, unimagined and not within the remotest
contemplation of the parties at the time said agreement was entered into and to such a
degree that the conditions and factors which formed the original basis of said contract,
Annex 'A', have been totally changed; 'That further performance by the plaintiff under the
contract.
 That further performance by the plaintiff under the contract,Annex 'S', will
result in situation where defendants would be unustly enriched at the expense
of the plaintiff; will cause an inequitous distribution of proceeds from the
sales of subdivided lots in manifest actually result in the unjust and
intolerable exposure of plaintiff to implacable losses, all such situations
resulting in an unconscionable, unjust and immoral situation contrary to and
in violation of the primordial concepts of good faith, fairness and equity
which should pervade all human relations.

Under the subdivision contract, respondent "guaranteed (petitioners as landowners) as the

latter's fixed and sole share and participation an amount equivalent to forty (40%) percent
of all cash receifpts fromthe sale of the subdivision lots"

Respondent pray of the Rizal court of first instance that "after due trial, this Honorable
Court render judgment modifying the terms and conditions of the contract ... by fixing the
proer shares that shouls pertain to the herein parties out of the gross proceeds from the sales
of subdivided lots of subjects subdivision".

Petitioners moved to dismiss the complaint principally for lack of cause of action, and upon
denial thereof and of reconsideration by the lower court elevated the matter on certiorari to
respondent Court of Appeals.

Respondent court in its questioned resolution of June 28, 1976 set aside the preliminary
injunction previously issued by it and dimissed petition on the ground that under Article
1267 of the Civil Code which provides that

ART. 1267. When the service has become so difficult as to be manifestly

beyond the contemplation of the parties, the obligor may also be released
therefrom, in whole or in part. 1

... a positive right is created in favor of the obligor to be released from the
performance of an obligation in full or in part when its performance 'has
become so difficult as to be manifestly beyond the contemplation of the
parties.

Hence, the petition at abar wherein petitioners insist that the worldwide increase inprices
cited by respondent does not constitute a sufficient casue of action for modification of the
subdivision contrct. After receipt of respondent's comment, the Court in its Resolution of
September 13, 1976 resolved to treat the petition as special civil actionand declared the
case submitted for decision.

The petition must be granted.

While respondent court correctly cited in its decision the Code Commission's report giving
the rationale for Article 1267 of the Civil Code, to wit;

The general rule is that impossibility of performance releases the obligor.

However, it is submitted that when the service has become so difficult as to
be manifestly beyond the contemplation of the parties, the court should be
authorized to release the obligor in whole or in part. The intention of the
parties should govern and if it appears that the service turns out to be so
difficult as have been beyond their contemplation, it would be doing violence
to that intention to hold the obligor still responsible. ... 2

It misapplied the same to respondent's complaint.

If respondent's complaint were to be released from having to comply with the subdivision
contract, assuming it could show at the trial that the service undertaken contractually by it
had "become so difficult as to be manifestly beyond the contemplation of the parties", then
respondent court's upholding of respondet's complaint and dismissal of the petition would
be justifiable under the cited codal article. Without said article, respondent would remain
bound by its contract under the theretofore prevailing doctrine that performance therewith
is ot excused "by the fact that the contract turns out to be hard and improvident,
unprofitable, or unespectedly burdensome", 3 since in case a party desires to be excuse
from performance in the event of such contingencies arising, it is his duty to provide threfor
in the contract.

But respondent's complaint seeks not release from the subdivision contract but that the
court "render judgment I modifying the terms and Conditions of the Contract by fixing the
proper shares that should pertain to the herein parties out of the gross proceed., from the
sales of subdivided lots of subject subdivision". The cited article does not grant the courts
this authority to remake, modify or revise the contract or to fix the division of shares
between the parties as contractually stipulated with the force of law between the parties, so
as to substitute its own terms for those covenanted by the partiesthemselves. Respondent's
complaint for modification of contract manifestly has no basis in law and therefore states
no cause of action. Under the particular allegations of respondent's complaint and the
circumstances therein averred, the courts cannot even in equity grant the relief sought.

A final procedural note. Respondent cites the general rule that an erroneous order denying
a motion to dismiss is interlocutory and should not be corrected by certiorari but by appeal
in due course. This case however manifestly falls within the recognized exception that
certiorari will lie when appeal would not prove to be a speedy and adequate remedy.' Where
the remedy of appeal would not, as in this case, promptly relieve petitioners from the
injurious effects of the patently erroneous order maintaining respondent's baseless action
and compelling petitioners needlessly to go through a protracted trial and clogging the court
dockets by one more futile case, certiorari will issue as the plain, speedy and adequate
remedy of an aggrieved party.

ACCORDINGLY, the resolution of respondent appellate court is reversed and the petition
for certiorari is granted and private respondent's complaint in the lower court is ordered
dismissed for failure to state a sufficient cause of action. With costs in all instances against
private respondent.

SPOUSES LORENZO G. FRANCISCO and LORENZA D.

FRANCISCO, petitioners,
vs.
HONORABLE COURT OF APPEALS, and BIENVENIDO C.
MERCADO, respondents.

CARPIO, J.:

The Case

Before this Court is a petition for review1 assailing the Decision2 of 21 November 1994 as
well as the Resolution of 17 January 1995 of the Court of Appeals in CA-G.R. CV No.
34084. The Court of Appeals upheld the Decision of 10 June 1991 of the Regional Trial
Court3 of San Fernando, Pampanga, in Civil Case No. 7909 rescinding the subdivision
development contract between the parties and awarding damages to respondent Bienvenido
C. Mercado.

Antecedent Facts

On 3 February 1984, the spouses Lorenzo and Lorenza Francisco ("petitioners") and
Engineer Bienvenido C. Mercado ("respondent") entered into a Contract of
Development4 ("Contract") for the development into a subdivision of several parcels of
land in Pampanga.

Under the Contract, respondent agreed to undertake at his expense the development work
for the Franda Village Subdivision. Respondent committed to complete the construction
within 27 months. Respondent also advanced P200,000.00 for the initial expenses of the
development work. In return, respondent would receive 50% of the total gross sales of the
subdivision lots and other income of the subdivision. Respondent also enjoyed the
exclusive and irrevocable authority to manage, control and supervise the sales of the lots
within the subdivision. The Contract required respondent to submit to petitioners, within
the first 15 days of every month, a report on payments collected from lot buyers with copies
of all the contracts to sell. However, respondent failed to submit the monthly report.
From 16 October 1985 to sometime in March 1986, within the 27-month period granted to
respondent, petitioners also contracted a certain Nicasio Rosales, Sr. ("Rosales") to
undertake the partial development of the subdivision. On 16 July 1986, Rosales submitted
his accomplishment report. On the same day, petitioners demanded that respondent submit
within 15 days an accounting of his operation of the subdivision from the beginning of the
project up to 15 July 1986. Petitioners also requested for copies of contracts to sell, receipts
of collections and receipts of disbursements for development expenses.

On 5 August 1986, respondent secured from the Human Settlements Regulatory

Commission ("HSRC") an extension of time to finish the subdivision development until 30
July 1987. On 8 August 1986, petitioners instructed respondent to stop selling subdivision
lots and collecting payments from lot buyers. Petitioners also demanded the turnover to
them of all official receipts in the name of Franda Village Subdivision.5 Nonetheless,
respondent continued to collect payments from lot buyers until September 1986.

On 18 September 1986, petitioners wrote respondent that their accountant was not satisfied
with respondent's report which did not include the necessary supporting documents.
Petitioners required respondent to submit a proper statement of collections with supporting
receipts and documents, and reiterated that respondent should stop selling subdivision lots
and collecting payments from lot buyers. For the first time, petitioners also alleged that
respondent violated certain provisions of the Contract. Petitioners mentioned the complaint
of lot buyers that respondent was not developing the subdivision within the agreed period.
Another complaint was that respondent issued two kinds of receipts, one in the name of B.
C. Mercado and the other in the name of Franda Subdivision.6

On 7 October 1986, petitioners informed the HSRC of the lot buyers' complaints that
respondent completed only 5% of the development work and that he was issuing two kinds
of receipts. Petitioners also claimed that respondent was in serious violation of the Contract
because he did not properly remit to petitioners the proceeds from the lot sales.

In a letter dated 25 November 1986,7 respondent requested petitioners to provide him with
the format of the statement of collections they wanted or, alternatively, to send an
accountant to audit his records. He assured them that he could account for all the proceeds
from the lot sales. He countered that he could have finished the development of the
subdivision on time had petitioners not hampered him with their verbal demands to stop
the development and "fill up" the lots first. Respondent suggested that he and petitioners
settle their differences either by mutually canceling the Contract and giving to each party
its corresponding share, or by continuing with the arrangement. In the meantime,
respondent informed petitioners that he would continue the operation of the subdivision in
accordance with the Contract.

On 20 January 1987, petitioners granted respondent an authority8 to resume the sale of

subdivision lots and the collection of payments subject to the following conditions: (1) all
collections shall be deposited in a joint account with China Banking Corporation, San
Fernando, Pampanga branch; (2) withdrawals shall be limited to 50% of the total
collections or to respondent's share, which can only be used for development expenses, and
any withdrawal shall be subject to the approval of petitioners; (3) only Franda Village
Subdivision receipts, duly countersigned by petitioners, shall be used; (4) collections shall
be subject to a weekly or monthly audit; and (5) any violation of these conditions shall
result in the automatic cancellation of the authority.

On 28 January 1987, respondent informed HSRC that he had stopped development work
on the subdivision because the conditional authority issued by petitioners violated the
Contract. Specifically, respondent referred to the following provisions of the Contract that
the conditional authority contravened: (1) his exclusive and irrevocable right to manage,
control, and supervise the sale of lots; (2) his authority to issue receipts as the developer
without the participation of the landowners; and (3) his right to withdraw his 50% share
without the approval of the landowners.9Respondent attributed the delay in the
development of the subdivision to petitioners who contracted the services of another person
during the effectivity of the Contract. Petitioners also stopped respondent, without
justification, from selling the lots and collecting payments from lot buyers.

On 27 February 1987, respondent filed with the trial court an action to rescind the Contract
with a prayer for damages. Petitioners countered that respondent breached the Contract by
failing to finish the subdivision within the 27 months agreed upon, and therefore
respondent was in delay. Petitioners also alleged that respondent sold one subdivision lot
to two different buyers.

Subsequently, petitioners obtained permission from the Housing and Land Use Regulatory
Board to takeover the development of the subdivision.

The Ruling of the Trial Court

After trial on the merits, the trial court found for respondent. The trial court ruled that
petitioners breached the Contract by: (1) hiring Rosales to do development work on the
subdivision within the 27-month period exclusively granted to respondent; (2) interfering
with the latter's development work; and (3) stopping respondent from managing the sale of
lots and collection of payments.

Because petitioners were the first to breach the Contract and even interfered with the
development work, the trial court declared that respondent did not incur delay even if he
completed only 28% of the development work. Further, the HSRC extended the Contract
up to July 1987. Since the Contract had not expired at the time respondent filed the action
for rescission, petitioners' defense that respondent did not finish the development work on
time was without basis.
The trial court also found that respondent did not fail to pay the 50% share of petitioners
from the proceeds of the lot sales. The trial court viewed respondent's failure to submit the
required report as only a slight infraction not warranting petitioners' interference with
respondent's right to sell the lots and collect payments from sales pursuant to Article X (3)
of the Contract. The trial court noted that petitioners had tolerated the non-submission of
the monthly report until petitioners made the demand for accounting on 16 July 1986,
which respondent readily complied. The trial court stressed that respondent's right under
the Contract to sell lots and collect payments was exclusive and irrevocable.

The trial court found unproven the charge that respondent sold one subdivision lot to two
buyers. The trial court considered the issue of a double sale immaterial, as respondent did
not violate any provision of the Contract and the aggrieved parties in such event would be
the buyers and not petitioners.

In its Decision10 of 10 June 1991, the trial court decreed the rescission of the Contract and
awarded damages to respondent, as follows:

Premises considered, judgement is hereby rendered in favor of plaintiff granting the

rescission of the Contract of Development between him and defendants' and
ordering defendants to pay unto plaintiff the following:

1. Expenses of operation of the subdivision in the total amount of

P1,808,756.01 and return of advance payment of P200,000.00;

2. Attorney's fees of P25,000.00;

3. P50,000.00 and P30,000.00 as temperate and exemplary damages; and

4. Cost of suit.

SO ORDERED.

The Ruling of the Court of Appeals

On appeal to the Court of Appeals, petitioners presented for the first time a supplemental
Memorandum of Agreement dated 9 October 1985 allegedly entered into by petitioners
and Rosales with the conformity of respondent. However, the appellate court refused to
take cognizance of the Memorandum of Agreement, as petitioners did not formally offer it
in evidence.

The Court of Appeals adopted the findings of fact of the trial court. Declaring that there
was no reversible error, the appellate court in its Decision of 21 November 199411 affirmed
the ruling of the trial court in toto.
Petitioners filed a motion for reconsideration, which the Court of Appeals denied in its
Resolution of 17 January 1995.12

On 21 March 1995, petitioners filed with the Supreme Court a petition for review assailing
the appellate court's decision and resolution. Petitioners prayed that the Court: (1) reverse
the decision of the Court of Appeals; (2) award to petitioners P4,403,895.00 as additional
cost of the development of the subdivision, P57,864.00 as their unremitted share,
P304,152.00 to reimburse them for the amounts paid to Rosales, P50,000.00 as attorney's
fees, P10,000.00 as appearance fees, and moral and exemplary damages; and (3) other
equitable reliefs and remedies.13

The Issues

Petitioners assign the following errors:

1. THE COURT OF APPEALS ERRED WHEN IT HELD THAT DELAY IS NOT

AN ISSUE IN THIS CASE;

2. THE COURT OF APPEALS ERRED WHEN IT HELD THAT THE

CONTRACT OF DEVELOPMENT HAS NOT EXPIRED AND WAS
EXTENDED UP TO JULY 30, 1997 BY PETITIONER;

3. THE COURT OF APPEALS ERRED WHEN IT HELD THAT PRIVATE

RESPONDENT WAS ENTITLED TO THE RESCISSION OF THE CONTRACT
OF DEVELOPMENT AND DAMAGES BECAUSE OF INTERVENTION OF
NICASIO ROSALES, SR. IN THE DEVELOPMENT OF THE SUBDIVISION
DURING THE EXISTENCE OF THE CONTRACT, AND THAT THE
MEMORANDUM OF AGREEMENT OR SUPPLEMENTAL AGREEMENT
WHICH BEARS THE CONFORMITY OF PLAINTIFF WAS NOT OFFERED
OR PRODUCED IN THE TRIAL COURT AND THEREFORE COULD NOT BE
CONSIDERED ON APPEAL, WHEN IN FACT IT WAS REFERENCED AND
MADE PART OF THE EVIDENCE OF THE PRIVATE RESPONDENT;

4. THE COURT OF APPEALS ERRED WHEN IT HELD THAT PRIVATE

RESPONDENT WAS ENTITLED TO THE RESCISSION OF THE CONTRACT
AND DAMAGES BECAUSE PRIVATE RESPONDENT'S NON-SUBMISSION
OF THE MONTHLY COLLECTION REPORT WAS NOT A SERIOUS AND
SUBSTANTIAL BREACH OF THE CONTRACT OF DEVELOPMENT;

5. THE COURT OF APPEALS ERRED WHEN IT HELD THAT PRIVATE

RESPONDENT WAS ENTITLED TO THE RESCISSION OF THE CONTRACT
AND DAMAGES BECAUSE PRIVATE RESPONDENT'S EXECUTION OF
DOUBLE SALE OF A LOT IN THE SUBDIVISION SUBJECT OF THE
 CONTRACT OF DEVELOPMENT IN FAVOR OF TWO DIFFERENT
PERSONS IS AT BEST A PERIPHERAL ISSUE TO THE MAIN ISSUE OF
RESCISSION.

6. THE COURT OF APPEALS ERRED WHEN IT HELD THAT IT AFFIRMED

THE DECISION DATED JUNE 10, 1991 OF THE TRIAL COURT INSTEAD OF
REVERSING THE SAME AND AWARDING DAMAGES TO PETITIONERS.14

The Ruling of the Court

It is evident from the assigned errors that petitioners are asking the Court to reexamine
certain findings of fact of the trial court. Petitioners submit that this case constitutes an
exception to Rule 45 of the Rules of Court limiting to questions of law the issues that may
be raised in an appeal by certiorari to this Court.

To bolster this argument, the petition for review, prepared by Atty. Pedro D. Diwa as
counsel for petitioners, cited what is supposed to be the Court's ruling in Misa v. Court of
Appeals.15 However, petitioner's counsel misquoted the ruling in Misa. We reproduce the
erroneous excerpt - which petitioner's counsel even underscored – as follows:

And finally, Mr. Justice Medialdea of this COURT in the case of Misa vs. Court of
Appeals, G.R. No. 97291, August 5, 1992, by way of exception to the settled rule
that only questions of law may be raised in a petition for review on certiorari under
Rule 45 of the Rules of Court, held as follows:

"It is firmly settled that only questions of law may be raised in a petition for
review on certiorari under Rule 45 of the Rules of Court. However, there are
several instances when findings of fact may be passed upon and reviewed by
the Supreme Court, to wit: xxx"16

Contrary to the quotation made in the petition for review, the Court in Misa refused to
review the factual findings of the lower court. There the Court merely acknowledged the
exceptional circumstances which may warrant such a review, thus:

It is readily discernible that petitioners are asking Us to re-examine all the evidence
already presented before the respondent court and trial court and evaluated by them.
These evidence served as basis in arriving at their findings of fact. We shall not
analyze such evidence all over again. Instead, We put finis to the factual findings in
this case. It is firmly settled that only questions of law may be raised in a petition
for review on certiorari under Rule 45 of the Rules of Court. Certainly, We
recognize exceptions to this rule. The case of Medina, et. al. v. Asistio, etc., et al.,
G.R. No. 75450, November 8, 1990, 191 SCRA 218, 223-224 enumerates several
 instances when findings of fact may be passed upon and reviewed by this Court,
none of which obtain herein:

"(1) When the conclusion is a finding grounded entirely on speculation, surmises or

conjecture (Joaquin v. Navarro, 93 Phil. 257 [1953]; (2) When the inference made
is manifestly mistaken, absurd or impossible (Luna v. Linatok, 74 Phil. 14 [1942];
(3) Where there is a grave abuse of discretion (Buyco v. People, 95 Phil. 453 [1955];
(4) When judgment is based on a misapprehension of facts (Cruz v. Sosing, L-4875,
Nov. 27, 1953); (5) When the findings of fact are conflicting (Casica v. Villaseca,
L-9590 Ap. 30, 1957; unrep.);** (6) When the Court of Appeals, in making its
findings, went beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee (Evangelista v. Alto Surety and Insurance
Co., 103 Phil. 401 [1958]; (7) The findings of the Court of Appeals are contrary to
those of the trial court (Garcia v. Court of Appeals, 33 SCRA 622 [1970]; Sacay v.
Sandiganbayan, 142 SCRA 593 [1986]) ** (8) When the findings of fact are
conclusions without citation of specific evidence on which they are based (Ibid.,);
(9) When the facts set forth in the petition as well as in the petitioners' main and
reply briefs are not disputed by the respondents (Ibid.,); and (10) The finding of fact
of the Court of Appeals is premised on the supposed absence of evidence and is
contradicted by the evidence on record (Salazar v. Gutierrez, 33 SCRA 242
[1970]).17 (Emphasis and underscoring supplied)

We frown on the obvious carelessness of Atty. Diwa. Since only decisions of the Court
establish jurisprudence and doctrines in this jurisdiction,18 it is the duty of all officers of
the court to cite the rulings and decisions of the Supreme Court accurately, even "word-
for-word and punctuation mark-for-punctuation mark."19 Otherwise, "if not faithfully and
exactly quoted, the decisions and rulings of this Court may lose their proper and correct
meaning, to the detriment of other courts, lawyers and the public who may thereby be
misled."20

In any event, the issues about the alleged extension of the Contract, the double sale, the
interference with the development of the subdivision, are matters requiring the introduction
and evaluation of evidence. They are questions of fact, which arise when doubt or
difference exists about the truth or falsehood of alleged facts.21

As a rule, only questions of law may be appealed to the Court by certiorari. The Court is
not a trier of facts, its jurisdiction being limited to errors of law.22 Moreover, where as in
this case the Court of Appeals affirms the factual findings of the trial court, such findings
generally become conclusive and binding upon the Court.23 The Court will not disturb the
factual findings of the trial and appellate courts unless there are compelling or exceptional
reasons, and there is none in the instant petition.
The trial and appellate courts found that the HSRC granted respondent an extension of up
to 30 July 1987 to complete the development work under the Contract. Petitioners did not
contest HSRC's extension of time to respondent. Thus, the Court finds no merit in
petitioner's claim that respondent incurred delay in the performance of his obligation under
the Contract. At that time, the law authorized HSRC to grant extensions of time for
completion of subdivision projects.24

The law provides that delay may exist when the obligor fails to fulfill his obligation within
the time expressly stipulated.25 In this case, the HSRC extended the period for respondent
to finish the development work until 30 July 1987. Respondent did not incur delay since
the period granted him to fulfill his obligation had not expired at the time respondent filed
the action for rescission on 27 February 1987.

Petitioners argue the Court of Appeals naively assumed that respondent could complete the
development work in five months when he only finished 28.67% of the work in some 36
months.26 This argument is speculative and deserves scant consideration. It cannot prevail
over the express grant to respondent of a period within which to fulfill his obligation.

Moreover, as the trial and appellate courts found, petitioners hampered and interfered with
respondent's development work. Petitioners also stopped respondent from selling lots and
collecting payments from lot buyers, which was the primary source of development funds.
In effect, petitioners rendered respondent incapable, or at least made it difficult for him, to
develop the subdivision within the allotted period. In reciprocal obligations, neither party
incurs in delay if the other does not comply or is not ready to comply with what is
incumbent upon him. It is only when one of the parties fulfills his obligation that delay by
the other begins.27

Petitioners argue that the alleged Memorandum of Agreement may be treated as a judicial
admission in accordance with Geagonia v. Court of Appeals.28 We do not agree.
In Geagonia, the Court of Appeals considered a letter written by Geagonia, although not
formally offered in evidence, because it was originally annexed to Geagonia's initial
complaint filed with the Insurance Commissioner. The Court upheld the appellate court's
reversal of the Insurance Commissioner's decision on the ground that the letter constituted
a judicial admission by Geagonia. Findings of the Insurance Commissioner and the Court
of Appeals were divergent in Geagonia, an exceptional circumstance that allowed the
Court to reexamine the factual findings of the Insurance Commissioner.

In the instant case, petitioners never presented the Memorandum of Agreement before the
trial court. Petitioners merely annexed to their petition for review before the Court of
Appeals an unauthenticated photocopy of the alleged Memorandum of Agreement.
Petitioners argue that this agreement was "referenced and testified to" by respondent during
his cross-examination on 1 August 1989 before the trial court. However, in that testimony,
respondent merely admitted to signing an amended or supplemental agreement, the
contents of which he could not recall.29Respondent's testimony does not identify or admit
that the Memorandum of Agreement presented by petitioners was the agreement or contract
respondent had signed. Atty. Gorospe, then counsel for petitioners, even manifested during
the cross-examination of respondent that no supplemental agreement or contract was
appended to the complaint.30

Further, petitioners failed to explain adequately why the alleged Memorandum of

Agreement was never presented before the trial court. As succinctly explained by the Court
of Appeals:

Appellants' advertence to an alleged supplemental Memorandum of Agreement

(Annex "A", Appellant's brief) to prop up their cause deserves scant consideration.
The said document was neither produced nor offered in evidence in the proceedings
below, although it could have been easily produced in court by compulsory process.
This lapse has not been satisfactorily explained by appellants. xxx31 (Emphasis
supplied)

On the fourth assigned error, we find no reversible error in the ruling of the trial and
appellate courts that respondent's non-submission of the monthly report was merely a slight
infraction of the Contract. Respondent's failure to submit the monthly report cannot serve
as sufficient basis for the cancellation of the Contract. The cancellation of a contract will
not be permitted for a slight or casual breach. Only a substantial and fundamental breach,
which defeats the very object of the parties in making the contract, will justify a
cancellation.32 In the instant case, the development work continued for more than two years
despite the lack of a monthly report.

Petitioners further contend that, considering respondent's non-submission of collection

reports, they were merely enforcing their rights under Article X (3) of the Contract 33 in
demanding that respondent stop selling the subdivision lots and collecting payments from
lot buyers.

Whether petitioners could have justifiably invoked Article X (3) of the Contract based on
respondent's failure to submit the required reports is beside the point. It is clear from the
records that petitioners did not seek to stop respondent's activities due to the latter's failure
to submit the required reports. The non-submission of the required reports was never
mentioned in any of petitioners' letters. Indeed, petitioners' letter of 8 August 1986, which
first instructed respondent to stop selling the lots and collecting payments, did not mention
any violation at all,34 while the subsequent letters referred only to the complaints of lot
buyers. Article X (3) of the Contract required the "innocent party" to serve a written notice
of "a violation of the terms and conditions of this contract."35 Absent such written notice,
this provision cannot be invoked, much less enforced.
On the fifth assigned error, it is unnecessary for this Court to rule on the materiality of the
alleged double sale in the face of the trial and appellate courts' finding that no double sale
took place.

On the award of damages, however, we find some modification is in order. The trial court
awarded P50,000.00 in temperate damages to respondent for his "besmirched reputation
on his goodwill and image as a good and able engineer and contractor."36 Under the law,
however, moral and not temperate damages may be awarded for besmirched reputation and
similar injury.37 Temperate damages may be awarded only when pecuniary loss has been
suffered but the amount cannot be proved with certainty from the nature of the
case.38 Hence, the award of P50,000.00 in temperate damages should be deleted for lack of
legal basis.

We likewise find without basis the trial court's award of exemplary damages. In contracts,
exemplary damages may be awarded if the defendant acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner.39 Nothing in the trial and appellate courts'
decisions indicates that petitioners behaved in such manner as to warrant the grant of
exemplary damages.

On the award of attorney's fees, the general rule is that attorney's fees cannot be recovered
as part of damages because no premium should be placed on the right to litigate.40 Article
2208 of the Civil Code provides that attorney's fees and expenses of litigation should not
be granted unless stipulated, except in certain cases where "the defendant acted in gross
and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable
claim."41

That petitioners required respondent to submit a statement of collection on the same day
that Rosales submitted his accomplishment report does not sufficiently show, by itself,
gross and evident bad faith. The Contract itself required the submission of a collection
report. Although early on petitioners may have tolerated the non-submission of the report,
they should not be penalized for demanding later on that respondent comply with a
condition of the Contract.

WHEREFORE, the Decision of 21 November 1994 of the Court of Appeals in CA-G.R.

CV No. 34084 upholding the Decision of 10 June 1991 of the Regional Trial Court of San
Fernando, Pampanga, Branch XLV, in Civil Case No. 7909 is AFFIRMED, with the
MODIFICATION that the award of attorney's fees, temperate and exemplary damages is
DELETED.

JACINTO TANGUILIG doing business under the name and style J.M.T.
ENGINEERING AND GENERAL
MERCHANDISING, petitioner, vs. COURT OF APPEALS and VICENTE
HERCE JR., respondents.
DECISION
BELLOSILLO, J.:

This case involves the proper interpretation of the contract entered into between the
parties.
Sometime in April 1987 petitioner Jacinto M. Tanguilig doing business under the name
and style J. M. T. Engineering and General Merchandising proposed to respondent
Vicente Herce Jr. to construct a windmill system for him. After some negotiations they
agreed on the construction of the windmill for a consideration of P60,000.00 with a one-
year guaranty from the date of completion and acceptance by respondent Herce Jr. of the
project. Pursuant to the agreement respondent paid petitioner a down payment
of P30,000.00 and an installment payment of P15,000.00, leaving a balance of P15,000.00.
On 14 March 1988, due to the refusal and failure of respondent to pay the balance,
petitioner filed a complaint to collect the amount. In his Answer before the trial court
respondent denied the claim saying that he had already paid this amount to the San Pedro
General Merchandising Inc. (SPGMI) which constructed the deep well to which the
windmill system was to be connected. According to respondent, since the deep well formed
part of the system the payment he tendered to SPGMI should be credited to his account by
petitioner. Moreover, assuming that he owed petitioner a balance of P15,000.00, this
should be offset by the defects in the windmill system which caused the structure to
collapse after a strong wind hit their place.[1]
Petitioner denied that the construction of a deep well was included in the agreement to
build the windmill system, for the contract price of P60,000.00 was solely for the windmill
assembly and its installation, exclusive of other incidental materials needed for the
project. He also disowned any obligation to repair or reconstruct the system and insisted
that he delivered it in good and working condition to respondent who accepted the same
without protest. Besides, its collapse was attributable to a typhoon, a force majeure,which
relieved him of any liability.
In finding for plaintiff, the trial court held that the construction of the
deep well was not part of the windmill project as evidenced clearly by the letter proposals
submitted by petitioner to respondent.[2] It noted that "[i]f the intention of the parties is to
include the construction of the deep well in the project, the same should be stated in the
proposals. In the absence of such an agreement, it could be safely concluded that the
construction of the deep well is not a part of the project undertaken by the plaintiff."[3] With
respect to the repair of the windmill, the trial court found that "there is no clear and
convincing proof that the windmill system fell down due to the defect of the
construction."[4]
The Court of Appeals reversed the trial court. It ruled that the construction of the deep
well was included in the agreement of the parties because the term "deep well" was
mentioned in both proposals. It also gave credence to the testimony of respondent's witness
Guillermo Pili, the proprietor of SPGMI which installed the deep well, that petitioner
Tanguilig told him that the cost of constructing the deep well would be deducted from the
contract price of P60,000.00. Upon these premises the appellate court concluded that
respondent's payment of P15,000.00 to SPGMI should be applied to his remaining balance
with petitioner thus effectively extinguishing his contractual obligation. However, it
rejected petitioner's claim of force majeure and ordered the latter to reconstruct the
windmill in accordance with the stipulated one-year guaranty.
His motion for reconsideration having been denied by the Court of Appeals, petitioner
now seeks relief from this Court. He raises two issues: firstly, whether the agreement to
construct the windmill system included the installation of a deep well
and, secondly,whether petitioner is under obligation to reconstruct the windmill after it
collapsed.
We reverse the appellate court on the first issue but sustain it on the second.
The preponderance of evidence supports the finding of the trial court that the
installation of a deep well was not included in the proposals of petitioner to construct a
windmill system for respondent. There were in fact two (2) proposals: one dated 19 May
1987 which pegged the contract price at P87,000.00 (Exh. "1"). This was rejected by
respondent. The other was submitted three days later, i.e., on 22 May 1987 which contained
more specifications but proposed a lower contract price of P60,000.00 (Exh. "A"). The
latter proposal was accepted by respondent and the construction immediately
followed. The pertinent portions of the first letter-proposal (Exh. "1") are
reproduced hereunder -

In connection with your Windmill System and Installation, we would like to quote to you
as follows:

One (1) Set - Windmill suitable for 2 inches diameter deepwell, 2 HP, capacity, 14 feet in
diameter, with 20 pieces blade, Tower 40 feet high, including mechanism which is not
advisable to operate during extra-intensity wind. Excluding cylinder pump.

UNIT CONTRACT PRICE P87,000.00

The second letter-proposal (Exh. "A") provides as follows:

In connection with your Windmill system Supply of Labor Materials and Installation,
operated water pump, we would like to quote to you as follows -

One (1) set - Windmill assembly for 2 inches or 3 inches deep-well pump, 6 Stroke, 14 feet
diameter, 1-lot blade materials, 40 feet Tower complete with standard appurtenances up to
Cylinder pump, shafting U.S. adjustable International Metal.
One (1) lot - Angle bar, G. I. pipe, Reducer Coupling, Elbow Gate valve, cross Tee
coupling.

One (1) lot - Float valve.

One (1) lot - Concreting materials foundation.

F. O. B. Laguna

Contract Price P60,000.00

Notably, nowhere in either proposal is the installation of a deep well mentioned, even
remotely. Neither is there an itemization or description of the materials to be used in
constructing the deep well. There is absolutely no mention in the two (2) documents that a
deep well pump is a component of the proposed windmill system. The contract prices fixed
in both proposals cover only the features specifically described therein and no other. While
the words "deep well" and "deep well pump" are mentioned in both, these do not indicate
that a deep well is part of the windmill system. They merely describe the type of deep well
pump for which the proposed windmill would be suitable. As correctly pointed out
by petitioner, the words "deep well" preceded by the prepositions "for" and "suitable
for" were meant only to convey the idea that the proposed windmill would be appropriate
for a deep well pump with a diameter of 2 to 3 inches. For if the real intent of petitioner
was to include a deep well in the agreement to construct a windmill, he would have used
instead the conjunctions "and" or "with." Since the terms of the instruments are clear and
leave no doubt as to their meaning they should not be disturbed.
Moreover, it is a cardinal rule in the interpretation of contracts that the intention of the
parties shall be accorded primordial consideration[5] and, in case of doubt, their
contemporaneous and subsequent acts shall be principally considered.[6] An examination
of such contemporaneous and subsequent acts of respondent as well as the attendant
circumstances does not persuade us to uphold him.
Respondent insists that petitioner verbally agreed that the contract price of P60,000.00
covered the installation of a deep well pump. He contends that since petitioner did not have
the capacity to install the pump the latter agreed to have a third party do the work the cost
of which was to be deducted from the contract price. To prove his point, he presented
Guillermo Pili of SPGMI who declared that petitioner Tanguilig approached him with a
letter from respondent Herce Jr. asking him to build a deep well pump as "part of the
price/contract which Engineer (Herce) had with Mr. Tanguilig."[7]
We are disinclined to accept the version of respondent. The claim of Pili that Herce Jr.
wrote him a letter is unsubstantiated. The alleged letter was never presented in court by
private respondent for reasons known only to him. But granting that this written
communication existed, it could not have simply contained a request for Pili to install a
deep well; it would have also mentioned the party who would pay for the undertaking. It
strains credulity that respondent would keep silent on this matter and leave it all to
petitioner Tanguilig to verbally convey to Pili that the deep well was part of the windmill
construction and that its payment would come from the contract price of P60,000.00.
We find it also unusual that Pili would readily consent to build a deep well the payment
for which would come supposedly from the windmill contract price on the mere
representation of petitioner, whom he had never met before, without a written commitment
at least from the former. For if indeed the deep well were part of the windmill project, the
contract for its installation would have been strictly a matter between petitioner and Pili
himself with the former assuming the obligation to pay the price. That it was respondent
Herce Jr. himself who paid for the deep well by handing over to Pili the amount
of P15,000.00 clearly indicates that the contract for the deep well was not part of the
windmill project but a separate agreement between respondent and Pili. Besides, if the
price of P60,000.00 included the deep well, the obligation of respondent was to pay the
entire amount to petitioner without prejudice to any action that Guillermo Pili or SPGMI
may take, if any, against the latter. Significantly, when asked why he tendered payment
directly to Pili and not to petitioner, respondent explained, rather lamely, that he did it
"because he has (sic) the money, so (he) just paid the money in his possession."[8]
Can respondent claim that Pili accepted his payment on behalf of
petitioner? No. While the law is clear that "payment shall be made to the person in
whose favor the obligation has been constituted, or his successor in
[9]
interest, or any person authorized toreceive it,". It does not appear from the record
that Pili and/or SPGMI was so authorized.
Respondent cannot claim the benefit of the law concerning "payments made by a third
person."[10] The Civil Code provisions do not apply in the instant case because no creditor-
debtor relationship between petitioner and Guillermo Pili and/or SPGMI has been
established regarding the construction of the deep well. Specifically, witness Pili did not
testify that he entered into a contract with petitioner for the construction of respondent's
deep well. If SPGMI was really commissioned by petitioner to construct the deep well, an
agreement particularly to this effect should have been entered into.
The contemporaneous and subsequent acts of the parties concerned effectively belie
respondent's assertions. These circumstances only show that the construction of the well
by SPGMI was for the sole account of respondent and that petitioner merely supervised the
installation of the well because the windmill was to be connected to it. There is no legal
nor factual basis by which this Court can impose upon petitioner an obligation he did not
expressly assume nor ratify.
The second issue is not a novel one. In a long line of cases[11] this Court has
consistently held that in order for a party to claim exemption from liability by reason of
fortuitous event under Art. 1174 of the Civil Code the event should be the sole
and proximate cause of the loss or destruction of the object of the
contract. In Nakpil vs. Court of Appeals,[12] four (4) requisites must concur: (a) the cause
of the breach of the obligation must be independent of the will of the debtor; (b) the event
must be either unforeseeable or unavoidable; (c) the event must be such as to render it
impossible for the debtor to fulfill his obligation in a normal manner; and, (d) the debtor
must be free from any participation in or aggravation of the injury to the creditor.
Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous
event. Interestingly, the evidence does not disclose that there was actually a typhoon on the
day the windmill collapsed. Petitioner merely stated that there was a "strong wind." But a
strong wind in this case cannot be fortuitous - unforeseeable nor unavoidable. On the
contrary, a strong wind should be present in places where windmills are constructed,
otherwise the windmills will not turn.
The appellate court correctly observed that "given the newly-constructed windmill
system, the same would not have collapsed had there been no inherent defect in it which
could only be attributable to the appellee."[13] It emphasized that
respondent had in hisfavor the presumption that
"things have happened according to the ordinary course of nature and the ordinary habits
of life."[14] This presumption has not been rebutted by petitioner.
Finally, petitioner's argument that private respondent was already in default in the
payment of his outstanding balance of P15,000.00 and hence should bear his own loss, is
untenable. In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent upon
him.[15] When the windmill failed to function properly it became incumbent upon petitioner
to institute the proper repairs in accordance with the guaranty stated in the contract. Thus,
respondent cannot be said to have incurred in delay; instead, it is petitioner who should
bear the expenses for the reconstruction of the windmill. Article 1167 of the Civil Code is
explicit on this point that if a person obliged to do something fails to do it, the same shall
be executed at his cost.
WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE
HERCE JR. is directed to pay petitioner JACINTO M. TANGUILIG the balance
of P15,000.00 with interest at the legal rate from the date of the filing of the complaint. In
return, petitioner is ordered to "reconstruct subject defective windmill system, in
accordance with the one-year guaranty"[16]and to complete the same within three (3)
months from the finality of this decision.
Remedies available to the creditor
Art. 1168, 1244 par 2
JUAN L. PEREZ, LUIS KEH, CHARLIE LEE and ROSENDO G. TANSINSIN,
JR., petitioners, vs. COURT OF APPEALS, LUIS CRISOSTOMO and
VICENTE ASUNCION, respondents.

DECISION
GONZAGA-REYES, J.:

This is a petition for review on certiorari of the Decision[1] of the Court of Appeals
affirming the decision of the Regional Trial Court of Bulacan, Branch 9[2] that disposed of
Civil Case No. 5610-M (Luis Crisostomo v. Luis Keh, Juan Perez, Charlie Kee and Atty.
Rosendo G. Tansinsin, Jr.) as follows:

WHEREFORE, premises considered, judgment is hereby rendered:

a) directing defendant JUAN PEREZ to allow plaintiff LUIS CRISOSTOMO to

occupy and operate the `Papaya Fishpond for a period of 5 years at the rental
rates of P150,000.00 for the first six months and P175,000.00 for the remaining
five years (the same rates provided for in Exh. 4);
b) ordering defendants LUIS KEH, CHARLIE LEE, JUAN PEREZ and ATTY.
ROSENDO TANSINSIN, JR. to pay unto the plaintiff the amounts of
P150,000.00 as actual damages; P20,000.00 as moral damages; P20,000.00 as
exemplary damages; and P10,000.00 as attorneys fees, plus the costs of the suit;
c) directing the release, delivery or payment directly to plaintiff LUIS
CRISOSTOMO of the amounts of P128,572.00 and P123,993.85, including the
interests which may have already accrued thereon, deposited with the
Paluwagan ng Bayan Savings Bank (Paombong, Bulacan Branch) in the name
of the Clerk of Court and/or Deputy Clerk of Court Rodrigo C. Libunao under
this Courts Order dated February 14, 1980; however, the plaintiff is required to
pay defendant Perez the corresponding rental on the fishpond for the period
June 1979-January 1980 based on the rate of P150,000.00 per annum, deducting
therefrom the amount of P21,428.00 already paid to and received by then co-
usufructuary Maria Perez (Exh. E);
d) dismissing the defendants separate counter-claims for damages, for lack of
merit; and
e) dismissing the Pleading in Intervention Pro Interesse Suo filed by VICENTE
ASUNCION on the ground of lis pendens.

SO ORDERED.

The facts upon which the Court of Appeals based its Decision are the following:
Along with Maria Perez, Fructuosa Perez, Victoria Perez, Apolonio Lorenzo and
Vicente Asuncion, petitioner Juan Perez is a usufructuary of a parcel of land popularly
called the "Papaya Fishpond. Covered by Transfer Certificate of Title No. 8498 of the
Registry of Deeds for the Province of Bulacan, the fishpond is located in Sto. Rosario,
Hagonoy, Bulacan and has an area of around 110 hectares. On June 5, 1975, the
usufructuaries entered into a contract leasing the fishpond to Luis Keh for a period of five
(5) years and renewable for another five (5) years by agreement of the parties, under the
condition that for the first five-year period the annual rental would be P150,000.00 and for
the next five years, P175,000.00. Paragraph 5 of the lease contract states that the lessee
cannot sublease the fishpond nor assign his rights to anyone.[3]
Private respondent Luis Crisostomo, who reached only the 5th grade, is a businessman
engaged in the operation of fishponds. On September 20, 1977, while he was at his
fishpond in Almazar, Hermosa, Bataan, his bosom friend named Ming Cosim arrived with
petitioner Charlie Lee. The two persuaded private respondent to take over the operation of
Papaya Fishpond as petitioner Lee and his partner, petitioner Luis Keh, were allegedly
losing money in its operation. Private respondent having acceded to the proposal, sometime
in December of that year, he and petitioners Lee and Keh executed a written agreement
denominated as pakiao buwis whereby private respondent would take possession of the
Papaya Fishpond from January 6, 1978 to June 6, 1978 in consideration of the amount of
P128,000.00 broken down as follows: P75,000.00 as rental, P50,000.00 for the value of
milkfish in the fishpond and P3,000 for labor expenses. Private respondent paid the
P75,000.00 to petitioner Keh at the house of petitioner Lee in Sta. Cruz, Hagonoy, Bulacan
in the presence of Lees wife, brother-in-law and other persons. He paid the balance to
petitioner Lee sometime in February or March 1978 because he was uncertain as to the
right of petitioners Keh and Lee to transfer possession over the fishpond to him. Private
respondent made that payment only after he had received a copy of a written agreement
dated January 9, 1978[4] whereby petitioner Keh ceded, conveyed and transferred all his
rights and interests over the fishpond to petitioner Lee, up to June 1985. From private
respondents point of view, that document assured him of continuous possession of the
property for as long as he paid the agreed rentals of P150,000.00 until 1980 and
P175,000.00 until 1985.
For the operation of the fishpond from June 1978 to May 1979, private respondent,
accompanied by Ming Cosim and Ambrocio Cruz, paid the amount of P150,000.00 at the
Malabon, Metro Manila office of petitioner Keh. The following receipt was issued to him:

RECEIPT

June 6, 1978

P150,000.00

Received from Mr. LUIS KEH the sum of ONE HUNDRED FIFTY THOUSAND PESOS
(P150,000.00), Philippine Currency, as full payment of the yearly leased rental of the
Papaya Fishpond for the year beginning June 1978 and ending on May 1979. The next
payment shall be made on June 6, 1979.

Said sum was paid in Producers Bank of the Philippines Check No. (illegible) 164595 dated
June 6, 1978.
Mr. Luis Keh has not transferred his rights over the fishpond to any person.

Caloocan City, June 6, 1978.

JUAN L. PEREZ ET AL.

By:

(Sgd.)

Rosendo G. Tansinsin, Jr.

CONFORME TO THE ABOVE:

(Sgd.)

LUIS KEH

Handwritten below that receipt but above the signature of petitioner Charlie Lee, are the
following: Recd from Luis Crisostomo sum of one hundred fifty-four thousand
P154,000.00 for above payment.[5]

Private respondent incurred expenses for repairs in and improvement of the fishpond
in the total amount of P486,562.65.[6] However, sometime in June 1979, petitioners
Tansinsin and Juan Perez, in the company of men bearing armalites, went to the fishpond
and presented private respondent with a letter dated June 7, 1979 showing that petitioner
Luis Keh had surrendered possession of the fishpond to the usufructuaries.
Because of the threat to deprive him of earnings of around P700,000.00 that the
700,000 milkfish in the fishpond would yield, and the refusal of petitioners Keh, Juan Perez
and Lee to accept the rental for June 5, 1979 to June 6, 1980, private respondent filed on
June 14, 1979 with the then Court of First Instance of Bulacan an action for injunction and
damages. He prayed for the issuance of a restraining order enjoining therein defendants
Keh, Perez and Lee from entering the premises and taking possession of the fishpond. He
also prayed for actual damages of P50,000.00, moral damages of P20,000.00, exemplary
damages in an amount that the court might award, and attorneys fees of P10,000.00.[7]
That same day, June 14, 1979, the lower court granted the prayer for a restraining
order. On November 13, 1979, Crisostomo paid one of the usufructuaries, Maria Perez
(who died in 1984), the amount of P21,428.00 as her 1/7 share of the annual rental of the
fishpond for 1979-80. Maria Perez issued a notarized receipt for that amount.[8]
On January 11, 1980, the court lifted the restraining order thereby effectively depriving
private respondent of possession over the fishpond. On February 14, 1980, the parties
submitted a partial compromise agreement with the following stipulations:
 1. The amount of P128,572.00 that private respondent deposited as rental with the
Office of the Clerk of Court under O.R. No. 21630 dated November 15, 1979
be withdrawn from that office and deposited with the Paluwagan ng Bayan
Savings & Loan Association, Inc. (Paombong, Bulacan branch) and which
deposit shall not be withdrawn unless authorized by the court; and
2. The plaintiff could personally harvest milkfish with commercial value in the
presence of Perez and under the supervision of the deputy clerk of court within
the appointed period and that the net proceeds of the sale (P123,993.85 per the
Report dated March 4, 1980 of the deputy clerk of court) be deposited in the
name of the deputy clerk of court of Branch 6 of the then Court of First Instance
of Bulacan with the same branch of the Paluwagan ng Bayan Savings & Loan
Association, Inc. and which deposit shall not be withdrawn unless upon order
of the court after hearing.
The court approved that agreement on that same date.
Thereafter, the usufructuaries entered into a contract of lease with Vicente Raymundo
and Felipe Martinez for the six-year period of June 1, 1981 to May 30, 1987 in
consideration of the annual rentals of P550,000.00 for the first two years and P400,000.00
for the next four years. Upon expiration of that lease, the same property was leased to Pat
Laderas for P1 million a year.
The complaint was later amended to include petitioner Tansinsin, the alleged
administrator of the fishpond, as one of the defendants.[9] Except in the joint answer that
the defendants had filed, petitioners Keh and Lee did not appear before the court. Neither
did they testify.
In their defense, petitioners Juan Perez and Tansinsin presented evidence to prove that
they had negotiated for the lease of the property with Benito Keh in 1975. However, they
averred, for reasons unknown to petitioner Perez, in the contract of lease that petitioner
Tansinsin prepared, petitioner Luis Keh was named as lessee. Petitioner Perez had never
met Keh or Lee but according to petitioner Tansinsin, petitioner Luis Keh was substituted
for Benito Keh because the latter was preoccupied with his other businesses. Sometime in
1979, petitioner Kehs agent named Catalino Alcantara relayed to petitioner Perez, Kehs
intention to surrender possession of the fishpond to the usufructuaries. Because petitioner
Perez demanded that said intention should be made in writing, on June 5, 1979, Perez
received from Keh a letter to that effect.
When private respondent received a copy of that letter of petitioner Keh, he took the
position that petitioner Perez had no right to demand possession of the fishpond from him
because Perez had no contract with him. Private respondent was allowed four (4) months
within which to vacate the premises but he immediately filed the complaint for injunction
and damages. Thereafter, private respondents counsel, Atty. Angel Cruz, and other persons
tried to prevail upon petitioner Perez to allow private respondent to occupy the property
for three (3) more years. Petitioner Perez declined that proposition.
 On September 6, 1989, the lower court rendered the aforesaid decision. It arrived at
the conclusion that the defendants therein conspired with one another to exploit the
plaintiffs naivete and educational inadequacies and, in the process, to defraud him by
inducing him into taking possession of the `Papaya Fishpond in their fond hope that, as
soon as the plaintiff applying his known expertise as a successful fishpond operator shall
have considerably improved the fishpond, they will regain possession of the premises and
offer the lease thereof to other interested parties at much higher rental rates as laid bare by
supervening realities. That conclusion was founded on the following:
1. The plaintiffs (private respondent Crisostomos) testimony bears the hallmarks
of truth: candid, straightforward and uncontrived. He had proven himself a
much more credible witness than his opponents.
2. The notarized receipt of Maria Perez of her share as a usufructuary in the rental
for 1979-80 is a clear avowal of plaintiffs legitimate operation of the Papaya
Fishpond as assignee or transferee thereof. It was impossible for the other
usufructuaries, especially Juan Perez who was residing in the same locality and
actively involved in the affairs of the fishpond, not to have known that plaintiff
occupied the fishpond for one and a half years as assignee of Keh and Lee. It
was unbelievable that both Tansinsin and Perez would only perceive the
plaintiff as a mere encargado of Keh and Lee.
3. The receipt whereby Tansinsin acknowledged payment of P150,000.00 as rental
for June 1978-May 1979 bears tell-tale signs of the conspiracy. Firstly, the
statement Mr. Luis Keh has not transferred his rights over the fishpond to any
person is entirely irrelevant to that receipt unless it was intended to preempt
plaintiffs claim of rights and interests over the said property as either sub-lessee
or assignee. Secondly, Kehs having signified Conforme to the above is a
gratuitous notation as it actually indicates that the money came from the
plaintiff. Thirdly, Atty. Tansinsins receipt of the amount for and in behalf of
JUAN L. PEREZ ET AL. illustrates his active and dominant role in the affairs
of the fishpond whether as administrator thereof or as beneficiary of a share
from its fruits.
4. Service upon plaintiff of Kehs letter surrendering possession of the fishpond
implied that defendants knew that plaintiff was in possession thereof. That they
resorted to the intimidating presence of armed men is proof that they expected
the plaintiff to refuse to give up possession of the property. These circumstances
completely belie the protestations of Perez and Tansinsin of lack of knowledge
of the contract entered into between the plaintiff, and Lee and Keh.
5. The nonpresentation of Lee and Keh on the witness stand by Atty. Tansinsin
can very well be construed as a smart maneuver to cover up the sinister cabal
for deception inferrable from the attendant facts and circumstances. In their
joint answer, Keh and Lee tried to relieve Perez of any liability in favor of the
 plaintiff. That is understandable because, should the Court disregard the
reliance of Perez on the prohibition against sub-lease or assignment of the
Papaya Fishpond, then all the defendants shall have exposed themselves to
unavoidable liability for the acts complained of by the plaintiff.
6. Atty. Tansinsin was the common legal counsel of all the defendants and, by his
testimony, even the plaintiff. Atty. Tansinsins denial that he was plaintiffs
counsel was his way of deflecting plaintiffs imputations of professional
improprieties against him. Plaintiff must have assumed that Atty. Tansinsin was
also his lawyer considering that they were on very friendly terms and therefore
Atty. Tansinsin might have been instrumental in dispelling whatever fears
plaintiff had entertained as regards the business transactions involved.
7. The fact that the fishpond was subsequently rented out for astronomical amounts
is proof that the plaintiff had considerably improved the fishpond.[10]
The lower court added:

Bluntly yet succinctly put, the foregoing circumstances when viewed collectively with
other cogent aspects of the instant case inexorably lead to the Courts well-considered view
that the defendants tempted by the bright prospect of a lucrative business coup embarked
themselves in an egregious scheme to take undue advantage of the gullibility of the plaintiff
who, as borne by ensuing events, proved himself an ideal victim to prey upon: pathetically
unsuspecting yet only too eager to invest his material resources and self-acquired technical
know-how to redeem what was then a dwindling business enterprise from total
collapse. Plaintiffs impressive performance, alas, only redounded ultimately to the
supreme benefit exclusively of the defendants. A classic case of ako ang nagsaing, iba ang
kumain!

The defendants elevated the case to the Court of Appeals which, as earlier mentioned,
affirmed the decision of the trial court and disposed of the appeal on February 18, 1992 as
follows:

WHEREFORE, in view of all the foregoing, judgment appealed from, is hereby

AFFIRMED.

However, intervenor-appellant is hereby declared co-usufructuary of the Papaya fishpond,

and is, therefore, entitled to all rights and interest due to the usufructuaries of the said
fishpond.

SO ORDERED.

On the defendant-appellants contention that the principle of res judicata should be

applied because the Court of Appeals had ruled on the issue of possession in CA-G.R. No.
10415-R, a petition for certiorari and injunction with preliminary mandatory injunction,
the Court of Appeals held that said principle was unavailing. The petition in CA-G.R. No.
10415-R involved a writ of injunction which presupposes the pendency of a principal or
main action. Moreover, the decision in that case did not resolve the issue of who should be
in possession of the Papaya Fishpond as findings of fact of the trial court cannot be
reviewed in a certiorari proceeding.
The Court of Appeals ruled further that appellee Crisostomo cannot be considered a
possessor in bad faith, considering that he took possession of the fishpond when appellants
Keh and Lee assigned to him appellant Kehs leasehold right. It held that appellant Perez
knew of the transfer of possession of the fishpond to appellee and that the receipt
evidencing payment of the 1978-1979 rental even bears an expressed admission by Lee
that the payment came from appellee Crisostomo.
Agreeing with the court a quo that defendants-appellants employed fraud to the
damage and prejudice of plaintiff-appellee, the Court of Appeals held that appellants
should be held liable for damages. As regards the intervention pro interesse suo, the
appellate court ruled that the same should be allowed because, even if the litigation would
not be technically binding upon him, complications might arise that would prejudice his
rights. Pointing out that a usufruct may be transferred, assigned or disposed of, the Court
of Appeals ruled that the intervenor cannot be excluded as a usufructuary because he had
acquired his right as such from a sale in execution of the share of Jorge Lorenzo, one of
the usufructuaries of the fishpond.
Herein petitioners filed a motion for the reconsideration of that Decision of the Court
of Appeals. They alleged that the Decision was premature because it was rendered when
they had not yet even received a copy of the intervenors brief wherein assignments of errors
that directly affected their rights and interests were made. They insisted that the principle
of res judicata was applicable because in G.R. No. 64354, this Court upheld the Decision
of the Court of Appeals in CA G.R. No. 10415. They added that appellee Crisostomo was
guilty of forum shopping because the issue of possession had been squarely decided in CA-
G.R. No. 10415. They stressed that the contract of lease between Keh and the
usufructuaries prohibited subleasing of the fishpond; that by the receipt dated June 6, 1978,
it was Keh who paid the rental; that appellee Crisostomo was a perjured witness because
in the notebook showing his expenses, the amount of P150,000.00 for rentals does not
appear; that the term of the contract had expired and there was no renewal thereof, and that
the consideration of P150,000.00 was grossly inadequate. They averred that the Court of
Appeals erred in awarding damages that were not prayed for in the second amended
complaint and that amounts not specified in the complaint were awarded as damages. They
disclaimed that Atty. Tansinsin was the administrator of the fishpond.
On October 30, 1992, the Court of Appeals denied the motion for reconsideration for
lack of merit. It ruled that the Decision was not prematurely promulgated considering that
the intervention proceeding is solely between intervenor and defendants-appellants, which
is completely separable and has nothing to do with the merits of the appeal.
 In the instant petition for review on certiorari, petitioners raise six (6) grounds for
giving due course to it.[11] Those grounds may be distilled into the following: (a) the
applicability of the principle of res judicata; (b) the premature promulgation of the
Decision of the Court of Appeals, and (c) private respondent was not a sublesee of the
fishpond under the law.
In arguing that the principle of res judicata applies in this case, petitioners rely on the
portion of the Decision[12] of the Court of Appeals in CA-G.R. No. 10415 that states:

We find no basis for declaring respondent Judge guilty of grave abuse of discretion on this
regard. The trial courts finding that petitioner does not appear entitled to any contract or
law to retain possession of the fishpond in question since he is neither an assignee or sub-
lessee and, therefore, merely a stranger to the contract of lease is a finding of fact review
of which is not proper in a certiorari proceedings. Not only is petitioner not a party to the
lease agreement over the fishpond in question but also the very authority upon which he
predicates his possession over the fishpond that the leasehold right of Luis Keh had been
assigned to him undoubtedly lacks basis for the very contract between Luis Keh and the
lessors expressly provides

That the lessee cannot sub-lease above-described fishpond nor assign his rights to anyone.

X x x x x x x x x.

(Underscoring supplied by petitioners.)[13]

Petitioners assert that said Decision of the Court of Appeals which was in effect upheld
by this Court when it denied the petition for review on certiorari in G. R. No. 64354 (Luis
Crisostomo v. Intermediate Appellate Court),[14] is res judicata to the issue of possession
in this case.[15]However, as expressed in that quoted portion of the Decision in CA-G.R.
No. 10415, the issue of whether private respondent is an assignee or a sub-lessee is a
finding of fact review of which is not proper in a certiorari proceeding or the proceeding
in that case.
CA-G.R. No. 10415 was spawned by the lifting on January 11, 1980 of the restraining
order previously issued by the trial court on June 14, 1979. Private respondent filed a
special civil action of certiorari and injunction with preliminary mandatory injunction
and/or mandatory restraining order to question the order of January 11, 1980. Thus, the
issue in that petition was whether or not the trial court gravely abused its discretion in
lifting the restraining order. The statement in that Decision of the Court of Appeals that a
writ of preliminary injunction may be denied if the party applying for it has insufficient
title or interest to sustain it and no claim to an ultimate relief (is) sought by no means
resolved the issue of who is entitled to possess the fishpond. In denying the petition
for certiorari, the Court of Appeals was simply saying that there was no reason to restore
private respondent to the possession of the fishpond pursuant to the restraining order that
he had earlier obtained. The issue of possession was collaterally discussed only to resolve
the propriety of the lifting of the restraining order based on evidence available at that
time. Hence, there was no judgment on the merits in the main case or in Civil Case No.
5610-M. Simply put, the Decision in CA-G.R. No. 10415 involves an interlocutory order
on the propriety of the lifting of the restraining order and not a judgment on the merits of
Civil Case No. 5610-M.
For res judicata to apply, the following requisites must concur: (a) the former
judgment must be final; (b) the court which rendered it had jurisdiction over the subject
matter and the parties; (c) the judgment must be on the merits, and (d) there must be
between the first and second actions identity of parties, subject matter and causes of
action.[16] The Decision in CA-G.R. No. 10415 having resolved only an interlocutory
matter, the principle of res judicata cannot be applied in this case. There can be no res
judicata where the previous order in question was not an order or judgment determinative
of an issue of fact pending before the court but was only an interlocutory order because it
required the parties to perform certain acts for final adjudication.[17] In this case, the lifting
of the restraining order paved the way for the possession of the fishpond on the part of
petitioners and/or their representatives pending the resolution of the main action for
injunction. In other words, the main issue of whether or not private respondent may be
considered a sublessee or a transferee of the lease entitled to possess the fishpond under
the circumstances of the case had yet to be resolved when the restraining order was lifted.
Petitioners assail the Court of Appeals Decision as premature and therefore null and
void, because prior to the promulgation of that Decision, private respondent-intervenor
Vicente Asuncion failed to furnish them with a copy of his brief the assignment of errors
of which allegedly directly affected their rights and interests.[18] While it is true that
petitioners were deprived of the opportunity to contravene the allegations of the intervenor
in his brief, that fact can not result in the nullity of the Decision of the Court of
Appeals.[19] Vicente Asuncion intervened pro interesse suo or according to his
interest.[20] Intervention pro interesse suo is a mode of intervention in equity wherein a
stranger desires to intervene for the purpose of asserting a property right in the res, or thing,
which is the subject matter of the litigation, without becoming a formal plaintiff or
defendant, and without acquiring control over the course of a litigation, which is conceded
to the main actors therein.[21] In this case, intervenor Vicente Asuncion aimed to protect his
right as a usufructuary. Inasmuch as he has the same rights and interests as petitioner Juan
Perez, any judgment rendered in the latters favor entitled him to assert his right as such
usufructuary against his co-usufructuary. Should said intervenor claim his share in the
usufruct, no rights of the petitioners other than those of Juan Perez would be prejudiced
thereby.
Worth noting is the fact that after the trial court had allowed Vicente Asuncions
intervention pro interesse suo, petitioner Juan Perez filed a petition for certiorari docketed
as CA-G.R. No. 13519 to set aside the order denying his motion to dismiss the pleading in
intervention. In its Decision of January 27, 1988, the Seventh Division of the Court of
Appeals[22] denied the petition for certiorari for lack of merit. It upheld the trial courts
ruling to allow the intervention pro interesse suo to protect Vicente Asuncions right as a
co-usufructuary in the distribution or disposition of the amounts representing the rentals
that were deposited with the court. That Vicente Asuncion had filed Civil Case No. 8215-
M seeking recovery of his alleged share in the fruits of the Papaya Fishpond from 1978
would not be a reason for the dismissal of the motion for intervention pursuant to Rule 16,
Sec. 1 (e) of the Rules of Court.[23] The Court of Appeals explained as follows:

Indeed, if by means of intervention a stranger to a lawsuit is permitted to intervene without

thereby becoming a formal plaintiff or defendant (Joaquin v. Herrera, 37 Phil. 705, 723
[1918]), then there is in the case at bar no identity of parties to speak of. Lis pendens as a
ground for a motion to dismiss requires as a first element identity of parties in the two
cases.

Nor is there an identity of relief sought. Civil Case No. 8295-M seeks an accounting of the
proceeds of the fishpond while Civil Case No. 5610-M is for injunction to prevent the
petitioner from retaking the fishpond from Luis Crisostomo. The herein private respondent
sought to intervene in the latter case simply to protect his right as usufructuary in the money
deposited in the court by the plaintiff Luis Crisostomo. We hold that in allowing the
intervention in this case the trial court acted with prudence and exercised its discretion
wisely.[24]

Unconvinced by the Court of Appeals Decision in CA-G.R. SP No. 13519, petitioner

Juan Perez filed a petition for review on certiorari with this Court under G.R. No.
82096. On May 9, 1988, this Court denied the petition on the grounds that the issues raised
are factual and that there is no sufficient showing that the findings of the respondent court
are not supported by substantial evidence or that the court had committed any reversible
error in the questioned judgment.[25] The Resolution of the Court dated May 9, 1988
became final and executory on August 26, 1988.[26]
Moreover, granting that the intervention be considered as Vicente Asuncions appeal, a
litigants failure to furnish his opponent with a copy of his appeal does not suffice to warrant
dismissal of that appeal. In such an instance, all that is needed is for the court to order the
litigant to furnish his opponent with a copy of his appeal.[27] This is precisely what
happened in this case. On May 13, 1992, the Court of Appeals issued a Resolution directing
counsel for intervenor to furnish herein petitioners with a copy of intervenor Vicente
Asuncions brief within a 10-day period. It also granted petitioners an opportunity to file a
reply-brief or memorandum and the intervenor, a reply to said memorandum.[28] That
Resolution is proper under the premises because, by the nature of an intervention pro
interesse suo, it can proceed independently of the main action. Thus, in the Resolution of
October 30, 1992, in resolving the issue of the alleged prematurity of its Decision, the Court
of Appeals held that the proceeding is solely between intervenor and defendants-appellants,
which is completely separable and has nothing to do with the merits of the appeal.[29]
 At the hearing of Civil Case No. 5610-M, petitioner Juan Perez attempted to establish
the death on October 14, 1979 of Jorge Lorenzo,[30] the usufructuary from whom Vicente
Asuncion derived his right to intervene pro interesse suo. Since under Article 603 of the
Civil Code a usufruct is extinguished by the death of the usufructuary, unless a contrary
intention clearly appears, there is no basis by which to arrive at the conclusion that the
usufruct originally exercised by Jorge Lorenzo has indeed been extinguished or, on the
contrary, has survived Lorenzos demise on account of provisions in the document
constituting the usufruct. That matter is best addressed in Civil Case No. 8215-M wherein
Vicente Asuncion seeks his share as a transferee of the usufruct established for Jorge
Lorenzo. All that is discussed here is the matter of intervention pro interesse suo vis--
vis the issue of prematurity of the Decision of the Court of Appeals.
Petitioners principal argument against the Court of Appeals Decision in favor of
private respondent Crisostomo is that he could not have been an assignee or sub-lessee of
the fishpond because no contract authorized him to be so. Petitioners argument is anchored
on factual issues that, however, have no room for discussion before this Court. It is well-
entrenched doctrine that questions of fact are not proper subjects of appeal
by certiorari under Rule 45 of the Rules of Court as this mode of appeal is confined to
questions of law.[31] Factual findings of the Court of Appeals are conclusive on the parties
and carry even more weight when said court affirms the factual findings of the trial
court.[32] Accordingly, this review shall be limited to questions of law arising from the facts
as found by both the Court of Appeals and the trial court.
Admittedly, the contract between the usufructuaries and petitioner Keh has a provision
barring the sublease of the fishpond. However, it was petitioner Keh himself who violated
that provision in offering the operation of the fishpond to private respondent. Apparently
on account of private respondents apprehensions as regards the right of petitioners Keh and
Lee to transfer operation of the fishpond to him, on January 9, 1978, petitioner Keh
executed a document ceding and transferring his rights and interests over the fishpond to
petitioner Lee. That the same document might have been a ruse to inveigle private
respondent to agree to their proposal that he operate the fishpond is of no moment. The fact
is, petitioner Keh did transfer his rights as a lessee to petitioner Lee in writing and that, by
virtue of that document, private respondent acceded to take over petitioner Kehs rights as
a lessee of the fishpond.
Although no written contract to transfer operation of the fishpond to private respondent
was offered in evidence,[33] the established facts further show that petitioner Juan Perez and
his counsel, petitioner Tansinsin, knew of and acquiesced to that arrangement by their act
of receiving from the private respondent the rental for 1978-79. By their act of receiving
rental from private respondent through the peculiarly written receipt dated June 6, 1978,
petitioners Perez and Tansinsin were put in estoppel to question private respondents right
to possess the fishpond as a lessee. Estoppel in pais arises when one, by his acts,
representations or admissions, or by his own silence when he ought to speak out,
intentionally or through culpable negligence, induces another to believe certain facts to
exist and such other rightfully relies and acts on such belief, so that he will be prejudiced
if the former is permitted to deny the existence of such facts.[34]
Nevertheless, we hesitate to grant private respondents prayer that he should be restored
to the possession of the fishpond as a consequence of his unjustified ejectment
therefrom. To restore possession of the fishpond to him would entail violation of
contractual obligations that the usufructuaries have entered into over quite a long period of
time now. Supervening events, such as the devaluation of the peso as against the dollar as
well as the addition of improvements in the fishpond that the succeeding lessees could have
introduced, have contributed to the increase in rental value of the property. To place private
respondent in the same position he was in before the lifting of the restraining order in 1980
when he was deprived the right to operate the fishpond under the contract that already
expired in 1985 shall be to sanction injustice and inequity. This Court, after all, may not
supplant the right of the usufructuaries to enter into contracts over the fishpond through
this Decision. Nonetheless, under the circumstances of the case, it is but proper that private
respondent should be properly compensated for the improvements he introduced in the
fishpond.
Article 1168 of the Civil Code provides that when an obligation consists in not doing
and the obligor does what has been forbidden him, it shall also be undone at his expense.
The lease contract prohibited petitioner Luis Keh, as lessee, from subleasing the
fishpond. In entering into the agreement for pakiao-buwis with private respondent, not to
mention the apparent artifice that was his written agreement with petitioner Lee on January
9, 1978, petitioner Keh did exactly what was prohibited of him under the contract to
sublease the fishpond to a third party. That the agreement for pakiao-buwis was actually a
sublease is borne out by the fact that private respondent paid petitioners Luis Keh and Juan
Perez, through petitioner Tansinsin the amount of annual rental agreed upon in the lease
contract between the usufructuaries and petitioner Keh. Petitioner Keh led private
respondent to unwittingly incur expenses to improve the operation of the fishpond. By
operation of law, therefore, petitioner Keh shall be liable to private respondent for the value
of the improvements he had made in the fishpond or for P486,562.65 with interest of six
percent (6%) per annum from the rendition of the decision of the trial court on September
6, 1989.[35]
The law supports the awards of moral and exemplary damages in favor of private
respondent and against the petitioners. Their conspiratorial scheme to utilize private
respondents expertise in the operation of fishponds to bail themselves out of financial
losses has been satisfactorily established to warrant a ruling that they violated Article 21
of the Civil Code and therefore private respondent should be entitled to an award of moral
damages. Article 21 states that (a)ny person who wilfully causes loss or injury to another
in a manner that is contrary to morals, good customs or public policy shall compensate the
latter for the damage. Exemplary damages shall likewise be awarded pursuant to Article
2229 of the Civil Code.[36] Because private respondent was compelled to litigate to protect
his interest, attorneys fees shall also be awarded.[37]
 WHEREFORE, in light of the foregoing premises, the decision of the Court of
Appeals is AFFIRMED insofar as it (a) directs the release to private respondent of the
amounts of P128,572.00 and P123,993.85 deposited with the Paluwagan ng Bayan Savings
Bank in Paombong, Bulacan and (b) requires private respondent Crisostomo to pay
petitioner Juan Perez the rental for the period June 1979 to January 1980 at the rate of
P150,000.00 per annum less the amount of P21,428.00 already paid to usufructuary Maria
Perez. It should, however, be subject to the MODIFICATIONS that:
1. Petitioner Luis Keh shall pay private respondent Luis Crisostomo in the amount
of P486,562.25 with legal interest from the rendition of the judgment in Civil
Case No. 5610-M or on September 6, 1989, and
2. Petitioners be made liable jointly and severally liable for moral damages of
P50,000.00, exemplary damages of P20,000 and attorneys fees of P10,000.00.