G.R. No. L-13667 April 29, 1960 A motion for reconsideration of the afore-quoted order was denied.
A motion for reconsideration of the afore-quoted order was denied. Hence this appeal.
PRIMITIVO ANSAY, ETC., ET AL., plaintiffs-appellants,
vs.
THE BOARD OF DIRECTORS OF THE NATIONAL DEVELOPMENT COMPANY, ET
AL., defendants-appellees.
Celso A. Fernandez for appellants.
Juan C. Jimenez, for appellees.
PARAS, C. J.:
On July 25, 1956, appellants filed against appellees in the Court of First Instance of Manila
a complaint praying for a 20% Christmas bonus for the years 1954 and 1955. The court a
quo on appellees' motion to dismiss, issued the following order:
Considering the motion to dismiss filed on 15 August, 1956, set for this morning;
considering that at the hearing thereof, only respondents appeared thru counsel
and there was no appearance for the plaintiffs although the court waited for
sometime for them; considering, however, that petitioners have submitted an
opposition which the court will consider together with the arguments presented by
respondents and the Exhibits marked and presented, namely, Exhibits 1 to 5, at
the hearing of the motion to dismiss; considering that the action in brief is one to
compel respondents to declare a Christmas bonus for petitioners workers in the
National Development Company; considering that the Court does not see how
petitioners may have a cause of action to secure such bonus because:
(a) A bonus is an act of liberality and the court takes it that it is not within its judicial
powers to command respondents to be liberal;
(b) Petitioners admit that respondents are not under legal duty to give such bonus
but that they had only ask that such bonus be given to them because it is a moral
obligation of respondents to give that but as this Court understands, it has no
power to compel a party to comply with a moral obligation (Art. 142, New Civil
Code.).
IN VIEW WHEREOF, dismissed. No pronouncement as to costs.
Appellants contend that there exists a cause of action in their complaint because their
claim rests on moral grounds or what in brief is defined by law as a natural obligation.
Since appellants admit that appellees are not under legal obligation to give such claimed
bonus; that the grant arises only from a moral obligation or the natural obligation that they
discussed in their brief, this Court feels it urgent to reproduce at this point, the definition
and meaning of natural obligation.
Article 1423 of the New Civil Code classifies obligations into civil or natural. "Civil
obligations are a right of action to compel their performance. Natural obligations, not being
based on positive law but on equity and natural law, do not grant a right of action to enforce
their performance, but after voluntary fulfillment by the obligor, they authorize the retention
of what has been delivered or rendered by reason thereof".
It is thus readily seen that an element of natural obligation before it can be cognizable by
the court is voluntary fulfillment by the obligor. Certainly retention can be ordered but only
after there has been voluntary performance. But here there has been no voluntary
performance. In fact, the court cannot order the performance.
At this point, we would like to reiterate what we said in the case of Philippine Education
Co. vs. CIR and the Union of Philippine Education Co., Employees (NUL) (92 Phil., 381;
48 Off. Gaz., 5278) —
xxx xxx xxx
From the legal point of view a bonus is not a demandable and enforceable
obligation. It is so when it is made a part of the wage or salary compensation.
And while it is true that the subsequent case of H. E. Heacock vs. National Labor Union,
et al., 95 Phil., 553; 50 Off. Gaz., 4253, we stated that:
Even if a bonus is not demandable for not forming part of the wage, salary or
compensation of an employee, the same may nevertheless, be granted on
equitable consideration as when it was given in the past, though withheld in
succeeding two years from low salaried employees due to salary increases.
still the facts in said Heacock case are not the same as in the instant one, and hence the
ruling applied in said case cannot be considered in the present action.

Premises considered, the order appealed from is hereby affirmed, without pronouncement
as to costs.
G.R. No. L-48889 May 11, 1989
DEVELOPMENT BANK OF THE PHILIPPINES (DBP), petitioner,
vs.
THE HONORABLE MIDPAINTAO L. ADIL, Judge of the Second Branch of the Court
of First Instance of Iloilo and SPOUSES PATRICIO CONFESOR and JOVITA
VILLAFUERTE, respondents.
GANCAYCO, J.:
The issue posed in this petition for review on certiorari is the validity of a promissory note
which was executed in consideration of a previous promissory note the enforcement of
which had been barred by prescription.
On February 10, 1940 spouses Patricio Confesor and Jovita Villafuerte obtained an
agricultural loan from the Agricultural and Industrial Bank (AIB), now the Development of
the Philippines (DBP), in the sum of P2,000.00, Philippine Currency, as evidenced by a
promissory note of said date whereby they bound themselves jointly and severally to pay
the account in ten (10) equal yearly amortizations. As the obligation remained outstanding
and unpaid even after the lapse of the aforesaid ten-year period, Confesor, who was by
then a member of the Congress of the Philippines, executed a second promissory note on
April 11, 1961 expressly acknowledging said loan and promising to pay the same on or
before June 15, 1961. The new promissory note reads as follows —
I hereby promise to pay the amount covered by my promissory note on or
before June 15, 1961. Upon my failure to do so, I hereby agree to the
foreclosure of my mortgage. It is understood that if I can secure a certificate
of indebtedness from the government of my back pay I will be allowed to
pay the amount out of it.
Said spouses not having paid the obligation on the specified date, the DBP filed a
complaint dated September 11, 1970 in the City Court of Iloilo City against the spouses for
the payment of the loan.
After trial on the merits a decision was rendered by the inferior court on December 27,
1976, the dispositive part of which reads as follows:
WHEREFORE, premises considered, this Court renders judgment,
ordering the defendants Patricio Confesor and Jovita Villafuerte Confesor
to pay the plaintiff Development Bank of the Philippines, jointly and
severally, (a) the sum of P5,760.96 plus additional daily interest of P l.04
from September 17, 1970, the date Complaint was filed, until said amount
is paid; (b) the sum of P576.00 equivalent to ten (10%) of the total claim
by way of attorney's fees and incidental expenses plus interest at the legal
rate as of September 17,1970, until fully paid; and (c) the costs of the suit.
Defendants-spouses appealed therefrom to the Court of First Instance of Iloilo wherein in
due course a decision was rendered on April 28, 1978 reversing the appealed decision
and dismissing the complaint and counter-claim with costs against the plaintiff.
A motion for reconsideration of said decision filed by plaintiff was denied in an order of
August 10, 1978. Hence this petition wherein petitioner alleges that the decision of
respondent judge is contrary to law and runs counter to decisions of this Court when
respondent judge (a) refused to recognize the law that the right to prescription may be
renounced or waived; and (b) that in signing the second promissory note respondent
Patricio Confesor can bind the conjugal partnership; or otherwise said respondent became
liable in his personal capacity. The petition is impressed with merit. The right to prescription
may be waived or renounced. Article 1112 of Civil Code provides:
Art. 1112. Persons with capacity to alienate property may renounce
prescription already obtained, but not the right to prescribe in the future.
Prescription is deemed to have been tacitly renounced when the
renunciation results from acts which imply the abandonment of the right
acquired.
There is no doubt that prescription has set in as to the first promissory note of February
10, 1940. However, when respondent Confesor executed the second promissory note on
April 11, 1961 whereby he promised to pay the amount covered by the previous promissory
note on or before June 15, 1961, and upon failure to do so, agreed to the foreclosure of
the mortgage, said respondent thereby effectively and expressly renounced and waived Art. 166. Unless the wife has been declared a non compos mentis or a
his right to the prescription of the action covering the first promissory note. spend thrift, or is under civil interdiction or is confined in a leprosarium, the
husband cannot alienate or encumber any real property of the conjugal
This Court had ruled in a similar case that – partnership without, the wife's consent. If she ay compel her to refuses
unreasonably to give her consent, the court m grant the same.
... when a debt is already barred by prescription, it cannot be enforced by
the creditor. But a new contract recognizing and assuming the prescribed We disagree. Under Article 165 of the Civil Code, the husband is the administrator of the
debt would be valid and enforceable ... . 1 conjugal partnership. As such administrator, all debts and obligations contracted by the
husband for the benefit of the conjugal partnership, are chargeable to the conjugal
Thus, it has been held — partnership. 5 No doubt, in this case, respondent Confesor signed the second promissory
note for the benefit of the conjugal partnership. Hence the conjugal partnership is liable for
this obligation.
Where, therefore, a party acknowledges the correctness of a debt and
promises to pay it after the same has prescribed and with full knowledge
of the prescription he thereby waives the benefit of prescription. 2 WHEREFORE, the decision subject of the petition is reversed and set aside and another
decision is hereby rendered reinstating the decision of the City Court of Iloilo City of
December 27, 1976, without pronouncement as to costs in this instance. This decision is
This is not a mere case of acknowledgment of a debt that has prescribed but a new promise
immediately executory and no motion for extension of time to file motion for reconsideration
to pay the debt. The consideration of the new promissory note is the pre-existing obligation
shall be granted.
under the first promissory note. The statutory limitation bars the remedy but does not
discharge the debt.
SO ORDERED.
A new express promise to pay a debt barred ... will take the case from the
operation of the statute of limitations as this proceeds upon the ground that
as a statutory limitation merely bars the remedy and does not discharge
the debt, there is something more than a mere moral obligation to support
a promise, to wit a – pre-existing debt which is a sufficient consideration
for the new the new promise; upon this sufficient consideration constitutes,
in fact, a new cause of action. 3

... It is this new promise, either made in express terms or deduced from an
acknowledgement as a legal implication, which is to be regarded as
reanimating the old promise, or as imparting vitality to the remedy (which
by lapse of time had become extinct) and thus enabling the creditor to
recover upon his original contract. 4

However, the court a quo held that in signing the promissory note alone, respondent
Confesor cannot thereby bind his wife, respondent Jovita Villafuerte, citing Article 166 of
the New Civil Code which provides:
G.R. No. 158911 March 4, 2008
MANILA ELECTRIC COMPANY, Petitioner,
vs.
MATILDE MACABAGDAL RAMOY, BIENVENIDO RAMOY, ROMANA RAMOY-
RAMOS, ROSEMARIE RAMOY, OFELIA DURIAN and CYRENE
PANADO, Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court,
praying that the Decision1 of the Court of Appeals (CA) dated December 16, 2002, ordering
petitioner Manila Electric Company (MERALCO) to pay Leoncio Ramoy2 moral and
exemplary damages and attorney's fees, and the CA Resolution3 dated July 1, 2003,
denying petitioner's motion for reconsideration, be reversed and set aside.
The Regional Trial Court (RTC) of Quezon City, Branch 81, accurately summarized the
facts as culled from the records, thus:
The evidence on record has established that in the year 1987 the National Power
Corporation (NPC) filed with the MTC Quezon City a case for ejectment against several
persons allegedly illegally occupying its properties in Baesa, Quezon City. Among the
defendants in the ejectment case was Leoncio Ramoy, one of the plaintiffs in the case at
bar. On April 28, 1989 after the defendants failed to file an answer in spite of summons
duly served, the MTC Branch 36, Quezon City rendered judgment for the plaintiff
[MERALCO] and "ordering the defendants to demolish or remove the building and
structures they built on the land of the plaintiff and to vacate the premises." In the case of
Leoncio Ramoy, the Court found that he was occupying a portion of Lot No. 72-B-2-B with
the exact location of his apartments indicated and encircled in the location map as No. 7.
A copy of the decision was furnished Leoncio Ramoy (Exhibits 2, 2-A, 2-B, 2-C, pp. 128-
131, Record; TSN, July 2, 1993, p. 5).
On June 20, 1990 NPC wrote Meralco requesting for the "immediate disconnection of
electric power supply to all residential and commercial establishments beneath the NPC
transmission lines along Baesa, Quezon City (Exh. 7, p. 143, Record). Attached to the
letter was a list of establishments affected which included plaintiffs Leoncio and Matilde
Ramoy (Exh. 9), as well as a copy of the court decision (Exh. 2). After deliberating on
NPC's letter, Meralco decided to comply with NPC's request (Exhibits 6, 6-A, 6-A-1, 6-B)
and thereupon issued notices of disconnection to all establishments affected including
plaintiffs Leoncio Ramoy (Exhs. 3, 3-A to 3-C), Matilde Ramoy/Matilde Macabagdal
(Exhibits 3-D to 3-E), Rosemarie Ramoy (Exh. 3-F), Ofelia Durian (Exh. 3-G), Jose Valiza
(Exh. 3-H) and Cyrene S. Panado (Exh. 3-I).
In a letter dated August 17, 1990 Meralco requested NPC for a joint survey to determine
all the establishments which are considered under NPC property in view of the fact that
"the houses in the area are very close to each other" (Exh. 12). Shortly thereafter, a joint
survey was conducted and the NPC personnel pointed out the electric meters to be
disconnected (Exh. 13; TSN, October 8, 1993, p. 7; TSN, July 1994, p. 8).
In due time, the electric service connection of the plaintiffs [herein respondents] was
disconnected (Exhibits D to G, with submarkings, pp. 86-87, Record).
Plaintiff Leoncio Ramoy testified that he and his wife are the registered owners of a parcel
of land covered by TCT No. 326346, a portion of which was occupied by plaintiffs
Rosemarie Ramoy, Ofelia Durian, Jose Valiza and Cyrene S. Panado as lessees. When
the Meralco employees were disconnecting plaintiffs' power connection, plaintiff Leoncio
Ramoy objected by informing the Meralco foreman that his property was outside the NPC
property and pointing out the monuments showing the boundaries of his property.
However, he was threatened and told not to interfere by the armed men who accompanied
the Meralco employees. After the electric power in Ramoy's apartment was cut off, the
plaintiffs-lessees left the premises.
During the ocular inspection ordered by the Court and attended by the parties, it was found
out that the residence of plaintiffs-spouses Leoncio and Matilde Ramoy was indeed outside
the NPC property. This was confirmed by defendant's witness R.P. Monsale III on cross-
examination (TSN, October 13, 1993, pp. 10 and 11). Monsale also admitted that he did
not inform his supervisor about this fact nor did he recommend re-connection of plaintiffs'
power supply (Ibid., p. 14).
The record also shows that at the request of NPC, defendant Meralco re-connected the
electric service of four customers previously disconnected none of whom was any of the
plaintiffs (Exh. 14).4
The RTC decided in favor of MERALCO by dismissing herein respondents' claim for moral
damages, exemplary damages and attorney's fees. However, the RTC ordered MERALCO
to restore the electric power supply of respondents.
Respondents then appealed to the CA. In its Decision dated December 16, 2002, the CA
faulted MERALCO for not requiring from National Power Corporation (NPC) a writ of
execution or demolition and in not coordinating with the court sheriff or other proper officer
before complying with the NPC's request. Thus, the CA held MERALCO liable for moral
and exemplary damages and attorney's fees. MERALCO's motion for reconsideration of
the Decision was denied per Resolution dated July 1, 2003.
Hence, herein petition for review on certiorari on the following grounds:
I recognizing the obligatory force of contracts, will not permit a party to be set free from
THE COURT OF APPEALS GRAVELY ERRED WHEN IT FOUND MERALCO
NEGLIGENT WHEN IT DISCONNECTED THE SUBJECT ELECTRIC SERVICE OF
RESPONDENTS.
II
THE COURT OF APPEALS GRAVELY ERRED WHEN IT AWARDED MORAL AND
EXEMPLARY DAMAGES AND ATTORNEY'S FEES AGAINST MERALCO UNDER THE
CIRCUMSTANCES THAT THE LATTER ACTED IN GOOD FAITH IN THE
DISCONNECTION OF THE ELECTRIC SERVICES OF THE RESPONDENTS. 5
The petition is partly meritorious.
MERALCO admits6 that respondents are its customers under a Service Contract whereby
it is obliged to supply respondents with electricity. Nevertheless, upon request of the NPC,
MERALCO disconnected its power supply to respondents on the ground that they were
illegally occupying the NPC's right of way. Under the Service Contract, "[a] customer of
electric service must show his right or proper interest over the property in order that he will
be provided with and assured a continuous electric service." 7 MERALCO argues that since
there is a Decision of the Metropolitan Trial Court (MTC) of Quezon City ruling that herein
respondents were among the illegal occupants of the NPC's right of way, MERALCO was
justified in cutting off service to respondents.
Clearly, respondents' cause of action against MERALCO is anchored on culpa
contractual or breach of contract for the latter's discontinuance of its service to
respondents under Article 1170 of the Civil Code which provides:
Article 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are liable
for damages.
In Radio Communications of the Philippines, Inc. v. Verchez,8 the Court expounded on the
nature of culpa contractual, thus:
"In culpa contractual x x x the mere proof of the existence of the contract and the
failure of its compliance justify, prima facie, a corresponding right of relief. The law,
liability for any kind of misperformance of the contractual undertaking or a contravention
of the tenor thereof. A breach upon the contract confers upon the injured party a valid
cause for recovering that which may have been lost or suffered. The remedy serves to
preserve the interests of the promissee that may include his "expectation interest," which
is his interest in having the benefit of his bargain by being put in as good a position as he
would have been in had the contract been performed, or his "reliance interest," which is
his interest in being reimbursed for loss caused by reliance on the contract by being put in
as good a position as he would have been in had the contract not been made; or his
"restitution interest," which is his interest in having restored to him any benefit that he has
conferred on the other party. Indeed, agreements can accomplish little, either for their
makers or for society, unless they are made the basis for action. The effect of every
infraction is to create a new duty, that is, to make recompense to the one who has been
injured by the failure of another to observe his contractual obligation unless he can show
extenuating circumstances, like proof of his exercise of due diligence x x x or of
the attendance of fortuitous event, to excuse him from his ensuing liability. 9 (Emphasis
supplied)
Article 1173 also provides that the fault or negligence of the obligor consists in the omission
of that diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. The Court emphasized in Ridjo
Tape & Chemical Corporation v. Court of Appeals 10 that "as a public utility, MERALCO has
the obligation to discharge its functions with utmost care and diligence." 11
The Court agrees with the CA that under the factual milieu of the present case, MERALCO
failed to exercise the utmost degree of care and diligence required of it. To repeat, it was
not enough for MERALCO to merely rely on the Decision of the MTC without ascertaining
whether it had become final and executory. Verily, only upon finality of said Decision can
it be said with conclusiveness that respondents have no right or proper interest over the
subject property, thus, are not entitled to the services of MERALCO.
Although MERALCO insists that the MTC Decision is final and executory, it never showed
any documentary evidence to support this allegation. Moreover, if it were true that the
decision was final and executory, the most prudent thing for MERALCO to have done was
to coordinate with the proper court officials in determining which structures are covered by
said court order. Likewise, there is no evidence on record to show that this was done by
MERALCO.
The utmost care and diligence required of MERALCO necessitates such great degree of
prudence on its part, and failure to exercise the diligence required means that MERALCO
was at fault and negligent in the performance of its obligation. In Ridjo Tape,12 the Court
explained:
[B]eing a public utility vested with vital public interest, MERALCO is impressed with certain
obligations towards its customers and any omission on its part to perform such duties
would be prejudicial to its interest. For in the final analysis, the bottom line is that those
who do not exercise such prudence in the discharge of their duties shall be made to bear
the consequences of such oversight. 13
This being so, MERALCO is liable for damages under Article 1170 of the Civil Code.
The next question is: Are respondents entitled to moral and exemplary damages and
attorney's fees?
Article 2220 of the Civil Code provides:
Article 2220. Willful injury to property may be a legal ground for awarding moral damages
if the court should find that, under the circumstances, such damages are justly due. The
same rule applies to breaches of contract where the defendant acted fraudulently or in bad
faith.
In the present case, MERALCO wilfully caused injury to Leoncio Ramoy by withholding
from him and his tenants the supply of electricity to which they were entitled under the
Service Contract. This is contrary to public policy because, as discussed above,
MERALCO, being a vital public utility, is expected to exercise utmost care and diligence in
the performance of its obligation. It was incumbent upon MERALCO to do everything within
its power to ensure that the improvements built by respondents are within the NPC’s right
of way before disconnecting their power supply. The Court emphasized in Samar II Electric
Cooperative, Inc. v. Quijano14 that:
Electricity is a basic necessity the generation and distribution of which is imbued with public
interest, and its provider is a public utility subject to strict regulation by the State in
the exercise of police power. Failure to comply with these regulations will give rise to
the presumption of bad faith or abuse of right.15 (Emphasis supplied)
Thus, by analogy, MERALCO's failure to exercise utmost care and diligence in the
performance of its obligation to Leoncio Ramoy, its customer, is tantamount to bad faith.
Leoncio Ramoy testified that he suffered wounded feelings because of MERALCO's
actions.16 Furthermore, due to the lack of power supply, the lessees of his four apartments
on subject lot left the premises.17 Clearly, therefore, Leoncio Ramoy is entitled to moral
damages in the amount awarded by the CA.
Leoncio Ramoy, the lone witness for respondents, was the only one who testified regarding
the effects on him of MERALCO's electric service disconnection. His co-respondents
Matilde Ramoy, Rosemarie Ramoy, Ofelia Durian and Cyrene Panado did not present any
evidence of damages they suffered.
It is a hornbook principle that damages may be awarded only if proven. In Mahinay v.
Velasquez, Jr.,18 the Court held thus:
In order that moral damages may be awarded, there must be pleading and proof of
moral suffering, mental anguish, fright and the like. While respondent alleged in his
complaint that he suffered mental anguish, serious anxiety, wounded feelings and moral
shock, he failed to prove them during the trial. Indeed, respondent should have taken
the witness stand and should have testified on the mental anguish, serious anxiety,
wounded feelings and other emotional and mental suffering he purportedly suffered to
sustain his claim for moral damages. Mere allegations do not suffice; they must be
substantiated by clear and convincing proof. No other person could have proven such
damages except the respondent himself as they were extremely personal to him.
In Keirulf vs. Court of Appeals, we held:
"While no proof of pecuniary loss is necessary in order that moral damages may be
awarded, the amount of indemnity being left to the discretion of the court, it is nevertheless
essential that the claimant should satisfactorily show the existence of the factual basis of
damages and its causal connection to defendant’s acts. This is so because moral
damages, though incapable of pecuniary estimation, are in the category of an award
designed to compensate the claimant for actual injury suffered and not to impose a penalty
on the wrongdoer. In Francisco vs. GSIS, the Court held that there must be clear
testimony on the anguish and other forms of mental suffering. Thus, if the plaintiff
fails to take the witness stand and testify as to his/her social humiliation, wounded feelings
and anxiety, moral damages cannot be awarded. In Cocoland Development Corporation
vs. National Labor Relations Commission, the Court held that "additional facts must be
pleaded and proven to warrant the grant of moral damages under the Civil Code, these
being, x x x social humiliation, wounded feelings, grave anxiety, etc. that resulted
therefrom."
x x x The award of moral damages must be anchored to a clear showing that respondent
actually experienced mental anguish, besmirched reputation, sleepless nights, wounded
feelings or similar injury. There was no better witness to this experience than respondent
himself. Since respondent failed to testify on the witness stand, the trial court did
not have any factual basis to award moral damages to him.19 (Emphasis supplied)
Thus, only respondent Leoncio Ramoy, who testified as to his wounded feelings, may be
awarded moral damages.20
With regard to exemplary damages, Article 2232 of the Civil Code provides that in contracts
and quasi-contracts, the court may award exemplary damages if the defendant, in this
case MERALCO, acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner, while Article 2233 of the same Code provides that such damages cannot be
recovered as a matter of right and the adjudication of the same is within the discretion
of the court.
1avvphi1
The Court finds that MERALCO fell short of exercising the due diligence required, but its
actions cannot be considered wanton, fraudulent, reckless, oppressive or malevolent.
Records show that MERALCO did take some measures, i.e., coordinating with NPC
officials and conducting a joint survey of the subject area, to verify which electric meters
should be disconnected although these measures are not sufficient, considering the
degree of diligence required of it. Thus, in this case, exemplary damages should not be
awarded.
Since the Court does not deem it proper to award exemplary damages in this case, then
the CA's award for attorney's fees should likewise be deleted, as Article 2208 of the Civil
Code states that in the absence of stipulation, attorney's fees cannot be recovered
except in cases provided for in said Article, to wit:
Article 2208. In the absence of stipulation, attorney’s fees and expenses of litigation, other
than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant’s act or omission has compelled the plaintiff to litigate with
third persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy
the plaintiff’s plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled
workers;
(8) In actions for indemnity under workmen’s compensation and employer’s liability
laws;
(9) In a separate civil action to recover civil liability arising from a crime;
 (10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and equitable that attorney’s
fees and expenses of litigation should be recovered.

In all cases, the attorney’s fees and expenses of litigation must be reasonable.

None of the grounds for recovery of attorney's fees are present.

WHEREFORE, the petition is PARTLY GRANTED. The Decision of the Court of Appeals
is AFFIRMED with MODIFICATION. The award for exemplary damages and attorney's
fees is DELETED.

No costs.

SO ORDERED.
G.R. No. L-23749 April 29, 1977
FAUSTINO CRUZ, plaintiff-appellant,
vs.
J. M. TUASON & COMPANY, INC., and GREGORIO ARANETA, INC., defendants-
appellees.
BARREDO, J.:
Appeal from the order dated August 13, 1964 of the Court of First Instance of Quezon City
in Civil Case No. Q-7751, Faustino Cruz vs. J.M. Tuason & Co., Inc., and Gregorio
Araneta, Inc., dismissing the complaint of appellant Cruz for the recovery of improvements
he has made on appellees' land and to compel appellees to convey to him 3,000 square
meters of land on three grounds: (1) failure of the complaint to state a cause of action; (2)
the cause of action of plaintiff is unenforceable under the Statute of Frauds; and (3) the
action of the plaintiff has already prescribed.
Actually, a perusal of plaintiff-appellant's complaint below shows that he alleged two
separate causes of action, namely: (1) that upon request of the Deudors (the family of
Telesforo Deudor who laid claim on the land in question on the strength of an "informacion
posesoria" ) plaintiff made permanent improvements valued at P30,400.00 on said land
having an area of more or less 20 quinones and for which he also incurred expenses in
the amount of P7,781.74, and since defendants-appellees are being benefited by said
improvements, he is entitled to reimbursement from them of said amounts and (2) that in
1952, defendants availed of plaintiff's services as an intermediary with the Deudors to work
for the amicable settlement of Civil Case No. Q-135, then pending also in the Court of First
Instance of Quezon City, and involving 50 quinones of land, of Which the 20 quinones
aforementioned form part, and notwithstanding his having performed his services, as in
fact, a compromise agreement entered into on March 16, 1963 between the Deudors and
the defendants was approved by the court, the latter have refused to convey to him the
3,000 square meters of land occupied by him, (a part of the 20 quinones above) which said
defendants had promised to do "within ten years from and after date of signing of the
compromise agreement", as consideration for his services.
Within the Period allowed by the rules, the defendants filed separate motions to dismiss
alleging three Identical grounds: (1) As regards that improvements made by plaintiff, that
the complaint states no cause of action, the agreement regarding the same having been
made by plaintiff with the Deudors and not with the defendants, hence the theory of plaintiff
based on Article 2142 of the Code on unjust enrichment is untenable; and (2) anent the
alleged agreement about plaintiffs services as intermediary in consideration of which,
defendants promised to convey to him 3,000 square meters of land, that the same is
unenforceable under the Statute of Frauds, there being nothing in writing about it, and, in
any event, (3) that the action of plaintiff to compel such conveyance has already
prescribed.
Plaintiff opposed the motion, insisting that Article 2142 of the applicable to his case; that
the Statute of Frauds cannot be invoked by defendants, not only because Article 1403 of
the Civil Code refers only to "sale of real property or of an interest therein" and not to
promises to convey real property like the one supposedly promised by defendants to him,
but also because, he, the plaintiff has already performed his part of the agreement, hence
the agreement has already been partly executed and not merely executory within the
contemplation of the Statute; and that his action has not prescribed for the reason that
defendants had ten years to comply and only after the said ten years did his cause of
action accrue, that is, ten years after March 16, 1963, the date of the approval of the
compromise agreement, and his complaint was filed on January 24, 1964.
Ruling on the motion to dismiss, the trial court issued the herein impugned order of August
13, 1964:
In the motion, dated January 31, 1964, defendant Gregorio Araneta, Inc.
prayed that the complaint against it be dismissed on the ground that (1)
the claim on which the action is founded is unenforceable under the
provision of the Statute of Frauds; and (2) the plaintiff's action, if any has
already prescribed. In the other motion of February 11, 1964, defendant J.
M. Tuason & Co., Inc. sought the dismissal of the plaintiffs complaint on
the ground that it states no cause of action and on the Identical grounds
stated in the motion to dismiss of defendant Gregorio Araneta, Inc. The
said motions are duly opposed by the plaintiff.
From the allegations of the complaint, it appears that, by virtue of an
agreement arrived at in 1948 by the plaintiff and the Deudors, the former
assisted the latter in clearing, improving, subdividing and selling the large
tract of land consisting of 50 quinones covered by the informacion
posesoria in the name of the late Telesforo Deudor and incurred expenses,
which are valued approximately at P38,400.00 and P7,781.74,
respectively; and, for the reasons that said improvements are being used
and enjoyed by the defendants, the plaintiff is seeking the reimbursement
for the services and expenses stated above from the defendants.
Defendant J. M. Tuason & Co., Inc. claimed that, insofar as the plaintiffs
claim for the reimbursement of the amounts of P38,400.00 and P7,781.74
is concerned, it is not a privy to the plaintiff's agreement to assist the
Deudors n improving the 50 quinones. On the other hand, the plaintiff
countered that, by holding and utilizing the improvements introduced by
him, the defendants are unjustly enriching and benefiting at the expense
of the plaintiff; and that said improvements constitute a lien or charge of
the property itself
On the issue that the complaint insofar as it claims the reimbursement for
the services rendered and expenses incurred by the plaintiff, states no
cause of action, the Court is of the opinion that the same is well-founded.
It is found that the defendants are not parties to the supposed express
contract entered into by and between the plaintiff and the Deudors for the
clearing and improvement of the 50 quinones. Furthermore in order that
the alleged improvement may be considered a lien or charge on the
property, the same should have been made in good faith and under the
mistake as to the title. The Court can take judicial notice of the fact that the
tract of land supposedly improved by the plaintiff had been registered way
back in 1914 in the name of the predecessors-in-interest of defendant J.
M. Tuason & Co., Inc. This fact is confirmed in the decision rendered by
the Supreme Court on July 31, 1956 in Case G. R. No. L-5079 entitled J.M.
Tuason & Co. Inc. vs. Geronimo Santiago, et al., Such being the case, the
plaintiff cannot claim good faith and mistake as to the title of the land.
On the issue of statute of fraud, the Court believes that same is applicable
to the instant case. The allegation in par. 12 of the complaint states that
the defendants promised and agreed to cede, transfer and convey unto the
plaintiff the 3,000 square meters of land in consideration of certain services
to be rendered then. it is clear that the alleged agreement involves an
interest in real property. Under the provisions of See. 2(e) of Article 1403
of the Civil Code, such agreement is not enforceable as it is not in writing
and subscribed by the party charged.
On the issue of statute of limitations, the Court holds that the plaintiff's
action has prescribed. It is alleged in par. 11 of the complaint that,
sometime in 1952, the defendants approached the plaintiff to prevail upon
the Deudors to enter to a compromise agreement in Civil Case No. Q-135
and allied cases. Furthermore, par. 13 and 14 of the complaint alleged that
the plaintiff acted as emissary of both parties in conveying their respective
proposals and couter-proposals until the final settlement was effected on
March 16, 1953 and approved by Court on April 11, 1953. In the present
action, which was instituted on January 24, 1964, the plaintiff is seeking to
enforce the supposed agreement entered into between him and the
defendants in 1952, which was already prescribed.
WHEREFORE, the plaintiffs complaint is hereby ordered DISMISSED
without pronouncement as to costs.
SO ORDERED. (Pp. 65-69, Rec. on Appeal,)
On August 22, 1964, plaintiff's counsel filed a motion for reconsideration dated August 20,
1964 as follows:
Plaintiff through undersigned counsel and to this Honorable Court,
respectfully moves to reconsider its Order bearing date of 13 August 1964,
on the following grounds:
1. THAT THE COMPLAINT STATES A SUFFICIENT CAUSE OF ACTION
AGAINST DEFENDANTS IN SO FAR AS PLAINTIFF'S CLAIM PAYMENT
OF SERVICES AND REIMBURSEMENT OF HIS EXPENSES, IS
CONCERNED;
II. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3,000 SQ. MS.,
THE SAME HAS NOT PRESCRIBED AND THE STATUTE OF FRAUDS
IS NOT APPLICABLE THERETO;
ARGUMENT
Plaintiff's complaint contains two (2) causes of action — the first being an
action for sum of money in the amount of P7,781.74 representing actual
expenses and P38,400.00 as reasonable compensation for services in
improving the 50 quinones now in the possession of defendants. The
second cause of action deals with the 3,000 sq. ms. which defendants have
agreed to transfer into Plaintiff for services rendered in effecting the
compromise between the Deudors and defendants;
Under its order of August 3, 1964, this Honorable Court dismissed the
claim for sum of money on the ground that the complaint does not state a
cause of action against defendants. We respectfully submit:
1. THAT THE COMPLAINT STATES A SUFFICIENT CAUSE OF ACTION
AGAINST DEFENDANTS IN SO FAR AS PLAINTIFF'S CLAIM FOR
PAYMENT OF SERVICES AND REIMBURSEMENT OF HIS EXPENSES
IS CONCERNED.
Said this Honorable Court (at p. 2, Order):
ORDER
xxx xxx xxx
On the issue that the complaint, in so far as it claims the reimbursement
for the services rendered and expenses incurred by the plaintiff, states no
cause of action, the Court is of the opinion that the same is well-founded.
It is found that the defendants are not parties to the supposed express
contract entered into by and between the plaintiff and the Deudors for the
clearing and improvement of the 50 quinones. Furthermore, in order that
the alleged improvement may he considered a lien or charge on the
property, the same should have been made in good faith and under the
mistake as to title. The Court can take judicial notice of the fact that the
tract of land supposedly improved by the plaintiff had been registered way
back in 1914 in the name of the predecessors-in-interest of defendant J.
M. Tuason & Co., Inc. This fact is confirmed in the decision rendered by
the Supreme Court on July 31, 1956 in case G. R. No. L-5079 entitled 'J
M. Tuason & Co., Inc. vs, Geronimo Santiago, et al.' Such being the case,
the plaintiff cannot claim good faith and mistake as to the title of the land.
The position of this Honorable Court (supra) is that the complaint does not
state a cause of action in so far as the claim for services and expenses is
concerned because the contract for the improvement of the properties was
solely between the Deudors and plaintiff, and defendants are not privies to
it. Now, plaintiff's theory is that defendants are nonetheless liable since
they are utilizing and enjoying the benefit's of said improvements. Thus
under paragraph 16 of "he complaint, it is alleged:
(16) That the services and personal expenses of plaintiff
mentioned in paragraph 7 hereof were rendered and in fact
paid by him to improve, as they in fact resulted in
considerable improvement of the 50 quinones, and
defendants being now in possession of and utilizing said
improvements should reimburse and pay plaintiff for such
services and expenses.
Plaintiff's cause of action is premised inter alia, on the theory of unjust
enrichment under Article 2142 of the civil Code:
ART. 2142. Certain lawful voluntary and unilateral acts give
rise to the juridical relation of quasi-contract to the end that
no one shill be unjustly enriched or benefited at the
expense of another.
In like vein, Article 19 of the same Code enjoins that:
ART. 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give every-one his due and
observe honesty and good faith.
We respectfully draw the attention of this Honorable Court to the fact that
ARTICLE 2142 (SUPRA) DEALS WITH QUASI-CONTRACTS or
situations WHERE THERE IS NO CONTRACT BETWEEN THE PARTIES
TO THE ACTION. Further, as we can readily see from the title thereof (Title
XVII), that the Same bears the designation 'EXTRA CONTRACTUAL
OBLIGATIONS' or obligations which do not arise from contracts. While it
is true that there was no agreement between plaintiff and defendants
herein for the improvement of the 50 quinones since the latter are presently
enjoying and utilizing the benefits brought about through plaintiff's labor
and expenses, defendants should pay and reimburse him therefor under
the principle that 'no one may enrich himself at the expense of another.' In
this posture, the complaint states a cause of action against the defendants.
II. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3,000 SQ. MS.
THE SAME HAS NOT PRESCRIBED AND THE STATUTE OF FRAUDS
IS NOT APPLICABLE THERETO.
The Statute of Frauds is CLEARLY inapplicable to this case:
At page 2 of this Honorable Court's order dated 13 August 1964, the Court
ruled as follows:
ORDER
xxx xxx xxx
On the issue of statute of fraud, the Court believes that
same is applicable to the instant Case, The allegation in
par. 12 of the complaint states that the defendants
promised and agree to cede, transfer and convey unto the
plaintiff, 3,000 square meters of land in consideration of
certain services to be rendered then. It is clear that the
alleged agreement involves an interest in real property.
Under the provisions of Sec. 2(e) of Article 1403 of the Civil
Code, such agreement is not enforceable as it is not in
writing and subscribed by the party charged.
To bring this issue in sharper focus, shall reproduce not only paragraph 12
of the complaint but also the other pertinent paragraphs therein contained.
Paragraph 12 states thus:
COMPLAINT
xxx xxx xxx
12). That plaintiff conferred with the aforesaid representatives of
defendants several times and on these occasions, the latter promised and
agreed to cede, transfer and convey unto plaintiff the 3,000 sq. ms. (now
known as Lots 16-B, 17 and 18) which plaintiff was then occupying and
continues to occupy as of this writing, for and in consideration of the
following conditions:
(a) That plaintiff succeed in convincing the DEUDORS to
enter into a compromise agreement and that such
agreement be actually entered into by and between the
DEUDORS and defendant companies;
(b) That as of date of signing the compromise agreement,
plaintiff shall be the owner of the 3,000 sq. ms. but the
documents evidencing his title over this property shall be
executed and delivered by defendants to plaintiff within ten
(10) years from and after date of signing of the compromise
agreement;
(c) That plaintiff shall, without any monetary expense of his
part, assist in clearing the 20 quinones of its occupants;
13). That in order to effect a compromise between the parties. plaintiff not
only as well acted as emissary of both parties in conveying their respective
proposals and counter- proposals until succeeded in convinzing the
DEUDORS to settle with defendants amicably. Thus, on March 16, 1953, a
Compromise Agreement was entered into by and between the DEUDORS
and the defendant companies; and on April 11, 1953, this agreement was
approved by this Honorable Court;
14). That in order to comply with his other obligations under his agreement
with defendant companies, plaintiff had to confer with the occupants of the
property, exposing himself to physical harm, convincing said occupants to
leave the premises and to refrain from resorting to physical violence in
resisting defendants' demands to vacate;
That plaintiff further assisted defendants' employees in the
actual demolition and transfer of all the houses within the
perimeter of the 20 quinones until the end of 1955, when
said area was totally cleared and the houses transferred to
another area designated by the defendants as 'Capt. Cruz
Block' in Masambong, Quezon City. (Pars. 12, 13 and 14,
Complaint; Emphasis supplied)
From the foregoing, it is clear then the agreement between the parties
mentioned in paragraph 12 (supra) of the complaint has already been fully
EXECUTED ON ONE PART, namely by the plaintiff. Regarding the
applicability of the statute of frauds (Art. 1403, Civil Code), it has been
uniformly held that the statute of frauds IS APPLICABLE ONLY TO
EXECUTORY CONTRACTS BUT NOT WHERE THE CONTRACT HAS
BEEN PARTLY EXECUTED:
SAME ACTION TO ENFORCE. — The statute of frauds
has been uniformly interpreted to be applicable to
executory and not to completed or contracts. Performance
of the contracts takes it out of the operation of the statute.
...
The statute of the frauds is not applicable to contracts
which are either totally or partially performed, on the theory
that there is a wide field for the commission of frauds in
executory contracts which can only be prevented by
requiring them to be in writing, a facts which is reduced to
a minimum in executed contracts because the intention of
the parties becomes apparent buy their execution and
execution, in mots cases, concluded the right the parties.
... The partial performance may be proved by either
documentary or oral evidence. (At pp. 564-565, Tolentino's
Civil Code of the Philippines, Vol. IV, 1962 Ed.; Emphasis
supplied).
Authorities in support of the foregoing rule are legion. Thus Mr. Justice
Moran in his 'Comments on the Rules of Court', Vol. III, 1974 Ed., at p. 167,
states:
2 THE STATUTE OF FRAUDS IS APPLICABLE ONLY TO
EXECUTORY CONTRACTS: CONTRACTS WHICH ARE
EITHER TOTALLY OR PARTIALLY PERFORMED ARE
WITHOUT THE STATUE. The statute of frauds is
applicable only to executory contracts. It is neither
applicable to executed contracts nor to contracts partially
performed. The reason is simple. In executory contracts
there is a wide field for fraud because unless they be in
writing there is no palpable evidence of the intention of the
contracting parties. The statute has been enacted to
prevent fraud. On the other hand the commission of fraud
in executed contracts is reduced to minimum in executed
contracts because (1) the intention of the parties is made
apparent by the execution and (2) execution concludes, in
most cases, the rights of the parties. (Emphasis supplied)
Under paragraphs 13 and 14 of the complaint (supra) one can readily see
that the plaintiff has fulfilled ALL his obligation under the agreement
between him defendants concerning the 3,000 sq. ms. over which the latter
had agreed to execute the proper documents of transfer. This fact is further
projected in paragraph 15 of the complaint where plaintiff states;
15). That in or about the middle of 1963, after all the
conditions stated in paragraph 12 hereof had been fulfilled
and fully complied with, plaintiff demanded of said
defendants that they execute the Deed of Conveyance in
his favor and deliver the title certificate in his name, over
the 3,000 sq. ms. but defendants failed and refused and
continue to fail and refuse to heed his demands. (par. 15,
complaint; Emphasis supplied).
In view of the foregoing, we respectfully submit that this Honorable court
erred in holding that the statute of frauds is applicable to plaintiff's claim
over the 3,000 sq. ms. There having been full performance of the contract
on plaintiff's part, the same takes this case out of the context of said statute.
Plaintiff's Cause of Action had NOT Prescribed:
With all due respect to this Honorable court, we also submit that the Court
committed error in holding that this action has prescribed:
ORDER
xxx xxx xxx
On the issue of the statute of limitations, the Court holds
that the plaintiff's action has prescribed. It is alleged in par.
III of the complaint that, sometime in 1952, the defendants
approached the plaintiff to prevail upon the Deudors to
enter into a compromise agreement in Civil Case No. Q-
135 and allied cases. Furthermore, pars. 13 and 14 of the
complaint alleged that plaintiff acted as emissary of both
parties in conveying their respective proposals and
counter-proposals until the final settlement was affected on
March 16, 1953 and approved by the Court on April 11,
1953. In the present actin, which was instituted on January
24, 1964, the plaintiff is seeking to enforce the supposed
agreement entered into between him and the defendants
in 1952, which has already proscribed. (at p. 3, Order).
The present action has not prescribed, especially when we consider
carefully the terms of the agreement between plaintiff and the defendants.
First, we must draw the attention of this Honorable Court to the fact that
this is an action to compel defendants to execute a Deed of Conveyance
over the 3,000 sq. ms. subject of their agreement. In paragraph 12 of the
complaint, the terms and conditions of the contract between the parties are
spelled out. Paragraph 12 (b) of the complaint states:
(b) That as of date of signing the compromise agreement,
plaintiff shall be the owner of the 3,000 sq. ms. but the
documents evidencing his title over this property shall be
executed and delivered by defendants to plaintiff within ten
(10) years from and after date of signing of the compromise
agreement. (Emphasis supplied).
The compromise agreement between defendants and the Deudors which
was conclude through the efforts of plaintiff, was signed on 16 March 1953.
Therefore, the defendants had ten (10) years signed on 16 March 1953.
Therefore, the defendants had ten (10) years from said date within which
to execute the deed of conveyance in favor of plaintiff over the 3,000 sq.
ms. As long as the 10 years period has not expired, plaintiff had no right to
compel defendants to execute the document and the latter were under no
obligation to do so. Now, this 10-year period elapsed on March 16, 1963.
THEN and ONLY THEN does plaintiff's cause of action plaintiff on March
17, 1963. Thus, under paragraph 15, of the complaint (supra) plaintiff made
demands upon defendants for the execution of the deed 'in or about the
middle of 1963.
Since the contract now sought to be enforced was not reduced to writing,
plaintiff's cause of action expires on March 16, 1969 or six years from
March 16, 1963 WHEN THE CAUSE OF ACTION ACCRUED (Art. 1145,
Civil Code).
In this posture, we gain respectfully submit that this Honorable Court erred
in holding that plaintiff's action has prescribed.
PRAYER
WHEREFORE, it is respectfully prayed that " Honorable Court reconsider
its Order dated August 13, 1964; and issue another order denying the
motions to dismiss of defendants G. Araneta, Inc. and J. M. Tuason Co.
Inc. for lack of merit. (Pp. 70-85, Record on Appeal.)
Defendants filed an opposition on the main ground that "the arguments adduced by the
plaintiff are merely reiterations of his arguments contained in his Rejoinder to Reply and
Opposition, which have not only been refuted in herein defendant's Motion to Dismiss and
Reply but already passed upon by this Honorable Court."
On September 7, 1964, the trial court denied the motion for reconsiderations thus:
After considering the plaintiff's Motion for Reconsideration of August 20,
1964 and it appearing that the grounds relied upon in said motion are mere
repetition of those already resolved and discussed by this Court in the
order of August 13, 1964, the instant motion is hereby denied and the
findings and conclusions arrived at by the Court in its order of August 13,
1964 are hereby reiterated and affirmed.
SO ORDERED. (Page 90, Rec. on Appeal.)
Under date of September 24, 1964, plaintiff filed his record on appeal.
In his brief, appellant poses and discusses the following assignments of error:
I. THAT THE LOWER COURT ERRED IN DISMISSING THE COMPLAINT
ON THE GROUND THAT APPELLANT'S CLAIM OVER THE 3,000 SQ.
MS. IS ALLEGEDLY UNENFORCEABLE UNDER THE STATUTE OF
FRAUDS;
II. THAT THE COURT A QUO FURTHER COMMITTED ERROR IN
DISMISSING APPELLANT'S COMPLAINT ON THE GROUND THAT HIS
CLAIM OVER THE 3,000 SQ. MS. IS ALLEGEDLY BARRED BY THE
STATUTE OF LIMITATIONS; and
III. THAT THE LOWER COURT ERRED IN DISMISSING THE
COMPLAINT FOR FAILURE TO STATE A CAUSE OF ACTION IN SO
FAR AS APPELLANT'S CLAIM FOR REIMBURSEMENT OF EXPENSES
AND FOR SERVICES RENDERED IN THE IMPROVEMENT OF THE
FIFTY (50) QUINONES IS CONCERNED.
We agree with appellant that the Statute of Frauds was erroneously applied by the trial
court. It is elementary that the Statute refers to specific kinds of transactions and that it
cannot apply to any that is not enumerated therein. And the only agreements or contracts
covered thereby are the following:
(1) Those entered into in the name of another person by one who has been
given no authority or legal representation, or who has acted beyond his
powers;
(2) Those do not comply with the Statute of Frauds as set forth in this
number, In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed
within a year from the making thereof;
(b) A special promise to answer for the debt, default, or
miscarriage of another;
(c) An agreement made in consideration of marriage, other
than a mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things
in action, at a price not less than five hundred pesos,
unless the buyer accept and receive part of such goods
and chattels, or the evidences, or some of them of such
things in action, or pay at the time some part of the
purchase money; but when a sale is made by auction and
entry is made by the auctioneer in his sales book, at the
time of the sale, of the amount and kind of property sold,
terms of sale, price, names of the purchasers and person
on whose account the sale is made, it is a sufficient
memorandum:
(e) An agreement for the leasing for a longer period than
one year, or for the sale of real property or of an interest
therein:
(f) a representation as to the credit of a third person.
 (3) Those where both parties are incapable of giving consent to a contract.
(Art. 1403, civil Code.)
In the instant case, what appellant is trying to enforce is the delivery to him of 3,000 square
meters of land which he claims defendants promised to do in consideration of his services
as mediator or intermediary in effecting a compromise of the civil action, Civil Case No.
135, between the defendants and the Deudors. In no sense may such alleged contract be
considered as being a "sale of real property or of any interest therein." Indeed, not all
dealings involving interest in real property come under the Statute.
Moreover, appellant's complaint clearly alleges that he has already fulfilled his part of the
bargains to induce the Deudors to amicably settle their differences with defendants as, in
fact, on March 16, 1963, through his efforts, a compromise agreement between these
parties was approved by the court. In other words, the agreement in question has already
been partially consummated, and is no longer merely executory. And it is likewise a
fundamental principle governing the application of the Statute that the contract in dispute
should be purely executory on the part of both parties thereto.
We cannot, however, escape taking judicial notice, in relation to the compromise
agreement relied upon by appellant, that in several cases We have decided, We have
declared the same rescinded and of no effect. In J. M. Tuason & Co., Inc. vs. Bienvenido
Sanvictores, 4 SCRA 123, the Court held:
It is also worthy of note that the compromise between Deudors and
Tuason, upon which Sanvictores predicates his right to buy the lot he
occupies, has been validly rescinded and set aside, as recognized by this
Court in its decision in G.R. No. L-13768, Deudor vs. Tuason, promulgated
on May 30, 1961.
We repeated this observation in J.M. Tuason & Co., Inc. vs. Teodosio Macalindong, 6
SCRA 938. Thus, viewed from what would be the ultimate conclusion of appellant's case,
We entertain grave doubts as to whether or not he can successfully maintain his alleged
cause of action against defendants, considering that the compromise agreement that he
invokes did not actually materialize and defendants have not benefited therefrom, not to
mention the undisputed fact that, as pointed out by appellees, appellant's other attempt to
secure the same 3,000 square meters via the judicial enforcement of the compromise
agreement in which they were supposed to be reserved for him has already been
repudiated by the courts. (pp. 5-7. Brief of Appellee Gregorio Araneta, Inc.)
As regards appellant's third assignment of error, We hold that the allegations in his
complaint do not sufficiently Appellants' reliance. on Article 2142 of Civil Code is
misplaced. Said article provides:
Certain lawful, voluntary and unilateral acts give rise to the juridical relation
of quasi-contract to the end that no one shall be unjustly enriched or
benefited at the expense of another.
From the very language of this provision, it is obvious that a presumed qauasi-contract
cannot emerge as against one party when the subject mater thereof is already covered by
an existing contract with another party. Predicated on the principle that no one should be
allowed to unjustly enrich himself at the expense of another, Article 2124 creates the legal
fiction of a quasi-contract precisely because of the absence of any actual agreement
between the parties concerned. Corollarily, if the one who claims having enriched
somebody has done so pursuant to a contract with a third party, his cause of action should
be against the latter, who in turn may, if there is any ground therefor, seek relief against
the party benefited. It is essential that the act by which the defendant is benefited must
have been voluntary and unilateral on the part of the plaintiff. As one distinguished civilian
puts it, "The act is voluntary. because the actor in quasi-contracts is not bound by any pre-
existing obligation to act. It is unilateral, because it arises from the sole will of the actor
who is not previously bound by any reciprocal or bilateral agreement. The reason why the
law creates a juridical relations and imposes certain obligation is to prevent a situation
where a person is able to benefit or take advantage of such lawful, voluntary and unilateral
acts at the expense of said actor." (Ambrosio Padilla, Civil Law, Vol. VI, p. 748, 1969 ed.)
In the case at bar, since appellant has a clearer and more direct recourse against the
Deudors with whom he had entered into an agreement regarding the improvements and
expenditures made by him on the land of appellees. it Cannot be said, in the sense
contemplated in Article 2142, that appellees have been enriched at the expense of
appellant.
In the ultimate. therefore, Our holding above that appellant's first two assignments of error
are well taken cannot save the day for him. Aside from his having no cause of action
against appellees, there is one plain error of omission. We have found in the order of the
trial court which is as good a ground as any other for Us to terminate this case favorably
to appellees. In said order Which We have quoted in full earlier in this opinion, the trial
court ruled that "the grounds relied upon in said motion are mere repetitions of those
already resolved and discussed by this Court in the order of August 13, 1964", an
observation which We fully share. Virtually, therefore. appellant's motion for
reconsideration was ruled to be pro-forma. Indeed, a cursory reading of the record on
appeal reveals that appellant's motion for reconsideration above-quoted contained exactly
the same arguments and manner of discussion as his February 6, 1964 "Opposition to
Motion to Dismiss" of defendant Gregorio Araneta, Inc. ((pp. 17-25, Rec. on Appeal) as
well as his February 17, 1964 "Opposition to Motion to Dismiss of Defendant J. M. Tuason
& Co." (pp. 33-45, Rec. on Appeal and his February 29, 1964 "Rejoinder to Reply Oil
Defendant J. M. Tuason & Co." (pp. 52-64, Rec. on Appeal) We cannot see anything in
said motion for reconsideration that is substantially different from the above oppositions
and rejoinder he had previously submitted and which the trial court had already considered
when it rendered its main order of dismissal. Consequently, appellant's motion for
reconsideration did not suspend his period for appeal. (Estrada vs. Sto. Domingo, 28
SCRA 890, 905-6.) And as this point was covered by appellees' "Opposition to Motion for
Reconsideration" (pp. 8689), hence, within the frame of the issues below, it is within the
ambit of Our authority as the Supreme Court to consider the same here even if it is not
discussed in the briefs of the parties. (Insular Life Assurance Co., Ltd. Employees
Association-NATU vs. Insular Life Assurance Co., Ltd. [Resolution en banc of March 10,
1977 in G. R. No. L-25291).

Now, the impugned main order was issued on August 13, 1964, while the appeal was
made on September 24, 1964 or 42 days later. Clearly, this is beyond the 30-day
reglementary period for appeal. Hence, the subject order of dismissal was already final
and executory when appellant filed his appeal.

WHEREFORE, the appeal of Faustino Cruz in this case is dismissed. No costs.

G.R. No. L-44546 January 29, 1988
RUSTICO ADILLE, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, EMETERIA ASEJO, TEODORICA ASEJO,
DOMINGO ASEJO, JOSEFA ASEJO and SANTIAGO ASEJO, respondents.
SARMIENTO, J.:
In issue herein are property and property rights, a familiar subject of controversy and a wellspring of enormous conflict that
has led not only to protracted legal entanglements but to even more bitter consequences, like strained relationships and even
the forfeiture of lives. It is a question that likewise reflects a tragic commentary on prevailing social and cultural values and
institutions, where, as one observer notes, wealth and its accumulation are the basis of self-fulfillment and where property is
held as sacred as life itself. "It is in the defense of his property," says this modern thinker, that one "will mobilize his deepest
protective devices, and anybody that threatens his possessions will arouse his most passionate enmity." 1
The task of this Court, however, is not to judge the wisdom of values; the burden of
reconstructing the social order is shouldered by the political leadership-and the people
themselves.
The parties have come to this Court for relief and accordingly, our responsibility is to give
them that relief pursuant to the decree of law.
The antecedent facts are quoted from the decision 2 appealed from:
xxx xxx xxx
... [T]he land in question Lot 14694 of Cadastral Survey of Albay located in
Legaspi City with an area of some 11,325 sq. m. originally belonged to one
Felisa Alzul as her own private property; she married twice in her lifetime;
the first, with one Bernabe Adille, with whom she had as an only child,
herein defendant Rustico Adille; in her second marriage with one Procopio
Asejo, her children were herein plaintiffs, — now, sometime in 1939, said
Felisa sold the property in pacto de retro to certain 3rd persons, period of
repurchase being 3 years, but she died in 1942 without being able to
redeem and after her death, but during the period of redemption, herein
defendant repurchased, by himself alone, and after that, he executed a
deed of extra-judicial partition representing himself to be the only heir and
child of his mother Felisa with the consequence that he was able to secure
title in his name alone also, so that OCT. No. 21137 in the name of his
mother was transferred to his name, that was in 1955; that was why after
some efforts of compromise had failed, his half-brothers and sisters, herein
plaintiffs, filed present case for partition with accounting on the position that
he was only a trustee on an implied trust when he redeemed,-and this is
the evidence, but as it also turned out that one of plaintiffs, Emeteria Asejo
was occupying a portion, defendant counterclaimed for her to vacate that,
—
Well then, after hearing the evidence, trial Judge sustained defendant in
his position that he was and became absolute owner, he was not a trustee,
and therefore, dismissed case and also condemned plaintiff occupant,
Emeteria to vacate; it is because of this that plaintiffs have come here and
contend that trial court erred in:
I. ... declaring the defendant absolute owner of the property;
II. ... not ordering the partition of the property; and
III. ... ordering one of the plaintiffs who is in possession of the portion of
the property to vacate the land, p. 1 Appellant's brief.
which can be reduced to simple question of whether or not on the basis of evidence and
law, judgment appealed from should be maintained. 3
xxx xxx xxx
The respondent Court of appeals reversed the trial Court, 4 and ruled for the plaintiffs-
appellants, the private respondents herein. The petitioner now appeals, by way of
certiorari, from the Court's decision.
We required the private respondents to file a comment and thereafter, having given due
course to the petition, directed the parties to file their briefs. Only the petitioner, however,
filed a brief, and the private respondents having failed to file one, we declared the case
submitted for decision.
The petition raises a purely legal issue: May a co-owner acquire exclusive ownership over
the property held in common?
Essentially, it is the petitioner's contention that the property subject of dispute devolved
upon him upon the failure of his co-heirs to join him in its redemption within the period
required by law. He relies on the provisions of Article 1515 of the old Civil Article 1613 of
the present Code, giving the vendee a retro the right to demand redemption of the entire
property.
There is no merit in this petition.
The right of repurchase may be exercised by a co-owner with aspect to his share
alone. 5 While the records show that the petitioner redeemed the property in its entirety,
shouldering the expenses therefor, that did not make him the owner of all of it. In other
words, it did not put to end the existing state of co-ownership.
Necessary expenses may be incurred by one co-owner, subject to his right to collect
reimbursement from the remaining co-owners. 6 There is no doubt that redemption of
property entails a necessary expense. Under the Civil Code:
ART. 488. Each co-owner shall have a right to compel the other co-owners
to contribute to the expenses of preservation of the thing or right owned in
common and to the taxes. Any one of the latter may exempt himself from
this obligation by renouncing so much of his undivided interest as may be
equivalent to his share of the expenses and taxes. No such waiver shall be
made if it is prejudicial to the co-ownership.
The result is that the property remains to be in a condition of co-ownership. While a
vendee a retro, under Article 1613 of the Code, "may not be compelled to consent to a
partial redemption," the redemption by one co-heir or co-owner of the property in its totality
does not vest in him ownership over it. Failure on the part of all the co-owners to redeem
it entitles the vendee a retro to retain the property and consolidate title thereto in his
name. 7 But the provision does not give to the redeeming co-owner the right to the entire
property. It does not provide for a mode of terminating a co-ownership.
Neither does the fact that the petitioner had succeeded in securing title over the parcel in
his name terminate the existing co-ownership. While his half-brothers and sisters are, as
we said, liable to him for reimbursement as and for their shares in redemption expenses,
he cannot claim exclusive right to the property owned in common. Registration of property
is not a means of acquiring ownership. It operates as a mere notice of existing title, that is,
if there is one.
The petitioner must then be said to be a trustee of the property on behalf of the private
respondents. The Civil Code states:
ART. 1456. If property is acquired through mistake or fraud, the person
obtaining it is, by force of law, considered a trustee of an implied trust for
the benefit of the person from whom the property comes.
We agree with the respondent Court of Appeals that fraud attended the registration of the
property. The petitioner's pretension that he was the sole heir to the land in the affidavit of
extrajudicial settlement he executed preliminary to the registration thereof betrays a clear
effort on his part to defraud his brothers and sisters and to exercise sole dominion over the
property. The aforequoted provision therefore applies.
It is the view of the respondent Court that the petitioner, in taking over the property, did so
either on behalf of his co-heirs, in which event, he had constituted himself a negotiorum
gestor under Article 2144 of the Civil Code, or for his exclusive benefit, in which case, he
is guilty of fraud, and must act as trustee, the private respondents being the beneficiaries,
under the Article 1456. The evidence, of course, points to the second alternative the
petitioner having asserted claims of exclusive ownership over the property and having
acted in fraud of his co-heirs. He cannot therefore be said to have assume the mere
management of the property abandoned by his co-heirs, the situation Article 2144 of the
Code contemplates. In any case, as the respondent Court itself affirms, the result would
be the same whether it is one or the other. The petitioner would remain liable to the Private
respondents, his co-heirs.
This Court is not unaware of the well-established principle that prescription bars any
demand on property (owned in common) held by another (co-owner) following the required
number of years. In that event, the party in possession acquires title to the property and
the state of co-ownership is ended . 8 In the case at bar, the property was registered in
1955 by the petitioner, solely in his name, while the claim of the private respondents was
presented in 1974. Has prescription then, set in?
We hold in the negative. Prescription, as a mode of terminating a relation of co-ownership, petitioner never raised that defense. 18 There are recognized exceptions to this rule, but
must have been preceded by repudiation (of the co-ownership). The act of repudiation, in the petitioner has not shown why they apply.
turn is subject to certain conditions: (1) a co-owner repudiates the co-ownership; (2) such
an act of repudiation is clearly made known to the other co-owners; (3) the evidence WHEREFORE, there being no reversible error committed by the respondent Court of
thereon is clear and conclusive, and (4) he has been in possession through open, Appeals, the petition is DENIED. The Decision sought to be reviewed is hereby AFFIRMED
continuous, exclusive, and notorious possession of the property for the period required by in toto. No pronouncement as to costs.
law. 9
SO ORDERED.
The instant case shows that the petitioner had not complied with these requisites. We are
not convinced that he had repudiated the co-ownership; on the contrary, he had
deliberately kept the private respondents in the dark by feigning sole heirship over the
estate under dispute. He cannot therefore be said to have "made known" his efforts to
deny the co-ownership. Moreover, one of the private respondents, Emeteria Asejo, is
occupying a portion of the land up to the present, yet, the petitioner has not taken pains to
eject her therefrom. As a matter of fact, he sought to recover possession of that portion
Emeteria is occupying only as a counterclaim, and only after the private respondents had
first sought judicial relief.

It is true that registration under the Torrens system is constructive notice of title, 10 but it
has likewise been our holding that the Torrens title does not furnish a shield for fraud. 11 It
is therefore no argument to say that the act of registration is equivalent to notice of
repudiation, assuming there was one, notwithstanding the long-standing rule that
registration operates as a universal notice of title.

For the same reason, we cannot dismiss the private respondents' claims commenced in
1974 over the estate registered in 1955. While actions to enforce a constructive trust
prescribes in ten years, 12 reckoned from the date of the registration of the property, 13 we,
as we said, are not prepared to count the period from such a date in this case. We note
the petitioner's sub rosa efforts to get hold of the property exclusively for himself beginning
with his fraudulent misrepresentation in his unilateral affidavit of extrajudicial settlement
that he is "the only heir and child of his mother Feliza with the consequence that he was
able to secure title in his name also." 14 Accordingly, we hold that the right of the private
respondents commenced from the time they actually discovered the petitioner's act of
defraudation. 15 According to the respondent Court of Appeals, they "came to know [of it]
apparently only during the progress of the litigation." 16 Hence, prescription is not a bar.

Moreover, and as a rule, prescription is an affirmative defense that must be pleaded either
in a motion to dismiss or in the answer otherwise it is deemed waived, 17 and here, the
G.R. No. 82670 September 15, 1989
DOMETILA M. ANDRES, doing business under the name and style "IRENE'S
WEARING APPAREL," petitioner,
vs.
MANUFACTURERS HANOVER & TRUST CORPORATION and COURT OF
APPEALS, respondents.
Roque A. Tamayo for petitioner.
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for private respondent.
CORTES, J.:
Assailed in this petition for review on certiorari is the judgment of the Court of Appeals,
which, applying the doctrine of solutio indebiti, reversed the decision of the Regional Trial
Court, Branch CV, Quezon City by deciding in favor of private respondent.
Petitioner, using the business name "Irene's Wearing Apparel," was engaged in the
manufacture of ladies garments, children's wear, men's apparel and linens for local and
foreign buyers. Among its foreign buyers was Facets Funwear, Inc. (hereinafter referred
to as FACETS) of the United States.
In the course of the business transaction between the two, FACETS from time to time
remitted certain amounts of money to petitioner in payment for the items it had purchased.
Sometime in August 1980, FACETS instructed the First National State Bank of New
Jersey, Newark, New Jersey, U.S.A. (hereinafter referred to as FNSB) to transfer
$10,000.00 to petitioner via Philippine National Bank, Sta. Cruz Branch, Manila
(hereinafter referred to as PNB).
Acting on said instruction, FNSB instructed private respondent Manufacturers Hanover
and Trust Corporation to effect the above- mentioned transfer through its facilities and to
charge the amount to the account of FNSB with private respondent. Although private
respondent was able to send a telex to PNB to pay petitioner $10,000.00 through the
Pilipinas Bank, where petitioner had an account, the payment was not effected
immediately because the payee designated in the telex was only "Wearing Apparel." Upon
query by PNB, private respondent sent PNB another telex dated August 27, 1980 stating
that the payment was to be made to "Irene's Wearing Apparel." On August 28, 1980,
petitioner received the remittance of $10,000.00 through Demand Draft No. 225654 of the
PNB.
Meanwhile, on August 25, 1980, after learning about the delay in the remittance of the
money to petitioner, FACETS informed FNSB about the situation. On September 8, 1980,
unaware that petitioner had already received the remittance, FACETS informed private
respondent about the delay and at the same time amended its instruction by asking it to
effect the payment through the Philippine Commercial and Industrial Bank (hereinafter
referred to as PCIB) instead of PNB.
Accordingly, private respondent, which was also unaware that petitioner had already
received the remittance of $10,000.00 from PNB instructed the PCIB to pay $10,000.00 to
petitioner. Hence, on September 11, 1980, petitioner received a second $10,000.00
remittance.
Private respondent debited the account of FNSB for the second $10,000.00 remittance
effected through PCIB. However, when FNSB discovered that private respondent had
made a duplication of the remittance, it asked for a recredit of its account in the amount of
$10,000.00. Private respondent complied with the request.
Private respondent asked petitioner for the return of the second remittance of $10,000.00
but the latter refused to pay. On May 12, 1982 a complaint was filed with the Regional Trial
Court, Branch CV, Quezon City which was decided in favor of petitioner as defendant. The
trial court ruled that Art. 2154 of the New Civil Code is not applicable to the case because
the second remittance was made not by mistake but by negligence and petitioner was not
unjustly enriched by virtue thereof [Record, p. 234]. On appeal, the Court of Appeals held
that Art. 2154 is applicable and reversed the RTC decision. The dispositive portion of the
Court of Appeals' decision reads as follows:
WHEREFORE, the appealed decision is hereby REVERSED and SET
ASIDE and another one entered in favor of plaintiff-appellant and against
defendant-appellee Domelita (sic) M. Andres, doing business under the
name and style "Irene's Wearing Apparel" to reimburse and/or return to
plaintiff-appellant the amount of $10,000.00, its equivalent in Philippine
 currency, with interests at the legal rate from the filing of the complaint on
May 12, 1982 until the whole amount is fully paid, plus twenty percent
(20%) of the amount due as attomey's fees; and to pay the costs.
With costs against defendant-appellee.
SO ORDERED. [Rollo, pp. 29-30.]
Thereafter, this petition was filed. The sole issue in this case is whether or not the private
respondent has the right to recover the second $10,000.00 remittance it had delivered to
petitioner. The resolution of this issue would hinge on the applicability of Art. 2154 of the
New Civil Code which provides that:
Art. 2154. If something received when there is no right to demand it, and it
was unduly delivered through mistake, the obligation to return it arises.
This provision is taken from Art. 1895 of the Spanish Civil Code which provided that:
Art. 1895. If a thing is received when there was no right to claim it and
which, through an error, has been unduly delivered, an obligation to restore
it arises.
In Velez v. Balzarza, 73 Phil. 630 (1942), the Court, speaking through Mr. Justice Bocobo
explained the nature of this article thus:
Article 1895 [now Article 2154] of the Civil Code abovequoted, is therefore
applicable. This legal provision, which determines the quasi-contract of
solution indebiti, is one of the concrete manifestations of the ancient
principle that no one shall enrich himself unjustly at the expense of another.
In the Roman Law Digest the maxim was formulated thus: "Jure naturae
acquum est, neminem cum alterius detrimento et injuria fieri
locupletiorem." And the Partidas declared: "Ninguno non deue
enriquecerse tortizeramente con dano de otro." Such axiom has grown
through the centuries in legislation, in the science of law and in court
decisions. The lawmaker has found it one of the helpful guides in framing
statutes and codes. Thus, it is unfolded in many articles scattered in the
Spanish Civil Code. (See for example, articles, 360, 361, 464, 647, 648,
797, 1158, 1163, 1295, 1303, 1304, 1893 and 1895, Civil Code.) This time-
honored aphorism has also been adopted by jurists in their study of the
conflict of rights. It has been accepted by the courts, which have not
hesitated to apply it when the exigencies of right and equity demanded its
assertion. It is a part of that affluent reservoir of justice upon which judicial
discretion draws whenever the statutory laws are inadequate because they
do not speak or do so with a confused voice. [at p. 632.]
For this article to apply the following requisites must concur: "(1) that he who paid was not
under obligation to do so; and, (2) that payment was made by reason of an essential
mistake of fact" [City of Cebu v. Piccio, 110 Phil. 558, 563 (1960)].
It is undisputed that private respondent delivered the second $10,000.00 remittance.
However, petitioner contends that the doctrine of solutio indebiti, does not apply because
its requisites are absent.
First, it is argued that petitioner had the right to demand and therefore to retain the second
$10,000.00 remittance. It is alleged that even after the two $10,000.00 remittances are
credited to petitioner's receivables from FACETS, the latter allegedly still had a balance of
$49,324.00. Hence, it is argued that the last $10,000.00 remittance being in payment of a
pre-existing debt, petitioner was not thereby unjustly enriched.
The contention is without merit.
The contract of petitioner, as regards the sale of garments and other textile products, was
with FACETS. It was the latter and not private respondent which was indebted to petitioner.
On the other hand, the contract for the transmittal of dollars from the United States to
petitioner was entered into by private respondent with FNSB. Petitioner, although named
as the payee was not privy to the contract of remittance of dollars. Neither was private
respondent a party to the contract of sale between petitioner and FACETS. There being
no contractual relation between them, petitioner has no right to apply the second
$10,000.00 remittance delivered by mistake by private respondent to the outstanding
account of FACETS.
Petitioner next contends that the payment by respondent bank of the second $10,000.00
remittance was not made by mistake but was the result of negligence of its employees. In
connection with this the Court of Appeals made the following finding of facts:
 The fact that Facets sent only one remittance of $10,000.00 is not disputed.
In the written interrogatories sent to the First National State Bank of New
Jersey through the Consulate General of the Philippines in New York,
Adelaide C. Schachel, the investigation and reconciliation clerk in the said
bank testified that a request to remit a payment for Facet Funwear Inc. was
made in August, 1980. The total amount which the First National State
Bank of New Jersey actually requested the plaintiff-appellant
Manufacturers Hanover & Trust Corporation to remit to Irene's Wearing
Apparel was US $10,000.00. Only one remittance was requested by First
National State Bank of New Jersey as per instruction of Facets Funwear
(Exhibit "J", pp. 4-5).
That there was a mistake in the second remittance of US $10,000.00 is
borne out by the fact that both remittances have the same reference
invoice number which is 263 80. (Exhibits "A-1- Deposition of Mr. Stanley
Panasow" and "A-2-Deposition of Mr. Stanley Panasow").
Plaintiff-appellant made the second remittance on the wrong assumption
that defendant-appellee did not receive the first remittance of US
$10,000.00. [Rollo, pp. 26-27.]
It is evident that the claim of petitioner is anchored on the appreciation of the attendant
facts which petitioner would have this Court review. The Court holds that the finding by the
Court of Appeals that the second $10,000.00 remittance was made by mistake, being
based on substantial evidence, is final and conclusive. The rule regarding questions of fact
being raised with this Court in a petition for certiorari under Rule 45 of the Revised Rules
of Court has been stated in Remalante v. Tibe, G.R. No. 59514, February 25, 1988, 158
SCRA 138, thus:
The rule in this jurisdiction is that only questions of law may be raised in a
petition for certiorari under Rule 45 of the Revised Rules of Court. "The
jurisdiction of the Supreme Court in cases brought to it from the Court of
Appeals is limited to reviewing and revising the errors of law imputed to it,
its findings of fact being conclusive" [Chan v. Court of Appeals, G.R. No.
L-27488, June 30, 1970, 33 SCRA 737, reiterating a long line of decisions].
This Court has emphatically declared that "it is not the function of the
Supreme Court to analyze or weigh such evidence all over again, its
jurisdiction being limited to reviewing errors of law that might have been
committed by the lower court" [Tiongco v. De la Merced, G.R. No. L-24426,
July 25, 1974, 58 SCRA 89; Corona v. Court of Appeals, G.R. No. L-62482,
April 28, 1983, 121 SCRA 865; Baniqued v. Court of Appeals, G. R. No. L-
47531, February 20, 1984, 127 SCRA 596]. "Barring, therefore, a showing
that the findings complained of are totally devoid of support in the record,
or that they are so glaringly erroneous as to constitute serious abuse of
discretion, such findings must stand, for this Court is not expected or
required to examine or contrast the oral and documentary evidence
submitted by the parties" [Santa Ana, Jr. v. Hernandez, G.R. No. L-16394,
December 17, 1966, 18 SCRA 9731. [at pp. 144-145.]
Petitioner invokes the equitable principle that when one of two innocent persons must
suffer by the wrongful act of a third person, the loss must be borne by the one whose
negligence was the proximate cause of the loss.
The rule is that principles of equity cannot be applied if there is a provision of law
specifically applicable to a case [Phil. Rabbit Bus Lines, Inc. v. Arciaga, G.R. No. L-29701,
March 16, 1987,148 SCRA 433; Zabat, Jr. v. Court of Appeals, G.R. No. L36958, July 10,
1986, 142 SCRA 587; Rural Bank of Paranaque, Inc. v. Remolado, G.R. No. 62051, March
18, 1985, 135 SCRA 409; Cruz v. Pahati, 98 Phil. 788 (1956)]. Hence, the Court in the
case of De Garcia v. Court of Appeals, G.R. No. L-20264, January 30, 1971, 37 SCRA
129, citing Aznar v. Yapdiangco, G.R. No. L-18536, March 31, 1965, 13 SCRA 486, held:
... The common law principle that where one of two innocent persons must
suffer by a fraud perpetrated by another, the law imposes the loss upon
the party who, by his misplaced confidence, has enabled the fraud to be
committed, cannot be applied in a case which is covered by an express
provision of the new Civil Code, specifically Article 559. Between a
common law principle and a statutory provision, the latter must prevail in
this jurisdiction. [at p. 135.]
Having shown that Art. 2154 of the Civil Code, which embodies the doctrine
of solutio indebiti, applies in the case at bar, the Court must reject the common law
principle invoked by petitioner.
Finally, in her attempt to defeat private respondent's claim, petitioner makes much of the
fact that from the time the second $10,000.00 remittance was made, five hundred and ten
days had elapsed before private respondent demanded the return thereof. Needless to
say, private respondent instituted the complaint for recovery of the second $10,000.00
remittance well within the six years prescriptive period for actions based upon a quasi-
contract [Art. 1145 of the New Civil Code].

WHEREFORE, the petition is DENIED and the decision of the Court of Appeals is hereby
AFFIRMED.

SO ORDERED.
G.R. No. 124378 March 8, 2005
NATIONAL POWER CORPORATION, Petitioner,
vs.
THE HONORABLE COURT OF APPEALS (Ninth Division), HADJI ABDUL CARIM
ABDULLAH, CARIS ABDULLAH, HADJI ALI LANGCO1 and DIAMAEL
PANGCATAN, Respondents.
DECISION
CHICO-NAZARIO, J.:
In this petition for review, petitioner seeks the reversal of the Decision2 dated 21 December
1995 of the Court of Appeals in CA-G.R. CV No. 44639, which affirmed with modification
the Decision3 dated 29 July 1991 of the Regional Trial Court (RTC), 12th Judicial Region,
Branch 9, Marawi City, in Civil Case No. 115-87, for damages. The Resolution4 dated 27
March 1996 that denied petitioner’s motion for reconsideration is likewise assailed.
The factual milieu, as gleaned from the records, follows:
Petitioner National Power Corporation (NPC) is a government-owned and controlled
corporation created under Commonwealth Act No. 120, as amended. 5 It is tasked to
undertake the development of hydroelectric generations of power and the production of
electricity from nuclear, geothermal and other sources, as well as the transmission of
electric power on a nationwide basis.6 Concomitant to its mandate, petitioner has, among
other things, the power to construct, operate and maintain power plants, auxiliary plants,
dams, reservoirs, pipes, mains, transmission lines, power stations, and substations, and
other works for the purpose of developing hydraulic power from any river, creek, lake,
spring, and waterfalls in the Philippines, and supplying such power to the inhabitants. 7
On 15 November 1973, the Office of the President of the Philippines issued Memorandum
Order No. 398 - "Prescribing Measures to Preserve the Lake Lanao Watershed, To
Enforce the Reservation of Areas Around the Lake Below Seven Hundred And Two Meters
Elevation, and for Other Purposes." Said decree instructed the NPC to build the Agus
Regulation Dam at the mouth of Agus River in Lanao del Sur, at a normal maximum water
level of Lake Lanao at 702 meters elevation.8 Pursuant thereto, petitioner built and
operated the said dam in 1978.
Private respondents Hadji Abdul Carim Abdullah and Caris Abdullah were owners of
fishponds in Barangay Bacong, Municipality of Marantao, Lanao del Sur, while private
respondents Hadji Ali Langco and Diamael Pangcatan had their fishponds built in Poona-
Marantao, also in the same province. All of these fishponds were sited along the Lake
Lanao shore. Private respondents have spent substantial amounts to construct, maintain,
and stock their respective fishponds with fish fingerlings, and make plantings along the
adjoining foreshore areas between 1984 and 1986. 9
In October and November of 1986, all the improvements were washed away when the
water level of the lake escalated and the subject lakeshore area was flooded. Private
respondents blamed the inundation on the Agus Regulation Dam built and operated by the
NPC in 1978. They theorized that NPC failed to increase the outflow of water even as the
water level of the lake rose due to the heavy rains. 10
Thus, in December of 1986, the private respondents, except for Caris Abdullah, wrote
separate letters to the NPC’s Vice-President, a certain "R.B. Santos," who was based in
Ditucalan, Iligan City. They sought assistance and compensation for the damage suffered
by each of them.11 The private respondents’ pleas were shorn off by NPC on the ground
that it was mandated under Memorandum Order No. 398 dated 15 November 1973 to build
the dam and maintain the normal maximum lake level of 702 meters, and that since its
operation in 1978, the water level never rose beyond 702 meters. Furthermore, NPC
retorted that visible monuments and benchmarks indicating the 702-meter elevation had
been established around the lake from 1974 to 1983, which should have served as a
warning to the private respondents not to introduce any improvements below the 702-
meter level as this was outlawed.12
Left with no other recourse, the private respondents filed a complaint for damages before
the RTC of Marawi City, Branch 9, on 24 February 1987, docketed as Civil Case No. 115-
87. They alleged that the negligence and inexperience of NPC’s employees assigned to
operate the Agus Regulation Dam were the proximate causes of the damage caused to
their properties and livelihood. They prayed for damages corresponding to the cost of their
lost fishes plus the value of their destroyed fishpond and the expenses and the fishes
thereof. They, too, asked for reimbursement of necessary expenses as may be proved in
the trial, moral and exemplary damages, and the costs. 13
NPC denied the private respondents’ allegations, and tossed back the disputations that:
(a) the water level of Lake Lanao never went beyond 702 meters, (b) NPC employees were
never remiss in the performance of their duties, and (c) the private respondents’ alleged
fishponds were either located below the 702-meter level, or must have been introduced The subsequent motion for reconsideration having been denied, petitioner interposes this
when the water level was abnormally low and as such, were within the prohibited area as appeal, contending that the Court of Appeals seriously erred when it:
defined in Memorandum Order No. 398. In fine, the NPC posited that the private
respondents had no cause of action against it. 14 I. …disregarded the mandate of Presidential Memorandum Order No. 398.

The trial court created a committee composed of representatives of both parties to conduct II. …concluded that petitioner was negligent in applying Presidential Memorandum
an ocular inspection of the dam and its surrounding areas. On 29 July 1991, the trial court Order No. 398, despite the clear absence of evidence of such alleged negligence.
rendered a Decision in favor of the private respondents. Thus, the trial court disposed:
III. …concluded that the adverse result of an ocular inspection conducted by the
WHEREFORE, for all the foregoing consideration, judgment is hereby rendered in trial court at a much later date and during the trial could be used, as it did, as proof
favor of plaintiffs Hadji Abdul Carim Abdullah, Caris Abdullah, Hadji Langco and of the alleged flooding in October/November 1986.
Diamael Pangcatan and against defendant National Power Corporation directing
said defendant National Power Corporation to pay unto Plaintiff Hadji Abdul Carim IV. …concluded and so held that petitioner allegedly failed to prove that private
Abdullah the sum of P410,000.00 in actual or compensatory damages; to pay unto respondents’ fishponds were situated below the 702-meter elevation of the lake.
plaintiff Caris Abdullah the sum of P208,000.00 in actual or compensatory
damages; to pay unto plaintiff Hadji Ali Langco or his substitutes Said Langco;
V. …awarded temperate and moderate damages in lieu of actual and
Jalila Langco; Raga Langco; Namolawan Langco; Alikan Langco; Dibolawan
compensatory damages, at unreasonable amounts at that, despite the clear
Langco; Binolawan Langco; Ismael Langco; Bokari Langco; and Diamael
absence OF LEGAL AND FACTUAL BASES FOR SUCH AWARD.17
Pangcatan the total sum of P260,000.00 in actual or compensatory damages; and
the further sum of P20,000.00 in litigation expenses and the costs. 15
Despite the manifold spin-off subjects raised, the pertinent issue worthy of exploration at
the core is whether or not the Court of Appeals erred in affirming the trial court’s verdict
Unflinched, the petitioner appealed to the Court of Appeals, which in a Decision dated 21
that petitioner was legally answerable for the damages endured by the private
December 1995, affirmed the decision of the court a quo with modification on the award of
respondents.
damages, to wit:
From the above-mentioned assignment of errors, petitioner palpably disputes the findings
WHEREFORE, for all the foregoing considerations, judgment is hereby rendered
of facts and the appreciation of evidence made by the trial court and later affirmed by
in favor of plaintiffs Hadji Abdul Carim Abdullah, Caris Abdullah, Hadji Langco and
respondent court. It is apodictic that in a petition for review, only questions of law may be
Diamael Pangcatan and against defendant National Power Corporation directing
raised18 for the reason that the Supreme Court is not a trier of facts and generally does not
said defendant National Power Corporation to pay unto plaintiff Hadji Abdul Carim
weigh anew the evidence already passed upon by the Court of Appeals. 19 Corollarily, the
Abdullah the sum of P350,000.00; unto plaintiff Caris Abdullah the sum
factual findings of the Court of Appeals affirming those of the trial court bind this Court
of P150,000.00; unto plaintiff Hadji Ali Langco’s heirs and Diamael Pangcatan the
when such findings are supported by substantial evidence. In the case at hand, no
sum of P210,000.00 as and for temperate or moderate damages; as well
reversible error could be attributed to the Court of Appeals in espousing conclusions of
as P20,000.00 as and for litigation expenses and costs.
facts similar to the trial court on petitioner’s liability for the damages suffered by private
respondents.20
Costs against appellant.16
Here are the reasons why:
 Memorandum Order No. 398, also known as the law "Prescribing Measures to
Preserve the Lake Lanao Watershed, To Enforce the Reservation of Areas Around
the Lake Below Seven Hundred And Two Meters Elevation, and for Other
Purposes," clothes the NPC with the power to build the Agus Regulation Dam and
to operate it for the purpose of generating energy. Twin to such power are the
duties: (1) to maintain the normal maximum lake elevation at 702 meters, and
(2) to build benchmarks to warn the inhabitants in the area that cultivation of
land below said elevation is forbidden. The wordings of the said presidential
order cannot be any clearer on this point. Thus –
4. The National Power Corporation shall render financial assistance to
forest protection, tree farming, reforestation and other conservation
measures in coordination with private timber concessionaires and the
Bureau of Forest Development. With the assistance and cooperation of
provincial and municipal officials, as well as the Provincial Commander of
the Philippine Constabulary, NPC shall place in every town around the
lake, at the normal maximum lake elevation of seven hundred and two
meters, benchmarks warning that cultivation of land below said
elevation is prohibited. (Emphasis supplied)
By the bulk of evidence, NPC ostensibly reneged on both duties.
With respect to its job to maintain the normal maximum level of the lake at 702 meters, the
Court of Appeals, echoing the trial court, observed with alacrity that when the water level
rises due to the rainy season, the NPC ought to release more water to the Agus River to
avoid flooding and prevent the water from going over the maximum level. And yet,
petitioner failed to do so, resulting in the inundation of the nearby estates. 21 The facts, as
unraveled by the trial court from the evidence on record, established that before the
construction of the Agus Regulation Dam across the Agus River just beyond the Marawi
City Bridge, no report of damages to landowners around the lake was ever heard. After its
construction and when it started functioning in 1978, reports and complaints of damages
sustained by landowners around the lake due to overflooding became widespread. The
factual findings of the trial court rightly support its conclusions on this respect -
…Lake Lanao has only one outlet, the Agus River which in effect is the natural
regulator. When the Lake level is high, more water leaves the lakes towards the
Agus River. Under such a natural course, overflooding is remote because excess
in water level of the lake, there is a corresponding increase in the volume of water
drain down towards the Agus River and vice versa.
In order to achieve its goal of generating hydroelectric power, defendant NPC
constructed the Intake Regulation Dam, the purpose of which being to control and
regulate the amount of water discharged into the Agus River. With this dam,
defendant NPC is able to either increase or decrease the volume of water
discharged into the Agus River depending on the amount of power to be generated.
When the lake level rises, specially during rainy days, it is indispensable to wide
open the dam to allow more water to flow to the Agus River to prevent overflowing
of the lakeshore and the land around it. But the NPC cannot allow the water to flow
freely into its outlet – the Agus River, because it will adversely affect its
hydroelectric power plants. It has to hold back the water by its dam in order to
maintain the volume of water required to generate the power supply. As a
consequence of holding back the water, the lands around the lake are inundated.
This is even admitted by defendant’s witness Mama Manongguiring.
Consequently, in October, November and December of 1986 when the lake level
increased, farmlands in the Basak area around Lake Lanao and fishponds were
inundated as a result of such holding back of water by defendant
NPC.22 (Emphasis supplied)
Petitioner adduced in evidence its company records to bear out its claim that the water
level of the lake was, at no point in time, higher than 702 meters. The trial court and the
Court of Appeals, however, did not lend credence to this piece of evidence. Both courts
below held that the data contained in petitioner’s records collapse in the face of the actual
state of the affected areas. During the ocular inspection conducted by the lower court
where representatives of both parties were present, it was established that in the subject
areas, the benchmarks as pointed out by the NPC representative, could not be seen nor
reached because they were totally covered with water.23 This fact, by itself, constitutes
an unyielding proof that the water level did rise above the benchmarks and inundated the
properties in the area.
In the absence of any clear explanation on what other factors could have explained the
flooding in the neighboring properties of the dam, it is fair to reasonably infer that the
incident happened because of want of care on the part of NPC to maintain the water level
of the dam within the benchmarks at the maximum normal lake elevation of 702 meters.
An application of the doctrine of res ipsa loquitur, the thing speaks for itself, comes to
fore.24 Where the thing which causes injury is shown to be under the management of the
defendant, and the accident is such as in the ordinary course of things does not happen if
those who have the management use proper care, it affords reasonable evidence, in the
absence of an explanation by the defendant, that the accident arose from want of care. 25
NPC further attempts to dodge its burden by turning the tables against private respondents.
Petitioner would entice this Court to believe that private respondents brought the
catastrophe upon themselves by constructing their fishponds below the 702-meter level
in defiance of Memorandum Order No. 398. Yet, petitioner failed to demonstrate that the
subject fishponds were situated at an area below the 702-meter level yardstick. Allegation
is one thing; proof is another. Save for its bare claim, NPC was unable to indicate the
position of the fishponds vis-à-vis its benchmarks. But, how can it do so when it cannot
show its own benchmarks as they were submerged in water?
This brings us to the second duty of NPC under Memorandum Order No. 398 - to build and
maintain benchmarks to warn the inhabitants in the area that cultivation of land below the
702-meter elevation is forbidden.
Notably, despite the clear mandate of Memorandum Order No. 398, petitioner’s own
witness, Principal Hydrologist Mama Manongguiring, testified that although the dam was
built in 1978, the benchmarks were installed only in July and August of 1984 and
that apparently, many had already worn-out, to be replaced only in October of
1986.26 As adroitly observed by the Court of Appeals, it was only after many years from
the time it was built that NPC installed said benchmarks. At that time, many farms and
houses were already swamped and many fishponds, including those of the private
respondents, damaged. 27
Consequently, even assuming that the fishponds were erected below the 702-meter level,
NPC must, nonetheless, bear the brunt for such damages inasmuch as it has the duty
to erect and maintain the benchmarks precisely to warn the owners of the neighboring
properties not to build fishponds below these marks. Such benchmarks, likewise, serve
the evidentiary purpose of extricating NPC from liability in cases of overflooding in the
neighboring estates because all NPC would have to do is point out that such constructions
are below the 702-meter allowable elevation. Without such points of reference, the
inhabitants in said areas are clueless whether or not their improvements are within the
prohibited area. Conversely, without such benchmarks, NPC has no way of telling if the
fishponds, subject matter of the present controversy, are indeed below the prescribed
maximum level of elevation.
NPC staunchly asserts that the damages, if any, were due to a fortuitous event. Again, we
cannot agree with petitioner. We defer instead to the findings and opinions expressed by
the Court of Appeals that NPC cannot escape liability on the mere excuse that the rise of
water was due to heavy rains that were acts of God. The rainy season is an expected
occurrence and the NPC cannot stop doing its duty when the rains fall. In fact, it is during
these critical times that the NPC needs to be vigilant to make sure that the lake level does
not exceed the maximum level.28 Indeed, negligence or imprudence is human factor which
makes the whole occurrence humanized, as it were, and removed from the rules applicable
to acts of God.29
NPC further enthuses that the principle of damnum absque injuria, or damage without
injury, applies in the present case.
Again, we disagree. This principle means that although there was physical damage, there
was no legal injury, as there was no violation of a legal right. The negligence of NPC as a
result of its inability to maintain the level of water in its dams has been satisfactorily and
extensively established.
Article 2176 of the New Civil Code provides that "whoever by act or omission causes
damage to another, there being fault or negligence, is obliged to pay for the damage done.
Such fault or negligence, if there is no pre-existing contractual relation between the parties,
is called a quasi-delict." In crimes and quasi-delicts, the defendant shall be liable for all
damages, which are the natural and probable consequences of the act or omission
complained of. It is not necessary that such damages have been foreseen or could have
reasonably been foreseen by the defendant. 30
In the case at bar, both the appellate court and the trial court uniformly found that it was
such negligence on the part of NPC which directly caused the damage to the fishponds of
private respondents. The degree of damages suffered by the latter remains unrebutted
and there exists adequate documentary evidence that the private respondents did have
fishponds in their respective locations and that these were inundated and damaged when
the water level escalated in October 1986.31
However, as observed by the Court of Appeals, while the private respondents claim
reimbursement for actual or compensatory damages, they failed to present independent
evidence to prove with a reasonable degree of certainty the actual amount of loss. The
private respondents could only testify as to the amounts they had spent to build and stock
their respective fishponds and as to the amount of earnings they would have made had
the fish been sold at current market prices. We find no reason to deflect from the award of
temperate or moderate damages by the Court of Appeals in reduced amounts, but are
reasonable under the circumstances conformably with Articles 2224 and 2225 of the New
Civil Code.32

WHEREFORE, the instant petition is DENIED. The Decision dated 21 December 1995 and
the Resolution dated 27 March 1996 of the Court of Appeals in CA-G.R. CV No. 44639 are
hereby AFFIRMED. Costs against petitioner.

SO ORDERED.
G.R. No. L-25494 June 14, 1972
NICOLAS SANCHEZ, plaintiff-appellee,
vs.
SEVERINA RIGOS, defendant-appellant.
Santiago F. Bautista for plaintiff-appellee.
Jesus G. Villamar for defendant-appellant.
CONCEPCION, C.J.:p
Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of Appeals, which certified the case to Us,
upon the ground that it involves a question purely of law.
The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina
Rigos executed an instrument entitled "Option to Purchase," whereby Mrs. Rigos "agreed,
promised and committed ... to sell" to Sanchez the sum of P1,510.00, a parcel of land
situated in the barrios of Abar and Sibot, municipality of San Jose, province of Nueva Ecija,
and more particularly described in Transfer Certificate of Title No. NT-12528 of said
province, within two (2) years from said date with the understanding that said option shall
be deemed "terminated and elapsed," if "Sanchez shall fail to exercise his right to buy the
property" within the stipulated period. Inasmuch as several tenders of payment of the sum
of Pl,510.00, made by Sanchez within said period, were rejected by Mrs. Rigos, on March
12, 1963, the former deposited said amount with the Court of First Instance of Nueva Ecija
and commenced against the latter the present action, for specific performance and
damages.
After the filing of defendant's answer — admitting some allegations of the complaint,
denying other allegations thereof, and alleging, as special defense, that the contract
between the parties "is a unilateral promise to sell, and the same being unsupported by
any valuable consideration, by force of the New Civil Code, is null and void" — on February
11, 1964, both parties, assisted by their respective counsel, jointly moved for a judgment
on the pleadings. Accordingly, on February 28, 1964, the lower court rendered judgment
for Sanchez, ordering Mrs. Rigos to accept the sum judicially consigned by him and to
execute, in his favor, the requisite deed of conveyance. Mrs. Rigos was, likewise,
sentenced to pay P200.00, as attorney's fees, and other costs. Hence, this appeal by Mrs.
Rigos.
This case admittedly hinges on the proper application of Article 1479 of our Civil Code,
which provides:
ART. 1479. A promise to buy and sell a determinate thing for a price certain
is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promissor if the promise is supported by
a consideration distinct from the price.
In his complaint, plaintiff alleges that, by virtue of the option under consideration,
"defendant agreed and committed to sell" and "the plaintiff agreed and committed to buy"
the land described in the option, copy of which was annexed to said pleading as Annex A
thereof and is quoted on the margin.1 Hence, plaintiff maintains that the promise contained
in the contract is "reciprocally demandable," pursuant to the first paragraph of said Article
1479. Although defendant had really "agreed, promised and committed" herself to sell the
land to the plaintiff, it is not true that the latter had, in turn, "agreed and committed himself
" to buy said property. Said Annex A does not bear out plaintiff's allegation to this effect.
What is more, since Annex A has been made "an integral part" of his complaint, the
provisions of said instrument form part "and parcel" 2 of said pleading.
The option did not impose upon plaintiff the obligation to purchase defendant's property.
Annex A is not a "contract to buy and sell." It merely granted plaintiff an "option" to buy.
And both parties so understood it, as indicated by the caption, "Option to Purchase," given
by them to said instrument. Under the provisions thereof, the defendant "agreed, promised
and committed" herself to sell the land therein described to the plaintiff for P1,510.00, but
there is nothing in the contract to indicate that her aforementioned agreement, promise
and undertaking is supported by a consideration "distinct from the price" stipulated for
the sale of the land.
Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of
said consideration, and this would seem to be the main factor that influenced its decision
in plaintiff's favor. It should be noted, however, that:
(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article
1479 refers to "sales" in particular, and, more specifically, to "an accepted unilateral
promise to buy or to sell." In other words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be "binding upon the promisor, Article 1479
requires the concurrence of a condition, namely, that the promise be "supported by a
consideration distinct from the price." Accordingly, the promisee can not compel the
promisor to comply with the promise, unless the former establishes the existence of said
distinct consideration. In other words, the promisee has the burden of proving such
consideration. Plaintiff herein has not even alleged the existence thereof in his complaint.
(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a
special defense, the absence of said consideration for her promise to sell and, by joining
in the petition for a judgment on the pleadings, plaintiff has impliedly admitted the truth of
said averment in defendant's answer. Indeed as early as March 14, 1908, it had been held,
in Bauermann v. Casas,3 that:
One who prays for judgment on the pleadings without offering proof as to
the truth of his own allegations, and without giving the opposing party an
opportunity to introduce evidence, must be understood to admit the truth
of all the material and relevant allegations of the opposing party, and to
rest his motion for judgment on those allegations taken together with such
of his own as are admitted in the pleadings. (La Yebana Company vs.
Sevilla, 9 Phil. 210). (Emphasis supplied.)
This view was reiterated in Evangelista v. De la Rosa4 and Mercy's Incorporated v.
Herminia Verde.5
Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific
Co.,6 from which We quote:
The main contention of appellant is that the option granted to appellee to
sell to it barge No. 10 for the sum of P30,000 under the terms stated above
has no legal effect because it is not supported by any consideration and in
support thereof it invokes article 1479 of the new Civil Code. The article
provides:
"ART. 1479. A promise to buy and sell a determinate thing
for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or sell a determinate
thing for a price certain is binding upon the promisor if the
promise is supported by a consideration distinct from the
price."
On the other hand, Appellee contends that, even granting that the "offer of
option" is not supported by any consideration, that option became binding
on appellant when the appellee gave notice to it of its acceptance, and that
having accepted it within the period of option, the offer can no longer be
withdrawn and in any event such withdrawal is ineffective. In support this
contention, appellee invokes article 1324 of the Civil Code which provides:
"ART. 1324. When the offerer has allowed the offeree a
certain period to accept, the offer may be withdrawn any
time before acceptance by communicating such
withdrawal, except when the option is founded upon
consideration as something paid or promised."
There is no question that under article 1479 of the new Civil Code "an
option to sell," or "a promise to buy or to sell," as used in said article, to be
valid must be "supported by a consideration distinct from the price." This is
clearly inferred from the context of said article that a unilateral promise to
buy or to sell, even if accepted, is only binding if supported by
consideration. In other words, "an accepted unilateral promise can only
have a binding effect if supported by a consideration which means that the
option can still be withdrawn, even if accepted, if the same is not supported
by any consideration. It is not disputed that the option is without
consideration. It can therefore be withdrawn notwithstanding the
acceptance of it by appellee.
It is true that under article 1324 of the new Civil Code, the general rule
regarding offer and acceptance is that, when the offerer gives to the offeree
a certain period to accept, "the offer may be withdrawn at any time before
acceptance" except when the option is founded upon consideration, but
 this general rule must be interpreted as modified by the provision of article
1479 above referred to, which applies to "a promise to buy and
sell" specifically. As already stated, this rule requires that a promise to sell
to be valid must be supported by a consideration distinct from the price.
We are not oblivious of the existence of American authorities which hold
that an offer, once accepted, cannot be withdrawn, regardless of whether
it is supported or not by a consideration (12 Am. Jur. 528). These
authorities, we note, uphold the general rule applicable to offer and
acceptance as contained in our new Civil Code. But we are prevented from
applying them in view of the specific provision embodied in article 1479.
While under the "offer of option" in question appellant has assumed a clear
obligation to sell its barge to appellee and the option has been exercised
in accordance with its terms, and there appears to be no valid or justifiable
reason for appellant to withdraw its offer, this Court cannot adopt a different
attitude because the law on the matter is clear. Our imperative duty is to
apply it unless modified by Congress.
However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian
Tek,8 decided later that Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific
Co.,9 saw no distinction between Articles 1324 and 1479 of the Civil Code and applied the
former where a unilateral promise to sell similar to the one sued upon here was involved,
treating such promise as an option which, although not binding as a contract in itself for
lack of a separate consideration, nevertheless generated a bilateral contract of purchase
and sale upon acceptance. Speaking through Associate Justice, later Chief Justice, Cesar
Bengzon, this Court said:
Furthermore, an option is unilateral: a promise to sell at the price fixed
whenever the offeree should decide to exercise his option within the
specified time. After accepting the promise and before he exercises his
option, the holder of the option is not bound to buy. He is free either to buy
or not to buy later. In this case, however, upon accepting herein petitioner's
offer a bilateral promise to sell and to buy ensued, and the respondent ipso
facto assumed the obligation of a purchaser. He did not just get the right
subsequently to buy or not to buy. It was not a mere option then; it was a
bilateral contract of sale.
Lastly, even supposing that Exh. A granted an option which is not binding
for lack of consideration, the authorities hold that:
"If the option is given without a consideration, it is a mere
offer of a contract of sale, which is not binding until
accepted. If, however, acceptance is made before a
withdrawal, it constitutes a binding contract of sale, even
though the option was not supported by a sufficient
consideration. ... . (77 Corpus Juris Secundum, p. 652. See
also 27 Ruling Case Law 339 and cases cited.)
"It can be taken for granted, as contended by the
defendant, that the option contract was not valid for lack of
consideration. But it was, at least, an offer to sell, which
was accepted by letter, and of the acceptance the offerer
had knowledge before said offer was withdrawn. The
concurrence of both acts — the offer and the acceptance
— could at all events have generated a contract, if none
there was before (arts. 1254 and 1262 of the Civil Code)."
(Zayco vs. Serra, 44 Phil. 331.)
In other words, since there may be no valid contract without a cause or consideration, the
promisor is not bound by his promise and may, accordingly, withdraw it. Pending notice of
its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell
which, if accepted, results in a perfected contract of sale.
This view has the advantage of avoiding a conflict between Articles 1324 — on the general
principles on contracts — and 1479 — on sales — of the Civil Code, in line with the cardinal
rule of statutory construction that, in construing different provisions of one and the same
law or code, such interpretation should be favored as will reconcile or harmonize said
provisions and avoid a conflict between the same. Indeed, the presumption is that, in the
process of drafting the Code, its author has maintained a consistent philosophy or position.
Moreover, the decision in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific
Co., 10 holding that Art. 1324 is modified by Art. 1479 of the Civil Code, in effect, considers
the latter as an exception to the former, and exceptions are not favored, unless the
intention to the contrary is clear, and it is not so, insofar as said two (2) articles are
concerned. What is more, the reference, in both the second paragraph of Art. 1479 and
Art. 1324, to an option or promise supported by or founded upon a consideration, strongly
suggests that the two (2) provisions intended to enforce or implement the same principle.

Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby
reiterates the doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar as
inconsistent therewith, the view adhered to in the Southwestern Sugar & Molasses
Co. case should be deemed abandoned or modified.

WHEREFORE, the decision appealed from is hereby affirmed, with costs against
defendant-appellant Severina Rigos. It is so ordered.
G.R. No. 147839 June 8, 2006
GAISANO CAGAYAN, INC. Petitioner,
vs.
INSURANCE COMPANY OF NORTH AMERICA, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari of the Decision1 dated October 11,
2000 of the Court of Appeals (CA) in CA-G.R. CV No. 61848 which set aside the Decision
dated August 31, 1998 of the Regional Trial Court, Branch 138, Makati (RTC) in Civil Case
No. 92-322 and upheld the causes of action for damages of Insurance Company of North
America (respondent) against Gaisano Cagayan, Inc. (petitioner); and the CA Resolution
dated April 11, 2001 which denied petitioner's motion for reconsideration.
The factual background of the case is as follows:
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi
Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned
by Levi Strauss & Co.. IMC and LSPI separately obtained from respondent fire insurance
policies with book debt endorsements. The insurance policies provide for coverage on
"book debts in connection with ready-made clothing materials which have been sold or
delivered to various customers and dealers of the Insured anywhere in the
Philippines."2 The policies defined book debts as the "unpaid account still appearing in the
Book of Account of the Insured 45 days after the time of the loss covered under this
Policy."3 The policies also provide for the following conditions:
1. Warranted that the Company shall not be liable for any unpaid account in respect
of the merchandise sold and delivered by the Insured which are outstanding at the
date of loss for a period in excess of six (6) months from the date of the covering
invoice or actual delivery of the merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within twelve (12) days
after the close of every calendar month all amount shown in their books of accounts
as unpaid and thus become receivable item from their customers and dealers. x x
x4
xxxx
Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25,
1991, the Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was
consumed by fire. Included in the items lost or destroyed in the fire were stocks of ready-
made clothing materials sold and delivered by IMC and LSPI.
On February 4, 1992, respondent filed a complaint for damages against petitioner. It
alleges that IMC and LSPI filed with respondent their claims under their respective fire
insurance policies with book debt endorsements; that as of February 25, 1991, the unpaid
accounts of petitioner on the sale and delivery of ready-made clothing materials with IMC
was P2,119,205.00 while with LSPI it was P535,613.00; that respondent paid the claims
of IMC and LSPI and, by virtue thereof, respondent was subrogated to their rights against
petitioner; that respondent made several demands for payment upon petitioner but these
went unheeded.5
In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not
be held liable because the property covered by the insurance policies were destroyed due
to fortuities event or force majeure; that respondent's right of subrogation has no basis
inasmuch as there was no breach of contract committed by it since the loss was due to fire
which it could not prevent or foresee; that IMC and LSPI never communicated to it that
they insured their properties; that it never consented to paying the claim of the insured. 6
At the pre-trial conference the parties failed to arrive at an amicable settlement. 7 Thus, trial
on the merits ensued.
On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint.8 It
held that the fire was purely accidental; that the cause of the fire was not attributable to the
negligence of the petitioner; that it has not been established that petitioner is the debtor of
IMC and LSPI; that since the sales invoices state that "it is further agreed that merely for
purpose of securing the payment of purchase price, the above-described merchandise
remains the property of the vendor until the purchase price is fully paid", IMC and LSPI
retained ownership of the delivered goods and must bear the loss.
Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the CA rendered its
decision setting aside the decision of the RTC. The dispositive portion of the decision
reads:
WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET
ASIDE and a new one is entered ordering defendant-appellee Gaisano Cagayan, Inc. to
pay:
1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-
appellant to the insured Inter Capitol Marketing Corporation, plus legal interest
from the time of demand until fully paid;
2. the amount of P535,613.00 representing the amount paid by the plaintiff-
appellant to the insured Levi Strauss Phil., Inc., plus legal interest from the time of
demand until fully paid.
With costs against the defendant-appellee.
SO ORDERED.10
The CA held that the sales invoices are proofs of sale, being detailed statements of the
nature, quantity and cost of the thing sold; that loss of the goods in the fire must be borne
by petitioner since the proviso contained in the sales invoices is an exception under Article
1504 (1) of the Civil Code, to the general rule that if the thing is lost by a fortuitous event,
the risk is borne by the owner of the thing at the time the loss under the principle of res
perit domino; that petitioner's obligation to IMC and LSPI is not the delivery of the lost
goods but the payment of its unpaid account and as such the obligation to pay is not
extinguished, even if the fire is considered a fortuitous event; that by subrogation, the
insurer has the right to go against petitioner; that, being a fire insurance with book debt
endorsements, what was insured was the vendor's interest as a creditor. 11
Petitioner filed a motion for reconsideration12 but it was denied by the CA in its Resolution
dated April 11, 2001.13
Hence, the present petition for review on certiorari anchored on the following Assignment
of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE
INSTANT CASE WAS ONE OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT
GOODS IN THE INSTANT CASE HAD TRANSFERRED TO PETITIONER UPON
DELIVERY THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC
SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF
RESPONDENT.14
Anent the first error, petitioner contends that the insurance in the present case cannot be
deemed to be over credit since an insurance "on credit" belies not only the nature of fire
insurance but the express terms of the policies; that it was not credit that was insured since
respondent paid on the occasion of the loss of the insured goods to fire and not because
of the non-payment by petitioner of any obligation; that, even if the insurance is deemed
as one over credit, there was no loss as the accounts were not yet due since no prior
demands were made by IMC and LSPI against petitioner for payment of the debt and such
demands came from respondent only after it had already paid IMC and LSPI under the fire
insurance policies.15
As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer
IMC and LSPI assumed the risk of loss when they secured fire insurance policies over the
goods.
Concerning the third ground, petitioner submits that there is no subrogation in favor of
respondent as no valid insurance could be maintained thereon by IMC and LSPI since all
risk had transferred to petitioner upon delivery of the goods; that petitioner was not privy
to the insurance contract or the payment between respondent and its insured nor was its
consent or approval ever secured; that this lack of privity forecloses any real interest on
the part of respondent in the obligation to pay, limiting its interest to keeping the insured
goods safe from fire.
For its part, respondent counters that while ownership over the ready- made clothing
materials was transferred upon delivery to petitioner, IMC and LSPI have insurable interest
over said goods as creditors who stand to suffer direct pecuniary loss from its destruction
by fire; that petitioner is liable for loss of the ready-made clothing materials since it failed
to overcome the presumption of liability under Article 126516 of the Civil Code; that the fire
was caused through petitioner's negligence in failing to provide stringent measures of
caution, care and maintenance on its property because electric wires do not usually short
circuit unless there are defects in their installation or when there is lack of proper
maintenance and supervision of the property; that petitioner is guilty of gross and evident
bad faith in refusing to pay respondent's valid claim and should be liable to respondent for
contracted lawyer's fees, litigation expenses and cost of suit.17
As a general rule, in petitions for review, the jurisdiction of this Court in cases brought
before it from the CA is limited to reviewing questions of law which involves no examination
of the probative value of the evidence presented by the litigants or any of them. 18 The
Supreme Court is not a trier of facts; it is not its function to analyze or weigh evidence all
over again.19 Accordingly, findings of fact of the appellate court are generally conclusive
on the Supreme Court.20
Nevertheless, jurisprudence has recognized several exceptions in which factual issues
may be resolved by this Court, such as: (1) when the findings are grounded entirely on
speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken,
absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment
is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6)
when in making its findings the CA went beyond the issues of the case, or its findings are
contrary to the admissions of both the appellant and the appellee; (7) when the findings
are contrary to the trial court; (8) when the findings are conclusions without citation of
specific evidence on which they are based; (9) when the facts set forth in the petition as
well as in the petitioner's main and reply briefs are not disputed by the respondent; (10)
when the findings of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record; and (11) when the CA manifestly overlooked
certain relevant facts not disputed by the parties, which, if properly considered, would
justify a different conclusion.21 Exceptions (4), (5), (7), and (11) apply to the present
petition.
At issue is the proper interpretation of the questioned insurance policy. Petitioner claims
that the CA erred in construing a fire insurance policy on book debts as one covering the
unpaid accounts of IMC and LSPI since such insurance applies to loss of the ready-made
clothing materials sold and delivered to petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are plain and readily understood, there
is no room for construction.22 In this case, the questioned insurance policies provide
coverage for "book debts in connection with ready-made clothing materials which have
been sold or delivered to various customers and dealers of the Insured anywhere in the
Philippines."23 ; and defined book debts as the "unpaid account still appearing in the Book
of Account of the Insured 45 days after the time of the loss covered under this
Policy."24 Nowhere is it provided in the questioned insurance policies that the subject of
the insurance is the goods sold and delivered to the customers and dealers of the insured.
Indeed, when the terms of the agreement are clear and explicit that they do not justify an
attempt to read into it any alleged intention of the parties, the terms are to be understood
literally just as they appear on the face of the contract. 25 Thus, what were insured against
were the accounts of IMC and LSPI with petitioner which remained unpaid 45 days after
the loss through fire, and not the loss or destruction of the goods delivered.
Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership
of the goods by stipulating in the sales invoices that "[i]t is further agreed that merely for
purpose of securing the payment of the purchase price the above described merchandise
remains the property of the vendor until the purchase price thereof is fully paid." 26
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the
ownership therein is transferred to the buyer, but when the ownership therein is transferred
to the buyer the goods are at the buyer's risk whether actual delivery has been made or
not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer,
in pursuance of the contract and the ownership in the goods has been retained by the
seller merely to secure performance by the buyer of his obligations under the contract, the
goods are at the buyer's risk from the time of such delivery; (Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the
risk of loss is borne by the buyer.27 Accordingly, petitioner bears the risk of loss of the
goods delivered.
IMC and LSPI did not lose complete interest over the goods. They have an insurable
interest until full payment of the value of the delivered goods. Unlike the civil law concept
of res perit domino, where ownership is the basis for consideration of who bears the risk
of loss, in property insurance, one's interest is not determined by concept of title, but
whether insured has substantial economic interest in the property. 28
Section 13 of our Insurance Code defines insurable interest as "every interest in property,
whether real or personal, or any relation thereto, or liability in respect thereof, of such
nature that a contemplated peril might directly damnify the insured." Parenthetically, under
Section 14 of the same Code, an insurable interest in property may consist in: (a) an
existing interest; (b) an inchoate interest founded on existing interest; or (c) an expectancy,
coupled with an existing interest in that out of which the expectancy arises.
Therefore, an insurable interest in property does not necessarily imply a property interest
in, or a lien upon, or possession of, the subject matter of the insurance, and neither the
title nor a beneficial interest is requisite to the existence of such an interest, it is sufficient
that the insured is so situated with reference to the property that he would be liable to loss
should it be injured or destroyed by the peril against which it is insured. 29 Anyone has an
insurable interest in property who derives a benefit from its existence or would suffer loss
from its destruction.30 Indeed, a vendor or seller retains an insurable interest in the property
sold so long as he has any interest therein, in other words, so long as he would suffer by
its destruction, as where he has a vendor's lien.31 In this case, the insurable interest of IMC
and LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days after
the time of the loss covered by the policies.
The next question is: Is petitioner liable for the unpaid accounts?
Petitioner's argument that it is not liable because the fire is a fortuitous event under Article
117432 of the Civil Code is misplaced. As held earlier, petitioner bears the loss under Article
1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire
but for petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire.
Accordingly, petitioner's obligation is for the payment of money. As correctly stated by the
CA, where the obligation consists in the payment of money, the failure of the debtor to
make the payment even by reason of a fortuitous event shall not relieve him of his
liability.33 The rationale for this is that the rule that an obligor should be held exempt from
liability when the loss occurs thru a fortuitous event only holds true when the obligation
consists in the delivery of a determinate thing and there is no stipulation holding him liable
even in case of fortuitous event. It does not apply when the obligation is pecuniary in
nature.34
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss
or destruction of anything of the same kind does not extinguish the obligation." If the
obligation is generic in the sense that the object thereof is designated merely by its class
or genus without any particular designation or physical segregation from all others of the
same class, the loss or destruction of anything of the same kind even without the debtor's
fault and before he has incurred in delay will not have the effect of extinguishing the
obligation.35 This rule is based on the principle that the genus of a thing can never perish.
Genus nunquan perit.36 An obligation to pay money is generic; therefore, it is not excused
by fortuitous loss of any specific property of the debtor. 37
Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial
to this case. What is relevant here is whether it has been established that petitioner has
outstanding accounts with IMC and LSPI.
With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to
"C-22"38 show that petitioner has an outstanding account with IMC in the amount
of P2,119,205.00. Exhibit "E"39 is the check voucher evidencing payment to IMC. Exhibit
"F"40 is the subrogation receipt executed by IMC in favor of respondent upon receipt of the
insurance proceeds. All these documents have been properly identified, presented and
marked as exhibits in court. The subrogation receipt, by itself, is sufficient to establish not
only the relationship of respondent as insurer and IMC as the insured, but also the amount
paid to settle the insurance claim. The right of subrogation accrues simply upon payment
by the insurance company of the insurance claim. 41 Respondent's action against petitioner
is squarely sanctioned by Article 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from
the insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. x x x
Petitioner failed to refute respondent's evidence.

As to LSPI, respondent failed to present sufficient evidence to prove its cause of action.
No evidentiary weight can be given to Exhibit "F Levi Strauss", 42 a letter dated April 23,
1991 from petitioner's General Manager, Stephen S. Gaisano, Jr., since it is not an
admission of petitioner's unpaid account with LSPI. It only confirms the loss of Levi's
products in the amount of P535,613.00 in the fire that razed petitioner's building on
February 25, 1991.

Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation
receipt was offered in evidence. Thus, there is no evidence that respondent has been
subrogated to any right which LSPI may have against petitioner. Failure to substantiate
the claim of subrogation is fatal to petitioner's case for recovery of the amount
of P535,613.00.

WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11,
2000 and Resolution dated April 11, 2001 of the Court of Appeals in CA-G.R. CV No.
61848 are AFFIRMED with the MODIFICATION that the order to pay the amount
of P535,613.00 to respondent is DELETED for lack of factual basis.

No pronouncement as to costs.

SO ORDERED.
G.R. No. L-15645 January 31, 1964
PAZ P. ARRIETA and VITALIADO ARRIETA, plaintiffs-appellees,
vs.
NATIONAL RICE AND CORN CORPORATION, defendant-appellant,
MANILA UNDERWRITERS INSURANCE CO., INC., defendant-appellee.
Teehankee and Carreon for plaintiffs-appellees.
The Government Corporate Counsel for defendant-appellant.
Isidro A. Vera for defendant-appellee.
REGALA, J.:
This is an appeal of the defendant-appellant NARIC from the decision of the trial court
dated February 20, 1958, awarding to the plaintiffs-appellees the amount of $286,000.00
as damages for breach of contract and dismissing the counterclaim and third party
complaint of the defendant-appellant NARIC.
In accordance with Section 13 of Republic Act No. 3452, "the National Rice and Corn
Administration (NARIC) is hereby abolished and all its assets, liabilities, functions, powers
which are not inconsistent with the provisions of this Act, and all personnel are transferred
"to the Rice and Corn Administration (RCA).
All references, therefore, to the NARIC in this decision must accordingly be adjusted and
read as RCA pursuant to the aforementioned law.
On May 19, 1952, plaintiff-appellee participated in the public bidding called by the NARIC
for the supply of 20,000 metric tons of Burmese rice. As her bid of $203.00 per metric ton
was the lowest, she was awarded the contract for the same. Accordingly, on July 1, 1952,
plaintiff-appellee Paz P. Arrieta and the appellant corporation entered into a Contract of
Sale of Rice, under the terms of which the former obligated herself to deliver to the latter
20,000 metric tons of Burmess Rice at $203.00 per metric ton, CIF Manila. In turn, the
defendant corporation committed itself to pay for the imported rice "by means of an
irrevocable, confirmed and assignable letter of credit in U.S. currency in favor of the
plaintiff-appellee and/or supplier in Burma, immediately." Despite the commitment to pay
immediately "by means of an irrevocable, confirmed and assignable Letter of Credit,"
however, it was only on July 30, 1952, or a full month from the execution of the contract,
that the defendant corporation, thru its general manager, took the first to open a letter of
credit by forwarding to the Philippine National Bank its Application for Commercial Letter
Credit. The application was accompanied by a transmittal letter, the relevant paragraphs
of which read:
In view of the fact that we do not have sufficient deposit with your institution with
which to cover the amount required to be deposited as a condition for the opening
of letters of credit, we will appreciate it if this application could be considered
special case.
We understand that our supplier, Mrs. Paz P. Arrieta, has a deadline to meet which
is August 4, 1952, and in order to comply therewith, it is imperative that the L/C be
opened prior to that date. We would therefore request your full cooperation on this
matter.
On the same day, July 30, 1952, Mrs. Paz P. Arrieta thru counsel, advised the appellant
corporation of the extreme necessity for the immediate opening of the letter credit since
she had by then made a tender to her supplier in Rangoon, Burma, "equivalent to 5% of
the F.O.B. price of 20,000 tons at $180.70 and in compliance with the regulations in
Rangoon this 5% will be confiscated if the required letter of credit is not received by them
before August 4, 1952."
On August 4, 1952, the Philippine National Bank informed the appellant corporation that
its application, "for a letter of credit for $3,614,000.00 in favor of Thiri Setkya has been
approved by the Board of Directors with the condition that marginal cash deposit be paid
and that drafts are to be paid upon presentment." (Exh. J-pl.; Exh. 10-def., p. 19, Folder of
Exhibits). Furthermore, the Bank represented that it "will hold your application in abeyance
pending compliance with the above stated requirement."
As it turned out, however, the appellant corporation not in any financial position to meet
the condition. As matter of fact, in a letter dated August 2, 1952, the NARIC bluntly
confessed to the appellee its dilemma: "In this connection, please be advised that our
application for opening of the letter of credit has been presented to the bank since July
30th but the latter requires that we first deposit 50% of the value of the letter amounting to
aproximately $3,614,000.00 which we are not in a position to meet." (Emphasis supplied.
Exh. 9-Def.; Exh. 1-Pe., p. 18, Folder of Exhibits)
Consequently, the credit instrument applied for was opened only on September 8, 1952
"in favor of Thiri Setkya, Rangoon, Burma, and/or assignee for $3,614,000.00," (which is
more than two months from the execution of the contract) the party named by the appellee
as beneficiary of the letter of credit.
1äwphï1.ñët
As a result of the delay, the allocation of appellee's supplier in Rangoon was cancelled
and the 5% deposit, amounting to 524,000 kyats or approximately P200,000.00 was
forfeited. In this connection, it must be made of record that although the Burmese
authorities had set August 4, 1952, as the deadline for the remittance of the required letter
of credit, the cancellation of the allocation and the confiscation of the 5% deposit were not
effected until August 20, 1952, or, a full half month after the expiration of the deadline. And
yet, even with the 15-day grace, appellant corporation was unable to make good its
commitment to open the disputed letter of credit.
The appellee endeavored, but failed, to restore the cancelled Burmese rice allocation.
When the futility of reinstating the same became apparent, she offered to substitute
Thailand rice instead to the defendant NARIC, communicating at the same time that the
offer was "a solution which should be beneficial to the NARIC and to us at the same time."
(Exh. X-Pe., Exh. 25—Def., p. 38, Folder of Exhibits). This offer for substitution, however,
was rejected by the appellant in a resolution dated November 15, 1952.
On the foregoing, the appellee sent a letter to the appellant, demanding compensation for
the damages caused her in the sum of $286,000.00, U.S. currency, representing
unrealized profit. The demand having been rejected she instituted this case now on appeal.
At the instance of the NARIC, a counterclaim was filed and the Manila Underwriters
Insurance Company was brought to the suit as a third party defendant to hold it liable on
the performance bond it executed in favor of the plaintiff-appellee.
We find for the appellee.
It is clear upon the records that the sole and principal reason for the cancellation of the
allocation contracted by the appellee herein in Rangoon, Burma, was the failure of the
letter of credit to be opened with the contemplated period. This failure must, therefore, be
taken as the immediate cause for the consequent damage which resulted. As it is then,
the disposition of this case depends on a determination of who was responsible for such
failure. Stated differently, the issue is whether appellant's failure to open immediately the
letter of credit in dispute amounted to a breach of the contract of July 1, 1952 for which it
may be held liable in damages.
Appellant corporation disclaims responsibility for the delay in the opening of the letter of
credit. On the contrary, it insists that the fault lies with the appellee. Appellant contends
that the disputed negotiable instrument was not promptly secured because the appellee ,
failed to seasonably furnish data necessary and required for opening the same, namely,
"(1) the amount of the letter of credit, (2) the person, company or corporation in whose
favor it is to be opened, and (3) the place and bank where it may be negotiated." Appellant
would have this Court believe, therefore, that had these informations been forthwith
furnished it, there would have been no delay in securing the instrument.
Appellant's explanation has neither force nor merit. In the first place, the explanation
reaches into an area of the proceedings into which We are not at liberty to encroach. The
explanation refers to a question of fact. Nothing in the record suggests any arbitrary or
abusive conduct on the part of the trial judge in the formulation of the ruling. His conclusion
on the matter is sufficiently borne out by the evidence presented. We are denied, therefore,
the prerogative to disturb that finding, consonant to the time-honored tradition of this
Tribunal to hold trial judges better situated to make conclusions on questions of fact. For
the record, We quote hereunder the lower court's ruling on the point:
The defense that the delay, if any in opening the letter of credit was due to the
failure of plaintiff to name the supplier, the amount and the bank is not tenable.
Plaintiff stated in Court that these facts were known to defendant even before the
contract was executed because these facts were necessarily revealed to the
defendant before she could qualify as a bidder. She stated too that she had given
the necessary data immediately after the execution of Exh. "A" (the contract of July
1, 1952) to Mr. GABRIEL BELMONTE, General Manager of the NARIC, both orally
and in writing and that she also pressed for the opening of the letter of credit on
these occasions. These statements have not been controverted and defendant
NARIC, notwithstanding its previous intention to do so, failed to present Mr.
Belmonte to testify or refute this. ...
Secondly, from the correspondence and communications which form part of the record of
this case, it is clear that what singularly delayed the opening of the stipulated letter of credit
and which, in turn, caused the cancellation of the allocation in Burma, was the inability of
the appellant corporation to meet the condition importation by the Bank for granting the
same. We do not think the appellant corporation can refute the fact that had it been able
to put up the 50% marginal cash deposit demanded by the bank, then the letter of credit
would have been approved, opened and released as early as August 4, 1952. The letter
of the Philippine National Bank to the NARIC was plain and explicit that as of the said date,
appellant's "application for a letter of credit ... has been approved by the Board of Directors
with the condition that 50% marginal cash deposit be paid and that drafts are to be paid
upon presentment." (Emphasis supplied)
The liability of the appellant, however, stems not alone from this failure or inability to satisfy
the requirements of the bank. Its culpability arises from its willful and deliberate assumption
of contractual obligations even as it was well aware of its financial incapacity to undertake
the prestation. We base this judgment upon the letter which accompanied the application
filed by the appellant with the bank, a part of which letter was quoted earlier in this decision.
In the said accompanying correspondence, appellant admitted and owned that it did "not
have sufficient deposit with your institution (the PNB) with which to cover the amount
required to be deposited as a condition for the opening of letters of credit. ... .
A number of logical inferences may be drawn from the aforementioned admission. First,
that the appellant knew the bank requirements for opening letters of credit; second, that
appellant also knew it could not meet those requirement. When, therefore, despite this
awareness that was financially incompetent to open a letter of credit immediately, appellant
agreed in paragraph 8 of the contract to pay immediately "by means of an irrevocable,
confirm and assignable letter of credit," it must be similarly held to have bound itself to
answer for all and every consequences that would result from the representation. aptly
observed by the trial court:
... Having called for bids for the importation of rice involving millions, $4,260,000.00
to be exact, it should have a certained its ability and capacity to comply with the
inevitably requirements in cash to pay for such importation. Having announced the
bid, it must be deemed to have impliedly assured suppliers of its capacity and
facility to finance the importation within the required period, especially since it had
imposed the supplier the 90-day period within which the shipment of the rice must
be brought into the Philippines. Having entered in the contract, it should have taken
steps immediately to arrange for the letter of credit for the large amount involved
and inquired into the possibility of its issuance.
In relation to the aforequoted observation of the trial court, We would like to make reference
also to Article 11 of the Civil Code which provides:
Those who in the performance of their obligation are guilty of fraud, negligence, or
delay, and those who in any manner contravene the tenor thereof, are liable in
damages.
Under this provision, not only debtors guilty of fraud, negligence or default in the
performance of obligations a decreed liable; in general, every debtor who fails in
performance of his obligations is bound to indemnify for the losses and damages caused
thereby (De la Cruz Seminary of Manila, 18 Phil. 330; Municipality of Moncada v. Cajuigan,
21 Phil. 184; De la Cavada v. Diaz, 37 Phil. 982; Maluenda & Co. v. Enriquez, 46 Phil. 916;
Pasumil v. Chong, 49 Phil. 1003; Pando v. Gimenez, 54 Phil. 459; Acme Films v. Theaters
Supply, 63 Phil. 657). The phrase "any manner contravene the tenor" of the obligation
includes any illicit act which impairs the strict and faithful fulfillment of the obligation or
every kind or defective performance. (IV Tolentino, Civil Code of the Philippines, citing
authorities, p. 103.)
The NARIC would also have this Court hold that the subsequent offer to substitute Thailand
rice for the originally contracted Burmese rice amounted to a waiver by the appellee of
whatever rights she might have derived from the breach of the contract. We disagree.
Waivers are not presumed, but must be clearly and convincingly shown, either by express
stipulation or acts admitting no other reasonable explanation. (Ramirez v. Court of
Appeals, 52 O.G. 779.) In the case at bar, no such intent to waive has been established.
We have carefully examined and studied the oral and documentary evidence presented in
this case and upon which the lower court based its award. Under the contract, the NARIC
bound itself to buy 20,000 metric tons of Burmese rice at "$203.00 U.S. Dollars per metric
ton, all net shipped weight, and all in U.S. currency, C.I.F. Manila ..." On the other hand,
documentary and other evidence establish with equal certainty that the plaintiff-appellee
was able to secure the contracted commodity at the cost price of $180.70 per metric ton
from her supplier in Burma. Considering freights, insurance and charges incident to its
shipment here and the forfeiture of the 5% deposit, the award granted by the lower court
is fair and equitable. For a clearer view of the equity of the damages awarded, We
reproduce below the testimony of the appellee, adequately supported by the evidence and
record:
Q. Will you please tell the court, how much is the damage you suffered?
 A. Because the selling price of my rice is $203.00 per metric ton, and the cost price
of my rice is $180.00 We had to pay also $6.25 for shipping and about $164 for
insurance. So adding the cost of the rice, the freight, the insurance, the total would
be about $187.99 that would be $15.01 gross profit per metric ton, multiply by
20,000 equals $300,200, that is my supposed profit if I went through the contract.
The above testimony of the plaintiff was a general approximation of the actual figures
involved in the transaction. A precise and more exact demonstration of the equity of the
award herein is provided by Exhibit HH of the plaintiff and Exhibit 34 of the defendant,
hereunder quoted so far as germane.
It is equally of record now that as shown in her request dated July 29, 1959, and
other communications subsequent thereto for the opening by your corporation of
the required letter of credit, Mrs. Arrieta was supposed to pay her supplier in Burma
at the rate of One Hundred Eighty Dollars and Seventy Cents ($180.70) in U.S.
Currency, per ton plus Eight Dollars ($8.00) in the same currency per ton for
shipping and other handling expenses, so that she is already assured of a net profit
of Fourteen Dollars and Thirty Cents ($14.30), U.S., Currency, per ton or a total of
Two Hundred and Eighty Six Thousand Dollars ($286,000.00), U.S. Currency, in
the aforesaid transaction. ...
Lastly, herein appellant filed a counterclaim asserting that it has suffered, likewise by way
of unrealized profit damages in the total sum of $406,000.00 from the failure of the
projected contract to materialize. This counterclaim was supported by a cost study made
and submitted by the appellant itself and wherein it was illustrated how indeed had the
importation pushed thru, NARIC would have realized in profit the amount asserted in the
counterclaim. And yet, the said amount of P406,000.00 was realizable by appellant despite
a number of expenses which the appellee under the contract, did not have to incur. Thus,
under the cost study submitted by the appellant, banking and unloading charges were to
be shouldered by it, including an Import License Fee of 2% and superintendence fee of
$0.25 per metric ton. If the NARIC stood to profit over P400 000.00 from the disputed
transaction inspite of the extra expenditures from which the herein appellee was exempt,
we are convicted of the fairness of the judgment presently under appeal.
In the premises, however, a minor modification must be effected in the dispositive portion
of the decision appeal from insofar as it expresses the amount of damages in U.S. currency
and not in Philippine Peso. Republic Act 529 specifically requires the discharge of
obligations only "in any coin or currency which at the time of payment is legal tender for
public and private debts." In view of that law, therefore, the award should be converted into
and expressed in Philippine Peso.
This brings us to a consideration of what rate of exchange should apply in the conversion
here decreed. Should it be at the time of the breach, at the time the obligation was incurred
or at the rate of exchange prevailing on the promulgation of this decision.
In the case of Engel v. Velasco & Co., 47 Phil. 115, We ruled that in an action for recovery
of damages for breach of contract, even if the obligation assumed by the defendant was
to pay the plaintiff a sum of money expressed in American currency, the indemnity to be
allowed should be expressed in Philippine currency at the rate of exchange at the time of
the judgment rather than at the rate of exchange prevailing on the date of defendant's
breach. This ruling, however, can neither be applied nor extended to the case at bar for
the same was laid down when there was no law against stipulating foreign currencies in
Philippine contracts. But now we have Republic Act No. 529 which expressly declares
such stipulations as contrary to public policy, void and of no effect. And, as We already
pronounced in the case of Eastboard Navigation, Ltd. v. Juan Ysmael & Co., Inc., G.R. No.
L-9090, September 10, 1957, if there is any agreement to pay an obligation in a currency
other than Philippine legal tender, the same is null and void as contrary to public policy
(Republic Act 529), and the most that could be demanded is to pay said obligation in
Philippine currency "to be measured in the prevailing rate of exchange at the time the
obligation was incurred (Sec. 1, idem)."
UPON ALL THE FOREGOING, the decision appealed from is hereby affirmed, with the
sole modification that the award should be converted into the Philippine peso at the rate
of exchange prevailing at the time the obligation was incurred or on July 1, 1952 when the
contract was executed. The appellee insurance company, in the light of this judgment, is
relieved of any liability under this suit. No pronouncement as to costs.