Digets First Part Obligations and Contracts

Villaroel v. Estrada, G.R. No. L-47262, 19 December 1940.
19
MAR
[AVANCEÑA, Pres.]
Almost 18 years had passed whether or
What is the effect of voluntary acknowledgment of the loan after
prescription.
FACTS: On May 9, 1912, Alejandro F. Callao, the mother of the
defendant Juan F. Villarroel, obtained from the spouses Mariano
Estrada and Severina a loan of P1,000 payable after seven years.
Alejandra died, leaving as sole heir to the defendant. The spouses
Mariano Estrada and Severina also died, leaving as sole heir the plaintiff
Bernardino Estrada. On August 9, 1930, the defendant signed a
document (Exhibit B) by which it declares the applicant to owe the
amount of P1,000, with an interest of 12 percent per year. This action
deals with the collection of this amount.
ISSUE: Is the defendant Juan under obligation to pay the loan that
already prescribed if he subsequently declared that he owed it to
plaintiff Bernardino?
HELD: YES.
Although the action to recover the original debt has already been
prescribed when the claim was filed in this case, the question that
arises in this appeal is mainly whether, notwithstanding such a
prescription, the action (may be) brought. However, the present action
is not based on the original obligation contracted by the defendant’s
mother, who has already been prescribed, but in which the defendant
contracted on August 9, 1930 upon assuming the fulfillment of that
obligation, Already prescribed. Since the defendant is the sole inheritor
of the primitive debtor, with the right to succeed in his inheritance, that
debt, brought by his mother legally, although it has lost its effectiveness
by prescription, is now, however, for a moral obligation, which is
consideration Sufficient to create and render effective and enforceable
its obligation voluntarily contracted on August 9, 1930 in Exhibit B.
The rule that a new promise to pay a pre-paid debt must be made by
the same obligated person or by another legally authorized by it, is not
applicable to the present case in which it is not required to fulfill the
obligation of the obligee originally, but of which he voluntarily wanted
to assume this obligation.
--
A person who voluntarily assumed the obligation.
New consideration which is the moral obligation.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXX
DBP VS CONFESOR G.R. No. 48889 May 11, 1988

FACTS:
1940
plus
1950
in 1961
not only acknowledged but promising to pay the same on or before
June 15 1961
promising to pay within a period of 2 monthss.
But they still failed to pay.
On February 10, 1940, spouses Patricio Confesor and Jovita Villafuerte

obtained an agricultural loan from Agricultural and Industrial Bank, now
Development Bank of the Philippines, in the sum of P2,000, as
evidenced by a promissory note of said date whereby they bound
themselves jointly and severally to pay the amount in ten equal yearly
amortizations.
As the obligation remained unpaid even after the lapse if the ten-year
period, Confesor, who was then a member of the Congress of the
Philippines, executed a second promissory note on April 11, 1961,
expressly acknowledging the said loan and promising to pay the same
on or before June 15, 1961. The spouses still failed to pay the obligation
on the specified date. As a result, the DBP filed a complaint on
September 11, 1970 in the City Court of Iloilo City. The city court
ordered payment from spouses. The CFI of Iloilo reversed the decision.
Hence, this petition.
ISSUE: Whether or not a promissory which was executed in
consideration of a previous promissory note which has already been
barred by prescription is valid.
HELD: Yes, the second promissory note is valid because the said
promissory note is not a mere acknowledgement of the debt that has
prescribed already. Rather, it is a new promise to pay the debt. A new
promise is a new cause of action. Although a debt barred by
prescription is enforceable, a new contract recognizing and assuming
the prescribed debt would be valid and enforceable.
Cruz vs. J. M. Tuason & Co., Inc., 76 SCRA 543, G.R.

No. L-23749, April 29, 1977
Cruz v. Tuazon & Co., 76 SCRA 543
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.
Fernando (Chairman), Antonio, Aquino and Martin, .JJ., concur.
Concepcion, Jr., JJ., took no part.
Martin, J., was designated to sit in the Second Division.

XXXXXXXXXXXXXXXXXXXXX
Andres vs. Manufacturers Hanover & Trust
Corporation, 177 SCRA 618, G.R. No. 82670
September 15, 1989
Andres v. Mantrust, 177 SCRA 618, 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.
Fernan, C.J., Gutierrez, Jr. and Bidin, JJ., concur.
Feliciano, J., is on leave.

GONZALO PUYAT & SONS, INC., plaintiff-appelle,
vs.
CITY OF MANILA AND MARCELO SARMIENTO, as City Treasurer of
Manila, defendants-appellants
Feria, Manglapus & Associates for plainttiff-appelle.Asst. City Fiscal

Manuel T. Reyes for defendants-appellants.
PAREDES, J.:
This is an appeal from the judgment of the CFI of Manila, the dispostive
portion of which reads:
"xxx Of the payments made by the plaintiff, only that made on October
25, 1950 in the amount of P1,250.00 has prescribed Payments made in
1951 and thereafter are still recoverable since the extra-judicial
demand made on October 30, 1956 was well within the six-year
prescriptive period of the New CivilCode.
In view of the foregoing considerations, judgment is hereby rendered in

favor of the plaintiff, ordering the defendants to refund the amount of
P29,824.00, without interest. No costs.
Wherefore, the parties respectfully pray that the foregoing stipulation

of facts be admitted and approved by this Honorable Court, without
prejudice to the parties adducing other evidence to prove their case not
covered by this stipulation of facts. 1äwphï1.ñët
Defendants' counterclaim is hereby dismissed for not having been

substantiated."
On August 11, 1958, the plaintiff Gonzalo Puyat & Sons, Inc., filed an
action for refund of Retail DealerlsTaxes paid by it, corresponding to
the first Quarter of 1950 up to the third Quarter of 1956, amounting to
P33,785.00, against the City of Manila and its City Treasurer.The case
was submitted on the following stipulation of facts, to wit--
"1. That the plaintiff is a corporation duly organized and existing

according to the laws of the Philippines, with offices at Manila; while
defendant City Manila is a Municipal Corporation duly organized in
accordance with the laws of the Philippines, and defendant Marcelino
Sarmiento is the dulyqualified incumbent City Treasurer of Manila;
"2. That plaintiff is engaged in the business of manufacturing and selling

all kinds of furniture at its factory at 190 Rodriguez-Arias, San Miguel,
Manila, and has a display room located at 604-606 Rizal Avenue,
Manila, wherein it displays the various kind of furniture manufactured
by it and sells some goods imported by it, such as billiard balls, bowling
balls and other accessories;
"3. That acting pursuant to the provisions of Sec. 1. group II, of

Ordinance No. 3364, defendant City Treasurer of Manilaassessed from
plaintiff retail dealer's tax corresponding to the quarters hereunder
stated on the sales of furniture manufactured and sold by it at its
factory site, all of which assessments plaintiff paid without protest in
the erroneous belief that it was liable therefor, on the dates and in the
amount enumerated herein below:
Period Date Paid O.R. No. Amount

Assessed
and Paid.
First Quarter 1950 Jan. 25, 1950 436271X P1,255.00
Second Quarter 1950 Apr. 25, 1950 215895X 1,250.00
Third Quarter 1950 Jul. 25, 1950 243321X 1,250.00
Fourth Quarter 1950 Oct. 25, 1950 271165X 1,250.00
(Follows the assessment for different quarters in 1951, 1952,
1953, 1954 and 1955, fixing the same amount quarterly.) x x x..
First Quarter 1956 Jan. 25, 1956 823047X 1,250.00

Second Quarter 1956 Apr. 25, 1956 855949X 1,250.00
Third Quarter 1956 Jul. 25, 1956 880789X 1,250.00
T O T A L . . . . . . . . . . . . .
--------------------------------------------------------------------------------
P33,785.00
===========
"4. That plaintiff, being a manufacturer of various kinds of furniture, is

exempt from the payment of taxes imposed under the provisions of
Sec. 1, Group II, of Ordinance No. 3364,which took effect on September
24, 1956, on the sale of the various kinds of furniture manufactured by
it pursuant to the provisions of Sec. 18(n) of Republic Act No. 409
(Revised Charter of Manila), as restated in Section 1 of Ordinance
No.3816.
"5. That, however, plaintiff, is liable for the payment of taxes prescribed
in Section 1, Group II or Ordinance No. 3364mas amended by Sec. 1,
Group II of Ordinance No. 3816, which took effect on September 24,
1956, on the sales of imported billiard balls, bowling balls and other
accessories at its displayroom. The taxes paid by the plaintiff on the
sales of said article are as follows:
x x x x x x x x x
"6. That on October 30, 1956, the plaintiff filed with defendant City
Treasurer of Manila, a formal request for refund of the retail dealer's
taxes unduly paid by it as aforestated in paragraph 3, hereof.
"7. That on July 24, 1958, the defendant City Treasurer of

Maniladefinitely denied said request for refund.
"8. Hence on August 21, 1958, plaintiff filed the present complaint.
"9. Based on the above stipulation of facts, the legal issues to be

resolved by this Honorable Court are: (1) the period of prescription
applicable in matters of refund of municipal taxes errenously paid by a
taxpayer and (2) refund of taxes not paid under protest. x x x."
Said judgment was directly appealed to this Court on two dominant

issues to wit: (1) Whether or not the amounts paid by plaintiff-appelle,
as retail dealer's taxes under Ordinance 1925, as amended by
Ordinance No. 3364of the City of Manila, without protest, are
refundable;(2) Assuming arguendo, that plaintiff-appellee is entitled to
the refund of the retail taxes in question, whether or not the claim for
refund filed in October 1956, in so far as said claim refers to taxes paid
from 1950 to 1952 has already prescribed. .
Under the first issue, defendants-appellants contend tht the taxes in

question were voluntarily paid by appellee company and since, in this
jurisdiction, in order that a legal basis arise for claim of refund of taxes
erroneously assessed, payment thereof must be made under protest,
and this being a condition sine qua non, and no protest having been
made, -- verbally or in writing, therebyindicating that the payment was
voluntary, the action must fail. Cited in support of the above
contention, are the cases of Zaragoza vs. Alfonso, 46 Phil. 160-161, and
Gavino v. Municipality of Calapan, 71 Phil. 438..
In refutation of the above stand of appellants, appellee avers tht the

payments could not have been voluntary.At most, they were paid
"mistakenly and in good faith"and "without protest in the erroneous
belief that it was liable thereof." Voluntariness is incompatible with
protest and mistake. It submits that this is a simple case of "solutio
indebiti"..
Appellants do not dispute the fact that appellee-companyis exempted
from the payment of the tax in question.This is manifest from the reply
of appellant City Treasurer stating that sales of manufactured products
at the factory site are not taxable either under the Wholesalers
Ordinance or under the Retailers' Ordinance. With this admission, it
would seem clear that the taxes collected from appellee were paid,
thru an error or mistake, which places said act of payment within the
pale of the new Civil Code provision on solutio indebiti. The appellant
City of Manila, at the very start, notwithstanding the Ordinance
imposing the Retailer's Tax, had no right to demand payment thereof..
"If something is received when there is no right to demand it, and it

was unduly delivered through mistake, the obligationto retun it arises"
(Art. 2154, NCC)..
Appelle categorically stated that the payment was not voluntarily

made, (a fact found also by the lower court),but on the erronoues
belief, that they were due. Under this circumstance, the amount paid,
even without protest is recoverable. "If the payer was in doubt whether
the debt was due, he may recover if he proves that it was not due" (Art.
2156, NCC). Appellee had duly proved that taxes were not lawfully due.
There is, therefore, no doubt that the provisions of solutio indebtiti, the
new Civil Code, apply to the admitted facts of the case..
With all, appellant quoted Manresa as saying: "x x x De la misma

opinion son el Sr. Sanchez Roman y el Sr. Galcon, et cual afirma que si la
paga se hizo por error de derecho, ni existe el cuasi-contrato ni esta
obligado a la restitucion el que cobro, aunque no se debiera lo que se
pago" (Manresa, Tomo 12, paginas 611-612). This opinion, however,
has already lost its persuasiveness, in view of the provisions of the Civil
Code, recognizing "error de derecho" as a basis for the quasi-contract,
of solutio indebiti. .
"Payment by reason of a mistake in the contruction or application of a
doubtful or difficult question of law may come within the scope of the
preceding article" (Art. 21555)..
There is no gainsaying the fact that the payments made by appellee

was due to a mistake in the construction of a doubtful question of law.
The reason underlying similar provisions, as applied to illegal taxation,
in the United States, is expressed in the case of Newport v. Ringo, 37
Ky. 635, 636; 10 S.W. 2, in the following manner:.
"It is too well settled in this state to need the citation of authority that
if money be paid through a clear mistake of law or fact, essentially
affecting the rights of the parties, and which in law or conscience was
not payable, and should not be retained by the party receiving it, it may
be recovered. Both law and sound morality so dictate. Especially should
this be the rule as to illegal taxation. The taxpayer has no voice in the
impositionof the burden. He has the right to presume that the taxing
power has been lawfully exercised. He should not be required to know
more than those in authority over him, nor should he suffer loss by
complying with what he bona fide believe to be his duty as a good
citizen. Upon the contrary, he should be promoted to its ready
performance by refunding to him any legal exaction paid by him in
ignorance of its illegality; and, certainly, in such a case, if be subject to a
penalty for nonpayment, his compliance under belief of its legality, and
without awaitinga resort to judicial proceedings should not be regrded
in law as so far voluntary as to affect his right of recovery.".
"Every person who through an act or performance by another, or any

other means, acquires or comes into possession of something at the
expense of the latter without just or legal grounds, shall return the
same to him"(Art. 22, Civil Code). It would seems unedifying for the
government, (here the City of Manila), that knowing it has no right at all
to collect or to receive money for alleged taxes paid by mistake, it
would be reluctant to return the same. No one should enrich itself
unjustly at the expense of another (Art. 2125, Civil Code)..
Admittedly, plaintiff-appellee paid the tax without protest.Equally

admitted is the fact that section 76 of the Charter of Manila provides
that "No court shall entertain any suit assailing the validity of tax
assessed under this article until the taxpayer shall have paid, under
protest the taxes assessed against him, xx". It should be noted,
however, that the article referred to in said section is Article XXI,
entitled Department of Assessment and the sections thereunder
manifestly show that said article and its sections relate to asseessment,
collection and recovery of real estate taxes only. Said section 76,
therefor, is not applicable to the case at bar, which relates to the
recover of retail dealer taxes..
In the opinion of the Secretary of Justice (Op. 90,Series of 1957, in a

question similar to the case at bar, it was held that the requiredment of
protest refers only to the payment of taxes which are directly imposed
by the charter itself, that is, real estate taxes, which view was sustained
by judicial and administrative precedents, one of which is the case of
Medina, et al., v. City of Baguio, G.R. No. L-4269, Aug. 29, 1952. In other
words, protest is not necessary for the recovery of retail dealer's taxes,
like the present, because they are not directly imposed by the charter.
In the Medina case, the Charter of Baguio (Chap. 61, Revised Adm.
Code), provides that "no court shall entertain any suit assailing the
validity of a tax assessed unde this charter until the tax-payer shall have
paid, under protest, the taxes assessed against him (sec.25474[b], Rev.
Adm. Code), a proviso similar to section 76 of the Manila Charter. The
refund of specific taxes paid under a void ordinance was ordered,
although it did not appear that payment thereof was made under
protest..
In a recent case, We said: "The appellants argue that the sum the
refund of which is sought by the appellee, was not paid under protest
and hence is not refundable. Again, the trial court correctly held that
being unauthorized, it is not a tax assessed under the Charter of the
Appellant City of Davao and for that reason, no protest is necessary for
a claim or demand for its refund" (Citing the Medina case, supra; East
Asiatic Co., Ltd. v. City of Davao, G.R. No. L-16253, Aug. 21, 1962).
Lastly, being a case of solutio indebiti, protest is not required as a
condition sine qua non for its application..
The next issue in discussion is that of prescription. Appellants maintain

that article 1146 (NCC), which provides for a period of four (4) years
(upon injury to the rights of the plaintiff), apply to the case. On the
other hand, appellee contends that provisions of Act 190 (Code of Civ.
Procedure) should apply, insofar as payments made before the
effectivity of the New Civil Code on August 30, 1950, the period of
which is ten (10) years, (Sec. 40,Act No. 190; Osorio v. Tan Jongko, 51
O.G. 6211) and article 1145 (NCC), for payments made after said
effectivity, providing for a period of six (6) years (upon quasi-contracts
like solutio indebiti). Even if the provisionsof Act No. 190 should apply
to those payments made before the effectivity of the new Civil Code,
because "prescription already runnig before the effectivity of this Code
shall be governed by laws previously in force x x x" (art. 1116, NCC), for
payments made after said effectivity,providing for a period of six (6)
years (upon quasi-contracts like solutio indebiti). Even if the provisions
of Act No. 190should apply to those payments made before the
effectivity of the new Civil Code, because "prescription already running
before the effectivity of of this Code shall be govern by laws previously
in force xxx " (Art. 1116, NCC), Still payments made before August 30,
1950 are no longer recoverable in view of the second paragraph of said
article (1116), which provides:"but if since the time this Code took
effect the entire period herein required for prescription should elapse
the present Code shall be applicable even though by the former laws a
longer period might be required". Anent the payments made after
August 30, 1950, it is abvious that the action has prescribed with
respect to those made before October 30, 1950 only, considering the
fact that the prescription of action is interrupted xxx when is a writteen
extra-judicial demand x x x" (Art. 1155, NCC), and the written demand
in the case at bar was made on October 30, 1956 (Stipulation of
Facts).MODIFIED in the sense that only payments made on or after
October 30, 1950 should be refunded, the decision appealed from is
affirmed, in all other respects. No costs. .
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion,Dizon, Regala and

Makalintal, JJ., concur.
Padilla, Reyes, J.B.L., and Barrera, JJ., too no part.
Decision affirmed.
GONZALO PUYAT & SONS, INC. vs. CITY OF MANILA AND MARCELO
SARMIENTO, as City Treasurer of Manila
G.R. No. L-17447 April 30, 1963
FACTS: Petitioner Gonzalo Puyat & Sons, Inc. filed an action for refund
of Retail Dealer’s Taxes it paid to the City of Manila in the erroneous
belief that it was liable therefor.
The City of Manila, in refusing to pay the refund, contends that the
taxes in question were voluntarily paid by petitioner company and
since, in this jurisdiction, in order that a legal basis arise for claim of
refund of taxes erroneously assessed, payment thereof must be made
under protest, and this being a condition sine qua non, and no protest
having been made, — verbally or in writing, thereby indicating that
the payment was voluntary.
Petitioner on the other hand avers that the payments could not have
been voluntary. At most, they were paid «mistakenly and in good faith»
and «without protest in the erroneous belief that it was liable thereof.»
Voluntariness is incompatible with protest and mistake. It submits that
this is a simple case of «solutio indebiti».
ISSUE: Whether or not the amounts paid by plaintiff-appelle without

protest were refundable
HELD: Yes. Article 2155 of the Civil Code recognizes “error de derecho”
as a basis for the quasi-contract of solutio indebiti.
«Payment by reason of a mistake in the construction or application of a

doubtful or difficult question of law may come within the scope of the
preceding article» (Art. 21555)
There is no gainsaying the fact that the payments made by appellee

was due to a mistake in the construction of a doubtful question of law.
The reason underlying similar provisions, as applied to illegal taxation,
in the United States, is expressed in the case of Newport v. Ringo:
«It is too well settled in this state to need the citation of authority that
if money be paid through a clear mistake of law or fact, essentially
affecting the rights of the parties, and which in law or conscience was
not payable, and should not be retained by the party receiving it, it may
be recovered. Both law and sound morality so dictate. Especially should
this be the rule as to illegal taxation. The taxpayer has no voice in the
imposition of the burden. He has the right to presume that the taxing
power has been lawfully exercised. He should not be required to know
more than those in authority over him, nor should he suffer loss by
complying with what he bona fide believe to be his duty as a good
citizen. Upon the contrary, he should be promoted to its ready
performance by refunding to him any legal exaction paid by him in
ignorance of its illegality; and, certainly, in such a case, if be subject to a
penalty for nonpayment, his compliance under belief of its legality, and
without awaitinga resort to judicial proceedings should not be regarded
in law as so far voluntary as to affect his right of recovery.».
«Every person who through an act or performance by another, or any

other means, acquires or comes into possession of something at the
expense of the latter/ without just or legal grounds, shall return the
same to him»(Art. 22, Civil Code).’
Every person who through an act or performance of another, acquires

or comes into possession of something at the expense of the latter
without just or legal grounds, shall return the same to him.
It would seem unedifying for the government, (here the City of Manila),
that knowing it has no right at all to collect or to receive money for
alleged taxes paid by mistake, it would be reluctant to return the same.
No one should enrich itself unjustly at the expense of another (Art.
2125, Civil Code)..
Admittedly, plaintiff-appellee paid the tax without protest. Equally

admitted is the fact that section 76 of the Charter of Manila provides
that «No court shall entertain any suit assailing the validity of tax
assessed under this article until the taxpayer shall have paid, under
protest the taxes assessed against him, xx».
It should be noted, however, that the article referred to relates to

assessment, collection and recovery of real estate taxes only hence not
applicable to the case at bar, which relates to the recovery of retail
dealer taxes.
In other words, protest is not necessary for the recovery of retail

dealer’s taxes, like the present, because they are not directly imposed
by the charter.
In a recent case, We said: «The appellants argue that the sum the
refund of which is sought by the appellee, was not paid under protest
and hence is not refundable. Again, the trial court correctly held that
being unauthorized, it is not a tax assessed under the Charter of the
Appellant City of Davao and for that reason, no protest is necessary for
a claim or demand for its refund» (Citing the Medina case, supra; East
Asiatic Co., Ltd. v. City of Davao, G.R. No. L-16253, Aug. 21, 1962).
Lastly, being a case of solutio indebiti, protest is not required as a

condition sine qua non for its application.
Acts or omissions punished by law- Arts. 1167, 2177,
Arts. 100 & 104 RPC Quasi-delicts -Arts. 1162, 2176
XXXXXXXXXXXXXXXXXXXXXXXX
Saludaga vs. Far Eastern University, 553 SCRA 741, G.R. No.
179337 April 30, 2008
Posted by Alchemy at 10:15 PM Labels: 2008, 553 SCRA
741, Civil Law Review, G.R. No. 179337 April
30, Saludaga vs. Far Eastern University
Saludaga vs. Far Eastern University, 553 SCRA 741,

G.R. No. 179337 April 30, 2008
Saludaga v. FEU, G.R. No. 179337 April 30, 2008
G.R. No. 179337 April 30, 2008

JOSEPH SALUDAGA, petitioner,
vs.
FAR EASTERN UNIVERSITY and EDILBERTO C. DE JESUS
in his capacity as President of FEU, respondents.
DECISION
YNARES-SANTIAGO, J.:
This Petition for Review on Certiorari1 under Rule 45 of

the Rules of Court assails the June 29, 2007 Decision2 of
the Court of Appeals in CA-G.R. CV No. 87050, nullifying
and setting aside the November 10, 2004 Decision3 of
the Regional Trial Court of Manila, Branch 2, in Civil Case
No. 98-89483 and dismissing the complaint filed by
petitioner; as well as its August 23, 2007 Resolution4
denying the Motion for Reconsideration.5
The antecedent facts are as follows:
Petitioner Joseph Saludaga was a sophomore law student

of respondent Far Eastern University (FEU) when he was
shot by Alejandro Rosete (Rosete), one of the security
guards on duty at the school premises on August 18,
1996. Petitioner was rushed to FEU-Dr. Nicanor Reyes
Medical Foundation (FEU-NRMF) due to the wound he
sustained.6 Meanwhile, Rosete was brought to the police
station where he explained that the shooting was
accidental. He was eventually released considering that
no formal complaint was filed against him.
Petitioner thereafter filed a complaint for damages
against respondents on the ground that they breached
their obligation to provide students with a safe and
secure environment and an atmosphere conducive to
learning. Respondents, in turn, filed a Third-Party
Complaint7 against Galaxy Development and
Management Corporation (Galaxy), the agency
contracted by respondent FEU to provide security
services within its premises and Mariano D. Imperial
(Imperial), Galaxy's President, to indemnify them for
whatever would be adjudged in favor of petitioner, if any;
and to pay attorney's fees and cost of the suit. On the
other hand, Galaxy and Imperial filed a Fourth-Party
Complaint against AFP General Insurance.8
On November 10, 2004, the trial court rendered a

decision in favor of petitioner, the dispositive portion of
which reads:
WHEREFORE, from the foregoing, judgment is hereby

rendered ordering:
1. FEU and Edilberto de Jesus, in his capacity as

president of FEU to pay jointly and severally Joseph
Saludaga the amount of P35,298.25 for actual damages
with 12% interest per annum from the filing of the
complaint until fully paid; moral damages of
P300,000.00, exemplary damages of P500,000.00,
attorney's fees of P100,000.00 and cost of the suit;
2. Galaxy Management and Development Corp. and its

president, Col. Mariano Imperial to indemnify jointly and
severally 3rd party plaintiffs (FEU and Edilberto de Jesus
in his capacity as President of FEU) for the above-
mentioned amounts;
3. And the 4th party complaint is dismissed for lack of

cause of action. No pronouncement as to costs.
SO ORDERED.9
Respondents appealed to the Court of Appeals which

rendered the assailed Decision, the decretal portion of
which provides, viz:
WHEREFORE, the appeal is hereby GRANTED. The

Decision dated November 10, 2004 is hereby REVERSED
and SET ASIDE. The complaint filed by Joseph Saludaga
against appellant Far Eastern University and its President
in Civil Case No. 98-89483 is DISMISSED.
SO ORDERED.10
Petitioner filed a Motion for Reconsideration which was

denied; hence, the instant petition based on the following
grounds:
THE COURT OF APPEALS SERIOUSLY ERRED IN MANNER

CONTRARY TO LAW AND JURISPRUDENCE IN RULING
THAT:
5.1. THE SHOOTING INCIDENT IS A FORTUITOUS

EVENT;
5.2. RESPONDENTS ARE NOT LIABLE FOR DAMAGES FOR

THE INJURY RESULTING FROM A GUNSHOT WOUND
SUFFERED BY THE PETITIONER FROM THE HANDS OF NO
LESS THAN THEIR OWN SECURITY GUARD IN VIOLATION
OF THEIR BUILT-IN CONTRACTUAL OBLIGATION TO
PETITIONER, BEING THEIR LAW STUDENT AT THAT TIME,
TO PROVIDE HIM WITH A SAFE AND SECURE
EDUCATIONAL ENVIRONMENT;
5.3. SECURITY GAURD, ALEJANDRO ROSETE, WHO SHOT

PETITIONER WHILE HE WAS WALKING ON HIS WAY TO
THE LAW LIBRARY OF RESPONDENT FEU IS NOT THEIR
EMPLOYEE BY VIRTUE OF THE CONTRACT FOR SECURITY
SERVICES BETWEEN GALAXY AND FEU
NOTWITHSTANDING THE FACT THAT PETITIONER, NOT
BEING A PARTY TO IT, IS NOT BOUND BY THE SAME
UNDER THE PRINCIPLE OF RELATIVITY OF CONTRACTS;
and
5.4. RESPONDENT EXERCISED DUE DILIGENCE IN

SELECTING GALAXY AS THE AGENCY WHICH WOULD
PROVIDE SECURITY SERVICES WITHIN THE PREMISES
OF RESPONDENT FEU.11
Petitioner is suing respondents for damages based on the

alleged breach of student-school contract for a safe
learning environment. The pertinent portions of
petitioner's Complaint read:
6.0. At the time of plaintiff's confinement, the defendants

or any of their representative did not bother to visit and
inquire about his condition. This abject indifference on
the part of the defendants continued even after plaintiff
was discharged from the hospital when not even a word
of consolation was heard from them.
Plaintiff waited for more than one (1) year for the
defendants to perform their moral obligation but the wait
was fruitless. This indifference and total lack of concern
of defendants served to exacerbate plaintiff's miserable
condition.
xxxx
11.0. Defendants are responsible for ensuring the safety

of its students while the latter are within the University
premises. And that should anything untoward happens to
any of its students while they are within the University's
premises shall be the responsibility of the defendants. In
this case, defendants, despite being legally and morally
bound, miserably failed to protect plaintiff from injury
and thereafter, to mitigate and compensate plaintiff for
said injury;
12.0. When plaintiff enrolled with defendant FEU, a

contract was entered into between them. Under this
contract, defendants are supposed to ensure that
adequate steps are taken to provide an atmosphere
conducive to study and ensure the safety of the plaintiff
while inside defendant FEU's premises. In the instant
case, the latter breached this contract when defendant
allowed harm to befall upon the plaintiff when he was
shot at by, of all people, their security guard who was
tasked to maintain peace inside the campus.12
In Philippine School of Business Administration v. Court

of Appeals,13 we held that:
When an academic institution accepts students for
enrollment, there is established a contract between them,
resulting in bilateral obligations which both parties are
bound to comply with. For its part, the school undertakes
to provide the student with an education that would
presumably suffice to equip him with the necessary tools
and skills to pursue higher education or a profession. On
the other hand, the student covenants to abide by the
school's academic requirements and observe its rules and
regulations.
Institutions of learning must also meet the implicit or

"built-in" obligation of providing their students with an
atmosphere that promotes or assists in attaining its
primary undertaking of imparting knowledge. Certainly,
no student can absorb the intricacies of physics or higher
mathematics or explore the realm of the arts and other
sciences when bullets are flying or grenades exploding in
the air or where there looms around the school premises
a constant threat to life and limb. Necessarily, the school
must ensure that adequate steps are taken to maintain
peace and order within the campus premises and to
prevent the breakdown thereof.14
It is undisputed that petitioner was enrolled as a

sophomore law student in respondent FEU. As such,
there was created a contractual obligation between the
two parties. On petitioner's part, he was obliged to
comply with the rules and regulations of the school. On
the other hand, respondent FEU, as a learning institution
is mandated to impart knowledge and equip its students
with the necessary skills to pursue higher education or a
profession. At the same time, it is obliged to ensure and
take adequate steps to maintain peace and order within
the campus.
It is settled that in culpa contractual, the mere proof of

the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of
relief.15 In the instant case, we find that, when petitioner
was shot inside the campus by no less the security guard
who was hired to maintain peace and secure the
premises, there is a prima facie showing that
respondents failed to comply with its obligation to
provide a safe and secure environment to its students.
In order to avoid liability, however, respondents aver that

the shooting incident was a fortuitous event because they
could not have reasonably foreseen nor avoided the
accident caused by Rosete as he was not their
employee;16 and that they complied with their obligation
to ensure a safe learning environment for their students
by having exercised due diligence in selecting the
security services of Galaxy.
After a thorough review of the records, we find that

respondents failed to discharge the burden of proving
that they exercised due diligence in providing a safe
learning environment for their students. They failed to
prove that they ensured that the guards assigned in the
campus met the requirements stipulated in the Security
Service Agreement. Indeed, certain documents about
Galaxy were presented during trial; however, no
evidence as to the qualifications of Rosete as a security
guard for the university was offered.
Respondents also failed to show that they undertook
steps to ascertain and confirm that the security guards
assigned to them actually possess the qualifications
required in the Security Service Agreement. It was not
proven that they examined the clearances, psychiatric
test results, 201 files, and other vital documents
enumerated in its contract with Galaxy. Total reliance on
the security agency about these matters or failure to
check the papers stating the qualifications of the guards
is negligence on the part of respondents. A learning
institution should not be allowed to completely relinquish
or abdicate security matters in its premises to the
security agency it hired. To do so would result to
contracting away its inherent obligation to ensure a safe
learning environment for its students.
Consequently, respondents' defense of force majeure

must fail. In order for force majeure to be considered,
respondents must show that no negligence or misconduct
was committed that may have occasioned the loss. An
act of God cannot be invoked to protect a person who has
failed to take steps to forestall the possible adverse
consequences of such a loss. One's negligence may have
concurred with an act of God in producing damage and
injury to another; nonetheless, showing that the
immediate or proximate cause of the damage or injury
was a fortuitous event would not exempt one from
liability. When the effect is found to be partly the result
of a person's participation - whether by active
intervention, neglect or failure to act - the whole
occurrence is humanized and removed from the rules
applicable to acts of God.17
Article 1170 of the Civil Code provides that those who are
negligent in the performance of their obligations are
liable for damages. Accordingly, for breach of contract
due to negligence in providing a safe learning
environment, respondent FEU is liable to petitioner for
damages. It is essential in the award of damages that the
claimant must have satisfactorily proven during the trial
the existence of the factual basis of the damages and its
causal connection to defendant's acts.
In the instant case, it was established that petitioner

spent P35,298.25 for his hospitalization and other
medical expenses.19 While the trial court correctly
imposed interest on said amount, however, the case at
bar involves an obligation arising from a contract and not
a loan or forbearance of money.
As such, the proper rate of legal interest is six percent
(6%) per annum of the amount demanded. Such interest
shall continue to run from the filing of the complaint until
the finality of this Decision.20 After this Decision
becomes final and executory, the applicable rate shall be
twelve percent (12%) per annum until its satisfaction.
The other expenses being claimed by petitioner, such as

transportation expenses and those incurred in hiring a
personal assistant while recuperating were however not
duly supported by receipts.21 In the absence thereof, no
actual damages may be awarded. Nonetheless,
temperate damages under Art. 2224 of the Civil Code
may be recovered where it has been shown that the
claimant suffered some pecuniary loss but the amount
thereof cannot be proved with certainty. Hence, the
amount of P20,000.00 as temperate damages is awarded
to petitioner.
As regards the award of moral damages, there is no hard

and fast rule in the determination of what would be a fair
amount of moral damages since each case must be
governed by its own peculiar circumstances.22 The
testimony of petitioner about his physical suffering,
mental anguish, fright, serious anxiety, and moral shock
resulting from the shooting incident23 justify the award
of moral damages. However, moral damages 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. The award is not meant to
enrich the complainant at the expense of the defendant,
but to enable the injured party to obtain means,
diversion, or amusements that will serve to obviate the
moral suffering he has undergone. It is aimed at the
restoration, within the limits of the possible, of the
spiritual status quo ante, and should be proportionate to
the suffering inflicted. Trial courts must then guard
against the award of exorbitant damages; they should
exercise balanced restrained and measured objectivity to
avoid suspicion that it was due to passion, prejudice, or
corruption on the part of the trial court.24 We deem it
just and reasonable under the circumstances to award
petitioner moral damages in the amount of P100,000.00.
Likewise, attorney's fees and litigation expenses in the

amount of P50,000.00 as part of damages is reasonable
in view of Article 2208 of the Civil Code.25 However, the
award of exemplary damages is deleted considering the
absence of proof that respondents acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.
We note that the trial court held respondent De Jesus

solidarily liable with respondent FEU. In Powton
Conglomerate, Inc. v. Agcolicol,26 we held that:
[A] corporation is invested by law with a personality

separate and distinct from those of the persons
composing it, such that, save for certain exceptions,
corporate officers who entered into contracts in behalf of
the corporation cannot be held personally liable for the
liabilities of the latter. Personal liability of a corporate
director, trustee or officer along (although not
necessarily) with the corporation may so validly attach,
as a rule, only when - (1) he assents to a patently
unlawful act of the corporation, or when he is guilty of
bad faith or gross negligence in directing its affairs, or
when there is a conflict of interest resulting in damages
to the corporation, its stockholders or other persons; (2)
he consents to the issuance of watered down stocks or
who, having knowledge thereof, does not forthwith file
with the corporate secretary his written objection
thereto; (3) he agrees to hold himself personally and
solidarily liable with the corporation; or (4) he is made by
a specific provision of law personally answerable for his
corporate action.27
None of the foregoing exceptions was established in the

instant case; hence, respondent De Jesus should not be
held solidarily liable with respondent FEU.
Incidentally, although the main cause of action in the
instant case is the breach of the school-student contract,
petitioner, in the alternative, also holds respondents
vicariously liable under Article 2180 of the Civil Code,
which provides:
Art. 2180. The obligation imposed by Article 2176 is

demandable not only for one's own acts or omissions, but
also for those of persons for whom one is responsible.
xxxx
Employers shall be liable for the damages caused by their

employees and household helpers acting within the scope
of their assigned tasks, even though the former are not
engaged in any business or industry.
xxxx
The responsibility treated of in this article shall cease

when the persons herein mentioned prove that they
observed all the diligence of a good father of a family to
prevent damage.
We agree with the findings of the Court of Appeals that

respondents cannot be held liable for damages under Art.
2180 of the Civil Code because respondents are not the
employers of Rosete. The latter was employed by Galaxy.
The instructions issued by respondents' Security
Consultant to Galaxy and its security guards are
ordinarily no more than requests commonly envisaged in
the contract for services entered into by a principal and a
security agency. They cannot be construed as the
element of control as to treat respondents as the
employers of Rosete.28
As held in Mercury Drug Corporation v. Libunao:29
In Soliman, Jr. v. Tuazon,30 we held that where the

security agency recruits, hires and assigns the works of
its watchmen or security guards to a client, the employer
of such guards or watchmen is such agency, and not the
client, since the latter has no hand in selecting the
security guards. Thus, the duty to observe the diligence
of a good father of a family cannot be demanded from
the said client:
… [I]t is settled in our jurisdiction that where the security

agency, as here, recruits, hires and assigns the work of
its watchmen or security guards, the agency is the
employer of such guards or watchmen. Liability for illegal
or harmful acts committed by the security guards
attaches to the employer agency, and not to the clients
or customers of such agency. As a general rule, a client
or customer of a security agency has no hand in selecting
who among the pool of security guards or watchmen
employed by the agency shall be assigned to it; the duty
to observe the diligence of a good father of a family in
the selection of the guards cannot, in the ordinary course
of events, be demanded from the client whose premises
or property are protected by the security guards.
xxxx
The fact that a client company may give instructions or
directions to the security guards assigned to it, does not,
by itself, render the client responsible as an employer of
the security guards concerned and liable for their
wrongful acts or omissions.31
We now come to respondents' Third Party Claim against

Galaxy. In Firestone Tire and Rubber Company of the
Philippines v. Tempengko,32 we held that:
The third-party complaint is, therefore, a procedural

device whereby a 'third party' who is neither a party nor
privy to the act or deed complained of by the plaintiff,
may be brought into the case with leave of court, by the
defendant, who acts as third-party plaintiff to enforce
against such third-party defendant a right for
contribution, indemnity, subrogation or any other relief,
in respect of the plaintiff's claim. The third-party
complaint is actually independent of and separate and
distinct from the plaintiff's complaint. Were it not for this
provision of the Rules of Court, it would have to be filed
independently and separately from the original complaint
by the defendant against the third-party. But the Rules
permit defendant to bring in a third-party defendant or so
to speak, to litigate his separate cause of action in
respect of plaintiff's claim against a third-party in the
original and principal case with the object of avoiding
circuitry of action and unnecessary proliferation of law
suits and of disposing expeditiously in one litigation the
entire subject matter arising from one particular set of
facts.33
Respondents and Galaxy were able to litigate their
respective claims and defenses in the course of the trial
of petitioner's complaint. Evidence duly supports the
findings of the trial court that Galaxy is negligent not only
in the selection of its employees but also in their
supervision. Indeed, no administrative sanction was
imposed against Rosete despite the shooting incident;
moreover, he was even allowed to go on leave of
absence which led eventually to his disappearance.34
Galaxy also failed to monitor petitioner's condition or
extend the necessary assistance, other than the
P5,000.00 initially given to petitioner. Galaxy and
Imperial failed to make good their pledge to reimburse
petitioner's medical expenses.
For these acts of negligence and for having supplied

respondent FEU with an unqualified security guard, which
resulted to the latter's breach of obligation to petitioner,
it is proper to hold Galaxy liable to respondent FEU for
such damages equivalent to the above-mentioned
amounts awarded to petitioner.
Unlike respondent De Jesus, we deem Imperial to be

solidarily liable with Galaxy for being grossly negligent in
directing the affairs of the security agency. It was
Imperial who assured petitioner that his medical
expenses will be shouldered by Galaxy but said
representations were not fulfilled because they presumed
that petitioner and his family were no longer interested in
filing a formal complaint against them.35
WHEREFORE, the petition is GRANTED. The June 29,

2007 Decision of the Court of Appeals in CA-G.R. CV No.
87050 nullifying the Decision of the trial court and
dismissing the complaint as well as the August 23, 2007
Resolution denying the Motion for Reconsideration are
REVERSED and SET ASIDE. The Decision of the Regional
Trial Court of Manila, Branch 2, in Civil Case No. 98-
89483 finding respondent FEU liable for damages for
breach of its obligation to provide students with a safe
and secure learning atmosphere, is AFFIRMED with the
following MODIFICATIONS:
a. respondent Far Eastern University (FEU) is ORDERED

to pay petitioner actual damages in the amount of
P35,298.25, plus 6% interest per annum from the filing
of the complaint until the finality of this Decision. After
this decision becomes final and executory, the applicable
rate shall be twelve percent (12%) per annum until its
satisfaction;
b. respondent FEU is also ORDERED to pay petitioner

temperate damages in the amount of P20,000.00; moral
damages in the amount of P100,000.00; and attorney's
fees and litigation expenses in the amount of
P50,000.00;
c. the award of exemplary damages is DELETED.
The Complaint against respondent Edilberto C. De Jesus

is DISMISSED. The counterclaims of respondents are
likewise DISMISSED.
Galaxy Development and Management Corporation

(Galaxy) and its president, Mariano D. Imperial are
ORDERED to jointly and severally pay respondent FEU
damages equivalent to the above-mentioned amounts
awarded to petitioner.
SO ORDERED.
CONSUELO YNARES-SANTIAGO
Associate Justice
WE CONCUR:
MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice
MINITA V. CHICO-NAZARIO
Associate Justice
ANTONIO EDUARDO B. NACHURA
Associate Justice
RUBEN T. REYES
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had

been reached in consultation before the case was
assigned to the writer of the opinion of the Court's
Division.
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution

and the Division Chairperson's Attestation, I certify that
the conclusions in the above Decision had been reached
in consultation before the case was assigned to the writer
of the opinion of the Court's Division.
REYNATO S. PUNO
Chief Justice
Footnotes
1 Rollo, pp. 3-33.
2 Id. at 38-62; penned by Associate Justice Mariano C.

Del Castillo and concurred in by Associate Justices
Arcangelita Romilla Lontok and Romeo F. Barza.
3 Id. at 67-75; penned by Judge Alejandro G. Bijasa.
4 Id. at 64-65.
5 Id. at 160-177.
6 Id. at 188.
7 Records, Vol. I, pp. 136-139.
8 Id. at 287-290.
9 Rollo, pp. 74-75.
10 Id. at 61.
11 Id. at 13-14.
12 Records, Vol. I, pp. 1-6.
13 G.R. No. 84698, February 4, 1992, 205 SCRA 729.
14 Id. at 733-734.
15 FGU Insurance Corporation v. G.P. Sarmiento

Trucking Corporation, 435 Phil. 333, 341 (2002).
16 Records, Vol. 1, pp. 76-86.
17 Mindex Resources Development v. Morillo, 428 Phil.

934, 944 (2002).
18 Roque, Jr. v. Torres, G.R. No. 157632, December 6,

2006, 510 SCRA 336, 348.
19 TSN, September 20, 1999, pp. 20-21; Records, Vol. I,

pp. 316-322; Records, Vol. II, p. 597.
20 Eastern Shipping Lines, Inc. v. Court of Appeals, G.R.

No. 97412, July 12, 1994, 234 SCRA 78, 95-97.
21 TSN, September 27, 1999, pp. 5, 9.
22 Roque v. Torres, supra note 18 at 349.
23 TSN, September 20, 1999, pp. 10, 12-13; September

27, 1999, pp. 3, 5-9.
24 ABS-CBN Broadcasting Corporation v. Court of

Appeals, 361 Phil. 499, 529-530 (1999).
25 Civil Code, Art. 2208:
In the absence of stipulation, attorney's fees and

expenses of litigation, other than judicial costs, cannot be
recovered, except:
(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;
26 448 Phil. 643 (2003).
27 Id. at 656.
28 Records, Vol. I, pp. 43-55 (FEU) and pp. 56-68

(Galaxy).
29 G.R. No. 144458, July 14, 2004, 434 SCRA 404.
30 G.R. No. 66207, May 18, 1992, 209 SCRA 47.
31 Mercury Drug Corporation v. Libunao, supra at 414-

418.
32 137 Phil. 239 (1969).
33 Id. at 243-244.
34 Rollo, p. 74.
35 Records, Vol. I, p. 330.

XXXXXXXXXXXXXXXXXXXXXXXXX
PEOPLE’S CAR VS COMMANDO SECURITY G.R. L-36840 MAY 22, 1973
FACTS:
People’s Car entered into a contract with Commando Security to

safeguard and protect the business premises of the plaintiff from theft,
pilferage, robbery, vandalism, and all other unlawful acts of any
person/s prejudicial to the interest of the plaintiff.
On April 5, 1970, around 1:00am, defendant’s security guard on duty at

plaintiff’s premises, without any authority, consent, approval, or orders
of the plaintiff and/or defendant brought out the compound of the
plaintiff a car belonging to its customer and drove said car to a place or
places unknown, abandoning his post and while driving the car lost
control of it causing it to fall into a ditch.
As a result, the car of plaintiff’s customer, which had been left with
plaintiff for servicing and maintenance, suffered extensive damage
besides the car rental value for a car that plaintiff had to rent and make
available to its customer, Joseph Luy, to enable him to pursue his
business and occupation.
Plaintiff instituted a claim against defendant for the actual damages it

incurred due to the unlawful act of defendant’s personnel citing
paragraph 5 of the contract wherein defendant accepts sole
responsibility for the acts done during their watch hours.
Defendant claimed that they may be liable but its liability is limited
under paragraph 4 of the contract which provides that its liability shall
not exceed P1,000 per guard post for loss or damage through the
negligence of its guards during the watch hours provided that it is
reported within 24 hours of the incident.
·
ISSUE: Whether or not the defendant is obliged to indemnify the
plaintiff for the entire costs as result of the incident
HELD: Yes. Plaintiff was in law liable to its customer for the damages
caused the customer’s car, which had been entrusted into its custody.
Plaintiff therefore was in law justified in making good such damages
and relying in turn on defendant to honor its contract and indemnify it
for such undisputed damages, which had been caused directly by the
unlawful and wrongful acts of defendant’s security guard in breach of
their contract.
Plaintiff in law could not tell its customer that under the Guard Service
Contract it was not liable for the damage but the defendant since the
customer could not hold defendant to account for the damages as he
had no privity of contract with defendant.
1973 – People’s Car, Inc. v. Commando Security, GR L-36840 (Guard
Service Contract; Acts and Omission; Stipulation)
1. REFERENCE
1.1. DOCKET/REGISTRY NUMBER
 GR No. L-36840
1.2. REPORTED/PREFERRED CITATION
 People’s Car, Inc. v. Commando Security, GR L-36840, 51

SCRA 40 (May 22, 1973)
1.3. FULL-TEXT SOURCE ONLINE
 ChanRobles
 LawPhil
2. MNEMONIC
2.1. LAW SCHOOL SUBJECT
 OBLICON
2.2. KEYWORDS
 Guard Service Contract; Acts and Omission; Stipulation
2.3. FACT MNEMONIC
 Security guard drives and crashes customer’s car case

2.4. DOCTRINE MNEMONIC
 Security agency liable to plaintiff for full damages as a result

of security guard’s negligence.
2.5. VERBATIM DOCTRINE
 Security agency liable to plaintiff for full damages as a

result of security guard’s negligence.
 Defendant is therefore undoubtedly liable to
indemnify plaintiff for the entire damages thus
incurred, since under paragraph 5 of their contract it
"assumed the responsibility for the proper
performance by the guards employed of their duties
and (contracted to) be solely responsible for the acts
done during their watch hours" and "specifically
released (plaintiff) from any and all liabilities… to
the third parties arising from the acts or omissions
done by the guards during their tour of duty."
2.6. SHORT-HAND DIGEST
 In a case wherein a security guard crashes the car of the

customer of the plaintiff’s business where he is designated,
two stipulations of the Guard Service Contract were in
dispute: paragraph 4, which in this case makes the defendant,
the security agency, liable for only a thousand pesos; and
paragraph 5, which makes the defendant liable for the total
damages incurred by the plaintiff. The Supreme Court upheld
the stipulation in paragraph 5 which provided that defendant is
responsible for the proper performance of its security guards
and that plaintiff is released from liabilities from third parties
arising from the acts and omissions done by the guards during
their tour of duty. The judgment of CFI Davao reversed.
3. PROFILE
3.1. DATE OF PROMULGATION
 May 22, 1973
3.2. DECIDING COURT
 Supreme Court
3.3. DIVISION
 Second Division
3.4. PONENTE
 Teehankee
3.5. CONCURRENCE AND ATTENDANCE
3.5.1. CONCURRING
 Makalintal
 Zaldivar
 Castro
 Fernando
 Barredo
 Makasiar
 Antonio
 Esguerra
3.5.2. DISSENTING
 N/A
3.5.3. ABSENT/OTHERS
 N/A
3.6. SEPARATE OPINIONS
 N/A
3.7. PARTIES
3.7.1. PLAINTIFF-APPELLANT
 People’s Car Inc
3.7.2. DEFENDANT-APPELLEE
 Commando Security Service Agency
3.8. COUNSEL
 N/A
3.9. NATURE OF ACTION
 Appeal from a decision of CFI Davao
3.10. LAWS AND PROVISIONS CITED
 New Civil Code

 Article 1159
3.11. CASES CITED
 None
4. CONTENTS
4.1. SUBSTANTIAL FACTS
 Plaintiff and defendant were bound by a "Guard Service

Contract"
 Defendant-appellee as a duly licensed security
service agency undertook in payments made by
plaintiff "to safeguard and protect the business
premises of (plaintiff) from theft, pilferage, robbery,
vandalism, and all other unlawful acts of any person
or persons prejudicial to the interest of (plaintiff)".
 April 5, 1970 at around 1:00 AM, the defendant’s security
guard drove out a car of a plaintiff’s customer, Joseph Luy,
outside the compound. Losing control, the security guard
caused the car to fall into a ditch along JP Laurel St., Davao
City.
 As a result, plaintiff incurred the total sum of P 8489.10 in
damages
 P 7,079.10 for damages of repair and maintenance
of the vehicle
 P 1,410.00 for fees of a car rental the plaintiff have
to provide for the customer while the damaged car
was being repaired for 47 days.
4.2. PROCEDURAL HISTORY
 CFI Davao
 Plaintiff brought the case to the court claiming that
the defendant is liable for the damages incurred as a
result of the incident. He relied on Par. 5 of the
contract:
 Par. 5 – The part of the Second Part
assumes the responsibility for the proper
performance by the guards employed, of
their duties and (shall) be solely
responsible for the acts done during their
watch hours, ~the party of the First Part
being specifically released from any and
all liabilities of the former’s employee or
to the third parties arising from the acts
of omissions done by the guards during
their tour of duty.
 Defendant claimed that it is only liable based on
Par. 4 of the same contract:
 Par. 4. Party of the Second Part
(defendant) through the negligence of its
guards, after an investigation has been
conducted by the Party of the First Part
(plaintiff) wherein the Part of the Second
Part has been duly represented, shall
assume full responsibilities for any loss or
damages that may occur to any property
of the Party of the First Part of which it is
accountable, during the watch hours of
the Part of the Second Part, provided the
same is reported to the Part of the Second
Part within twenty-four (24) hours of the
occurrence, except where such loss or
damage is due to force majeure, provided
however that after the proper
investigation is to be made thereof that
the guard on post is found negligent and
that the amount of the loss shall not
exceed ONE THOUSAND (P 1,000.00)
PESOS per guard post.
 The Court rendered a judgment upholding Paragraph 4 of the
Guard Service Contract, wherein the plaintiff can only recover
P 1,000.00.
 Court of Appeals, Special Division
Certified the appeal of plaintiff-appellant on a four-
two-one vote as per its resolution of April 14, 1973.
 "since the case was submitted to the court
a quo for decision on the strength of the
stipulation of facts, only questions of law
can be involved in the present appeal."
 Supreme Court
 Accepted the certification upon finding that
plaintiff’s notice of appeal was expressly to this
Court "on pure questions of law"
 Davao CFI approved the same on July 3, 1971
instead of having required the filing of a petition for
review of the judgment sought to be appealed from
directly with this Court, in accordance with the
provisions of Republic Act 5440.
4.3. ISSUES
 Whether defendant is liable to the plaintiff on the basis of

Paragraph 4 of the Guard Service Contract?
 Whether plaintiff should have notified the customer of
defendant’s liability under Paragraph 5 of the Guard Service
Contract and thus filed the appropriate action recommended
by the trial court?
4.4. RATIO/S
1. Whether defendant is liable to the plaintiff on the basis of

Paragraph 4 of the Guard Service Contract?
 No.
 Paragraph 4 of the contract, which limits
defendant’s liability for the amount of loss
or damage to any property of plaintiff to
"P 1,000.00 per guard post," is by its own
terms applicable only for loss or damage
"through the negligence of its guards…
during the watch hours" provided that the
same is duly reported by plaintiff within
24 hours of the occurrence and the guard’s
negligence is verified after proper
investigation with the attendance of both
contracting parties. Said paragraph is
manifestly inapplicable to the stipulated
facts of record, which involve neither
property of plaintiff that has been lost or
damaged at its premises nor mere
negligence of defendant’s security guard
on duty.
 Defendant is therefore undoubtedly liable
to indemnify plaintiff for the entire
damages thus incurred, since under
paragraph 5 of their contract it "assumed
the responsibility for the proper
performance by the guards employed of
their duties and (contracted to) be solely
responsible for the acts done during their
watch hours" and "specifically released
(plaintiff) from any and all liabilities… to
the third parties arising from the acts or
omissions done by the guards during their
tour of duty." As plaintiff had duly
discharged its liability to the third party,
its customer, Joseph Luy, for the
undisputed damages of P 8,489.10 caused
said customer, due to the wanton and
unlawful act of defendant’s guard,
defendant in turn was clearly liable under
the terms of paragraph 5 of their contract
to indemnify plaintiff in the same amount.
2. Whether plaintiff should have notified the customer of
defendant’s liability under Paragraph 5 of the Guard
Service Contract and thus filed the appropriate action
recommended by the trial court?
 No.
 Plaintiff was in law liable to its customer for the
damages caused the customer’s car, which had been
entrusted into its custody. Plaintiff therefore was in
law justified in making good such damages and
relying in turn on defendant to honor its contract and
indemnify it for such undisputed damages, which
had been caused directly by the unlawful and
wrongful acts of defendant’s security guard in
breach of their contract. As ordained in Article 1159
of the Civil Code, "obligations arising from
contracts have the force of law between the
contracting parties and should be complied with in
good faith."
 Plaintiff in law could not tell its customer, as per the
trial court’s view, that "under the Guard Service
Contract it was not liable for the damage but the
defendant – since the customer could not hold
defendant to account for the damages as he had no
privity of contract with defendant. Such an approach
of telling the adverse party to go to court,
notwithstanding his plainly valid claim, aside from
its ethical deficiency among others, could hardly
create any goodwill for plaintiff’s business, in the
same way that defendant’s baseless attempt to fully
discharging its contractual liability to plaintiff
cannot be expected to have brought it more
business. Worse, the administration of justice is
prejudiced, since the court dockets are unduly
burdened with unnecessary litigation.
4.5. DISPOSITIVE PORTION
 Judgment of CFI Davao reversed.

 "Accordingly, the judgment appealed from is hereby
reversed and judgment is hereby rendered
sentencing defendant-appellee to pay plaintiff-
appellant the sum of P8489.10 as and by way of
reimbursement of the stipulated actual damages and
expenses, as well as the costs of suit in both
instances."
4.6. SEPARATE OPINION
[CASE DIGEST] JOSE CANGCO v. MANILA RAILROAD CO. (G.R. No.
L-12191)
October 14, 1918
Ponente: Fisher, J.
SUMMARY:
Cangco was alighting from a moving train when he stepped on a
sack of watermelons on the platform, causing him to fall and be
drawn under the train. His right arm was crushed and
subsequently amputated. He filed an action for damages against
Manila Railroad, claiming negligence on the part of the
company. CFI denied his claim, citing contributory negligence.
But the SC held that Manila Railroad was liable, not because of a
quasi-delict (culpa extra contractual), but on account of breach
of the contract of carriage (culpa contractual) between the
company and Cangco.
FACTS:
Jose Cangco, a copy clerk of Manila Railroad, used a pass
supplied by his employer entitling him to ride upon the
company’s trains for free.
On January 20, 1915, while the train was slowing down at the
train’s San Mateo station, Cangco arose from his seat and inched
his way to the door. He was standing behind Zuniga, another
passenger, who stood directly at the coach’s exit. Zuniga was
able to alight safely on the platform
When the train had proceeded a little farther, Cangco stepped
off also. However, one or both of his feet came in contact with
a sack of watermelons. As a result, his feet slipped from under
him and he fell violently on the platform.
Cangco’s body rolled from the platform and was drawn under
the moving car, where his right arm was badly crushed and
lacerated. He was rushed to a certain hospital in Manila where
his arm was amputated. The result of this operation was
unsatisfactory, and so Cangco had to be carried to another
hospital where a second operation was performed and the
member was again amputated higher up near the shoulder. In
all, Cangco spent P790.25 in the form of medical and surgical
fees and for other expenses.
It appears that the incident occurred between 7 and 8 in the
evening. The station was dimly lit at the time, so the objects on
the platform were difficult to discern especially to a person
emerging from a lighted car.
In addition, the presence of a sack of watermelons on the

platform where Cangco alighted can be attributed to the fact
that it was the customary season for harvesting these melons
and a large lot had been brought to the station for shipment to
the market. They were contained in numerous sacks which had
been piled on the platform.
On account of his injuries, Cangco filed an action for damages
against Manila Railroad, claiming that the latter’s employees
were negligent in placing the sacks of melons upon the platform
and leaving them so placed as to be a menace to the security of
passenger alighting from the company’s trains.
CFI: Denied Cangco’s claim for damages because although
negligence was attributable to Manila Railroad by reason of the
fact that the sacks of melons were so placed as to obstruct
passengers passing to and from the cars, nevertheless, Cangco
himself had failed to use due caution in alighting from the
coach. He was therefore precluded from recovering.
Hence, the instant appeal.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Gutierrez vs. Gutierrez, 56 Phil. 177, No. 34840,
September 23, 1931
G.R. No. 34840 September 23, 1931
NARCISO GUTIERREZ, plaintiff-appellee,
vs. BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ, MANUEL
GUTIERREZ, ABELARDO VELASCO, and SATURNINO CORTEZ,
defendants-appellants.
L.D. Lockwood for appellants Velasco and Cortez.
San Agustin and Roxas for other appellants.
Ramon Diokno for appellee.
MALCOLM, J.:
This is an action brought by the plaintiff in the Court of First Instance of
Manila against the five defendants, to recover damages in the amount
of P10,000, for physical injuries suffered as a result of an automobile
accident. On judgment being rendered as prayed for by the plaintiff,
both sets of defendants appealed.
On February 2, 1930, a passenger truck and an automobile of private
ownership collided while attempting to pass each other on the Talon
bridge on the Manila South Road in the municipality of Las Piñas,
Province of Rizal. The truck was driven by the chauffeur Abelardo
Velasco, and was owned by Saturnino Cortez. The automobile was
being operated by Bonifacio Gutierrez, a lad 18 years of age, and was
owned by Bonifacio's father and mother, Mr. and Mrs. Manuel
Gutierrez. At the time of the collision, the father was not in the car, but
the mother, together will several other members of the Gutierrez
family, seven in all, were accommodated therein. A passenger in the
autobus, by the name of Narciso Gutierrez, was en route from San
Pablo, Laguna, to Manila. The collision between the bus and the
automobile resulted in Narciso Gutierrez suffering a fracture right leg
which required medical attendance for a considerable period of time,
and which even at the date of the trial appears not to have healed
properly.
It is conceded that the collision was caused by negligence pure and
simple. The difference between the parties is that, while the plaintiff
blames both sets of defendants, the owner of the passenger truck
blames the automobile, and the owner of the automobile, in turn,
blames the truck. We have given close attention to these highly
debatable points, and having done so, a majority of the court are of the
opinion that the findings of the trial judge on all controversial questions
of fact find sufficient support in the record, and so should be
maintained. With this general statement set down, we turn to consider
the respective legal obligations of the defendants.
In amplification of so much of the above pronouncement as concerns
the Gutierrez family, it may be explained that the youth Bonifacio was
in incompetent chauffeur, that he was driving at an excessive rate of
speed, and that, on approaching the bridge and the truck, he lost his
head and so contributed by his negligence to the accident. The
guaranty given by the father at the time the son was granted a license
to operate motor vehicles made the father responsible for the acts of
his son. Based on these facts, pursuant to the provisions of article 1903
of the Civil Code, the father alone and not the minor or the mother,
would be liable for the damages caused by the minor. EVEN IF THE
FATHER WAS NOT IN THE VEHICLE, HE SHALL BE
LIABLE.
We are dealing with the civil law liability of parties for obligations which
arise from fault or negligence. At the same time, we believe that, as has
been done in other cases, we can take cognizance of the common law
rule on the same subject. In the United States, it is uniformly held that
the head of a house, the owner of an automobile, who maintains it for
the general use of his family is liable for its negligent operation by one
of his children, whom he designates or permits to run it, where the car
is occupied and being used at the time of the injury for the pleasure of
other members of the owner's family than the child driving it. The
theory of the law is that the running of the machine by a child to carry
other members of the family is within the scope of the owner's
business, so that he is liable for the negligence of the child because of
the relationship of master and servant. (Huddy On Automobiles, 6th
ed., sec. 660; Missell vs. Hayes [1914], 91 Atl., 322.) The liability of
Saturnino Cortez, the owner of the truck, and of his chauffeur Abelardo
Velasco rests on a different basis, namely, that of contract which, we
think, has been sufficiently demonstrated by the allegations of the
complaint, not controverted, and the evidence. The reason for this
conclusion reaches to the findings of the trial court concerning the
position of the truck on the bridge, the speed in operating the machine,
and the lack of care employed by the chauffeur. While these facts are
not as clearly evidenced as are those which convict the other
defendant, we nevertheless hesitate to disregard the points
emphasized by the trial judge. In its broader aspects, the case is one of
two drivers approaching a narrow bridge from opposite directions, with
neither being willing to slow up and give the right of way to the other,
with the inevitable result of a collision and an accident.
The defendants Velasco and Cortez further contend that there existed
contributory negligence on the part of the plaintiff, consisting
principally of his keeping his foot outside the truck, which occasioned
his injury. In this connection, it is sufficient to state that, aside from the
fact that the defense of contributory negligence was not pleaded, the
evidence bearing out this theory of the case is contradictory in the
extreme and leads us far afield into speculative matters.
The last subject for consideration relates to the amount of the award.
The appellee suggests that the amount could justly be raised to
P16,517, but naturally is not serious in asking for this sum, since no
appeal was taken by him from the judgment. The other parties unite in
challenging the award of P10,000, as excessive. All facts considered,
including actual expenditures and damages for the injury to the leg of
the plaintiff, which may cause him permanent lameness, in connection
with other adjudications of this court, lead us to conclude that a total
sum for the plaintiff of P5,000 would be fair and reasonable. The
difficulty in approximating the damages by monetary compensation is
well elucidated by the divergence of opinion among the members of
the court, three of whom have inclined to the view that P3,000 would
be amply sufficient, while a fourth member has argued that P7,500
would be none too much.
In consonance with the foregoing rulings, the judgment appealed from
will be modified, and the plaintiff will have judgment in his favor against
the defendants Manuel Gutierrez, Abelardo Velasco, and Saturnino
Cortez, jointly and severally, for the sum of P5,000, and the costs of
both instances.
Avanceña, C.J., Johnson, Street, Villamor, Ostrand, Romualdez, and

Imperial, JJ., concur.
VILLA-REAL, J.:
I vote for an indemnity of P7,500.

Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
1931 – Gutierrez v. Gutierrez, GR No. 34840 (automotive collision,
negligence, father liable for son’s negligent acts)
1. REFERENCE
1.1. DOCKET NUMBER
 GR No. 34840
1.2. CITATION
 Gutierrez v. Gutierrez, GR No. 34840, 56 Phil. 177,

(September 23, 1931).
 ChanRobles
 Lawyerly
 LawPhil
2. MNEMONIC
 OBLICON
2.2. KEYWORDS
 automotive collision, negligence, father liable for son’s

negligent acts
2.3. FACT MNEMONIC
 collision at Talon bridge case
 Father liable for child’s negligence in handling the automotive

 Father liable for child’s negligence in handling the

automotive
 it is uniformly held that the head of a house, the
owner of an automobile, who maintains it for the
general use of his family is liable for its negligent
operation by one of his children, whom he
designates or permits to run it, where the car is
occupied and being used at the time of the injury for
the pleasure of other members of the owner’s family
than the child driving it.
2.6. SHORTHAND DIGEST
 In a case which was appealed from CFI Manila involving a

collision between a passenger truck and automotive, wherein
the lower court ruled for the plaintiff who suffered a fractured
right leg, the Supreme Court upheld the determination of facts
of CFI Manila and ruled on the legal obligations of the
defendants. Using a common law rule from the United States
together with Article 1903 of the Civil Code, the Court ruled
that it was the father and not the son or mother that was liable
for the son’s negligent acts. The damages were deemed too
excessive however; thus the judgment was modified and the
awarded damage reduced.
3. PROFILE
 September 23, 1931
3.2. DECIDING COURT
 Supreme Court of the Philippines
3.3. DIVISION
 En Banc
3.4. PONENTE
 Malcolm, J.
3.5.1. Concurring
 Avancena, CJ
 Johnson
 Street
 Villamor
 Ostrand
 Romualdez
 Imperial
3.5.2. Dissenting
 Villareal (voting for an indemnity of P7500)
3.5.3. Absent/Others
 N/A
n/a
3.7. PARTIES
3.7.1. PLAINTIFF-APPELLEES
 Narciso Guiterrez
3.7.2. DEFENDANTS-APPELLANTS
 Bonifacio Gutierrez
 Maria V. De Guitierrez
 Manuel Gutierrez
 Abelardo Velasco
 Saturnino Cortez
3.8. COUNSEL
3.8.1. PLAINTIFF-APPELLEES
 Ramon Diokno
3.8.2. DEFENDANTS-APPELLANTS
 L.D. Lockwood (Velasco and Cortez)

 San Agustin & Roxas (for other appellants)
 Appeal on a decision of CFI Manila
 Civil Code, Article 1903
3.11. CASES CITED
 Missell v. Hayes [1914], 91 Alt., 322
4. CONTENTS
4.1. FACTS
 On February 2, 1930, a collision happened between a

passenger truck and a private automobile while attempting to
pass each other on the Talon bridge on the Manila South Road
in the Municipality of Las Pinas, Province of Rizal
 Chaffeur Abelardo Velasco drove the truck.
Saturnino Cortez owned the truck.
 Bonifacio Gutierrez, 18 years old, drove the
automobile. His parents, Mr. and Mrs. Gutierrez,
owned it. Only the mother and several other
members of the Gutierrez family, except the father,
was in the automobile at the time of the incident.
 As a result of the accident, plaintiff Narciso Gutierrez, a truck
passenger, suffered a fractured right leg. At the date of the
trial, such injury has not yet healed properly.
 Court of First Instance – Manila

 Plaintiff brought action to this court to recover
damages in the amount of P10,000 for physical
injuries as a result of an automobile accident against
two defendant teams
 Court ruled for the damages prayed by the plaintiff
 Supreme Court
 Both set of defendants appealed.
4.3. ISSUES
 Whether the father is liable for the acts of negligence of his

son, defendant Bonifacio Guiterrez?
4.4. HELD
 Whether the father is liable for the acts of negligence of his

son, defendant Bonifacio Guiterrez?
 Yes. At the same time, we believe that, as has been
done in other cases, we can take cognizance of the
common law rule on the same subject. In the United
States, it is uniformly held that the head of a house,
the owner of an automobile, who maintains it for the
general use of his family is liable for its negligent
operation by one of his children, whom he
designates or permits to run it, where the car is
occupied and being used at the time of the injury for
the pleasure of other members of the owner’s family
than the child driving it. The theory of the law is
that the running of the machine by a child to carry
other members of the family is within the scope of
the owner’s business, so that he is liable for the
negligence of the child because of the relationship
of master and servant.
4.5. DISPOSITION
 Judgment appealed from modified; defendants are jointly and

severally liable for the sum of P5,000 and the cost of both
instances.
 N/A
xxxxxxxxxxxxxxxxxxxxxxxxxxxxx
GUTIERREZ VS GUTIERREZ G.R. NO. 34840 SEPTEMBER 23, 1931
FACTS:
On February 2, 1930, a passenger truck and an automobile of private
ownership collided while attempting to pass each other on a bridge.
The truck was driven by the chauffeur Abelardo Velasco, and was
owned by saturnine Cortez. The automobile was being operated by
Bonifacio Gutierrez, a lad 18 years of age, and was owned by
Bonifacio’s father and mother, Mr. and Mrs. Manuel Gutierrez. At the
time of the collision, the father was not in the car, but the mother,
together with several other members of the Gutierrez family were
accommodated therein.
The collision between the bus and the automobile resulted in Narciso
Gutierrez suffering a fractured right leg which required medical
attendance for a considerable period of time.
ISSUE: Whether or not both the driver of the truck and automobile are
liable for damages and indemnification due to their negligence. What
are the legal obligations of the defendants?
HELD: Bonifacio Gutierrez’s obligation arises from culpa aquiliana. On
the other hand, Saturnino Cortez’s and his chauffeur Abelardo Velasco’s
obligation rise from culpa contractual.
The youth Bonifacio was na incompetent chauffeur, that he was driving
at an excessive rate of speed, and that, on approaching the bridge and
the truck, he lost his head and so contributed by his negligence to the
accident. The guaranty given by the father at the time the son was
granted a license to operate motor vehicles made the father
responsible for the acts of his son. Based on these facts, pursuant to
the provisions of Art. 1903 of the Civil Code, the father alone and not
the minor or the mother would be liable for the damages caused by
the minor.
The liability of Saturnino Cortez, the owner of the truck, and his
chauffeur Abelardo Velasco rests on a different basis, namely, that of
contract.
Compliance with Obligations -Arts. 19, 1163-1166,
1244, 1246, 1460, 442, 440
KINDS OF CIVIL OBLIGATIONS
As to Perfection & Extinguishment
-pure- Arts. 1179, 1197
-conditional -Arts. 1181-1190

-with a term or period- Arts. 1180, 1193-1198
HONGKONG AND SHANGHAI BANKING CORP., LTD. STAFF
RETIREMENT PLAN VS. SPOUSES BEINVENIDO AND EDITHA
BROQUEZA (G.R. NO. 178610, 17 NOVEMBER 2010).

DOCTRINE: PURE OBLIGATION IS IMMEDIATELY
DEMANDABLE.

DIGEST:

FACTS:

XYZ WAS AN EMPLOYEE OF ABC INC. XYZ OBTAINED CAR
LOAN. LATER, XYZ WAS TERMINATED BY ABC INC. ABC INC
DEMANDED PAYMENT OF THE BALANCE OF THE CAR LOAN.
XYZ SAID THE LOAN IS NOT YET MATURE BECAUSE IT IS TO
BE PAID BY INSTALLMENT. ABC INC. FILED COLLECTION
CASE AT MTC. MTC RULED XYZ MUST PAY IMMEDIATELY
THE BALANCE BECAUSE SHE CAN NO LONGER AVAIL OF THE
INSTALLMENT-PAYMENT BENEFIT FOR EMPLOYEES OF ABC
INC. ON APPEAL RTC AFFIRMED MTC DECISION. HOWEVER,
C.A. REVERSED RTC DECISION ON THE GROUND THAT THE
LOANS HAVE NOT YET MATURED AND THUS ABC INC HAS
NO CAUSE OF ACTION.

ISSUE:

WHETHER THE BALANCE OF THE LOAN IS IMMEDIATELY
DEMANDABLE.

RULING:

THE OBLIGATION TO PAY THE CAR LOAN IS A PURE
OBLIGATION BECAUSE THE PROMISSORY NOTE DOES NOT
SPECIFY A PERIOD. WHEN XYZ CEASED BEING AN EMPLOYEE
OF ABC INC, SHE CAN NO LONGER AVAIL OF THE BENEFIT
OF PAYMENT BY INSTALLMENT. THEREFORE, ABC INC CAN
DEMAND IMMEDIATE PMENT.

The full ruling of the Supreme Court reads:

The Court’s Ruling

The petition is meritorious. We agree with the rulings of the MeTC and the RTC.

The Promissory Notes uniformly provide:
PROMISSORY NOTE
P_____ Makati, M.M. ____ 19__
FOR VALUE RECEIVED, I/WE _____ jointly and severally promise to pay to THE HSBC
RETIREMENT PLAN (hereinafter called the “PLAN”) at its office in the Municipality of Makati, Metro
Manila, on or before
until fully paid the sum of PESOS
___ (P___) Philippine Currency
without discount, with interest from date hereof at the rate of
Six per cent (6%) per annum, payable
monthly.
I/WE agree that the PLAN may, upon written notice, increase the interest rate stipulated in
this note at any time depending on prevailing conditions.
I/WE hereby expressly consent to any extensions or renewals hereof for a portion or whole of
the principal without notice to the other(s), and in such a case our liability shall remain joint and
several.
In case collection is made by or through an attorney, I/WE jointly and severally agree to pay
ten percent (10%) of the amount due on this note (but in no case less than P200.00) as and for
attorney’s fees in addition to expenses and costs of suit.
In case of judicial execution, I/WE hereby jointly and severally waive our rights under the
provisions of Rule 39, Section 12 of the Rules of Court.[1][15]

In ruling for HSBCL-SRP, we apply the first paragraph of Article 1179 of the Civil Code:
Art. 1179. Every obligation whose performance does not depend upon a future or uncertain
event, or upon a past event unknown to the parties, is demandable at once.
x x x. (Emphasis supplied.)
We affirm the findings of the MeTC and the RTC that there is no date of payment indicated in
the Promissory Notes. The RTC is correct in ruling that since the Promissory Notes do not contain a
period, HSBCL-SRP has the right to demand immediate payment. Article 1179 of the Civil Code
applies. The spouses Broqueza’s obligation to pay HSBCL-SRP is a pure obligation. The fact that
HSBCL-SRP was content with the prior monthly check-off from Editha Broqueza’s salary is of no
moment. Once Editha Broqueza defaulted in her monthly payment, HSBCL-SRP made a demand to
enforce a pure obligation.
In their Answer, the spouses Broqueza admitted that prior to Editha Broqueza’s dismissal
from HSBC in December 1993, she “religiously paid the loan amortizations, which HSBC collected
through payroll check-off.”[2][16] A definite amount is paid to HSBCL-SRP on a specific date. Editha
Broqueza authorized HSBCL-SRP to make deductions from her payroll until her loans are fully paid.
Editha Broqueza, however, defaulted in her monthly loan payment due to her dismissal. Despite the
spouses Broqueza’s protestations, the payroll deduction is merely a convenient mode of payment and
not the sole source of payment for the loans. HSBCL-SRP never agreed that the loans will be paid only
through salary deductions. Neither did HSBCL-SRP agree that if Editha Broqueza ceases to be an
employee of HSBC, her obligation to pay the loans will be suspended. HSBCL-SRP can immediately
demand payment of the loans at anytime because the obligation to pay has no period. Moreover, the
spouses Broqueza have already incurred in default in paying the monthly installments.
Finally, the enforcement of a loan agreement involves “debtor-creditor relations founded on
contract and does not in any way concern employee relations. As such it should be enforced through a
separate civil action in the regular courts and not before the Labor Arbiter.”[3][17]

WHEREFORE, we GRANT the petition. The Decision of
the Court of Appeals in CA-G.R. SP No. 62685 promulgated on 30
March 2006
is REVERSED and SET ASIDE. The decision of Branch
139 of the Regional Trial Court of Makati City in Civil Case
No. 00-787, as well as the decision of Branch 61 of the Metropolitan Trial
Court of Makati City in Civil Case No. 52400
against the spouses Bienvenido
and Editha Broqueza, are AFFIRMED. Costs against respondents.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
WE CONCUR:
ANTONIO EDUARDO B. NACHURA
Associate Justice

DIOSDADO M. PERALTA ROBERTO A.
ABAD
Associate Justice Associate
Justice

JOSE C. MENDOZA
Associate
Justice
ATTESTATION
I attest that the conclusions in the above Decision
had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s
Division.
ANTONIO T. CARPIO
Associate
Justice
Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the
Constitution, and the Division Chairperson’s Attestation, I
certify that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the
writer of the opinion of the Court’s Division.
RENATO C.
CORONA
Chief
Justice

[1][15] CA rollo, p. 59.

[2][16] CA rollo, p. 50.
[3][17] NDC Guthrie Plantations, Inc. v. NLRC, 414
Phil. 714, 726-727 (2001). See also Nestlé

Philippines, Inc. v. NLRC, G.R. No. 85197, 18 March 1991,
195 SCRA 340.
G.R. No. 178610: November 15, 2010
HONGKONG AND SHANGHAI BANKING CORP., LTD.

STAFF RETIREMENT PLAN, (now HSBC Retirement
Trust Fund, Inc.),Petitioner, v. SPOUSES BIENVENIDO
AND EDITHA BROQUEZA, Respondents.
Carpio, J.
FACTS:
Broqueza (Respondents) are employees of HSBC and are also part

of the retirement trust fund (Petitioner). Respondents obtained
loans from HSBC to be automatically deducted from their salaries.
However, there was a labor dispute between the employees and
HSBC which led to their dismissal. The employees filed a case of
illegal dismissal, but HSBC already issued demands upon
Respondents which led to their delinquency.
There was a collection case filed in the MeTC by Petitioner, which

it won. Termination from employment resulted in the loss of
continued benefits under their retirement plans.Thus, the loans
secured by their future retirement benefits to which they are no
longer entitled are reduced to unsecured and pure civil
obligations.As unsecured and pure obligations, the loans are
immediately demandable.
Respondents appealed to the RTC, but it upheld the decision of

the lower court. On appeal to the CA, it held in favour of
Respondents, stating that complaints for recovery of sum of
money against Respondents are premature as the loan obligations
have not yet matured.Thus, no cause of action accrued in favor of
Petitioner.
Petitioner thus appeals to the Supreme Court.
ISSUES:
A. Whether or not the CA erred in ruling that the claim was
premature.
HELD: Petition is meritorious.
LABOR LAW: Retirement Benefits
First Issue:
In their Answer, the spouses Broqueza admitted that prior to

Editha Broquezas dismissal from HSBC in December 1993, she
"religiously paid the loan amortizations, which HSBC collected
through payroll check-off."A definite amount is paid to HSBCL-
SRP on a specific date. Editha Broqueza authorized HSBCL-SRP
to make deductions from her payroll until her loans are fully
paid.Editha Broqueza, however, defaulted in her monthly loan
payment due to her dismissal.Despite the spouses Broquezas
protestations, the payroll deduction is merely a convenient mode
of payment and not the sole source of payment for the
loans.HSBCL-SRP never agreed that the loans will be paid only
through salary deductions.Neither did HSBCL-SRP agree that if
Editha Broqueza ceases to be an employee of HSBC, her
obligation to pay the loans will be suspended.HSBCL-SRP can
immediately demand payment of the loans at anytime because the
obligation to pay has no period.Moreover, the spouses Broqueza
have already incurred in default in paying the monthly
installments.
The enforcement of a loan agreement involves "debtor-

creditor relations founded on contract and does not in
any way concern employee relations.As such it should be
enforcedthrough a separate civil action in the regular
courts and not before the Labor Arbiter."
Petition is GRANTED. The decisions of MeTC and RTC are
affirmed.
Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
PAY VS PALANCA
George Pay is a creditor of the late Justo Palanca, who died on July 3,
1952 in Manila.
 Before his death, he and Rosa Gonzales Vda. de Carlos

Palanca promised to pay P 26,900,00, with interest thereon at
the rate of 12%.
 The promissory note read as follows: "For value
received from time to time since 1947, we [jointly
and severally promise to] pay to Mr. [George Pay]
at this office at the China Banking Corporation the
sum of (P26,900.00), with interest thereon at the
rate of 12% per annum upon receipt by either of the
undersigned of cash payment from the Estate of the
late Don Carlos Palanca or upon demand"
 The promissory note was dated January 30, 1952.
 On August 26, 1961, Pay petitioned to the Court

with the intention of exercising his claim on a
residential property left by the late Palanca. This is a
residential dwelling located at 2656 Taft Avenue,
Manila, covered by Tax Declaration No. 3114 and
assessed at P41,800.
 He petitioned have the surviving spouse, Segunda
Chua vda. de Palanca, become the administratrix, so
that he may file the claim against her.
 His petition was dismissed on the following
grounds:
 The surviving spouse refused to become
the administratrix of the estate.
 The property sought to be administered
was no longer in the possession of the
debtor.
 The rights of petitioner creditor had
already prescribed.
 The court ruled that the phrase "on demand" meant
that the obligation was immediately due. Since ten
years have passed when petitioner filed his action,
his action has prescribed.
4.3. ISSUES
 Whether the phrase “upon demand” extinguishes the

prescriptive period?
4.4. HELD
 Whether the phrase "upon demand" extinguishes the

prescriptive period?
 No.
 Article 1179 of the Civil Code provides:
"Every obligation whose performance
does not depend upon a future or
uncertain event, or upon a past event
unknown to the parties, is demandable at
once." This used to Article 1113 of the
Spanish Civil Code of 1889. As far back
as Floriano v. Delgado, a 1908 decision, it
has been applied according to its express
language.
 The obligation being due and demandable,
it would appear that the filing of the suit
after fifteen years was much too late.
According to the Civil Code, which is
based on Section 43 of Act No. 190, the
prescriptive period for a written contract is
that of ten years. This is another instance
where this Court has consistently adhered
to the express language of the applicable
norm.
Smith Bell vs. Sotelo Matti (44 Phil. 874)
GR No. 16570, March 9, 1922
Romualdez, J.:
Facts:
Plaintiff corporation undertook to sell and deliver equipment for Mr.
Sotelo but no definite dates were fixed for the delivery. The periods
were couched in ambiguous terms such as “within 3 or 4 months”, “in
the month of September or as soon as possible”, and “approximate
delivery with 90 days-This is not guaranteed.” When the goods arrived,
Mr. Sotelo refused to receive them and to pay the prices. Mr. Sotelo
then sued for damages because of the delay suffered.
Issue:
Whether Smith Bell incurred delay in the delivery of goods to Sotelo
Held:
No, it did not incur delay.
From the record it appears that these contracts were executed at the
time of the world war when there existed connection with the tanks
and "Priority Certificate, subject to the United -States Government
requirements," with respect to the motors. At the time of the execution
of the contracts, the parties were not unmindful of the contingency of
the United States Government not allowing the export of the goods,
nor of the fact that the other foreseen circumstances therein stated
might prevent it.
Considering these contracts in the light of the civil law, we cannot but
conclude that the term which the parties attempted to fix is so
uncertain that one cannot tell just whether, as a matter of fact, those
articles could be brought to Manila or not. If that is the case, as we
think it is, the obligation must be regarded as conditional.
When the delivery was subject to a condition the fulfillment of which
depended not only upon the effort of the herein plaintiff, but upon the
will of third persons who could in no way be compelled to fulfill .the
condition. In cases like this, which are not expressly provided for, but
impliedly covered, by the Civil Code, the obligor will be deemed to have
sufficiently performed his part of the obligation, if he has done all that
was in his power, even if the condition has not been fulfilled in reality.
In connection with this obligation to deliver, occurring in

a contract of sale like those in question, the rule in North
America is that when the time of delivery is not fixed in
the contract, time is regarded unessential.
When the contract provides for delivery 'as soon as
possible' the seller is entitled to a reasonable time, in
view of all the circumstances, such as the necessities of
manufacture, or of putting the goods in condition for
delivery. The term does not mean immediately or that
the seller must stop all his other work and devote himself
to that particular order. But the seller must nevertheless
act with all reasonable diligence or without unreasonable
delay. It has been held that a requirement that the
shipment of goods should be the 'earliest possible' must
be construed as meaning that the goods should be sent
as soon as the seller could possibly send them, and that it
signified rather more than that the goods should be sent
within a reasonable time.
"The question as to what is a reasonable time for the

delivery of the goods by the seller is to be determined by
the circumstances attending the particular transaction,
such as the character of the goods, and the purpose for
which they are intended, the ability of the seller to
produce the goods if they are to be manufactured, the
facilities available for transportation, and the distance
the goods must be carried, and the usual course of
business in the particular trade." (35 Cyc., 181-184.)
The record shows, as we have stated, that the plaintiff
did all within its power to have the machinery arrive at
Manila as soon as possible, and immediately upon its
arrival it notified the purchaser of the fact and offered to
deliver it to him. Taking these circumstances into
account, we hold that the said machinery was brought to
Manila by the plaintiff within a reasonable time.
Therefore, the plaintiff has not been guilty of any delay in
the fulfillment of its obligation, and, consequently, it
could not have incurred any of the liabilities mentioned
by the intervenor in its counterclaim or set-off.
Rosendo O. Chavez, plaintiff-appellant vs. Fructuoso Gonzales,
defendant-appellee
REYES, J.B.L., J.:

Facts: On July 1963, Rosendo Chavez brought his typewriter to
Fructuoso Gonzales a typewriter repairman for the cleaning and
servicing of the said typewriter but the latter was not able to finish
the job. During October 1963, the plaintiff gave the amount of
P6.00 to the defendant which the latter asked from the plaintiff
for the purchase of spare parts, because of the delay of the repair
the plaintiff decided to recover the typewriter to the defendant
which he wrapped it like a package. When the plaintiff reached
their home he opened it and examined that some parts and screws
was lost. That on October 29, 1963 the plaintiff sent a letter to the
defendant for the return of the missing parts, the interior cover
and the sum of P6.00 (Exhibit D). The following day, the
defendant returned to the plaintiff some of the missing parts, the
interior cover and the P6.00. The plaintiff brought his typewriter
to Freixas Business Machines and the repair cost the amount of
P89.85. He commenced this action on August 23, 1965 in the City
Court of Manila, demanding from the defendant the payment of
P90.00 as actual and compensatory damages, P100.00 for
temperate damages, P500.00 for moral damages, and P500.00 as
attorney’s fees. The defendant made no denials of the facts
narrated above, except the claim of the plaintiff that the cost of
the repair made by Freixas Business Machines be fully chargeable
against him.
Issue: Whether or not the defendant is liable for the total cost of
the repair made by Freixas Business Machines with the plaintiff
typewriter?
Ruling: No, he is not liable for the total cost of the repair made by
Freixas Business Machines instead he is only liable for the cost of
the missing parts and screws. The defendant contravened the
tenor of his obligation in repairing the typewriter of the plaintiff
that he fails to repair it and returned it with the missing parts, he
is liable under “ART. 1167. If a person obliged to do something
fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of
the tenor of the obligation. Furthermore it may be decreed that
what has been poorly done he undone.”
Xxxxxxx
.R. No. L-27454 April 30, 1970 - ROSENDO O. CHAVES v.
FRUCTUOSO GONZALES:
[G.R. No. L-27454. April 30, 1970.]
ROSENDO O. CHAVES, Plaintiff-Appellant, v. FRUCTUOSO
GONZALES, Defendant-Appellee.
SYLLABUS
1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR
NON-PERFORMANCE; FIXING OF PERIOD BEFORE FILING
OF COMPLAINT FOR NON-PERFORMANCE, ACADEMIC.—
Where the time for compliance had expired and there was breach
of contract by non-performance, it was academic for the plaintiff
to have first petitioned the court to fix a period for the
performance of the contract before filing his complaint.
2. ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE 1197
OF THE CIVIL CODE OF THE PHILIPPINES.— Where the
defendant virtually admitted non-performance of the contract by
returning the typewriter that he was obliged to repair in a non-
working condition, with essential parts missing, Article 1197 of the
Civil Code of the Philippines cannot be invoked. The fixing of a
period would thus be a mere formality and would serve no
purpose than to delay.
3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR.—

Where the defendant-appellee contravened the tenor of his
obligation because he not only did not repair the typewriter but
returned it "in shambles,’’ he is liable for the cost of the labor or
service expended in the repair of the typewriter, which is in the
amount of P58.75, because the obligation or contract was to repair
it. In addition, he is likewise liable under Art. 1170 of the Code, for
the cost of the missing parts, in the amount of P31.10, for in his
obligation to repair the typewriter he was bound, but failed or
neglected, to return it in the same condition it was when he
received it.
4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEY’S FEES

NOT RECOVERABLE; NOT ALLEGED OR PROVED IN
INSTANT CASE.— Claims for damages and attorney’s fees must
be pleaded, and the existence of the actual basis thereof must be
proved. As no findings of fact were made on the claims for
damages and attorney’s fees, there is no factual basis upon which
to make an award therefor.
5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF

FIRST INSTANCE TO SUPREME COURT; ONLY QUESTIONS
OF LAW REVIEWABLE.— Where the appellant directly appeals
from the decision of the trial court to the Supreme Court on
questions of law, he is bound by the judgment of the court a quo
on its findings of fact.
DECISION
REYES, J.B.L., J.:

This is a direct appeal by the party who prevailed in a suit for
breach of oral contract and recovery of damages but was
unsatisfied with the decision rendered by the Court of First
Instance of Manila, in its Civil Case No. 65138, because it awarded
him only P31.10 out of his total claim of P690 00 for actual,
temperate and moral damages and attorney’s fees.
The appealed judgment, which is brief, is hereunder quoted in
full:jgc:chanrobles.com.ph
"In the early part of July, 1963, the plaintiff delivered to the
defendant, who is a typewriter repairer, a portable typewriter for
routine cleaning and servicing. The defendant was not able to
finish the job after some time despite repeated reminders made by
the plaintiff. The defendant merely gave assurances, but failed to
comply with the same. In October, 1963, the defendant asked
from the plaintiff the sum of P6.00 for the purchase of spare
parts, which amount the plaintiff gave to the defendant. On
October 26, 1963, after getting exasperated with the delay of the
repair of the typewriter, the plaintiff went to the house of the
defendant and asked for the return of the typewriter. The
defendant delivered the typewriter in a wrapped package. On
reaching home, the plaintiff examined the typewriter returned to
him by the defendant and found out that the same was in
shambles, with the interior cover and some parts and screws
missing. On October 29, 1963. the plaintiff sent a letter to the
defendant formally demanding the return of the missing parts, the
interior cover and the sum of P6.00 (Exhibit D). The following
day, the defendant returned to the plaintiff some of the missing
parts, the interior cover and the P6.00.
"On August 29, 1964, the plaintiff had his typewriter repaired by
Freixas Business Machines, and the repair job cost him a total of
P89.85, including labor and materials (Exhibit C).
PLAINTIFF - "On August 23, 1965, the plaintiff commenced this

action before the City Court of Manila, demanding from the
defendant the payment of P90.00 as actual and
compensatory damages, P100.00 for temperate
damages, P500.00 for moral damages, and P500.00 as
attorney’s fees.
DEFENDANT - "In his answer as well as in his testimony given

before this court, the defendant made no denials of the facts
narrated above, except the claim of the plaintiff that the
typewriter was delivered to the defendant through a certain Julio
Bocalin, which the defendant denied allegedly because the
typewriter was delivered to him personally by the plaintiff.
DEF- "The repair done on the typewriter by Freixas Business

Machines with the total cost of P89.85 should not, however, be
fully chargeable against the defendant. The repair invoice, Exhibit
C, shows that the missing parts had a total value of only P31.10.
"WHEREFORE, judgment is hereby rendered ordering the

defendant to pay the plaintiff the sum of P31.10, and the costs of
suit.
"SO ORDERED."cralaw virtua1aw library
PLAINTIFF – NOT SATISFIED ON THE AWARD

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

same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of
the tenor of the obligation. Furthermore it may be decreed that
what has been poorly done he undone."cralaw virtua1aw library
DEFENDANT DEFENSE- PERIOD OF TIME TO COMPLY-

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

the appellee did not interpose any appeal, the facts, as found by
the trial court, are now conclusive and non-reviewable. 1
The appealed judgment states that the "plaintiff delivered to the
defendant . . . a portable typewriter for routine cleaning and
servicing" ; that the defendant was not able to finish the job after
some time despite repeated reminders made by the plaintiff" ;
that the "defendant merely gave assurances, but failed to comply
with the same" ; and that "after getting exasperated with the delay
of the repair of the typewriter", the plaintiff went to the house of
the defendant and asked for its return, which was done. The
inferences derivable from these findings of fact are that the
appellant and the appellee had a perfected contract for cleaning
and servicing a typewriter; that they intended that the defendant
was to finish it at some future time although such time was not
specified; and that such time had passed without the work having
been accomplished, far the defendant returned the typewriter
cannibalized and unrepaired, which in itself is a breach of his
obligation, without demanding that he should be given more time
to finish the job, or compensation for the work he had already
done. The time for compliance having evidently expired, and there
being a breach of contract by non-performance, it was academic
for the plaintiff to have first petitioned the court to fix a period for
the performance of the contract before filing his complaint in this
case. Defendant cannot invoke Article 1197 of the Civil Code for he
virtually admitted non-performance by returning the typewriter
that he was obliged to repair in a non-working condition, with
essential parts missing. The fixing of a period would thus be a
mere formality and would serve no purpose than to delay (cf.
Tiglao. Et. Al. V. Manila Railroad Co. 98 Phil. 18l).
It is clear that the defendant-appellee contravened the tenor of his

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

Article 1170 of the Code, for the cost of the missing parts, in the
amount of P31.10, for in his obligation to repair the typewriter he
was bound, but failed or neglected, to return it in the same
condition it was when he received it.
1946 – Encarnacion v. Baldomar, GR No. L-264 (Contract of Lease,
Indefinite Rental, Fulfillment of Obligation)
1. REFERENCE
1.1. DOCKET NUMBER
 GR No. L-264
1.2. CITATION
 Encarnacion v. Baldomar, GR No. L-264, 77 Phil. 470

(October 4, 1946)
 ChanRobles
 Lawyerly
 LawPhil
2. MNEMONIC
 OBLICON
2.2. KEYWORDS
 Contract of Lease, Indefinite Rental, Fulfillment of Obligation
2.3. FACT MNEMONIC
 Defendants renting indefinitely case

 Renting indefinitely in house under Japanese Occupation case
 One cannot leave the fulfillment of the contract to the sole

and exclusive will of the lessee
 *One cannot leave the fulfillment of the contract to the sole

and exclusive will of the lessee
 The continuance and fulfillment of the contract of
lease cannot be made to depend solely and
exclusively upon the free and uncontrolled choice of
the lessees between continuing paying the rentals or
not, completely depriving the owner of all say in the
matter.

 In an appeal on a judgment rendered by CFI Manila on a
contract of lease, which the defendants alleged that they can
occupy indefinitely as long as they fulfill their obligations, the
Supreme Court ruled for the plaintiff-appellee, who was the
lessor in this case, as leaving the fulfillment of the contract to
the exclusive will of the lessee is in violation of Article 1256
of the Civil Code.
 Plaintiff leased his house to defendants on a monthly basis for

P 35.
 On March 16 and April 7 of 1945 (after the liberation of
Manila), plaintiff notified defendants to vacate the house on or
before April 15, 1945. He needed to convert it into his office
because his old office was destroyed because of the war.
 Defendants insisted on staying.
On April 20, 1945, plaintiff filed a complaint


against defendants
 Defendants filed a motion to dismiss on lack of
jurisdiction
 Defendants were in arrears over rentals that month,
but was paid prior to the hearing.
 Plaintiff waived his claim for P500 per month
before the hearing.
 As a result the court ruled for restitution and
defendants paying the plaintiff the rentals at the rent
of P 35 a month from May 1, 1945, until defendants
completely vacate the premises.
 CFI Manila
 Plaintiff appealed.
 Defendants filed a motion to dismiss similar to that
filed in the MTC; if MTC Manila had no
jurisdiction, then CFI Manila had no appellate
jurisdiction.
 On July 21, 1945, the judge denied the motion to
dismiss on the ground that in the municipal court
plaintiff had waived said claim for damages, and
that, therefore, the same waiver was understood also
to have been made in CFI.
 The defense (defendant Fernando) alleged in trial
that the contract authorized them to continue
occupying the house indefinitely as long as they
fulfill their obligations and pay the rentals. This was
also ratified in another ejectment case between the
parties during the Japanese Regime.
 The plaintiff alleged that the lease had always been
and since the beginning been upon a month-to-
month basis.
 Because the allegations on trial by the defense
weren’t present in their answer, it indicated an
eleventh-hour theory. Thus, the court ruled for the
plaintiff.
4.3. ISSUES
 Whether the defendants can occupy the property indefinitely

as long as they faithfully fulfill their obligations?
4.4. HELD
 No.
 The continuance and fulfillment of the contract of
lease cannot be made to depend solely and
exclusively upon the free and uncontrolled choice of
the lessees between continuing paying the rentals or
not, completely depriving the owner of all say in the
matter. For if this were allowed, so long as
defendants elected to continue the lease by
continuing the payment of the rentals, the owner
would never be able to discontinue it; conversely,
although the owner should desire the lease to
continue, the lessees could effectively thwart his
purpose if they should prefer to terminate the
contract by the simple expedient of stopping
payment of the rentals. This, of course, is prohibited
by article 1256 of the Civil Code.
Contract of Lease
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
G.R. No. L-264 October 4, 1946
VICENTE SINGSON ENCARNACION, plaintiff-appellee,

vs.
JACINTA BALDOMAR, ET AL., defendants-appellants.
Bausa and Ampil for appellants.

Tolentino and Aguas for appellee.
HILADO, J.:
Vicente Singson Encarnacion, owner of the house numbered 589
Legarda Street, Manila, some six years ago leased said house to Jacinto
Baldomar and her son, Lefrado Fernando, upon a month-to-month
basis for the monthly rental of P35. After Manila was liberated in the
last war, specifically on March 16, 1945, and on April 7, of the same
year, plaintiff Singson Encarnacion notified defendants, the said mother
and son, to vacate the house above-mentioned on or before April 15,
1945, because plaintiff needed it for his offices as a result of the
destruction of the building where said plaintiff had said offices before.
Despite this demand, defendants insisted on continuing their
occupancy. When the original action was lodged with the Municipal
Court of Manila on April 20, 1945, defendants were in arrears in the
payment of the rental corresponding to said month, the agrees rental
being payable within the first five days of each month. That rental was
paid prior to the hearing of the case in the municipal court, as a
consequence of which said court entered judgment for restitution and
payment of rentals at the rate of P35 a month from May 1, 1945, until
defendants completely vacate the premises. Although plaintiff included
in said original complaint a claim for P500 damages per month, that
claim was waived by him before the hearing in the municipal court, on
account of which nothing was said regarding said damages in the
municipal court's decision.
When the case reached the Court of First Instance of Manila upon
appeal, defendants filed therein a motion to dismiss (which was similar
to a motion to dismiss filed by them in the municipal court) based upon
the ground that the municipal court had no jurisdiction over the subject
matter due to the aforesaid claim for damages and that, therefore, the
Court of First Instance had no appellate jurisdiction over the subject
matter of the action. That motion to dismiss was denied by His Honor,
Judge Mamerto Roxas, by order dated July 21, 1945, on the ground that
in the municipal court plaintiff had waived said claim for damages and
that, therefore, the same waiver was understood also to have been
made in the Court of First Instance.lawphil.net
In the Court of First Instance the graveman of the defense interposed
by defendants, as it was expressed defendant Lefrado Fernando during
the trial, was that DEFENDANT - the contract which they had
celebrated with plaintiff since the beginning authorized them to
continue occupying the house indefinetly and while they should
faithfully fulfill their obligations as respects the payment of the rentals,
and that this agreement had been ratified when another ejectment
case between the parties filed during the Japanese regime concerning
the same house was allegedly compounded in the municipal court.
PLAINTIFF - The Court of First Instance gave more credit to plaintiff's
witness, Vicente Singson Encarnacion, jr., who testified that the lease
had always and since the beginning been upon a month-to-month
basis. The court added in its decision that this defense which was put
up by defendant's answer, for which reason the Court considered it as
indicative of an eleventh-hour theory. We think that the Court of First
Instance was right in so declaring. Furthermore, carried to its logical
conclusion, the defense thus set up by defendant Lefrado Fernando
would leave to the sole and exclusive will of one of the contracting
parties (defendants in this case) the validity and fulfillment of the
contract of lease, within the meaning of article 1256 of the Civil Code,
since the continuance and fulfillment of the contract would then
depend solely and exclusively upon their free and uncontrolled choice
between continuing paying the rentals or not, completely depriving
the owner of all say in the matter. If this defense were to be allowed,
so long as defendants elected to continue the lease by continuing the
payment of the rentals, the owner would never be able to discontinue
it; conversely, although the owner should desire the lease to continue,
the lessees could effectively thwart his purpose if they should prefer to
terminate the contract by the simple expedient of stopping payment of
the rentals. This, of course, is prohibited by the aforesaid article of the
Civil Code. (8 Manresa, 3d ed., pp. 626, 627; Cuyugan vs. Santos, 34
Phil., 100.)
During the pendency of the appeal in the Court of First Instance and
before the judgment appealed from was rendered on October 31, 1945,
the rentals in areas were those pertaining to the month of August,
1945, to the date of said judgment at the rate of P35 a month. During
the pendency of the appeal in that court, certain deposits were made
by defendants on account of rentals with the clerk of said court, and in
said judgment it is disposed that the amounts thus deposited should be
delivered to plaintiff.
Upon the whole, we are clearly of opinion that the judgment appealed
from should be, as it is hereby, affirmed, with the costs of the three
instances to appellants. So ordered.
Paras, Pablo, Perfecto and Padilla, JJ., concur.
903 – Eleizegui v. The Manila Lawn Tennis Club, GR No. 967
(Contracts, Perpetual Lease, Duration)
 The duration depending on the will of the lessor relies on

either the lessor’s entire lifetime or if transmitted to heirs.
 Leases must only be determinate and temporary.
 Usufruct is a superior right arising from a lease, which endures
throughout the lifetime of the usufructuary if a natural person
or thirty years if a juridical person.
 If in case the duration is left to the will of the debtor, the term
must be fixed by the courts.
 The duration depending on the will of the lessor relies on

either the lessor’s entire lifetime or if transmitted to heirs.
 If the lease could last during such time as the lessee
might see fit, because it has been so stipulated by
the lessor, it would last, first, as long as the will of
the lessee — that is, all his life; second, during all
the time that he may have succession, inasmuch as
he who contracts does so for himself and his heirs.
(Art. 1257 of the Civil Code.)
 Leases must only be determinate and temporary.
 If it is a lease, then it must be for a determinate
period. (Art 1543.) By its very nature it must be
temporary…
 Usufruct is a superior right arising from a lease, which
endures throughout the lifetime of the usufructuary if a
natural person or thirty years if a juridical person.
 Usufruct is a right of superior degree to that which
arises from a lease. It is a real right and includes all
the jus utendi and jus fruendi. Nevertheless, the
utmost period for which a usufruct can endure, if
constituted in favor of a natural person, is the
lifetime of the usufructuary (art. 513, sec. 1); and if
in favor of a juridical person, it can not be created
for more than thirty years. (Art. 515.)
 If in case the duration is left to the will of the debtor, the
term must be fixed by the courts.
 In speaking in general of obligations with a term it
has supplied the deficiency of the former law with
respect to the “duration of the term when it has
been left to the will of the debtor,” and provides
that in this case the term shall be fixed by the
courts. (Art. 1128, sec. 2.)
 This is an appeal to the Supreme Court involving a case on the

plaintiff’s termination of a lease of a lot wherein it was
stipulated that “… the owners of the land undertake to
maintain the club as tenant as long as the latter shall see fit.”
The Supreme Court ordered the reversal of the lower court’s
decision in favor of the defendants, as the lower court relied
on the expiration of a legal term, which does not exist in the
present case. The Supreme Court also ruled that the lease is
still a determinate contract, which duration is as stipulated
dependent on the will of the tenant and may be fixed by the
courts.
4.1. FACTS
 A piece of land in consideration and to endure at the will of

the lessee.
 By the contract the lessee is expressly authorized to make
improvements upon the land, by erecting buildings of both
permanent and temporary nature, by making fills, laying pipes,
and making such other improvements desirable for the
comfort and amusement of the members.
 The second clause of the contract provides as
follows: “The rent of the said land is fixed at 25
pesos per month.”
 The third clause provides as follows: “Mr.
Williamson, or whoever may succeed him as
secretary of said club, may terminate his lease
whenever desired without other formality than that
of giving a month’s notice. The owners of the land
undertake to maintain the club as tenant as long as
the latter shall see fit.”
 On August 28, plaintiffs issued a notice terminating the lease.
 The court decided that the contract of lease was terminated by

the notice given by the plaintiffs “on August 28 of last year”.
This theory rests upon Article 1581 of the Civil Code, the law
in force at the time the contract was entered into.
 To quote: “When the term has not been fixed for the
lease, it is understood to be for years when an
annual rental has been fixed, for months when the
rent is monthly.”
 Supreme Court
 Defendant appeals, alleges the following:
 In a contract by which the lessor has left
the termination of the lease to the will of
the lessee, such a lease can or should be
terminated at the will of the lessor. If so,
there can be no other mode of terminating
the lease than by the will of the lessee.
 He maintains the possibility of a perpetual
lease or innominate contract, and that the
law of the contract, as long as there is no
agreement against any statute, morals, or
public policy, remains superior.
 Three theories are presented:
 The duration depends upon the will of the lessor,
who, upon one month’s notice given to the lessee,
may terminate the lease so stipulated
 The duration depends upon the will of the lessee, as
stipulated
 The right to fix the duration is reserved to the courts.
4.3. ISSUES
 Whether the clause in the lease in question implies an

indeterminate period or life tenancy?
 Whether the duration depends upon the will of the lessee, as
stipulated?
 Whether the right to fix the duration is reserved to the courts?
 Whether there is a conventional term or duration agreed upon
in the contract in question?
4.4. HELD
 Whether the clause in the lease in question implies an

indeterminate period or life tenancy?
 No.
 It is not to be understood that we admit
that the lease entered into was stipulated
as a life tenancy, and still less as a
perpetual lease. The terms of the contract
express nothing to this effect. They do,
however, imply this idea.
 If the lease could last during such time as
the lessee might see fit, because it has
been so stipulated by the lessor, it would
last, first, as long as the will of the lessee
— that is, all his life; second, during all
the time that he may have succession,
inasmuch as he who contracts does so for
himself and his heirs. (Art. 1257 of the
Civil Code.)
 The lease in question does not fall within
any of the cases in which the rights and
obligations arising from a contract can not
be transmitted to heirs, either by its
nature, by agreement, or by provision of
law. Furthermore, the lessee is an English
association.
 Usufruct is a right of superior degree to
that which arises from a lease. It is a real
right and includes all the jus utendi and
jus fruendi. Nevertheless, the utmost
period for which a usufruct can endure, if
constituted in favor of a natural person, is
the lifetime of the usufructuary (art. 513,
sec. 1); and if in favor of a juridical
person, it can not be created for more than
thirty years. (Art. 515.)
 If it is a lease, then it must be for a
determinate period. (Art 1543.) By its
very nature it must be temporary, just as
by reason of its nature an Emphyteusis
must be perpetual, or for an unlimited
period. (Art. 1608.)
 Whether the duration depends upon the will of the lessee,
as stipulated?
 Yes.
 On the other hand, it can not be concluded
that the termination of the contract is to be
left completely at the will of the lessee,
because it has been stipulated that its
duration is to be left to his will.
 Whether the right to fix the duration is reserved to the
courts?
 Yes.
 The Civil Code has made provision for
such a case in all kinds of obligations. In
speaking in general of obligations with a
term it has supplied the deficiency of the
former law with respect to the “duration
of the term when it has been left to the
will of the debtor,” and provides that in
this case the term shall be fixed by the
courts. (Art. 1128, sec. 2.)
 In every contract, as laid down by the
authorities, there is always a creditor who
is entitled to demand the performance, and
a debtor upon whom rests the obligation
to perform the undertaking. In bilateral
contracts the contracting parties are
mutually creditors and debtors.
 Thus, in this contract of lease, the lessee is
the creditor with respect to the rights
enumerated in article 1554, and is the
debtor with respect to the obligations
imposed by articles 1555 and 1561.
 The term within which performance of the
latter obligation is due is what has been
left to the will of the debtor. This term it is
which must be fixed by the courts.
 Whether there is a conventional term or duration agreed
upon in the contract in question?
 No.
 The system of the Code is that of
establishing general rules applicable to all
obligations and contracts, and then special
provisions peculiar to each species of
contract. In no part of Title VI of Book
IV, which treats of the contract of lease,
are there any special rules concerning pure
or conditional obligations which may be
stipulated in a lease, because, with respect
to these matters, the provisions of Section
1, Chapter 3, Title I, on the subject of
obligations, are wholly sufficient.
 With equal reason should we refer to
section 2, which deals with obligations
with a term, in the same chapter and title,
if a question concerning the term arises
out of a contract of lease, as in the present
case, and within this section we find
article 1128, which decides the question.
 The judgment was entered below upon the

theory of the expiration of a legal term
which does not exist, as the case requires
that a term be fixed by the courts under
the provisions of article 1128 with respect
to obligations which, as is the present, are
terminable at the will of the obligee.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
G.R. No. 967 May 19, 1903
DARIO AND GAUDENCIO ELEIZEGUI, plaintiffs-appellees,

vs.
THE MANILA LAWN TENNIS CLUB, defendant-appellant.
Pillsburry and Sutro for appellant.

Manuel Torres Vergara for appellee.
ARELLANO, C. J.:
This suit concerns the lease of a piece of land for a fixed consideration
and to endure at the will of the lessee. By the contract of lease the lessee
is expressly authorized to make improvements upon the land, by erecting
buildings of both permanent and temporary character, by making fills,
laying pipes, and making such other improvements as might be
considered desirable for the comfort and amusement of the members.
With respect to the term of the lease the present question has arisen. In
its decision three theories have been presented: One which makes the
duration depend upon the will of the lessor, who, upon one month's
notice given to the lessee, may terminate the lease so stipulated; another
which, on the contrary, makes it dependent upon the will of the lessee,
as stipulated; and the third, in accordance with which the right is
reversed to the courts to fix the duration of the term.
The first theory is that which has prevailed in the judgment below, as
appears from the language in which the basis of the decision is
expressed: "The court is of the opinion that the contract of lease was
terminated by the notice given by the plaintiff on August 28 of last year .
. . ." And such is the theory maintained by the plaintiffs, which expressly
rests upon article 1581 of the Civil Code, the law which was in force at
the time the contract was entered into (January 25, 1890). The judge, in
giving to this notice the effect of terminating the lease, undoubtedly
considers that it is governed by the article relied upon by the plaintiffs,
which is of the following tenor: "When the term has not been fixed for
the lease, it is understood to be for years when an annual rental has been
fixed, for months when the rent is monthly. . . ." The second clause of
the contract provides as follows: "The rent of the said land is fixed at 25
pesos per month." (P. 11, Bill of Exceptions.)
In accordance with such a theory, the plaintiffs might have terminated

the lease the month following the making of the contract — at any time
after the first month, which, strictly speaking, would be the only month
with respect to which they were expressly bound, they not being bound
for each successive month except by a tacit renewal (art. 1566) — an
effect which they might prevent by giving the required notice.
Although the relief asked for in the complaint, drawn in accordance with
the new form of procedure established by the prevailing Code, is the
restitution of the land to the plaintiffs (a formula common to various
actions), nevertheless the action which is maintained can be no other
than that of desahucio, in accordance with the substantive law governing
the contract. The lessor — says article 1569 of the Civil Code — may
judicially dispossess the lessee upon the expiration of the conventional
term or of the legal term; the conventional term — that is, the one agreed
upon by the parties; the legal term, in defect of the conventional, fixed
for leases by articles 1577 and 1581. We have already seen what this
legal term is with respect to urban properties, in accordance with article
1581.
Hence, it follows that the judge has only to determine whether there is or
is not conventional term. If there be a conventional term, he can not
apply the legal term fixed in subsidium to cover a case in which the
parties have made no agreement whatsoever with respect to the duration
of the lease. In this case the law interprets the presumptive intention of
the parties, they having said nothing in the contract with respect to its
duration. "Obligations arising from contracts have the force of law
between the contracting parties and must be complied with according to
the tenor of the contracts." (Art. 1091 of the Civil Code.)
The obligations which, with the force of law, the lessors assumed by the
contract entered into, so far as pertaining to the issues, are the following:
"First. . . . They lease the above-described land to Mr. Williamson, who
takes it on lease, . . . for all the time the members of the said club may
desire to use it . . . Third. . . . the owners of the land undertake to
maintain the club as tenant as long as the latter shall see fit, without
altering in the slightest degree the conditions of this contract, even
though the estate be sold."
It is necessary, therefore, to answer the first question: Was there, or was

there not, a conventional term, a duration, agreed upon in the contract in
question? If there was an agreed duration, a conventional term, then the
legal term — the term fixed in article 1581 — has no application; the
contract is the supreme law of the contracting parties. Over and above
the general law is the special law, expressly imposed upon themselves
by the contracting parties. Without these clauses 1 and 3, the contract
would contain no stipulation with respect to the duration of the lease,
and then article 1581, in connection with article 1569, would necessarily
be applicable. In view of these clauses, however, it can not be said that
there is no stipulation with respect to the duration of the lease, or that,
notwithstanding these clauses, article 1581, in connection with article
1569, can be applied. If this were so, it would be necessary to hold that
the lessors spoke in vain — that their words are to be disregarded — a
claim which can not be advanced by the plaintiffs nor upheld by any
court without citing the law which detracts all legal force from such
words or despoils them of their literal sense.
It having been demonstrated that the legal term can not be applied, there
being a conventional term, this destroys the assumption that the contract
of lease was wholly terminated by the notice given by the plaintiffs, this
notice being necessary only when it becomes necessary to have recourse
to the legal term. Nor had the plaintiffs, under the contract, any right to
give such notice. It is evident that they had no intention of stipulating
that they reserved the right to give such notice. Clause 3 begins as
follows: "Mr. Williamson, or whoever may succeed him as secretary of
said club, may terminate this lease whenever desired without other
formality than that of giving a month's notice. The owners of the land
undertake to maintain the club as tenant as long as the latter shall see
fit." The right of the one and the obligation of the others being thus
placed in antithesis, there is something more, much more, than the
inclusio unius, exclusio alterius. It is evident that the lessors did not
intend to reserve to themselves the right to rescind that which they
expressly conferred upon the lessee by establishing it exclusively in
favor of the latter.
It would be the greatest absurdity to conclude that in a contract by which

the lessor has left the termination of the lease to the will of the lessee,
such a lease can or should be terminated at the will of the lessor.
It would appear to follow, from the foregoing, that, if such is the force of
the agreement, there can be no other mode of terminating the lease than
by the will of the lessee, as stipulated in this case. Such is the conclusion
maintained by the defendant in the demonstration of the first error of law
in the judgment, as alleged by him. He goes so far, under this theory, as
to maintain the possibility of a perpetual lease, either as such lease, if the
name can be applied, or else as an innominate contract, or under any
other denomination, in accordance with the agreement of the parties,
which is, in fine, the law of the contract, superior to all other law,
provided that there be no agreement against any prohibitive statute,
morals, or public policy.
It is unnecessary here to enter into a discussion of a perpetual lease in

accordance with the law and doctrine prior to the Civil Code now in
force, and which has been operative since 1889. Hence the judgment of
the supreme court of Spain of January 2, 1891, with respect to a lease
made in 1887, cited by the defendant, and a decision stated by him to
have been rendered by the Audiencia of Pamplona in 1885 (it appears to
be rather a decision by the head office of land registration of July 1,
1885), and any other decision which might be cited based upon the
constitutions of Cataluna, according to which a lease of more than ten
years is understood to create a life tenancy, or even a perpetual tenancy,
are entirely out of point in this case, in which the subject-matter is a
lease entered into under the provisions of the present Civil Code, in
accordance with the principles of which alone can this doctrine be
examined.
It is not to be understood that we admit that the lease entered into was
stipulated as a life tenancy, and still less as a perpetual lease. The terms
of the contract express nothing to this effect. They do, whatever, imply
this idea. If the lease could last during such time as the lessee might see
fit, because it has been so stipulated by the lessor, it would last, first, as
long as the will of the lessee — that is, all his life; second, during all the
time that he may have succession, inasmuch as he who contracts does so
for himself and his heirs. (Art. 1257 of the Civil Code.) The lease in
question does not fall within any of the cases in which the rights and
obligations arising from a contract can not be transmitted to heirs, either
by its nature, by agreement, or by provision of law. Furthermore, the
lessee is an English association.
Usufruct is a right of superior degree to that which arises from a lease. It

is a real right and includes all the jus utendi and jus fruendi.
Nevertheless, the utmost period for which a usufruct can endure, if
constituted in favor a natural person, is the lifetime of the usufructuary
(art. 513, sec. 1); and if in favor of juridical person, it can not be created
for more than thirty years. (Art. 515.) If the lease might be perpetual, in
what would it be distinguished from an emphyteusis? Why should the
lessee have a greater right than the usufructuary, as great as that of an
emphyteuta, with respect to the duration of the enjoyment of the
property of another? Why did they not contract for a usufruct or an
emphyteusis? It was repeatedly stated in the document that it was a
lease, and nothing but a lease, which was agreed upon: "Being in the full
enjoyment of the necessary legal capacity to enter into this contract of
lease . . . they have agreed upon the lease of said estate . . . They lease to
Mr. Williamson, who receives it as such. . . . The rental is fixed at 25
pesos a month. . . . The owners bind themselves to maintain the club as
tenant. . . . Upon the foregoing conditions they make the present contract
of lease. . . ." (Pp. 9, 11, and 12, bill of exceptions.) If it is a lease, then it
must be for a determinate period. (Art. 1543.) By its very nature it must
be temporary, just as by reason of its nature an emphyteusis must be
perpetual, or for an unlimited period. (Art. 1608.)
On the other hand, it can not be concluded that the termination of the
contract is to be left completely at the will of the lessee, because it has
been stipulated that its duration is to be left to his will.
The Civil Code has made provision for such a case in all kinds of
obligations. In speaking in general of obligations with a term it has
supplied the deficiency of the former law with respect to the "duration of
the term when it has been left to the will of the debtor," and provides
that in this case the term shall be fixed by the courts. (Art. 1128, sec. 2.)
In every contract, as laid down by the authorities, there is always a
creditor who is entitled to demand the performance, and a debtor upon
whom rests the obligation to perform the undertaking. In bilateral
contracts the contracting parties are mutually creditors and debtors.
Thus, in this contract of lease, the lessee is the creditor with respect to
the rights enumerated in article 1554, and is the debtor with respect to
the obligations imposed by articles 1555 and 1561. The term within
which performance of the latter obligation is due is what has been left to
the will of the debtor. This term it is which must be fixed by the courts.
The only action which can be maintained under the terms of the contract
is that by which it is sought to obtain from the judge the determination
of this period, and not the unlawful detainer action which has been
brought — an action which presupposes the expiration of the term and
makes it the duty of the judge to simply decree an eviction. To maintain
the latter action it is sufficient to show the expiration of the term of the
contract, whether conventional or legal; in order to decree the relief to be
granted in the former action it is necessary for the judge to look into the
character and conditions of the mutual undertakings with a view to
supplying the lacking element of a time at which the lease is to expire. In
the case of a loan of money or a commodatum of furniture, the payment
or return to be made when the borrower "can conveniently do so" does
not mean that he is to be allowed to enjoy the money or to make use of
the thing indefinitely or perpetually. The courts will fix in each case,
according to the circumstances, the time for the payment or return. This
is the theory also maintained by the defendant in his demonstration of
the fifth assignment of error. "Under article 1128 of the Civil Code,"
thus his proposition concludes, "contracts whose term is left to the will
of one of the contracting parties must be fixed by the courts, . . . the
conditions as to the term of this lease has a direct legislative sanction,"
and he cites articles 1128. "In place of the ruthless method of
annihilating a solemn obligation, which the plaintiffs in this case have
sought to pursue, the Code has provided a legitimate and easily available
remedy. . . . The Code has provided for the proper disposition of those
covenants, and a case can hardly arise more clearly demonstrating the
usefulness of that provision than the case at bar." (Pp. 52 and 53 of
appellant's brief.)
The plaintiffs, with respect to this conclusion on the part of their

opponents, only say that article 1128 "expressly refers to obligations in
contracts in general, and that it is well known that a lease is included
among special contracts." But they do not observe that if contracts,
simply because special rules are provided for them, could be excepted
from the provisions of the articles of the Code relative to obligations and
contracts in general, such general provisions would be wholly without
application. The system of the Code is that of establishing general rules
applicable to all obligations and contracts, and then special provisions
peculiar to each species of contract. In no part of Title VI of Book IV,
which treats of the contract of lease, are there any special rules
concerning pure of conditional obligations which may be stipulated in a
lease, because, with respect to these matters, the provisions of section 1,
chapter 3, Title I, on the subject of obligations are wholly sufficient.
With equal reason should we refer to section 2, which deals with
obligations with a term, in the same chapter and title, if a question
concerning the term arises out of a contract of lease, as in the present
case, and within this section we find article 1128, which decides the
question.
The judgment was entered below upon the theory of the expiration of a
legal term which does not exist, as the case requires that a term be fixed
by the courts under the provisions of article 1128 with respect to
obligations which, as is the present, are terminable at the will of the
obligee. It follows, therefore, that the judgment below is erroneous.
The judgment is reversed and the case will be remanded to the court
below with directions to enter a judgment of dismissal of the action in
favor of the defendant, the Manila Lawn Tennis Club, without special
allowance as to the recovery of costs. So ordered.
Mapa and Ladd, JJ., concur.

Torres, J., disqualified.
Separate Opinions
WILLARD, J., concurring:
I concur in the foregoing opinion so far as it holds that article 1581 has
no application to the case and that the action can not be maintained. But
as to the application of article 1128 I do not concur. That article is as
follows:
Should the obligation not fix a period, but it can be inferred from its
nature and circumstances that there was an intention to grant it to the
debtor, the courts shall fix the duration of the same.
The court shall also fix the duration of the period when it may have been
left to the will of the debtor.
The court has applied the last paragraph of the article to the case of a
lease. But, applying the first paragraph to leases, we have a direct
conflict between this article and article 1581. Let us suppose the lease of
a house for 50 pesos a month. Nothing is said about the number of
months during which the lessee shall occupy it. If article 1581 is
applicable to this case, the law fixes the duration of the term and the
courts have no power to change it. If article 1128 is applied to it, the
courts fix the duration of the lease without reference to article 1581. It
will, I think, be agreed by everyone that article 1581 is the law
applicable to the case, and that article 1128 has nothing to do with it.
It seems clear that both parts of the article must refer to the same kind of
obligations. The first paragraph relates to obligations in which the
parties have named no period, the second to the same kind of obligations
in which the period is left to the will of the debtor. If the first paragraph
is not applicable to leases, the second is not.
The whole article was, I think, intended to apply generally to unilateral

contracts — to those in which the creditor had parted with something of
value, leaving it to the debtor to say when it should be returned. In such
cases the debtor might never return it, and the creditor might thus be
deprived of his property and entirely defeated in his rights. It was to
prevent such a wrong that the article was adopted. But it has no
application to this case. The plaintiffs are not deprived of their rights.
They get every month the value which they themselves put upon the use
of the property. The time of the payment of this rent has not been left by
the contract to the will of the debtor. It is expressly provided in the
contract that it shall be paid "within the first five days after the
expiration of each month."
Article 1255 of the Civil Code is as follows:
The contracting parties may make the agreement and establish the
clauses and conditions which they may deem advisable, provided they
are not in contravention of law, morals, or public order.
That the parties to this contract distinctly agreed that the defendant
should have this property so long as he was willing to pay 25 pesos a
month for it, is undisputed.
I find nothing in the Code to show that when a natural person is the
tenant such an agreement would be contrary to law, morality, or public
policy. In such a case the contract would terminate at the death of the
tenant. Such is the doctrine of the French Cour de Cassation. (Houet vs.
Lamarge, July 20, 1840.)
The tenant is the only person who has been given the right to say how
long the contract shall continue. That right is personal to him, and is not
property in such a sense as to pass to his heirs.
In this case the question is made more difficult by the fact that the tenant
is said to be juridical person, and it is said that the lease is therefore a
perpetual one. Just what kind of a partnership or association the
defendant is does not appear, and without knowing what kind of an
entity it is we can not say that this contract is a perpetual lease. Even if
the defendant has perpetual succession, the lease would not necessarily
last forever. A breach of any one of the obligations imposed upon the
lessee by article 1555 of the Civil Code would give the landlord the right
to terminate it.
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
4.1. FACTS
 Justina Santos y Canon Faustina and Lorenza, her sister,

owned a piece of land in Rizal Avenue. In the said lot facing
Florentino Torres were two residential houses where they
lived. In it was also Hen Wah Restaurant, which faced Rizal
Avenue, where Wong Heng, a Chinese, and his family, was a
long-time lessee with a monthly rental of P 2,620.xxx
 1957, September 22
 Lorenza dies; Justina solely inherits the property.
She was however 90 years old, blind, crippled, and
invalid.
 Wong and his family became the trusted caretakers
of the estate.
 1957, November 15
 Justina Santos executed a 50-year lease with a right
to withdraw anytime in favor of Wong. The lease
covered the original area leased to Wong plus
another fronting Florentino Torres Street. The
monthly rental was for P 3,120.
 The contract was amended to cover the entire
property, with an additional rental of P 1000.
 For his part Wong undertook to pay out of the rental
due from him an amount not exceeding P1000 a
month for the food of ther dogs and the salaries of
her maids.
 1957, December 21
 Another contract was executed to give Wong the
option to buy the leased premises for P120,000,
payable within ten years at an installment of
P1000/month. Wong was also given the obligation
to shoulder the costs of the dog food and the salaries
of her maids.
 It was provided on the condition that Wong obtain
Philippine citizenship.
 The petition was withdrawn when it was discovered
that he was not a resident of Rizal.
 1958, October 28
 Justina files a petition to adopt him and his children
on the belief that adoption would make them
Philippine citizens. Discovering the error later on,
the proceedings were abandoned.
 Two other contracts were executed
 one which extended the term of lease to
99 years
 another which fixed the term of the option
at 50 years.
 Believing that those contracts were made by her
because of Wong’s manipulations, she ordered her
executor to pursue annulling the contracts.

 Both parties directly appealed to the
Supreme Court.
 The original parties died:
 Wong Heng on 1962, October
21, substituted thus by his wife,
Lui She
 Justina Santos on 1964,
December 28, substituted by the
Philippine Banking Corporation
 The Philippine Banking Corporation
maintained the same claims held in CFI
Manila, which are as follows:
 the lease contract should have
been annulled along with the
four other contracts because it
lacks mutuality;
 because it included a portion
which, at the time, was in
custodia legis, because the
contract was obtained in
violation of the fiduciary
relations of the parties;
 because her consent was
obtained through undue
influence, fraud and
misrepresentation;
 and because the lease contract,
like the rest of the contracts, is
absolutely simulated.
4.3. ISSUES
 Whether paragraph 5 of the lease contract, which states that

"the lessee may at any time withdraw from this agreement," in
violation of Article 1308 of the Civil Code?
 Whether the case of Encarnacion v. Baldomar can be cited in
support of the claim of want of mutuality?
 Whether the lease contract was obtained by Wong in violation
of his fiduciary relationship with Justina Santos, contrary to
article 1646, in relation to article 1941 of the Civil Code,
which disqualifies "agents (from leasing) the property whose
administration or sale may have been entrusted to them."?
 Whether the contracts are valid, despite evidence of Santos’
willful consent to the terms of the contract?
 Whether the parties in pari delicto should be left without
relief?
4.4. HELD
 Whether paragraph 5 of the lease contract, which states

that "the lessee may at any time withdraw from this
agreement," in violation of Article 1308 of the Civil Code?
 No.
 We have had occasion to delineate the
scope and application of article 1308 in
the early case of Taylor vs. Uy Tiong
Piao. We said in the case:
 Article 1256 [now art. 1308] of
the Civil Code in our opinion
creates no impediment to the
insertion in a contract for
personal service of a resolutory
condition permitting the
cancellation of the contract by
one of the parties. Such a
stipulation, as can be readily
seen, does not make either the
validity or the fulDllment of the
contract dependent upon the
will of the party to whom is
conceded the privilege of
cancellation; for where the
contracting parties have agreed
that such option shall exist, the
exercise of the option is as
much in the fulDllment of the
contract as any other act which
may have been the subject of
agreement, Indeed, the
cancellation of a contract in
accordance with conditions
agreed upon beforehand is
fulfillment.
 And so it was held in Melencio vs. Dy
Tiao Lay that a "provision in a lease
contract that the lessee at any time before
he erected any building on the land, might
rescind the lease, can hardly be regarded
as a violation of article 1256 [now art.
1308] of the Civil Code."
 Whether the case of Encarnacion v. Baldomar can be cited
in support of the claim of want of mutuality?
 No.
 The case of Singson Encarnacion vs.
Baldomar cannot be cited in support of the
claim of want of mutuality, because of a
difference in factual setting. In that case,
the lessees argued that they could occupy
the premises as long as they paid the rent.
This is of course untenable, for as this
Court said "If this defense were to be
allowed, so long as defendants elected to
continue the lease by continuing the
payment of the rentals, the owner would
never be able to discontinue it;
conversely, although the owner should
desire the lease to continue the lessees
could effectively thwart his purpose if
they should prefer to terminate the
contract by the simple expedient of
stopping payment of the rentals."
 Here, in contrast, the right of the lessee to
continue the lease or to terminate it is so
circumscribed by the term of the contract
that it cannot be said that the continuance
of the lease depends upon his will. At any
rate, even if no term had been fixed in the
agreement, this case would at most justify
the fixing of a period but not the
annulment of the contract.
 Whether the lease contract was obtained by Wong in
violation of his fiduciary relationship with Justina Santos,
contrary to article 1646, in relation to article 1941 of the
Civil Code, which disqualifies "agents (from leasing) the
property whose administration or sale may have been
entrusted to them."?
 No.
 Justina Santos became the owner of the
entire property upon the death of her sister
Lorenza on September 22, 1957 by force
of article 777 of the Civil Code. Hence,
when she leased the property on
November 15, she did so already as owner
thereof.
 As this Court explained in upholding the
sale made by an heir of a property under
judicial administration:
 "That the land could not
ordinarily be levied upon while
in custodia legis does not mean
that one of the heirs may not
sell the right, interest or
participation which he has or
might have in the lands under
administration. The ordinary
execution of property in
custodia legis is prohibited in
order to avoid interference with
the possession by the court. But
the sale made by an heir of his
share in an inheritance, subject
to the result of the pending
administration, in no wise
stands in the way of such
administration."
 Whether the contracts are valid, despite evidence of
Santos’ willful consent to the terms of the contract?
 No.
 For the testimony just quoted while
dispelling doubt as to the intention of
Justina Santos, at the same time gives the
clue to what we view as a scheme to
circumvent the Constitutional prohibition
against the transfer of land of aliens. "The
illicit purpose then becomes the illegal
cause rendering the contracts void.
 Taken singly, the contracts show nothing
that is necessarily illegal, but considered
collectively, they reveal an insidious
pattern to subvert by indirection what the
Constitution directly prohibits. To be sure,
a lease to an alien for a reasonable period
is valid. So is an option giving an alien the
right to buy real property on condition that
he is granted Philippine citizenship. As
this said in Krivenko vs. Register of
Deeds:
 "[A]liens are not completely
excluded by the Constitution
form the use of lands for
residential purposes. Since their
residence in the Philippines is
temporary, they may be granted
temporary rights such as a
lease contract which is not
forbidden by the Constitution.
Should they desire to remain
here forever and share our
fortunes and misfortunes,
Filipino citizenship is not
impossible to acquire."
 But if an alien is given not only a lease of,
but also an option to buy, a piece of land,
by virtue of which the Filipino owner
cannot sell or otherwise dispose of his
property, this to last for 50 years, then it
becomes clear that the arrangement is a
virtual transfer of ownership whereby the
owner divests himself in stages not only
of the right to enjoy the land (jus
possidendi, jus utendi, jus fruendi and jus
abutendi) but also of the right to dispose
of it (jus disponendi) — rights the sum
total of which make up ownership. It is
just as if today the possession is
transferred, tomorrow, the use, the next
day, the disposition, and so on, until
ultimately all the rights of which
ownership is made up are consolidated in
an alien. And yet this is just exactly what
the parties in this case did within this pace
of one year, with the result that Justina
Santos’ ownership of her property was
reduced to a hollow concept. If this can be
done, then the Constitutional ban against
alien landholding in the Philippines, as
announced in Krivenko vs. Register of
Deeds, is indeed in grave peril.
relief?
 No.
 For one thing, the original parties who
were guilty of a violation of the
fundamental charter have died and have
since been substituted by their
administrators to whom it would be unjust
to impute their guilt. For another thing,
and is not only cogent but also –
important, article 1416 of the Civil Code
provides, as an exception to the rule on
pari delicto, that ‘When the agreement, is
not illegal per se but is merely prohibited
and the prohibition by law is designed for
the protection of the plaintiff, he may, if
public policy is thereby enhanced, recover
what he has paid or delivered." The
Constitutional provision that "Save in
cases of hereditary succession, no private
agricultural land shall be transferred or
assigned except to individuals,
corporations, or associations qualified to
acquire or hold lands of the public domain
in the Philippines is an expression of
public policy to conserve lands for the
Filipinos. As this Court said in Krivenko:
 "It is well to note at this
juncture that in the present case
we have no choice. We are
construing the Constitution as it
is and not as we may desire it to
be. Perhaps the effect of our
construction is to preclude
aliens admitted freely into the
Philippines from owning sites
where they may build their
homes. But if this is the solemn
mandate of the Constitution we
will not attempt to compromise
it even in the name of amity or
equity….
 "For all the foregoing, we hold
that under the Constitution
aliens may not acquire private
or public agricultural lands,
including residential lands and,
accordingly, judgment is
affirmed, without costs."
 That policy would be defeated and its
continued violation sanctioned if, instead
of setting the contracts aside and ordering
the restoration of the land to the estate of
the deceased Justina Santos, this Court
should apply the general rule of pari
delicto. To the extent that our ruling in
this case conflicts with that laid down in
Rellosa vs. Gaw Chee Hun and
subsequent similar cases, the latter must
be considered as pro tanto qualified.
4.5. DISPOSITION
 The contracts in question annulled and set aside

 The land is ordered returned to the estate of Justina Santos
 Wong Heng (as substituted by Lui She) is ordered to pay the
Philippine Corporation the sum of P56,567.35 with legal
interest from the date of the filing.
 Amounts consigned in court by Wong Heng shall be applied
to the payment of rental from November 15, 1959 until the
premises shall have been vacated by his heirs.
 Costs against the defendant-appellant.
XXXX
We have had occasion to delineate the scope and application of article 1308 in the early case of Taylor v.
Uy Tieng Piao.1 We said in that case:
Article 1256 [now art. 1308] of the Civil Code in our opinion creates no impediment to the
insertion in a contract for personal service of a resolutory condition permitting the cancellation of
the contract by one of the parties. Such a stipulation, as can be readily seen, does not make either
the validity or the fulfillment of the contract dependent upon the will of the party to whom is
conceded the privilege of cancellation; for where the contracting parties have agreed that such
option shall exist, the exercise of the option is as much in the fulfillment of the contract as any
other act which may have been the subject of agreement. Indeed, the cancellation of a contract in
accordance with conditions agreed upon beforehand is fulfillment. 2
And so it was held in Melencio v. Dy Tiao Lay 3 that a "provision in a lease contract that the lessee, at any
time before he erected any building on the land, might rescind the lease, can hardly be regarded as a
violation of article 1256 [now art. 1308] of the Civil Code."
The case of Singson Encarnacion v. Baldomar 4 cannot be cited in support of the claim of want of
mutuality, because of a difference in factual setting. In that case, the lessees argued that they could
occupy the premises as long as they paid the rent. This is of course untenable, for as this Court said, "If
this defense were to be allowed, so long as defendants elected to continue the lease by continuing the
payment of the rentals, the owner would never be able to discontinue it; conversely, although the owner
should desire the lease to continue the lessees could effectively thwart his purpose if they should prefer to
terminate the contract by the simple expedient of stopping payment of the rentals." Here, in contrast, the
right of the lessee to continue the lease or to terminate it is so circumscribed by the term of the contract
that it cannot be said that the continuance of the lease depends upon his will. At any rate, even if no term
had been fixed in the agreement, this case would at most justify the fixing of a period 5 but not the
annulment of the contrac
XXXXX
1967 – Philippine Banking Corporation v. Lui She, GR No. L-17587

(Lease-contract, In Pari Delicto, Constitutional Prohibition against Alien
Landholding)
1. REFERENCE
1.1. DOCKET NUMBER
 GR No. L-17587
1.2. CITATION
 Philippine Banking Corporation v. Lui She, GR No. L-17587,

21 SCRA 53 (September 12, 1967)
 ChanRobles
 Lawyerly
 LawPhil
2. MNEMONIC
 OBLICON
2.2. KEYWORDS
 Lease-contract, In Pari Delicto, Constitutional Prohibition

against Alien Landholding
2.3. FACT MNEMONIC
 Lease-contract to a trusted Chinese caretaker case
 Encarnacion v. Baldomar inapplicable if per facts, the

continuance of lease by lessee is circumscribed in term.
 The sale made by an heir of his share in an inheritance, subject
to the result of the pending administration, in no wise stands in
the way of such administration.
 Contract invalid despite consent if it circumvents the
constitutional provision against alien landholding
 Parties in pari delicto may be given relief when covered by
exception.

 Voluntary withdrawal of lessee when stipulated is not in
violation of Article 1308 of the Civil Code
 And so it was held in Melencio vs. Dy Tiao Lay that
a "provision in a lease contract that the lessee at any
time before he erected any building on the land,
might rescind the lease, can hardly be regarded as a
violation of article 1256 [now art. 1308] of the Civil
Code."
 Encarnacion v. Baldomar inapplicable if per facts, the
continuance of lease by lessee is circumscribed in term.
 Here, in contrast, the right of the lessee to continue
the lease or to terminate it is so circumscribed by the
term of the contract that it cannot be said that the
continuance of the lease depends upon his will. At
any rate, even if no term had been fixed in the
agreement, this case would at most justify the fixing
of a period but not the annulment of the contract.
 The sale made by an heir of his share in an inheritance,
subject to the result of the pending administration, in no
wise stands in the way of such administration.
 as-is
 Contract invalid despite consent if it circumvents the
constitutional provision against alien landholding
 But if an alien is given not only a lease of, but also
an option to buy, a piece of land, by virtue of which
the Filipino owner cannot sell or otherwise dispose
of his property, this to last for 50 years, then it
becomes clear that the arrangement is a virtual
transfer of ownership whereby the owner divests
himself in stages not only of the right to enjoy the
land (jus possidendi, jus utendi, jus fruendi and jus
abutendi) but also of the right to dispose of it (jus
disponendi) — rights the sum total of which make
up ownership. It is just as if today the possession is
transferred, tomorrow, the use, the next day, the
disposition, and so on, until ultimately all the rights
of which ownership is made up are consolidated in
an alien.
 Parties in pari delicto may be given relief when covered by
exception
 Article 1416 of the Civil Code provides, as an
exception to the rule on pari delicto, that ‘When the
agreement, is not illegal per se but is merely
prohibited and the prohibition by law is designed for
the protection of the plaintiff, he may, if public
policy is thereby enhanced, recover what he has paid
or delivered."
 This is a case on appeal to the Supreme Court, which involved

the annulment of a series of lease contracts issued by Santos to
Wong, along with the recovery of monthly rentals and other
entrusted amounts, affirmed in favor of the plaintiff Santos in
CFI Manila. The Supreme Court affirmed the annulment with
modification to the amounts recoverable from defendants. It
was ruled that even if the plaintiff consented to the issuance of
the contracts out of goodwill, when executed, the contracts
would have circumvented the constitutional prohibition on
alien landholding via a virtual transfer of ownership. Yet the
Court also ruled that the parties, despite being in pari delicto,
are entitled to relief, as the case is covered under the exception
provided in Article 1416 of the Civil Code, and the application
of the general rule would defeat the purpose of the policy set
in the Krivenko case.
3. PROFILE
3.2. DECIDING COURT
3.3. DIVISION
 En Banc
3.4. PONENTE
 Castro, J.
3.5.1. Concurring
 Concepcion
 Reyes, JBL
 Dizon
 Makalintal
 Bengzon, JP
 Zaldivar
 Sanchez
 Angeles
3.5.2. Dissenting
 N/A
3.5.3. Absent/Others
 N/A
3.6.1. Concurring
 Fernando, J.
3.6.2. Dissenting
 N/A
3.6.3. Both/Others
 N/A
3.7. PARTIES
 Philippine Banking Corporation

 representing the estate of Justina Santos y Canon
Faustino
3.7.2. DEFENDANT-APPELLANT
 Lui She
 in her own behalf and as administratrix of the
intestate of Wong Heng, deceased
3.8. COUNSEL
 Nicanor S. Sison
3.8.2. DEFENDANT-APPELLANT
 Ozaeta, Gibbs & Ozaeta
 Appeal from a decision rendered by CFI Manila
 Civil Code
 Article 1308 (then 1256)
 Article 1416
 Article 526, par. 3
 Philippine Constitution
 Art. XII, Sec. 5
3.11. CASES CITED
 Taylor v. Uy Tiong Piao, 43 Phil. 873

 Melencio v. Dy Tiao Lai, 55 Phil. 99
 Singson Encarnacion v. Baldomar, 77 Phil. 740
 Krivenko v. Register of Deeds, 79 Phil. 461
 Rellosa v. Gaw Chee Hun, 93 Phil. 827
 Jakosalem v. Rafols, 73 Phil. 628
 Smith Bell & Co. v. Register of Deeds, 96 Phil. 53
 Rodriguez v. Rodriguez, 65 Off. Gaz. 1275
 Enriquez de la Cavada v. Diaz, 37 Phil. 982
 Puato v. Mendoza, 64 Phil. 457
 Arambulo v. Cua So, 95 Phil. 749
 Dinglasan v. Lee Bun Ting 99 Phil. 427
 Bough v. Cantiveros 40 Phil. 210
 Perez v. Herranz 7 Phil. 693
 Kasilag v. Rodriguez 69 Phil. 217
 Norton v. Shelby, 118 US 425
 Chicot County Drainage District v. Baxter State Bank, 307 US
731
4. CONTENTS
4.1. FACTS
 Justina Santos y Canon Faustina and Lorenza, her sister,

owned a piece of land in Rizal Avenue. In the said lot facing
Florentino Torres were two residential houses where they
lived. In it was also Hen Wah Restaurant, which faced Rizal
Avenue, where Wong Heng, a Chinese, and his family, was a
long-time lessee with a monthly rental of P 2,620.
 1957, September 22
 Lorenza dies; Justina solely inherits the property.
She was however 90 years old, blind, crippled, and
invalid.
 Wong and his family became the trusted caretakers
of the estate.
 Justina Santos executed a 50-year lease with a right
to withdraw anytime in favor of Wong. The lease
covered the original area leased to Wong plus
another fronting Florentino Torres Street. The
monthly rental was for P 3,120.
 The contract was amended to cover the entire
property, with an additional rental of P 1000.
 For his part Wong undertook to pay out of the rental
due from him an amount not exceeding P1000 a
month for the food of ther dogs and the salaries of
her maids.
 Another contract was executed to give Wong the
option to buy the leased premises for P120,000,
payable within ten years at an installment of
P1000/month. Wong was also given the obligation
to shoulder the costs of the dog food and the salaries
of her maids.
 It was provided on the condition that Wong obtain
Philippine citizenship.
 The petition was withdrawn when it was discovered
that he was not a resident of Rizal.
 1958, October 28
 Justina files a petition to adopt him and his children
on the belief that adoption would make them
Philippine citizens. Discovering the error later on,
the proceedings were abandoned.
 Two other contracts were executed
 one which extended the term of lease to
99 years
 another which fixed the term of the option
at 50 years.
 Believing that those contracts were made by her
because of Wong’s manipulations, she ordered her
executor to pursue annulling the contracts.
 Court of First Instance, Manila

 The complaint was filed, asking
the court to order the Register of
Deeds of Manila to cancel the
registration of the contracts and
order Wong to pay Santos
P3,120/month from November
15, 1957 onwards on the basis
that the lease should have been
P6420.
 The complaint alleged that the
contracts were obtained through
fraud and misrepresentation,
taking advantage of Santos’
condition and were executed to
circumvent the constitutional
prohibition against aliens
owning lands in the Philippines.
 Wong denied the allegations.
He also admitted having been
entrusted P3,000 for
safekeeping and P22,000 stored
in a joint account with him and
one of the maids.
 The admissions resulted in an
amended complaint increasing
the collection of amounts,
enumerated as follows:
 P33,724.27 (Nov. 4,
1957);
 P7,344.42 (Dec. 1,
1957);
 P10,000 (Dec. 6,
1957);
 P22,000 and P3,000
(as admitted in his
answer)
 Wong claimed that the contracts
were freely and voluntarily
entered into by the parties. He
denied knowledge of the
P33,724.27, but admitted the
two others, but claimed that
they were spent under the
instruction of Santos.
 CFI ruled in favor of Santos,
ordering Wong to pay
P55,554.25 with legal interest,
the monthly rental of P3,120
from 15 November 1959
onwards, as well the amounts he
consigned into.
 Both parties directly appealed to the
Supreme Court.
 The original parties died:
 Wong Heng on 1962, October
21, substituted thus by his wife,
Lui She
 Justina Santos on 1964,
December 28, substituted by the
Philippine Banking Corporation
 The Philippine Banking Corporation
maintained the same claims held in CFI
Manila, which are as follows:
 the lease contract should have
been annulled along with the
four other contracts because it
lacks mutuality;
 because it included a portion
which, at the time, was in
custodia legis, because the
contract was obtained in
violation of the fiduciary
relations of the parties;
 because her consent was
obtained through undue
influence, fraud and
misrepresentation;
 and because the lease contract,
like the rest of the contracts, is
absolutely simulated.
4.3. ISSUES
 Whether paragraph 5 of the lease contract, which states that

"the lessee may at any time withdraw from this agreement," in
violation of Article 1308 of the Civil Code?
 Whether the case of Encarnacion v. Baldomar can be cited in
support of the claim of want of mutuality?
 Whether the lease contract was obtained by Wong in violation
of his fiduciary relationship with Justina Santos, contrary to
article 1646, in relation to article 1941 of the Civil Code,
which disqualifies "agents (from leasing) the property whose
administration or sale may have been entrusted to them."?
 Whether the contracts are valid, despite evidence of Santos’
willful consent to the terms of the contract?
relief?
4.4. HELD
 Whether paragraph 5 of the lease contract, which states

that "the lessee may at any time withdraw from this
agreement," in violation of Article 1308 of the Civil Code?
 No.
 We have had occasion to delineate the
scope and application of article 1308 in
the early case of Taylor vs. Uy Tiong
Piao. We said in the case:
 Article 1256 [now art. 1308] of
the Civil Code in our opinion
creates no impediment to the
insertion in a contract for
personal service of a resolutory
condition permitting the
cancellation of the contract by
one of the parties. Such a
stipulation, as can be readily
seen, does not make either the
validity or the fulDllment of the
contract dependent upon the
will of the party to whom is
conceded the privilege of
cancellation; for where the
contracting parties have agreed
that such option shall exist, the
exercise of the option is as
much in the fulDllment of the
contract as any other act which
may have been the subject of
agreement, Indeed, the
cancellation of a contract in
accordance with conditions
agreed upon beforehand is
fulfillment.
 And so it was held in Melencio vs. Dy
Tiao Lay that a "provision in a lease
contract that the lessee at any time before
he erected any building on the land, might
rescind the lease, can hardly be regarded
as a violation of article 1256 [now art.
1308] of the Civil Code."
 Whether the case of Encarnacion v. Baldomar can be cited
in support of the claim of want of mutuality?
 No.
 The case of Singson Encarnacion vs.
Baldomar cannot be cited in support of the
claim of want of mutuality, because of a
difference in factual setting. In that case,
the lessees argued that they could occupy
the premises as long as they paid the rent.
This is of course untenable, for as this
Court said "If this defense were to be
allowed, so long as defendants elected to
continue the lease by continuing the
payment of the rentals, the owner would
never be able to discontinue it;
conversely, although the owner should
desire the lease to continue the lessees
could effectively thwart his purpose if
they should prefer to terminate the
contract by the simple expedient of
stopping payment of the rentals."
 Here, in contrast, the right of the lessee to
continue the lease or to terminate it is so
circumscribed by the term of the contract
that it cannot be said that the continuance
of the lease depends upon his will. At any
rate, even if no term had been fixed in the
agreement, this case would at most justify
the fixing of a period but not the
annulment of the contract.
 Whether the lease contract was obtained by Wong in
violation of his fiduciary relationship with Justina Santos,
contrary to article 1646, in relation to article 1941 of the
Civil Code, which disqualifies "agents (from leasing) the
property whose administration or sale may have been
entrusted to them."?
 No.
 Justina Santos became the owner of the
entire property upon the death of her sister
Lorenza on September 22, 1957 by force
of article 777 of the Civil Code. Hence,
when she leased the property on
November 15, she did so already as owner
thereof.
 As this Court explained in upholding the
sale made by an heir of a property under
judicial administration:
 "That the land could not
ordinarily be levied upon while
in custodia legis does not mean
that one of the heirs may not
sell the right, interest or
participation which he has or
might have in the lands under
administration. The ordinary
execution of property in
custodia legis is prohibited in
order to avoid interference with
the possession by the court. But
the sale made by an heir of his
share in an inheritance, subject
to the result of the pending
administration, in no wise
stands in the way of such
administration."
 Whether the contracts are valid, despite evidence of
Santos’ willful consent to the terms of the contract?
 No.
 For the testimony just quoted while
dispelling doubt as to the intention of
Justina Santos, at the same time gives the
clue to what we view as a scheme to
circumvent the Constitutional prohibition
against the transfer of land of aliens. "The
illicit purpose then becomes the illegal
cause rendering the contracts void.
 Taken singly, the contracts show nothing
that is necessarily illegal, but considered
collectively, they reveal an insidious
pattern to subvert by indirection what the
Constitution directly prohibits. To be sure,
a lease to an alien for a reasonable period
is valid. So is an option giving an alien the
right to buy real property on condition that
he is granted Philippine citizenship. As
this said in Krivenko vs. Register of
Deeds:
 "[A]liens are not completely
excluded by the Constitution
form the use of lands for
residential purposes. Since their
residence in the Philippines is
temporary, they may be granted
temporary rights such as a
lease contract which is not
forbidden by the Constitution.
Should they desire to remain
here forever and share our
fortunes and misfortunes,
Filipino citizenship is not
impossible to acquire."
 But if an alien is given not only a lease of,
but also an option to buy, a piece of land,
by virtue of which the Filipino owner
cannot sell or otherwise dispose of his
property, this to last for 50 years, then it
becomes clear that the arrangement is a
virtual transfer of ownership whereby the
owner divests himself in stages not only
of the right to enjoy the land (jus
possidendi, jus utendi, jus fruendi and jus
abutendi) but also of the right to dispose
of it (jus disponendi) — rights the sum
total of which make up ownership. It is
just as if today the possession is
transferred, tomorrow, the use, the next
day, the disposition, and so on, until
ultimately all the rights of which
ownership is made up are consolidated in
an alien. And yet this is just exactly what
the parties in this case did within this pace
of one year, with the result that Justina
Santos’ ownership of her property was
reduced to a hollow concept. If this can be
done, then the Constitutional ban against
alien landholding in the Philippines, as
announced in Krivenko vs. Register of
Deeds, is indeed in grave peril.
relief?
 No.
 For one thing, the original parties who
were guilty of a violation of the
fundamental charter have died and have
since been substituted by their
administrators to whom it would be unjust
to impute their guilt. For another thing,
and is not only cogent but also –
important, article 1416 of the Civil Code
provides, as an exception to the rule on
pari delicto, that ‘When the agreement, is
not illegal per se but is merely prohibited
and the prohibition by law is designed for
the protection of the plaintiff, he may, if
public policy is thereby enhanced, recover
what he has paid or delivered." The
Constitutional provision that "Save in
cases of hereditary succession, no private
agricultural land shall be transferred or
assigned except to individuals,
corporations, or associations qualified to
acquire or hold lands of the public domain
in the Philippines is an expression of
public policy to conserve lands for the
Filipinos. As this Court said in Krivenko:
 "It is well to note at this
juncture that in the present case
we have no choice. We are
construing the Constitution as it
is and not as we may desire it to
be. Perhaps the effect of our
construction is to preclude
aliens admitted freely into the
Philippines from owning sites
where they may build their
homes. But if this is the solemn
mandate of the Constitution we
will not attempt to compromise
it even in the name of amity or
equity….
 "For all the foregoing, we hold
that under the Constitution
aliens may not acquire private
or public agricultural lands,
including residential lands and,
accordingly, judgment is
affirmed, without costs."
 That policy would be defeated and its
continued violation sanctioned if, instead
of setting the contracts aside and ordering
the restoration of the land to the estate of
the deceased Justina Santos, this Court
should apply the general rule of pari
delicto. To the extent that our ruling in
this case conflicts with that laid down in
Rellosa vs. Gaw Chee Hun and
subsequent similar cases, the latter must
be considered as pro tanto qualified.
4.5. DISPOSITION
 The contracts in question annulled and set aside
 The land is ordered returned to the estate of Justina Santos
 Wong Heng (as substituted by Lui She) is ordered to pay the
Philippine Corporation the sum of P56,567.35 with legal
interest from the date of the filing.
 Amounts consigned in court by Wong Heng shall be applied
to the payment of rental from November 15, 1959 until the
premises shall have been vacated by his heirs.
 Costs against the defendant-appellant.
 Fernando, J. concurring
 Consequences of applying the pari delicto
concept to alien landholding declared ilegal
under the Krivenko doctrine.
 It is to be remembered that in Krivenko v.
The Register of Deeds of Manila, this
Court over strong dissents held that
residential and commercial lots may be
considered agricultural within the
meaning of the constitutional provision
prohibiting the transfer of any private
agricultural land to individuals,
corporations or associations not qualified
to acquire or hold lands of the public
domain in the Philippines save in cases of
hereditary succession.
 That provision of the Constitution took
effect on November 15, 1935 when the
Commonwealth Government was
established. The interpretation as set forth
in the Krivenko decision was only handed
down on November 15, 1947. Prior to that
date there were many who were of the
opinion that the phrase agricultural land
should be construed strictly and not be
made to cover residential and commercial
lots. Acting on that belief, several
transactions were entered into transferring
such lots to alien vendees by Filipino-
vendors.
 After the Krivenko decision, some
Filipino vendors sought recovery of the
lots in question on the ground that the
sales were null and void. No definite
ruling was made by this Court until
September of 1953, when on the 29th of
said month, Rellosa v. Gaw Chee Hun,
Bautista v. Uy Isabelo, Talento v. Makiki,
Caoile v. Chiao Peng were decided.
 Of the four decisions in September, 1953,
the most extensive discussion of the
question is found in Rellosa v. Gaw Chee
Hun, the opinion being penned by retired
Justice Bautista Angelo with the
concurrence only of one Justice, Justice
Labrador, also retired. Former Chief
Justice Paras as well as the former Justices
Tuason and Montemayor concurred in the
result. The necessary sixth vote for a
decision was given by the then Justice
Bengzon, who had a two-paragraph
concurring opinion disagreeing with the
main opinion as to the force to be
accorded to the two cases,6 therein cited.
There were two dissenting opinions by
former Justices Pablo and Alex Reyes.
The doctrine as announced in the Rellosa
case is that while the sale by a Filipino-
vendor to an alien-vendee of a residential
or a commercial lot is null and void as
held in the Krivenko case, still the
Filipino-vendor has no right to recover
under a civil law doctrine, the parties
being in pari delicto. The only remedy to
prevent this continuing violation of the
Constitution which the decision impliedly
sanctions by allowing the alien vendees to
retain the lots in question is either escheat
or reversion. Thus: "By following either
of these remedies, or by approving an
implementary law as above suggested, we
can enforce the fundamental policy of our
Constitution regarding our natural
resources without doing violence to the
principle of pari delicto."
 Were the parties really in pari delicto?
Had the sale by and between Filipino-
vendor and alien-vendee occurred after
the decision in the Krivenko case, then the
above view would be correct that both
Filipino-vendor and alien-vendee could
not be considered as innocent parties
within the contemplation of the law. Both
of them should be held equally guilty of
evasion of the Constitution.
 Since, however, the sales in question took
place prior to the Krivenko decision, at a
time when the assumption could be
honestly entertained that there was no
constitutional prohibition against the sale
of commercial or residential lots by
Filipino-vendor to alien-vendee, in the
absence of a definite decision by the
Supreme Court, it would not be doing
violence to reason to free them from the
imputation of evading the Constitution.
For evidently evasion implies at the very
least knowledge of what is being evaded.
The new Civil Code expressly provides:
"Mistakes upon a doubtful or difficult
question of law may be the basis of good
faith."
 According to the Rellosa opinion, both
parties are equally guilty of evasion of the
Constitution, based on the broader
principle that "both parties are presumed
to know the law." This statement that the
sales entered into prior to the Krivenko
decision were at that time already vitiated
by a guilty knowledge of the parties may
be too extreme a view. It appears to ignore
a postulate of a constitutional system,
wherein the words of the Constitution
acquire meaning through Supreme Court
adjudication.
 After the Krivenko decision, there is no
doubt that continued possession by alien-
vendee of property acquired before its
promulgation is violative of the
Constitution. It is as if an act granting
aliens the right to acquire residential and
commercial lots were annulled by the
Supreme Court as contrary to the
provision of the Constitution prohibiting
aliens from acquiring private agricultural
land.
 How to divest the alien of such property rights on terms
equitable to both parties.
 Would it not have been more in consonance with the
Constitution, if instead the decision compelled the
restitution of the property by the alien-vendee to the
Filipino-vendor? Krivenko decision held in clear,
explicit and unambigous language that: "We are
deciding the instant case under section 5 of Article
XIII of the Constitution which is more
comprehensive and more absolute in the sense that it
prohibits the transfer to aliens of any private
agricultural land including residential land whatever
its origin might have been . . . . This prohibition
[Rep. Act No. 133] makes no distinction between
private lands that are strictly agricultural and private
lands that are residential or commercial. The
prohibition embraces the sale of private lands of any
kind in favor of aliens, which is again a clear
implementation and a legislative interpretation of
the constitutional prohibition. . . . It is well to note at
this juncture that in the present case we have no
choice. We are construing the Constitution as it is
and not as we may desire it to be. Perhaps the effect
of our construction is to preclude aliens, admitted
freely into the Philippines, from owning sites where
they may build their homes. But if this is the solemn
mandate of the Constitution, we will not attempt to
compromise it even in the name of amity or equity."
 Yet it is clear that an alien-vendee cannot
consistently with the constitutional provision, as
interpreted in the Krivenko decision, continue
owning and exercising acts of ownership over the
real estate in question. It ought to follow then, if
such a continuing violation of the fundamental law
is to be put an end to, that the Filipino-vendor, who
in good faith entered into, a contract with an
incapacitated person, transferring ownership of a
piece of land after the Constitution went into full
force and effect, should, in the light of the ruling in
the Krivenko case, be restored to the possession and
ownership thereof, where he has filed the
appropriate case or proceeding. Any other
construction would defeat the ends and purposes not
only of this particular provision in question but the
rest of the Constitution itself.
 The Constitution frowns upon the title remaining in
the alien-vendees. Restoration of the property upon
payment of price received by Filipino vendor or its
reasonable equivalent as fixed by the court is the
answer. To give the constitutional provision full
force and effect, in consonance with the dictates of
equity and justice, the restoration to Filipino-vendor
upon the payment of a price fixed by the court is the
better remedy. He thought he could transfer the
property to an alien and did so. After the Krivenko
case had made clear that he had no right to sell nor
an alien-vendee to purchase the property in
question, the obvious solution would be for him to
reacquire the same. That way the Constitution
would be given, as it ought to be given, respect and
deference.
1984 – Lim v. People, GR No. L-34338 (Leaf Tobacco, Fixing a Period,
Stipulation in Receipt, Estafa)
1. REFERENCE
1.1. DOCKET NUMBER
 GR No. L-34338
1.2. CITATION
 Lim v. People, GR No. L-34338, 133 SCRA 333, November 2
1, 1984
 ChanRobles
 LawPhil
2. MNEMONIC
 OBLICON
2.2. KEYWORDS
 Leaf Tobacco, Fixing a Period, Stipulation in Receipt, Estafa
2.3. FACT MNEMONIC
 Leaf Tobacco Case
 Stipulation in Receipt as Obligation
 Stipulation in Receipt as Obligation; Article 1197 of the N
CC does not apply
 It is clear in the agreement, Exhibit “A”, that the
proceeds of the sale of the tobacco should be turned
over to the complainant as soon as the same was
sold, or, that the obligation was immediately
demandable as soon as the tobacco was disposed of.
Hence, Article 1197 of the New Civil Code, which
provides that the courts may fix the duration of the
obligation if it does not fix a period, does not apply.
 In a petition for review on certiorari on a case judged by a

lower court and affirmed by the Court of a Appeals on a
conviction of the crime of estafa, wherein a stipulation on a
receipt of leaf tobacco to be sold established the petitioner as
an agent, the court dismissed the petition for lack of merit. The
receipt has shown that the obligation was immediately
demandable; therefore, there is no need for the court to fix a
period.
3. PROFILE
 November 21, 1984
3.2. DECIDING COURT
3.3. DIVISION
 First Division
3.4. PONENTE
 Relova, J.

3.5.1. CONCURRING
 Teehankee
 Melencio-Herrera
 Plana
 Guiterrez, Jr.
 Dela Fuente
3.5.2. DISSENTING
 None
 None
 N/A
3.7.PARTIES
3.7.1. PETITIONER
 Lourdes Valerio Lim
3.7.2. RESPONDENT
 People of the Philippines
3.8. COUNSEL
 The Solicitor-General, for public respondent
 Petition for review on certiorari
 New Civil Code

 Article 1197
3.11. CASES CITED
 None
4. CONTENTS
4.1. FACTS
 An agreement was drawn between the petitioner and Maria

Ayroso to sell her tobacco at P 1.30 a kilo, with the petitioner
receiving the overprice as a result of the sale. The receipt,
made in the presence of plaintiff’s sister and her maid, was as
follows:
 This is to certify that I have received from Mrs.
Maria de Guzman Vda. de Ayroso, of Gapan, Nueva
Ecija, six hundred fifteen kilos of leaf tobacco to be
sold at P1.30 per kilo. The proceed in the amount of
Seven Hundred Ninety Nine Pesos and 50/100
(P799.50) will be given to her as soon as it was
sold.’
 Since then, petitioner was only able to pay P240, paid on three
different times.
 Multiple demands were made, including a letter, but the
petitioner did not comply.
 Lower Court
 Ayroso filed against petitioner a complaint for estafa
 The lower court charged petitioner as guilty of the
crime of estafa
 Court of Appeals
 Affirmed the decision but reduced the penalty
 Supreme Court
 Petition for review on certiorari, hence this case.
 Petitioner assigns the following errors:
 Whether or not the Honorable Court of
Appeals was legally right in holding that
the foregoing document (Exhibit “A”)
“fixed a period” and “the obligation was
therefore, immediately demandable as
soon as the tobacco was sold” (Decision,
p. 6) as against the theory of the petitioner
that the obligation does not fix a period,
but from its nature and the circumstances
it can be inferred that a period was
intended in which case the only action that
can be maintained is a petition to ask the
court to fix the duration thereof;
“Art. 1197 of the New Civil Code does
not apply” as against the alternative
theory of the petitioner that the foregoing
receipt (Exhibit “A”) gives rise to an
obligation wherein the duration of the
period depends upon the will of the debtor
in which case the only action that can be
maintained is a petition to ask the court to
fix the duration of the period; and
the foregoing receipt is a contract of
agency to sell as against the theory of the
petitioner that it is a contract of sale. (pp.
3-4, Rollo)
4.3. ISSUES
 Whether Article 1197 of the New Civil Code applies?

 Whether the receipt was a contract of agency to sell?
4.4. HELD
 Whether Article 1197 of the New Civil Code applies?

 No.
 It is clear in the agreement, Exhibit “A”, that the
proceeds of the sale of the tobacco should be turned
over to the complainant as soon as the same was
sold, or, that the obligation was immediately
demandable as soon as the tobacco was disposed of.
Hence, Article 1197 of the New Civil Code, which
provides that the courts may fix the duration of the
obligation if it does not fix a period, does not apply.
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
1967 – Araneta v. The Philippine Sugar Estates, GR No. L-22558
(Obligation to finish street, reasonable time, fixing a period, two-step
process)
1. REFERENCE
1.1. DOCKET NUMBER
 GR No. L-22558
1.2. CITATION
 Araneta v. The Philippine Sugar Estates, GR No. L-22558, 20
SCRA 618, May 31, 1967.
 ChanRobles
 Lawyerly
 LawPhil
2. MNEMONIC
 OBLICON
2.2. KEYWORDS
 Obligation to finish street, reasonable time, fixing a period, tw
o-step process
2.3. FACT MNEMONIC
 Failure to finish Sto. Domingo Avenue case
 If the stipulated period is on ‘reasonable time’, the court can

only determine whether it has lapsed.
 The two-step process for fixing the period: determine first if a
period was intended by the parties, and then determine what
period was intended.
 If the stipulated period is on ‘reasonable time’, the court

can only determine whether it has lapsed.
 If the contract so provided, then there was a period
fixed, a “reasonable time;” and all that the court
should have done was to determine if that
reasonable time had already elapsed when suit was
filed if it had passed, then the court should declare
that petitioner had breached the contract, as averred
in the complaint, and fix the resulting damages. On
the other hand, if the reasonable time had not yet
elapsed, the court perforce was bound to dismiss the
action for being premature.
 ARTICLE 1197. If the obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended, the courts may fix
the duration thereof.
 The courts shall also fix the duration of the period when it depends upon the will
of the debtor.
 In every case, the courts shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once fixed by
the courts, the period cannot be changed by them. (1128a)


 The two-step process for fixing the period: determine first
if a period was intended by the parties, and then determine
what period was intended.
 It must be recalled that Article 1197 of the Civil
Code involves a two-step process. The Court must
first determine that “the obligation does not fix a
period” (or that the period is made to depend upon
the will of the debtor),” but from the nature and the
circumstances it can be inferred that a period was
intended” (Art. 1197, pars. 1 and 2). This
preliminary point settled, the Court must then
proceed to the second step, and decide what period
was “probably contemplated by the parties” (Do.,
par. 3). So that, ultimately, the Court can not fix a
period merely because in its opinion it is or should
be reasonable, but must set the time that the parties
are shown to have intended.
 In a petition for review on certiorari on a case rendered by CFI

then affirmed but modified by CA, the obligation to finish Sto.
Domingo Avenue rested on the period that it has to be done
within ‘reasonable time’, to which the CFI then fixed the
period. The Supreme Court ruled that the lower court did err
in applying Article 1197. One, if the period was set within
‘reasonable time’, the court can only determine whether it has
lapsed. Two, if the court must indeed fix the period, it must be
‘under the circumstances been probably contemplated by the
parties.’ The court must abide by the two-step process: 1) to
determine if the parties intended a period, 2) to determine
what period was intended. It was then raised from the facts of
the case that both parties were aware that the area that full of
squatters; the Supreme Court thus fixed the period for the
performance of the period as until all the squatters in the
affected areas are finally evicted.
3. PROFILE
 May 31, 1967
3.2. DECIDING COURT
3.3. DIVISION
 En Banc
3.4. PONENTE
 Reyes, J.B.L.

3.5.1. CONCURRING
 Concepcion, C.J.
 Dizon
 Regala
 Makalintal
 Bengzon
 J.P.,
 Zaldivar
 Sanchez
 Castro
3.5.2. DISSENTING
 None
 None
 N/A
3.7.PARTIES
3.7.1. PETITIONER
 Gregorio Araneta, Inc.
3.7.2. RESPONDENT
 The Philippine Sugar Estates Development Co., Ltd
3.8. COUNSEL
3.8.1. PETITIONER
 Araneta & Araneta
3.8.2 RESPONDENT/S
 Rosauro Alvarez
 Ernani Cruz Pano
 Petition of review by certiorari
 New Civil Code, Art. 1197
3.11. CASES CITED
 None
4. CONTENTS
4.1. FACTS
 J.M. Tuason & Co., Inc owns Sta. Mesa Heights Subdivision
and its land, located in Quezon City
 1950, July 28
 through Gregorio Araneta, Inc., the subdivision
owner sold a portion (43,034 m for P430,514) of the
land to Philippine Sugar Estates Development Co.,
Ltd.
 Among the stipulations were as follows:
 “Build on the parcel of land the Sto.
Domingo church and convent;”
 while the seller for its part will
… “Construct streets on the NE and NW
and SW sides of the land herein sold so
that the latter will be a block surrounded
by streets on all four sides; and the street
on the NE side shall be named ‘Sto.
Domingo Avenue’;”
 Gregorio Araneta, Inc. failed to fulfill its obligation in time to
finish the construction of the street in the Northeast side
because a third party (Manuel Abundo), refused to vacate, his
house obstructing construction.
 As raised later in the Supreme Court, both parties were fully
aware that the land was occupied by squatters.
 Court of First Instance of Manila

 1958, May 7
 Petitioner filed a complaint against
respondent, seeking to compel the latter to
comply with their obligation as stipulated
in the deed of sale
 to pay damages in the event of failure or
refusal to perform obligation
 Defendants answered, with the defense
that the action was premature since its
obligation to construct the streets in
question was without a definite period
which needs to be fixed first by the court
 1960, May 31, CFI Manila ruled for the defendant
and dismissed plaintiff’s complaint.
 Plaintiff moves for reconsideration,
praying for the courts to fix the period for
the obligation
 Defendant opposes, claiming
 the complaint did not expressly
or impliedly allege and pray for
the fixing of a period to comply
with its obligation
 the evidence presented at the
trial was insufficient to warrant
the fixing of such a period.
 1960, July 16, CFI Manila, ruling that the ‘the
proven facts precisely warrants the fixing of such a
period,’ ruled for the motion for reconsideration and
amended the dispositive portion of the decision as
follows:
 “WHEREFORE, judgment is hereby
rendered giving defendant Gregorio
Araneta, Inc., a period of Two (2) Years
from notice hereof, within which to
comply with its obligation under the
contract, Annex A”
 Defendant files a motion to reconsider, which the
plaintiff opposed
 1960, August 16, the motion to reconsideration of
the defendant was denied.
 Defendant appeals on the CFI’s fixing of the period,
on the claims that
 it was not justified by the pleadings
 not supported by the facts submitted at the
trial of the case
 the relief granted allowed a change of
theory after the submission of the case for
decision.
 CA found no error on CFI’s fixing of the period,
because of defendant-appellant relying on the
following allegation:
 “7. Under the Deed of Sale with
Mortgage of July 28, 1950, herein
defendant has a reasonable time within
which to comply with its obligations to
construct and complete the streets on the
NE, NW and SW sides of the lot in
question; that under the circumstances,
said reasonable time has not elapsed;”
 CA affirmed the CFI decision, dismissed the other
issues raised by defendant-appellant as not
meritorious, and modified the CA decision as
follows:
 “IN VIEW WHEREOF, judgment
affirmed and modified; as a consequence,
defendant is given Two (2) years from the
date of finality of this decision to comply
with the obligation to construct streets on
the NE, NW and SW sides of the land sold
to plaintiff so that the same would be a
block surrounded by streets on all four
sides.”
 Supreme Court
 Defendant filed a petition of review by certiorari;
hence this case.
4.3. ISSUES
 Whether the lower court erred in applying Article 1197 of the

Civil Code?
 Whether the parties agreed that the petitioner should
have reasonable time to perform its part of the
bargain?
 Whether the amended period for fulfilling the
obligation has basis?
4.4. HELD
 Whether the lower court erred in applying Article 1197 of

the Civil Code?
 Yes.
 Whether the parties agreed that the petitioner
should have reasonable time to perform its part
of the bargain?
 No.
 The fixing of a period by the courts under
Article 1197 of the Civil Code of the
Philippines is sought to be justified on the
basis that petitioner (defendant below)
placed the absence of a period in issue by
pleading in its answer that the contract
with respondent Philippine Sugar Estates
Development Co., Ltd. gave petitioner
Gregorio Araneta, Inc. “reasonable time
within which to comply with its obligation
to construct and complete the streets.”
 Neither of the courts below seems to have
noticed that, on the hypothesis stated,
what the answer put in issue was not
whether the court should fix the time of
performance, but whether or not the
parties agreed that the petitioner should
have reasonable time to perform its part of
the bargain. If the contract so provided,
then there was a period fixed, a
“reasonable time;” and all that the court
should have done was to determine if that
reasonable time had already elapsed when
suit was filed if it had passed, then the
court should declare that petitioner had
breached the contract, as averred in the
complaint, and fix the resulting damages.
 On the other hand, if the reasonable time
had not yet elapsed, the court perforce
was bound to dismiss the action for being
premature. But in no case can it be
logically held that under the plea above
quoted, the intervention of the court to fix
the period for performance was warranted,
for Article 1197 is precisely predicated on
the absence of any period fixed by the
parties.
 Even on the assumption that the court
should have found that no reasonable time
or no period at all had been fixed (and the
trial court’s amended decision nowhere
declared any such fact) still, the complaint
not having sought that the Court should
set a period, the court could not proceed to
do so unless the complaint in as first
amended; for the original decision is clear
that the complaint proceeded on the
theory that the period for performance had
already elapsed, that the contract had been
breached and defendant was already
answerable in damages.
 Whether the amended period for fulfilling the
obligation has basis?
 No.
 Granting, however, that it lay within the
Court’s power to fix the period of
performance, still the amended decision is
defective in that no basis is stated to
support the conclusion that the period
should be set at two years after finality of
the judgment. The list paragraph of
Article 1197 is clear that the period can
not be set arbitrarily. The law expressly
prescribes that — the Court shall
determine such period as may under the
circumstances been probably
contemplated by the parties.
 All that the trial court’s amended decision
(Rec. on Appeal, p. 124) says in this
respect is that “the proven facts precisely
warrant the fixing of such a period,” a
statement manifestly insufficient to
explain how the two period given to
petitioner herein was arrived at.
 It must be recalled that Article 1197 of the
Civil Code involves a two-step process.
The Court must first determine that “the
obligation does not fix a period” (or that
the period is made to depend upon the will
of the debtor),” but from the nature and
the circumstances it can be inferred that a
period was intended” (Art. 1197, pars. 1
and 2). This preliminary point settled, the
Court must then proceed to the second
step, and decide what period was
“probably contemplated by the parties”
(Do., par. 3). So that, ultimately, the Court
can not fix a period merely because in its
opinion it is or should be reasonable, but
must set the time that the parties are
shown to have intended. As the record
stands, the trial Court appears to have
pulled the two-year period set in its
decision out of thin air, since no
circumstances are mentioned to support it.
Plainly, this is not warranted by the Civil
Code.
 In this connection, it is to be borne in
mind that the contract shows that the
parties were fully aware that the land
described therein was occupied by
squatters, because the fact is expressly
mentioned therein (Rec. on Appeal,
Petitioner’s Appendix B, pp. 12-13). As
the parties must have known that they
could not take the law into their own
hands, but must resort to legal processes
in evicting the squatters, they must have
realized that the duration of the suits to be
brought would not be under their control
nor could the same be determined in
advance. The conclusion is thus forced
that the parties must have intended to
defer the performance of the obligations
under the contract until the squatters were
duly evicted, as contended by the
petitioner Gregorio Araneta, Inc.
 The Court of Appeals objected to this
conclusion that it would render the date of
performance indefinite. Yet, the
circumstances admit no other reasonable
view; and this very indefiniteness is what
explains why the agreement did not
specify any exact periods or dates of
performance.
Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
As to Plurality of Prestation -conjunctive -alternative- Arts. 1199-1205 -
facultative -Art. 1206 As to rights & obligations of multiple parties -Arts.
1207-1222 -Joint -Solidary- Arts. 927, 1824, 1911, 1915, 1945, 2157,
2194, 2146 Arts. 94, 121 FC Art. 90 RPC -Disjunctive
Rolito Calang and Philtranco v. People of the Philippines
G.R. No. 190696, August 3, 2010
J. Brion
Facts: Calang is a bus driver of Philtranco who was convicted of

multiple homicide with multiple serious physical injuries and
damage to property thru reckless imprudence. In the same
criminal case, Philtranco was ordered to pay jointly and severally
with Calang death indemnity and actual damages.
Issue: Whether or not Philtranco should be solidarily liable in the

criminal case.
Held: No. Calang was charged criminally before the RTC.

Undisputedly, Philtranco was not a direct party in this case. Since
the cause of action against Calang was based on delict, both the
RTC and the CA erred in holding Philtranco jointly and severally
liable with Calang, based on quasi-delict under Articles 2176[1]
and 2180[2] of the Civil Code. Articles 2176 and 2180 of the Civil
Code pertain to the vicarious liability of an employer for quasi-
delicts that an employee has committed. Such provision of law
does not apply to civil liability arising from delict.
If at all, Philtranco liability may only be subsidiary. Article 102 of

the Revised Penal Code states the subsidiary civil liabilities of
innkeepers, tavern keepers and proprietors of establishments. The
provisions of the Revised Penal Code on subsidiary liability
Articles 102 and 103 are deemed written into the judgments in
cases to which they are applicable. Thus, in the dispositive portion
of its decision, the trial court need not expressly pronounce the
subsidiary liability of the employer. Nonetheless, before the
employer's subsidiary liability is enforced, adequate evidence
must exist establishing that (1) they are indeed the employers of
the convicted employees; (2) they are engaged in some kind of
industry; (3) the crime was committed by the employees in the
discharge of their duties; and (4) the execution against the latter
has not been satisfied due to insolvency.The determination of
these conditions may be done in the same criminal action in
which the employee liability, criminal and civil, has been
pronounced, in a hearing set for that precise purpose, with due
notice to the employer, as part of the proceedings for the
execution of the judgment.
xxxxx
ROLITO CALANG and PHILTRANCO SERVICE ENTERPRISES,
INC., v. PEOPLE OF THE PHILIPPINES,- G.R. No. 190696, August
3, 2010
Fact:
Calang, driver of Philtranco was involved in a vehicular
accident instantly killer 3 people. A criminal case was filed
against Calang and Philtranco. The RTC ruled finding Calang
and Philtrnaco jointly and severally liable for the crime and
ordered to pay indemnity to the victims. After it MR was
denied, Philtranco appealed the CA with in turn affirms in toto
the decision of the RTC. When the CA denied its MR,
Philtranco went to the SC to raise the issue stated below.
Issue:
Whether the Liability of the Employer is jointly and severally
liable in a civil liability arising from delict committed by its
employee?
Held:
No. Since the cause of action against the employee was based
on delict, both the RTC and the CA erred in holding the
Employer jointly and severally liable with the employee, based
on quasi-delict under Articles 2176 and 2180 of the Civil Code.
Articles 2176 and 2180 of the Civil Code pertain to the
vicarious liability of an employer for quasi-delicts that an
employee has committed. Such provision of law does not
apply to civil liability arising from delict.
Employer’s liability may only be subsidiary. Article 102 of the

Revised Penal Code states the subsidiary civil liabilities of
innkeepers, tavernkeepers and proprietors of establishments.
The subsidiary liability established in the next preceding
article shall also apply to employers, teachers, persons, and
corporations engaged in any kind of industry for felonies
committed by their servants, pupils, workmen, apprentices, or
employees in the discharge of their duties. The provisions of
the Revised Penal Code on subsidiary liability – Articles 102
and 103 – are deemed written into the judgments in cases to
which they are applicable. Thus, in the dispositive portion of
its decision, the trial court need not expressly pronounce the
subsidiary liability of the employer. Nonetheless, before the
employers’ subsidiary liability is enforced, adequate evidence
must exist establishing that (1) they are indeed the employers
of the convicted employees; (2) they are engaged in some
kind of industry; (3) the crime was committed by the
employees in the discharge of their duties; and (4) the
execution against the latter has not been satisfied due to
insolvency. The determination of these conditions may be
done in the same criminal action in which the employee’s
liability, criminal and civil, has been pronounced, in a hearing
set for that precise purpose, with due notice to the employer,
as part of the proceedings for the execution of the judgment.
xxxxxx
1984 – Ronquillo v. CA, GR No. L-55138 (Compromise Agreement,
Collection of Sum, individually and jointly)
REFERENCE
1.1. DOCKET NUMBER
 GR No. L-55138
1.2. CITATION
 Ronquillo v. CA, GR No. L-55138, 132 SCRA 274 (Septembe
r 28, 1984)
 ChanRobles
 Lawyerly
 LawPhil
2. MNEMONIC
 OBLICON, Remedial Law
2.2. KEYWORDS
 Compromise Agreement, Collection of Sum, individually and
jointly
2.3. FACT MNEMONIC
 Sherriff’s Sudden Furniture Sale for the Collection of Sum
 Motion for Reconsideration rule not absolute in certain

instances
 Individual obligation creates a several obligation
 Motion for Reconsideration rule not absolute in certain

instances
 Anent the first issue raised, suffice it to state that
while as a general rule, a motion for reconsideration
should precede recourse to certiorari in order to give
the trial court an opportunity to correct the error that
it may have committed, the said rule is not absolute
and may be dispensed with in instances where the
filing of a motion for reconsideration would serve
no useful purpose, such as when the motion for
reconsideration would raise the same point stated in
the motion or where the error is patent for the order
is void or where the relief is extremely urgent, as in
cases where execution had already been ordered
where the issue raised is one purely of law.
 Individual obligation creates a several obligation
 The term “individually” has the same meaning as
“collectively”, “separately”, “distinctively”,
respectively or “severally”. An agreement to be
“individually liable” undoubtedly creates a several
obligation, and a “several obligation” is one by
which one individual binds himself to perform the
whole obligation.
 In a petition for review on a Court of Appeals resolution,

wherein petitioner, who was involved in a collection of sum
case, filed a motion for reconsideration to halt the sudden sale
of his properties by the Special Sheriff, the Supreme Court
dismissed his instant petition. While the Supreme Court found
the motion for reconsideration proper, the exceptions to the
general rule applicable to his instance, the Supreme Court also
upheld his obligation on the collection of sum case, as it ruled
that the agreement to pay “individually and jointly” creates a
several obligation, and is therefore enforceable against one of
the obligors.
3. PROFILE
3.2. DECIDING COURT
3.3. DIVISION
 Second Division
3.4. PONENTE
 Cuevas, J.

3.5.1. CONCURRING
 Makasiar
 Abad Santos
 Escolin
3.5.2. DISSENTING
 none
 Aquino
 concurs in result only
 Concepcion Jr.
 on leave
 Guerrero
 on leave
 None
3.7.PARTIES
3.7.1. PETITIONER
 Ernesto V. Ronquillo
3.7.2. RESPONDENTS
 Honorable Court of Appeals

 Antonio P. So
3.8. COUNSEL
3.8.1. PETITIONER
 Gloria A. Fortun
3.8.2 RESPONDENTS
 Roselino Reyes Isler
 Petition to review issued resolution of the then Court of Appea
ls

3.11. CASES CITED
 Vda. de Sayman vs. Court of Appeals, 121 SCRA 650

 Fortich-Celdran, et al, vs. Celdran, et al, 19 SCRA 502
 Iligan Electric Light Co. vs. Public Service Commission, 10
SCRA 46
 Matute vs. Court of Appeals, 26 SCRA 768
 Locsin vs. Limaco, 26 SCRA 816
 Suco vs. Vda. de Leary, 12 SCRA 326
 Central Bank of the Philippines vs. Cloribel, 44 SCRA 307
 Parot v. Gemora, 7 Phil. 94, 97.
 Un Pak Leung vs. Negorra, 9 Phil. 381
4. CONTENTS
4.1. FACTS
 …
 Court of First Instance, Rizal

 1979, July 23
 Petitioner was originally involved as one
of four defendants in a case for the
collection of sum for the total amount of
P117,498.98, which was dishonored by
the drawee bank.
 The lower court decided based on the
compromise agreement between the
parties, of which among the stipulations
are as follows:
 “1. Plaintiff agrees to reduce its
total claim of P117,498.95 to
only P110,000.00 and
defendants agree to
acknowledge the validity of
such claim and further bind
themselves to initially pay out
of the total indebtedness of
P110,000.00 the amount of
P55,000.00 on or before
December 24, 1979, the
balance of P55,000.00,
defendants individually and
jointly agree to pay within a
period of six months from
January 1980, or before June
30, 1980;
 “4. That both parties agree that
failure on the part of either
party to comply with the
foregoing terms and conditions,
the innocent party will be
entitled to an execution of the
decision based on this
compromise agreement and the
defaulting party agrees and
hold themselves to reimburse
the innocent party for
attorney’s fees, execution fees
and other fees related with the
execution.”
 Private respondent filed a Motion of
Execution on the ground that defendants
failed to make the initial payment of
P55,000.00 on or before December 24,
1979.
 Petitioner opposed the motion contending
that his inability to make the payment was
due to private respondent’s own act of
making himself scarce and inaccessible on
December 24, 1979.
 Petitioner then prayed that private
respondent be ordered to accept his
payment in the amount of P13,750.00.
 1980, January 16
 Upon the hearing of the Motion for
execution, petitioner tendered the
P13,750.00 as initial payment. Another
defendant offered said amount as initial
payment as well.
 Private respondent refused to accept these
as payment, demanding the full initial
installment.
 Petitioner and his co-defendant deposited
this value to the Clerk of Court, which
was subsequently withdrawn by private
respondent.
 The court issued a writ of execution
against the two other defendants who did
not pay the value.
 1980, January 22
 Private respondent moved for the
reconsideration and/or modification of the
aforesaid Order of execution and prayed
instead for the “execution of the decision
in its entirety against all defendants,
jointly and severally.”
 Petitioner opposed the said motion
arguing that under the decision of the
lower court being executed which has
already become final, the liability of the
four (4) defendants was not expressly
declared to be solidary, consequently each
defendant is obliged to pay only his own
pro-rata or 1/4 of the amount due and
payable.
 1980, March 17
 The court granted the writ of execution.
 Petitioner moved for reconsideration.
 Hearing for reconsideration was set on
March 25.
 1980, March 19
A writ of execution was issued for the

satisfaction of the sum of P82,500.00 as
against the properties of the defendants
(including petition), “singly or jointly
liable.”
 1980, March 20
 The special sherif issued a notice of
sheriff’s sale for the sale of certain
furnitures and appliances found in the
petitioner’s residence to satisfy the sum of
P82,500.00
 This was set on April 2.
 1980, April 2
 The motion for reconsideration was
denied, but because of the motion for
reconsideration filed at the Court of
Appeals, the public sale did not proceed.
 1980, March 26
 Petitioner filed on March 26, 1980 a
petition for certiorari and prohibition with
the then Court of Appeals praying at the
same time for the issuance of a restraining
order to stop the public sale. He raised the
question of the validity of the order of
execution, the writ of execution and the
notice of public sale of his properties to
satisfy fully the entire unpaid obligation
payable by all of the four (4) defendants,
when the lower court’s decision based on
the compromise agreement did not
specifically state the liability of the four
(4) defendants to be solidary.
 Realizing the actual threat to his
property rights poised by the re-
setting of the hearing of his
motion for reconsideration for
April 2, 1980 at 8:30 a.m. such
that if his motion for
reconsideration would be denied
he would have no more time to
obtain a writ from the appellate
court to stop the scheduled
public sale of his personal
properties at 10:00 a.m. of the
same day.
1980, June 30
 CA denied the petition, believing it to be
premature.
 Petitioner moved to reconsider, claiming
that on April 2, the lower court had
already denied the motion referred to, and
thus the legal issues were ripe for
determination.
 1980, August 20
 CA denied the motion for reconsideration.
 Supreme Court
 Petitioner files a petition for review, assigning the
following errors in the CA resolution
 (a) declaring as premature, and in denying
due course to the petition to restrain
implementation of a writ of execution
issued at variance with the final decision
of the lower court filed barely four (4)
days before the scheduled public sale of
the attached movable properties;
 (b) denying reconsideration of the
Resolution of June 30, 1980, which
declared as premature the filing of the
petition, although there is proof on record
that as of April 2, 1980, the motion
referred to was already denied by the
lower court and there was no more
 (c) failing to resolve the legal issues raised
in the petition and in not declaring the
liabilities of the defendants, under the
final decision of the lower court, to be
only joint;
 (d) not holding the lower court’s order of
execution dated March 17, 1980, the writ
of execution and the notice of sheriff’s
sale, executing the lower court’s decision
against “all defendants, singly and
jointly”, to be at variance with the lower
court’s final decision which did not
provide for solidary obligation; and
 (e) not declaring as invalid and unlawful
the threatened execution, as against the
properties of petitioner who had paid his
pro-rata share of the adjudged obligation,
of the total unpaid amount payable by his
joint co-defendants.
4.3. ISSUES
 Whether the filing of a petition for certiorari before CA

against an Order of Execution issued by a lower Court while a
motion of reconsideration is pending proper?
 Whether an obligation described as “individually and jointly”
is enforceable against one of the obligors?
4.4. HELD
 Whether the filing of a petition for certiorari before CA

against an Order of Execution issued by a lower Court
while a motion of reconsideration is pending proper?
 Yes
 Anent the first issue raised, suffice it to
state that while as a general rule, a motion
for reconsideration should precede
recourse to certiorari in order to give the
trial court an opportunity to correct the
error that it may have committed, the said
rule is not absolute and may be dispensed
with in instances where the filing of a
motion for reconsideration would serve no
useful purpose, such as when the motion
for reconsideration would raise the same
point stated in the motion or where the
error is patent for the order is void or
where the relief is extremely urgent, as in
cases where execution had already been
ordered where the issue raised is one
purely of law.
 In the case at bar, the records show that
not only was a writ of execution issued
but petitioner’s properties were already
scheduled to be sold at public auction on
April 2, 1980 at 10:00 a.m. The records
likewise show that petitioner’s motion for
reconsideration of the questioned Order of
Execution was filed on March 17, 1980
and was set for hearing on March 25,
1980 at 8:30 a.m., but upon motion of
private respondent, the hearing was reset
to April 2, 1980 at 8:30 a.m., the very
same day when petitioner’s properties
were to be sold at public auction.
Needless to state that under the
circumstances, petitioner was faced with
imminent danger of his properties being
immediately sold the moment his motion
for reconsideration is denied.
 Plainly, urgency prompted recourse to the
Court of Appeals and the adequate and
speedy remedy for petitioner under the
situation was to file a petition for
certiorari with prayer for restraining order
to stop the sale. For him to wait until after
the hearing of the motion for
reconsideration on April 2, 1980 before
taking recourse to the appellate court may
already be too late since without a
restraining order, the public sale can
proceed at 10:00 that morning. In fact, the
said motion was already denied by the
lower court in its order dated April 2,
1980 and were it not for the pendency of
the petition with the Court of Appeals and
the restraining order issued thereafter, the
public sale scheduled that very same
morning could have proceeded.
 Whether an obligation described as “individually and
jointly” is enforceable against one of the obligors?
 Yes
 In this regard, Article 1207 and 1208 of
the Civil Code provides —
 “Art. 1207. The concurrence of
two or more debtors in one and
the same obligation does not
imply that each one of the
former has a right to demand,
or that each one of the latter is
bound to render, entire
compliance with the prestation.
There is a solidary liability only
when the obligation expressly
so states, or when the law or the
nature of the obligation
requires solidarity.
 Art. 1208. If from the law, or
the nature or the wording of the
obligation to which the
preceding article refers the
contrary does not appear, the
credit or debt shall be
presumed to be divided into as
many equal shares as there are
creditors and debtors, the
credits or debts being
considered distinct from one
another, subject to the Rules of
Court governing the multiplicity
of suits.”
 Clearly then, by the express term of the
compromise agreement and the decision
based upon it, the defendants obligated
themselves to pay their obligation
“individually and jointly”
 The term “individually” has the same
meaning as “collectively”, “separately”,
“distinctively”, respectively or
“severally”. An agreement to be
“individually liable” undoubtedly creates
a several obligation, and a “several
obligation” is one by which one individual
binds himself to perform the whole
obligation.
 In the case of Parot vs. Gemora We
therein ruled that “the phrase juntos or
separadamente used in the promissory
note is an express statement making each
of the persons who signed it individually
liable for the payment of the full amount
of the obligation contained therein.”
Likewise in Un Pak Leung vs. Negorra
We held that “in the absence of a finding
of facts that the defendants made
themselves individually liable for the debt
incurred they are each liable only for one-
half of said amount.”
 The obligation in the case at bar being
described as “individually and jointly”,
the same is therefore enforceable against
one of the numerous obligors.
4.5. DISPOSITION
 Petition dismissed. Costs against petitioner.
4.6. SEPARATE OPINION
 None
Collection of SumCompromise Agreementindividually and jointly

xxxxxxxxxxxxxxxxxxxxxx
Malayan Insurance vs. CA (165 SCRA 536)
Malayan Insurance vs. CA (165 SCRA 536)
GR No. L-36413, 9/26/2016
Padilla, J.:
Facts:
Malayan Insurance issued a Private Car Policy in favor of Sio Choy
covering a Willys jeep for third-party liability for P20,000. The insured
jeep, while being driven by Campollo, an employee of San Leon,
collided with a PANTRANCO passenger bus causing damage to the jeep
and injuries to its driver and to its passenger, Vallejos.
Vallejos filed an action for damages against Sio Choy, Malayan

Insurance Co., Inc. and the PANTRANCO.
Sio Choy, however, later filed a separate answer with a cross-

claim against Malayan wherein he alleged that he had actually
paid Vallejos the amount of P5,000.00 for hospitalization and
other expenses, and, in his cross-claim against Malayan, he
alleged that the Malayan had issued in his favor a private car
comprehensive policy wherein the insurance company obligated
itself to indemnify Sio Choy, as insured, for the damage to his
motor vehicle, as well as for any liability to third persons arising
out of any accident during the effectivity of such insurance
contract. He prayed that he be reimbursed by the insurance
company for the amount that he may be ordered to pay.
Also later, Malayan sought, and was granted, leave to file a third-
party complaint against the San Leon because the person driving
the jeep of Sio Choy, at the time of the accident, was an
employee of San Leon, performing his duties within the scope of
his assigned task, and not an employee of Sio Choy; and that, as
San Leon is the employer of the deceased driver, Campollo, it
should be liable for the acts of its employee, pursuant to Art. 2180
of the Civil Code. Malayan prayed that judgment be rendered
against San Leon, making it liable for the amounts claimed by
Vallejos and/or ordering said San Leon to reimburse and
indemnify the Malayan for any sum that it may be ordered to pay
Vallejos.
Malayan prays that San Leon be ordered to reimburse Malayan any

amount, in excess of one-half (1/2) of the entire amount of damages,
because it is jointly and severally liable with Sio Choy.
Issue:Whether Malayan was solidarily liable with Sio Choy and San Leon
for damages to Vallejos
Held:No, Malayan is liable to Vallejos, but is NOT solidarily liable with

Sio Choy and San Leon.Sio Choy is made liable to said plaintiff as
owner of the ill-fated Willys jeep, pursuant to Article 2184 of the
Civil Code which provides:
Art. 2184. In motor vehicle mishaps, the owner is solidarily liable

with his driver, if the former, who was in the vehicle, could have,
by the use of due diligence, prevented the misfortune it is
disputably presumed that a driver was negligent, if he had been
found guilty of reckless driving or violating traffic regulations at
least twice within the next preceding two months.
If the owner was not in the motor vehicle, the provisions of article
2180 are applicable.
On the other hand, the basis of liability of San Leon to Vallejos,

the former being the employer of the driver of the Willys jeep at
the time of the motor vehicle mishap, is Article 2180 of the Civil
Code:
Art. 2180. The obligation imposed by article 2176 is demandable
not only for one's own acts or omissions, but also for those of
persons for whom one is responsible.
xxx xxx xxx
Employers shall be liable for the damages caused by their
employees and household helpers acting within the scope of their
assigned tasks, even though the former are not engaged ill any
business or industry.
xxx xxx xxx
The responsibility treated in this article shall cease when the
persons herein mentioned proved that they observed all the
diligence of a good father of a family to prevent damage.
It thus appears that respondents Sio Choy and San Leon Rice
Mill, Inc. are the principal tortfeasors who are primarily liable to
respondent Vallejos. The law states that the responsibility of two
or more persons who are liable for a quasi-delict is solidarily.
On the other hand, the basis of Malayan's liability is its insurance

contract with respondent Sio Choy. If petitioner is adjudged to pay
respondent Vallejos in the amount of not more than P20,000.00,
this is on account of its being the insurer of respondent Sio Choy
under the third party liability clause included in the private car
comprehensive policy existing between petitioner and respondent
Sio Choy at the time of the complained vehicular accident.
While it is true that where the insurance contract provides for

indemnity against liability to third persons, such third persons can
directly sue the insurer, however, the direct liability of the insurer
under indemnity contracts against third party liability does not
mean that the insurer can be held solidarily liable with the insured
and/or the other parties found at fault. The liability of the insurer is
based on contract; that of the insured is based on tort.
In the case at bar, Malayan as insurer of Sio Choy, is liable to

Vallejos, but it cannot be made "solidarily" liable with the two
principal tortfeasors namely Sio Choy and San Leon. For if
Malayan were solidarily liable with said two (2) respondents by
reason of the indemnity contract against third party liability-under
which an insurer can be directly sued by a third party — this will
result in a violation of the principles underlying solidary obligation
and insurance contracts.
In solidary obligation, the creditor may enforce the entire

obligation against one of the solidary debtors.
In the case at bar, the trial court held Malayan, Sio Choy and San
Leon solidarily liable to respondent Vallejos for a total amount of
P29,103.00, but Malayan's liability is only up to P20,000.00. In
the context of a solidary obligation, Malayan may be compelled by
Vallejos to pay the entire obligation of P29,013.00,
notwithstanding the qualification made by the trial court. But
Malayan cannot be obliged to pay the entire obligation when the
amount stated in its insurance policy with respondent Sio Choy for
indemnity against third party liability is only P20,000.00.
Moreover, the qualification made in the decision of the trial court
to the effect that petitioner is sentenced to pay up to P20,000.00
only when the obligation to pay P29,103.00 is made solidary, is
an evident breach of the concept of a solidary obligation. Thus,
We hold that the trial court, as upheld by the Court of Appeals,
erred in holding Malayan as solidarily liable with respondents Sio
Choy and San Leon to Vallejos.
xxx
MALAYAN INSURANCE CORPORATION v. CA, GR No. 119599,
1997-03-20
Facts:
Private respondent TKC Marketing Corp. was the
owner/consignee of some 3,189.171 metric tons of soya bean
meal which was loaded on board the ship MV Al Kaziemah on or
about September 8, 1989 for carriage from the port of Rio del
Grande, Brazil, to the port of Manila.
Said cargo... was insured against the risk of loss by petitioner
Malayan Insurance Corporation
While the vessel was docked in Durban, South Africa on
September 11, 1989 enroute to Manila, the civil authorities
arrested and detained it because of a lawsuit on a question of
ownership and possession.
Petitioner replied that the arrest of the vessel by civil authority
was not a peril covered by the policies.
Issues:
(a) an arrest by civil authority is not compensable since the term
"arrest" refers to "political or executive acts" and does not include
a loss caused by riot or by ordinary judicial process as in this case
Ruling:
By way of a historical background, marine insurance developed as
an all-risk coverage, using the phrase "perils of the sea" to
encompass the wide and varied range of risks that were covered.
The subject policies contain the "Perils" clause which is a...
standard form in any marine insurance policy. Said clause reads:
Touching the adventures which the said MALAYAN INSURANCE
CO., are content to bear, and to take upon them in this voyage;
they are of the Seas; Men-of-War, Fire, Enemies, Pirates, Rovers,
Thieves, Jettisons, Letters of Mart and Counter Mart, Suprisals,
Takings of the
Sea, Arrests, Restraints and Detainments of all Kings, Princess and
Peoples, of what Nation, condition, or quality soever, Barratry of
the Master and Mariners, and of all other Perils, Losses, and
Misfortunes, that have come to hurt, detriment, or damage of the
said goods and... merchandise or any part thereof
The exception or limitation to the "Perils" clause and the "All other
perils" clause in the subject policies is specifically referred to as
Clause 12 called the "Free from Capture & Seizure Clause" or the
F.C. & S. Clause which reads, thus:
Should Clause 12 be deleted, the relevant current institute war
clauses shall be deemed to form part of this insurance.
However, the F. C. & S. Clause was deleted from the policies.
Consequently, the Institute War Clauses (Cargo) was deemed
incorporated
With the incorporation of subsection 1.1 of Section 1 of the
Institute War Clauses, however, this Court agrees with the Court
of Appeals and the private respondent that "arrest" caused by
ordinary judicial process is deemed included among the covered
risks.
This interpretation... becomes inevitable when subsection 1.1 of
Section 1 of the Institute War Clauses provided that "this
insurance covers the risks excluded from the Standard Form of
English Marine Policy by the clause 'Warranted free of capture,
seizure, arrest, etc. x x x'" or the F.C. & S.
Clause.
Jurisprudentially, "arrests" caused by ordinary judicial process is
also a risk excluded from the Standard Form of English Marine
Policy by the F.C. & S. Clause
This Court agrees with the Court of Appeals when it held that ". . .
Although the F.C. & S. Clause may have originally been inserted in
marine policies to protect against risks of war, (see generally G.
Gilmore & C. Black, The Law of
Admiralty Section 2-9, at 71-73 [2d Ed. 1975]), its interpretation
in recent years to include seizure or detention by civil authorities
seems consistent with the general purposes of the clause
In fact, petitioner itself averred that subsection
1.1 of Section 1 of the Institute War Clauses included "arrest"
even if it were not a result of hostilities or warlike operations.
In this regard, since what was also excluded in the deleted F.C. &
S. Clause was "arrest" occasioned by ordinary judicial process,
logically,... such "arrest" would now become a covered risk under
subsection 1.1 of Section 1 of the Institute War Clauses,
regardless of whether or not said "arrest" by civil authorities
occurred in a state of war.
This Court cannot help the impression that petitioner is overly
straining its interpretation of the provisions of the policy in order
to avoid being liable for private respondent's claim.
It has been held that a strained interpretation which is unnatural
and forced, as to lead to an absurd conclusion or to render the
policy nonsensical, should, by all means, be avoided.[9] Likewise, it
must be borne in mind that such contracts are invariably...
prepared by the companies and must be accepted by the insured
in the form in which they are written.[10] Any construction of a
marine policy rendering it void should be avoided.[11] Such
policies will, therefore, be construed strictly... against the company
in order to avoid a forfeiture, unless no other result is possible
from the language used.[12]
If a marine insurance company desires to limit or restrict the
operation of the general provisions of its contract by special
proviso, exception, or exemption, it should express such limitation
in clear and unmistakable language.
Obviously, the deletion... of the F.C. & S. Clause and the
consequent incorporation of subsection 1.1 of Section 1 of the
Institute War Clauses (Cargo) gave rise to ambiguity. If the risk of
arrest occasioned by ordinary judicial process was expressly
indicated as an exception in the subject policies,... there would
have been no controversy with respect to the interpretation of the
subject clauses.
Principles:
Indemnity and liability insurance policies are construed in
accordance with the general rule of resolving any ambiguity
therein in favor of the insured, where the contract or policy is
prepared by the insurer.[18]A contract of insurance, being a
contract of... adhesion, par excellence, any ambiguity therein
should be resolved against the insurer; in other words, it should be
construed liberally in favor of the insured and strictly against the
insurer. Limitations of liability should be regarded with extreme
jealousy and must be... construed in such a way as to preclude the
insurer from noncompliance with its obligations.
xxxxxx
PHILIPPINE NATIONAL BANK v. INDEPENDENT PLANTERS
ASSOCIATION, GR No. L-28046, 1983-05-16
Facts:
Appeal by the Philippine National Bank (PNB) from the Order of
the defunct Court of First Instance of Manila... dismissing PNB's
complaint against several solidary debtors for the collection of a
sum of money on the... ground that one of the defendants
(Ceferino Valencia) died during the pendency of the case... and
therefore the complaint, being a money claim based on contract,
should be prosecuted in the testate or or intestate proceeding...
for the settlement of the estate of the deceased defendant
pursuant to Section 6 of Rule 86 of the Rules of Court which
reads:
SEC. 6. Solidary obligation of decedent. Where the obligation of
the decedent is solidary with another debtor, the claim shall be
filed against the decedent as if he were the only debtor, without
prejudice to the right of the estate to recover contribution from
the... other debtor. In a joint obligation of the decedent, the claim
shall be confined to the portion belonging to him.
The appellant assails the order of dismissal, invoking its right of
recourse against one, some or all of its solidary debtors under
Article 1216 of the Civil Code
ART. 1216. The creditor may proceed against any one of the
solidary debtors or some or all of then simultaneously. The
demand made against one of then shall not be an obstacle to
those which may subsequently be directed against the others, so
long as the debt has not been... fully collected.
Issues:
The sole issue thus raised whether in an action for collection of a
sum of money based on contract against all the solidary debtors,
the death of one defendant deprives the court of jurisdiction to
proceed with the case against the surviving defendants.
Ruling:
It is now settled that the quoted Article 1216 grants the creditor
the substantive right to seek satisfaction of his credit from one,
some or all of his solidary debtors, as he deems fit or convenient
for the protection of his interests; and if, after instituting a
collection... suit based on contract against some or all of them and,
during its pendency, one of the defendants dies, the court retains
jurisdiction to continue the proceedings and decide the case in
respect of the surviving defendants.
the appealed order of dismissal of the court a quo... is hereby set
aside in respect of the surviving defendants; and the case is
remanded to the corresponding Regional Trial Court for further
proceedings
Principles:
ART. 1216. The creditor may proceed against any one of the
solidary debtors or some or all of then simultaneously. The
demand made against one of then shall not be an obstacle to
those which may subsequently be directed against the others, so
long as the debt has not been... fully collected.
xxxxx
As to performance of prestation -Arts. 1221-1225, 1209-1210 -Divisible
-Indivisible -Joint indivisible -Solidary indivisible As to the presence of
an accessory undertaking in case of breach with a Penal Clause -Arts.
1226-1230 Distinguish from Liquidated Damages
xxxxxxxxxxxxxxxxxxxxxxxxxx
ACHRACH V. GOLINGCO
39 PHIL 139
FACTS:
Bachrach sold a truck to Golingco, which was secured by a promissory
note and a chattel mortgage on the truck. The promissory note
provided that there would be payment of 25% attorney’s fees.
HELD:
It may lawfully be stipulated in favor of the creditor that in the event
that it becomes necessary, by reason of the delinquency of the debtor,
to employ counsel to enforce payment of the obligation, a reasonable
attorney’s fee shall be paid by the debtor, in addition to amount
due of principal and
interest. The legality of this stipulation, when annexed to the
negotiable instrument, is recognized by the NIL.

The courts have the power to limit the amount recoverable under a
special provision in a promissory note, whereby the debtor obligates
himself to pay a specified amount, or a certain per centum of the
principal debt, in satisfaction of attorney’s fees for which the creditor
would become liable in suing upon the note.

*Normally, if there is absence of any agreement as to attorney’s fees,
then the court would only grant nominal amounts.
xxx
52 Phil. 346
AVANCEÃ'A, C.J.:
These two cases, Nos. 28497 and 28498, were tried together.
It appears, in connection with case 28497; that on July 28, 1925

the defendant Faustino Espiritu purchased of the plaintiff
corporation a two-ton White truck for P11,988.50, paying P1,000
down to apply on account of this price, and obligating himself to
pay the remaining P10,983.50 within the periods agreed upon. To
secure the payment of this sum, the defendant mortgaged the said
truck purchased and, besides, three others, two of which are
numbered 77197 and 92744 respectively, and all of
the White make (Exhibit A). These two trucks had been purchased
from the same plaintiff and were fully paid for by the defendant
and his brother Rosario Espiritu. The defendant failed to pay
P10,477.82 of the price secured by this mortgage.
In connection with case 28498, it appears that on February 18,

1925 the defendant bought a one-ton White truck of the plaintiff
corporation for the sum of P7,136.50, and after having deducted
the P500 cash payment and the 12 per cent annual interest on the
unpaid principal, obligated himself to make payment of this sum
within the periods agreed upon. To secure this payment the
defendant mortgaged to the plaintiff corporation the said truck
purchased and two others, numbered 77197 and 92744,
respectively, the same that were mortgaged in the purchase of the
other truck referred to in the other case. The defendant failed to
pay P4,208.28 of this sum.
In both sales it was agreed that 12 per cent interest would be paid
upon the unpaid portion of the price at the execution of the
contracts, and in case of non-payment of the total debt upon its
maturity, 25 per cent thereon, as penalty.
In addition to the mortgage deeds referred to, which the

defendant executed in favor of the plaintiff, the defendant at the
same time also signed a promissory note solidarity with his
brother Rosario Espiritu for the several sums secured by the two
mortgages (Exhibits B and D).
Rosario Espiritu appeared in these two cases as intervenor,

alleging to be the exclusive owner of the two White trucks Nos.
77197 and 92744, which appear to have been mortgaged by the
defendant to the plaintiff.
While these two cases were pending in the lower court the
mortgaged trucks were sold by virtue of the mortgage, all of them
together bringing in, after deducting the sheriff's fees and
transportation charges to Manila, the net sum of P3,269.58.
The judgment appealed from ordered the defendant and the

intervenor to pay plaintiff in case 28497 the sum of P7,732.09
with interest at the rate of 12 per cent per annum from May 1,
1926 until fully paid, and 25 per cent thereof in addition as
penalty. In case 28498, the trial court ordered the defendant and
the intervenor to pay plaintiff the sum of P4,208.28 with interest
at 12 per cent per annum from December 1, 1925 until fully paid,
and 25 per cent thereon as penalty.
The appellants contend that trucks 77197 and 92744 were not
mortgaged, because, when the defendant signed the mortgage
deeds these trucks were not included in those documents, and
were only put in later, without defendant's knowledge. But there
is positive proof that they were included at the time the defendant
signed these documents. Besides, there were presented two of
defendant's letters to Hidalgo, an employee of theplaintiff's,
written a few days before the transaction, acquiescing in the
inclusion of all his White trucks already paid for, in the mortgage
(Exhibit H-I).
Appellants also allege that on February 4, 1925, the defendant

sold his rights in said trucks Nos. 77197 and 92744 to the
intervenor, and that as the latter did not sign the mortgage deeds,
such trucks cannot be considered as mortgaged. But the evidence
shows that while the intervenor Rosario Espiritu did not sign the
two mortgage deeds (Exhibits A and C), yet together with the
defendant Faustino Espiritu, he signed the two promissory notes
(Exhibits B and D) secured by these two mortgages. All these
instruments were executed at the same time, and when the trucks
77197 and 92744 were included in the mortgages, the intervenor
Rosario Espiritu was aware of it and consented to such inclusion.
These facts are supported by the testimony of Bachrach, manager
of the plaintiff corporation, of Agustin Ramirez, who witnessed
the execution of all these documents, and of Angel Hidalgo, who
witnessed the execution of Exhibits B and D.
We do not find the statement of the intervenor Rosario Espiritu

that he did not sign promissory notes Exhibits B and C to be
sufficient to overthrow this evidence. A comparison of his genuine
signature on Exhibit AA with those appearing on promissory
notes B and C, convinces us that the latter are his signatures. And
such is our conclusion, notwithstanding the evidence presented to
establish that on the date when Exhibit B appears to have been
signed, that is, July 25, 1925, the intervenor was in Batac, Ilocos
Norte, many miles away from Manila. And the fact that on the
24th of said month of July, the plaintiff sent some truck accessory
parts by rail to Ilocos for the intervenor does not necessarily prove
that the latter could not have been in Manila on the 25th of that
month.
In view of this conclusion that the intervenor signed the

promissory notes secured by trucks 77197 and 92744 and
consented to the mortgage of the same, it is immaterial whether
he was or was not the exclusive owner thereof.
It is finally contended that the 25 per cent penalty upon the debt,
in addition to the interest of 12 per cent per annum makes the
contract usurious. Such a contention is not well founded. Article
1152 of the Civil Code permits the agreement upon a penalty apart
from the interest. Should there be such an agreement, the
penalty, as was held in the case of Lopez vs. Hernaez (32 Phil.,
631), does not include the interest, and as such the two are
different and distinct things which may be demanded separately.
According to this, the penalty is not to be added to the interest for
the determination of whether the interest exceeds the rate fixed by
the law, since said rate was fixed only for the interest. But
considering that the obligation was partly performed, and making
use of the power given to the court by article 1154 of the Civil
Code, this penalty is reduced to 10 per cent of the unpaid debt.
With the sole modification that instead of 25 per cent upon the
sum owed, the defendants need pay only 10 per cent thereon as
penalty, the judgment appealed from is affirmed in all other
respects without special pronouncement as to costs. So ordered.
Malcolm, Villamor, Ostrand, Romualdez, and Villa-Real, JJ.,

concur.
xx
BREACH OF OBLIGATIONS- Art. 1170 Manner of Breach 1. fraud -Arts.
1171,1338, 1344 2. negligence -Arts. 1171-1173 3. delay -Arts.l169,
1165,1786,1788,1896,1942 4. any other manner of contravention 4 4
Excuse for non-performance 1. Fortuitous Event -Arts. 1174, 552, 1165,
2147, 2159 2. Act of creditor
xxxxxxxxxxxxxxxxxxxxxxxxxxxxx
THIRD DIVISION
[G.R. NO. 159617 : August 8, 2007]

ROBERTO C. SICAM and AGENCIA de R.C. SICAM,
INC., Petitioners, v. LULU V. JORGE and CESAR
JORGE, Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by

Roberto C. Sicam, Jr. (petitioner Sicam)
and Agencia de R.C. Sicam, Inc. (petitioner corporation)
seeking to annul the Decision1 of the Court of Appeals
dated March 31, 2003, and its Resolution 2 dated August
8, 2003, in CA G.R. CV No. 56633.
It appears that on different dates from September to

October 1987, Lulu V. Jorge (respondent Lulu) pawned
several pieces of jewelry with Agencia de R. C. Sicam
located at No. 17 Aguirre Ave., BF Homes ParaÃ±aque,
Metro Manila, to secure a loan in the total amount
of P59,500.00.
On October 19, 1987, two armed men entered the

pawnshop and took away whatever cash and jewelry
were found inside the pawnshop vault. The incident was
entered in the police blotter of the Southern Police
District, ParaÃ±aque Police Station as follows:
Investigation shows that at above TDPO, while victims

were inside the office, two (2) male unidentified persons
entered into the said office with guns drawn.
Suspects(sic) (1) went straight inside and poked his gun
toward Romeo Sicam and thereby tied him with an
electric wire while suspects (sic) (2) poked his gun
toward Divina Mata and Isabelita Rodriguez and ordered
them to lay (sic) face flat on the floor. Suspects asked
forcibly the case and assorted pawned jewelries items
mentioned above.
Suspects after taking the money and jewelries fled on

board a Marson Toyota unidentified plate number.3
Petitioner Sicam sent respondent Lulu a letter dated

October 19, 1987 informing her of the loss of her jewelry
due to the robbery incident in the pawnshop. On
November 2, 1987, respondent Lulu then wrote a
letter4 to petitioner Sicam expressing disbelief stating
that when the robbery happened, all jewelry pawned
were deposited with Far East Bank near the pawnshop
since it had been the practice that before they could
withdraw, advance notice must be given to the pawnshop
so it could withdraw the jewelry from the bank.
Respondent Lulu then requested petitioner Sicam to
prepare the pawned jewelry for withdrawal on November
6, 1987 but petitioner Sicam failed to return the jewelry.
On September 28, 1988, respondent Lulu joined by her

husband, Cesar Jorge, filed a complaint against petitioner
Sicam with the Regional Trial Court of Makati seeking
indemnification for the loss of pawned jewelry and
payment of actual, moral and exemplary damages as well
as attorney's fees. The case was docketed as Civil Case
No. 88-2035.
Petitioner Sicam filed his Answer contending that he is

not the real party-in-interest as the pawnshop was
incorporated on April 20, 1987 and known
as Agencia de R.C. Sicam, Inc; that petitioner corporation
had exercised due care and diligence in the safekeeping
of the articles pledged with it and could not be made
liable for an event that is fortuitous.
Respondents subsequently filed an Amended Complaint

to include petitioner corporation.
Thereafter, petitioner Sicam filed a Motion to Dismiss as

far as he is concerned considering that he is not the real
party-in-interest. Respondents opposed the same. The
RTC denied the motion in an Order dated November 8,
1989.5
After trial on the merits, the RTC rendered its

Decision6 dated January 12, 1993, dismissing
respondents' complaint as well as petitioners'
counterclaim. The RTC held that petitioner Sicam could
not be made personally liable for a claim arising out of a
corporate transaction; that in the Amended Complaint of
respondents, they asserted that "plaintiff pawned
assorted jewelries in defendants' pawnshop"; and that as
a consequence of the separate juridical personality of a
corporation, the corporate debt or credit is not the debt
or credit of a stockholder.
RULING OF THE RTC- CORPORATION NOT LIABLE

FOR FORTUITUOUS EVENT
The RTC further ruled that petitioner corporation could

not be held liable for the loss of the pawned jewelry since
it had not been rebutted by respondents that the loss of
the pledged pieces of jewelry in the possession of the
corporation was occasioned by armed robbery; that
robbery is a fortuitous event which exempts the victim
from liability for the loss, citing the case of Austria v.
Court of Appeals;7 and that the parties' transaction was
that of a pledgor and pledgee and under Art. 1174 of the
Civil Code, the pawnshop as a pledgee is not responsible
for those events which could not be foreseen.
Respondents appealed the RTC Decision to the CA. In a

Decision dated March 31, 2003, the CA reversed the RTC,
the dispositive portion of which reads as follows:
COURT OF APPEALS- APPEAL GRANTED.
WHEREFORE, premises considered, the instant Appeal is

GRANTED, and the Decision dated January 12, 1993,of
the Regional Trial Court of Makati, Branch 62, is hereby
REVERSED and SET ASIDE, ordering the appellees to pay
appellants the actual value of the lost jewelry amounting
to P272,000.00, and attorney' fees of P27,200.00.8
In finding petitioner Sicam liable together with petitioner

corporation, the CA applied the doctrine of piercing the
veil of corporate entity reasoning that respondents were
misled into thinking that they were dealing with the
pawnshop owned by petitioner Sicam as all the pawnshop
tickets issued to them bear the words "Agencia de R.C.
Sicam"; and that there was no indication on the
pawnshop tickets that it was the petitioner corporation
that owned the pawnshop which explained why
respondents had to amend their complaint impleading
petitioner corporation.
The CA further held that the corresponding diligence

required of a pawnshop is that it should take steps to
secure and protect the pledged items and should take
steps to insure itself against the loss of articles which are
entrusted to its custody as it derives earnings from the
pawnshop trade which petitioners failed to do;
that Austria is not applicable to this case since the
robbery incident happened in 1961 when the criminality
had not as yet reached the levels attained in the present
day; that they are at least guilty of contributory
negligence and should be held liable for the loss of
jewelries; and that robberies and hold-ups are
foreseeable risks in that those engaged in the pawnshop
business are expected to foresee.
The CA concluded that both petitioners should be jointly

and severally held liable to respondents for the loss of
the pawned jewelry.
Petitioners' motion for reconsideration was denied in a

Resolution dated August 8, 2003.
PETITION FOR REVIEW- SICAM- DENIED.
Hence, the instant Petition for Review with the following

assignment of errors:
THE COURT OF APPEALS ERRED AND WHEN IT DID, IT

OPENED ITSELF TO REVERSAL, WHEN IT ADOPTED
UNCRITICALLY (IN FACT IT REPRODUCED AS ITS OWN
WITHOUT IN THE MEANTIME ACKNOWLEDGING IT)
WHAT THE RESPONDENTS ARGUED IN THEIR BRIEF,
WHICH ARGUMENT WAS PALPABLY UNSUSTAINABLE.
THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT

OPENED ITSELF TO REVERSAL BY THIS HONORABLE
COURT, WHEN IT AGAIN ADOPTED UNCRITICALLY (BUT
WITHOUT ACKNOWLEDGING IT) THE SUBMISSIONS OF
THE RESPONDENTS IN THEIR BRIEF WITHOUT ADDING
ANYTHING MORE THERETO DESPITE THE FACT THAT THE
SAID ARGUMENT OF THE RESPONDENTS COULD NOT
HAVE BEEN SUSTAINED IN VIEW OF UNREBUTTED
EVIDENCE ON RECORD.9
Anent the first assigned error, petitioners point out that

the CA's finding that petitioner Sicam is personally liable
for the loss of the pawned jewelries is "a virtual and
uncritical reproduction of the arguments set out on pp. 5-
6 of the Appellants' brief."10
Petitioners argue that the reproduced arguments of

respondents in their Appellants' Brief suffer from
infirmities, as follows:
(1) Respondents conclusively asserted in paragraph 2 of

their Amended Complaint that Agencia de R.C. Sicam,
Inc. is the present owner of Agencia de R.C. Sicam
Pawnshop, and therefore, the CA cannot rule against said
conclusive assertion of respondents;
(2) The issue resolved against petitioner Sicam was not

among those raised and litigated in the trial court;
andcralawlibrary
(3) By reason of the above infirmities, it was error for the

CA to have pierced the corporate veil since a corporation
has a personality distinct and separate from its individual
stockholders or members.
Anent the second error, petitioners point out that the CA

finding on their negligence is likewise an unedited
reproduction of respondents' brief which had the
following defects:
(1) There were unrebutted evidence on record that

petitioners had observed the diligence required of them,
i.e, they wanted to open a vault with a nearby bank for
purposes of safekeeping the pawned articles but was
discouraged by the Central Bank (CB) since CB rules
provide that they can only store the pawned articles in a
vault inside the pawnshop premises and no other place;
(2) Petitioners were adjudged negligent as they did not

take insurance against the loss of the pledged jelweries,
but it is judicial notice that due to high incidence of
crimes, insurance companies refused to cover pawnshops
and banks because of high probability of losses due to
robberies;
(3) In Hernandez v. Chairman, Commission on Audit (179

SCRA 39, 45-46), the victim of robbery was exonerated
from liability for the sum of money belonging to others
and lost by him to robbers.
Respondents filed their Comment and petitioners filed

their Reply thereto. The parties subsequently submitted
their respective Memoranda.
We find no merit in the petition.
To begin with, although it is true that indeed the CA

findings were exact reproductions of the arguments
raised in respondents' (appellants') brief filed with the
CA, we find the same to be not fatally infirmed. Upon
examination of the Decision, we find that it expressed
clearly and distinctly the facts and the law on which it is
based as required by Section 8, Article VIII of the
Constitution. The discretion to decide a case one way or
another is broad enough to justify the adoption of the
arguments put forth by one of the parties, as long as
these are legally tenable and supported by law and the
facts on records.11
Our jurisdiction under Rule 45 of the Rules of Court is

limited to the review of errors of law committed by the
appellate court. Generally, the findings of fact of the
appellate court are deemed conclusive and we are not
duty-bound to analyze and calibrate all over again the
evidence adduced by the parties in the court a quo.12 This
rule, however, is not without exceptions, such as where
the factual findings of the Court of Appeals and the trial
court are conflicting or contradictory13 as is obtaining in
the instant case.
However, after a careful examination of the records, we

find no justification to absolve petitioner Sicam from
liability.
The CA correctly pierced the veil of the corporate fiction

and adjudged petitioner Sicam liable together with
petitioner corporation. The rule is that the veil of
corporate fiction may be pierced when made as a shield
to perpetrate fraud and/or confuse legitimate
14
issues. The theory of corporate entity was not meant to
promote unfair objectives or otherwise to shield them.15
Notably, the evidence on record shows that at the time

respondent Lulu pawned her jewelry, the pawnshop was
owned by petitioner Sicam himself. As correctly observed
by the CA, in all the pawnshop receipts issued to
respondent Lulu in September 1987, all bear the words
"Agencia de R. C. Sicam," notwithstanding that the
pawnshop was allegedly incorporated in April 1987.
The receipts issued after such alleged incorporation were
still in the name of "Agencia de R. C. Sicam," thus
inevitably misleading, or at the very least, creating the
wrong impression to respondents and the public as
well, that the pawnshop was owned solely by petitioner
Sicam and not by a corporation.
Even petitioners' counsel, Atty. Marcial T. Balgos, in his

letter16 dated October 15, 1987 addressed to the Central
Bank, expressly referred to petitioner Sicam as the
proprietor of the pawnshop notwithstanding the alleged
incorporation in April 1987.
We also find no merit in petitioners' argument that since

respondents had alleged in their Amended Complaint that
petitioner corporation is the present owner of the
pawnshop, the CA is bound to decide the case on that
basis.
Section 4 Rule 129 of the Rules of Court provides that an

admission, verbal or written, made by a party in the
course of the proceedings in the same case, does not
require proof. The admission may be contradicted only by
showing that it was made through palpable mistake
or that no such admission was made.
Thus, the general rule that a judicial admission is

conclusive upon the party making it and does not require
proof, admits of two exceptions, to wit: (1) when it is
shown that such admission was made through palpable
mistake, and (2) when it is shown that no such admission
was in fact made. The latter exception allows one to
contradict an admission by denying that he made
such an admission.17
The Committee on the Revision of the Rules of Court

explained the second exception in this wise:
x x x if a party invokes an "admission" by an adverse

party, but cites the admission "out of context," then the
one making the "admission" may show that he made no
"such" admission, or that his admission was taken
out of context.
x x x that the party can also show that he made no "such

admission", i.e., not in the sense in which the admission
is made to appear.
That is the reason for the modifier "such" because if the

rule simply states that the admission may be
contradicted by showing that "no admission was made,"
the rule would not really be providing for a contradiction
of the admission but just a denial.18 (Emphasis supplied).
While it is true that respondents alleged in their Amended

Complaint that petitioner corporation is the present
owner of the pawnshop, they did so only because
petitioner Sicam alleged in his Answer to the original
complaint filed against him that he was not the real
party-in-interest as the pawnshop was incorporated in
April 1987. Moreover, a reading of the Amended
Complaint in its entirety shows that respondents referred
to both petitioner Sicam and petitioner corporation where
they (respondents) pawned their assorted pieces of
jewelry and ascribed to both the failure to observe due
diligence commensurate with the business which resulted
in the loss of their pawned jewelry.
Markedly, respondents, in their Opposition to petitioners'

Motion to Dismiss Amended Complaint, insofar as
petitioner Sicam is concerned, averred as follows:
Roberto C. Sicam was named the defendant in the

original complaint because the pawnshop tickets involved
in this case did not show that the R.C. Sicam Pawnshop
was a corporation. In paragraph 1 of his Answer, he
admitted the allegations in paragraph 1 and 2 of the
Complaint. He merely added "that defendant is not now
the real party in interest in this case."
It was defendant Sicam's omission to correct the

pawnshop tickets used in the subject transactions in this
case which was the cause of the instant action. He cannot
now ask for the dismissal of the complaint against him
simply on the mere allegation that his pawnshop business
is now incorporated. It is a matter of defense, the merit
of which can only be reached after consideration of the
evidence to be presented in due course.19
Unmistakably, the alleged admission made in

respondents' Amended Complaint was taken "out of
context" by petitioner Sicam to suit his own purpose.
Ineluctably, the fact that petitioner Sicam continued to
issue pawnshop receipts under his name and not under
the corporation's name militates for the piercing of the
corporate veil.
We likewise find no merit in petitioners' contention that
the CA erred in piercing the veil of corporate fiction of
petitioner corporation, as it was not an issue raised and
litigated before the RTC.
Petitioner Sicam had alleged in his Answer filed with the

trial court that he was not the real party-in-interest
because since April 20, 1987, the pawnshop business
initiated by him was incorporated and known
as Agencia de R.C. Sicam. In the pre-trial brief filed by
petitioner Sicam, he submitted that as far as he was
concerned, the basic issue was whether he is the real
party in interest against whom the complaint should be
directed.20 In fact, he subsequently moved for the
dismissal of the complaint as to him but was not
favorably acted upon by the trial court. Moreover, the
issue was squarely passed upon, although erroneously,
by the trial court in its Decision in this manner:
x x x The defendant Roberto Sicam, Jr likewise denies

liability as far as he is concerned for the reason that he
cannot be made personally liable for a claim arising from
a corporate transaction.
This Court sustains the contention of the defendant

Roberto C. Sicam, Jr. The amended complaint itself
asserts that "plaintiff pawned assorted jewelries in
defendant's pawnshop." It has been held that " as a
consequence of the separate juridical personality of a
corporation, the corporate debt or credit is not the debt
or credit of the stockholder, nor is the stockholder's debt
or credit that of a corporation.21
Clearly, in view of the alleged incorporation of the
pawnshop, the issue of whether petitioner Sicam is
personally liable is inextricably connected with the
determination of the question whether the doctrine of
piercing the corporate veil should or should not apply to
the case.
The next question is whether petitioners are liable for the

loss of the pawned articles in their possession.
Petitioners insist that they are not liable since robbery is

a fortuitous event and they are not negligent at all.
We are not persuaded.
Article 1174 of the Civil Code provides:
Art. 1174. Except in cases expressly specified by the law,

or when it is otherwise declared by stipulation, or when
the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events
which could not be foreseen or which, though foreseen,
were inevitable.
Fortuitous events by definition are extraordinary events

not foreseeable or avoidable. It is therefore, not enough
that the event should not have been foreseen or
anticipated, as is commonly believed but it must be one
impossible to foresee or to avoid. The mere difficulty to
foresee the happening is not impossibility to foresee the
same.22
To constitute a fortuitous event, the following elements

must concur: (a) the cause of the unforeseen and
unexpected occurrence or of the failure of the debtor to
comply with obligations must be independent of human
will; (b) it must be impossible to foresee the event that
constitutes the caso fortuito or, if it can be foreseen, it
must be impossible to avoid; (c) the occurrence must be
such as to render it impossible for the debtor to fulfill
obligations in a normal manner; and, (d) the obligor
must be free from any participation in the aggravation of
the injury or loss.23
The burden of proving that the loss was due to a

fortuitous event rests on him who invokes it.24 And, in
order for a fortuitous event to exempt one from liability,
it is necessary that one has committed no negligence or
misconduct that may have occasioned the loss.25
It has been held that an act of God cannot be invoked to

protect a person who has failed to take steps to forestall
the possible adverse consequences of such a loss. One's
negligence may have concurred with an act of God in
producing damage and injury to another; nonetheless,
showing that the immediate or proximate cause of the
damage or injury was a fortuitous event would not
exempt one from liability. When the effect is found to be
partly the result of a person's participation - - whether by
active intervention, neglect or failure to act - - the whole
occurrence is humanized and removed from the rules
applicable to acts of God.26
Petitioner Sicam had testified that there was a security

guard in their pawnshop at the time of the robbery. He
likewise testified that when he started the pawnshop
business in 1983, he thought of opening a vault with the
nearby bank for the purpose of safekeeping the valuables
but was discouraged by the Central Bank since pawned
articles should only be stored in a vault inside the
pawnshop. The very measures which petitioners had
allegedly adopted show that to them the possibility of
robbery was not only foreseeable, but actually foreseen
and anticipated. Petitioner Sicam's testimony, in
effect, contradicts petitioners' defense of fortuitous
event.
Moreover, petitioners failed to show that they were free

from any negligence by which the loss of the pawned
jewelry may have been occasioned.
Robbery per se, just like carnapping, is not a fortuitous

event. It does not foreclose the possibility of negligence
on the part of herein petitioners. In Co v. Court of
Appeals,27 the Court held:
It is not a defense for a repair shop of motor vehicles to

escape liability simply because the damage or loss of a
thing lawfully placed in its possession was due to
carnapping. Carnapping per se cannot be considered as a
fortuitous event. The fact that a thing was unlawfully
and forcefully taken from another's rightful
possession, as in cases of carnapping, does not
automatically give rise to a fortuitous event. To be
considered as such, carnapping entails more than
the mere forceful taking of another's property. It
must be proved and established that the event was
an act of God or was done solely by third parties
and that neither the claimant nor the person
alleged to be negligent has any participation. In
accordance with the Rules of Evidence, the burden
of proving that the loss was due to a fortuitous
event rests on him who invokes it - which in this
case is the private respondent. However, other than
the police report of the alleged carnapping incident, no
other evidence was presented by private respondent to
the effect that the incident was not due to its fault. A
police report of an alleged crime, to which only private
respondent is privy, does not suffice to establish the
carnapping. Neither does it prove that there was no fault
on the part of private respondent notwithstanding the
parties' agreement at the pre-trial that the car was
carnapped. Carnapping does not foreclose the possibility
of fault or negligence on the part of private respondent.28
Just like in Co, petitioners merely presented the police

report of the ParaÃ±aque Police Station on the robbery
committed based on the report of petitioners' employees
which is not sufficient to establish robbery. Such report
also does not prove that petitioners were not at fault.
On the contrary, by the very evidence of petitioners, the

CA did not err in finding that petitioners are guilty of
concurrent or contributory negligence as provided in
Article 1170 of the Civil Code, to wit:
Art. 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.29
Article 2123 of the Civil Code provides that with regard to

pawnshops and other establishments which are engaged
in making loans secured by pledges, the special laws and
regulations concerning them shall be observed, and
subsidiarily, the provisions on pledge, mortgage and
antichresis.
The provision on pledge, particularly Article 2099 of the
Civil Code, provides that the creditor shall take care of
the thing pledged with the diligence of a good father of a
family. This means that petitioners must take care of the
pawns the way a prudent person would as to his own
property.
In this connection, Article 1173 of the Civil Code further

provides:
Art. 1173. 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 time and of the place.
When negligence shows bad faith, the provisions of
Articles 1171 and 2201, paragraph 2 shall apply.
If the law or contract does not state the diligence which

is to be observed in the performance, that which is
expected of a good father of a family shall be required.
We expounded in Cruz v. Gangan30 that negligence is the

omission to do something which a reasonable man,
guided by those considerations which ordinarily regulate
the conduct of human affairs, would do; or the doing of
something which a prudent and reasonable man would
not do.31 It is want of care required by the circumstances.
A review of the records clearly shows that petitioners

failed to exercise reasonable care and caution that an
ordinarily prudent person would have used in the same
situation. Petitioners were guilty of negligence in the
operation of their pawnshop business. Petitioner Sicam
testified, thus:
Court:
Q. Do you have security guards in your pawnshop?cralaw

library
A. Yes, your honor.
Q. Then how come that the robbers were able to enter

the premises when according to you there was a security
guard?cralaw library
A. Sir, if these robbers can rob a bank, how much more a

pawnshop.
Q. I am asking you how were the robbers able to enter

despite the fact that there was a security guard?cralaw
library
A. At the time of the incident which happened about 1:00

and 2:00 o'clock in the afternoon and it happened on a
Saturday and everything was quiet in the area BF Homes
ParaÃ±aque they pretended to pawn an article in the
pawnshop, so one of my employees allowed him to come
in and it was only when it was announced that it was a
hold up.
Q. Did you come to know how the vault was opened?

cralaw library
A. When the pawnshop is official (sic) open your honor

the pawnshop is partly open. The combination is off.
Q. No one open (sic) the vault for the robbers?cralaw

library
A. No one your honor it was open at the time of the
robbery.
Q. It is clear now that at the time of the robbery the

vault was open the reason why the robbers were able to
get all the items pawned to you inside the vault.
A. Yes sir.32
revealing that there were no security measures adopted

by petitioners in the operation of the pawnshop.
Evidently, no sufficient precaution and vigilance were
adopted by petitioners to protect the pawnshop from
unlawful intrusion. There was no clear showing that there
was any security guard at all. Or if there was one, that he
had sufficient training in securing a pawnshop. Further,
there is no showing that the alleged security guard
exercised all that was necessary to prevent any untoward
incident or to ensure that no suspicious individuals were
allowed to enter the premises. In fact, it is even doubtful
that there was a security guard, since it is quite
impossible that he would not have noticed that the
robbers were armed with caliber .45 pistols each, which
were allegedly poked at the employees.33 Significantly,
the alleged security guard was not presented at all to
corroborate petitioner Sicam's claim; not one of
petitioners' employees who were present during the
robbery incident testified in court.
Furthermore, petitioner Sicam's admission that the vault

was open at the time of robbery is clearly a proof of
petitioners' failure to observe the care, precaution and
vigilance that the circumstances justly demanded.
Petitioner Sicam testified that once the pawnshop was
open, the combination was already off. Considering
petitioner Sicam's testimony that the robbery took place
on a Saturday afternoon and the area in BF Homes
ParaÃ±aque at that time was quiet, there was more
reason for petitioners to have exercised reasonable
foresight and diligence in protecting the pawned
jewelries. Instead of taking the precaution to protect
them, they let open the vault, providing no difficulty for
the robbers to cart away the pawned articles.
We, however, do not agree with the CA when it found

petitioners negligent for not taking steps to insure
themselves against loss of the pawned jewelries.
Under Section 17 of Central Bank Circular No. 374, Rules

and Regulations for Pawnshops, which took effect on July
13, 1973, and which was issued pursuant to Presidential
Decree No. 114, Pawnshop Regulation Act, it is provided
that pawns pledged must be insured, to wit:
Sec. 17. Insurance of Office Building and Pawns - The

place of business of a pawnshop and the pawns pledged
to it must be insured against fire and against
burglary as well as for the latter(sic), by an insurance
company accredited by the Insurance Commissioner.
However, this Section was subsequently amended by CB

Circular No. 764 which took effect on October 1, 1980, to
wit:
Sec. 17 Insurance of Office Building and Pawns - The

office building/premises and pawns of a pawnshop must
be insured against fire.(emphasis supplied).
where the requirement that insurance against burglary
was deleted. Obviously, the Central Bank considered it
not feasible to require insurance of pawned articles
against burglary.
The robbery in the pawnshop happened in 1987, and

considering the above-quoted amendment, there is no
statutory duty imposed on petitioners to insure the
pawned jewelry in which case it was error for the CA to
consider it as a factor in concluding that petitioners were
negligent.
Nevertheless, the preponderance of evidence shows that

petitioners failed to exercise the diligence required of
them under the Civil Code.
The diligence with which the law requires the individual

at all times to govern his conduct varies with the nature
of the situation in which he is placed and the importance
of the act which he is to perform.34 Thus, the cases
of Austria v. Court of Appeals,35 Hernandez v. Chairman,
Commission on Audit36 and Cruz v. Gangan37 cited by
petitioners in their pleadings, where the victims of
robbery were exonerated from liability, find no
application to the present case.
In Austria, Maria Abad received from Guillermo Austria a

pendant with diamonds to be sold on commission basis,
but which Abad failed to subsequently return because of
a robbery committed upon her in 1961. The incident
became the subject of a criminal case filed against
several persons. Austria filed an action against Abad and
her husband (Abads) for recovery of the pendant or its
value, but the Abads set up the defense that the robbery
extinguished their obligation. The RTC ruled in favor of
Austria, as the Abads failed to prove robbery; or, if
committed, that Maria Abad was guilty of negligence. The
CA, however, reversed the RTC decision holding that the
fact of robbery was duly established and declared the
Abads not responsible for the loss of the jewelry on
account of a fortuitous event. We held that for the Abads
to be relieved from the civil liability of returning the
pendant under Art. 1174 of the Civil Code, it would only
be sufficient that the unforeseen event, the robbery, took
place without any concurrent fault on the debtor's part,
and this can be done by preponderance of evidence; that
to be free from liability for reason of fortuitous event, the
debtor must, in addition to the casus itself, be free of any
concurrent or contributory fault or negligence.38
We found in Austria that under the circumstances

prevailing at the time the Decision was promulgated in
1971, the City of Manila and its suburbs had a high
incidence of crimes against persons and property that
rendered travel after nightfall a matter to be sedulously
avoided without suitable precaution and protection; that
the conduct of Maria Abad in returning alone to her house
in the evening carrying jewelry of considerable value
would have been negligence per se and would not
exempt her from responsibility in the case of robbery.
However we did not hold Abad liable for negligence since,
the robbery happened ten years previously; i.e., 1961,
when criminality had not reached the level of incidence
obtaining in 1971.
In contrast, the robbery in this case took place in 1987

when robbery was already prevalent and petitioners in
fact had already foreseen it as they wanted to deposit the
pawn with a nearby bank for safekeeping. Moreover,
unlike in Austria, where no negligence was committed,
we found petitioners negligent in securing their pawnshop
as earlier discussed.
In Hernandez, Teodoro Hernandez was the OIC and

special disbursing officer of the Ternate Beach Project of
the Philippine Tourism in Cavite. In the morning of July 1,
1983, a Friday, he went to Manila to encash two checks
covering the wages of the employees and the operating
expenses of the project. However for some reason, the
processing of the check was delayed and was completed
at about 3 p.m. Nevertheless, he decided to encash the
check because the project employees would be waiting
for their pay the following day; otherwise, the workers
would have to wait until July 5, the earliest time, when
the main office would open. At that time, he had two
choices: (1) return to Ternate, Cavite that same
afternoon and arrive early evening; or (2) take the
money with him to his house in Marilao, Bulacan, spend
the night there, and leave for Ternate the following day.
He chose the second option, thinking it was the safer
one. Thus, a little past 3 p.m., he took a passenger jeep
bound for Bulacan. While the jeep was on Epifanio de los
Santos Avenue, the jeep was held up and the money kept
by Hernandez was taken, and the robbers jumped out of
the jeep and ran. Hernandez chased the robbers and
caught up with one robber who was subsequently
charged with robbery and pleaded guilty. The other
robber who held the stolen money escaped. The
Commission on Audit found Hernandez negligent because
he had not brought the cash proceeds of the checks to
his office in Ternate, Cavite for safekeeping, which is the
normal procedure in the handling of funds. We held that
Hernandez was not negligent in deciding to encash the
check and bringing it home to Marilao, Bulacan instead of
Ternate, Cavite due to the lateness of the hour for the
following reasons: (1) he was moved by unselfish motive
for his co-employees to collect their wages and salaries
the following day, a Saturday, a non-working, because to
encash the check on July 5, the next working day after
July 1, would have caused discomfort to laborers who
were dependent on their wages for sustenance; and (2)
that choosing Marilao as a safer destination, being
nearer, and in view of the comparative hazards in the
trips to the two places, said decision seemed logical at
that time. We further held that the fact that two robbers
attacked him in broad daylight in the jeep while it was on
a busy highway and in the presence of other passengers
could not be said to be a result of his imprudence and
negligence.
Unlike in Hernandez where the robbery happened in a

public utility, the robbery in this case took place in the
pawnshop which is under the control of petitioners.
Petitioners had the means to screen the persons who
were allowed entrance to the premises and to protect
itself from unlawful intrusion. Petitioners had failed to
exercise precautionary measures in ensuring that the
robbers were prevented from entering the pawnshop and
for keeping the vault open for the day, which paved the
way for the robbers to easily cart away the pawned
articles.
In Cruz, Dr. Filonila O. Cruz, Camanava District Director
of Technological Education and Skills Development
Authority (TESDA), boarded the Light Rail Transit (LRT)
from Sen. Puyat Avenue to Monumento when her
handbag was slashed and the contents were stolen by an
unidentified person. Among those stolen were her wallet
and the government-issued cellular phone. She then
reported the incident to the police authorities; however,
the thief was not located, and the cellphone was not
recovered. She also reported the loss to the Regional
Director of TESDA, and she requested that she be freed
from accountability for the cellphone. The Resident
Auditor denied her request on the ground that she lacked
the diligence required in the custody of government
property and was ordered to pay the purchase value in
the total amount of P4,238.00. The COA found no
sufficient justification to grant the request for relief from
accountability. We reversed the ruling and found that
riding the LRT cannot per se be denounced as a negligent
act more so because Cruz's mode of transit was
influenced by time and money considerations; that she
boarded the LRT to be able to arrive in Caloocan in time
for her 3 pm meeting; that any prudent and rational
person under similar circumstance can reasonably be
expected to do the same; that possession of a cellphone
should not hinder one from boarding the LRT coach as
Cruz did considering that whether she rode a jeep or bus,
the risk of theft would have also been present; that
because of her relatively low position and pay, she was
not expected to have her own vehicle or to ride a
taxicab; she did not have a government assigned vehicle;
that placing the cellphone in a bag away from covetous
eyes and holding on to that bag as she did is ordinarily
sufficient care of a cellphone while traveling on board the
LRT; that the records did not show any specific act of
negligence on her part and negligence can never be
presumed.
Unlike in the Cruz case, the robbery in this case

happened in petitioners' pawnshop and they were
negligent in not exercising the precautions justly
demanded of a pawnshop.
WHEREFORE, except for the insurance aspect, the

Decision of the Court of Appeals dated March 31, 2003
and its Resolution dated August 8, 2003, are AFFIRMED.
Costs against petitioners.
SO ORDERED.
Ynares-Santiago, Chairperson, Chico-Nazario,

Nachura, JJ., concur.
Endnotes:
MANILA ELECTRIC COMPANY v. MATILDE MACABAGDAL

RAMOY, GR No. 158911, 2008-03-04
Facts:
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,
MTC RULED FOR THE PLAINTIFF
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
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 due time, the electric service connection of the plaintiffs [herein
respondents] was disconnected
RAMOY HIS HOUSE SHOULD NOT HAVE EBEEN COVERED HE
OBJECTED
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
COURT’S OCULAR INSPECTION: OUTSIDE:
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
EMPLOYEE OF NAPOCOR DID NOT INFORM
(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
MERALCO APPEALED.
Issues:
THE COURT OF APPEALS GRAVELY ERRED WHEN IT FOUND
MERALCO NEGLIGENT WHEN IT DISCONNECTED THE
SUBJECT ELECTRIC SERVICE OF RESPONDENTS.
Ruling:
MERALCO admits[6] 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 RELIED ON THE DECISION OF THE MTC ON THE
EJECTMENT CASE
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.
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]
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.
UTMOST CARE AND DILIGENCE BEING A PUBLIC UTILITY.
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.
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.
Principles:
MERALCO RELIED ON THE DECISION OF THE COURT? IS
THAT CORRECT? ARE THEY NEGLIGENT? YES.
LEVEL OF DILIGENCE REQUIRED IS UTMOST AND
EXTRAORDINARY
MERALCO SHOULD HAVE COORDINATED WITH PROPER
AUTHORITIES IN DETERMINING IF THOSE PLACES ARE IN
THE NAPOCOR’S RIGHT OF WAY.
SOLAR HARVEST v. DAVAO CORRUGATED CARTON
CORPORATION, GR No. 176868, 2010-07-26
Facts:
In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered
into an agreement with respondent, Davao Corrugated Carton
Corporation, for the purchase of corrugated carton boxes,
specifically designed for petitioner's business of exporting fresh
bananas
. The agreement was not reduced into writing. To get the
production underway, petitioner deposited, on March 31, 1998,
US$40,150.00 in respondent's US Dollar Savings Account with
Westmont Bank, as full payment for the ordered boxes.
Despite such payment, petitioner did not receive any boxes from
respondent.
On January 3, 2001, petitioner wrote a demand letter for
reimbursement of the amount paid.
On February 19, 2001, respondent replied that the boxes had
been completed as early as
April 3, 1998 and that petitioner failed to pick them up from the
former's warehouse 30 days from completion, as agreed upon.
Respondent mentioned that petitioner even placed an additional
order of 24,000 boxes, out of which, 14,000 had been
manufactured without any... advanced payment from petitioner.
Respondent then demanded petitioner to remove the boxes from
the factory and to pay the balance of US$15,400.00 for the
additional boxes and P132,000.00 as storage fee.
On August 17, 2001, petitioner filed a Complaint for sum of
money and damages against respondent. The Complaint averred
that the parties agreed that the boxes will be delivered within 30
days from payment but respondent failed to manufacture and
deliver the boxes within such... time. It further alleged
6. That repeated follow-up was made by the plaintiff for the

immediate production of the ordered boxes, but every time,
defendant [would] only show samples of boxes and ma[k]e
repeated promises to deliver the said ordered boxes.
In its Answer with Counterclaim,[5] respondent insisted that, as
early as April 3, 1998, it had already completed production of the
36,500 boxes, contrary to petitioner's allegation.
According to respondent, petitioner, in fact, made an additional
order of
24,000 boxes, out of which, 14,000 had been completed without
waiting for petitioner's payment. Respondent stated that
petitioner was to pick up the boxes at the factory as agreed upon,
but petitioner failed to do so.
Respondent claimed that the boxes were occupying warehouse
space and that petitioner should be made to pay storage fee at
P60.00 per square meter for every month from April 1998.
During trial, petitioner presented Que as its sole witness.
He specifically stated that, when he visited respondent's factory,
he saw that the boxes... had no print of petitioner's logo.
On cross-examination, Que further... testified that China Zero
Food, the Chinese company that ordered the bananas, was
sending a ship to Davao to get the bananas, but since there were
no cartons, the ship could not proceed. He said that, at that time,
bananas from Tagum Agricultural Development Corporation
(TADECO)... were already there. He denied that petitioner made
an additional order of 24,000 boxes. He explained that it took
three years to refer the matter to counsel because respondent
promised to pay.[10]
For respondent, Bienvenido Estanislao (Estanislao) testified that
he met Que in Davao in October 1998 to inspect the boxes and
that the latter got samples of them.
Estanislao said that... petitioner did not pick up the boxes because
the ship did not arrive.
Jaime Tan (Tan), president of respondent, also testified that his
company finished production of the 36,500 boxes on April 3, 1998
and that petitioner made a second order of
24,000 boxes. He said that the agreement was for respondent to
produce the boxes and for petitioner to pick them up from the
warehouse.
According to him, during the last visit of Que and Estanislao, he
asked them to withdraw the boxes immediately because they
were occupying a big space in his plant, but they, instead, told him
to sell the cartons as rejects.
He was able to sell 5,000 boxes at P20.00 each for a total of
P100,000.00. They then told him to apply the said amount to the
unpaid balance.
In its March 2, 2004 Decision, the Regional Trial Court (RTC) ruled
that respondent did not commit any breach of faith that would
justify rescission of the contract and the consequent
reimbursement of the amount paid by petitioner.
It thus dismissed the complaint and respondent's counterclaims
Petitioner filed a notice of appeal with the CA.
Issues:
respondent... liable for breach of contract
Ruling:
In this petition, petitioner insists that respondent did not
completely manufacture the boxes and that it was respondent
which was obliged to deliver the boxes to TADECO.
Petitioner's claim for reimbursement is actually one for rescission
(or resolution) of contract under Article 1191 of the Civil Code,
which reads:
Art. 1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The right to rescind a contract arises once the other party defaults
in the performance of his obligation. In determining when default
occurs, Art. 1191 should be taken in conjunction with Art. 1169 of
the same law, which provides:
Art. 1169. Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in
order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation
it appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive
for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner with
what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins.
In reciprocal obligations, as in a contract of sale, the general rule is
that the fulfillment of the parties' respective obligations should be
simultaneous. Hence, no demand is generally necessary because,
once a party fulfills his obligation and the other party does not...
fulfill his, the latter automatically incurs in delay. But when
different dates for performance of the obligations are fixed, the
default for each obligation must be determined by the rules given
in the first paragraph of the present article,[19] that... is, the other
party would incur in delay only from the moment the other party
demands fulfillment of the former's obligation. Thus, even in
reciprocal obligations, if the period for the fulfillment of the
obligation is fixed, demand upon the obligee is still necessary
before the... obligor can be considered in default and before a
cause of action for rescission will accrue.
Evident from the records and even from the allegations in the
complaint was the lack of demand by petitioner upon respondent
to fulfill its obligation to manufacture and deliver the boxes
.
The Complaint only alleged that petitioner made a "follow-up"
upon respondent, which,... however, would not qualify as a
demand for the fulfillment of the obligation.
Without a previous demand for the fulfillment of the obligation,
petitioner would not have a cause of action for rescission against
respondent as the latter would not yet be considered in breach of
its... contractual obligation.
Even assuming that a demand had been previously made before
filing the present case, petitioner's claim for reimbursement would
still fail, as the circumstances would show that respondent was
not guilty of breach of contract.
As correctly observed by the CA, aside from the pictures of the
finished boxes and the production report thereof, there is ample
showing that the boxes had already been manufactured by
respondent. There is the testimony of Estanislao who
accompanied Que to the factory, attesting... that, during their first
visit to the company, they saw the pile of petitioner's boxes and
Que took samples thereof.
In fact, we note that respondent's counsel manifested in court,
during trial, that his client was willing to shoulder expenses for a
representative of the court to visit the plant and see the boxes.
[22] Had it been true that the boxes were not yet... completed,
respondent would not have been so bold as to challenge the court
to conduct an ocular inspection of their warehouse.
We also believe that the agreement between the parties was for
petitioner to pick up the boxes from respondent's warehouse,
contrary to petitioner's allegation.
Petitioner had the burden to prove that the agreement was, in
fact, for respondent to deliver the boxes within 30 days from
payment, as alleged in the Complaint.
Moreover, assuming that respondent was obliged to deliver the
boxes, it could not have complied with such obligation.
Que,... dmitted that he did not give respondent the authority to
deliver the boxes to TADECO:
S... urely, without such authority, TADECO would not have
allowed respondent to deposit the boxes within its premises.
In sum, the Court finds that petitioner failed to establish a cause of
action for rescission, the evidence having shown that respondent
did not commit any breach of its contractual obligation.
Principles:
Art. 1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The right to rescind a contract arises once the other party defaults
in the performance of his obligation.
In determining when default occurs, Art. 1191 should be taken in
conjunction with Art. 1169 of the same law, which provides:
Art. 1169. Those obliged to deliver or to do something incur in
delay from the time the obligee ju... dicially or extrajudicially
demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in
order that delay may exist:
(2) When from the nature and the circumstances of the obligation
it appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive
for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner with
what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins.
In reciprocal obligations, as in a contract of sale, the general rule is
that the fulfillment of the parties' respective obligations should be
simultaneous. Hence, no demand is generally necessary because,
once a party fulfills his obligation and the other party does not...
fulfill his, the latter automatically incurs in delay. But when
different dates for performance of the obligations are fixed, the
default for each obligation must be determined by the rules given
in the first paragraph of the present article,[19] that... is, the other
party would incur in delay only from the moment the other party
demands fulfillment of the former's obligation. Thus, even in
reciprocal obligations, if the period for the fulfillment of the
obligation is fixed, demand upon the obligee is still necessary
before the... obligor can be considered in default and before a
cause of action for rescission will accrue.
MINDANAO TERMINAL v. PHOENIX ASSURANCE COMPANY
OF NEW YORK, GR No. 162467, 2009-05-08
Facts:
Before us is a petition for review on certiorari[1] under Rule 45 of
the 1997 Rules of Civil Procedure of the 29 October 2003[2]
Decision of the Court of Appeals and the 26 February 2004
Resolution[3] of the same court denying petitioner's motion for
reconsideration.
Del Monte Philippines, Inc. (Del Monte) contracted petitioner
Mindanao Terminal and Brokerage Service, Inc. (Mindanao
Terminal), a stevedoring company, to load and stow a shipment of
146,288 cartons of fresh green Philippine bananas and 15,202
cartons of fresh pineapples... belonging to Del Monte Fresh
Produce International, Inc. (Del Monte Produce) into the cargo
hold of the vessel M/V Mistrau. The vessel was docked at the port
of Davao City and the goods were to be transported by it to the
port of Inchon, Korea in favor of consignee Taegu
Industries, Inc. Del Monte Produce insured the shipment under an
"open cargo policy" with private respondent Phoenix Assurance
Company of New York (Phoenix), a non-life insurance company,
and private respondent McGee & Co. Inc. (McGee), the
underwriting manager/agent of
Phoenix.
Mindanao Terminal loaded and stowed the cargoes aboard the
M/V Mistrau. The vessel set sail from the port of Davao City and
arrived at the port of Inchon, Korea. It was then discovered upon
discharge that some of the cargo was in bad condition.
Del Monte Produce filed a claim under the open cargo policy for
the damages to its shipment.
A check for the recommended amount was sent to Del Monte
Produce; the latter then issued a subrogation receipt[6] to Phoenix
and McGee.
Phoenix and McGee instituted an action for damages[7] against
Mindanao Terminal in the Regional Trial Court (RTC) of Davao
City, Branch 12. After trial, the RTC,[8] in a decision dated 20
October 1999, held that the only participation... of Mindanao
Terminal was to load the cargoes on board the M/V Mistrau under
the direction and supervision of the ship's officers, who would not
have accepted the cargoes on board the vessel and signed the
foreman's report unless they were properly arranged and tightly...
secured to withstand voyage across the open seas. Accordingly,
Mindanao Terminal cannot be held liable for whatever happened
to the cargoes after it had loaded and stowed them.
The appellate court reversed and set aside[10] the decision of the
RTC in its 29 October 2003 decision. The same court ordered
Mindanao Terminal to pay Phoenix and McGee "the total amount
of $210,265.45... plus legal interest from the filing of the
complaint until fully paid and attorney's fees of 20% of the claim."
Mindanao Terminal filed a motion for reconsideration,[13] which
the Court of Appeals denied in its 26 February 2004[14]
resolution. Hence, the present petition for review.
Issues:
To resolve the petition, three questions have to be answered: first,
whether Phoenix and McGee have a cause of action against
Mindanao Terminal; second, whether Mindanao Terminal, as a
stevedoring company, is under obligation... to observe the same
extraordinary degree of diligence in the conduct of its business as
required by law for common carriers[15] and warehousemen;[16]
and third, whether Mindanao Terminal observed the degree of
diligence required by law... of a stevedoring company.
Ruling:
We agree with the Court of Appeals that the complaint filed by
Phoenix and McGee against Mindanao Terminal, from which the
present case has arisen, states a cause of action. The present
action is based on quasi-delict, arising from the negligent and
careless loading and stowing... of the cargoes belonging to Del
Monte Produce. Even assuming that both Phoenix and McGee
have only been subrogated in the rights of Del Monte Produce,
who is not a party to the contract of service between Mindanao
Terminal and Del Monte, still the insurance carriers may have a...
cause of action in light of the Court's consistent ruling that the act
that breaks the contract may be also a tort.[17] In fine, a liability
for tort may arise even under a contract, where tort is that which
breaches the contract[18].
In the present case, Phoenix and McGee are not suing for
damages for injuries arising from the breach of the contract of
service but from the alleged negligent manner by which Mindanao
Terminal handled the cargoes
There is no specific provision of law that imposes a higher degree
of diligence... than ordinary diligence for a stevedoring company or
one who is charged only with the loading and stowing of cargoes.
It was neither alleged nor proven by Phoenix and McGee that
Mindanao Terminal was bound by contractual stipulation to
observe a higher degree of diligence than... that required of a good
father of a family. We therefore conclude that following Article
1173, Mindanao Terminal was required to observe ordinary
diligence only in loading and stowing the cargoes of Del Monte
Produce aboard M/V Mistrau.
In the present case, Mindanao Terminal, as a stevedore, was only
charged with the loading and stowing of... the cargoes from the
pier to the ship's cargo hold; it was never the custodian of the
shipment of Del Monte Produce. A stevedore is not a common
carrier for it does not transport goods or passengers; it is not akin
to a warehouseman for it does not store goods for profit. The...
loading and stowing of cargoes would not have a far reaching
public ramification as that of a common carrier and a
warehouseman; the public is adequately protected by our laws on
contract and on quasi-delict.
In the third issue, Phoenix and McGee failed to prove by
preponderance of evidence[25] that Mindanao Terminal had acted
negligently.
Where the evidence on an issue of fact is in equipoise or there is
any doubt on which side the evidence preponderates the... party
having the burden of proof fails upon that issue.
The only participation of Mindanao
Terminal was to load the cargoes on board M/V Mistrau.[29] It
was not disputed by Phoenix and McGee that the materials, such
as ropes, pallets, and cardboards, used in lashing and rigging the
cargoes were all provided by M/V Mistrau and these... materials
meets industry standard.[30]
It was further established that Mindanao Terminal loaded and
stowed the cargoes of Del Monte Produce aboard the M/V
Mistrau in accordance with the stowage plan, a guide for the area
assignments of the goods in the vessel's hold, prepared by Del
Monte Produce and the... officers of M/V Mistrau.
As it is clear that Mindanao Terminal had duly exercised the
required degree of diligence in loading and stowing the cargoes,
which is the ordinary diligence of a good father of a family, the
grant of the petition is in order.
Principles:
Agcaoili vs. GSIS, 165 SCRA 1
digested by LLB 1-4 College of Law, Polytechnic University of the Philippines
Facts: In this case, appellant GSIS approved an application of the appellee Agcaoli for the purchase of a
house and lot in the GSIS Housing Project at Nangka, Marikina, subject to the condition that the latter
should forthwith occupy the house, a condition that Agcaoli tried to fulfill but could not because the
house was absolutely uninhabitable. However, Agcaoli ask a homeless friend, a certain Villanueva, to
stay in the premises as some sort of watchman, pending completion of the construction of the house.
Agcaoli after paying the first installment and other fees, having thereafter refused to make further
payment of other stipulated installments until GSIS had made the house habitable; and appellant having
refused to do so, opting instead to cancel the award and demanded the vacation by Agcaoli of the
premises; and the latter having sued the GSIS in the Court of First Instance of Manila for specific
performance with damages and having obtained a favorable judgment, the cases was appealed by the
GSIS.
Issue: Whether or not Agcaoli is entitled for specific performance with damages.
Held: Appeal of GSIS must fail.
There was then a perfected contract of sale between the parties; there had been a meeting of minds
upon the purchase by Agcaoli of a determinate house and lot from GSIS at a definite price which is
payable in amortizations and from that moment the parties acquired the right to reciprocally demand
performance. It was, to be sure, the duty of the GSIS, as seller, to deliver the thing soled in acondition
suitable for its enjoyment by the buyer, in other words to deliver the house subject of the contract in a
reasonably livable state. This it failed to do.
Since GSIS failed to fulfill its obligation, and was not willing to put the house in a habitable state, it
cannot invoke Agcaoli’s suspension of payment as cause to cancel the contract between them. In
recipient obligation, neither party incur in delay of the other does not comply or is not ready to comply
in a proper manner with what is incumbent upon him. Nor may the GSIS succeed in justifying its
cancellation of the award by the claim tha Agcaoli had not complied with the condition of occupying the
house within three (3) days. The record shows that Agcaoli did try to fulfill the condition.
Finally appellant having caused the ambiguity as the exact prestation of the agreement, the question of
interpretation arising therefrom, should be resolved against it.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
[G.R. No. L-30056. August 30, 1988.]
MARCELO AGCAOILI, Plaintiff-Appellee, v. GOVERNMENT SERVICE INSURANCE

SYSTEM, Defendant-Appellant.
Artemio L. Agcaoili for Plaintiff-Appellee.
Office of the Government Corporate Counsel, for Defendant-Appellant.
SYLLABUS
1. CIVIL LAW; RECIPROCAL OBLIGATIONS; FAILURE OF SELLER TO DELIVER THING

SOLD IN THE CONDITION CONTEMPLATED BY THE AGREEMENT. — An agreement for
the sale of a house and lot on installments stipulating that the buyer must occupy the
house within a specified period under pain of cancellation if he failed to do so, must be
construed as imposing on the seller the obligation to deliver a reasonably habitable
dwelling place, one that is in a condition suitable for its enjoyment by the buyer for the
purpose contemplated. The seller’s delivery of a mere shell of a house consisting of four
walls, openings and a roof is a breach of said obligation which prevents him from
cancelling the sale on the ground of the purchaser’s suspension of payment of the
amortizations that he latter had undertaken to pay, it being axiomatic that" (i)in
reciprocal obligations, neither party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him." (Art. 1169,
last paragraph, Civil Code)
2. ID.; AMBIGUOUS PROVISIONS IN A CONTRACT MUST BE INTERPRETED AGAINST

PARTY CAUSING SUCH AMBIGUITY. — The party to a contract who is responsible for
alleged imprecision or ambiguity in its terms will not be permitted to make capital of
such imprecision or ambiguity; the question of interpretation arising therefrom should
be resolved against it.
3. ID.; ID.; SPECIFIC PERFORMANCE; EQUITY JURISDICTION, WHEN PROPERLY

EXERCISED TO ADJUST CONTRACTUAL RIGHTS. — Where specific performance
according to the literal terms of a contract would result in inequity by reason of the
circumstances obtaining at the time of judgment being significantly different from those
existing at the generation of the rights litigated, the Court may exercise its equity
jurisdiction to adjust those rights and, in determining the precise relief to be given,
"balance the equities" or the respective interests of the parties and take account of the
relative hardship that one form of relief or another may occasion to them.
DECISION
NARVASA, J.:
The appellant Government Service Insurance System, (GSIS, for short) having
approved the application of the appellee Agcaoili for the purchase of a house and lot in
the GSIS Housing Project at Nangka, Marikina, Rizal, subject to the condition that the
latter should forthwith occupy the house, a condition that Agcaoili tried to fulfill but
could not for the reason that the house was absolutely uninhabitable; Agcaoili, after
paying the first installment and other fees, having thereafter refused to make further
payment of other stipulated installments until GSIS had made the house habitable; and
appellant having refused to do so, opting instead to cancel the award and demand the
vacation by Agcaoili of the premises; and Agcaoili having sued the GSIS in the Court of
First Instance of Manila for specific performance with damages and having obtained a
favorable judgment, the case was appealed to this Court by the GSIS. Its appeal must
fail.
The essential facts are not in dispute. Approval of Agcaoili’s aforementioned application
for purchase 1 was contained in a letter 2 addressed to Agcaoili and signed by GSIS
Manager Archimedes Villanueva in behalf of the Chairman-General Manager, reading as
follows:jgc:chanrobles.com.ph
"Please be informed that your application to purchase a house and lot in our GSIS
Housing Project at Nangka, Marikina, Rizal, has been approved by this Office. Lot No.
26, Block No. (48) 2, together with the housing unit constructed thereon, has been
allocated to you.
"You are, therefore, advised to occupy the said house immediately.
"If you fail to occupy the same within three (3) days from receipt of this notice, your
application shall be considered automatically disapproved and the said house and lot
will be awarded to another applicant." cralaw virtua1aw library
Agcaoili lost no time in occupying the house. He could not stay in it, however, and had
to leave the very next day, because the house was nothing more than a shell, in such a
state of incompleteness that civilized occupation was not possible: ceiling, stairs, double
walling, lighting facilities, water connection, bathroom, toilet kitchen, drainage, were
inexistent. Agcaoili did however ask a homeless friend, a certain Villanueva, to stay in
the premises as some sort of watchman, pending completion of the construction of the
house. Agcaoili thereafter complained to the GSIS, to no avail.
The GSIS asked Agcaoili to pay the monthly amortizations and other fees. Agcaoili paid
the first monthly installment and the incidental fees, 3 but refused to make further
payments until and unless the GSIS completed the housing unit. What the GSIS did
was to cancel the award and require Agcaoili to vacate the premises. 4 Agcaoili reacted
by instituting suit in the Court of First Instance of Manila for specific performance and
damages. 5 Pending the action, a written protest was lodged by other awardees of
housing units in the same subdivision, regarding the failure of the System to complete
construction of their own houses. 6 Judgment was in due course rendered, 7 on the
basis of the evidence adduced by Agcaoili only, the GSIS having opted to dispense with
presentation of its own proofs. The judgment was in Agcaoili’s favor and contained the
following dispositions, 8 to wit:
jgc:chanrobles.com.ph
"1) Declaring the cancellation of the award (of a house and lot) in favor of plaintiff
(Mariano Agcaoili) illegal and void;
2) Ordering the defendant (GSIS) to respect and enforce the aforesaid award to the
plaintiff-relative to Lot No. 26, Block No. (48) 2 of the Government Service Insurance
System (GSIS) low cost housing project at Nangka, Marikina, Rizal;
3) Ordering the defendant to complete the house in question so as to make the same
habitable and authorizing it (defendant) to collect the monthly amortization thereon
only after said house shall have been completed under the terms and conditions
mentioned in Exhibit A; and
4) Ordering the defendant to pay P100.00 as damages and P300.00 as and for
attorney’s fees, and costs."cralaw virtua1aw library
Appellant GSIS would have this Court reverse this judgment on the argument that -
1) Agcaoili had no right to suspend payment of amortizations on account of the

incompleteness of his housing unit, since said unit had been sold "in the condition and
state of completion then existing . . . (and) he is deemed to have accepted the same in
the condition he found it when he accepted the award;" and assuming indefiniteness of
the contract in this regard, such circumstance precludes a judgment for specific
performance. 9
2) Perfection of the contract of sale between it and Agcaoili being conditioned upon the
latter’s immediate occupancy of the house subject thereof, and the latter having failed
to comply with the condition, no contract ever came into existence between them; 10
3) Agcaoili’s act of placing his homeless friend, Villanueva, in possession, "without the
prior or subsequent knowledge or consent of the defendant (GSIS)" operated as a
repudiation by Agcaoili of the award and a deprivation of the GSIS at the same time of
the reasonable rental value of the property. 11
Agcaoili’s offer to buy from GSIS was contained in a printed form drawn up by the
latter, entitled "Application to Purchase a House and/or Lot." Agcaoili filled up the form,
signed it, and submitted it. 12 The acceptance of the application was also set out in a
form (mimeographed) also prepared by the GSIS. As already mentioned, this form sent
to Agcaoili, duly filled up, advised him of the approval of his "application to purchase a
house and lot in our GSIS Housing Project at NANGKA, MARIKINA, RIZAL," and that
"Lot No. 26, Block No. (48) 2, together with the housing unit constructed thereon, has
been allocated to you." Neither the application form nor the acceptance or approval
form of the GSIS — nor the notice to commence payment of monthly amortizations,
which again refers to "the house and lot awarded" — contained any hint that the house
was incomplete, and was being sold "as is," i.e., in whatever state of completion it
might be at the time. On the other hand, the condition explicitly imposed on Agcaoili —
"to occupy the said house immediately," or in any case within three (3) days from
notice, otherwise his "application shall be considered automatically disapproved and the
said house and lot will be awarded to another applicant" — would imply that
construction of the house was more or less complete, and it was by reasonable
standards, habitable, and that indeed, the awardee should stay and live in it; it could
not be interpreted as meaning that the awardee would occupy it in the sense of a
pioneer or settler in a rude wilderness, making do with whatever he found available in
the environment.
There was then a perfected contract of sale between the parties; there had been a
meeting of the minds upon the purchase by Agcaoili of a determinate house and lot in
the GSIS Housing Project at Nangka, Marikina, Rizal at a definite price payable in
amortizations at P31.56 per month, and from that moment the parties acquired the
right to reciprocally demand performance. 13 It was, to be sure, the duty of the GSIS,
as seller, to deliver the thing sold in a condition suitable for its enjoyment by the buyer
for the purpose contemplated, 14 in other words, to deliver the house subject of the
contract in a reasonably livable state. This it failed to do.
It sold a house to Agcaoili, and required him to immediately occupy it under pain of
cancellation of the sale. Under the circumstances there can hardly be any doubt that
the house contemplated was one that could be occupied for purposes of residence in
reasonable comfort and convenience. There would be no sense to require the awardee
to immediately occupy and live in a shell of a house, a structure consisting only of four
walls with openings, and a roof, and to theorize, as the GSIS does, that this was what
was intended by the parties, since the contract did not clearly impose upon it the
obligation to deliver a habitable house, is to advocate an absurdity, the creation of an
unfair situation. By any objective interpretation of its terms, the contract can only be
understood as imposing on the GSIS an obligation to deliver to Agcaoili a reasonably
habitable dwelling in return for his undertaking to pay the stipulated price. Since GSIS
did not fulfill that obligation, and was not willing to put the house in habitable state, it
cannot invoke Agcaoili’s suspension of payment of amortizations as cause to cancel the
contract between them. It is axiomatic that" (i)n reciprocal obligations, neither party
incurs in delay if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him." 15
Nor may the GSIS succeed in justifying its cancellation of the award to Agcaoili by the
claim that the latter had not complied with the condition of occupying the house within
three (3) days. The record shows that Agcaoili did try to fulfill the condition; he did try
to occupy the house but found it to be so uninhabitable that he had to leave it the
following day. He did however leave a friend in the structure, who being homeless and
hence willing to accept shelter even of the most rudimentary sort, agreed to stay
therein and look after it. Thus the argument that Agcaoili breached the agreement by
failing to occupy the house, and by allowing another person to stay in it without the
consent of the GSIS, must be rejected as devoid of merit.
Finally, the GSIS should not be heard to say that the agreement between it and Agcaoili
is silent, or imprecise as to its exact prestation. Blame for the imprecision cannot be
imputed to Agcaoili; it was after all the GSIS which caused the contract to come into
being by its written acceptance of Agcaoili’s offer to purchase, that offer being
contained in a printed form supplied by the GSIS. Said appellant having caused the
ambiguity of which it would now make capital, the question of interpretation arising
therefrom, should be resolved against it.
It will not do, however, to dispose of the controversy by simply declaring that the
contract between the parties had not been validly cancelled and was therefore still in
force, and that Agcaoili could not be compelled by the GSIS to pay the stipulated price
of the house and lot subject of the contract until and unless it had first completed
construction of the house. This would leave the contract hanging or in suspended
animation, as it were, Agcaoili unwilling to pay unless the house were first completed,
and the GSIS averse to completing construction, which is precisely what has been the
state of affairs between the parties for more than twenty (20) years now. On the other
hand, assuming it to be feasible to still finish the construction of the house at this time,
to compel the GSIS to do so that Agcaoili’s prestation to pay the price might in turn be
demanded, without modifying the price therefor, would not be quite fair. The cost to the
GSIS of completion of construction at present prices would make the stipulated price
disproportionate, unrealistic.
The situation calls for the exercise by this Court of its equity jurisdiction, to the end that
it may render complete justice to both parties.
"As we . . . reaffirmed in Air Manila, Inc. v. Court of Industrial Relations (83 SCRA 579,
589 [1978]).’(E)quity as the complement of legal jurisdiction seeks to reach and do
complete justice where courts of law, through the inflexibility of their rules and want of
power to adapt their judgments to the special circumstances of cases, are incompetent
so to do. Equity regards the spirit of and not the letter, the intent and not the form, the
substance rather than the circumstance, as it is variously expressed by different
courts . . .," 16
In this case, the Court can not require specific performance of the contract in question
according to its literal terms, as this would result in inequity. The prevailing rule is that
in decreeing specific performance equity requires 17 —
". . . not only that the contract be just and equitable in its provisions, but that the
consequences of specific performance likewise be equitable and just. The general rule is
that this equitable relief will not be granted if, under the circumstances of the case, the
result of the specific enforcement of the contract would be harsh, inequitable,
oppressive, or result in an unconscionable advantage to the plaintiff . . ." cralaw virtua1aw library
In the exercise of its equity jurisdiction, the Court may adjust the rights of parties in
accordance with the circumstances obtaining at the time of rendition of judgment, when
these are significantly different from those existing at the time of generation of those
rights.
"The Court is not restricted to an adjustment of the rights of the parties as they existed
when suit was brought, but will give relief appropriate to events occurring ending the
suit. 18
"While equitable jurisdiction is generally to be determined with reference to the

situation existing at the time the suit is filed, the relief to be accorded by the decree is
governed by the conditions which are shown to exist at the time of making thereof, and
not by the circumstances attending the inception of the litigation. In making up the final
decree in an equity suit the judge may rightly consider matters arising after suit was
brought. Therefore, as a general rule, equity will administer such relief as the nature,
rights, facts and exigencies of the case demand at the close of the trial or at the time of
the making of the decree." 19
That adjustment is entirely consistent with the Civil Law principle that in the exercise of
rights a person must act with justice, give everyone his due, and observe honesty and
good faith. 20 Adjustment of rights has been held to be particularly applicable when
there has been a depreciation of currency.
"Depreciation of the currency or other medium of payment contracted for has

frequently been held to justify the court in withholding specific performance or at least
conditioning it upon payment of the actual value of the property contracted for. Thus, in
an action for the specific performance of a real estate contract, it has been held that
where the currency in which the plaintiff had contracted to pay had greatly depreciated
before enforcement was sought, the relief would be denied unless the complaint would
undertake to pay the equitable value of the land." (Willard & Tayloe [U.S] 8 Wall 557,
19 L. Ed 501; Doughdrill v. Edwards, 59 Ala 424) 21
In determining the precise relief to give, the Court will "balance the equities" or the
respective interests of the parties, and take account of the relative hardship that one
relief or another may occasion to them. 22
The completion of the unfinished house so that it may be put into habitable condition,
as one from of relief to the plaintiff Agcaoili, no longer appears to be a feasible option in
view of the not inconsiderable time that has already elapsed. That would require an
adjustment of the price of the subject of the sale to conform to present prices of
construction materials and labor. It is more in keeping with the realities of the situation,
and with equitable norms, to simply require payment for the land on which the house
stands, and for the house itself, in its unfinished state, as of the time of the contract. In
fact, this is an alternative relief proposed by Agcaoili himself, i.e., "that judgment
issue . . . (o)rdering the defendant (GSIS) to execute a deed of sale that would embody
and provide for a reasonable amortization of payment on the basis of the present actual
unfinished and uncompleted condition, worth and value of the said house." 23
WHEREFORE, the judgment of the Court a quo insofar as it invalidates and sets aside
the cancellation by respondent GSIS of the award in favor of petitioner Agcaoili of Lot
No. 26, Block No. (48) 2 of the GSIS low cost housing project at Nangka, Marikina,
Rizal, and orders the former to respect the aforesaid award and to pay damages in the
amounts specified, is AFFIRMED as being in accord with the facts and the law. Said
judgments is however modified by deleting the requirement for respondent GSIS "to
complete the house in question so as to make the same habitable," and instead it is
hereby ORDERED that the contract between the parties relative to the property above
described be modified by adding to the cost of the land, as of the time of perfection of
the contract, the cost of the house in its unfinished state also as of the time of
perfection of the contract, and correspondingly adjusting the amortizations to be paid
by petitioner Agcaoili, the modification to be effected after determination by the Court a
quo of the value of said house on the basis of the agreement of the parties, or if this is
not possible, by such commissioner or commissioners as the Court may appoint. No
pronouncement as to costs.
SO ORDERED.
Cruz, Gancayco, Aquino and Medialdea, JJ., concur.

Endnotes:
1. Dated June 24, 1964.
2. Dated October 5, 1965 (Exh. A); Folder of Exhibits p. 1.
3. O.R. No. 188558, Oct. 10, 1966.
4. Exh. D, Folder of Exhibits, p. 4.
5. Docketed as Civil Case No. 69417.
6. The letter was sent thru the awardees’ "Samahang Lakas ng Mahihirap," copy having
been marked at the trial as Exh. F; to the letter was attached a resolution of said
Samahan adopted at its meeting of July 23, 1967 and to which, in turn, was appended
a 3-page list of uncompleted houses with a specification of items not completed.
7. By Hon. Manuel P. Barcelona, presiding over Br. VIII of the CFI of Manila; Record on
Appeal, pp. 22-25, Rollo, p. 13.
8. Parenthetical insertions identifying the parties, supplied.
9. Appellant’s brief, pp. 11-14.
10. Id., pp. 7-8.
12. Exh. E.
13. Art. 1475, Civil Code; Pacific Oxygen & Acetylene Co. v. Central Bank, 37 SCRA
685.
14. Lim v. de los Santos, 8 SCRA 798.
15. Art. 1169, last paragraph, Civil Code.
16. Cristobal v. Melchor, 101 SCRA 857, 865.
17. 71 Am. Jur. 2d, 101.
18. 30 C.J.S. 929.
19. 27 Am Jur. 2d. 818.
20. Art. 19, Civil Code: "Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe and
good faith." cralaw virtua1aw library
21. 71 Am. Jur. 2d, 120.
22. Am. Jur. 2nd 628-629: "There is a general principle that a court of equity will
balance the equities’ between the parties, in determining what, if any, relief to give . . .
Thus, for example where the effect of the only relief which can be granted to protect
the plaintiff will be destructive of the defendants’ business, which would be lawful but
for the harm it does to the plaintiff, relief may be refused if, on a balancing of the
respective interests, that of the defendant is found to be relatively important, and that
of the plaintiff relatively insignificant. . . ."
cralaw virtua1aw library
23. Record on Appeal, p. 5; Rollo, p. 13.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Arrieta v. National Rice and Corn Corporation, 10 SCRA 79
September 10, 2016
FACTS :
Mrs. Paz Arrieta participated in public bidding called by NARIC on May 19, 1952 for the
supply of 20,000 metric tons of Burmese rice. Her bid was $ 203.00 per metric ton, it
was the lowest that’s why the contract was awarded to her. On July 1,1952, Arrieta and
NARIC entered into contract. Arrieta was obligated to deliver 20,000 metric ton of
Burmese rice at $203.00 per metric ton to NARIC. In return, NARIC committed itself to
pay for the imported rice “ by means of an irrevocable, confirmed and assignable letter
of credit in US currency in favour of Arrieta and/or supplier in Burma (THIRI SETKYA),
immediately.” NARIC took the first step to open the letter of credit on July 30, 1952 by
forwarding to the PNB its application for commercial letter of credit. Arrieta with the help
of a counsel, advised NARIC of the necessity for the opening of the letter because she
tender her supplier in Ragoon, Burma of 5 % of the price of 20,000 tons at $180.70
and if she didn’t comply the 5% will be confiscated if the required letter of credit is not
received by them before August 4, 1952. PNB informed NARIC that their application of
credit letter amounting to $3,614,000.00 was approved with the condition of 50%
marginal cash be paid. NARIC does not meet the condition. The allocation of Arrieta’s
supplier in Ragoon was cancelled and the 5% deposit was forfeited.
ISSUE :
Does NARIC liable for damages?
HELD :
Yes, because the reason of the cancellation of the contract by Arrieta in Ragoon, Burma
was the failure of NARIC to open the letter of credit within a specific period of time. One
who assumes contractual obligation and fails to perform in which he knew and was
aware when he entered in the contract, should be liable for his failure to do what is
required by a law. Under the Art. 1170 of the Civil Code, not only the debtors guilty of
fraud, negligence or default but also a debtor of every, in general, who fails in the
performance of his obligation is bound to indemnify for the losses and damages caused
thereby.
XXX
G.R. No. 234808, November 19, 2018
CRESCENCIO* ARRIETA, Petitioner, v. MELANIA T. ARRIETA, Respondent.
DECISION
PERLAS-BERNABE, J.:
Before the Court is a petition for review on certiorari1 assailing the Decision2 dated July
22, 2016 and the Resolution3 dated June 1, 2017 of the Court of Appeals (CA) in CA-
G.R. SP No. 04745-MIN, which annulled and set aside the Decision 4 dated October 7,
2004 of the Regional Trial Court of Davao City, Branch 8 (RTC) in Civil Case No.
28,382-01, declaring the marriage of petitioner Crescencio Arrieta (Cris) and
respondent Melania T. Arrieta (Melania) void ab initio on the ground of psychological
incapacity pursuant to Article 365 of the Family Code.
The Facts
Cris and Melania were married in a civil wedding ceremony sometime in August 1973,
and later, in a church wedding ceremony on January 1, 1974. However, sometime in
November 1991, Melania left for the United States of America (US) due to her alleged
"irreconcilable differences" with Cris. In 1992, she obtained a divorce decree, and
subsequently, married a certain Zenon Parnawski (Zen) in San Diego, California in
1993.6
On January 22, 2001, Cris filed a petition7 for the declaration of nullity of his marriage
with Melania on the ground of psychological incapacity before the RTC, docketed as Civil
Case No. 28,382-01. Essentially, Cris claimed that Melania was psychologically
incapacitated to comply with her marital obligations since she abandoned and refused
to support her family.8
During the proceedings, Cris filed a Motion for Issuance of Summons by

Publication9 dated May 21, 2001, because Melania, who already resided abroad, could
not be personally served with summons.10In an Order11 dated January 21, 2002, the
RTC granted the said motion, and thereby ordered the summons to be served upon
Melania by publication in a newspaper of general circulation.12 Accordingly, the
summons and copy of the petition were published in the San Pedro
Express.13 Meanwhile, no answer was filed by Melania.14
The RTC Ruling
In a Decision15 dated October 7, 2004, the RTC granted the petition for declaration of
nullity of marriage, declaring void ab initio the marriage of Cris and Melania on the
ground of the latter's psychological incapacity pursuant to Article 36 of the Family
Code.16
On February 21, 2005, the RTC issued a Certificate of Finality 17 declaring that its
Decision had become final and executory on December 3, 2004.
After more than seven (7) years from the said decision's finality or on February 13,
2012, Melania filed a petition for annulment of judgment 18 before the CA, claiming that
the RTC Decision was rendered without jurisdiction and tainted with extrinsic fraud. 19
The CA Ruling
In a Decision20 dated July 22, 2016, the CA granted the petition for annulment of
judgment, and consequently, declared null and void the RTC Decision. 21
While the CA did not find any merit in Melania's claims of lack of jurisdiction 22 and
extrinsic fraud23 – which were the grounds raised in her petition for annulment of
judgment – it nonetheless granted the said petition on the ground of denial of due
process, pointing out that the service of summons to her suffered from fatal defects.
Among others, the CA pointed out that the San Pedro Express was not shown to be a
newspaper of general circulation, and that Cris did not send a copy of the said
summons to the last known address of Melania. 24 Anent the latter finding, the CA
opined that to properly effect the service of summons to a nonresident defendant who
cannot be found in the Philippines, the plaintiff must both publish and send a copy of
the summons to the last known address of the defendant. 25
With the subsequent denial26 of his motion for reconsideration,27 Cris elevated the
matter to the Court.
The Issue Before the Court
The main issue in this case is whether or not the CA erred in granting Melania's petition
for annulment of judgment.
The Court's Ruling
A petition for annulment of judgment is a recourse that is equitable in character. It is

independent of the case and is allowed only in exceptional cases as where there is no
available or other adequate remedy.28 Section 1, Rule 47 of the Rules of Court (Rules)
provides:
Section 1. Coverage. – This Rule shall govern the annulment by the Court of Appeals of
judgments or final orders and resolutions in civil actions of Regional Trial Courts for
which the ordinary remedies of new trial, appeal, petition for relief or other appropriate
remedies are no longer available through no fault of the petitioner.
Under Section 2 of the same Rule, an action for annulment of judgment may be based
on two (2) grounds, namely: (1) extrinsic fraud; and (2) lack of jurisdiction:
Section 2. Grounds for Annulment. – The annulment may be based only on the grounds
of extrinsic fraud and lack of jurisdiction.
Extrinsic fraud shall not be a valid ground if it was availed of, or could have been
availed of, in a motion for new trial or petition for relief.
However, in cases involving jurisdiction over the subject matter, the Court has
consistently recognized the denial of due process as a valid ground to file a petition for
annulment of judgment. This is because, as rationalized in the case of De Pedro v.
Romasan Development Corporation29 (De Pedro), the violation of one's due process
rights is, after all, a defect in jurisdiction:
Due process requires that those with interest to the thing in litigation be notified and
given an opportunity to defend those interests. Courts, as guardians of constitutional
rights, cannot be expected to deny persons their due process rights while at the same
time be considered as acting within their jurisdiction.
Violation of due process rights is a jurisdictional defect. This court recognized

this principle in Aducayen v. Flores [151-A Phil. 556 (1973)]. In the same case, this
court further ruled that this jurisdictional defect is remedied by a petition for certiorari.
Similarly in Vda. de Cuaycong v. Vda. de Sengbengco [110 Phil. 113 (1960)], this court
held that a decision that was issued in violation of a person's due process rights suffers
a fatal infirmity.
The relation of due process to jurisdiction is recognized even in administrative cases

wherein the standard of evidence is relatively lower. Thus, in Montoya v. Varilla [595
Phil. 507 (2008)]:
The cardinal precept is that where there is a violation of basic constitutional

rights, courts are ousted from their jurisdiction. The violation of a party's right to
due process raises a serious jurisdictional issue which cannot be glossed over or
disregarded at will. Where the denial of the fundamental right of due process is
apparent, a decision rendered in disregard of that right is void for lack of
jurisdiction.30 (Emphases and underscoring supplied)
In this light, the Court, in De Pedro, held that circumstances which negate the court's
acquisition of jurisdiction – such as defective service of summons – are causes for an
action for annulment of judgment. 31 It is well-settled that "the service of summons is a
vital and indispensable ingredient of due process and compliance with the rules
regarding the service of the summons is as much an issue of due process as it is of
jurisdiction."32
Personal service of summons is the preferred mode of service of summons. However,

other modes of serving summons may be done when justified. For instance, service of
summons by extraterritorial service is allowed after leave of court when the defendant
or respondent does not reside or is not found in the country or is temporarily out of the
country.33 Section 15, Rule 14 of the Rules sets the parameters of extraterritorial
service of summons, to wit:
Section 15. Extraterritorial service. – When the defendant does not reside and is not
found in the Philippines, and the action affects the personal status of the plaintiff or
relates to, or the subject of which is, property within the Philippines, in which the
defendant has or claims a lien or interest, actual or contingent, or in which the relief
demanded consists, wholly or in part, in excluding the defendant from any interest
therein, or the property of the defendant has been attached within the Philippines,
service may, by leave of court, be effected out of the Philippines by personal service as
under Section 6; or by publication in a newspaper of general circulation in such places
and for such time as the court may order, in which case a copy of the summons and
order of the court shall be sent by registered mail to the last known address of the
defendant, or in any other manner the court may deem sufficient. Any order
granting such leave shall specify a reasonable time, which shall not be less than sixty
(60) days after notice, within which the defendant must answer. (Emphasis and
underscoring supplied)
Breaking down the provision, three (3) modes of extraterritorial service of summons
are recognized. These are: (1) by "personal service as under Section 6 [of the Rules]";
(2) by publication in a newspaper of general circulation in such places and for such time
as the court may order, in which case a copy of the summons and order of the court
shall be sent by registered mail to the last known address of the defendant; and (3) "in
any other manner the court may deem sufficient."
In this case, the CA annulled and set aside the RTC Decision, declaring Melania to have
been deprived of due process on account of a defective service of summons. To the CA,
Cris should have not only published a copy of the summons but also sent a copy thereof
to Melania's last known address. However, Cris laments that the RTC only ordered that
the summons be published in a newspaper of general circulation, which mode of service
falls under the third mode of extraterritorial service of summons, i.e., "in any other
manner the court may deem sufficient," and hence, should be differentiated from the
second mode of extraterritorial service of summons which requires publication and
service by registered mail to the defendant's last known address.
Cris' arguments are tenable. To recall, the RTC's January 21, 2002 Order which granted
his Motion for Issuance of Summons by Publication reads:
Acting on the "Motion for Issuance of Summons by Publication" filed by the plaintiff thru
counsel, the same is hereby GRANTED.
Accordingly, let summons issue in this case to be served upon defendant by
publication in a newspaper of general circulation at the expense of the plaintiff,
pursuant to Section 15, Rule 14 of the Rules of Court.
SO ORDERED.34 (Emphasis and underscoring supplied)
As above intimated, Section 15, Rule 14 of the Rules specifically authorizes a court to
effect extraterritorial service of summons "in any other manner the court may deem
sufficient," "[w]hen the defendant does not reside and is not found in the Philippines,
and the action affects the personal status of the plaintiff." As Cris correctly argues, this
mode of service is separate and distinct from the second mode of service under the
same rule, which prescribes "publication in a newspaper of general circulation in such
places and for such time as the court may order, in which case a copy of the summons
and order of the court shall be sent by registered mail to the last known address of the
defendant." If the RTC intended to direct extraterritorial service of summons under the
second mode, then it should have so indicated that the publication be complemented by
sending a copy thereof to the last known address of Melania through registered mail.
However, it clearly did not.
Notably, publishing a copy of the summons does not necessarily mean that the trial
court intended to direct extraterritorial service of summons under the second mode of
service provided in Section 15, Rule 14 of the Rules. In Romualdez-Licaros v.
Licaros35 (Romualdez-Licaros), the Court considered the trial court's order to publish the
summons, together with furnishing a copy thereof to therein defendant by delivery
through the Department of Foreign Affairs, as extraterritorial service of summons under
the third mode, and not the second mode of service. Similar to this case, given that the
publication of summons was not complemented by sending a copy thereof to the
defendant's last known address specifically through registered mail, it is thus
reasonable to conclude that the RTC intended extraterritorial service of summons under
the third mode.
At this juncture, it should be pointed out that the RTC's call not to have a copy of the
summons sent to Melania's last known address – whether through registered mail (in
such case, the mode of service would qualify under the second mode) or through other
means (as exhibited in Romualdez-Licaros) – in addition to the publication of the
summons is amply justified by the circumstances of this case. As the records show, it is
undisputed that Melania had left the Philippines and had been estranged from Cris as
early as 1991. Since then, Melania has been residing in San Diego, California, without
any showing that she had informed Cris or that Cris knew of her foreign address.
Hence, given this backdrop, it is quite understandable why it would have been futile,
more so, logistically improbable, to have the summons sent to Melania's "last known
address." At the very least, the publication of summons should be considered as
substantial compliance with the rules on service. To reiterate, Section 15, Rule 14 of
the Rules authorizes the RTC to effect extraterritorial service of summons "in any other
manner the court may deem sufficient," for as long as all the parties' due process rights
are duly regarded. Besides, to invalidate the service of summons in this case would
unduly prejudice Cris who was merely subscribing to a duly issued court directive.
In addition, it may not be amiss to state that the RTC's January 21, 2002 Order
directing the assailed service of summons should be accorded the presumption of
regularity. It is axiomatic that a public official enjoys the presumption of regularity in
the discharge of his official duties and functions.36 Hence, Melania bears the burden of
proving any irregularity on the part of the court anent the service of summons in this
case. To clarify, these observations must hold true not only with respect to its directive
to have the summons published, but, as Cris points out, also to the eventual choice of
the San Pedro Express by the Clerk of Court as the publishing newspaper of general
circulation. Verily, without any evidence to show otherwise, the regularity of the
publication must stand. As held in Yap v. Lagtapon,37 "[t]he presumption of regularity in
the performance of official duties is an aid to the effective and unhampered
administration of government functions. Without such benefit, every official action could
be negated with minimal effort from litigants, irrespective of merit or sufficiency of
evidence to support such challenge."38
At any rate, regardless of any defects in the mode of service of summons, Melania's
petition for annulment of judgment is already barred by estoppel by laches pursuant to
Section 3, Rule 47 of the Rules, viz.:
Section 3. Period for filing action. - If based on extrinsic fraud, the action must be filed
within four (4) years from its discovery; and if based on lack of jurisdiction, before
it is barred by laches or estoppel. (Emphasis and underscoring supplied)
The principle of laches or "stale demands" ordains that the failure or neglect, for an
unreasonable and unexplained length of time, to do that which by exercising due
diligence could or should have been done earlier – negligence or omission to
assert a right within a reasonable time – warrants a presumption that the party entitled
to assert it has abandoned it or declined to assert it. 39
As earlier intimated, both Cris and Melania had already separated ways back in 1991
and even had an "open-book" arrangement, whereby both knew and tolerated each
other's extra-marital affairs and relationships over the years. 40 In fact, Melania left the
Philippines in 1991 and obtained a divorce decree from the Superior Court of California,
County of San Diego so as to marry her then boyfriend Zen. 41 Subsequently, Cris
personally informed Melania that he was planning to file a petition for declaration of
nullity of their marriage.42 When the petition for declaration of nullity was filed in 2002,
it was published together with the summons in a newspaper of general circulation. The
RTC then rendered its judgment against Melania, which judgment became final and
executory in 2004. In 2005, Cris met Melania and her boyfriend, David Toole, and told
the latter that he can marry her in the Philippines since their marriage was already
annulled.43
In view of these circumstances, the Court is hard-pressed to believe that Melania had
no knowledge of the nullity of marriage proceedings filed by Cris against her. It is
highly inconceivable that it took her more than seven (7) years before she became
aware of the existence of the RTC Decision given her "open-book" arrangement with
Cris, coupled with her other actions and choices throughout the years since they were
separated, most significantly, her obtaining a divorce decree. Thus, the equities of this
case dictate that Melania cannot validly claim denial of due process because she is
already estopped to avail of a petition for annulment of judgment under Rule 47 of the
Rules.
In fine, the CA's ruling granting Melania's petition for annulment of judgment is
reversed and set aside. The RTC's October 7, 2004 Decision declaring the marriage of
Cris and Melania void ab initio, which decision had already attained finality on
December 3, 2004, is hereby reinstated.
WHEREFORE, the petition is GRANTED. The Decision dated July 22, 2016 and the
Resolution dated June 1, 2017 of the Court of Appeals in CA-G.R. SP No. 04745-MIN
are hereby SET ASIDE. Accordingly, the Decision dated October 7, 2004 of the
Regional Trial Court of Davao City, Branch 8 declaring the marriage of petitioner
Crescencio Arrieta and respondent Melania T. Arrieta void ab initio is REINSTATED.
SO ORDERED.
Carpio (Chairperson), Caguioa, A. Reyes, Jr., and J. Reyes, Jr.,**JJ., concur.
Endnotes:
*
Also referred to as "Cresencio" in some parts of the rollo.
**
Designated Additional Member per Special Order No. 2587 dated August 28, 2018.
1
Rollo, pp. 4-63.
2
Id. at 64-75. Penned by Associate Justice Romulo V. Borja with Associate Justices
Oscar V. Badelles and Ronaldo B. Martin, concurring.
3
Id. at 134-137.
4
Not attached to the rollo.
5
Article 36. A marriage contracted by any party who, at the time of the celebration,
was psychologically incapacitated to comply with the essential marital obligations of
marriage, shall likewise be void even if such incapacity becomes manifest only after its
solemnization.
6
See rollo, pp. 64-65.
7
8
9
Id. at 131-132.
10
See id. at 65 and 69.
11
12
See rollo, p. 65.
13
See Affidavit of Publication dated February 27, 2002; id. at 133.
14
Id. at 65.
15
16
17
Id. at 213. Signed by Clerk of Court V Evalyn M. Arellano-Morales.
18
19
See rollo, p. 66.
20
Id. at 64-75.
21
Id. at 73 and 75.
22
The CA ruled that in actions in rem, such as Civil Case No. 28,382-01, Philippine
courts have jurisdiction over the res, and hence, jurisdiction over the person of the
nonresident defendant is not essential; see id. at 68-69.
23
The CA ruled that there was no proof to show that Cris practiced deceit or employed
a subterfuge that precluded Melania from fully and completely presenting her case; see
id. at 74-75.
24
See id. at 70-71.
25
See id. at 71.
26
See CA Resolution dated June 1, 2017; id. at 134-137.
27
Dated August 15, 2016; id. at 76-130.
28
De Pedro v. Romasan Development Corporation, 748 Phil. 706, 733-734 (2014);
citation omitted.
29
Id.
30
Id. at 726.
31
Id. at 734-735; citation omitted.
32
Borlongan v. Banco De Oro, G.R. Nos. 217617 & 218540, April 5, 2017, 822 SCRA
418, 431-432.
33
De Pedro v. Romasan Development Corporation, supra note 23, at 727-728.
34
Rollo, p. 65.
35
449 Phil. 824 (2003).
36
Yap v. Lagtapon, G.R. No. 196347, January 23, 2017, 815 SCRA 94, 107.
37
Id.
38
Id. at 97.
39
Spouses Manila v. Spouses Manzo, 672 Phil. 460, 476 (2011); emphasis and
underscoring supplied.
40
See TSN dated October 16, 2013, pp. 85-87; rollo, pp. 298-300.
41
Rollo, pp. 7-8.
42
43
XXXXX
[G.R. No. 73867. February 29, 1988.]
TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS, INC., Petitioner, v.

IGNACIO CASTRO, SR., SOFIA C. CROUCH, IGNACIO CASTRO JR., AURORA
CASTRO, SALVADOR CASTRO, MARIO CASTRO, CONRADO CASTRO, ESMERALDA
C. FLORO, AGERICO CASTRO, ROLANDO CASTRO, VIRGILIO CASTRO AND
GLORIA CASTRO, and HONORABLE INTERMEDIATE APPELLATE
COURT, Respondents.
SYLLABUS
1. CIVIL LAW; DAMAGES; PARTY WHO FAILED TO TRANSMIT TELEGRAM LIABLE

THEREON. — In the case at bar, petitioner and private respondent Sofia C. Crouch
entered into a contract whereby, for a fee, petitioner undertook to send said private
respondent’s message overseas by telegram. This, petitioner did not do, despite
performance by said private respondent of her obligation by paying the required
charges. Petitioner was therefore guilty of contravening its obligation to said private
respondent and is thus liable for damages under Articles 1170 and 2196 of the Civil
Code.
2. ID.; MORAL DAMAGES; PARTY WHO SUFFERED EMOTIONAL SUFFERING ENTITLED

THERETO. — We find Art. 2217 of the Civil Code applicable to the case at bar. It states:
"Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar
injury. Though incapable of pecuniary computation, moral damages may be recovered if
they are the proximate results of the defendant’s wrongful act or omission." Here,
petitioner’s act or omission, which amounted to gross negligence, was precisely the
cause of the suffering private respondents had to undergo.
3. ID.; COMPENSATORY DAMAGES; AWARDED TO A PARTY WHO INCURRED TRAVEL

EXPENSES TO TESTIFY IN A COURT CASE. — We also sustain the trial court’s award of
P16,000.00 as compensatory damages to Sofia C. Crouch representing the expenses
she incurred when she came to the Philippines from the United States to testify before
the trial court. Had petitioner not been remiss in performing its obligation, there would
have been no need for this suit or for Mrs. Crouch’s testimony.
4. ID.; EXEMPLARY DAMAGES; AWARDED TO A PARTY AS A WARNING TO ALL

TELEGRAM COMPANIES. — The award of exemplary damages by the trial court is
likewise justified and, therefore, sustained in the amount of P1,000.00 for each of the
private respondents, as a warning to all telegram companies to observe due diligence in
transmitting the messages of their customers.
DECISION
PADILLA, J.:
Petition for review on certiorari of the decision ** of the Intermediate Appellate Court,
dated 11 February 1986, in AC-G.R. No. CV-70245, entitled "Ignacio Castro, Sr., et. al.,
Plaintiffs-Appellees, versus Telefast Communications/Philippine Wireless, Inc.,
Defendant-Appellant." cralaw virtua1aw library
The facts of the case are as follows: chanrob1es virtual 1aw library
On 2 November 1956, Consolacion Bravo-Castro, wife of plaintiff Ignacio Castro, Sr.

and mother of the other plaintiffs, passed away in Lingayen, Pangasinan. On the same
day, her daughter Sofia C. Crouch, who was then vacationing in the Philippines,
addressed a telegram to plaintiff Ignacio Castro, Sr. at 685 Wanda, Scottsburg,
Indiana, U.S.A., 47170 announcing Consolacion’s death. The telegram was accepted by
the defendant in its Dagupan office, for transmission, after payment of the required
fees or charges.
The telegram never reached its addressee. Consolacion was interred with only her
daughter Sofia in attendance. Neither the husband nor any of the other children of the
deceased, then all residing in the United States, returned for the burial.
When Sofia returned to the United States, she discovered that the wire she had caused
the defendant to send, had not been received. She and the other plaintiffs thereupon
brought action for damages arising from defendant’s breach of contract. The case was
filed in the Court of First Instance of Pangasinan and docketed therein as Civil Case No.
15356. The only defense of the defendant was that it was unable to transmit the
telegram because of "technical and atmospheric factors beyond its control." 1 No
evidence appears on record that defendant ever made any attempt to advise the
plaintiff Sofia C. Crouch as to why it could not transmit the telegram.
The Court of First Instance of Pangasinan, after trial, ordered the defendant (now
petitioner) to pay the plaintiffs (now private respondents) damages, as follows, with
interest at 6% per annum: jgc:chanrobles.com.ph
"1. Sofia C. Crouch, P31.92 and P16,000.00 as compensatory damages and P20,000.00
as moral damages.
2. Ignacio Castro Sr., P20,000.00 as moral damages.
3. Ignacio Castro Jr., P20,000.00 as moral damages.
4. Aurora Castro, P10,000.00 moral damages.
5. Salvador Castro, P10,000.00 moral damages.
6. Mario Castro, P10,000.00 moral damages.
7. Conrado Castro, P10,000 moral damages.
8. Esmeralda C. Floro, P20,000.00 moral damages.
9. Agerico Castro, P10,000.00 moral damages.
10. Rolando Castro, P10,000.00 moral damages.
11. Virgilio Castro, P10,000.00 moral damages.
12. Gloria Castro, P10,000.00 moral damages.
Defendant is also ordered to pay P5,000.00 attorney’s fees, exemplary damages in the
amount of P1,000.00 to each of the plaintiffs and costs." 2
On appeal by petitioner, the Intermediate Appellate Court affirmed the trial court’s
decision but eliminated the award of P16,000.00 as compensatory damages to Sofia C.
Crouch and the award of Pl,000.00 to each of the private respondents as exemplary
damages. The award of P20,000.00 as moral damages to each of Sofia C. Crouch,
Ignacio Castro, Jr. and Esmeralda C. Floro was also reduced to P10,000.00 for each. 3
Petitioner appeals from the judgment of the appellate court, contending that the award
of moral damages should be eliminated as defendant’s negligent act was not motivated
by "fraud, malice or recklessness." cralaw virtua1aw library
In other words, under petitioner’s theory, it can only be held liable for P31.92, the fee
or charges paid by Sofia C. Crouch for the telegram that was never sent to the
addressee thereof.
Petitioner’s contention is without merit.

Art. 1170 of the Civil Code provides that "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." Art. 2176 also provides that
"whoever by act or omission causes damage to another, there being fault or negligence,
is obliged to pay for the damage done." cralaw virtua1aw library
In the case at bar, petitioner and private respondent Sofia C. Crouch entered into a
contract whereby, for a fee, petitioner undertook to send said private respondent’s
message overseas by telegram. This, petitioner did not do, despite performance by said
private respondent of her obligation by paying the required charges. Petitioner was
therefore guilty of contravening its obligation to said private respondent and is thus
liable for damages.
This liability is not limited to actual or quantified damages. To sustain petitioner’s

contrary position in this regard would result in an inequitous situation where petitioner
will only be held liable for the actual cost of a telegram fixed thirty (30) years ago.
We find Art. 2217 of the Civil Code applicable to the case at bar. It states: "Moral
damages include physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury.
Though incapable of pecuniary computation, moral damages may be recovered if they
are the proximate results of the defendant’s wrongful act or omission." (Emphasis
supplied).
Here, petitioner’s act or omission, which amounted to gross negligence, was precisely
the cause of the suffering private respondents had to undergo.
As the appellate court properly observed: jgc:chanrobles.com.ph
" [Who] can seriously dispute the shock, the mental anguish and the sorrow that the
overseas children must have suffered upon learning of the death of their mother after
she had already been interred, without being given the opportunity to even make a
choice on whether they wanted to pay her their last respects? There is no doubt that
these emotional sufferings were proximately caused by appellant’s omission and
substantive law provides for the justification for the award of moral damages." 4
We also sustain the trial court’s award of P16,000.00 as compensatory damages to

Sofia C. Crouch representing the expenses she incurred when she came to the
Philippines from the United States to testify before the trial court. Had petitioner not
been remiss in performing its obligation, there would have been no need for this suit or
for Mrs. Crouch’s testimony.
The award of exemplary damages by the trial court is likewise justified and, therefore,
sustained in the amount of P1,000.00 for each of the private respondents, as a warning
to all telegram companies to observe due diligence in transmitting the messages of
their customers.
WHEREFORE, the petition is DENIED. The decision appealed from is modified so that
petitioner is held liable to private respondents in the following amounts: chanrob1es virtual 1aw library
(1) P10,000.00 as moral damages, to each of private respondents;
(2) P1,000.00 as exemplary damages, to each of private respondents;
(3) P16,000.00 as compensatory damages, to private respondent Sofia C. Crouch;
(4) P5,000.00 as attorney’s fees; and
(5) Costs of suit.
SO ORDERED.
Yap (Chairman), Paras and Sarmiento, JJ., concur.
Separate Opinions
MELENCIO-HERRERA, J., concurring: chanrob1es virtual 1aw library
I concur. In addition to compensatory and exemplary damages, moral damages are

recoverable in actions for breach of contract, as in this case, where the breach has been
wanton and reckless, tantamount to bad faith.
Endnotes:
** Penned by Justice Serafin E. Camilon, with the concurrence of Justices Crisolito

Pascual, Jose C. Campos, Jr. and Desiderio P. Jurado.
1. Rollo at 8.
2. Rollo at 9-10.
3. Rollo at 14.
4. Rollo at 13.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
National Power Corporation v. Court of Appeals 161 SCRA 334, G.R.
No. L-47379 (May 16, 1998)
Facts:
1. Engineering Construction, Inc. (petitioner, ECI for brevity), being a successful bidder, executed a
contract in Manila with the National Waterworks and Sewerage Authority (NAWASA), whereby
the former undertook:
1. to furnish all tools, labor, equipment and materials, and
2. to construct the proposed 2nd Ipo-Bicti Tunnel, Intake and Outlet Structures, and
Appurtenant Structures, and Appurtenant Features at Norzagaray, Bulacan and to
complete said works within 800 calendar days. (Angat Hydro-electric Project and
Dam)
2. The project involves two (2) major phases: (1) tunnel work covering a distance of 7 kilometres
and (2) the outworks at both ends of the tunnel.
3. The ECI already had completed the first major phase of the work (Tunnel Excavation Work), all
the equipment no longer needed there were transferred to another site where some projects were
yet to be completed. Some portion of the Bicti site were still under construction (2 nd phase).
4. On November 4, 1967, Typhoon “Welming” hit Central Luzon, passing through corporations’
Angat Hydro-electric Project and Dam.
5. Due to the heavy downpour, the water in the reservoir of the Angat Dam was rising perilously at
the rate of 60 cm per hour. To prevent an overflow of water from the dam, the National Power
Corporation(NPC) caused the opening of the spillway gates.
6. Extraordinary large volume of water rushed out of the gates, and hit the installations and
construction works of ECI at Ipo site with terrific impact, as a result of which the latter’s
stockpile of materials supplies, camp facilities and permanent structures and accessories whether
washed away, lost or destroyed.
Issue/s:
1. Whether or not the destruction and loss of ECI’s equipment and facilities were due to force
majeure, which will exempt NPC from liability.
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Ruling:
1. No, NPC will not be exempted from liability. NPC was undoubtedly negligent because it opened
the spillway gates of the Angat Dam only at the height of typhoon “Welming” when it knew very
well that it was safer to have opened the same gradually and earlier, as it was also undeniable that
NPC know of the coming typhoon at least four days before it actually struck.
The typhoon was an act of God or what we may call force majeure, NPC cannot escape liability
because its negligence was the proximate cause of the loss and damage.
As we have ruled in Juan F. Nakpil & Sons v. Court of Appeals:
“If upon the happening of a fortuitous event or an act of God, there concurs a corresponding
fraud, negligence, delay or violation or contravention in any manner of the tenor of the
obligation, which results in loss or damage, the obligor cannot escape liability.
The principle embodied in the act of God doctrine strictly requires that the act must be one
occasioned exclusively by the violence of nature and human agencies are to be excluded from
creating or entering into the cause of the mischief. When the effect, the cause of which is to be
considered, is found to be in part the result of the participation of man, whether it be from active
intervention or neglect, or failure to act, the whole occurrence is thereby HUMANIZED, as it
were, and removed from the rules applicable to the acts of God.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Section 24. Liability for Damages Local government

units and their officials are not exempt from liability
for death or injury to persons or damage to property.
2. Jimenez v City of Manila, 150 SCRA 510 (1987)
Facts: Jimenez shows that in the morning of August 15, 1974 he, together with his
neighbors, went to Sta. Ana public market to buy "bagoong" at the time when the
public market was flooded with ankle deep rainwater. After purchasing the
"bagoong" he turned around to return home but he stepped on an uncovered
opening which could not be seen because of the dirty rainwater, causing a dirty
and rusty 4-inch nail, stuck inside the uncovered opening, to pierce the left leg of
plaintiff-petitioner penetrating to a depth of about one and a half inches.
After administering first aid treatment at a nearby drugstore, his companions
helped him hobble home. He developed fever and he had to be carried to Dr. Juanita
Mascardo. His left leg swelled with great pain and was subsequently rushed to the
Veterans Memorial Hospital where he was confined for 20 days due to high fever
and severe pain. He walked around with crutches for 15 days. His injury prevented
him from attending to the school buses he is operating. He had to engage the
services of one Bienvenido Valdez to supervise his business for an aggregate
compensation of P900.00.
Petitioner sued for damages the City of Manila and the Asiatic Integrated
Corporation under whose administration the Sta. Ana Public Market had been
placed by virtue of a Management and Operating Contract.
Defendants do not deny that plaintiff was in fact injured although the Asiatic Integrated
Corporation tries to minimize the extent of the injuries, claiming that it was only a small
puncture and that as a war veteran, plaintiff‘s hospitalization at the War Veteran's
Hospital was free. City of Manila maintains that it cannot be held liable for the
injuries sustained by the petitioner because under the Management and Operating
Contract, Asiatic Integrated Corporation assumed all responsibility for damages
which may be suffered by third persons for any cause attributable to it.
It has also been argued that the City of Manila cannot be held liable under Article
I, Section 4 of Republic Act No. 409 as amended (Revised Charter of Manila) which
provides:
The City shall not be liable or held for damages or injuries to persons or property arising
from the failure of the Mayor, the Municipal Board, or any other City Officer, to enforce
the provisions of this chapter, or any other law or ordinance, or from negligence of said
Mayor, Municipal Board, or any other officers while enforcing or attempting to enforce
said provisions.
The lower court decided in favor of respondents. The IAC held the Asiatic
Integrated Corporation liable for damages but absolved City of Manila.
Issue: Whether Manila should be jointly and severally liable with Asiatic Integrated
Corporation for the injuries petitioner suffered.
Held: YES. There is no doubt that the plaintiff suffered injuries when he fell into a
drainage opening without any cover in the Sta. Ana Public Market. In the case of
Teotico, Supreme Court squarely ruled that Republic Act No. 409 establishes
a GENERAL RULE regulating the liability of the City of Manila for damages or
injury to persons or property arising
from the failure of city officers to enforce the provisions of said Act, or any other
law or ordinance or from negligence of the City Mayor, Municipal Board, or other
officers while enforcing or attempting to enforce said provisions.
Upon the other hand, Article 2189 constitutes a PARTICULAR
PRESCRIPTION making "provinces, cities and municipalities liable for damages for the
death of, or injury suffered by any person by reason— specifically—of the defective
condition of roads, streets, bridges, public buildings, and other public works under their
control or supervision. In other words, Art. 1, sec. 4, R.A. No. 409 refers to liability
arising from negligence, in general, regardless of the object, thereof, while Article
2189 governs liability due to "defective streets, public buildings and other public
works" in particular and is therefore decisive on this specific case.
Supreme Court clarified further that under Article 2189, it is not necessary for the
liability therein established to attach, that the defective public works belong to
the province, city or municipality from which responsibility is exacted. What said
article requires is that the province, city or municipality has either "CONTROL OR
SUPERVISION" over the public building in question. There is no question that the
Sta. Ana Public Market, despite the Management and Operating Contract between
respondent City and Asiatic Integrated Corporation, remained under the control of
the former. Said contract is explicit in this regard, when it provides:
That immediately after the execution of this contract, the SECOND PARTY shall start the
painting, cleaning, sanitizing and repair of the public markets and talipapas and within
ninety (90) days thereof, the SECOND PARTY shall submit a program
of improvement, development, rehabilitation and reconstruction of the city public
markets and talipapas subject to prior approval of the FIRST PARTY.
That all present personnel of the City public markets and talipapas shall be retained by
the SECOND PARTY as long as their services remain satisfactory and they shall be
extended the same rights and privileges as heretofore enjoyed by them.
Provided, however, that the SECOND PARTY shall have the right, subject to prior
approval of the FIRST PARTY to discharge any of the present employees for cause.
That the SECOND PARTY may from time to time be required by the FIRST
PARTY, or his duly authorized representative or representatives, to report on the
activities and operation of the City public markets and talipapas and the facilities
and conveniences installed therein, particularly as to their cost of construction,
operation and maintenance in connection with the stipulations contained in this
Contract.
The fact of supervision and control of the City over subject public market was
admitted by Mayor Ramon Bagatsing in his letter to Secretary of Finance:
These cases arose from the controversy over the Management and Operating Contract
entered into on December 28, 1972 by and between the City of Manila and the Asiatic
Integrated Corporation, whereby in consideration of a fixed service fee, the City hired
the services of the said corporation to undertake the physical management,
maintenance, rehabilitation and development of the City's public markets and
'Talipapas' subject to the control and supervision of the City.
It is believed that there is nothing incongruous in the exercise of these powers vis-a-
vis the existence of the contract, inasmuch as the City retains the power of
supervision and control over its public markets and talipapas under the terms of
the contract.
City of Manila employed a market master for the Sta. Ana Public Market whose
primary duty is to take direct supervision and control of that particular market,
more specifically, to check the safety of the place for the public Moreover, Section
30 (g) of the Local Tax Code provides:
"The TREASURER shall exercise direct and immediate supervision, administration
and control over public markets and the personnel thereof, including those whose
duties concern the maintenance and upkeep of the market and ordinances and other
pertinent rules and regulations."
The contention of City of Manila that petitioner should not have ventured to go to
Sta. Ana Public Market during a stormy weather is indeed untenable. It is an error
for the trial court to attribute the negligence to herein petitioner. A customer in a
store has the right to assume that the owner will comply with his duty to keep the
premises safe for customers. If he ventures to the store on the basis of such
assumption and is injured because the owner did not comply with his duty, no
negligence can be imputed to the customer.
As a defense against liability on the basis of a quasi-delict, one must have exercised the
diligence of a good father of a family. There is no argument that it is the duty of the
City of Manila to exercise reasonable care to keep the public market reasonably
safe for people frequenting the place for their marketing needs. While it may be
conceded that the fulfillment of such duties is extremely difficult during storms
and floods, it must however, be admitted that ordinary precautions could have
been taken during good weather to minimize the dangers to life and limb under
those difficult circumstances. The drainage hole could have been placed under the
stalls instead of on the passageways. The city should have seen to it that the
openings were covered.
Evidence indicates that long before petitioner fell into the opening, it was already
uncovered, and 5 months after the incident happened, the opening was still
uncovered. While there are findings that during floods the vendors remove the iron
grills to hasten the flow of water there is no showing that such practice has ever been
prohibited, much less penalized by the City of Manila. Neither was it shown that any
sign had been placed thereabouts to warn passers-by of the impending danger.
It is evident that the City of Manila is likewise liable for damages under Article
2189, respondent City having retained control and supervision over the Sta. Ana
Public Market and as tort-feasor under Article 2176 of the Civil Code on quasi-
delicts. Petitioner had the right to assume that there were no openings in the middle of
the passageways and if any, that they were adequately covered. Had the opening been
covered, petitioner could not have fallen into it. Thus the negligence of the City of
Manila is the PROXIMATE CAUSE of the injury suffered, the City is therefore liable
for the injury suffered by the petitioner. Respondent City of Manila and Asiatic
Integrated Corporation being joint tort-feasors, are solidarily liable under Article
2194 of the Civil Code.
XXXX
REMEDIES FOR BREACH OF OBLIGATIONS -Arts. 1165-1168,
1170, 1177-1178, 1191-1192, 2236, 302, 1708; Arts. 153, 155
FC; Rule 39 Sec. 13
XXX
EXTRA-JUDICIAL REMEDIES expressly granted by law- Arts. 1786, 1788, 1526 stipulated JUDICIAL
REMEDIES: principal remedies -Arts. 1191, 1170 subsidiary remedies -Arts. 1380, 1177 ancillary
remedies -Rules of Court
[G.R. NO. 149338 : July 28, 2008]
UNLAD RESOURCES DEVELOPMENT CORPORATION, UNLAD RURAL BANK OF

NOVELETA, INC., UNLAD COMMODITIES, INC., HELENA Z. BENITEZ, and
CONRADO L. BENITEZ II, Petitioners, v. RENATO P. DRAGON, TARCISIUS R.
RODRIGUEZ, VICENTE D. CASAS, ROMULO M. VIRATA, FLAVIANO PERDITO,
TEOTIMO BENITEZ, ELENA BENITEZ, and ROLANDO SUAREZ, Respondents.
DECISION
NACHURA, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Civil Procedure seeking the reversal of the November 29, 2000 Decision 1 and August 2,
2001 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 54226.
The facts, as found by the CA, are as follows:
On December 29, 1981, the Plaintiffs (herein respondents) and defendant (herein
petitioner) Unlad Resources, through its Chairman[,] Helena Z. Benitez[,] entered into
a Memorandum of Agreement wherein it is provided that [respondents], as controlling
stockholders of the Rural Bank [of Noveleta] shall allow Unlad Resources to invest four
million eight hundred thousand pesos (P4,800,000.00) in the Rural Bank in the form of
additional equity. On the other hand, [petitioner] Unlad Resources bound itself to invest
the said amount of 4.8 million pesos in the Rural Bank; upon signing, it was, likewise,
agreed that [petitioner] Unlad Resources shall subscribe to a minimum of four hundred
eighty thousand pesos (P480,000.00) (sic) common or preferred non-voting shares of
stock with a total par value of four million eight hundred thousand pesos
(P4,800,000.00) and pay up immediately one million two hundred thousand pesos
(P1,200,000.00) for said subscription; that the [respondents], upon the signing of the
said agreement shall transfer control and management over the Rural Bank to Unlad
Resources. According to the [respondents], immediately after the signing of the
agreement, they complied with their obligation and transferred control of the Rural
Bank to Unlad Resources and its nominees and the Bank was renamed the Unlad Rural
Bank of Noveleta, Inc. However, [respondents] claim that despite repeated demands,
Unlad Resources has failed and refused to comply with their obligation under the said
Memorandum of Agreement when it did not invest four million eight hundred thousand
pesos (P4,800,000.00) in the Rural Bank in the form of additional equity and, likewise,
it failed to immediately infuse one million two hundred thousand pesos (P1,200,000.00)
as paid in capital upon signing of the Memorandum of Agreement.
On August 10, 1984, the Board of Directors of [petitioner] Unlad Resources passed
Resolution No. 84-041 authorizing the President and the General Manager to lease a
mango plantation situated in Naic, Cavite. Pursuant to this Resolution, the Bank as
[lessee] entered into a Contract of Lease with the [petitioner] Helena Z. Benitez as
[lessor]. The management of the mango plantation was undertaken by Unlad
Commodities, Inc., a subsidiary of Unlad Resources[,] under a Management Contract
Agreement. The Management Contract provides that Unlad Commodities, Inc. would
receive eighty percent (80%) of the net profits generated by the operation of the
mango plantation while the Bank's share is twenty percent (20%). It was further
agreed that at the end of the lease period, the Rural Bank shall turn over to the lessor
all permanent improvements introduced by it on the plantation.
xxx
On May 20, 1987, [petitioner] Unlad Rural Bank wrote [respondents] regarding [the]
Central Bank's approval to retire its [Development Bank of the Philippines] preferred
shares in the amount of P219,000.00 and giving notice for subscription to proportionate
shares. The [respondents] objected on the grounds that there is already a sinking fund
for the retirement of the said DBP-held preferred shares provided for annually and that
it could deprive the Rural Bank of a cheap source of fund. (sic)
[Respondents] alleged compliance with all of their obligations under the Memorandum
of Agreement in that they have transferred control and management over the Rural
bank to the [petitioners] and are ready, willing and able to allow [petitioners] to
subscribe to a minimum of four hundred eighty thousand (P480,000.00) (sic) common
or preferred non-voting shares of stocks with a total par value of four million eight
hundred thousand pesos (P4,800,000.00) in the Rural Bank. However, [petitioners]
have failed and refused to subscribe to the said shares of stock and to pay the initial
amount of one million two hundred thousand pesos (P1,200,000.00) for said
subscription.3
On July 3, 1987, herein respondents filed before the Regional Trial Court (RTC) of
Makati City, Branch 61 a Complaint4 for rescission of the agreement and the return of
control and management of the Rural Bank from petitioners to respondents, plus
damages. After trial, the RTC rendered a Decision, 5 the dispositive portion of which
provides:
WHEREFORE, Premises Considered, judgment is hereby rendered, as follows:
1. The Memorandum of Agreement dated 29 December 1991 (sic) is hereby declared

rescinded and:
(a) Defendant Unlad Resources Development Corporation is hereby ordered to
immediately return control and management over the Rural Bank of Noveleta, Inc. to
Plaintiffs; and
cralawlibrary
(b) Unlad Rural Bank of Noveleta, Inc. is hereby ordered to return to Defendants the
sum of One Million Three Thousand Seventy Pesos (P1,003,070.00)
2. The Director for Rural Banks of the Bangko Sentral ng Pilipinas is hereby appointed
as Receiver of the Rural Bank;
3. Unlad Rural Bank of Noveleta, Inc. is hereby enjoined from placing the retired DBP-
held preferred shares available for subscription and the same is hereby ordered to be
placed under a sinking fund;
4. Defendant Unlad Resources Development Corporation is hereby ordered to pay

plaintiffs the following:
(a) actual compensatory damages amounting to Four Million Six Hundred One Thousand
Seven Hundred Sixty - Five and 38/100 Pesos (P4,601,765.38);
(b) moral damages in the amount of Five Hundred Thousand Pesos (P500,000.00);
(c) exemplary and corrective damages in the amount of One Hundred Thousand Pesos
(P100,000.00); and cralawlibrary
(d) attorney's fees in the sum of (P100,000.00), plus cost of suit.
SO ORDERED.6
Herein petitioners appealed the ruling to the CA. Respondents filed a Motion to Dismiss
and, subsequently, a Supplemental Motion to Dismiss, which were both denied. Later,
however, the CA, in a Decision dated November 29, 2000, dismissed the appeal for lack
of merit and affirmed the RTC Decision in all respects. Petitioners' motion for
reconsideration was denied in CA Resolution dated August 2, 2001.
Petitioners are now before this Court alleging that the CA committed a grave and
serious reversible error in issuing the assailed Decision. Petitioners question the
jurisdiction of the trial court, something they have done from the beginning of the
controversy, contending that the issues that respondents raised before the trial court
are intra-corporate in nature and are, therefore, beyond the jurisdiction of the trial
court. They point out that respondents' complaint charged them with mismanagement
and alleged dissipation of the assets of the Rural Bank. Since the complaint challenges
corporate actions and decisions of the Board of Directors and prays for the recovery of
the control and management of the Rural Bank, these matters fall outside the
jurisdiction of the trial court. Thus, they posit that the judgment of the trial court, as
affirmed by the CA, is null and void and may be impugned at any time.
Petitioners further argue that the action instituted by respondents had already
prescribed, because Article 1389 of the Civil Code provides that an action for rescission
must be commenced within four years. They claim that the trial court and the CA
mistakenly applied Article 1144 of the Civil Code which treats of prescription of actions
in general. They submit that Article 1389, which deals specifically with actions for
rescission, is the applicable law.
Moreover, petitioners assert that they have fully complied with their undertaking under
the subject Memorandum of Agreement, but that the undertaking has become a "legal
and factual impossibility" because the authorized capital stock of the Rural Bank was
increased from P1.7 million to only P5 million, and could not accommodate the
subscription by petitioners of P4.8 million worth of shares. Such deficiency, petitioners
contend, is with the knowledge and approval of respondent Renato P. Dragon and his
nominees to the Board of Directors.
Petitioners, without conceding the propriety of the judgment of rescission, also argue
that the subject Memorandum of Agreement could not just be ordered rescinded
without the corresponding order for the restitution of the parties' total contributions
and/or investments in the Rural Bank. Finally, they assail the award for moral and
exemplary damages, as well as the award for attorney's fees, as bereft of factual and
legal bases given that, in the body of the Decision, it was merely stated that
respondents suffered moral damages without any discussion or explanation of, nor any
justification for such award. Likewise, the matter of attorney's fees was not at all
discussed in the body of the Decision. Petitioners claim that pursuant to the prevailing
rule, attorney's fees cannot be recovered in the absence of stipulation.
On the other hand, respondents declare that immediately after the signing of the
Memorandum of Agreement, they complied with their obligation and transferred control
of the Rural Bank to petitioner Unlad Resources and its nominees, but that, despite
repeated demands, petitioners have failed and refused to comply with their concomitant
obligations under the Agreement.
Respondents narrate that shortly after taking over the Rural Bank, petitioners Conrado
L. Benitez II and Jorge C. Cerbo, as President and General Manager, respectively,
entered into a Contract of Lease over the Naic, Cavite mango plantation, and that, as a
consequence of this venture, the bank incurred expenses amounting to P475,371.57,
equivalent to 25.76% of its capital and surplus. The respondents further assert that the
Central Bank found this undertaking not inherently connected with bona fide rural
banking operations, nor does it fall within the allied undertakings permitted under
Section 26 of Central Bank Circular No. 741 and Section 3379 of the Manual of
Regulations of the Central Bank. Thus, respondents contend that this circumstance,
coupled with the fact that petitioners Helena Z. Benitez and Conrado L. Benitez II were
also stockholders and members of the Board of Directors of Unlad Resources, Unlad
Rural Bank, and Unlad Commodities at that time, is adequate proof that the Rural
Bank's management had every intention of diverting, dissipating, and/or wasting the
bank's assets for petitioners' own gain.
They likewise allege that because of the failure of petitioners to comply with their
obligations under the Memorandum of Agreement, respondents, with the exception of
Tarcisius Rodriguez, lodged a complaint with the Securities and Exchange Commission
(SEC), seeking rescission of the Agreement, damages, and the appointment of a
management committee, but the SEC dismissed the complaint for lack of jurisdiction.
Furthermore, when the Rural Bank informed respondents of the Central Bank's approval
of its plan to retire its DBP-held preferred shares, giving notices for subscription to
proportionate shares, respondents objected on the ground that there was already a
sinking fund for the retirement of said shares provided for annually, and that the
retirement would deprive the petitioner Rural Bank of a cheap source of fund. It was at
that point, respondents claim, that they instituted the aforementioned Complaint
against petitioners before the RTC of Makati.
The respondents also seek the outright dismissal of this Petition for lack of verification
as to petitioners Helena Z. Benitez and Conrado L. Benitez II; lack of proper verification
as to petitioners Unlad Resources Development Corporation, Unlad Rural Bank of
Noveleta, Inc., and Unlad Commodities, Inc.; lack of proper verified statement of
material dates; and lack of proper sworn certification of non-forum shopping.
They support the proposition that Tijam v. Sibonghanoy 7 applies, and that petitioners
are indeed estopped from questioning the jurisdiction of the trial court. They also share
the lower court's view that it is Article 1144 of the Civil Code, and not Article 1389, that
is applicable to this case. Finally, respondents allege that the failure of petitioner Unlad
Resources to comply with its undertaking under the Agreement, as uniformly found by
the trial court and the CA, may no longer be assailed in the instant Petition, and that
the award of moral and exemplary damages and attorney's fees is justified.
The Petition is bereft of merit. We uphold the Decision of the CA affirming that of the
RTC.
First, the subject of jurisdiction. The main issue in this case is the rescission of the
Memorandum of Agreement. This is to be distinguished from respondents' allegation of
the alleged mismanagement and dissipation of corporate assets by the petitioners
which is based on the prayer for receivership over the bank. The two issues, albeit
related, are obviously separate, as they pertain to different acts of the parties involved.
The issue of receivership does not arise from the parties' obligations under the
Memorandum of Agreement, but rather from specific acts attributed to petitioners as
members of the Board of Directors of the Bank. Clearly, the rescission of the
Memorandum of Agreement is a cause of action within the jurisdiction of the trial
courts, notwithstanding the fact that the parties involved are all directors of the same
corporation.
Still, the petitioners insist that the trial court had no jurisdiction over the complaint
because the issues involved are intra-corporate in nature.
This argument miserably fails to persuade. The law in force at the time of the filing of
the case was Presidential Decree (P.D.) 902-A, Section 5(b) of which vested the
Securities and Exchange Commission with original and exclusive jurisdiction to hear and
decide cases involving controversies arising out of intra-corporate
relations.8 Interpreting this statutorily conferred jurisdiction on the SEC, this Court had
occasion to state:
Nowhere in said decree do we find even so much as an [intimation] that absolute

jurisdiction and control is vested in the Securities and Exchange Commission in all
matters affecting corporations. To uphold the respondent's arguments would remove
without legal imprimatur from the regular courts all conflicts over matters involving or
affecting corporations, regardless of the nature of the transactions which give rise to
such disputes. The courts would then be divested of jurisdiction not by reason of the
nature of the dispute submitted to them for adjudication, but solely for the reason that
the dispute involves a corporation. This cannot be done. 9
It is well to remember that the respondents had actually filed with the SEC a case
against the petitioners which, however, was dismissed for lack of jurisdiction due to the
pendency of the case before the RTC.10 The SEC's Order dismissing the respondents'
complaint is instructive:
From the foregoing allegations, it is apparent that the present action involves two
separate causes of action which are interrelated, and the resolution of which hinges on
the very document sought to be rescinded. The assertion that the defendants failed to
comply with their contractual undertaking and the claim for rescission of the contract by
the plaintiffs has, in effect, put in issue the very status of the herein defendants as
stockholders of the Rural Bank. The issue as to whether or not the defendants are
stockholders of the Rural Bank is a pivotal issue to be determined on the basis of the
Memorandum of Agreement. It is a prejudicial question and a logical antecedent to
confer jurisdiction to this Commission.
It is to be noted, however, that determination of the contractual undertaking of the

parties under a contract lies with the Regional Trial Courts and not with this
Commission. x x x11
Be that as it may, this point has been rendered moot by Republic Act (R.A.) No. 8799,
also known as the Securities Regulation Code. This law, which took effect in 2000, has
transferred jurisdiction over such disputes to the RTC. Specifically, R.A. 8799 provides:
Sec. 5. Powers and Functions of the Commission
xxx
5.2. The Commission's jurisdiction over all cases enumerated under Section 5 of
Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction
or the appropriate Regional Trial Court: Provided, That the Supreme Court in the
exercise of its authority may designate the Regional Trial Court branches that shall
exercise jurisdiction over these cases. The Commission shall retain jurisdiction over
pending cases involving intra-corporate disputes submitted for final resolution which
should be resolved within one (1) year from the enactment of this Code. The
Commission shall retain jurisdiction over pending suspension of payments/rehabilitation
cases filed as of 30 June 2000 until finally disposed.
Section 5 of P.D. No. 902-A reads, thus:
Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of associations
registered with it as expressly granted under existing laws and decrees, it shall have
original and exclusive jurisdiction to hear and decide cases involving:
a) Devices and schemes employed by or any acts of the board of directors, business
associates, its officers or partnership, amounting to fraud and misrepresentation which
may be detrimental to the interest of the public and/or of the stockholder, partners,
members of associations or organizations registered with the Commission;
b) Controversies arising out of intra-corporate or partnership relations, between and

among stockholders, members, or associates; between any or all of them and the
corporation, partnership or association of which they are stockholders, members or
associates, respectively; and between such corporation, partnership or association and
the state insofar as it concerns their individual franchise or right to exist as such entity;
c) Controversies in the election or appointment of directors, trustees, officers or

managers of such corporations, partnerships or associations.
Consequently, whether the cause of action stems from a contractual dispute or one that
involves intra-corporate matters, the RTC already has jurisdiction over this case. In this
light, the question of whether the doctrine of estoppel by laches applies, as enunciated
by this Court in Tijam v. Sibonghanoy, no longer finds relevance.
Second, the issue of prescription. Petitioners further contend that the action for
rescission has prescribed under Article 1398 of the Civil Code, which provides:
Article 1389. The action to claim rescission must be commenced within four years x x x.
This is an erroneous proposition. Article 1389 specifically refers to rescissible contracts

as, clearly, this provision is under the chapter entitled "Rescissible Contracts."
In a previous case,12 this Court has held that Article 1389:
applies to rescissible contracts, as enumerated and defined in Articles 1380 and 1381.
We must stress however, that the "rescission" in Article 1381 is not akin to the term
"rescission" in Article 1191 and Article 1592. In Articles 1191 and 1592, the rescission
is a principal action which seeks the resolution or cancellation of the contract while in
Article 1381, the action is a subsidiary one limited to cases of rescission for lesion as
enumerated in said article.
The prescriptive period applicable to rescission under Articles 1191 and 1592, is found
in Article 1144, which provides that the action upon a written contract should be
brought within ten years from the time the right of action accrues.
Article 1381 sets out what are rescissible contracts, to wit:
Article 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one-fourth of the value of the things which are the
object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion
stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner
collect the claims due them;
(4) Those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent judicial
authority;
(5) All other contracts specially declared by law to be subject to rescission.
The Memorandum of Agreement subject of this controversy does not fall under the
above enumeration. Accordingly, the prescriptive period that should apply to this case
is that provided for in Article 1144, to wit:
Article 1144. The following actions must be brought within ten years from the time the
right of action accrues:
(1) Upon a written contract;
xxx
Based on the records of this case, the action was commenced on July 3, 1987, while the
Memorandum of Agreement was entered into on December 29, 1981. Article 1144
specifically provides that the 10-year period is counted from "the time the right of
action accrues." The right of action accrues from the moment the breach of right or
duty occurs.13 Thus, the original Complaint was filed well within the prescriptive period.
We now proceed to determine if the trial court, as affirmed by the CA, correctly ruled
for the rescission of the subject Agreement.
Petitioners contend that they have fully complied with their obligation under the
Memorandum of Agreement. They allege that due to respondents' failure to increase
the capital stock of the corporation to an amount that will accommodate their
undertaking, it had become impossible for them to perform their end of the Agreement.
Again, petitioners' contention is untenable. There is no question that petitioners herein

failed to fulfill their obligation under the Memorandum of Agreement. Even they admit
the same, albeit laying the blame on respondents.
It is true that respondents increased the Rural Bank's authorized capital stock to
only P5 million, which was not enough to accommodate the P4.8 million worth of stocks
that petitioners were to subscribe to and pay for. However, respondents' failure to fulfill
their undertaking in the agreement would have given rise to the scenario contemplated
by Article 1191 of the Civil Code, which reads:
Article 1191. The power to rescind reciprocal obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
Thus, petitioners should have exacted fulfillment from the respondents or asked for the
rescission of the contract instead of simply not performing their part of the Agreement.
But in the course of things, it was the respondents who availed of the remedy under
Article 1191, opting for the rescission of the Agreement in order to regain control of the
Rural Bank.
Having determined that the rescission of the subject Memorandum of Agreement was in
order, the trial court ordered petitioner Unlad Resources to return to respondents the
management and control of the Rural Bank and for the latter to return the sum
of P1,003,070.00 to petitioners.
Mutual restitution is required in cases involving rescission under Article 1191. This
means bringing the parties back to their original status prior to the inception of the
contract.14 Article 1385 of the Civil Code provides, thus:
ART. 1385. Rescission creates the obligation to return the things which were the object
of the contract, together with their fruits, and the price with its interest; consequently,
it can be carried out only when he who demands rescission can return whatever he may
be obligated to restore.
Neither shall rescission take place when the things which are the object of the contract
are legally in the possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the
loss.
This Court has consistently ruled that this provision applies to rescission under Article
1191:
[S]ince Article 1385 of the Civil Code expressly and clearly states that "rescission
creates the obligation to return the things which were the object of the contract,
together with their fruits, and the price with its interest," the Court finds no justification
to sustain petitioners' position that said Article 1385 does not apply to rescission under
Article 1191.15
Rescission has the effect of "unmaking a contract, or its undoing from the beginning,
and not merely its termination."16 Hence, rescission creates the obligation to return the
object of the contract. It can be carried out only when the one who demands rescission
can return whatever he may be obliged to restore. To rescind is to declare a contract
void at its inception and to put an end to it as though it never was. It is not merely to
terminate it and release the parties from further obligations to each other, but to
abrogate it from the beginning and restore the parties to their relative positions as if no
contract has been made.17
Accordingly, when a decree for rescission is handed down, it is the duty of the court to
require both parties to surrender that which they have respectively received and to
place each other as far as practicable in his original situation. The rescission has the
effect of abrogating the contract in all parts. 18
Clearly, the petitioners failed to fulfill their end of the agreement, and thus, there was
just cause for rescission. With the contract thus rescinded, the parties must be restored
to the status quo ante, that is, before they entered into the Memorandum of
Agreement.
Finally, we must resolve the question of the propriety of the award for damages and
attorney's fees.
The trial court's Decision mentioned that the "evidence is clear and convincing that
Plaintiffs (herein respondents) suffered actual compensatory damages amounting to
Four Million Six Hundred One Thousand Seven Hundred Sixty-Five and 38/100 Pesos
(P4,601,765.38) moral damages and attorney's fees."
Though not discussed in the body of the Decision, the records show that the amount
of P4,601,765.38 pertains to actual losses incurred by respondents as a result of
petitioners' non-compliance with their undertaking under the Memorandum of
Agreement. On this point, respondent Dragon presented testimonial and documentary
evidence to prove the actual amount of damages, thus:
Atty. Cruz
Q: Was there any consequence to you Mr. Dragon due to any breach of the agreement
marked as Exhibit A? cralawred
A: Yes sir I could have earned thru the shares of stock that I have, or we have or we
had by this time amounting to several millions pesos (sic). They have only put in the
whole amount that we have agreed upon (sic).
Q: In this connection did you cause computation of these losses that you incured (sic)? cralawred
A: Yes sir.
xxx
Q: Will you please kindly go through this computation and explain the same to the
Honorable Court? cralawred
A: Number 1 is an Organ (sic) income from the sale of 60% (sic) at only Three Hundred
Ninety Nine Thousand Two hundred for Nineteen Thousand Nine Hundred Sixty shares
which should have been sold if it were sold to others for P50.00 each for a total of Nine
Hundred Ninety Eight Thousand but sold to them for Three Hundred Ninety nine (sic)
Thousand two (sic) Hundred only and of which only Three Hundred Twenty Four
Thousand Six Hundred was paid to me. Therefore, there was a difference of Six
Hundred Seven Three (sic) Thousand Four Hundred (P673,400.00). On the basis of the
commulative (sic) lost income every year from March 1982 from the amount of Seven
Six Hundred (sic) Seventy Three Thousand four (sic) Hundred (P673,400.) (sic) there
would be a discommulative (sic) lost (sic) of One Million Ninety Three Thousand Nine
Hundred Fifty Two Pesos and forty two (sic) centavos (P1,093,952.42). Please note that
the interest imputed is only at 12% per annum but it should had (sic) been much
higher. In 1984 to 1986 (sic) alone rates went as higher (sic) as 40% per annum from
the so called (sic) Jobo Bills and yet we only computed the imputed income or lost
income at 12% per annum and then there is a 40% participation on the unrealized
earnings due to their failure to put in an stabilized (sic) earnings. You will note that if
they put in 4.8 million Pesos and it would be earning money, 40% of that will go to us
because 40% of the bank would be ours and 60% would be there (sic). But because
they did put in the 4.8 million our 40% did not earn up to that extent and computed
again on the basis of 12% the amount (sic) on the commulative (sic) basis up to
September 1990 is 2 million three hundred fifty two thousand sixty five pesos and four
centavos (sic). (P2,352,065.04). You will note again that the average return of
investment of any Cavite based (sic) Rural Bank has been no less than 20% or about
30% per annum. And we computed only the earnings at 12%.
xxx
There were loans granted fraudulently to members of the board and some borrowers
which were not all charged interest for several years and on this basis we computed a
40% shares (sic) on the foregone income interest income (sic) on all these fraudulently
granted loans, without interest being collected and none a project (sic) among a
plantation project (sic), which was funded by the bank but nothing was given back to
the bank for several hundred thousand of pesos (sic). And we arrived an (sic) estimate
of the foregone interest income a total of One Million Two Hundred Five Thousand Eight
Hundred Sixty None Pesos and eighty one (sic) centavos and 40 percent share of this
(sic) would be Four Hundred Eighty Two Thousand Three Hundred Forty Seven Pesos
and Ninety Two Centavos. All in all our estimate of the damages we have suffered is
Four Million Six Hundred one (sic) Thousand Seven Hundred Sixty Five Pesos and thirty
eight (sic) centavos (P4,601,765.38).19
More importantly, petitioners never raised in issue before the CA this award of actual
compensatory damages. They did not raise the matter of damages in their Appellants'
Brief, while in their Motion for Reconsideration, they questioned only the award of moral
and exemplary damages, not the award of actual damages. Even in the present Petition
for Review, what petitioners raised was the propriety of the award of moral and
exemplary damages and attorney's fees.
On the grant of moral and exemplary damages and attorney's fees, we note that the
trial court's Decision did not discuss the basis for the award. No mention of these
damages awarded - or their factual basis - is made in the body of the Decision, only in
the dispositive portion. Be that as it may, we have examined the records of the case
and found that the award must be sustained.
It should be remembered that there are two separate causes of action in this case: one
for rescission of the Memorandum of Agreement and the other for receivership based
on alleged mismanagement of the company by the plaintiffs. While the award of actual
compensatory damages was based on the breach of duty under the Memorandum of
Agreement, the award of moral damages appears to be based on petitioners'
mismanagement of the company when they became members of the Board of Directors
of the Rural Bank.
Thus, the trial court said:
Under the Rural Bank's management, a systematic diversion of the bank's assets was
conceived whereby: (a) The Rural Bank's funds would be funneled in the development
and improvements of the Benitez Mango Plantation in the guise of an investment in said
plantation; (b) Of the net profits earned from the plantation's operations, the Rural
Bank's share therein, although it shoulders all of the financial risks, would be a measly
twenty percent (20%) thereof while UCI, without investing a single centavo, would earn
eighty percent (80%) of the said profits. Thus, the bulk of the profits of the mango
plantation was also sought to be diverted to an entity wherein Helena Z. Benitez and
Conrado L. Benitez II are not only principal stockholders but also the Chairman of the
Board of Directors and President, respectively. Moreover, Defendant Helena Z. Benitez
would be entitled to receive, under the lease contract, rentals in the total amount of
Three Hundred Thousand Pesos (P300,000.00) or ten percent (10%) of gross profits,
whichever is higher. (c) Finally, at the end of the lease period, the Rural Bank was
obliged to turn over to the lessor (Helena Z. Benitez) all permanent improvements
introduced by it on the plantation at no cost to Ms. Benitez.
Further, in its report dated March 13, 1985, the [Central Bank] after conducting its
general examination upon the Rural Bank ordered the latter to "explain satisfactorily
why the bank engage (sic) in an undertaking not inherently connected with [bona fide]
rural banking operations nor within the allowed allied undertakings," contrary to the
provisions of Section 3379 of the CB Manual of Regulations and Section 26 of CB
Circular No. 741, otherwise known as the "Circular on Rural Banks[.]"
The aforestated CB report states that "total exposure to this project now amounts
to P475,371.57 or 25.76% of its capital and surplus[.]" Notwithstanding a finding by
the CB of the undertaking's illegality, the defendants nevertheless persisted in pursuing
the Mango Plantation Project and never acceded to the call of [the] CB for it to desist
from further implementing the said project. It was only after another letter from the CB
was received when defendant finally shelved the mango plantation project.
The result of the aforestated report, as well as the actuations of the Defendants in not
yielding to the order of the CB, adequately establishes not only a violation of CB Rules
(specifically Section 26, Circular 741 and Section 3379 of the CB Manual of Regulations,
but also, that it has caused undue damage both to the Rural bank as well as its
stockholders.
The initial CB report should have sufficiently apprised Defendants of the illegality of the
undertaking. Defendants, therefore have the duty to terminate the Mango Plantation
Project. They, however, [chose] to continue it, apparently to further their [own] interest
in the scheme for their own personal benefit and gain, an act which is clearly contrary
to the fiduciary nature of their relationship with the corporation in which they are
officers. Such persistence proves evident bad faith, or a breach of a known duty
through some motive or ill-will, which resulted in the further dissipation and wastage of
the Rural Bank's assets, unjustly depriving Plaintiffs of their fair share in the assets of
the bank.
All the foregoing satisfactorily affirms the allegations of Plaintiffs to the effect that these
contracts were but part of a device employed by Defendants to siphon [off] the Rural
bank for their personal gain.20
Moral damages include physical suffering, mental anguish, fright, serious anxiety,
injury. Though incapable of precise pecuniary computation, moral damages may be
recovered if they are the proximate result of the defendant's wrongful act or
omission.21 Article 2220 of the Civil Code further provides that moral damages may be
recovered in case of a breach of contract where the defendant acted in bad faith. 22
To award moral damages, a court must be satisfied with proof of the following
requisites: (1) an injury - whether physical, mental, or psychological - clearly sustained
by the claimant; (2) a culpable act or omission factually established; (3) a wrongful act
or omission of the defendant as the proximate cause of the injury sustained by the
claimant; and (4) the award of damages predicated on any of the cases stated in Article
2219.23 chanrobles virtual law library
Accordingly, based upon the findings of the trial court, it is clear that respondents are
entitled to moral damages. The acts attributed to the petitioners as directors of the
Rural Bank manifestly prejudiced the respondents causing detriment to their standing
as directors and stockholders of the Rural Bank.
Exemplary damages cannot be recovered as a matter of right. 24 While these need not
be proved, respondents must show that they are entitled to moral, temperate or
compensatory damages before the court may consider the question of awarding
exemplary damages.25 We find that respondents are indeed entitled to moral damages;
thus, the award for exemplary damages is in order.
Anent the award for attorney's fees, Article 2208 of the Civil Code states:
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.
Hence, the award of exemplary damages is in itself sufficient justification for the award
of attorney's fees.26
WHEREFORE, the foregoing premises considered, the petition is hereby DENIED. The
assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 54226 are
AFFIRMED.
SO ORDERED.
Endnotes:
1
Penned by Associate Justice Eugenio S. Labitoria, with Associate Justices Eloy R. Bello, Jr. and Eliezer R. De los Santos,
concurring; rollo, pp. 52-63.
2
Id. at 65.
3
Id. at 52-54.
4
Records, pp. 1-19.
5
Penned by Judge Roberto C. Diokno, id. at 959-960.
6
Rollo, pp. 79-80.
7
131 Phil. 556 (1968).
8
P.D. 902-A, Sec. 5 (b).
9
DMRC Enterprises v. Este del Sol Mountain Reserve, Inc., 217 Phil. 280, 287.
10
Records, pp. 426-429.
11
Order of the SEC dated March 2, 1987, records, pp. 428-429.
12
Iringan v. Court of Appeals, 418 Phil. 286, 296-297 (2001) (Citations omitted).
13
De Castro v. Court of Appeals, 434 Phil. 53, 68 (2000), citing Tolentino, Commentaries and Jurisprudence on the Civil
Code of the Philippines, 1992 ed., p. 44.
14
See Laperal v. Solid Homes, Inc., G.R. No. 130913, June 21, 2005, 460 SCRA 375, 385, citing Velarde v. Court of
Appeals, 361 SCRA 56, 69-70 (2001). See also Reyes v. Lim, 456 Phil. 1, 12 (2003); Asuncion v. Evangelista, 375 Phil.
328, 356 (1999).
15
Laperal v. Solid Homes, Inc., supra, at 386-387.
16
Pryce Corporation v. Philippine Amusement and Gaming Corporation, G.R. No. 157480, May 6, 2005, 458 SCRA 164,
178, citing Black's Law Dictionary, 6th ed., p. 1306.
17
Spouses Velarde v. Court of Appeals, 413 Phil. 360, 375 (2001).
18
Carrascoso v. Court of Appeals, G.R. No. 123672 and Philippine Long Distance Telephone Company v. Leviste, G.R. No.
164489, December 14, 2005, 477 SCRA 666, 703, citing IV A. Tolentino, COMMENTARIES AND JURISPRUDENCE on the
Civil Code of the Philippines (1997 ed.), pp. 180-181
19
TSN, September 20, 1990, pp. 998-1006.
20
Rollo, pp. 76-77. (Citations omitted).
21
Civil Code, Art. 2217.
22
Art. 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.
23
Quezon City Government v. Dacara, G.R. No. 150304, June 15, 2005, 460 SCRA 243, 254, citing Expertravel & Tours,
Inc. v. Court of Appeals, 368 Phil. 444 (1999).
24
25
Construction Development Corporation of the Philippines v. Estrella, G.R. No. 147791, September 8, 2006, 501 SCRA
228, 243, citing Del Rosario v. Court of Appeals, 267 SCRA 158, 173 (1997).
26
National Power Corporation, et al. v. Court of Appeals and Growth Link, Inc. v. Court of Appeals, 339 Phil. 605, 631
(1997).
XXXXX
UNIVERSAL FOOD CORPORATION, Petitioner, v. THE COURT OF APPEALS,

MAGDALO V. FRANCISCO, SR., and VICTORIANO V. FRANCISCO, Respondents.
RESOLUTION*
CASTRO, J.:
The petitioner Universal Food Corporation moves to reconsider our decision dated May
13, 1970; its motion is based on four grounds which we shall discuss in seriatim.
1. The petitioner contends that (a) under the terms of the Bill of Assignment, exh. A,
the respondent Magdalo V. Francisco ceded and transferred to the petitioner not only
the right to the use of the formula for Mafran sauce but also the formula itself, because
this, allegedly, was the intention of the parties; (b) that on the basis of the entire
evidence on record and as found by the trial court, the petitioner did not dismiss the
respondent Francisco because he was, and still is, a member of the board of directors, a
stockholder, and an officer of the petitioner corporation, and that as such, had actual
knowledge of the resumption of production by the petitioner, but that despite such
knowledge, he refused to report back for work notwithstanding the petitioner’s call for
him to do so; (c) that the private respondents are not entitled to rescind the Bill of
Assignment; and (d) that the evidence on record shows that the respondent Francisco
was the one not ready, willing and able to comply with his obligations under the Bill of
Assignment, in the sense that he not only irregularly reported for work but also failed to
assign, transfer and convey to the petitioner of the said deed of conveyance.
There is no need to further belabor the foregoing matters raised by the petitioner since
they have been amply discussed and then resolved on pages 7-13, 13-15, and 15-17 of
our decision.
2. The petitioner next points to certain provisions in the Bill of Assignment, which, it
asserts, are not sufficient by themselves to prove that the respondent Francisco ceded
to the petitioner merely the use of the formula for Mafran sauce and not the formula
itself. It specifically cites the paragraphs (a) dealing with the payment of a "royalty of
two (2%) per centum of the annual profit" earned by petitioner to the respondent
Francisco; (b) stating the appointment of the said respondent as chief chemist of the
petitioner as "permanent in character," with absolute control and supervision over
laboratory personnel in the preparation of the Mafran sauce; and (c) making the
property rights to the said trademark and formula automatically reversible to the
respondent Francisco should dissolution of the petitioner corporation take place.
Standing by themselves, the foregoing provisions of the Bill of Assignment are perhaps
not sufficient to prove that what was ceded by the respondent Francisco to the
petitioner was merely the use of the formula for Mafran sauce and not the formula
itself. We have, however, made it clear in our decision that it is the cumulative effect of
(a) the foregoing circumstances, (b) the admission made by the petitioner of paragraph
3 of the respondent complaint, (c) the factual milieu of the case, and (d) the application
of the first sentence of art. 1378 of the New Civil Code, which led this Court to conclude
that what was actually ceded and transferred was only the use of the Mafran sauce
formula. The fact that the trademark "Mafran" was duly registered in the name of the
petitioner pursuant to the Bill of Assignment, standing by itself alone, to borrow the
petitioner’s language, is not sufficient proof that the respondent Francisco was
supposedly obligated to transfer and cede to the petitioner the formula for Mafran
sauce and not merely its use. For the said respondent allowed the petitioner to register
the trademark for purposes merely of the "marketing of said project." (see pars. 3
respectively of the complaint and answer, cited on page 12 of our decision.)
3. The petitioner likewise advances the view that the findings of fact made by the trial
court which led it to rule against the rescission of the Bill of Assignment, should be
respected and upheld by this Court, because to disregard them would constitute an
unjustified departure from the well-settled rule in the jurisdiction that appellate courts
should not interfere with the findings of fact of the trial court or with its appreciation of
the weight and credibility of the testimony of the witnesses. Stated elsewise, the
petitioner, in essence and more precisely, wants this Court to overturn the rule that the
findings of fact arrived at by the Court of Appeals are not subject to review by the
Supreme Court (Uy v. J.M. Tuason & Co., Inc., 31 SCRA 121 [1970]; Roque v. Buan, 21
SCRA 642 [1967]). It is true that the foregoing rule admits of certain defined
exceptions: "The findings of fact made by the Court of Appeals may be set aside: 1)
when the conclusion is a finding grounded entirely on speculation, surmises or
conjectures; 2) when the inference made is manifestly mistaken, absurd or impossible;
3) where there is a grave abuse of discretion; 4) when the judgment is based on a
misapprehension of facts; and 5) when the Court of Appeals, in making its findings,
went beyond the issues of the case and the same are contrary to the admissions of
both appellant and appellee" (Roque v. Buan, supra, and cases cited). The petitioner,
however, has not demonstrated the applicability of any of the foregoing exceptions to
the case at bar.
4. Finally, the petitioner maintains that, assuming that the respondent Francisco is
entitled to his back salary, since he has formed another corporation styled "La Mer
Industries, Inc." the principal purpose of which is to engage in the manufacture and
sale of products similar to if not the same as the Mafran sauce being produced by the
petitioner, and, during the period of the pendency of this case, practised his other
profession as chiropractor, the total amount of his earnings from these sources,
computed from the date of dismissal to the date of reinstatement, and should he decide
not to return to work, computed from the date of dismissal to the date of finality of our
judgment, should be deducted from the back salary accruing to him. We find this
argument tenable.
In his pleading filed on January 29, 1971, the respondent Francisco manifested that he
would no longer file a rejoinder to the petitioner’s reply and supplementary reply dated
December 14, 1970 and December 22, 1970, respectively, and that he was submitting
to final resolution by this Court the pleadings already submitted. In effect, the
respondent Francisco does not deny the petitioner’s aforestated contention.
ACCORDINGLY, we hereby modify our decision of May 13, 1970 only to the extent that
the total earnings of the respondent Magdalo V. Francisco, Sr. from whatever source
during the period from the date of his dismissal up to the date of finality of our
decision, shall be deducted from the total back salary that shall have accrued to the
said Respondent. The trial court shall receive pertinent evidence on the earnings
adverted to, then make the necessary determination, and forthwith issue the proper
writ of execution to enforce the final judgment in this case.
Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Fernando, Barredo, Villamor and

Makasiar, JJ., concur.
Concepcion, C.J., and Teehankee, J., took no part.
Endnotes:
XXXX
UNIVERSAL FOOD CORPORATION v. CA, GR No. L-29155, 1970-05-13

Facts:
February 14, 1961 Magdalo V. Francisco Sr. and Victoriano V. Francisco filed with the Court
of First Instance of Manila, against the Universal Food Corporation, an action for rescission
of a contract entitled "Bill of Assignment,"... use of the Mafran trademark and formula, and
order the latter to restore to them the said right of use
The answer further alleged that the defendant had complied with all the terms... and
conditions of the Bill of Assignment and, consequently, the plaintiffs are not entitled to
rescission thereof
1962 the lower court dismissed the plaintiffs' complaint
1938, plaintiff Magdalo V. Francisco, Sr. discovered or invented a formula for the
manufacture of a food seasoning (sauce) derived from banana fruits popularly known as
MAFRAN sauce;... that the manufacture of this product was used in... commercial scale in
1942, and in the same year plaintiff registered his trademark in his name as owner and
inventor with the Bureau of Patents; that due to lack of sufficient capital to finance the
expansion of the business, in 1960, said plaintiff secured the financial... assistance of Tirso T.
Reyes who, after a series of negotiations, formed with others defendant Universal Food
Corporation eventually leading to the execution on May 11, 1960 of the aforequoted 'Bill of
Assignment'... plaintiff Magdalo V. Francisco, Sr. was appointed Chief Chemist with a salary
of P300.00 a month, and plaintiff Victoriano V. Francisco was appointed auditor... plaintiff
Magdalo V. Francisco, Sr., when preparing the secret materials inside the laboratory, never
allowed anyone, not even his own... son, or the President and General Manager Tirso T.
Reyes of defendant, to enter the laboratory in order to keep the formula secret to himself.
plaintiff expressed a willingness to give the formula to defendant provided that the same...
should be placed or kept inside a safe to be opened only when he is already incapacitated...
but defendant never acquired a safe for that purpose.
Tirso T. Reyes... wrote plaintiff requesting him to permit one or two members of his family to
observe the preparation of the 'Mafran Sauce'... denied by plaintiff.
due to the alleged scarcity and high prices of raw materials... de Guzman... issued a
Memorandum... that only Supervisor Ricardo Francisco should be retained in the factory and
that the salary of plaintiff Magdalo V. Francisco, Sr., should be stopped for the time being
(5) days later,... memorandum to Victoriano Francisco ordering him to report to the factory
and... produce 'Mafran Sauce' at the rate of not less than 100 cases a day so as to cope with
the orders of the corporation's various distributors... defendant
Magdalo
V. Francisco, Sr. received his salary as Chief Chemist in the amount of P300. 00 a month
only until his services were terminated on November 30, 1960.
authorized
Porfirio Zarraga and Paula de Bacula to look for a buyer of the corporation including its
trademarks, formula and assets at a price of not less than P 300,000.00
Due to these successive memoranda, without plaintiff
Magdalo V. Francisco, Sr. being recalled back to work, the latter filed the present action
About a month afterwards... requested said... plaintiff to report for duty... the latter declined
the request... petitioner's first contention is that the respondents are not entitled to
rescission. It is argued that under article 1191 of the new Civil Code, the right to rescind a
reciprocal obligation is not absolute and can be demanded only... if one is ready, willing and
able to comply with his own obligation and the other is not;... neither party incurs in delay if
the other does not comply... the trial court found... that it was the plaintiff
Magdalo V. Francisco who had been remiss in the compliance of his contractual obligation to
cede and transfer to the defendant the formula for Mafran Sauce;"
The Bill of Assignment
Magdalo V. Francisco, Sr.] is the sole and exclusive owner of the MAFRAN trade-mark and
the formula, for MAFRAN SAUCE;
"THAT this assignment, transfer and conveyance is absolute and irrevocable in no case shall
the PARTY OF THE First Part ask, demand or sue for the surrender of its rights and interest
over s... said MAFRAN trademark and mafran formula, except when a... dissolution of the
Party of the Second Part, voluntary or otherwise, eventually arises, in which case then the
property rights and interests over said trademark and formula shall automatically revert the
Party of the First Part."
"assign, transfer and convey all its property rights and interest over said Mafran trademark
and formula for MAFRAN SAUCE unto the Party of the Second Part,"
Issues:
whether by virtue of the terms of the Bill of Assignment the respondent Magdalo V.
Francisco, Sr. ceded and transferred to the petitioner corporation the formula for Mafran
sauce.
Ruling:
Fill of Assignment clearly show that... the intention of the respondent patentee at the time
of its execution was to part, not with the formula for Mafran sauce, but only its use, to
preserve the monopoly and to effectively prohibit anyone from availing of the invention.
what was meant to be returned to the respondent patentee is not the formula itself, but only
its use and the right to such use.
a perceptive analysis of the entire instrument... would lead one to the conclusion that what
was actually ceded and transferred was only the use of the Mafran... sauce formula.
Firstly... the payment of "royalty of TWO (2%) PER CENTUM of the net annual profit"
The word "royalty," when employed in connection with a license under a patent, means the
compensation paid for the use of a patented invention.
Secondly... to prevent its unauthorized proliferation, it is provided in paragraph 5-(a) of the
Bill... patentee was to be appointed "chief chemist * * * permanent in character,"... in case of
his "death or other disabilities," then his "heirs or assigns who may have necessary
qualifications shall be preferred to succeed"... respondent shall have and... shall exercise
absolute control and supervision over the laboratory assistants and personnel and over the
purchase and safekeeping of the chemicals and other mixtures
Thirdly... should dissolution of, the petitioner
"the property rights and interests over said trademark and formula shall automatically revert"
to the respondent patentee.
This must be so, because there could be no reversion of the trademark and formula in this
case... the same president and general manager admitted that "I consider that the two
months we paid him (referring to respondent Magdalo V. Francisco, Sr.) is the separation
pay."... to the question of rescission of the Bill of Assignment.
"ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.
"The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission even after he has
chosen fulfillment, if the latter should become... impossible.
"The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
"This is understood to be without prejudice to the rights of third persons who have acquired
the thing, in accordance with articles 1385 and 1388 of the Mortgage Law."
"ART. 1383. The action for rescission is subsidiary; it cannot be instituted except when the
party suffering damage has no other legal means to obtain reparation for the same."
"ART. 1384. Rescission shall be only to the extent necessary to cover the damages
caused."... article 1191. The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent upon him. The... injured
party may choose between fulfillment and rescission of the obligation, with payment of
damages in either case.
the Bill of Assignment are reciprocal in nature. The petitioner corporation violated the Bill of
Assignment, specifically paragraph 5-(a) and (b), by terminating the services of the...
respondent patentee Magdalo v. Francisco, Sr., without lawful and justifiable cause.
is rescission of the Bill of Assignment proper?
The general rule is that rescission of a contract will not be permitted for a slight or casual
breach, but only for such substantial and fundamental breach as would defeat the very
object of the parties in making the agreement.
petitioner contends that rescission of the Bill of Assignment should be denied, because...
under article 1383, rescission is a subsidiary remedy which cannot be instituted except when
the party suffering damage has no other legal Means... in this case the dismissal of the
respondent patentee
Magdalo V. Francisco, Sr. as the permanent chief chemist of the corporation is a
fundamental and substantial breach of the Bill of Assignment.
the fact remains that the respondents-appellees had no alternative but to file the present...
action for rescission and damages.
petitioner further contends... error... patentee is entitled to payment of his monthly salary of
P300 from December 1, 1960, until the return to him of the Mafran trademark and formula...
arguing... that under article 1191, the right to specific performance is not conjunctive with
the right to rescind a reciprocal contract; that a plaintiff cannot ask for both remedies
The above contention .is without merit
Under these circumstances, the petitioner corporation could not escape liability to pay the
private respondent patentee his agreed monthly salary, as long as the use, as well as the
right... to use, the formula for Mafran sauce remained with the corporation.
Article 1385 of the new Civil Code provides that rescission creates the obligation to return
the things which were the object of the... contract.
respondents... pray... that the petitioner corporation be adjudged as "without any right to
use said trademark and formula."
The Bill of Assignment (Exhibit A) is hereby rescinded... corporation is ordered to return and
restore to the plaintiff Magdalo V. Francisco, Sr. the right to the use of his Mafran sauce
trademark and formula... corporation shall also pay to Magdalo V. Francisco, Sr. his... monthly
salary of V300 from December 1, 1960, until the date of finality of this judgment
Principles:
XXXXX
71 Phil. 344
LAUREL, J.:
On January 2, 1928, the Magdalena Estate, Inc., sold to Louis J. Myrick lots
Nos. 28 and 29 of Block 1, Parcel 9 of the San Juan Subdivision, San Juan,
Rizal, their contract of sale No. SJ-639 (Exhibits B and 1) providing that the
price of P7,953 shall be payable in 120 equal monthly installments of
P96.39 each on the 2nd day of every month beginning the date of execution
of the agreement. Simultaneously, the vendee executed and delivered to the
vendor a promissory note (Exhibits C and 2) for the whole purchase price,
wherein it was stipulated that "si cualquier pago o pagos de este pagare
quedasen en mora por mas de dos meses, entonces.todos el saldo no
pagado del mismo con cualesquiera intereses que hubiese devengado,
vencera y sera exigible inmediatamente y devengara intereses al mismo tipo
de 9 por ciento al aiio hasta su completo pago, y en tal caso me
comprometo, ademas, a pagar al tenedor de este pagare el 10 por ciento de
la cantidad en concepto de honorarios de abogado."
In pursuance of said agreement, the vendee made several monthly
payments amounting to P2,596.08, the last being on October 4, 1930,
although the first installment due and unpaid was that of May 2, 1930. By
reason of this default, the vendor, through its president, K. H. Hemady, on
December 14, 1932, notified the vendee that, in view of his inability to
comply with the terms of their contract, said agreement had been cancelled
as of that date, thereby relieving him of any further obligation thereunder,
and that all amounts paid by him had been forfeited in favor of the vendor,
who assumes the absolute right over the lots in question. To this
communication, the vendee did not reply, and it appears likewise that the
vendor thereafter did not require him to make any further disbursements
on account of the purchase price.
On July 22, 1936, Louis J. Myrick, respondent herein, commenced the
present action in the Court of First Instance of Albay, praying for an entry
of judgment against the Magdalena Estate, Inc. for the sum of P2,596.08
with legal interest thereon from the filing of the complaint until its
payment, and for costs of the suit. Said defendant, the herein petitioner, on
September 7, 1936, filed his answer consisting in a general denial and a
cross-complaint and counterclaim, alleging that contract SJ-639 was still in
full force and effect and that, therefore, the plaintiff should be condemned
to pay the balance plus interest and attorneys' fees. After due trial, the
Court of First Instance of Albay, on January 31, 1939, rendered its decision
ordering the defendant to pay the plaintiff the sum of P2,596.08 with legal
interest from December 14, 1932 until paid and costs, and dismissing
defendant's counterclaim. From this judgment, the Magdalena Estate, Inc.
appealed to the Court of Appeals, where the cause was docketed as CA-G. R.
No. 5073, and which, on August 23, 1940, confirmed the decision of the
lower court, with the only modification that the payment of interest was to
be computed from the date of the filing of the complaint instead of from the
date of the cancellation of the contract. A motion for reconsideration was
presented, which was denied 'on September 6, 1940. Hence, the present
petition for a writ of certiorari.
Petitioner-appellant assigns several errors which we proceed to discuss in
the course of this opinion.
Petitioner holds that contract SJ-639 has not been rendered inefficacious
by its letter to the respondent, dated December 14, 1932, and submits the
following propositions: (1) That the intention of the author of a written
instrument shall always prevail over the literal sense of its wording; (2) that
a bilateral contract may be resolved or cancelled only by the prior mutual
agreement of the parties, which is approved by the judgment of the proper
court; and (3) that the letter of December 14, 1932 was not assented to by
the respondent, and, therefore, cannot be deemed to have produced a
cancellation, even if it ever was intended. Petitioner contends that the letter
in dispute is a mere notification and, to this end, introduced in evidence the
disposition of Mr. K. H. Hemady, president of the Magdalena Estate, Inc.,
wherein he stated that the word "cancelled" in the letter of December 14,
1932, "es un error de mi interpretaci6n sin ninguna intencion de cancelar,"
and the testimony of Sebastian San Andres, one of its employees, that the
lots were never offered for sale after the mailing of the letter
aforementioned. Upon the other hand, the Court of Appeals, in its decision
of August 23, 1940, makes the finding that "notwithstanding the deposition
of K. H. Hemady, president of the defendant corporation, to the effect that
the contract was not cancelled nor was his intention to do so when he wrote
the letter of December 14, 1932, marked Exhibit 6 and D (pp. 6-7,
deposition Exhibit 1-a), faith and credit cannot be given to such testimony
in view of the clear terms of the letter which evince his unequivocal intent
to resolve the contract. His testimony is an afterthought. The intent to
resolve the contract is expressed unmistakably not only in the letter of
December 14, 1932, already referred to (Exhibit 6 and D), but is reiterated
in the letters which the president of the defendant corporation states that
plaintiff 'lost his rights for the land for being behind more than two years,'
and of April 10, 1935 (Exhibit G), where defendant's president makes the
following statement: 'Confirming the verbal arrangement had between you
and our Mr. K. H. Hemady regarding the account of Mr. Louis J. Myrick
under contract No. SJ-639, already cancelled.' "
This conclusion of fact of the Court of Appeals is final and should not be
disturbed. (Guico, vs. Mayuga and Heirs of Mayuga, 63 Phil., 328;
Mamuyac vs. Abena, XXXVIII Off. Gaz. 84.) Where the terms of a writing
are clear, positive and unambiguous, the intention of the parties should be
gleaned from the language therein employed, which is conclusive in the
absence of mistake (13 C. J. 524; City of Manila vs. Rizal Park Co., 52 Phil.
515). The proposition that the intention of the writer, once ascertained,
shall prevail over the literal sense of the words employed is not absolute
and should be deemed secondary to and limited by the primary rule that,
when the text of the instrument is explicit and leaves no doubt as to its
intention, the court may not read into it any other which would contradict
its plain import. Besides, we have met with some circumstances of record
which demonstrate the unequivocal determination of the petitioner to
cancel their contract. They are: (1) the act of the petitioner in emmediately
taking possession of the lots in question and offering to resell them to
Judge M. V. del Rosario, as demonstrated by his letter marked Exhibit G,
shortly after Dcember 14, 1932; (2) his failure to demand from the
respondent the balance of the account after the mailing of the disputed
letter; and (3) the letters of January 10, 1933 (Exhibit F-2) and April 10
1935 (Exhibit G) reiterate, In clear terms, the intention to cancel first
announced by petitioner since December 14, 1932.
It is next argued that contract SJ-639, being a bilateral agreement, in the
absence of a stipulation permitting its cancellation, may not be resolved by
the mere act of the petitioner. The fact that the contracting parties herein
did not provide for resolution is now of no moment, for the reason that the
obligations arising" from the contract of sale being reciprocal, such
obligations are governed by article 1124 of the Civil Code which declares
that the power to resolve, in the event that one of the obligors should not
perform his part, is implied. (Mateos vs. Lopez, 6 Phil., 206; Cortez vs.
Bibafio & Beramo, 41 PhiL 298; Cui. vs. Sun Chan, 41 Phil., 523; Po Pauco
vs. Siguenza, 49 Phil., 404.) Upon the other hand, where, as in this case, the
petitioner cancelled the contract, advised the respondent that he has been
relieved of his obligations thereunder, and led said respondent to believe it
so and act upon such belief, the petitioner may not be allowed, in the
language of section 333 of the Code of Civil Procedure (now section 68 (a)
of Rule 123 of the New Rules of Court), in any litigation arising out of such
act, to falsify it. A party cannot, in the course of litigation or in dealings in
nais, be permitted to repudiate his representations, or occupy inconsistent
positions, or, in the letter of the Scotch law, to "approbate and reprobate."
(Bigelow on Estoppel, page 673; Toppan v. Cleveland, Co. & C. R. Co., Fed.
Cas. 14,099.)
The contract of sale, contract SJ-639, contains no provision authorizing the
vendor, in the event of failure of the vendee to continue in the payment of
the stipulated monthly installments, to retain the amounts paid to him on
account of the purchase price. The claim, therefore, of the petitioner that it
has the right to forfeit said sums in its favor is untenable. Under article 1124
of the Civil Code, however, he may choose between demanding the full-
fillment of the contract or its resolution. These remedies are alternative and
not cumulative, and the petitioner in this case, having elected to cancel the
contract, cannot avail himself of the other remedy of exacting performance:
(Osorio & Tirona vs. Bennet & Provincial Board of Cavite, 41 Phil., 301; Yap
Unki vs. Chua Jamco, 14 Phil., 602.) As a consequence of the resolution, the
parties should be restored, as far as practicable, to their original situation
(Po Pauco vs. Siguenza, supra) which can be approximated only by
ordering, as we do now, the return of the things which were the object of
the contract, with their fruits and of the price, with its interest (article 1295,
Civil Code), computed from the date of the institution of the action.
(Verceluz vs. Edafio, 46 Phil. 801.)
The writ prayed for is hereby denied, with costs against the petitioner. So
ordered.
Imperial, Diaz, Moran, and Horrilleno, JJ., concur.
XXXXXXXXXXXXXXX
[G.R. No. 47774. March 14, 1941.]
MAGDALENA ESTATE, INC., Petitioner-Appellant, v. LOUIS J.

MYRICK, Respondent-Appellee.
Felipe Ysmael and Eusebio C. Encarnacion, for Petitioner.
Andres C. Aguilar, for Respondent.
SYLLABUS
1. WRITING; INTERPRETATION. — Where the terms of a writing are clear, positive and
unambiguous, the intention of the parties should be gleaned from the language therein
employed, which is conclusive in the absence of mistake (13 C. J. 524; City of Manila v.
Rizal Park Co., 52 Phil., 515). The proposition that the intention of the writer, once
ascertained, shall prevail over the literal sense of the words employed is not absolute
and should be deemed secondary to and limited by the primary rule that, when the text
of the instrument is explicit and leaves no doubt as to its intention, the court may not
read into it any other which would contradict its plain import.
2. CONTRACTS; CANCELLATION; ESTOPPEL. — Where, as in this case, the petitioner

cancelled the contract, advised the respondent that he has been relieved of his
obligations thereunder, and led said respondent to believe it so and act upon such
belief, the petitioner may not be allowed, in the language of section 333 of the Code of
Civil Procedure (now section 68 (a) of Rule 123 of the New Rules of Court), in any
litigation arising out of such act, to falsify it. A party cannot, in the course of litigation
or in dealings in nais, be permitted to repudiate his representations, or occupy
inconsistent positions, or, in the letter of the Scotch law, to "approbate and reprobate."
(Bigelow on Estoppel, page 673; Toppan v. Cleveland, Co. & C. R. Co., Fed. Cas.
14,099.)
3. ID; ID.; ABSENCE OF FORFEITURE CLAUSE; RIGHTS OF PARTIES. — The contract of

sale, contract SJ-639, contains no provision authorizing the vendor, in the event of
failure of the vendee to continue in the payment of the stipulated monthly installments,
to retain the amounts paid to him on account of the purchase price. The claim,
therefore, of the petitioner that it has the right to forfeit said sums in its favor is
untenable. Under article 1124 of the Civil Code, however, he may choose between
demanding the fulfillment of the contract or its resolution. These remedies are
alternative and not cumulative, and the petitioner in this case, having elected to cancel
the contract, cannot avail himself of the other remedy of exacting performance. (Osorio
& Tirona v. Bennet & Provincial Board of Cavite, 41 Phil. 301; Yap Unki v. Chua Jamco,
14 Phil. 602.) As a consequence of the resolution, the parties should be restored, as far
as practicable, to their original situation (Po Pauco v. Siguenza, supra) which can be
approximated only by ordering, as we do now, the return of the things which were the
object of the contract, with their fruits and of the price, with its interest (article 1295,
Civil Code), computed from the late of the institution of the action. (Verceluz v. Edano,
46 Phil. . 801.)
DECISION
LAUREL, J.:
On January 2, 1928, the Magdalena Estate, Inc., sold to Louis J. Myrick lots Nos. 28 and
29 of Block 1, Parcel 9 of the San Juan Subdivision, San Juan, Rizal, their contract of
sale No. SJ-639 (Exhibits B and 1) providing that the price of P7,953 shall be payable in
120 equal monthly installments of P96.39 each on the 2nd day of every month
beginning the date of execution of the agreement. Simultaneously, the vendee
executed and delivered to the vendor a promissory note (Exhibits C and 2) for the
whole purchase price, wherein it was stipulated that "si cualquier pago o pagos de este
pagare quedasen en mora por mas de dos meses, entonces todos el saldo no pagado
del mismo con cualesquiera intereses que hubiese devengado, vencera y sera exigible
inmediatamente y devengara intereses al mismo tipo de 9 por ciento al ano hasta su
completo pago, y en tal caso me comprometo, ademas, a pagar al tenedor de este
pagare el 10 por ciento de la cantidad en concepto de honorarios de abogado." cralaw virtua1aw library
In pursuance of said agreement, the vendee made several monthly payments

amounting to P2,596.08, the last being on October 4, 1930, although the first
installment due and unpaid was that of May 2, 1930. By reason of this default, the
vendor, through its president, K. H. Hemady, on December 14, 1932, notified the
vendee that, in view of his inability to comply with the terms of their contract, said
agreement had been cancelled as of that date, thereby relieving him of any further
obligation thereunder, and that all amounts paid by him had been forfeited in favor of
the vendor, who assumes the absolute right over the lots in question. To this
communication, the vendee did not reply, and it appears likewise that the vendor
thereafter did not require him to make any further disbursements on account of the
purchase price.
On July 22, 1936, Louis J. Myrick, respondent herein, commenced the present action in
the Court of First Instance of Albay, praying for an entry of judgment against the
Magdalena Estate, Inc. for the sum of P2,596.08 with legal interest thereon from the
filing of the complaint until its payment, and for costs of the suit. Said defendant, the
herein petitioner, on September 7, 1936, filed his answer consisting in a general denial
and a cross complaint and counterclaim, alleging that contract SJ-639 was still in full
force and effect and that, therefore, the plaintiff should be condemned to pay the
balance plus interest and attorneys’ fees. After due trial, the Court of First Instance of
Albay, on January 31, 1939, rendered its decision ordering the defendant to pay the
plaintiff the sum of P2,596.08 with legal interest from December 14, 1932 until paid
and costs, and dismissing defendant’s counterclaim. From this judgment, the
Magdalena Estate, Inc. appealed to the Court of Appeals, where the cause was
docketed as CA-G. R. No. 5073, and which, on August 23, 1940, confirmed the decision
of the lower court, with the only modification that the payment of interest was to be
computed from the date of the filing of the complaint instead of from the date of the
calculation of the contract. A motion for reconsideration was presented, which was
denied on September 6, 1940. Hence, the present petition for a writ of certiorari.
Petitioner-appellant assigns several errors which we process to discuss in the course of

this opinion.
Petitioner holds that contract SJ-639 has not been rendered inefficacious by its letter to
the respondent, dated December 14, 1932, and submits the following propositions: (l)
That the intention of the author of a written instrument shall always prevail over the
literal sense of its wording; (2) that a bilateral contract may be resolved or cancelled
only by the prior mutual agreement of the parties, which is approved by the judgment
of the proper court; and (3) that he letter of December 14, 1932 was not assented to
by the respondent, and, therefore, cannot be deemed to have produced a cancellation,
even if it ever was intended. Petitioner contends that the letter in dispute is a mere
notification and, to this end, introduced in evidence the disposition of Mr. K. H.
Hemady, president of the Magdalena Estate, Inc., wherein he stated that the word
"cancelled" in the letter of December 14, 1932, "es un error de mi interpretacion sin
ninguna intencion de cancelar," and the testimony of Sebastian San Andres, one of its
employees, that the lots were never offered for sale after the mailing of the letter
aforementioned. Upon the other hand, the Court of Appeals, in its decision of August
23, 1940, makes the finding that "notwithstanding the deposition of K. H. Hemady,
president of the defendant corporation, to the effect that the contract was not cancelled
nor was his intention to do so when he wrote the letter of December 14, 1932, marked
Exhibit 6 and D (pp. 6-7, deposition Exhibit 1~), faith and credit cannot be given to
such testimony;n view of the clear terms of the letter which evince his unequivocal
intent to resolve the contract. His testimony is an afterthought. The intent to resolve
the contract is expressed unmistakably not only in the letter of December 14, 1932,
already referred to (Exhibit 6 and D), but is reiterated in the letters which the president
of the defendant corporation states that plaintiff ’lost his rights for the land for being
behind more than two years,’ and of April 10, 1935 (Exhibit G), where defendant’s
president makes the following statement: ’Confirming the verbal arrangement had
between you and our Mr. K. H. Hemady regarding the account of Mr. Louis J. Myrick
under contract No. SJ-639, already cancelled." ’
This conclusion of fact of the Court of Appeals is final and should not be disturbed.
(Guico v. Mayuga and Heirs of Mayuga, 63 Phil., 328; Mamuyac v. Abena, XXXVIII Off.
Gaz. 84.) Where the terms of a writing are clear, positive and unambiguous, the
intention of the parties should be gleaned from the language therein employed, which is
conclusive in the absence of mistake (13 C J. 624; City of Manila v. Rizal Park Co., 52
Phil. 515). The proposition that the intention of the writer, once ascertained, shall
prevail over the literal sense of the words employed is not absolute and should be
deemed secondary to and limited by the primary rule that, when the text of the
instrument is explicit and leaves no doubt as to its intention, the court may not read
into it any other which would contradict its plain import. Besides, we have met with
some circumstances of record which demonstrate the unequivocal determination of the
petitioner to cancel their contract. They are: (1) the act of the petitioner in
emmediately taking possession of the lots in question and offering to resell them to
Judge M. V. del Rosario, as demonstrated by his letter marked Exhibit G, shortly after
December 14, 1932; (2) his failure to demand from the respondent the balance of the
account after the mailing of the disputed letter; and (3) the letters of January 10. 1933.
(Exhibit F-2) and April 10 1935 (Exhibit G) reiterate, in clear terms, the intention to
cancel first announced by petitioner since December 14, 1932.
It is next argued that contract SJ-639, being a bilateral agreement, in the absence of a
stipulation permitting its cancellation, may not be resolved by the mere act of the
petitioner The fact that the contracting parties herein did not provide for resolution is
now of no moment, for the reason that the obligations arising from the contract of sale
being reciprocal, such obligations are governed by article 1124 of the Civil Code which
declares that the power to resole, in the event that one of the obligors should not
perform his part, is implied. (Mateos v. Lopez, 6 Phil., 206 Cortez v. Bibano & Beramo,
41 Phil. 298; Cui. v. Sun Chan, 41 Phil., 523; Po Pauco v. Siguenza, 49 Phil., 404.)
Upon the other hand, where, as in this case, the petitioner cancelled the contract,
advised the respondent that he has relieved of his obligations thereunder, and led said
respondent to believe it so and act upon such belief, the ,petitioner may not be allowed,
in the language of section 333 of the Code of Civil Procedure (now section 68 (a) of
Rule 123 of the New Rules of Court), in any litigation arising out of such act, to falsify
it. A party cannot, in the course of litigation or in dealings in nais, be permitted to
repudiate his representations, or occupy inconsistent positions, or, in the letter of the
Scotch law, to "approbate and reprobate." (Bigelow on Estoppel, page 673; Toppan
Cleveland, Co. & C. R. Co., Fed. Cas. 14,099.)
The contract of sale, contract SJ-639, contains no provision authorizing the vendor, in
the event of failure of the vendee to continue in the payment of the stipulated monthly
installments, to retain the amounts paid to him on account of the purchase price. The
claim, therefore, of the petitioner that it has the right to forfeit said sums in its favor is
untenable. Under article 1124 of the Civil Code however, he may choose between
demanding the fulfillment of the contract or its resolution. These remedies are
alternative and not cumulative, and the petitioner in this case, having elected to cancel
the contract, cannot avail himself of the other remedy of exacting performance: (Osorio
& Tirona v. Bennet & Provincial Board of Cavite, 41 Phil., 301; Yap Unki v. Chua Jamco,
14 Phil., 602.) As a consequence of the resolution, the parties should be restored, as
far as practicable, to their original situation (Po Pauco v. Siguenza, supra) which can be
approximated only by ordering, as we do now, the return of the things which were the
object of the contract, with their fruits and of the price, with its interest (article 1295,
Civil Code), computed from the date of the institution of the action. (Verceluz v. Edano,
46 Phil. 801.)
The writ prayed for is hereby denied, with costs against the petitioner. So ordered.
Imperial, Diaz, Moran and Horrilleno, JJ., concur.

XXXXXXX
FIRST DIVISION
[G.R. No. 428. April 30, 1902. ]
JOSE ZULUETA, Plaintiff-Appellee, v. FRANCISCA ZULUETA, Defendant-

Appellant.
Aylett R. Cotton, for Appellant.
Francisco Ortigas, for Appellee.
SYLLABUS
1. STATUTORY CONSTRUCTION; RELIEF FROM MISTAKE. — Act No. 75, granting relief
from judgments obtained by mistake, applies to mistakes of fact and not to mistakes of
law committed by the trial court.
2. CIVIL PROCEDURE (OLD); PRESCRIPTION. — Where the court is given power to fix a
definite time within which a certain action must be commenced the petition of one of
the parties to extend that time until the adoption of a proposed new procedure is
without merit and should be denied.
DECISION
LADD, J. :
Don Jose Zulueta and his sister, Doña Francisca Zulueta, are sole heirs under the will of
their father, Don Clementa Zulueta, who died in Iloilo in 1900. In the course of the
voluntary testamentary proceedings instituted in the Court of First Instance of Iloilo by
Don Jose, three auditors were appointed to make a division of the estate under article
1053 of the Ley de Enjuiciamiento Civil, of whom Don Jose and Doña Francisca each
nominated one, the third or auditor umpire being chosen by common accord of the
parties. The two auditors nominated by the parties respectively failed to agree, and
each rendered a separate report. The auditor umpire, whose report was filed March 29,
1901, agreed with and accepted in its entirety the report of the auditor nominated by
Don Jose. The procedure marked out in articles 1062 and 1067 of the Ley de
Enjuiciamiento Civil was then followed, and upon the application of Doña Francisca the
record was on April 13 delivered to her for examination. April 25 she filed her
opposition to the report of the auditor umpire, and a meeting of the interested parties
having been had, as provided in article 1069 of the Ley de Enjuiciamiento Civil, and no
agreement having been reached, the court, by a providencia of May 4, directed that the
procedure prescribed for declarative actions be followed, and that the record be again
delivered to Doña Francisca in order that she might formulate her demand in
accordance with article 1071 of the Ley de Enjuiciamiento Civil. On petition of Don Jose
the court by a providencia of May 7 fixed the term of fifteen days as that within which
Doña Francisca should formulate her demand, which term was subsequently enlarged
seven days on petition of Doña Francisca. June 5 Doña Francisca petitioned the court,
stating that the new Code of Procedure enacted by the Civil Commission was soon to
become operative, and that she deemed it more advantageous to her rights that the
declarative action which she had to bring should be governed by the new Code rather
than that then in force, and asking that proceedings in the action should be suspended
till the new Code went into effect. This petition the court denied in an auto rendered
June 15, declaring, furthermore, that the term fixed for the filing of the demand having
expired, Doña Francisca had lost her right to institute the action. June 22 Doña
Francisca petitioned for the reform of this auto. On the same day this petition was
denied in an auto rendered by Don Cirilo Mapa, a justice of the peace of the city of
Iloilo, who had been designated, as would appear from the record, by the judge of the
then recently constituted Ninth Judicial District to preside in the Court of First Instance
of the Province of Iloilo during the illness of the latter. The denial of this petition was
put on the ground that the auto of June 15 was not one against which the remedy of
reform was available, but that the remedy was by way of appeal under article 365 of
the Ley de Enjuiciamiento Civil. On June 29 Doña Francisca interposed an appeal
against the auto of June 22, which the court, now presided over by the regular judge of
first instance of the district, declined to admit, on the ground that it was not presented
within three days, as prescribed in article 363 of the Ley de Enjuiciamiento Civil.
Thereupon, upon petition of Don Jose the partition proceedings were approved by the
court by an auto of July 16 from which Doña Francisca took the present appeal.
While the appeal was pending in this court Doña Francisca presented a petition under
Act No. 75 of the Civil Commission, alleging that the auto of June 22 was rendered
through a mistake of the acting judge of first instance, who erroneously believed that
he had jurisdiction to render the same; that Doña Francisca was prevented from
entering an appeal from that auto by her mistake as to the term prescribed by the Ley
de Enjuiciamiento Civil for entering appeals in such cases; and finally that the auto of
July 16 approving the partition proceedings was rendered by a mistake of the judge,
who erroneously believed that the auto of June 22 was valid, whereas it and all
subsequent proceedings were absolutely void; and asking that the auto of June 22, the
providencia denying the admission of the appeal, and the auto of July 16 be set aside
and the proceedings restored to the condition in which they were previous to June 22,
when the first mistake was made. Upon this petition a hearing has been had, and we
have also heard arguments upon the appeal.
Taking up the petition first, we do not find it necessary to decide whether the acting
judge of first instance by whom the auto of June 22 was rendered had such de facto
authority that legal validity will be accorded to his acts. Assuming that he was without
jurisdiction to render the auto, we are of opinion that Doña Francisca can not take
advantage of the error in such a proceeding as the present. Act No. 75 provides a
remedy "against judgments obtained in Courts of First Instance by fraud, accident, or
mistake," but although the language of the law is somewhat broad, the general scope
and purpose of the enactment indicate too clearly to require argument that the mistake
against which relief is provided can not be a mistake into which the court may have
fallen in the findings of fact or conclusions of law upon which its judgment is based. If
such were the effect of the enactment, every case in which a party felt himself
aggrieved by the judgment of the court below could be brought to this court for revision
in this way, and the ordinary remedy by appeal or otherwise would be thus entirely
superseded by the more summary proceeding therein provided. "The meaning of the
word ’mistake’ as used in the statute does not extend — nor was it intended that it
should — to an error of law which may have been committed by the judge in the trial in
question. Such errors may be corrected by appeal. The statute under consideration can
by no means be employed as a substitute for that remedy." (Jose Emeterio Guevara v.
Tuason & Company, decided October 7, 1901, p. 27, supra.) The result is that we can
not set aside the auto of June 22 on this petition, and that of July 16 stands upon
precisely the same footing, the allegation being that auto also was rendered under a
mistake of law on the part of the judge.
The remaining question upon the petition is whether Doña Francisca is entitled to relief
against the consequences of her failure to interpose her appeal against the auto of June
22 within the period fixed by the law. The mistake in this instance was her own, but it
was a mistake of law, and while we should be unwilling to say that special cases might
not occur in which relief would be afforded in such a proceeding as this against a
mistake of law made by a party, we are of opinion that the present is not such a case.
Nothing is shown here except the bare fact that the party acted under ignorance or
misconception of the provisions of the law in regard to the time within which the appeal
could be taken, and there is no reason why the general principle, a principle "founded
not only on expediency and policy but on necessity," that "ignorance of the law does
not excuse from compliance therewith" (Civil Code, art. 2), should be relaxed. The
framers of Act No. 75 could not have intended to totally abrogate this principle with
reference to the class of CASEs covered by the act. If such were the effect of this
legislation the court "would be involved and perplexed with questions incapable of any
just solution and embarrassed by inquiries almost interminable." cralaw virtua1aw library
Act No. 75 was framed for the purpose of preventing injustice, and although the legal
construction to be placed upon its provisions can not of course be affected by any
considerations as to the hardships of the particular CASE in which it is invoked, it is
proper to say that if the question determined in the auto of June 15, which is that
against the consequences of which the petitioner seeks ultimately to be relieved, were
to be decided upon its merits, that auto would necessarily be sustained, so that the
petitioner has in fact suffered no hardship or injustice by reason of the auto having
been left in effect as a result of the mistakes which she claims to have vitiated the
subsequent proceedings.
The petition for the suspension of the declarative action till the new Code went into
effect was totally without merit. No reason was alleged in the petition itself why the
suspension should be granted other than the mere convenience of the party, and none
has been suggested on the argument. The petition could not in any possible view that
occurs to us have been granted. With reference to the declaration in the auto that the
plaintiff had lost her right to file her demand in the declarative action, it may be said
that this declaration followed as a necessary consequence from the providencia of May
7, fixing the time within which the demand must be formulated, and the subsequent
providencia enlarging the period, from neither of which providencias had any appeal or
other remedy been attempted by Doña Francisca. But going back to what may be called
the fundamental question of the right of the court to fix a definite term within which the
declarative action must be instituted, we are of opinion that such right clearly existed,
and that the providencia of May 7 was in exact conformity with the procedure
prescribed by article 1971 of the Ley de Enjuiciamiento Civil. It might be claimed with
much reason that if the parties interested in the partition of the estate failed to agree
on that made by the auditor, either should be allowed to institute a declarative action
against the other for the purpose of setting the dispute within such time as he might
think proper, the property remaining in the meantime undivided, were it not that the
law in language of unmistakable import prescribes a different rule of procedure. Article
1071 of the Ley de Enjuiciamiento Civil is as follows: "If no agreement is had, the
procedure prescribed for declarative actions, according to the amount involved, shall be
followed, and the delivery of the papers shall be first made to the parties who first
requested delivery to them of the partition report as provided in article 1067." Article
1067 is as follows: "If the interested parties, or any of them, request, within eight days,
that the record of the proceedings and the report on partition be delivered to them for
examination, the judge shall order said delivery for a period of fifteen days to each
person making such request." The law does not treat the partition proceedings as
terminated by the failure of the parties to agree, but provides that "the case" shall in
that event "be given the procedure of the declarative action" and goes on to designate
the party who is to take the initiative in the pleadings, a provision utterly irreconcilable
with the idea that it is optional for either party to commence the proceeding at his
pleasure. And it then proceeds by reference to article 1067 to fix the time within which
the proceeding is to be instituted. The petitioner had the benefit of that period and was
accorded besides an extension of seven days, and has consequently had all the rights
to which she was strictly entitled under the law and something more. She has, we
think, no just ground to complain that she has been deprived of any substantial right
either by her own mistake or that of the court below, in any possible view in which the
facts of the case maybe regarded.
What has been said with reference to the petition disposes also of the question involved
in the appeal. If Doña Francisca had, as we think must be the case, lost her right to
institute the declarative action, there was no other course for the court to take except
to approve the partition proceedings, unless there was some defect which vitiated
them, and none has been pointed out. it was suggested in the argument that the report
of the auditor umpire was of prior date to that of the auditor nominated by Don Jose,
and it was claimed that this rendered the proceedings defective. An examination of the
record shows that the report of the auditor nominated by Don Jose was dated March 24
and filed March 29, and that that of the auditor umpire was dated March 28 and filed
March 29. The contention of counsel on this point is therefore not supported by the
facts.
The result is that the petition must be denied and the judgment appealed from
affirmed, with costs to the appealing party both as to the petition and the appeal. So
ordered.
Arellano, C.J., Torres, Cooper and Willard, JJ., concur.
Mapa, J., did not sit in this case.

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
[G.R. No. L-56076. September 21, 1983.]
PALAY, INC. and ALBERT ONSTOTT, Petitioner, v. JACOBO C. CLAVE,

Presidential Executive Assistant, NATIONAL HOUSING AUTHORITY and
NAZARIO DUMPIT, Respondents.
Santos, Calcetas-Santos & Geronimo Law Office for Petitioner.
Wilfredo E. Dizon for Private Respondent.
SYLLABUS
1. CIVIL LAW; CONTRACTS; WRITTEN NOTICE STILL REQUIRED THOUGH JUDICIAL

ACTION NOT NECESSARY FOR RESCISSION. — Well settled is the rule, as held in
previous jurisprudence Torralba v. de Los Angeles, 96 SCRA 69) that judicial action for
the rescission of a contract is not necessary where the contract provides that it may be
revoked and canceled for violation of any of its terms and conditions. However, even in
the cited case, there was at least a written notice sent to the defaulter informing him of
the rescission. As stressed in University of the Philippines v. Walfrido de los Angeles, 33
SCRA 102 (1970) the act of a party in treating a contract as cancelled should be made
known to the other.
2. ID.; ID.; EXTRAJUDICIAL RESCISSION; EFFECTIVE IF NOT OPPOSED. — A

stipulation entitling one party to take possession of the land and building if the other
party violates the contract does not ex proprio vigore confer upon the former the right
to take possession thereof if objected to without judicial intervention and determination
(Nera v. Vacante, 3 SCRA 505 (1961]). This was reiterated in Zulueta v. Mariano (111
SCRA 206 [1982]) where we held that extrajudicial rescission has legal effect where the
other party does not oppose it (Tolentino, Civil Code of the Philippines, Vol. IV, 1962
ed., p. 168, citing Magdalena Estate v. Myrick, 71 Phil. 344). In other words, resolution
of reciprocal contracts may be made extrajudicially unless successfully impugned in
Court. If the debtor impugns the declaration, it shall be subject to judicial determination
(UP v. de los Angeles, supra).
3. ID.; ID.; ID.; WAIVER OF RIGHT TO BE NOTIFIED; VALID ONLY WHERE LIBERTY OF
CHOICE FULLY ACCORDED. — The indispensability of notice of cancellation to the buyer
was to be later underscored in Republic Act No. 6551 entitled "An Act to Provide
Protection to Buyers of Real Estate on Installment Payments" which took effect on
September 14, 1972. The contention that private respondent had waived his right to be
notified under paragraph 6 of the contract is neither meritorious because it was a
contract of adhesion, a standard form of petitioner corporation, and private respondent
had no freedom to stipulate. A waiver must be certain and unequivocal, and
intelligently made; such waiver follows only where liberty of choice has been fully
accorded (Chavez v. Court of Appeals, 24 SCRA 663, 682-683(1968]). Moreover, it is a
matter of public policy to protect buyers of real estate on installment payments against
onerous and oppressive conditions. Waiver of notice is one such onerous and
oppressive condition to buyers of real estate on installment payments.
4. ID.; ID.; ID.; RIGHT ACCORDED DEFAULTER. — As a consequence of the resolution

by petitioners, tights to the lot should be restored to private respondent or the same
should be replaced by another acceptable lot. However, considering that the property
had already been sold to a third person and there is no evidence on record that other
lots are still available, private respondent is entitled to the refund of installments paid
plus interest at the legal rate of 12% computed from the date of the institution of the
action. (Vercelus v. Edano, 46 Phil. 801 [1924]). It would be most inequitable if
petitioners were to be allowed to retain private respondent’s payments and at the same
time appropriate the proceeds of the second sale to another.
5. CORPORATION LAW; CORPORATION; SEPARATE AND DISTINCT PERSONALITY;

PIERCING OF CORPORATE FICTION. — It is basic that a corporation is invested by law
with a personality separate and distinct from those of the persons composing it as well
as from that of any other legal entity to which it may be related (Yutivo Sons Hardware
Co. v. Court of Tax Appeals, 1 SCRA 160 [1961]). As a general rule, a corporation may
not be made to answer for acts or liabilities of its stockholders or those of the legal
entities to which it may be connected and vice versa. However, the veil of corporate
fiction may be pierced when it is used as a shield to further an end subversive of justice
(Emilio Cano Enterprises, Inc. v. CIR, 13 SCRA 290 [1965]); or for purposes that could
not have been intended by the law that created it (McConnel v. CA, 1 SCRA 722, 726
[1961]); or to defeat public convenience, justify wrong, protect fraud, or defend crime
(Yutivo Sons Hardware Co. v. CTA, supra; McConnel v. CA, supra); or to perpetuate
fraud or confuse legitimate issues (R.F. Sugay & Co., Inc. v. Reyes, 12 SCRA 700
[1964]) or to circumvent the law or perpetuate deception; (Gregorio Araneta, Inc. v.
De Paterno & Vidal, 91 Phil. 786 [1952]) or as an alter ego, adjunct or business conduit
for the sole benefit of the stockholders (McConnel v. CA, supra; Commissioner of
Internal Revenue v. Norton Harrison Co., 120 Phil. 684 [1964]).
6. ID.; ID.; ID.; MERE OWNERSHIP OF ALL CAPITAL STOCK; NOT GROUND FOR
DISREGARDING CORPORATE PERSONALITY. — In this case, petitioner Onstott was
made liable because he was then the President of the corporation and he appeared to
be the controlling stockholder. No sufficient proof exists on record that said petitioner
used the corporation to defraud private Respondent. He cannot, therefore, be made
personally liable just because he "appears to be the controlling stockholder." Mere
ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground for disregarding the
separate corporate personality (Liddel & Co. v. Collector of Internal Revenue, 2 SCRA
632, 640 [1961]).
DECISION
MELENCIO-HERRERA, J.:
The Resolution, dated May 2, 1980, issued by Presidential Executive Assistant Jacobo
Clave in O.P. Case No. 1459, directing petitioners Palay, Inc. and Alberto Onstott,
jointly and severally, to refund to private respondent, Nazario Dumpit, the amount of
P13,722.50 with 12% interest per annum, as resolved by the National Housing
Authority in its Resolution of July 10, 1979 in Case No. 2167, as well as the Resolution
of October 28, 1980 denying petitioners’ Motion for Reconsideration of said Resolution
of May 2, 1980, are being assailed in this petition.chanrobles law library
On March 28, 1965, petitioner Palay, Inc., through its President, Albert Onstott,
executed in favor of private respondent, Nazario Dumpit, a Contract to Sell a parcel of
Land (Lot No. 8, Block IV) of the Crestview Heights Subdivision in Antipolo, Rizal, with
an area of 1,165 square meters, covered by TCT No. 90454, and owned by said
corporation. The sale price was P23,300.00 with 9% interest per annum, payable with a
downpayment of P4,660.00 and monthly installments of P246.42 until fully paid.
Paragraph 6 of the contract provided for automatic extrajudicial rescission upon default
in payment of any monthly installment after the lapse of 90 days from the expiration of
the grace period of one month, without need of notice and with forfeiture of all
installments paid.
Respondent Dumpit paid the downpayment and several installments amounting to

P13,722.50. The last payment was made on December 5, 1967 for installments up to
September 1967.
On May 10, 1973, or almost six (6) years later, private respondent wrote petitioner
offering to update all his overdue accounts with interest, and seeking its written
consent to the assignment of his rights to a certain Lourdes Dizon. He followed this up
with another letter dated June 20, 1973 reiterating the same request. Replying,
petitioners informed respondent that his Contract to Sell had long been rescinded
pursuant to paragraph 6 of the contract, and that the lot had already been resold.
Questioning the validity of the rescission of the contract, respondent filed a letter
complaint with the National Housing Authority (NHA) for reconveyance with an
alternative prayer for refund (Case No. 2167). In a Resolution, dated July 10, 1979, the
NHA, finding the rescission void in the absence of either judicial or notarial demand,
ordered Palay, Inc. and Alberto Onstott, in his capacity as President of the corporation,
jointly and severally, to refund immediately to Nazario Dumpit the amount of
P13,722.50 with 12% interest from the filing of the complaint on November 8, 1974.
Petitioners’ Motion for Reconsideration of said Resolution was denied by the NHA in its
Order dated October 23, 1979. 1
On appeal to the Office of the President, upon the allegation that the NHA Resolution
was contrary to law (O.P. Case No. 1459), respondent Presidential Executive Assistant,
on May 2, 1980, affirmed the Resolution of the NHA. Reconsideration sought by
petitioners was denied for lack of merit. Thus, the present petition wherein the
following issues are raised: chanrobles.com:cralaw:red
"Whether notice or demand is not mandatory under the circumstances and, therefore,
may be dispensed with by stipulation in a contract to sell.
II
Whether petitioners may be held liable for the refund of the installment payments made
by respondent Nazario M. Dumpit.
III
Whether the doctrine of piercing the veil of corporate fiction has application to the case
at bar.
IV
"Whether respondent Presidential Executive Assistant committed grave abuse of

discretion in upholding the decision of respondent NHA holding petitioners solidarily
liable for the refund of the installment payments made by respondent Nazario M.
Dumpit thereby denying substantial justice to the petitioners, particularly petitioner
Onstott."cralaw virtua1aw library
We issued a Temporary Restraining Order on February 11, 1981 enjoining the

enforcement of the questioned Resolutions and of the Writ of Execution that had been
issued on December 2, 1980. On October 28, 1981, we dismissed the petition but upon
petitioners’ motion, reconsidered the dismissal and gave due course to the petition on
March 15, 1982.
On the first issue, petitioners maintain that it was justified in cancelling the contract to
sell without prior notice or demand upon respondent in view of paragraph 6 thereof
which provides: jgc:chanrobles.com.ph
"6. That in case the BUYER fails to satisfy any monthly installment, or any other
payments herein agreed upon, the BUYER shall be granted a month of grace within
which to make the payment of the account in arrears together with the one
corresponding to the said month of grace. It shall be understood, however, that should
the month of grace herein granted to the BUYER expire, without the payments
corresponding to both months having been satisfied, an interest of ten (10%) per cent
per annum shall be charged on the amounts the BUYER should have paid; it is
understood further, that should a period of NINETY (90) DAYS elapse to begin from the
expiration of the month of grace hereinbefore mentioned, and the BUYER shall not have
paid all the amounts that the BUYER should have paid with the corresponding interest
up to the date, the SELLER shall have the right to declare this contract cancelled and of
no effect without notice, and as a consequence thereof, the SELLER may dispose of the
lot/lots covered by this Contract in favor of other persons, as if this contract had never
been entered into. In case of such cancellation of this Contract, all the amounts which
may have been paid by the BUYER in accordance with the agreement, together with all
the improvements made on the premises, shall be considered as rents paid for the use
and occupation of the above mentioned premises and for liquidated damages suffered
by virtue of the failure of the BUYER to fulfill his part of this agreement: and the BUYER
hereby renounces his right to demand or reclaim the return of the same and further
obligates himself peacefully to vacate the premises and deliver the same to the
SELLER." cralaw virtua1aw library
Well settled is the rule, as held in previous jurisprudence, 2 that judicial action for the
rescission of a contract is not necessary where the contract provides that it may be
revoked and cancelled for violation of any of its terms and conditions. However, even in
the cited cases, there was at least a written notice sent to the defaulter informing him
of the rescission. As stressed in University of the Philippines v. Walfrido de los Angeles
3 the act of a party in treating a contract as cancelled should be made known to the
other. We quote the pertinent excerpt: chanrobles law library : red
"Of course, it must be understood that the act of a party in treating a contract as
cancelled or resolved in account of infractions by the other contracting party must be
made known to the other and is always provisional being ever subject to scrutiny and
review by the proper court. If the other party denies that rescission is justified it is free
to resort to judicial action in its own behalf, and bring the matter to court. Then, should
the court, after due hearing, decide that the resolution of the contract was not
warranted, the responsible party will be sentenced to damages; in the contrary case,
the resolution will be affirmed, and the consequent indemnity awarded to the party
prejudiced.
In other words, the party who deems the contract violated may consider it resolved or
rescinded, and act accordingly, without previous court action, but it proceeds at its own
risk. For it is only the final judgment of the corresponding court that will conclusively
and finally settle whether the action taken was or was not correct in law. But the law
definitely does not require that the contracting party who believes itself injured must
first file suit and wait for a judgment before taking extrajudicial steps to protect its
interest. Otherwise, the party injured by the other’s breach will have to passively sit
and watch its damages accumulate during the pendency of the suit until the final
judgment of rescission is rendered when the law itself requires that he should exercise
due diligence to minimize its own damages (Civil Code, Article 2203).
We see no conflict between this ruling and the previous jurisprudence of this Court
invoked by respondent declaring that judicial action is necessary for the resolution of a
reciprocal obligation (Ocejo, Perez & Co., v. International Banking Corp., 37 Phil. 631;
Republic v. Hospital de San Juan De Dios, Et Al., 84 Phil 820) since in every case where
the extrajudicial resolution is contested only the final award of the court of competent
jurisdiction can conclusively settle whether the resolution was proper or not. It is in this
sense that judicial action will be necessary, as without it, the extrajudicial resolution will
remain contestable and subject to judicial invalidation unless attack thereon should
become barred by acquiescense, estoppel or prescription.
Fears have been expressed that a stipulation providing for a unilateral rescission in case
of breach of contract may render nugatory the general rule requiring judicial action (v.
Footnote, Padilla, Civil Law, Civil Code Anno., 1967 ed. Vol. IV, page 140) but, as
already observed, in case of abuse or error by the rescinder, the other party is not
barred from questioning in court such abuse or error, the practical effect of the
stipulation being merely to transfer to the defaulter the initiative of instituting suit,
instead of the rescinder." (Emphasis ours).
Of similar import is the ruling in Nera v. Vacante 4 , reading: jgc:chanrobles.com.ph
"A stipulation entitling one party to take possession of the land and building if the other
party violates the contract does not ex proprio vigore confer upon the former the right
to take possession thereof if objected to without judicial intervention and
determination." cralaw virtua1aw library
This was reiterated in Zulueta v. Mariano 5 where we held that extrajudicial rescission
has legal effect where the other party does not oppose it. 6 Where it is objected to, a
judicial determination of the issue is still necessary.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph
In other words, resolution of reciprocal contracts may be made extrajudicially unless

successfully impugned in Court. If the debtor impugns the declaration, it shall be
subject to judicial determination. 7
In this case, private respondent has denied that rescission is justified and has resorted
to judicial action. It is now for the Court to determine whether resolution of the contract
by petitioners was warranted.
We hold that resolution by petitioners of the contract was ineffective and inoperative
against private respondent for lack of notice of resolution, as held in the U.P. v. Angeles
case, supra.
Petitioner relies on Torralba v. De los Angeles 8 where it was held that "there was no
contract to rescind in court because from the moment the petitioner defaulted in the
timely payment of the installments, the contract between the parties was deemed ipso
facto rescinded." However, it should be noted that even in that case notice in writing
was made to the vendee of the cancellation and annulment of the contract although the
contract entitled the seller to immediate repossessing of the land upon default by the
buyer.
The indispensability of notice of cancellation to the buyer was to be later underscored in

Republic Act No. 6551 entitled "An Act to Provide Protection to Buyers of Real Estate on
Installment Payments." which took effect on September 14, 1972, when it specifically
provided: jgc:chanrobles.com.ph
"Sec. 3(b) . . . the actual cancellation of the contract shall take place after thirty days
from receipt by the buyer of the notice of cancellation or the demand for rescission of
the contract by a notarial act and upon full payment of the cash surrender value to the
buyer." (Emphasis supplied).
The contention that private respondent had waived his right to be notified under
paragraph 6 of the contract is neither meritorious because it was a contract of
adhesion, a standard form of petitioner corporation, and private respondent had no
freedom to stipulate. A waiver must be certain and unequivocal, and intelligently made;
such waiver follows only where liberty of choice has been fully accorded. 9 Moreover, it
is a matter of public policy to protect buyers of real estate on installment payments
against onerous and oppressive conditions. Waiver of notice is one such onerous and
oppressive condition to buyers of real estate on installment payments.
Regarding the second issue on refund of the installment payments made by

private Respondent. Article 1385 of the Civil Code provides: jgc:chanrobles.com.ph
"ART. 1385. Rescission creates the obligation to return the things which were the object
of the contract, together with their fruits, and the price with its interest; consequently,
it can be carried out only when he who demands rescission can return whatever he may
be obliged to restore.
"Neither shall rescission take place when the things which are the object of the contract
are legally in the possession of third persons who did not act in bad faith.
"In this case, indemnity for damages may be demanded from the person causing the
loss."
As a consequence of the resolution by petitioners, rights to the lot should be restored to

private respondent or the same should be replaced by another acceptable lot. However,
considering that the property had already been sold to a third person and there is no
evidence on record that other lots are still available, private respondent is entitled to
the refund of installments paid plus interest at the legal rate of 12% computed from the
date of the institution of the action. 10 It would be most inequitable if petitioners were
to be allowed to retain private respondent’s payments and at the same time
appropriate the proceeds of the second sale to another. chanrobles virtual lawlibrary
We come now to the third and fourth issues regarding the personal liability of petitioner
Onstott, who was made jointly and severally liable with petitioner corporation for refund
to private respondent of the total amount the latter had paid to petitioner company. It
is basic that a corporation is invested by law with a personality separate and distinct
from those of the persons composing it as well as from that of any other legal entity to
which it may be related. 11 As a general rule, a corporation may not be made to
answer for acts or liabilities of its stockholders or those of the legal entities to which it
may be connected and vice versa. However, the veil of corporate fiction may be pierced
when it is used as a shield to further an end subversive of justice 12; or for purposes
that could not have been intended by the law that created it 13; or to defeat public
convenience, justify wrong, protect fraud, or defend crime 14; or to perpetuate fraud or
confuse legitimate issues; 15 or to circumvent the law or perpetuate deception; 16 or
as an alter ego, adjunct or business conduit for the sole benefit of the stockholders. 17
We find no badges of fraud on petitioners part. They had literally relied, albeit
mistakenly, on paragraph 6 (supra) of its contract with private respondent when it
rescinded the contract to sell extrajudicially and had sold it to a third person.
In this case, petitioner Onstott was made liable because he was then the President of
the corporation and he appeared to be the controlling stockholder. No sufficient proof
exists on record that said petitioner used the corporation to defraud
private Respondent. He cannot, therefore, be made personally liable just because he
"appears to be the controlling stockholder." Mere ownership by a single stockholder or
by another corporation of all or nearly all of the capital stock of a corporation is not of
itself sufficient ground for disregarding the separate corporate personality. 18 In this
respect then, a modification of the Resolution under review is called for.
WHEREFORE, the questioned Resolution of respondent public official, dated May 2,

1980, is hereby modified. Petitioner Palay, Inc. is directed to refund to respondent
Nazario M. Dumpit the amount of P13,722.50, with interest at twelve (12%) percent
per annum from November 8, 1974, the date of the filing of the Complaint. The
temporary Restraining Order heretofore issued is hereby lifted.
No costs.
SO ORDERED.
Plana, Relova and Gutierrez, Jr., JJ., concur.
Teehankee, J., concurs in the result.
Endnotes:
1. pp. 103-104, Rollo.
2. Torralba v. De los Angeles, 96 SCRA 69; Luzon Brokerage Co., Inc. v. Maritime
Building Co., 43 SCRA 93 and 86 SCRA 305; Lopez v. Commissioner of Customs, 37
SCRA 327; U.P. v. De los Angeles, 35 SCRA 102; Ponce Enrile v. CA, 29 SCRA 504;
Froilan v. Pan Oriental Shipping Co., 12 SCRA 276; Taylor v. Uy Tieng Piao, 43 Phil.
873.
3. 35 SCRA 102 (1970).
4. 3 SCRA 505 (1961).
5. 111 SCRA 206 (1982).
6. Tolentino, Civil Code of the Philippines, Vol. IV, 1962 ed., p. 168, citing Magdalena
Estate v. Myrick, 71 Phil. 344 (1941).
7. U.P. v. De los Angeles, supra.
8. 96 SCRA 69 (1980).
9. Chavez v. Court of Appeals, 24 SCRA 663, 682-683 (1968).
10. Verceluz v. Edano. 46 Phil. 801 (1924).
11. Yutivo Sons Hardware Co. v. Court of Tax Appeals, 1 SCRA 160 (1961).
12. Emilio Cano Enterprises, Inc. v. CIR, 13 SCRA 290 (1965).
13. McConnel v. CA, 1 SCRA 722, 726 (1961).
14. Yutivo Sons Hardware Co. v. CTA, supra; McConnel v. CA, supra.
15. R. F. Sugay & Co., Inc. v. Reyes, 12 SCRA 700 (1964).
16. Gregorio Araneta, Inc. v. De Paterno & Vidal, 91 Phil. 786 (1952).
17. McConnel v. CA, supra, Commissioner of Internal Revenue v. Norton Harrison Co.,
120 Phil. 684 (1964).
18. Liddel & Co. v. Collector of Internal Revenue, 2 SCRA 632, 640 (1961).
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
BREACH OF CONTRACT
G.R. No. 159617 August 8, 2007
ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC., petitioners,

vs.
LULU V. JORGE and CESAR JORGE, respondents.
DECISION
Before us is a Petition for Review on Certiorari filed by Roberto C. Sicam, Jr. (petitioner Sicam)
and Agencia de R.C. Sicam, Inc. (petitioner corporation) seeking to annul the Decision 1 of the Court
of Appeals dated March 31, 2003, and its Resolution 2 dated August 8, 2003, in CA G.R. CV No.
56633.
It appears that on different dates from September to October 1987, Lulu V. Jorge (respondent Lulu)
pawned several pieces of jewelry with Agencia de R. C. Sicam located at No. 17 Aguirre Ave., BF
Homes Parañaque, Metro Manila, to secure a loan in the total amount of P59,500.00.
On October 19, 1987, two armed men entered the pawnshop and took away whatever cash and
jewelry were found inside the pawnshop vault. The incident was entered in the police blotter of the
Southern Police District, Parañaque Police Station as follows:
Investigation shows that at above TDPO, while victims were inside the office, two (2) male
unidentified persons entered into the said office with guns drawn. Suspects(sic) (1) went
straight inside and poked his gun toward Romeo Sicam and thereby tied him with an electric
wire while suspects (sic) (2) poked his gun toward Divina Mata and Isabelita Rodriguez and
ordered them to lay (sic) face flat on the floor. Suspects asked forcibly the case and assorted
pawned jewelries items mentioned above.
Suspects after taking the money and jewelries fled on board a Marson Toyota unidentified
plate number.3
Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing her of the loss of
her jewelry due to the robbery incident in the pawnshop. On November 2, 1987, respondent Lulu
then wrote a letter4 to petitioner Sicam expressing disbelief stating that when the robbery happened,
all jewelry pawned were deposited with Far East Bank near the pawnshop since it had been the
practice that before they could withdraw, advance notice must be given to the pawnshop so it could
withdraw the jewelry from the bank. Respondent Lulu then requested petitioner Sicam to prepare the
pawned jewelry for withdrawal on November 6, 1987 but petitioner Sicam failed to return the jewelry.
On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a complaint
against petitioner Sicam with the Regional Trial Court of Makati seeking indemnification for the loss
of pawned jewelry and payment of actual, moral and exemplary damages as well as attorney's fees.
The case was docketed as Civil Case No. 88-2035.
Petitioner Sicam filed his Answer contending that he is not the real party-in-interest as the pawnshop
was incorporated on April 20, 1987 and known as Agencia de R.C. Sicam, Inc; that petitioner
corporation had exercised due care and diligence in the safekeeping of the articles pledged with it
and could not be made liable for an event that is fortuitous.
Respondents subsequently filed an Amended Complaint to include petitioner corporation.
Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is concerned considering that he
is not the real party-in-interest. Respondents opposed the same. The RTC denied the motion in an
Order dated November 8, 1989.5
After trial on the merits, the RTC rendered its Decision6 dated January 12, 1993, dismissing
respondents’ complaint as well as petitioners’ counterclaim. The RTC held that petitioner Sicam
could not be made personally liable for a claim arising out of a corporate transaction; that in the
Amended Complaint of respondents, they asserted that "plaintiff pawned assorted jewelries in
defendants' pawnshop"; and that as a consequence of the separate juridical personality of a
corporation, the corporate debt or credit is not the debt or credit of a stockholder.
The RTC further ruled that petitioner corporation could not be held liable for the loss of the pawned
jewelry since it had not been rebutted by respondents that the loss of the pledged pieces of jewelry
in the possession of the corporation was occasioned by armed robbery; that robbery is a fortuitous
event which exempts the victim from liability for the loss, citing the case of Austria v. Court of
Appeals;7 and that the parties’ transaction was that of a pledgor and pledgee and under Art. 1174 of
the Civil Code, the pawnshop as a pledgee is not responsible for those events which could not be
foreseen.
Respondents appealed the RTC Decision to the CA. In a Decision dated March 31, 2003, the CA
reversed the RTC, the dispositive portion of which reads as follows:
WHEREFORE, premises considered, the instant Appeal is GRANTED, and the Decision
dated January 12, 1993,of the Regional Trial Court of Makati, Branch 62, is hereby
REVERSED and SET ASIDE, ordering the appellees to pay appellants the actual value of
the lost jewelry amounting to P272,000.00, and attorney' fees of P27,200.00.8
In finding petitioner Sicam liable together with petitioner corporation, the CA applied the doctrine of
piercing the veil of corporate entity reasoning that respondents were misled into thinking that they
were dealing with the pawnshop owned by petitioner Sicam as all the pawnshop tickets issued to
them bear the words "Agencia de R.C. Sicam"; and that there was no indication on the pawnshop
tickets that it was the petitioner corporation that owned the pawnshop which explained why
respondents had to amend their complaint impleading petitioner corporation.
The CA further held that the corresponding diligence required of a pawnshop is that it should take
steps to secure and protect the pledged items and should take steps to insure itself against the loss
of articles which are entrusted to its custody as it derives earnings from the pawnshop trade which
petitioners failed to do; that Austria is not applicable to this case since the robbery incident
happened in 1961 when the criminality had not as yet reached the levels attained in the present day;
that they are at least guilty of contributory negligence and should be held liable for the loss of
jewelries; and that robberies and hold-ups are foreseeable risks in that those engaged in the
pawnshop business are expected to foresee.
The CA concluded that both petitioners should be jointly and severally held liable to respondents for
the loss of the pawned jewelry.
Petitioners’ motion for reconsideration was denied in a Resolution dated August 8, 2003.
Hence, the instant petition for review with the following assignment of errors:
THE COURT OF APPEALS ERRED AND WHEN IT DID, IT OPENED ITSELF TO

REVERSAL, WHEN IT ADOPTED UNCRITICALLY (IN FACT IT REPRODUCED AS ITS
OWN WITHOUT IN THE MEANTIME ACKNOWLEDGING IT) WHAT THE RESPONDENTS
ARGUED IN THEIR BRIEF, WHICH ARGUMENT WAS PALPABLY UNSUSTAINABLE.
THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT OPENED ITSELF TO

REVERSAL BY THIS HONORABLE COURT, WHEN IT AGAIN ADOPTED UNCRITICALLY
(BUT WITHOUT ACKNOWLEDGING IT) THE SUBMISSIONS OF THE RESPONDENTS IN
THEIR BRIEF WITHOUT ADDING ANYTHING MORE THERETO DESPITE THE FACT
THAT THE SAID ARGUMENT OF THE RESPONDENTS COULD NOT HAVE BEEN
SUSTAINED IN VIEW OF UNREBUTTED EVIDENCE ON RECORD.9
Anent the first assigned error, petitioners point out that the CA’s finding that petitioner Sicam is
personally liable for the loss of the pawned jewelries is "a virtual and uncritical reproduction of the
arguments set out on pp. 5-6 of the Appellants’ brief." 10
Petitioners argue that the reproduced arguments of respondents in their Appellants’ Brief suffer from
infirmities, as follows:
(1) Respondents conclusively asserted in paragraph 2 of their Amended Complaint that

Agencia de R.C. Sicam, Inc. is the present owner of Agencia de R.C. Sicam Pawnshop, and
therefore, the CA cannot rule against said conclusive assertion of respondents;
(2) The issue resolved against petitioner Sicam was not among those raised and litigated in
the trial court; and
(3) By reason of the above infirmities, it was error for the CA to have pierced the corporate
veil since a corporation has a personality distinct and separate from its individual
stockholders or members.
Anent the second error, petitioners point out that the CA finding on their negligence is likewise an
unedited reproduction of respondents’ brief which had the following defects:
(1) There were unrebutted evidence on record that petitioners had observed the diligence
required of them, i.e, they wanted to open a vault with a nearby bank for purposes of
safekeeping the pawned articles but was discouraged by the Central Bank (CB) since CB
rules provide that they can only store the pawned articles in a vault inside the pawnshop
premises and no other place;
(2) Petitioners were adjudged negligent as they did not take insurance against the loss of the
pledged jelweries, but it is judicial notice that due to high incidence of crimes, insurance
companies refused to cover pawnshops and banks because of high probability of losses due
to robberies;
(3) In Hernandez v. Chairman, Commission on Audit (179 SCRA 39, 45-46), the victim of
robbery was exonerated from liability for the sum of money belonging to others and lost by
him to robbers.
Respondents filed their Comment and petitioners filed their Reply thereto. The parties subsequently
submitted their respective Memoranda.
We find no merit in the petition.
To begin with, although it is true that indeed the CA findings were exact reproductions of the
arguments raised in respondents’ (appellants’) brief filed with the CA, we find the same to be not
fatally infirmed. Upon examination of the Decision, we find that it expressed clearly and distinctly the
facts and the law on which it is based as required by Section 8, Article VIII of the Constitution. The
discretion to decide a case one way or another is broad enough to justify the adoption of the
arguments put forth by one of the parties, as long as these are legally tenable and supported by law
and the facts on records.11
Our jurisdiction under Rule 45 of the Rules of Court is limited to the review of errors of law
committed by the appellate court. Generally, the findings of fact of the appellate court are deemed
conclusive and we are not duty-bound to analyze and calibrate all over again the evidence adduced
by the parties in the court a quo.12 This rule, however, is not without exceptions, such as where the
factual findings of the Court of Appeals and the trial court are conflicting or contradictory 13 as is
obtaining in the instant case.
However, after a careful examination of the records, we find no justification to absolve petitioner
Sicam from liability.
The CA correctly pierced the veil of the corporate fiction and adjudged petitioner Sicam liable
together with petitioner corporation. The rule is that the veil of corporate fiction may be pierced when
made as a shield to perpetrate fraud and/or confuse legitimate issues. 14 The theory of corporate
entity was not meant to promote unfair objectives or otherwise to shield them. 15
Notably, the evidence on record shows that at the time respondent Lulu pawned her jewelry, the
pawnshop was owned by petitioner Sicam himself. As correctly observed by the CA, in all the
pawnshop receipts issued to respondent Lulu in September 1987, all bear the words "Agencia de R.
C. Sicam," notwithstanding that the pawnshop was allegedly incorporated in April 1987. The receipts
issued after such alleged incorporation were still in the name of "Agencia de R. C. Sicam," thus
inevitably misleading, or at the very least, creating the wrong impression to respondents and the
public as well, that the pawnshop was owned solely by petitioner Sicam and not by a corporation.
Even petitioners’ counsel, Atty. Marcial T. Balgos, in his letter 16 dated October 15, 1987 addressed to
the Central Bank, expressly referred to petitioner Sicam as the proprietor of the pawnshop
notwithstanding the alleged incorporation in April 1987.
We also find no merit in petitioners' argument that since respondents had alleged in their Amended
Complaint that petitioner corporation is the present owner of the pawnshop, the CA is bound to
decide the case on that basis.
Section 4 Rule 129 of the Rules of Court provides that an admission, verbal or written, made by a
party in the course of the proceedings in the same case, does not require proof. The admission may
be contradicted only by showing that it was made through palpable mistake or that no such
admission was made.
Thus, the general rule that a judicial admission is conclusive upon the party making it and does not
require proof, admits of two exceptions, to wit: (1) when it is shown that such admission was made
through palpable mistake, and (2) when it is shown that no such admission was in fact made. The
latter exception allows one to contradict an admission by denying that he made such an
admission.17
The Committee on the Revision of the Rules of Court explained the second exception in this wise:
x x x if a party invokes an "admission" by an adverse party, but cites the admission "out of
context," then the one making the "admission" may show that he made no "such" admission,
or that his admission was taken out of context.
x x x that the party can also show that he made no "such admission", i.e., not in the
sense in which the admission is made to appear.
That is the reason for the modifier "such" because if the rule simply states that the admission
may be contradicted by showing that "no admission was made," the rule would not really be
providing for a contradiction of the admission but just a denial. 18 (Emphasis supplied).
While it is true that respondents alleged in their Amended Complaint that petitioner corporation is the
present owner of the pawnshop, they did so only because petitioner Sicam alleged in his Answer to
the original complaint filed against him that he was not the real party-in-interest as the pawnshop
was incorporated in April 1987. Moreover, a reading of the Amended Complaint in its entirety shows
that respondents referred to both petitioner Sicam and petitioner corporation where they
(respondents) pawned their assorted pieces of jewelry and ascribed to both the failure to observe
due diligence commensurate with the business which resulted in the loss of their pawned jewelry.
Markedly, respondents, in their Opposition to petitioners’ Motion to Dismiss Amended Complaint,

insofar as petitioner Sicam is concerned, averred as follows:
Roberto C. Sicam was named the defendant in the original complaint because the pawnshop
tickets involved in this case did not show that the R.C. Sicam Pawnshop was a corporation.
In paragraph 1 of his Answer, he admitted the allegations in paragraph 1 and 2 of the
Complaint. He merely added "that defendant is not now the real party in interest in this case."
It was defendant Sicam's omission to correct the pawnshop tickets used in the subject
transactions in this case which was the cause of the instant action. He cannot now ask for
the dismissal of the complaint against him simply on the mere allegation that his pawnshop
business is now incorporated. It is a matter of defense, the merit of which can only be
reached after consideration of the evidence to be presented in due course. 19
Unmistakably, the alleged admission made in respondents' Amended Complaint was taken "out of
context" by petitioner Sicam to suit his own purpose. Ineluctably, the fact that petitioner Sicam
continued to issue pawnshop receipts under his name and not under the corporation's name
militates for the piercing of the corporate veil.
We likewise find no merit in petitioners' contention that the CA erred in piercing the veil of corporate
fiction of petitioner corporation, as it was not an issue raised and litigated before the RTC.
Petitioner Sicam had alleged in his Answer filed with the trial court that he was not the real party-in-
interest because since April 20, 1987, the pawnshop business initiated by him was incorporated and
known as Agencia de R.C. Sicam. In the pre-trial brief filed by petitioner Sicam, he submitted that as
far as he was concerned, the basic issue was whether he is the real party in interest against whom
the complaint should be directed. 20 In fact, he subsequently moved for the dismissal of the complaint
as to him but was not favorably acted upon by the trial court. Moreover, the issue was squarely
passed upon, although erroneously, by the trial court in its Decision in this manner:
x x x The defendant Roberto Sicam, Jr likewise denies liability as far as he is concerned for
the reason that he cannot be made personally liable for a claim arising from a corporate
transaction.
This Court sustains the contention of the defendant Roberto C. Sicam, Jr. The amended
complaint itself asserts that "plaintiff pawned assorted jewelries in defendant's pawnshop." It
has been held that " as a consequence of the separate juridical personality of a corporation,
the corporate debt or credit is not the debt or credit of the stockholder, nor is the
stockholder's debt or credit that of a corporation. 21
Clearly, in view of the alleged incorporation of the pawnshop, the issue of whether petitioner Sicam
is personally liable is inextricably connected with the determination of the question whether the
doctrine of piercing the corporate veil should or should not apply to the case.
The next question is whether petitioners are liable for the loss of the pawned articles in their
possession.
Petitioners insist that they are not liable since robbery is a fortuitous event and they are not negligent
at all.
We are not persuaded.
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person
shall be responsible for those events which could not be foreseen or which, though foreseen,
were inevitable.
Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore,
not enough that the event should not have been foreseen or anticipated, as is commonly believed
but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is
not impossibility to foresee the same. 22
To constitute a fortuitous event, the following elements must concur: (a) the cause of the unforeseen
and unexpected occurrence or of the failure of the debtor to comply with obligations must be
independent of human will; (b) it must be impossible to foresee the event that constitutes
the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be
such as to render it impossible for the debtor to fulfill obligations in a normal manner; and, (d) the
obligor must be free from any participation in the aggravation of the injury or loss. 23
The burden of proving that the loss was due to a fortuitous event rests on him who invokes it. 24 And,
in order for a fortuitous event to exempt one from liability, it is necessary that one has committed no
negligence or misconduct that may have occasioned the loss. 25
It has been held that an act of God cannot be invoked to protect a person who has failed to take
steps to forestall the possible adverse consequences of such a loss. One's negligence may have
concurred with an act of God in producing damage and injury to another; nonetheless, showing that
the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt
one from liability. When the effect is found to be partly the result of a person's participation --
whether by active intervention, neglect or failure to act -- the whole occurrence is humanized and
removed from the rules applicable to acts of God. 26
Petitioner Sicam had testified that there was a security guard in their pawnshop at the time of the
robbery. He likewise testified that when he started the pawnshop business in 1983, he thought of
opening a vault with the nearby bank for the purpose of safekeeping the valuables but was
discouraged by the Central Bank since pawned articles should only be stored in a vault inside the
pawnshop. The very measures which petitioners had allegedly adopted show that to them the
possibility of robbery was not only foreseeable, but actually foreseen and anticipated. Petitioner
Sicam’s testimony, in effect, contradicts petitioners’ defense of fortuitous event.
Moreover, petitioners failed to show that they were free from any negligence by which the loss of the
pawned jewelry may have been occasioned.
Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of
negligence on the part of herein petitioners. In Co v. Court of Appeals,27 the Court held:
It is not a defense for a repair shop of motor vehicles to escape liability simply because the
damage or loss of a thing lawfully placed in its possession was due to carnapping.
Carnapping per se cannot be considered as a fortuitous event. The fact that a thing was
unlawfully and forcefully taken from another's rightful possession, as in cases of
carnapping, does not automatically give rise to a fortuitous event. To be considered
as such, carnapping entails more than the mere forceful taking of another's property.
It must be proved and established that the event was an act of God or was done solely
by third parties and that neither the claimant nor the person alleged to be negligent
has any participation. In accordance with the Rules of Evidence, the burden of proving
that the loss was due to a fortuitous event rests on him who invokes it — which in this
case is the private respondent. However, other than the police report of the alleged
carnapping incident, no other evidence was presented by private respondent to the effect
that the incident was not due to its fault. A police report of an alleged crime, to which only
private respondent is privy, does not suffice to establish the carnapping. Neither does it
prove that there was no fault on the part of private respondent notwithstanding the parties'
agreement at the pre-trial that the car was carnapped. Carnapping does not foreclose the
possibility of fault or negligence on the part of private respondent. 28
Just like in Co, petitioners merely presented the police report of the Parañaque Police Station on the
robbery committed based on the report of petitioners' employees which is not sufficient to establish
robbery. Such report also does not prove that petitioners were not at fault.
On the contrary, by the very evidence of petitioners, the CA did not err in finding that petitioners are
guilty of concurrent or contributory negligence as provided in Article 1170 of the Civil Code, to wit:
Art. 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.29
Article 2123 of the Civil Code provides that with regard to pawnshops and other establishments
which are engaged in making loans secured by pledges, the special laws and regulations concerning
them shall be observed, and subsidiarily, the provisions on pledge, mortgage and antichresis.
The provision on pledge, particularly Article 2099 of the Civil Code, provides that the creditor shall
take care of the thing pledged with the diligence of a good father of a family. This means that
petitioners must take care of the pawns the way a prudent person would as to his own property.
In this connection, Article 1173 of the Civil Code further provides:
Art. 1173. 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 time and of the place. When negligence shows bad faith, the provisions of
Articles 1171 and 2201, paragraph 2 shall apply.
If the law or contract does not state the diligence which is to be observed in the performance,
that which is expected of a good father of a family shall be required.
We expounded in Cruz v. Gangan30 that negligence is the omission to do something which a

reasonable man, guided by those considerations which ordinarily regulate the conduct of human
affairs, would do; or the doing of something which a prudent and reasonable man would not do. 31 It is
want of care required by the circumstances.
A review of the records clearly shows that petitioners failed to exercise reasonable care and caution
that an ordinarily prudent person would have used in the same situation. Petitioners were guilty of
negligence in the operation of their pawnshop business. Petitioner Sicam testified, thus:
Court:
Q. Do you have security guards in your pawnshop?
A. Yes, your honor.
Q. Then how come that the robbers were able to enter the premises when according to you
there was a security guard?
A. Sir, if these robbers can rob a bank, how much more a pawnshop.
Q. I am asking you how were the robbers able to enter despite the fact that there was a
security guard?
A. At the time of the incident which happened about 1:00 and 2:00 o'clock in the afternoon
and it happened on a Saturday and everything was quiet in the area BF Homes Parañaque
they pretended to pawn an article in the pawnshop, so one of my employees allowed him to
come in and it was only when it was announced that it was a hold up.
Q. Did you come to know how the vault was opened?
A. When the pawnshop is official (sic) open your honor the pawnshop is partly open. The
combination is off.
Q. No one open (sic) the vault for the robbers?
A. No one your honor it was open at the time of the robbery.
Q. It is clear now that at the time of the robbery the vault was open the reason why the
robbers were able to get all the items pawned to you inside the vault.
A. Yes sir.32
revealing that there were no security measures adopted by petitioners in the operation of the
pawnshop. Evidently, no sufficient precaution and vigilance were adopted by petitioners to protect
the pawnshop from unlawful intrusion. There was no clear showing that there was any security guard
at all. Or if there was one, that he had sufficient training in securing a pawnshop. Further, there is no
showing that the alleged security guard exercised all that was necessary to prevent any untoward
incident or to ensure that no suspicious individuals were allowed to enter the premises. In fact, it is
even doubtful that there was a security guard, since it is quite impossible that he would not have
noticed that the robbers were armed with caliber .45 pistols each, which were allegedly poked at the
employees.33 Significantly, the alleged security guard was not presented at all to corroborate
petitioner Sicam's claim; not one of petitioners' employees who were present during the robbery
incident testified in court.
Furthermore, petitioner Sicam's admission that the vault was open at the time of robbery is clearly a
proof of petitioners' failure to observe the care, precaution and vigilance that the circumstances justly
demanded. Petitioner Sicam testified that once the pawnshop was open, the combination was
already off. Considering petitioner Sicam's testimony that the robbery took place on a Saturday
afternoon and the area in BF Homes Parañaque at that time was quiet, there was more reason for
petitioners to have exercised reasonable foresight and diligence in protecting the pawned jewelries.
Instead of taking the precaution to protect them, they let open the vault, providing no difficulty for the
robbers to cart away the pawned articles.
We, however, do not agree with the CA when it found petitioners negligent for not taking steps to
insure themselves against loss of the pawned jewelries.
Under Section 17 of Central Bank Circular No. 374, Rules and Regulations for Pawnshops, which
took effect on July 13, 1973, and which was issued pursuant to Presidential Decree No. 114,
Pawnshop Regulation Act, it is provided that pawns pledged must be insured, to wit:
Sec. 17. Insurance of Office Building and Pawns- The place of business of a pawnshop and
the pawns pledged to it must be insured against fire and against burglary as well as for
the latter(sic), by an insurance company accredited by the Insurance Commissioner.
However, this Section was subsequently amended by CB Circular No. 764 which took effect on
October 1, 1980, to wit:
Sec. 17 Insurance of Office Building and Pawns – The office building/premises and pawns of
a pawnshop must be insured against fire. (emphasis supplied).
where the requirement that insurance against burglary was deleted. Obviously, the Central Bank
considered it not feasible to require insurance of pawned articles against burglary.
The robbery in the pawnshop happened in 1987, and considering the above-quoted amendment,
there is no statutory duty imposed on petitioners to insure the pawned jewelry in which case it was
error for the CA to consider it as a factor in concluding that petitioners were negligent.
Nevertheless, the preponderance of evidence shows that petitioners failed to exercise the diligence
required of them under the Civil Code.
The diligence with which the law requires the individual at all times to govern his conduct varies with
the nature of the situation in which he is placed and the importance of the act which he is to
perform.34 Thus, the cases of Austria v. Court of Appeals,35 Hernandez v. Chairman, Commission on
Audit36 and Cruz v. Gangan37 cited by petitioners in their pleadings, where the victims of robbery
were exonerated from liability, find no application to the present case.
In Austria, Maria Abad received from Guillermo Austria a pendant with diamonds to be sold on
commission basis, but which Abad failed to subsequently return because of a robbery committed
upon her in 1961. The incident became the subject of a criminal case filed against several persons.
Austria filed an action against Abad and her husband (Abads) for recovery of the pendant or its
value, but the Abads set up the defense that the robbery extinguished their obligation. The RTC
ruled in favor of Austria, as the Abads failed to prove robbery; or, if committed, that Maria Abad was
guilty of negligence. The CA, however, reversed the RTC decision holding that the fact of robbery
was duly established and declared the Abads not responsible for the loss of the jewelry on account
of a fortuitous event. We held that for the Abads to be relieved from the civil liability of returning the
pendant under Art. 1174 of the Civil Code, it would only be sufficient that the unforeseen event, the
robbery, took place without any concurrent fault on the debtor’s part, and this can be done by
preponderance of evidence; that to be free from liability for reason of fortuitous event, the debtor
must, in addition to the casus itself, be free of any concurrent or contributory fault or negligence. 38
We found in Austria that under the circumstances prevailing at the time the Decision was
promulgated in 1971, the City of Manila and its suburbs had a high incidence of crimes against
persons and property that rendered travel after nightfall a matter to be sedulously avoided without
suitable precaution and protection; that the conduct of Maria Abad in returning alone to her house in
the evening carrying jewelry of considerable value would have been negligence per se and would
not exempt her from responsibility in the case of robbery. However we did not hold Abad liable for
negligence since, the robbery happened ten years previously; i.e., 1961, when criminality had not
reached the level of incidence obtaining in 1971.
In contrast, the robbery in this case took place in 1987 when robbery was already prevalent and
petitioners in fact had already foreseen it as they wanted to deposit the pawn with a nearby bank for
safekeeping. Moreover, unlike in Austria, where no negligence was committed, we found petitioners
negligent in securing their pawnshop as earlier discussed.
In Hernandez, Teodoro Hernandez was the OIC and special disbursing officer of the Ternate Beach
Project of the Philippine Tourism in Cavite. In the morning of July 1, 1983, a Friday, he went to
Manila to encash two checks covering the wages of the employees and the operating expenses of
the project. However for some reason, the processing of the check was delayed and was completed
at about 3 p.m. Nevertheless, he decided to encash the check because the project employees would
be waiting for their pay the following day; otherwise, the workers would have to wait until July 5, the
earliest time, when the main office would open. At that time, he had two choices: (1) return to
Ternate, Cavite that same afternoon and arrive early evening; or (2) take the money with him to his
house in Marilao, Bulacan, spend the night there, and leave for Ternate the following day. He chose
the second option, thinking it was the safer one. Thus, a little past 3 p.m., he took a passenger jeep
bound for Bulacan. While the jeep was on Epifanio de los Santos Avenue, the jeep was held up and
the money kept by Hernandez was taken, and the robbers jumped out of the jeep and ran.
Hernandez chased the robbers and caught up with one robber who was subsequently charged with
robbery and pleaded guilty. The other robber who held the stolen money escaped. The Commission
on Audit found Hernandez negligent because he had not brought the cash proceeds of the checks to
his office in Ternate, Cavite for safekeeping, which is the normal procedure in the handling of funds.
We held that Hernandez was not negligent in deciding to encash the check and bringing it home to
Marilao, Bulacan instead of Ternate, Cavite due to the lateness of the hour for the following reasons:
(1) he was moved by unselfish motive for his co-employees to collect their wages and salaries the
following day, a Saturday, a non-working, because to encash the check on July 5, the next working
day after July 1, would have caused discomfort to laborers who were dependent on their wages for
sustenance; and (2) that choosing Marilao as a safer destination, being nearer, and in view of the
comparative hazards in the trips to the two places, said decision seemed logical at that time. We
further held that the fact that two robbers attacked him in broad daylight in the jeep while it was on a
busy highway and in the presence of other passengers could not be said to be a result of his
imprudence and negligence.
Unlike in Hernandez where the robbery happened in a public utility, the robbery in this case took
place in the pawnshop which is under the control of petitioners. Petitioners had the means to screen
the persons who were allowed entrance to the premises and to protect itself from unlawful intrusion.
Petitioners had failed to exercise precautionary measures in ensuring that the robbers were
prevented from entering the pawnshop and for keeping the vault open for the day, which paved the
way for the robbers to easily cart away the pawned articles.
In Cruz, Dr. Filonila O. Cruz, Camanava District Director of Technological Education and Skills
Development Authority (TESDA), boarded the Light Rail Transit (LRT) from Sen. Puyat Avenue to
Monumento when her handbag was slashed and the contents were stolen by an unidentified person.
Among those stolen were her wallet and the government-issued cellular phone. She then reported
the incident to the police authorities; however, the thief was not located, and the cellphone was not
recovered. She also reported the loss to the Regional Director of TESDA, and she requested that
she be freed from accountability for the cellphone. The Resident Auditor denied her request on the
ground that she lacked the diligence required in the custody of government property and was
ordered to pay the purchase value in the total amount of P4,238.00. The COA found no sufficient
justification to grant the request for relief from accountability. We reversed the ruling and found that
riding the LRT cannot per se be denounced as a negligent act more so because Cruz’s mode of
transit was influenced by time and money considerations; that she boarded the LRT to be able to
arrive in Caloocan in time for her 3 pm meeting; that any prudent and rational person under similar
circumstance can reasonably be expected to do the same; that possession of a cellphone should not
hinder one from boarding the LRT coach as Cruz did considering that whether she rode a jeep or
bus, the risk of theft would have also been present; that because of her relatively low position and
pay, she was not expected to have her own vehicle or to ride a taxicab; she did not have a
government assigned vehicle; that placing the cellphone in a bag away from covetous eyes and
holding on to that bag as she did is ordinarily sufficient care of a cellphone while traveling on board
the LRT; that the records did not show any specific act of negligence on her part and negligence can
never be presumed.
Unlike in the Cruz case, the robbery in this case happened in petitioners' pawnshop and they were
negligent in not exercising the precautions justly demanded of a pawnshop.
WHEREFORE, except for the insurance aspect, the Decision of the Court of Appeals dated March
31, 2003 and its Resolution dated August 8, 2003, are AFFIRMED.
Costs against petitioners.
SO ORDERED.
Ynares-Santiago, Chairperson, Chico-Nazario, Nachura, JJ., concur.
Footnotes
1
CA rollo, pp. 63-73; Penned by Justice Bernardo P. Abesamis (ret.) and concurred in by
Justices Sergio L. Pestaño and Noel G. Tijam.
2
Id. at p. 114.
3
Id. at 121; Exhibit "1."
4
Id. at 107-108; Exhibit "I."
5
Id. at 63-65; Per Judge Salvador P. de Guzman, Jr.
6
Id. at 146-147; Penned by Judge Roberto C. Diokno of Branch 62 as the case was
unloaded to him.
7
148-A Phil. 462 (1971).
8
CA rollo, p. 72.
9
Rollo, pp. 5-6.
10
Rollo, p. 7.
Nuez v. National Labor Relations Commission , G.R. No. 107574, December 28, 1994, 239
11
SCRA 518, 526.
Litonjua v. Fernandez, G.R. No. 148116, April 14, 2004, 427 SCRA 478, 489 citing Roble
12
v. Arbasa, 414 Phil. 343 (2001).
13
Fuentes v. Court of Appeals, 335 Phil. 1163, 1168 (1997).
14
See Jacinto v. Court of Appeals, G.R. No. 80043, June 6, 1991, 198 SCRA 211, 216.
See Sibagat Timber Corporation v. Garcia, G.R. No. 98185, December 11, 1992, 216
15
SCRA 470, 474.
16
Id. at 124-125; Exhibit "4".
17
Atillo III v. Court of Appeals, 334 Phil. 546, 552 (1997).
18
Minutes of the meeting held on October 22, 1986, p. 9.
19
Records, p. 67.
20
Id. at 38.
21
Id. at 147.
22
Republic v. Luzon Stevedoring Corporation, 128 Phil. 313, 318 (1967).
23
Mindex Resources Development Corporation v. Morillo, 428 Phil. 934, 944 (2002).
24
Co v. Court of Appeals, 353 Phil. 305, 313 (1998).
Mindex Resources Development Corporation v. Morillo, supra citing Tolentino, Civil Code
25
of the Philippines, Vol. IV, 1991 ed., p. 126, citing Sian v. Inchausti & Co., 22 Phil. 152
(1912); Juan F. Nakpil & Sons v. Court of Appeals, 228 Phil. 564, 578 (1986). Cf. Metal
Forming Corporation v. Office of the President, 317 Phil. 853, 859 (1995).
26
Id. citing Nakpil and Sons v. Court of Appeals, supra note 25, at 578.
27
Supra note 24.
28
Id. at 312-313.
29
443 Phil. 856, 863 (2003) citing McKee v. Intermediate Appellate Court, 211 SCRA 517
30
(1992).
31
Cruz v. Gangan, supra note 30, at 863.
32
TSN, January 21, 1992, pp.17-18.
Exhibit "1," Excerpt from the Police Blotter dated October 17, 1987 of the Parañaque
33
Police Station, p. 121.
Cruz v. Gangan, supra note 30, at 863 citing Sangco, Torts and Damages, Vol. 1, 1993
34
rev. ed. p. 5.
35
Supra note 7.
36
G.R. No. 71871, November 6, 1989, 179 SCRA 39.
37
Supra note 30.
38
Austria v. Court of Appeals, supra note 7, at 466-467.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
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
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 Ramoy 2 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:
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, recognizing the
obligatory force of contracts, will not permit a party to be set free from 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 Appeals10 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. 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.
MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice
WE CONCUR:
Associate Justice
Chairperson
MINITA V. CHICO-NAZARIO ANTONIO EDUARDO B. NACHURA

Associate Justice Associate Justice
RUBEN T. REYES
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, it
is hereby certified that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
Footnotes
Penned by Associate Justice Marina L. Buzon, with Associate Justices Josefina Guevara-
1
Salonga and Danilo B. Pine, concurring; rollo, pp. 36-49.
Leoncio Ramoy was one of the original plaintiffs who filed the complaint with the Regional
2
Trial Court of Quezon City. However, Leoncio Ramoy died on July 19, 2001. Upon Motion for
Substitution, the CA in its Resolution dated July 1, 2003 substituted Angelina Ramoy-
Sanchez, Bienvenido Ramoy, and Romana Ramoy-Ramos, as plaintiffs-appellants.
3
Rollo, pp. 51-53.
4
RTC Decision dated September 24, 1996, penned by Presiding Judge Wenceslao I. Agnir,
Jr., rollo, pp. 58-60.
5
Id. at 20.
6
Answer, rollo, p. 73.
7
Petition, id. at 26; Memorandum, id. at 159-160.
8
G.R. No. 164349, January 31, 2006, 481 SCRA 384.
9
Id. at 393-394.
10
350 Phil. 184 (1998).
11
Id. at 194.
12
Ridjo Tape & Chemical Corporation v. Court of Appeals, supra note 10.
13
Id. at 196.
14
G.R. No. 144474, April 27, 2007, 522 SCRA 364.
15
Id. at 375-376.
16
TSN, April 21, 1993, p. 7.
17
Id. at 9.
18
464 Phil. 146 (2004).
19
Id. at 149-150.
20
Respondents did not claim actual damages.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
SOLAR HARVEST v. DAVAO CORRUGATED CARTON CORPORATION, GR No. 176868,

2010-07-26
Facts:
In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered into an agreement with
respondent, Davao Corrugated Carton Corporation, for the purchase of corrugated carton
boxes, specifically designed for petitioner's business of exporting fresh bananas
. The agreement was not reduced into writing. To get the production underway, petitioner
deposited, on March 31, 1998, US$40,150.00 in respondent's US Dollar Savings Account
with Westmont Bank, as full payment for the ordered boxes.
Despite such payment, petitioner did not receive any boxes from respondent.
On January 3, 2001, petitioner wrote a demand letter for reimbursement of the amount
paid.
On February 19, 2001, respondent replied that the boxes had been completed as early as
April 3, 1998 and that petitioner failed to pick them up from the former's warehouse 30 days
from completion, as agreed upon.
Respondent mentioned that petitioner even placed an additional order of 24,000 boxes, out
of which, 14,000 had been manufactured without any... advanced payment from petitioner.
Respondent then demanded petitioner to remove the boxes from the factory and to pay the
balance of US$15,400.00 for the additional boxes and P132,000.00 as storage fee.
On August 17, 2001, petitioner filed a Complaint for sum of money and damages against
respondent. The Complaint averred that the parties agreed that the boxes will be delivered
within 30 days from payment but respondent failed to manufacture and deliver the boxes
within such... time. It further alleged
6. That repeated follow-up was made by the plaintiff for the immediate production of
the ordered boxes, but every time, defendant [would] only show samples of boxes
and ma[k]e repeated promises to deliver the said ordered boxes.
In its Answer with Counterclaim,[5] respondent insisted that, as early as April 3, 1998, it had
already completed production of the 36,500 boxes, contrary to petitioner's allegation.
According to respondent, petitioner, in fact, made an additional order of
24,000 boxes, out of which, 14,000 had been completed without waiting for petitioner's
payment. Respondent stated that petitioner was to pick up the boxes at the factory as
agreed upon, but petitioner failed to do so.
Respondent claimed that the boxes were occupying warehouse space and that petitioner
should be made to pay storage fee at P60.00 per square meter for every month from April
1998.
During trial, petitioner presented Que as its sole witness.
He specifically stated that, when he visited respondent's factory, he saw that the boxes...
had no print of petitioner's logo.
On cross-examination, Que further... testified that China Zero Food, the Chinese company
that ordered the bananas, was sending a ship to Davao to get the bananas, but since there
were no cartons, the ship could not proceed. He said that, at that time, bananas from Tagum
Agricultural Development Corporation (TADECO)... were already there. He denied that
petitioner made an additional order of 24,000 boxes. He explained that it took three years to
refer the matter to counsel because respondent promised to pay.[10]
For respondent, Bienvenido Estanislao (Estanislao) testified that he met Que in Davao in
October 1998 to inspect the boxes and that the latter got samples of them.
Estanislao said that... petitioner did not pick up the boxes because the ship did not arrive.
Jaime Tan (Tan), president of respondent, also testified that his company finished production
of the 36,500 boxes on April 3, 1998 and that petitioner made a second order of
24,000 boxes. He said that the agreement was for respondent to produce the boxes and for
petitioner to pick them up from the warehouse.
According to him, during the last visit of Que and Estanislao, he asked them to withdraw the
boxes immediately because they were occupying a big space in his plant, but they, instead,
told him to sell the cartons as rejects.
He was able to sell 5,000 boxes at P20.00 each for a total of P100,000.00. They then told
him to apply the said amount to the unpaid balance.
In its March 2, 2004 Decision, the Regional Trial Court (RTC) ruled that respondent did not
commit any breach of faith that would justify rescission of the contract and the consequent
reimbursement of the amount paid by petitioner.
It thus dismissed the complaint and respondent's counterclaims
Issues:
respondent... liable for breach of contract
Ruling:
In this petition, petitioner insists that respondent did not completely manufacture the boxes
and that it was respondent which was obliged to deliver the boxes to TADECO.
Petitioner's claim for reimbursement is actually one for rescission (or resolution) of contract
under Article 1191 of the Civil Code, which reads:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The right to rescind a contract arises once the other party defaults in the performance of his
obligation. In determining when default occurs, Art. 1191 should be taken in conjunction
with Art. 1169 of the same law, which provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power
to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. From the moment
one of the parties fulfills his obligation, delay by the other begins.
In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of the
parties' respective obligations should be simultaneous. Hence, no demand is generally
necessary because, once a party fulfills his obligation and the other party does not... fulfill
his, the latter automatically incurs in delay. But when different dates for performance of the
obligations are fixed, the default for each obligation must be determined by the rules given
in the first paragraph of the present article,[19] that... is, the other party would incur in delay
only from the moment the other party demands fulfillment of the former's obligation. Thus,
even in reciprocal obligations, if the period for the fulfillment of the obligation is fixed,
demand upon the obligee is still necessary before the... obligor can be considered in default
and before a cause of action for rescission will accrue.
Evident from the records and even from the allegations in the complaint was the lack of
demand by petitioner upon respondent to fulfill its obligation to manufacture and deliver the
boxes
.
The Complaint only alleged that petitioner made a "follow-up" upon respondent, which,...
however, would not qualify as a demand for the fulfillment of the obligation.
Without a previous demand for the fulfillment of the obligation, petitioner would not have a
cause of action for rescission against respondent as the latter would not yet be considered in
breach of its... contractual obligation.
Even assuming that a demand had been previously made before filing the present case,
petitioner's claim for reimbursement would still fail, as the circumstances would show that
respondent was not guilty of breach of contract.
As correctly observed by the CA, aside from the pictures of the finished boxes and the
production report thereof, there is ample showing that the boxes had already been
manufactured by respondent. There is the testimony of Estanislao who accompanied Que to
the factory, attesting... that, during their first visit to the company, they saw the pile of
petitioner's boxes and Que took samples thereof.
In fact, we note that respondent's counsel manifested in court, during trial, that his client
was willing to shoulder expenses for a representative of the court to visit the plant and see
the boxes.[22] Had it been true that the boxes were not yet... completed, respondent would
not have been so bold as to challenge the court to conduct an ocular inspection of their
warehouse.
We also believe that the agreement between the parties was for petitioner to pick up the
boxes from respondent's warehouse, contrary to petitioner's allegation.
Petitioner had the burden to prove that the agreement was, in fact, for respondent to deliver
the boxes within 30 days from payment, as alleged in the Complaint.
Moreover, assuming that respondent was obliged to deliver the boxes, it could not have
complied with such obligation.
Que,... dmitted that he did not give respondent the authority to deliver the boxes to
TADECO:
S... urely, without such authority, TADECO would not have allowed respondent to deposit
the boxes within its premises.
In sum, the Court finds that petitioner failed to establish a cause of action for rescission, the
evidence having shown that respondent did not commit any breach of its contractual
obligation.
Principles:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The right to rescind a contract arises once the other party defaults in the performance of his
obligation.
In determining when default occurs, Art. 1191 should be taken in conjunction with Art. 1169
of the same law, which provides:
obligee ju... dicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
designation of the time when the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power
to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. From the moment
one of the parties fulfills his obligation, delay by the other begins.
In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of the
parties' respective obligations should be simultaneous. Hence, no demand is generally
necessary because, once a party fulfills his obligation and the other party does not... fulfill
his, the latter automatically incurs in delay. But when different dates for performance of the
obligations are fixed, the default for each obligation must be determined by the rules given
in the first paragraph of the present article,[19] that... is, the other party would incur in delay
only from the moment the other party demands fulfillment of the former's obligation. Thus,
even in reciprocal obligations, if the period for the fulfillment of the obligation is fixed,
demand upon the obligee is still necessary before the... obligor can be considered in default
and before a cause of action for rescission will accrue.
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Philippine Supreme Court Jurisprudence > Year 2010 > July 2010 Decisions > [G.R. No.

176868 : July 26, 2010] SOLAR HARVEST, INC., PETITIONER, VS. DAVAO
CORRUGATED CARTON CORPORATION, RESPONDENT. :
SECOND DIVISION
[G.R. No. 176868 : July 26, 2010]
SOLAR HARVEST, INC., PETITIONER, VS. DAVAO CORRUGATED CARTON

CORPORATION, RESPONDENT.
DECISION
NACHURA, J.:
Petitioner seeks a review of the Court of Appeals (CA) Decision [1] dated September 21,
2006 and Resolution[2] dated February 23, 2007, which denied petitioner's motion for
reconsideration. The assailed Decision denied petitioner's claim for reimbursement for
the amount it paid to respondent for the manufacture of corrugated carton boxes.
The case arose from the following antecedents:
In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered into an agreement
with respondent, Davao Corrugated Carton Corporation, for the purchase of corrugated
carton boxes, specifically designed for petitioner's business of exporting fresh bananas,
at US$1.10 each. The agreement was not reduced into writing. To get the production
underway, petitioner deposited, on March 31, 1998, US$40,150.00 in respondent's US
Dollar Savings Account with Westmont Bank, as full payment for the ordered boxes.
Despite such payment, petitioner did not receive any boxes from respondent. On
January 3, 2001, petitioner wrote a demand letter for reimbursement of the amount
paid.[3] On February 19, 2001, respondent replied that the boxes had been completed
as early as April 3, 1998 and that petitioner failed to pick them up from the former's
warehouse 30 days from completion, as agreed upon. Respondent mentioned that
petitioner even placed an additional order of 24,000 boxes, out of which, 14,000 had
been manufactured without any advanced payment from petitioner. Respondent then
demanded petitioner to remove the boxes from the factory and to pay the balance of
US$15,400.00 for the additional boxes and P132,000.00 as storage fee.
On August 17, 2001, petitioner filed a Complaint for sum of money and damages
against respondent. The Complaint averred that the parties agreed that the boxes will
be delivered within 30 days from payment but respondent failed to manufacture and
deliver the boxes within such time. It further alleged
6. That repeated follow-up was made by the plaintiff for the immediate production of
the ordered boxes, but every time, defendant [would] only show samples of boxes and
ma[k]e repeated promises to deliver the said ordered boxes.
7. That because of the failure of the defendant to deliver the ordered boxes, plaintiff
ha[d] to cancel the same and demand payment and/or refund from the defendant but
the latter refused to pay and/or refund the US$40,150.00 payment made by the former
for the ordered boxes.[4]
In its Answer with Counterclaim,[5] respondent insisted that, as early as April 3, 1998, it

had already completed production of the 36,500 boxes, contrary to petitioner's
allegation. According to respondent, petitioner, in fact, made an additional order of
24,000 boxes, out of which, 14,000 had been completed without waiting for petitioner's
payment. Respondent stated that petitioner was to pick up the boxes at the factory as
agreed upon, but petitioner failed to do so. Respondent averred that, on October 8,
1998, petitioner's representative, Bobby Que (Que), went to the factory and saw that
the boxes were ready for pick up. On February 20, 1999, Que visited the factory again
and supposedly advised respondent to sell the boxes as rejects to recoup the cost of
the unpaid 14,000 boxes, because petitioner's transaction to ship bananas to China did
not materialize. Respondent claimed that the boxes were occupying warehouse space
and that petitioner should be made to pay storage fee at P60.00 per square meter for
every month from April 1998. As counterclaim, respondent prayed that judgment be
rendered ordering petitioner to pay $15,400.00, plus interest, moral and exemplary
damages, attorney's fees, and costs of the suit.
In reply, petitioner denied that it made a second order of 24,000 boxes and that
respondent already completed the initial order of 36,500 boxes and 14,000 boxes out
of the second order. It maintained that
respondent only manufactured a sample of the ordered boxes and that respondent
could not have produced 14,000 boxes without the required pre-payments. [6]
During trial, petitioner presented Que as its sole witness. Que testified that he ordered
the boxes from respondent and deposited the money in respondent's account. [7] He
specifically stated that, when he visited respondent's factory, he saw that the boxes
had no print of petitioner's logo.[8] A few months later, he followed-up the order and
was told that the company had full production, and thus, was promised that production
of the order would be rushed. He told respondent that it should indeed rush production
because the need for the boxes was urgent. Thereafter, he asked his partner, Alfred
Ong, to cancel the order because it was already late for them to meet their
commitment to ship the bananas to China.[9] On cross-examination, Que further
testified that China Zero Food, the Chinese company that ordered the bananas, was
sending a ship to Davao to get the bananas, but since there were no cartons, the ship
could not proceed. He said that, at that time, bananas from Tagum Agricultural
Development Corporation (TADECO) were already there. He denied that petitioner
made an additional order of 24,000 boxes. He explained that it took three years to refer
the matter to counsel because respondent promised to pay. [10]
For respondent, Bienvenido Estanislao (Estanislao) testified that he met Que in Davao
in October 1998 to inspect the boxes and that the latter got samples of them. In
February 2000, they inspected the boxes again and Que got more samples. Estanislao
said that petitioner did not pick up the boxes because the ship did not arrive. [11] Jaime
Tan (Tan), president of respondent, also testified that his company finished production
of the 36,500 boxes on April 3, 1998 and that petitioner made a second order of 24,000
boxes. He said that the agreement was for respondent to produce the boxes and for
petitioner to pick them up from the warehouse. [12] He also said that the reason why
petitioner did not pick up the boxes was that the ship that was to carry the bananas did
not arrive.[13] According to him, during the last visit of Que and Estanislao, he asked
them to withdraw the boxes immediately because they were occupying a big space in
his plant, but they, instead, told him to sell the cartons as rejects. He was able to sell
5,000 boxes at P20.00 each for a total of P100,000.00. They then told him to apply the
said amount to the unpaid balance.
In its March 2, 2004 Decision, the Regional Trial Court (RTC) ruled that respondent did
not commit any breach of faith that would justify rescission of the contract and the
consequent reimbursement of the amount paid by petitioner. The RTC said that
respondent was able to produce the ordered boxes but petitioner failed to obtain
possession thereof because its ship did not arrive. It thus dismissed the complaint and
respondent's counterclaims, disposing as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of defendant

and against the plaintiff and, accordingly, plaintiff's complaint is hereby ordered
DISMISSED without pronouncement as to cost. Defendant's counterclaims are similarly
dismissed for lack of merit.
SO ORDERED.[14]
On September 21, 2006, the CA denied the appeal for lack of merit. [15] The appellate
court held that petitioner failed to discharge its burden of proving what it claimed to be
the parties' agreement with respect to the delivery of the boxes. According to the CA, it
was unthinkable that, over a period of more than two years, petitioner did not even
demand for the delivery of the boxes. The CA added that even assuming that the
agreement was for respondent to deliver the boxes, respondent would not be liable for
breach of contract as petitioner had not yet demanded from it the delivery of the boxes.
[16]
Petitioner moved for reconsideration,[17] but the motion was denied by the CA in its
Resolution of February 23, 2007.[18]
In this petition, petitioner insists that respondent did not completely manufacture the
boxes and that it was respondent which was obliged to deliver the boxes to TADECO.
We find no reversible error in the assailed Decision that would justify the grant of this
petition.
Petitioner's claim for reimbursement is actually one for rescission (or resolution) of
contract under Article 1191 of the Civil Code, which reads:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
The right to rescind a contract arises once the other party defaults in the performance
of his obligation. In determining when default occurs, Art. 1191 should be taken in
conjunction with Art. 1169 of the same law, which provides:
obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.
However, the demand by the creditor shall not be necessary in order that delay may
exist:
designation of the time when the thing is to be delivered or the service is to be
rendered was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay by the other begins.
In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment
of the parties' respective obligations should be simultaneous. Hence, no demand is
generally necessary because, once a party fulfills his obligation and the other party
does not fulfill his, the latter automatically incurs in delay. But when different dates for
performance of the obligations are fixed, the default for each obligation must be
determined by the rules given in the first paragraph of the present article, [19] that is, the
other party would incur in delay only from the moment the other party demands
fulfillment of the former's obligation. Thus, even in reciprocal obligations, if the period
for the fulfillment of the obligation is fixed, demand upon the obligee is still necessary
before the obligor can be considered in default and before a cause of action for
rescission will accrue.
Evident from the records and even from the allegations in the complaint was the lack of
demand by petitioner upon respondent to fulfill its obligation to manufacture and
deliver the boxes. The Complaint only alleged that petitioner made a "follow-up" upon
respondent, which, however, would not qualify as a demand for the fulfillment of the
obligation. Petitioner's witness also testified that they made a follow-up of the boxes,
but not a demand. Note is taken of the fact that, with respect to their claim for
reimbursement, the Complaint alleged and the witness testified that a demand letter
was sent to respondent. Without a previous demand for the fulfillment of the
obligation, petitioner would not have a cause of action for rescission against respondent
as the latter would not yet be considered in breach of its contractual obligation.
Even assuming that a demand had been previously made before filing the present case,
petitioner's claim for reimbursement would still fail, as the circumstances would show
that respondent was not guilty of breach of contract.
The existence of a breach of contract is a factual matter not usually reviewed in a

petition for review under Rule 45.[20] The Court, in petitions for review, limits its inquiry
only to questions of law. After all, it is not a trier of facts, and findings of fact made by
the trial court, especially when reiterated by the CA, must be given great respect if not
considered as final.[21] In dealing with this petition, we will not veer away from this
doctrine and will thus sustain the factual findings of the CA, which we find to be
adequately supported by the evidence on record.
As correctly observed by the CA, aside from the pictures of the finished boxes and the
production report thereof, there is ample showing that the boxes had already been
manufactured by respondent. There is the testimony of Estanislao who accompanied
Que to the factory, attesting that, during their first visit to the company, they saw the
pile of petitioner's boxes and Que took samples thereof. Que, petitioner's witness,
himself confirmed this incident. He testified that Tan pointed the boxes to him and that
he got a sample and saw that it was blank. Que's absolute assertion that the boxes
were not manufactured is, therefore, implausible and suspicious.
In fact, we note that respondent's counsel manifested in court, during trial, that his
client was willing to shoulder expenses for a representative of the court to visit the
plant and see the boxes.[22] Had it been true that the boxes were not yet completed,
respondent would not have been so bold as to challenge the court to conduct an ocular
inspection of their warehouse. Even in its Comment to this petition, respondent prays
that petitioner be ordered to remove the boxes from its factory site, [23] which could only
mean that the boxes are, up to the present, still in respondent's premises.
We also believe that the agreement between the parties was for petitioner to pick up
the boxes from respondent's warehouse, contrary to petitioner's allegation. Thus, it was
due to petitioner's fault that the boxes were not delivered to TADECO.
Petitioner had the burden to prove that the agreement was, in fact, for respondent to
deliver the boxes within 30 days from payment, as alleged in the Complaint. Its sole
witness, Que, was not even competent to testify on the terms of the agreement and,
therefore, we cannot give much credence to his testimony. It appeared from the
testimony of Que that he did not personally place the order with Tan, thus:
Q. No, my question is, you went to Davao City and placed your order there?
A. I made a phone call.

Q. You made a phone call to Mr. Tan?
A. The first time, the first call to Mr. Alf[re]d Ong. Alfred Ong has a contact with Mr. Tan.
Q. So, your first statement that you were the one who placed the order is not true?
A. That's true. The Solar Harvest made a contact with Mr. Tan and I deposited the money in the
bank.
Q. You said a while ago [t]hat you were the one who called Mr. Tan and placed the order for
36,500 boxes, isn't it?
A. First time it was Mr. Alfred Ong.
Q. It was Mr. Ong who placed the order[,] not you?
A. Yes, sir.[24]
Q. Is it not a fact that the cartons were ordered through Mr. Bienvenido Estanislao?
A. Yes, sir.[25]
Moreover, assuming that respondent was obliged to deliver the boxes, it could not have
complied with such obligation. Que, insisting that the boxes had not been
manufactured, admitted that he did not give respondent the authority to deliver the
boxes to TADECO:
Q. Did you give authority to Mr. Tan to deliver these boxes to TADECO?
A. No, sir. As I have said, before the delivery, we must have to check the carton, the quantity and
quality. But I have not seen a single carton.
Q. Are you trying to impress upon the [c]ourt that it is only after the boxes are completed, will
you give authority to Mr. Tan to deliver the boxes to TADECO[?]
A. Sir, because when I checked the plant, I have not seen any carton. I asked Mr. Tan to rush the
carton but not...[26]
Q. Did you give any authority for Mr. Tan to deliver these boxes to TADECO?
A. Because I have not seen any of my carton.
Q. You don't have any authority yet given to Mr. Tan?
A. None, your Honor.[27]
Surely, without such authority, TADECO would not have allowed respondent to deposit
the boxes within its premises.
In sum, the Court finds that petitioner failed to establish a cause of action for
rescission, the evidence having shown that respondent did not commit any breach of its
contractual obligation. As previously stated, the subject boxes are still within
respondent's premises. To put a rest to this dispute, we therefore relieve respondent
from the burden of having to keep the boxes within its premises and, consequently,
give it the right to dispose of them, after petitioner is given a period of time within
which to remove them from the premises.
WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals

Decision dated September 21, 2006 and Resolution dated February 23, 2007
are AFFIRMED. In addition, petitioner is given a period of 30 days from notice
within which to cause the removal of the 36,500
boxes from respondent's warehouse. After the lapse of said period and petitioner fails
to effect such removal, respondent shall have the right to dispose of the boxes in any
manner it may deem fit.
SO ORDERED.
Carpio, (Chairperson), Peralta, Abad, and Mendoza, JJ., concur.
Endnotes:
[1]
Penned by Associate Justice Rebecca de Guia-Salvador, with Associate Justices
Magdangal M. de Leon and Ramon R. Garcia, concurring; rollo, pp. 103-114.
[2]
Id. at 127.
[3]
Records, p. 96.
[4]
Rollo, p. 27.
[5]
Id. at 33-36.
[6]
Records, 31-32.
[7]
TSN, July 10, 2003, p. 5.
[8]
Id. at 7.
[9]
Id. at 9-10.
[10]
Id. at 18-22.
[11]
TSN, October 16, 2003, p. 14.
[12]
TSN, December 4, 2003, p. 13.
[13]
Id. at 15.
[14]
Rollo, p. 60.
[15]
Supra note 1, at 113-114.
[16]
Id. at 110-112.
[17]
Rollo, pp. 115-121.
[18]
Supra note 2.
[19]
IV ARTURO M. TOLENTINO, Commentaries and Jurisprudence on the Civil Code of
the Philippines (1985 ed.), p. 10, citing 8 Manresa.
[20]
Omengan v. Philippine National Bank, G.R. No. 161319, January 23, 2007, 512
SCRA 305, 309.
[21]
Filipinas (Pre-Fab Bldg.) Systems, Inc. v. MRT Development Corporation, G.R. Nos.
167829-30, November 13, 2007, 537 SCRA 609, 638-639.
[22]
TSN, December 4, 2003, p. 26.
[23]
Rollo, p. 137.
[24]
TSN, July 10, 2003, p. 15.
[25]
Id. at 21.
[26]
Id. at 25.
[27]
Id. at 27.
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G.R. No. 162467 May 8, 2009
MINDANAO TERMINAL AND BROKERAGE SERVICE, INC. Petitioner,

vs.
PHOENIX ASSURANCE COMPANY OF NEW YORK/MCGEE & CO., INC., Respondent.
DECISION
TINGA, J.:
Before us is a petition for review on certiorari1 under Rule 45 of the 1997 Rules of Civil Procedure of
the 29 October 20032 Decision of the Court of Appeals and the 26 February 2004 Resolution 3 of the
same court denying petitioner’s motion for reconsideration.
The facts of the case are not disputed.
Del Monte Philippines, Inc. (Del Monte) contracted petitioner Mindanao Terminal and Brokerage
Service, Inc. (Mindanao Terminal), a stevedoring company, to load and stow a shipment of 146,288
cartons of fresh green Philippine bananas and 15,202 cartons of fresh pineapples belonging to Del
Monte Fresh Produce International, Inc. (Del Monte Produce) into the cargo hold of the vessel M/V
Mistrau. The vessel was docked at the port of Davao City and the goods were to be transported by it
to the port of Inchon, Korea in favor of consignee Taegu Industries, Inc. Del Monte Produce insured
the shipment under an "open cargo policy" with private respondent Phoenix Assurance Company of
New York (Phoenix), a non-life insurance company, and private respondent McGee & Co. Inc.
(McGee), the underwriting manager/agent of Phoenix. 4
Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau. The vessel set sail from
the port of Davao City and arrived at the port of Inchon, Korea. It was then discovered upon
discharge that some of the cargo was in bad condition. The Marine Cargo Damage Surveyor of
Incok Loss and Average Adjuster of Korea, through its representative Byeong Yong Ahn (Byeong),
surveyed the extent of the damage of the shipment. In a survey report, it was stated that 16,069
cartons of the banana shipment and 2,185 cartons of the pineapple shipment were so damaged that
they no longer had commercial value.5
Del Monte Produce filed a claim under the open cargo policy for the damages to its shipment.
McGee’s Marine Claims Insurance Adjuster evaluated the claim and recommended that payment in
the amount of $210,266.43 be made. A check for the recommended amount was sent to Del Monte
Produce; the latter then issued a subrogation receipt 6 to Phoenix and McGee.
Phoenix and McGee instituted an action for damages 7 against Mindanao Terminal in the Regional
Trial Court (RTC) of Davao City, Branch 12. After trial, the RTC,8 in a decision dated 20 October
1999, held that the only participation of Mindanao Terminal was to load the cargoes on board
the M/V Mistrau under the direction and supervision of the ship’s officers, who would not have
accepted the cargoes on board the vessel and signed the foreman’s report unless they were
properly arranged and tightly secured to withstand voyage across the open seas. Accordingly,
Mindanao Terminal cannot be held liable for whatever happened to the cargoes after it had loaded
and stowed them. Moreover, citing the survey report, it was found by the RTC that the cargoes were
damaged on account of a typhoon which M/V Mistrau had encountered during the voyage. It was
further held that Phoenix and McGee had no cause of action against Mindanao Terminal because
the latter, whose services were contracted by Del Monte, a distinct corporation from Del Monte
Produce, had no contract with the assured Del Monte Produce. The RTC dismissed the complaint
and awarded the counterclaim of Mindanao Terminal in the amount of ₱83,945.80 as actual
damages and ₱100,000.00 as attorney’s fees.9 The actual damages were awarded as
reimbursement for the expenses incurred by Mindanao Terminal’s lawyer in attending the hearings
in the case wherein he had to travel all the way from Metro Manila to Davao City.
Phoenix and McGee appealed to the Court of Appeals. The appellate court reversed and set
aside10 the decision of the RTC in its 29 October 2003 decision. The same court ordered Mindanao
Terminal to pay Phoenix and McGee "the total amount of $210,265.45 plus legal interest from the
filing of the complaint until fully paid and attorney’s fees of 20% of the claim." 11 It sustained Phoenix’s
and McGee’s argument that the damage in the cargoes was the result of improper stowage by
Mindanao Terminal. It imposed on Mindanao Terminal, as the stevedore of the cargo, the duty to
exercise extraordinary diligence in loading and stowing the cargoes. It further held that even with the
absence of a contractual relationship between Mindanao Terminal and Del Monte Produce, the
cause of action of Phoenix and McGee could be based on quasi-delict under Article 2176 of the Civil
Code.12
Mindanao Terminal filed a motion for reconsideration,13 which the Court of Appeals denied in its 26
February 200414 resolution. Hence, the present petition for review.
Mindanao Terminal raises two issues in the case at bar, namely: whether it was careless and
negligent in the loading and stowage of the cargoes onboard M/V Mistrau making it liable for
damages; and, whether Phoenix and McGee has a cause of action against Mindanao Terminal
under Article 2176 of the Civil Code on quasi-delict. To resolve the petition, three questions have to
be answered: first, whether Phoenix and McGee have a cause of action against Mindanao Terminal;
second, whether Mindanao Terminal, as a stevedoring company, is under obligation to observe the
same extraordinary degree of diligence in the conduct of its business as required by law for common
carriers15 and warehousemen;16 and third, whether Mindanao Terminal observed the degree of
diligence required by law of a stevedoring company.
We agree with the Court of Appeals that the complaint filed by Phoenix and McGee against
Mindanao Terminal, from which the present case has arisen, states a cause of action. The present
action is based on quasi-delict, arising from the negligent and careless loading and stowing of the
cargoes belonging to Del Monte Produce. Even assuming that both Phoenix and McGee have only
been subrogated in the rights of Del Monte Produce, who is not a party to the contract of service
between Mindanao Terminal and Del Monte, still the insurance carriers may have a cause of action
in light of the Court’s consistent ruling that the act that breaks the contract may be also a tort. 17 In
fine, a liability for tort may arise even under a contract, where tort is that which breaches the
contract18 . In the present case, Phoenix and McGee are not suing for damages for injuries arising
from the breach of the contract of service but from the alleged negligent manner by which Mindanao
Terminal handled the cargoes belonging to Del Monte Produce. Despite the absence of contractual
relationship between Del Monte Produce and Mindanao Terminal, the allegation of negligence on
the part of the defendant should be sufficient to establish a cause of action arising from quasi-
delict.19
The resolution of the two remaining issues is determinative of the ultimate result of this case.
Article 1173 of the Civil Code is very clear that if the law or contract does not state the degree of
diligence which is to be observed in the performance of an obligation then that which is expected of
a good father of a family or ordinary diligence shall be required. Mindanao Terminal, a stevedoring
company which was charged with the loading and stowing the cargoes of Del Monte Produce
aboard M/V Mistrau, had acted merely as a labor provider in the case at bar. There is no specific
provision of law that imposes a higher degree of diligence than ordinary diligence for a stevedoring
company or one who is charged only with the loading and stowing of cargoes. It was neither alleged
nor proven by Phoenix and McGee that Mindanao Terminal was bound by contractual stipulation to
observe a higher degree of diligence than that required of a good father of a family. We therefore
conclude that following Article 1173, Mindanao Terminal was required to observe ordinary diligence
only in loading and stowing the cargoes of Del Monte Produce aboard M/V Mistrau.
imposing a higher degree of diligence,21 on Mindanao Terminal in loading and stowing the cargoes.
The case of Summa Insurance Corporation v. CA, which involved the issue of whether an arrastre
operator is legally liable for the loss of a shipment in its custody and the extent of its liability, is
inapplicable to the factual circumstances of the case at bar. Therein, a vessel owned by the National
Galleon Shipping Corporation (NGSC) arrived at Pier 3, South Harbor, Manila, carrying a shipment
consigned to the order of Caterpillar Far East Ltd. with Semirara Coal Corporation (Semirara) as
"notify party." The shipment, including a bundle of PC 8 U blades, was discharged from the vessel to
the custody of the private respondent, the exclusive arrastre operator at the South Harbor.
Accordingly, three good-order cargo receipts were issued by NGSC, duly signed by the ship's
checker and a representative of private respondent. When Semirara inspected the shipment at
house, it discovered that the bundle of PC8U blades was missing. From those facts, the Court
observed:
x x x The relationship therefore between the consignee and the arrastre operator must be

examined. This relationship is much akin to that existing between the consignee or owner of shipped
goods and the common carrier, or that between a depositor and a warehouseman [22 ]. In the
performance of its obligations, an arrastre operator should observe the same degree of
diligence as that required of a common carrier and a warehouseman as enunciated under
Article 1733 of the Civil Code and Section 3(b) of the Warehouse Receipts Law, respectively. Being
the custodian of the goods discharged from a vessel, an arrastre operator's duty is to take
good care of the goods and to turn them over to the party entitled to their possession.
(Emphasis supplied)23
There is a distinction between an arrastre and a stevedore. 24 Arrastre, a Spanish word which refers
to hauling of cargo, comprehends the handling of cargo on the wharf or between the establishment
of the consignee or shipper and the ship's tackle. The responsibility of the arrastre operator lasts
until the delivery of the cargo to the consignee. The service is usually performed by longshoremen.
On the other hand, stevedoring refers to the handling of the cargo in the holds of the vessel or
between the ship's tackle and the holds of the vessel. The responsibility of the stevedore ends upon
the loading and stowing of the cargo in the vessel. 1avvphi1
It is not disputed that Mindanao Terminal was performing purely stevedoring function while the
private respondent in the Summa case was performing arrastre function. In the present case,
Mindanao Terminal, as a stevedore, was only charged with the loading and stowing of the cargoes
from the pier to the ship’s cargo hold; it was never the custodian of the shipment of Del Monte
Produce. A stevedore is not a common carrier for it does not transport goods or passengers; it is not
akin to a warehouseman for it does not store goods for profit. The loading and stowing of cargoes
would not have a far reaching public ramification as that of a common carrier and a warehouseman;
the public is adequately protected by our laws on contract and on quasi-delict. The public policy
considerations in legally imposing upon a common carrier or a warehouseman a higher degree of
diligence is not present in a stevedoring outfit which mainly provides labor in loading and stowing of
cargoes for its clients.
In the third issue, Phoenix and McGee failed to prove by preponderance of evidence 25 that Mindanao
Terminal had acted negligently. Where the evidence on an issue of fact is in equipoise or there is
any doubt on which side the evidence preponderates the party having the burden of proof fails upon
that issue. That is to say, if the evidence touching a disputed fact is equally balanced, or if it does not
produce a just, rational belief of its existence, or if it leaves the mind in a state of perplexity, the party
holding the affirmative as to such fact must fail.261avvphi1
We adopt the findings27 of the RTC,28 which are not disputed by Phoenix and McGee. The Court of
Appeals did not make any new findings of fact when it reversed the decision of the trial court. The
only participation of Mindanao Terminal was to load the cargoes on board M/V Mistrau.29 It was not
disputed by Phoenix and McGee that the materials, such as ropes, pallets, and cardboards, used in
lashing and rigging the cargoes were all provided by M/V Mistrau and these materials meets industry
standard.30
It was further established that Mindanao Terminal loaded and stowed the cargoes of Del Monte
Produce aboard the M/V Mistrau in accordance with the stowage plan, a guide for the area
assignments of the goods in the vessel’s hold, prepared by Del Monte Produce and the officers
of M/V Mistrau.31 The loading and stowing was done under the direction and supervision of the ship
officers. The vessel’s officer would order the closing of the hatches only if the loading was done
correctly after a final inspection.32 The said ship officers would not have accepted the cargoes on
board the vessel if they were not properly arranged and tightly secured to withstand the voyage in
open seas. They would order the stevedore to rectify any error in its loading and stowing. A
foreman’s report, as proof of work done on board the vessel, was prepared by the checkers of
Mindanao Terminal and concurred in by the Chief Officer of M/V Mistrau after they were satisfied
that the cargoes were properly loaded. 33
Phoenix and McGee relied heavily on the deposition of Byeong Yong Ahn 34 and on the survey
report35 of the damage to the cargoes. Byeong, whose testimony was refreshed by the survey
report,36 found that the cause of the damage was improper stowage 37 due to the manner the cargoes
were arranged such that there were no spaces between cartons, the use of cardboards as support
system, and the use of small rope to tie the cartons together but not by the negligent conduct of
Mindanao Terminal in loading and stowing the cargoes. As admitted by Phoenix and McGee in their
Comment38 before us, the latter is merely a stevedoring company which was tasked by Del Monte to
load and stow the shipments of fresh banana and pineapple of Del Monte Produce aboard the M/V
Mistrau. How and where it should load and stow a shipment in a vessel is wholly dependent on the
shipper and the officers of the vessel. In other words, the work of the stevedore was under the
supervision of the shipper and officers of the vessel. Even the materials used for stowage, such as
ropes, pallets, and cardboards, are provided for by the vessel. Even the survey report found that it
was because of the boisterous stormy weather due to the typhoon Seth, as encountered by M/V
Mistrau during its voyage, which caused the shipments in the cargo hold to collapse, shift and bruise
in extensive extent.39 Even the deposition of Byeong was not supported by the conclusion in the
survey report that:
CAUSE OF DAMAGE
xxx
From the above facts and our survey results, we are of the opinion that damage occurred aboard the
carrying vessel during sea transit, being caused by ship’s heavy rolling and pitching under
boisterous weather while proceeding from 1600 hrs on 7th October to 0700 hrs on 12th October,
1994 as described in the sea protest.40
As it is clear that Mindanao Terminal had duly exercised the required degree of diligence in loading
and stowing the cargoes, which is the ordinary diligence of a good father of a family, the grant of the
petition is in order.
However, the Court finds no basis for the award of attorney’s fees in favor of petitioner. None of the
lawphil.net
circumstances enumerated in Article 2208 of the Civil Code exists. The present case is clearly not
an unfounded civil action against the plaintiff as there is no showing that it was instituted for the
mere purpose of vexation or injury. It is not sound public policy to set a premium to the right to
litigate where such right is exercised in good faith, even if erroneously. 41 Likewise, the RTC erred in
awarding ₱83,945.80 actual damages to Mindanao Terminal. Although actual expenses were
incurred by Mindanao Terminal in relation to the trial of this case in Davao City, the lawyer of
Mindanao Terminal incurred expenses for plane fare, hotel accommodations and food, as well as
other miscellaneous expenses, as he attended the trials coming all the way from Manila. But there is
no showing that Phoenix and McGee made a false claim against Mindanao Terminal resulting in the
protracted trial of the case necessitating the incurrence of expenditures. 42
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CV No.
66121 is SET ASIDE and the decision of the Regional Trial Court of Davao City, Branch 12 in Civil
Case No. 25,311.97 is hereby REINSTATED MINUS the awards of ₱100,000.00 as attorney’s fees
and ₱83,945.80 as actual damages.
SO ORDERED.
DANTE O. TINGAAssociate Justice
<p
WE CONCUR:
CONCHITA CARPIO MORALES*

Associate Justice
Acting Chairperson
PRESBITERO J. VELASCO, JR. TERESITA LEONARDO DE CASTRO**

Associate Justice Associate Justice
ARTURO D. BRION
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.
CONCHITA CARPIO MORALES

Associate Justice
Acting Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Acting Chairperson’s
Attestation, it is hereby certified that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
Footnotes
1
Rollo, pp. 3-25.
* Acting Chairperson as replacement of Associate Justice Leonardo Quisumbing who is on

official leave per Special Order No. 618.
** Additional member of the Special Second Division per Special Order No. 619.
2
Id. at 29-34. Penned by Associate Justice Danilo B. Pine and concurred by Associate
Justices Cancio C. Garcia and Renato C. Dacudao. The dispositive portion reads as follows:
WHEREFORE, premises considered, the judgment appealed from is

hereby REVERSED and SET ASIDE. Mindanao Terminal Brokerage Services, Inc. is
ordered to pay the plaintiff-appellants the total amount of $210,265.45 plus legal
interest from the filing of the complaint until fully paid and attorney’s fees of 20% of
the claim.
Costs against defendant-appellee.
SO ORDERED.
3
Id. at 36.
4
Records, pp. 234-310.
5
Rollo, p. 30.
6
Records, p. 350.
7
Id. at 1-6.
8
Rollo, pp. 38-44. Penned by Judge Paul T. Arcangel.
9
Id. at 44.
10
Id. at 33-34.
11
Id. at 36.
12
Id. at 31-33.
13
CA rollo, pp. 94-104.
14
Rollo, p. 36.
15
16
Sec. 3(b), Act 2137, Warehouse Receipt Law.
17
Air France v. Carrascoso, 18 SCRA 155, 168 (1966). Singson v. Bank of the Philippine
Islands, 132 Phil. 597, 600 (1968); Mr. & Mrs. Fabre, Jr . v. Court of Appeals, 328 Phil. 775,
785 (1996).
18
PSBA v. Court of Appeals, G.R. No. 84698, 4 February 1992, 205 SCRA 729, 734.
19
CIVIL CODE. Art. 2176. 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 and is governed by the provisions of this Chapter. (Emphasis supplied)
20
323 Phil. 214 (1996).
21
Rollo, p. 32.
22
Malayan Insurance Co. Inc. v. Manila Port Service, 138 Phil. 69 (1969).
23
Supra note at 222-223.
24
See Compaňia Maritima v. Allied Free Workers Union, 167 Phil. 381, 385 (1977).
See Republic of the Philippines v. Orfinada Sr., G.R. No. 141145, November 12, 2004, 442
25
SCRA 342, 352 citing Go v. Court of Appeals, G.R. No. 112550, February 5, 2001
citing Reyes v. Court of Appeals, 258 SCRA 651 (1996).
Francisco, Ricardo, Evidence, 3rd (1996), p. 555. Citing Howes v. Brown, 75 Ala.

26
385; Evans v. Winston, 74 Ala. 349; Marlowe v. Benagh, 52 Ala. 112; Brandon v. Cabiness,

10 Ala. 155; Delaware Coach v. Savage, 81 Supp. 293.
This Court is not a trier of facts. Furthermore, well settled is the doctrine that "the findings
27
of fact by the trial court are accorded great respect by appellate courts and should not be
disturbed on appeal unless the trial court has overlooked, ignored, or disregarded some fact
or circumstances of sufficient weight or significance which, if considered, would alter the
situation." The facts of the case, as stated by the trial court, were adopted by the Court of
Appeals. And a conscientious sifting of the records fails to bring to light any fact or
circumstance militative against the correctness of the said findings of the trial court and the
Court of Appeals. See Home Development Mutual Fund v. CA, 351 Phil. 858, 859-860
(1998).
28
Rollo, pp. 38-44.
29
Id. at 42.
30
Id. at 16.
31
TSN, 6 July 1999, p. 5.
32
Id. at 9-10.
33
Id. at 5-6.
34
Records, pp. 89-96.
35
Id. at 99-113.
36
Id. at 93.
37
Id. at 96.
38
Rollo, pp. 47-49.
39
Records, pp. 105.
40
Id. at 112.
See Ramos v. Ramos, 158 Phil. 935, 960 (1974); Barreto v. Arevalo, 99 Phil. 771, 779
41
(1956); Mirasol v. Judge De la Cruz, 173 Phil. 518 (1978).
42
See Uy v. Court of Appeals, 420 Phil. 408 (2001).
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
MINDANAO TERMINAL v. PHOENIX ASSURANCE COMPANY OF NEW YORK, GR No.

162467, 2009-05-08
Facts:
Before us is a petition for review on certiorari[1] under Rule 45 of the 1997 Rules of Civil
Procedure of the 29 October 2003[2] Decision of the Court of Appeals and the 26 February
2004 Resolution[3] of the same court denying petitioner's motion for reconsideration.
Del Monte Philippines, Inc. (Del Monte) contracted petitioner Mindanao Terminal and
Brokerage Service, Inc. (Mindanao Terminal), a stevedoring company, to load and stow a
shipment of 146,288 cartons of fresh green Philippine bananas and 15,202 cartons of fresh
pineapples... belonging to Del Monte Fresh Produce International, Inc. (Del Monte Produce)
into the cargo hold of the vessel M/V Mistrau. The vessel was docked at the port of Davao
City and the goods were to be transported by it to the port of Inchon, Korea in favor of
consignee Taegu
Industries, Inc. Del Monte Produce insured the shipment under an "open cargo policy" with
private respondent Phoenix Assurance Company of New York (Phoenix), a non-life insurance
company, and private respondent McGee & Co. Inc. (McGee), the underwriting
manager/agent of
Phoenix.
Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau. The vessel set
sail from the port of Davao City and arrived at the port of Inchon, Korea. It was then
discovered upon discharge that some of the cargo was in bad condition.
Del Monte Produce filed a claim under the open cargo policy for the damages to its
shipment.
A check for the recommended amount was sent to Del Monte
Produce; the latter then issued a subrogation receipt[6] to Phoenix and McGee.
Phoenix and McGee instituted an action for damages[7] against Mindanao Terminal in the
Regional Trial Court (RTC) of Davao City, Branch 12. After trial, the RTC,[8] in a decision
dated 20 October 1999, held that the only participation... of Mindanao Terminal was to load
the cargoes on board the M/V Mistrau under the direction and supervision of the ship's
officers, who would not have accepted the cargoes on board the vessel and signed the
foreman's report unless they were properly arranged and tightly... secured to withstand
voyage across the open seas. Accordingly, Mindanao Terminal cannot be held liable for
whatever happened to the cargoes after it had loaded and stowed them.
The appellate court reversed and set aside[10] the decision of the RTC in its 29 October
2003 decision. The same court ordered Mindanao Terminal to pay Phoenix and McGee "the
total amount of $210,265.45... plus legal interest from the filing of the complaint until fully
paid and attorney's fees of 20% of the claim."
Mindanao Terminal filed a motion for reconsideration,[13] which the Court of Appeals
denied in its 26 February 2004[14] resolution. Hence, the present petition for review.
Issues:
To resolve the petition, three questions have to be answered: first, whether Phoenix and
McGee have a cause of action against Mindanao Terminal; second, whether Mindanao
Terminal, as a stevedoring company, is under obligation... to observe the same extraordinary
degree of diligence in the conduct of its business as required by law for common carriers[15]
and warehousemen;[16] and third, whether Mindanao Terminal observed the degree of
diligence required by law... of a stevedoring company.
Ruling:
We agree with the Court of Appeals that the complaint filed by Phoenix and McGee against
Mindanao Terminal, from which the present case has arisen, states a cause of action. The
present action is based on quasi-delict, arising from the negligent and careless loading and
stowing... of the cargoes belonging to Del Monte Produce. Even assuming that both Phoenix
and McGee have only been subrogated in the rights of Del Monte Produce, who is not a
party to the contract of service between Mindanao Terminal and Del Monte, still the
insurance carriers may have a... cause of action in light of the Court's consistent ruling that
the act that breaks the contract may be also a tort.[17] In fine, a liability for tort may arise
even under a contract, where tort is that which breaches the contract[18].
In the present case, Phoenix and McGee are not suing for damages for injuries arising from
the breach of the contract of service but from the alleged negligent manner by which
Mindanao Terminal handled the cargoes
There is no specific provision of law that imposes a higher degree of diligence... than
ordinary diligence for a stevedoring company or one who is charged only with the loading
and stowing of cargoes. It was neither alleged nor proven by Phoenix and McGee that
Mindanao Terminal was bound by contractual stipulation to observe a higher degree of
diligence than... that required of a good father of a family. We therefore conclude that
following Article 1173, Mindanao Terminal was required to observe ordinary diligence only
in loading and stowing the cargoes of Del Monte Produce aboard M/V Mistrau.
In the present case, Mindanao Terminal, as a stevedore, was only charged with the loading
and stowing of... the cargoes from the pier to the ship's cargo hold; it was never the
custodian of the shipment of Del Monte Produce. A stevedore is not a common carrier for it
does not transport goods or passengers; it is not akin to a warehouseman for it does not
store goods for profit. The... loading and stowing of cargoes would not have a far reaching
public ramification as that of a common carrier and a warehouseman; the public is
adequately protected by our laws on contract and on quasi-delict.
In the third issue, Phoenix and McGee failed to prove by preponderance of evidence[25]
that Mindanao Terminal had acted negligently.
Where the evidence on an issue of fact is in equipoise or there is any doubt on which side
the evidence preponderates the... party having the burden of proof fails upon that issue.
The only participation of Mindanao
Terminal was to load the cargoes on board M/V Mistrau.[29] It was not disputed by Phoenix
and McGee that the materials, such as ropes, pallets, and cardboards, used in lashing and
rigging the cargoes were all provided by M/V Mistrau and these... materials meets industry
standard.[30]
It was further established that Mindanao Terminal loaded and stowed the cargoes of Del
Monte Produce aboard the M/V Mistrau in accordance with the stowage plan, a guide for
the area assignments of the goods in the vessel's hold, prepared by Del Monte Produce and
the... officers of M/V Mistrau.
As it is clear that Mindanao Terminal had duly exercised the required degree of diligence in
loading and stowing the cargoes, which is the ordinary diligence of a good father of a family,
the grant of the petition is in order.
Principles:
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Agcaoili vs. GSIS, 165 SCRA 1

digested by LLB 1-4 College of Law, Polytechnic University of the Philippines
Facts: In this case, appellant GSIS approved an application of the appellee Agcaoli for the purchase of a
house and lot in the GSIS Housing Project at Nangka, Marikina, subject to the condition that the latter
should forthwith occupy the house, a condition that Agcaoli tried to fulfill but could not because the
house was absolutely uninhabitable. However, Agcaoli ask a homeless friend, a certain Villanueva, to
stay in the premises as some sort of watchman, pending completion of the construction of the house.
Agcaoli after paying the first installment and other fees, having thereafter refused to make further
payment of other stipulated installments until GSIS had made the house habitable; and appellant having
refused to do so, opting instead to cancel the award and demanded the vacation by Agcaoli of the
premises; and the latter having sued the GSIS in the Court of First Instance of Manila for specific
performance with damages and having obtained a favorable judgment, the cases was appealed by the
GSIS.
Issue: Whether or not Agcaoli is entitled for specific performance with damages.
Held: Appeal of GSIS must fail.
There was then a perfected contract of sale between the parties; there had been a meeting of minds
upon the purchase by Agcaoli of a determinate house and lot from GSIS at a definite price which is
payable in amortizations and from that moment the parties acquired the right to reciprocally demand
performance. It was, to be sure, the duty of the GSIS, as seller, to deliver the thing soled in acondition
suitable for its enjoyment by the buyer, in other words to deliver the house subject of the contract in a
reasonably livable state. This it failed to do.
Since GSIS failed to fulfill its obligation, and was not willing to put the house in a habitable state, it
cannot invoke Agcaoli’s suspension of payment as cause to cancel the contract between them. In
recipient obligation, neither party incur in delay of the other does not comply or is not ready to comply
in a proper manner with what is incumbent upon him. Nor may the GSIS succeed in justifying its
cancellation of the award by the claim tha Agcaoli had not complied with the condition of occupying the
house within three (3) days. The record shows that Agcaoli did try to fulfill the condition.
Finally appellant having caused the ambiguity as the exact prestation of the agreement, the question of
interpretation arising therefrom, should be resolved against it.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
MARCELO AGCAOILI, Plaintiff-Appellee, v. GOVERNMENT SERVICE INSURANCE

SYSTEM, Defendant-Appellant.
Artemio L. Agcaoili for Plaintiff-Appellee.
Office of the Government Corporate Counsel, for Defendant-Appellant.
SYLLABUS
1. CIVIL LAW; RECIPROCAL OBLIGATIONS; FAILURE OF SELLER TO DELIVER

THING SOLD IN THE CONDITION CONTEMPLATED BY THE AGREEMENT. — An
agreement for the sale of a house and lot on installments stipulating that the buyer must occupy
the house within a specified period under pain of cancellation if he failed to do so, must be
construed as imposing on the seller the obligation to deliver a reasonably habitable dwelling
place, one that is in a condition suitable for its enjoyment by the buyer for the purpose
contemplated. The seller’s delivery of a mere shell of a house consisting of four walls, openings
and a roof is a breach of said obligation which prevents him from cancelling the sale on the
ground of the purchaser’s suspension of payment of the amortizations that he latter had
undertaken to pay, it being axiomatic that" (i)in reciprocal obligations, neither party incurs in
delay if the other does not comply or is not ready to comply in a proper manner with what is
incumbent upon him." (Art. 1169, last paragraph, Civil Code)
2. ID.; AMBIGUOUS PROVISIONS IN A CONTRACT MUST BE INTERPRETED
AGAINST PARTY CAUSING SUCH AMBIGUITY. — The party to a contract who is
responsible for alleged imprecision or ambiguity in its terms will not be permitted to make
capital of such imprecision or ambiguity; the question of interpretation arising therefrom should
be resolved against it.
3. ID.; ID.; SPECIFIC PERFORMANCE; EQUITY JURISDICTION, WHEN PROPERLY

EXERCISED TO ADJUST CONTRACTUAL RIGHTS. — Where specific performance
according to the literal terms of a contract would result in inequity by reason of the
circumstances obtaining at the time of judgment being significantly different from those existing
at the generation of the rights litigated, the Court may exercise its equity jurisdiction to adjust
those rights and, in determining the precise relief to be given, "balance the equities" or the
respective interests of the parties and take account of the relative hardship that one form of relief
or another may occasion to them.
DECISION
NARVASA, J.:
The appellant Government Service Insurance System, (GSIS, for short) having approved the
application of the appellee Agcaoili for the purchase of a house and lot in the GSIS Housing
Project at Nangka, Marikina, Rizal, subject to the condition that the latter should forthwith
occupy the house, a condition that Agcaoili tried to fulfill but could not for the reason that the
house was absolutely uninhabitable; Agcaoili, after paying the first installment and other fees,
having thereafter refused to make further payment of other stipulated installments until GSIS had
made the house habitable; and appellant having refused to do so, opting instead to cancel the
award and demand the vacation by Agcaoili of the premises; and Agcaoili having sued the GSIS
in the Court of First Instance of Manila for specific performance with damages and having
obtained a favorable judgment, the case was appealed to this Court by the GSIS. Its appeal must
fail.
The essential facts are not in dispute. Approval of Agcaoili’s aforementioned application for
purchase 1 was contained in a letter 2 addressed to Agcaoili and signed by GSIS Manager
Archimedes Villanueva in behalf of the Chairman-General Manager, reading as follows: jgc:chanrobles.com.ph
"Please be informed that your application to purchase a house and lot in our GSIS Housing
Project at Nangka, Marikina, Rizal, has been approved by this Office. Lot No. 26, Block No.
(48) 2, together with the housing unit constructed thereon, has been allocated to you.
"You are, therefore, advised to occupy the said house immediately.
"If you fail to occupy the same within three (3) days from receipt of this notice, your application
shall be considered automatically disapproved and the said house and lot will be awarded to
another applicant." cralaw virtua1aw library
Agcaoili lost no time in occupying the house. He could not stay in it, however, and had to leave
the very next day, because the house was nothing more than a shell, in such a state of
incompleteness that civilized occupation was not possible: ceiling, stairs, double walling,
lighting facilities, water connection, bathroom, toilet kitchen, drainage, were inexistent. Agcaoili
did however ask a homeless friend, a certain Villanueva, to stay in the premises as some sort of
watchman, pending completion of the construction of the house. Agcaoili thereafter complained
to the GSIS, to no avail.
The GSIS asked Agcaoili to pay the monthly amortizations and other fees. Agcaoili paid the first
monthly installment and the incidental fees, 3 but refused to make further payments until and
unless the GSIS completed the housing unit. What the GSIS did was to cancel the award and
require Agcaoili to vacate the premises. 4 Agcaoili reacted by instituting suit in the Court of First
Instance of Manila for specific performance and damages. 5 Pending the action, a written protest
was lodged by other awardees of housing units in the same subdivision, regarding the failure of
the System to complete construction of their own houses. 6 Judgment was in due course
rendered, 7 on the basis of the evidence adduced by Agcaoili only, the GSIS having opted to
dispense with presentation of its own proofs. The judgment was in Agcaoili’s favor and
contained the following dispositions, 8 to wit: jgc:chanrobles.com.ph
"1) Declaring the cancellation of the award (of a house and lot) in favor of plaintiff (Mariano
Agcaoili) illegal and void;
2) Ordering the defendant (GSIS) to respect and enforce the aforesaid award to the plaintiff-
relative to Lot No. 26, Block No. (48) 2 of the Government Service Insurance System (GSIS)
low cost housing project at Nangka, Marikina, Rizal;
3) Ordering the defendant to complete the house in question so as to make the same habitable
and authorizing it (defendant) to collect the monthly amortization thereon only after said house
shall have been completed under the terms and conditions mentioned in Exhibit A; and
4) Ordering the defendant to pay P100.00 as damages and P300.00 as and for attorney’s fees, and
costs."
Appellant GSIS would have this Court reverse this judgment on the argument that -
1) Agcaoili had no right to suspend payment of amortizations on account of the incompleteness

of his housing unit, since said unit had been sold "in the condition and state of completion then
existing . . . (and) he is deemed to have accepted the same in the condition he found it when he
accepted the award;" and assuming indefiniteness of the contract in this regard, such
circumstance precludes a judgment for specific performance. 9
2) Perfection of the contract of sale between it and Agcaoili being conditioned upon the latter’s
immediate occupancy of the house subject thereof, and the latter having failed to comply with
the condition, no contract ever came into existence between them; 10
3) Agcaoili’s act of placing his homeless friend, Villanueva, in possession, "without the prior or
subsequent knowledge or consent of the defendant (GSIS)" operated as a repudiation by Agcaoili
of the award and a deprivation of the GSIS at the same time of the reasonable rental value of the
property. 11
Agcaoili’s offer to buy from GSIS was contained in a printed form drawn up by the latter,
entitled "Application to Purchase a House and/or Lot." Agcaoili filled up the form, signed it, and
submitted it. 12 The acceptance of the application was also set out in a form (mimeographed)
also prepared by the GSIS. As already mentioned, this form sent to Agcaoili, duly filled up,
advised him of the approval of his "application to purchase a house and lot in our GSIS Housing
Project at NANGKA, MARIKINA, RIZAL," and that "Lot No. 26, Block No. (48) 2, together
with the housing unit constructed thereon, has been allocated to you." Neither the application
form nor the acceptance or approval form of the GSIS — nor the notice to commence payment
of monthly amortizations, which again refers to "the house and lot awarded" — contained any
hint that the house was incomplete, and was being sold "as is," i.e., in whatever state of
completion it might be at the time. On the other hand, the condition explicitly imposed on
Agcaoili — "to occupy the said house immediately," or in any case within three (3) days from
notice, otherwise his "application shall be considered automatically disapproved and the said
house and lot will be awarded to another applicant" — would imply that construction of the
house was more or less complete, and it was by reasonable standards, habitable, and that indeed,
the awardee should stay and live in it; it could not be interpreted as meaning that the awardee
would occupy it in the sense of a pioneer or settler in a rude wilderness, making do with
whatever he found available in the environment.
There was then a perfected contract of sale between the parties; there had been a meeting of the
minds upon the purchase by Agcaoili of a determinate house and lot in the GSIS Housing Project
at Nangka, Marikina, Rizal at a definite price payable in amortizations at P31.56 per month, and
from that moment the parties acquired the right to reciprocally demand performance. 13 It was,
to be sure, the duty of the GSIS, as seller, to deliver the thing sold in a condition suitable for its
enjoyment by the buyer for the purpose contemplated, 14 in other words, to deliver the house
subject of the contract in a reasonably livable state. This it failed to do.
It sold a house to Agcaoili, and required him to immediately occupy it under pain of cancellation
of the sale. Under the circumstances there can hardly be any doubt that the house contemplated
was one that could be occupied for purposes of residence in reasonable comfort and
convenience. There would be no sense to require the awardee to immediately occupy and live in
a shell of a house, a structure consisting only of four walls with openings, and a roof, and to
theorize, as the GSIS does, that this was what was intended by the parties, since the contract did
not clearly impose upon it the obligation to deliver a habitable house, is to advocate an absurdity,
the creation of an unfair situation. By any objective interpretation of its terms, the contract can
only be understood as imposing on the GSIS an obligation to deliver to Agcaoili a reasonably
habitable dwelling in return for his undertaking to pay the stipulated price. Since GSIS did not
fulfill that obligation, and was not willing to put the house in habitable state, it cannot invoke
Agcaoili’s suspension of payment of amortizations as cause to cancel the contract between them.
It is axiomatic that" (i)n reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent upon him." 15
Nor may the GSIS succeed in justifying its cancellation of the award to Agcaoili by the claim
that the latter had not complied with the condition of occupying the house within three (3) days.
The record shows that Agcaoili did try to fulfill the condition; he did try to occupy the house but
found it to be so uninhabitable that he had to leave it the following day. He did however leave a
friend in the structure, who being homeless and hence willing to accept shelter even of the most
rudimentary sort, agreed to stay therein and look after it. Thus the argument that Agcaoili
breached the agreement by failing to occupy the house, and by allowing another person to stay in
it without the consent of the GSIS, must be rejected as devoid of merit.
Finally, the GSIS should not be heard to say that the agreement between it and Agcaoili is silent,
or imprecise as to its exact prestation. Blame for the imprecision cannot be imputed to Agcaoili;
it was after all the GSIS which caused the contract to come into being by its written acceptance
of Agcaoili’s offer to purchase, that offer being contained in a printed form supplied by the
GSIS. Said appellant having caused the ambiguity of which it would now make capital, the
question of interpretation arising therefrom, should be resolved against it.
It will not do, however, to dispose of the controversy by simply declaring that the contract
between the parties had not been validly cancelled and was therefore still in force, and that
Agcaoili could not be compelled by the GSIS to pay the stipulated price of the house and lot
subject of the contract until and unless it had first completed construction of the house. This
would leave the contract hanging or in suspended animation, as it were, Agcaoili unwilling to
pay unless the house were first completed, and the GSIS averse to completing construction,
which is precisely what has been the state of affairs between the parties for more than twenty
(20) years now. On the other hand, assuming it to be feasible to still finish the construction of the
house at this time, to compel the GSIS to do so that Agcaoili’s prestation to pay the price might
in turn be demanded, without modifying the price therefor, would not be quite fair. The cost to
the GSIS of completion of construction at present prices would make the stipulated price
disproportionate, unrealistic.
The situation calls for the exercise by this Court of its equity jurisdiction, to the end that it may
render complete justice to both parties.
"As we . . . reaffirmed in Air Manila, Inc. v. Court of Industrial Relations (83 SCRA 579, 589
[1978]).’(E)quity as the complement of legal jurisdiction seeks to reach and do complete justice
where courts of law, through the inflexibility of their rules and want of power to adapt their
judgments to the special circumstances of cases, are incompetent so to do. Equity regards the
spirit of and not the letter, the intent and not the form, the substance rather than the circumstance,
as it is variously expressed by different courts . . .," 16
In this case, the Court can not require specific performance of the contract in question according
to its literal terms, as this would result in inequity. The prevailing rule is that in decreeing
specific performance equity requires 17 —
". . . not only that the contract be just and equitable in its provisions, but that the consequences of
specific performance likewise be equitable and just. The general rule is that this equitable relief
will not be granted if, under the circumstances of the case, the result of the specific enforcement
of the contract would be harsh, inequitable, oppressive, or result in an unconscionable advantage
to the plaintiff . . ."
In the exercise of its equity jurisdiction, the Court may adjust the rights of parties in accordance
with the circumstances obtaining at the time of rendition of judgment, when these are
significantly different from those existing at the time of generation of those rights.
"The Court is not restricted to an adjustment of the rights of the parties as they existed when suit
was brought, but will give relief appropriate to events occurring ending the suit. 18
"While equitable jurisdiction is generally to be determined with reference to the situation

existing at the time the suit is filed, the relief to be accorded by the decree is governed by the
conditions which are shown to exist at the time of making thereof, and not by the circumstances
attending the inception of the litigation. In making up the final decree in an equity suit the judge
may rightly consider matters arising after suit was brought. Therefore, as a general rule, equity
will administer such relief as the nature, rights, facts and exigencies of the case demand at the
close of the trial or at the time of the making of the decree." 19
That adjustment is entirely consistent with the Civil Law principle that in the exercise of rights a
person must act with justice, give everyone his due, and observe honesty and good faith. 20
Adjustment of rights has been held to be particularly applicable when there has been a
depreciation of currency.
"Depreciation of the currency or other medium of payment contracted for has frequently been
held to justify the court in withholding specific performance or at least conditioning it upon
payment of the actual value of the property contracted for. Thus, in an action for the specific
performance of a real estate contract, it has been held that where the currency in which the
plaintiff had contracted to pay had greatly depreciated before enforcement was sought, the relief
would be denied unless the complaint would undertake to pay the equitable value of the land."
(Willard & Tayloe [U.S] 8 Wall 557, 19 L. Ed 501; Doughdrill v. Edwards, 59 Ala 424) 21
In determining the precise relief to give, the Court will "balance the equities" or the respective
interests of the parties, and take account of the relative hardship that one relief or another may
occasion to them. 22
The completion of the unfinished house so that it may be put into habitable condition, as one
from of relief to the plaintiff Agcaoili, no longer appears to be a feasible option in view of the
not inconsiderable time that has already elapsed. That would require an adjustment of the price
of the subject of the sale to conform to present prices of construction materials and labor. It is
more in keeping with the realities of the situation, and with equitable norms, to simply require
payment for the land on which the house stands, and for the house itself, in its unfinished state,
as of the time of the contract. In fact, this is an alternative relief proposed by Agcaoili himself,
i.e., "that judgment issue . . . (o)rdering the defendant (GSIS) to execute a deed of sale that
would embody and provide for a reasonable amortization of payment on the basis of the present
actual unfinished and uncompleted condition, worth and value of the said house." 23
WHEREFORE, the judgment of the Court a quo insofar as it invalidates and sets aside the
cancellation by respondent GSIS of the award in favor of petitioner Agcaoili of Lot No. 26,
Block No. (48) 2 of the GSIS low cost housing project at Nangka, Marikina, Rizal, and orders
the former to respect the aforesaid award and to pay damages in the amounts specified, is
AFFIRMED as being in accord with the facts and the law. Said judgments is however modified
by deleting the requirement for respondent GSIS "to complete the house in question so as to
make the same habitable," and instead it is hereby ORDERED that the contract between the
parties relative to the property above described be modified by adding to the cost of the land, as
of the time of perfection of the contract, the cost of the house in its unfinished state also as of the
time of perfection of the contract, and correspondingly adjusting the amortizations to be paid by
petitioner Agcaoili, the modification to be effected after determination by the Court a quo of the
value of said house on the basis of the agreement of the parties, or if this is not possible, by such
commissioner or commissioners as the Court may appoint. No pronouncement as to costs.
SO ORDERED.
Cruz, Gancayco, Aquino and Medialdea, JJ., concur.
Endnotes:
1. Dated June 24, 1964.
2. Dated October 5, 1965 (Exh. A); Folder of Exhibits p. 1.
3. O.R. No. 188558, Oct. 10, 1966.
4. Exh. D, Folder of Exhibits, p. 4.
5. Docketed as Civil Case No. 69417.
6. The letter was sent thru the awardees’ "Samahang Lakas ng Mahihirap," copy having
been marked at the trial as Exh. F; to the letter was attached a resolution of said
Samahan adopted at its meeting of July 23, 1967 and to which, in turn, was appended
a 3-page list of uncompleted houses with a specification of items not completed.
7. By Hon. Manuel P. Barcelona, presiding over Br. VIII of the CFI of Manila; Record on
Appeal, pp. 22-25, Rollo, p. 13.
8. Parenthetical insertions identifying the parties, supplied.

10. Id., pp. 7-8.
12. Exh. E.
13. Art. 1475, Civil Code; Pacific Oxygen & Acetylene Co. v. Central Bank, 37 SCRA
685.
14. Lim v. de los Santos, 8 SCRA 798.
15. Art. 1169, last paragraph, Civil Code.
16. Cristobal v. Melchor, 101 SCRA 857, 865.
17. 71 Am. Jur. 2d, 101.
18. 30 C.J.S. 929.
19. 27 Am Jur. 2d. 818.
20. Art. 19, Civil Code: "Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe and
good faith." cralaw virtua1aw library
21. 71 Am. Jur. 2d, 120.
22. Am. Jur. 2nd 628-629: "There is a general principle that a court of equity will
balance the equities’ between the parties, in determining what, if any, relief to give . . .
Thus, for example where the effect of the only relief which can be granted to protect
the plaintiff will be destructive of the defendants’ business, which would be lawful but
for the harm it does to the plaintiff, relief may be refused if, on a balancing of the
respective interests, that of the defendant is found to be relatively important, and that
of the plaintiff relatively insignificant. . . ." cralaw virtua1aw library
23. Record on Appeal, p. 5; Rollo, p. 13.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Arrieta v. National Rice and Corn Corporation, 10 SCRA 79
September 10, 2016
FACTS :
Mrs. Paz Arrieta participated in public bidding called by NARIC on May 19, 1952 for the
supply of 20,000 metric tons of Burmese rice. Her bid was $ 203.00 per metric ton, it
was the lowest that’s why the contract was awarded to her. On July 1,1952, Arrieta and
NARIC entered into contract. Arrieta was obligated to deliver 20,000 metric ton of
Burmese rice at $203.00 per metric ton to NARIC. In return, NARIC committed itself to
pay for the imported rice “ by means of an irrevocable, confirmed and assignable letter
of credit in US currency in favour of Arrieta and/or supplier in Burma (THIRI SETKYA),
immediately.” NARIC took the first step to open the letter of credit on July 30, 1952 by
forwarding to the PNB its application for commercial letter of credit. Arrieta with the
help of a counsel, advised NARIC of the necessity for the opening of the letter because
she tender her supplier in Ragoon, Burma of 5 % of the price of 20,000 tons at
$180.70 and if she didn’t comply the 5% will be confiscated if the required letter of
credit is not received by them before August 4, 1952. PNB informed NARIC that their
application of credit letter amounting to $3,614,000.00 was approved with the condition
of 50% marginal cash be paid. NARIC does not meet the condition. The allocation of
Arrieta’s supplier in Ragoon was cancelled and the 5% deposit was forfeited.
ISSUE :
Does NARIC liable for damages?
HELD :
Yes, because the reason of the cancellation of the contract by Arrieta in Ragoon, Burma
was the failure of NARIC to open the letter of credit within a specific period of time. One
who assumes contractual obligation and fails to perform in which he knew and was
aware when he entered in the contract, should be liable for his failure to do what is
required by a law. Under the Art. 1170 of the Civil Code, not only the debtors guilty of
fraud, negligence or default but also a debtor of every, in general, who fails in the
performance of his obligation is bound to indemnify for the losses and damages caused
thereby.
XXX
SECOND DIVISION
[G.R. No. 73867. February 29, 1988.]
TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS, INC., Petitioner, v.

IGNACIO CASTRO, SR., SOFIA C. CROUCH, IGNACIO CASTRO JR., AURORA
CASTRO, SALVADOR CASTRO, MARIO CASTRO, CONRADO CASTRO, ESMERALDA
C. FLORO, AGERICO CASTRO, ROLANDO CASTRO, VIRGILIO CASTRO AND
GLORIA CASTRO, and HONORABLE INTERMEDIATE APPELLATE
COURT, Respondents.
SYLLABUS
1. CIVIL LAW; DAMAGES; PARTY WHO FAILED TO TRANSMIT TELEGRAM LIABLE

THEREON. — In the case at bar, petitioner and private respondent Sofia C. Crouch
entered into a contract whereby, for a fee, petitioner undertook to send said private
respondent’s message overseas by telegram. This, petitioner did not do, despite
performance by said private respondent of her obligation by paying the required
charges. Petitioner was therefore guilty of contravening its obligation to said private
respondent and is thus liable for damages under Articles 1170 and 2196 of the Civil
Code.
2. ID.; MORAL DAMAGES; PARTY WHO SUFFERED EMOTIONAL SUFFERING ENTITLED

THERETO. — We find Art. 2217 of the Civil Code applicable to the case at bar. It states:
"Moral damages include physical suffering, mental anguish, fright, serious anxiety,
injury. Though incapable of pecuniary computation, moral damages may be recovered if
they are the proximate results of the defendant’s wrongful act or omission." Here,
petitioner’s act or omission, which amounted to gross negligence, was precisely the
cause of the suffering private respondents had to undergo.
3. ID.; COMPENSATORY DAMAGES; AWARDED TO A PARTY WHO INCURRED TRAVEL

EXPENSES TO TESTIFY IN A COURT CASE. — We also sustain the trial court’s award of
P16,000.00 as compensatory damages to Sofia C. Crouch representing the expenses
she incurred when she came to the Philippines from the United States to testify before
the trial court. Had petitioner not been remiss in performing its obligation, there would
have been no need for this suit or for Mrs. Crouch’s testimony.
4. ID.; EXEMPLARY DAMAGES; AWARDED TO A PARTY AS A WARNING TO ALL

TELEGRAM COMPANIES. — The award of exemplary damages by the trial court is
likewise justified and, therefore, sustained in the amount of P1,000.00 for each of the
private respondents, as a warning to all telegram companies to observe due diligence in
transmitting the messages of their customers.
DECISION
PADILLA, J.:
Petition for review on certiorari of the decision ** of the Intermediate Appellate Court,
dated 11 February 1986, in AC-G.R. No. CV-70245, entitled "Ignacio Castro, Sr., et. al.,
Plaintiffs-Appellees, versus Telefast Communications/Philippine Wireless, Inc.,
Defendant-Appellant." cralaw virtua1aw library
The facts of the case are as follows: chanrob1es virtual 1aw library
On 2 November 1956, Consolacion Bravo-Castro, wife of plaintiff Ignacio Castro, Sr.
and mother of the other plaintiffs, passed away in Lingayen, Pangasinan. On the same
day, her daughter Sofia C. Crouch, who was then vacationing in the Philippines,
addressed a telegram to plaintiff Ignacio Castro, Sr. at 685 Wanda, Scottsburg,
Indiana, U.S.A., 47170 announcing Consolacion’s death. The telegram was accepted by
the defendant in its Dagupan office, for transmission, after payment of the required
fees or charges.
The telegram never reached its addressee. Consolacion was interred with only her
daughter Sofia in attendance. Neither the husband nor any of the other children of the
deceased, then all residing in the United States, returned for the burial.
When Sofia returned to the United States, she discovered that the wire she had caused
the defendant to send, had not been received. She and the other plaintiffs thereupon
brought action for damages arising from defendant’s breach of contract. The case was
filed in the Court of First Instance of Pangasinan and docketed therein as Civil Case No.
15356. The only defense of the defendant was that it was unable to transmit the
telegram because of "technical and atmospheric factors beyond its control." 1 No
evidence appears on record that defendant ever made any attempt to advise the
plaintiff Sofia C. Crouch as to why it could not transmit the telegram.
The Court of First Instance of Pangasinan, after trial, ordered the defendant (now
petitioner) to pay the plaintiffs (now private respondents) damages, as follows, with
interest at 6% per annum: jgc:chanrobles.com.ph
"1. Sofia C. Crouch, P31.92 and P16,000.00 as compensatory damages and P20,000.00
as moral damages.
2. Ignacio Castro Sr., P20,000.00 as moral damages.
3. Ignacio Castro Jr., P20,000.00 as moral damages.
4. Aurora Castro, P10,000.00 moral damages.
5. Salvador Castro, P10,000.00 moral damages.
6. Mario Castro, P10,000.00 moral damages.
7. Conrado Castro, P10,000 moral damages.
8. Esmeralda C. Floro, P20,000.00 moral damages.
9. Agerico Castro, P10,000.00 moral damages.
10. Rolando Castro, P10,000.00 moral damages.
11. Virgilio Castro, P10,000.00 moral damages.
12. Gloria Castro, P10,000.00 moral damages.

Defendant is also ordered to pay P5,000.00 attorney’s fees, exemplary damages in the
amount of P1,000.00 to each of the plaintiffs and costs." 2
On appeal by petitioner, the Intermediate Appellate Court affirmed the trial court’s
decision but eliminated the award of P16,000.00 as compensatory damages to Sofia C.
Crouch and the award of Pl,000.00 to each of the private respondents as exemplary
damages. The award of P20,000.00 as moral damages to each of Sofia C. Crouch,
Ignacio Castro, Jr. and Esmeralda C. Floro was also reduced to P10,000.00 for each. 3
Petitioner appeals from the judgment of the appellate court, contending that the award
of moral damages should be eliminated as defendant’s negligent act was not motivated
by "fraud, malice or recklessness." cralaw virtua1aw library
In other words, under petitioner’s theory, it can only be held liable for P31.92, the fee
or charges paid by Sofia C. Crouch for the telegram that was never sent to the
addressee thereof.
Petitioner’s contention is without merit.
Art. 1170 of the Civil Code provides that "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." Art. 2176 also provides that
"whoever by act or omission causes damage to another, there being fault or negligence,
is obliged to pay for the damage done." cralaw virtua1aw library
In the case at bar, petitioner and private respondent Sofia C. Crouch entered into a
contract whereby, for a fee, petitioner undertook to send said private respondent’s
message overseas by telegram. This, petitioner did not do, despite performance by said
private respondent of her obligation by paying the required charges. Petitioner was
therefore guilty of contravening its obligation to said private respondent and is thus
liable for damages.
This liability is not limited to actual or quantified damages. To sustain petitioner’s

contrary position in this regard would result in an inequitous situation where petitioner
will only be held liable for the actual cost of a telegram fixed thirty (30) years ago.
We find Art. 2217 of the Civil Code applicable to the case at bar. It states: "Moral
damages include physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury.
Though incapable of pecuniary computation, moral damages may be recovered if they
are the proximate results of the defendant’s wrongful act or omission." (Emphasis
supplied).
Here, petitioner’s act or omission, which amounted to gross negligence, was precisely
the cause of the suffering private respondents had to undergo.
As the appellate court properly observed: jgc:chanrobles.com.ph
" [Who] can seriously dispute the shock, the mental anguish and the sorrow that the
overseas children must have suffered upon learning of the death of their mother after
she had already been interred, without being given the opportunity to even make a
choice on whether they wanted to pay her their last respects? There is no doubt that
these emotional sufferings were proximately caused by appellant’s omission and
substantive law provides for the justification for the award of moral damages." 4
We also sustain the trial court’s award of P16,000.00 as compensatory damages to

Sofia C. Crouch representing the expenses she incurred when she came to the
Philippines from the United States to testify before the trial court. Had petitioner not
been remiss in performing its obligation, there would have been no need for this suit or
for Mrs. Crouch’s testimony.
The award of exemplary damages by the trial court is likewise justified and, therefore,
sustained in the amount of P1,000.00 for each of the private respondents, as a warning
to all telegram companies to observe due diligence in transmitting the messages of
their customers.
WHEREFORE, the petition is DENIED. The decision appealed from is modified so that
petitioner is held liable to private respondents in the following amounts:
chanrob1es virtual 1aw library
(1) P10,000.00 as moral damages, to each of private respondents;
(2) P1,000.00 as exemplary damages, to each of private respondents;
(3) P16,000.00 as compensatory damages, to private respondent Sofia C. Crouch;
(4) P5,000.00 as attorney’s fees; and
(5) Costs of suit.
SO ORDERED.
Yap (Chairman), Paras and Sarmiento, JJ., concur.

XXX
G.R. No. L-47379 May 16, 1988
NATIONAL POWER CORPORATION, petitioner,

vs.
HONORABLE COURT OF APPEALS and ENGINEERING CONSTRUCTION, INC., respondents.
G.R. No. L-47481 May 16, 1988
ENGINEERING CONSTRUCTION, INC., petitioner,

vs.
COUTRT OF APPEALS and NATIONAL POWER CORPORATION, respondents.
Raymundo A. Armovit for private respondent in L-47379.
The Solicitor General for petitioner.

GUTIERREZ, JR., J.:
These consolidated petitions seek to set aside the decision of the respondent Court of Appeals which adjudged the National Power
Corporation liable for damages against Engineering Construction, Inc. The appellate court, however, reduced the amount of damages
awarded by the trial court. Hence, both parties filed their respective petitions: the National Power Corporation (NPC) in G.R. No. 47379,
questioning the decision of the Court of Appeals for holding it liable for damages and the Engineering Construction, Inc. (ECI) in G.R. No.
47481, questioning the same decision for reducing the consequential damages and attorney's fees and for eliminating the exemplary
damages.
The facts are succinctly summarized by the respondent Court of Appeals, as follows:
On August 4, 1964, plaintiff Engineering Construction, Inc., being a successful

bidder, executed a contract in Manila with the National Waterworks and Sewerage
Authority (NAWASA), whereby the former undertook to furnish all tools, labor,
equipment, and materials (not furnished by Owner), and to construct the proposed
2nd lpo-Bicti Tunnel, Intake and Outlet Structures, and Appurtenant Structures, and
Appurtenant Features, at Norzagaray, Bulacan, and to complete said works within
eight hundred (800) calendar days from the date the Contractor receives the formal
notice to proceed (Exh. A).
The project involved two (2) major phases: the first phase comprising, the tunnel
work covering a distance of seven (7) kilometers, passing through the mountain, from
the Ipo river, a part of Norzagaray, Bulacan, where the Ipo Dam of the defendant
National Power Corporation is located, to Bicti; the other phase consisting of the
outworks at both ends of the tunnel.
By September 1967, the plaintiff corporation already had completed the first major
phase of the work, namely, the tunnel excavation work. Some portions of the
outworks at the Bicti site were still under construction. As soon as the plaintiff
corporation had finished the tunnel excavation work at the Bicti site, all the
equipment no longer needed there were transferred to the Ipo site where some
projects were yet to be completed.
The record shows that on November 4,1967, typhoon 'Welming' hit Central Luzon,
passing through defendant's Angat Hydro-electric Project and Dam at lpo,
Norzagaray, Bulacan. Strong winds struck the project area, and heavy rains
intermittently fell. Due to the heavy downpour, the water in the reservoir of the Angat
Dam was rising perilously at the rate of sixty (60) centimeters per hour. To prevent
an overflow of water from the dam, since the water level had reached the danger
height of 212 meters above sea level, the defendant corporation caused the opening
of the spillway gates." (pp. 45-46, L-47379, Rollo)
The appellate court sustained the findings of the trial court that the evidence preponlderantly
established the fact that due to the negligent manner with which the spillway gates of the Angat Dam
were opened, an extraordinary large volume of water rushed out of the gates, and hit the
installations and construction works of ECI at the lpo site with terrific impact, as a result of which the
latter's stockpile of materials and supplies, camp facilities and permanent structures and accessories
either washed away, lost or destroyed.
The appellate court further found that:

It cannot be pretended that there was no negligence or that the appellant exercised
extraordinary care in the opening of the spillway gates of the Angat Dam. Maintainers
of the dam knew very well that it was far more safe to open them gradually. But the
spillway gates were opened only when typhoon Welming was already at its height, in
a vain effort to race against time and prevent the overflow of water from the dam as it
'was rising dangerously at the rate of sixty centimeters per hour. 'Action could have
been taken as early as November 3, 1967, when the water in the reservoir was still
low. At that time, the gates of the dam could have been opened in a regulated
manner. Let it be stressed that the appellant knew of the coming of the typhoon four
days before it actually hit the project area. (p. 53, L-47379, Rollo)
As to the award of damages, the appellate court held:
We come now to the award of damages. The appellee submitted a list of estimated
losses and damages to the tunnel project (Ipo side) caused by the instant flooding of
the Angat River (Exh. J-1). The damages were itemized in four categories, to wit:
Camp Facilities P55,700.00; Equipment, Parts and Plant — P375,659.51; Materials
P107,175.80; and Permanent Structures and accessories — P137,250.00, with an
aggregate total amount of P675,785.31. The list is supported by several vouchers
which were all submitted as Exhibits K to M-38 a, N to O, P to U-2 and V to X- 60-a
(Vide: Folders Nos. 1 to 4). The appellant did not submit proofs to traverse the
aforementioned documentary evidence. We hold that the lower court did not commit
any error in awarding P 675,785.31 as actual or compensatory damages.
However, We cannot sustain the award of P333,200.00 as consequential damages.

This amount is broken down as follows: P213,200.00 as and for the rentals of a
crane to temporarily replace the one "destroyed beyond repair," and P120,000.00 as
one month bonus which the appellee failed to realize in accordance with the contract
which the appellee had with NAWASA. Said rental of the crane allegedly covered the
period of one year at the rate of P40.00 an hour for 16 hours a day. The evidence,
however, shows that the appellee bought a crane also a crawler type, on November
10, 1967, six (6) days after the incident in question (Exh N) And according to the
lower court, which finding was never assailed, the appellee resumed its normal
construction work on the Ipo- Bicti Project after a stoppage of only one month. There
is no evidence when the appellee received the crane from the seller, Asian
Enterprise Limited. But there was an agreement that the shipment of the goods
would be effected within 60 days from the opening of the letter of credit (Exh. N). It
<äre||anº•1àw>
appearing that the contract of sale was consummated, We must conclude or at least
assume that the crane was delivered to the appellee within 60 days as stipulated.
The appellee then could have availed of the services of another crane for a period of
only one month (after a work stoppage of one month) at the rate of P 40.00 an hour
for 16 hours a day or a total of P 19,200.00 as rental.
But the value of the new crane cannot be included as part of actual damages
because the old was reactivated after it was repaired. The cost of the repair was P
77,000.00 as shown in item No. 1 under the Equipment, Parts and Plants category
(Exh. J-1), which amount of repair was already included in the actual or
compensatory damages. (pp. 54-56, L-47379, Rollo)
The appellate court likewise rejected the award of unrealized bonus from NAWASA in the amount of
P120,000.00 (computed at P4,000.00 a day in case construction is finished before the specified
time, i.e., within 800 calendar days), considering that the incident occurred after more than three (3)
years or one thousand one hundred seventy (1,170) days. The court also eliminated the award of
exemplary damages as there was no gross negligence on the part of NPC and reduced the amount
of attorney's fees from P50,000.00 to P30,000.00.
In these consolidated petitions, NPC assails the appellate court's decision as being erroneous on the
ground that the destruction and loss of the ECI's equipment and facilities were due to force majeure.
It argues that the rapid rise of the water level in the reservoir of its Angat Dam due to heavy rains
brought about by the typhoon was an extraordinary occurrence that could not have been foreseen,
and thus, the subsequent release of water through the spillway gates and its resultant effect, if any,
on ECI's equipment and facilities may rightly be attributed to force majeure.
On the other hand, ECI assails the reduction of the consequential damages from P333,200.00 to
P19,000.00 on the grounds that the appellate court had no basis in concluding that ECI acquired a
new Crawler-type crane and therefore, it only can claim rentals for the temporary use of the leased
crane for a period of one month; and that the award of P4,000.00 a day or P120,000.00 a month
bonus is justified since the period limitation on ECI's contract with NAWASA had dual effects, i.e.,
bonus for earlier completion and liquidated damages for delayed performance; and in either case at
the rate of P4,000.00 daily. Thus, since NPC's negligence compelled work stoppage for a period of
one month, the said award of P120,000.00 is justified. ECI further assailes the reduction of attorney's
fees and the total elimination of exemplary damages.
Both petitions are without merit.
It is clear from the appellate court's decision that based on its findings of fact and that of the trial
court's, petitioner NPC was undoubtedly negligent because it opened the spillway gates of the Angat
Dam only at the height of typhoon "Welming" when it knew very well that it was safer to have opened
the same gradually and earlier, as it was also undeniable that NPC knew of the coming typhoon at
least four days before it actually struck. And even though the typhoon was an act of God or what we
may call force majeure, NPC cannot escape liability because its negligence was the proximate
cause of the loss and damage. As we have ruled in Juan F. Nakpil & Sons v. Court of Appeals, (144
SCRA 596, 606-607):
Thus, if upon the happening of a fortuitous event or an act of God, there concurs a
corresponding fraud, negligence, delay or violation or contravention in any manner of
the tenor of the obligation as provided for in Article 1170 of the Civil Code, which
results in loss or damage, the obligor cannot escape liability.
The principle embodied in the act of God doctrine strictly requires that the act must
be one occasioned exclusively by the violence of nature and human agencies are to
be excluded from creating or entering into the cause of the mischief. When the effect,
the cause of which is to be considered, is found to be in part the result of the
participation of man, whether it be from active intervention or neglect, or failure to
act, the whole occurrence is thereby humanized, as it was, and removed from the
rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175).
Thus, it has been held that when the negligence of a person concurs with an act of
God in producing a loss, such person is not exempt from liability by showing that the
immediate cause of the damage was the act of God. To be exempt from liability for
loss because of an act of God, he must be free from any previous negligence or
misconduct by which the loss or damage may have been occasioned. (Fish &
Elective Co. v. Phil. Motors, 55 Phil. 129; Tucker v. Milan 49 O.G. 4379; Limpangco
& Sons v. Yangco Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657).
Furthermore, the question of whether or not there was negligence on the part of NPC is a question
of fact which properly falls within the jurisdiction of the Court of Appeals and will not be disturbed by
this Court unless the same is clearly unfounded. Thus, in Tolentino v. Court of appeals, (150 SCRA
26, 36) we ruled:
Moreover, the findings of fact of the Court of Appeals are generally final and
conclusive upon the Supreme Court (Leonardo v. Court of Appeals, 120 SCRA 890
[1983]. In fact it is settled that the Supreme Court is not supposed to weigh evidence
but only to determine its substantially (Nuñez v. Sandiganbayan, 100 SCRA 433
[1982] and will generally not disturb said findings of fact when supported by
substantial evidence (Aytona v. Court of Appeals, 113 SCRA 575 [1985]; Collector of
Customs of Manila v. Intermediate Appellate Court, 137 SCRA 3 [1985]. On the other
hand substantial evidence is defined as such relevant evidence as a reasonable
mind might accept as adequate to support a conclusion (Philippine Metal Products,
Inc. v. Court of Industrial Relations, 90 SCRA 135 [1979]; Police Commission v.
Lood, 127 SCRA 757 [1984]; Canete v. WCC, 136 SCRA 302 [1985])
Therefore, the respondent Court of Appeals did not err in holding the NPC liable for damages.
Likewise, it did not err in reducing the consequential damages from P333,200.00 to P19,000.00. As
shown by the records, while there was no categorical statement or admission on the part of ECI that
it bought a new crane to replace the damaged one, a sales contract was presented to the effect that
the new crane would be delivered to it by Asian Enterprises within 60 days from the opening of the
letter of credit at the cost of P106,336.75. The offer was made by Asian Enterprises a few days after
the flood. As compared to the amount of P106,336.75 for a brand new crane and paying the alleged
amount of P4,000.00 a day as rental for the use of a temporary crane, which use petitioner ECI
alleged to have lasted for a period of one year, thus, totalling P120,000.00, plus the fact that there
was already a sales contract between it and Asian Enterprises, there is no reason why ECI should
opt to rent a temporary crane for a period of one year. The appellate court also found that the
damaged crane was subsequently repaired and reactivated and the cost of repair was P77,000.00.
Therefore, it included the said amount in the award of of compensatory damages, but not the value
of the new crane. We do not find anything erroneous in the decision of the appellate court that the
consequential damages should represent only the service of the temporary crane for one month. A
contrary ruling would result in the unjust enrichment of ECI.
The P120,000.00 bonus was also properly eliminated as the same was granted by the trial court on
the premise that it represented ECI's lost opportunity "to earn the one month bonus from
NAWASA ... ." As stated earlier, the loss or damage to ECI's equipment and facilities occurred long
after the stipulated deadline to finish the construction. No bonus, therefore, could have been possibly
earned by ECI at that point in time. The supposed liquidated damages for failure to finish the project
within the stipulated period or the opposite of the claim for bonus is not clearly presented in the
records of these petitions. It is not shown that NAWASA imposed them.
As to the question of exemplary damages, we sustain the appellate court in eliminating the same
since it found that there was no bad faith on the part of NPC and that neither can the latter's
negligence be considered gross. In Dee Hua Liong Electrical Equipment Corp. v. Reyes, (145 SCRA
713, 719) we ruled:
Neither may private respondent recover exemplary damages since he is not entitled
to moral or compensatory damages, and again because the petitioner is not shown
to have acted in a wanton, fraudulent, reckless or oppressive manner (Art. 2234, Civil
Code; Yutuk v. Manila Electric Co., 2 SCRA 377; Francisco v. Government Service
Insurance System, 7 SCRA 577; Gutierrez v. Villegas, 8 SCRA 527; Air France v.
Carrascoso, 18 SCRA 155; Pan Pacific (Phil.) v. Phil. Advertising Corp., 23 SCRA
977; Marchan v. Mendoza, 24 SCRA 888).
We also affirm the reduction of attorney's fees from P50,000.00 to P30,000.00. There are no
compelling reasons why we should set aside the appellate court's finding that the latter amount
suffices for the services rendered by ECI's counsel.
WHEREFORE, the petitions in G.R. No. 47379 and G.R. No. 47481 are both DISMISSED for LACK
OF MERIT. The decision appealed from is AFFIRMED.
SO ORDERED.
Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
[G.R. No. 71049. May 29, 1987.]
BERNARDINO JIMENEZ, Petitioner, v. CITY OF MANILA and INTERMEDIATE

APPELLATE COURT, Respondents.
DECISION
PARAS, J.:
This is a petition for review on certiorari of : (1) the decision * of the Intermediate
Appellate Court in AC-G.R. No. 013887-CV Bernardino Jimenez v. Asiatic Integrated
Corporation and City of Manila, reversing the decision ** of the Court of First Instance
of Manila, Branch XXII in Civil Case No. 96390 between the same parties, but only
insofar as holding Asiatic Integrated Corporation solely liable for damages and
attorney’s fees instead of making the City of Manila jointly and solidarily liable with it as
prayed for by the petitioner and (2) the resolution of the same Appellate Court denying
his Partial Motion for Reconsideration (Rollo, p. 2).
The dispositive portion of the Intermediate Appellate Court’s decision is as follows: jgc:chanrobles.com.ph
"WHEREFORE, the decision appealed from is hereby REVERSED. A new one is hereby
entered ordering the defendant Asiatic Integrated Corporation to pay the plaintiff
P221.90 actual medical expenses, P900.00 for the amount paid for the operation and
management of a school bus, P20,000.00 as moral damages due to pains, sufferings
and sleepless nights and P10,000.00 as attorney’s fees.
SO ORDERED." (p. 20, Rollo)
The findings of respondent Appellate Court are as follows: chanrob1es virtual 1aw library
The evidence of the plaintiff (petitioner herein) shows that in the morning of August 15,
1974 he, together with his neighbors, went to Sta. Ana public market to buy "bagoong"
at the time when the public market was flooded with ankle deep rainwater. After
purchasing the "bagoong" he turned around to return home but he stepped on an
uncovered opening which could not be seen because of the dirty rainwater, causing a
dirty and rusty four inch nail, stuck inside the uncovered opening, to pierce the left leg
of plaintiff-petitioner penetrating to a depth of about one and a half inches. After
administering first aid treatment at a nearby drugstore, his companions helped him
hobble home. He felt ill and developed fever and he had to be carried to Dr. Juanita
Mascardo. Despite the medicine administered to him by the latter, his left leg swelled
with great pain. He was then rushed to the Veterans Memorial Hospital where he had to
be confined for twenty (20) days due to high fever and severe pain.
Upon his discharge from the hospital, he had to walk around with crutches for fifteen
(15) days. His injury prevented him from attending to the school buses he is operating.
As a result, he had to engage the services of one Bienvenido Valdez to supervise his
business for an aggregate compensation of nine hundred pesos (P900.00). (Decision,
AC-G.R. CV No. 01387, Rollo, pp. 13-20). cralawnad
Petitioner sued for damages the City of Manila and the Asiatic Integrated Corporation
under whose administration the Sta. Ana Public Market had been placed by virtue of a
Management and Operating Contract (Rollo, p. 47).
The lower court decided in favor of respondents, the dispositive portion of the decision
reading:jgc:chanrobles.com.ph
"WHEREFORE, judgment is hereby rendered in favor of the defendants and against the
plaintiff dismissing the complaint with costs against the plaintiff. For lack of sufficient
evidence, the counterclaims of the defendants are likewise dismissed." (Decision, Civil
Case No. 96390, Rollo, p. 42).
As above stated, on appeal, the Intermediate Appellate Court held the Asiatic
Integrated Corporation liable for damages but absolved respondent City of Manila.
Hence this petition.
The lone assignment of error raised in this petition is on whether or not the
Intermediate Appellate Court erred in not ruling that respondent City of Manila should
be jointly and severally liable with Asiatic Integrated Corporation for the injuries
petitioner suffered.
In compliance with the resolution of July 1, 1985 of the First Division of this Court
(Rollo, p. 29) respondent City of Manila filed its comment on August 13, 1985 (Rollo, p.
34) while petitioner filed its Reply on August 21, 1985 (Rollo, p. 51).
Thereafter, the Court in the resolution of September 11, 1985 (Rollo, p. 62) gave due
course to the petition and required both parties to submit simultaneous memoranda.
Petitioner filed his memorandum on October 1, 1985 (Rollo, p. 65) while respondent
filed its memorandum on October 24, 1985 (Rollo, p. 82).
In the resolution of October 13, 1986, this case was transferred to the Second Division
of this Court, the same having been assigned to a member of said Division (Rollo, p.
92).
The petition is impressed with merit.
As correctly found by the Intermediate Appellate Court, there is no doubt that the
plaintiff suffered injuries when he fell into a drainage opening without any cover in the
Sta. Ana Public Market. Defendants do not deny that plaintiff was in fact injured
although the Asiatic Integrated Corporation tries to minimize the extent of the injuries,
claiming that it was only a small puncture and that as a war veteran, plaintiff’s
hospitalization at the War Veteran’s Hospital was free. (Decision, AC-G.R. CV No.
01387, Rollo, p. 6). chanrobles virtual lawlibrary
Respondent City of Manila maintains that it cannot be held liable for the injuries
sustained by the petitioner because under the Management and Operating Contract,
Asiatic Integrated Corporation assumed all responsibility for damages which may be
suffered by third persons for any cause attributable to it.
It has also been argued that the City of Manila cannot be held liable under Article 1,
Section 4 of Republic Act No. 409 as amended (Revised Charter of Manila) which
provides: jgc:chanrobles.com.ph
"The City shall not be liable or held for damages or injuries to persons or property
arising from the failure of the Mayor, the Municipal Board, or any other City Officer, to
enforce the provisions of this chapter, or any other law or ordinance, or from
negligence of said Mayor, Municipal Board, or any other officers while enforcing or
attempting to enforce said provisions." cralaw virtua1aw library
This issue has been laid to rest in the case of City of Manila v. Teotico (22 SCRA 269-
272 [1968]) where the Supreme Court squarely ruled that Republic Act No. 409
establishes a general rule regulating the liability of the City of Manila for "damages or
injury to persons or property arising from the failure of city officers" to enforce the
provisions of said Act, "or any other law or ordinance or from negligence" of the City
"Mayor, Municipal Board, or other officers while enforcing or attempting to enforce said
provisions." cralaw virtua1aw library
Upon the other hand, Article 2189 of the Civil Code of the Philippines which provides
that:jgc:chanrobles.com.ph
"Provinces, cities and municipalities shall be liable for damages for the death of, or
injuries suffered by any person by reason of defective conditions of roads, streets,
bridges, public buildings and other public works under their control or supervision." cralaw virtua1aw library
constitutes a particular prescription making "provinces, cities and municipalities . . .

liable for damages for the death of, or injury suffered by any person by reason" —
specifically — "of the defective condition of roads, streets, bridges, public buildings, and
other public works under their control or supervision." In other words, Art. 1, sec. 4,
R.A. No. 409 refers to liability arising from negligence, in general, regardless of the
object, thereof, while Article 2189 of the Civil Code governs liability due to "defective
streets, public buildings and other public works" in particular and is therefore decisive
on this specific case.
In the same suit, the Supreme Court clarified further that under Article 2189 of the Civil
Code, it is not necessary for the liability therein established to attach, that the defective
public works belong to the province, city or municipality from which responsibility is
exacted. What said article requires is that the province, city or municipality has either
"control or supervision" over the public building in question. chanrobles virtual lawlibrary
In the case at bar, there is no question that the Sta. Ana Public Market, despite the
Management and Operating Contract between respondent City and Asiatic Integrated
Corporation remained under the control of the former.
For one thing, said contract is explicit in this regard, when it provides: chanrob1es virtual 1aw library
"II
That immediately after the execution of this contract, the SECOND PARTY shall start the
painting, cleaning, sanitizing and repair of the public markets and talipapas and within
ninety (90) days thereof, the SECOND PARTY shall submit a program of improvement,
development, rehabilitation and reconstruction of the city public markets and talipapas
subject to prior approval of the FIRST PARTY. (Rollo, p. 44)
x x x
"VI
That all present personnel of the City public markets and talipapas shall be retained by
the SECOND PARTY as long as their services remain satisfactory and they shall be
extended the same rights and privileges as heretofore enjoyed by them. Provided,
however, that the SECOND PARTY shall have the right, subject to prior approval of the
FIRST PARTY to discharge any of the present employees for cause. (Rollo, p. 45).
"VII
That the SECOND PARTY may from time to time be required by the FIRST PARTY, or his
duly authorized representative or representatives, to report on the activities and
operation of the City public markets and talipapas and the facilities and conveniences
installed therein, particularly as to their cost of construction, operation and
maintenance in connection with the stipulations contained in this Contract." (Ibid.)
The fact of supervision and control of the City over subject public market was admitted
by Mayor Ramon Bagatsing in his letter to Secretary of Finance Cesar Virata which
reads:jgc:chanrobles.com.ph
"These cases arose from the controversy over the Management and Operating Contract
entered into on December 28, 1972 by and between the City of Manila and the Asiatic
Integrated Corporation, whereby in consideration of a fixed service fee, the City hired
the services of the said corporation to undertake the physical management,
maintenance, rehabilitation and development of the City’s public markets and
‘Talipapas’ subject to the control and supervision of the City.
x x x
"It is believed that there is nothing incongruous in the exercise of these powers vis-a-
vis the existence of the contract, inasmuch as the City retains the power of supervision
and control over its public markets and talipapas under the terms of the contract."
(Exhibit 7-A.) (Emphasis supplied.) (Rollo, p. 75).
In fact, the City of Manila employed a market master for the Sta. Ana Public Market
whose primary duty is to take direct supervision and control of that particular market,
more specifically, to check the safety of the place for the public.
Thus the Asst. Chief of the Market Division and Deputy Market Administrator of the City
of Manila testified as follows:
jgc:chanrobles.com.ph
"Court This market master is an employee of the City of Manila?
Mr. Ymson Yes, Your Honor.
Q What are his functions?
A Direct supervision and control over the market area assigned to him." (T.s.n., pp. 41-
42, Hearing of May 20, 1977.)
x x x
"Court As far as you know there is or is there any specific employee assigned with the
task of seeing to it that the Sta. Ana Market is safe for the public?
"Mr. Ymson Actually, as I stated, Your Honor, that the Sta. Ana has its own market
master. The primary duty of that market master is to make the direct supervision and
control of that particular market, the check or verifying whether the place is safe for
public safety is vested in the market master." (T.s.n., pp. 24-25, Hearing of July 27,
1977.) (Emphasis supplied.) (Rollo, p. 76).
Finally, Section 30 (g) of the Local Tax Code as amended, provides: jgc:chanrobles.com.ph
"The treasurer shall exercise direct and immediate supervision, administration and
control over public markets and the personnel thereof, including those whose duties
concern the maintenance and upkeep of the market and ordinances and other pertinent
rules and regulations." (Emphasis supplied.) (Rollo, p. 76)
The contention of respondent City of Manila that petitioner should not have ventured to
go to Sta. Ana Public Market during a stormy weather is indeed untenable. As observed
by respondent Court of Appeals, it is an error for the trial court to attribute the
negligence to herein petitioner. More specifically stated, the findings of appellate court
are as follows:jgc:chanrobles.com.ph
". . . The trial court even chastised the plaintiff for going to market on a rainy day just
to buy bagoong. A customer in a store has the right to assume that the owner will
comply with his duty to keep the premises safe for customers. If he ventures to the
store on the basis of such assumption and is injured because the owner and not comply
with his duty, no negligence can be imputed to the customer." (Decision, AC-G.R. CV
No. 01387, Rollo, p. 19).
As a defense against liability on the basis of a quasi-delict, one must have exercised the
diligence of a good father of a family. (Art. 1173 of the Civil Code).
There is no argument that it is the duty of the City of Manila to exercise reasonable
care to keep the public market reasonably safe for people frequenting the place for
their marketing needs.
While it may be conceded that the fulfillment of such duties is extremely difficult during
storms and floods, it must however, be admitted that ordinary precautions could have
been taken during good weather to minimize the dangers to life and limb under those
difficult circumstances. chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph
For instance, the drainage hole could have been placed under the stalls instead of on
the passage ways. Even more important is the fact, that the City should have seen to it
that the openings were covered. Sadly, the evidence indicates that long before
petitioner fell into the opening, it was already uncovered, and five (5) months after the
incident happened, the opening was still uncovered. (Rollo, pp. 57; 59). Moreover,
while there are findings that during floods the vendors remove the iron grills to hasten
the flow of water (Decision, AC-G.R. CV No. 01387; Rollo, p. 17), there is no showing
that such practice has ever been prohibited, much less penalized by the City of Manila.
Neither was it shown that any sign had been placed thereabouts to warn passers-by of
the impending danger.
To recapitulate, it appears evident that the City of Manila is likewise liable for damages
under Article 2189 of the Civil Code, respondent City having retained control and
supervision over the Sta. Ana Public Market and as tort-feasor under Article 2176 of the
Civil Code on quasi-delicts.
Petitioner had the right to assume that there were no openings in the middle of the
passageways and if any, that they were adequately covered. Had the opening been
covered, petitioner could not have fallen into it. Thus the negligence of the City of
Manila is the proximate cause of the injury suffered, the City is therefore liable for the
injury suffered by the petitioner.
Respondent City of Manila and Asiatic Integrated Corporation being joint tort-feasors,
are solidarily liable under Article 2194 of the Civil Code.
PREMISES CONSIDERED, the decision of the Court of Appeals is hereby MODIFIED,

making the City of Manila and the Asiatic Integrated Corporation solidarily liable to pay
the plaintiff P221.90 actual medical expenses, P900.00 for the amount paid for the
operation and management of the school bus, P20,000.00 as moral damages due to
pain, sufferings and sleepless nights and P10,000.00 as attorney’s fees.
SO ORDERED.
Fernan (Chairman), Gutierrez, Jr., Padilla, Bidin and Cortes, JJ., concur.

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Villaroel v. Estrada, G.R. No. L-47262, 19 December 1940.

DBP VS CONFESOR G.R. No. 48889 May 11, 1988

On February 10, 1940, spouses Patricio Confesor and Jovita Villafuerte

Cruz vs. J. M. Tuason & Co., Inc., 76 SCRA 543, G.R.

Cruz v. Tuazon & Co., 76 SCRA 543

G.R. No. L-23749 April 29, 1977

FAUSTINO CRUZ, plaintiff-appellant,

Actually, a perusal of plaintiff-appellant's complaint below shows that

Plaintiff opposed the motion, insisting that Article 2142 of the

In the motion, dated January 31, 1964, defendant Gregorio Araneta,

From the allegations of the complaint, it appears that, by virtue of an

On the issue that the complaint insofar as it claims the reimbursement

WHEREFORE, the plaintiffs complaint is hereby ordered DISMISSED

SO ORDERED. (Pp. 65-69, Rec. on Appeal,)

On August 22, 1964, plaintiff's counsel filed a motion for

1. THAT THE COMPLAINT STATES A SUFFICIENT CAUSE OF ACTION

1. THAT THE COMPLAINT STATES A SUFFICIENT CAUSE OF ACTION

xxx xxx xxx

On the issue that the complaint, in so far as it claims the

Plaintiff's cause of action is premised inter alia, on the theory of unjust

In like vein, Article 19 of the same Code enjoins that:

We respectfully draw the attention of this Honorable Court to the fact

The Statute of Frauds is CLEARLY inapplicable to this case:

At page 2 of this Honorable Court's order dated 13 August 1964, the

xxx xxx xxx

On the issue of statute of fraud, the Court believes that same is

xxx xxx xxx

(a) That plaintiff succeed in convincing the DEUDORS to enter into a

(b) That as of date of signing the compromise agreement, plaintiff shall

13). That in order to effect a compromise between the parties. plaintiff

That plaintiff further assisted defendants' employees in the actual

SAME ACTION TO ENFORCE. — The statute of frauds has been

2 THE STATUTE OF FRAUDS IS APPLICABLE ONLY TO EXECUTORY

Under paragraphs 13 and 14 of the complaint (supra) one can readily

Plaintiff's Cause of Action had NOT Prescribed:

xxx xxx xxx

The present action has not prescribed, especially when we consider

(b) That as of date of signing the compromise agreement, plaintiff shall

The compromise agreement between defendants and the Deudors

Since the contract now sought to be enforced was not reduced to

In this posture, we gain respectfully submit that this Honorable Court

WHEREFORE, it is respectfully prayed that " Honorable Court reconsider

Defendants filed an opposition on the main ground that "the

On September 7, 1964, the trial court denied the motion for

After considering the plaintiff's Motion for Reconsideration of August

SO ORDERED. (Page 90, Rec. on Appeal.)

In his brief, appellant poses and discusses the following assignments of

I. THAT THE LOWER COURT ERRED IN DISMISSING THE COMPLAINT ON

III. THAT THE LOWER COURT ERRED IN DISMISSING THE COMPLAINT

We agree with appellant that the Statute of Frauds was erroneously

(a) An agreement that by its terms is not to be performed within a year

(c) An agreement made in consideration of marriage, other than a

(d) An agreement for the sale of goods, chattels or things in action, at a

(f) a representation as to the credit of a third person.

(3) Those where both parties are incapable of giving consent to a

In the instant case, what appellant is trying to enforce is the delivery to

We cannot, however, escape taking judicial notice, in relation to the

It is also worthy of note that the compromise between Deudors and

As regards appellant's third assignment of error, We hold that the

From the very language of this provision, it is obvious that a presumed

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

Fernando (Chairman), Antonio, Aquino and Martin, .JJ., concur.

Concepcion, Jr., JJ., took no part.