G.R. No.

105188 January 23, 1998

MYRON C. PAPA, Administrator of the Testate Estate of Angela M. Butte, petitioner,

vs.
A.U. VALENCIA and CO. INC., FELIX PEÑARROYO, SPS. ARSENIO B. REYES & AMANDA
SANTOS, and DELFIN JAO, respondents.

KAPUNAN, J.:

In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Myron C. Papa seeks to
reverse and set aside 1) the Decision dated 27 January 1992 of the Court of Appeals which affirmed with
modification the decision of the trial court; and 2) the Resolution dated 22 April 1992 of the same court, which
denied petitioner's motion for reconsideration of the above decision.

The antecedent facts of this case are as follows:

Sometime in June 1982, herein private respondents A.U. Valencia and Co., Inc. (hereinafter referred to as
respondent Valencia, for brevity) and Felix Peñarroyo (hereinafter called respondent Peñarroyo), filed with the
Regional Trial Court of Pasig, Branch 151, a complaint for specific performance against herein petitioner
Myron C. Papa, in his capacity as administrator of the Testate Estate of one Angela M. Butte.

The complaint alleged that on 15 June 1973, petitioner Myron C. Papa, acting as attorney-in-fact of Angela M.
Butte, sold to respondent Peñarroyo, through respondent Valencia, a parcel of land, consisting of 286.60 square
meters, located at corner Retiro and Cadiz Streets, La Loma, Quezon City, and covered by Transfer Certificate
of Title No. 28993 of the Register of Deeds of Quezon City; that prior to the alleged sale, the said property,
together with several other parcels of land likewise owned by Angela M. Butte, had been mortgaged by her to
the Associated Banking Corporation (now Associated Citizens Bank); that after the alleged sale, but before the
title to the subject property had been released, Angela M. Butte passed away; that despite representations made
by herein respondents to the bank to release the title to the property sold to respondent Peñarroyo, the bank
refused to release it unless and until all the mortgaged properties of the late Angela M. Butte were also
redeemed; that in order to protect his rights and interests over the property, respondent Peñarroyo caused the
annotation on the title of an adverse claim as evidenced by Entry No. P.E.-6118/T-28993, inscribed on 18
January 1997.

The complaint further alleged that it was only upon the release of the title to the property, sometime in April
1977, that respondents Valencia and Peñarroyo discovered that the mortgage rights of the bank had been
assigned to one Tomas L. Parpana (now deceased), as special administrator of the Estate of Ramon Papa, Jr., on
12 April 1977; that since then, herein petitioner had been collecting monthly rentals in the amount of P800.00
from the tenants of the property, knowing that said property had already been sold to private respondents on 15
June 1973; that despite repeated demands from said respondents, petitioner refused and failed to deliver the title
to the property. Thereupon, respondents Valencia and Peñarroyo filed a complaint for specific performance,
praying that petitioner be ordered to deliver to respondent Peñarroyo the title to the subject property (TCT
28993); to turn over to the latter the sum of P72,000.00 as accrued rentals as of April 1982, and the monthly
rental of P800.00 until the property is delivered to respondent Peñarroyo; to pay respondents the sum of
P20,000.00 as attorney's fees; and to pay the costs of the suit.

In his Answer, petitioner admitted that the lot had been mortgaged to the Associated Banking Corporation (now
Associated Citizens Bank). He contended, however, that the complaint did not state a cause of action; that the
real property in interest was the Testate Estate of Angela M. Butte, which should have been joined as a party
defendant; that the case amounted to a claim against the Estate of Angela M. Butte and should have been filed
in Special Proceedings No. A-17910 before the Probate Court in Quezon City; and that, if as alleged in the
complaint, the property had been assigned to Tomas L. Parpana, as special administrator of the Estate of Ramon
Papa, Jr., said estate should be impleaded. Petitioner, likewise, claimed that he could not recall in detail the
transaction which allegedly occurred in 1973; that he did not have TCT No. 28993 in his possession; that he
could not be held personally liable as he signed the deed merely as attorney-in-fact of said Angela M. Butte.
Finally, petitioner asseverated that as a result of the filing of the case, he was compelled to hire the services of
counsel for a fee of P20,000.00 for which respondents should be held liable.

Upon his motion, herein private respondent Delfin Jao was allowed to intervene in the case. Making common
cause with respondents Valencia and Peñarroyo, respondent Jao alleged that the subject lot which had been sold
to respondent Peñarroyo through respondent Valencia was in turn sold to him on 20 August 1973 for the sum of
P71,500.00, upon his paying earnest money in the amount of P5,000.00. He, therefore, prayed that judgment be
rendered in favor of respondents, the latter in turn be ordered to execute in his favor the appropriate deed of
conveyance covering the property in question and to turn over to him the rentals which aforesaid respondents
sought to collect from petitioner Myron V. Papa.

Respondent Jao, likewise, averred that as a result of petitioner's refusal to deliver the title to the property to
respondents Valencia and Peñarroyo, who in turn failed to deliver the said title to him, he suffered mental
anguish and serious anxiety for which he sought payment of moral damages; and, additionally, the payment of
attorney's fees and costs.

For his part, petitioner, as administrator of the Testate Estate of Angela M. Butte, filed a third-party complaint
against herein private respondents, spouses Arsenio B. Reyes and Amanda Santos (respondent Reyes spouses,
for short). He averred, among other's that the late Angela M. Butte was the owner of the subject property; that
due to non-payment of real estate tax said property was sold at public auction the City Treasurer of Quezon City
to the respondent Reyes spouses on 21 January 1980 for the sum of P14,000.00; that the one-year period of
redemption had expired; that respondents Valencia and Peñarroyo had sued petitioner Papa as administrator of
the estate of Angela M. Butte, for the delivery of the title to the property; that the same aforenamed respondents
had acknowledged that the price paid by them was insufficient, and that they were willing to add a reasonable
amount or a minimum of P55,000.00 to the price upon delivery of the property, considering that the same was
estimated to be worth P143,000.00; that petitioner was willing to reimburse respondents Reyes spouses
whatever amount they might have paid for taxes and other charges, since the subject property was still
registered in the name of the late Angela M. Butte; that it was inequitable to allow respondent Reyes spouses to
acquire property estimated to be worth P143,000.00, for a measly sum of P14,000.00. Petitioner prayed that
judgment be rendered canceling the tax sale to respondent Reyes spouses; restoring the subject property to him
upon payment by him to said respondent Reyes spouses of the amount of P14,000.00, plus legal interest; and,
ordering respondents Valencia and Peñarroyo to pay him at least P55,000.00 plus everything they might have to
pay the Reyes spouses in recovering the property.

Respondent Reyes spouses in their Answer raised the defense of prescription of petitioner's right to redeem the
property.

At the trial, only respondent Peñarroyo testified. All the other parties only submitted documentary proof.

On 29 June 1987, the trial court rendered a decision, the dispositive portion of which reads:

WHEREUPON, judgment is hereby rendered as follows:

1) Allowing defendant to redeem from third-party defendants and ordering the latter to allow the
former to redeem the property in question, by paying the sum of P14,000.00 plus legal interest of
12% thereon from January 21, 1980;

2) Ordering defendant to execute a Deed of Absolute Sale in favor of plaintiff Felix Peñarroyo
covering the property in question and to deliver peaceful possession and enjoyment of the said
property to the said plaintiff, free from any liens and encumbrances;

Should this not be possible, for any reason not attributable to defendant, said defendant is
ordered to pay to plaintiff Felix Peñarroyo the sum of P45,000.00 plus legal interest of 12% from
June 15, 1973;

3) Ordering plaintiff Felix Peñarroyo to execute and deliver to intervenor a deed of absolute sale
over the same property, upon the latter's payment to the former of the balance of the purchase
price of P71,500.00;

Should this not be possible, plaintiff Felix Peñarroyo is ordered to pay intervenor the sum of
P5,000.00 plus legal interest of 12% from August 23, 1973; and

4) Ordering defendant to pay plaintiffs the amount of P5,000.00 for and as attorney's fees and
litigation expenses.

SO ORDERED.1
Petitioner appealed the aforesaid decision of the trial court to the Court of Appeals, alleging among others that
the sale was never "consummated" as he did not encash the check (in the amount of P40,000.00) given by
respondents Valencia and Peñarroyo in payment of the full purchase price of the subject lot. He maintained that
what said respondent had actually paid was only the amount of P5,000.00 (in cash) as earnest money.

Respondent Reyes spouses, likewise, appealed the above decision. However, their appeal was dismissed
because of failure to file their appellant's brief.

On 27 January 1992, the Court of Appeals rendered a decision, affirming with modification the trial court's
decision, thus:

WHEREFORE, the second paragraph of the dispositive portion of the appealed decision is
MODIFIED, by ordering the defendant-appellant to deliver to plaintiff-appellees the owner's
duplicate of TCT No. 28993 of Angela M. Butte and the peaceful possession and enjoyment of
the lot in question or, if the owner's duplicate certificate cannot be produced, to authorize the
Register of Deeds to cancel it and issue a certificate of title in the name of Felix Peñarroyo. In all
other respects, the decision appealed from is AFFIRMED. Costs against defendant-appellant
Myron C. Papa.

SO ORDERED.2

In affirming the trial court's decision, respondent court held that contrary to petitioner's claim that he did not
encash the aforesaid check, and therefore, the sale was not consummated, there was no evidence at all that
petitioner did not, in fact, encash said check. On the other hand, respondent Peñarroyo testified in court that
petitioner Papa had received the amount of P45,000.00 and issued receipts therefor. According to respondent
court, the presumption is that the check was encashed, especially since the payment by check was not denied by
defendant-appellant (herein petitioner) who, in his Answer, merely alleged that he "can no longer recall the
transaction which is supposed to have happened 10 years ago."3

On petitioner's claim that he cannot be held personally liable as he had acted merely as attorney-in-fact of the
owner, Angela M. Butte, respondent court held that such contention is without merit. This action was not
brought against him in his personal capacity, but in his capacity as the administrator of the Testate Estate of
Angela M. Butte.4

On petitioner's contention that the estate of Angela M. Butte should have been joined in the action as the real
party in interest, respondent court held that pursuant to Rule 3, Section 3 of the Rules of Court, the estate of
Angela M. Butte does not have to be joined in the action. Likewise, the estate of Ramon Papa, Jr., is not an
indispensable party under Rule 3, Section 7 of the same Rules. For the fact is that Ramon Papa, Jr., or his estate,
was not a party to the Deed of Absolute Sale, and it is basic law that contracts bind only those who are parties
thereto.5

Respondent court observed that the conditions under which the mortgage rights of the bank were assigned are
not clear. In any case, any obligation which the estate of Angela M. Butte might have to the estate of Ramon
Papa, Jr. is strictly between them. Respondents Valencia and Peñarroyo are not bound by any such obligation.

Petitioner filed a motion for reconsideration of the above decision, which motion was denied by respondent
Court of Appeals.

Hence, this petition wherein petitioner raises the following issues:

I. THE CONCLUSION OR FINDING OF THE COURT OF APPEALS THAT THE SALE IN

QUESTION WAS CONSUMMATED IS GROUNDED ON SPECULATION OR
CONJECTURE, AND IS CONTRARY TO THE APPLICABLE LEGAL PRINCIPLE.

II. THE COURT OF APPEALS, IN MODIFYING THE DECISION OF THE TRIAL COURT,
ERRED BECAUSE IT, IN EFFECT, CANCELLED OR NULLIFIED AN ASSIGNMENT OF
THE SUBJECT PROPERTY IN FAVOR OF THE ESTATE OF RAMON PAPA, JR. WHICH
IS NOT A PARTY IN THIS CASE.

III. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ESTATE OF
ANGELA M. BUTTE AND THE ESTATE OF RAMON PAPA, JR. ARE INDISPENSABLE
 PARTIES IN THIS
CASE.6

Petitioner argues that respondent Court of Appeals erred in concluding that alleged sale of the subject property
had been consummated. He contends that such a conclusion is based on the erroneous presumption that the
check (in the amount of P40,000.00) had been cashed, citing Art. 1249 of the Civil Code, which provides, in
part, that payment by checks shall produce the effect of payment only when they have been cashed or when
through the fault of the creditor they have been impaired.7 Petitioner insists that he never cashed said check;
and, such being the case, its delivery never produced the effect of payment. Petitioner, while admitting
that he had issued receipts for the payments, asserts that said receipts, particularly the receipt of PCIB
Check No. 761025 in the amount of P40,000.00, do not prove payment. He avers that there must be a
showing that said check had been encashed. If, according to petitioner, the check had been encashed,
respondent Peñarroyo should have presented PCIB Check No. 761025 duly stamped received by the
payee, or at least its microfilm copy.

Petitioner finally avers that, in fact, the consideration for the sale was still in the hands of respondents
Valencia and Peñarroyo, as evidenced by a letter addressed to him in which said respondents wrote, in
part:

. . . Please be informed that I had been authorized by Dr. Ramon Papa, Jr., heir of Mrs.
Angela M. Butte to pay you the aforementioned amount of P75,000.00 for the release and
cancellation of subject property's mortgage. The money is with me and if it is alright with
you, I would like to tender the payment as soon as possible. . . .8

We find no merit in petitioner's arguments.

It is an undisputed fact that respondents Valencia and Peñarroyo had given petitioner Myron C. Papa
the amounts of Five Thousand Pesos (P5,000.00) in cash on 24 May 1973, and Forty Thousand Pesos
(P40,000.00) in check on 15 June 1973, in payment of the purchase price of the subject lot. Petitioner
himself admits having received said amounts,9 and having issued receipts therefor.10 Petitioner's assertion
that he never encashed the aforesaid check is not substantiated and is at odds with his statement in his
answer that "he can no longer recall the transaction which is supposed to have happened 10 years ago."
After more than ten (10) years from the payment in party by cash and in part by check, the presumption
is that the check had been encashed. As already stated, he even waived the presentation of oral evidence.

Granting that petitioner had never encashed the check, his failure to do so for more than ten (10) years
undoubtedly resulted in the impairment of the check through his unreasonable and unexplained delay.

While it is true that the delivery of a check produces the effect of payment only when it is cashed,
pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the creditor's
unreasonable delay in presentment. The acceptance of a check implies an undertaking of due diligence in
presenting it for payment, and if he from whom it is received sustains loss by want of such diligence, it
will be held to operate as actual payment of the debt or obligation for which it was given. 11 It has,
likewise, been held that if no presentment is made at all, the drawer cannot be held liable irrespective of
loss or injury12 unless presentment is otherwise excused. This is in harmony with Article 1249 of the Civil
Code under which payment by way of check or other negotiable instrument is conditioned on its being
cashed, except when through the fault of the creditor, the instrument is impaired. The payee of a check
would be a creditor under this provision and if its no-payment is caused by his negligence, payment will
be deemed effected and the obligation for which the check was given as conditional payment will be
discharged.13

Considering that respondents Valencia and Peñarroyo had fulfilled their part of the contract of sale by
delivering the payment of the purchase price, said respondents, therefore, had the right to compel
petitioner to deliver to them the owner's duplicate of TCT No. 28993 of Angela M. Butte and the peaceful
possession and enjoyment of the lot in question.

With regard to the alleged assignment of mortgage rights, respondent Court of Appeals has found that
the conditions under which said mortgage rights of the bank were assigned are not clear. Indeed, a
perusal of the original records of the case would show that there is nothing there that could shed light on
the transactions leading to the said assignment of rights; nor is there any evidence on record of the
conditions under which said mortgage rights were assigned. What is certain is that despite the said
assignment of mortgage rights, the title to the subject property has remained in the name of the late
Angela M. Butte.14 This much is admitted by petitioner himself in his answer to respondent's complaint
as well as in the third-party complaint that petitioner filed against respondent-spouses Arsenio B. Reyes
and Amanda Santos.15 Assuming arquendo that the mortgage rights of the Associated Citizens Bank had
been assigned to the estate of Ramon Papa, Jr., and granting that the assigned mortgage rights validly
exists and constitute a lien on the property, the estate may file the appropriate action to enforce such lien.
The cause of action for specific performance which respondents Valencia and Peñarroyo have against
petitioner is different from the cause of action which the estate of Ramon Papa, Jr. may have to enforce
whatever rights or liens it has on the property by reason of its being an alleged assignee of the bank's
rights of mortgage.

Finally, the estate of Angela M. Butte is not an indispensable party. Under Section 3 of Rule 3 of the
Rules of Court, an executor or administrator may sue or be sued without joining the party for whose
benefit the action is presented or defended, thus:

Sec. 3. Representative parties. — A trustee of an express trust, a guardian, executor or

administrator, or a party authorized by statute, may sue or be sued without joining the
party for whose benefit the action is presented or defended; but the court may, at any stage
of the proceedings, order such beneficiary to be made a party. An agent acting in his own
name and for the benefit of an undisclosed principal may sue or be sued without joining the
principal except when the contract involves things belonging to the principal. 16

Neither is the estate of Ramon Papa, Jr. an indispensable party without whom, no final determination of
the action can be had. Whatever prior and subsisting mortgage rights the estate of Ramon Papa, Jr. has
over the property may still be enforced regardless of the change in ownership thereof.

WHEREFORE, the petition for review is hereby DENIED and the Decision of the Court of Appeals,
dated 27 January 1992 is AFFIRMED.

SO ORDERED.

Davide, Jr., Bellosillo and Vitug, JJ., concur.

G.R. No. 119850 June 20, 1996

MANDARIN VILLA, INC., petitioner,

vs.
COURT OF APPEALS, and CLODUALDO DE JESUS, respondents.

RESOLUTION

FRANCISCO, J.:p

With ample evidentiary support are the following antecedent facts:

In the evening of October 19, 1989, private respondent, Clodualdo de Jesus, a practicing lawyer and
businessman, hosted a dinner for his friends at the petitioner's restaurant, the Mandarin Villa Seafoods Village
Greenhills, Mandaluyong City. After dinner the waiter handed to him the bill in the amount of P2,658.50.
Private respondent offered to pay the bill through his credit card issued by Philippine Commercial Credit Card
Inc. (BANKARD). This card was accepted by the waiter who immediately proceeded to the restaurant's cashier
for card verification. Ten minutes later, however, the waiter returned and audibly informed private respondent
that his credit card had expired.1 Private respondent remonstrated that said credit card had yet to expire on
September 1990, as embossed on its face. 2 The waiter was unmoved, thus, private respondent and two of his
guests approached the restaurant's cashier who again passed the credit card over the verification computer. The
same information was produced, i.e., CARD EXPIRED. Private respondent and his guests returned to their table
and at this juncture, Professor Lirag, another guest, uttered the following remarks: "Clody [referring to
Clodualdo de Jesus], may problema ba? Baka kailangang maghugas na kami ng pinggan?"3 Thereupon, private
respondent left the restaurant and got his BPI Express Credit Card from his car and offered it to pay their bill.
This was accepted and honored by the cashier after verification.4 Petitioner and his companions left afterwards.

The incident triggered the filing of a suit for damages by private respondent. Following a full-dress trial,
judgment was rendered directing the petitioner and BANKARD to pay jointly and severally the private
respondent: (a) moral damages in the amount of P250,000.00; (b) exemplary damages in the amount of
P100,000.00, and (c) attorney's fees and litigation expenses in the amount of P50,000.00.

Both the petitioner and BANKARD appealed to the respondent Court of Appeals which rendered a decision,
thus:

WHEREFORE, the decision appealed from is hereby MODIFIED by:

1. Finding appellant MANDARIN solely responsible for damages in favor of appellee;

2. Absolving appellant BANKARD of any responsibility for damages;

3. Reducing moral damages awarded to appellee to TWENTY FIVE THOUSAND and 00/100
(P25,000.00) PESOS;

4. Reducing exemplary damages awarded to appellee to TEN THOUSAND and 00/100

(P10,000.00) PESOS;

5. Reversing and setting aside the award of P250,000.00 for attorney's fees as well as interest
awarded, and

6. AFFIRMING the dismissal of all counterclaims and cross-claims.

Costs against appellant Mandarin.

SO ORDERED.5

Mandarin Villa, thus, interposed this present petition, faulting the respondent court with six (6) assigned errors
which may be reduced to the following issues, to wit: (1) whether or not petitioner is bound to accept payment
by means of credit card; (2) whether or not petitioner is negligent under the circumstances obtaining in this
case; and (3) if negligent, whether or not such negligence is the proximate cause of the private respondent's
damage.

Petitioner contends that it cannot be faulted for its cashier's refusal to accept private respondent's BANKARD
credit card, the same not being a legal tender. It argues that private respondent's offer to pay by means of credit
card partook of the nature of a proposal to novate an existing obligation for which petitioner, as creditor, must
first give its consent otherwise there will be no binding contract between them. Petitioner cannot seek refuge
behind this averment.

We note that Mandarin Villa Seafood Village is affiliated with BANKARD. In fact, an "Agreement"6 entered
into by petitioner and BANKARD dated June 23, 1989, provides inter alia:

The MERCHANT shall honor validly issued PCCCI credit cards presented by their
corresponding holders in the purchase of goods and/or services supplied by it provided that the
card expiration date has not elapsed and the card number does not appear on the latest
cancellation bulletin of lost, suspended and canceled PCCCI credit cards and, no signs of
tampering, alterations or irregularities appear on the face of the credit card.7

While private respondent, may not be a party to the said agreement, the above-quoted stipulation conferred a
favor upon the private respondent, a holder of credit card validly issued by BANKARD. This stipulation is a
stipulation pour autri and under Article 1311 of the Civil Code private respondent may demand its fulfillment
provided he communicated his acceptance to the petitioner before its revocation.8 In this case, private
respondent's offer to pay by means of his BANKARD credit card constitutes not only an acceptance of the said
stipulation but also an explicit communication of his acceptance to the obligor.

In addition, the record shows that petitioner posted a logo inside Mandarin Villa Seafood Village stating that
"Bankard is accepted here.9 This representation is conclusive upon the petitioner which it cannot deny or
disprove as against the private respondent, the party relying thereon. Petitioner, therefore, cannot disclaim its
obligation to accept private respondent's BANKARD credit card without violating the equitable principle of
estoppel. 10

Anent the second issue, petitioner insists that it is not negligent. In support thereof, petitioner cites its good faith
in checking, not just once but twice, the validity of the aforementioned credit card prior to its dishonor. It argues
that since the verification machine flashed an information that the credit card has expired, petitioner could not
be expected to honor the same much less be adjudged negligent for dishonoring it. Further, petitioner
asseverates that it only followed the guidelines and instructions issued by BANKARD in dishonoring the
aforementioned credit card. The argument is untenable.

The test for determining the existence of negligence in a particular case may be stated as follows: Did the
defendant in doing the alleged negligent act use the reasonable care and caution which an ordinary prudent
person would have used in the same situation? If not, then he is guilty of negligence. 11 The Point of Sale (POS)
Guidelines which outlined the steps that petitioner must follow under the circumstances provides.

x x x           x x x          x x x

CARD EXPIRED

a. Check expiry date on card.

b. If unexpired, refer to CB.

b.1. If valid, honor up to maximum of SPL only.

b.2. If in CB as Lost, do procedures 2a to 2e.,

b.3. If in CB as Suspended/Cancelled, do not honor card.

c. If expired, do not honor card. 12

A cursory reading of said rule reveals that whenever the words CARD EXPIRED flashes on the screen of the
verification machine, petitioner should check the credit card's expiry date embossed on the card itself. If
unexpired, petitioner should honor the card provided it is not invalid, cancelled or otherwise suspended. But if
expired, petitioner should not honor the card. In this case, private respondent's BANKARD credit card has an
embossed expiry date of September 1990. 13 Clearly, it has not yet expired on October 19, 1989, when the same
was wrongfully dishonored by the petitioner. Hence, petitioner did not use the reasonable care and caution
which an ordinary prudent person would have used in the same situation and as such petitioner is guilty of
negligence. In this connection, we quote with approval the following observations of the respondent Court.

Mandarin argues that based on the POS Guidelines (supra), it has three options in case the
verification machine flashes "CARD EXPIRED". It chose to exercise option (c) by not honoring
appellee's credit card. However, appellant apparently intentionally glossed over option "(a)
Check expiry date on card" (id.) which would have shown without any shadow of doubt that the
expiry date embossed on the BANKARD was "SEP 90". (Exhibit "D".) A cursory look at the
appellee's BANKARD would also reveal that appellee had been as of that date a cardholder since
1982, a fact which would have entitled the customer the courtesy of better treatment. 14

Petitioner, however, argues that private respondent's own negligence in not bringing with him sufficient cash
was the proximate cause of his damage. It likewise sought exculpation by contending that the remark of
Professor Lirag 15 is a supervening event and at the same time the proximate cause of private respondent's
injury.

We find this contention also devoid of merit. While it is true that private respondent did not have sufficient cash
on hand when he hosted a dinner at petitioner's restaurant, this fact alone does not constitute negligence on his
part. Neither can it be claimed that the same was the proximate cause of private respondent's damage. We take
judicial notice 16 of the current practice among major establishments, petitioner included, to accept payment by
means of credit cards in lieu of cash. Thus, petitioner accepted private respondent's BPI Express Credit Card
after verifying its validity, 17 a fact which all the more refutes petitioner's imputation of negligence on the
private respondent.

Neither can we conclude that the remark of Professor Lirag was a supervening event and the proximate cause of
private respondent's injury. The humiliation and embarrassment of the private respondent was brought about not
by such a remark of Professor Lirag but by the fact of dishonor by the petitioner of private respondent's valid
BANKARD credit card. If at all, the remark of Professor Lirag served only to aggravate the embarrassment then
felt by private respondent, albeit silently within himself.

WHEREFORE, the instant petition is hereby DISMISSED.

SO ORDERED.

Davide, Jr., Melo and Panganiban, JJ., concur.

Narvasa, C.J., took no part.

G.R. No. 171545               December 19, 2007

EQUITABLE PCI BANK,* AIMEE YU and BEJAN LIONEL APAS, Petitioners,

vs.
NG SHEUNG NGOR** doing business under the name and style "KEN MARKETING," KEN
APPLIANCE DIVISION, INC. and BENJAMIN E. GO, Respondents.

DECISION

CORONA, J.:

This petition for review on certiorari1 seeks to set aside the decision2 of the Court of Appeals (CA) in CA-G.R.
SP No. 83112 and its resolution3 denying reconsideration.

On October 7, 2001, respondents Ng Sheung Ngor,4 Ken Appliance Division, Inc. and Benjamin E. Go filed an
action for annulment and/or reformation of documents and contracts5 against petitioner Equitable PCI Bank
(Equitable) and its employees, Aimee Yu and Bejan Lionel Apas, in the Regional Trial Court (RTC), Branch 16
of Cebu City.6 They claimed that Equitable induced them to avail of its peso and dollar credit facilities by
offering low interest rates7 so they accepted Equitable's proposal and signed the bank's pre-printed promissory
notes on various dates beginning 1996. They, however, were unaware that the documents contained identical
escalation clauses granting Equitable authority to increase interest rates without their consent.8

Equitable, in its answer, asserted that respondents knowingly accepted all the terms and conditions contained in
the promissory notes.9 In fact, they continuously availed of and benefited from Equitable's credit facilities for
five years.10

After trial, the RTC upheld the validity of the promissory notes. It found that, in 2001 alone, Equitable
restructured respondents' loans amounting to US$228,200 and ₱1,000,000.11 The trial court, however,
invalidated the escalation clause contained therein because it violated the principle of mutuality of
contracts.12 Nevertheless, it took judicial notice of the steep depreciation of the peso during the intervening
period13 and declared the existence of extraordinary deflation.14 Consequently, the RTC ordered the use of the
1996 dollar exchange rate in computing respondents' dollar-denominated loans.15 Lastly, because the business
reputation of respondents was (allegedly) severely damaged when Equitable froze their accounts,16 the trial
court awarded moral and exemplary damages to them.17

The dispositive portion of the February 5, 2004 RTC decision18 provided:

WHEREFORE, premises considered, judgment is hereby rendered:

A) Ordering [Equitable] to reinstate and return the amount of [respondents'] deposit placed on hold
status;

B) Ordering [Equitable] to pay [respondents] the sum of ₱12 [m]illion [p]esos as moral damages;

C) Ordering [Equitable] to pay [respondents] the sum of ₱10 [m]illion [p]esos as exemplary damages;

D) Ordering defendants Aimee Yu and Bejan [Lionel] Apas to pay [respondents], jointly and severally,
the sum of [t]wo [m]illion [p]esos as moral and exemplary damages;

E) Ordering [Equitable, Aimee Yu and Bejan Lionel Apas], jointly and severally, to pay [respondents']
attorney's fees in the sum of ₱300,000; litigation expenses in the sum of ₱50,000 and the cost of suit;

F) Directing plaintiffs Ng Sheung Ngor and Ken Marketing to pay [Equitable] the unpaid principal
obligation for the peso loan as well as the unpaid obligation for the dollar denominated loan;

G) Directing plaintiff Ng Sheung Ngor and Ken Marketing to pay [Equitable] interest as follows:

1) 12% per annum for the peso loans;

2) 8% per annum for the dollar loans. The basis for the payment of the dollar obligation is the
conversion rate of P26.50 per dollar availed of at the time of incurring of the obligation in
accordance with Article 1250 of the Civil Code of the Philippines;
 H) Dismissing [Equitable's] counterclaim except the payment of the aforestated unpaid principal loan
obligations and interest.

SO ORDERED.19

Equitable and respondents filed their respective notices of appeal.20

In the March 1, 2004 order of the RTC, both notices were denied due course because Equitable and respondents
"failed to submit proof that they paid their respective appeal fees."21

WHEREFORE, premises considered, the appeal interposed by defendants from the Decision in the above-
entitled case is DENIED due course. As of February 27, 2004, the Decision dated February 5, 2004, is
considered final and executory in so far as [Equitable, Aimee Yu and Bejan Lionel Apas] are
concerned.22 (emphasis supplied)

Equitable moved for the reconsideration of the March 1, 2004 order of the RTC23 on the ground that it did in
fact pay the appeal fees. Respondents, on the other hand, prayed for the issuance of a writ of execution.24

On March 24, 2004, the RTC issued an omnibus order denying Equitable's motion for reconsideration for lack
of merit25 and ordered the issuance of a writ of execution in favor of respondents.26 According to the RTC,
because respondents did not move for the reconsideration of the previous order (denying due course to the
parties’ notices of appeal),27 the February 5, 2004 decision became final and executory as to both parties and a
writ of execution against Equitable was in order.28

A writ of execution was thereafter issued29 and three real properties of Equitable were levied upon.30

On March 26, 2004, Equitable filed a petition for relief in the RTC from the March 1, 2004 order.31 It, however,
withdrew that petition on March 30, 200432 and instead filed a petition for certiorari with an application for an
injunction in the CA to enjoin the implementation and execution of the March 24, 2004 omnibus order.33

On June 16, 2004, the CA granted Equitable's application for injunction. A writ of preliminary injunction was
correspondingly issued.34

Notwithstanding the writ of injunction, the properties of Equitable previously levied upon were sold in a public
auction on July 1, 2004. Respondents were the highest bidders and certificates of sale were issued to them.35

On August 10, 2004, Equitable moved to annul the July 1, 2004 auction sale and to cite the sheriffs who
conducted the sale in contempt for proceeding with the auction despite the injunction order of the CA.36

On October 28, 2005, the CA dismissed the petition for certiorari.37 It found Equitable guilty of forum shopping
because the bank filed its petition for certiorari in the CA several hours before withdrawing its petition for relief
in the RTC.38 Moreover, Equitable failed to disclose, both in the statement of material dates and certificate of
non-forum shopping (attached to its petition for certiorari in the CA), that it had a pending petition for relief in
the RTC.39

Equitable moved for reconsideration40 but it was denied.41 Thus, this petition.

Equitable asserts that it was not guilty of forum shopping because the petition for relief was withdrawn on
the same day the petition for certiorari was filed.42 It likewise avers that its petition for certiorari was
meritorious because the RTC committed grave abuse of discretion in issuing the March 24, 2004 omnibus order
which was based on an erroneous assumption. The March 1, 2004 order denying its notice of appeal for non
payment of appeal fees was erroneous because it had in fact paid the required fees.43 Thus, the RTC, by issuing
its March 24, 2004 omnibus order, effectively prevented Equitable from appealing the patently wrong February
5, 2004 decision.44

This petition is meritorious.

Equitable Was Not Guilty Of Forum shopping

Forum shopping exists when two or more actions involving the same transactions, essential facts and
circumstances are filed and those actions raise identical issues, subject matter and causes of action.45 The test is
whether, in two or more pending cases, there is identity of parties, rights or causes of actions and reliefs.46
Equitable's petition for relief in the RTC and its petition for certiorari in the CA did not have identical causes of
action. The petition for relief from the denial of its notice of appeal was based on the RTC’s judgment or final
order preventing it from taking an appeal by "fraud, accident, mistake or excusable negligence."47 On the other
hand, its petition for certiorari in the CA, a special civil action, sought to correct the grave abuse of discretion
amounting to lack of jurisdiction committed by the RTC.48

In a petition for relief, the judgment or final order is rendered by a court with competent jurisdiction. In a
petition for certiorari, the order is rendered by a court without or in excess of its jurisdiction.

Moreover, Equitable substantially complied with the rule on non-forum shopping when it moved to withdraw its
petition for relief in the RTC on the same day (in fact just four hours and forty minutes after) it filed the petition
for certiorari in the CA. Even if Equitable failed to disclose that it had a pending petition for relief in the RTC, it
rectified what was doubtlessly a careless oversight by withdrawing the petition for relief just a few hours after it
filed its petition for certiorari in the CA ― a clear indication that it had no intention of maintaining the two
actions at the same time.

The Trial Court Committed Grave Abuse of Discretion In Issuing Its March 1, 2004 and March 24, 2004
Orders

Section 1, Rule 65 of the Rules of Court provides:

Section 1. Petition for Certiorari. When any tribunal, board or officer exercising judicial or quasi-judicial
function has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion
amounting to lack or excess of jurisdiction, and there is no appeal, nor any plain, speedy or adequate
remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the proper
court, alleging the facts with certainty and praying that judgment be rendered annulling or modifying the
proceedings of such tribunal, board or officer, and granting such incidental reliefs as law and justice may
require.

The petition shall be accompanied by a certified true copy of the judgment, order or resolution subject thereof,
copies of all pleadings and documents relevant and pertinent thereto, and a sworn certificate of non-forum
shopping as provided in the third paragraph of Section 3, Rule 46.

There are two substantial requirements in a petition for certiorari. These are:

1. that the tribunal, board or officer exercising judicial or quasi-judicial functions acted without or in
excess of his or its jurisdiction or with grave abuse of discretion amounting to lack or excess of
jurisdiction; and

2. that there is no appeal or any plain, speedy and adequate remedy in the ordinary course of law.

For a petition for certiorari premised on grave abuse of discretion to prosper, petitioner must show that the
public respondent patently and grossly abused his discretion and that abuse amounted to an evasion of positive
duty or a virtual refusal to perform a duty enjoined by law or to act at all in contemplation of law, as where the
power was exercised in an arbitrary and despotic manner by reason of passion or hostility.49

The March 1, 2004 order denied due course to the notices of appeal of both Equitable and respondents.
However, it declared that the February 5, 2004 decision was final and executory only with respect to
Equitable.50 As expected, the March 24, 2004 omnibus order denied Equitable's motion for reconsideration and
granted respondents' motion for the issuance of a writ of execution.51

The March 1, 2004 and March 24, 2004 orders of the RTC were obviously intended to prevent Equitable, et al.
from appealing the February 5, 2004 decision. Not only that. The execution of the decision was undertaken with
indecent haste, effectively obviating or defeating Equitable's right to avail of possible legal remedies. No matter
how we look at it, the RTC committed grave abuse of discretion in rendering those orders.

With regard to whether Equitable had a plain, speedy and adequate remedy in the ordinary course of law, we
hold that there was none. The RTC denied due course to its notice of appeal in the March 1, 2004 order. It
affirmed that denial in the March 24, 2004 omnibus order. Hence, there was no way Equitable could have
possibly appealed the February 5, 2004 decision.52
Although Equitable filed a petition for relief from the March 24, 2004 order, that petition was not a plain,
speedy and adequate remedy in the ordinary course of law.53 A petition for relief under Rule 38 is an equitable
remedy allowed only in exceptional circumstances or where there is no other available or adequate remedy.54

Thus, we grant Equitable's petition for certiorari and consequently give due course to its appeal.

Equitable Raised Pure Questions of Law in Its Petition For Review

The jurisdiction of this Court in Rule 45 petitions is limited to questions of law.55 There is a question of law
"when the doubt or controversy concerns the correct application of law or jurisprudence to a certain set of facts;
or when the issue does not call for the probative value of the evidence presented, the truth or falsehood of facts
being admitted."56

Equitable does not assail the factual findings of the trial court. Its arguments essentially focus on the nullity of
the RTC’s February 5, 2004 decision. Equitable points out that that decision was patently erroneous, specially
the exorbitant award of damages, as it was inconsistent with existing law and jurisprudence.57

The Promissory Notes Were Valid

The RTC upheld the validity of the promissory notes despite respondents’ assertion that those documents were
contracts of adhesion.

A contract of adhesion is a contract whereby almost all of its provisions are drafted by one party.58 The
participation of the other party is limited to affixing his signature or his "adhesion" to the contract.59 For this
reason, contracts of adhesion are strictly construed against the party who drafted it.60

It is erroneous, however, to conclude that contracts of adhesion are invalid per se. They are, on the contrary, as
binding as ordinary contracts. A party is in reality free to accept or reject it. A contract of adhesion becomes
void only when the dominant party takes advantage of the weakness of the other party, completely depriving the
latter of the opportunity to bargain on equal footing.61

That was not the case here. As the trial court noted, if the terms and conditions offered by Equitable had been
truly prejudicial to respondents, they would have walked out and negotiated with another bank at the first
available instance. But they did not. Instead, they continuously availed of Equitable's credit facilities for five
long years.

While the RTC categorically found that respondents had outstanding dollar- and peso-denominated loans with
Equitable, it, however, failed to ascertain the total amount due (principal, interest and penalties, if any) as of
July 9, 2001. The trial court did not explain how it arrived at the amounts of US$228,200 and
₱1,000,000.62 In Metro Manila Transit Corporation v. D.M. Consunji,63 we reiterated that this Court is not a
trier of facts and it shall pass upon them only for compelling reasons which unfortunately are not present in this
case.64 Hence, we ordered the partial remand of the case for the sole purpose of determining the amount of
actual damages.65

Escalation Clause Violated The Principle Of Mutuality Of Contracts

Escalation clauses are not void per se. However, one "which grants the creditor an unbridled right to adjust the
interest independently and upwardly, completely depriving the debtor of the right to assent to an important
modification in the agreement" is void. Clauses of that nature violate the principle of mutuality of
contracts.66 Article 130867 of the Civil Code holds that a contract must bind both contracting parties; its validity
or compliance cannot be left to the will of one of them.68

For this reason, we have consistently held that a valid escalation clause provides:

1. that the rate of interest will only be increased if the applicable maximum rate of interest is increased by law
or by the Monetary Board; and

2. that the stipulated rate of interest will be reduced if the applicable maximum rate of interest is reduced by law
or by the Monetary Board (de-escalation clause).69

The RTC found that Equitable's promissory notes uniformly stated:

If subject promissory note is extended, the interest for subsequent extensions shall be at such rate as shall be
determined by the bank.70

Equitable dictated the interest rates if the term (or period for repayment) of the loan was extended. Respondents
had no choice but to accept them. This was a violation of Article 1308 of the Civil Code. Furthermore, the
assailed escalation clause did not contain the necessary provisions for validity, that is, it neither provided that
the rate of interest would be increased only if allowed by law or the Monetary Board, nor allowed de-escalation.
For these reasons, the escalation clause was void.

With regard to the proper rate of interest, in New Sampaguita Builders v. Philippine National Bank71 we held
that, because the escalation clause was annulled, the principal amount of the loan was subject to the original or
stipulated rate of interest. Upon maturity, the amount due was subject to legal interest at the rate of 12% per
annum.72

Consequently, respondents should pay Equitable the interest rates of 12.66% p.a. for their dollar-denominated
loans and 20% p.a. for their peso-denominated loans from January 10, 2001 to July 9, 2001. Thereafter,
Equitable was entitled to legal interest of 12% p.a. on all amounts due.

There Was No Extraordinary Deflation

Extraordinary inflation exists when there is an unusual decrease in the purchasing power of currency (that is,
beyond the common fluctuation in the value of currency) and such decrease could not be reasonably foreseen or
was manifestly beyond the contemplation of the parties at the time of the obligation. Extraordinary deflation, on
the other hand, involves an inverse situation.73

Article 1250 of the Civil Code provides:

Article 1250. In case an extraordinary inflation or deflation of the currency stipulated should intervene, the
value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless
there is an agreement to the contrary.

For extraordinary inflation (or deflation) to affect an obligation, the following requisites must be proven:

1. that there was an official declaration of extraordinary inflation or deflation from the Bangko Sentral
ng Pilipinas (BSP);74

2. that the obligation was contractual in nature;75 and

3. that the parties expressly agreed to consider the effects of the extraordinary inflation or deflation.76

Despite the devaluation of the peso, the BSP never declared a situation of extraordinary inflation. Moreover,
although the obligation in this instance arose out of a contract, the parties did not agree to recognize the effects
of extraordinary inflation (or deflation).77 The RTC never mentioned that there was a such stipulation either in
the promissory note or loan agreement. Therefore, respondents should pay their dollar-denominated loans at the
exchange rate fixed by the BSP on the date of maturity.78

The Award Of Moral And Exemplary Damages Lacked Basis

Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered,
not to impose a penalty to the wrongdoer.79 To be entitled to moral damages, a claimant must prove:

1. That he or she suffered besmirched reputation, or physical, mental or psychological suffering

sustained by the claimant;

2. That the defendant committed a wrongful act or omission;

3. That the wrongful act or omission was the proximate cause of the damages the claimant sustained;

4. The case is predicated on any of the instances expressed or envisioned by Article 221980 and
222081 . 82
In culpa contractual  or breach of contract, moral damages are recoverable only if the defendant acted
fraudulently or in bad faith or in wanton disregard of his contractual obligations.83 The breach must be wanton,
reckless, malicious or in bad faith, and oppressive or abusive.84

The RTC found that respondents did not pay Equitable the interest due on February 9, 2001 (or any month
thereafter prior to the maturity of the loan)85 or the amount due (principal plus interest) due on July 9,
2001.86 Consequently, Equitable applied respondents' deposits to their loans upon maturity.

The relationship between a bank and its depositor is that of creditor and debtor.87 For this reason, a bank has the
right to set-off the deposits in its hands for the payment of a depositor's indebtedness.88

Respondents indeed defaulted on their obligation. For this reason, Equitable had the option to exercise its legal
right to set-off or compensation. However, the RTC mistakenly (or, as it now appears, deliberately) concluded
that Equitable acted "fraudulently or in bad faith or in wanton disregard" of its contractual obligations despite
the absence of proof. The undeniable fact was that, whatever damage respondents sustained was purely the
consequence of their failure to pay their loans. There was therefore absolutely no basis for the award of
moral damages to them.

Neither was there reason to award exemplary damages. Since respondents were not entitled to moral damages,
neither should they be awarded exemplary damages.89 And if respondents were not entitled to moral and
exemplary damages, neither could they be awarded attorney's fees and litigation expenses.90

ACCORDINGLY, the petition is hereby GRANTED.

The October 28, 2005 decision and February 3, 2006 resolution of the Court of Appeals in CA-G.R. SP No.
83112 are hereby REVERSED and SET ASIDE.

The March 24, 2004 omnibus order of the Regional Trial Court, Branch 16, Cebu City in Civil Case No. CEB-
26983 is hereby ANNULLED for being rendered with grave abuse of discretion amounting to lack or excess of
jurisdiction. All proceedings undertaken pursuant thereto are likewise declared null and void.

The March 1, 2004 order of the Regional Trial Court, Branch 16 of Cebu City in Civil Case No. CEB-26983 is
hereby SET ASIDE. The appeal of petitioners Equitable PCI Bank, Aimee Yu and Bejan Lionel Apas is
therefore given due course.1avvphi1

The February 5, 2004 decision of the Regional Trial Court, Branch 16 of Cebu City in Civil Case No. CEB-
26983 is accordingly SET ASIDE. New judgment is hereby entered:

1. ordering respondents Ng Sheung Ngor, doing business under the name and style of "Ken Marketing,"
Ken Appliance Division, Inc. and Benjamin E. Go to pay petitioner Equitable PCI Bank the principal
amount of their dollar- and peso-denominated loans;

2. ordering respondents Ng Sheung Ngor, doing business under the name and style of "Ken Marketing,"
Ken Appliance Division, Inc. and Benjamin E. Go to pay petitioner Equitable PCI Bank interest at:

a) 12.66% p.a. with respect to their dollar-denominated loans from January 10, 2001 to July 9,
2001;

b) 20% p.a. with respect to their peso-denominated loans from January 10, 2001 to July 9,
2001;91

c) pursuant to our ruling in Eastern Shipping Lines v. Court of Appeals,92 the total amount due on
July 9, 2001 shall earn legal interest at 12% p.a. from the time petitioner Equitable PCI Bank
demanded payment, whether judicially or extra-judicially; and

d) after this Decision becomes final and executory, the applicable rate shall be 12% p.a.  until full
satisfaction;

3. all other claims and counterclaims are dismissed.

As a starting point, the Regional Trial Court, Branch 16 of Cebu City shall compute the exact amounts due on
the respective dollar-denominated and peso-denominated loans, as of July 9, 2001, of respondents Ng Sheung
Ngor, doing business under the name and style of "Ken Marketing," Ken Appliance Division and Benjamin E.
Go.

SO ORDERED.

RENATO C. CORONA
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice
Chairperson

ANGELINA SANDOVAL-GUTIERREZ ADOLFO S. AZCUNA

Associate Justice Associate Justice

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, 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
G.R. No. 137798               October 4, 2000

LUCIA R. SINGSON, petitioner,
vs.
CALTEX (PHILIPPINES), INC. respondent.

DECISION

GONZAGA-REYES, J.:

Petitioner seeks a review on certiorari of the decision of the former Special Second Division of the Court of
Appeals dated November 27, 1998,1 affirming the decision of the Regional Trial Court of Manila, Branch
252 which dismissed petitioner's action for reformation of contract and adjustment of rentals.

The facts of the case are undisputed ---

Petitioner and respondent entered into a contract of lease on July 16, 1968 over a parcel of land in Cubao,
Quezon City. The land, which had an area of 1,400 square meters and was covered by Transfer Certificates of
Title No. 43329 and 81636 issued by the Register of Deeds of Quezon City, was to be used by respondent as a
gasoline service station.

The contract of lease provides that the lease shall run for a period of twenty (20) years and shall abide by the
following rental rates:
x x x           x x x          x x x
Rental. --- The LESSEE agrees to pay the following rental for said premises:

P2.50/sq.m. per month from the 1st to 10th years and P3.00/sq.m. per month from the 11th to 20th years,
payable monthly in advance within the 1st 15 days of each month; provided that the rentals for the 1st 5 years
less a discount of eleven (11) percent per annum computed on a monthly diminishing balance, shall be paid to
LESSOR upon compliance of the three (3) conditions provided in clause (2) above.

LESSEE also agrees to pay lessor, the sum of Six Thousand Pesos (P6,000.00) as demolition expenses, upon
effectivity of this lease.

The rental herein provided for is in any event the maximum rental which LESSOR may collect during the term
of this lease or any renewal or extension thereof. LESSEE further agrees for thirty (30) days after written notice
of such default has actually been delivered to the General Manager of Caltex (Philippines), Inc. LESSOR shall
then have the right to terminate this lease on thirty (30) days written notice to LESSEE. xxx xxx xxx 3

Thus, based on the foregoing provisions of the lease contract, the monthly rental was fixed at P3,500.00 for the
first ten years, and at P4,200.00 for the succeeding ten years of the lease.

On June 23, 1983, or five years before the expiration of the lease contract, petitioner asked respondent to adjust
or increase the amount of rentals citing that the country was experiencing extraordinary inflation. In a letter
dated August 3, 1983, respondent refused petitioner's request and declared that the terms of the lease contract
are clear as to the rental amounts therein provided being "the maximum rental which the lessor may collect
during the term of the lease."4

On September 21, 1983, petitioner instituted a complaint before the RTC praying for, among other things, the
payment by respondent of adjusted rentals based on the value of the Philippine peso at the time the contract of
lease was executed. The complaint invoked Article 1250 of the Civil Code, stating that since the execution of
the contract of lease in 1968 an extraordinary inflation had supervened resulting from the deterioration of
worldwide economic conditions, a circumstance that was not foreseen and could not have been reasonably
foreseen by the parties at the time they entered into contract.

To substantiate its allegation of extraordinary inflation, petitioner presented as witness Mr. Narciso Uy,
Assistant Director of the Supervising and Examining Sector of the Central Bank, who attested that the inflation
rate increased abruptly during the period 1982 to 1985, caused mainly by the devaluation of the peso.5 Petitioner
also submitted into evidence a certification of the official inflation rates from 1966 to 1986 prepared by the
National Economic Development Authority ("NEDA") based on consumer price index, which reflected that at
the time the parties entered into the subject contract, the inflation rate was only 2.06%; then, it soared to 34.51%
in 1974, and in 1984, reached a high of 50.34%.6
In a decision rendered on July 15, 1991, the RTC dismissed the complaint for lack of merit. This judgment was
affirmed by the Court of Appeals. Both courts found that petitioner was unable to prove the existence of
extraordinary inflation from 1968 to 1983 (or from the year of the execution of the contract up to the year of the
filing of the complaint before the RTC) as to justify an adjustment or increase in the rentals based upon the
provisions of Article 1250 of the Civil Code.

The Court of Appeals declared that although, admittedly, there was an economic inflation during the period in
question, it was not such as to call for the application of Article 1250 which is made to apply only to "violent
and sudden changes in the price level or uncommon or unusual decrease of the value of the currency. (It) does
not contemplate of a normal or ordinary decline in the purchasing power of the peso."7

The Court of Appeals also found similarly with the trial court that the terms of rental in the contract of lease
dated July 16, 1968 are clear and unequivocal as to the specific amount of the rental rates and the fact that the
rentals therein provided shall be the "maximum rental" which petitioner as lessor may collect. Absent any
showing that such contractual provisions are contrary to law, morals, good customs, public order or public
policy, the Court of Appeals held that there was no basis for not acknowledging their binding effect upon the
parties. It also upheld the application by the trial court of the ruling in Filipino Pipe and Foundry Corporation
vs. National Waterworks and Sewerage Authority, 161 SCRA 32, where the Court held that although there has
been a decline in the purchasing power of the Philippine peso during the period 1961 to 1971, such downward
fall of the currency could not be considered "extraordinary" and was simply a universal trend that has not spared
the Philippines.

Thus, the dispositive portion of the decision of the Court of Appeals reads:

WHEREFORE, in view of the foregoing, the appeal is hereby DISMISSED and the decision appealed from is
hereby AFFIRMED.

SO ORDERED.8

Petitioner's motion for reconsideration of the above decision was denied by the Court of Appeals in a resolution
dated March 10, 1999.

Aggrieved, petitioner filed this petition for review on certiorari where she assails as erroneous the decision of
the Court of Appeals, specifically, (1) in ruling that Article 1250 of the Civil Code is inapplicable to the instant
case, (2) in not recognizing the applicability of the principle of rebus sic stantibus, and (3) in applying the
ruling in Filipino Pipe and Foundry Corporation vs. NAWASA.

Petitioner contends that the monthly rental of P3.00 per square meter is patently inequitable. Based on the
inflation rates supplied by NEDA, there was an unusual increase in inflation that could not have been foreseen
by the parties; otherwise, they would not have entered into a relatively long-term contract of lease. She argued
that the rentals in this case should not be regarded by their quantitative or nominal value, but as "debts of
value", that is, the rental rates should be adjusted to reflect the value of the peso at the time the lease was
contracted.9

Petitioner also insists that the factual milieu of the present case is distinct from that in Filipino Pipe and
Foundry Corporation vs. NAWASA. She pointed out that the inflation experienced by the country during the
period 1961 to 1971 (the pertinent time period in the Filipino Pipe case) had a lowest of 1.35% in 1969 and a
highest of 15.03% in 1971, whereas in the instant case, involving the period 1968 to 1983, there had been
highly abnormal inflation rates like 34.51% in 1974 (triggered by the OPEC oil price increases in 1973) and
50.34% in 1984 (caused by the assassination of Benigno Aquino, Jr. in 1983). Petitioner argues that the placing
of the country under martial rule in 1972, the OPEC oil price increases in 1973, and the Aquino assassination
which triggered the EDSA revolution, were fortuitous events that drastically affected the Philippine economy
and were beyond the reasonable contemplation of the parties.

To further bolster her arguments, petitioner invokes by analogy the principle of rebus sic stantibus in public
international law, under which a vital change of circumstances justifies a state's unilateral withdrawal from a
treaty. In the herein case, petitioner posits that in pegging the monthly rental rates of P2.50 and P3.00 per square
meter, respectively, the parties were guided by the economic conditions prevalent in 1968, when the Philippines
faced robust economic prospects. Petitioner contends that between her and respondent, a corporation engaged in
high stakes business and employing economic and business experts, it is the latter who had the unmistakable
advantage to analyze the feasibility of entering into a 20-year lease contract at such meager rates.
The only issue crucial to the present appeal is whether there existed an extraordinary inflation during the period
1968 to 1983 that would call for the application of Article 1250 of the Civil Code and justify an adjustment or
increase of the rentals between the parties.

Article 1250 of the Civil Code states:

In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the
currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an
agreement to the contrary.

Article 1250 was inserted in the Civil Code of 1950 to abate the uncertainty and confusion that affected
contracts entered into or payments made during World War II, and to help provide a just solution to future
cases.10 The Court has, in more than one occasion, been asked to interpret the provisions of Article 1250, and to
expound on the scope and limits of "extraordinary inflation".

We have held extraordinary inflation to exist when there is a decrease or increase in the purchasing power of the
Philippine currency which is unusual or beyond the common fluctuation in the value of said currency, and such
increase or decrease could not have been reasonably foreseen or was manifestly beyond the contemplation of
the parties at the time of the establishment of the obligation.11

An example of extraordinary inflation, as cited by the Court in Filipino Pipe and Foundry Corporation vs.
NAWASA, supra, is that which happened to the deutschmark in 1920. Thus:

"More recently, in the 1920s, Germany experienced a case of hyperinflation. In early 1921, the value of the
German mark was 4.2 to the U.S. dollar. By May of the same year, it had stumbled to 62 to the U.S. dollar. And
as prices went up rapidly, so that by October 1923, it had reached 4.2 trillion to the U.S. dollar!" (Bernardo M.
Villegas & Victor R. Abola, Economics, An Introduction [Third Edition]).

As reported, "prices were going up every week, then every day, then every hour.1âwphi1 Women were paid
several times a day so that they could rush out and exchange their money for something of value before what
little purchasing power was left dissolved in their hands. Some workers tried to beat the constantly rising prices
by throwing their money out of the windows to their waiting wives, who would rush to unload the nearly
worthless paper. A postage stamp cost millions of marks and a loaf of bread, billions." (Sidney Rutberg, "The
Money Balloon", New York: Simon and Schuster, 1975, p. 19, cited in "Economics, An Introduction" by
Villegas & Abola, 3rd Ed.)

The supervening of extraordinary inflation is never assumed.12 The party alleging it must lay down the factual
basis for the application of Article 1250.

Thus, in the Filipino Pipe case, the Court acknowledged that the voluminous records and statistics submitted by
plaintiff-appellant proved that there has been a decline in the purchasing power of the Philippine peso, but this
downward fall cannot be considered "extraordinary" but was simply a universal trend that has not spared our
country.13 Similarly, in Huibonhoa vs. Court of Appeals,14 the Court dismissed plaintiff-appellant's
unsubstantiated allegation that the Aquino assassination in 1983 caused building and construction costs to
double during the period July 1983 to February 1984. In Serra vs. Court of Appeals,15 the Court again did not
consider the decline in the peso's purchasing power from 1983 to 1985 to be so great as to result in an
extraordinary inflation.

Like the Serra and Huibonhoa cases, the instant case also raises as basis for the application of Article 1250 the
Philippine economic crisis in the early 1980s --- when, based on petitioner's evidence, the inflation rate rose to
50.34% in 1984. We hold that there is no legal or factual basis to support petitioner's allegation of the existence
of extraordinary inflation during this period, or, for that matter, the entire time frame of 1968 to 1983, to merit
the adjustment of the rentals in the lease contract dated July 16, 1968. Although by petitioner's evidence there
was a decided decline in the purchasing power of the Philippine peso throughout this period, we are hard put to
treat this as an "extraordinary inflation" within the meaning and intent of Article 1250. Rather, we adopt with
approval the following observations of the Court of Appeals on petitioner's evidence, especially the NEDA
certification of inflation rates based on consumer price index:

xxx (a) from the period 1966 to 1986, the official inflation rate never exceeded 100% in any single year; (b) the
highest official inflation rate recorded was in 1984 which reached only 50.34%; (c) over a twenty one (21) year
period, the Philippines experienced a single-digit inflation in ten (10) years (i.e., 1966, 1967, 1968, 1969, 1975,
1976, 1977, 1978, 1983 and 1986); (d) in other years (i.e., 1970, 1971, 1972, 1973, 1974, 1979, 1980, 1981,
1982, 1984 and 1989) when the Philippines experienced double-digit inflation rates, the average of those rates
was only 20.88%; (e) while there was a decline in the purchasing power of the Philippine currency from the
period 1966 to 1986, such cannot be considered as extraordinary; rather, it is a normal erosion of the value of
the Philippine peso which is a characteristic of most currencies.16

"Erosion" is indeed an accurate description of the trend of decline in the value of the peso in the past three to
four decades. Unfortunate as this trend may be, it is certainly distinct from the phenomenon contemplated by
Article 1250.

Moreover, this Court has held that the effects of extraordinary inflation are not to be applied without an official
declaration thereof by competent authorities.17

Lastly, the provisions on rentals in the lease contract dated July 16, 1968 between petitioner and respondent are
clear and categorical, and we have no reason to suppose that such lease contract does not reflect or express their
true intention and agreement. The contract is the law between the parties and if there is indeed reason to adjust
the rent, the parties could have by themselves negotiated the amendment of the contract.18

WHEREFORE, the petition seeking the reversal of the decision of the Court of Appeals in CA-G.R. CV No.
54115 is DENIED.

SO ORDERED.

Melo, (Chairman), Vitug, Panganiban, and Purisima, JJ., concur.

G.R. No. 150806             January 28, 2008

EUFEMIA ALMEDA and ROMEL ALMEDA, petitioners,

vs.
BATHALA MARKETING INDUSTRIES, INC., respondent.

DECISION

NACHURA, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, of the Decision1 of the Court of
Appeals (CA), dated September 3, 2001, in CA-G.R. CV No. 67784, and its Resolution2 dated November 19,
2001. The assailed Decision affirmed with modification the Decision3 of the Regional Trial Court (RTC),
Makati City, Branch 136, dated May 9, 2000 in Civil Case No. 98-411.

Sometime in May 1997, respondent Bathala Marketing Industries, Inc., as lessee, represented by its president
Ramon H. Garcia, renewed its Contract of Lease4 with Ponciano L. Almeda (Ponciano), as lessor, husband of
petitioner Eufemia and father of petitioner Romel Almeda. Under the said contract, Ponciano agreed to lease a
portion of the Almeda Compound, located at 2208 Pasong Tamo Street, Makati City, consisting of 7,348.25
square meters, for a monthly rental of P1,107,348.69, for a term of four (4) years from May 1, 1997 unless
sooner terminated as provided in the contract.5 The contract of lease contained the following pertinent
provisions which gave rise to the instant case:

SIXTH - It is expressly understood by the parties hereto that the rental rate stipulated is based on the
present rate of assessment on the property, and that in case the assessment should hereafter be increased
or any new tax, charge or burden be imposed by authorities on the lot and building where the leased
premises are located, LESSEE shall pay, when the rental herein provided becomes due, the additional
rental or charge corresponding to the portion hereby leased; provided, however, that in the event that the
present assessment or tax on said property should be reduced, LESSEE shall be entitled to reduction in
the stipulated rental, likewise in proportion to the portion leased by him;

SEVENTH - In case an extraordinary inflation or devaluation of Philippine Currency should supervene,

the value of Philippine peso at the time of the establishment of the obligation shall be the basis of
payment;6

During the effectivity of the contract, Ponciano died. Thereafter, respondent dealt with petitioners. In a
letter7 dated December 29, 1997, petitioners advised respondent that the former shall assess and collect Value
Added Tax (VAT) on its monthly rentals. In response, respondent contended that VAT may not be imposed as
the rentals fixed in the contract of lease were supposed to include the VAT therein, considering that their
contract was executed on May 1, 1997 when the VAT law had long been in effect.8

On January 26, 1998, respondent received another letter from petitioners informing the former that its monthly
rental should be increased by 73% pursuant to condition No. 7 of the contract and Article 1250 of the Civil
Code. Respondent opposed petitioners' demand and insisted that there was no extraordinary inflation to warrant
the application of Article 1250 in light of the pronouncement of this Court in various cases.9

Respondent refused to pay the VAT and adjusted rentals as demanded by petitioners but continued to pay the
stipulated amount set forth in their contract.

On February 18, 1998, respondent instituted an action for declaratory relief for purposes of determining the
correct interpretation of condition Nos. 6 and 7 of the lease contract to prevent damage and prejudice.10 The
case was docketed as Civil Case No. 98-411 before the RTC of Makati.

On March 10, 1998, petitioners in turn filed an action for ejectment, rescission and damages against respondent
for failure of the latter to vacate the premises after the demand made by the former.11 Before respondent could
file an answer, petitioners filed a Notice of Dismissal.12 They subsequently refiled the complaint before the
Metropolitan Trial Court of Makati; the case was raffled to Branch 139 and was docketed as Civil Case No.
53596.

Petitioners later moved for the dismissal of the declaratory relief case for being an improper remedy considering
that respondent was already in breach of the obligation and that the case would not end the litigation and settle
the rights of the parties. The trial court, however, was not persuaded, and consequently, denied the motion.
After trial on the merits, on May 9, 2000, the RTC ruled in favor of respondent and against petitioners. The
pertinent portion of the decision reads:

WHEREFORE, premises considered, this Court renders judgment on the case as follows:

1) declaring that plaintiff is not liable for the payment of Value-Added Tax (VAT) of 10% of the rent for
[the] use of the leased premises;

2) declaring that plaintiff is not liable for the payment of any rental adjustment, there being no
[extraordinary] inflation or devaluation, as provided in the Seventh Condition of the lease contract, to
justify the same;

3) holding defendants liable to plaintiff for the total amount of P1,119,102.19, said amount representing
payments erroneously made by plaintiff as VAT charges and rental adjustment for the months of
January, February and March, 1999; and

4) holding defendants liable to plaintiff for the amount of P1,107,348.69, said amount representing the
balance of plaintiff's rental deposit still with defendants.

SO ORDERED.13

The trial court denied petitioners their right to pass on to respondent the burden of paying the VAT since it was
not a new tax that would call for the application of the sixth clause of the contract. The court, likewise, denied
their right to collect the demanded increase in rental, there being no extraordinary inflation or devaluation as
provided for in the seventh clause of the contract. Because of the payment made by respondent of the rental
adjustment demanded by petitioners, the court ordered the restitution by the latter to the former of the amounts
paid, notwithstanding the well-established rule that in an action for declaratory relief, other than a declaration of
rights and obligations, affirmative reliefs are not sought by or awarded to the parties.

Petitioners elevated the aforesaid case to the Court of Appeals which affirmed with modification the RTC
decision. The fallo reads:

WHEREFORE, premises considered, the present appeal is DISMISSED and the appealed decision in
Civil Case No. 98-411 is hereby AFFIRMED with MODIFICATION in that the order for the return of
the balance of the rental deposits and of the amounts representing the 10% VAT and rental adjustment,
is hereby DELETED.

No pronouncement as to costs.

SO ORDERED.14

The appellate court agreed with the conclusions of law and the application of the decisional rules on the matter
made by the RTC. However, it found that the trial court exceeded its jurisdiction in granting affirmative relief to
the respondent, particularly the restitution of its excess payment.

Petitioners now come before this Court raising the following issues:

I.

WHETHER OR NOT ARTICLE 1250 OF THE NEW CIVIL CODE IS APPLICABLE TO THE CASE
AT BAR.

II.

WHETHER OR NOT THE DOCTRINE ENUNCIATED IN FILIPINO PIPE AND FOUNDRY CORP.
VS. NAWASA CASE, 161 SCRA 32 AND COMPANION CASES ARE (sic) APPLICABLE IN THE
CASE AT BAR.

III.
 WHETHER OR NOT IN NOT APPLYING THE DOCTRINE IN THE CASE OF DEL ROSARIO VS.
THE SHELL COMPANY OF THE PHILIPPINES, 164 SCRA 562, THE HONORABLE COURT OF
APPEALS SERIOUSLY ERRED ON A QUESTION OF LAW.

IV.

WHETHER OR NOT THE FINDING OF THE HONORABLE COURT OF APPEALS THAT

RESPONDENT IS NOT LIABLE TO PAY THE 10% VALUE ADDED TAX IS IN ACCORDANCE
WITH THE MANDATE OF RA 7716.

V.

WHETHER OR NOT DECLARATORY RELIEF IS PROPER SINCE PLAINTIFF-APPELLEE WAS

IN BREACH WHEN THE PETITION FOR DECLARATORY RELIEF WAS FILED BEFORE THE
TRIAL COURT.

In fine, the issues for our resolution are as follows: 1) whether the action for declaratory relief is proper; 2)
whether respondent is liable to pay 10% VAT pursuant to Republic Act (RA) 7716; and 3) whether the amount
of rentals due the petitioners should be adjusted by reason of extraordinary inflation or devaluation.

Declaratory relief is defined as an action by any person interested in a deed, will, contract or other written
instrument, executive order or resolution, to determine any question of construction or validity arising from the
instrument, executive order or regulation, or statute, and for a declaration of his rights and duties thereunder.
The only issue that may be raised in such a petition is the question of construction or validity of provisions in an
instrument or statute. Corollary is the general rule that such an action must be justified, as no other adequate
relief or remedy is available under the circumstances. 15

Decisional law enumerates the requisites of an action for declaratory relief, as follows: 1) the subject matter of
the controversy must be a deed, will, contract or other written instrument, statute, executive order or regulation,
or ordinance; 2) the terms of said documents and the validity thereof are doubtful and require judicial
construction; 3) there must have been no breach of the documents in question; 4) there must be an actual
justiciable controversy or the "ripening seeds" of one between persons whose interests are adverse; 5) the issue
must be ripe for judicial determination; and 6) adequate relief is not available through other means or other
forms of action or proceeding.16

It is beyond cavil that the foregoing requisites are present in the instant case, except that petitioners insist that
respondent was already in breach of the contract when the petition was filed.

We do not agree.

After petitioners demanded payment of adjusted rentals and in the months that followed, respondent complied
with the terms and conditions set forth in their contract of lease by paying the rentals stipulated therein.
Respondent religiously fulfilled its obligations to petitioners even during the pendency of the present suit. There
is no showing that respondent committed an act constituting a breach of the subject contract of lease. Thus,
respondent is not barred from instituting before the trial court the petition for declaratory relief.

Petitioners claim that the instant petition is not proper because a separate action for rescission, ejectment and
damages had been commenced before another court; thus, the construction of the subject contractual provisions
should be ventilated in the same forum.

We are not convinced.

It is true that in Panganiban v. Pilipinas Shell Petroleum Corporation17 we held that the petition for declaratory
relief should be dismissed in view of the pendency of a separate action for unlawful detainer. However, we
cannot apply the same ruling to the instant case. In Panganiban, the unlawful detainer case had already been
resolved by the trial court before the dismissal of the declaratory relief case; and it was petitioner in that case
who insisted that the action for declaratory relief be preferred over the action for unlawful detainer. Conversely,
in the case at bench, the trial court had not yet resolved the rescission/ejectment case during the pendency of the
declaratory relief petition. In fact, the trial court, where the rescission case was on appeal, itself initiated the
suspension of the proceedings pending the resolution of the action for declaratory relief.
We are not unmindful of the doctrine enunciated in Teodoro, Jr. v. Mirasol18 where the declaratory relief action
was dismissed because the issue therein could be threshed out in the unlawful detainer suit. Yet, again, in that
case, there was already a breach of contract at the time of the filing of the declaratory relief petition. This
dissimilar factual milieu proscribes the Court from applying Teodoro to the instant case.

Given all these attendant circumstances, the Court is disposed to entertain the instant declaratory relief action
instead of dismissing it, notwithstanding the pendency of the ejectment/rescission case before the trial court.
The resolution of the present petition would write finis to the parties' dispute, as it would settle once and for all
the question of the proper interpretation of the two contractual stipulations subject of this controversy.

Now, on the substantive law issues.

Petitioners repeatedly made a demand on respondent for the payment of VAT and for rental adjustment
allegedly brought about by extraordinary inflation or devaluation. Both the trial court and the appellate court
found no merit in petitioners' claim. We see no reason to depart from such findings.

As to the liability of respondent for the payment of VAT, we cite with approval the ratiocination of the appellate
court, viz.:

Clearly, the person primarily liable for the payment of VAT is the lessor who may choose to pass it on
to the lessee or absorb the same. Beginning January 1, 1996, the lease of real property in the ordinary
course of business, whether for commercial or residential use, when the gross annual receipts
exceed P500,000.00, is subject to 10% VAT. Notwithstanding the mandatory payment of the 10% VAT
by the lessor, the actual shifting of the said tax burden upon the lessee is clearly optional on the part of
the lessor, under the terms of the statute. The word "may" in the statute, generally speaking, denotes that
it is directory in nature. It is generally permissive only and operates to confer discretion. In this case,
despite the applicability of the rule under Sec. 99 of the NIRC, as amended by R.A. 7716, granting the
lessor the option to pass on to the lessee the 10% VAT, to existing contracts of lease as of January 1,
1996, the original lessor, Ponciano L. Almeda did not charge the lessee-appellee the 10% VAT nor
provided for its additional imposition when they renewed the contract of lease in May 1997. More
significantly, said lessor did not actually collect a 10% VAT on the monthly rental due from the lessee-
appellee after the execution of the May 1997 contract of lease. The inevitable implication is that the
lessor intended not to avail of the option granted him by law to shift the 10% VAT upon the lessee-
appellee. x x x.19

In short, petitioners are estopped from shifting to respondent the burden of paying the VAT.

Petitioners' reliance on the sixth condition of the contract is, likewise, unavailing. This provision clearly states
that respondent can only be held liable for new taxes imposed after the effectivity of the contract of lease, that
is, after May 1997, and only if they pertain to the lot and the building where the leased premises are located.
Considering that RA 7716 took effect in 1994, the VAT cannot be considered as a "new tax" in May 1997, as to
fall within the coverage of the sixth stipulation.

Neither can petitioners legitimately demand rental adjustment because of extraordinary inflation or devaluation.

Petitioners contend that Article 1250 of the Civil Code does not apply to this case because the contract
stipulation speaks of extraordinary inflation or devaluation while the Code speaks of extraordinary inflation or
deflation. They insist that the doctrine pronounced in Del Rosario v. The Shell Company, Phils. Limited20 should
apply.

Essential to contract construction is the ascertainment of the intention of the contracting parties, and such
determination must take into account the contemporaneous and subsequent acts of the parties. This intention,
once ascertained, is deemed an integral part of the contract.21

While, indeed, condition No. 7 of the contract speaks of "extraordinary inflation or devaluation" as compared to
Article 1250's "extraordinary inflation or deflation," we find that when the parties used the term "devaluation,"
they really did not intend to depart from Article 1250 of the Civil Code. Condition No. 7 of the contract should,
thus, be read in harmony with the Civil Code provision.

That this is the intention of the parties is evident from petitioners' letter22 dated January 26, 1998, where, in
demanding rental adjustment ostensibly based on condition No. 7, petitioners made explicit reference to Article
1250 of the Civil Code, even quoting the law verbatim. Thus, the application of Del Rosario is not warranted.
Rather, jurisprudential rules on the application of Article 1250 should be considered.

Article 1250 of the Civil Code states:

In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of
the currency at the time of the establishment of the obligation shall be the basis of payment, unless there
is an agreement to the contrary.

Inflation has been defined as the sharp increase of money or credit, or both, without a corresponding increase in
business transaction. There is inflation when there is an increase in the volume of money and credit relative to
available goods, resulting in a substantial and continuing rise in the general price level.23 In a number of cases,
this Court had provided a discourse on what constitutes extraordinary inflation, thus:

[E]xtraordinary inflation exists when there is a decrease or increase in the purchasing power of the
Philippine currency which is unusual or beyond the common fluctuation in the value of said currency,
and such increase or decrease could not have been reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the establishment of the obligation.24

The factual circumstances obtaining in the present case do not make out a case of extraordinary inflation or
devaluation as would justify the application of Article 1250 of the Civil Code. We would like to stress that the
erosion of the value of the Philippine peso in the past three or four decades, starting in the mid-sixties, is
characteristic of most currencies. And while the Court may take judicial notice of the decline in the purchasing
power of the Philippine currency in that span of time, such downward trend of the peso cannot be considered as
the extraordinary phenomenon contemplated by Article 1250 of the Civil Code. Furthermore, absent an official
pronouncement or declaration by competent authorities of the existence of extraordinary inflation during a
given period, the effects of extraordinary inflation are not to be applied. 25

WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of Appeals in CA-
G.R. CV No. 67784, dated September 3, 2001, and its Resolution dated November 19, 2001, are AFFIRMED.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ *RENATO C. CORONA

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.

CONSUELO YNARES-SANTIAGO
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.

REYNATO S. PUNO
Chief Justice
G.R. No. 164195               April 5, 2011

APO FRUITS CORPORATION and HIJO PLANTATION, INC., Petitioners,

vs.
LAND BANK OF THE PHILIPPINES, Respondent.

RESOLUTION

BRION, J.:

We resolve Land Bank of the Philippines’ (LBP’s) 2nd Motion for Reconsideration of December 14, 2010
that addresses our Resolutions of October 12, 2010 and November 23, 2010. This motion prays as well for the
holding of oral arguments. We likewise resolve the Office of the Solicitor General’s (OSG) Motion for Leave to
Intervene and to Admit Motion for Reconsideration-in-Intervention dated February 15, 2011 in behalf of the
Republic of the Philippines (Republic).

The Motion for Reconsideration

The LBP submits the following arguments in support of its 2nd motion for reconsideration:

a) the test of "transcendental importance" does not apply to the present case;

b) the standard of "transcendental importance" cannot justify the negation of the doctrine of
immutability of a final judgment and the abrogation of a vested right in favor of the Government that
respondent LBP represents;

c) the Honorable Court ignored the deliberations of the 1986 Constitutional Commission showing that
just compensation for expropriated agricultural property must be viewed in the context of social justice;
and

d) granting arguendo that the interest payment has factual and legal bases, only six (6%) percent interest
per annum may be validly imposed.

We have more than amply addressed argument (d) above in our October 12, 2010 Resolution, and we see no
point in further discussing it. Without in any way detracting from the overriding effect of our main and primary
ruling that the present 2nd motion for reconsideration is a prohibited motion that the Court can no longer
entertain, and if only to emphatically signal an unequivocal finis to this case, we examine for the last and final
time the LBP’s other arguments.

In the course of the Court’s deliberations, Mr. Justice Roberto A. Abad questioned the application of Section 3,
Rule 15 of the Internal Rules of the Supreme Court to the present 2nd motion for reconsideration. He posited
that instead of voting immediately on the present 2nd motion for reconsideration, the Court should instead first
consider the validity of our October 12, 2010 Resolution; he claimed that this Resolution is null and void
because the Court violated the above-cited provision of the Internal Rules when it did not first vote on whether
the Resolution’s underlying motion (itself a 3rd motion for reconsideration) should be entertained before voting
on the motion’s merits. We shall lay to rest Mr. Justice Abad’s observation before dwelling on the merits of the
present 2nd motion for reconsideration.

Our Ruling

We find no merit in the LBP’s second motion for reconsideration, and reject as well the Mr. Justice
Abad’s observation on how to approach the consideration of the present motion.

Mr. Justice Abad’s Observations/Objections;

The Rules on 2nd Motions for Reconsideration.

Mr. Justice Abad’s observation apparently stemmed from the peculiar history of the present case.

a. A recap of the history of the case.

This case was originally handled by the Third Division of this Court. In its original Decision of February 6,
2007, the Division affirmed the RTC’s decision setting the just compensation to be paid and fixing the interest
due on the balance of the compensation due at 12% per annum. In its Resolution of December 19, 2007, the
Third Division resolved the parties’ motions for reconsideration by deleting the 12% interest due on the balance
of the awarded just compensation. The parties’ subsequent motions to reconsider this Resolution were denied on
April 30, 2008; on May 16, 2008, entry of judgment followed. Despite the entry of judgment, the present
petitioners filed a second motion for reconsideration that prayed as well that the case be referred to the Court en
banc. Finding merit in these motions, the Third Division referred the case to the En Banc for its disposition. On
December 4, 2009, the Court en banc denied the petitioners’ second motion for reconsideration. Maintaining
their belief in their demand to be granted 12% interest, the petitioners persisted in filing another motion for
reconsideration. In the interim, the Court promulgated its Internal Rules that regulated, among others, 2nd
motions for reconsideration. On October 12, 2010, the Court en banc granted – by a vote of 8 for and 4 against
– the petitioner’s motion and awarded the 12% interests the petitioners’ prayed for, thus affirming the interests
the RTC originally awarded. The Court subsequently denied the respondent’s motion for reconsideration, giving
rise to the present 2nd motion for reconsideration. It was at this point that the OSG moved for leave to
intervene.

b. The governing rules on

2nd motions for reconsideration

The basic rule governing 2nd motions for reconsideration is Section 2, Rule 52 (which applies to original
actions in the Supreme Court pursuant to Section 2, Rule 56) of the Rules of Court. This Rule expressly
provides:

Sec. 2. Second Motion for Reconsideration. No second motion for reconsideration of a judgment or final
resolution by the same party shall be entertained.

The absolute terms of this Rule is tempered by Section 3, Rule 15 of the Internal Rules of the Supreme Court
that provides:

Sec. 3. Second Motion for Reconsideration. – The Court shall not entertain a second motion for reconsideration
and any exception to this rule can only be granted in the higher interest of justice by the Court en banc upon a
vote of at least two-thirds of its actual membership. There is reconsideration "in the higher interest of justice"
when the assailed decision is not only legally erroneous, but is likewise patently unjust and potentially capable
of causing unwarranted and irremediable injury or damage to the parties. A second motion for reconsideration
can only be entertained before the ruling sought to be reconsidered becomes final by operation of law or by the
Court’s declaration. [Emphases supplied.]

Separately from these rules is Article VIII, Section 4 (2) of the 1987 Constitution which governs the decision-
making by the Court en banc of any matter before it, including a motion for the reconsideration of a previous
decision. This provision states:

Section 4.

xxxx

(2) All cases involving the constitutionality of a treaty, international or executive agreement, or law, which shall
be heard by the Supreme Court en banc, and all other cases which under the Rules of Court are required to be
heard en banc, including those involving the constitutionality, application, or operation of presidential decrees,
proclamations, orders, instructions, ordinances, and other regulations, shall be decided with the concurrence of a
majority of the Members who actually took part in the deliberations on the issues in the case and voted thereon.

Thus, while the Constitution grants the Supreme Court the power to promulgate rules concerning the practice
and procedure in all courts1 (and allows the Court to regulate the consideration of 2nd motions for
reconsideration, including the vote that the Court shall require), these procedural rules must be consistent with
the standards set by the Constitution itself. Among these constitutional standards is the above quoted Section 4
which applies to "all other cases which under the Rules of Court are required to be heard en banc," and does not
make any distinction as to the type of cases or rulings it applies to, i.e, whether these cases are originally filed
with the Supreme Court, or cases on appeal, or rulings on the merits of motions before the Court. Thus, rulings
on the merits by the Court en banc on 2nd motions for reconsideration, if allowed by the Court to be entertained
under its Internal Rules, must be decided with the concurrence of a majority of the Members who actually took
part in the deliberations.
When the Court ruled on October 12, 2010 on the petitioners’ motion for reconsideration by a vote of 12
Members (8 for the grant of the motion and 4 against), the Court ruled on the merits of the petitioners’ motion.
This ruling complied in all respects with the Constitution requirement for the votes that should support a ruling
of the Court.

Admittedly, the Court did not make any express prior ruling accepting or disallowing the petitioners’ motion as
required by Section 3, Rule 15 of the Internal Rules. The Court, however, did not thereby contravene its own
rule on 2nd motions for reconsideration; since 12 Members of the Court opted to entertain the motion by voting
for and against it, the Court simply did not register an express vote, but instead demonstrated its compliance
with the rule through the participation by no less than 12 of its 15 Members.1avvphi1 Viewed in this light, the
Court cannot even be claimed to have suspended the effectiveness of its rule on 2nd motions for
reconsideration; it simply complied with this rule in a form other than by express and separate voting.

Based on these considerations, arrived at after a lengthy deliberation, the Court thus rejected Mr. Justice Abad’s
observations, and proceeded to vote on the question of whether to entertain the respondents’ present 2nd motion
for reconsideration. The vote was 9 to 2, with 9 Members voting not to entertain the LBP’s 2nd motion for
reconsideration. By this vote, the ruling sought to be reconsidered for the second time was unequivocally
upheld; its finality – already declared by the Court in its Resolution of November 23, 2010 – was reiterated. To
quote the dispositive portion of the reiterated November 23, 2010 Resolution:

On these considerations, we hereby DENY the Motion for Reconsideration with FINALITY. No further
pleadings shall be entertained. Let entry of judgment be made in due course.

Thus, this Court mandated a clear, unequivocal, final and emphatic finis to the present case.

Landowner’s right to just compensation:

a matter of public interest

In assailing our October 12, 2010 resolution, the LBP emphasizes the need to respect the doctrine of
immutability of final judgments. The LBP maintains that we should not have granted the petitioners’ motion for
reconsideration in our October 12, 2010 Resolution because the ruling deleting the 12% interest had already
attained finality when an Entry of Judgment was issued. The LBP argues, too, that the present case does not
involve a matter of transcendental importance, as it does not involve life or liberty. The LBP further contends
that the Court mistakenly used the concept of transcendental importance to recall a final ruling; this standard
should only apply to questions on the legal standing of parties.

In his dissenting opinion, Mr. Justice Roberto Abad agrees with the LBP’s assertion, positing that this case does
not fall under any of the exceptions to the immutability doctrine since it only involves money and does not
involve a matter of overriding public interest.

We reject the basic premise of the LBP's and Mr. Justice Abad’s arguments for being flawed. The present case
goes beyond the private interests involved; it involves a matter of public interest – the proper application of a
basic constitutionally-guaranteed right, namely, the right of a landowner to receive just compensation when the
government exercises the power of eminent domain in its agrarian reform program.

Section 9, Article III of the 1987 Constitution expresses the constitutional rule on eminent domain – "Private
property shall not be taken for public use without just compensation." While confirming the State’s inherent
power and right to take private property for public use, this provision at the same time lays down the limitation
in the exercise of this power. When it takes property pursuant to its inherent right and power, the State has the
corresponding obligation to pay the owner just compensation for the property taken. For compensation to be
considered "just," it must not only be the full and fair equivalent of the property taken;2 it must also be paid to
the landowner without delay.3

To fully and properly appreciate the significance of this case, we have to consider it in its proper context.
Contrary to the LBP’s and Mr. Justice Abad’s assertions, the outcome of this case is not confined to the fate of
the two petitioners alone. This case involves the government’s agrarian reform program whose success largely
depends on the willingness of the participants, both the farmers-beneficiaries and the landowners, to cooperate
with the government. Inevitably, if the government falters or is seen to be faltering through lack of good faith in
implementing the needed reforms, including any hesitation in paying the landowners just compensation, this
reform program and its objectives would suffer major setbacks. That the government’s agrarian reform program
and its success are matters of public interest, to our mind, cannot be disputed as the program seeks to remedy
long existing and widespread social justice and economic problems.
In a last ditch attempt to muddle the issues, the LBP focuses on our use of the phrase "transcendental
importance," and asserts that we erred in applying this doctrine, applicable only to legal standing questions, to
negate the doctrine of immutability of judgment. This is a very myopic reading of our ruling as the context
clearly shows that the phrase "transcendental importance" was used only to emphasize the overriding public
interest involved in this case. Thus, we said:

That the issues posed by this case are of transcendental importance is not hard to discern from these discussions.
A constitutional limitation, guaranteed under no less than the all-important Bill of Rights, is at stake in this case:
how can compensation in an eminent domain case be "just" when the payment for the compensation for
property already taken has been unreasonably delayed? To claim, as the assailed Resolution does, that only
private interest is involved in this case is to forget that an expropriation involves the government as a necessary
actor. It forgets, too, that under eminent domain, the constitutional limits or standards apply to government who
carries the burden of showing that these standards have been met. Thus, to simply dismiss the case as a private
interest matter is an extremely shortsighted view that this Court should not leave uncorrected.

xxxx

More than the stability of our jurisprudence, the matter before us is of transcendental importance to the nation
because of the subject matter involved – agrarian reform, a societal objective of that the government has
unceasingly sought to achieve in the past half century.4

From this perspective, our Resolution of October 12, 2010 only had to demonstrate, as it did, that the higher
interests of justice are duly served. All these, amply discussed in the Resolution of October 12, 2010, are briefly
summarized and reiterated below.

LBP at fault for twelve-

year delay in payment

In his dissenting opinion, Mr. Justice Abad insists that the LBP’s initial valuation of the petitioners’ properties
was fully in accord with Section 17 of the CARL. He posits that when the RTC gave a significantly higher
value to these lands, the LBP acted well within its rights when it appealed the valuation. Thus, to him, it was
wrong for this Court to characterize the LBP’s appeal as malicious or in bad faith.

A simple look at the attendant facts disproves the accuracy of this claim.

First, Mr. Justice Abad’s allegation that the LBP correctly valued the petitioners’ properties is not at all
accurate. Significantly, Mr. Justice Abad does not cite any evidence on record to support his claim that "the
Land Bank valued the lands using the compensation formula that Section 17 of Republic Act 6657 and the
DAR’s implementing rules provide."5

More to the point, this Court has already determined, in a final and executed judgment, that the RTC’s valuation
of the petitioners’ properties is the correct one. To recall, the LBP initially fixed the value of Apo Fruits
Corporation’s (AFC) properties at ₱165,484.47 per hectare or ₱16.00 per square meter (sqm), while it valued
Hijo Plantation Inc.’s (HPI) properties at ₱201,929.97 per hectare, or approximately ₱20.00/sqm. In contrast,
the Regional Trial Court fixed the valuation of the petitioners’ properties at ₱103.33/sqm., or more than five
times the initial valuation fixed by the LBP.

After reviewing the records, this Court affirmed the RTC’s valuation in its February 6, 2007 decision, noting
that it was based on the following evidence: (a) the Commissioners’ reports, (b) the Cuervo appraisers’ report,
(c) the schedule of market values of the City of Tagum per its 1993 and 1994 Revision of Assessment and
Property Classification, (d) the value of the permanent improvements found on the expropriated properties, and
(e) the comparative sales of adjacent lands from early 1995 to early 1997. The Court observed that the RTC
valuation also took into consideration the land’s nature as irrigated land, its location along the highway, market
value, assessor’s value, and the volume and value of its produce. This valuation is fully in accordance with
Section 17 of RA 6657, which states:

Section 17. Determination of Just Compensation. - In determining just compensation, the cost of acquisition of

the land, the current value of like properties, its nature, actual use and income, the sworn valuation by
the owner, the tax declarations, and the assessment made by government assessors, shall be considered.
The social and economic benefits contributed by the farmers and the farm workers and by government to the
property as well as the non-payment of taxes or loans secured from any government financing institution on the
said land shall be considered as additional factors to determine its valuation.
On its face, the staggering difference between the LBP’s initial valuation of the petitioners’ properties (totaling
₱251,379,104.02) and the RTC’s valuation (totaling ₱1,383,179,000.00) – a difference of ₱1,131,799,895.98
amounting to 81% of the total price – betrays the lack of good faith on the part of the government in dealing
with the landowners. The sheer enormity of the difference between the two amounts cannot but lead us to
conclude that the LBP’s error was grievous and amounted to nothing less than gross negligence in the exercise
of its duty – in this case, to properly ascertain the just compensation due to the petitioners.

Mr. Justice Abad further argues that interest on just compensation is due only where there is delay in payment.
In the present case, the petitioners allegedly did not suffer any delay in payment since the LBP made partial
payments prior to the taking of their lands.

This argument completely overlooks the definition of just compensation already established in jurisprudence.
Apart from the requirement that compensation for expropriated land must be fair and
reasonable, compensation, to be "just," must also be made without delay.6 In simpler terms, for the
government’s payment to be considered just compensation, the landowner must receive it in full without delay.

In the present case, it is undisputed that the government took the petitioners’ lands on December 9, 1996; the
petitioners only received full payment of the just compensation due on May 9, 2008. This circumstance, by
itself, already confirms the unconscionable delay in the payment of just compensation.

Admittedly, a grain of truth exists in Justice Abad’s observation that the petitioners received partial payments
from the LBP before the titles to their landholdings were transferred to the government. The full and exact
truth, however, is that the partial payments at the time of the taking only amounted to a trifling five percent
(5%) of the actual value of the expropriated properties, as determined with finality by this Court. Even taking
into consideration the subsequent partial payments made totaling ₱411,769,168.32 (inclusive of the amounts
deposited prior to the taking), these payments only constituted a mere one-third (1/3) of the actual value of
the petitioners’ properties.

It should be considered – as highlighted in our October 12, 2010 Resolution – that the properties the
government took were fully operating and earning plantations at the time of the taking. Thus, the landowners
lost not only their properties, but the fruits of these properties. These were all lost in 1996, leaving the
landowners without any replacement income from their properties, except for the possible interest for the
trifling payment made at the time of the taking that, together with the subsequent payment, only amounted to a
third of the total amount due. Thus, for twelve long years, the amount of ₱971,409,831.68 was withheld from
the landowners.

An added dimension to this delayed payment is the impact of the delay. One impact – as pointed out above – is
the loss of income the landowners suffered. Another impact that the LBP now glosses over is the income that
the LBP earned from the sizeable sum it withheld for twelve long years. From this perspective, the
unaccounted-for LBP income is unjust enrichment in its favor and an inequitable loss to the landowners. This
situation was what the Court essentially addressed when it awarded the petitioners 12% interest.

Mr. Justice Abad goes on to argue that the delay should not be attributed to the LBP as it could not have
foreseen that it would take twelve years for the case to be resolved. Justice Abad’s stance could have been
correct were it not for the fact that the delay in this case is ultimately attributable to the government. Two
significant factors justify the attribution of the delay to the government.

The first is the DAR’s gross undervaluation of the petitioners’ properties – the government move that started the
cycle of court actions.

The second factor to consider is government inaction. Records show that after the petitioners received the
LBP’s initial valuation of their lands, they filed petitions with the DARAB, the responsible agency of the DAR,
for the proper determination of just compensation. Instead of dismissing these petitions outright for lack of
jurisdiction, the DARAB sat on these cases for three years. It was only after the petitioners resorted to judicial
intervention, filing their petitions for the determination of just compensation with the RTC, that the petitioners’
case advanced.

The RTC interpreted the DARAB’s inaction as reluctance of the government to pay the petitioners just
compensation, a view this Court affirmed in its October 12, 2010 Resolution.

Expropriation for agrarian reform

requires the payment of just compensation
The LBP claims that the just compensation in this case should be determined within the context of the article on
social justice found in the 1987 Constitution. In the LBP’s opinion, when we awarded the petitioners 12%
interest by way of potential income, we removed from the taking of agricultural properties for agrarian reform
its main public purpose of righting the wrong inflicted on landless farmers.

By this argument, the LBP effectively attempts to make a distinction between the just compensation given to
landowners whose properties are taken for the government’s agrarian reform program and properties taken for
other public purposes. This perceived distinction, however, is misplaced and is more apparent than real.

The constitutional basis for our agrarian reform program is Section 4, Article XIII of the 1987 Constitution,
which mandates:

Section 4. The State shall, by law, undertake an agrarian reform program founded on the right of farmers and
regular farm workers, who are landless, to own directly or collectively the lands they till or, in the case of other
farm workers, to receive a just share of the fruits thereof. To this end, the State shall encourage and undertake
the just distribution of all agricultural lands, subject to such priorities and reasonable retention limits as the
Congress may prescribe, taking into account ecological, developmental, or equity considerations, and subject to
the payment of just compensation.

This provision expressly provides that the taking of land for use in the government’s agrarian reform program
is conditioned on the payment of just compensation. Nothing in the wording of this provision even remotely
suggests that the just compensation required from the taking of land for the agrarian reform program should be
treated any differently from the just compensation required in any other case of expropriation. As explained by
Commissioner Roberto R. Concepcion during the deliberations of the 1986 Constitutional Commission:

[T]he term "just compensation" is used in several parts of the Constitution, and, therefore, it must have a
uniform meaning. It cannot have in one part a meaning different from that which appears in the other portion. If,
after all, the party whose property is taken will receive the real value of the property on just compensation, that
is good enough.7

In fact, while a proposal was made during the deliberations of the 1986 Constitutional Commission to give a
lower market price per square meter for larger tracts of land, the Commission never intended to give agricultural
landowners less than just compensation in the expropriation of property for agrarian reform purposes.8

To our mind, nothing is inherently contradictory in the public purpose of land reform and the right of
landowners to receive just compensation for the expropriation by the State of their properties. That the
petitioners are corporations that used to own large tracts of land should not be taken against them. As Mr.
Justice Isagani Cruz eloquently put it:

[S]ocial justice - or any justice for that matter - is for the deserving, whether he be a millionaire in his mansion
or a pauper in his hovel. It is true that, in case of reasonable doubt, we are called upon to tilt the balance in favor
of the poor, to whom the Constitution fittingly extends its sympathy and compassion. But never is it justified to
prefer the poor simply because they are poor, or to reject the rich simply because they are rich, for justice must
always be served, for poor and rich alike, according to the mandate of the law.9

Interest payments borne by government,

not by farmers-beneficiaries

Nor do we find any merit in the LBP’s assertion that the large amount of just compensation that we awarded the
petitioners, together with the amount of interest due, would necessarily result in making the farmers-
beneficiaries endure another form of bondage – the payment of an exorbitant amount for the rest of their lives.

As the petitioners correctly pointed out, the government’s liability for the payment of interest to the landowner
for any delay attributable to it in paying just compensation for the expropriated property is entirely separate and
distinct from the farmers-beneficiaries’ obligations to pay regular amortizations for the properties transferred to
them.

Republic Act No. 6657 (The Comprehensive Agrarian Reform Law, or CARL) provides for the specific source
of funding to be used by the government in implementing the agrarian reform program; this funding does not
come directly from the payments made by the farmers-beneficiaries.101avvphi1
More to the point, under the CARL, the amount the farmers-beneficiaries must pay the LBP for their land is, for
the most part, subsidized by the State and is not equivalent to the actual cost of the land that the Department of
Agrarian Reform paid to the original landowners. Section 26, Chapter VII of the CARL provides:

SEC. 26.  Payment by Beneficiaries. - Lands awarded pursuant to this Act shall be paid for by the beneficiaries
to the LBP in thirty (30) annual amortizations at six percent (6%) interest per annum. The payments for the first
three (3) years after the award may be at reduced amounts as established by the PARC: Provided, That the first
five (5) annual payments may not be more than five percent (5%) of the value of the annual gross
productions paid as established by the DAR. Should the scheduled annual payments after the fifth year
exceed ten percent (10) of the annual gross production and the failure to produce accordingly is not due to the
beneficiary's fault, the LBP may reduce the interest rate or reduce the principal obligation to make the payment
affordable.

Interpreting this provision of the law, DAR Administrative Order No. 6, Series of 1993 provides:

A. As a general rule, land awarded pursuant to E.O. 229 and R.A. 6657 shall be repaid by the Agrarian
Reform Beneficiary (ARB) to LANDBANK in thirty (30) annual amortizations at six (6%) percent
interest per annum. The annual amortization shall start one year from date of Certificate of
Landownership Award (CLOA) registration.

B. The payments by the ARBs for the first three (3) years shall be two and a half percent (2.5%) of AGP
[Annual Gross Production] and five percent (5.0%) of AGP for the fourth and fifth years. To further
make the payments affordable, the ARBs shall pay ten percent (10%) of AGP or the regular
amortization, whichever is lower, from the sixth (6th) to the thirtieth (30th) year.

Clearly, the payments made by the farmers-beneficiaries to the LBP are primarily based on a fixed
percentage of their annual gross production, or the value of the annual yield/produce of the land awarded to
them.11 The cost of the land will only be considered as the basis for the payments made by the farmers-
beneficiaries when this amount is lower than the amount based on the annual gross production. Thus, there is no
basis for the LBP to claim that our ruling has violated the letter and spirit of the social justice provision of the
1987 Constitution. On the contrary, our ruling is made in accordance with the intent of the 1987 Constitution.

Motion for Oral Arguments

We deny as well the LBP’s motion to set the case for oral arguments. The submissions of the parties, as well as
the records of the case, have already provided this Court with enough arguments and particulars to rule on the
issues involved. Oral arguments at this point would be superfluous and would serve no useful purpose.

The OSG’s Intervention

The interest of the Republic, for whom the OSG speaks, has been amply protected through the direct action of
petitioner LBP – the government instrumentality created by law to provide timely and adequate financial
support in all phases involved in the execution of needed agrarian reform. The OSG had every opportunity to
intervene through the long years that this case had been pending but it chose to show its hand only at this very
late stage when its presence can only serve to delay the final disposition of this case. The arguments the OSG
presents, furthermore, are issues that this Court has considered in the course of resolving this case. Thus, every
reason exists to deny the intervention prayed for.

WHEREFORE, premises considered, the respondent’s second motion for reconsideration and the motion to set
the case for oral arguments are hereby DENIED WITH ABSOLUTE FINALITY. The motion for intervention
filed by the Office of the Solicitor General is, likewise, denied. We reiterate, under pain of contempt if our
directive is disregarded or disobeyed, that no further pleadings shall be entertained. Let judgment be entered in
due course.

SO ORDERED.

ARTURO D. BRION
Associate Justice

WE CONCUR:
 RENATO C. CORONA
Chief Justice

ANTONIO T. CARPIO CONCHITA CARPIO MORALES

Associate Justice Associate Justice

(On leave)
PRESBITERO J. VELASCO, JR.
ANTONIO EDUARDO B. NACHURA*
Associate Justice
Associate Justice

TERESITA J. LEONARDO-DE CASTRO DIOSDADO M. PERALTA

Associate Justice Associate Justice

LUCAS P. BERSAMIN MARIANO C. DEL CASTILLO

Associate Justice Associate Justice

ROBERTO A. ABAD MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

JOSE PORTUGAL PEREZ JOSE CATRAL MENDOZA

Associate Justice Associate Justice

MARIA LOURDES P.A. SERENO

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above
Resolution were reached in consultation before the case was assigned to the writer of the opinion of the Court.

RENATO C. CORONA
Chief Justice